A leading money loser for hospitals: Kaufman Hall

Obstetrics and delivery services are one of the leading money losers of all hospital services, and a growing number of rural hospitals are closing obstetric departments to protect the financial viability of the overall enterprise, according to a recent analysis by Kaufman Hall. 

About 40% of rural hospitals are losing money on obstetrics programs, according to a recent study conducted by the University of Minnesota Rural Health Research Center. Many obstetrics programs hemorrhage money, and they are generally among the first services that financially struggling or low-volume rural hospitals cut. 

Several hospitals scaled back or eliminated labor and delivery services last year, and Becker's has reported on 15 hospitals that have cut these services so far in 2024. 

Ultimately, it's a money problem. Rising costs and staffing shortages have hit rural hospitals particularly hard, but low Medicaid reimbursement is the biggest challenge for obstetrics departments.

"This is especially detrimental in rural areas where a higher number of births are covered by Medicaid," Eric Fish, MD, president and CEO of Schneck Medical Center, in Seymour, Ind., told Becker's. "In Indiana, over half of babies born on an annual basis are covered by Medicaid, which pays 57 cents on the dollar of the cost of providing care. This means hospitals, specifically in rural areas, are experiencing significant financial losses. Increasing Medicaid reimbursement is imperative to keep these services open and to preserve access in the future."

Medicaid reimbursement rates set by states do not cover the full cost of providing obstetric services. This translates to financial losses for hospitals providing these services in rural areas, where a higher proportion of births are covered by Medicaid. 

Given that Medicaid funds 50% of deliveries in rural areas, hospitals would receive significant financial respite from improved Medicaid reimbursement for these services. 

"To help cover the losses associated with obstetrics, perhaps rural hospitals offering obstetrics could qualify for a special exception through Medicaid with an add-on payment program or an annual lump-sum payment, similar to [prospective payment system] hospitals that have received disproportionate numbers of low-income patients, based on the hospital's disproportionate OB patient percentage," Brett Altman, DPT, CEO of Atlantic, Iowa-based Cass Health, told Becker's

The other challenge, particularly in rural America, is the lack of staff and expertise when it comes to obstetrics nurses and physicians.

"We have spent upwards of $3 million annually for traveling obstetric nurses to keep our unit staffed 24/7/365, but it is the right thing to do for southwest Iowans in order to decrease the excessive mileage required to reach the nearest obstetrics unit," Dr. Altman said. "Low volume obstetrics is not profitable and is one of the key drivers for why so many obstetric units have closed in rural areas as these hospitals hit financial headwinds in addition to concerns of competency." 

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