America’s rural healthcare sector has changed size and shape many times over the last few decades. From 2005 to 2023, more than 140 hospitals designated as rural health facilities closed their doors or converted their services to non-acute care. Of those 140 hospitals, 81 shut down permanently, and the remaining facilities stopped providing general, short-term patient care. The service offerings at the converted facilities now only include things like emergency care or outpatient care. The number of rural health facilities closing or converting slowed around 2010, but began to rise again in 2022. These changes and closures have the greatest impact on Americans living in rural areas, but the effects are felt throughout the healthcare industry. Consequences of closures, such as reducing access to care, increasing costs for remaining facilities, and increasing the risk of worsening health outcomes for rural populations create more widespread healthcare challenges in the future.
According to data from the American Hospital Association and the Center for Healthcare Quality & Payment Reform, there are between 400 and 700 rural health facilities facing closure due to financial instability. Of the 48 states that have rural hospitals, 38 have at least one facility at risk.
The five states facing the largest numbers of potential closures are:
Texas – 47
Kansas – 46
Mississippi – 28
Oklahoma – 23
Georgia – 22
There are many reasons a rural hospital may face financial difficulties, and many challenges are unique in the rural health sector. To understand the true landscape of rural health, it is important to recognize the demands put on these healthcare facilities, the unique hurdles they must overcome, and how innovative rural health leaders are finding opportunities to build a more secure future.
For healthcare providers, executives, and industry leaders, an understanding of rural health and its challenges enhances the ability to hold discussions around solutions, debate alternative courses of action, and to offer support or education to others. However, it is also valuable for everyday Americans to understand the rural health landscape. The struggles facing rural hospitals directly impact individuals and communities from coast to coast, and have broad implications for healthcare policy and public health.
Understanding Rural Health
Rural hospitals are an essential part of America’s healthcare delivery system. Although not all rural hospitals can offer solutions across the complete continuum of care, rural facilities must provide a wide range of services. From primary care to rehabilitation, long-term care, and emergency services, rural hospitals are often the only source of health care available in their community.
A higher level of reliance on state and federal payers, complexity of services provided, and low patient volume create financial instability in many rural hospitals. As a solution, Congress and the Centers for Medicare and Medicaid Services (CMS) established designations that allow for special considerations for health facilities in these eight categories:
- Rural Emergency Hospital (REH). Rural hospitals that provide emergency department services, observation care, and other outpatient services in rural areas qualify for this designation, as long as they do not have inpatient beds (other than licensed skilled nursing beds).
- Critical Access Hospital (CAH). Rural hospitals with no more than 25 beds and that are located more than 35 miles from the nearest hospital can qualify for CAH status.
- Sole Community Hospital (SCH). This designation is based on a facility’s distance to other hospitals and indicates that the facility is the only option for acute care and short-term care for that community.
- Rural Referral Center (RRC). To be designated as an RRC, an acute care hospital must meet qualifying requirements based on bed size, location, and referral patterns.
- Medicare-Dependent Hospital (MDH). A rural hospital can apply for this designation and qualify for payment support if they have 100 or fewer beds for which Medicare patients make up at least 60% of the facility’s discharges or inpatient days.
- Low-Volume Hospital (LVH). A hospital with fewer than 3,800 patient discharges in the prior year and that is more than 15 miles from the nearest acute care hospital can be designated as an LVH.
- Disproportionate Share Hospital (DSH). A rural hospital that serves a disproportionate number of low-income patients can earn this special reimbursement designation under Medicare and Medicaid.
- Rural Community Hospital Demonstration. This demonstration implements cost-based reimbursement in participating small, rural hospitals that do not have a CAH designation.
No matter their reimbursement needs or designation, all rural health facilities share commonalities that set them apart from other types of hospitals.
Here are three ways a rural hospital is different from an urban hospital:
Community Relationships
Rural hospitals are deeply rooted in the social fabric of their communities, and their leadership teams hold great influence. This makes it all the more important to have the right executives in leadership roles and for the rural hospitals to maintain a focus on recruitment and retention. Additionally, because of the strong social connections in small communities and the deep cultural ties in many isolated areas, rural hospitals have a unique ability to influence overall community health and wellness.
Modest Budgets
The small populations served by most rural hospitals generally keep patient volume low. This means rural hospitals have smaller budgets with limited flexibility in cash flow. Operating within a strict budget requires rural health leaders to be creative thinkers and to have the ability to think three steps ahead.
Isolated Location
Rural hospitals are located far from other healthcare facilities. In addition to low population density and low volumes, many rural hospitals have geographic challenges . It is difficult to transport patients across rough terrain, back to the mainland from an island, or across frozen tundras in order to provide care. Dealing with geographic challenges also increases the importance of developing internal candidates for leadership positions. Homegrown leaders have a deep understanding of all of the organization’s challenges, from geography to finances.
Top Threats to Rural Healthcare Delivery
While the daily issues in rural healthcare delivery are wide and deep, most can be grouped into three main categories. Among the top threats are:
Reimbursement
The ability of a rural health facility to stay financially viable depends on payment for services. Payers for services in rural health include commercial health insurers, government programs, such as Medicare and Medicaid, and patients paying privately for care. According to data gathered by the American Hospital Association, Medicare and Medicaid made up 56% of rural hospitals’ net revenue in 2017.
Inadequate reimbursement rates, especially from Medicaid and Medicare, can quickly put a rural hospital in the red. When the cost of patient care is not fully covered, hospitals may have to cut services or close completely. Low patient volumes in rural areas lead to higher average costs for the hospitals. The daily operating costs for a hospital remain fixed – the cost of building upkeep, paying administrative and clinical staff – and these fixed costs are spread across fewer patients.
