INCREASING RURAL HOSPITAL CLOSURES IN 2025

What’s Driving the Crisis?

• Chronic Medicaid and commercial underpayments
• Payer mix shifts away from commercial toward government-funded plans
• Rising labor and supply costs
• First-pass claim denials increasing due to added documentation requests
• Delays in reimbursement and outdated billing systems
• Administrative burden rising faster than revenue

THE REAL-LIFE IMPACT

What Happens When a Rural Hospital Closes?

• Emergency response times increase by 30–60 minutes
  
• Stroke and trauma survival rates drop
  
• Maternity care deserts widen-forcing mothers to drive 90+ minutes
  
• Local job losses ripple through the community
  
• Population declines follow as families relocate for access to care

TIMELINE & LEGISLATIVE RISK

New Federal Law Raises Risks for Rural Hospitals
The “One Big Beautiful Bill” has now been signed into law, authorizing $785 billion in Medicaid funding reductions over the next decade. Health policy experts warn that these cuts could significantly worsen financial pressures on rural hospitals, many of which already operate with slim margins or negative cash flow.

Without intervention, analysts believe these changes could accelerate service reductions, emergency-only conversions, or permanent closures across hundreds of rural communities in the coming 12 to 24 months.
Recent Data Highlights

• 100+ rural hospitals have closed since 2010. 40 more have converted to “Emergency-Only” status since 2023
• Texas, Oklahoma, Missouri, and Alabama lead in at-risk facilities​​

Policy Spotlight: A New Lifeline for Rural Hospitals 
​CMS’s “Year of the Rural Hospital” created the new Rural Emergency Hospital (REH) designation to help struggling facilities stay open.

• Rural hospitals can convert to an REH model, drop inpatient beds, and focus on emergency and outpatient care.
• Benefits include:
  • 5% payment boost for outpatient services
  • New monthly facility payments from Medicare
  • Looser Stark Law rules allowing physicians to hold ownership stakes, helping attract doctors to rural areas.
• Over one-third of rural hospitals run negative margins. REH conversion could help them survive while maintaining critical emergency services for local communities.

Blake Madden of Hospitalogy writes: “The rural hospital changes—particularly around Stark law provisions and physician ownership in rural settings—are the most interesting piece of the proposed changes.”
Source: Hospitalogy, July 2022
Check out Blake Madden’s insights in his Hospitalogy Weekly Email.

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OPERATIONAL PRESSURES

What We’re Hearing from Hospital Leaders
“Margins are gone. Denials are up. MA plans are more trouble than they’re worth. We need help recovering revenue we’re already owed, and we need cost relief without staff disruption.”
These are the two loudest pain points we hear again and again:
​
Hidden Revenue Leakage
• Many rural hospitals are seeing a continued erosion in reimbursement levels
• Some have canceled Medicare Advantage contracts due to low payments and high admin burden
• Lower reimbursement + more denials = uncollected revenue that could fund front-line care
• Independent, contingency-based underpayment reviews can uncover and recover millions without burdening existing staff

Cost Pressure and the Demand for Efficiency
• Hospital leaders are targeting 100-200 basis point margin improvements by removing waste and inefficiency
• First-pass denials and administrative overload are draining revenue cycle performance
• Every asset must be high-performing, including cost centers like medical waste management
• On-site remediation solutions can cut waste hauling costs by 50%, freeing up cash for care expansion

We’re Here to Help
If you’re in hospital leadership or advising those who are, you already understand how thin the margins have become. The challenges are real, and the solutions aren’t always easy to spot.
We work quietly behind the scenes with solutions. If you’d like to have a private conversation about the challenges your hospital is facing and how we can help, we’re here.