Rural Hospitals, DSH payments, and Vegas hotels

A commenter asked why so many rural hospitals in Georgia are closing.  It is a good question, and a decent chunk of the explanation is PPACA via the asshole Chief Justice et al and the remainder of the explanation is the economics of running a hospital or a Vegas hotel.

Let’s start with the Vegas hotel.  I mentioned in September that hospitals have very high costs to open up the doors.

 Time Magazine in August had a good piece on Las Vegas’s hotel and gambling industry that has an interesting nugget of explanation for hospital pricing:

A 5,000-room casino hotel that runs 24/7 has high operating costs, and it’s the gambling action that has covered them. The magic of a casino hotel is that once the costs are covered, profit mounts prodigiously–in accounting jargon, this is a business with very high operating leverage.

Hospitals and most other medical practices are the same way. Just opening the doors is extremely expensive as the fixed costs are very high. However, the marginal cost of treating the next patient for most situations (high end drug treatments excluded) are not that high. Hospitals with high census or heads in beds counts are able to use the high usage of their facilities to cover fixed costs and then operating costs.

A recent article on a hospital in Georgia closing illustrates this point:

Lower Oconee Community Hospital in southeast Georgia has closed due to financial problems, becoming the state’s fourth rural hospital to do so in the past two years.

The 25-bed “critical access” hospital in Glenwood, in Wheeler County, is looking to restructure, its CEO said in a statement….

The Wheeler County area had a 23 percent uninsured rate, and 10 percent of citizens are unemployed, according to the County Health Rankings from the University of Wisconsin and the Robert Wood Johnson Foundation.

Forty-one percent of the county’s children live in poverty.

“We just did not have sufficient volume to support the expenses,” O’Neal told WMAZ. “It’s a terrible situation, and it’s tragic, the loss of jobs and the economic impact.”

So how did this hospital survive so long despite serving a very poor and underinsured area?

The hospital most likely relied on Disprorpotionate Share Hospital payments.  These payments are Medicaid reimbursement bonuses to hospitals that serve underinsured and overly poor areas.  The goal of the DSH payments was to make up for some of the fixed costs that normally would be covered by private insurance’s higher reimbursement rates.  PPACA reduced the pool of money committed to DSH payments.  The policy logic behind the reduction was that the Medicaid expansion and Exchange subsidies should significantly reduce the number of people who are uninsured and receive care that is not directly paid for, therefore the need for DSH payments would decrease. 

That logic is sound, and it works as long as there was the assumption that the Medicaid program and expansion was a single program that every state in the nation would take as the deal was too damn good to pass up. It is working in the Expansion states.

Thanks to the assholes on the Supreme Court and the sadists and sociopaths in the Republican Party, half the states have not taken up free federal money to cover their poor uninsured population via Medicaid Expansion.  Throw in the fact that most Republican elites have engaged in massive resistance to Exchange implementation, with Georgia as a particularly egregious example, the compensating factors for the DSH payment cuts aren’t compensating as intended in Republican governed states. 

So Obamacare implentation as it survived through the Supreme Court most likely pushed several of Georgia’s small rural hospitals over the edge as money they had used to barely make it work has been taken away, and the compensating factors of increased Medicaid reimbursement and increased insured rate to minimize bad debts have not come through.  Throw in the typical population decline of rural areas AND the increasing costs of proving medical care, rural hospitals are systemically in trouble but PPACA probably has worsened things slightly. 


36 replies
  1. 1
    cleek says:

    the GOP is country’s biggest death panel

  2. 2

    Thanks to the assholes on the Supreme Court and the sadists and sociopaths in the Republican Party, half the states have not taken up free federal money to cover their poor uninsured population via Medicaid Expansion.

    Some people warned that might happen because they could see the GOP had flown to nutso land.

