For decades, rural hospitals have faced challenges including low volumes, declining populations, difficulties with provider recruitment, and limited resources. Due to an environment driven by healthcare reform and market realities, rural healthcare systems now must make significant changes to overcome new challenges, including:
- A failed payment system: The payment system based on the equation, Price x Sick Care Volume = Net Revenue, is unsustainable. Average healthcare premiums for a family of four are now $21,000 a year, while median household income in 2020 was nearly $68,000 — meaning that premiums take up 30% of household income and continuing to increase. Basic economic principles suggest that higher prices lead to increased supply in the form of new market entrants and reduced demand for healthcare.
- Growth of high-deductible plans: 42% of small businesses, primarily in rural communities, have some form of high-deductible health plan, up from 16% just 10 years ago.
- Declining hospital volume: In the last 10 years, inpatient volume has decreased nationally by 10%, due to factors like new technologies, a shift to outpatient care, and new pharmaceuticals. Hospital outpatient declined in 2018 for the first time in 35 years, primarily related to new market entrants, many technology-based. Rates of hospital decline are projected to continue.
- Accelerating growth in technology: Healthcare tech advances have grown exponentially in the past 30 years, including developments from influential corporations such as Apple and Amazon. Some, like virtual providers, home lab testing, and diagnostic technologies, are in direct competition with primary care service offerings in rural hospitals.
These obstacles aren’t going away. An increasing number of rural hospitals are closing, and it’s clear those remaining must find a different operating model. As a former CMS Administrator said in 2019, “In order to deliver lower cost, higher quality care, we must move past the status quo, and past fee-for-service payments to a system in which we’re paying providers to keep people healthy, reduce costs, and deliver better outcomes.”
The good news is that locally delivered healthcare, including rural and small community hospitals, has high value in the emerging delivery system. The competitive driver in the future will be patient value, which is calculated with this equation: Patient Value = Quality / Cost x Population. The goal is to improve quality while keeping costs constant, or to reduce costs keeping quality constant — applying that concept to a larger population to increase patient value.
A successful transition to value-based payment will require flexibility and strong alignment with primary care providers (PCPs). Rural hospitals, through their existing alignment with PCPs, will offer exceptional value relative to costs. Watch the full presentation below.