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Ep. 15: Rural hospitals are becoming an endangered species

September 24, 2019

Decades ago when patients were staying in hospitals for weeks at a time, rural hospitals tended to be very successful.  In the 1980s, when Medicare and Medicaid and programs shifted, along with the shift towards outpatient care, many of those same hospitals began to struggle and close.  Since then, some programs have been implemented to help sustain and preserve rural healthcare.

Today, as the national cost of healthcare grows towards 20% of GDP, it is becoming less affordable for federal and state programs, insurance companies, and the average Joe.  The payer mix is shifting, the quality and reporting expectations are increasing, and technology is changing quickly.  Once again, rural hospitals are feeling the pressure, ultimately closing or considering mergers in order to share costs and avoid financial distress, and to ensure healthcare over the long term.

This episode is taken from a presentation by Perry's CEO/President Annette Schnabel from September 17, 2019 at the Voices from the Prairie in Princeton, Illinois about the challenges facing rural healthcare.

Episode Summary

Rural hospitals have a lot of things working against them.  Patients often have to travel farther to receive care, which means they are less likely to visit a hospital or clinic.  It is more challenging to recruit doctors, nurses, lab techs, etc. to work in rural area.  Lower population means it is unaffordable to offer specialized services, which means patients travel elsewhere for care.  It also means that hospitals and clinics don't see enough patients to earn higher reimbursement rates from Medicare and Medicaid.  Rural hospitals have a harder time signing on with insurance providers and getting good reimbursement rates from insurance and Medicare.  

In the past, Medicare reimbursed hospitals 99% of the cost for visits and procedures.  This meant that hospitals were losing money on Medicare patients.  Eventually, this was raised to 101% of cost to make sure rural hospitals remained profitable.  However, during the 2008 financial crisis, the federal government changed the policy to continue covering 101% only as long as the federal government was not running a deficit.  In the case of a deficit, which has been the rule for more than a decade, they will only cover 99%.  In other words, rural hospitals again are losing money on Medicare patients, and continue to lose even more by serving Medicaid patients.

Due to this situation, commercial insurance is very important for hospitals to remain profitable.  Unfortunately, healthcare is also becoming unsustainable for insurance providers and coverage is limited.  Patients wait until they are on Medicare to schedule elective surgery, and go without care as much as possible to avoid the cost.

Moreover, technology is changing quickly.  Being able to maintain and update facilities while staying on the cutting edge of technology is not possible for small organizations lacking the capital.  From medical record systems to imaging machines or even Amazon's Alexa, hospitals have to be able to afford the equipment and the staff to use and maintain the equipment.  It is difficult.

In recent years, there has been a spike in the number of rural hospitals closing or merging.  Sometimes they merge with other small hospitals, and sometimes with larger networks.  Merging allows multiple organizations to share the financial burden and offer resources to communities at a lower cost.  In the case of larger hospitals, it can mean gaining access to better deals on supplies and better reimbursement rates from insurance providers and Medicare.


Annette Schnabel, President and CEO of Perry Memorial Hospital