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.     

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.     

Variations in Financial Performance Among Peer Groups of Critical Access Hospitals

CONTEXT: Among the large number of hospitals with critical access hospital (CAH) designation, there is substantial variation in facility revenue as well as the number and types of services provided. If these variations have material effects on financial indicators, then performance comparisons among all CAHs are problematic. PURPOSE: To investigate whether indicators of financial performance and condition systematically vary among peer groups of CAHs. METHODS: Suggestions from CAH administrators, a literature review, expert panel advice, and statistical analysis were used to create peer groups based on whether a CAH: (1) had less than $5 million, $5-10 million, or over $10 million in net patient revenue; (2) was owned by a government entity; (3) provided long-term care; and (4) operated a provider-based Rural Health Clinic. FINDINGS: Significant differences in financial performance and condition exist among CAH peer groups. CONCLUSIONS: CAHs should ensure that they use appropriate peer comparators when assessing their financial performance and condition. If quality, outcome, safety and access are affected by financial performance and condition, it may also be important for research in these areas to control for peer group differences among CAHs.     

Meaningful Use of Health Information Technology by Rural Hospitals

Purpose: This study examines the current status of meaningful use of health information technology (IT) in Critical Access Hospitals (CAHs), other rural, and urban US hospitals, and it discusses the potential role of Medicare payment incentives and disincentives in encouraging CAHs and other rural hospitals to achieve meaningful use. Methods: Data from the American Hospital Association (AHA) Annual Survey IT Supplement were analyzed, using t tests and probit regressions to assess whether implementation rates in CAHs and other rural hospitals are significantly different from rates in urban hospitals. Findings: Of the many measures we examined, only 4 have been met by a majority of rural hospitals: electronic recording of patient demographics and electronic access to lab reports, radiology reports, and radiology images. Meaningful use is even less prevalent among CAHs. We also find that rural hospitals lag behind urban institutions in nearly every measure of meaningful use. These differences are particularly large and significant for CAHs. Conclusion: The meaningful use incentive system creates many challenges for CAHs. First, investments are evaluated and subsidies determined after adoption. Thus, CAHs must accept financial risk when adopting health IT; this may be particularly important for large expenditures. Second, the subsidies may be low for relatively small expenditures. Third, since the subsidies are based on observable costs, CAHs will receive no support for their intangible costs (eg, workflow disruption). A variety of policies may be used to address these problems of financial risk, uncertain returns in a rural setting, and limited resources.     

A Comparative Study of Financial Data Sources for Critical Access Hospitals: Audited Financial Statements,the Medicare Cost Report,and the Internal Revenue Service Form 990

Purpose: Medicare Cost Reports (MCR), Internal Revenue Service Form 990s (IRS 990), and Audited Financial Statements (AFS) vary in their content, detail, purpose, timeliness, and certification. The purpose of this study was to compare selected financial data elements and characterize the extent of differences in financial data and ratios across the MCR, IRS 990, and AFS for a sample of nonprofit Critical Access Hospitals (CAHs). Methods: Line items from AFS of 47 CAHs were compared to data reported in the hospitals’ MCR and IRS 990s. Line items were based on 9 financial indicators commonly used to assess hospital financial performance. Findings: Of the indicators examined, the equity financing ratio most frequently matched between the 3 reports, while salaries and benefits to total expenses and debt service coverage were often different. Variances were driven by differences in individual account balances used to construct the ratios. Relative to AFS, cash was frequently lower on the IRS 990 while marketable securities and unrestricted investments were often higher. Other revenue and net income were consistently lower on the MCR and IRS 990, and depreciation was often higher on the MCR. The majority of total assets and fund balance (equity) values matched across the 3 reports, suggesting differences in classification among detailed accounts were more common than variances between the component totals (total assets, total liabilities, and fund balance). Conclusions: Health policy researchers should consider the impact of these variances on study results and consider ways to improve the availability and quality of financial accounting information.     

