Since Congress passed new federal rules last July that change how states can access Medicaid funding, several national analyses have identified rural hospitals as financially vulnerable in the years ahead.
In January, the Center for Healthcare Quality and Payment Reform, an independent, nonpartisan policy center, estimated that more than 700 rural hospitals nationwide are at risk of closure. The Cecil G. Sheps Center for Health Services Research, a University of North Carolina research hub, identified 338 rural hospitals at risk, including six in Virginia.
More recently, Public Citizen, a nonprofit, left-leaning advocacy organization, released an analysis focused on Medicaid policy changes tied to the federal funding bill. That report identifies 10 Virginia hospitals as at risk of closure, including six in Southwest and Southside Virginia:
- Buchanan General Hospital, Grundy
- Carilion Tazewell Community Hospital,Tazewell
- Twin County Regional Hospital, Galax
- Dickenson Community Hospital, Clintwood
- Sentara Halifax Regional Hospital, South Boston
- Centra Southside Community Hospital, Farmville
- VCU Health Tappahannock Hospital, Tappahannock
- Bon Secours Southern Virginia Regional Medical Center, Emporia
- Sentara Northern Virginia Medical Center, Woodbridge
- VCU Health Community Memorial Hospital, South Hill
Rural hospitals often operate on thin margins due to the high proportion of Medicaid patients they serve. They rely heavily on Medicaid reimbursement to keep the doors open, though those payments don’t cover the full cost of delivering care. Hospitals typically lose money when treating Medicaid patients.
Provisions in the federal spending bill significantly reduce the amount of Medicaid funding states can draw from the federal government, which could lead to additional payment reductions.
Democrats have pointed to these reports to support their arguments against the scale of Medicaid cuts outlined in the legislation.
Virginia’s two senators widely distributed the findings from the Public Citizen report in an April 3 press release.
“Following a new report finding that Medicaid cuts have put ten hospitals in Virginia at risk of closure, U.S. Sens. Mark R. Warner and Tim Kaine (both D-VA) underscored the devastating effects of the Republican budget law on communities across the Commonwealth,” the release read.
These reports typically rely on historical financial indicators, primarily operating margins, to flag facilities that may be more vulnerable to financial strain, according to Michael Shepherd, an assistant professor with the Department of Health Management and Policy at the University of Michigan. The reports identify hospitals that were already struggling financially, even before the federal cuts were announced.
Shepherd’s research focuses on rural health disparities, including rural hospital closures and Medicaid policy. He was not involved in any of the reports regarding at-risk hospitals.
Shepherd said he’s concerned that reports like the one from Public Citizen border on being alarmist, signaling with too high a degree of certainty that hospitals with negative operating margins will close as Medicaid changes take shape.
At a glance, headlines about hospitals “at risk of closure” can suggest that shutdowns are imminent. But a closer look at the Public Citizen report, which uses publicly available data to show negative operating margins, shows hospitals that may be more vulnerable to financial pressure as federal support changes.
“It doesn’t mean that the hospital is going to close tomorrow, but it could over the next few years. There is some uncertainty there. Not every hospital that’s at risk of closing will close,” Shepherd said. “The truth is somewhere in the middle.”
Shepherd said the public does need to be prepared for change. The cuts to Medicaid will force hospitals to operate without the billions of dollars of financial support they’ve come to rely on from the federal government. Since rural hospitals were already operating with thin or negative margins, the policy changes may further limit their financial flexibility, and, in some cases, lead to closure.
How ‘at risk’ is defined
Each research group uses slightly different methods to evaluate hospital finances, Shepherd said.
Some studies, like the one from Public Citizen, calculate an average operating margin over a set period and classify hospitals with negative margins as “at risk.” The Public Citizen report averaged margins from 2022 to 2024 and identified 446 rural hospitals nationwide under that definition.
Researchers at the Sheps Center have noted the limits of this approach, emphasizing that predicting closures is difficult because many rural hospitals fall into high-risk categories, meaning they normally operate with some financial instability. The center also states that the definition of “financial distress” is often broad.
Closures can occur because of a combination of factors such as financial performance, government reimbursement, organizational characteristics and market characteristics, according to the Sheps Center.
