13 of Kentucky’s 71 rural inpatient hospitals at risk of closing

Thirteen of Kentucky’s 71 rural inpatient hospitals are at risk of closing, and six of those are at immediate risk of closing, according to the latest analysis of Hospital Cost Reports by the Center for Healthcare Quality and Payment Reform, a policy center that says it works toward patient-centered, affordable health care.

The report does not name the 13 hospitals, but it does offer a wealth of financial information about most rural hospitals in Kentucky and every other state, including critical access hospitals and rural emergency hospitals that are not designated as rural.

The center says its analysis is based on financial data from the most recent cost reports that hospitals must submit annually to the Centers for Medicare and Medicaid Services. The financial report shows rural hospitals’ operating margins, profits and losses on patient services and revenues and costs on patient services and those that are not directly tied to patient care.

Low reimbursement rates from Medicare and Medicaid are often blamed for why rural hospitals have such ongoing financial troubles, but the center expands that list to all types of insurance, saying in the report, “losses on private insurance patients are the biggest cause of overall losses” in at-risk hospitals.

“The only way to prevent more closures of services and hospitals is for all health insurance plans, including Medicare Advantage plans, commercial insurance plans, and Medicaid programs, to pay rural hospitals enough to cover the higher costs of delivering services in rural areas,” the center says in a news release.

The center also states that the federal Rural Emergency Hospital program, which forces rural hospitals to eliminate inpatient services in order to receive large federal grants, “is not a solution to these problems” because it eliminates much-needed services in a community. Kentucky has one such hospital, Crittenden Community Hospital in Marion, Ky.

Instead, the center calls for change in how rural hospitals are paid and proposes a method of payment that calls for all payers to start providing “standby capacity payments” to rural hospitals to cover the fixed costs of essential services such as emergency care, inpatient care and maternity care.

What the numbers show

According to the center’s “Data on Rural Hospitals” financial status report, using data from the three most recent years for which Hospital Cost Reports are available, 15 rural hospitals in Kentucky lost money (defined as “negative total margin”); 19 others lost money on patient services, but not overall; and 10 lost money on patient services and overall.

The 15 listed with negative total margins are in Fulton, Pineville, Irvine, Carlisle, Madisonville, Shelbyville, Albany, Manchester, Owenton, Mount Sterling, Marion, Burkesville, South Williamson, Campbellsville and Russellville.

The 10 cited that lost money on patient services and overall are in Pineville, Irvine, South Williamson, Marion, Mount Serling, Shelbyville, Albany, Owenton, Manchester and Fulton.

The 19 listed that lost money on patient services, but not overall are in Martin, Columbia, Prestonsburg, Benton, Hazard, Paintsville, Danville, Greenville, McDowell, Harlan, Salem, Middlesboro, West Liberty, Carrolton, Russell Springs, Monticello, Tompkinsville, Hardinsburg and Whitesburg.

The report explains several ways that a hospital could lose money on patient services, but not overall.

“Many hospitals have managed to remain open despite losses on patient services because they receive local tax revenues or state government grants,” says the report. “However, there is no guarantee that these funds will continue to be available in the future or that they will be sufficient to cover higher costs.”

For example, the report notes that the federal assistance many hospitals received during the pandemic has ended, which has resulted in more than one-third of rural hospitals losing money overall in 2022-23.

It also says that some hospitals have financial reserves to offset the loss of inpatient services, adding that “the hospitals at greatest risk of closing have more debts than assets . . . to offset their losses on patient services for more than a few years.”

What’s Kentucky doing?

The previous report said 16 rural Kentucky hospitals were at risk of closing and 10 of those at immediate risk of closure, higher than this year’s 13 and six, respectively.

More information is needed to know why the number of at-risk hospitals in Kentucky is lower than they were in last year’s report, but what is known is that Kentucky legislators have passed laws to help support them.

For example, in 2020 they created the Kentucky Rural Hospital Loan Program, a revolving loan fund for distressed rural hospitals, and in 2021, funding of $20 million.

The original bill allows the Cabinet for Economic Development to provide loans to struggling hospitals to maintain or upgrade facilities; maintain or increase staff; or provide health services not currently available. The low-interest loans can run up to 20 years and are available to hospitals in counties with fewer than 50,000 people.

So far, eight Kentucky hospitals have been approved for projects, with $7.2 million in funds authorized. They are Pineville Community Health Center, Baptist Health Deaconess Madisonville, Rockcastle Hospital & Respiratory Care Center in Mount Vernon, Trigg County Hospital in Cadiz, Crittenden Community Hospital in Marion, Ohio County Hospital Corporation in Hartfort, Deaconness Union County Hospital in Morganfield and ARC Health Systems in Ashland.

Of this list, the hospitals in Pineville and Madisonville and the Rural Emergency Hospital in Marion have negative total margins.

Laws have also been passed to allow Kentucky hospitals to get more money from Medicaid, basing payment on the “average commercial rate” instead of the current Medicaid rate, which is often below that amount. This legislation was passed under two bills — the first in 2021 that addressed higher rates for inpatient care and the second, passed in 2023, that addressed higher payments for outpatient care, which is the one that is most beneficial to rural hospitals.

More recently, the Kentucky Hospital Association gave a detailed overview of the 340B drug discount program at the July 30 Interim Joint Committee on Health Services and asked for help to secure these payments with contract pharmacies as a way to ensure rural hospitals can keep providing many of the programs they support.

KHA President Nancy Galvagni explained that the 340B program requires pharmaceutical companies to sell drugs to covered hospitals and their contract pharmacies at their best price, allowing Kentucky hospitals to then invest their 340B savings to provide patient services that otherwise would not be available.

For example, she said the savings from the 340B program allows some hospitals to “keep the doors open.” Others, she said, use it to offer low-cost medications for the uninsured, cancer programs and hepatitis C clinics, and to support their charity care.

Galvagni added that because some hospitals don’t have in-house pharmacies, they contract with local pharmacies to provide the medications covered by the 340B program.

“The problem we face is the large pharmaceutical manufacturers have refused to deliver the medications covered by the 340B program to our contract pharmacies,” she said. “That refusal by these large, highly profitable multinational corporations to deliver medications to the contract pharmacies creates massive losses for the critical programs our patients need. Without the savings from the 340B program, critical health services will become unaffordable, and hospitals simply won’t be able to provide the care that is funded from the 340B savings.”

In closing, Galvagni asked the General Assembly to enact legislation to require the delivery of these 340B medications to contract pharmacies in Kentucky, as six other states have already done and 19 more are working on.

The center’s figures can be downloaded at https://ruralhospitals.chqpr.org/Data1.html.

Kentucky Health News is an independent news service of the Institute for Rural Journalism in the School of Journalism and Media at the University of Kentucky, with support from the Foundation for a Healthy Kentucky.