Treat the disease, not the symptoms
Interim CEO explains why times are tough for rural hospitals – and what can be done to improve them
SUNDANCE — There are hard decisions ahead for the Crook County Medical Services District.
The district is not alone; times are tough across the board for rural hospital systems right now.
According to a new report from the American Hospital Association, more than 40% of the nation’s 1800 rural hospitals are running on negative operating margins, and hundreds are at high financial risk.
Many have been forced to end crucial services to keep their doors open.
To understand why it’s happening and how it affects us here, said Interim CEO Chris Thomas, you have to look at the big picture.
Everything hinges on the unique financial structure that rural hospitals operate under.
Critical access
Healthcare finances are unlike those of a typical business. In fact, said Thomas, there’s not really any other model that resembles the one used by critical access hospitals.
Thomas herself spearheaded CCMSD’s transition to a critical access hospital as the district’s CEO during the early 2000s, when Medicare realized that the cost of not providing services in rural communities was higher than the cost of creating a program.
“If you have elderly people who don’t have access to real care, they stay home and they don’t go in until they’re very, very, very sick,” Thomas said.
The government came to understand, she said, that the cost of trying to take care of people once they were really sick is correspondingly higher. The better approach is to keep people well or make sure they have access to care.
The decision was made to create a model for critical access hospitals, with rules such as that they have to have an emergency room, they can have up to 25 beds and stays are limited to 96 hours.
“With that, they will give us 100% reimbursement on our costs to take care of Medicare patients,” she said.
The funding model
This reimbursement theoretically meant that a hospital populated fully by Medicare patients would have 100% of its costs returned.
This should include everything necessary to take care of the patient: the hospital itself, the doctor, the x-ray and so on. At the end of each year, hospitals create a cost report based on elaborate formulas devised by Medicare and then receive the appropriate reimbursement.
“You take every expense that the hospital has, everything you’ve written a check for, everything you spent money on and there’s a place for it in the formula,” she said.
The trouble is, Medicare and Medicaid pay below the cost of care.
According to the AHA report, rural hospitals incurred more than$7 billion in Medicare underpayments alone in 2024.
The reimbursement percentage also depends on the service; acute care nurses are reimbursed at 100%, for instance, but administrative staff at a lower percentage.
Medicare makes those decisions. The hospital cannot control how much is reimbursed.
“They’re going to allow a certain amount, and we have to write off the difference,” she said.
The gaps
With nothing but Medicare patients to care for, this reimbursement should still leave a hospital relatively whole. However, there are a number of reasons why this isn’t the case.
The first, and most obvious, is that no hospital is fully populated by Medicare patients.
Revenue from private insurance is expected to cover the gap.
However, according to the AHA report, rural hospitals receive significantly lower reimbursement rates from commercial insurers, especially for inpatient care. They are often forced to accept depressed rates from large insurers who refuse to negotiate, but the alternative is network exclusion.
There are also self-pay patients to consider.
“Whatever we make, right off the top we’re going to write off 20- 30%. That’s just our contractual adjustments,” Thomas said.
“We have our uncompensated care, which is about 9%, and that’s charity and bad debt. About 8% of our patients are self-pay. I’m not saying that everybody that has self-pay gets written off, because there are a lot of people who are very responsible, but there’s a large percentage of people who have to have care and aren’t able to pay.”
Non-reimbursed costs
In addition, Medicare does not cover all costs even for services that are reimbursable. A good example, said Thomas, is the long- term care unit.
“People started realizing that the nursing homes tied to their hospitals (was) problematic,” she said. “We’re down to now 3% of nursing homes in the nation tied to hospitals because of this situation.”
Because the nursing home is combined with the hospital, the two share resources such as dietary and housekeeping. This is done for the sake of efficiency – and it works.
However, “Medicare said it’s so efficient that they transfer pretty much all of our expenses to the nursing home, because you have 32 nursing home residents versus three inpatients,” she said.
In other words, Medicare has decided the nursing home should cover the cost of these resources because the number of patients using them is skewed so heavily toward the nursing home.
This leaves the hospital responsible for covering those costs for its patients.
“To compound that, nursing homes are not ever expected to make money. If they have a margin of 1% or 2%, they’re doing really, really well,” Thomas said.
This is because many of the residents are on Medicaid, which means they have no assets.
“Medicaid pays us 65% of our costs to care for patients in the nursing home. You’re supposed to make up the 35% and the intention is that, if you have enough private pay residents, they pay enough to cover that,” she said.
This would mean charging higher prices to private pay residents to cover the difference, which Thomas said is something CCMSD has never done.
“We’ve always supported the nursing home with hospital funds. So not only are we taking money from the hospital to make sure we support the nursing home, that causes us to lose all of our costs-based reimbursement as well,” she said.
Medicare reimbursement is not permitted for every service the hospital provides.
“We’ve really been committed to serving the community, and that’s why we have the ambulance service,” Thomas said. “Critical access hospitals weren’t ever intended to support anything but the critical access hospital, but we have been committed to trying to support as much as we can over the years.”
Additional challenges
Add to these problems a 1960s building that could fail in numerous ways at any moment. A building that old is not going to hold up forever, which means, “You’re one major catastrophic thing happening to the hospital and you aren’t in service.”
Staffing is also a challenge. Employee costs are a big chunk of the budget.
“You’re doing really well if it’s at 50%. We’re running around 63%,” she said.
Recruitment is already difficult in rural areas. According to the AHA report, there are only an average of 30 physicians or specialists per 100,000 people in rural areas, compared to 263 in urban places.
Shortages automatically inflate costs.
In addition, many healthcare personnel prefer to be “travelers,” moving between hospitals as needed to fill gaps in staffing for higher pay.
