Geographic Variation in the Profitability of Urban and Rural Hospitals
The popular business quote “No margin, no mission” succinctly states the importance of profitability. The notion that if a hospital doesn’t make enough money to keep its doors open, its higher purpose is moot may be a simplistic view, but historic and recent evidence suggest that unprofitability can reduce hospital services and quality, or worse, lead to closure. Between January 2010 and January 2016, 66 rural hospitals have closed, a majority of them in the South.1 Understanding where some hospitals are succeeding, compared to those that are not, is important as policy makers try to craft sustainable models of health care for rural areas. Previous studies have shown geographic variation in the profitability of critical access hospitals (CAHs)2 and also between urban and rural hospitals.3 In addition to noted increases in rural hospital closures, recent studies on the financial condition of safety net hospitals and hospitals affected by the Hospital Readmissions Reduction Program suggest that the geographic variation in hospital profitability may be increasing. A 2014 study found that there is a widening gap between the financial performance of nonprofit safety net hospitals and the performance of other nonprofit hospitals and of for-profit hospitals after the 2007-11 recession, especially in terms of total margins.4 The Centers for Medicare & Medicaid Services’ (CMS) Hospital Readmissions Reduction Program reduces Medicare payments for hospitals determined to have “excess” rates of patient readmissions for specific conditions. A fall 2015 study found that the average payment reduction (as a percentage of Medicare payments) for rural hospitals has exceeded that of urban hospitals for all three years (2013, 2014, 2015).5 These policy developments, coupled with historical challenges facing rural providers like lower patient volume and poorer and sicker populations, suggest the rural-urban gap in profitability may be exacerbating. To help policy makers, researchers, and communities understand which hospitals are likely to be less profitable, this study describes the current geographic variability of hospital profitability by comparing the 2014 profitability of CAHs,6 other rural hospitals (Medicare Dependent Hospitals, Sole Community Hospitals, and rural PPS hospitals, denoted as “ORHs”)7 and urban hospitals by census region, census division, and state.