Chapter 5: Hospital Conversion Experiences

Rural Hospital Flexibility Program Tracking Project

Chapter 5
Hospital Conversion Experiences

Walt Gregg, M.A., M.P.H.
Ira Moscovice, Ph.D.
Astrid Knott, Ph.D.
Jeff Stensland, Ph.D.
University of Minnesota

Introduction

This chapter provides a first hand account of the experiences of 24 rural hospitals as they made the transition to Critical Access Hospitals (CAHs) and established working relationships with support hospitals, other area providers and the communities in which they operated. In many respects these 24 facilities, although operating in twelve different states and in some cases in widely differing communities, share many similarities. The purpose of this chapter is two fold. The first purpose is to describe the similarities and differences of the 24 hospitals before, during and after the transition process. The second purpose is to identify lessons learned that might prove helpful to facilities considering conversion, those that are still in the process of conversion, and for the many stakeholders that will play an important part in this experience across the rural areas of the nation.

Background

Changes in the health care industry coupled with health, economic, social and political factors intrinsic to specific rural communities continue to influence the future of rural hospitals. Policy makers and providers alike remember the massive reverberations that echoed through the rural hospital sector in the 1970s and 1980s, resulting in the closure of hundreds of hospitals. In response, both federal and state agencies were created to monitor the rural health infrastructure of the country and to identify strategies and programs that would avoid a recurrence of those times.

The experiences of the stakeholders invested in the continued existence of rural hospitals as viable health care providers are numerous. The number of people involved both internally within the facility and externally within the market of the hospital, the range of institutional relationships developed and the large stakes involved in an organizational transition make understanding the CAH decision making process a major challenge.

The information provided in this chapter is based mostly on primary data obtained through key respondent interviews and also on secondary data gleaned from CAH applications, Health Care Financing Administration (HCFA) records and the (American Hospital Association) AHA data guide. By its very nature, key informant data reflect opinion and are not necessarily representative of the organizations or communities involved. Whenever possible, we have attempted to base conclusions on the responses from multiple sources.

The CAH Sample

As a group, the 24 CAHs site-visited for the project by the Tracking Project team share a number of common characteristics ranging from operational environments, organizational arrangements and financial condition to length of time as a CAH, size and organizational performance. Grandfathered Rural Primary Care Hospitals (RPCHs) and Montana Assistance Facilities (MAFs) were excluded from site selection to get a better sense of provider responses to the Rural Hospital Flexibility Project (RHFP). This resulted in over 90 percent of the CAHs having a year or less in operations prior to the site visit (Table 1a). The majority of the sample of CAHs had suffered significant financial losses prior to conversion to a CAH (Figure 1). The sampling methodology discussed above needs to be kept in mind when considering the descriptive data results. For example, non-Essential Access Community Hospital Program states would have a greater learning curve than EACH states in the implementation of a statewide program. Greater learning curves most likely imply less timely technical assistance at the outset of the program. It is reasonable to expect that most of the early CAH converters would be those for which the benefits were clear (e.g., stem financial losses and make as few changes as necessary to qualify).

To better understand the circumstances in which the study hospitals were operating and the strategies they may tend to undertake, Figure 2 provides a profile of several hospital and market characteristics of the sample of CAHs. (See Table 1a and Table 1b for hospital data profiles.)

Management Contracts

Almost two-thirds of the hospitals reported having a management contract in place and a few reported serial contracts (i.e., switching firms or trying to operate without management contracts for a while, then switching back). Given the financial difficulties facing these facilities, as well as their problems recruiting and retaining qualified administrative staff, it is not surprising that so many had management contracts.

Professional Shortages

As could be expected, there was also a shortage of health care professionals in the CAH service areas with more than 80 percent of the reporting hospitals serving Health Professional Shortage Areas (HPSAs).

