Medicaid expansion has played a significant role in the viability of rural hospitals, according to a new study.
While rural hospitals’ profitability varied significantly based on ownership, those in Medicaid expansion states generally fared better, according to an analysis of more than 1,000 non-government rural hospitals from 2011 to 2017. The median overall profit margin among not-for-profit critical access hospitals in Medicaid expansion states increased from 1.8% to 3.7%, compared to a decrease from 3.5% to 2.8% among their peers in non-expansion states.
Most types of rural hospitals saw margins decline over that span, but not-for-profit critical access hospitals bucked the trend. The median overall profit margin improved for not-for-profit CAHs from 2.5% in 2011 to 3.2% in 2017. Meanwhile, not-for-profits without CAH designations saw margins dip from 3% to 2.6%. The decline was much steeper for for-profit facilities, dropping from 5.7% to 1.6% for CAHs and 3.2% to 0.4% for those without the designation that yields Medicare reimbursements of 101% of reasonable costs.
“One issue might be the tax exemption,” said Ge Bai, lead author of the study and an associate professor of accounting and health policy and management at Johns Hopkins University. “Also, not-for-profits are generally bigger. Once they have more market power, they can charge higher prices.”
Not-for-profit hospitals generally should not be considered financially disadvantaged, she added.
Researchers also studied the impacts of occupancy rates and charge markups. Hospitals with occupancy rates below 25.5% had a median profit margin of 0.1%, while hospitals with occupancy rates above 41.4% had a 4.7% margin. Surge capacity often comes at the expense of profitability, researchers noted.
Hospitals with charge markups lower than 204.6% of the Medicare allowable cost had a median profit margin of 1.8%, compared to those with higher than 327.7% markups recording 3.5% margins, according to the study.
Rural hospitals face a trade off: surviving versus risking the blowback of less capacity, fewer services and higher prices, Bai said.
“If you want to make money you charge higher, but that hurts the patients,” said Bai, noting the prevalence of hospitals suing patients for outstanding bills. “It all comes back to the charges and the resulting payment liability for patients.”
Compared to their urban counterparts, rural hospitals had median occupancy rates of 32% compared to 57%, charge markups of 2.6% versus 4.5%, and profit margins of 2.7% compared to 5.6%.
In addition to higher occupancy rates and charges, disproportionate share hospital status and system affiliation produced healthier margins. Rural hospitals with higher Medicare and Medicaid discharges generally performed worse, researchers found.
Expanding Medicaid would have been a lifeline for Alabama rural hospitals, said Greenville Mayor Dexter McLendon, who chairs the city-backed L.V. Stabler Memorial Hospital’s board. Alabama has some of the fewest CAHs per 100,000 people, according to a Modern Healthcare analysis.
“It’s a heck of a challenge keeping a hospital open in a town of 8,100, especially when our governor did not take the Medicaid money,” McLendon previously told Modern Healthcare. “For a county like us, it almost shot our legs out from under us and nearly made it impossible.”
About a quarter of rural hospitals are at risk of closing, other research has shown. The COVID-19 pandemic has threatened already precarious rural hospitals that have delayed non-urgent procedures.
“Hospitals in small markets are often the No. 1 or No. 2 employer—they are the economic engines,” said Steve Lefar, executive director of Strata Decision Technology’s StrataSphere line of business. “They can’t afford another blow like this.”
“The moment we are in is an all-hands-on-deck moment,” said Dr. Roger Ray, a physician consulting director at the Chartis Center for Rural Health. “It’s inconceivable to allow these rural facilities to close.”
Going forward, policymakers should compare the incremental cost of providing various essential services between hospitals and other settings, such as emergency care, researchers recommended. Rural facilities that have pared down their services and inpatient beds have typically improved, Bai said.
“We understand the need to provide a service to the community, but policymakers should compare the cost of a full-fledged hospital compared to just an ER and transferring other cases to bigger hospitals,” she said. “It is more sustainable in the long run.”