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Rural Hospital Flexibility Program Tracking Project

Chapter 2
A Profile of Critical Access Hospitals

Stephanie Poley, B.A., Kathleen Dalton, Ph.D., Melissa Fruhbeis, M.S.P.H.,
Hilda Howard, B.S., and Thomas C. Ricketts, Ph.D.
North Carolina Rural Health Research and Policy Analysis Center
Cecil G. Sheps Center for Health Services Research, UNC-Chapel Hill

Introduction

As part of the effort to assess the progress of the implementation of the Rural Hospital Flexibility Program (RHFP, referred to throughout this report as the Flex Program), the North Carolina Rural Health Research and Policy Analysis Center at the University of North Carolina has developed a system to monitor and document the program activities in each of the participating states, especially the certification of Critical Access Hospitals (CAHs). This effort has enabled a steady stream of information about the program to be reported to the Federal Office of Rural Health Policy (FORHP), other government officials, and program participants at both the state and local levels. We aim to provide an overview of the overall progress of the program and assist the participants in understanding what opportunities and problems can be expected as the program evolves in their states. 

We began by identifying contacts who were knowledgeable about the process of program implementation in their states. Most often these contacts are Flex Program coordinators and/or Flex grantees. Through regular telephone and email contact we established working relationships with those contacts to continuously collect data. 

Contacts at the Centers for Medicaid and Medicare Services (CMS) (formerly known as the Health Care Financing Administration [HCFA]), were also identified in 1998 and 1999, and continue to provide us with information about newly designated CAHs as they enter the CMS reporting systems. Communication with our state Flex contacts occurs on a monthly basis, at which time updates to the CMS reporting systems are shared.

The data that were gathered form the basis of the data set that has been developed and described in Figure 1. The set of hospitals with their identification numbers and activity status, and contact names and numbers for states, serve as the core data set for linking other data. Additional data were extracted from various sources to provide a more detailed description of the states participating in the Flex Program, the communities in which CAHs operate, and the CAHs themselves. Such data include state and county characteristics, local health care resource availability, and hospital characteristics. The data that are collected from the contacts in the states and through federal agencies are then merged with other data sets to create a relational database. Chapter 2's Appendix B details the contents of this Flex Program database.

Information Gathered 

Hospitals Eligible for and Certified as Critical Access Hospitals

As of May 1, 2001, 401 hospitals in 38 states had been designated as Critical Access Hospitals.¹ State Flex Program coordinators estimate that more than 1,300 hospitals might be eligible for CAH status based on the states' designation criteria, but that a realistic projection of the number of hospitals expected to become CAHs is around 900. We know through our surveying efforts that many of the eligible hospitals have decided not to pursue CAH status for a variety of reasons discussed in Chapter 6 of this report. Our experience in monitoring the pursuit and designation of CAH status and our familiarity with small rural hospitals leads us to believe that the final number of CAHs may be somewhat lower than state estimates. Chapter 2's Appendix A describes hospital activities in individual states.

Nine of the 47 states participating in the Flex Program had not yet processed a CAH conversion as part of their Flex Programs as of May 2001; however, five of those states were approved for participation in the program only within the last year.² 

Growth in the number of certified CAHs has been steady since the program's inception and has accelerated substantially in the past year. Figure 2 illustrates the expansion in the number of certified CAHs since the program was authorized in 1997. In the initial months of the Flex Program, the hospitals being certified as Critical Access Hospitals were those that had been designated Rural Primary Care Hospitals (RPCHs) or Medical Assistance Facilities (MAFs) as part of the pilot projects to test the limited service hospital model. In fact, all but one of the first 39 facilities designated as CAHs prior to 1999 were located in states that had participated in the RPCH and MAF programs and had prior experience in implementing a Flex-like program.³

In 1999, the program began to gain momentum as states' rural health plans were approved by CMS and the CAH application and designation processes were finalized. With the exception of a few states, there was a period of at least five months, and in many states more than a year, between the approval of a state's rural health plan and its first CAH designation. In 1998 and the early part of 1999, CMS approved rural health plans for more than half of the states eligible for participation in the Flex Program, paving way for the first generation of CAHs that had not been RPCHs or MAFs. 

