Department of Health  and Human  Services 
OFFICE OF 
INSPECTOR GENERAL 
  RENDS  IN  RURAL  HOSPITAL  CLOSURE: 
1987-1991 
JULY  1993  OFFICE OF INSPECIOR GENERAL 
The mission of the Office of Inspector General (OIG),  as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health  and Human Services (HHS) 
programs as well as the health and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations,  and 
inspections  conducted by three OIG operating components:  the Office of Audit Services, the 
Office of Investigations,  and the Office of Evaluation and Inspections.  The OIG also informs the 
Secretary of HHS of program and management problems and recommends courses to correct 
them. 
OFFICE OF AUDIT  SERVICES 
The OIGS  Office of Audit Services (OAS)  provides all auditing semices for HHS, either by 
conducting audits with its own audit resources or by overseeing  audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities  and are intended to provide independent  assessments of HHS 
programs and operations  in order to reduce waste, abuse, and mismanagement and to promote 
economy  and efficiency throughout the Department. 
OFFICE OF INVESTIGATIONS 
The OIGS  Office of Investigations  (01)  conducts criminal, civil, and administrative investigations 
of allegations of wrongdoing in HHS programs or to HHS beneficiaries  and of unjust enrichment 
by providers.  The investigative efforts of 01  lead to criminal convictions,  administrative sanctions, 
or civil money penalties.  The 01  also oversees State Medicaid fraud control units which 
investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE OF EVALUATION  AND  INSPECTIONS 
The OIGS  Office of Evaluation  and Inspections  (OEI)  conducts short-term management and

program evaluations  (called inspections)  that focus on issues of concern to the Department,  the

Congress, and the public.  The findings and recommendations  contained  in these inspection

reports generate  rapid, accurate, and up-to-date information on the efficiency, vulnerability, and

effectiveness  of departmental programs.

OEIS Atlanta Regional  Office staff prepared this report under the direction of Jesse J. Flowers,

Regional  Inspector General and Christopher Koehler, Deputy  Regional  Inspector General.

Principal OEI staff included:

Atlanta Region  Headquarters

Ron Kalil, Co-project Leader  Cathaleen Ahern

Maureen Wilce, Co-project Leader  Linda Moscoe

Paula Bowker

Ruth Reiser

For additional copies of this report, please contact the Atlanta Regional  Office at 404-331-4108.
 Department of Health  and Human  Services 
OFFICE OF 
NSPECTOR  GENERAL 
TRENDS  IN  RURAL  HOSPITAL  CLOSURE: 
1987-1991 
JULY  1993  OEI-04-92-00441  EXECUTIVE  SUMMARY

