More Texas hospitals risk closing due to Medicare cuts

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

More than 9% of hospitals in the Lone Star State are at risk of closing, up from 4.7% in 2020, according to a report released this week by consulting firm Kaufman Hall. The firm determined the risk of a hospital closure based on erratic trends in its operating margin, cash days, and debt-to-cap ratio.

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, with 26% of rural hospitals in Texas at risk of closing this year, according to the report. The Center for Healthcare Quality and Payment Reform estimates that 30% of the approximately 1,800 rural hospitals across the country are at risk of closure.

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

“I think part of the misconception is that somehow because of all this federal funding, the hospitals are in pretty good shape. … Most of the federal funding was actually going to areas of the country that received or experienced surges well before the two surges that Texas experienced,” Hawkins said at a media briefing on Wednesday.

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

Beginning in 2023, the Centers for Medicare and Medicaid Services will offer Rural Emergency Hospital status to facilities that are phasing out inpatient care and expanding outpatient care. The program, approved in 2020, is designed to help hospitals reduce operations while maintaining some critical services.

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

“This financial stress, I think, is ultimately affecting patient care,” Hawkins said. “These Medicare cuts [for] all providers, so it makes a big difference, especially for doctors, and then obviously for home health care. All these people are dealing with from the same structural problems in the future.”

He said leaders are also watching the impact of Medicare Advantage on rural facilities, some of which are hesitant to negotiate with Massachusetts insurers and process prior authorization requests.

Hawkins advocates expanding Medicaid, which he says will benefit small businesses and service-level workers, as well as reduce the need for some charitable assistance.

Some Republican lawmakers have long held back from expanding in their states, arguing that the program is ineffective and creates an additional tax burden. For example, last month, Republicans in North Carolina moved additional discussion of expanding Medicaid to next year. Despite GOP opposition in South Dakota, state voters approved the expansion in November, resulting in 11 states failing to pass the changes allowed by the Affordable Care Act.

The Texas Hospital Association is currently pushing for Medicaid coverage for mothers one year postpartum and for patients with behavioral disorders, which lawmakers have seemed open to in the past. Legislators have also shown a willingness to raise rates for rural hospitals, Hawkins said.

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