Leveling the Playing Field to Close the $40 Million Gap Threatening Rural Hospital Districts
Imagine two nearly identical Critical Access Hospitals in neighboring states. Both serve rural communities of approximately 11,000 residents. Both have worked hard to build $20 million in reserves to weather financial storms and invest in their futures. Both face the same financial headwinds threatening rural healthcare nationwide.
There's just one critical difference: One hospital can invest its reserves like every other non-profit healthcare organization in America. The other cannot.
Twenty years later, the first hospital has grown its reserves to approximately $93.2 million. The second hospital has barely $53.1 million. That $40 million gap represents the difference between survival and closure for a rural community.
Rural hospitals across America are facing unprecedented financial pressures. More than 180 rural hospitals have closed nationwide since 2005, and the trend is accelerating. The challenges are well-documented: Medicare and Medicaid reimbursement rates that don't cover the cost of care, rising levels of uncompensated care as insurance coverage gaps widen, workforce shortages requiring premium compensation to recruit and retain staff, healthcare-specific inflation that outpaces general inflation (particularly for labor, pharmaceuticals, and supplies), escalating technology and cybersecurity costs, and increasing regulatory demands.
For hospital districts across many states, these universal challenges are compounded by a structural disadvantage that few people understand: constitutional or statutory restrictions that prevent them from competing on a level playing field with private non-profit hospitals. While private 501(c)(3) hospitals can invest their reserves in diversified portfolios including equities, many governmental hospital districts remain restricted to low-return fixed-income investments. This gap in investment authority creates a compounding disadvantage that threatens the long-term viability of publicly-owned rural hospitals.
Let's examine this issue using Nebraska as a case study—but the implications extend to hospital districts in any state facing similar investment restrictions.
The Unlevel Playing Field
In Nebraska, as in some other states, private 501(c)(3) hospitals operate with full investment authority. They manage diversified portfolios including equities, investment-grade bonds, real estate investment trusts, and other asset classes under professional management. Their long-term portfolios typically include 60% equities and 40% fixed income, producing average annual returns of 7-10%. These returns aren't speculative—they represent standard institutional investment practice essential to financial stability.
Hospital districts in Nebraska and similar states, by contrast, remain restricted to U.S. government bonds, limited federal agency securities, short-term Treasury instruments, certificates of deposit, and a narrow range of fixed-income securities. Even with expanded fixed-income authority, expected long-term returns remain in the 3-4% range. Over time, this gap compounds dramatically. If your state has similar restrictions on governmental hospital districts, your hospitals face the same structural disadvantage.
Let's make this concrete with a real-world comparison of two Critical Access Hospitals, each starting with $20 million in reserves. Hospital A operates in Minnesota with full investment authority under Minnesota Statute 144.581, allowing a portfolio allocation of 60% equities and 40% fixed income (the standard institutional allocation). With an expected return of 8% annually (a conservative institutional average), their 20-year result is $93.2 million.
Hospital B operates in Nebraska as a hospital district, limited to government bonds and fixed-income securities under Nebraska Constitution Article XI, Section 1. With a portfolio allocation of 100% fixed income and an expected return of 5% annually (current market expectations for conservative fixed-income portfolios), their 20-year result is $53.1 million.
The performance gap is $40.1 million. That's not a typo. The difference in investment authority creates a $40 million gap over 20 years—even using conservative assumptions for both portfolios. In more immediate terms, after five years Hospital A has $29.4 million versus Hospital B's $25.5 million (a gap of $3.9 million). After ten years, Hospital A has $43.2 million versus Hospital B's $32.6 million (a gap of $10.6 million). After fifteen years, Hospital A has $63.4 million versus Hospital B's $41.6 million (a gap of $21.8 million). After twenty years, Hospital A has $93.2 million versus Hospital B's $53.1 million (a gap of $40.1 million).
This isn't about speculation or taking risks. This is about hospital districts having access to the same proven, professionally managed investment strategies that every other healthcare organization, pension fund, and endowment uses to ensure long-term sustainability.
Rural hospitals operate on razor-thin margins, with operational margins frequently negative due to the challenges outlined above. Non-operating revenue from investment returns has become essential to financial stability—covering the gap between costs and reimbursement, funding capital improvements, supporting workforce retention, and maintaining essential services. When private hospitals can generate 7-10% returns while hospital districts are locked into 3-4% returns, that gap widens each year, directly affecting the services they can provide, the workforce they can retain, the technology they can implement, and the overall health and economic stability of their communities.
A Proven Solution Already Exists
States facing this challenge don't need to invent a solution from scratch. Minnesota has already figured this out. Minnesota Statute 144.581, subdivision 1, clause (9) specifically authorizes governmental hospitals to invest "notwithstanding any limitation in chapter 118A, invest hospital funds in any security which has been recommended by an investment adviser registered under the federal Investment Advisers Act."
This elegant provision exempts governmental hospitals from the restrictive investment rules that apply to other governmental entities, recognizes that hospitals face unique long-term financial obligations requiring growth-oriented portfolios, requires professional management by registered investment advisers, maintains fiduciary standards through existing regulatory frameworks, and aligns governmental hospitals with the investment practices of private non-profit hospitals. Minnesota recognized that hospital districts aren't just any governmental entity—they're healthcare organizations with long-term financial obligations requiring access to institutional investment strategies. This model can be adapted by any state seeking to strengthen its rural hospital infrastructure.
