May 13, 2025 • 20 mins
Health Affairs' Senior Deputy Editor Rob Lott interviews Caitlin Carroll of the University of Minnesota to discuss her recent paper that explores how rural hospital closures led to an increase in prices for nearby remaining hospitals.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rob Lott (00:00):
Hello, and welcome to a health podocy. I'm your host,
(00:04):
Rob Lott. Rural communities faceongoing health disparities. We
know this is due in part to anumber of factors, including
generally lower socioeconomicstatus than in more populous
(00:24):
regions, limited jobopportunities, and reduced
access to public healthservices. But the most obvious
factor may be limited access tohealth care.
There are fewer practicingclinicians because many have
retired or are about to retire,and recruiting new folks is
especially hard. And hospitalshave struggled to stay afloat
(00:47):
too, with many closing downaltogether. Now when a hospital
closes, we know it has a directimpact on the number of beds
available, for example, and thenumber of doctors available to
treat you if you get hurt orsick, as well as, the number of
specialists who may be within afew hours drive in case you need
(01:09):
specialty care. But what elsehappens when a hospital closes
in a rural community? And howmight those consequences affect
people's health and well-being?
That's the topic of today'sHealth Podicy. I'm here with
Doctor. Caitlin Carroll, anassistant professor in health
policy and management at theUniversity of Minnesota School
(01:30):
of Public Health. Together withher co authors, Doctor. Carroll
has an article in the May 2025issue of Health Affairs.
Its title is also its mainfinding. Rural Hospital Closures
Led to Increased Prices atNearby Surviving Hospitals, 2012
to 2022. I can't wait to hearmore about this research and its
(01:54):
implications. Doctor CaitlinCarroll, welcome to A Health
Odyssey.
Caitlin Carroll (01:59):
Thanks for having me.
Rob Lott (02:01):
So let's jump right in. Can you say a little bit
about, rural hospitals and towhat extent that they are
closing?
Caitlin Carroll (02:10):
Rural hospital closure is significant. About
200 rural hospitals have closedsince 02/2005, which is about 8%
of all the rural hospitals thatwere open in that year. So
there's been a substantialchange in the structure of rural
hospital markets.
Rob Lott (02:27):
Okay. And what are the forces behind that? In what way,
for example, is the businessmodel for a rural hospital
different than those in suburbanand urban settings that maybe
makes it difficult for a ruralhospital to stay afloat?
Caitlin Carroll (02:43):
Yeah. A key factor driving closure is
persistent financial distress,especially in the rural hospital
market. About 40% of ruralhospitals are unprofitable, and
this financial distress hasactually been increasing over
time. In terms of maintainingprofitability, there's two core
(03:04):
challenges for rural hospitalsrelative to, say, urban
hospitals or suburban hospitals.The first challenge is low
patient volumes.
Rural hospitals have faced largedecreases in demand for care.
That's for a couple reasons. Oneis there's been declines in
population in rural areas.There's also been an increasing
(03:24):
tendency of rural residents tobypass rural hospitals in favor
of more distant urbanfacilities. So when a hospital's
location volumes, it limits therevenues that are coming in and
makes it really difficult forthe hospital to cover the cost
of providing care.
The second challenge for ruralhospitals is that they're more
(03:47):
reliant on public payers, forexample, Medicare, and they
don't have as many patients withcommercial insurance. That's an
important factor forprofitability because commercial
insurers tend to pay more thanMedicare for services. So if you
put those two things together,you know, you have a limited
number of patients coming intothe hospital and a lower
(04:08):
reimbursement rate per patient,there's significant financial
strain at rural hospitalsoverall. That's generated
concerns about access to careand limited competition in rural
markets because financialdistress increases the risk of
closure.
Rob Lott (04:23):
Most of our listeners probably won't be surprised
about the fact that there arethese hospitals closing in rural
communities. What do we knowabout the impact of those
closures?
