New study finds rural hospital closures can lead to higher inpatient pricing at nearby hospitals

The Buzz This Week

A recent study in Health Affairs found that rural hospital closures have led to a 3.6% increase in prices for inpatient services at nearby “surviving” hospitals. As struggling hospitals deal with even greater financial pressure in the days ahead—particularly with proposed Medicaid cuts—rural patients will face an even greater decline in access to services and more expensive care where it remains available.

The study focused on areas with rural hospital closures between 2014 and 2018. Authors examined commercial claims data for 2012 to 2022, reviewing prices from at least 2 years before and for 4 years following closures. The study only analyzed hospital claims for non-elderly patients and excluded claims with secondary insurance.

The authors attribute the price increases to reduced market competition, noting that prices increased more at hospitals owned by health systems compared to independent hospitals, likely because of their greater leverage to negotiate prices with insurers. The study also found that prices at the hospitals that closed tended to be lower than surrounding hospitals prior to closure. While these lower prices may have been a contributing factor to their closure, it also means that displaced patients would need to pay a higher rate at the surviving hospitals even without the subsequent price increases.

Why It Matters

Rural hospitals have been in crisis mode for years. Nearly 200 US rural hospitals have closed in the last 15 years, and more than 430 are at risk of closing in the near future. The burden on rural communities when a hospital closes can be severe, as patients and families must travel longer distances to receive care. Travel burdens mean patients may delay necessary medical care, which can lead to more complex and resource-intensive clinical conditions down the road.

The logistical challenges of efficiently matching these patients’ needs with appropriate care also can mean medical emergencies aren’t always treated in a timely way, which can lead to complications and even death. While telehealth has expanded rural access to some domains of care, it becomes less applicable as patient acuity and need for in-person care grows.

Given the high proportion of Medicaid enrollees in rural areas, anticipated Medicaid cuts could further erode the financial viability of rural hospitals. A proposed bill to reduce federal Medicaid spending that passed through the House Budget Committee on May 18 includes cuts and new policies totaling an estimated $625 billion over 10 years. Separate from the bill, a recent independent Chartis analysis examined broad-based cuts to Medicaid revenue, finding that a 15% reduction would cost rural hospitals nearly $2 billion.

The impact of closures on the price of remaining services is just one part of the broader discussion about the stability of the rural health safety net. Policymakers must understand the full impact of potential policies to address this growing crisis. For instance, the recent rural emergency hospital (REH) designation enables struggling rural hospitals to keep their doors open by converting to a model that foregoes inpatient services, among other criteria. But this may inadvertently result in both reduced access to inpatient services in their market and increased prices for non-elderly patients with commercial insurance.

With the continued financial and operating challenges facing rural hospitals, it will be crucial to put additional policies and programs in place to ensure that facilities can provide essential care to remote communities across the US. Larger health systems might also consider partnering with or acquiring rural hospitals to expand their reach into new geographies and provide care for rural communities, including through telehealth and physician rotation programs.