The Struggles of Rural Hospitals in New Mexico and Beyond
Rural hospitals across the United States, including those in New Mexico, are facing severe financial challenges. These difficulties have been mounting for years, long before recent changes in federal funding policies. One significant factor contributing to this crisis is the “One Big Beautiful Bill Act” of 2025, which drastically reduces funding for both Medicaid and Medicare over the next decade.
However, the issue of financial strain on rural hospitals began even earlier. Since 2016, hundreds of hospitals located near urban centers have taken advantage of what is known as “administratively rural” status for Medicare purposes. This classification allows these hospitals to receive reimbursement rates typically reserved for genuinely rural communities.
Burton Eller, legislative director and executive director of the advocacy group National Grange, has highlighted the implications of this practice. He noted that the dual-hospital classification unlocked reimbursement rates meant to support care in truly rural areas, where nearly a quarter of residents struggle to pay hospital bills.
“These large urban hospitals and teaching hospitals don’t need it,” Eller contended. “They’ve got paying customers that they can get their operating margin from.”
Despite the challenges, New Mexico is scheduled to receive $211 million in federal money to support rural health care this year. However, state legislators were informed in 2025 that six to eight rural New Mexico hospitals could close over the coming years.
The use of the dual classification loophole has increased significantly over the years. In 2017, only three hospitals located in urban areas used this classification. By 2023, that number had risen to 425, with prevalence varying by state. More than three-quarters of such hospitals were nonprofit, including many large academic medical centers in metropolitan areas. Eller argued that Congress should ensure federal programs supporting rural health are directed solely to geographically rural hospitals.
“We’ve got to figure out a better way to define what is a safety net hospital,” Eller emphasized. “We’ve got to make sure that it’s truly rural and underserved. I think we’ve got to have a definition that we can’t run a Mack truck through.”
The Impact of Hospital Closures
The closure of hospitals, whether in rural towns or urban areas, can act as a catalyst for economic and social decay. A 2025 study conducted at the University of Iowa found negative economic impacts on businesses and a general decline in access to health care in the 150 communities where rural hospitals have closed over the past 15 years.
This trend has not gone unnoticed. New Mexico, which had 43 hospitals as of 2022, is not among the states with the highest number of hospital closures. Texas leads with 25 closures, followed by Tennessee with 15.
Key Points
- Financial Hardship: Rural hospitals in New Mexico and across the country are experiencing financial hardship, which started before recent changes in federal funding.
- Administratively Rural Status: Since 2016, hospitals near urban centers have used “administratively rural” status to secure higher reimbursement rates.
- Impact of the One Big Beautiful Bill Act: The 2025 legislation cuts funds for Medicaid and Medicare, exacerbating the financial strain on rural hospitals.
- Closure Risks: Six to eight rural New Mexico hospitals could close in the coming years, according to state legislators.
- Rise in Dual Classification Use: The use of dual classification increased from three hospitals in 2017 to 425 in 2023.
- Economic and Social Consequences: Hospital closures lead to economic and social decline, as seen in a 2025 study at the University of Iowa.
- State Comparisons: New Mexico has fewer hospital closures compared to states like Texas and Tennessee.
Looking Ahead
As the challenges faced by rural hospitals continue to grow, there is an urgent need for policy reforms that ensure federal support is directed toward truly rural and underserved communities. The debate over how to define a safety net hospital remains critical, as the future of rural health care depends on it.
