America’s rural hospitals are in peril and are closing at an alarming rate. The result is a widening in the divide between rural and urban health care. It results in patients having to travel farther for hospital services and forces doctors who perform those services to relocate to communities that still have a hospital. For physicians just completing their training and entering the medical workforce, joining a practice at a rural hospital can be a risky career move.
What is a rural hospital?
Rural hospitals tend to be smaller than urban hospitals. 48% of rural hospitals have fewer than 25 beds and an additional 18% have only 26-50 beds. Most rural hospitals are non-profit (56%) and 34% are owned by state or local governments. Critical access hospitals are a category of rural hospitals that have fewer than 25 beds and are at least 35 miles from the next nearest hospital. One way of improving the viability of a rural hospital is to affiliate with a larger health system. Currently, 56% of rural hospitals are affiliated and this number is growing every year.
On average, rural residents are older, poorer, and have more chronic conditions than urban residents. In addition, rural populations have a higher prevalence of cigarette smoking, obesity, and teen pregnancies. Rural hospitals tend to serve a population with a higher percentage of Medicare and Medicaid than urban hospitals. This payer mix gives rural hospitals an inherent disadvantage compared to their urban peers since hospitals lose money on Medicaid patients and at best break-even on Medicare patients. In states that do not participate in Medicaid expansion, rural hospitals generally have a much higher percentage of uninsured patients, leading to even greater financial stress.
Rural areas have fewer physicians per population than urban areas. For example, rural communities have 46 primary care physicians per 100,000 population versus urban communities that have 62 primary care physicians per 100,000 population. For medical specialty physicians, the difference is even more striking – 5 physicians per 100,000 in rural areas versus 30 physicians per 100,000 population in urban areas. The result of this is that rural primary care physicians often have to work outside of their comfort zone and treat complex medical conditions that would normally be managed by specialists in urban areas.
Together, these factors can make recruitment of physicians by rural hospitals difficult. The high percentage of Medicaid and uninsured patients can result in lower physician income. The lower density of physicians results in more frequent night call and difficulties arranging coverage for vacations and medical education conferences. The relative paucity of medical and surgical specialists results in primary care physicians frequently having to manage medical conditions that they are not comfortable with or trained to manage.
Rural hospitals are closing
The Sheps Center at the University of North Carolina monitors the health of our nation’s rural hospital system. Since 2005, there have been 192 rural hospitals in the U.S. that have either closed completely (105) or converted to only providing limited outpatient services (87). States with the most hospital closures in the past 20 years include Texas (25), Tennessee (15), North Carolina (12), Kansas (10), Missouri (10), California (9), Florida (8), Oklahoma (8), Alabama (7), and Georgia (7).
The Center for Healthcare Quality and Payment Reform reports that 700 more rural hospitals are in danger of closing due to financial pressures. This represents 30% of all U.S. rural hospitals. Leading the nation is Texas with 80 hospitals at closure risk, representing 50% of the rural hospitals in Texas. Of the rural hospitals at risk, half are at immediate risk of closure due to the severity of their financial problems.
To address the large number of rural hospitals that are closing, CMS began providing grants to vulnerable hospitals to shut down their inpatient units while preserving their emergency departments. In the past year and a half, 29 rural hospitals have converted to rural emergency hospital status. 6 of these are located in Mississippi, 5 in Texas, and 4 in Arkansas. This preserves emergency room care to rural areas but patients requiring inpatient admission must be transferred to a full-service hospital.
There are several reasons why rural hospitals are at higher risk of closure than urban hospitals.
- Lower reimbursement from commercial insurance. This is the most important obstacle that rural hospitals face. Each hospital gets paid a standard amount from Medicare but independently negotiates rates from commercial insurance companies. A large urban hospital can afford to dedicate several staff members to contract negotiation whereas small rural hospitals generally cannot afford to maintain a payer contract department to research and effectively negotiate with the dozens of different insurance companies. Furthermore, large hospitals can leverage specialized services such as trauma center designation, cancer care, critical care services, and surgical specialties in order to get higher payment rates than small rural hospitals offering only general medical and surgical care. The net result of these factors is that rural hospitals get paid less than urban hospitals to manage similar patients.
