Is Medicaid expansion a silver bullet for rural hospitals?

Published October 24, 2019

By Brian Balfour

If you believe advocates, Medicaid expansion is a silver bullet to save rural hospitals.

States that refused to expand Medicaid are experiencing the majority of rural hospital closures. One recently widely reported statistic is that 77 of the 106 rural hospital closures since 2010 have been in non-expansion states.

An April press release from Gov. Roy Cooper’s office declared that since 2014, “Nationwide, 82 percent of rural hospital closures have been in states that refused to expand Medicaid.”

Case closed, right? States refusing to expand Medicaid are seeing the lion’s share of rural hospital closures, so North Carolina should expand Medicaid to save its rural hospitals.

But always remember, correlation does not mean causation. The plight of rural hospitals is not so clear cut.

Non-Expansion States Tend to be More Rural

One simple explanation to help understand the correlation between non-expansion and rural hospital closures is the fact that states opting against expansion are home to some of the country’s largest rural populations.

Of the 14 states still not adopting Medicaid expansion, all but two are ranked in the top 23 of states with the largest rural population by number, half of them are in the top 12. And the two not in the top 23 of rural population by number, Wyoming and South Dakota, rank 2ndand 6th of the most rural states by percentage of population.

The Sheps Center for Health Research at UNC-Chapel Hill keeps the most current listing of rural hospital closings. And of the 118 rural hospitals closing since 2010 (as of Oct. 2019), 20 of them are in Texas, 13 in Tennessee, seven each in Georgia and Oklahoma, and five each in Kansas and Alabama. This means 48 percent (57) of all rural hospital closures since 2010 nationwide were concentrated in just six states. Those six states are ranked first, ninth, third, twentieth, 22nd and 18th, respectively, in terms of total rural population.

In other words, rural hospital closures have been most frequent in the states with the most numerous rural populations – exactly as one would expect regardless of their Medicaid status.

Merely looking at the top line numbers of rural hospital closures is not conclusive evidence that Medicaid expansion would save rural hospitals. As this 2015 North Carolina Medical Journal article concluded: “Thus it is difficult to accurately determine whether it is the expansion decision per se that has led to higher closure rates, or whether states that have not expanded Medicaid have other factors leading to higher closure rates; this is an important question on which many researchers are currently working.”

A Long-Term Trend

The closing of rural hospitals is a long-term trend, with many causes. To portray a lack of Medicaid expansion as the leading, or even exclusive, cause is misleading.

“The nation’s current system of rural hospitals dates back to the 1940s and the belief that every town deserves a modern facility,” wrote the authors of this investigative articlepublished in the Jacksonville Daily News.

The downfall of rural hospitals has been a long time in the making, and the reasons numerous.

This July 2019 GQ article examined the trend, and concluded: “The number of rural hospitals has been shriveling for some time now: more than 200 rural hospitals closed between 1990 and 2000, according to a report from the Office of Health and Human Services.” (emphasis added)

Compare that figure to the 118 rural hospital closures over the last decade that have garnered so many headlines, and one could get the impression that the problem is easing rather than intensifying.

The high number of closures during the 1990s, as reported in the Jacksonville Daily News article, prompted politicians to pass “legislation that included the creation of the Critical Access Hospital designation, ensuring that a select group of rural hospitals would have all of their costs covered for Medicare patients.”

“The new laws contributed to a significant drop in closures during the first decade of the 21st century,” the article continues. “But when the Great Recession hit, many rural hospitals found themselves in another deep financial hole. Closures began rising again — a trend that has not relented despite the economic rebound.”

Rural hospital closures were nearly twice as numerous two decades ago, well before Medicaid expansion was an issue. The attempt to portray today’s closures as some sort of new or unique trend in order to blame a lack of Medicaid expansion stands in contrast to the facts.

Numerous Causes

As noted above, the rash of rural hospital closures is far from a recent phenomenon. Closures occurred at even higher rates well before Medicaid expansion was ever an option. Clearly, the failure to expand Medicaid can’t be the only, or even leading, cause of rural hospital closures over the last several years.

According to Navigant, an international research firm specializing in healthcare consulting, some of the leading causes of rural hospital closures are:

Low Rural Population Growth – and Loss

This 2019 Science Daily article summarizes the population drain from rural America: “Nearly 35 percent of rural counties in the United States are experiencing protracted and significant population loss, according to new research released by the Carsey School of Public Policy at the University of New Hampshire. Those counties are now home to 6.2 million residents, a third fewer than lived there in 1950.”

This 2018 Government Accountability Office report similarly noted “The years 2010 through 2016 marked the first recorded period of rural population decline.”

Obviously, a drain of customers will cause stress to rural hospitals’ bottom line.

Payer Mix Degradation

As the population drain typically involved younger people, rural hospitals were left with an older, sicker population to care for. These changes left rural hospitals particularly sensitive to changes in Medicare reimbursement rates. As the GAO report noted, adding to rural hospitals’ “increased financial distress was across-the-board Medicare payment reductions.” As part of the 2011 Budget Control Act, Medicare spending would be reined in “through sequestration that reduced payments to providers and plans by 2 percent beginning in 2013.”

