Impact of Conversion to Critical Access Hospital Status for Oklahoma''s Rural Hospitals

CONTEXT: The Medicare Rural Hospital Flexibility Grant Program established a new hospital category, the Critical Access Hospital, designed to provide financial stability to small rural hospitals that were losing money after changes in the Prospective Payment System implemented by Medicare. PURPOSE: This article describes the impact of conversion to Critical Access Hospital (CAH) status for 15 small rural hospitals in Oklahoma. Objectives of the study were to identify how conversion to CAH affected hospital utilization and finances for the first year after conversion. METHODS: A telephone survey was used to collect information from hospital administrators. Fifteen of 16 eligible hospitals participated in the study. FINDINGS: In general, services and patient census declined slightly with conversion to CAH. All 15 hospitals had reported losses prior to conversion, totaling $6,985,033. Ten hospitals reported losses after conversion. After converting to CAH status, the hospitals reported total losses of $3,094,547. The hospitals had a net change of $4,293,040. CONCLUSIONS: Most of the 15 study hospitals greatly improved their financial situation in the first year after conversion to CAH status, but in aggregate still operated at a loss.     

Medicare's fee schedule for hospital outpatient care

Medicare's hospital outpatient prospective payment system (OPPS) went live on August 1, 2000, after a decade of developmental work. The new system introduced a fee schedule that replaced the cost-related methods that Medicare previously used to reimburse various hospital outpatient services. Hospitals are now paid predetermined rates or fees based on the Ambulatory Patient Classification (APC) groups assigned to the services that Medicare patients receive during outpatient encounters. The new system aims to simplify Medicare's intricate cost-based reimbursement policies, improve hospital efficiency, ensure that payments are sufficient to compensate hospitals for reasonable Medicare costs, and reduce Medicare coinsurance amounts for beneficiaries. Implementation of OPPS-related administrative and operational changes has been a major challenge for hospitals.     

Economic Impact of the Critical Access Hospital Program on Kentucky's Communities

Context: In 1997, the Medicare Rural Hospital Flexibility Grant Program created the Critical Access Hospital (CAH) Program as a response to the financial distress of rural hospitals. It was believed that this program would reduce the rate of rural hospital closures and improve access to health care services in rural communities. Objective: The objective of this paper is to analyze the economic impact of the CAH Program on Kentucky's communities. Methods: Both an economic input‐output model and a quasi‐experimental control group method are used in this research paper. While the analysis using the input‐output model uses data from the year 2006, the analysis using the quasi‐experimental control group method uses data from 1989 to 2006. Conclusion: The results indicate that the rural counties where a CAH was adopted did appear to benefit in economic terms relative to those that did not have a CAH.     

Factors Associated with Iowa Rural Hospitals' Decision to Convert to Critical Access Hospital Status

ABSTRACT:  Context: The Balanced Budget Act (BBA) of 1997 allowed some rural hospitals meeting certain requirements to convert to Critical Access Hospitals (CAHs) and changed their Medicare reimbursement from prospective to cost-based. Some subsequent CAH-related laws reduced restrictions and increased payments, and the number of CAHs grew rapidly. Purpose: To examine factors related to hospitals' decisions to convert and time to CAH conversion. Methods: Eighty-nine rural hospitals in Iowa were characterized and observed from 1998 to 2005. Cox proportional hazards models were used to identify the determinants of time to CAH conversion. Findings: T-test and one-covariate Cox regression indicated that, in 1998, Iowa rural hospitals with more staffed beds, discharges, and acute inpatient days, higher operating margin, lower skilled swing bed days relative to acute days, and located in relatively high density counties were more likely to convert later or not convert before 2006. Multiple Cox regression with baseline covariates indicated that lower number of discharges and average length of stay (ALOS) were significant after controlling all other covariates. Conclusion: Iowa rural hospitals' decisions regarding CAH conversion were influenced by hospital size, financial condition, skilled swing bed days relative to acute days, length of stay, proportion of Medicare acute days, and geographic factors. Although financial concerns are often cited in surveys as the main reason for conversion, lower number of discharges and ALOS are the most prominent factors affecting rural hospitals' decision on when to convert.     