Caitlin Carroll (04:35):
In general, I would say there's sort of two
categories of papers about theimpact of rural hospital
closure. First, there's a niceset of papers that study the
effect of closure on the localeconomy. Those papers have
generally shown that hot closureleads to decreases in
employment, mainly in the healthcare sector. So that raises
(04:56):
concerns that hospital closurecan erode the economic vitality
of local communities. The secondcategory of papers in my mind
study the effect of hospitalclosure on people's health.
Most work in this space hasfocused on the effect of closure
on patients with time sensitivehealth conditions, like a heart
(05:18):
attack or a stroke. Generallyspeaking, these papers find that
closure can lead to an increasein mortality among patients with
time sensitive healthconditions, especially when
there aren't nearby alternativehospitals.
Rob Lott (05:32):
Okay. So that makes sense. Some focus on economic
vitality, some focus on health.Your paper takes a slightly
different, tack and looks atprices. Can you tell us a little
more about, your study and maybewhat are some of the top line
findings?
Caitlin Carroll (05:49):
Yeah. So so we look at a different consequence
of hospital closure, which isreduced competition and the
possibility that closures leadto higher commercial prices. The
basic motivation here is thatbecause commercial prices are
negotiated between hospitals andinsurers, hospital closure might
(06:10):
give surviving hospitalsincreased leverage to negotiate
prices. So in our paper, we,gather up some commercial
claims, and we use a differencein differences approach. And we
study the effect of ruralhospital closure on the
commercial prices charged bynearby surviving hospitals.
(06:30):
We have two main findings. Thefirst finding is that when rural
hospitals close, nearbysurviving hospitals do raise
their prices. We estimate a 3.6%increase in prices overall,
which is consistent with thestory of increased market power
and negotiating leverage. Thisaverage price effect, the 3.6%
(06:54):
increase, is driven by largerprice increases that happened
three to four years after theclosure, which to us suggest
lagged contract negotiations.Our second finding is a little
more subtle, but our the findingis that prices at closed
hospitals were actually lowerthan prices at nearby surviving
(07:15):
hospitals in the pre closureperiod.
This is really important becauseit means that hospital closure
can reallocate patients tohigher priced hospitals, leading
to higher prices for patientsand higher prices for the system
even when surviving hospitalsaren't able to negotiate for
(07:36):
higher rates.
Rob Lott (07:38):
Got it. So you're saying basically prices were
already high in the survivinghospitals and maybe they they
could get even higher. Is thatsort of the the take?
Caitlin Carroll (07:47):
Right. So even before closure, prices were
higher at the survivinghospitals. After closure, some
of those surviving hospitalswere able to increase their
prices. But even in the caseswhere surviving hospitals had
flat prices, we found evidencethat closure can reallocate
patients from low pricedhospitals to high priced
(08:08):
hospitals.
Rob Lott (08:09):
Got it. One question that jumps to mind is how do you
define nearby? Right? I'massuming there aren't two
hospitals down the street fromeach other in a rural community.
What's what's your sort ofdefinition of nearby?
Caitlin Carroll (08:23):
Yeah. Great question. We say nearby is the
three closest hospitals to theclosed hospital. We throw out
hospitals from that sample ifthey're sort of especially far
away from the closed facilities.So if they're more than 50 miles
away, we say, well, we don'tthink that there's a plausible
mechanism for for prices toincrease.
Rob Lott (08:43):
Got it. Okay. Let's talk a little bit about the
potential policy responses tothese trends. Obviously, I think
seeing a reduction in access tohospital care and a rise in the
price of the care that survives,Certainly that's a problem for
rural communities. But for thesake of argument as the devil's
(09:03):
advocate here, is it a problemfor our society as a whole?
I mean, all people are leavingrural areas as a percentage of
the total population, residentshave been declining for a very
long time. In absolute numbers,they've been declining for at
(09:23):
least thirty years. In thatcontext, doesn't it make sense
that we'd have fewer hospitalsto meet that smaller
population's needs? And then inthat case, prices, would be a
natural consequence of thattrend?
Caitlin Carroll (09:38):
Yeah. This is a really important point. So in
some cases, hospital closure mayrepresent necessary
consolidation in markets wheredemand is really too low to
support high quality careprovision at multiple hospitals.
