A new Kaiser Family Foundation analysis is the latest to sound alarms over rural hospitals’ finances in the coming year, especially if those hospitals are operating in the 11 states that haven’t opted to expand Medicaid.
Rural hospitals saw their median operating margins jump during the early part of the pandemic due in large part to government relief funds, the group found.
Specifically, their collective 1% median operating margin recording from July 2017 to June 2019 increased to 7.7% between July 2019 and June 2021. Excluding documented relief funds whittles the latter number down to 3.9%, though KFF noted that the estimate may still be high due to hospitals not reporting the entirety of their relief funding.
Things changed for rural hospitals that summer and beyond. KFF found median operating margins between July 2021 and June 2022 dropped to 3.3% and, when excluding documented funding, 0.8%. That dip came as hospitals nationwide saw their operations stumble thanks to a combination of higher acuity COVID patients, labor shortages and rising costs.
KFF’s analysis noted wide variability in operating margins across facilities—in 2019, for example, 41% of rural hospitals had negative margins while nearly a third reported margins of 5% or above.
Such divides in operating performance were stark when separating rural hospitals in Medicaid expansion states from those operating in states that have not expanded the program, which KFF said in 2021 accounted for 34% of all rural hospitals.
Medicaid expansion state rural hospitals’ median operating margins during the early pandemic were 8.5% compared to nonexpansion rural hospitals’ 5.6%, KFF found. The later analysis window saw those margins fall to 3.9% and 2.1%, respectively.
When subtracting documented relief funds from the tallies, early pandemic median operating margins were 4.9% for expansion state rural hospitals and 2.6% for nonexpansion state facilities. Later, those dropped to 1.2% and -0.7%, KFF found.
Rural hospital closures slowed down during the pandemic, with just two in 2021 and seven in 2022, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina.
Between the dipping margins, a slowdown of government relief funding and Medicaid redeterminations, KFF echoed recent concerns from the Chartis Group that closures could pick up in 2023.
On the other hand, recent months have also seen policymakers shore up rural hospital support with a two-year extension to rural hospital Medicare payment adjustments. The administration has also implemented its new Rural Emergency Hospital designation, though industry reception to the payment model has so far been mixed.
Still, rural hospitals’ recent numbers and the steep hill ahead could make a compelling case to policymakers to take the plunge on Medicaid expansion and other support.
“Concerns about the viability of rural hospitals have been cited as one factor that could potentially motivate lawmakers to expand Medicaid in the eleven states that have not already done so,” KFF wrote in the report. “… It is unclear whether current policy initiatives will be sufficient to sustain access to care in rural areas, especially in states that have not expanded Medicaid, where hospitals are facing greater financial challenges.”
KFF’s analysis relies on RAND Hospital Data, a cleaned and processed collection of hospital data submitted to the government’s Healthcare Cost Report Information System.