Quality Improvement Strategies and Best Practices in Critical Access Hospitals

ABSTRACT: Context: Critical access hospitals (CAHs) face many challenges in implementing quality improvement (QI) initiatives, which include limited resources, low volume of patients, small staffs, and inadequate information technology. A primary goal of the Medicare Rural Hospital Flexibility Program is to improve the quality of care provided by CAHs. Purpose: This article describes key quality improvement initiatives for a national sample of CAHs that are actively involved in implementing quality-related initiatives in collaboration with support hospitals and statewide organizations. Methods: Researchers conducted a national telephone survey of 72 CAHs and 2 in-depth case studies of CAHs. Findings: The survey and case studies demonstrate that many CAHs are successfully implementing QI activities, including patient safety initiatives, improvements in overall QI processes and peer review processes, and implementation of QI projects focused on treatment of 1 or more specific diseases. The CAHs are involved with multiple external organizations in these activities. The administrators of the 2 case study CAHs have made QI a priority for their hospitals; ensured that resources are available for QI activities; and worked with their support hospitals, statewide organizations, and other CAHs to develop and implement rural-relevant QI initiatives. Conclusions: Cost-based Medicare reimbursement has been a key factor in the ability of CAHs to fund additional staff, staff training, and equipment to improve patient care. The commitment of hospital leaders and key staff is a crucial factor in moving QI initiatives forward in CAHs.     

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.     

Financial performance monitoring of the technical efficiency of critical access hospitals: a data envelopment analysis and logistic regression modeling approach

From 1980 to 1999, rural designated hospitals closed at a disproportionally high rate. In response to this emergent threat to healthcare access in rural settings, the Balanced Budget Act of 1997 made provisions for the creation of a new rural hospital--the critical access hospital (CAH). The conversion to CAH and the associated cost-based reimbursement scheme significantly slowed the closure rate of rural hospitals. This work investigates which methods can ensure the long-term viability of small hospitals. This article uses a two-step design to focus on a hypothesized relationship between technical efficiency of CAHs and a recently developed set of financial monitors for these entities. The goal is to identify the financial performance measures associated with efficiency. The first step uses data envelopment analysis (DEA) to differentiate efficient from inefficient facilities within a data set of 183 CAHs. Determining DEA efficiency is an a priori categorization of hospitals in the data set as efficient or inefficient. In the second step, DEA efficiency is the categorical dependent variable (efficient = 0, inefficient = 1) in the subsequent binary logistic regression (LR) model. A set of six financial monitors selected from the array of 20 measures were the LR independent variables. We use a binary LR to test the null hypothesis that recently developed CAH financial indicators had no predictive value for categorizing a CAH as efficient or inefficient, (i.e., there is no relationship between DEA efficiency and fiscal performance).     

Choosing to convert to critical access hospital status

The authors profile facilities converting to critical access hospitals (CAHs) from 1998-2000, comparing characteristics of their communities, operations, and finances to those of other small rural providers. Counties where CAHs are located are more sparsely populated, but do not have substantially different sociodemographic profiles than other rural counties. Converting hospitals' acute daily census averaged well below the statutory limit of 15, but over one-half reduced unused bed capacity to meet CAH size limitations. The average case-mix adjusted Medicare cost per case was 16-percent higher for CAH converters than for other small hospitals and their financial ratios were substantially worse, although many other operating characteristics were similar.     

Technical efficiency of Critical Access Hospitals: an application of the two-stage approach with double bootstrap

The Critical Access Hospital (CAH) Program has offered Medicare cost-based reimbursement to small hospitals that meet certain eligibility criteria to improve their financial viability and quality of care. However, cost-based reimbursement has been associated with inefficiency in hospital operations. This study uses a two-stage approach and bootstrap procedures to examine the effects of environmental variables on the technical efficiency of CAHs. The two-stage approach with quality controls significantly improved statistical efficiency of parameter estimates in the second stage bootstrapped truncated regression relative to a similar model without quality controls. Overall, our results suggest that enhanced Medicare reimbursement may not have had detrimental effects on the technical efficiency of CAHs.     