PURPOSE 
This  report  describes  the  phenomenon  of rural  hospital  closure  in the  United  States 
during  a 5-year  period  -- 1987-1991.  It examines  the  extent,  characteristics,  reasons 
for and  impact  of rural  hospital  closure. 
BACKGROUND 
The  closure  of general,  acute  care  hospitals  has generated  public  and  congressional 
concern.  According  to a number  of recent  studies,  more  hospitals  are  expected  to 
close  in coming  years. 
We  released  a report  in May  1989 describing  the  nationwide  phenomenon  of hospital 
closure  in 1987.  Thereafter,  we analyzed  hospital  closures  annually  to determine  the 
effects  of the  phenomenon.  We issued  subsequent  reports  on  1988, 1989, 1990 and 
1991 hospital  closures. 
This  report  examines  rural  hospitals  that  closed  in the  United  States  during  calendar 
years  1987 through  1991.  Unlike  our  annual  hospital  closure  reports,  it does  not 
combine  rural  and  urban  hospital  closures.  Nearly  half the  hospitals  in the  United 
States  are  in rural  areas.  Proportionally  more  rural  hospitals  have  closed  than  urban. 
When  a rural  hospital  closes, residents  can be  left with limited  access  to medical  care 
because  there  are  fewer  alternative  sources  of medical  care.  Rural  residents  must 
often  travel  greater  distances  to obtain  medical  care. 
FINDINGS 
193 genera~acutecarq ruralh.arpitalcflbsedovertheS-yearPeriod 
The  average  annual  closure  rate  was  1.4 percent.  During  the  5-year  period,  7.1 
percent  of rural  hospitals  closed.  These  hospital  closures  reduced  the  inpatient  bed 
supply  in rural  areas  nationally  by 3.4 percent.  They  occurred  in 39 States. 
Most ml  harpiiaktkhatclbsedweresmull 
Rural  hospitals  that  closed  had  an average  of 39 beds  compared  to an average  of 83 
beds  for all rural  hospitals  nationally.  Only 6 hospitals  that  closed  had  more  than  100 
beds  and  no rural  hospital  that  closed  had-over  1~0 beds. 
Rural  hospitak  thatcbsed had bw  occupancymtes 
Rural  hospitals  that  closed  had  an average  occupancy  rate  of 23 percent  compared  to 
an  average  of 37 percent  for all rural  hospitals  nationally. 
i  Average  Medicare  and  Medicaid  utilization  at rural  hospitals  that  closed  was not 
significantly  different  from  all rural  hospitals  nationally. 
Few patients  wtxe  afiectedby hospitalclosure 
Because  of the  small  size and  low occupancy  rates  of rural  hospitals  that  closed  during 
1987 through  1991, the  average  daily census  in the  year  prior  to closure  was nine 
patients.  Of these,  four  Medicare  and  one  Medicaid  patient  were  in the  rural  hospital 
on an  average  day during  the  year  prior  to closure. 
Hospitalclbsureswerecausedby a combined@2ct  of deci%ninogccupancy,ikggikg 
revenues,andrisingcosts 
	 Occupancy  is declining  due  to diminishing  physician  availability,  changing 
medical  practice  patterns,  and  competition  among  hospitals. 
	 Revenues  are  lagging  due  to fewer  admissions,  lower  third-party 
reimbursement,  and  more  uncompensated  care. 
	 Costs  are  rising due  to increasing  demands  for new medical  technology,  skilled 
personnel,  facility maintenance,  renovation,  and  replacement. 
Mostpatierushudenuzgencyandinpatientmedicalcareavailablewithin20 milesof the 
closedhospital 
In three-fourths  of the  rural  communities  where  a hospital  closed,  another  general 
acute  care  hospital  was located  within  20 miles  of the  closed  hospital.  Residents  of 15 
of 193 (8 percent)  of the  rural  communities  where  a hospital  closed  had  to travel 
more  than  30 miles  for inpatient  care. 
In 82 percent  of the  rural  communities  where  hospitals  closed,  emergency  care 
facilities  were  available  within  20 miles  of the  closed  hospital.  Residents  of 3 of 193 
(1.5 percent)  rural  communities  where  a hospital  closed  had  to travel  more  than  30 
miles  for emergency  services. 
Some wal  commudes  dkvelopedalternativefsorprovidinghealthcarelocal@when 
theiihospikllclosed 
Although  most  residents  in communities  which lost their  hospitals  had  inpatient  and 
emergency  care  available  nearby,  some  residents  had  problems  accessing  needed  care. 
Several  communities  created  alternatives  to a hospital  for providing  access  to care. 
We  report  on these  alternatives  in two companion  reports.  They  are  (1) Access to 
Rural  Health  Care:  Successful  Community  Initiatives  (OEI-04-92-00730),  and  (2) 
Medical  Assistance  Facilities  (OEI-04-92-00731). 
ii  TABLE  OF  CONTENTS

EXECUTIVE  suMMARY

INTRODUCIION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . .  1 
FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . .  3 
Ahlent And  Charatitia  Of RuralHospikd Closure

How  Many  Closed?  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . .  3 
Where  Were  They?  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . 4 
Who  Owned  Them?  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . 5 
What  Were  The  Hospitals  Like?  . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . 5 
How  Many  Patients  Were  Affected?  . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . 8 
ReasonsForRuml HmpiidClbsure

Why Is Occupancy  Declining?  . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . .  9 
Why Are  RevenuesLagging?  . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  10 
Why Are Costs Rising?  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  11 
Impct  QfRural Hqitzl  Ckixnme

