by James A. Bacon
One commonly cited argument in support of expanding Virginia’s Medicaid program in concert with the Affordable Care Act is that enrolling more poor Virginians would help prop up financially shaky rural hospitals. Rural hospitals tend to serve disproportionately poor populations, which means they tend to provide disproportionate amounts of uncompensated care. Expanding Medicaid coverage to poor and near-poor populations, the logic goes, would provide these hospitals with much-needed cash infusions. If Virginia doesn’t expand Medicaid, many struggling rural hospitals may close, making health care even more inaccessible for the poor.
Marc D. Joffe and Jason J. Fichtner have taken a look at that argument in a new paper, “Hospitals and the Proposed Virginia Medicaid Expansion,” and found it wanting. The study was published by the Thomas Jefferson Institute.
Overall, Virginia’s hospital industry is in sound financial condition, generating net income of more than $1.5 billion in 2013, the authors note. Profits were not distributed evenly, however. The large, multi-hospital health systems such as Sentara, Carilion, Inova and Bon Secours were highly profitable, while many rural hospitals lost money.
Expanding the Medicaid program would pump millions of dollars into Virginia’s health care system without consideration to a hospital’s fiscal profitability, Joffee and Fichtner argue. Most of Virginia’s hospitals remain solidly profitable despite the burden of providing uncompensated care. They don’t need extra Medicaid revenue to remain profitable. Moreover, not-for-profit hospitals already receive important benefits — the ability to receive tax-deductible contributions, exemption from property taxes and corporate income taxes, and access to tax-exempt bond funding.
If legislators want to prop up Virginia’s struggling rural hospitals, the authors write, they should target failing hospitals directly rather than subsidizing rich and poor institutions alike.
Rural hospitals have bigger problems than uncompensated care; between 1990 and 2000, 208 rural hospitals shut closed nationally, mostly the result of consolidations or low utilization. That trend continues. Lee Regional Medical Center in Lee County, for instance, had a 34% staffed-bed occupancy rate in 2012 before it closed — way lower than the median occupancy of 63%.
“In free, competitive markets, suppliers that attract fewer customers are more likely to fail,” the authors write. “Small low-utilization hospitals struggle and are sometimes obliged to shut down.”
Bacon’s bottom line: Joffe and Fichtner make sense: If Virginia legislators want to keep struggling rural hospitals open, they should target aid to struggling rural hospitals, not to hospitals generally. But I would go a step further. I would argue that the idea of supporting general hospitals, which provide a broad range of medical services, may be an outdated idea. Perhaps rural health care systems should restructure around providing good primary care, supported by free-standing out-patient centers that inexpensively provide non-acute services, while referring patients with more acute conditions to larger, regional hospitals. Large-volume tertiary care centers can provide those services more cost-efficiently and with better outcomes than low-volume rural hospitals can. In exchange for the inconvenience of traveling further, rural patients likely would wind up with better care.
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