# Presentation: 838778

## Impact of Critical Access Hospital Conversionon Other Rural HospitalsLaura Morlock, PhDDepartment 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, 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

## 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

## 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.

## Study Design

-   Clinical Performance

- Healthcare
- Market Forces

-       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 ChangesBalanced 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 ChangesBalanced 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 Changesfor 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 Changesfor 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****	****	****  .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**