Is Inpatient  Care  Available?  . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  12 
Are  Emergency  Services  Available?  . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  12 
What  About  Access  To  Care  In Communities  Without  Hospitals?
 . . . . .  13 
suMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  13 
ENDNOTES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . .  14 
APPENDICES

k  Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . .  A-1 
B:  1987 -1991  Rural  Hospital  Closures  . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . .  B-1  INTRODUCTION

PURPOSE 
This  report  describes  the  phenomenon  of rural  hospital  closure  in the  United  States 
during  the5-year  period  1987-1991.  Itexamines  theextent,  characteristics,  reasons  for 
and  impact  of rural  hospital  closure. 
BACKGROUND 
In the  past  several  years,  the  closure  of general,  acute  care  hospitals  has generated 
increasing  public  and  congressional  concern.  Numerous  questions  have  been  raised 
about  the  reasons  for  and  the  impact  of hospital  closure  on the  provision  of health 
care,  as well as implications  for public  policy.  According  to a number  of recent 
studies,  more  hospitals  are  expected  to close in coming  years.  The  Government 
Research  Corporation  estimates  over  40 percent  of all hospitals  in the  United  States 
will close  or be  converted  to  other  uses by the year  2000.1 
The  Office  of Inspector  General  released  an inspection  report  in May  1989 describing 
the  phenomenon  of rural  and  urban  hospital  closure  during  1987 in the  United  States. 
The  results  were  presented  to the  Secretary  and  Assistant  Secretaries  of HHS,  and  to 
staff of the  Health  Care  Financing  Administration  (HCFA)  and  the  Public  Health 
Service  (PHS).  The  Inspector  General  testified  before  the  U.S. House  Ways  and 
Means  Subcommittee  on Health  regarding  the  study findings.  Many  of those  informed 
of the  study  of 1987 hospital  closure  encouraged  the  Inspector  General  to continue 
year-by-year  analyses  of the  phenomenon  to detect  differences  in the  rate  of hospital 
closure  and  in the  characteristics  and  circumstances  of hospitals  that  close. 
Consequently,  the  OIG  conducted  similar  inspections  of hospital  closure  for the  years 
1988-1991. 
This  report  focuses  on rural  hospital  closures.  Unlike  our  earlier  annual  hospital 
closure  reports,  it does  not  combine  rural  and  urban  hospital  closures.  Nearly  half 
the  hospitals  in the  United  States  are  in rural  areas.  Proportionally  more  rural 
hospitals  have  closed  than  urban.  When  a rural  hospital  closes,  residents  can be  left 
with limited  access  to medical  care  because  there  are  often  few alternative  sources  of 
medical  care.  Rural  residents  must  often  travel  greater  distances  to obtain  medical 
care. 
SCOPE 
We  examined  rural  hospitals  that  closed  during  calendar  years  1987 through  1991. 
For  purposes  of this study, the  following  definitions  were  used.  Rural  Fhspitak  A facility located  in a rural  area  that  provides  general,  short-

term,  acute  medical  and  surgical  inpatient  services.

Closed  Hospitak  One  that  stopped  providing  general,  short-term,  acute

inpatient  services  during  1987 through  1991.  If a hospital  merged  with  or was

sold to another  hospital  and  the  physical  plant  closed  for inpatient  acute  care,  it

was considered  a closure.  If a hospital  both  closed  and  reopened  in the  same

year,  it was not  considered  a closure.  If a hospital  closed,  reopened,  and  then

closed  again  during  the  years  in our  study, it was counted  as a closure  only

once.

