More than one-third of Virginia’s rural hospitals are running at a loss.
More than one-third of Virginia’s rural hospitals are operating in the red, and federal threats to Medicaid funding could put many hospitals that mainly serve residents in Southwest and Southside Virginia at risk.
Virginia has 28 health care facilities that fit the Centers for Medicare and Medicaid Services’definition of “rural hospitals.” They serve populations that are older, with higher rates of chronic illness and poverty.
Many of their patients have a greater reliance on government-funded health insurance programs like Medicaid and Medicare, according to a Virginia Hospital and Healthcare Association report.
Because these hospitals get lower reimbursement rates for much of their patients’ care, more than one-third reported operating within negative margins in 2022, according to VHHA — a problem that predated the COVID-19 pandemic.
Sovah Health operates two rural hospitals in Danville and Martinsville. It serves about 160,000 people across Pittsylvania, Henry and Patrick counties.
“Health care is hard,” Sovah Health CEO Steve Heatherly said. “It was hard before the pandemic. It got harder during the pandemic. If we’re after the pandemic, it is still a little bit harder.”
Despite challenges including labor shortages, supply chain issues and low reimbursement rates, Heatherly said both hospitals and patients have benefited from Medicaid expansion, which Virginia’s Legislature passed in 2018. The expansion allowed adults under 65 making less than 138% of the Federal Poverty Level — about $21,600 annually — to qualify for federal health care coverage.
Roughly 1.9 million adults and children are enrolled in Virginia Medicaid according to the state’s Department of Medical Assistance Services. That includes Medicaid and FAMIS, Virginia’s health insurance program for children (known federally as CHIP).
People living in rural areas are more likely to rely on federal health insurance, according to 2023 US Census Bureau data examined by Georgetown University’s Center for Children and Families. The data shows residents with the largest reliance on Medicaid and FAMIS are most heavily concentrated in Virginia’s Southwest and Southside.
Since Medicaid expansion, Sovah Health has invested in physician recruitment, made upgrades to its Danville emergency department, and purchased new technology for its robotic surgery program. Heatherly told VPM News these improvements allow patients who would otherwise have to drive out of town for their care to be treated locally.
Republicans who control the US House and Senate are looking for ways to reduce government spending. And according to a report by conservative think-tank the Manhattan Institute, Medicaid is the fastest-growing federal program with expenditures surging past $824 billion annually in 2022.
GOP leadership in Congress has said they’d like to cut $880 billion from the House Energy and Commerce Committee over the next decade. A Congressional Budget Office report this March said those cuts would likely come from Medicaid.
Roughly 630,000 Virginians currently have Medicaid through the expansion, which receives 90% of its funding from the federal government. (The other 10% is paid by Virginia’s private hospitals.) During this year’s General Assembly session, state lawmakers did not change language that would trigger an end to Medicaid expansion if federal funding drops below that level.
Heatherly said he’s “significantly concerned” about Medicaid cuts, which he worries would affect the hospital’s ability to reinvest in care and attract skilled health care providers: “It impacts the way we can think about the future.”
Beyond the hospital’s growth, Heatherly added that patients would feel the brunt of those cuts.
“It would put individuals living in this community in a really difficult spot, where they may not receive the care that they should,” Heatherly said.
Virginia’s Medicaid expansion has helped ease the burden of care away from Danville’s emergency room.
Martina Tatum is a community health worker who provides non-medical support to about 20 people around Danville, helping them navigate paperwork for a variety of entitlement programs, and providing guidance on available resources in the area.
“Prior to expansion, it was difficult to find medical care, because very few places in town were willing to see these people without insurance,” Tatum said.
Often, the barriers to finding care would put patients in crisis situations where they were forced to visit the emergency room when they were more sick — and thus more likely to have poorer health outcomes.
The federal Emergency Medical Treatment and Labor Act passed in 1986 requires hospitals to provide stabilizing care for patients who show up in an ER regardless of their ability to pay. While Medicaid and Medicare do reimburse hospitals at lower rates than private insurers — and often at a rate lower than the cost of care — hospitals have benefited from treating a population with any level of insurance, according to Julian Walker, a spokesperson for the Virginia Hospital and Healthcare Association.
“That is still a better arrangement for a provider than receiving no compensation whatsoever for care,” Walker said.
In order to manage the loss of funds, Walker said, hospital systems have had to offset high-cost, labor-intensive care by also providing services that bring in revenue. Within individual systems, larger hospitals in urban or suburban areas often end up subsidizing smaller rural hospitals that operate at negative margins.
Despite operating in rural areas, Heatherly told VPM News that Sovah Health is “financially stable” and remains committed to meeting the region’s health care needs.
“It’s really about community health,” Heatherly said. “It’s a part of how this entire region makes a journey towards better health, and it would be a shame if that funding were cut.”
Both Heatherly and Walker said their organizations are actively engaged with President Donald Trump’s administration and federal elected officials to ensure they understand the potential impacts Medicaid cuts could have.
The House Energy and Commerce Committee is scheduled to meet later this month to markup legislation related to cuts that could impact Medicaid.
