$17 million grant aims to help stabilize Texas’ rural health system amid hospital closures and financial challenges


Maddie McCarthy


Texas Gov. Greg Abbott announced a $17 million Texas Rural Hospital Financial Stabilization Grant last month. Qualifying hospitals may receive between $100,000 and $375,000 over a two-year period.

The grant outlines four areas where hospitals can spend the money: supplemental operational expenses, debt repayment, facility repairs, and equipment purchases or rentals. Grant applications close on June 21.

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While Texas is not the only state with rural hospitals in need, it leads the nation in rural hospital closures, according to the Center for Quality Healthcare and Payment Reform. The state has 77 rural hospitals at risk of closing, and 29 at immediate risk of closing. 

Texas also recently saw its first rural hospital closure since January 2020 when a La Grange hospital shut its doors in October 2023.

John Henderson, CEO and president of the Texas Organization of Rural and Community Hospitals (TORCH), told State of Reform the grant will provide hospitals with some flexibility. 

“The rural stabilization grant funds from the state will help rural hospitals hire staff, replace equipment, and pay down debt, giving them some much needed breathing room,” Henderson said.

Jennifer Banda, senior vice president of advocacy and public policy at the Texas Hospital Association (THA), told State of Reform that THA is pleased to see that the grant offers several tiers of funding available based on the needs of different facilities.

“[The funding] shows that the state is paying acute attention to the needs of rural healthcare facilities,” Banda said. “THA is grateful it’s a priority for policymakers.”

Rural hospitals face a different set of challenges compared to their urban counterparts due to reimbursement methods, patient volume, workforce shortages, and lack of internet access.

Henderson said the demographics of patients play a large role in rural hospital struggles. Rural areas tend to have an older and poorer population, he said, so more people using these hospitals are on Medicaid and Medicare.

Banda said the high concentration of Medicaid, Medicare, and uninsured patients makes it hard for rural hospitals to be fully compensated for the care they provide. 

“Texas remains the state with the highest number of uninsured [people], and both Medicaid and Medicare generally pay below the cost of care,” Banda said. “In terms of Medicare, the increasing prevalence of Medicare Advantage, the commercial health plans’ version of Medicare, presents an increasing challenge.

Rural areas typically contain a high percentage of older populations who are eligible for Medicare Advantage, which is known for disproportionate delays and denials of care, as highlighted in a federal Office of the Inspector General report released in April 2022.”

While payment and prior authorization denials hurt rural hospitals, Banda said the administrative costs and time associated with appealing or challenging denials further burdens these facilities. 

THA has asked Congress to closely inspect the Medicare Advantage program, Banda said. As more Texans transition into the program, there are more problems with payment for services provided and care is delayed.

“THA has advocated that lawmakers create a Medicare payment system that, at minimum, covers the cost of care and is updated routinely to reflect changes in hospital costs,” Banda said. “Two key programs for rural hospital payments—the Medicare-Dependent Hospital and Low Volume Adjustment programs—are currently set to expire at the end of 2024. Hospitals that qualify for these programs depend on the payment adjustments they grant, and the programs need to be extended.”

Henderson said rural hospitals also have fewer patients coming through their doors.

“They also have low patient volumes, which puts pressure on staffing and [means] relatively little leverage or purchasing power. That makes for a tough recipe for survival, and puts a lot of pressure on rural hospitals.”

— Henderson

Lack of reliable internet access and workforce challenges further hurts the rural hospital system. Banda said recruiting clinicians to work in rural hospitals is more difficult to do compared to urban areas. And the lack of internet connectivity in some areas of the state hinders the ability to treat patients through telehealth, she added.

Henderson said more physician and nurse loan repayment is needed for clinicians who choose to work in rural areas, as well as support for rural obstetrics services and telehealth.

Banda highlighted two major financial investments in the state’s broadband infrastructure, which could improve telehealth access in rural areas. 

The passage of Proposition 8 allocated $1.5 billion to a broadband infrastructure fund to help expand internet access in the state. The State Office of Rural Health also recently announced $23 million in grant funding aimed at improving broadband infrastructure in rural hospitals.

THA has also requested that congress permanently expand its pandemic-era telehealth flexibility.

Banda said the Texas Legislature helped the rural hospital system during the 2023 session through various legislative initiatives, including a $28 million allocation for the Loan Repayment Program for Mental Health Professionals over the 2024-2025 biennium. That marked a $26 million increase from the previous budget.

“A few other big steps by the legislature in 2023 included funding for a tripling of the Medicaid rural labor and delivery add-on payment to $1,500—[which] intended to ensure rural hospitals can continue to provide obstetrics services—allocating $66 million annually for rural outpatient payments, and funding a new Rural Residency Physician Grant Program at $3 million over the biennium,” Banda said.

While rural hospitals advocate for change in order to improve their systems, many work together to keep their facilities running. 

“Thirty-four of the 158 rural Texas hospitals are participating in a clinically-integrated network to collaborate around quality, contracting, and value-based care initiatives,” Henderson said.

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