Rural Hospitals At a Breaking Point – Strategic Action Is No Longer Optional

Across the U.S., rural hospitals are confronting a continual and growing crisis—one that has been quietly intensifying for more than a decade. According to the University of North Carolina’s Sheps Center for Health Services Research, over 140 rural hospitals have closed since 2010, and hundreds more are still financially vulnerable. Often serving as the sole provider of care within their regions, these hospitals are not just clinical assets, they are economic lifelines and employers to these communities.  When they falter, the ripple effects are severe: diminished access to care, lost jobs, and deteriorating community viability.

A recent Vox video (“Why America is closing its rural hospitals”) highlights the structural headwinds at play: evolving reimbursement models, demographic shifts with the graying of America, and persistent capital constraints. Additionally, the funding measures for Medicaid in the One Big Beautiful Bill legislation – estimated at $1 trillion over the next decade per the CBO – only portend further headwinds for many community hospitals.  As a financial advisory and restructuring firm, SOLIC has collaborated with numerous distressed providers navigating these very challenges, and, as we see with so many of our clients, the time for decisive strategic planning is now.

Three interrelated forces are creating unprecedented pressure on rural systems:

Rural Hospital Closures Are Accelerating

A June 2024 report from the Chartis Center for Rural Health found over 600 rural hospitals, nearly a third of all rural hospitals, are at immediate risk of closure. In 2023 alone, 20 rural hospitals closed; the highest single-year total since the height of the pandemic.

These facilities are often financially unsustainable due to:

• Declining patient volumes, aging populations and deteriorating base of employers within their communities
• Labor shortages in key clinical and support functions
• Escalating supply chain and insurance costs
• Outdated infrastructure and underinvestment in modernization

In response, many are scaling back services, cutting labor & delivery, oncology, and surgical units, while continually having to defer capital expenditures. These defensive measures may buy some time, but without a strategic pivot, long-term viability remains elusive.

Medicare Advantage Is Reshaping Reimbursement Dynamics

Medicare Advantage (MA) enrollment now surpasses 50 percent of all Medicare beneficiaries and continues to grow, particularly in rural regions with aging demographics. MA plans have grown from 19 percent of beneficiaries in 2007 to 54 percent, or 33 million beneficiaries, in 2024. While MA offers patients greater plan flexibility, enticing enrollees with $0 deductibles and low co-payment plans, it often results in lower reimbursement for providers as their rapid expansion is having unintended and increasingly worrisome effects on rural hospitals across the country.  For example, according to MedPAC, Medicare reimbursement typically averages 87 cents per $1 of cost for hospitals, while MA plans (according to the American Hospital Association) reimburse hospitals at approximately 78 cents per $1 of cost (or 90 percent of Medicare).  Rural hospitals, already dependent on federal programs to support operations, find this delta unsustainable.  Initially created to provide consumers a cost-effective option to government-run Medicare, MA plans as managed by private insurers now, according to MedPAC, costs the government 22 percent more per enrollee than Medicare’s original FFS plan.

Moreover, MA plans often introduce administrative complexity, prior authorizations, denials, and claims processing delays, that smaller facilities are ill-equipped to manage.  Network limitations and access issues can arise as MA plans often operate within narrow networks, which can lead to coverage gaps especially in rural areas where few providers are available. These dynamics are quietly eroding revenue integrity and operational stability, making forward planning essential. Medicare Advantage plans are reshaping the Medicare landscape, offering benefits that appeal to millions. But for rural hospitals, this transformation comes at a cost.  In fact, many of our acute care clients are reassessing the benefits of participating in these MA plans, and some have already begun to opt out of select plans.

A Financial and Fiduciary Imperative

Rural healthcare is not only a clinical issue, but also a strategic, financial, and governance challenge for so many communities across the country. While some public attention is beginning to shift toward the rural crisis and healthcare access, stakeholders cannot afford to wait on policy outcomes or grant cycles. The most resilient institutions will be those that act early, proactively seek clarity around their financial position, and align with partners that can support long-term stability.

Board members, health system executives, and capital providers with rural healthcare exposure should be taking the time now to evaluate the hospital’s positioning and engage in meaningful strategic dialogue.  Often, we find Board members apprehensive about exploring these pathways as the mindset of “not selling our hospital on my watch” can be contagious.  Certainly, this is an understandable and rational reaction.  But, these leaders should be putting their fiduciaries responsibilities ahead of desires for the status quo or some duty to community loyalty that is detached from the realities of the financial position of the hospital.  

Further, any exploration of strategic and operational improvement options, including capital needs, is not necessarily the same as executing on any of the options.  Board members and hospital executives should take steps to identify and consider such options and, just as importantly, the timing and ability to execute on these options should they seek to do so.

For example, at SOLIC we recently advised a midwestern-based critical access hospital on a series of strategic and operational improvements initiatives as the facility was experiencing material financial challenges, including defaults with its debt capital source.  Organizational leadership stressed a strong desire to do what is right and best for the hospital with a particular emphasis on maintenance of current services and staff.  We advised the hospital Board on an array of (i) strategic options involving affiliation and refinancing opportunities, and (ii) operational initiatives to improve the operating performance and financial profile of the hospital in the context of both near-term and longer-term viability.  

