Rural hospitals have increasingly faced financial distress and as a result they struggle to stay in business. While some of these hospitals have managed to survive, a serious situation remains as closure and mergers threaten to leave some rural communities without adequate access to care.  A recent study in Health Affairs by Caitlin Carroll, PhD, of the University of Minnesota, Harvard Department of Health Care Policy research assistant Rhiannon Euhus, research associate Nancy Beaulieu, PhD, and Harvard Medical School’s Leonard D. Schaeffer Professor of Health Care Policy Michael Chernew, PhD, investigates the circumstances surrounding the closures and mergers of these rural hospitals. The study suggests that in cases where hospitals are likely to close and merge,  policy needs to be developed to support access to care and manage the effects of consolidation.

Using national hospital data from 2008-18, the study investigated how often unprofitable hospitals in rural markets close or merge, and to what extent have rural markets consolidated over time. They compared profitable and unprofitable hospitals, and examined four possible outcomes: continued operation without merger, within-market merger, out-of-market merger, and closure.

Applying a sample of nonfederal, short-term acute care hospitals, including critical access hospitals, the study defined rural markets as commuting zones in which rural hospitals accounted for at least 50% of hospital beds and measured profitability using each hospital’s total margin. They also studied the isolation of each hospital, defined as the number of other hospitals within a fifteen-mile radius. The results showed that 7% of unprofitable hospitals closed and 17% merged. A considerable number of unprofitable hospitals managed to stay open and avoid closure or merger.  While some of these hospitals recovered profitability during the study period, many surviving hospitals in rural markets remained financially distressed.

It was also found that consolidation was more common in markets that had more competitors at the beginning of the study period. As the number of competitors in rural markets decreases, there is a pressing need for policy makers to develop a regulatory framework for areas that can support only limited hospital competition.

As rural hospitals continue to face potential consolidation due to financial distress, regulating rural markets becomes increasingly important.  Policy that supports rural markets will need to balance the desire to preserve access to care, to manage the anticompetitive effects of mergers and to limit public subsidies.