“Since COVID, the whole staffing thing has been really challenging because people can make a lot of money when they travel. It’s hard to compete with that,” Thomas said.
In addition, she said, the work done at a hospital is hard.
“We want them to work nights, weekends, holidays and take care of patients that need a lot of help, but they could get a job up the road at a surgery center that’s private,” she said.
“They can afford to pay them much more money, and they don’t have to work nights and holidays and the people that they take care of can do more for themselves.”
Another significant budget item that does not fall under the reimbursement model is technology necessary for the hospital to function, such as electronic health records and monitoring.
“On top of that, we have to do all the cyber security stuff, because that is a great market for the bad guys,” she said. A cyber attack, especially when a ransom is demanded, will simply shut down a hospital until it’s resolved.
“A lot of rural hospitals are spending around $1.2 million,” she said. “We’re under that by about $300,000, but that’s still close to a $1 million spend every year.”
When you add up all the expenses that are not reimbursed under the critical access model, there isn’t a lot left to cover the food and the medicine.
“We’re not using the critical access reimbursement model the way that it was intended and we’re trying to support tons of things that it wasn’t meant for,” Thomas said.
“The hospital runs at a deficit and there’s no way it’s not going to because of the things that it supports. In order for us to get in a different place, we have to have everybody making the decisions understanding the payment models.”
The national picture
Adding to all of these problems are large-scale changes impacting the nation as a whole.
The changes made to Medicaid through the One Big Beautiful Bill Act, which included around $1 trillion in cuts, are expected to reduce the payments from Medicaid patients who stay enrolled while increasing uncompensated care to the people who are expected to lose Medicaid coverage.
OBBBA did also create the Rural Health Transformation Program, but its $50 billion fund over five years must be spread across 50 states and is not, according to AHA, enough to offset the large-scale cuts that were made by the bill.
The expiration of Health Insurance Marketplace’s Enhanced Premium Tax Credit, according to AHA, will have a bigger impact on rural areas because marketplace premiums run about 10% higher in rural areas. As premiums spike, rural states are projected to experience a 30% decrease in Marketplace coverage and a 36% increase in uninsured populations.
In 2026 alone, the expiration of the premium tax credit is estimated to cause a $1.6 billion reduction in revenue and a 10% increase in uncompensated care costs.
Medicare Advantage, said the AHA report, has also become a “defining financial pressure” for rural hospitals. Now covering more than half of Medicare beneficiaries, many plans reimburse below traditional Medicare rates – which already pay well below cost.
The future
This is where things stand for CCMSD, said Thomas, leading to one question: “How do we move forward?”
“What business models do you follow? How do you optimize what the reimbursement model is?” she said. “It really is going to force some big strategic conversations around how do we serve the community? What is the structure going to be that we can actually serve everybody?”
There are plenty of options that could be considered, which Thomas expects will be discussed in detail at board meetings over the coming months.
For example, the nursing home and hospital could be separated to allow the hospital to receive full cost reimbursement and stand a better chance of funding for a new building from a source such as the U.S. Department of Agriculture.
The new Crook County EMS District and the $2.2 million grant it recently received through the Rural Healthcare Transformation Program also opens new possibilities.
“What the grants are about is: how do you serve your communities and improve their care, especially in time-sensitive things like heart attacks and strokes? Rural communities wanted to support providing crucial services and sometimes they can’t do that on their own,” Thomas said. “Hopefully we’ll use those funds very wisely.”
There is also the option to look at adding services that are reimbursable, such as cardiac rehab, dialysis, chemotherapy or hospice.
These are not the only options and may not be the ones that CCMSD’s leadership chooses to pursue. However, said Thomas, navigating the reimbursement structure will be a critical skill for the board of trustees in the near future.
Trustees will need to understand the big picture of how the hospital is getting paid.
“People say to me, “stop the bleed." Okay, I can stop a lot of bleeding, but it doesn’t matter in the end,” she said.
“I can change things by a few hundred thousand dollars, or maybe a million. At the end of the year, when we leave all that expense reimbursement on the table and we’re subsidizing all these programs, it just doesn’t make a difference.”
Organizational strategy needs to be the focus, she said.
“The ship needs to change direction. You can’t patch this one, which I think is what has been happening,” she said.
Thomas said she understands that some of this work may seem scary to the community, because it could be a lot of change.
“If we don’t change directions from an organizational strategic plan, the next step will be to cut services. There’s nothing else to happen, you just can’t continue down this road,” she said.
“And then you cut services and it doesn’t make any difference because you’re cutting services that you’re already subsidizing. You make a little bit of money back, but it still doesn’t change the big picture.”
It won’t be a quick process, Thomas said. For loan or grant funding, the district would need to build itself back into a position of having at least 60 days of cash on hand and then prove this can be sustained.
“Lenders are going to ask, what does your leadership team look like? Do you have the people in the place that can manage this and have you sustained some of these things?” she said.
“There’s a lot of work to be done before we can even do anything, and we have to start as quickly as possible too.”
All of this is vital, said Thomas, because all of these complicated financials and hard decisions are about one very important thing: taking care of people’s lives.
“If we’re not focused on taking care of people’s lives and doing it the right way, we’re just playing hospital. We’re either focused on what our community needs and what our patients need, or we’re just here playing hospital, and we don’t have time or money for that,” she said.
As these conversations begin, Thomas said, they will focus on how to provide this community the best care it can possibly get.
Considering how complicated the system is, she would like the community to know that she’s happy to sit down with anyone who is interested to learn more about it.
“I want this to work,” she said. “I’m only here because I want to help make a difference. I want this community to have excellent healthcare.”
This story was published on Nov. 5, 2026.
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