Pa. will see rural hospitals close because of feds’ deep Medicaid cuts

Two years ago, Bucktail Medical Center, the only hospital in rural Clinton County, was on the verge of closure.

One of the smallest hospitals in Pennsylvania, Bucktail was beset by increasing operating costs and financial challenges.

A $1 million grant from the state helped stave off the closure. In 2023, the hospital reported $7.09 million in revenue and $9.2 million in expenses, tax records show.

In June, Heritage Valley Kennedy Hospital in rural Allegheny County closed its doors amid declining patient numbers and diminishing reimbursements, according to a Becker’s Hospital Review report.

Residents now have to travel greater distances to access outpatient surgical services, emergency and inpatient behavioral health services.

In rural northeastern Pennsylvania, near the New York line, Wayne Memorial Health System two years ago made some tough choices to trim costs and stem losses.

The sole community hospital provider for Pike, Wayne and Susquehanna counties, Wayne Memorial closed outpatient facilities, shuttered its home health agency and outpatient rehab services, and scaled back hospital services.

The health system has rolled out strategies to raise revenue and decrease losses, including expanding its footprint in the region. Still, Wayne Memorial’s main hospital in Honesdale is losing $5 million in revenue; the system’s critical access hospital is close to breaking even, but leans toward the red.

“We have in the past cost-shifted other lines of business that have offset (losses), but I’ll be very honest with you, we’ve had operating losses for the last several years,” said Wayne Memorial Health System’s CEO, Jim Pettinato, who oversees two acute care hospitals and a long-term care facility.

For years, Pettinato has managed to fend off the challenges that beset rural hospitals across Pennsylvania, disproportionately putting them in more vulnerable positions than their larger for-profit counterparts.

Rural hospitals – which are overwhelmingly not-for profit operations – serve disproportionately older, poorer and sicker population, and have struggled amid rising costs, staffing shortages, inflation and fewer patients.

The challenges have been compounded by an over-reliance on ever-decreasing reimbursements from Medicaid and Medical Assistance, which provide a significant portion of the health insurance for these disproportionately elderly and lower-income communities.

Things are about to get bleaker for rural hospitals.

The newly enacted federal tax and spending law calls for some of the deepest cuts to health care spending in U.S. history, with more than $1 trillion sliced from Medicaid, the public health insurance program for low-income Americans.

Health policy experts have sounded the alarm that the massive loss of funding to individuals and reimbursements to health care systems will decimate already struggling rural hospitals and nursing facilities.

“They will all eventually feel the impact of the bill, if not immediately,” said Lisa Ann Davis, executive director of the Pennsylvania Office for Rural Health. “Regardless of what’s been happening at the federal level, we’re already seeing that small rural hospitals are needing to discontinue services, especially labor and delivery.”

The spending plan is projected to imperil more than 300 financially struggling rural hospitals nationwide, according to KFF, a nonprofit health policy group. Some estimates put the number in excess of 700 hospitals.

Of the 17 rural hospitals in Pennsylvania, five are under risk of immediate closure as a result of the spending cuts under the law, according to the Office of Rural Health. The other 12 hospitals will remain vulnerable under mounting operating challenges and are likely to head toward the fiscal cliff in a few years.

Under the new law, 310,000 are expected to be kicked off the Medicaid rolls in the commonwealth, putting a greater burden on not-for-profit hospitals, which are required to provide care for anyone who shows up at their doors, regardless of their ability to pay.

“It will happen to every hospital across the state, whether they are small, rural or suburban, or they’re an inner city tertiary care facility,” Davis said. “They will all see this.”

The challenge will be far greater for small rural hospitals, which already have higher numbers of Medicaid patients and are reimbursed at lower levels than commercially insured patients. Rural hospitals also see higher numbers of patients with uncompensated care.

How do these vulnerable rural hospitals stay in the black?

“You don’t,” said Pettinato, whose Wayne Memorial Health System nets $130 million in revenue, a relatively minuscule amount in the health system sector. The main hospital in Honesdale — which has 14 beds and runs at 50% occupancy — has an approximate overall operating loss of $5 million.

Hospitals got a boost during the pandemic, but that extra funding meant to offset losses and additional expenditures has long dried up, Pettinato noted. The ability of hospitals already operating on razor-thin margins to come up with meaningful creative strategies has virtually disappeared.

“I think the piece that is the most concerning is third-party payers, regardless of who they are, whether it’s federal, whether it’s state, whether it’s commercial,” Pettinato said.

“The reimbursement dollars keep shrinking. The expenses keep going up. So that ability to continue to cost shift, which is how most healthcare systems have survived for many years is becoming more difficult and next to impossible now because you can’t say, well, I made a slight profit margin over here, I lost it over here. Let me just cost shift that so in the end I’m at least breaking even or positive.”

