Rural hospitals challenged with inadequate insurance reimbursements

More than 100 rural hospitals have closed in the past decade and over 700 additional rural hospitals — one-third of all rural hospitals in the country — face serious risk of closure in the near future.

This and more data comes from the Center for Healthcare Quality and Payment Reform (CHQPR), a national policy center founded in 2008 that aims to facilitate improvements in healthcare payment and delivery systems.

According to data collected by CHQPR, Howard Young Medical Center (HYMC) in Woodruff, identified as a “sole community hospital,” operated at a negative 16.4 percent average patient services margin over the past two years. CHQPR defines “patient services margin” as “the profit or loss from revenues and costs associated with health care services delivered to patients.”

Additionally, CHQPR reports HYMC operated at a negative 4.8 percent average total margin over the past two years, which includes “revenues and costs that are not directly tied to patient care as well as revenues and expenses on patient services.”

In 2021, HYMC and six other rural hospitals were acquired by Aspirus Health.

“Like many rural health systems, Aspirus Health faces challenges in recruiting physicians and clinicians, serving widespread areas with fewer patients, and managing the rising costs of care,” said Tom Weaver, Aspirus system communications and engagement manager. “Add in pending Medicare and Medicaid cuts, larger geographic distances, and higher costs from pharmaceuticals and supplies, and you can see why rural hospitals face such steep headwinds.”

According to data collected by CHQPR Minocqua’s Marshfield Medical Center at an average patient services margin of minus 8.6 percent and an average total margin of minus 16.3 percent over the past two years.

Aspirus Rhinelander Hospital operated in the red in this regard, too, with an average patient services margin of minus 3.8 percent and an average total margin of minus 15.9 percent over the past two years.

Other rural Aspirus hospitals in Eagle River, Antigo, Medford, Merrill, Stanley, Stevens Point and Wisconsin Rapids maintained positive average margins over the past two years, according to CHQPR data. 

Aspirus Tomahawk Hospital, classified as a critical access hospital (as most rural hospitals are), operated at an average patient services margin of 3.5 percent but an average total margin of minus 3.6 percent over the past two years.

“Many small rural hospitals have a positive total margin despite incurring losses on patient services because they receive local tax revenues or state grants that offset the losses,” the CHQPR report states. “If these other sources of revenue were to decrease or be terminated, the hospital would no longer have revenues sufficient to cover its costs.”

But in the local cases of HYMC, Aspirus Rhinelander, and Marshfield Medical Center Minocqua, total margins are negative in addition to the patient services margin — and for the latter two, the total margin is actually more negative than the patient services margin, suggesting a greater financial shortfall not directly tied to patient care costs. It is possible that dedicated annual funding from the Howard Young trust helps cover this gap for HYMC.

Inadequate payments

The primary causes of losses at closed rural hospitals, CHQPR reports, were inadequate payments from both public and private health plans and inability of patients to pay their share of treatment costs.

Most of the hospitals that closed had losses on patients with private health insurance as well as on Medicare, Medicaid and uninsured charity care patients, and they did not have any other sources of income sufficient to offset these losses, the CHQPR website states.

At a regional scale, surface-level data from CHQPR suggests Medicare provides a lower revenue for the proportion of total services area hospitals provide to Medicare payers.

“Medicare and Medicaid generally reimburse at lower levels than private insurance, which adds financial strain in communities like ours where many residents rely on government coverage,” Weaver said. “That’s why careful planning and efficiency are so important for us.

“In rural communities, where a larger share of patients rely on Medicare and Medicaid, these lower rates make it even more challenging to sustain essential services.”

CHQPR provides the following data detailing the proportion of a hospital’s total services that are paid for by different payers:

The share of patient costs (two-year average) at HYMC is 30.4 percent Medicare and 54.7 percent private or other — which includes Medicare Advantage and government programs such as Veterans Administration or Workers Compensation. The sources of revenue (two-year average) breakdowns are 17.7 percent Medicare and 57.5 percent private or other.

Marshfield Medical Center Minocqua’s share of patient costs is 26.8 percent Medicare (22.5 percent of revenue) and 63.9 percent private or other (71.3 percent of revenue).

Aspirus Rhinelander’s share of patient costs is 20.7 percent Medicare (12.7 percent of revenue) and 71.3 percent private (62 percent of revenue).

Aspirus Eagle River is 36.7 percent Medicare (31.9 percent of revenue) and 51.3 percent private (63.3 percent of revenue).

Big Beautiful Bill

The One Big Beautiful Bill Act, a Republican-led bill championed by President Donald Trump, was signed into law on July 4 and will likely have significant effects on rural health systems.

The act, notably, includes a 12 percent cut to Medicaid — the largest source of funding of health-related services for people with low income in the United States. According to both CHQPR and Weaver, Medicaid already struggles to provide adequate payment for services. This cut is likely to hinder those payments further.

The law also establishes a $50 billion Rural Hospital Fund to support health care providers in rural areas. Half of that is to be distributed equally among states with approved applications. The other $25 billion will be distributed based on an approach determined by the Centers for Medicare and Medicaid Service.

The Rural Hospital Fund will be administered $10 billion per year from 2026 to 2030. That funding could offset 37 percent of the estimated cuts to federal Medicaid spending in rural areas ($137 billion over ten years) based on Congressional Budget Office estimates.

“Health insurance payments play a critical role in sustaining essential services, but they don’t always keep pace with the cost of delivering care, especially in rural areas,” Weaver said. “We appreciate the federal and state programs in place to support rural healthcare but realize they also fall short of covering costs, especially with inflation.”

Michael Strasburg may be reached at [email protected].