The hospital elected first to address specific operational recommendations, including assessing existing payor arrangements, such as a key MA plan, and their revenue cycle functions.  As a result of this work, the facility ultimately realized drastic improvement in its cash collection cycles, while also negotiating some favorable terms to existing managed care contracts.  Each of these steps has led to improved financial results allowing the hospital to cure certain defaults with its lenders.  

Strategic Optionality Is Shrinking. Action Must Be Preemptive

Many rural hospitals wait until liquidity is critically constrained before reaching for outside assistance. At that point, strategic options narrow significantly, and stakeholders often face limited pathways forward. However, with prompt intervention and objective analysis, these facilities can regain control of their futures.

In today’s environment, boards and executives must begin assessing:

• Strategic affiliations or partnerships with larger systems to achieve scale and operational support
• Balance sheet solutions, including sale-leasebacks, debt refinancing, or mission-aligned investment
• In-depth operational and financial diagnostics to find turnaround opportunities, service line rationality, and unlock value

Whether it’s pursuing growth capital, evaluating restructuring alternatives, or managing through special situations transaction solutions, many rural hospitals are at inflection points. The increasing pressures on rural hospitals from declining patient volumes, labor shortages, and evolving reimbursement models like Medicare Advantage are undeniable. While the instinct to defer capital expenditures or scale back services may seem prudent, these defensive measures only offer a temporary reprieve. A new approach is needed, one that moves beyond reacting to crises and embraces proactive strategic planning. 

Hospital boards and executives must act now, before liquidity is critically constrained, by exploring strategic affiliations, assessing their financial position, and identifying operational improvements. Waiting for external policy changes or a bailout is no longer a viable strategy. The most resilient institutions will be those that take decisive action today, securing their long-term stability and continuing their vital role as both clinical and economic anchors for their communities.

Footnotes:

Sources [1^st point]:

• Chartis Center for Rural Health, 2024 Rural Hospital Vulnerability Index

UNC Sheps Center – Rural Hospital Closures

Sources [2^nd point]:

• KFF – Medicare Advantage Enrollment
• MedPAC – March 2023 Report to Congress

1. “Trump’s Medicaid cuts are coming for rural Americans: ‘It’s going to have to hit them first’” – The Guardian (Jul 4, 2025)
This in-depth report examines the $1 trillion in projected Medicaid cuts from the “One Big Beautiful Bill”, detailing how states like North Carolina—facing a potential $32 billion loss—could see widespread hospital closures and deteriorating rural care Midland Daily News+The Guardian+YouTube.

2. “What to Know About New Medicaid Cuts: Is Your Local Hospital Closing Soon?” – Kiplinger (last week)
Key insights include estimates of 700 rural hospitals at risk, with 300 in immediate danger of closure. The article also covers how Kansas and Texas are expected to see the highest impacts Kiplinger.

3. “Rural hospital officials expect financial hardships” – Eastern New Mexico News (Jul 16, 2025)
Local hospital leaders warn that across New Mexico, multiple rural hospitals are bracing for financial collapse and service disruptions due to the federal cuts Kiplinger+The Eastern New Mexico News+Kiplinger.

4. “Medicaid cuts could have big consequences for rural hospitals” – Ideastream (Ohio, Jul 21, 2025)
Highlights Ohio-specific data: 70 percent of rural hospitals nearly broke even in 2024, and around 11 facilities are now classified as “at-risk”, with a possible statewide Medicaid drop totaling $1 trillion over 10 years Ideastream.

• Hospital Closures & Conversions
  • 2017–2024: 62 rural hospitals closed vs. only 10 opened—a net loss of 52 facilities (KFF).
  • 2005–2023: 146 rural hospitals either shuttered or converted to non-acute care; 81 closed fully (Economic Research Service).
  • Since 2005: UNC Sheps Center records ~196 rural hospital closures or conversions (shepscenter.unc.edu).
  • 2023 alone: 18 hospitals either closed or shifted to outpatient models; nearly 40 closed inpatient services to qualify as Rural Emergency Hospitals (Chartis).
• Financial Health
  • In 2023, 48 percent of rural hospitals operated at a loss (American Hospital Association).
  • Chartis’ 2025 analysis flagged 432 rural hospitals as “vulnerable to closure,” with 46 percent in the red (Chartis).
• Obstetrics & Essential Services at Risk
  • Between 2011–2023, 293 rural hospitals cut OB services; 424 eliminated chemotherapy between 2014–2023 (National Rural Health, Chartis).
  • Less than 50 percent of rural hospitals currently offer labor and delivery; a 9-point drop since 2010 (ruralhospitals.chqpr.org).
• Medicare Advantage (MA) Trends
  • MA enrollment rose ~120 percent over the past decade, reaching ~33 million beneficiaries (~54 percent of all Medicare enrollees) (National Rural Health, American Hospital Association).
  • In rural hospitals, MA’s share of total Medicare inpatient days soared from 11.3 percent (2018–19) to 28.0 percent (2022–23) (PubMed).
  • Rural hospitals receive just ~90.6 percent of traditional Medicare rates from MA—specialty and critical-access hospitals often fare worse (85–95 percent) (American Hospital Association).
  • 81 percent of rural clinicians report lower care quality due to MA practices; 86 percent cite administrative burdens affecting outcomes 
  • Since 2018, MA inpatient days at rural facilities increased by ~106 percent, compared to a ~52 percent rise elsewhere (OncLive).