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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to a health podocy. I'm your host, Rob Lott. Rural communities face ongoing health disparities. We know this is due in part to a number of factors, including generally lower socioeconomic status than in more populous regions, limited job opportunities, and reduced access to public health services. But the most obvious factor may be limited access to health care.
Rob Lott:There are fewer practicing clinicians because many have retired or are about to retire, and recruiting new folks is especially hard. And hospitals have struggled to stay afloat too, with many closing down altogether. Now when a hospital closes, we know it has a direct impact on the number of beds available, for example, and the number of doctors available to treat you if you get hurt or sick, as well as, the number of specialists who may be within a few hours drive in case you need specialty care. But what else happens when a hospital closes in a rural community? And how might those consequences affect people's health and well-being?
Rob Lott:That's the topic of today's Health Podicy. I'm here with Doctor. Caitlin Carroll, an assistant professor in health policy and management at the University of Minnesota School of Public Health. Together with her co authors, Doctor. Carroll has an article in the May 2025 issue of Health Affairs.
Rob Lott:Its title is also its main finding. Rural Hospital Closures Led to Increased Prices at Nearby Surviving Hospitals, 2012 to 2022. I can't wait to hear more about this research and its implications. Doctor Caitlin Carroll, welcome to A Health Odyssey.
Caitlin Carroll:Thanks for having me.
Rob Lott:So let's jump right in. Can you say a little bit about, rural hospitals and to what extent that they are closing?
Caitlin Carroll:Rural hospital closure is significant. About 200 rural hospitals have closed since 02/2005, which is about 8% of all the rural hospitals that were open in that year. So there's been a substantial change in the structure of rural hospital markets.
Rob Lott:Okay. And what are the forces behind that? In what way, for example, is the business model for a rural hospital different than those in suburban and urban settings that maybe makes it difficult for a rural hospital to stay afloat?
Caitlin Carroll:Yeah. A key factor driving closure is persistent financial distress, especially in the rural hospital market. About 40% of rural hospitals are unprofitable, and this financial distress has actually been increasing over time. In terms of maintaining profitability, there's two core challenges for rural hospitals relative to, say, urban hospitals or suburban hospitals. The first challenge is low patient volumes.
Caitlin Carroll:Rural hospitals have faced large decreases in demand for care. That's for a couple reasons. One is there's been declines in population in rural areas. There's also been an increasing tendency of rural residents to bypass rural hospitals in favor of more distant urban facilities. So when a hospital's location volumes, it limits the revenues that are coming in and makes it really difficult for the hospital to cover the cost of providing care.
Caitlin Carroll:The second challenge for rural hospitals is that they're more reliant on public payers, for example, Medicare, and they don't have as many patients with commercial insurance. That's an important factor for profitability because commercial insurers tend to pay more than Medicare for services. So if you put those two things together, you know, you have a limited number of patients coming into the hospital and a lower reimbursement rate per patient, there's significant financial strain at rural hospitals overall. That's generated concerns about access to care and limited competition in rural markets because financial distress increases the risk of closure.
Rob Lott:Most of our listeners probably won't be surprised about the fact that there are these hospitals closing in rural communities. What do we know about the impact of those closures?
Caitlin Carroll:In general, I would say there's sort of two categories of papers about the impact of rural hospital closure. First, there's a nice set of papers that study the effect of closure on the local economy. Those papers have generally shown that hot closure leads to decreases in employment, mainly in the health care sector. So that raises concerns that hospital closure can erode the economic vitality of local communities. The second category of papers in my mind study the effect of hospital closure on people's health.
Caitlin Carroll:Most work in this space has focused on the effect of closure on patients with time sensitive health conditions, like a heart attack or a stroke. Generally speaking, these papers find that closure can lead to an increase in mortality among patients with time sensitive health conditions, especially when there aren't nearby alternative hospitals.
Rob Lott:Okay. So that makes sense. Some focus on economic vitality, some focus on health. Your paper takes a slightly different, tack and looks at prices. Can you tell us a little more about, your study and maybe what are some of the top line findings?
Caitlin Carroll:Yeah. So so we look at a different consequence of hospital closure, which is reduced competition and the possibility that closures lead to higher commercial prices. The basic motivation here is that because commercial prices are negotiated between hospitals and insurers, hospital closure might give surviving hospitals increased leverage to negotiate prices. So in our paper, we, gather up some commercial claims, and we use a difference in differences approach. And we study the effect of rural hospital closure on the commercial prices charged by nearby surviving hospitals.
