Medicaid cutbacks are the latest challenge facing rural hospitals, many of which are struggling with other headwinds in providing quality care. Jim Kendrick, president and CEO of Community Hospital Corporation, shares his insights on a restructured Medicaid and other complex dynamics impacting rural healthcare. 

Can you describe how structural changes to Medicaid will contribute to the challenges impacting rural healthcare?

JK:  The Big Beautiful Bill’s reduction in Medicaid spending – estimated at nearly $800 billion over the next decade – has created more uncertainty over the future of rural healthcare delivery, which is heavily dependent on this government safety net. More than 20 percent of rural residents are Medicaid recipients.

The biggest Medicaid expense is the number of people on the program’s rolls. Under the new eligibility rules, recipients who don’t meet changes in care criteria or certain work requirements will be removed from the program. Because of the new rules, Medicaid-expansion states that allowed more people to join the program will be impacted more than the non-expansion states. 

It should be noted that rural hospitals are still required to provide care for those designated ineligible for Medicaid coverage. These individuals will now have no health insurance, and hospitals will not receive compensation for their care. Lower compensation exacerbates financial pressures. In response, some rural hospitals may have to reduce staffing and services. 

Rural healthcare providers need to determine how Medicaid cutbacks will specifically affect their operations. That will enable them to create effective strategies to help mitigate reduced funding.

What top actions should rural hospital CEOs and CFOs take to address this situation? 

JK:  Hospital leadership must remain hyper-focused on their organization’s financial condition. Hospital executives and board of directors are faced with making difficult decisions on how best to provide care to their communities without placing their organizations in financial peril. The only way to achieve that goal is to thoroughly understand the sources of revenue and the amount of their expenditures for each of the services they provide. It’s imperative to understand what it costs to provide each service in order to make decisions to ensure the sustainability of the facility. 

What is the economic fallout of hospital closures and fewer medical services in rural communities?

JK:  Healthcare services are crucial for a community’s economic overall well-being. Companies planning to locate operations in a community typically seek those with quality and ample healthcare resources, a skilled workforce, and good schools. Without quality healthcare, communities will be at a competitive disadvantage in attracting and retaining businesses.  Additionally, healthcare workers play a pivotal role in the economic lifeblood of their community, supporting stores, restaurants and other local businesses because hospitals are typically one of the largest employers in a small town.       

How can strategic partnerships benefit rural hospitals?

JK: More rural hospitals are forming partnerships to help manage operational challenges, such as higher costs and workforce shortages. Strategic collaborations with other hospitals and organizations can provide small hospitals with the critical resources necessary to sustain long-term operations and improve patient care and outcomes. 

How has increasing merger and acquisition activity impacted rural healthcare services?

JK: Healthcare systems and investment firms taking over struggling rural hospitals may ensure healthcare services stay local. Decades ago, not-for-profit hospitals or health systems would often acquire financially burdened rural hospitals and initiate operational changes to make them resilient. Nowadays, many private equity and venture capital firms are increasingly involved in these types of deals. Their mission is to recoup their investment in these assets as quickly as possible rather than become long-term operators of community hospitals. It’s simply a financial transaction.      

However, in some cases, M&A deals are sometimes the only option for survival if a hospital’s expenses continually exceed the amount of revenue generated.  

Can you cite an example of a struggling hospital that is now financially stable and describe how it accomplished this outcome?

JK: CHC-affiliated Huntsville Memorial Hospital (HMH), a 123-bed, not-for-profit acute care community hospital in Huntsville, Texas, made a remarkable recovery from financial and pandemic-related setbacks.

Following its emergence from bankruptcy, HMH suffered another financial blow when it lost millions of dollars in state supplemental funding. CHC worked with HMH to develop a recovery plan to reduce expenses and boost top-line revenue.

For example, the HMH executive team collaborated with area nursing schools in launching a nursing residency program to complete their clinical training. That allowed HMH to reduce spending on higher-cost contract nurses. The hospital also replaced its ED group with one with more favorable terms, renegotiated vendor contracts, and initiated other cost-reduction measures. Improved billing practices and other revenue-enhancement initiatives, including new service lines, partnerships, and technological investments contributed to a healthier financial environment and enhanced patient care and satisfaction at HMH. As a result, the hospital enjoys increased patient volume, as well as community trust.

Challenges are nothing new for rural and community hospitals. Over the last 30 years, the industry has faced a variety of significant changes and evolved to meet community needs. At CHC, we are all determined to continue advocating for and improving community healthcare.