Unprofitable rural hospitals often merge with health systems, helping them stay open but also increasing the likelihood of service price hikes.
Between 2010 and 2018, 17% of unprofitable rural hospitals merged with another organization while 7% closed, according to an analysis of data from 325 unprofitable hospitals. According to one study, among financially unstable hospitals that did not close or consolidate, about half became profitable during this period. published Monday in Health Affairs.
“System affiliation can improve funding for rural hospitals and potentially help them stay open,” said Caitlin Carroll, assistant professor of health policy at the University of Minnesota and lead author of the study. “But on the other hand, even out-of-market mergers can raise prices and drain resources from the local community if services are cut and patients are redirected to out-of-market providers.”
Four rural hospitals have already closed this year, fueling discussions about policy changes and proposed legislation. More rural hospitals are expected to cut services, merge or close as they deal with higher labor costs and reimbursement cuts. Policymakers are left with a difficult proposition: maintain access to care in sparsely populated communities while putting safeguards around the systems’ growing market power.
“Right now the rural hospital market is hemorrhaging,” said Eric Shell, principal of rural healthcare consultancy Stroudwater Associates.
Many rural hospitals are soliciting potential partners as their volumes stagnate or decline and struggle to attract and retain clinicians. One of the reasons rural hospitals are looking for larger systems is to increase their bargaining power with insurers, Shell said.
“This begs the question: if third-party payers pay everyone fairly, would this affiliation be necessary?” he said.
Funding for COVID-19 relief and policy changes instituted during the public health emergency have helped reduce the number of rural hospital closures. There were just 10 rural hospital closures in 2021 and 2022, compared to an average of 13 per year from 2012 to 2020, according to data from the University of North Carolina.
Dozens of facilities are expected to convert to rural emergency hospitals, eliminating their inpatient beds in exchange for a 5% increase in Medicare outpatient reimbursement and an average facility fee payment $3.3 million per year. The $1.7 trillion spending bill passed in December included a two-year extension of an additional Medicare payment adjustment of up to 25% per discharge for low-volume hospitals.
While the spending bill has slowed Medicare reimbursement cuts, Medicare payment cuts through sequestration and the Pay-As-You-Go Act are expected to acutely affect rural hospitals that typically treat fewer commercially insured patients than urban providers.
If rural hospitals can find a merger partner, some must file public benefit certificates, which allow health systems to circumvent federal antitrust regulations in exchange for state oversight. While well-designed COPAs can limit pricing and other anti-competitive effects, laws can also give the merged entity the power to lobby to weaken regulation over time, the study’s researchers said.
“They are very flexible. Like most policies, design, implementation and enforcement are crucial,” said Michael Chernew, professor of health policy at Harvard University and co-author of the study, in an e-mail. mail. “There can certainly be unintended consequences.”