Swing Beds

All reporting facilities had an existing swing-bed agreement. Although swing-bed services have been given special emphasis in the RHFP, 22 of the hospitals reported swing-bed days the same year the RHFP was authorized, indicating that it was a general strategy for this sample of small rural hospitals. The remaining two facilities appear to have added this service as part of their conversion strategy. Similar conversion strategies have been reported in other participating states.

Network Development

Entering into network affiliations with other area providers has been considered an appropriate strategy for rural hospitals similar to CAHs. For the purposes of the Tracking Project we have defined a network according to the federal guidelines (i.e., an affiliation agreement with at least one other acute care facility). In lieu of specific program requirements, these types of relationships usually develop out of a perceived mutual benefit on the part of the participants. However, our analysis indicates that the majority of network relationships initiated by these hospitals were often the effect of program requirements. Six networks had structures that extended beyond the required dyad relationship and had other members than just hospitals, four appeared to be purely hospital networks and three were formed as a precondition for a management contract.

Length of Stay

Two-thirds of reporting hospitals either were under, or minimally above, the average 4-day length of stay (LOS) limitation (i.e., less than 4.5 days ALOS). These hospitals should not have to alter the way they have been operating after they convert to CAH status. This was validated during the site visits, with 83 percent of the sample reporting no change in hospital operations following conversion (Table 2). Five hospitals reported some change in operations such as performing discharge planning on the weekends to stay under the average length of stay (ALOS) limit. These facilities continued these new modes of operation after the legislative change to a 96-hour LOS average.

Medicare Volume

Almost all of the reporting hospitals in the sample had a significant Medicare inpatient volume (i.e., greater than 50%). Only one hospital had significantly less than 50 percent of its inpatient discharges from Medicare patients. The main reason this facility pursued CAH conversion was its hope that the Indian Health Service (IHS) would follow Medicare’s lead in cost-based payment. Fifty percent of its inpatient volume involved IHS patients.

Decision to Convert

With no major reorganization hurdles to overcome and a significant percentage of Medicare patients, it is not surprising that each facility reported financial improvement as the prime motivator for conversion. One hospital had a positive cash flow and reported its prime motivation was to attain greater fiscal stability and to provide a financial buffer to Balanced Budget Act (BBA)-related cuts. Of note, at least one third of the hospitals included the BBA or Balanced Budget Refinement Act (BBRA) as a part of their reasons for conversion (see Table 2).

Over 40 percent of the hospitals reported scope of service as a key internal issue needing resolution before proceeding with the conversion. The most often cited issues involved concerns about reduction in scope, professional conflicts (e.g., relationships between registered nurses [RNs] and physician assistants [PAs]), shifts in service focus (more outpatient and less inpatient services) and a hesitancy to collaborate with other providers in the service area. The scope of practice issues, much like the length of stay issue, were virtually eliminated with the legislative change to an average LOS criterion.

The hospitals listed a variety of factors they considered important for keeping the conversion process on track (see Table 3). The main factors that were reported as helpful in the process related to either internal issues (e.g., physician buy-in) (30%) or community-related issues (e.g., open working relationships with community) (30%). These factors were followed in importance by help from state agencies and associations (16%), support from network partners (12%) and support from professional sources such as management contract firms (12%). When asked directly about state office of rural health involvement, more than half of the hospitals reported that it made a large difference in meeting their needs.

The majority of responses from the hospitals on barriers to conversion focused on learning curve issues with state licensing as well as the preparedness of the Medicare Fiscal Intermediary (FI) and/or the inability of the hospital to respond quickly enough to needed changes. Others reported issues such as expensive life safety code violations to correct ($800,000 sprinkler system) and an overt attempt by the support hospital to increase the costs of provided laboratory services for the CAH. There are several possible reasons for the limited report of barriers. The protocols used may have been less sensitive to this issue than expected, or informants may have been less willing to discuss them, or it may be a reflection of a straightforward conversion decision that needed to be made and implemented.

Discussions of the benefits of conversion were more forthcoming. By far the most commonly stated benefit for the hospital was an increase in financial stability. Other hospitals reported improvement in quality services, only a minimal gain which may be “seen as a Band-Aid solution,” or they were still losing money despite increased revenues.

