Medicare Advantage in rural areas: implications for hospital sustainability

A growing number of Medicare beneficiaries in rural areas are enrolled in Medicare Advantage plans, which negotiate hospital reimbursement. This study examined the association between Medicare Advantage penetration levels in rural areas and hospital financial distress and closure.

This retrospective cohort study followed rural general acute care hospitals open in 2008 through 2019 or until closure using Healthcare Cost and Utilization Project State Inpatient Databases for 14 states.

The primary independent variables were the percentage of Medicare Advantage stays out of total Medicare stays at the hospital and the percentage of Medicare Advantage beneficiaries out of total beneficiaries in the hospital's county. Financial distress was defined using the Altman Z score, where values less than or equal to 1.1 indicate financial distress and values greater than 2.8 indicate stability. The Z score was examined as a continuous outcome in hospital and county fixed-effects models. Risk of closure was examined using Cox proportional hazard models adjusted for hospital and market factors.

Rural hospital Medicare Advantage penetration grew from 6.5% in 2008 to 20.6% in 2019. A 1-percentage point increase in hospital penetration was associated with an increase in financial stability of 0.04 units on the Altman Z score (95% CI, 0.00-0.08; P = .03) and a 4% reduction in risk of closure (HR, 0.96; 95% CI, 0.92-1.00; P = .04). Results were consistent when measuring Medicare Advantage penetration at the county level.

Our findings counter the notion that Medicare Advantage plans financially hurt rural hospitals because they pay less generously than traditional Medicare.