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Private Payers and the Crisis in Rural Healthcare

The Center for Healthcare Quality and Payment Reform (CHQPR) has published a new study on continuing fallout from the Covid pandemic, and the news is not good for rural hospitals.

The negative outlook may come as a surprise to casual observers, because total margins nearly tripled for small rural hospitals in 2020, and rural closures in 2021 reached a 15-year low. By traditional measures of financial health, including total margin and days of cash on hand, it looks like Covid was actually a good thing for rural providers.

But the good news is an illusion, according to CHQPR, which finds that the average rural hospital received a total of $8 million in emergency pandemic aid through federal programs such as the Provider Relief Fund and Paycheck Protection Program. For small hospitals with lower expenses, the federal money was enough to swing budgets from the red into the black, with positive carry-forward effects into 2022.

The emergency aid is now drying up just as inflation reaches record levels and worker shortages push salaries higher. Rising costs will affect all providers, but rural hospitals will experience the biggest financial pain because they already had the lowest operating margins. When federal support dries up and budgets are once again dependent on patient services, negative margins will be an existential threat for many small rural providers.

Even with the loss of federal support, CHQPR says it’s private insurance plans and Medicare Advantage plans that represent the biggest threat to the future of rural healthcare. That’s because small rural hospitals actually lose money on patients with private insurance, while larger hospitals, regardless of geographic setting, earn a margin of 15% or more.

“Private insurers are paying too much for services at many large hospitals, but they are paying too little to sustain essential services in rural areas,” says Harold Miller, CHQPR’s president and CEO. “The only way to ensure that residents of small local communities have access to affordable, high-quality healthcare is for their health insurance plans to pay adequately for the services delivered by their local hospitals.”

What does that look like, exactly? CHQPR proposes a Patient-Centered Payment System that includes service-based fees to cover the actual cost of treatment plus “standby capacity payments” to support the fixed costs of maintaining essential services in rural areas.

Without such payment reform, the organization argues that 200 rural hospitals will be unable to pay their expenses within two to three years and forced to close.

Photo by Stephen Andrews on Unsplash. Charts by CHQPR.

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