Nearly half of rural hospitals moved out of the high-risk category after a merger, acquisition or affiliation with a larger system, a new analysis has found.
The report, spanning the decade from 2011 to 2021, was conducted by Dobson DaVanzo & Associates, a healthcare consulting firm. It was commissioned by the Coalition to Strengthen America’s Healthcare, of which the American Hospital Association (AHA) is a founding member. The analysis was based on existing research, Medicare cost reports, AHA annual survey data and stakeholder interviews.
Its 27 pages of findings highlighted that—while it may not be the right path for every community—aligning with a larger system can offer a lifeline for rural hospitals in need. The report aimed to examine the economic role of hospitals in rural areas, the challenges they face and the outcomes on the financial well-being of hospitals from M&A.
Rural hospitals drive local economies and offer high-paying jobs in their communities. Yet 110 rural hospitals closed between 2011 and 2021. Closure of rural hospitals leads to care deserts, worsened health outcomes and economic downturns. More than half of these closures occurred among standalone hospitals without support from larger systems, the report found.
Today, more than a quarter of rural hospitals currently operating have negative average total margins, putting them at some financial risk, according to the report. The report found 15% of rural hospitals are at high financial risk and another 21% could become high-risk in the next few years.
However, hospital finances can stabilize and improve after aligning with a larger system. Between 2011 and 2021, 18% of hospitals that affiliated with or were acquired by a larger health system were at high financial risk. After M&A, a third of those hospitals were no longer in the high-risk category. And 66% of those moved out of high risk after affiliating with a larger system.
Prior to M&A, rural hospitals saw average total margins of 1.8%, which rose to 2.2% following the transaction. Prior to affiliation, rural hospitals saw average total margins of 1.5%, compared to 2.3% post-affiliation.
Integration can also benefit patients and communities by addressing staffing shortages, offering logistical support, standardizing care protocols to improve outcomes, updating technology and spurring innovation that enhances quality of care and reduces costs, the report said.
“Mergers, acquisitions, and affiliations with larger hospital systems can improve the financial viability of rural hospitals, which allows them to stay open and continue serving the community in which they reside,” the report concluded. “Given the challenges associated with the current financial state of rural hospitals across the United States, policymakers and healthcare leaders must develop a variety of strategies to ensure that rural hospitals can continue to serve their communities effectively.”