The Impact of Rural Hospital Closures and State Responses

August 27, 2019 | ASTHO Staff

Since 2010, 113 rural hospitals have closed. An additional 21 percent of rural hospitals—a total of 430 facilities—are at high risk of closure. Further complicating matters, 64 percent of those hospitals are considered essential to their communities—a designation made based on a hospital’s trauma center status, its service to vulnerable populations, its distance from other hospitals, and the economic impact it has on a region. Research indicates that access to healthcare and economic vitality are severely reduced following a rural hospital closure. Expected outcomes include:

States have used a variety of measures to address and prevent rural hospital closures, including tax incentives, technical assistance, and increased Medicaid reimbursement rates. Below are a few examples.

Several states are initiating legislation to provide increased technical assistance to rural hospitals. In May 2019, Vermont enacted H 528, which created a Rural Health Services Task Force both to ensure the financial sustainability of the state’s rural healthcare system and to identify potential consequences should any of the state’s rural hospitals close. The task force is scheduled to submit a report to Vermont’s state legislature by January 2020. In 2018, Alabama enacted SB 351, which created a resource center at the University of Alabama at Birmingham Health System to provide support for nonprofit and rural public hospitals. In addition, Tennessee passed the Tennessee Rural Hospital Transformation Act of 2018, which took effect in July 2018. This legislation provides assistance and consultation to struggling rural health facilities to help them become a sustainable business and avoid closure.

There is also a trend to pursue new payment methodologies for rural hospitals. Oregon’s Rural Health Reform Initiative aims to transition rural hospitals away from cost-based reimbursement and towards value-based payments through coordinated care organizations. In 2019, the Oregon Health Authority recommended that 14 hospitals transition to alternative payment methods. The Oregon Health Authority also conducted an analysis to predict which hospitals would not be financially viable if financed in a manner other than cost-based reimbursement. The agency then used this analysis to recommend that two rural hospitals maintain cost-based reimbursement to prevent financial distress. In addition, Pennsylvania’s Rural Health Model aims to improve health outcomes and access to care among rural residents by implementing a global budget for Medicare, Medicaid, and select commercial plans. Finally, Texas enacted a 2019 bill that adopts a prospective reimbursement methodology for rural hospitals. The legislation grants the state the authority to alter prospective reimbursement rates, and guarantees that rural hospitals are accurately reimbursed for true costs incurred during the previous fiscal year.

States are also attempting to improve rural healthcare access by creating new licensures options and reducing regulatory barriers for clinics that serve rural populations. In 2019, Colorado enacted legislation that allowed for the creation of freestanding emergency departments. These facilities can either be owned by a nearby hospital or operate independently. The legislation also allows Colorado to lessen restrictions for community clinics that provide care to underserved populations and to establish a freestanding emergency department in areas where no hospital exists. In May 2018, Georgia enacted HB 769, which both improves access to rural health services by easing the regulatory path for the development for "micro-hospitals” and expands tax incentives for donating to rural hospitals.

States are exploring legislation that would recruit and retain a rural health workforce. Oregon enacted HB 2847 in July 2019, which expanded the list of hospitals whose medical staff qualify for an income tax credit based on their distance from a major population center. At the same time, Hawaii passed SB 1404, which appropriated funds to the state’s Department of Health for the Rural Health Care Provider Loan Repayment Program and made registered nurses, advanced practice registered nurses, and licensed social workers eligible for the program.

Although states have initiated a variety of legislative responses to rural hospital closures, the wide range of factors contributing to this issue—such as new technology, shifting demographic patterns, and lowering inpatient rates—points to the need for a multi-faceted approach. ASTHO will continue to monitor state legislation and trends in this area.