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.