  3. 3
    NCSteve says:

    Meh. Probably only served Them, anyway. And the wouldn’t need healthcare if they didn’t all engage in the unpardonable sin of being fat while poor. I know it’s true because I saw a fat, poor, nonwhite person this one time.

  4. 4
    Phylllis says:

    Our small county hospital struggled for several years, and finally closed last April. They will be having an auction on May 9th & 10th. The 9th is to sell the remaining medical equipment (beds, IV poles, surgical instruments) and the 10th will be office furniture, disposable supplies etc.

    It didn’t help that they had a CEO for about a year and a half that was cooking the books. After touring the supply area and seeing what had to be two trash cans for every employee, over 4000 boxes of disposable gloves, and the myriad other astonishing pile ‘o crap I saw, it’s no wonder they went bankrupt.

    Which they would have done anyway, because they relied tremendously on the DSH, and South Carolina of course did not expand Medicaid. Because Nikki Haley is an awful human being.

  5. 5
    burnspbesq says:

    And yet, what are the chances that a Democratic nominee for Governor will ever say, “vote for me and I’ll get y’all your hospital back?”

  6. 6
    raven says:

    @burnspbesq: Right now Jason is trying to weasel out of having voted for the idiot gun bill.

  7. 7
    raven says:


    With Georgia residents already paying for the federal program, Carter thinks it would be a poor fiscal stewardship to simply refuse any options. If elected, he says, he would consider either outright Medicaid expansion or a hybrid plan similar to what’s been implemented in states such as Arkansas, Iowa, or Kentucky.

    “We can take those dollars and use them to reduce the uninsured population, use them to stabilize rural hospitals, use them to improve the lives and the health of our citizens, use them to inject money into our economy,” Carter says. “We have to find a way to do that.”

  8. 8
    flukebucket says:

    Thank you very much.

  9. 9
    mai naem says:

    The Obama admin had offered to fix this rural hospital problem but the GOP House said “I don’t wanna go rehab, I said No! No! No!””

  10. 10
    catclub says:

    @Phylllis: I was of the opinion that hospital admins would have enough clout with GOP Governors to get medicaid expansion – and the associated stream of money and jobs – apporoved in the anti states. I was wrong – so far.

  11. 11
    Violet says:

    PPACA probably has worsened things slightly.

    Obama death panels!

  12. 12
    Tommy says:

    I can’t imagine the cost of opening a hospital much less keeping the doors open. My mother was in the ICU for a month about this time last year. She was moved from a rural hospital in her small town to Deaconess Hospital in Evansville, IN. From the research I did, wondering where my mother was, it is like a top 5% hospital. It made a lot of lists as the best of the best. Clearly we were happy about that and it was a very good thing. You know quality care for a loved one.

    When I got there I couldn’t believe how nice it was. It covers blocks and blocks. The cleanest place I’ve ever been. In the ICU all single patient rooms. Two nurses for each patient. I don’t know much about medical equipment (insert none) but it all looked brand new and really expensive. Heck my brother is a Cisco networking engineer and he was floored by all the Cisco gear they had.

    I had to go outside clearly to have a smoke and they asked you be 50 yards from the building. So I tended to pace around the parking lot. For those that don’t know the area, Evansville is near like four different states. There seemed to be almost equal cars in the lot from each state, which made me wonder if it was the quality of the care, or if it was just serving as a regional hospital. I also wondered if this was cause care in local hospitals was not what he should be or if hospitals were closing or offering less specific treatment.

    If any of that is the case I don’t know. Somebody smarter then myself would have to figure that out. But we were pretty close, about a 130 miles round trip, but I have to admit it was taxing on us to make that drive daily for a month.

    I don’t know, your post just made me think about this.

  13. 13
    Violet says:

    @mai naem: Every Democrat needs to be running on this issue. “Obama wants to give our state/district money so we can keep our rural hospital and the Republicans won’t let him. Republicans would rather our rural citizens go without hospital care.”

