Rural Hospitals Face Cuts Despite Federal Aid Intended to Help Them

A $50 billion federal fund intended to bolster rural hospitals may instead lead to service cuts and closures, a new investigation reveals. The Rural Health Transformation Program, created as part of a larger bill signed into law last summer, is raising concerns among hospital administrators and health policy experts who fear its focus on innovative access models may come at the expense of essential, existing services.

The program, which allocated more than $233 million to Montana in its first year, was designed to offset potential fallout from anticipated Medicaid spending reductions – estimated at nearly $1 trillion over the next decade – stemming from the same legislation. However, the structure of the fund prioritizes new approaches to rural healthcare delivery, rather than direct financial support for maintaining current hospital operations.

A Shift in Focus: Innovation vs. Immediate Needs

Ron Weins, CEO of Big Sandy Medical Center in north-central Montana, expressed his apprehension. The 25-bed hospital, serving a remote community of nearly 800 people, requires at least $1 million in deferred maintenance, including a failing HVAC system. “Weins wishes Big Sandy could gain funding…to renovate the hospital and direct payments to help secure its future,” but the program’s emphasis on novel solutions may leave facilities like his behind. The concern isn’t unique to Montana; at least ten states have voiced similar worries that the fund’s requirements could inadvertently force rural hospitals to scale back vital services to remain financially viable.

The crux of the issue lies in the program’s focus on “right-sizing” services. Montana’s application for funding, as detailed in its narrative, explicitly mentions paying hospitals for implementing recommendations, which could include reducing inpatient services. Other states, like Wyoming and Oklahoma, have similar provisions, suggesting a broader trend toward restructuring rural healthcare delivery. Wyoming, for example, requires any facility receiving funding to agree to “reduce unprofitable, duplicative or nonessential service lines.”

The Risk of “Right-Sizing”

This “right-sizing” approach is causing anxiety among rural hospital leaders. Darrell Messersmith, CEO of Dahl Memorial Hospital in Ekalaka, Montana, fears the program will push hospitals toward becoming Rural Emergency Hospitals – a designation requiring the elimination of inpatient services. “I would hate to see things shift toward a pack-and-ship facility,” he said, emphasizing the importance of maintaining a full range of services for his community.

The potential consequences extend beyond immediate access to care. Experts warn that cutting services, even those deemed “unprofitable,” could create a downward spiral. Brock Slabach, chief operations officer of the National Rural Health Association, cautioned that reducing services could ultimately harm hospitals’ financial stability and potentially drive residents away from rural communities. This concern is echoed by Shane Chauvet, a cattle rancher from Big Sandy, who credits the local hospital with saving his life after a farm accident. He now views the hospital as “essential to our community,” highlighting the critical role these facilities play in maintaining the viability of rural areas.

A Complex Landscape of Funding and Restructuring

Several states are exploring the conversion of rural hospitals to the Rural Emergency Hospital (REH) designation. This new federal designation, created by the Consolidated Appropriations Act of 2023, requires hospitals to halt inpatient services but offers enhanced payments to maintain emergency and outpatient care. Seven of the ten states where service cuts are being considered – Nebraska, North Dakota, Tennessee, Kansas, Nevada, South Carolina, and Washington – are including REH conversions in their plans.

However, the long-term effects of this shift remain uncertain. Tony Shih, a senior adviser at the Commonwealth Fund, points out that the type of services being assessed is crucial. “If the end result is that high-margin services are taken away from local hospitals with nothing given back in return, it can be financially harmful,” he said. He also notes that expanding outpatient care could be beneficial, but it will take time to determine whether these changes will truly stabilize rural hospitals.

Colorado and Oklahoma’s Approaches

Colorado’s plan to classify rural health facilities as a “hub, spoke, or telehealth node” is also raising concerns. According to the state’s program application, this classification will determine which services are sustainable locally and which are best provided regionally or through telehealth. While state officials maintain that no facility will be forced to end services, the potential for service reductions remains a worry for hospital administrators.

Oklahoma’s approach is similar, with officials suggesting that some facilities might voluntarily choose to reduce services as part of a broader effort to ensure financial stability. Rachel Klein, a spokesperson for the Oklahoma Department of Health, explained that hospitals might shift certain services to regional providers with higher patient volumes while expanding local outpatient care.

The Role of Medicaid and the Larger Policy Context

The current situation is inextricably linked to broader changes in Medicaid funding. The $50 billion fund was created as a “sweetener” to offset the anticipated impact of significant Medicaid cuts – estimated at nearly $1 trillion over ten years – included in the same legislation. This context underscores the complex interplay between federal policy, state implementation, and the financial health of rural hospitals.

Ed Buttrey, president and CEO of the Montana Hospital Association, believes his state’s plan could ultimately help rural hospitals grow financially sustainable despite the Medicaid cuts. However, his perspective is also informed by his position as a Republican state lawmaker, highlighting the political dimensions of the issue.

The future of rural healthcare remains uncertain. The effectiveness of the Rural Health Transformation Program will depend on how states balance the need for innovation with the imperative of maintaining access to essential services. Careful monitoring and ongoing dialogue between policymakers, hospital administrators, and community members will be crucial to ensuring that this fund truly serves the needs of rural communities.

This story comes from NPR’s health reporting partnership with Montana Public Radio and KFF Health News, a national newsroom focused on in-depth journalism about health issues, and one of the core operating programs at KFF — the independent source for health policy research, polling, and journalism.