Rural hospitals with asmaller footprint have less room to negotiate rates with managedcare companies and are often hobbled by more older and poorerpatients. (Photo: Shutterstock)

Industry M&A may be no savior as the paceof hospital closures, particularly in hard-to-reach rural areas, seems poised to accelerate.

Hospitals have been closing at a rate of about 30 a year,according to the American Hospital Association, and patients livingfar from major cities may be left with even fewer hospital choicesas insurers push them toward online providers like Teladoc Inc. and clinicssuch as CVS Health Corp's MinuteClinic.

Related: Good or bad? Hospital profitability hits a 10-yearlow

Morgan Stanley analysts led by Vikram Malhotra looked at datafrom roughly 6,000 U.S. private and public hospitals and concludedeight percent are at risk of closing; another 10 percent areconsidered “weak.” The firm defined weak hospitals based oncriteria for margins for earnings before interest and other items,occupancy and revenue. The “at risk” group was defined by capitalexpenditures and efficiency. among others.

The next year to 18 months should see an increase in shut downs,Malhotra said in a phone interview.

The risks are coming following years of mergers andacquisitions. The most recent deal saw Apollo Global Management LLCswallowing rural hospital chain LifePoint Health Inc. for $5.6billion last month. Apollo declined to comment on the deal;LifePoint has until Aug. 22 to solicit other offers. Consolidationamong other health-care players, such as CVS's planned takeover ofinsurer Aetna Inc., could also pressure hospitals as payers pushpatients toward outpatient services.

There are already a lot of hospitals with high negative margins,consultancy Veda Partners health care policy analyst SpencerPerlman said, and that's going to become unsustainable. Ruralhospitals with a smaller footprint may have less room to negotiaterates with managed care companies and are often hobbled by moreolder and poorer patients.

Also wearing away at margins are technological improvements thatallow patients to get more surgeries and imaging done outside ofthe hospital.

They “are getting eaten alive from these market trends,” Perlmancautioned.

Future M&A options could be too late — buyers may hesitateas debt laden facilities like Community Health Systems Inc. andTenet Healthcare Corp. focus on selling underperforming sites toreduce leverage, Morgan Stanley's Zachary Sopcak said.

The light at the end of the tunnel is some hospitals are risingto the occasion, Perlman said. Some acute care facilities arerestructuring as outpatient emergency clinics with free-standingemergency departments. “Microhospitals,” or facilities with ten beds orless, are another trend that may hold promise.

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