The effects of the COVID-19 pandemic on urban and rural hospital profitability

Introduction: There are long-standing differences in profitability between rural and urban hospitals. Prior to the COVID-19 Public Health Emergency (PHE), rural hospital profitability was decreasing, while urban hospital profitability was increasing. During the PHE, the Federal Government provided billions of dollars of support to hospitals. Given the prepandemic differences in trends in profitability, it is likely that the PHE funding had different effects on rural hospitals and urban hospitals.

Methods: This study uses 2015-2023 Medicare cost report data from acute-care hospitals to assess the impact of COVID-19 PHE funding on hospital profitability. We employ descriptive Kruskal-Wallis and chi-square tests and an interrupted time series analysis to evaluate the effect of PHE funding on operating margins for a stratified sample of rural prospective payment system (PPS), urban PPS, and critical access hospitals (CAHs).

Results: We found that the PHE funding was associated with significant increases in operating margins, with rural PPS hospitals experiencing similar increases compared to urban PPS hospitals, and CAHs surpassing both rural and urban PPS hospitals in their margin values. However, if PHE funding had not been provided, our evidence suggests operating margins for all hospitals in 2022-2023 would have been below prepandemic levels.

Discussion: This preliminary analysis portrays the importance of the PHE government funding in supporting hospitals during the pandemic, and shows declining profitability trends without the funds. Rural PPS hospitals fare the worst suggesting continued need for financial support if the trend continues.