When Sturgis Hospital converted to a new emergency-focused care model three years ago, leaders of the small Michigan town hoped it would be the lifeline that kept their community’s healthcare alive. Instead, emergency department visits declined, and last month the century-old hospital shut its doors entirely, leaving roughly 11,000 residents without critical medical services nearby. Hospital administrators said they had exhausted every reasonable option, including searching for a buyer, before finally conceding defeat. Now industry watchers worry the closure could be an early warning sign. Lauren LaPine-Ray, vice president of policy and rural health at the Michigan Health & Hospital Association, called it potentially a canary in the coal mine for rural healthcare nationwide.
Congress created the Rural Emergency Hospital designation in 2023 as part of a decades-long effort to prop up struggling facilities that face staffing shortages, declining patient numbers, and chronically low federal reimbursement rates. Under the model, hospitals give up their inpatient beds but continue offering emergency and outpatient services, receiving a 5 percent boost in Medicare payments plus an additional facility payment totaling about $3.6 million annually. More than 50 hospitals across over 20 states have signed on so far, out of roughly 1,700 deemed eligible nationally. Early research from the University of North Carolina’s Cecil G. Sheps Center suggests many converted hospitals are seeing improved finances, though some remain underwater.
But advocates fear those gains could evaporate under President Donald Trump’s signature One Big Beautiful Bill Act, which is projected to cut Medicaid funding by more than $900 billion over a decade. Rural areas, where Medicaid enrollment tends to run high, stand to absorb a disproportionate share of that blow. To win over reluctant Republicans during negotiations last year, lawmakers added a $50 billion Rural Health Transformation Program aimed at cushioning the fallout. Yet just before Sturgis closed its doors, four senators including Maine Republican Susan Collins sent a pointed letter to CMS administrator Mehmet Oz warning that his agency had structured the fund in ways that may unintentionally disadvantage the very hospitals it was meant to save.
Backers of the emergency hospital model point to bright spots. Melissa Gale, who runs Landmann-Jungman Memorial Hospital Avera in Scotland, South Dakota, said her facility averaged less than one inpatient daily and hovered around break-even for years before converting. With the added federal dollars, she has upgraded employee benefits, reinvested in aging infrastructure, and begun exploring expanded mammography services and wound care programs. Still, Gale acknowledged there are no easy answers when more than 40 percent of all rural hospitals operate at a loss and hundreds have already eliminated obstetrics, general surgery, or chemotherapy.
Efforts are underway in Congress to expand what these stripped-down hospitals can offer, including proposals to allow short-term recovery beds and in-house labor and delivery units, along with access to a federal drug discount program that many facilities rely on for revenue. Carrie Cochran-McClain, chief policy officer at the National Rural Health Association, described current law as a critical start that must evolve if communities like Keokuk, Iowa ever hope to reopen their own shuttered hospital under the program. For now, residents across rural America can only watch whether this experiment proves enough to weather what lies ahead.
