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Q+A: Why Are Hospitals Suddenly Expanding Into Rural Areas?

A row of beds in a hospital

Providing quality health care to people in rural communities has long been a challenge in the United States, with many providers finding that they cannot make enough money to provide services in these locations.

As a result, many people in lower-population, less built-up areas have been left with few quality care options.

Lately, however, some health systems see opportunity in these areas as an untapped market. This especially seems to be the case locally.

At least three different health systems have recently expanded into Delaware’s Sussex County. Late last year, Penn Medicine and Lancaster General Health opened a new neuroscience institute in Lancaster County, Pennsylvania. And, around the same time, Tower Health added Jennersville Hospital in West Grove, Chester County, to its portfolio as a part of a wider expansion.

What has made rural areas so attractive to health systems? Part of the reason is population growth, but there are other factors, as Robert Field, PhD, MPH, JD, a professor in Drexel’s Dornsife School of Public Health and Kline School of Law, explained.

Is this trend of health systems expanding to more rural areas significant?

Traditionally, rural hospitals have not been a major target for acquisition because of their limited revenue potential. They serve smaller populations than their urban and suburban counterparts and cannot generate the same level of activity.

However, they are low-hanging fruit as hospital systems increasingly seek to expand their geographical reach.

What is driving such movement?

Regional expansion is an increasingly attractive strategy for two main reasons.

First, by increasing their size and geographical reach, hospital systems gain more bargaining clout with insurers.

Second, it helps health systems accommodate new reimbursement arrangements that encourage coordinated care. In particular, it helps them to establish accountable care organizations, which are networks of providers whose formation was encouraged by the Affordable Care Act. Successful ACOs receive bonuses for reducing costs and improving quality by coordinating care across providers for patients with complex conditions.

The more hospitals there are in an ACO, the easier it is to oversee the care of patients through their course of treatment.

Many of these rural areas have older populations — which are growing. What makes that appealing to hospitals?

Older populations can represent an attractive market for hospitals because elderly patients tend to need more care. Medicare guarantees that the population is insured, so hospitals face little risk of having to provide a significant amount of uncompensated care.

Are areas with these older populations seen as more of an opportunity for health systems than places with more young people?

Younger patients are more likely to have private insurance, which typically pays higher rates than Medicare, which covers the elderly.

However, younger populations include a higher percentage of people without insurance. They also tend to need less care than older populations. This reduces their potential to generate profits for hospitals.

Do you think this is a fiscally healthy long-term strategy for health systems? Or could it overextend them and result in more closures in traditionally under-served areas?

As with all new strategies, there is risk. Most rural hospitals operate with very low operating margins.

However, hospital systems have to protect themselves in a changing reimbursement environment. Enlarging their geographical reach is an important part of doing that. Acquiring rural facilities is also a defensive strategy to prevent competitors from snapping them up first.

Media interested in speaking to Field should contact Frank Otto at 215.571.4244 or

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