Rural hospitals face challenges: New state tax credit could help

RUSSELLVILLE — Franklin County’s two hospitals face the same financial pressures confronting rural health care across Alabama even as they remain essential to emergency care, inpatient treatment and local jobs.

Administrators at Red Bay Hospital and Russellville Hospital say rising costs, lower reimbursement for Medicare patients, and workforce challenges are constant realities for small rural facilities serving older and uninsured patients.

At Red Bay Hospital, Administrator Sherry Jolley said expenses for supplies and wages have continued to climb while reimbursement has remained flat.

“Rising costs are the biggest issue,” Jolley said. “Our reimbursement is not rising, but our costs are.”

Jolley said Alabama ranks among the lowestreimbursed states for Medicare because of the state’s wage index, a formula which helps determine how much Medicare pays hospitals in different regions.

This hits rural facilities especially hard because they serve fewer patients than large urban systems, she said.

Red Bay cares for a significant number of Medicare and uninsured patients, which affects its budget.

“We see our share of uninsured patients,” Jolley said. “We also have a high share of Medicare patients, which is a good thing, but reimbursement is lower here than in other states.”

Despite financial pressure, Jolley said Red Bay Hospital is “actually very fortunate with staffing,” explaining they have kept a stable nursing workforce. She said voluntary RN turnover during the past year has been negligible.

The hospital has not relied heavily on travel nurses – temporary contract nurses brought in from other areas to fill staffing gaps — the way many rural facilities have, especially in nursing, she said.

Some support departments, particularly food services, have struggled to hire workers after fastfood businesses raised their wages, Jolley said.

Red Bay also operates swing beds, or rehabilitation beds, which allow patients to receive shortterm recovery care close to home rather than being transferred far away.

The hospital also receives referrals from outside Franklin County, making it a regional resource rather than only a local facility.

As a small hospital, Jolley said Red Bay does what it does “really well.”

Being part of the Huntsville Hospital Health System has been critical to Red Bay’s survival, she said.

Representatives from the system regularly go to Montgomery to advocate for reimbursement and other financial issues affecting Alabama hospitals, including the state’s wage index.

“If we were trying to exist on our own, it would be virtually impossible as a rural hospital,” Jolley said.

When patients need services Red Bay cannot provide, staff transfers them within the Huntsville hospital system. Helen Keller Hospital serves as a key partner for emergency transfers.

Lower reimbursement has not limited Red Bay’s core services, Jolley said, but it does make recruiting specialists more difficult in a rural area.

Looking ahead, Jolley said finances remain her biggest concern for the next several years.

Russellville Hospital Marketing Director Audrey Daniel said the Rural Hospital Investment Tax Credit program supports the broader community by strengthening access to health care close to home.

Russellville Hospital faces similar pressures as the county’s other rural provider.

Hospital Marketing Director Audrey Daniel said rural hospitals typically operate on very thin financial margins while caring for higher percentages of Medicare, Medicaid and uninsured patients.

At the same time, she said, rural hospitals must meet the same regulatory and compliance requirements as much larger facilities but with fewer staff and resources.

“One of the greatest challenges facing rural hospitals today is workforce recruitment and retention,” Daniel said.

Russellville competes with larger health systems which can offer higher salaries, sign-on bonuses and broader benefit packages, she said.

The challenge intensifies as urban hospitals and traveling nurse positions aggressively recruit experienced clinicians away from rural areas.

Daniel said Russellville continues to focus on creating a supportive, closeknit workplace where employees feel valued and connected to the community they serve.

Maintaining a strong local workforce, she said, is critical not only to patient care but also to the region’s economic stability.

“Rural hospitals like Russellville Hospital play a critical role in their communities, often serving as the only source of emergency and inpatient care for miles,” Daniel said.

Against this backdrop, Alabama has begun implementing a new Rural Hospital Investment Tax Credit to provide another source of support for facilities like Red Bay and Russellville.

The program allows eligible taxpayers to receive a dollar-for-dollar credit against their Alabama state tax liability for donations made to approved rural hospitals. This includes Alabama individuals and businesses that owe state income taxes, subject to annual limits set in the law.

In practical terms, a donor can give money to a local hospital and reduce their state tax bill by the same amount.

Reservations for 2026 credits opened Jan. 5 through the My Alabama Taxes system. Both Franklin County hospitals appear on the Alabama Department of Revenue’s official list of eligible facilities.

The Rural Hospital Investment Program Board reviews financial data submitted by hospitals and ranks facilities based on financial need. The board classifies Red Bay as Tier 1, the highestneed category statewide, and Russellville as Tier 2.

Tier rankings matter because if a donor gives through an approved third-party organization without naming a hospital, the organization allocates funds according to those tiers with Tier 1 hospitals receiving a larger share.

Donors may also designate a specific hospital if they prefer.

Jolley described the tax credit as “a godsend for rural hospitals” and “truly a win-win,” allowing donors to support their local hospital while reducing their state tax bill.

Daniel said the program lets taxpayers keep their money local instead of sending it to a general state fund.

“For rural hospitals like Russellville Hospital, this program is especially impactful,” Daniel said. “It helps provide muchneeded financial stability that can be used to support daily operations, invest in services, and address workforce challenges such as recruiting and retaining healthcare professionals,” she added.

Daniel said the program also supports local jobs and the broader community by strengthening access to care close to home.

The Legislature launched the program this month and authorized it for three years. After that period, it will be reevaluated.

A donor must first reserve a credit through the My Alabama Taxes portal. Once the reservation is made, there are 30 days to make the donation.

The hospital or an approved third-party organization must certify the donation within 30 days of receiving it and within 60 days of the reservation, whichever comes first.

Only after the donation is made and certified does the state issue the tax credit.

Individuals may claim up to $15,000 per year or $30,000 for married couples filing jointly.

Businesses, financial institutions, insurance companies and utilities may claim larger credits subject to percentage limits and caps tied to their state tax liability.

Unused credits may be carried forward for up to three years but may not be transferred to another taxpayer.

The state capped total credits at $20 million for 2026. Each eligible hospital may receive no more than $750,000 per year.

Jolley encouraged residents to review the program on the My Alabama Taxes website and said she is available to answer questions.

For information, residents may contact the Alabama Department of Revenue’s Economic Development and Tax Incentives division at 334353-9789.