The most extreme version of thisis a natural monopoly where some
(09:59):
rural markets might only be ableto support high quality care at
one hospital. In those cases,the question becomes, how should
we regulate consolidated ruralhospital markets so that a
monopolist hospital or anymerged entity doesn't exercise
market power in a harmful way?
(10:20):
One target of that regulationwould certainly be prices, but
any regulatory effort in ruralmarkets should also consider
accessing quality, because priceregulation alone, for example, a
price cap might actually createa perverse incentive to close
down services that areunprofitable under the price cap
(10:41):
or to incentive to reduce,costly quality investments. So
in some cases, rural communitiesmight benefit from a
consolidated hospital system ifwe can get the regulation right,
which is a big if. In othercases, though, hospital closure
is not efficient and can beharmful to the local community.
(11:03):
And in particular, we know fromprevious research that closure
can have serious consequencesfor patients with time sensitive
health conditions. To me, thissuggests that all communities
need access to some hospitalcare, in particular emergency
care, even if that communitydoesn't have access to a
traditional full servicehospital.
Rob Lott (11:25):
Okay. In just a moment, I wanna ask you about
the potential, levers thatpolicymakers do have available
to them. But first, let's take aquick break. We'll be back after
this. And we're back.
(11:55):
I am here with the University ofMinnesota's doctor Caitlin
Carroll discussing her study onwhat happens to prices when
rural hospitals close. Okay. Solet's talk about what kind of
levers policymakers do have attheir disposal to respond to
these challenges.
Caitlin Carroll (12:12):
Sure. So if policymakers want to keep
hospitals open, if that's thegoal, one of the key levers they
have is public financing.Hospital reimbursement for
Medicare and Medicaid patientsis set administratively, so the
generosity of thosereimbursements is effectively a
policy choice. Another optionfor policymakers if public funds
(12:37):
aren't available or if theyaren't desired in some way is
allowing hospitals to accessprivate capital, for example,
through a merger or anacquisition, as an alternative
route to obtain financialsupport. Then in that case, of
course, given the risks ofconsolidation, policymakers
would have to try to regulatethat consolidated entity.
Rob Lott (12:59):
Got it. So say a little more about the the sort
of setting of price point or orchoices about reimbursement.
There are policies like therecent rural emergency hospital
designation or certainly thechoice, for Medicare to maintain
higher reimbursement forinpatient procedures.
(13:24):
Presumably, those are some ofthe mechanisms by which
reimbursement might be elevatedfor a rural hospital. Is that
what you're talking about?
And how are policymakersthinking about those choices
sort of through the lens ofrural health care?
Caitlin Carroll (13:46):
Yeah. That that's exactly right. So in the
current policy landscape, thereare many sources of these public
financial supports for ruralhospitals. Many of them operate
through the Medicare programs.You you listed some, but some of
these programs are the criticalaccess hospital program.
(14:06):
There's the low volume hospitalprogram. There's Medicare
dependent hospitals, solecommunity hospitals. There's
quite a few of these specialdesignations. When rural
hospitals get one of thesedesignations, they get higher
payment rates from Medicare thanthey would under the standard
prospective payment system.About 90% of rural hospitals get
(14:28):
these increased Medicarepayments through special
designation programs, and theseprograms cost about
$4,000,000,000 a year.
So there's quite a bit of moneythat's being directed to rural
hospitals sort of via increasesin public financing.
Rob Lott (14:42):
Do you feel like that's the the sort of the most
effective way to to keep a ruralhospital afloat, or is it more
like these policies have kind ofbeen implemented in a
scattershot or fragmented wayand and this is where we've
ended up at this point?
Caitlin Carroll (15:02):
Yeah. A little bit of both. So on the one hand,
there is evidence that whenrural hospitals get increased
Medicare payments through one ofthese special designation
programs, for example, thecritical access program. It does
reduce the risk of closure. Soin that sense, the programs are
(15:23):
working or achieving one oftheir intended goals.