It is not uncommon for Virginia’s rural hospitals to operate with negative margins, according to a 2024 report from the Virginia Healthcare and Hospital Association, a Richmond-area trade association. All of the Virginia hospitals listed in the Public Citizen report are members of the VHHA, which supports 26 member health systems.
In 2022, 36% of Virginia’s rural hospitals operated in the red, according to a report from the association. In 2021, 26% of hospitals were working in negative margins. In 2019, just before the COVID-19 pandemic, 40% of rural hospitals made do with negative margins.
Policy changes and uncertainty
Julian Walker, vice president of communications with the association, said it is not possible to predict whether the hospitals identified in these reports will close.
However, he said the federal policy changes could require hospitals to adjust their operations.
The spending bill targets two key funding mechanisms for Virginia’s Medicaid programs: the provider assessment tax and state-directed payments.
The assessment tax is a state tax on hospitals, which helps Virginia draw down more Medicaid funding from the federal government. Currently, there are 63 hospitals in Virginia that pay the assessment tax. Each year, the tax generates billions of dollars for Virginia, Walker said during an interview last year.
In return for paying the provider tax, hospitals are reimbursed for the care they provide to Medicaid patients.
The federal spending bill bars states from establishing new provider taxes. States that already have such programs can keep them for now, but will have to gradually decrease their tax rate by half a percentage point each year until 2031.
If these provisions are fully implemented, Medicaid-related changes could reduce funding to Virginia hospitals by more than $2 billion annually, Walker said.
Other federal changes to Medicaid policies will roll out incrementally through Oct. 2029.
“Hospitals have had to adapt in recent years from a financial perspective and an operational perspective. Many hospitals were in the midst of multi-year plans to try to restore and recover operations back to pre-pandemic levels,” Walker said. “They were in the midst of that work when H.R. 1 [the federal spending bill] passed, so now they’re having to adapt again.”
Four of the hospitals identified in the Public Citizen report are in Virginia’s 9th Congressional District, represented by Rep. Morgan Griffith. In a statement, he said he has spoken with hospital administrators across the region and has not been told of any imminent closures.
“It is hard for Congress to make determinations on the financial health of our hospitals because the financial state of our hospitals is not as transparent as we would prefer. A majority of the main provisions in the reconciliation bill Congress passed have not taken effect yet,” Griffith said.
Buchanan General Hospital, Dickenson Community Hospital and Twin County Regional Hospital, all located in the 9th Congressional District, did not respond to requests for comment for this story.
Carilion Clinic directed questions regarding its Tazewell Community Hospital to the VHHA but added that clinic leadership is closely tracking changes associated with the federal spending bill.
What happens before a closure
Decisions to close a hospital are complex and often follow a series of smaller changes aimed at stabilizing finances, Shepherd said. Hospitals may reduce or eliminate certain services before considering closure. Labor and delivery, an expensive and high resource service, is often one of the first to be cut.
Hospitals that are part of larger health systems may be able to draw on system-level resources to stabilize finances, while independent hospitals may have fewer options. Nonprofit status, access to supplemental funding and financial reserves can also influence how long a hospital can absorb losses.
Some of those dynamics are already playing out. Centra Southside Community Hospital in Farmville, which is on the Public Citizen list, ended OB-GYN care in December. The hospital cited a combination of factors, including changes in federal Medicaid policy.
A spokesperson for the Centra system said the organization has no plans to close the hospital and pointed to recent investments in its emergency department.
“Like health systems across Virginia and the country, Centra is adapting to a rapidly changing the healthcare environment,” the statement read. “Medicaid is a critical part of that equation.”
Medicaid represents approximately 19% of revenue at Central Southside. Utilization percentages over the past three years for all visits, including the emergency department, indicate 75% of all patients had a governmental payer. Of those, 53% use Medicare and 22% use Medicaid.
“At the same time, the needs of our communities are evolving,” the Centra statement said. “We are caring for an aging population with more complex health conditions, while also seeing declining birth rates that shift demand for services. Combined with ongoing workforce shortages and rising costs, these dynamics require us to continually evaluate how we deliver care so we can remain responsive, efficient and sustainable, especially in rural areas.”