Caitlin Carroll:We have two main findings. The first finding is that when rural hospitals close, nearby surviving hospitals do raise their prices. We estimate a 3.6% increase in prices overall, which is consistent with the story of increased market power and negotiating leverage. This average price effect, the 3.6% increase, is driven by larger price increases that happened three to four years after the closure, which to us suggest lagged contract negotiations. Our second finding is a little more subtle, but our the finding is that prices at closed hospitals were actually lower than prices at nearby surviving hospitals in the pre closure period.
Caitlin Carroll:This is really important because it means that hospital closure can reallocate patients to higher priced hospitals, leading to higher prices for patients and higher prices for the system even when surviving hospitals aren't able to negotiate for higher rates.
Rob Lott:Got it. So you're saying basically prices were already high in the surviving hospitals and maybe they they could get even higher. Is that sort of the the take?
Caitlin Carroll:Right. So even before closure, prices were higher at the surviving hospitals. After closure, some of those surviving hospitals were able to increase their prices. But even in the cases where surviving hospitals had flat prices, we found evidence that closure can reallocate patients from low priced hospitals to high priced hospitals.
Rob Lott:Got it. One question that jumps to mind is how do you define nearby? Right? I'm assuming there aren't two hospitals down the street from each other in a rural community. What's what's your sort of definition of nearby?
Caitlin Carroll:Yeah. Great question. We say nearby is the three closest hospitals to the closed hospital. We throw out hospitals from that sample if they're sort of especially far away from the closed facilities. So if they're more than 50 miles away, we say, well, we don't think that there's a plausible mechanism for for prices to increase.
Rob Lott:Got it. Okay. Let's talk a little bit about the potential policy responses to these trends. Obviously, I think seeing a reduction in access to hospital care and a rise in the price of the care that survives, Certainly that's a problem for rural communities. But for the sake of argument as the devil's advocate here, is it a problem for our society as a whole?
Rob Lott:I mean, all people are leaving rural areas as a percentage of the total population, residents have been declining for a very long time. In absolute numbers, they've been declining for at least thirty years. In that context, doesn't it make sense that we'd have fewer hospitals to meet that smaller population's needs? And then in that case, prices, would be a natural consequence of that trend?
Caitlin Carroll:Yeah. This is a really important point. So in some cases, hospital closure may represent necessary consolidation in markets where demand is really too low to support high quality care provision at multiple hospitals. The most extreme version of this is a natural monopoly where some rural markets might only be able to support high quality care at one hospital. In those cases, the question becomes, how should we regulate consolidated rural hospital markets so that a monopolist hospital or any merged entity doesn't exercise market power in a harmful way?
Caitlin Carroll:One target of that regulation would certainly be prices, but any regulatory effort in rural markets should also consider accessing quality, because price regulation alone, for example, a price cap might actually create a perverse incentive to close down services that are unprofitable under the price cap or to incentive to reduce, costly quality investments. So in some cases, rural communities might benefit from a consolidated hospital system if we can get the regulation right, which is a big if. In other cases, though, hospital closure is not efficient and can be harmful to the local community. And in particular, we know from previous research that closure can have serious consequences for patients with time sensitive health conditions. To me, this suggests that all communities need access to some hospital care, in particular emergency care, even if that community doesn't have access to a traditional full service hospital.
Rob Lott:Okay. In just a moment, I wanna ask you about the potential, levers that policymakers do have available to them. But first, let's take a quick break. We'll be back after this. And we're back.
Rob Lott:I am here with the University of Minnesota's doctor Caitlin Carroll discussing her study on what happens to prices when rural hospitals close. Okay. So let's talk about what kind of levers policymakers do have at their disposal to respond to these challenges.
Caitlin Carroll:Sure. So if policymakers want to keep hospitals open, if that's the goal, one of the key levers they have is public financing. Hospital reimbursement for Medicare and Medicaid patients is set administratively, so the generosity of those reimbursements is effectively a policy choice. Another option for policymakers if public funds aren't available or if they aren't desired in some way is allowing hospitals to access private capital, for example, through a merger or an acquisition, as an alternative route to obtain financial support. Then in that case, of course, given the risks of consolidation, policymakers would have to try to regulate that consolidated entity.
Rob Lott:Got it. So say a little more about the the sort of setting of price point or or choices about reimbursement. There are policies like the recent rural emergency hospital designation or certainly the choice, for Medicare to maintain higher reimbursement for inpatient procedures. Presumably, those are some of the mechanisms by which reimbursement might be elevated for a rural hospital. Is that what you're talking about?
Rob Lott:And how are policymakers thinking about those choices sort of through the lens of rural health care?
Caitlin Carroll:Yeah. That that's exactly right. So in the current policy landscape, there are many sources of these public financial supports for rural hospitals. Many of them operate through the Medicare programs. You you listed some, but some of these programs are the critical access hospital program.
