Financial headwinds and operational challenges continue to plague hospitals commonly known as “tweener” hospitals. These facilities are too large to qualify as critical access hospitals and yet too small to pursue other means for financial security. Many, if not most, of these facilities are located in rural communities. In 2024 alone, there have been 21 hospital closures, and it is reported that 700 rural hospitals remain at risk of closing.  

Closures not only impact access to healthcare, which may already be more onerous for patients residing in more rural areas, but they also cause a ripple effect throughout a community’s economic stability. Tweener hospitals are often among a community’s top employers and purchase services and goods from other community resources, amplifying the economic disruption caused by their closures. 

So, what are the factors challenging tweener hospitals’ stability and viability?  

  • Cost increases and inflation outpacing reimbursement. Hospitals across the nation have faced increased costs over the past few years, especially relative to labor and drugs and supplies. While cost increases have stabilized over the past year, increases still far outpace reimbursement gains from Medicare and Medicaid. This discrepancy is especially exacerbated for tweener hospitals already operating with small margins.  
  • Increase in third-party payer denials and low reimbursement. Third-party payer denials are delaying access to payment for care that already vulnerable tweener hospitals critically need. Additionally, payer indifference to the costs of providing hospital care further exacerbates the precarious financial position of these hospitals.  
  • Provider shortages. Wide-spread provider shortages are especially troublesome for rural tweener hospitals. It is estimated that 66% of provider shortages occur in rural areas. Difficulties with provider recruitment and retention to these hospitals has forced many to “right-size” service offerings. Consequently, fewer than half of the country’s rural hospitals still offer OB services.  
  • Loss of pandemic funding. As pandemic funds wane, many tweener hospitals are finding themselves back in the same financial predicaments as they were pre-pandemic while still facing the same challenges and headwinds.  
  • Information technology risks. Cyberattacks are an increasing threat and result in substantial financial loss, as evidenced by the Change Healthcare cyberattack earlier this year. Tweener hospitals are especially vulnerable to cyber threats, as most lack the financial reserves to weather the financial repercussions of a cyberattack.  

Tweener hospitals are facing consistent and growing challenges impacting their ability to stay afloat. Congress has attempted to respond to these mounting challenges, as evidenced by the establishment of the Rural Emergency Hospital (REH) designation in December 2020. This designation seeks to enable qualifying hospitals to remain open under the REH designation, which maintains access to the critical outpatient services communities need. Currently, 18 states have enacted legislation to enable REH licensure, and approximately 30 hospitals across the country have converted to this designation. Nevertheless, tweener hospitals will likely continue to face financial and operational headwinds challenging their survival in today’s healthcare landscape.   

As these headwinds cause tweener hospitals to assess or re-assess strategic options and planning, VMG Health is here to assist. VMG Health’s Strategy Consulting team has vast experience working with hospitals to assess short- and long-term planning needs. VMG Health understands the unique factors of each client’s circumstances and tailors strategic plans to address these circumstances. With deep analytical expertise and knowledge of the healthcare landscape, VMG Health can support tweener hospitals as they consider strategic planning needs, how to best address challenges, and how to plan for long-term future successes.          

Sources 

White, M. (2024, June 12). Latest rural hospital closure sparks renewed cries for Medicaid expansion. Alabama Daily News. https://aldailynews.com/latest-rural-hospital-closure-sparks-renewed-cries-for-medicaid-expansion/

Bartash, J. (2024, June 8). Hundreds of rural hospitals at risk of closing: Center for Healthcare Quality & Payment Reform. Healthcare Dive. https://www.healthcaredive.com/news/hundreds-rural-hospitals-risk-closing-center-healthcare-quality-payment-reform/723555/

American Hospital Association. (2024, May 2). New AHA report: Hospitals and health systems continue to face rising costs, economic pressures [Press release]. https://www.aha.org/press-releases/2024-05-02-new-aha-report-hospitals-and-health-systems-continue-face-rising-costs-economic-pressures

Regan, A. (2024, May 5). More than 700 rural hospitals—about 1 in 3 nationwide—could shut their doors. Chief Healthcare Executive. https://www.chiefhealthcareexecutive.com/view/more-than-700-rural-hospitals-about-1-in-3-nationwide-could-shut-their-doors

Advisory Board. (2024, January 30). Hospital bankruptcies hit 5-year high. Advisory Board. https://www.advisory.com/daily-briefing/2024/01/30/bankruptcies#:~:text=Hospital%20bankruptcies%20hit%205%2Dyear%20high&text=The%20report%20also%20found%20that,2022%20and%20eight%20in%202021

Rural Health Information Hub. (n.d.). Rural emergency hospitals. Rural Health Information Hub. https://www.ruralhealthinfo.org/topics/rural-emergency-hospitals