- Medicare Advantage Plans. The mantra of Medicare Advantage Plans (Medicare Part C) is “Just say no“. Medicare Advantage is a privatized version of Medicare where commercial insurance companies administrate Medicare benefits. One of the main ways that these companies are able to make a profit margin is by denying services and procedures. These can be prospective denials, for example, when a doctor asks the insurance company permission to obtain an outpatient CT scan. Or, they can be retrospective denials, for example, when a patient is admitted for a COPD exacerbation and the insurance company denies payment for the admission after the fact. Large urban hospitals (such as the Ohio State University Medical Center where I practiced) have entire teams of staff dedicated to appealing denials but small rural hospitals often lack the staff to do these appeals. As a result, small rural hospitals often do not get paid for medically necessary services that they perform.
- Higher costs to deliver care. When it comes to delivering health care, there is an economy of scale. For example, a large urban hospital can run its CT machine constantly all day long whereas a small rural hospital may only use its CT machine for 2 or 3 patients per day. Considering the cost of equipment and personnel to run the equipment, this increases overhead cost.
- Inability to bill for the highest paying DRGs. Hospitals are paid by Medicare and commercial insurance companies based on a patient’s diagnosis (DRG), not the actual hospital costs incurred during a hospital stay. The DRGs that pay the most to hospitals are typically specialized inpatient surgeries such as spine surgeries, organ transplants, and joint replacements. These are surgical specialties that most rural hospitals cannot provide since there are generally insufficient numbers of patients in their geographic area to fill a specialty surgeon’s clinical practice. As a consequence, rural hospitals are left with the lowest paying DRGs and end up transferring the patients with the highest paying DRGs to secondary and tertiary care hospitals in urban areas.
Rural hospitals are losing maternity care
Fewer and fewer rural hospitals have labor and delivery units. The result is that pregnant women in rural areas have to travel much further for their pre-natal visits and for the actual delivery of their babies. At urban hospitals, more than 70% of women live within 20 minutes of the hospital that they will deliver at. However at rural hospitals, more than 95% of pregnant women have to drive more than 20 minutes to reach their delivery hospital and 40% have to drive more than 40 minutes to reach the hospital.
Leading the nation in rural hospitals that no longer provide maternity care is Florida where 91% of rural hospitals do not provide maternity care, followed by North Dakota (79%) and Louisiana (75%). As with hospital closures, there are several reasons why rural hospitals are abandoning maternity care:
- Lower reimbursement from commercial insurance. Once again, rural hospitals do not have the resources or leverage to negotiate as high of rates as larger urban hospitals. Furthermore, the higher percentage of patients with Medicaid in rural areas translates to poor overall reimbursement for maternity services.
- Higher costs to deliver care. Maternity units also benefit by an economy of scale. A rural hospital that only does 100 deliveries per year still has to employ several full-time obstetric nurses and has to provide call pay for an anesthesiologist and pediatrician in addition to the obstetrician, family physician, or midwife who will perform the actual delivery. When the labor and delivery unit is empty, these staff still must be paid.
- The need for a critical mass of obstetricians at any given hospital. Babies come at all hours of the day and night and someone has to be on-call to deliver them. In urban areas, obstetricians are usually member of large group practices and thus only have to take call one night a week or even less often. Small rural hospitals usually cannot support having multiple obstetricians on staff and consequently, rural obstetricians are on-call far more frequently than urban obstetricians. Even if a midwife or family physician takes call for the normal vaginal deliveries, there must be an obstetrician on back- up call to perform emergency C-sections when necessary. For these reasons, rural hospital practice is unattractive to many obstetricians.
