Why rural hospitals are facing such a bleak future

Rural hospitals have long faced financial hardships, and their difficulties began well before the COVID-19 pandemic, analysts say.

Sacred Heart Hospital in Eau Claire closed its doors in March 2023. Analysts say many rural hospitals run the risk of closure.

Small, rural hospitals typically have more difficulty attracting top talent, and that goes beyond physicians and nurses. Many rural patients are covered by Medicare, so rural hospitals get less revenue than facilities with a higher share of patients with commercial insurance. Even in better times, rural hospitals typically generated enough money to cover expenses, and not much more.

But analysts are saying the outlook for many rural hospitals is grim. Many of these invaluable institutions could disappear in the near future, endangering the health of rural communities nationwide. About 60 million people, roughly one in five Americans, live in rural communities, according to the Census Bureau.

Kevin Holloran, a senior director at Fitch Ratings who analyzes the hospital industry, offered a grim assessment of rural hospitals during a webinar last week. He’s hardly a pessimist when it comes to the outlook of nonprofit hospitals, but when it comes to rural hospitals, the warning signs can’t be ignored.

“I think a lot of rural healthcare is in for a very rough ride, and we should expect to see closures in some of those critical access hospitals,” Holloran said.

Holloran points to the demographics lining up against rural hospitals.

Many are based in small communities with stagnant or declining populations, and they don’t have a large enough pool of people to fill jobs. With the population of rural communities aging, the payer mix gets even less favorable for rural hospitals, with even more patients on Medicare.

Holloran said a wave of closures in rural hospitals is a distinct possibility. Many are going to need to find a partner, such as a hospital or health system willing to acquire them, to keep the doors open.

“If they don't find a partner, they end up closing,” Holloran said.

Healthcare leaders have been pointing to the troubling outlook for rural hospitals for some time, and the dire forecasts are mounting.

More than 700 rural hospitals, nearly one-third of America’s rural hospitals, are facing the possibility of closure, according to a report released last month by the Center for Healthcare Quality & Payment Reform. Nationwide, 360 rural hospitals, or 16% of all rural hospitals, are considered at immediate risk of closure, and nearly every state has rural hospitals that are in trouble, the center says.

Closures mounting

Plenty of rural communities have already seen rural hospitals shut their doors. More than 130 rural hospitals have closed since 2010, according to an American Hospital Association report.

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. System officials cited workforce constraints and local market challenges in the decision to shut down the facilities.

Damond W. Boatwright, the president and CEO of HSHS, wrote in an op-ed that rural hospitals are cutting expenses and doing whatever is possible to continue to serve their communities, but these providers need more assistance. He wrote that sustaining rural hospitals must be a top priority for policymakers.

“To protect rural healthcare in America, we must find solutions that address the regulatory complexities, reimbursement challenges, escalating operating costs, unnecessary competition for patients, and other hurdles that make our business so difficult,” Boatwright wrote. “These are the factors that create the troubling circumstances in which hospitals have no other option but to discontinue core services or to close.”

The MercyOne health system recently announced that it is closing the Primghar Medical Center, a small hospital in northwest Iowa, in September. Kianna Johnson, the economic development director of O’Brien County in Iowa, told KIWA Radio that the hospital’s closure is a serious blow to the area. “We don’t want to lose those services,” she said.

Aspirus Health closed its Ontonagon Hospital in Michigan’s upper peninsula. While the facility has been converted to a rural health clinic offering primary care and other services, it no longer provides acute care or an emergency department, to the dismay of local officials and residents, as The Detroit Free-Press reported. Aspirus said the hospital’s emergency department was only seeing five patients per day.

Reducing services

Half of America’s rural hospitals are losing money, according to an analysis released in February by the Chartis Center for Rural Health. Even those that are finding ways to keep the doors open are ratcheting back critical services.

Since 2011, 267 rural hospitals have stopped providing obstetric services, the Chartis Center said. Roughly one in three counties nationwide are essentially maternity care deserts, because they lack obstetric services, according to the March of Dimes. Residents in rural counties have to travel farther for maternity care.

Erik Swanson, senior vice president at Kaufman Hall, says rural hospitals that are facing serious financial pressures often see little choice but dropping obstetric services.

“Labor and delivery can be very costly, and they don't necessarily always see the volumes to be able to fully cover that,” Swanson told Chief Healthcare Executive® in a recent interview. “And so that's why you're starting to see some of these access issues in those rural regions.”

Many rural hospitals have also dropped chemotherapy services. Between 2014 and 2022, 382 rural hospitals stopped providing chemotherapy, according to the Chartis analysis.

Some rural hospitals are seeing more stable volume in recent months, but many rural hospitals are going to continue to struggle for the foreseeable future, Swanson said.

“I can't really say there's a light at the end of the tunnel. I'm also not saying that they are doomed,” Swanson said. “I think we are seeing signs of improvement, but they're still going to be in a challenging position.”

Joanne Conroy, president and CEO of Dartmouth Health, told Chief Healthcare Executive® in a July 2023 interview that Medicare reimbursements are insufficient for rural hospitals.

“We can negotiate with the payers and we're going to figure out how to move through the workforce issues, but we are still not paid for the care we're giving for Medicare,” she said.

If more rural hospitals close, those in rural communities could face the prospect of less access to emergency care, such as ambulances traveling two hours to get to a hospital.

“I'm not sure that our elected officials appreciate that we could be closer to that,” Conroy said.