Healthcare is an Enterprise

Healthcare in the American South has always been a complex topic; individuals in the South more frequently present to hospitals requesting treatment for chronic conditions and when compared to other regions of the US, Southern societies are generally more decentralized with a vast majority of individuals living in rural communities. I first brought up this general topic of hospital closures in my article “Quality vs Quantity? Maximizing Care,” but I hope to explore the issue more here. (1) A UNC study by the Sheps Center for Health Services finds that in the Southern US, roughly 10% of rural counties lost one or more hospitals between 2007 and 2018. (2) However, I pose that this issue is more so one about rurality than it is about culture and region. With more rural hospitals on the verge of fiscal insolvency, communities around the nation are put at risk as patients face poorer health outcomes, longer wait times, and greater challenges to reach a primary care or specialist provider.

To put this issue into perspective, I present a graph showing average distance to a hospital based on geographical region. (3)

While Southern individuals face above-average commutes to a local hospital, individuals in the West-North-Central or Great Plains region actually face the longest commutes; the connective tissue between these regions is a high degree of rurality. There are many reasons why a rural hospital might experience financial insolvency. In this article, I will focus on Medicare/Medicaid benefits and a lack of hospital resources. 

In previous articles, I discussed the role of Medicare and Medicaid coverage in decreasing healthcare costs for vulnerable patient populations; Medicaid programs cover patients with lower incomes and Medicare programs cover older patients. While these programs are very important for expanding access to care for patients who need it most, the reverse effect is experienced by healthcare providers. Per patient treated, hospitals are provided a standard reimbursement rate for patients with Medicaid and Medicare; this rate depends on the insurance program the patient is using, whether the care is inpatient or outpatient, and the type of diagnosis and treatment provided by the care team. (4, 5) However, this rate is set by the state and for patients that require long-term or complex surgical care, the reimbursement provided to the hospital may not fully cover the care provided to the patient. At this point, the hospital runs a deficit and a strange scenario unfolds whereby a hospital is more eager to admit uninsured or patients not enrolled on Medicare or Medicaid contributing to longer wait times for those vulnerable patients on government insurance programs. 

Yet the number of patients on Medicare and Medicaid is increasing. (6, 7)

What should hospital administrators do? Keep treating patients on Medicare and Medicaid but risk closing in the long-term, preventing all patients from receiving care regardless of insurance plan? Or, stop treating patients on Medicare and Medicaid but maintain long-term solvency while barring already vulnerable patients from receiving care?

The issue here doesn’t lie with the hospital administrators or the patients, it lies with state governments’ determination of reimbursement rates. Medicare and Medicaid reimbursement must not only cover patient expenses but also some of the fixed costs associated with the hospital staying open. Staff salary, electricity costs, the cost of supplies, and construction fees are all massive expenses that have to be paid off in small quantities through patient visits and thus, by subsidizing Medicare and Medicaid patient expenses, state governments must play a role in supporting healthcare infrastructure and long-term hospital solvency.

Furthermore, this issue is perhaps most important in the American South because Southern states tend to invest very little revenue into healthcare. (8) If this trend continues in the realm of insurance reimbursement rates, hospitals may not be adequately compensated for treating Medicare or Medicaid-enrolled patients. Again, in this scenario, Southern hospitals run the risk of shutting out Medicare and Medicaid patients or possibly closing down entirely. 

The other possible cause for rural hospital closures is a lack of hospital resources in rural communities. The following infographic shows the relative levels of healthcare providers in rural and urban hospitals. (9)

Compared to urban hospitals, rural hospitals have fewer total physicians, fewer primary care providers, and fewer obstetrics services. While I will talk about obstetrics services in the next section, the overall trend is clear: rural hospitals lack the resources necessary for the highest standard of care. In my previous article about this topic, I cited the fact that most medical students and trainees prefer to work in urban areas where opportunities are more plentiful and patient outcomes are generally better. However, this creates a painful cycle for rural communities whereby hospitals are underserved, perform on net worse, and thus the disparity continues. Furthermore, the limited reimbursements offered to rural hospitals often prevents administrators from hiring more physician staff, an issue compounded by the general lack of opportunities in and around rural hospitals. Limited funding also results in general resource shortages; medical supplies, electricity, food, and land costs are generally enormous fixed costs hospital administrators must account for when making patient care decisions. Because hospital infrastructure is a prerequisite to hiring physicians and delivering quality patient care, administrators must choose to forgo essential infrastructure and cut down on “less-essential facilities” or to lay off physicians and possibly worsen patient outcomes. 

Rural hospital closures have devastating and long-lasting impacts on local communities. The UNC Sheps study finds that roughly half of the recent closures have resulted in that county losing its last hospital increasing travel times for patients to access care for acute and chronic conditions. In fact, analyzing data from 2007 to 2018, the UNC team identified that roughly half of rural Southerners or 6 million people had longer travel times to their local hospital after the 11 year period. 

To accommodate rising costs and prevent financial insolvency, many rural hospital administrators have attempted to eliminate non-emergency, specialty care, and especially resource intensive services. These services, once eliminated, have a profound influence on local individuals. One example of such a service is the closing of maternity wards; the closure of maternity wards has resulted in pregnant women having to travel longer to access care or to give birth in the emergency room which lacks specialist providers and the resources essential for the best outcomes. (10) A study by the American Hospital Association finds that 89 obstetric units in rural hospitals closed between 2015 and 2019 and that now, less than half of all rural hospitals have maternity wards. One possible explanation for these closures is a dependence on low-yield reimbursements from Medicaid patients. In a rural Tennessee clinic, 70% of all maternity procedures were covered by Medicaid insurance when compared to the national average of 42%; this statistic is even more jarring when looking at compensation as Tennessee’s Medicaid reimbursement for delivery procedures is $1700, not nearly sufficient to recoup hospital costs. Healthcare is an enterprise; administrators’ inability to recoup the costs of patient care and provide sufficient resources for the highest standard of care contribute to on net poorer outcomes as a study finds that rural residents have a 9% greater risk of significant complications or mortality resulting from giving birth when compared to urban residents.