More Texas hospitals at risk of closing as Medicare cuts loom

Texas health officials are sounding the alarm as almost half of hospitals in the state are operating in the red.

More than 9% of hospitals in the Lone Star State are at risk of closure, compared with 4.7% in 2020, according to a report released this week from consulting firm Kaufman Hall. The firm identified a hospital’s closure risk based on unsustainable trends with its operating margin, days cash on hand and debt-to-capitalization ratios.

Hospitals across the country are struggling to break even due to high labor costs, inflation and a weak investment market. Rural hospitals face a disproportionate risk – 26% of rural hospitals in Texas are at risk of closure this year, according to the report. The Center for Healthcare Quality and Payment Reform estimates 30% of the roughly 1,800 rural hospitals nationwide are at risk of closing.

John Hawkins, president and CEO of the Texas Hospital Association, said federal funding to tackle the COVID-19 pandemic stabilized many facilities in the short-term, but it wasn’t enough.

“I think that’s part of the misconception out there is that somehow because of all this federal funding, hospitals are in pretty good shape. … A lot of the federal funding actually went to areas of the country that received or experienced their surges much in advance of the two surges that Texas experienced,” Hawkins said at a media briefing Wednesday. 

Health officials in Texas hope Congress will delay further reductions to Medicare payments via sequestration. A 1% reduction kicked in April 1, after a temporary suspension during the COVID-19 pandemic. The cuts increased to 2% on July 1. Another 4% reduction in Medicare reimbursements is scheduled for next year through the Pay-As-You-Go Act. 

Starting in 2023, the Centers for Medicare and Medicaid Services will offer a “Rural Emergency Hospital” designation for facilities that phase out inpatient care and expand in the outpatient setting. The program, authorized in 2020, is meant to help hospitals scale back operations but still maintain some critical services.

Texas hospitals have reported $3.2 billion in losses this year to date, according to Kaufman Hall.

“That financial strain, I think, ultimately does impact patient care,” Hawkins said. “Those Medicare cuts are [for] all providers, so it’s a big deal particularly for physicians and then obviously home health, nursing. All of those folks are dealing with a lot of these same structural issues going forward.”

He said leaders are also watching the effect of Medicare Advantage on rural facilities, some of which are hesitant to take on negotiations with MA insurers and handle the prior authorization requests. 

Hawkins is in favor of Medicaid expansion, which he said would benefit small businesses and service-level employees, and alleviate the need for some charity care. Some Republican legislators have long pushed back on expansion in their respective states, arguing the program is inefficient and creates additional tax burden. Last month, Republicans in North Carolina, for example, pushed additional discussion of Medicaid expansion into next year. Despite Republican opposition, voters in South Dakota approved an expansion in November, leaving 11 states that have not adopted changes authorized by the Affordable Care Act.

The Texas Hospital Association is now pushing specifically for Medicaid coverage for mothers one year postpartum and for behavioral health patients, which legislators have seemed open to in the past. They have also shown a willingness to enhance rates for rural hospitals, Hawkins said.