You know, to loop it back tothis paper that we were talking
about earlier, the paper aboutclosure and prices, if you think
about that evidence inconjunction with our new paper
that's about prices, our resultssuggest a link between public
reimbursement generosity andcommercial prices in the sense
(15:47):
that public prices can influencethe market structure via
influencing the probability ofclosure, which in turn affects
commercial prices. So this is areally important point when
we're thinking about makingMedicare policy. But to to get
back to your sort of specificquestion, like, these programs
working? So, in some sense,they're working. When hospitals
(16:09):
get more money from Medicare,they're less likely to close.
On the other hand, you know,it's clear to even a casual
observer that rural hospitalskeep closing. There's been
steady rates of closure for manydecades. So in that sense, the
policies are not really working.I think that's for a couple
reasons. One is that publicfinancing for rural hospitals
(16:33):
tends to be pretty poorlytargeted.
That's probably obvious from thenumber I gave you earlier. 90%
of rural hospitals are gettingincreased Medicare payments. So
these public funds are notnecessarily targeting hospitals
that are critical sources ofcare in their communities. So
that's a really importantfactor. The second factor, I
(16:55):
think, influencing theeffectiveness of of these
current special designationprograms is the growth of
Medicare Advantage.
So all of the specialdesignation programs that I
mentioned earlier operatethrough traditional fee for
service Medicare. So the growthof Medicare Advantage limits the
influence of those programs atrural hospitals.
Rob Lott (17:15):
Wow. That's really interesting. Can you say a
little more about, are there anymechanisms through Medicare
Advantage or sort of choicesabout, I don't know, risk
adjustment or potentiallysupplemental benefits under the
Medicare Advantage program thatcould be leveraged in a a way to
(17:36):
support rural hospitals?
Caitlin Carroll (17:39):
Yeah. This is an area where research is really
thin, and I think additionalresearch would be really
valuable, but it's hard to getthe data. I think the data we
would wanna start with are is,you know, what what are hospital
payment rates among MedicareAdvantage plans compared to
traditional Medicare for thesespecial designation hospitals?
(18:02):
So for example, critical accesshospitals get cost based
reimbursement from traditionalMedicare. What sort of
reimbursement do they get fromMedicare Advantage?
So that's unknown. Onepossibility is that Medicare
Advantage pays lower rates thantraditional Medicare for rural
hospitals. That's possible.Another possibility is that the
(18:23):
rates are exactly the same, butMedicare Advantage puts up other
barriers to to payment, likeadministrative reviews and
things like that.
Rob Lott (18:34):
Got it. Well, great agenda for maybe your next
research paper, a few beyondthat. Let's say your paper ends
up in the hands of a member ofcongress 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,
(18:59):
where do I even begin? What'syour response to that question?
Caitlin Carroll (19:06):
I think, you know, there's a lot of good
answers to this question, but noperfect answer. You know, the
problem is multifaceted, so thesolution is probably
multifaceted. But, you know,that hedging aside, I'll I I
think I would probably startwith targeting of public funds
Under any scenario of publicfinancing for rural hospitals,
(19:29):
government funding shouldprioritize services that are
critical in their localcommunities, and there's not a
lot of evidence that that's whatgovernment funding is doing
currently. There's a coupleoptions for sort of doing this,
improving targeting withoutactually increasing total public
spending. For example, if thegoal was to support
(19:49):
geographically isolatedhospitals, one path would be to
take the existing programs, theexisting special designation
programs, and restricteligibility only to the highest
need or most isolated hospitals.
That would effectively reduceresources at some hospitals that
lost eligibility, but it wouldfree up funds that could
(20:10):
facilitate an increase inpayment for isolated hospitals
or hospitals we think areproviding critical services.
Rob Lott (20:19):
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 wasgreat.
Caitlin Carroll (20:29):
Yeah. Thanks again for having me.
Rob Lott (20:31):
Absolutely. And to our listeners, thanks for tuning in.
If you enjoyed it, recommend itto a friend, leave a review,
smash that subscribe button,and, tune in again next week.