  14. 14
    Violet says:

    @Tommy: This is going to be interesting going forward. That hospital serves a region comprising four different states. But it’s in one state. Will the insurance the residents of the other states allow them to go to that hospital?

  15. 15
    Davis X. Machina says:

    No revolution without martyrs. Preferably someone else.

  16. 16
    khead says:

    I believe the proper response is:

    “That’s a shame”.


  17. 17
    blueskies says:

    Great work, but you have a serious messaging problem. Here is what you wrote:

    So Obamacare implentation as it survived through the Supreme Court most likely pushed several of Georgia’s small rural hospitals over the edge…

    Here is what will be repeated by the MSM, Fox, and anyone else who wants to continue with the very same bad behavior that you’re decrying:

    Obamacare pushed several of Georgia’s small rural hospitals over the edge…

    Here is how you (and others) ought to be saying it:

    Republican policies pushed several of Georgia’s small rural hospitals over the edge…

    Not to be too much of a jerk, especially since you’ve done a great job for months on this, but see how that works?

    Edited to add:

    Geeze, I just read your last line and it’s another doozy:

    …rural hospitals are systemically in trouble but PPACA probably has worsened things slightly.

    It’s NOT the PPACA that’s making things worse! Repeat that to yourself over and over until you internalize it. It’s the Republican policies that are making things worse.

  18. 18
    GregB says:

    Are there no FEMA camps?

  19. 19
    Steve in the ATL says:

    According to my Paultard sister, there is a major FEMA camp being built in Thomasville, Georgia. Perhaps that will blunt the economic loss of hospital closures.

  20. 20
    kindness says:

    Apparently the good Republicans in Georgia would prefer that hospitals serving the rural poor should have large casinos built into them as well.

  21. 21
    muddy says:

    @blueskies: Can’t be said enough.

  22. 22
    Jebediah, RBG says:

    @Steve in the ATL:

    Do you know if it is pure made-up fantasy, or is there some gov’t construction project that they are claiming is a “FEMA camp”?
    (I guess either scenario is pure made-up fantasy, actually.)

  23. 23
    piratedan says:

    @blueskies: ding ding ding! tyvm for that. It just goes to show how pervasive the setting of the narrative is. The ACA was debated for months, implementation took years and these fuckers fiddled their asses off while the place was on fire and they want to blame the lightening strike when they refused to remove the dead brush that led all the way up to the house….

  24. 24
    Steve in the ATL says:

    @Jebediah, RBG: I don’t know, and I’m too smart to engage her in a conversation about it. IIRC she said that a hospital closed and was being converted into a FEMA camp. She’s been carrying on about FEMA camps for several years now. We may to have her involuntarily committed.

    Thomasville is one of the wealthiest towns in South Georgia; you’d think FEMA would build its camps in a poorer area, but I’m sure that was just another bad decision by Obama..

  25. 25
    GregB says:

    @Steve in the ATL:

    Finally some stimulus in the form of public works.

  26. 26
    pseudonymous in nc says:

    I know that it’s a fraction of the running expenses, but even rural hospitals in poor counties seem obliged to have lobbies that look like they belong to five-star hotels. I don’t really understand that — I’m offended when booming city hospitals have grand pianos in the lobby, but I’m just perplexed when Bumfuck County Medical Center is spending on leather armchairs in reception.

    Perhaps it’s because they’re “competing” in the private marketplace, and they need to look attractive to people who aren’t showing up through the emergency entrance on a stretcher.

  27. 27
    Phylllis says:

    @catclub: Same here. Nikki has pivoted to Education!! now that re-election is staring her in the face. And no one else is talking about it.

  28. 28
    rikyrah says:


    I do not see why the DNC hasn’t been putting out the ads that the GOP Governors are condemning the working poor and rural poor TO DIE without access to healthcare.

