Over eight years, 1/4 of unprofitable rural hospitals closed or merged; nearby competition makes them more vulnerable

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Over the past 10 years, rural hospitals have struggled for their financial health; many have closed, leaving residents with fewer health care options, report researchers for a new study from the University of Minnesota. "Between 2010 and 2021, almost 140 rural hospitals closed. Additionally, about one-third of the rural hospitals still operating are unprofitable. Rural hospitals struggle financially for various reasons, including low patient volume, high fixed costs and a greater reliance on public payers than privately insured patients." Some financially strapped rural hospitals have opted to become triage centers, treating emergencies only and sending more severe or specialized needs to larger centers. This option is not open to many medical centers, and the stark reality remains: If rural hospitals struggle to survive or give vital services, rural residents' access to care is threatened, the study shows.

The new study, published in the peer-reviewed journal Health Affairs, tracked 858 hospitals in rural areas over eight years, "including 325 rural hospitals that were unprofitable beginning in 2010, and found: 77% of unprofitable hospitals continued to operate as usual, while 17% merged and 7% closed. Of the 77% of unprofitable hospitals that continued to operate, about half returned to profitability by 2018. Rural hospitals that were unprofitable yet remained open were found to have relatively strong measures of longer-term financial health, including positive net assets and positive general fund balance that they could draw from to offset their short-term financial losses."

Rural hospitals are less likely to close if they have "no competitor hospitals within 15 miles," the study found: "Only 5% of unprofitable rural hospitals located in isolated areas closed, compared to 11% of hospitals with nearby competitors." Likewise, a struggling rural hospital with close competition was more likely to close or merge with a larger institution: "Among the 192 rural markets studied with hospitals that were unprofitable at the beginning of the study period, 22% lost at least one hospital to either closure or merger."

In some rural areas, antitrust laws may come into play "because mergers and reduced competition can lead to increased market power and higher prices. However, by charging those higher prices, rural hospitals may be able to stay open and continue providing service to area residents," the study brief notes. The study's lead author, Caitlin Carroll, said "The financial viability of our rural hospitals is declining. The fact that almost one-quarter of unprofitable hospitals closed or merged over eight years underscores the need for policymakers to consider how to promote access and limit market power in rural areas."