The Surprising Reason Rural Hospitals Are Closing

Thomasville Regional Medical Center was supposed to be a gamechanger. Situated in the U.S. Congressional district with the worst health outcomes in the country, the hospital opened in 2020 with state-of-the art equipment, including a 3D mammogram and an MRI scanner. But it closed less than five years later in Sept. 2024.

The hospital now stands empty: its pristine hallways dark, its expensive machines gathering dust. “It’s almost like the apocalypse happened,” says Sheldon Day, the mayor of Thomasville, who had worked for almost a decade to get a hospital to open there.

This apocalypse is happening throughout rural communities across the country. More than 100 rural hospitals have closed in the past decade, according to the Center for Healthcare Quality and Payment Reform (CHQPR), a national policy center that works to improve health care payment systems and whose data have been cited by the Bipartisan Policy Center. About one-third of all rural hospitals in the country are at risk of closing because of financial problems. In Alabama, 23 rural hospitals—about half of all of them in the state—are at immediate risk of closing, according to CHQPR.

Even more rural hospitals might be in trouble if Congress passes the huge piece of legislation before it, called the One Big Beautiful Bill Act, which includes significant cuts that would slash Medicaid spending in rural areas by $119 billion over 10 years, according to KFF. Thom Tillis, the U.S. Senator from North Carolina who said he couldn’t support the bill in its current form, said in a statement on June 28 that Congress needed to achieve the tax cuts and spending in the bill “without hurting our rural communities and hospitals.”

Why rural hospitals are closing

People often blame rural hospital closures on poor reimbursement rates from Medicare and Medicaid. There’s a reason for that assumption: Just about every hospital loses money on Medicaid and Medicare, since reimbursement rates are low nationwide. But hospitals like the one in Thomasville are struggling not because they serve a large share of poor patients or elderly people on these plans. 

“When you look at the data, what you see is that Medicare and Medicaid are not the problem,” says Harold Miller, president and CEO of CHQPR. “The problem is private insurers.”

Rural hospitals depend on private insurers for the majority of their patient costs, Miller says. In Alabama, for instance, CHQPR’s data shows that most rural hospitals depend on private insurers for anywhere between 65-80% of patient costs; in Thomasville, 18.4% of patients were using Medicare to pay for their coverage, 16.2% were using Medicaid, and 65.4% were using private insurance.

But many rural hospitals are losing money on what private insurers will pay for patient care. The one in Thomasville, for instance, was getting paid by private insurers roughly half of what it was costing to deliver services, according to federal data compiled by CHQPR.  

This is a very different situation than what is happening between private insurers and urban hospitals, he says. Urban hospitals and large rural hospitals are able to make up for the losses from Medicare and Medicaid patients with what they can charge private insurers. Small rural hospitals can’t do that.

Rural hospitals actually need higher compensation than urban hospitals, Miller says, because they have the same fixed costs like 24-hour staffing, but have a lower volume of patients to cover those costs. 

Why small rural hospitals get less from private insurers

One reason why small hospitals get less money: Insurers demand discounts. Larger hospitals have more leverage to negotiate with private insurers over those discounts because they have higher patient volumes. Smaller hospitals have less wiggle room to negotiate.

Another problem in Alabama in particular is that just one health insurer, Blue Cross and Blue Shield of Alabama, has an estimated 94% of the large-group private insurance market, which most people with private health insurance fall under. Hospitals can’t negotiate as well because they have to accept Blue Cross and Blue Shield of Alabama patients, and losing those patients would be financially ruinous. That’s how one small rural hospital in Alabama, Medical Center Barbour in Eufaula, gets paid just $65 for an X-ray by Blue Cross and Blue Shield of Alabama, compared to $97.03 by Aetna, according to Miller’s data.

“Alabama Blue Cross could single-handedly save all the rural hospitals in Alabama,” Miller says. “It just has to pay adequately.”

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In a statement, Blue Cross Blue Shield of Alabama said that it works each year with the Alabama Hospital Association to evaluate the care rural hospitals provide and to compensate those facilities. It disputed CHQPR’s assertion that private insurers are responsible for 65-80% of patient costs in rural hospitals in Alabama, saying that Blue Cross and Blue Shield of Alabama patients comprise only a small share of patient volume at rural hospitals in Alabama (while declining to offer specific numbers). “Thus, the largest financial impact to rural hospitals is the government payer sector,” the company said. A Blue Cross and Blue Shield of Alabama spokesperson said the company’s market share statewide is “different for different market segments”—but referred TIME to federal data showing that it, and not any other insurer, covers the vast majority of Alabamans.

The company launched a medical scholarship program in 2016 to promote access to quality health care in rural areas of Alabama, a spokesperson said, and 38 medical students have now graduated and are practicing in rural parts of the state. 

The challenges facing rural hospitals nationwide have gotten worse in the last year or two, Miller says, because costs have gone up after the pandemic as labor became scarce and many doctors and nurses quit the field after getting burned out. What’s more, the federal government offered many pandemic-era grants to hospitals so they could stay open, but those have run out. One reason the Thomasville hospital failed is that it could not get any of those federal grants because it had not been open long enough.

What happens when a rural hospital closes

On a recent weekday afternoon, Dr. Daveta Dozier, a family physician who has practiced in Thomasville for 40 years, walked me through the closed Thomasville hospital. The hallways and patient rooms should have been buzzing with beeps and medical conversations, but the building was eerily quiet, like it had flatlined. She pointed out the MRI machine where she’d send patients so they could avoid the 90-minute roundtrip drive to Mobile, and the laboratory where her patients could get blood work done. 

