Rural Hospitals Face Renewed Financial Challenges, Especially in States That Have Not Expanded Medicaid

Zachary Levinson , Jamie Godwin , and Scott Hulver
Published: Feb 23, 2023

Policymakers have had ongoing concerns about the financial health of rural hospitals and the implications  for access to care and the local economy. Rural hospital finances improved during the COVID-19 pandemic as a result of government relief funds. However, industry reports suggest that the outlook for the hospital sector as a whole deteriorated in 2022 as these funds have gone away and due to ongoing effects of the pandemic (such as labor shortages), rising prices, and investment losses. Concerns about the viability of rural hospitals have been cited as one factor that could potentially motivate lawmakers to expand Medicaid in the eleven states that have not already done so. These non-expansion states collectively account for about one-third (34%) of rural hospitals, based on our analysis of 2021 hospital cost report data.

In this data note, we provide a background on rural hospital finances and use hospital cost report data to describe operating margins among rural hospitals before and during the COVID-19 pandemic (see Methods for details). We find that median operating margins among the rural hospitals in our analysis increased earlier in the COVID-19 pandemic, likely as a result of government relief funds, but that these facilities face renewed financial challenges, especially in states that have not expanded Medicaid (Figure 1). Among rural hospitals in non-expansion states, median operating margins were 2.1 percent during the July 2021-June 2022 period and were -0.7 percent when excluding documented relief funds. In Medicaid expansion states, median operating margins dropped, but remained positive even after excluding documented relief funds.

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