Do Standby Costs and Low Patient Volume Affect the Financial Viability of Rural Hospitals?

Rural hospitals operate under unique financial pressures, including high fixed costs for emergency and essential services, limited opportunities for high-volume procedures, and thin margins. These factors amplify the per-unit cost of care, especially in smaller hospitals with low patient volumes, potentially threatening financial sustainability. Despite widespread recognition of these challenges, the magnitude of the “low-volume premium”—the additional cost per patient attributable to small patient volumes—and its role in hospital closures remain unclear. Understanding these dynamics is critical for policymakers seeking to sustain access to care in rural communities.

This project investigates whether standby costs and patient volume predict rural hospital closures. Specifically, it examines how fixed costs interact with patient volume to influence per-patient costs and closure risk.

Findings from this study will provide empirical evidence on the financial dynamics underlying rural hospital sustainability and quantify the low-volume premium. Results will inform policymakers, state health officials, and hospital administrators regarding targeted strategies—such as payment adjustments or operational supports—to mitigate closure risk and preserve access to care in rural communities.

Publications

• Fixed-to-Total Cost Ratio Is Predictive of Rural Hospital Financial Distress and Closures
  Journal Article
  North Carolina Rural Health Research and Policy Analysis Center
  Date: 01/2026
  This study examines how cost structure affects rural hospital financial viability. The findings indicate that heavy fixed cost burdens limit rural hospitals' ability to respond to declining volumes, making cost structure a key indicator of vulnerability and a useful metric for informing rural payment and policy interventions.