Rural Relevant Quality Measures for Critical Access Hospitals

Purpose: To identify current and future relevant quality measures for Critical Access Hospitals (CAHs). Methods: Three criteria (patient volume, internal usefulness for quality improvement, and external usefulness for public reporting and payment reform) were used to analyze quality measures for their relevance for CAHs. A 6‐member panel with expertise in rural hospital quality measurement and improvement provided input regarding the final measure selection. Findings: The relevant quality measures for CAHs include measures that are ready for reporting now and measures that need specifications to be finalized and/or a data reporting mechanism to be established. They include inpatient measures for specific medical conditions, global measures that address appropriate care across multiple medical conditions, and Emergency Department measures. Conclusions: All CAHs should publicly report on relevant quality measures. Acceptance of a single consolidated set of quality measures with common specifications for CAHs by all entities involved in regulation, accreditation, and payment; a phased process to implement the relevant measures; and the provision of technical assistance would help CAHs meet the challenge of reporting.     

Patient Bypass Behavior and Critical Access Hospitals: Implications for Patient Retention

PURPOSE: To assess the extent of bypass for inpatient care among patients living in Critical Access Hospital (CAH) service areas, and to determine factors associated with bypass, the reasons for bypass, and what CAHs can do to retain patients locally. METHODS: Six hundred and forty-seven subjects, aged 18 years and older, who had been admitted to a hospital for inpatient care in the past 12 months and lived within 15-20 miles of 25 randomly selected CAHs were surveyed by phone during the period from early February through late July 2005. Survey questions included demographic characteristics, general health status, travel time/distance to health care, questions on satisfaction with local health services, bypass behavior, and solicited suggestions on how local hospitals could retain patients locally. FINDINGS: About 60% of surveyed patients bypassed their local CAHs for inpatient care including 16% who were referred to another facility by the local CAH/health care providers and would use the local hospital if needed services were available. Bypass rates ranged from 16% to 70% across the sampled CAHs. Factors associated with bypass included age, income, satisfaction with the local hospital, and traveling distance/time. Lack of specialty care, limited services, and the quality/reputation of local services/doctors were most frequently mentioned as reasons why patients bypass local CAHs. CONCLUSIONS: The bypass rate for sampled CAHs is considerably higher than the 20%-50% bypass rates documented in the literature for all hospitals in general using discharge/administrative data. The sizeable variation in bypass rates across CAHs suggests that the appropriate response/fix should come from the facility/community levels.     

Translating Research Into Practice: Voluntary Reporting of Medication Errors in Critical Access Hospitals

CONTEXT: Low service volume, insufficient information technology, and limited human resources are barriers to learning about and correcting system failures in small rural hospitals. PURPOSE: This paper describes the implementation of and initial findings from a voluntary medication error reporting program developed by the Nebraska Center for Rural Health Research (NCRHR) to overcome these barriers in 6 Nebraska critical access hospitals (CAHs). METHODS: Participating Nebraska CAHs mailed copies of medication error reports to the NCRHR monthly for entry into a database. Quarterly summaries enabled each CAH to compare its reports by severity, type, phase of the medication use process, contributing factors, and causes to those of its peers and MEDMARX, a national medication error reporting program. Workshops emphasized learning from the reported errors by identifying system sources of variation in medication use and initiating change to achieve best practices. FINDINGS: Similar to MEDMARX, 99% of medication errors reported by 6 Nebraska CAHs were not harmful, reported errors most often originated in the administration phase, and the most common error type was omission. The CAHs reported significantly smaller proportions of "near miss" errors and errors originating in the prescribing phase than in MEDMARX. CONCLUSIONS: By collaborating with CAHs, an academic medical center, and a national reporting program, the NCRHR is translating the Institute of Medicine's recommendation for voluntary error reporting into practices that allow CAHs to learn about and improve their medication use systems. However, limited presence of pharmacists in CAHs is a barrier to implementing double checks and learning from system failures in the medication use system.     