While a growing number of rural hospitals have shut down their obstetrics services, Wayne Memorial is able to maintain theirs, largely by virtue that they have an affiliation agreement with a federally qualified health center, which provides obstetricians and midwives.

Federally qualified health centers, however, are in the bullseye under the new law. These FQHCs are federally funded to provide healthcare services to anyone, regardless of their ability to pay, and to have a sliding fee scale.

“They’re part of the safety net type of provider,” Davis said. “And they will also start seeing higher numbers of individuals coming in who will be uninsured and may not be able to pay at all for their care. Even though FQHCs get enhanced reimbursement for the services that they provide from the Medicaid program, they will be incredibly challenged to provide that care.”

In addition, approximately 54 free clinics in the state will face additional challenges to stay open under the law, Davis said.

Wayne Memorial’s obstetrics department delivers on average 475 babies a year. The hospital loses nearly $3 million a year in operating costs for its OB unit. The FQHC, which is financially independent, loses an additional $2 million a year in obstetrics services.

“When they say we staff these units and whether you’re delivering one baby, 500 babies, or 800 babies, you’ve got to have somebody on call 24 hours a day, seven days a week,” Pettinato said. “You’ve got to have the support staff to keep those office visits going, Right? But they’re losing in two lanes. So when you add us together, we are losing collectively just around $5 million a year on 475 patients.”

Shutting down the obstetrics services would result in hardship for the hospital’s rural community, Pettinato said.

“There would be a maternity desert in the northeast corner of the state, “he said. “That’s equivalent to at least a one-hour drive to get to the next closest labor facility.”

Pennsylvania is ranked third in the nation in the number of residents who live in federally designated rural areas. Approximately a quarter of Pennsylvania’s population – about 3.4 million people – live in rural communities, with 48 of the total 67 counties deemed rural.

As many as 10 counties have no hospitals in their jurisdictions.

In western Pennsylvania, at least five hospitals are on the precipice of closing, according to analysis from the Cecil G. Sheps Center for Health Services Research at the University of North Carolina at Chapel Hill. The center tracks rural hospital closures.

Rep. Chris Deluzio, a Democrat representing Beaver County and parts of Allegheny County, home to rural hospitals, said approximately 20,000 of his constituents are poised to lose Medicaid insurance under the new law. The impact to hospitals and nursing homes is as dire, he said.

“I think it’s pretty clear that we’re going to see hospitals and nursing homes at risk of closure or cutting back services because of President Trump’s big bill that he just passed through the Congress,” Deluzio said.

At a recent nursing home event in his district, the congressman listened to the concerns from health care workers.

“I think what you hear when you talk to health care workers or nursing home leadership is that they expect that they’re going to have a hard time keeping doors open or not slashing beds in capacity because of this bill,” Deluzio said. “I just think it’s so reckless.”

Hospitals in western Pennsylvania that have been designated at risk of immediate closure as a result of the spending law include, UPMC Jameson, UPMC Northwest, UPMC Kane and UPMC Horizon; the fifth hospital, Penn Highlands Connellsville, is considered at risk because so many of its patients depend on Medicaid, according to the review.

“The most important point is that Medicaid plays a vital role in the health of rural residents,” Douglas Winner, chief financial officer of Penn Highlands Healthcare, told USA Today. “And it is important to preserve this funding so that families can continue to access the care they need for healthier lives.”

In a statement to PennLive, a UPMC spokesperson said the health system, which operates more than 40 hospitals across Pennsylvania, including several in rural areas, is assessing the impact of the new law.

“UPMC is closely following the proposed Medicaid changes, which could have a disproportionate impact on hospitals serving rural and other underserved communities,” the statement read. “We remain committed to supporting access to essential care for all our patients across the communities we serve, including our many rural areas.”

John Lugg, chairman of the board of Bucktail Medical Center, said the hospital had made positive strides with the support of state and federal officials.

“We’ve really done a lot to improve our position and the services we provide the community,” he said. “Right now patient volumes are looking good and we’ve got a lot of great service providers at the hospital. It’s something the community should be proud of… Obviously there were some negative news articles, but we’re providing great services. So that’s where we’re at and that’s where we intend to continue to be in the future, regardless of federal funding.”

Gov. Josh Shapiro has said the commonwealth would not be able to make up for losses from the federal cuts.

“Let me be very clear, Pennsylvania can’t backfill this,” Shapiro said at a recent health care event in York County. “We don’t have the money to do it. I warned these members of Congress that we couldn’t do it, and so the cuts that are about to come are coming as a direct result of how your federal representatives voted here. We can’t fix this for them. They’re taking billions of dollars away from Pennsylvania and we can’t make up for that.”

The so-called One Big Beautiful Bill Act — which got the support of all Republicans in Congress except for five, including Rep. Brian Fitzpatrick of Pennsylvania, is touted as an end to waste, fraud and abuse in federal programs, and a means to secure the U.S. border and spur economic growth.