Thanks for listening. If youenjoyed today's episode, I hope
you'll tell a friend about ahealth policy.
Hello, and welcome to a health podocy. I'm your host,
(00:04):
Rob Lott. Rural communities faceongoing health disparities. We
know this is due in part to anumber of factors, including
generally lower socioeconomicstatus than in more populous
(00:24):
regions, limited jobopportunities, and reduced
access to public healthservices. But the most obvious
factor may be limited access tohealth care.
There are fewer practicingclinicians because many have
retired or are about to retire,and recruiting new folks is
especially hard. And hospitalshave struggled to stay afloat
(00:47):
too, with many closing downaltogether. Now when a hospital
closes, we know it has a directimpact on the number of beds
available, for example, and thenumber of doctors available to
treat you if you get hurt orsick, as well as, the number of
specialists who may be within afew hours drive in case you need
(01:09):
specialty care. But what elsehappens when a hospital closes
in a rural community? And howmight those consequences affect
people's health and well-being?
That's the topic of today'sHealth Podicy. I'm here with
Doctor. Caitlin Carroll, anassistant professor in health
policy and management at theUniversity of Minnesota School
(01:30):
of Public Health. Together withher co authors, Doctor. Carroll
has an article in the May 2025issue of Health Affairs.
Its title is also its mainfinding. Rural Hospital Closures
Led to Increased Prices atNearby Surviving Hospitals, 2012
to 2022. I can't wait to hearmore about this research and its
(01:54):
implications. Doctor CaitlinCarroll, welcome to A Health
Odyssey.
Caitlin Carroll (01:59):
Thanks for having me.
Rob Lott (02:01):
So let's jump right in. Can you say a little bit
about, rural hospitals and towhat extent that they are
closing?
Caitlin Carroll (02:10):
Rural hospital closure is significant. About
200 rural hospitals have closedsince 02/2005, which is about 8%
of all the rural hospitals thatwere open in that year. So
there's been a substantialchange in the structure of rural
hospital markets.
Rob Lott (02:27):
Okay. And what are the forces behind that? In what way,
for example, is the businessmodel for a rural hospital
different than those in suburbanand urban settings that maybe
makes it difficult for a ruralhospital to stay afloat?
Caitlin Carroll (02:43):
Yeah. A key factor driving closure is
persistent financial distress,especially in the rural hospital
market. About 40% of ruralhospitals are unprofitable, and
this financial distress hasactually been increasing over
time. In terms of maintainingprofitability, there's two core
(03:04):
challenges for rural hospitalsrelative to, say, urban
hospitals or suburban hospitals.The first challenge is low
patient volumes.
Rural hospitals have faced largedecreases in demand for care.
That's for a couple reasons. Oneis there's been declines in
population in rural areas.There's also been an increasing
(03:24):
tendency of rural residents tobypass rural hospitals in favor
of more distant urbanfacilities. So when a hospital's
location volumes, it limits therevenues that are coming in and
makes it really difficult forthe hospital to cover the cost
of providing care.
The second challenge for ruralhospitals is that they're more
(03:47):
reliant on public payers, forexample, Medicare, and they
don't have as many patients withcommercial insurance. That's an
important factor forprofitability because commercial
insurers tend to pay more thanMedicare for services. So if you
put those two things together,you know, you have a limited
number of patients coming intothe hospital and a lower
(04:08):
reimbursement rate per patient,there's significant financial
strain at rural hospitalsoverall. That's generated
concerns about access to careand limited competition in rural
markets because financialdistress increases the risk of
closure.
Rob Lott (04:23):
Most of our listeners probably won't be surprised
about the fact that there arethese hospitals closing in rural
communities. What do we knowabout the impact of those
closures?
Caitlin Carroll (04:35):
In general, I would say there's sort of two
categories of papers about theimpact of rural hospital
closure. First, there's a niceset of papers that study the
effect of closure on the localeconomy. Those papers have
generally shown that hot closureleads to decreases in
employment, mainly in the healthcare sector. So that raises
(04:56):
concerns that hospital closurecan erode the economic vitality
of local communities. The secondcategory of papers in my mind
study the effect of hospitalclosure on people's health.
