Why Are Rural Hospitals Closing?

October 7, 2020

Why Are Rural Hospitals Closing – And What Can
Revenue Cycle Management Do to Fix It?

Revenue cycle management has proven a challenge for hospitals across the country, but no where is it more acute than for small and medium-sized hospitals in rural settings. According to a study by iVantage Health Analytics,41 percent of rural hospitals have faced negative operating margins, with many closing their doors as a result. Rural hospitals therefore face revenue cycle challenges that are (often) unique to the social-economic factors facing their setting.

Why are the financial factors forcing many rural hospitals to close?

  • Higher rates of uninsured patients and a reliance on public payers with lower claims reimbursement rates
  • A proportionately higher aging population than urban areas
  • Cost-based Medicare reimbursements tailored to rural settings
  • Patients traveling to urban areas to seek care (and thereby not supporting their local hospital)
  • Higher unemployment rates resulting in lower employer-sponsored healthcare benefits
  • Shortage of primary care providers
  • Socioeconomic disadvantages leading to higher health disparities

Rural hospitals are more likely to treat patients who are over 65 years of age, former veterans, have previously experienced childhood poverty and/or suffered from diabetes. These patients are more likely to face premature death and increased childhood mortality rates.

These factors have increased the financial pressures facing rural hospitals and with the move to value-based reimbursement models, the already-thin margins are preventing many to manage cost reduction plans while also improving patient care and outcomes.

The Impact of High-Deductible Health Plans

Many patients within rural settings are members of high-deductible health plans, resulting in further challenges for hospitals to collect full patient financial contributions in a timely manner. According to a study by TransUnion Health, 68 percent of patients with medical bills less than $500 did not pay their balance. Furthermore, for patients with account balances exceeding $5,000, the collection rates were four times lower than that for patients with low-deductible health plans. For small hospitals, these outstanding receivables collectively can have a significant impact on hospital finances and plays a large role in the aforementioned negative operating margin.

What can rural hospitals do?

Many hospitals have yet to develop a revenue cycle management program, with national figures as high as 26 percent, and this figure rising further within the rural hospital space. While many hospitals do not have the resource to engage a consultancy to conduct a full review and strategy, there are steps finance departments can take to get on the road to good health.

Establishing KPIs to benchmark the financial health of your hospital is a first step to ensuring that you are effectively managing your revenue cycle. Below are eight key performance indicators, and the benchmark for which to strive to beat:

  • Days in net accounts receivable (Goal: <52.46 days)
  • Days in gross accounts receivable (Goal: <50.37 days)
  • Days cash on hand (Goal: >76.26 days)
  • Total margin (Goal: >3.09 percent)
  • Operating margin (Goal: >1.79 percent)
  • Debt service coverage ratio (Goal: >2.89)
  • Salaries to net patient revenue (Goal: <44.68 percent)
  • Average age of plant (buildings/equipment) (<10.18 years)
  • Long term debt to capitalization (<27.72 percent)

Why Rural Hospitals Turn to Health Talent Solutions

As a leading provider of insourced and on-site revenue management solutions, our interim professionals work exclusively with small and medium-sized hospitals looking to accelerate their cash flow and increase revenue. We’re onsite within 72 hours and work alongside your finance department to provide the right match for your payers, systems and culture, providing accountability and delivering you peace of mind.

Many rural hospitals are challenged in finding the right talent in a tight candidate market. We augment your existing teams with the skills you require, whilst engaging your team to provide knowledge transfer and long-term success. Our AR SWAT Teams and interim management professionals will identify and solve inefficiencies involving patient-centered billing, collections and receivables management, transaction processing, denials management, cash posting, revenue integrity and reporting & analysis.

If you’re looking to accelerate your cash flow and enable revenue management solutions, contact us to learn more. We also offer a free confidential accounts receivable audit to small and rural healthcare executives to determine whether a cash acceleration program is right for your hospital.

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