For rural hospitals, mergers may be key to survival, study finds

With many rural hospitals struggling to keep their doors open, a new report suggests that providers in precarious positions should consider finding a larger partner.

For some rural hospitals, a merger or some other partnership may offer the best chance to avoid closure, a new report suggests.

The Coalition to Strengthen America’s Healthcare commissioned the analysis, conducted by Dobson | DaVanzo, a healthcare consulting firm.

Rural hospitals have long faced financial challenges, with many seeing modest volumes and operating margins even during the best of times. But the report suggests that mergers and acquisitions by larger partners can give some rural hospitals a better shot at long-term viability.

In looking at 110 rural hospitals that closed between 2011 and 2021, more than half (55%) were standalone facilities that weren’t part of a larger system.

The report notes that rural hospitals that merged with a larger provider saw improvement in their operating margins. The average total margins of those facilities were 1.8% before a merger or acquisition, and margins rose to 2.2% after the deal was completed.

Some hospitals that engaged in affiliations with other providers also experienced improvements, with margins rising from 1.5% to 2.3%.

In addition, hospitals that found a partner of some kind reduced their risks of shutting their doors.

The report found that one-third of rural hospitals that were at high risk of shutting down before a merger or acquisition were no longer high-risk after the transaction was completed. Two-thirds of hospitals that were facing a high risk of closure were no longer high-risk after forming an affiliation with a larger system, according to the report.

The report acknowledges that mergers and acquisitions may not be the best option for all rural hospitals. But mergers or some other partnerships offer some rural hospitals the opportunity to stay afloat and serve their communities, the authors wrote.

“Although not necessarily the right choice for all hospitals and communities, aligning with a larger hospital system can reduce the financial vulnerability of rural hospitals as demonstrated by the proportion of rural hospitals that are no longer at high financial risk after affiliating with, merging with, or being acquired by a hospital system,” the report states.

Beyond financial benefits, rural hospitals can gain access to resources from larger systems that can allow them to offer better care, including consultations with specialists.

“Mergers, acquisitions, and affiliations with larger hospital systems can improve the financial viability of rural hospitals, which allows them to stay open and continue serving the community in which they reside. Hospital systems also offer enhanced telehealth capabilities and the availability of service lines at other hospitals under the system umbrella, which could improve quality of care,” the report states.

While the financial travails of rural hospitals aren’t a new development, more rural hospitals are facing risks of closure, analysts say.

More than 700 rural hospitals, or about one-third of America’s rural hospitals, are facing the possibility of shutting down, according to a recent report from the Center for Healthcare Quality & Payment Reform. The center says that 360 rural hospitals, or 16% of all rural hospitals, are considered at immediate risk of closure.

The Hospital Sisters Health System closed two rural Wisconsin hospitals in the spring: Sacred Heart Hospital in Eau Claire and St. Joseph’s Hospital in Chippewa Falls. Both hospitals had served their communities for more than a century, but system officials cited workforce constraints and local market challenges.

Half of the nation’s rural hospitals are losing money, according to an analysis released in February by the Chartis Center for Rural Health.

Many rural facilities that are staying open are reducing services. Since 2011, 267 rural hospitals have stopped providing obstetric services, the Chartis Center says. A significant number dropped OB services in the peak years of the pandemic (63 hospitals in 2020 and 2021).

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