Rural hospitals closures and conversions: the role of organizational characteristics and market forces

This study analyzes how organizational and market conditions affect rural US hospitals' risk of closure or conversion. This is especially important in light of the sweeping Medicaid cuts introduced by the Trump Administration's One Big Beautiful Bill. The paper applies the organizational legitimacy framework to explain rural hospital survival outcomes.

Using a national panel dataset combining information from the Sheps Center, AHA Annual Survey, HCRIS, and Area Health Resource Files, the study analyzes 2,248 rural general acute hospitals. We apply a fixed effects penalized maximum likelihood estimation model to account for rare event bias and estimate the likelihood of hospital closure and conversion.

Only 2.58% of hospitals closed and 1.82% converted during the study period. Rural hospitals with stronger markers of institutional legitimacy, such as critical access designation, emergency departments, or government ownership, were significantly less likely to close and convert. System membership and stronger financial performance also reduced closure risk. In contrast, higher staffing levels, longer ALOS, greater hospital density, and market concentration were associated with a higher likelihood of closure. Social vulnerability factors were more predictive of conversion than closure.

This study is one of the first to simultaneously model rural hospital closure and conversion across a national sample using an institutional theory lens. It advances our understanding of how internal legitimacy and external market structure jointly shape organizational survival in rural healthcare and offers insights into the impact of OBBBA on rural hospitals.