In summary, there is a reasonable degree of similarity among the 24 CAHs that were site visited. Given that the majority reported an ALOS less than or very close to the 96-hour average and that over 90 percent converted to stem operational losses, it is not surprising that the large majority reported no change in scope of services and no significant change in overall operations following conversion. Clearly, the majority of these facilities were already operating much like CAHs prior to their conversion. However, these facilities still underwent a significant organizational process to achieve the relatively small operational changes reported. The experiences of this process provide a number of insights into how hospitals might best navigate the course of organizational change involved with CAH conversion. Second generation CAH conversions may involve more facilities that enter the process with the need to make greater modifications in operations and organizational affiliations.

Lessons Learned

Nine key lessons can be gleaned from the experiences of the 24 CAHs in this study. The lessons can be categorized into three areas: (1) the strategic frame used to implement the conversion; (2) conversion support; and (3) conversion trip points, or the conversion details that can become lost in the process. The lessons learned are as follows:

Strategic Frame

Cost-based reimbursement should not be considered the single most important answer to hospital financial problems and should be included within a larger strategic vision.
Broader networking beyond the minimum requirements of the program can make a positive difference in conversion outcomes.
Working openly with the community at-large can be difficult, but beneficial.

Conversion Support

State offices of rural health can play a critical role as broker between the hospital, regulators, licensing agency, HCFA Regional Office, the Fiscal Intermediary and area providers.
A solid partnership between the state office of rural health and the state hospital/healthcare association can mean the difference between failure and success.
A close working relationship with the Medicare Fiscal Intermediary can facilitate the conversion process by providing accurate data for making financial predictions and achieving timely conversion in reimbursement methodology and revenue flow.

Conversion Trip Points

Be confident about financial feasibility analyses when modeling conversion scenarios and select a firm that is both experienced in rural hospitals and in using cost report data to examine the feasibility of operational changes.
Focus on the human as well as the organizational aspects of conversion, including issues such as levels of morale, understanding and preparation for the transition.
Schedule the conversion with great care, allowing for preparation and readiness, be leery of future funding promises and projections, and time the conversion for the end of the hospital’s fiscal year.

Strategic Frame

It is too soon to tell what aspects of hospital characteristics or program relationships may have the most influence on hospitals making successful conversions and, more importantly, maintaining successful operations after conversion. However, the sub-text of the site visit reports implies that the degree to which hospitals can negotiate their conversion in light of critical relationships with Medicare, key providers in their market area and the communities they serve may be a very important factor in predicting future stability and survival. A central theme for the three lessons listed below is that the hospital administrator should not assume that hospital conversion and operation as a CAH will occur as a result of the inherent benefits and opportunities of the program and its requirements. Administrators need to step beyond the minimum interpretations provided in statute and regulation. They should not assume that cost-based reimbursement will answer all of a hospital’s financial problems; that area providers will be helpful simply because they sign affiliation agreements; that providers will not make compatible network partners simply because it has not happened before; or that key program agencies are fully versed on how to best implement and oversee program operations.

Cost-Based Reimbursement as a Sole Strategy

Facilities considering participation in a program such as the RHFP are often in poor financial shape. Because of their financial difficulties, discussions about conversion tend to focus heavily on the financial benefits of cost-based reimbursement. The primary reasons listed for conversion by the cohort were in response to financial losses or expected losses from the BBA and BBRA provisions (Table 2). Only four facilities indicated that they viewed participation in the RHFP as a component of a larger strategy to adapt hospital operations to their changing market. A number of hospitals made the observation that cost-based reimbursement is very much a zero-sum game. You can not cost shift other expenses as in the past and therefore it is important to identify new market niches and revenue streams as well as continue to secure operational efficiencies. Strategic planning should not end with the goal of conversion but with the goal of on-going adaptation to a changing operating environment. Conversion is an event in time and if stakeholders use yesterday’s assumptions to solve today’s problems, on-going success will be elusive.