- Malpractice insurance. Obstetricians pay some of the highest premiums for medical malpractice insurance, especially in states such as Florida where premiums for obstetricians can be more than $200,000 per year. Whereas the statute of limitations for malpractice events is 1 to 5 years from the discovery of injury, for obstetricians, injury may not become apparent until later in the child’s life, resulting in malpractice suits that can be filed many years after delivery. Family physicians in rural areas often deliver babies but when they do, their malpractice insurance premiums can skyrocket, making it cost-prohibitive to obtain malpractice insurance just to perform 5 or 10 deliveries per year.
The U.S. has one of the highest infant and maternal mortality rates of all developed countries. The crisis in maternity care at our country’s rural hospitals contributes to these high rates. The CDC reports that the infant mortality rate is higher in rural counties (6.55 infant deaths per 1,000 live births) than urban counties (5.44 infant deaths per 1,000 live births). A recent study found that in 2019, maternal mortality is nearly twice as high in rural areas (82 deaths per 100,000 live births) than in urban areas (42 deaths per 100,000 live births).
What can a rural physician do?
The thing is that despite all of the doom and gloom about rural hospitals, we really, really need rural physicians. There are already significant health disparities between rural populations and urban populations. The elimination of maternity care at rural hospitals and the closures of rural hospitals will only exacerbate these disparities. Our nation’s rural physicians, and in particular rural primary care physicians, are the last defense against further worsening of health disparities experienced by rural populations. For physicians considering taking a job with a rural hospital, there are certain considerations that do not necessarily apply for jobs at urban hospitals.
- Ask to see the hospital’s financial statements. Given the large number of rural hospitals that are closing because of financial reasons, you do not want to take a job at a hospital only to have that hospital announce it is closing 6 months later because it cannot meet payroll. If you don’t know how to analyze a financial statement, hire an accountant to decipher it for you.
- Who manages prior authorizations and denials? If the hospital expects that you (the physician) will be responsible for doing all of your own prior authorizations and will have to appeal denials, then this is going to add considerably to your paperwork burden and uncompensated time.
- Have a full understanding of what services and procedures you will be expected to do. Are you going to have to intubate patients? place chest tubes? place central venous catheters? If so, get training before you start the job.
- Know what the back-up plans are. If there is a snowstorm and the medical evacuation helicopter can’t fly, what is the plan for managing a patient with a myocardial infarction? a stroke? a woman in labor with a breech baby? Telemedicine contracts with tertiary care hospitals can help provide specialized care when patient transportation services are not possible.
- Get the call schedule details. If you are a general internist and the hospital tells you that you’ll be on call every 6th night, that may sound pretty good but if the other people sharing call with you are 3 nurse practitioners and 2 family physicians and you are the only one who knows how to do a thoracentesis, do a lumbar puncture, or manage a ventilator, then you are really on call every night. If you are the only pediatrician in the county, who is going to cover your patients when you are on vacation?
- Does the state participate in Medicaid expansion? It is bad enough that rural populations have a higher percentage of Medicaid patients than urban populations but if you are being recruited by a rural hospital in a state that did not agree to Medicaid expansion, then you will be facing a potentially financially unsustainable uninsured patient population. States that do not participate in Medicaid expansion include Wisconsin, Wyoming, Kansas, Texas, Tennessee, Mississippi, Alabama, Georgia, South Carolina, and Florida. Not surprisingly, these are the states that have some of the largest numbers of rural hospital closures.
The crisis in rural hospitals is a symptom
Quick, what does the United States have in common with South Africa, Iran, Egypt, Nigeria, Pakistan, Afghanistan, Yemen, and Syria? The answer is that the U.S. is one of a small number of countries that does not offer universal health care. In fact, the U.S. is the largest country to not have universal health care and the only developed country to lack it. For sure, there are problems with universal health care but our system of dozens of different private health insurance companies that each independently negotiate rates with every hospital and every physician group in the country results in health care disparities and enormous administrative overhead costs.
These disparities and overhead expenses are glaringly obvious when it comes to our rural hospitals. These hospitals and the physicians who practice at them are facing an uphill battle that many of them will ultimately lose. It will take new and innovative health care funding systems to stop the bleeding of rural hospitals.
July 31, 2024
