Half of rural hospitals in the red, pressured by high Medicare Advantage enrollment

Photo: Knaupe/Getty Images

America's rural health safety net is feeling pressured, with half of all rural hospitals in the U.S. now in the red. And according to new research from Chartis, high enrollment of rural residents in Medicare Advantage plans could make the situation worse.

The percentage of America's rural hospitals operating in the red jumped from 43% to 50% in the last 12 months, data showed. Fifty-five percent of independent rural hospitals are operating in the red, while 42% of health system-affiliated rural hospitals are operating at a loss. Nearly 60% of rural hospitals are now affiliated with a health system.

Meanwhile, Medicare Advantage now accounts for 35% of all Medicare-eligible patients in rural communities. In seven states, Medicare Advantage penetration exceeds 50%.

That's a problem, in Chartis' view. Traditional Medicare reimburses Critical Access Hospitals (CAHs) based on the cost of services provided. Since the advent of the Critical Access Hospital designation in 1997, this cost-based reimbursement has offset a rural hospital's typically low patient volume and revenue.

But recently, Medicare Advantage has attracted an increasing number of existing and newly eligible Medicare patients. The analysis indicates that, between 2019 and 2023, enrollment in Medicare Advantage in rural communities increased 48%. This rapid increase is highlighting differences between traditional Medicare and Medicare Advantage that have unique implications for rural hospitals.

For one, MA net reimbursement to CAHs is often lower for similar services than that of traditional Medicare because MA does not follow cost-based reimbursement. Also, MA may not cover all the services traditional Medicare does, including swing beds, which provide skilled nursing care for patients and are often a strong source of revenue stability for rural hospitals.

Rural providers may not be equipped to efficiently navigate administrative requirements for payment introduced by Medicare Advantage, such as prior authorizations, which can lead to increased denials, analysts said. Plus, public data reporting differs for Medicare Advantage vs. Medicare claims, which may impede rural hospitals' ability to fully understand their population's healthcare experience and needs.

According to Chartis, the number of residents in rural communities enrolled in MA increased from 6.3 million to 9.2 million between 2019 and 2023. As a result, MA plans now account for 38% of all Medicare-eligible patients in rural communities. In seven states – Alabama, Connecticut, Georgia, Hawaii, Kentucky, Maine and Michigan – that percentage now exceeds 50%. Close behind this group is a large cluster of 15 states in which MA now serves between 40% and 49% of all Medicare beneficiaries.

Addressing the issue will require action on the part of healthcare advocates and policymakers, analysts said. In terms of recommendations, they said the Centers for Medicare and Medicaid Services' new Interoperability and Prior Authorization rule should ease the burden surrounding care approval, and that establishing greater visibility into Medicare Advantage claims data would provide a much-needed lens into how well Medicare beneficiaries are being served.

WHAT'S THE IMPACT?

Chartis' research uses rural hospital operating margin as a foundation for understanding the stability of the rural safety net. Fifty percent is the highest percentage of rural hospitals losing money in the past decade. The jump from 43% operating in the red last year to 50% this year is the single largest percentage change analysts have seen in a 12-month period.

They also found that in 19 states, the median operating margin is in the red. States with the highest percentage of rural hospitals operating at a loss include Kansas (89% in the red), New York and Wyoming (83% each), Vermont (75%), and Alabama (74%). In Kansas, which is home to 99 rural hospitals, the median operating margin is -10%. With the exception of Delaware (home to just two rural hospitals), Utah is the only state where the percentage of rural hospitals in the red is less than 20%.

Although rural hospital instability is national in scale, facilities in states that have not expanded Medicaid have consistently performed worse financially than their expansion state counterparts. The analysis not only shows a continuation of that trend, but a similar jump in the percentage of rural hospitals operating in the red.

Across the 10 remaining non-expansion states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming), the percentage of facilities with a negative operating margin increased year-over-year from 51% to 55%. These states are home to more than 600 rural hospitals in total. Several of these states are among the most severely affected by hospital closures and a loss of access to care.

THE LARGER TREND

While the pandemic provided a measure of stability to rural hospital finances through various government intervention programs, the data indicates that any positive residual financial affects have all but disappeared. Other government policies (such as sequestration and bad debt reimbursement) continue to chip away at rural hospital revenue.

For example, the Chartis analysis shows that sequestration will cost rural hospitals more than $500 million this year and the equivalent of 9,000 healthcare jobs. Cuts in so-called bad debt reimbursement (i.e., the delivery of charity care to rural patients unable to pay for medical services) will claim approximately $175 million in revenue and the equivalent of an additional 3,100 healthcare jobs.
 

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.