Efforts should be taken to assist hospitals in keeping their financial conversion issues in perspective and also to remain focused on operational efficiencies. For example, in addition to modeling case mix and length of stay scenarios it also will be important to model cost centers and their potential for expanding or shrinking following conversion and network involvement. External issues such as health care personnel resources and existing referral relationships need to be balanced with an understanding of how organizational interdependences may change with the hospital conversion and market re-alignment.

Networking and Conversion

Successful conversion to a CAH, like any successful organizational change, depends upon the ability of key decision makers to accurately interpret the implications of both real and potential environmental challenges and to mobilize resources to implement effective responses. The degree to which these strategies are effective over the long term depends in large part upon the successful negotiation of both the internal hospital politics and the external organizational environment. Recognizing that these hospitals could benefit from supportive relationships with other hospitals, network affiliations were included in the requirements of participation. However, the nature and degree of network relationships are not specified in the program requirements, allowing CAHs to elect different configurations of network relationships.

A number of hospitals appear to have benefited from entering into network arrangements that extend beyond the minimum requirements of the program. While only 13 hospitals were engaged in network-like relationships prior to conversion, all were in networks by the time they converted. Six of those hospitals ended up as members of a network that extended beyond the minimum requirements. In all six cases, hospitals reported that network participation had a positive effect on their conversion experiences. Four hospitals also reported positive experiences from network involvement and were members of minimally structured network relationships. By far the most frequently reported benefit was financial gain in terms of economies of scale. Initial analysis of these relationships suggests that organized networks can play a pivotal role in the successful conversion of a CAH. The degree to which minimal networks help CAHs depends upon the nature and will of the support hospital. In a dyad relationship it can be difficult to operate outside of traditional market roles and be supportive rather than competitive. More diverse systems (including larger horizontal hospital systems) can provide a vehicle for communication between key players, be a source of financial and philosophical support and provide a means for achieving greater economies of scale in the planning, administration and delivery of needed services.

For example, one hospital reported that its close relationship with a partner organization has led to a number of benefits, including access to a pool of patients that would otherwise have gone elsewhere had the hospital not been part of a larger network. The administrator estimated that this increased outpatient revenues by 25 percent or more. Overall, the administrator reported that the benefit of networking has been an approximate increase of revenue by $500,000 (above and beyond gains from Medicare cost-based reimbursement) and an additional $500,000 in reduced costs. Other experiences indicate that CAH conversion and network development can be mutually beneficial. Hospital conversion to CAH status has made several hospitals more attractive network partners because of their improved financial outlook. Several hospitals have expressed appreciation that their states have given added emphasis to larger network affiliations, and others have suggested that the program requirement should be modified to include arrangements larger than hospital dyads.

We found several indications of state policy influence in network development. For example, two networks appear to be the sole result of management contracts (i.e., before a firm will sign a contract to manage the hospital, the facility must commit to converting to a CAH and joining a network comprised of the contractors affiliates). Both networks were located in the same state suggesting that state policy supported such arrangements. A third hospital was affiliated with an integrated delivery system that had been encouraged by the state as part of a managed care initiative. A fourth facility linked with a broad range of providers operated within a state that strongly supported network development. Of the remaining nine network-affiliated hospitals, seven were members of hospital systems and two were involved in a merger-influenced dyad relationship. Of the eleven non-network participants, five hospitals were engaged in loosely defined market relationships and six hospitals appeared to operate as independent entities.

Working with the Community

Almost half of the facilities engaged in some form of community outreach efforts. These efforts were quite diverse, ranging from press releases announcing the what and whys behind the hospital’s decision to convert, to the “save our hospital” approach in reaction to announcements of possible closure, to more involved efforts through town meetings and the formation of community workgroups and committees. At least five of the hospitals actively played down any involvement with the community. Some felt that since there would be no change in the way the facility operates, “why raise the issue and run the risk of negative image for the hospital?” Others were concerned that informing the public of cost-based reimbursement could jeopardize their access to public funding efforts (e.g., sales tax and fund drives).