Measuring the Performance of Critical Access Hospitals in Missouri Using Data Envelopment Analysis

Purpose: Rural hospitals are critical for access to health care, and for their contributions to local economies. However, many rural hospitals, especially critical access hospitals (CAHs) need to strive for more efficiency for continued viability. Routinely evaluating their performance, and providing feedback to management and policy makers, is therefore important. Method: Three measures of relative efficiency are estimated for CAHs in Missouri using an Input‐oriented Data Envelopment Analysis with a variable returns to scale assumption and compared with the efficiency of other rural hospitals in Missouri using Banker's F‐test. Using 30‐day readmission rate as a measure of quality, CAHs are evaluated against efficiency‐quality dimensions. Findings: CAHs in Missouri had a slight decline in average technical efficiency, but they had a slight gain in average cost efficiency in 2009 compared to 2006. More than half of the CAHs were neither economically nor technically efficient in both years. The relative efficiency of other rural hospitals was statistically higher than that of CAHs in Missouri. Conclusions: This study validates the finding of relative inefficiency of CAHs compared to other hospitals paid under the Prospective Payment System at a state level (Missouri). However, with considerable variation in socioeconomic as well as health care access indicators across states, a relative efficiency frontier may not be the only relevant indicator of value for the evaluation of the performance of CAHs. Access to health care and the impact on the local economy provided by these CAHs to the community are also critical indicators for more comprehensive performance evaluation.     

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.     

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.     

Intensive Care in Critical Access Hospitals

CONTEXT: Although critical access hospitals (CAHs) have limitations on number of acute care beds and average length of stay, some of them provide intensive care unit (ICU) services. PURPOSE: To describe the facilities, equipment, and staffing used by CAHs for intensive care, the types of patients receiving ICU care, and the perceived impact of closing the ICU on CAH staff and the local community. METHODS: A semistructured interview of directors of nursing at CAHs that provide intensive care services. RESULTS: Two thirds of CAHs that provide intensive care do so in a distinct unit. Most have continuous or computerized electrocardiography and ventilators. Other ICU equipment common in larger hospitals was reported less frequently. Nurse:patient ratio ranged from 1:1 to 1:3, and some or all nursing staff have advanced cardiac life support certification. Most CAHs admit patients to the ICU daily or weekly, primarily treating cardiac, respiratory, gastrointestinal, endocrine, and drug- or alcohol-related conditions. ICUs are also used for postsurgical recovery. Respondents felt that closure of the ICU would be burdensome to patients and families, result in lost revenue, negatively impact staff, and affect the community's perception of the hospital. CONCLUSIONS: Intensive care services provided by CAHs fall along a continuum, ranging from care in a unit that resembles a scaled-down version of ICUs in larger hospitals to care in closely monitored medical-surgical beds. Nurse to patient ratio, not technology, is arguably the defining characteristic of intensive care in CAHs. Respondents believe these services to be important to the well-being of the hospital and of the community.     

Understanding Employers’ Hiring Intentions in Relation to Qualified Workers with Disabilities: Preliminary Findings

Introduction As part of the planning process for a larger survey study to examine factors affecting employers’ intention to hire and hiring of people with disabilities, a series of three semi-structured focus groups were held with key hiring decision makers, such as Human Resources directors, Chief Operating Officers (COOs), or Chief Executive Officers (CEOs) of small, medium, and large Seattle area companies. Aim The chief goals of the focus groups were to elicit and refine the participants’ beliefs, normative influences, and perceived control relative to hiring workers with disabilities. Method Narrative data obtained from the focus group discussion were examined using the Theory of Planned Behavior (TPB) to identify themes expressed by the focus group participants within the context of company size. Results Themes did vary by company size, but a prevailing concern across all companies related to questions about the efficiency/effectiveness of contact with vocational rehabilitation agencies. For both small- and mid-sized companies, there was a belief that people with disabilities could not do the work or were somehow less qualified. For large companies, convincing departmental and team managers that outreaching workers with disabilities would be a worthwhile hiring practice remained a challenge. Conclusion The themes derived from this study can be used to help occupational rehabilitation professionals develop educational and marketing interventions to improve employers’ attitudes toward hiring and retaining individuals with disabilities.