The law is expected to add at least $3 trillion to the national debt over the next decade and give expansive tax cuts to the rich as it slashes funding for programs for the poor, like SNAP, the supplemental food program formerly known as food stamps.

PennLive requested interviews with Sen. Dave McCormick and several Congressional Republicans whose Pennsylvania districts are home to rural hospitals, including Reps. Dan Meuser, Glenn Thompson and John Joyce. None responded to multiple requests for comment.

Former U.S. Rep. Conor Lamb, whose western Pennsylvania district included rural hospitals, noted that Greene County, part of his former legislative district, no longer has any healthcare facilities that provide obstetric care.

“You just can’t have a baby in Greene County,” Lamb said. “You have to go to Washington Hospital or down into West Virginia, and that kind of thing is going to keep playing out all over the state.”

One state lawmaker, however, cautions against doomcasting.

Rep. Jonathan Fritz, a Republican whose district in Wayne and Susquehanna counties has four rural hospitals, downplayed the impact the deep cuts will have on rural hospitals.

“Our rural hospitals, by nature are resilient and quick to adapt,” said Fritz, who reached out to hospital leaders in his district in preparation for the interview with PennLive.

“As I spoke to hospital leadership they communicated to me that it’s early on and hard to really quantify what the impact is going to be. But one thing that really resonated and one thing that I really want to shine a light on is that I’m very lucky in my district, there is a high level of optimism.”

Fritz’s legislative district is home to Guthrie Robert Packer Hospital, Wayne Memorial, Endless Mountain and Barnes Kasson Hospital. Guthrie has multiple locations, the other sites are small, independent community hospitals.

Fritz said more people are moving to his district which he believes means more insured in the workforce.

“That’s the antidote to the issues facing our rural hospitals is a reduction in charity care for the uninsured or the underinsured, and more care for privately insured individuals,” Fritz said. “So that is a dynamic that is very real in my neck of the woods, thanks to growth in population, growth in industry, growth in jobs, growth in opportunity. That is the cure for the challenges facing our rural hospitals.”

In fact, the population of Susquehanna County has been shrinking over the past two decades with as much as a 12% decrease since 2010, according to the U.S. Census.

Other conservative groups also challenge the narrative that the new spending and tax bill will be detrimental to health care access in general in Pennsylvania.

The Commonwealth Foundation, for instance, a conservative think tank, last week challenged what it characterized as myths surrounding the new law’s impact on Medicaid.

Elizabeth Stelle, a policy expert with the group, said reform to Medicaid was necessitated by a state spending crisis fueled by the state’s obligation to Medicaid and other safety net programs.

Foundation officials said the current trajectory of Medicaid spending is unsustainable, noting that Medicaid spending has nearly doubled since pre-pandemic levels, even as enrollment has decreased from pandemic highs.

Stelle made the case that many of the problems besetting Medicaid funding stem from the matching state formula, which she said “incentivizes more spending without necessarily improving care or choice or the quality of the medical insurance.”

Two days before Trump signed the spending bill, Endless Mountain Health System CEO Loren Stone voiced his concerns about the devastating impacts of the then-projected Medicaid cuts to rural hospitals.

“So, the impact on rural hospitals would be that more and more of the cost of care would not be covered through a federal-state sponsored program, such as Medicaid,” Stone said at a state Department of Health event. “Right now, approximately 18% of all of our patients at Endless Mountains Health System are covered either through Medicaid, Medicaid Advantage, or a Medicaid-Medicare program.”

As he continues to crunch numbers, Pettinato, faces the quandary that his health system makes about 10 or 11 cents on the dollar in reimbursement from Medical Assistance.

His Medicare and Medicare Advantage program rates, which he said have been the biggest hit to the system’s bottom line, is around 14% – or 14 cents on the dollar.

“If I get a lot of patients that are on a good commercial plan, well then I’m able to offset that operating loss,” he said. “If I get commercial plans that are still only paying me 30 cents on the dollar, well, okay, it narrows my loss a little bit, but I can’t cost shift anything.”

In short, sole community provider hospitals and small critical access hospitals have no way to recoup losses.

According to the Hospital and Healthsystem Association of Pennsylvania, the 10-year impact of the spending bill to Wayne Memorial Hospital would put it $12 million in the red.

For now Pettinato’s strategy includes expansion into two larger adjacent counties, which offer physician specialty services. He hopes that will generate business to the small rural hospital.

“Because the 65,000 residents in Wayne County and the 65,000 residents in Pike County, and the less than that in Susquehanna right now are never going to be enough people to support the healthcare.”

So instead of shifting costs amid individual insurance revenue to offset losses, Pettinato is going to try shift patients – meaning expanding the system’s medical footprint across the region.

“I can’t increase my expenses more,” he said. “But I’ve got to somehow keep my operation really busy or I’m not going to be able to provide health care to the rural communities that I’m primarily here to serve.”