One-in-Four U.S. Rural Hospitals at High Financial Risk of Closing as Patients Leave Communities for Care

Analysis from Guidehouse also shows 81% of at-risk rural hospitals considered highly essential to their communities; COVID-19 likely to worsen overall situation

WASHINGTON – A quarter of U.S. rural hospitals are at a high risk of closing unless their financial situations improve, according to an annual Guidehouse (formerly Navigant) analysis of publicly available data conducted prior to the COVID-19 pandemic. The 354 at-risk rural hospitals span 40 states and represent more than 222,350 annual discharges, 51,800 employees, and $8.3 billion in total patient revenue. 

Of these hospitals, 81%, or 287 hospitals, are considered highly essential to the health and economic well-being of their communities. Thirty-four states have at least half of their financially distressed rural hospitals considered highly essential, with 16 states having all hospitals in this situation.

Southern and Midwestern states, including Tennessee, Oklahoma, Mississippi, Alabama, and Kansas, are projected to be impacted the most by hospital closures, the study shows.

“Rural hospitals are not only essential to the health and wellness of nearby residents, but they are also often a rural county’s largest employer and a crucial economic link for other local businesses and job creators,” said 30-year policy veteran Dave Mosley, partner, Guidehouse. “It was already troubling that the economic outlook for rural hospitals deteriorated during the longest period of uninterrupted economic growth our country has ever experienced. A major crisis like the COVID-19 pandemic or any significant economic downturn is likely to make the situation even more dire.” 

Patients choosing to leave communities for care

Additional analysis of migration patterns of residents who live in rural counties in six states shows 76% of patients with a local hospital out-migrated for care (e.g., bypassed their local area and hospital to receive care elsewhere), compared to 35% and 23% of suburban and urban patients, respectively.

As more complex care often can’t be provided at community hospitals, the analysis divided rural outmigration data into three levels based on patient acuity. While rural hospitals should be able to keep most lower-acuity cases for which the hospital provides associated services, 68% of patients still out-migrated for this level of care.

“Every patient that out-migrates for care that’s also offered in their community represents a revenue loss for the local hospital, as well as revenue leaving the local economy,” said Guidehouse Partner Daniel DeBehnke, MD, MBA, a former academic health system CEO. “The patients' rural hospitals are supposed to serve now appear even less likely to use them.”

Additional factors that have contributed to the rural hospital crisis include payer mix degradation, an inability to leverage technology due to a lack of capital, clinician shortages, and suboptimal revenue cycle management.

Legislative action, health system partnerships needed 

While there is no single solution for the rural hospital crisis, opportunities do exist to transform rural healthcare, the study suggests.

Reintroduced in 2017 by Sens. Chuck Grassley, R-Iowa, Amy Klobuchar, D-Minn., and Cory Gardner, R-Colo., the Rural Emergency Acute Care Hospital (REACH) Act was meant to help critical access hospitals (CAHs) by allowing them to transform their delivery model in alignment with the needs of their community, without the financial disincentive of losing cost-plus reimbursement. The bipartisan legislation would create a new Medicare classification under which CAHs would be able to rid themselves of excess inpatient beds and focus on outpatient services instead. The REACH Act has been read in, but it has not been voted upon by the appropriate committee. 

While waiting for federal legislation, providers can collaborate with their state legislators to develop state-based Medicare demonstration waivers to change local and regional rules regarding inpatient beds and emergency designation. This could promote regional stabilization and an opportunity to pilot novel approaches to rural healthcare.

“Rural hospitals and their communities are facing a crisis that has been lingering for decades,” said Mosley. “Local, state, and federal political leaders, as well as hospital administrators, must act to protect the well-being of rural hospitals nationwide and the communities they serve.”

Other steps rural hospitals can take to address the crisis include: 

  • Accessing scale through partnerships with regional tertiary and academic health systems, other rural facilities, physician groups, payers, accountable care organizations, and other entities. Partnership areas include telehealth, revenue cycle, human capital, electronic health record use, physician training, and clinical optimization.
  • Engage their board members and local community leaders to identify opportunities to promote and sustain their local hospital and retain out-migrating patients. 

Guidehouse’s Commercial Health segment is comprised of consultants, former provider and government administrators, clinicians, and other experts with decades of strategy, operational/clinical consulting, public health, managed services, revenue cycle management, and outsourcing experience. Professionals collaborate with hospitals and health systems, physician enterprises, payers, local and federal government, and life sciences entities, providing performance improvement and business process management solutions that help them meet quality and financial goals.

Guidehouse LLP acquired Navigant Consulting, Inc. in October 2019.

About Guidehouse 

Guidehouse is a leading global provider of consulting services to the public and commercial markets with broad capabilities in management, technology, and risk consulting. We help clients address their toughest challenges with a focus on markets and clients facing transformational change, technology-driven innovation, and significant regulatory pressure. Across a range of advisory, consulting, outsourcing, and technology/analytics services, we help clients create scalable, innovative solutions that prepare them for future growth and success. Headquartered in Washington, DC, the company has more than 7,000 professionals in more than 50 locations. Guidehouse is a Veritas Capital portfolio company, led by seasoned professionals with proven and diverse expertise in traditional and emerging technologies, markets, and agenda-setting issues driving national and global economies.

Stay ahead of the curve with news, insights and updates from Guidehouse about issues relevant to your organization and its work.