On the positive side, some facilities took the opportunity of announcing the change to improve their image and status in communities. One hospital built its public relations campaign around the label of “Critical Access Hospital”—“we are critical for the community.” Others took a more service-oriented approach, pointing out that more services would be available through specialty clinics with their network partners and quality would improve through network efforts. There was a clear trend for hospitals that reported having a good image in their communities to also engage in community outreach efforts. Only three hospitals did not fit this pattern.

The phrase “invite them to dinner, not into the kitchen,” used by one hospital representative, clearly reflects hospital-related concerns about issues of privacy and the availability of expertise in the community to make knowledgeable business decisions. A scarcity of people who have the time and expertise to speak to health care issues is not a new problem to rural hospitals. It has often complicated efforts to rejuvenate boards of directors and trustees. However, this only looks at one side of the equation—getting information and support for hospital-based decisions. If hospitals wish to identify those services that might improve their images as well as enhance their cash flows, their concern need not be the expertise of community critics. What they need is a venue that encourages key community individuals to speak out and a platform from which to address the various reputation and out-migration issues that are influencing the hospital’s financial bottom line.

The involvement of the community is critical in terms of marketing the services that the hospital wishes to provide. Facilities may consider conversion because cash flow is poor. In large part, this is because the local population does not generate the patient volume needed to support the facility. While there are a number of reasons why this could happen, consumer choice among the non-Medicare population is an important factor. Strategies need to be identified to encourage local residents to seek care at the CAH. Depending upon the history of the hospital, this could mean anything from better advertising to a complete recasting of the hospital’s image as a quality provider. Networking opportunities can be explored to develop referral patterns and “centers of excellence” relationships to secure a referral stream that has not been targeted by another area provider.

Conversion Support

These lessons largely relate to the need for a smooth and open process to negotiate conversion to a CAH. In many ways, the lessons about the state office of rural health, state hospital association and Medicare fiscal intermediary could be combined into one lesson. Know what needs to be done, be aware of when it needs to happen and be sure that everyone involved knows what is expected of them to make the process work.

The Role of the State Office of Rural Health

More than half of the hospitals reported that the involvement of the state office of rural health made a significant difference in their participation in the program and conversion to a CAH (Table 2). As suspected, those states that had prior experience with limited service hospital programs tended to be able to more consistently provide program support to their hospitals. Given the wide degree of variation in state office of rural health staffing and operational capacity, it is difficult to draw an overall conclusion. The helpful role of the state office of rural health was most often framed as a source of grant funds and as a facilitator or broker between the hospital and the various stakeholders responsible for the transition process (e.g., state licensing unit, Medicare fiscal intermediary, regional office of HCFA, and other area providers). Hospitals were more likely to benefit from the efforts of state offices of rural health in situations where the state’s capacity was notable. In one instance where the state office of rural health had considerable expertise and technical assistance capacity, the hospital was able to enhance its scope of service and also further develop its network relationships and improve facility operations because of the facilitation of the state office of rural health.

Regardless of opinions about state office of rural health involvement, hospitals wanted help to make the transition easier and less costly. Obtaining and maintaining a smooth conversion requires productive relationships between key stakeholders, open communication and a clear understanding of everyone’s roles and responsibilities. Hospital transition teams can get caught-up in the day-to-day operations and the air of emergency that can permeate a struggling facility. Lack of follow up as well as follow through can be disastrous, causing unnecessary delays and costly mistakes. Active involvement of the state office of rural health can facilitate the learning curve among the necessary agencies and encourage confidence and conviction in the program on the part of players who otherwise would not see the program as important for the function and responsibilities of their office. Although the state office of rural health has the most potential for facilitating the conversion process from inside state government, it also can provide the edge for external entities such as the fiscal intermediary and regional offices and semi-external entities such as other state agencies.