METHODOLOGY 
To  determine  the  extent,  reasons  and  impact  of rural  hospital  closure,  we obtained 
and  aggregated  information  from  State  hospital  associations,  State  licensing  and 
certification  agencies,  State  health  planning  agencies,  HCFA  data  bases,  officials 
associated  with  closed  and  nearby  hospitals,  and  local  public  officials. 
We  obtained  information  on the  characteristics  of all rural  hospitals  and  those  that 
closed  during  1987 through  1991 from  the  Hospital  Cost  Report  Information  System 
(HCRIS)  maintained  by HCFA. 
We  conducted  this inspection  in accordance  with the  Qua2i~ Standards for hspections 
issued  by the  Presidents  Council  on Integrity  and  Efficiency. 
Appendix  A describes  our  methodology  in further  detail. 
2
 FINDINGS

EXTENT  AND  cHARAcxERIsn  C!SOF RURAL  HOSPITAL  CLOSURE 
How Mq  Clbsed? 
b  193 Genera~Acute  Care, Rural Hospitak  Closed Over The 5-year Period. 
In  1987, there  were  more  than  6,800 hospitals  in the  United  States.  Of those,  5,657 
were  general,  short-term,  acute  care  hospitals  entered  on HCFAS data  base  as 
participating  in the  Medicare  program.  Of those,  2,705 (48 percent)  are  rural  and 
2,952 (52 percent)  are  urban. 
Rural  Hospitals  in the  U.S. in 1987  2,705

Closed  in 1987-1991  193 (7.1 %)

The  average  annual  closure  rate  was  1.4 percent.  During  the  5-year  period,  7.1 
percent  of rural  hospitals  closed.  -
The  number  of rural  hospital  closures,  year  by year,  is illustrated  below. 
I 
RURAL HOSPITAL  CLOSURES 
BY YEAR 
1 
o~ 
19s7  1988  1*  1990  1901 
Year 
b	 l%e Closed Hospitals Reduced  i%e Acute  Care Inpatient Bed Supply In Rural 
Areas By ~ 652 Be&  -- 3.5 Percent. 
3
 Where Were Zlwy? 
w  During The 5-year Period, Rural Hospitals  Closed In 39 States. 
Rural Hospital Closure By State 
Texas  had  the  greatest  number  of rural  closures  (37), followed  by Louisiana  (12), 
Minnesota  (1 Ii  Mississippi  (11), and  Alabama  (10). These  5 States  represented  42 
percent  of the  closures  during  the  5-year  period.  Appendix  B lists the  number  of rural 
hospital  closures  by State. 
4
 Whoownedzkern? 
b  AHigher  Percentage ~fi"vate  For-~ofit  Hospitak  Closed In Rural Areas~an 
Did Public  Or fivate  Not-For-I+ojit Hospitals. 
Total  Number  Number  of  Percent  of 
Hospital  Ownership  of Rural  Closed  Rural  Hospitals  Which 
Hospitals  in  Hospitals  in  Closed  in 1987-
1987  1987-1991  1991 By Type 
1 
Public  1071  61  5.7 
Private  Non-Profit  1268  83  6.6 
Private  For-Profit  364  49  13.5 
W7aat Were The Ckwd Hmpitd  L&? 
	 Rural Hospitals  lhat  Closed Each  Year Were Considerab@ Smaller  l%an The 
Average Rural Hospitak  Nationally. 
Over  the  5-year  period  rural  hospitals  that  closed  had  an average  of 39.5 beds 
compared  to an  average  of 83 beds  for  all rural  hospitals  nationally.  The  chart  below 
shows a year-by-year  comparison. 
RURAL HOSPITALS  THAT CLOSED 
lW  WERE  SMALL
1 
35.1

34.2 
81.3

W 
60 
40 
20 
0 
1$87  I&a  1933  1990  1991 
m  ;4  Rural  ~  Closed Rural 
Average  Hos@tai AVWW 
5
 The  chart  below  shows that  closure  affected  a higher  percentage  of smaller  hospitals 
than  larger  hospitals.  Only 6 hospitals  that  closed  had  more  than  100 beds,  and  no 
rural  hospital  that  closed  had  over  150 beds. 
SIZE  OF  RURAL  HOSPITALS  CLOSED  IN  1987-1991 
Total  Number  of  Number  of Rural  Percent  of Rural 
Size of  Rural  Hospitals  Hospitals  that  Hospitals  that

