Financial instability could force closures at more than a dozen Pennsylvania hospitals in the coming five years if state policymakers fail to act and the industry’s economic climate continues to deteriorate, according to a new report commissioned by system advocates.
The study released Jan. 21 finds that hospitals in the Keystone State face “increasingly precarious” environments and are hard-pressed by comparison with facilities elsewhere in the nation, strained by lower reimbursement rates for the care they provide and soaring malpractice costs.
“Unfortunately, the data told us exactly what we thought, which was, it is more challenging to operate a hospital here than in our surrounding areas,” said Nicole Stallings, president and CEO of the Hospital and Healthsystem Association of Pennsylvania, which commissioned the report. “And this is really driven primarily by chronic underfunding.”
What problems are hospitals facing?
The analysis by consulting firm Oliver Wyman found that Pennsylvania’s Medicaid reimbursement rates are 11 percentage points lower than the national average, compensating hospitals for just 87 cents of every dollar of care. That, in turn, results in lower payments from private insurers, which use Medicaid and Medicare rates as a benchmark, Stallings said.
The report says the problem is only getting worse as the commonwealth’s population ages and retirees swap their employer-sponsored insurance for Medicare plans that pay hospitals less.
Providers in the commonwealth also deal with more liability than in other places, according to the report, which found that Pennsylvania had the highest per-capita malpractice costs in the nation.
Stallings said one reason is that the commonwealth permits venue shopping, allowing plaintiffs to file their lawsuits in a county where they’re likely to get bigger payouts. Many times, people end up suing in Philadelphia, which is a “national outlier” in terms of judgment amounts, she said.
What could happen to Pa. hospitals if nothing changes?
On top of the problems that hospitals are already facing, the massive tax bill passed by Congress in 2025 will throw yet another challenge in their path, the report says.
The legislation’s changes will drive an estimated 300,000 Pennsylvanians out of the Medicaid program and 95,000 off of Affordable Care Act coverage. In addition, the bill imposes caps on Medicaid rates, further eating into provider revenues, according to the report.
Under a worst-case scenario, the report predicts, all of these financial pressures could force between 12 and 14 hospitals to shut their doors by 2030, resulting in an estimated $900 million in wage losses.
The closures could, on average, add 22 minutes to a Pennsylvanian’s drive to the nearest hospital, according to the report.
However, HAP hopes the report will spur state policymakers to intervene where they can. While the federal government sets Medicare rates, the state has the power to raise Medicaid payments to providers, Stallings noted.
They can also make it easier for hospitals to stay in business by easing regulations and reforming the commonwealth’s medical malpractice system, she argues.