Partnership between the State Office of Rural Health and the State Hospital Association

When the influence of the state office of rural health starts to wane with external organizations, the potential influence of the hospital association begins to increase. Six hospitals reported that their hospital association was very helpful in the process of conversion (Table 2). The added legitimacy of the hospital association for many providers could augment the influence of the state office of rural health if used in an open/public partnership. For example, in some states state office of rural health/hospital association teams have gone on the road to educate providers about the program and how it works in their particular state. Such efforts can go a long way toward answering the concerns of a number of participating hospitals regarding knowledge of licensing standards, operating regulations and reimbursement methodologies. While the state office of rural health side of the partnership is particularly equipped to help develop working relationships with the HCFA regional office and the Medicare fiscal intermediary (FI), the hospital association has greater freedom to work with state legislatures, payers and, if necessary, Congress to mitigate barriers and problems.

In former EACH/RPCH states, earlier program involvement required a partnership between the state office of rural health and the hospital association. This has made a difference in the ability of these organizations to work together on the RHFP. Such partnerships often require working through conflict-laden histories and differing organizational agenda. If sufficient interest can be generated within a hospital association about the importance of rural hospitals and the need to earmark resources for facilitating programs like the RHFP, both hospitals and rural residents will win. Discussions have also indicated that a strong working relationship between these two agencies can help develop effective coalitions of statewide stakeholders to further energize the program and foster effective and efficient conversions.

Working Relationship with the Medicare Fiscal Intermediary

A common complaint from converted hospitals has been the length of time between designation and the receipt of CAH-based reimbursement from Medicare. In some cases it has taken months to resolve—largely attributed to the way regulators and Medicare FIs interpret the statute and regulations governing CAH payment. In several cases, hospitals were required to reimburse payers and clients and re-bill under the new reimbursement regulations. One hospital was forced to obtain a bridge loan (from its FI) to cover operating expenses until cash flows improved. The hospital was then required to repay the loan at a significant rate of interest. There is a clear need for more thorough education of Medicare FIs as well as regional offices and related state agencies about the finer points of reimbursement under the RHFP. A proactive role also seems to help in these situations. However, constant calls to the FI can create a less-than-cooperative relationship with the hospital. For this reason, it may be more useful for the hospital to work closely with the state office of rural health to deal jointly with reimbursement issues.

Conversion Trip Points

The experiences of hospitals converting to CAH status have identified a number of potential trip points in the conversion process that should be avoided if at all possible. In most cases, addressing these issues simply means remaining aware of their implications and proactively identifying strategies for addressing them.

Financial Analyses

Several hospitals indicated that it was very important to feel confident about the financial analyses that are conducted to determine if conversion is a good decision. On the surface this would seem to be a non-issue. Unfortunately, for a number of reasons including time and money shortages as well as a lack of fiscal expertise, hospital administrators and board members do not always know all of the assumptions that underlie the strategic modeling in which they invest to make decisions about their facility. Hospitals in this study have had experiences where three different financial consulting firms gave three widely varying predictions. It is very important that the consulting firm has experience with rural issues and thoroughly understands the RHFP and all of its intricate provisions concerning reimbursement and operation. A good understanding of the hospital’s market is also a key foundation for financial analyses. One hospital pointed out that it was very important to hire a firm that had experience in using cost report data to examine the feasibility of operational changes and to assess the implications of conversion on both internal and external operational relationships.

Focus on the Human as well as Organizational Aspects of Conversion

Attending to the organizational aspects of CAH conversion can be overwhelming for an administrator. Coupled with day-to-day emergencies and regular operating needs, it can be easy to overlook the very resource that can make conversion possible. Employees comprise the single largest operating expense in a hospital and are its single most important resource for accomplishing its mission. It is a mistake to think that a simple reshuffling of a downsized staff in the current organizational structure will result in the desired outcomes. Staffs undergo major changes extending far beyond titles and places on an organizational chart to make the transition a success.

