Impact of Critical Access Hospital Conversionon Other Rural Hospitals

Laura Morlock, PhDDepartment of Health Policy and Management

Johns Hopkins Bloomberg School of Public Health

Project Sponsorship This analysis is part of a larger study:

Rural Hospitals: Environment, Strategy, and Viability (RO1 HS011444)

Funded by the Agency for Healthcare Research and Quality

Research Team Johns Hopkins Bloomberg School of Public Health

Laura Morlock, PhD David Salkever, PhDPeter Pronovost, MD, PhD Marlene Miller, MD, MScAnn Skinner, MSW Lilly Engineer, MD, MHACyrus Engineer, MHA, MHS Maureen Fahey, MLAAndrew Shore, PhD Rebecca Clark, BARobin Newhouse, RN, PhD

Research Team cont. Virginia Commonwealth University

Stephen Mick, PhD and team Rural Policy Research Institute (RUPRI)

Keith Mueller, PhD--Univ. of Nebraska Andrew Coburn, PhD--Univ. of Southern MaineTimothy McBride, PhD--Univ. of MissouriA. Clinton MacKinney, MD, MS--Mayo ClinicMary Wakefield, PhD--George Mason Univ.Rebecca Slifkin, PhD--Univ. of North Carolina

Overall Project Objective

To assess the impact of Federal policy changes and healthcare market forces on the organizational and management strategies, financial viability and clinical performance of U.S. rural hospitals.

• Clinical Performance

HealthcareMarket Forces

Rural Hospitals

Outcome Measures

Federal Policy Legislation

• Financial Viability

• Survival

• Organizational & Management Strategies, including Conversion

Study Design

Background and Significance:Rural Hospitals

Approximately 50 million people in the U.S. live in rural areas

Rural communities are served by about 2000 rural hospitals.

Residents of rural areas are less healthy than urban residents on most measures of health status.

Rural hospitals play a critical role in their communities by:– Providing access to health care;– Serving as a hub for public health, wellness, and social services;– Providing jobs, recruiting health practitioners, making

communities more attractive places to live and work.

Background and Significance:Viability of Many Rural Hospitals is in Question

Compared to their urban counterparts, rural hospitals:– are usually more geographically isolated,– are in smaller communities,– tend to be more dependent on Medicare funding,– have a higher proportion of outpatient services.

Like their urban counterparts, rural hospitals:– face workforce shortages for nurses and other

professionals.

Source: American Hospital Association

Source: American Hospital Association

Background: Payment Policy ChangesBalanced Budget Act of 1997

Made the most far-reaching revisions to the Medicare program since its inception.

Was in response to what was viewed as an impending health care crisis: – double digit growth in Medicare reimbursements– estimated insolvency of the Medicare Trust Fund

by 2008.

Background: Payment Policy ChangesBalanced Budget Act of 1997 (cont.) The BBA sharply reduced inpatient payments, to be

phased in during 1998-2002. Implemented prospective payment methods for:

– Hospital outpatient care– Other ambulatory care services– Skilled nursing care– Home health care

Reduced payments to hospitals serving disproportionate shares of Medicaid and nonpaying patients.

BBRA and BIPA restored about $48 billion in proposed cuts.

Background: Payment Policy Changesfor Small Rural Hospitals

The BBA legislation also created a new hospital category—Critical Access Hospital—which can receive cost-based inpatient and outpatient payments from Medicare.

The “distance requirements” for qualifying: hospitals had to be at least 15 miles by secondary road and 35 miles by primary road from the next nearest hospital, or be declared a “necessary provider” by the State.

Background: Payment Policy Changesfor Small Rural Hospitals

Subsequent legislation and regulations made the program even more beneficial for rural hospitals with fewer than 26 acute care beds.

The number of CAHs grew rapidly from 1997 through 2006.

Currently there are approximately 1288 CAHs. Most have qualified through the “necessary

provider” criterion. Approximately two-thirds of CAHs are 16-34 road

miles from the next nearest hospital, and about 15% are within 15 or fewer miles.

Key Policy Questions How do the various available

programs interact to protect rural hospitals? What hospitals are left out of these programs?

How can payment strategies be further designed to recognize the special circumstances of rural hospitals?

Objective of This Analysis

To examine how CAH conversions affected other hospitals in their service areas that did not convert to CAH status.

Study Design Study sample: Fifty per cent regionally

stratified national sample of rural hospitals in the U.S. with Medicare Cost Report data (N= 821), excluding hospitals that merged during the study time period.

Time Frame: 1996-2003 Outcome variable: Financial status as

measured by Total Margin (Net income/Total revenues)

Sources of Data

Medicare Cost Reports American Hospital Association Annual Surveys Area Resource File Dartmouth Atlas of Health Care

Independent (Predictor) Variable

Per cent of beds in the Hospital Referral Region (HRR) that are CAH beds

Sources of data: Dartmouth Atlas of Health Care and the Medicare Cost Reports

Control Variables County Variables (ARF)

– Census population– Per capita income– Educational level– Rural-urban continuum code

Hospital Referral Region Variables– Total beds in operation– Per cent of operating beds in Rural Referral Center, Sole Community

Provider and PPS hospitals Type of hospital Medicare reimbursement

– Rural Referral Center, CAH, Sole Community Provider, PPS Fiscal Year

– 1996 (base year) -- 2003

Methods of Analysis

Three level hierarchical model– XT mixed model using STATA

Repeated measures of hospitals over time Random effects (random intercept) model Adjusted for clustering by state

Multi-Level Model Results:Predictors of Total Margin

Variable Regression Coefficients P value

Census population (in 1000s) .052 .000Per capita income (in 1000s) .108 .094Fiscal year (base 1996)

1997-2003 -0.850 to -3.643 all .000Educational level (low) -1.393 .036Type of reimbursement (PPS omitted) Rural Referral Center 2.259 .001

Critical Access Hospital 4.096 .000Sole Community Provider 1.547 .001

Per cent beds in HRRCAH -0.397 .000 Rural Referral Center 0.001 .888Sole Community Provider 0.001 .844

Total operating beds in HRR 0.002 .004Rural-urban continuum code - 2.521 .000