Single payer could stop the rural hospital closure crisis

Jan 10 2018
Frances Gill
People's Policy Project

America’s rural hospitals are closing down at an alarming rate. According to the North Carolina Rural Health Research Program, there were seventy-two rural hospital closures between 2010 and 2016, close to double the number that closed between 2005 and 2009. Hundreds more are teetering on the brink of closure.

Consequently, rural America faces a serious healthcare delivery challenge, which is made all the more urgent by the fact that rural residents tend to be much sicker to begin with. They have higher rates of chronic conditions and greater psychological distress. Rural counties have higher death rates from unintentional injuries, more motor vehicle injuries, greater premature mortality (below age 75), higher suicide rates amongst men, and higher infant mortality rates.

Health disparities between rural and urban America are profoundly well documented, and geographic access—the ease or difficulty of traveling to a healthcare provider—is one of the commonly offered explanations for this disparity, especially in the case of traumatic accidents or other medical emergencies. When these rural hospitals close, the distance between a person’s home and the nearest medical facility increases dramatically, and so too does the time it would take an ambulance to reach them in an emergency.

Rural hospitals have been struggling for years, largely due to changing demographics in rural areas. Right now, the most powerful predictor of closure is profitability, which is partially a function of the characteristics of the community a hospital serves. As the American populace has shifted to urban areas, the populations that remain in rural areas have gotten older, poorer, sicker, and less likely to be insured. In other words, providing their care is more costly. Rural hospitals have been dealing with the financial strain caused by these changing demographics for well over a decade.

But when the Affordable Care Act became law, the rate of rural hospital closures increased dramatically. One reason for this is that the ACA began penalizing hospitals with high readmission rates, a metric that represents the number of patients who return to the hospital after discharge. This was intended to push hospitals towards providing higher quality care and is in line with an admirable trend in American healthcare towards value based payments. But it is also an aspect of the law that disproportionately impacts hospitals that see a higher proportion of sicker patients, as rural hospitals do.

In addition, the ACA shifted money from providing reimbursements for rural hospitals to covering the cost of insuring people via the Medicaid expansion. But in states that failed to expand Medicaid, rural hospitals are still seeing a greater proportion of uninsured patients without the corresponding increase in revenue.

Lawmakers have proposed several solutions to this problem, but they all fall short. Republican Senators Grassley and Gardner put forth the REACH Act—the Rural Emergency Acute Care Hospital Act—in 2015. Democratic Senator Klobuchar signed on this year when the bill was reintroduced. The bill would increase Medicare payments to specially designated Rural Emergency Hospitals. A similar bill was proposed in the House, but neither piece of legislation gained any traction. And even if either had, it would’ve been merely a stopgap.

The changing demographics that make it costly to provide healthcare to isolated rural areas can’t be fixed legislatively. Those drumming for a solution inevitably turn to technological innovations, like telemedicine, as a way of delivering care across distances. We need only to fasten the proper payment scheme, they say. If we only knew how to bill for it, telemedicine would save rural healthcare. Nevermind that huge swaths of rural America don’t yet have access to broadband internet. It’s true that the potential benefits of telemedicine remain woefully unexplored, and the REACH Act could, in theory, somewhat alleviate the crisis. But at the end of the day, these hospitals would still be beholden to the ultimate predictor of a hospital closure: profitability.

The rare stories of success that have emerged from the rural hospital closure crisis are stories of hospitals that have made capital investments into long-term improvements. But when each hospital has to mind their own bottom line, hospitals that are struggling cannot afford to invest in new equipment, to refurbish their facilities, to update their electronic health records system, to implement telehealth capabilities, or to spend money on hiring and retaining staff. Large hospital groups that own multiple facilities have no incentive to make these kinds of choices. They have no reason to invest in the community they are serving. For large firms that own dozens of health centers, the more financially sound decision is to simply close the hospitals that are struggling.

Now compare this with the possibilities of a single payer healthcare system, where capital investment in healthcare is uncoupled from individual hospital operating budgets and individual hospital profitability and, instead, is driven by community need. In this system, whether or not a hospital’s operating costs remained under budget would not dictate the decision to buy a needed MRI machine or renovate the emergency room or even to keep the doors open. Instead, capital investments would be a product of conscientious regional planning that incorporates the voices and desires and health concerns of the community that the hospital serves.

The rural hospital closure crisis is driven by the supremacy of capital in our current healthcare delivery system. Only a system that dismantles the profit motive and prioritizes community well-being will truly deliver care to all who need it.

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