Most work in this space hasfocused on the effect of closure
on patients with time sensitivehealth conditions, like a heart
(05:18):
attack or a stroke. Generallyspeaking, these papers find that
closure can lead to an increasein mortality among patients with
time sensitive healthconditions, especially when
there aren't nearby alternativehospitals.
Rob Lott (05:32):
Okay. So that makes sense. Some focus on economic
vitality, some focus on health.Your paper takes a slightly
different, tack and looks atprices. Can you tell us a little
more about, your study and maybewhat are some of the top line
findings?
Caitlin Carroll (05:49):
Yeah. So so we look at a different consequence
of hospital closure, which isreduced competition and the
possibility that closures leadto higher commercial prices. The
basic motivation here is thatbecause commercial prices are
negotiated between hospitals andinsurers, hospital closure might
(06:10):
give surviving hospitalsincreased leverage to negotiate
prices. So in our paper, we,gather up some commercial
claims, and we use a differencein differences approach. And we
study the effect of ruralhospital closure on the
commercial prices charged bynearby surviving hospitals.
(06:30):
We have two main findings. Thefirst finding is that when rural
hospitals close, nearbysurviving hospitals do raise
their prices. We estimate a 3.6%increase in prices overall,
which is consistent with thestory of increased market power
and negotiating leverage. Thisaverage price effect, the 3.6%
(06:54):
increase, is driven by largerprice increases that happened
three to four years after theclosure, which to us suggest
lagged contract negotiations.Our second finding is a little
more subtle, but our the findingis that prices at closed
hospitals were actually lowerthan prices at nearby surviving
(07:15):
hospitals in the pre closureperiod.
This is really important becauseit means that hospital closure
can reallocate patients tohigher priced hospitals, leading
to higher prices for patientsand higher prices for the system
even when surviving hospitalsaren't able to negotiate for
(07:36):
higher rates.
Rob Lott (07:38):
Got it. So you're saying basically prices were
already high in the survivinghospitals and maybe they they
could get even higher. Is thatsort of the the take?
Caitlin Carroll (07:47):
Right. So even before closure, prices were
higher at the survivinghospitals. After closure, some
of those surviving hospitalswere able to increase their
prices. But even in the caseswhere surviving hospitals had
flat prices, we found evidencethat closure can reallocate
patients from low pricedhospitals to high priced
(08:08):
hospitals.
Rob Lott (08:09):
Got it. One question that jumps to mind is how do you
define nearby? Right? I'massuming there aren't two
hospitals down the street fromeach other in a rural community.
What's what's your sort ofdefinition of nearby?
Caitlin Carroll (08:23):
Yeah. Great question. We say nearby is the
three closest hospitals to theclosed hospital. We throw out
hospitals from that sample ifthey're sort of especially far
away from the closed facilities.So if they're more than 50 miles
away, we say, well, we don'tthink that there's a plausible
mechanism for for prices toincrease.
Rob Lott (08:43):
Got it. Okay. Let's talk a little bit about the
potential policy responses tothese trends. Obviously, I think
seeing a reduction in access tohospital care and a rise in the
price of the care that survives,Certainly that's a problem for
rural communities. But for thesake of argument as the devil's
(09:03):
advocate here, is it a problemfor our society as a whole?
I mean, all people are leavingrural areas as a percentage of
the total population, residentshave been declining for a very
long time. In absolute numbers,they've been declining for at
(09:23):
least thirty years. In thatcontext, doesn't it make sense
that we'd have fewer hospitalsto meet that smaller
population's needs? And then inthat case, prices, would be a
natural consequence of thattrend?
Caitlin Carroll (09:38):
Yeah. This is a really important point. So in
some cases, hospital closure mayrepresent necessary
consolidation in markets wheredemand is really too low to
support high quality careprovision at multiple hospitals.