For example, one hospital described an experience that showed how the act of preparing for conversion can create multiple benefits. The conversion experience provided a major benefit beyond program participation because of the forced self-reflection needed to prepare for the transition. The hospital used the conversion process as an opportunity to examine all aspects of its operations in anticipation of the survey process. Each department was charged with evaluating changes that would be needed in order to convert and operate in a post-conversion mode. This led to the creation of “Do-It” groups that the hospital has since used to educate staff and get them involved in the overall assessment process. One state utilized a start-up-kit to assist hospitals in this very type of activity.

The more a hospital becomes involved in major reconfigurations, the more staff issues will need to be addressed. Many of the hospitals in this study did not undergo major restructuring (i.e., only one fourth reported a difference in operations, Table 2). However, even in minor restructuring, staff can become overwhelmed with morale problems and require reminding that internal discussions need to remain internal. For a number of hospitals in the study, swing-bed services represented a major issue in terms of understanding the Minimum Data Sets (MDS) requirements. Re-training was necessary in several cases involving the recruitment of trainers from an area nursing home in one instance. This relationship later evolved into a networking arrangement and promises to develop further as the network matures. In another hospital, the MDS requirements that first seemed daunting later became appreciated largely because of the care plan and triggers for different service areas. MDS requires a significant amount of paperwork that some have managed by dividing up the record keeping over the course of a day.

Another successful strategy employed by some hospitals has been cross training staff to perform multiple functions. Most of the crossing training focuses on ancillary and support staff (e.g., training a person to handle both billing and medical records responsibilities). While this represents an efficient strategy for dealing with variable staffing needs, it also represents a stress point for staff and needs to be handled appropriately to get the desired outcome without loss of morale or staff support.

When to Convert

One of the most straightforward lessons learned by a number of the hospitals is when to schedule the conversion. Some facilities had the opportunity to run mock surveys and had access to automated forms and application materials that made the application and survey process much more problem-free and timely. Depending upon the resources available, administrators should work closely with the lead state agency responsible for the program to make sure that all of the pieces will be in place at the right time. One lesson learned by converted CAHs has been to be ready for and schedule the survey to occur at the end of the hospital’s fiscal year. This makes bookkeeping simple, allows for accurate aggregation of financial information to yield better projections and eliminates the need for multiple audits.

Finally, in the course of this process there will be rumors, promises and speculations about the availability of additional resources (i.e., funding promises or projections). These will be very tempting to include in financial projections or at least to influence priority setting and decisions. It should not be assumed that these resources will be available for conversion. One hospital that did not heed this advice found its estimate of the potential financial benefits of conversion to be reduced by more than $80,000.

In summary, exploring the lessons learned by these hospitals and other stakeholders has yielded a number of important guidelines for providers and state agencies/associations. First, it has underscored the importance of thorough planning both at the state and the local levels. The RHFP has the potential to be a significant program for rural delivery system change if used in a strategic context. While it certainly is not a panacea for the woes of the rural hospital sector, it can be a powerful complement for other strategic opportunities that have been emerging at the federal and state level. One strategy that appears to mesh well with hospital conversions is participation in a rural health network. However, successful network development cannot be mandated; it can only result from an aligned membership that is ready and committed to work for the larger good of the group and the community that has been targeted for the network’s services.

The state office of rural health and the hospital association play critical roles in the success of hospital conversion and network development. The degree to which they are educated about the program and other possible synergistic initiatives and have the resources to reach out to stakeholders across the state will have a significant impact on the success of the conversion and operations of CAHs. These entities can provide critical technical assistance, capital support, and play a central brokerage role that significantly affects the learning curve of key stakeholders across the state. They, along with other providers that have gone through the process, can identify the key turning points and milestones in the conversion process (i.e., what to avoid and what to target to make the conversion a success). As the Tracking Project continues to monitor the participation of rural hospitals in the RHFP, we expect additional lessons to be identified and previous ones to be embellished. This should provide a rich foundation for supporting the continued adaptation of the rural hospital sector to the evolving health care market.

Chapter 6: Financial Condition of Critical Access Hospitals: 1996-1999 (UNC)

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