Corporate Business Plans, not Local Need, Drive Hospital Closures, Report Says

The number of rural hospital closures has increased every year since the Great Recession. A new report looks at three communities to learn why they lost their hospitals, and what happened when they did.

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Large, corporate hospital operators have closed rural healthcare facilities based on their business interests and haven’t considered community needs or public input, according to a report released last week by the Kaiser Family Foundation.

The study looked at three different communities that in 2015 lost their critical access hospitals – hospitals that receive special consideration because they serve hard-to-reach rural areas. The hospitals in the study were Mercy Hospital in Independence, Kansas; Parkway Regional Hospital in Fulton, Kentucky; and Marlboro Park Hospital in Bennettsville, South Carolina.

“The large health systems that owned and managed the hospitals [that closed] made the decision to close … based not on community needs but on corporate business considerations that favored other hospitals in their system over the ones they closed,” the report said. “Typically, there was little or no local process of consultations or public input.”

The report was based on interviews with stakeholders and a review of public records. The researchers, led by Urban Institute’s senior research associate, Jane Wishner, sought to determine why the rural hospitals closed and how the closures affected surrounding communities.

In both Fulton, Kentucky, and Bennettsville, South Carolina, stakeholders told researchers that instead of investing in the local hospital, the corporations spent money on improvements for nearby hospitals that they also owned.

In Kentucky, local leaders tried to work with for-profit owner Community Health Systems to find other providers to continue services at the hospital, according to the report. “But CHS rejected this offer, likely, to preempt competition for patients in the county,” the report said.

CHS also restricted the use of the hospital, the report said.

A map of closed rural hospitals. The green dots are hospitals that have closed then re-opened.
A map of closed rural hospitals. The green dots are hospitals that have closed then re-opened. Click the map for an interactive version. Source: The Cecil G. Sheps Center for Health Services Research at the University of North Carolina.

“Namely it permitted no acute care facility to operate there, an action that one respondent said ‘strangled’ the community’s access to local healthcare services,” the report said.

A CHS spokesperson did not respond to the Daily Yonder’s request for comment.

In Independence, Kansas, the nonprofit Mercy Health system spent money to repair its hospital 75 miles away in Joplin, Missouri, that was damaged by a tornado. While rebuilding the Joplin hospital, the hospital company “‘lost its focus’ on the smaller Mercy Hospital in Independence,” the report said.

Several stakeholders interviewed for the report said that the hospital owners had shifted their focus away from serving their rural communities. The companies also had a “lack of consideration or planning for the impact on the community.”

But others said part of the problem arose from challenges of local leadership. “A number observed that local residents and public officials often lack the expertise or experience needed to negotiate with large corporate health systems and have limited understanding of the transformations taking place in health care delivery or payment systems widely,” according to the report.

Seventy-two rural hospitals closed between January 2010 and April 2016, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina. The number of hospital closures has increased each year since the Great Recession of 2008-09, according to the Sheps Center.

About half of the nation’s 5,000 short-term acute care hospitals are in rural areas. Four in 10 rural hospitals are located in the South.

Closing hospitals hurts rural communities in a variety of ways, the report said. The three communities that lost hospitals had reduced access to emergency care, lost physicians and other health-care providers, and had to travel farther for specialty care or do without.

The closures also cost local jobs and could make it harder for communities to attract employers, the report said.

Corporate business decisions were one of only a number of factors that contributed to rural hospital closures, the report said. Other factors included:

  • Challenging demographic, social and economic pressures. High poverty rates, lack of insurance, and high rates of insurance through Medicaid and Medicare also affected hospital’s financial viability. Two of the hospitals were located states that did not expand Medicaid coverage as allowed under the federal Affordable Care Act. One hospital was located in Kentucky, which did expand Medicaid.
  • Defection of privately insured patients to other facilities. People with private insurance, which typically reimburses hospitals more for the cost of care, were more likely to travel to bigger, newer facilities outside the area, “weakening the hospital’s payer mix and also reinforcing local perceptions – often based on anecdotal accounts from friends and family members – that the local hospital was of low or poor quality.”
  • Nearby competition. Each of the three hospitals was near larger hospitals, which increased competition for patients and private and public dollars.
  • Changes in Medicaid and Medicare payments. Budget sequestration dating back to 2011 and other policies have reduced hospital reimbursements. State policies like a Medicaid rate freeze also hurt the hospitals, the report said.
  • Failure to adapt to new payments and service delivery systems. Reimbursement is shifting away from paying by the service to paying for medical results and preventative care. “As one South Carolina stakeholder put it, ‘We used to pay hospitals to keep patients in, now we pay to keep them out.’ Consistently, we heard from respondents that rural hospitals have been slow to adapt to these reforms.”

Medicaid expansion did appear to increase patients’ access to care, especially preventative care. But Medicaid expansion alone won’t solve rural hospitals’ financial challenges, the report said.

“Kentucky respondents pointed out that the state’s Medicaid expansion may have delayed Parkway Regional Hospital’s closure, but that since the Medicaid expansion, Parkway Regional and three other rural hospitals in the state have closed.”


Topics: ConnectionHealth

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