Rural hospitals ‘in crisis mode,’ with situation worsening, says new report

“Unrelenting pressure” on the nation’s rural healthcare safety net means more hospital closures and many operating on the brink. That’s according to a new report by the Chartis Center for Rural Health. The center says hospitals have been in crisis mode for the last 15 years, but even in just the last 12 months, the situation has worsened further, with the percentage of America’s rural hospitals operating in the red jumping from 43% to 50% in that time.

Some of the report’s other key findings include:

• Access to inpatient care continues to deteriorate, as 167 rural hospitals since 2010 have either closed or converted to a model that excludes inpatient care.
• Between 2011 and 2021, 267 rural hospitals dropped OB services. This represents nearly 25% of America’s rural OB units.
• Between 2014 and 2022, 382 rural hospitals have stopped providing chemotherapy services.

We get more details about what’s driving these trends from Michael Topchik, director of the Chartis Center for Rural Health. We’re also joined by Dr. Lesley Ogden, the CEO of two Lincoln County hospitals: Samaritan North Lincoln Hospital in Lincoln City and Samaritan Pacific Communities Hospital in Newport.

Note: This transcript was computer generated and edited by a volunteer.

Dave Miller:  This is Think Out Loud on OPB. I’m Dave Miller. Health care in rural America is collapsing. That is according to a new report by the Chartis Center for Rural Health. It found that since 2010, 167 rural hospitals have either closed or stopped providing inpatient care. Hundreds more no longer deliver babies or give chemotherapy. In Oregon, almost half of rural hospitals are in the red right now. Lesley Ogden is an emergency physician and the CEO of two Oregon hospitals, Samaritan North Lincoln Hospital in Lincoln City and Samaritan Pacific Communities Hospital in Newport. Michael Topchik is the Director of the Chartis Center. They both join me now. Welcome to Think Out Loud.

Lesley Ogden:  Thank you.

Michael Topchik:  Thank you for having us.

Miller:  Michael Topchik first. The last few years, as I mentioned, the last ten years have been really challenging for rural hospitals, rural health care providers. But for hospitals of all kinds, that’s something we’ve talked about a fair amount on this show. What issues are specific or are more acute for rural hospitals?

Topchik:  I feel like in the last several years, this word ‘disproportionate’ has come up really more than it should. But it is, in fact, the case with rural hospitals. They disproportionately serve an older, poorer, and sicker population. And as such, any types of changes in Medicare and Medicaid, which really are the biggest sources of insurance for older Americans and those with less ability to pay ‒ that is those who don’t have commercial care ‒ are gonna have a drastic impact, a disproportionate impact, on the providers that serve them. And in this show we’re talking about, specifically, hospitals.

Miller:  Well, Lesley Ogden, can you give us a sense for your patient mix, in terms of the payment types that Michael was just mentioning?

Ogden:  Yes, just like Michael indicated, we are that more typical rural type of space, where we see overwhelmingly Medicare and Medicaid patients, to the tune of 75 to 80% of those we care for fall into that category. So most definitely, those are the types of payers that are seeking our care and the types of patients that we see.

Topchik:  And Lesley and David just briefly jumping in and piggybacking, the reason that’s so important is in a more urban environment, you would see almost the inverse. The inverse plus. You would see largely commercial insurance. So anything that happens from a government perspective in terms of reimbursement is gonna disproportionately impact these rural hospitals.

Miller:  But Lesley, maybe you can help us understand this. Financially, why is this so significant? I mean, is it as simple as the fact that private insurers pay more in general for health care than Medicare or Medicaid? That you get less money if you have more patients who get health care through these federal systems?

Ogden:  Dave, while it is true, that is an accurate statement, the other problem that we’re facing now, increasingly, is that after inflation, after suffering through the pandemic and continued workforce shortages, we now have higher labor costs than ever. Definitely salaries and benefits are our highest costs. And those expenses, along with others, have just only escalated in recent years. So when you tack on the reimbursement for the care that’s given is sort of baseline and doesn’t move very much, and in some cases is actually reduced, in some cases over time, and then you add on all of the escalating expenses, you basically get a scenario in which it’s very difficult for rural hospitals to cover the cost of providing patient care.

Miller:  Do you still, Lesley Ogden, encounter patients who are uninsured? That was not supposed to happen as a result of the Affordable Care Act. But I’m wondering how common that is in Oregon?

