Rural hospitals brace for Medicaid cuts

Following the passage of congressional Republicans’ One Big Beautiful Bill, rural hospitals across the commonwealth are bracing for deep cuts to the safety-net programs – especially Medicaid – they rely on for revenue. They have reason to worry: The sweeping spending and tax cuts reconciliation package includes funding cuts that the Congressional Budget Office has estimated at approximately $1 trillion over the next decade for Medicaid, which provides a disproportionate share of revenue to already-struggling rural health institutions.

While GOP leaders argue that the cuts are necessary to improve the program's stability, healthcare providers already challenged by rising costs for supplies and labor now face additional financial pressure as they weigh the impact of potential cuts on their bottom line. 

Rural hospitals are particularly vulnerable. According to the Center for Rural Pennsylvania, 48 of the commonwealth’s 67 counties are rural, with a combined population of 3.4 million that is both aging and declining in number. That complicates the financial picture for rural hospitals, which face fewer patients over time – while also dealing with the complex needs of older people and greater challenges in terms of medical needs. 

Most crucially, safety-net programs like Medicaid, which reimburses at a far lower rate than commercial insurance, cover a proportionally larger share of patients at rural hospitals like Penn Highlands Connellsville, Bucktail Medical Center in South Renovo and UPMC Greene. The upshot: Already-struggling rural hospitals could see a significant number of patients lose coverage and, with it, the revenue these hospitals rely on. 

The losses could pile up if uninsured patients continue to seek treatment at rural hospitals, driving up an already-high rate of uncompensated care at facilities that are often the only local source of medical care. Seventeen rural facilities statewide are federally designated by the Centers for Medicare & Medicaid Services as Critical Access Hospitals, vital resources for medically underserved areas.

“It’s the largest healthcare cut in the history of this country,” said Matt Yarnell, the president of SEIU Healthcare Pennsylvania, the state’s largest health care union. Yarnell’s constituency includes some 30,000 healthcare workers, including staff at 40 hospitals across the state. “Many of the rural hospitals are already hanging on by a shoestring,” facing what he said was the potential loss of hundreds of thousands of dollars or more annually. “The likely impact here is that we're going to see more rural hospitals close, less access to care.”

Many of these institutions have already made difficult decisions to stabilize their finances. According to the Pennsylvania Office of Rural Health, since 2020, four hospitals have determined they can no longer justify the cost of maintaining a labor and delivery unit, bringing the number of rural hospitals without labor and delivery services to 31 – and the median drive time to a facility that delivers babies, or assesses pregnancies in distress, to 39 minutes. 

City & State reached out to over a dozen of the state’s rural hospitals for this article, including attempts to solicit comments from health systems such as UPMC, whose affiliated hospitals include some in vulnerable rural regions. Not a single hospital was willing to comment – and Yarnell, for one, finds the silence troubling.

“It’s part of the problem. It’s part of how we got here. Frankly, it’s so frustrating that the hospital industry sat on the sidelines and watched such an important program get a hatchet taken to it,” he said. SEIU has stepped up its own advocacy efforts, and plans an outreach campaign to hold Pennsylvania’s GOP members of Congress accountable at election time. (Of that delegation, only U.S. Rep. Brian Fitzpatrick voted against the bill.)

The fallout of insurance loss

“What’s not in those numbers, I would say, is also the silent attack on the Affordable Care Act,” noted Yarnell. He referred to less-publicized elements of the GOP bill that radically pare back the ACA, such as subsidies making private plans – which can be prohibitively expensive at market rates – affordable for the millions of individuals and families that purchase insurance through the program. 

In June, the Pennsylvania Insurance Department and Pennie, the state’s health insurance marketplace, sent a joint letter to members of the U.S. Senate and House of Representatives, urging them to vote ‘no’ on the OBBB, which they said would result in the loss of affordable health insurance made accessible by the ACA for as many as 270,000 Pennsylvanians.

The agencies also pointed to a projected $1.255 billion loss in annual health insurance-related tax credits, which would expire under the bill. In addition, the letter said, the average individual Pennie plan premium would increase by a staggering 82% after 2025. 

“Pennsylvanians could face large increases in premiums, and new red tape that would make it a burden to get the coverage they need,” Pennie Executive Director Devon Trolley said in the statement.

“The GOP proposal would be overwhelmingly bad for consumers, providers and our insurance market,” affirmed Pennsylvania Insurance Commissioner Michael Humphreys. “It would raise the cost of health insurance and create new barriers for hundreds of thousands of Pennsylvanians.”

In a May release, the Pennsylvania Health Access Network noted that 47 hospitals across the state rely financially on Medicaid to operate. Of those, a large majority rely on Medicaid for compensation. (Roughly 3 million Pennsylvanians – 23% of the state population – are covered by Medicaid.) That contrasts with most hospitals statewide, where on average, Medicaid ranks far lower in terms of payment volume; these hospitals rely financially on commercial insurance, a situation at once more lucrative and more stable.

Any adverse changes to Medicaid eligibility or enrollment would put additional pressure on the hospitals – and, should they close, the hospitals would leave widespread areas in Western and Northern Pennsylvania without a nearby medical facility. 

According to PHAN, a quarter of Pennsylvania’s 47 hospitals have seen closures or reductions in core services over the past 25 years, and more than half of those facilities – 26 – serve rural areas. The same number of hospitals face further risk should their patient population decrease, a likelihood given rural Pennsylvania’s accelerating population decline and aging demographics. Seventeen of the remaining financially vulnerable hospitals are in rural counties, the network confirmed, adding that changes to Medicaid would have a moderate to significant impact on the hospitals’ financial stability. 

