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Rural Health System Resources


The Effect of Rural Hospital Closures on Community Economic Health


George M Holmes, Rebecca T Slifkin, Randy K Randolph, and Stephanie Poley


Hospitals are generally considered to be the locus of rural health care systems. Not only are important health services based at hospitals, but many of a community's health care personnel are either directly employed by or supported by the local hospital. Further, hospitals are often considered vital to local economies as they bring outside dollars into the communities via third-party payors, provide jobs, stimulate local purchasing, and help attract industry and retirees (Doeksen et al. 1997). As such, the closure of a hospital can have detrimental effects on a rural community. The rapid succession of hospital closures throughout the 1980s and 1990s helped stimulate legislation, such as creation of Critical Access Hospitals (hospitals that accept certain restrictions and are reimbursed 101 percent of cost from Medicare), designed to ensure the financial viability of small rural hospitals.

Why is this useful for rural and remote people?

Having a rural hospital, or primary care clinic, has obvious benefits in terms of local health and wellbeing in rural and remote towns. However, health care and social assistance services also play other roles in the local economy of rural and remote towns as business investors and employers. In most rural and remote towns in Australia, health and social assistance is the latest or second largest employer in town. This produces flow-on benefits in terms of money coming into a rural and remote town in the form of health worker salaries to spend on housing and at local stores. There are also induced benefits - for example, the ability to attract local teachers, police or paramedics to work in a rural or remote town is often dependent on their ability to access local health care when they need it. The loss of local health services has a cascade impact on towns in terms of health care access and equity, local employment and economic activity, and the ability to attract and retain an essential service workforce. This in turn means that governments are forced to pay incentives to attract and retain essential workers, and fund social welfare and unemployment benefits, as well as dealing with the costs of increasing rates of chronic disease that result from lack of adequate access to primary health care in particular. It is argued by some that closing local hospitals and health services deliver cost savings to health departments that are better invested in centralised services in the cities, but these 'savings' re-appear as new costs for other parts of governments (e.g. reduction in access to health care shifts costs to the provision of incentives for teachers and police to work rurally; increased rates of chronic disease shifts costs from primary care (low cost) to deal with accelerating rates of avoidable hospitalisations (high cost); reductions in health employment shifts costs to social welfare for unemployment of staff that would have worked in the health system, and due to people dropping out of the workforce due to the growth in the rate of unemployment). It is important for rural and remote communities to demonstrate the local flow-on impact of the withdrawal of health and hospital care in rural and remote towns, and to identify how this leads to greater costs on other parts of government, in advocating for a fair distribution of health resources to rural and remote communities.

Suggested Citation

Holmes GM, Slifkin RT, Randolph RK, Poley S. The effect of rural hospital closures on community economic health. Health Serv Res. 2006 Apr;41(2):467-85. doi: 10.1111/j.1475-6773.2005.00497.x. PMID: 16584460; PMCID: PMC1702512.


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