Ogden:  In Oregon, we’re very fortunate that, because we have prioritized our Medicaid expansion and we have CCOs in place as part of our accountable care organization network to make sure that those who are most disadvantaged still do have full medical care. We see a very small percentage of those that we care for being uninsured. Undoubtedly, there’s always some people who fall through the cracks. But by and large, the majority of our state is covered, the majority of the people who live here.

Miller:  Michael Topchik, you, though, look nationally. Has Medicaid expansion, which in general was something that blue states or states led by Democratic governors or legislatures are more likely to do, making it easier for people who still are barely getting by but had more money say than original federal guidelines saying that you are eligible for Medicaid, our state’s version of Medicaid. Do you see the effects of that when you look at the health of rural hospitals around the country?

Topchik:  The research is conclusive. We’ve been tracking and trending this for over a decade since Medicaid expansion. And each year, as more and more states do expand Medicaid, we compare and contrast the median performance of rural hospital’s operating margins as a key indicator. No margin, no mission, right, David? So if they can’t maintain a positive margin to reinvest in their own hospital, they can’t reinvest in their mission, which is their community.

We see a drastic difference between those states, like Oregon who have expanded Medicaid and those who have not. And that gulf, that gap, continues to widen. We now have 10 states left who have not expanded Medicaid and the performance of their hospitals with this one measure ‒ operating margin, which is a leading indicator, it might be the canary in a coal mine, you might say ‒ is really telling. They are really struggling. They see disproportionately negative margins.

States like Oregon fare better but yet with that type of support nonetheless, you mentioned at the top of the hour, almost half 43% of Oregon’s rural hospitals still struggle. They’re still operating at a negative margin. So Medicaid expansion has been a support but it’s not the end of the story.

Miller:  Lesley Ogden, what did the numbers look like in your two hospitals? As we just heard from Michael again, of Oregon’s 33 rural hospitals, 43% of them have negative operating margins. They are in the red. What about your two hospitals?

Ogden:  That is a true number for the past. We’ve actually got some more recent data that indicates that we’re actually up to 61% of our rural hospitals having a negative operating margin. So we’re not headed in the right direction. But specifically looking at my hospitals, we see that one of the hospitals has a negative operating margin thus far this year. One has a positive operating margin. But neither is meeting budget, meaning they’re not doing as well as we had hoped. And we are still struggling with all of those types of expenses that are higher than normal and simply not making the amount of money that we need to cover the cost of providing all of the care that we do.

Miller:  What are the levers you have from a purely ‒ and I hesitate to even use that word ‘purely’ ‒ but purely financial way, if you think about a hospital as a business that has to take in some money in order to provide services. And as we heard from Michael, ‘no margin,’ meaning not enough positive money, ‘no mission,’ you can’t actually succeed. You will fail. What can you do to cut costs?

Ogden:  Well, there’s actually a variety of different things that you could do. Knowing that labor is the chief expense in most of our scenarios, when you look at the bottom line, one of the first things that you see struggling hospitals often do is try to cut back on some of that labor expenditure. You might see, first, organizations that try to limit non-clinical items, maybe even limiting non-clinical jobs. Really trying to wait on the biggest cutbacks in clinical care.

But inevitably, sometimes you see some of these hospitals needing to cut service, basically ‒ clinical services, especially those that are extremely expensive to deliver and, all too often, don’t have the reimbursement to cover them. In some urban environments, you might see hospitals trying to increase their revenues to offset overwhelming expenses. In rural areas it’s harder to do that. So inevitably, we do get to cost cutting, labor being a big one of those, and then clinical services as well, very unfortunately.

Miller:  Michael, speaking of closing down aspects of a hospital, that does remind me of what I mentioned at the beginning. Some hundreds of hospitals have closed chemotherapy offerings or obstetrics and gynecology. So are those, then, examples of services that can cost more than they bring in?

Topchik:  That’s exactly right. In an effort to stay viable, as Lesley just mentioned, we look at this hospital closure crisis with some close to 170 rural hospitals closing over the last 10 years. But

the reality is that the loss of services is far more severe. These vital services in communities, like obstetrics ‒ we’ve seen 25%, a full quarter of the nation’s rural obstetrics services, close in the last decade. We’ve seen 380ish hospitals, rural hospitals, lose their ability to provide basic chemotherapy services. And just imagine what that means for a rural person who now has to travel when they’re not feeling well. They’re very sick. And now they have to travel an hour each way or two hours each way to get those vital services.

