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Blog | Coronavirus

Pandemic increases pressures for rural hospitals struggling pre-COVID-19

Blog | Coronavirus

Pandemic increases pressures for rural hospitals struggling pre-COVID-19

  • Eighteen rural hospitals closed in 2019, and more than 170 rural hospitals have closed nationwide since 2005, according to information reported Aug. 26 by Kaiser Health News.
  • Hundreds of rural healthcare were struggling to keep their doors open prior to the pandemic, and then they lost an estimated 70% of their income when patients avoided the emergency room, doctor’s appointments and elective surgeries amid the pandemic, according to the Kaiser News article.
  • Sixty-six percent – approximately 859 - of the 1,300 small critical access hospitals in rural America took advantage of the Medicare loans, according to Kaiser News. HFMA’s Chad Mulvany says unless Congress modifies the terms of these loans, it will eventually instruct the MACs to withhold 100% of hospitals’ Medicare payments.  

According to an Aug. 26 Kaiser Health News article, “Eighteen rural hospitals closed last year and the first three months of 2020 were ‘really big months,’” said Mark Holmes, director of the Cecil G. Sheps Center for Health Services Research at the University of North Carolina-Chapel Hill.

“Many of the losses are in Southern states like Florida and Texas,” said the Kaiser article. “More than 170 rural hospitals have closed nationwide since 2005, according to data collected by the Sheps Center,” the article continued.

“Before the pandemic hit this year, hundreds of rural hospitals ‘were just trying to keep their doors open,’” said Maggie Elehwany, vice president of government affairs with the National Rural Health Association. “Then, an estimated 70% of their income stopped as patients avoided the emergency room, doctor’s appointments and elective surgeries,” according to the Kaiser News article.

“There are 1,300 small critical access hospitals like Ozarks in rural America and, of those, 859 took advantage of the Medicare loans, sending about $3.1 billion into the local communities,” the article said.

While CMS has not started withholding payment to recoup AAP loans yet, unless Congress modifies the terms it will – at some point –  instruct the MACs to withhold 100% of hospitals’ Medicare payments.  


A couple of thoughts here related to Medicaid expansion, new payment models and mergers and acquisitions.

Medicaid expansion

There seems to be a link between Medicaid expansion and rural hospital closures. States that have expanded Medicaid, and expanded earlier, appear less frequently on the list of hospital closures (and when they do, have fewer closed hospitals all other variables held equal) than states that haven’t expanded Medicaid. While expansion is occurring slowly with Oklahoma and Missouri voting to expand this year, Medicaid expansion is probably necessary but not sufficient to preserve access long term in rural areas, given changes in population density and payer mix that are driven by broader demographic and economic trends.

New payment models needed

CMMI’s recently announced Community Health Access and Rural Transformation (CHART) model will build on other attempts to implement population based payment models in rural areas of states –  Pennsylvania, Maryland and Vermont. The CHART Model offers two tracks.

The Community Transformation Track will select 15 lead organizations in rural areas, which will be responsible for working with state Medicaid programs to organize the delivery system and receive upfront cooperative agreement funding, financial flexibilities through a predictable capitated payment amount (CPA) for Participant Hospitals in a community and operational and regulatory flexibilities. The organizing entity will also be responsible for aligning the payment model with the state Medicaid program and other payers if possible.

In the ACO Transformation Track, CMS will select up to 20 rural-focused ACOs to receive advanced payments, modeled on the ACO Investment Model, as part of joining the Medicare Shared Savings Program.

CMMI’s models to date have generated savings year-over-year through benchmark/target price rebasing leading some participants to express concerns about an unsustainable “race to the bottom” for target prices and benchmarks. These concerns will likely be more acute in rural areas where there is already limited access to providers (so benchmark and trend factors will be based solely on ACO’s beneficiaries) and those providers finances are more precarious.

It will be interesting to see how CMMI addresses this when it releases the financial details of the Community Transformation Track in the coming weeks. Some of these concerns could be addressed by legislation that has been proposed in Congress.

Mergers and acquisitions

In the coming months, we’re likely to see two trends run headlong into each other.

The first trend is weakened rural providers seeking to align more closely or be acquired by a larger healthcare system. Or rural systems merging with one another to rationalize duplicative delivery assets and gain economies of scale where possible.  

The other trend is increased anti-trust scrutiny. Regardless of who’s in the White House after the election, it’s likely that the administration will take a more assertive, interventionist approach to horizontal and vertical mergers in the provider space. And it’s likely some states will do the same as well. What happens when the choice is either allow a provider organization to dominate a market or lose access in a rural area? My guess/hope is, we’ll see more states step in and use Certificates of Public Advantage (COPA) to allow transactions that might be perceived as problematic from a market share perspective by some but are necessary to preserve access and further population health goals move forward. 

About the Author

Chad Mulvany, FHFMA,

is director, healthcare finance policy, strategy and development, HFMA’s Washington, D.C., office.


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