Hospital  in 1987  Closed  in 1987-1991  Closed  by Size

<30  beds  396  79  20.0

30-49  beds  730  71  9.7

50-99  beds  870  37  4.3

100-149  beds  363  6  1.7

150-199  beds  176  0  0

200+  beds  168  0  0

k Closed Rural Hospitals  Each  Year Had Much Lower  Occupanq  Rates  JT7zen 
Compared  To l%e Average  Occupancy Rate  Of Rural Hospitals  Nationally.2 
During  the  5-year  period,  rural  hospitals  that  closed  had  an average  occupancy  rate  of 
23.4 percent  compared  to an average  of 37.3 percent  for all rural  hospitals  nationally. 
The  chart  below  shows a year-by-year  compar%on. 
OCCUPANCYRATESWERELOW 
-1 
40%. 3s.9  35.9  35.6  37.5 
@lb
zo%
10% -
o%-
6
 b	 Average Medicare  Utilization At Rural Hospitak  l%at Closed Each  Year Was Not 
Significantly Diflerent From All Rural Hospitals Nationally.3 
Overthe  5-year  period  rural  hospitals  that  closed  hadan  average  Medicare  utilization 
of 48.4 percent  comparedto  an average  of 52.2 percent  for all rural  hospitals 
nationally.  The  chart  below  shows a year-by-yea;  comparison. 
MEDICARE  UTILIZATION 
m%, 
ao% -
40% -
90% -
20% -
10% -
L 
o% 
I&  l&n3  ltlii 
- Nat)onal Rural  ~  Cloaad  Rural 
~  AV-EUJO  Hoapltal Avaniga 
	 Average Medicaid  Utiluation At  Rural Hospitals  That Closed Each  Year Was Not 
Significantly Diflerent From All Rural Hospitals Nationally.4 
Over  the  5-year  period  rural  hospitals  that  closed  had  an average  Medicaid  utilization 
of 10.6 percent  compared  to an average  of 10.2 percent  for all rural  hospitals 
nationally.  The  chart  below  shows a year-by-year  comparison. 
MEDICAID  UTILIZATION 
20% , 
1
1e%
I 
12% 
8% 
4% 
o% 
1W7  l$ea  1929  1s90  1991 
- National Rural  ~  Closad  Rural
Ho@tad  Avaraga  HoapItal Avaraw 
7
 How Many PatientsWereAffkded? 
b  Few Patients  Were Ajfected  By Rural Hospital  Closure. 
Because  of the  small  size and  low occupancy  rates  of rural  hospitals  that  closed  during 
1987 through  1991, the  average  daily census  prior  to closure  was about  nine  patients. 
WHEN  RURAL  HOSPITALS  CLOSED, 
HOW  WY  PATIENTS  WERE  AFFE~ED? 
Average  Number  of Beds  39.6 
Average  Occupancy  Rate  23.3?I0 
X 
Average  Number  of Patients  Daily  9.2 
}	 Four Medicare And  One Medicaid  Patient  Were In The Rural Hospital  On An 
Average Day During l%e Year &or To Closure. 
The  chart  below  shows the  number  of elderly  and  poor  affected  by rural  hospital 
closure  during  the  5-year  period. 
WHEN  RURAL  HOSPITALS  CLOSED,

HOW  MANY  MEDICARE  AND  MEDICAID  PATIENTS

WERE  AFFECTED?

Medicare  Medicaid 
Patients  Patients 
Average  Number  of Patients 
Daily  9.2  9.2 
Average  Medicare  and 
Medicaid  Utilization  Rate  x 47.970  x 10.4?ZO 
Average  Number  of Medicare 
and  Medicaid  Patients  Daily  4.4  1.0 
8
 REASONS  FOR  RURAL  HOSPITAL  CLOSURE

During  the  5-year  period  from  1987 through  1991, we found  no single reason  for rural

hospital  closure.  Rather,  the  many  health  care  professionals  we interviewed  in the

course  of our  series  of hospital  closure  inspections  suggested  a number  of factors

which  gradually  weakened  the  financial  condition  of the  hospitals.  As occupancy

declined,  revenues  lagged,  but  costs continued  to rise.  Ope;ating  margins  s~ran~,  but

fixed costs remained  and  had  to be  supported  by fewer  and  fewer  patients.

Ultimately,  there  was no choice  but  to sell, merge  with another  hospital,  or close  the

doors.