The most significant growth in the program has occurred in the most recent 17 months (January 2000 through May 2001). Since the beginning of 2000, some 280 hospitals have been certified as CAHs. Changes in the federal criteria for CAH eligibility, authorized by the Balanced Budget Refinement Act (BBRA) of 1999, expanded the number of facilities that could potentially participate in the program and may explain part of the rise in the number of certifications in 2000 and 2001.⁴ In the year since our last report to the Office of Rural Health Policy, 231 hospitals have been certified as CAHs, more than doubling the total number designated as of May 1, 2000. Twelve states have experienced their first CAH conversions and CMS has approved all but one state's rural health plans.⁵ Of the 231 new CAHs, 42 (18%) are located in twelve of the states that had no CAHs one year ago. Additionally, 56 (nearly 25%) of the 231 CAHs certified in the past 12 months are located in 3 states: Nebraska (20), Texas (19), and Iowa (17). In the first 5 months of the year 2001, 79 facilities joined the CAH program and we expect that the total number of new CAHs added during 2001 will be similar to the number of conversions in 2000. 


Geographic Distribution of Critical Access Hospitals

As Map 1 demonstrates, a pattern is evident in the geographic location of the 401 certified CAHs. The majority of the hospitals that have been certified are clustered in the middle of the country. More than one-third of the total number of certified CAHs are located in five states: Nebraska (48), Kansas (33), Texas (25), Iowa (20), and South Dakota (20). A substantial proportion of CAHs (more than 25% of the current CAH population) are located in the states that participated in the EACH and RPCH demonstration program or the MAF Program. The growth in CAH conversions in these states is likely strengthened by their prior experience with limited service hospital models. 

Critical Access Hospitals and their Communities: Analysis of Secondary Data

Hospitals Included in the Analysis

Critical Access Hospitals differ from other hospitals in many respects, and in order to demonstrate these differences, we have defined multiple groups of hospitals for our analyses. 

Our first study group, Group 1, includes 401 hospitals certified as CAHs as of May 1, 2001. During the time period for which these cost reports were filed, many of the hospitals now certified as CAHs were still filing for reimbursement under the Prospective Payment System (PPS). In order to examine the differences between the facilities that filed for cost-based reimbursement (CBR) and those that filed under PPS, we have divided the hospitals in Group 1 into two subgroups for analysis. 

The resulting subgroups include only those CAHs for which cost report data were available (N=327). The groups were assigned based on whether the hospital filed its 1998 CMS cost report using a CAH provider number. Group 1a includes CAHs that filed with a CAH provider number (i.e. filed for cost-based reimbursement). Group 1b includes CAHs that filed under a PPS provider number (i.e. did not file for cost-based reimbursement). 

For comparison, we also defined two groups of rural hospitals to analyze. We began by identifying all short-term acute care hospitals in rural areas using 1999 Metropolitan Statistical Area (MSA) designations. A total of 2,192 facilities fit this definition and are presented as Group 3. Note that Group 3 includes 380 CAHs (21 CAHs are in metropolitan areas and therefore excluded from this group). 

Because Group 3 includes many large suburban hospitals, we felt it was necessary to further dissect the group and create a subset of only the smallest rural hospitals, a group that would closely resemble, but not include Critical Access Hospitals. For the purpose of this analysis, we defined small hospitals as those with an Average Daily Census (ADC) (excluding swing patients) of 15 or less. Because this definition is founded on hospital operating statistics taken from CMS cost reports, only those facilities with data available (1,971 of the 2,192 hospitals in Group 3) were eligible for inclusion in the subset. After applying these criteria to facilities to Group 3 and removing all CAHs, 787 hospitals were retained for inclusion in Group 2.

Sources of Data for Analysis

In addition to the information collected through telephone interviews by the North Carolina Rural Research and Policy Analysis Program team, various secondary data sets have contributed to the description of hospitals and the communities in which they are located. State, hospital, and community-level data reported in our analyses come from the following sources:

• CMS Online Survey and Certification Reporting System (OSCAR).

• Hospital Cost Report Information System (HCRIS) for federal fiscal year 1998 (includes reports filed for hospitals with fiscal years ending between September 1998 and August 1999)⁶.

• Bureau of Primary Health Care listings of Federally Qualified Health Centers, Medically Underserved Areas and Health Professional Shortage Areas.

• Bureau of Health Professions, DHHS, HRSA Area Resource File.

What Are the Operating Characteristics of Critical Access Hospitals?

Capacity, Occupancy and Services: By program design, facilities certified as Critical Access Hospitals are small and are less complex in services available. Table 1a describes the basic operating characteristics of hospitals certified as CAHs and illustrates the differences between CAHs and other rural hospitals. 

