Rural Hospitals Are Struggling. Medicaid Cuts Won’t Help.

Hutchinson Regional Healthcare System in central Kansas has lost money each of the last two years. “This year we’re on pace to essentially barely break even as a system,” president and CEO Benjamin Anderson recently said.   (Alamy)

Across the country, the finances of rural hospitals are stretched thin. The prospect of $1 trillion in Medicaid spending cuts that are included in the Trump administration’s megabill that passed Congress on Tuesday has healthcare executives worried that some hospitals will be pushed to a breaking point.

More than 150 rural hospitals have closed since 2010, according to the Cecil G. Sheps Center for Health Services Research. Others have pulled back on maternity services, as well as treatment for cancer patients. Many struggle to cover their costs.

Hutchinson Regional Healthcare System in central Kansas lost money each of the last two years, president and CEO Benjamin Anderson said during a press event last week hosted by the National Rural Health Association. “This year we’re on pace to essentially barely break even as a system,” he said.

Cuts to Medicaid, Anderson said, “threaten not only the poorest among us, but the entire healthcare delivery system.”

It isn’t unusual for hospitals in rural areas to be operating in the red. An analysis by healthcare consulting firm Chartis earlier this year found that nearly half of rural hospitals—46% nationwide—have a negative operating margin. In Kansas, that figure was 87%.

The consultancy finds that out of 2,090 rural hospitals in the U.S., 432 are vulnerable to closure.

“Rural hospitals disproportionately serve an older, and poorer—and sicker, by the way—population,” says Michael Topchik, executive director at the Chartis Center for Rural Health.

That patient mix translates to a more challenging “payer mix” for rural hospitals—that is, the types of insurers paying the bills. Typically, commercial insurers—say, for an employer’s health plan—reimburse health providers at higher rates. Yet rural hospitals tend to receive more reimbursements from insurance that pays less—Medicare, the government insurance program for seniors, and Medicaid, which covers lower-income people.

The growth of Medicare Advantage—the version of Medicare operated by private insurers—has presented another set of difficulties, says Topchik, as reimbursements from those plans can be delayed and denied more often compared with traditional Medicare.

On top of all that comes the reductions to Medicaid as outlined in Congress. “The net was fraying and this is one more cut,” Topchik says. “It’s a big one.”

Medicaid cuts were steeper in the Senate bill that passed Congress Tuesday afternoon, than they were in the House version released in May.

The non-partisan Congressional Budget Office has calculated roughly $1 trillion in Medicaid spending reductions under the Senate bill.

By one estimate, from the consultancy Manatt Health last month, rural hospitals on average would lose 21 cents from every dollar of their Medicaid funding. Over the next decade, cuts affecting rural hospitals would total nearly $70 billion from federal and state Medicaid coffers combined, according to the estimate.

Republicans in both chambers have voiced concerns about Medicaid cuts. One of them, Sen. Thom Tillis (R., N.C.), broke with President Donald Trump over the weekend and announced he wouldn’t seek re-election. Tillis was among the three Republican Senators who voted against the legislation.

White House press secretary Karoline Leavitt defended the bill’s treatment of Medicaid this week, saying the legislation protects funding “for those who truly deserve this program—the needy, pregnant women, children, sick Americans who physically cannot work.”

Senators ultimately increased a relief fund for rural health providers that is part of the bill—designating $50 billion in the final version of the bill, up from $25 billion earlier.

How much it will help hospitals to stay afloat remains to be seen.

“I think it’s going to stop some bleeding,” says Topchik. “I don’t think it’s a silver bullet.”

Write to Catherine Dunn at catherine.dunn@dowjones.com