Project Sponsorship

1. Impact of Critical Access Hospital Conversionon Other Rural HospitalsLaura Morlock, PhDDepartment of Health Policy and ManagementJohns Hopkins Bloomberg School of Public Health

2. 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

3. Research Team • Johns Hopkins Bloomberg School of Public Health Laura Morlock, PhD David Salkever, PhD Peter Pronovost, MD, PhD Marlene Miller, MD, MSc Ann Skinner, MSW Lilly Engineer, MD, MHA Cyrus Engineer, MHA, MHS Maureen Fahey, MLA Andrew Shore, PhD Rebecca Clark, BA Robin Newhouse, RN, PhD

4. 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 Maine Timothy McBride, PhD--Univ. of Missouri A. Clinton MacKinney, MD, MS--Mayo Clinic Mary Wakefield, PhD--George Mason Univ. Rebecca Slifkin, PhD--Univ. of North Carolina

5. 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.

6. Rural Hospitals Study Design Outcome Measures Federal Policy Legislation • Survival • Organizational & Management Strategies, including Conversion Healthcare Market Forces • Financial Viability • Clinical Performance

7. 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.

8. 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.

9. Source: American Hospital Association

10. Source: American Hospital Association

11. 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.

12. 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.

13. 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.

14. 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.

15. 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?

16. Objective of This Analysis • To examine how CAH conversions affected other hospitals in their service areas that did not convert to CAH status.

17. 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)

18. Sources of Data • Medicare Cost Reports • American Hospital Association Annual Surveys • Area Resource File • Dartmouth Atlas of Health Care

19. 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

20. 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

21. 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

22. Multi-Level Model Results:Predictors of Total Margin Variable Regression Coefficients P value Census population (in 1000s) .052 .000 Per capita income (in 1000s) .108 .094 Fiscal year (base 1996) 1997-2003 -0.850 to -3.643 all .000 Educational level (low) -1.393 .036 Type of reimbursement (PPS omitted) Rural Referral Center 2.259 .001 Critical Access Hospital 4.096 .000 Sole Community Provider 1.547 .001 Per cent beds in HRR CAH -0.397 .000 Rural Referral Center 0.001 .888 Sole Community Provider 0.001 .844 Total operating beds in HRR 0.002 .004 Rural-urban continuum code - 2.521 .000