PYA’s Marty Brown discusses rural healthcare challenges facing Tennessee communities

What used to be considered an essential asset for any community recruiting new businesses to its town is now rapidly disappearing from the landscape of many rural areas, and there are no indications the trend will reverse itself in the future.

In a presentation yesterday to business leaders and community members in Alcoa, TN, PYA President and Chief Executive Officer Marty Brown told the attendees that nearly one in 12 rural hospitals across the nation has closed in the past 15 years. It’s a trend that PYA, the nation’s 13 largest healthcare consulting company with clients in all 50 states, closely monitors.

“There are currently 1,821 rural hospitals in the U.S.,” Brown said, down from nearly 2,000 in 2005. That fact is particularly alarming when you consider that nearly 20 percent of Americans live in rural areas, while only about 10 percent of physicians practice in those areas.

In the Volunteer State, the numbers are particularly alarming. Thirteen rural hospitals – almost one a year on average – have closed since 2005. Tennessee ranks second behind Texas in terms of rural hospital closures in that period.

For economic developers trying to lure new businesses to their city, availability of quality healthcare and a qualified workforce are two of the most critical factors.

“Across the U.S., more than 600 rural hospitals are susceptible to closure,” Brown noted, adding that over the past decade, 120 rural hospitals have closed. “At a time when the national economy is booming, we saw the highest number of rural hospital closures in 2019 with 19.”

Brown cited a number of key factors that are causing these closures. They include: (1) lack of Medicaid expansion in some states; (2) lower Medicare Wage Index, particularly in East Tennessee, and lower managed care contracting leverage; and (3) inability to subsidize non-profitable essential services.

One growing trend for many smaller, rural hospitals is to seek an affiliation or merger with a larger hospital system. Between 2012 and 2016, Brown noted that there were 240 such mergers, more than one half of them in the South. A more recent statistic shows that Tennessee ranked third among the 50 states for rural hospital mergers in 2018 with five.

“These affiliations are occurring for several reasons, all related to finances,” Brown said. They start with a shift from the traditional fee-for-service model to one called value-based reimbursement where providers must meet quality and technological standards. That’s a challenge for many rural hospitals that have lower patient volumes, workforce shortages, lack of access to capital to replace equipment with new products, and generally lower reimbursement.

“Larger health systems can continue to grow their market share and better control costs by absorbing these smaller hospitals,” Brown added.

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