Recruitment and Retention
Recruiting and retaining quality healthcare team members is an ongoing challenge in rural health facilities. Even before the COVID-19 pandemic, rural hospitals faced difficulties in identifying and keeping leaders, clinical workers, nurses, and physicians. During a recruitment, rural hospitals must face candidates’ concerns over:
- Heavy workloads
- Lack of specialty care resources
- Call frequency
- Difficulty taking time off
- Professional isolation
- Limited job opportunities for significant others
- Availability of housing
- Travel distances to attend school
Access to Care
Nearly one-fifth of Americans – more than 60 million people – live in rural areas and rely on rural healthcare. In general, rural residents have an older average age and more chronic health conditions, compared to urban residents. However, while they may require a higher level of care, rural residents can find it more difficult to access the care they need. On average, rural residents drive 20-60 miles for primary healthcare. Many rural communities do not have the dependable high-speed internet necessary to access Telehealth services, requiring them to travel to a healthcare facility to obtain any level of care. For rural residents in areas with transportation challenges, access to care becomes even more complicated. Because of these barriers, rural residents experience poorer health outcomes and an increased risk of preventable deaths.
In addition to these top three threats, there are vulnerability indicators that can be used in trying to predict rural hospital closures. These include:
- Average length of stay
- Occupancy
- Medicaid expansion status
- Operating margin
- Percentage change in net patient revenue
- Years of negative operating margin
Building a Brighter Future
There are many strategies tossed around in executive conversations about solving the struggles in rural health. Ideas around expanding access to care, utilizing new technologies such as TeleHealth, and relying on local workforce options are all worthy of discussion. However, rural healthcare leaders understand that even these ideas bring their own challenges. In order to utilize contemporary technology, rural facilities must have access to fast, reliable internet. To enhance access to care, rural hospitals must overcome transportation challenges. The fact that each idea brings its own new challenges illustrates the great need for innovative thinking and true expertise in order to find opportunities for rural health.
Here are three things rural healthcare executives can put into action today to begin to make a difference.
Human Capital Development
Creating a focus on enhancing the capabilities, knowledge, and skills of the current workforce is a great way to reduce turnover and improve patient care. Investing in development and education can improve performance and create the ability to promote from within when job openings do occur. Some programs for human capital development include:
- Offering on-site workshops, online courses, and seminars to keep team members up-to-date on industry changes and to enhance specific skills.
- Establishing a mentorship program and developing an executive leadership succession plan.
- Providing reimbursement for employees who pursue their next level of education.
- Offering on-the-job training for team members who are interested in learning new skills or growing their current roles.
- Creating employee development plans so each individual has specific goals to reach the next level of their careers, all while supporting the hospital.
Recruiting the Right Leaders
The US is facing a national shortage of qualified health workers. Some projections even suggest that the growing deficit could reach a shortage of 100,000 workers by the year 2028. For rural facilities, recruitment and retention are complicated, and the stakes of choosing the wrong leader are high. Every leadership recruitment is vital in rural health. In order to find the right leaders, rural health facilities must take these steps:
- Understand the needs of the hospital. Needs evolve, processes change, and communities and cultures shift. Before beginning a search for a leadership vacancy, it is important to take the time to evaluate what is truly needed in this role for future success. It is often helpful to engage an Interim Leader to fill the vacancy temporarily and assess the role for changes and opportunities.
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- Opt for national reach. Many rural facilities try to save money by running a regional or local search to fill a leadership position. While this may seem like a way to achieve financial savings, the long-term cost of hiring the wrong leader is much greater than paying for a national search and gaining access to a much wider and deeper candidate pool.
- Recognize the opportunities in passive candidates. The best candidate for a rural health leadership role may or may not be actively searching for a new position. To find the very best fit and identify candidates with the right expertise and skill set, it is important for the search leaders to have access to passive, as well as active candidates.
- Consider growing their own leaders. With a plan in place for human capital development, rural facilities can begin to grow their own future leaders. Once education and development are part of the organizational culture, the workforce is more likely to have candidates who are qualified and ready when a leadership opening occurs. When exploring options for building a human capital development program, many hospitals rely on outside expertise, like Kirby Bates Associates’ Executive Advisory Solutions. An expert partner can help a rural hospital build a successful program with benefits that will continue to grow over time.
- Rely on expertise to determine the right fit. Even the most experienced rural health leader may struggle with leading a national executive search. The complexities of balancing community culture with organizational needs, managing a search budget while achieving the largest reach, and keeping an open mind when evaluating those candidates adds a lot to the plates of already busy hospital executives. To support the daily continuity of leadership and give the search the attention needed, many hospitals opt to bring in a search partner.
Thinking Outside the Box
History, culture, and past success should always be considered when leading a rural healthcare organization. It can often seem too risky to attempt process or policy changes when margins are razor thin and jobs are on the line. However, innovation is a key success factor for the future of rural hospitals. Here are some questions to ask to begin identifying low-risk ways to innovate:
- How do we increase the number of specialists in rural areas?
- What partnerships can we form to better support our community?
- How can we promote healthy lifestyles in the community?
- How can we increase our focus on preventative care?
- How can we incorporate innovation into our strategic planning?
- What operational changes will benefit both the patients and the hospital?
- What future hurdles can we anticipate and plan for now?
Solutions for Success
In the always-changing and challenging sector of rural health, it is important to be open to new ideas and to have the resources in place to support future success. Building a network of support that includes specialists, industry experts, local leadership, and national healthcare executives is the best way to grow your reach as a leader.
The healthcare experts at Kirby Bates Associates are singularly qualified to help in growing your professional network and supporting your rural health organization. Call KBA today to learn more.