Table 1a.  Capacity, Occupancy and Services

	Group 1 All CAHs	Group 1a CAHs that filed as CAHs in FY1998	Group 1b CAHs that were not yet filing as CAHs in FY1998	Group 2 Small Rural Hospitals (excluding CAHs)	Group 3 All Rural Hospitals (including CAHs)
	(N=327)	(N=73)	(N=254)	(N=787)	(N=1971)
Beds 1     Median     Mean	26 27	18 21	28 29	35 36	46 64
Percent of Facilities with Swing Beds1	84%	92%	82%	78%	58%
Average Daily Census (ADC Acute + Swing Beds1     Median     Mean	5.6 6.6	5.5 4.0	6.2 7.0	9.1 9.8	15.2 25.8
ADC (Acute Only)1     Median     Mean	3.2 3.9	1.6 2.4	3.7 4.4	7.2 7.3	12.6 24.0
Occupancy (Acute and Swing Beds)1     Median     Mean	22% 25%	21% 26%	22% 24%	26% 28%	34% 35%
Occupancy (Acute Patients Only)1     Median     Mean	12% 14%	10% 12%	13% 15%	19% 21%	28% 30%
Percent of Facilities with Some Obstetric Services1 (Defined as Facility Reporting at Least 3 Nursery Days)	32%	16%	39%	58%	61%
Percent of Facilities with an ICU1 (Defined as Facility Reporting at Least 1 ICU Day)	13%	3%	15%	30%	52%
1 Source:  Hospital Cost Report Information System Minimum Data Set, PPS 15, Health Care Financing Administration, 1997-1998.

With regard to bed size, CAHs are the smallest of the small rural hospitals. Under federal legislation, CAHs are limited to 25 beds, with no more than 15 to be used at any given time for acute care patients. Data obtained from CMS describing CAHs verify that the maximum size of CAHs is 25 beds, but as can be seen from the entries for Group 1b, over half of the recent converters had to reduce their reported bed capacity at the time of conversion. Not only do CAHs have fewer beds than most rural hospitals, they are much more likely to use some of those beds as swing beds for long-term care. While 84 percent of CAHs have licenses to operate swing beds, only 58 percent of all rural hospitals are authorized to use theirs as swing beds (swing beds are only authorized for hospitals with fewer than 100 routine beds). 

Consistent with their bed size, Critical Access Hospitals have a low average daily census (ADC); the ADC for CAHs is 3.9, compared to 7.3 for other small rural hospitals and 24.0 for all rural hospitals as a group. When swing patients are included in the calculation, the CAH daily census increases by 70 percent to 6.6 patients per day, implying that these facilities are making use of the swing beds afforded to them. With or without the swing patients, the average census in CAHs is lower than the average in the other small rural comparison group, and well below the statutory limit of 15 acute or 25 acute plus swing patients.

Based on the number of open, acute-care beds reported in the Medicare cost report, occupancy rates averaged only 34 percent for all rural hospitals. The average Critical Access Hospital used only 25 percent of its available bed days in fiscal year 1998. If swing days were excluded from the calculation, the acute-care occupancy rates for CAHs would be only 14 percent, compared to 21 percent for other small rural hospitals and 30 percent for all rural hospitals. 

We identified hospitals that provided obstetric and critical care services from cost report data, based on whether they reported at least three routine newborn days of care or any days of care in a segregated intensive care unit (ICU). Not surprisingly, Critical Access Hospitals were less likely to offer these services than other rural hospitals. While 61 percent and 52 percent of all rural hospitals offered obstetrics and had ICUs, respectively, only 32 percent of CAHs provided obstetrical services and 13 percent had an ICU. These numbers were much lower for Group 1a, which includes the former RPCHs and MAFs. We will not know until next year whether the more recently converted facilities in Group 1b will report similar participation rates after their conversion date.

Average Length of Stay: Critical Access Hospitals do not differ dramatically from other small rural hospitals in the average length of stay (ALOS), although the ALOS for all rural hospitals is somewhat higher (3.7 days, compared to 3.3 days for CAHs and 3.4 for other small rural facilities). Medicare patients also average shorter stays in CAHs than they do in rural hospitals in general (3.7 days, compared with 4.0 days in small rural comparison hospitals and an average of 4.4 days for all rural hospitals). The differences are somewhat more pronounced for Medicaid patients (2.7 days in CAHs, compared with 3.5 and 3.6 days in other small rural and all rural hospitals, respectively).

