Rural hospital closures, by the numbers: which hospitals are most at risk

The story of rural hospital closures is usually told one town at a time — a maternity ward that shuts, an emergency room that goes dark, a county left an hour from the nearest hospital. The UNC Cecil G. Sheps Center counts 196 rural hospital closures and conversions since 2005. But a closure is the last event in a long financial story, and the federal cost reports let you read that story years before the final chapter. Read at the level of the whole country, they say something specific: the rural safety net is the part of the U.S. hospital system under the most financial pressure, and it is measurably worse off than the urban system around it.

What we measured

We derived operating margin for every Medicare-participating hospital with a usable cost report in the CMS Healthcare Cost Report Information System (HCRIS), form CMS-2552-10 — 6,019 hospitals in the 2026-05-24 snapshot. Operating margin is net patient revenue minus total operating expense, divided by net patient revenue: it asks whether a hospital makes or loses money on the actual business of treating patients, before investment income, philanthropy, or government transfers.

Following the threshold used by MedPAC and the bond-rating agencies, we flag a hospital as financially distressed when its operating margin falls below −5% — losing more than five cents on every dollar of patient-care revenue. The national picture, before any rural cut:

• 39.3% of all 6,019 hospitals are financially distressed (2,368 facilities).
• The national average operating margin is −13.84% — the average U.S. hospital loses money on operations and leans on non-operating income to survive.
• A majority — 53.9% — run some operating loss.

Those numbers describe a system under strain. The rural cut shows where the strain concentrates.

The rural cut: Critical Access Hospitals

The cost report's CMS Certification Number carries a built-in facility-type code: the third through sixth digits identify what kind of provider it is, and the range 1300–1399 marks a Critical Access Hospital (CAH) — the federal designation for a small rural hospital (no more than 25 beds, generally more than 35 miles from the next hospital, paid 101% of allowable costs precisely because its volume is too low to survive standard payment). That single field lets us split the 6,019 hospitals into the rural safety net and everyone else, with no external lookup.

There are 1,375 Critical Access Hospitals in the snapshot. They are not doing as well as the system around them:

• 50.4% of Critical Access Hospitals are financially distressed, versus 39.2% of urban short-term acute hospitals — an eleven-point gap.
• The CAH average operating margin is −8.93%; their median is −5.15%, against −1.04% for urban short-term hospitals. The typical rural Critical Access Hospital is already below the distress line; the typical urban hospital is not.
• 682 Critical Access Hospitals are below the −5% distress threshold, and 497 are below −10% — losing more than a dime on the dollar.

This is the financial substrate of the closure narrative. A facility that loses money on operations year after year, with no parent system to absorb the loss and no way to grow volume in a shrinking rural market, is a facility on a closure trajectory — even when it keeps its doors open for years on borrowed time.

A closure is the last event in a long financial story. The cost reports let you read the story years before the last chapter — and they say the rural safety net is the part of the system under the most pressure.

Where rural distress concentrates

The distressed Critical Access Hospitals cluster exactly where the rural-health literature says the crisis lives — the Great Plains and the rural South and Mountain West.

State here is derived from the CCN itself: the first two digits encode the CMS/SSA state code (17 = Kansas, 45 = Texas, 27 = Montana), so the geography is as reproducible as the margin. The leaders by count of distressed CAHs:

• Kansas — 76. Kansas has more Critical Access Hospitals than any other state, and a large majority of them are operating at a loss.
• Texas — 70. A vast rural footprint with the second-largest distressed-CAH count.
• Nebraska — 32, Montana — 29, Minnesota — 29, Iowa — 26, Arkansas — 23, North Dakota — 22.

A policy response is already in motion

The federal government has not been idle. The Rural Emergency Hospital (REH) designation, effective January 1, 2023, was created expressly as a closure-prevention pathway: an eligible Critical Access or small rural hospital can convert to an emergency-and-outpatient model — no acute inpatient beds — in exchange for a monthly facility payment plus a 5% add-on on outpatient services. It is a structural admission that for many of the hospitals in the distressed cohort above, the full-service inpatient hospital is no longer financially viable, and the policy goal has shifted from preserving the hospital to preserving access to emergency care.

That is exactly why a facility-level distress register matters. The REH pathway, targeted rural support, and state stabilization funds all need to know which hospitals are at risk — and the cost reports answer that question for every Medicare hospital in the country, for free.

How this differs from our other hospital-finance studies

This is the rural-access / closure-risk lens. It is distinct from two companion studies built on the same HCRIS source:

• Our Hospital Margin Gap Analysis is the national margin snapshot — the distribution of operating margins across all hospitals, without the rural cut.
• Our Hospitals running out of cash study is the liquidity axis — days cash on hand, a different question (could a hospital survive a revenue interruption?) than margin (does it make money on operations?).

This study foregrounds the one cut the closure debate actually turns on: rural versus urban, and specifically the Critical Access Hospitals that are the rural system's load-bearing wall.

Methodology

Operating margin is the HCRIS-derived operating_margin_pct on hcris_facility_summary: (net patient revenue − total operating expense) ÷ net patient revenue × 100. A hospital is distressed when that figure is below −5%, the threshold MedPAC and the rating agencies use. Rural status is the Critical Access Hospital facility-type code embedded in the CCN (positions 3–6 in the range 1300–1399); urban short-term acute hospitals are positions 3–6 in 0001–0879. State is the two-digit CMS/SSA code at the start of every CCN. The snapshot is the 2026-05-24 HCRIS release (form CMS-2552-10, fiscal years ending mostly 2023–2024). The exact query is in the reproducibility block below and on the HCRIS dataset page; every count resolves to a specific row in a specific frozen federal snapshot. Methodology version: hospital-distress-rural/v1.

Limitations

• HCRIS reporting lag. Cost reports lag operations by 12–18 months and describe a hospital's structural financial posture, not its position this quarter. Nothing here predicts that any specific hospital will close.
• Operating margin only. This study measures operating margin, not total margin. A hospital with a negative operating margin can remain solvent on investment income, philanthropy, tax support, or system cross-subsidies — and Critical Access Hospitals' 101%-of-cost reimbursement softens, but does not erase, the operating loss.
• CCN-derived rural classification. The Critical Access Hospital flag comes from the CCN facility-type code. It captures the formal CAH designation cleanly, but some rural hospitals are not CAHs (rural PPS and sole-community hospitals), so the rural cohort here is the CAH core, not every rural hospital.
• Threshold convention. The −5% distress cut is a widely used signal, not a regulatory definition; Fitch and S&P use somewhat different bands.
• Self-reported, not audited. HCRIS is hospital-self-reported cost-report data, not an audited financial statement. Fonteum does not independently rate, rank, or pass judgment on any hospital's solvency.

Sources

• CMS HCRIS Hospital Cost Reports (form CMS-2552-10) — the primary federal source.
• CMS — Critical Access Hospitals program — the CAH designation, bed limit, and cost-based reimbursement.
• CMS — Rural Emergency Hospitals — the 2023 closure-prevention provider type.
• UNC Cecil G. Sheps Center — Rural Hospital Closures tracker — the running count of rural closures and conversions since 2005.
• MedPAC — March 2025 Report to Congress, Ch. 3 (hospital services) — Medicare margins and the rural-margin discussion.