by Mark Craig
There’s a convenient story people like to tell about why rural hospitals close. The narrative says these facilities fail because they are poorly run, inefficient, or starved for patients. It’s a neat, tidy explanation, and it is wrong.
Rural hospitals are not failing their communities. They are being systematically shortchanged by the corporate insurers draining the lifeblood out of rural healthcare.
I recently sat down with Aaron Herbel, CEO of Mercy Hospital in Moundridge, Kansas, on The Regional Hospital Voice podcast. His financials tell a very different story about the rural healthcare crisis than the one you have been sold.
When a small-town hospital lands in financial distress, it is rarely a failure of local management. More often, it is an engineered crisis, and the machinery behind it is Medicare Advantage, insurer denials, and a payment system that punishes the very hospitals holding rural communities together.
To understand how this crisis is engineered, look no further than the steady erosion of traditional safety nets. For years, Mercy Hospital relied on Medicare’s Low-Volume Adjustment, a supplemental payment that traditional Medicare provides to qualifying rural hospitals to offset the higher per-patient costs of operating without metropolitan scale. When Herbel started as CEO, that supplement brought in nearly $300,000 a year. For a small facility, the difference between a positive operating margin and deep red ink.
Then came the aggressive expansion of privatized Medicare Advantage plans.
The Low-Volume Adjustment exists only inside traditional Medicare. Medicare Advantage plans operate outside that system entirely, negotiating their own rates—and those rates carry no low-volume supplement.
So as more local seniors were steered into Medicare Advantage, Mercy didn’t just trade one payer for another. Every senior who moved took the supplement with them. Herbel watched that payment fall from nearly $300,000 a year to just $119,000. The hospital didn’t lose patients and the staff didn’t become less efficient. The insurers changed who was paying, collected their federal payments for enrolling those seniors, and left a small Kansas community to absorb the loss.
Naturally, the squeeze doesn’t stop with Mercy. As of this fiscal year, Washington has tightened the rules on the low-volume program itself, cutting loose many of the rural hospitals that qualified just a year earlier. The overall financial pressure on rural hospitals nationwide is only compounding.
This structural theft becomes painfully human when you look at the phenomenon of high-deductible exchange plans. Herbel shared the story of a local patient—we will call her Cheryl—to illustrate exactly how the current system turns hospitals into villains while insurers walk away with clean hands.
Cheryl, a 64-year-old resident, could no longer afford her standard commercial health insurance premiums, so she switched to an exchange plan. To make the monthly premiums affordable, the plan came saddled with a staggering $12,000 deductible.
When Cheryl needed an injection of a specialized drug for severe osteoporosis, the hospital dutifully submitted a prior authorization request. The insurer approved it. Cheryl understandably believed “approved” meant “covered.”
It wasn’t. Because of her astronomical deductible, the insurance company paid exactly $0 toward the treatment. Instead, they passed the cost directly down to Cheryl.
Consider the math forced upon the hospital:
Cheryl called the hospital in tears, utterly unable to pay. If the hospital forgives the debt, it eats the $1,800 cost on a life-altering medication it already bought and administered. If the hospital attempts to collect, it becomes a predatory debt collector in the eyes of a suffering neighbor.
Meanwhile, the insurer continues to collect Cheryl’s premiums every single month without fail. They took no financial risk, paid out no money, and successfully forced the hospital to act as a subprime lender. Because the bill has the hospital’s name on the letterhead, the provider becomes the public scapegoat for corporate greed. If insurers were forced to collect their own high-deductible debts, you would never see deductibles like this exist in the market.
Cheryl’s case is a single human example, but in my day-to-day work across countless community hospitals, I see this exact same script playing out everywhere. This isn’t a series of isolated billing errors; it is a pervasive pattern of engineered friction designed by corporate payers to preserve their own margins at the expense of rural providers.
Walk into almost any regional facility today and you will find a team maintaining the exact same patient census they had a decade ago, yet they have been forced to hire three, four, or five additional full-time administrative employees. These new hires never touch a patient, check a pulse, or improve clinical outcomes. They exist solely to fight a war of attrition—navigating endless prior authorization delays, fighting downcoded claims where insurers arbitrarily pay for a lesser service than what was delivered, and appealing endless denials.
It is a deliberate cycle. Insurers know that many of their denials would be overturned on appeal, but they also know that a small hospital simply doesn’t have the staff to chase down every single dollar. The denial sticks not because it was valid, but by sheer attrition.
Add to this the timeline games—payers sitting on clean claims for months because delaying a payout is cheap for a multi-billion-dollar corporation, but devastating for a community hospital living on thin cash reserves. It’s the ultimate asymmetry. On one side, a multi-state insurer armed with floors of corporate analysts and automated AI tools; on the other, a rural facility with a couple of overworked billers trying to hold the line.
This is death by a thousand cuts—invisible, systemic bloodletting that a massive health system can absorb, but an independent rural hospital cannot. And when the facility finally reaches a breaking point, the industry looks at the wreckage and labels it “mismanagement.”
If we want to save the backbone of American healthcare, we have to fundamentally rewrite the payment model.
Mercy Hospital managed a remarkable turnaround by converting to the new Rural Emergency Hospital (REH) designation, stabilizing a -20% operating margin up to a positive 2%, allowing them to open a requested walk-in clinic and recruit new physicians. But long-term sustainability requires policymakers to recognize a basic truth: Rural healthcare must be funded for readiness, not just volume.
We pay fire departments to sit in the station, fully staffed and equipped, waiting for a fire to happen. We do not cut their funding if there are fewer fires in a given month. We pay for the security of their immediate availability.
Our regional and independent hospitals deserve the exact same model. A fixed-cost payment component must be established to ensure that whether an emergency room treats one patient or twenty on a Tuesday night, the doors stay open, the lights stay on, and a qualified physician is ready at 2:00 a.m.
The clinicians, nurses, and independent leaders in our communities are doing everything they can with limited resources because they genuinely care for their neighbors. It is time we stop letting corporate payers drain their resources and blame them for the fallout.
Watch the full episode below.
About Aaron Herbel
Aaron Herbel is administrator and CEO of Mercy Hospital in Moundridge, Kansas, which he guided through conversion to Rural Emergency Hospital status in 2023-2024. The conversion helped increase profit margin from -20% to 2%, cut staff turnover from 21% to 7%, and add services directly requested by the community, including a walk-in clinic with weekend hours. Aaron is a vocal advocate for rural hospital sustainability. He is outspoken about administrative bloat in the healthcare system, arguing that layering negotiators and intermediaries between patients and caregivers drives up costs. He’s shared Mercy’s story with national and regional audiences, including U.S. Senator Roger Marshall (R-KS), and regularly advises other rural hospital leaders considering the REH conversion.
About Mark Craig
Mark has spent over two decades in the financial trenches of healthcare, helping providers recover revenue that insurers work hard to deny, delay, and underpay. As founder and CEO of Write-Off Warrior, he has built a reputation for deep policy analysis, insightful original research, and tenacious advocacy.
Mark is the creator and lead researcher for Preyed On: How Insurance Corporations Are Exploiting America’s Hospitals, an ongoing nationwide survey of healthcare leaders sharing their struggles and solutions for payer abuse, particularly Medicare Advantage plans. He has contributed to healthcare research with Johns Hopkins University and is a regular speaker at healthcare conferences. He regularly collaborates with lawmakers and advocacy groups to advance targeted oversight reforms that expose and dismantle predatory insurer practices.
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