Shrinking rural hospital margins aided by COVID-19 relief funds

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COVID-19 federal relief funds helped rural hospitals' financial performance but raises questions going forward about the 48% of these providers that consistently experience negative operating margins, according to a new issue brief released by the American Hospital Association.

The federal COVID-19 relief funds caused the largest increase in total margins for hospitals that would have experienced losses, the report said. 

"However, these observations raise questions about how rural hospitals will cope financially as COVID-19 funding has ended but persistent financial
challenges remain," according to the brief prepared by the Virginia Commonwealth University College of Health Professions, Department of Health Administration.

WHY THIS MATTERS

Provider relief funds were successful in preventing financial losses for many hospitals during the pandemic and, in some cases, contributed to positive hospital margins in 2021.

"However, as this funding declined in 2022, and hospitals faced persistent, and in some cases worsening, financial challenges, margins dropped. This decline is especially concerning for the large percentage of hospitals that struggled financially even prior to the pandemic," authors said. 

For some rural hospitals with negative margins, the relief funds resulted in margins that were still negative, but less so. Negative margins went from -10.44% to -7.85%.

In other cases, for rural hospitals with negative margins, relief funds fully covered the cost of providing care, resulting in positive margins. Margins went from -5.52% to 6.9%.

Perhaps surprisingly, for rural hospitals already operating in the black, margin increases were relatively small, from 9.64% to 12.28%.

Key findings:

• About half of rural hospitals consistently experienced negative operating margins from patient services prior to and during the COVID-19 pandemic.
• COVID-19 provider relief funds benefited all rural hospitals, and rural hospitals with negative total margins had the greatest benefit.
• Rural hospitals that were part of hospital systems were perhaps able to better mitigate the financial effects of the pandemic as the systems could provide aid to rural hospitals, navigate the operational and regulatory challenges that came with the COVID-19 pandemic and provide efficiencies in those operations.

THE LARGER TREND

Provider relief funds were meant to stem the financial losses for hospitals during the pandemic, and did that. 

"At the outset of the pandemic, there was particular concern that hospitals would not have the financial resources needed to address the challenges posed by the COVID-19 pandemic," the brief said. "Our results show that the worst fears about hospital financial conditions were avoided, in part due to the rapid distribution of COVID-19 provider relief funds."

Rural hospitals have long struggled financially, with half now operating in the red. This has been blamed on low patient volume and high operating costs.

Between 2010 and 2021, 136 rural hospitals closed, according to the UNC Cecil G. Sheps Center. Nineteen of these closures occurred in 2020, the most of any year in the past decade.

Pandemic relief funding helped smaller, rural hospitals, especially those not associated with a larger health system.

"However, as this funding declined in 2022, and hospitals faced persistent, and in some cases worsening, financial challenges, margins dropped," the report said. "This decline is especially concerning for the large percentage of hospitals that struggled financially even prior to the pandemic."

Email the writer: SMorse@himss.org