The Financial Viability of Rural Hospitals

The Financial Viability of Rual Hospitals

By Bill Auxier, PhD

Right now, many rural hospital leaders say their number-one challenge is financial viability — that is, keeping their hospital afloat. As you know, this is because nearly half of rural hospitals operate at a negative margin, reimbursement is in decline, operating costs are on the rise, and financial pressure has forced many rural hospitals to discontinue essential service lines like labor and delivery. These issues are particularly relevant today due to recent policy changes. Payment reforms are putting increased pressure on reimbursement rates, which disproportionately hurt rural hospitals that rely on government payers and serve a higher proportion of low-income or uninsured patients. The implications are vast. When rural hospitals close or downsize services, entire communities lose access to critical care which can worsen health outcomes and force patients to travel long distances. Beyond health impacts, hospital closures often lead to broader economic decline in rural communities, because hospitals are often the largest employers in their area.

While these challenges can feel insurmountable at times, there is a solution: leadership.

Here are the top three areas rural hospital leaders can focus on right now.

Tough Decisions: It is essential that hospital leaders make difficult, disciplined decisions about what the hospital needs to actively grow, redesign, or discontinue. Tough decisions include doubling down on services that align with community need and positive margin. Tough decisions also include redesigning or partnering for low-margin but mission-critical services instead of subsidizing them blindly. Tough decisions require systems thinking; if a service line is discontinued, how does that impact other service lines? Rural hospitals rarely fail from lack of effort, but from trying to be everything to everyone.

Build a Financially Literate Leadership Team: Every senior leader needs to understand how their decisions impact margin on a daily basis, not just the CFO. Financials need to be shared in plain language dashboards for leaders to act on. All hospital leaders need to be held accountable for cost, productivity, and revenue decisions within their departments. Senior leadership needs to create a culture where cost control is framed as mission preservation, not austerity. Financial turnaround does not happen in the finance office. It happens in operations. Clinical and operational leaders must also be financial stewards.

Build Trust: Internal friction is due to a lack of trust. Internal friction needs to be reduced so decisions quickly turn into actions. It is essential to align the board, the medical staff, and the leadership team to achieve success. Transparency reduces rumor and resistance, regardless if the news is good or bad. Making tough decisions sooner rather than later and having difficult conversations early and often are all actions that build trust. Rural hospitals can lose critical time due to conflict avoidance and slow consensus, which can decrease trust. Trust is essential to success.

Financial viability in rural hospitals is not solved by accounting tricks or grants. It is solved through effective leadership.