Rural Hospitals’ Financial Pressures Mount as Medicare Advantage Grows: 12 Things to Know

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From Becker’s Financial Management

Rural hospitals face mounting financial and operational challenges that threaten their long-term viability, with Medicare Advantage emerging as a growing pain point, according to a Feb. 20 report published by the American Hospital Association.

Many rural facilities continue to operate at a loss after years of turbulence, and the AHA warns that the rapid expansion of MA — along with the program’s ubiquitous challenges, including low reimbursement rates, payment delays and excessive prior authorizations — is straining rural providers and jeopardizing access to care.

“With MA plans accounting for more than half of total Medicare enrollment and growing, it’s more important than ever that the program works for patients and the providers who care for them,” AHA President and CEO Rick Pollack said. “It is critical for policymakers to address the harmful impact of Medicare Advantage’s low reimbursements and excessive administrative burdens to help ensure rural hospitals can continue to provide care to their patients and communities.”

Twelve things to know:

  1. Rural hospitals receive about 90.6% of traditional Medicare rates on a cost basis from MA plans, according to the report. Quality of care is also affected, with 81% of rural clinicians reporting declines due to insurer requirements.
  2. Rural MA patients also face longer hospital stays, spending 9.6% more time in the hospital before transitioning to post-acute care compared to similar traditional Medicare patients, according to the AHA.
  3. Administrative burdens have also grown, with nearly four in five rural clinicians reporting an increase in administrative tasks over the past five years, and 86% saying these demands have negatively affected patient outcomes.
  4. A survey cited in the AHA report found that nearly 80% of rural clinicians have experienced a rise in administrative tasks over the past five years, with 86% reporting negative effects on patient outcomes. Delays in MA plan approvals lead to longer hospital stays for patients awaiting post-acute care — 9.6% longer than traditional Medicare beneficiaries — further driving up costs for already struggling rural hospitals.
  5. MA has grown rapidly in recent years, with about 32.8 million people (54% of the eligible Medicare population) now enrolled in an MA plan. In rural areas, the growth rate has been even steeper, with MA enrollment quadrupling since 2010, according to the AHA. At its current trajectory, MA is expected to cover most rural Medicare beneficiaries in the near future.
  6. Many seniors opt for MA plans due to supplemental benefits, such as vision and dental coverage, as well as cost-sharing protections. However, for rural hospitals, this shift has led to significant financial and operational challenges.
  7. Historically, traditional Medicare has reimbursed hospitals at rates below the cost of care, according to the AHA report, which found that MA plans pay even less, reimbursing rural hospitals at just 90.6% of traditional Medicare rates on average. For Medicare-dependent and low-volume hospitals, this rate drops to 85%, while critical access hospitals receive only 95% of their costs under MA plans.
  8. This payment disparity cost rural hospitals an estimated $1 billion in 2023 alone. Given that Medicare accounts for a larger share of rural hospital revenue than urban hospitals — 43% versus 37% — these lower rates have an outsized impact on rural providers.
  9. The AHA argues that the financial instability caused by MA policies is accelerating the closure and downsizing of rural hospitals. Over the past decade, more than 100 rural hospitals have closed or converted to other provider types. Additionally, 432 rural hospitals are at risk of closing, according to a Feb. 11 report from Chartis, a healthcare advisory services firm.
  10. A conflicting study published in November 2023 by the American Journal of Managed Care found that increasing MA enrollment did not increase rural hospitals’ financial distress or risk of closing. Researchers studied rural hospitals in 14 states and found that MA enrollment in rural hospital counties grew from 14.3% of Medicare beneficiaries in 2008 to 28.4% in 2019. Additionally, the percentage of Medicare inpatient stays paid for by MA plans increased from 6.5% in 2008 to 20.6% in 2019.
  11. When MA penetration increased by 1% in a county, hospitals’ financial stability increased slightly, and they experienced a 5% reduction in risk of closing, according to the AJMC study. One in 5 of the hospitals studied treated no MA patients during the study period. The findings challenge concerns that MA plans harm rural hospitals through lower payments or added administrative burdens.
  12. With MA enrollment expected to continue to grow, the AHA has urged policymakers to ensure that rural hospitals can sustain operations while providing high-quality care. The report suggests several key reforms, including:
    • Streamlining prior authorization processes to protect timely access to medical care and drugs covered under the medical benefit.
    • Cost-based reimbursement for critical access hospitals from MA plans.
    • Ensuring prompt payment from insurers for medically necessary, covered healthcare services provided to patients.
    • Requiring MA plan clinicians who review coverage denials to share their name and credentials and ensure they meet CMS rules and have relevant training and expertise.
    • Improving data collection, reporting and transparency with a focus on metrics that are meaningful indicators of patient access, including appeals, grievances and denials.
    • Expanding network adequacy requirements for post-acute care sites.

Click here for more details on the AHA report.