The most extreme version of thisis a natural monopoly where some
(09:59):
rural markets might only be ableto support high quality care at
one hospital. In those cases,the question becomes, how should
we regulate consolidated ruralhospital markets so that a
monopolist hospital or anymerged entity doesn't exercise
market power in a harmful way?
(10:20):
One target of that regulationwould certainly be prices, but
any regulatory effort in ruralmarkets should also consider
accessing quality, because priceregulation alone, for example, a
price cap might actually createa perverse incentive to close
down services that areunprofitable under the price cap
(10:41):
or to incentive to reduce,costly quality investments. So
in some cases, rural communitiesmight benefit from a
consolidated hospital system ifwe can get the regulation right,
which is a big if. In othercases, though, hospital closure
is not efficient and can beharmful to the local community.
(11:03):
And in particular, we know fromprevious research that closure
can have serious consequencesfor patients with time sensitive
health conditions. To me, thissuggests that all communities
need access to some hospitalcare, in particular emergency
care, even if that communitydoesn't have access to a
traditional full servicehospital.
Rob Lott (11:25):
Okay. In just a moment, I wanna ask you about
the potential, levers thatpolicymakers do have available
to them. But first, let's take aquick break. We'll be back after
this. And we're back.
(11:55):
I am here with the University ofMinnesota's doctor Caitlin
Carroll discussing her study onwhat happens to prices when
rural hospitals close. Okay. Solet's talk about what kind of
levers policymakers do have attheir disposal to respond to
these challenges.
Caitlin Carroll (12:12):
Sure. So if policymakers want to keep
hospitals open, if that's thegoal, one of the key levers they
have is public financing.Hospital reimbursement for
Medicare and Medicaid patientsis set administratively, so the
generosity of thosereimbursements is effectively a
policy choice. Another optionfor policymakers if public funds
(12:37):
aren't available or if theyaren't desired in some way is
allowing hospitals to accessprivate capital, for example,
through a merger or anacquisition, as an alternative
route to obtain financialsupport. Then in that case, of
course, given the risks ofconsolidation, policymakers
would have to try to regulatethat consolidated entity.
Rob Lott (12:59):
Got it. So say a little more about the the sort
of setting of price point or orchoices about reimbursement.
There are policies like therecent rural emergency hospital
designation or certainly thechoice, for Medicare to maintain
higher reimbursement forinpatient procedures.
(13:24):
Presumably, those are some ofthe mechanisms by which
reimbursement might be elevatedfor a rural hospital. Is that
what you're talking about?
And how are policymakersthinking about those choices
sort of through the lens ofrural health care?
Caitlin Carroll (13:46):
Yeah. That that's exactly right. So in the
current policy landscape, thereare many sources of these public
financial supports for ruralhospitals. Many of them operate
through the Medicare programs.You you listed some, but some of
these programs are the criticalaccess hospital program.
(14:06):
There's the low volume hospitalprogram. There's Medicare
dependent hospitals, solecommunity hospitals. There's
quite a few of these specialdesignations. When rural
hospitals get one of thesedesignations, they get higher
payment rates from Medicare thanthey would under the standard
prospective payment system.About 90% of rural hospitals get
(14:28):
these increased Medicarepayments through special
designation programs, and theseprograms cost about
$4,000,000,000 a year.
So there's quite a bit of moneythat's being directed to rural
hospitals sort of via increasesin public financing.
Rob Lott (14:42):
Do you feel like that's the the sort of the most
effective way to to keep a ruralhospital afloat, or is it more
like these policies have kind ofbeen implemented in a
scattershot or fragmented wayand and this is where we've
ended up at this point?
Caitlin Carroll (15:02):
Yeah. A little bit of both. So on the one hand,
there is evidence that whenrural hospitals get increased
Medicare payments through one ofthese special designation
programs, for example, thecritical access program. It does
reduce the risk of closure. Soin that sense, the programs are
(15:23):
working or achieving one oftheir intended goals.