& 
Declining 
Occupancy 
Rising 
costs 
& 
L	
Lagging 
Revenues 
my L$occupanDceyclinhg? 
b  Physician Availabili~  Is A Problem In Rural Areas. 
In several  rural  communities  where  hospitals  closed  during  1987 through  1991, the 
towns only physician  retired,  died,  or moved  his or her  practice.  Typically,  rural 
communities  could  find no replacement.  Rural  areas  in general  are  less able  to attract 
and  retain  physicians.  The  smaller  population  base  often  means  that  a physician  will 
practice  alone  and  is always on call.  Many  physicians  find rural  practice,  under  these 
conditions,  to be  unattractive. 
  People Are More Mobile. 
With  better  roads  and  improved  transportation  there  is increased  access  to more 
distant  medical  facilities.  Now physicians  and  their  patients  can  choose  a hospital  on 
the  basis  of quality  or reputation  rather  than  solely on proximity. 
9    Physicians And  Patients Lost  Confidence In i%e Local  Hospital. 
Many  of the  hospitals  included  in this study were  old and  needed  renovation  and 
modernization.  They  lacked  the  high technology  diagnostic  and  treatment  equipment 
which  physicians  and  patients  value.  In cases where  newer  and  better  equipped 
hospitals  are  available  nearby,  physicians  tend  to shift their  admissions  to those 
facilities. 
Patients,  too,  preferred  other  hospitals.  People  want  the  best  care  available,  and  many 
will choose  a large  hospital  over  a small  one.  Patients  typically will choose  a newer, 
better  equipped  facility over  one  which  shows its age. 
  Competition  Among  Hospitals Is Intense. 
Even  in rural  areas,  people  interviewed  for this study  reported  that  competition  with 
other  hospitals  was a factor  in many  of the  closures.  Hospitals  with limited  resources 
are  hard-pressed  to compete  with newer  or larger  hospitals  which  aggressively  market 
their  services,  maintain  a healthy  capital  reserve,  and  offer  higher,  more  competitive 
salaries  to nursing  and  technical  staff. 
  Practice Patterns Are  Changing. 
Medical  advances  and  new technology  have  allowed  some  procedures  which  formerly 
required  a hospital  stay to be performed  on an outpatient  basis. 
	 Medicare  Peer Review  O~anizations  (PRO) Are More Carefully Scrutinizing the 
Necessity  Of Hospital Admissions. 
The  PROs  are  responsible  for reviewing  hospital  admissions  for appropriateness.  The 
PRO  may sanction  individual  physicians  for unnecessary  hospitalization.  As a result, 
physicians  are  more  cautious  in admitting  marginally  ill Medicare  patients.  Such 
patients  might  have  been  admitted  before  the  advent  of PRO  review. 
WhyAre RevenuesLa@!ng? 
  Ikrurers Are Better Controlling Their Costs. 
Both  public  and  private  insurers  are  pressed  to control  their  hospital  outlays.  Some 
have  reduced  the  percentage  of hospital  charges  or costs that  they will reimburse. 
Other  have  changed  from  charge-based  reimbursement  to paying  a scheduled  amount 
per  case,  usually  based  on a diagnosis  and  intensity  of care  required. 
Many  hospital  officials  pointed  out  that,  with these  changes,  payments  from  some 
insurers  no longer  cover  the  actual  cost of care.  Several  mentioned  Medicaid  in 
particular. 
10
 When  payments  do not  cover  costs, hospitals  must  either  recoup  the  difference  from 
patients,  shift the  cost to another  payor,  or take  a loss. 
	 Patients  Without Hospital  Insurance, Or With Inadequate  Insurance, Create 
Substantial Losses For Hospitals. 
When  hospitals  admit  patients  with no insurance  or only minimal  coverage,  hospitals 
accept  losses which  appear  on the  books  as charity and  bad debt-- uncompensated 
care.  Historically  hospitals  covered  these  losses by cost shifting to patients  who were 
insured  or could  afford  to pay.  Hospitals  set their  charges  for the  better-insured 
patients  high enough  to cover  the  cost of their  patients  care  ~  a portion  of the 
uncompensated  care.  More  and  more  insurers  are  refusing  to accept  these  cost shifts. 
