By John Cummins

Nearly 700 rural hospitals are at risk of closure, research shows. They provide care access to about 11.7 million people, employ 100,000 healthcare workers, and account for $277 billion in economic activity.

An alarming, recent, report shows that 673 rural hospitals—one out of three—are under financial duress, and that 210 are at high risk of closing.

The methodology used to make this dire prediction looked at about 70 metrics such as market position, balance sheet, costs, charges, and outcomes from the more than 66 rural hospitals that have closed since 2010 and applied those same metrics to rural hospitals that remain operational.

"Statistically, they correlated. As we looked at those 70 indicators, we found 210 hospitals that were highly correlated with hospitals that had closed and another 453 that were strongly correlated with the hospitals that had closed," says Michael Topchik.

"If it was one single issue then, from a policy perspective, it would be easy to show why they are closing, so you need to do this. But there are multiple factors," Alan Morgan says. "Number one is sequestration and a series of congressionally mandated Medicare cuts that have happened over the past few years, and the reductions in the payments included in the Affordable Care Act."

"It is also tough about talking about the Affordable Care Act and its impact on rural hospitals," he says. "You have the cuts to disproportionate share payments, which are supposed to be offset by Medicaid expansion. That hasn't happened. In addition, the health exchanges were supposed to help with the numbers of people presenting at rural hospitals with insurance. People have been using the exchanges, but they haven't been signing up in rural areas at the same levels as they have in urban areas. So multiple factors within the Affordable Care Act are just not playing out in a positive manner for rural hospitals."

High Stakes

Let's review what's at stake here. These 673 rural hospitals that are at risk of closure provide care access to about 11.7 million people, many of whom are older, sicker, and poorer than people living in urban America. As we know, rural hospitals are often among the largest employers in the communities they serve.

If these 673 hospitals closed it would mean the loss of nearly 100,000 healthcare jobs, another 137,000 ancillary jobs in the communities they serve, and $277 billion in lost economic activity for these regions over the next decade.

The status quo is unsustainable, which means that every stakeholder needs to act, including elected officials and policy makers at all levels of government. This isn't simply about throwing more money at the issue. When so many rural hospitals are threatened, it means we must evaluate the way care is delivered in rural America, and what role hospitals should play in that care delivery.

Morgan supports stop-gap legislation now in Congress called the Save Rural Hospitals Act. "It stabilizes the current environment for rural hospitals while establishing a path forward for those rural facilities," he says.

"It stops and reverses the Medicare cuts we have seen. It reverses the sequestration, and it provides an opportunity for hospitals to transition into a new provider type, a freestanding emergency room, outpatient services, and provides that new model. It also would provide the ability for rural hospitals to access federal grants to do the transition to population health."

While acknowledging that rural hospitals need more money to keep the doors open, the bill also calls for a re-examination of how care is delivered in rural America.

"We need a new hospital model for rural and remote," Morgan says. "The No. 1 key is how do you ensure 24/7 emergency room services in these very small rural communities, and for the larger rural communities, how do you help them move towards keeping the population healthy and making that transition we are all talking about as a nation."

"It has to happen. We know that is the direction we're headed. We have to make sure that in the process we don't shut down a lot of rural hospitals as we make this transition," Morgan says. "That is the difficult part. How do we keep the doors open until we get to that new payment mechanism that provides a sustainable healthcare access point in rural communities?"

Topchik is skeptical of suggestions that moving rural patients to more centralized care at larger regional hospitals will save money or improve outcomes.

"Our research tells us it is not terribly expensive to maintain that rural safety net," he says. "What a lot of people want to do is centralize care. Every bit of research tells us we would not improve or lower the cost of care. We would shift the cost of care to more expensive cost centers."

"Yes, they have more robust clinical capabilities and when appropriate, rural hospitals are transferring there today. We don't help the system by doing that, but we hurt it two-fold," Topchik says. "We lose access and people in rural America need access to care close to home. If these rural hospitals were to disappear, the entire safety net crumbles because docs aren't going to practice in rural communities if they're a one-horse shop with no hospital for a backstop. It really has a ripple effect."

"The other side of it is I don't think it will be cheaper," he says. "It's market-by-market, but you shift costs and it's a wash. In most cases it's more expensive."

Topchik says policymakers and politicians must acknowledge that, whatever the model, providing care to a rural American population that is older, sicker, and poorer is not a money-making proposition.

"I would like to think that we as a society aren't going to let [happen again] what happened in the late 1980s, when the prospective payment system was put in place, where more than 300 rural hospitals closed," he says.

"I go back to the concept that the Senate Finance Committee latched onto when it created the Critical Access Hospital Program, which is to say that access is vital for CMS beneficiaries and we are going to create a critical access system for these 23 million beneficiaries. To do that we are going to support that system, which is low volume, with special payments that help keep them whole so they can maintain this access. That is what our research tells us. It's not a need for being totally revamped."

Action Needed

Topchik says he is not suggesting that rural hospitals should sit back and do nothing beyond waiting for a federal bailout.

"Rural hospitals are going to have to play in the value equation too. They have to position themselves for a value-based future," he says. "The top hospitals are low-cost providers, so the idea of taking 25% to 30% out of your costs over the next five years is essential, targeting 5% to 6% a year."

"They have to compete on costs. Cost-based reimbursement runs completely at odds with that so it's a challenge, but they have to do it," he says. "They have to make sure they have the best clinical outcomes, quality and patient satisfaction. More and more rural hospitals have gotten religion on that and top rural hospitals are doing that."

"Finally, they can't do it alone," he says. "They don't need to merge balance sheets with larger systems, but they need to have clinical affiliation strategies. Top-performing rural hospitals are affiliated at more than 75%, whereas with the critical access hospitals it is more like 60%."

The irony is that while healthcare delivery in rural America often feels like an afterthought for urban policy makers, rural America could become the proving grounds for a sustainable care model.

"Where you see rural today is where we are going to see the country in 10, 15, 20 years from now," Morgan says. "You have an older sicker population and the current payment mechanism is heavily reliant on Medicare and Medicaid. That is rural America. Everyone who looks at where we are headed as a country realizes that is where we are looking long term for all healthcare facilities."

To rural care advocates, that means re-examining care delivery as a collaborative effort using telehealth and requiring 24/7 access. "But then, communities need to ask themselves what they need as a community," Morgan says. "For some communities that is going to be access to long-term care or who is providing the EMS in the town. How do we make sure that we keep people healthy in the first place as opposed to treating them once they're admitted? No matter how you slice this, it goes to the broader issue of where the country is going."