Health & Wealth Blog
6:36 pm
Wed February 27, 2013

Sequestration would hit rural hospitals harder than their urban counterparts

Credit 401kcalculator.org
Listen to the report.

Barring a congressional miracle,  Medicare payments to health care providers throughout the country will see a 2 percent reduction come Friday. That amount might not sound like much, but rural hospitals and their surrounding communities are the ones that would feel most of the pinch.

If the sequester kicked in Friday, the health care industry could lose as much as $11 billion in Medicare payments this year. John Morrow is vice president at iVantage Health Analytics, a company that tracks the financial quality of U.S. hospitals. The company studied what would happen to rural hospitals if that happened. 

“There are about twice as many hospitals that will flip from from operating at a profit to operating at a loss in the rural sector than there are in the urban or suburban sector," Morrow said. 

Generally speaking, when compared to their urban counterparts, rural populations tend to be older, poorer and more likely to not have private insurance. That’s why rural hospitals are more dependent on safety net programs like Medicare. On average, Medicare reimbursement payments make up to one third of rural hospitals’ revenue. For Missouri, Morrow says, cuts to those payments could mean up to 481 full-time, rural health-care jobs at the chopping block.

MU health economist Lanis Hicks said surrounding rural communities would feel the effect if these hospital jobs did get cut.

“It has a much greater impact indirectly on the rest of the businesses, because they’re the major employers," Hicks said.  "And school districts and hospitals are the two major employers in rural communities, if they did have a hospital.”

KBIA contacted about 10 Missouri hospitals to see how they’re planning for the sequester, but none have gotten back to us with specifics yet. Hicks says that's probably because they don't have a plan. 

“I just don’t think most decision-makers really know how to handle this kind of a budget cut,” Hicks said. “It would be one thing if we could say, 'Well, we could easily do that,' or, 'You know, it's going to hurt, but we can cut here,'  [but] they’re running lean.”

But in general, rural hospitals don’t have as much reserve cash as urban hospitals might. Washington University’s Timothy McBride has done research with rural hospitals for 20 years now.

 “When rural hospitals takes a million-dollar cut, they  probably don’t have the kind of money sitting around,” McBride said.  “Like, we were in a hospital recently and they said they had 60 days’ worth of cash sitting around.” 

The sequestration would add to the cuts to Medicare that are already included in the Affordable Care Act and set to kick in by 2014. Rural hospitals would also feel the pinch of the cut to disproportionate share hospital funds, which helps cover uncompensated care. 

Related Program