k	 Payment  Differentials Based  On Hospital  Location  Generally Resulted In Rural 
Hospitals  Receiving Lower Payments  7han  Urban Hospitals. 
Although  this practice  is ending,  rural  hospitals  received  less in Medicare 
reimbursements  than  did urban  hospitals  during  the  time  of our  review. 
why An? costsRiYirlg? 
  New Medical  Technolo~  Is A Major Capital Expense. 
While  beneficial  in speeding  up diagnosis  and  treatment,  technology  is very  costly.  If a 
hospital  fails to provide  this modern  equipment  to physicians,  they will take  their 
patients  elsewhere.  Small  hospitals,  with fewer  patients  to share  the  cost of such 
equipment,  can least  afford  such purchases. 
  Labor  Costs Are Increasing And  Nuning And  Technical StaflAre  Scarce~ 
Shortages  of skilled  hospital  personnel  have  made  it difficult  for hospitals  to attract 
and  retain  staff.  Rural  hospitals  in particular  have  problems  competing  in the  regional 
and  metropolitan  markets.  They  must  offer  salaries  equal  to or better  than  suburban 
hospitals  to attract  professionals. 
w	 Deteriorating Facilities Require Major Capital Investments  To Renovate  and 
Modernize. 
Many  hospitals  that  closed  during  1987 through  1991 were  old facilities  in need  of 
repair  and  renovation.  Such  alterations  are  expensive. 
11
 IMPACI  OF  RURAL  HOSPITAL  CLOSURE 
In rural  communities  where  hospitals  closed  during  1987 through  1991, we assessed 
the  availability  of inpatient  care  and  emergency  setices. 
k  Inpaiien/tire  Avai.kdk? 
  In l%ree-foufihs Of The Rural Communities  Studied, Another  General Hospital  Is 
Located  U%hin 20 Miles Of Closed Hospitak. 
As the  chart  shows, most  people  had 
inpatient  care  available  to them  nearby 
DISTANCE  TO INPATIENT  CARE 
after  the  hospital  closed. 
Prior  to the  closure,  many  residents  and 
physicians  were  already  bypassing  the  local 
hospital  and  traveling  to other  nearby 
facilities  for  care. 
Residents  of 15 of 193 (8 percent)  rural 
communities  where  a hospital  closed  must 
travel  more  than  30 miles  for inpatient 
care  at  another  hospital.  Number of lioapitak 
Are EmergencyServicesAvailable? 
w  In 82 Percent  (159 of 193)  Of The Rural Communities  Where Hospitals  Closed, 
Eme~ency  Facilities  Were Available  ?Wthin20 Miles Of Closed Hospitals. 
When  a hospital  closes, the  community 
loses  not  only inpatient  beds,  but  also 
DISTANCE  TO EMERGENCY  SERVICES 
emergency  services. 
As the  chart  shows, most  residents  of 
communities  which  lost a hospital  had  an 
emergency  care  facility  available  within  a 
20 mile  radius. 
Residents  of 3 of 193 (1.5 percent)  rural 
communities  which  lost their  hospital 
during  1987 through  1991 must  travel 
more  than  30 miles  for emergency  services  Numbar of Hospltala 
at another  hospital. 
12
 WhatAbout Access ToHml.thCareIn RuralCommudiis  ThatDo Not HaveA 
H-l? 
	 Rural Communities  U4thout A Hospital  Can Provide Local Access  To Health 
Care. 
Although  most  residents  in communities  which lost their  hospitals  had  inpatient  and 
emergency  care  available  nearby,  some  residents  had  problems  accessing  medical  care. 
Several  communities  created  alternatives  to a hospital  for providing  access  to health 
care.  In a separate  OEI  inspection,  we studied  six alternatives,  which we called 
initiatives.  These  communities  assumed  responsibility  and  demonstrated  inspiration 
and  innovation  in creating  a new way for providing  access  to health  care.  Each 
initiative  was tailored  to meet  the  needs  and  the  resources  available  in its community. 
In another  OEI  inspection,  we studied  the  Medical  Assistance  Facility  program,  which 
is a special  hospital  alternative  developed  by the  State  of Montana  and  HCFA.  It is 
currently  used  to provide  access  to inpatient  and  emergeney  medical  care  in several 
sites  in eastern  Montana.  We  discuss the  results  of these  studies  in two companion 
reports.  They  are  (1) Access to Rural  Health  Care:  Successful  Community  Initiatives 
(OEI-04-92-O0730),  and  (2) Medical  Assistance  Facilities  (OEI-04-92-00731). 
suMMARY

