Imagine a scenario in which someone, grievously ill or injured, goes to their local hospital, only to find the doors locked, the lights out, and a sign informing them that their nearest alternative is more than an hour away by car in one direction.
This is what thousands of our neighbors experience every time a rural non-profit hospital is forced to shut its doors or close a service due to overwhelming financial pressure.
Non-profit hospitals face inherent financial hurdles from taking on a disproportionate share of uninsured and Medicaid-covered patients and absorbing the costs of providing uncompensated care; but these natural financial challenges are compounded by external pressures that serve to erode what little financial cushion remains to keep local hospitals afloat. Among these have been recent conversations about rescinding the non-profit status and the associated tax exemptions for these facilities, based on a faulty and misleading notion that the value of the uncompensated charity care hospitals provide does not equal dollar-for-dollar the loss in tax revenue generated by the exemptions. But this is an erroneous assumption, for several reasons.
Nonprofit hospitals play an important and often underappreciated role in our society, in exchange for tax-exempt status. This isn’t limited to providing charity medical care – uncompensated or heavily discounted care to low income patients – which nationwide adds up to $16–$19 billion; this also includes maintaining essential medical services in underserved areas, such as emergency rooms, pre-natal / obstetric clinics, neonatal intensive care units, mental health programs, opioid and other substance abuse treatment facilities; and others, all of which serve critical medical needs, but operate at a financial loss.
Non-profit hospitals make other meaningful contributions to their communities as well. Local hospitals invest significantly in public health and preventive medicine, and in social services such as housing. Altogether, non-profit hospitals in the U.S. provided roughly $129 billion in community benefits in 2020 alone. To put it in perspective, the estimated cost to the federal government of hospitals tax exemptions came to approximately $13.2 billion. It is hard to argue that the American people are not getting a good deal.
Meanwhile, the costs imposed on rural hospitals pile up – the costs of absorbing uncompensated care, low Medicaid reimbursement rates, maintaining essential services at a loss, the skyrocketing costs of labor and other inputs, and so on; it is no wonder that most non-profit and rural hospitals operate at unsustainable margins; and many, especially in rural areas, operate at negative margins.
In Colorado 42% of all rural hospitals – nearly half – have experienced year-over-year losses in patient services, and 23% are at risk of closure. How can this be sustainable?
Rural non-profit hospitals simply cannot survive on a fee-for-service model alone; they require other, creative funding sources to keep the doors open and keep qualified doctors, nurses, technicians, and other medical staff on board. The tax-exempt status is one of these tools; prescription drug discounts offered under the 340B program are another.
And yet, every year, these and other revenue sources for hospitals come under relentless attack, from all directions: the pharmaceutical industry restricts the 340B discounts, sometimes recruiting government to make laws to that effect, leading to millions in lost drug savings for hospitals; the insurance industry pushes site-neutral payment policies, which reimburse hospital outpatient clinics at the same rate as stand-alone clinics, ignoring the extra overhead and related in-house services hospital clinics provide; state governments continuously look for ways to eliminate or pare down hospitals tax exemptions; and this year, some in the Colorado General Assembly sought, unsuccessfully, to impose rate-setting – a form of price control – on hospitals, which would have further reduced our already meager resources.
Again, how can this be sustainable? The chilling answer is that it’s not. Already, non-profit rural and community hospitals have been forced to make hard decisions about what services to cut in order to continue to subsidize uncompensated care; others are facing the prospect of closing their doors and creating health care deserts in their communities. How long until services or hospitals are no longer available to residents of rural communities in Colorado and many of the urban residents who travel and recreate across our great state?
Joe Theine is the Chief Executive Officer at Southwest Health System, a rural, independent, critical access hospital located in Cortez, Colorado.
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