Half a dozen brick steps from the side road led directly to the emergency room (ER). The hospital building resembled a thin strip of warehouse in the middle of a remote small town. A couple of ill patients occupied the beds in the tiny ER. A room beyond the ER served as the intensive care unit (ICU), where the ER doctors frequently checked on patients. The ICU’s location was a matter of convenience since only a single doctor was available to manage the entire hospital at any given time. The rest of the building had three or four rooms, which served as a combined inpatient medical/surgical unit. This is a typical rural hospital you will encounter anywhere in remote America, far from bustling metropolitan cities.

Life goes on here, just like any other hospital. The doctors and staff are very knowledgeable, courteous, and caring. The nearest small town is about 50 miles away. Specialists visited the town once a week or once a month, with some performing procedures such as endoscopies and bronchoscopies. This was a boon to the local patients who could avoid driving 100 miles just for a single appointment.

Multiple financial upheavals besieged this tiny rural hospital during the past decade. Quality staff left town, seeking better opportunities. It has become an increasing struggle to get specialists to come to the town. Specialist physicians mostly want to retire and limit their practice, and newcomers are not interested in driving to the town. The younger population of the town and its surroundings kept plummeting; there wasn’t much for an average young family to do in the town—no good schools, entertainment, or modern amenities. Vast farmlands with corn and soybeans surrounded the town for miles until the next small town, which had literally a single traffic light.

This is the typical story of American rural medicine and rural hospitals. According to a recent Chartis report, more than 400 rural hospitals are in danger of closure, affecting millions of Americans who depend on these hospitals for routine and emergency health care. One-fifth of the U.S. population lives in rural areas, and some of them are going to lose access to health care because of rural hospital closures. On average, rural residents are older, poorer, and face more chronic health conditions. Rural hospitals are also likely to cater to populations with lower education levels, higher unemployment rates, and poor health status.

The major reason these hospitals are slowly sliding into financial sinkholes is diminishing reimbursement from federal agencies, mainly Medicare. COVID-19 additional payments in 2020 and 2021 helped them temporarily tide over the crisis. As the pandemic has ended, the financial pains are once again snowballing. The rural hospitals are on the verge of fiscal catastrophe.

Ever more popular Medicare Advantage plans are also being blamed for the financial disaster involving rural hospitals. According to the Chartis report, Medicare Advantage plans are reimbursing rural hospitals at a lower rate with more strings attached and tough measures such as preauthorization. Being smaller organizations, these hospitals lack the capacity to hire enough staff to navigate the sea of regulations. Medicare Advantage plans now account for 38% of all Medicare-eligible patients in rural communities, resulting in huge financial implications for rural hospitals. Further, modest budgets with limited flexibility in cash flow make their operations precarious.

The median number of inpatients per day in a rural hospital is 7, compared to 102 in an urban hospital. Almost 75% of rural hospitals have “swing” beds that can be used for transitional skilled nursing care after a hospital discharge. Only hospitals with fewer than 100 beds can provide swing beds. This is an important additional source of income for rural hospitals.

Another trend in rural America is large corporations or hospital chains taking over rural hospitals. The usual result is the conversion of the rural hospital into a stand-alone emergency room or a medical center from which referrals could be made to the main campus. If this arrangement does not work out financially in the short run, outright closure of the facility may ensue.

Hospital closures in a rural setting have devastating consequences for the community since those hospitals are the biggest employers in the area. A chain of events is triggered, including population outmigration, loss of tax base, and loss of talent, which are self-perpetuating. Over time, other businesses and social support systems are also severely affected.

Urban hospitals can make up for the loss from insurance such as Medicare and Medicaid through higher reimbursements from private insurance. Private insurance percentages tend to be lower in rural areas, and some patients do not have any insurance coverage at all.

The Center for Medicare and Medicaid Services (CMS) started a new Rural Emergency Hospital (REH) designation in January 2023, designed to restore health care access to rural populations. Rural hospitals can apply for the REH designation if they give up inpatient care and just maintain emergency room provisions and observation care. Even though Medicare will pay an additional 5% reimbursement rate across the board and an additional payment of $276,233 in 2024, REH budgets are still likely to be substantially smaller than rural hospitals with inpatient and swing beds. Many patients will still be forced to travel hundreds of miles just to obtain routine medical care in this scenario. The REH designation will take away the ability of rural hospitals to provide inpatient care for low- or medium-intensity conditions involving gastrointestinal, cardiovascular, and respiratory systems, such as a flare-up of chronic obstructive pulmonary disease (COPD) or congestive heart failure (CHF). The dramatically reduced size of the operation will still have all the negative effects on the community.

According to the data published by the CDC in 2010, 60% of the 6.1 million rural residents who were hospitalized in 2010 went to rural hospitals; the remaining 40% went to urban hospitals. The closure of existing rural hospitals that cater to this 60% will drive most of them to urban centers, adding to the pressures on urban hospitals already struggling with issues like shortages of beds and staff. It will indirectly affect the 80% of urban and suburban populations’ access to health care and hospital admissions. Otherwise, all the hospital admissions in the country will be directed to the available urban and suburban hospitals, further straining them.

Easing the administrative burden, modifying reimbursement models involving Medicare Advantage plans, and modifying the REH designation to include some provisions of inpatient care, possibly at higher reimbursement rates, are possible solutions to halt the trend of disappearing rural hospitals.

P. Dileep Kumar is a board-certified practicing hospitalist specializing in internal medicine. Dr. Kumar is actively engaged with professional associations such as the American College of Physicians, Michigan State Medical Society, and the American Medical Association. He has held a variety of leadership roles and has authored more than 100 publications in various medical journals and a book on rabies (Biography of Disease Series). Additionally, he has presented more than 50 papers at various national and international medical conferences. Several of his papers are widely cited in the literature and referenced in various textbooks.