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The truth behind hospital costs: rural areas bear the brunt

Health insurers must face the facts — and admit their role in increased rural hospital closures.

Nationwide, the threat of rural hospital closures looms over health systems.

A recent news report from Becker’s Hospital Review shows just how fragile our rural hospital ecosystem is, with 116 rural hospitals closing in the last decade. While the pace of these closures slowed over the past two years with the help of COVID-19 funding and federal support, the financial pangs of the pre-pandemic world are back with a vengeance.

As costs rise, already-unstable health systems continue to teeter on the edge. Now almost 450 rural hospitals face three or more of the major risk factors that indicate closures or service reductions.

One reason for these renewed challenges for health systems?

Hospitals are struggling in part because of substantial reimbursement reductions from health insurance companies. As Fierce Healthcare warned us back in November 2021, hospitals face a “rocky road ahead,” in large part because of tougher negotiations with health insurers.

While hospitals can’t afford rate reductions, insurers are demanding them anyway, despite continuing to break profit records. (Exhibit A: Fierce Healthcare reports that in the first quarter of 2022, “Each of the six major national payers exceeded Wall Street’s expectations for profit,” with leader of the pack UnitedHealthcare pulling in a cool $5 billion in profit.)

And health systems with less negotiating power — like rural hospitals — face additional risks, predicted Kevin Thilborger, managing director focusing on value-based care, strategy and transformation at Huron, a global consulting firm.

What he told Fierce Healthcare: “These trends will further drive consolidations, joint ventures and service line outsourcing in 2022, Thilborger said. That may mean fewer healthcare services offered by providers in one area, carrying significant implications for rural communities in particular. These ripple effects would have happened sooner were it not for federal aid during COVID-19.”

Ironic, isn’t it? Experts like Thilborger say insurer rate reductions drive hospital partnerships. The very same hospital partnerships that payors blame for high costs.

It’s quite a clever way to veil what’s really happening. Unfortunately, it’s those rural hospitals and the patients they serve who bear the costs, and until insurance companies pay fair rates, the trends of service reductions, partnerships and closures will continue.

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