Now, she says, when she tells her patients to get complicated lab work or imaging, they can’t do it locally. So many don’t do it at all.

“Half the time they don’t go,” she says. “Either they can’t find family to take them or they’re working and they can’t get off.” 

This means by the time they end up seeking health care, they are sicker than they would have been had the hospital stayed open. That corresponds to what doctors have been seeing across the country after isolated rural hospitals close. One study found that following a closure, the hospitalization rates and average length of hospital stays increased for locals. When hospitals were more isolated, rural patients were more likely to be readmitted to a hospital after an initial stay.

Dozier is in private practice with her husband, who is also the medical director for the local nursing home. In the past few weeks, she says, the nursing home had eight separate patients with medical needs like urinary tract infections and pneumonia that required them to be transported to hospitals in Mobile. Had the hospital in Thomasville been open, they could have been treated there.

Now, their families have to make the trek to visit them. “The first thing you hear them say is, ‘I don’t want to go to Mobile,’” she says.

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Barbara Smith, 78, knows what it’s like to drive frequently to Mobile for care. Her husband, who recently passed away, had bladder cancer, and the nearest treatment center was nearly 2 hours from their home. “It sure was a lot of driving,” she says.

With closures of rural hospitals like the one in Thomasville, some hospitals’ emergency rooms in urban areas of Alabama become full and send patients to other hospitals—and sometimes other states—to be seen, Dozier says. Emergency department crowding is a growing problem across the country.

There is another hospital 20 minutes south of Thomasville called Grove Hill Memorial Hospital. But it is also financially struggling and recently made the decision to convert to what’s called a rural emergency hospital, which means it will only have an emergency room and not inpatient care. With that conversion, it receives federal funding to help it stay open—but patients won’t be able to get much there except for emergency services.

I asked Stacey Gilchrist, chief operating officer of the Thomasville hospital in receivership, why Thomasville needed a hospital when patients could go to Grove Hill for emergency services. She gave the example of a 40-year old woman who rushed to the Thomasville hospital when she was having chest pains; doctors there stabilized her, but other physicians in Mobile who later treated her said she would likely have died if she needed to drive further. “If you’re having a heart attack, do you want to ride 20 minutes down the road, or five minutes?” she says.

Many of Thomasville’s patients come from even more rural areas. Riding 20 more minutes could be the difference between life and death for them, she says. 

What’s more, she says, Thomasville’s hospital was much more than an emergency room. It had 29 rooms where patients could stay overnight and be treated for serious conditions, a lab, and the newest equipment that isn’t in any other rural hospital in the region.

Shrinking access, less health care

Thomasville is located in Alabama’s 7th Congressional District, which stretches between Birmingham and the state’s border with Mississippi. A Harvard study from 2022 found that the district ranked last in terms of life expectancies nationwide. 

Officials like Mayor Day say this is partly because it’s so hard to access health care. “People just simply don’t go to the doctor until they get real sick,” he says. 

He had hoped that opening the Thomasville hospital would help. He and local officials had worked for years to put together an incentive package to encourage someone to reopen a hospital in Thomasville, after the last one closed in the wake of the Great Recession. 

“We really wanted to change the dynamic of health care here,” he says.

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Thomasville is not the only community optimistic enough to try to open a rural hospital at a time when many were closing. Between 2017 and 2023, 11 acute care general hospitals were opened in rural areas, according to data from KFF. But 61 hospitals closed during the same time period. 

The city gave the investors who built the Thomasville hospital a discount on the land and approved a one-cent sales tax that would go to the hospital to help it stay open. The investors bought new equipment, knowing that money can be made in diagnostics if they could get people to come to Thomasville rather than going elsewhere for tests like MRIs and CT scans.

Specialists from Mobile started coming up a few days a week to see patients, sparing residents the long drive. A physical therapy practice opened in the building, and Day had plans to expand the campus and open a cancer treatment center.

But then the pandemic hit, and costs spiraled out of control because the hospital could do fewer money-making procedures and had to spend more on personal protective equipment and other pandemic-related services. Compensation by private payers remained stubbornly low at rural hospitals across the country during the pandemic, according to CHQPR.

Finally, the Thomasville hospital’s owners ran out of money, filed for bankruptcy, and shut it down.

The hospital closure had an impact on the local economy. Businesses think twice about opening in a rural location without health care, Day says. And existing businesses that can’t move, like farms who need lots of rural land, have to deal with sicker workers. 

How rural hospitals can succeed

A new owner has bought the Thomasville hospital’s assets out of bankruptcy, and Day says they plan to reopen the Thomasville hospital soon. He’s hoping they can do things differently this time so that they can figure out a way to keep the rural hospital from losing money. 

One idea is to join a network with a big, urban hospital so they can more effectively negotiate reimbursement from insurers. Another is to create a network of rural hospitals that can band together to negotiate. 

And Day is hoping that Congress will act. One bill, the Rural Hospital Stabilization Act of 2025, was introduced in April and would give grants to rural hospitals to help them stay out of the red. 

U.S. Health and Human Services Secretary Robert F. Kennedy Jr. has talked about being more proactive to prevent chronic diseases before they happen, and Day thinks the Thomasville hospital could play a role in that by making it easier for patients to get preventative care close to home.