The Role of Critical Access Hospital Status in Mitigating the Effects of New Prospective Payment Systems Under Medicare

This article examines rural hospitals that potentially qualify as critical access hospitals (CAH) and identifies facilities at substantial financial risk as a result of Medicare's expansion of prospective payment systems (PPS) to nonacute settings. Using Health Care Financing Administration (HCFA) cost reports from the federal year ending Sept. 30, 1996, combined with county-level sociodemographic data from the Area Resource File (ARF), characteristics of potential CAHs were identified and their finances analyzed to determine whether they could benefit from the cost-based reimbursement rules applicable to CAH status. Rural hospitals were identified as potential CAHs if they met a combination of federal and state criteria for necessary providers. Rural facilities were classified as "at risk" if they had poor financial ratios in conjunction with high levels of dependence on outpatient, home-care or skilled nursing services. Almost 30 percent of all rural hospitals were identified as potential CAHs. Ninety percent of potential CAH facilities were identified as "at risk" by at least one of five possible risk criteria, and one-third were identified by at least three. Of those classified "at risk," 48 percent might not benefit from conversion to CAH because their inpatient Medicare reimbursement would likely be less under CAH payment rules than under their current PPS payment rules. Many potential CAHs were doing well under inpatient PPS because they were sole community hospitals (SCH) and were therefore eligible for special adjustments to the PPS rates. The Rural Hospital Flexibility Act would be more beneficial to the population of isolated rural hospitals if those eligible for both CAH and SCH status were given the option of retaining their SCH inpatient payment arrangements while still qualifying for outpatient cost-based reimbursement.     

The Financial Performance of Rural Hospitals and Implications for Elimination of the Critical Access Hospital Program

Purpose: To compare the financial performance of rural hospitals with Medicare payment provisions to those paid under prospective payment and to estimate the financial consequences of elimination of the Critical Access Hospital (CAH) program. Methods: Financial data for 2004‐2010 were collected from the Healthcare Cost Reporting Information System (HCRIS) for rural hospitals. HCRIS data were used to calculate measures of the profitability, liquidity, capital structure, and financial strength of rural hospitals. Linear mixed models accounted for the method of Medicare reimbursement, time trends, hospital, and market characteristics. Simulations were used to estimate profitability of CAHs if they reverted to prospective payment. Findings: CAHs generally had lower unadjusted financial performance than other types of rural hospitals, but after adjustment for hospital characteristics, CAHs had generally higher financial performance. Conclusions: Special payment provisions by Medicare to rural hospitals are important determinants of financial performance. In particular, the financial condition of CAHs would be worse if they were paid under prospective payment.     

Commercial insurers and all-payer regulation. Evidence on hospitals' responses to financial need.

This study explores commercial insurers' claims about cost-shifting in the broader context of hospitals' responses to revenue needs. It relies on hospital survey data from 1980 and 1982, a period that pre-dates Medicare's Prospective Payment System (PPS) for hospitals. While we find that limited amounts of cost-shifting occur, evidence does not support the notion that it is a perfect safety valve to control financial status. In addition, all-payer rate-setting does not appear to be related to hospitals' ability to shift costs. Instead, inpatient rate controls cause hospitals to contain costs, seek greater outpatient revenues and accept lower margins. Are the financial 'stresses' associated with PPS sufficient enough to kick off renewed concerns about cost-shifting? Some aggregate data from the PPS-era indicates that lower growth in Medicare payments has not resulted in cost-shifting on a widespread basis.     

Repricing specialty hospital outpatient services using ambulatory surgery center prices

This article explores whether Medicare pays more for the same outpatient services provided in an acute specialty hospital than in an ambulatory surgery center (ASC). How financially dependent a specialty hospital is on ASC-eligible services is also investigated. Medicare outpatient claims in 43 orthopedic and 12 surgical specialty hospitals in 2004 were repriced using ASC pricing software. Payments for the same surgical procedure were 43 and 64 percent higher in specialty surgical and orthopedic outpatient departments, respectively, compared with simulated ASC payments. Non-ASC-eligible outpatient services were 18-35 percent of all Medicare outpatient payments varying by type of specialty hospital.     

Effect of Critical Access Hospital Conversion on Patient Safety

Background. The Medicare Rural Hospital Flexibility Program of the 1997 Balanced Budget Act allowed hospitals meeting certain criteria to convert to critical access hospitals (CAH) and changed their Medicare reimbursement mechanism from prospective payment system (PPS) to cost-based.
Objective. To examine the impact of CAH conversion on hospital patient safety.
Data Source. Secondary data on hospital patient safety indicators (PSIs), hospital CAH status, patient case-mix, and market variables, for 89 Iowa rural hospitals during 1997–2004.
Study Design. We employed quasi-experimental designs that use both control groups and pretests. The hospital-year was the unit of analysis. We used generalized estimating equations logit and random-effects Tobit models to assess the effects of CAH conversion on hospital patient safety. The models were adjusted for patient case-mix and market variables. Sensitivity analyses, which varied by sample and statistical model, were used to examine the robustness of our findings.
Data Extraction Methods. PSIs were computed from Iowa State Inpatient Databases (SIDs) using Agency for Healthcare Research and Quality indicators software. Hospital CAH status was extracted from Iowa Hospital Association. Patient case-mix variables were extracted from Iowa SIDs. Market variables came from Area Resource File (ARF).
Principal Findings. CAH conversion in Iowa rural hospitals was associated with better performance of risk-adjusted rates of iatrogenic pneumothorax, selected infections due to medical care, accidental puncture or laceration, and composite score of four PSIs, but had no significant impact on the observed rates of death in low-mortality diagnosis-related groups (DRGs), foreign body left during procedure, risk-adjusted rate of decubitus ulcer, or composite score of six PSIs.
Conclusion. CAH conversion is associated with enhanced performance of certain PSIs.     