You know, to loop it back tothis paper that we were talking
about earlier, the paper aboutclosure and prices, if you think
about that evidence inconjunction with our new paper
that's about prices, our resultssuggest a link between public
reimbursement generosity andcommercial prices in the sense
(15:47):
that public prices can influencethe market structure via
influencing the probability ofclosure, which in turn affects
commercial prices. So this is areally important point when
we're thinking about makingMedicare policy. But to to get
back to your sort of specificquestion, like, these programs
working? So, in some sense,they're working. When hospitals
(16:09):
get more money from Medicare,they're less likely to close.
On the other hand, you know,it's clear to even a casual
observer that rural hospitalskeep closing. There's been
steady rates of closure for manydecades. So in that sense, the
policies are not really working.I think that's for a couple
reasons. One is that publicfinancing for rural hospitals
(16:33):
tends to be pretty poorlytargeted.
That's probably obvious from thenumber I gave you earlier. 90%
of rural hospitals are gettingincreased Medicare payments. So
these public funds are notnecessarily targeting hospitals
that are critical sources ofcare in their communities. So
that's a really importantfactor. The second factor, I
(16:55):
think, influencing theeffectiveness of of these
current special designationprograms is the growth of
Medicare Advantage.
So all of the specialdesignation programs that I
mentioned earlier operatethrough traditional fee for
service Medicare. So the growthof Medicare Advantage limits the
influence of those programs atrural hospitals.
Rob Lott (17:15):
Wow. That's really interesting. Can you say a
little more about, are there anymechanisms through Medicare
Advantage or sort of choicesabout, I don't know, risk
adjustment or potentiallysupplemental benefits under the
Medicare Advantage program thatcould be leveraged in a a way to
(17:36):
support rural hospitals?
Caitlin Carroll (17:39):
Yeah. This is an area where research is really
thin, and I think additionalresearch would be really
valuable, but it's hard to getthe data. I think the data we
would wanna start with are is,you know, what what are hospital
payment rates among MedicareAdvantage plans compared to
traditional Medicare for thesespecial designation hospitals?
(18:02):
So for example, critical accesshospitals get cost based
reimbursement from traditionalMedicare. What sort of
reimbursement do they get fromMedicare Advantage?
So that's unknown. Onepossibility is that Medicare
Advantage pays lower rates thantraditional Medicare for rural
hospitals. That's possible.Another possibility is that the
(18:23):
rates are exactly the same, butMedicare Advantage puts up other
barriers to to payment, likeadministrative reviews and
things like that.
Rob Lott (18:34):
Got it. Well, great agenda for maybe your next
research paper, a few beyondthat. Let's say your paper ends
up in the hands of a member ofcongress 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,
(18:59):
where do I even begin? What'syour response to that question?
Caitlin Carroll (19:06):
I think, you know, there's a lot of good
answers to this question, but noperfect answer. You know, the
problem is multifaceted, so thesolution is probably
multifaceted. But, you know,that hedging aside, I'll I I
think I would probably startwith targeting of public funds
Under any scenario of publicfinancing for rural hospitals,
(19:29):
government funding shouldprioritize services that are
critical in their localcommunities, and there's not a
lot of evidence that that's whatgovernment funding is doing
currently. There's a coupleoptions for sort of doing this,
improving targeting withoutactually increasing total public
spending. For example, if thegoal was to support
(19:49):
geographically isolatedhospitals, one path would be to
take the existing programs, theexisting special designation
programs, and restricteligibility only to the highest
need or most isolated hospitals.
That would effectively reduceresources at some hospitals that
lost eligibility, but it wouldfree up funds that could
(20:10):
facilitate an increase inpayment for isolated hospitals
or hospitals we think areproviding critical services.
Rob Lott (20:19):
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 wasgreat.
Caitlin Carroll (20:29):
Yeah. Thanks again for having me.
Rob Lott (20:31):
Absolutely. And to our listeners, thanks for tuning in.
If you enjoyed it, recommend itto a friend, leave a review,
smash that subscribe button,and, tune in again next week.
Thanks for listening. If youenjoyed today's episode, I hope
you'll tell a friend about ahealth policy.
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