Many states have constitutional or statutory provisions that restrict governmental entities from certain types of investments. For example, Nebraska Constitution Article XI, Section 1 restricts political subdivisions, including hospital districts, from owning corporate stock. Similar provisions exist in other states—often crafted in very different eras, long before modern portfolio theory, contemporary fiduciary standards, or today's healthcare realities.
Notably, most state constitutions acknowledge that long-term public funds require broader investment authority, as evidenced by explicit exceptions for endowment and pension funds. States like Nebraska have investment councils and public employee retirement systems that manage billions in diversified portfolios including equities, supported by rigorous governance, professional oversight, and proven risk management frameworks. The same disciplined approach is essential for hospital districts that must ensure long-term financial stability while serving as the healthcare safety net for their communities.
While constitutional constraints must be respected, there is often precedent within state law for granting broader investment authority where long-term financial obligations and public interests warrant it. Rural hospital districts—facing escalating financial pressures and mounting uncompensated care—now fall squarely into that category across multiple states.
The implications of this investment disparity extend far beyond hospital balance sheets. A financially stable hospital is essential for economic development (businesses won't locate in communities without healthcare access), resident retention (families need local healthcare services), employer recruitment (hospitals are often major employers in rural communities), and community vitality (hospital closure accelerates population decline). More than 180 rural hospitals have closed nationwide since 2005, and the trend is accelerating as financial pressures intensify. States cannot allow structural limitations in investment statutes to push hospital districts toward similar outcomes. Across rural America, hospital districts are working tirelessly to serve their communities despite operating in an environment where operational margins are razor-thin or negative. They need every available tool to ensure long-term sustainability—including access to the same investment strategies that private hospitals use to build financial resilience.
Join the Movement for Change
Leaders at Lexington Regional Health Center in Nebraska have recently engaged with their state senator to advocate for this legislative change, providing detailed financial modeling, constitutional analysis, and examples from states like Minnesota that have successfully modernized their investment statutes for governmental hospitals. Now it's time for hospital leaders in Nebraska and other affected states to join the effort.
The solution is straightforward: grant hospital districts the same investment authority that Minnesota and other progressive states have provided to their governmental hospitals. This requires legislative action to authorize hospital districts to invest in the full range of securities available to other healthcare organizations, clear fiduciary standards requiring professional management by registered investment advisers, appropriate governance frameworks ensuring oversight and risk management, and alignment with constitutional considerations while recognizing hospitals' unique mission and long-term obligations.
If you're a hospital district leader, board member, or CEO, reach out to your state senator and representative. Request a meeting to discuss this issue. Share the financial analysis showing the $40 million gap. Explain how investment restrictions are handicapping your ability to serve your community. Use the Minnesota statute as a proven model. If you're a community leader or concerned citizen, contact your legislators and let them know that hospital financial stability isn't just a healthcare issue—it's an economic development issue, a workforce issue, and a community vitality issue. If you're with a state hospital association, consider making this a priority advocacy item for your next legislative session. The data is compelling, the model exists in Minnesota, and the need is urgent. If you're in a state that already has progressive investment authority for hospital districts, consider sharing your experience with hospital leaders in other states who are fighting for the same authority.
The more voices speaking up across the country, the more likely we are to see change. One hospital in Nebraska has started the conversation—but it will take a chorus of voices across rural America to turn this into a nationwide movement for legislative reform.
This isn't about enriching hospitals. This is about survival. Rural hospitals are closing at an alarming rate across America. The communities left behind face devastating consequences: patients traveling hours for care, businesses avoiding the area, populations in decline, and community identity eroding. The $40 million gap over 20 years between what hospital districts with investment restrictions can achieve versus what hospitals with full investment authority can achieve isn't academic—it's the difference between keeping doors open and joining the 180+ rural hospitals that have closed since 2005.
If your state restricts hospital district investment authority, the clock is ticking. Time is of the essence. Rural communities cannot afford to lose their hospitals. Expanding investment authority is a critical step toward long-term sustainability. While this issue is complex, it is both necessary and aligned with the public interest—and a proven model already exists in Minnesota.
This issue affects hospital districts in multiple states across America. If you're a hospital board member, administrator, community leader, or concerned citizen, check your state's investment laws to determine whether your hospital district faces similar restrictions. Share this analysis with your state legislators and local representatives. Reference the Minnesota model (Statute 144.581) as a proven solution. Connect with other hospital leaders in your state who face the same challenge. Calculate your own numbers to determine what the investment gap is costing your hospital over 20 years. The time to act is now—before more rural hospitals join the 180+ that have closed since 2005.
Questions? Want to get involved in advocacy efforts? Contact your local hospital district or state hospital association to learn how you can help advance this critical legislation. Reach out to hospital leaders in states that have already modernized their investment authority to learn from their experience. Consider forming a coalition of hospital districts within your state to amplify your voice.