Caitlin Carroll:There's the low volume hospital program. There's Medicare dependent hospitals, sole community hospitals. There's quite a few of these special designations. When rural hospitals get one of these designations, they get higher payment rates from Medicare than they would under the standard prospective payment system. About 90% of rural hospitals get these increased Medicare payments through special designation programs, and these programs cost about $4,000,000,000 a year.
Caitlin Carroll:So there's quite a bit of money that's being directed to rural hospitals sort of via increases in public financing.
Rob Lott:Do you feel like that's the the sort of the most effective way to to keep a rural hospital afloat, or is it more like these policies have kind of been implemented in a scattershot or fragmented way and and this is where we've ended up at this point?
Caitlin Carroll:Yeah. A little bit of both. So on the one hand, there is evidence that when rural hospitals get increased Medicare payments through one of these special designation programs, for example, the critical access program. It does reduce the risk of closure. So in that sense, the programs are working or achieving one of their intended goals.
Caitlin Carroll:You know, to loop it back to this paper that we were talking about earlier, the paper about closure and prices, if you think about that evidence in conjunction with our new paper that's about prices, our results suggest a link between public reimbursement generosity and commercial prices in the sense that public prices can influence the market structure via influencing the probability of closure, which in turn affects commercial prices. So this is a really important point when we're thinking about making Medicare policy. But to to get back to your sort of specific question, like, these programs working? So, in some sense, they're working. When hospitals get more money from Medicare, they're less likely to close.
Caitlin Carroll:On the other hand, you know, it's clear to even a casual observer that rural hospitals keep closing. There's been steady rates of closure for many decades. So in that sense, the policies are not really working. I think that's for a couple reasons. One is that public financing for rural hospitals tends to be pretty poorly targeted.
Caitlin Carroll:That's probably obvious from the number I gave you earlier. 90% of rural hospitals are getting increased Medicare payments. So these public funds are not necessarily targeting hospitals that are critical sources of care in their communities. So that's a really important factor. The second factor, I think, influencing the effectiveness of of these current special designation programs is the growth of Medicare Advantage.
Caitlin Carroll:So all of the special designation programs that I mentioned earlier operate through traditional fee for service Medicare. So the growth of Medicare Advantage limits the influence of those programs at rural hospitals.
Rob Lott:Wow. That's really interesting. Can you say a little more about, are there any mechanisms through Medicare Advantage or sort of choices about, I don't know, risk adjustment or potentially supplemental benefits under the Medicare Advantage program that could be leveraged in a a way to support rural hospitals?
Caitlin Carroll:Yeah. This is an area where research is really thin, and I think additional research would be really valuable, but it's hard to get the data. I think the data we would wanna start with are is, you know, what what are hospital payment rates among Medicare Advantage plans compared to traditional Medicare for these special designation hospitals? So for example, critical access hospitals get cost based reimbursement from traditional Medicare. What sort of reimbursement do they get from Medicare Advantage?
Caitlin Carroll:So that's unknown. One possibility is that Medicare Advantage pays lower rates than traditional Medicare for rural hospitals. That's possible. Another possibility is that the rates are exactly the same, but Medicare Advantage puts up other barriers to to payment, like administrative reviews and things like that.
Rob Lott:Got it. Well, great agenda for maybe your next research paper, a few beyond that. Let's say your paper ends up in the hands of a member of congress or or one of their staff ers, perhaps they read it, they understand it, and they call you up and say, you know, clearly this is a problem, but its causes are so multilayered, so entrenched, so complicated, where do I even begin? What's your response to that question?
Caitlin Carroll:I think, you know, there's a lot of good answers to this question, but no perfect answer. You know, the problem is multifaceted, so the solution is probably multifaceted. But, you know, that hedging aside, I'll I I think I would probably start with targeting of public funds Under any scenario of public financing for rural hospitals, government funding should prioritize services that are critical in their local communities, and there's not a lot of evidence that that's what government funding is doing currently. There's a couple options for sort of doing this, improving targeting without actually increasing total public spending. For example, if the goal was to support geographically isolated hospitals, one path would be to take the existing programs, the existing special designation programs, and restrict eligibility only to the highest need or most isolated hospitals.
Caitlin Carroll:That would effectively reduce resources at some hospitals that lost eligibility, but it would free up funds that could facilitate an increase in payment for isolated hospitals or hospitals we think are providing critical services.
Rob Lott:Got it. Well, from your mouth to our policymakers' ears, doctor Caitlin Carroll, thank you so much for taking the time to chat with us. This was great.
Caitlin Carroll:Yeah. Thanks again for having me.
Rob Lott:Absolutely. And to our listeners, thanks for tuning in. If you enjoyed it, recommend it to a friend, leave a review, smash that subscribe button, and, tune in again next week. Thanks for listening. If you enjoyed today's episode, I hope you'll tell a friend about a health policy.