‘Medicare for All’ might threaten rural hospitals

Would “Medicare for All” actually crush hospitals, as its opponents argue? It probably depends on where they’re located.

The fate of hospitals in the United States — particularly in rural areas, where they’re closing in droves — has become a top point of contention in the political debate around Medicare for All. Depending on who you listen to, hospitals are either full of waste, bloat and profit-seeking — or stretched so thin that their ability to stay open is jeopardized.

The dual positions surfaced in the most recent Democratic presidential primary debate, in a series of exchanges between Medicare for All author Sen. Bernie Sanders, I-VT., and former congressman John Delaney, D-MD. Delaney charged that paying hospitals lower Medicare rates would force them to shutter. Sanders shot back that his simpler, more streamlined system would save them hundreds of billions of dollars in administrative costs.

“Hospitals will be better off than they are today,” Sanders said.

“Listen, his math is wrong,” Delaney responded. “It’s been well-documented that if all the bills were paid at Medicare rates ... then many hospitals in this country would close.”

“I’ve been going around rural America, and I ask rural hospital administrators one question: ‘If all your bills were paid at the Medicare rate last year, what would happen?’” Delaney added. “And they all look at me and say, ‘We would close.’”

The question is whether hospitals have deep enough margins to swallow lower payments for their commercially insured patients. Under Medicare for All or even a public option approach, some or all of these patients would be transferred from the commercial market to government plans.

Medicare pays hospitals only 87 cents on the dollar of their estimated average costs, and private payers pay hospitals a hefty 145 cents.

But the issue is more complex than it appears. That’s because hospitals are now in two different categories: the well-endowed major hospital systems and hospitals in underserved rural areas.

It’s the rural hospitals that are most in danger under Medicare for All.

They’re already on the decline. More than 100 have closed since 2010. Out of 7,000 areas with health professional shortages in the United States, about 60 percent are in rural areas.

So it’s not surprising that hospitals and the rest of the expansive health-care industry have also seized on the narrative that any new government-backed plan would close these types of hospitals.

An industry coalition that has been running ads against Medicare for All released a study last week seeking to prove that point. The analysis, conducted by Navigant, predicts that up to 55 percent of rural hospitals could be at high risk of closing if many people with workplace and marketplace coverage switched to a public-option plan paying Medicare rates.

The analysis looked at the effects on hospitals’ revenue, with the most dramatic scenario assuming that half of everyone on workplace coverage and 85 percent of those in the individual market moved to a public option.

“The availability of a public option could negatively impact access to and quality of care through rural hospitals’ potential elimination of services and reduction of clinical and administrative staff,” says the report, commissioned by the Partnership for America’s Healthcare Future.

It’s a different story with urban hospitals with hefty endowments. They would definitely feel effects from Medicare for All, but they also might have the capacity to do more with less.

As these hospitals have consolidated into large systems, they’ve gained more negotiating power with insurers. Independent analyses of Sanders’ Medicare for All plan say it would save hospitals some administrative costs to help make up the difference.