Rural hospitals are especially sensitive to changes to Medicare payments because, on average, “Medicare accounted for approximately 46 percent of their gross patient revenues in 2016,” according to the GAO report.

Excess Hospital Capacity

With a smaller population to serve, many rural hospitals built in the WWII era are simply too large relative to their population base.

In a 2019 article, managing director with Navigant Dave Mosley wrote: “Many rural hospitals were originally built in the post-World War II era to provide a level and volume of care that is no longer needed, leaving them overstaffed and underused. For instance, the average rural hospital today has 50 beds and 320 employees yet serves only seven patients a day. It’s simply not a sustainable equation.”

Keep in mind, the sizeable staff of rural hospitals does not include many doctors. For instance, in North Carolina “Rural areas have a shortage of almost every type of provider. In North Carolina, 20 counties do not have a pediatrician; 26 counties do not have an OB-GYN; and 32 are without a psychiatrist, according to the interactive North Carolina Health Professions Data System.”

Moreover, 70 of 80 rural counties in NC are currently designated “medical deserts” by the US Dep’t of Health and Human Services for their lack of primary care availability.

Lack of capital makes hospitals unable to leverage technology

Finally, technology advances in medicine gave large urban hospitals supported by large populations a leg up on rural hospitals.

As highlighted in the Jacksonville Daily News article: “’Most of what we knew how to do in the 1970s and 1980s could be done reasonably well in small towns,’ said Dr. Nancy Dickey, president of the Rural and Community Health Institute at Texas A&M. ‘But scientific developments and advances in neurosurgery, microscopic surgery and the like required a great deal more technology and a bigger population to support the array of technology specialists.’”

The number of services rural hospitals could afford to provide shrunk relative to the deep-pocketed urban centers. Those rural residents who could afford to, would opt to visit adjacent urban hospitals to access the more advanced technology, further exacerbating the plight of rural hospitals.

The MedEx Band-Aid, or Restructuring?

Rural hospitals have been struggling and closing for decades. There are many causes for these developments. North Carolina Medicaid expansion advocates, however, want to convince you that expansion will be a saving grace to stem the tide.

But would expansion be a silver bullet, or merely a band-aid temporarily glossing over more pressing structural issues?

As Michael Cannon, director of health policy studies at the libertarian Cato Institute said“Medicaid is as likely to prop up inefficient and wasteful hospitals as anything else.”

Indeed, research shows that rural hospitals that have been closing were already losing money before Obamacare and Medicaid expansion. According to the GAO report, “(O)ne 2016 study found that rural hospitals that closed from 2010 through 2014 had a median operating margin of -7.41 percent in 2009. In contrast, rural hospitals that remained open during the same time period had a median operating margin of 2.00 percent in 2009.”

Given the significant demographic changes of rural areas over the past several decades, most notably a shrinking population, the old WWII era model of rural hospitals needs an update. As previously noted, excess capacity is a significant problem for rural hospitals.

Perhaps restructuring the business models of rural hospitals is what’s called for, not expanding Medicaid in order to temporarily breathe life into a dying and wasteful mode of healthcare delivery.

Additionally, recent moves by Georgia lawmakers may shed light on another problem with rural hospitals: poor financial management.

“Alarmed by a rash of recent hospital closings, Georgia lawmakers are now requiring executives and board members at almost all the state’s rural hospitals to receive training on subjects like financial management and strategic planning to improve their decision making and avoid missteps that can precipitate their hospitals’ decline,” according to this October 2019 AP story .

Many rural hospitals draw on local business leaders who may not have any expertise in healthcare delivery, according to the article. The complexities of healthcare finances can overwhelm even the savviest business leaders who are unacquainted with its nuances.

As the AP article pointed out, “Only about a third of rural hospital CEOs and board chairs surveyed in a 2010 study strongly agreed that their board members understood financial reports or had the ability to spot poor financial performance early.”


All this is to say that it is unjustified to blame the financial woes of rural hospitals on the failure to  expand Medicaid. As the Sheps Center noted about rural hospitals:

Closures have been ticking up since the recession of 2008-2009. There are likely multiple contributing factors, including failure to recover from the recession, population demographic trends, market trends (e.g. increased rates of merger and affiliation), decreased demand for inpatient services, and new models of care (e.g. Accountable Care Organizations). Long-standing trends – such as generally poorer financial performance in the South – may contribute to closure rates. Some observers have noted the potential effect of the Affordable Care Act (“Obamacare”) and/or the correlation with a state’s decision of whether to expand Medicaid.

The trend of rural hospital closures has stretched across decades, and in fact has been worse in decades past. The reasons are multiple.

Is Medicaid expansion a silver bullet to save rural hospitals. The answer is an emphatic no.

Could expansion provide a temporary life line for struggling rural hospitals? Perhaps. But in so doing, it would paper over deeper structural financial problems.

A band aid is not enough. Rural hospitals are on life support and pretending that Medicaid expansion is the cure is bad medicine.