Table 1b.  Average Length of Stay
	Group 1	Group 1a	Group 1b	Group 2	Group 3
	All CAHs	CAHs that filed as CAHs in FY 1998	CAHs that were not yet filing as CAHs in FY 1998	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=327)	(N=73)	(N=254)	(N=787)	(N=1971)
ALOS (Excluding Swing) 1
Median	3.2	3.0	3.3	3.3	3.5
Mean	3.3	3.2	3.4	3.4	3.7
Medicare ALOS (Excluding Swing) 1
Median	3.7	3.1	3.7	3.9	4.3
Mean	3.7	3.3	3.8	4.0	4.4
Medicaid ALOS (Excluding Swing) 1
Median	2.6	2.5	2.6	2.6	2.7
Mean	2.7	2.6	2.7	3.5	3.6
1 Source: Hospital Cost Report Information System Minimum Data Set, PPS 15, Health Care Financing Administration, 1997-1998

Medicare and Medicaid Utilization: The majority of all rural hospital inpatients are Medicare beneficiaries, but Critical Access Hospitals tend to be the most Medicare-dependent facilities. Table 1c shows that 62 percent of discharges and 68 percent of acute care days in the CAHs are attributable to Medicare beneficiaries. These are somewhat higher utilization rates than those for other small rural hospitals (54% and 61%, respectively) and higher still than the averages for all rural hospitals (52% and 60%, respectively).

As a group, Critical Access Hospitals have slightly lower Medicaid utilization rates than rural hospitals in general. This pattern is to be expected due to the small number of CAHs that provide obstetrical services. Medicaid accounts for 8 percent of CAHs total inpatient cases, compared to 10 percent for the comparison group of other small facilities and 13 percent for all rural hospitals. 

 

Table 1c.  Medicare and Medicaid Utilization
	Group 1	Group 1a	Group 1b	Group 2	Group 3
	All CAHs	CAHs that filed as CAHs in FY 1998	CAHs that were not yet filing as CAHs in FY 1998	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=327)	(N=73)	(N=254)	(N=787)	(N=1971)
Utilization (Acute Discharges, Excluding Swing) 1
Medicare
Median	64%	70%	62%	56%	52%
Mean	62	68	61	54	52
Medicaid
Median	6	5	7	10	11
Mean	8	7	9	12	13
Utilization (Acute Days, Excluding Swing) 1
Medicare
Median	71%	74%	69%	62%	60%
Mean	68	72	45	61	60
Medicaid
Median	5	3	6	8	9
Mean	7	6	7	10	10
1 Source: Hospital Cost Report Information System Minimum Data Set, PPS 15, Health Care Financing Administration, 1997-1998

Financial Performance Indicators:  We reviewed the CMS cost reports for federal fiscal year 1998 and extracted data for Medicare inpatient costs. We also extracted figures for net operating income and total income from summarized financial statements that are included in these reports. 

The average cost per Medicare discharge during federal fiscal year 1998 was higher for CAHs than for other small rural hospitals. The CAHs in Group 1a (many of which come from the EACH/RPCH-MAF states) showed comparable costs per case to those in Group 2. However, CAHs that were still paid under the PPS, those in Group 1b, had Medicare costs per case that were more than 12 percent greater than those in the small hospital comparison group. The difference was even more pronounced when costs were summarized per day rather than per discharge; the Medicare cost per day was 18.6 percent higher for Group 1b than for other small rural hospitals. The differences between CAHs and all rural hospitals (Group 3) were not as great, but the average acuity for cases in all rural hospitals is also expected to be higher. The case mix for Group 2 is more likely to be comparable to that of CAHs. To some extent, we must consider this as evidence that, within the group of eligible CAH facilities, conversion is occurring where it was intended - that is, among those whose high unit costs prevent them from succeeding under prospective payment.

The negative mean and median financial margins experienced by CAHs provide clear evidence of the severity of their financial condition. At least half the CAHs had operating margins (net operating income expressed as a percent of net patient service revenues) that were below -11.4 percent. Those that converted early enough to file 1998 cost report as CAHs (Group 1a) showed slightly worse margins than those that converted later. Operating margins for all rural hospitals were low (mean -5.9%, median -3.3%) but CAHs, as a group, appear to have been in a substantially worse position. Perhaps even more important, the data on total margins indicate that hospitals in both Group 2 and Group 3 appeared to have been more successful in obtaining non-operating income to offset their operating losses. Total margins differ from operating margins in that they include additional income or fund transfers from tax-supported, philanthropic, or parent-company sources, in the computed ratio. The mean total margin for CAHs was still -3.4 percent, compared to -0.4 percent (nearly break-even) for the comparison group of other small rural hospitals, and +1.8 percent across all rural hospitals combined.