Pennsylvania’s position

The dire financial straits have health care systems looking for answers.

State Sen. Cris Dush, who represents Cameron, Clinton, Elk, McKean, Potter and parts of Centre and Jefferson counties, told City & State that rural health systems have been the “canary in the coal mine” as costs for care have soared. 

Dush, who spoke at the North Central Regional Healthcare Summit in Bradford last week, argued that reimbursement rates and burdensome regulations are driving up administrative costs for already-struggling systems. 

Dush expressed concerns with “all these hospitals being acquired by either equity firms or so-called ‘nonprofits,’” stating that local ownership and consolidation of administrative work would go a long way toward reducing costs. 

He cited the affiliation between Armstrong County Memorial Hospital, Indiana Regional Medical Center and Punxsutawney Area Hospital as a regional network that maintains local control. 

“Out of necessity, because of (Affordable Care Act) reporting requirements, they've consolidated their administrative work so that they can get the benefit of scale there – but the hospitals are still locally owned and independent,” Dush said. “Doctors actually have the time to pay attention to the individuals.”

Ongoing issues

The myriad of challenges of operating rural hospitals has been a longstanding concern among lawmakers and policy experts on both sides of the aisle. In 2019, the Centers for Medicare and Medicaid Services, a federal agency, partnered with the Pennsylvania Office of Rural Health and other Harrisburg agencies on the Pennsylvania Rural Health Model, an experimental payment program whose goal was to help stabilize rural hospitals’ finances by establishing fixed annual budgets that would aid planning through predictable revenue streams. 

“It’s a Pennsylvania-specific demonstration program – a way to test out an innovative idea in how we can pay rural hospitals differently,” said Paula Chatterjee, a physician who directs health equity research at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, which recently completed a study of the program. 

Chatterjee and her colleagues found the payment model had little impact on rural hospitals’ bottom line, and concluded that financial stability would require greater external investment in these vulnerable institutions, along with measures to address chronic diseases and workforce shortages in rural regions. 

With the anticipated Medicaid cuts, “you worry about the levels of uncompensated hospital care going up in ways that no longer become financially sustainable, especially for a lot of these rural hospitals that are already operating in this world of financial volatility and thin margins,” she said.

But U.S. Rep. Glenn “GT” Thompson – a longtime former hospital manager and nursing-home manager who represents Pennsylvania’s largely rural 15th district – said the pending Medicaid changes “actually have a lot of potential to be very positive.” He cited a new $50 billion federal fund – The Rural Health Transformation Program – that will distribute $10 billion annually for five years to rural hospitals, beginning in 2026, “to make sure that our rural hospitals are held stable.” 

Thompson also said the changes to Medicaid eligibility contained in the OBBB – which include new job or career-training requirements for able-bodied, working-age adults without minor children in the home – could have a positive impact by shifting more Pennsylvanians from Medicaid, which has low reimbursement rates for hospitals, to private insurance through work, which typically reimburses at higher rates.

“There’s just a portion of individuals today – able-bodied adults without dependent children – that are able to climb a ladder of opportunity, which the federal government funds,” said Thompson, referring to federal legislation he has championed to subsidize career and technical education. “All of a sudden, they have a job … more than likely, they’ll have employer-provided insurance. Commercial insurance pays an average of $1.30 to $1.50 for every dollar of cost. That’s a financial win for all hospitals, not just rural.”

But data from KFF, a nonprofit, nonpartisan health policy organization, suggests that the pool for such transfers is small. Of U.S. adults between the ages of 19 and 64 who receive Medicaid, the data suggests, 64% are already employed; of the rest, only 8% are unemployed and do not have a disability or other illness, school enrollment or caregiving responsibilities that would exempt them from the proposed work requirement.

Thompson also suggested that affiliations, with their economies of scale, could offer “great strategies” to stabilize rural hospital finances. “I have seen models that have worked really well, where several facilities will work together – they're able to streamline their overhead costs … and have a stronger influence in negotiating for price reimbursement, or for buying supplies,” he said. 

Indeed, all but three of Pennsylvania’s rural hospitals are affiliated with larger health systems, such as UPMC and Geisinger, but are still considered vulnerable to closings – either of the entire facility or of critical units like the emergency or labor and delivery departments – when larger systems reorganize for efficiency to shore up their finances amid shrinking revenues. 

Dush, who expressed his concern with a “maternal health desert” in Northern Pennsylvania, where a several-county span lacks a maternity care department, worked with local officials to assist the struggling Bucktail Medical Center in Clinton County with grant funding earlier this year.

“It's just going to take some outside-the-box thinking and getting the federal and state regulators to loosen up on stuff,” Dush told City & State. Emphasizing the importance of keeping private equity firms out of local healthcare ownership, he added that “When the physicians own the hospitals, the hospitals run better.”

In her role leading the Pennsylvania Office of Rural Health, Lisa Anne Davis, a Penn State health policy professor, makes the case to larger health systems that rural affiliates are crucial for both the economic and the physical health of rural communities. 

“Health care is a highly competitive environment, and when a hospital is purchased by a larger health system, it increases the market share and the footprint of that health system,” said Davis. That footprint is more valuable, she explained, if a given region’s population remains stable or grows, offering more potential patients – some of whom will be referred to larger campuses for lucrative services.

“But it is very challenging for economic development groups to promote (employees coming to) that area if, in fact, they don’t have health care,” added Davis, who is also on the board of the Pennsylvania Rural Health Association. “These small rural hospitals are the financial engines of their community. They are the largest employer … So having a hospital locally is absolutely vital – not only for health care services, but also for the economic vitality of that community.”