3 financial indicators that could predict rural hospital closures

The 56 rural hospitals that closed between January 2017 and August 2020 have three things in common, a January study by the NC Rural Health Research Program found.

1. The rural hospital closures are mostly in the southeast and south-central census divisions.

2. In the year before they closed, most of the rural hospitals had a negative operating margin, negative total margin and few days cash on hand. Forty-nine of the 56 hospitals that closed had a negative operating margin, 50 had a negative total margin and 47 had less than one month of days cash on hand.

3. Most of the rural hospitals that closed were less profitable and less liquid than the rural hospitals that stayed open during the study period.

Before COVID-19, rural hospitals were already showing long-term unprofitability and experienced lower revenue during the pandemic, the study said. CARES Act funding gave some relief to rural hospitals, but they likely will continue to have financial challenges after the pandemic. 

"Study results illustrate the importance of profitability and liquidity in prediction of financial distress and closure of rural hospitals," the study said. 

The study sample used critical access hospitals, Medicare-dependent hospitals, rural referral centers, sole community hospitals and prospective payment system hospitals. The researchers divided the sample into two groups: rural hospitals that closed and remained closed from 2017-20, and rural hospitals that stayed open from 2017-20. Financial data came from CMS.

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