  29. 29
    Mnemosyne says:

    @pseudonymous in nc:

    IIRC, that happens in part because you have X amount of dollars that have been allocated to go to capital expenses and if you don’t spend them, you get less next year (because obviously you don’t need that much money if you never spent it!) So companies (and possibly hospitals) end up buying furniture so they can maintain their budgets for they years they really do need it.

  30. 30
    low-tech cyclist says:

    Just one more example of how Republicans hate Americans.

  31. 31
    JoyfulA says:

    Hmm, here in PA, where one reason Corbett won’t be reelected is his unwillingness to expand Medicaid, we’re having a new hospital open in May, 100 single rooms and an emergency room, with a future cancer treatment facility under construction.

    Of course, it isn’t in a poor rural county but in what passes for upscale suburbia in these parts.

    And it’s 10 minutes by interstate from the county seat, where the community hospital was sold to a for-profit chain some years back, which made it a dreadful place no one wants to go to, even by ambulance.

  32. 32
    Davis X. Machina says:

    @JoyfulA: Geisinger?

  33. 33
    mclaren says:

    As soon as Mayhew starts talking about “the economics of running a hospital” as the reason why so many rural hospitals are shutting down, he destroys his own credibility.

    American hospitals are infamous for their insanely sky-high charges. If American hospitals can’t keep their doors open by charging 10x to 100x what hospitals in the rest of the world charge, then fuck ’em — American hospitals don’t deserve to stay open.

    Another day, another lie by Richard Mayhew explaining why America’s already ridiculous health care costs just aren’t high enough to keep the doors of hospitals open. Gimme a break, guy. Any aerodynamics engineer can tell you: some shit just won’t fly.

  34. 34
    Barbara says:

    mclaren, So the U.S. generally has too many hospital beds, and hospitals are usually inefficient (their answer to inefficiency is to raise their charges and try to join together to avoid market forces) but the problem is that we do need some capacity distributed on a more or less uniform basis simply for the provision of emergency services, as well as reasonably convenient chronic care. Having hospitals subject to closure simply because the people they serve disproportionately lack insurance does not make the situation you are talking about any better — it probably makes it worse. In most communities the shuttering of hospitals is a big deal, and I agree with Mayhew’s framing being offpoint — PPACA, as enacted, would have made the financial situation of rural hospitals much better, because they would be paid for the provision of actual services. The refusal of states to expand Medicaid, and the refusal of congressional Republicans to restore DSH funding, has pulled the rug out from underneath these hospitals. It’s got nothing to do with PPACA.

  35. 35
    J R in WV says:

    I keep wondering what we will do if we get a pandemic disease like the 1918 Spanish Flu. Where will the sudden flood of potentially fatally ill patients go for care?

    Most hospitals have trouble accepting patients who have been through their ERs, in addition to regularly scheduled work on folks with various chronic diseases that can be resolved by surgery or other intense treatment.

    Mrs JR spent time in ER – on a ventilator – that could have been wisely spent in the ICU she eventually spent the next 3 weeks in. Many of my friends and relatives have been pushed into a hallway to wait for a room, any room.

    When there are suddenly 30,000,000 new patients with Chinese Bird Flu, or Middle Eastern Respiratory Illness (or whatever, it is a real thing even if I don’t know how to splel it) – where are they going to go for treatment???

    This isn’t a sure thing tomorrow, or the next day, but eventually, it is a sure thing. There will be an easily communicable disease that requires maximum treatment if the victims are to have any chance of survival. If all our hospitals are already at 98% capacity, we are FUCKED.

    Do you want to spend you last 2 or 3 weeks of life at the Junior High on a cot, being cared for by terrified and barely qualified Certified Nurse Assistants? And Then You Die?

    This is the Republican Plan! No Really – it is. What we really need is a massive bild out of hospital space until most hospitals have plenty of empty space. JUST IN CASE !

    Prior Planning Prevents Positive Catsasstrophe! Unless you’re a Republican.

  36. 36
    Rich S. says:

    @burnspbesq: Why don’t y’all try it and find out?

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