Our  study  of rural  hospitals  which  closed  during  the  5-year  period  1987-1991 showed 
the  following. 
193 general,  acute  care  rural  hospitals  closed. 
Most  rural  hospitals  that  closed  were  small  and  had  low occupancy  rates. 
Because  of the  small  size and  low occupancy  rates  of hospitals  that  closed,  few 
patients  were  affected.  Most  patients  had  emergency  and  inpatient  medical 
care  available  within  20 miles  of the  closed  hospital. 
Some  rural  communities  have  developed  successful  initiatives  to maintain  access 
to health  care  services  after  a hospital  has  closed. 
13
 EN DNOTES

1. Larry  S. Gage,  Dennis  P. Andrulis,  and  Virginia  Beers, Americas  Safety Net:  A 
Repoti  on the Situation in Our Nations Metropolitan Areas.  National 
Association  of Public  Hospitals.  October,  1987. 
2. Hospital  occupancy  rate  is defined  as the  actual  number  of patient  days divided 
by the  total  bed  days available.  National  occupancy  rate  is defined  as the  sum 
of all rural  hospitals  occupancy  rates,  divided  by the  number  of rural  hospitals. 
3. Average  Medicare  utilization  of closed  rural  hospitals  is defined  as the  percent 
of Medicare  patient  days compared  to the  total  patient  days for each  hospital, 
summed  and  divided  by the  number  of hospitals.  National  average  Medicare 
utilization  is the  percent  of Medicare  utilization  of each  hospital,  summed  and 
divided  by the  total  number  of rural  hospitals. 
4.  Medicaid  utilization  is calculated  in the  same  way as Medicare  utilization. 
14
 APPENDIX  A

METHoDomGY

Extent Of Ruml Hqital  Cikuue 
To  determine  how many  rural  hospitals  closed  during  1987 through  1991, we surveyed 
State  licensing  and  certification  agencies,  State  hospital  associations  and  State  health 
planning  agencies.  We  also compiled  Health  Care  Financing  Administration  (HCFA) 
data  on terminated  providers  in 1987-1991.  When  a closed  hospital  met  the  studys 
definition  or when  there  were  questions,  we contacted  officials  associated  with the 
closed  hospitals,  officials  associated  with hospitals  nearest  to the  closed  hospital,  and 
local  public  officials. 
To  determine  the  number  of hospitals  in the  United  States,  we used  the  Hospital  Cost 
Report  Information  System  (HCRIS)  maintained  by HCFA.  We  included  only 
general,  short-term,  acute  care  hospitals  under  Medicares  Prospective  Payment 
System  (PPS)  in the  universe. 
CharactenkiaQfl?uralHospitalClosure 
To  analyze  characteristics  of closed  hospitals,  we used  HCFAS HCRIS  data.  We  used 
the  latest  pre-closure  cost reports.  For  example,  if a hospital  closed  in May  1991 and 
its accounting  year  was on a January-December  cycle, we used  the  providers  January 
1, 1990 to December  31, 1990 report. 
ReasonsForAnd Impct  OfRuralHmpitalClbsure 
We  obtained  data  for our  analysis  from  interviews  with the  following  sources.

  Former  hospital  administrators,  board  members,  and/or  staff  of closed  hospitals

  Hospital  administrators  and/or  staff  at the  nearest  hospitals

F  Local  police  and  health  officials

F  Local  government  officials

E  State  health  planning  agencies

  State  certification  and  licensing  agencies

  State  hospital  associations

A-1
 APPENDIX  B 
1987-1991  RURAL HOSP~XL  CLOSURES 
II  Number  Of Closures  Ranked  By State  II 
B-1