June 10, 2024

Why Hospitals Close

In Spring 2023, the Center for Healthcare Quality and Payment Reform released a report stating that over 600 rural American hospitals were in danger of closing. The report declared that in most states, at least 25% of the rural hospitals were at risk of closing, and in 12 states, 40% or more were at risk. As the months passed and the year changed, that warning became palpable. 

Healthcare newsletters like Becker’s Hospital Review report hospital closures every week, not all of which have been entirely rural. With urban hospital closures also on the rise, the impact of these hospital closures is undeniable. With an ever-changing healthcare system, the more we understand the causes and effects of hospital closures, the more we can strategize how to prevent them in the first place. 

Why are hospitals closing now?

There are many reasons why hospitals close, some predictable and some surprising. 

  1. Declining patient volumes

Smaller health systems can suffer when patients have other competitive options, including bigger hospitals offering greater health services. A small Kansas health system that opened in 1919 recently closed its doors for that very reason, stating that diminishing patient volumes and constant financial struggles finally made its operation untenable. 

  1. Reimbursement challenges

Failing to receive payment for services provided is one of the primary reasons for hospital closures in the country. Steward Health Care in Stoughton, Mass, had to close due to “chronic low reimbursement rates” for Medicare and Medicare services, which cost them $22 million from NESH operations. Because most of their patients were public pay, their payments were often lower than the cost of delivering services. 

  1. Growing labor costs

When a smaller, rural health system doesn’t have access to high-quality labor, it can pay for travel nurses to support its facilities. Travel nurses can be expensive, especially for smaller operations. Such was the case at Madera (Calif.) Community Hospital, where hospital expenditures became too costly to keep the facility running. 

  1. Inflation

Inflation affects groceries and drives up the cost of medical supplies. When health systems with hurting revenues can’t afford to keep vital resources stocked, their operating ability swiftly diminishes. 

  1. Failed health system deals

When a health system desperately needs financial rescue, sometimes that rescue comes in the form of acquisition by a completely different health system. When all conditions of an acquisition deal are met, a system can be saved. If not, it can collapse. Madera (Calif.) Community Hospital (the only hospital in its city for 66,000 residents) closed when a deal with Trinity Health fell through. When Trinity Health couldn’t guarantee price caps to keep services affordable or the maintenance of Medicare and Medi-Cal certification, the deal became untenable for the patient population at Madera (Calif.) Community Hospital.

  1. System reorganization and relocation

When a health system observes a struggling facility, it can absorb its services into a different one. By reorganizing and relocating services, they can keep the function alive in a different form. 

How to prevent a hospital closure

No one has a magic wand to fix what is deeply broken in an imperfect health system, but there are ways to prevent health systems from falling too far beyond repair in the first place. 

  • Strengthen patient experience

When patients’ needs are met with timely, attentive compassion and care, they remember and return. With HCAHPS and other patient satisfaction surveys driving patient preference, guaranteeing a positive patient experience secures their patronage, loyalty, and likelihood to recommend health system services to family and friends. By shoring up a solid patient base, health systems flourish. 

  • Manage resources and labor costs

It might sound easier said than done, but being mindful and intentional about resource usage and labor management in small ways adds up to significant benefits. Having systems in place that prevent mistakes and waste helps everyone in a health system move more thoughtfully and carefully. It encourages the understanding that hospital health and longevity are maintained one work day at a time. 

  • Prioritize clinician care and support

Clinicians thrive in their health system when effectively supported in their demanding roles. Services and practices prioritizing clinician support guarantee they don’t fall by the wayside when things get stressful. By refusing to neglect the needs of their clinicians, health systems secure a strong, committed workforce that shows up and does the job well every day. 

  • Streamline workflows

Incorporating AI-driven clinical platforms that automate note documentation and other monotonous paperwork tasks transforms how a health system works. When clinicians and other hospital staff can move through their days more efficiently because routine busywork is done for them, productivity skyrockets along with health system success.

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