General surgery is another example. We could go on and on and on. But rural hospitals who are under pressure with these diminishing margins and negative margins will just shed services as an attempt to stay viable. But they are [also] diminishing really critical and vital service lines that their community would like. And the rural hospitals have to make these very difficult decisions about, you know, ‘can we, should we, and is it possible?’ So that’s what’s happening, Lesley just framed it perfectly. I couldn’t challenge that. Unfortunately, our research says it’s so and it’s increasing.

Miller:  You’ve said, Michael, that the surge in Medicare Advantage plans, as payers for Medicare eligible beneficiaries, is one of the single biggest challenges right now for rural hospitals. Less so in Oregon, which we an get to but absolutely a huge deal in a lot of other parts of the country. For those of us who are not experts in federal healthcare reimbursement, why are these plans that are increasingly popular ‒ 33 million Americans were enrolled in one of them at the start of 2024 ‒ why are they increasingly a problem for rural hospitals?

Topchik:  For those of us who are consultants in health care, we get into some of the wonkiness of healthcare finance and I’ll try to stay above that fray. It is really, really challenging for rural hospitals. This is a program that has become increasingly popular amongst rural seniors and seniors across the country. The idea of Medicare Advantage is a very simple one. It’s that Medicare is a federally operated program that offers insurance to seniors. And Medicare Advantage is the idea that we’re gonna unleash the free market on that and we’re gonna let seniors choose to participate in coverage that is designed by private insurance companies.

We can all think of Uniteds and the Blue Cross Blue Shields and the Aetnas, all of the big insurance companies around the country, and small ones. And so it’s very popular with patients. It’s very problematic for rural hospitals. So in Oregon and I can give you some specifics. We have seen about a 10% increase in the penetration of this choice amongst your seniors in the state, to the point where we now have about 27% of your Medicare eligible beneficiaries, the seniors, choosing this option. That’s way behind the national median, which is 38%. Many states are seeing 50% and above.

That tells me, Dave, that you’re going to see more of this in the future. And I’m sure Lesley is preparing for this. I will tell you frankly, when I meet with CEOs of rural hospitals around the country, this is their number one existential issue they’re focused on, when I asked them what keeps them up at night. It’s always staffing, staffing, staffing, right, Lesley? But that’s the baseline. This is the new thing that’s keeping CEOs up at night.

Miller:  Why? By the way, you have two minutes to answer that question. Actually one minute because I want to hear from Lesley as well.

Topchik:  Yeah. Yeah. And I’ll be very brief. Basically, Medicare has been a predictable insurance payer for healthcare for a long time. And the mechanisms are understood and it works. With Medicare Advantage being new, rural hospitals struggle and then there are some structural aspects where they’re not paid in the same manner. In other words, what’s good for the goose is not good for the gander. And I’ll kind of leave it at that to say that there’s no parity in payment. It’s a challenge to administer. And what’s happening, David, is that rural hospitals are left in the lurch to the tune of hundreds of thousands of dollars a year, if not millions of dollars a year. And reminder, the median rural hospital operating margin is about 0%. That means they’re not making a lot of money. They might not be losing a lot of money. But if you add this to the mix, they’ll be losing a lot of money.

Miller:  Lesley Ogden, I want to give the last word to you. You have about 30 seconds.

Ogden:  Yes, I could not agree more with how Michael describes it. Certainly it is concerning as things change in our payer mix. Meaning the things that were relied upon in the past are different. They have much more overhead to get that same dollar in payback for services rendered. And this is definitely something that we are looking at and considering as we move forward. Wow, one more stressor in our already very stressful rural world that we live in.

Miller:  Lesley Ogden and Michael Topchik, thanks very much.

Topchik:  Thank you, David.

Ogden:  Thank you.

Miller:  Lesley Ogden is an emergency physician, the CEO of two hospitals in Lincoln County, Samaritan North Lincoln Hospital, and Samaritan Pacific Communities Hospital. Michael Topchik is the Director of the Chartis Center for Rural Health.

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