New Rural Emergency Hospital Designation May Offer a Path to Financial Viability, but It Comes With Tradeoffs

What’s Trending: The New Rural Emergency Hospital Designation Will Provide Much-Needed Relief for Some Rural Hospitals, Yet Concerns Remain for the Rural Health Safety Net

As pandemic relief efforts have drawn to a close, rural hospitals are once again facing increased pressures and eroding revenues—even as research indicates persistent health disparities, including gaps in access to primary and mental health care.

Over the course of the last 13 years, 143 rural hospitals closed, and research by the Chartis Center for Rural Health indicates that another 453 are vulnerable to closure. But during the pandemic, relief fund programs and other safeguards provided much-needed respite for rural hospitals struggling to keep facility doors open. Just 9 rural hospitals closed during the last 2 years of the pandemic—as compared to the single-year record of 19 closures that took place in 2020.

But without that emergency relief, one of the most significant considerations for rural hospital leadership teams moving forward in 2023 will be whether to convert to the new Rural Emergency Hospital (REH) designation. This new, much-anticipated provider type offers a pathway for struggling rural hospitals to avoid closure and retain some services (e.g., Emergency Department, outpatient, and clinics) within their communities.

While the REH designation may provide a path forward for some struggling hospitals, the decision to convert is highly nuanced, and hospital leadership teams will need to weigh several considerations against REH conversion requirements.

Why It Matters:

Rural hospitals serve populations with disproportionate health disparities and socioeconomic challenges. These facilities continue to struggle financially, raising the risk of hospital closure: “No margin, no mission.” When you strip away the financial impact of pandemic-era relief, more than 4 in 10 rural hospitals nationally have a negative operating margin—including more than half of those facilities located in states that have yet to adopt or implement Medicaid expansion. These non-expansion states, not surprisingly, are also where the safety net has absorbed significant closures and sees the highest rates of vulnerability.

This has created care deserts in regions where access to care is desperately needed. Even at hospitals that remain open, for example, services such as OB and Chemotherapy are disappearing. The number of rural hospitals eliminating OB increased from 198 to 217 since 2019, and the number of hospitals ceasing to provide chemotherapy jumped from 311 to 353. Chartis research tells us that most of the Health Professional Shortage Areas (HPSAs) are in rural areas, and the pandemic has exacerbated what was already a crisis of recruitment and retention of clinical providers. This is the backdrop for the new REH designation and its potential as a much-needed relief valve for the rural health safety net.

While several legislative proposals have helped address widespread instability, including the American Health Care Act, Better Care Reconciliation Act, Graham-Cassidy, and the Save Rural Hospitals Act, the REH designation has received significant attention because it is the only effort to support the rural health safety net that has become law.

Converting to REH status carries with it several requirements, including forgoing all acute inpatient services, maintaining a staffed Emergency Department (24 hours a day, 7 days a week, 365 days a year), supporting observation care, and maintaining an annual average patient length of stay of 24 hours or less. Hospitals that convert to REH will lose 340B drug program savings, and for system-affiliated facilities, there are cost-based reimbursement considerations. However, as part of the conversion, each REH-designated facility will receive monthly payments, which are expected to total more than $3 million annually.

What’s Next

Taking these requirements into consideration, conversion would likely only apply to a small segment of rural providers—specifically those losing money year over year, smaller in size (i.e., revenue), and with a very low average daily census of inpatient/swing beds, among other factors. In fact, our study shows that of the approximately 1,600 rural hospitals eligible to convert to REHs, 389 rural hospitals are “most likely to consider” REH conversion, and 77 facilities within this group are ideal candidates for conversion based on their performance profile.

While the new designation is not a panacea capable of curing the widespread instability and uncertainty across the rural health safety net, it nonetheless offers a pathway for some rural hospitals, and an opportunity for some communities to retain access to important services that would otherwise disappear.

For the rural health safety net, the various pandemic relief programs and initiatives clearly helped to bring a measure of stability during an unprecedented crisis. But as those programs conclude, rural hospitals, elected officials, and rural healthcare advocates must accelerate efforts to craft solutions that can deliver long-term stability for the rural health safety net. All those pressure points that plagued rural providers prior to the pandemic—policy impact on reimbursement, staff recruitment and retention, population health, and inequity—will place further negative pressure on the safety net in the years ahead.

Learn more about what the REH designation means for the rural health safety net here.

ABOUT CHARTIS

Chartis is a comprehensive healthcare advisory firm dedicated to helping clients build a healthier world. We work across the healthcare continuum with more than 600 clients annually, including providers, payers, health services organizations, technology and retail companies, and investors. Through times of change, challenge, and opportunity, we advise the industry on how to navigate disruption, pursue growth, achieve financial sustainability, unleash technology, improve care models and operations, enhance clinical quality and safety, and advance health equity. The teams we convene bring deep industry expertise and industry-leading innovation, enabling clients to achieve transformational results and create positive societal impact.?Learn more.

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