Costing of clinical services in rural district hospitals in northern Vietnam

Objectives: This study aimed to estimate and analyse the “actual” unit cost of providing key clinical services in selected rural district hospitals in the North of Vietnam. It also examined the relationship between actual costs and the levels of cost covered by the corresponding user fees paid by patients. Methods: This was a facility‐based costing study which estimates the costs of health care services from the perspective of the service providers. Three rural district hospitals from three provinces in the North of Vietnam were purposively selected for this study. The “step‐down” approach was applied. Results: There was little difference in the costs of an outpatient visit across the hospitals, but the costs of an operation and an inpatient day varied considerably. In terms of cost structure, personnel costs accounted for the highest share of total cost of the clinical services. The shares of operating cost were considerable while depreciation of buildings/equipments made up a small “proportion”. The study results revealed that the user fee levels were much lower than the actual costs of providing the corresponding services. The present study highlights the importance of costing data for hospital planning and management. Copyright © 2009 John Wiley & Sons, Ltd.     

Are the CMS Hospital Outpatient Quality Measures Relevant for Rural Hospitals?

Context: Quality measures focused on outpatient settings are of increasing interest to policy makers, but little research has been conducted on hospital outpatient quality measures, especially in rural settings. Purpose: To evaluate the relevance of Centers for Medicare and Medicaid Services’ (CMS) outpatient quality measures for rural hospitals, including Critical Access Hospitals. Methods: Researchers analyzed Medicare hospital outpatient claims and Hospital Compare outpatient quality measure data for rural hospitals to assess the volume of conditions addressed by the measures in rural hospitals. A literature review and information from national quality organizations were used to assess the external and internal usefulness of the measures for rural hospitals. A panel of rural hospital quality experts reviewed the measures and provided additional input about their usefulness and data collection issues in rural hospitals. Results: The rural relevant CMS outpatient measures include most of the Emergency Department (ED) measures. The outpatient surgical measures are relevant for the majority of rural hospitals providing outpatient surgery. Several measures were not selected as relevant for rural hospitals, including the outpatient imaging and condition‐specific measures. Conclusions: To increase sample sizes for smaller rural hospitals, CMS could combine data for similar inpatient and outpatient measures, use composite measures by condition, or use a longer time period to calculate measures. A menu of outpatient measures would allow smaller rural hospitals to choose relevant measures depending on the outpatient services they provide. Global measures and care coordination measures would be useful for quality improvement and have sufficient sample size to allow reliable measurement in smaller rural hospitals.     

Prospective payment system and other effects on post-hospital services

The effects of the prospective payment system and other factors on the use of post-hospital services were investigated for four groups of diagnostically related Medicare discharges. Effects on specific services and total Medicare payments were analyzed at the beneficiary level using a Tobit regression technique. The utilization data base consisted of more than 30,000 discharge episode records for the years 1981-86. The post-hospital period for each Medicare beneficiary encompassed the 60 days following discharge from the hospital. Influences on both the level and timing of health care services during this period were appraised. The influence of the prospective payment system was measured through the financial impact and risk that it imposed on the discharging hospital.     

Medicare graduate medical education funding and rural hospitals

To assess the importance of medical residents to rural hospitals, and to predict the possible effect of reductions in Medicare graduate medical education (GME) payments, data from Medicare hospital cost reports and from a telephone survey of rural hospitals with residency programs are analyzed. In prospective payment system year 11, 70 rural hospitals received more than $80 million in Medicare GME payments. The presence of rural training programs enhanced staff physician recruitment and retention and led to increased numbers of physicians settling in communities surrounding the facilities. Many survey respondents felt that elimination of GME funds would results in downsizing or outright elimination of their training programs. The results support the contention that rural training programs are important to hospitals and their surrounding communities and provide an essential component of the physician supply pipeline to rural areas.     

A rural crossroad

The critical access hospital program is one of the few positive things for hospitals to come out of the 1997 Balanced Budget Act. It has meant salvation for the nearly 1,200 hospitals that have received the designation, and enables them to invest in facility upgrades, new equipment and additional staff. But a revamped Medicare managed care initiative threatens their payments and the Centers for Medicare & Medicaid Services and the Medicare Payment Advisory Program are taking a hard look at the program's costs. Some observers fear changes could be proposed that would weaken the CAH program.     

