Nearly half of rural hospitals face negative operating margins as COVID-19 hits outpatient revenue

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This year, 46% of rural hospitals are in the red and more than 450 could possibly close, a new study from Chartis said. (Getty/OgnjenO)

Close to half of U.S. rural hospitals are operating in the red with at least 450 facilities at risk of closing their doors, a new study found.

The study, published Wednesday from the Chartis Center for Rural Health, illustrates the financially precarious position rural hospitals find themselves in, a position that has worsened thanks to the pandemic.

“The rapid spread of COVID-19 in rural communities has further destabilized the ability of rural hospitals to meet the needs of their communities,” authors wrote in the study.

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Hospitals across the country have faced plummeting patient volumes, especially at the onset of the pandemic when they were forced to cancel or postpone elective procedures to preserve capacity to fight COVID-19.

Larger hospital systems have been able to withstand this hit as patient volumes rebounded after shelter-in-place orders lifted in late spring and summer.

Chartis examined Medicare Hospital Cost Report Information System data for approximately 2,100 rural hospitals to explore how significant outpatient revenue, which took a hit during the pandemic, was to hospital finances.

“Our analysis reveals that the national median for outpatient revenue, as a percentage of total revenue, is 77%,” the study said.

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The reality for rural hospitals is that the vast majority of “what they do and who they are and how they serve the communities is in that outpatient setting,” said Michael Topchik, Chartis’ national leader, in an interview with Fierce Healthcare.

A survey conducted by Chartis of rural hospital leaders found 86% of responses “reveal an outpatient service suspension of one to three months,” the study said.

Nearly all of the respondents (82%) said this resulted in up to $5 million per month in lost revenue, the study said. “For 12% of respondents, the estimated loss was between $5 million to $10 million per month, while 4% indicated that figure to be between $10 million and $15 million per month.”

Outpatient surgery was hit the hardest, according to 55% of the respondents.

Relief funding from a $175 billion fund passed by Congress as part of the CARES Act has been a major help to hospitals.

“We at the beginning of the year were terrified and distraught about the effect and would lose huge number of rural hospitals due to the pandemic,” Topchik said. “That was really held off by the CARES Act.”

Rural hospitals have been in a financially precarious position for the past decade, as 135 facilities have closed since 2010.

The closures have accelerated, however, in recent years. From 2015 to Jan. 1, 2021, the number of rural hospital closures increased from 47 to 135, Chartis said.

In 2015, there were 39% of rural facilities with a negative operating margin compared with 46% this year.

The study also predicted 453 rural hospitals that include critical access facilities are “vulnerable to closure, based on performance levels similar to rural hospitals at the time of closure."

It found Texas had the most rural hospitals in a tough spot (77%), and Kansas had the second most at 31%.

“Looking at vulnerability as a percentage of a state’s rural hospitals, state that have not yet expanded Medicaid dominated the list,” the study said.

The results of the closures have been a constant erosion of access to services in rural communities. For instance, 166 rural communities do not get access to any OB-GYN services because of closures, Chartis said.

“The loss of a rural hospital creates an immediate gap in services available to the local community, forcing people to travel further to seek and receive treatment,” the study said.