52 rural Iowa hospitals at risk of closing under public option, analysis shows

Expected loss at hundreds of millions, according to study funded by anti-public option group

(File photo) Devices used to take blood pressure, temperature, and examine eyes and ears rest on a wall inside of a doct
(File photo) Devices used to take blood pressure, temperature, and examine eyes and ears rest on a wall inside of a doctor's office in New York March 22, 2010. (REUTERS/Lucas Jackson)

Iowa’s rural hospitals could experience a loss of more than $476 million dollars under a public health insurance proposal, putting dozens at high risk for closure, according to an analysis.

Iowa’s rural health care facilities long have faced challenges due to Medicare reimbursement rates. But the analysis said those hospitals could be confronted with an even bigger detriment if a public option is implemented using Medicare reimbursement rates.

While the analysis is concerning, one Iowa hospital official said the study merely lays out what the state already is experiencing and projects that impact for the rest of the country.

“I think Iowa currently is a test case for what this study says,” said Kirk Norris, president and chief executive officer of the Iowa Hospital Association.

Chicago-based data company Navigant released an analysis this past month that studies the impact of a public option, a proposal to create a government-run insurance plan to compete with private insurance companies. It’s also a pitch that’s become common — in various iterations — among Democratic candidates running for president.

The study was funded by an industry coalition that has been running ads against Medicare-for-all and other public option proposals pushed by Democratic candidates. Called the Partnership for America’s Health Care Future, the ad hoc alliance is made up of pharmaceutical, insurance and hospital lobbyists working to curb support for expanding Medicare.

If a public option plan would go into effect, the study found that between 25 and 52 of Iowa’s 90 rural hospitals would be at high financial risk for closure due to a loss of millions in revenue.


Rural hospitals in the study include critical access hospitals and short-term acute care rural hospitals.

Researchers with Navigant studied the impact of public option on the nation’s smaller hospitals under three scenarios:

• Scenario 1 — 85 percent of individually covered plans from the commercial exchange are moved to public option.

• Scenario 2 — In addition to 85 percent of individual plan holders, 25 percent of individuals with employer-based plans also shift to public option.

• Scenario 3 — 85 percent of individual plans and 50 percent of employer-based plans move to public option.

Under the first scenario, Iowa’s rural hospitals could experience a loss of $77.7 million, putting 25 hospitals at high risk for closure, according to the analysis.

In scenario 2, rural hospitals in Iowa would experience a $276.9 million loss, putting 51 of 90 hospitals at high risk for closure.

Fifty-two rural hospitals would be at high risk for closure as a result of a $476.1 million revenue loss in the third scenario.

The total revenue loss for the 1,898 rural hospitals in the United States is projected at:

• Scenario 1 — $4.2 billion

• Scenario 2 — $14.9 billion

• Scenario 3 — $25.6 billion.


In the analysis’ findings, Iowa is among the states with the highest number of high-risk hospitals nationwide in all three scenarios. In fact, in scenarios 2 and 3, Iowa had the second-highest number of closures nationwide, behind Kansas.

Iowa is so affected by a move to public option because hospitals in the state are already stretched financially, said Jeff Leibach, director at Navigant and co-author of the analysis.

“There are a number of hospitals at moderate or high risk,” Leibach said.

The nation’s smallest hospitals are struggling. Since 2010, 113 rural hospitals across the country have closed their doors, according to the University of North Carolina.

No hospital closures have occurred in Iowa, but some state officials say rural hospitals are struggling.

“They’re in trouble,” said Norris of the Iowa Hospital Association. “Our community hospitals are in the worst financial shape they’ve been in over 30 years.”

Earlier this year, Navigant released an analysis saying that 17 of Iowa’s 118 community hospitals “are at high risk of closing unless their financial situations improve,” according to the report.

That report measured financial risk through data submitted to the federal Centers for Medicare and Medicaid.


The report also found 21 percent of all U.S. hospitals — a total of 430 facilities — are facing a dire financial situation.

Norris said Iowa’s hospitals are struggling because of the makeup of the insurance market. Medicare is a low payer in Iowa, relative to the rest of the country, which presents a particular challenge when considering many of Iowa’s rural residents fall under the category of older adults.

Many community hospital officials also say they face challenges in obtaining reimbursement from the managed-care organizations, private insurance companies that handle Iowa’s Medicaid program.

In addition, there is only one prominent commercial player in Iowa — Wellmark Blue Cross and Blue Shield.

“It’s not pretty because we’re in an environment right now where community hospitals are performing worse than they have in three decade,” Norris said. “Our urban hospitals are a little better, but their operating margins are way down compared to their peers.”

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