Financial Indicators for Critical Access Hospitals

CONTEXT: There is a growing recognition of the need to measure and report hospital financial performance. However, there exists little comparative financial indicator data specifically for critical access hospitals (CAHs). CAHs differ from other hospitals on a number of dimensions that might affect appropriate indicators of performance, including differences in Medicare reimbursement, limits on bed size and average length of stay, and relaxed staffing rules. PURPOSE: To develop comparative financial indicators specifically designed for CAHs using Medicare cost report data. METHODS: A technical advisory group of individuals with extensive experience in rural hospital finance and operations provided advice to a research team from the University of North Carolina at Chapel Hill. Twenty indicators deemed appropriate for assessment of CAH financial condition were chosen and formulas determined. Issues 1 and 2 of the CAH Financial Indicators Report were mailed to the chief executive officers of 853 CAHs in the summer of 2004 and 1,092 CAHs in the summer of 2005, respectively. Each report included indicator values specifically for their CAH, indicator medians for peer groups, and an evaluation form. FINDINGS: Chief executive officers found the indicators to be useful and the underlying formulas to be appropriate. The multiple years of data provide snapshots of the industry as a whole, rather than trend data for a constant set of hospitals. CONCLUSIONS: The CAH Financial Indicators Report is a useful first step toward comparative financial indicators for CAHs.     

Factors associated with the provision of uncompensated care in Pennsylvania hospitals

Data from 190 Pennsylvania hospitals in 1995 were used in regression analysis of the determinants of uncompensated care and profitability. Uncompensated care as a percentage of operating expenses was negatively related with hospital size and positively associated with obstetrical services emphasis, emergency visit mix, area unemployment rate, and sole community hospital status. Hospital profitability was not associated with uncompensated care; it was negatively associated with HMO penetration, Medicare and Medicaid share of admissions and religious ownership; and it was positively associated with medium size. Pennsylvania hospitals may have been shielded from the financial burdens of uncompensated care by the availability of funds from other sources that may not be available in the future. Consequently, unless new sources of funding are developed or insurance coverage expanded, financial pressures from providing uncompensated care may cause hospitals to face the dilemma of abandoning uninsured patients or risking financial insolvency.     

Vulnerability of rural hospitals to Medicare outpatient payment reform

Because the Balanced Budget Act (BBA) of 1997 requires implementation of a Medicare prospective payment system (PPS) for hospital outpatient services, the authors evaluated the potential impact of outpatient PPS on rural hospitals. Areas examined include: (1) How dependent are rural hospitals on outpatient revenue? (2) Are they more likely than urban hospitals to be vulnerable to payment reform? (3) What types of rural hospitals will be most vulnerable to reform? Using Medicare cost report data, the authors found that small size and government ownership are more common among rural than urban hospitals and are the most important determinants of vulnerability to payment reform.     

Medicare's disproportionate share adjustment and the cost of low-income patients

We investigated whether or not hospitals have higher costs for inpatient care provided low-income Medicare patients, after controlling for other cost differences already accounted for by Medicare payments. We estimated differences in Prospective Payment System-adjusted costs and outlier-adjusted length of stay for low-income patients relative to matching non-low-income cases from the same hospital in 85 high-volume diagnosis-related groups (N = 1,247,670). Low-income Medicare patients do not have costlier hospital stays, although their stays are 2.5% longer. We conclude that disproportionate share payments are not justified on grounds of higher treatment costs.     

How Does Degree of Rurality Impact the Provision of Surgical Services at Rural Hospitals?

ABSTRACT:  Context: Rural residents frequently have decreased access to surgical services. Consequences of this situation include increased travel time and financial costs for patients. There are also economic implications for hospitals as they may lose revenue when patients leave the area in order to obtain surgical services. Rural communities vary in size and distance from more populated centers. Since rural hospitals are located in varying types of rural communities, they likely differ with regard to the provision of surgical care. Purpose: To describe the differences between hospitals located in smaller versus larger rural areas regarding the provision of surgical care. Methods: A 12-item survey instrument based on one previously used in a pilot study was mailed to a national random sample of rural hospital administrators (n = 233). Rural location was determined using rural-urban commuting area codes. Findings: One hundred and eleven surveys were received, yielding a 48% response rate. Hospitals in larger rural areas had an average of 9 surgeons compared to 1 at hospitals in smaller rural areas. More administrators at hospitals located in larger rural areas viewed the ability to provide surgical care as very important to the financial viability of their hospital. Conclusions: Among rural hospitals located in communities of varying sizes there are significant differences in how surgical services are delivered and the financial importance of providing surgical care. Administrators at hospitals located in larger rural areas, more than in smaller ones, report financial reliance on their ability to offer surgical care and have significantly more resources available to do so.