Rural Hospitals Run Closure Risk With Reduced Payments and Medicaid Expansion Opt Out

Affordable Care Act implementation combined with state opt out of Medicaid expansion is creating a perfect storm which will lead to the closing of rural hospitals in the next three years if either Medicaid opt in is not adopted by states, or if these healthcare organizations fail to significantly adapt their current business models.  This will put several communities at risk of having no critical care facilities which are local and easily accessible to rural populations, and could spell the end of hospitals in rural America as we know it.

Currently, anyone who presents at an emergency department cannot be denied care based on their ability to pay.  Traditionally, hospitals who treated patients who did not have the economic resources to pay for their care would receive reimbursement in the form of a Disproportionate Share Hospital (DSH) payment that would provide partial reimbursement for the care the facility provided.  Part of the Affordable Care Act aims to save healthcare money by reducing or eliminating these payments, and works under the theory that healthcare organizations will no longer have a need for this reimbursement as everyone will be covered through either Medicaid, Medicare, Private Insurance, or insurance purchased through the federal exchanges.  In theory, this approach may have worked, but since states have now been granted the ability to opt out of Medicaid expansion, a critical gap has been created whereby in some states there is a significant percentage of the population who neither qualify for Medicaid, nor qualify for a subsidy through the health insurance exchanges.  These uncovered patients may utilize emergency care at hospitals, which the hospital will no longer receive compensation for creating an unsustainable business model.

Rural Populations and Medicaid Opt Out States

The map below, courtesy of The Advisory Board Company, shows those states which are slated for Medicaid expansion, and those which will be opting out.  The map below that shows which states have a high percentage of rural populations at or below the poverty level.  Alarmingly, there is a high correlation between states who have a high percentage of rural populations living in poverty, and are also going to opt out of Medicaid expansion.

States in which rural hospitals will be in jeopardy

The following list of states have both ingredients needed to spell disaster for rural hospitals, high percentages of rural poverty, and opt out of Medicaid expansion, and should be considered critical states to watch in the coming years:

• Georgia
• North Carolina
• Alabama
• Mississippi
• Tennessee
• Louisiana
• Oklahoma
• Texas

What can hospitals in these states do?

For hospital and healthcare organizations in these states, the next two years will be absolutely critical from a strategic perspective.  Increasing pressure, and widening gaps in healthcare may cause some states to agree to opt-in to Medicaid expansion, but providers in these areas should be working on contingency plans in case that does not happen.  This is particularly true for states in the southeast who have politically dug in their heels where expansion is unlikely.  As stated before, currently DSH payments are easing the financial burden of rural hospitals who care for patients without healthcare coverage, and although the extension of DSH payments for an additional two years may provide a bit of breathing room for these hospitals, it will be critical to evaluate the financial strategy of rural healthcare organizations if they are to remain viable in the future under full ACA implementation and decreased reimbursement.  Some healthcare organization have began looking at the implementation of experimental initiatives whereby they appeal to the State for money previously provided by the federal government, others are looking to raise money through private and community resources, but many are acknowledging that there just may not be a way to keep their doors open post Affordable Care Act implementation. Hospitals should begin rigorously pursuing a strategic analysis, and should have an action plan in place to deal with ACA changes and contingencies before the close of 2014, or many rural Americans could find themselves not only without healthcare coverage, but without a healthcare facility.

BHM has helped several organizations prepare for ACA implementation with particular experience in the southeastern United States.  To find out how we can assist your rural hospital with preparing for a successful future post ACA contact us via phone at 1-888-831-1171, or simply click below.