Rural hospitals hanging on despite poor financials, but for how long?

Rural hospitals in the U.S. have been struggling in recent years as the number of patients decline amid rising costs. Researchers from the University of Minnesota and Harvard University looked at what happens to unprofitable hospitals in rural areas and found that closures and mergers were often the fate of these struggling institutions.

The results were reported in the journal Health Affairs.

Looking at unprofitable hospitals primarily in rural areas between 2010 and 2018, researchers found 7% closed, 17% merged with what was usually another organization outside of their geographic market, while 77% continued to operate through 2018 without closing or merging. Of those struggling hospitals, about half returned to profitability.

The report also noted that 22% of markets served by unprofitable hospitals lost a competitor to closure or within-market merger. Out-of-market mergers affected 33% of markets with an unprofitable hospital.

“Overall, our results suggest that rural markets are experiencing meaningful rates of hospital closures and mergers, yet many hospitals have survived despite poor financial performance,” the report reads in part.

The authors say the results suggest that the process of consolidation may be slow, giving policymakers time to act, but that rural hospital markets are unstable. Markets that had more competitors at the beginning of the study had more consolidation.

The report notes that as the number of rural hospitals declines, policymakers will need to design a regulatory framework for rural markets that can support access, minimize the need for public subsidies while also ensuring those hospitals aren’t charging high prices due to their power in the market. Current regulations have tried to maintain access while limiting pricing, but hospitals have continued to close.

Researches also point to how out-of-market mergers affect rural hospitals.

“An important consideration is how to treat out-of-market mergers, which may forestall direct increases in local market power but can affect prices through other competitive channels,” the researchers state. “These mergers may also have implications for access because they influence what services are provided locally versus regionally.”

The authors conclude that antitrust enforcement is valuable in markets that can support multiple hospitals, while targeted financial support to preserve access coupled with price regulations may be necessary in other markets.