The Role of a Critical Access Hospital in a County's Health Care Infrastructure

Medically Underserved Areas (MUA) and Health Professional Shortage Areas (HPSA): Figure 3 and Table 2a illustrate that CAHs tend to be located in areas officially designated as medically underserved or as having a shortage of health professionals. Only about 9 percent of certified CAHs are located in counties with neither a HPSA nor an MUA designation. CAHs also tend to be located in the most underserved areas, as 55 percent of these facilities are in counties designated as both an MUA and a HPSA. Table 2a demonstrates how the CAHs compare with all rural hospitals with regard to location in an underserved area. These data show that CAHs are much more likely to be located in an MUA or a HPSA than the average rural hospital; 68 percent of CAHs are located in HPSAs and 79 percent are in MUAs. By contrast, only about 45 percent of all rural hospitals are located in HPSAs and just 21 percent in MUAs. Given that 90 percent of CAHs are located in counties with shortage designations, it appears that the Flex Program is being implemented in rural areas with the most fragile health care infrastructures. 

Table 2b demonstrates that CAHs are more likely to be located in counties where few other health care facilities operate. Although CAHs are often located in counties with a Rural Health Clinic (RHC), they are less likely than other rural hospitals to be in a county with another short-term acute care facility or a Federally Qualified Health Center (FQHC). Thus, CAHs are likely to be a significant source of care in their communities.

 

Table 2b.  Other Health Care Facilities
	Group 1	Group 2	Group 3
	CAHs	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=401)	(N=787)	(N=2192)
Percent of Facilities in a County with another Short-term General Hospital1	34	65	38
Percent of Facilities in a County with a RHC2	65	64	60
Percent of Facilities in a County with a FQHC3	11	20	22
1 Source:  Area Resource File, Bureau of Health Professions, DHHS, HRSA, 2001
2 Source:  Rural Health Clinics, Health Care Financing Administration, 1998
3 Source:  Federally Qualified Health Centers, Bureau of Primary Health Care, 1997

Physician and Bed Supply: Based on data from 1998 presented in Table 2c, the average ratio of primary care physicians to population is slightly lower in counties with Critical Access Hospitals than in other rural counties with hospitals. On average, there are 5.6 providers for every 10,000 people (equivalent to 1 provider for 1,786 people) in counties with CAHs versus 6.4 providers per 10,000 people (equivalent to 1 provider per 1,563 residents) in all rural counties with a hospital. 

Unlike physician ratios, the number of hospital beds per area resident is actually slightly higher in CAH communities than in rural counties in general. On average, counties with CAHs have 58.3 beds per 10,000 residents (i.e. 1 bed for every 172 people) compared with 49.5 beds per 10,000 individuals (that is, 1 bed per 202 people) in all rural counties with hospitals. However, it is important to keep in mind that the hospital bed-to-population ratio is computed using data from 1997, prior to the implementation of the Flex Program. Thus, bed size in communities with CAHs can be expected to decline in subsequent years as a direct result of hospitals downsizing to comply with the CAH bed size limit. 

 

Table 2c.  Physician and Bed Supply
	Group 1	Group 2	Group 3
	All CAHs	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=401)	(N=787)	(N=2192)
Primary Care Physicians to Population Ratio 19981,3
Median	5.4	5.7	6.1
Mean	5.6	6.0	6.4
Hospital Beds to Population Ratio 19972,3
Median	40.2	35.9	37.2
Mean	58.3	52.0	49.5
1 Ratio represents the number of primary care physicians per 10,000 people.  Primary care physicians include MDs and DOs specializing in general family practice, general practice, general obstetrics or gynecology, general pediatrics, and general internal medicine.
2 Ratio represents the number of licensed hospital beds per 10,000 people.  Hospital beds include beds at short-term, acute care facilities.
3 Source:  Area Resource File, Bureau of Health Professions, DHHS, HRSA, 2001.

Proximity of Critical Access Hospitals to Other Short-Term Acute Care Hospitals

One of the original federal criteria for CAH eligibility was that a hospital had to be located at least 35 miles from another short-term, acute care facility. Part of the flexibility given to states in implementing the Flex Program allowed for this eligibility condition to be waived when other criteria demonstrated that the facility was an essential provider of services to its local community. Since few U.S. hospitals are located 35 or more "air-miles" from another facility, the program would have had very limited impact under a strict application of this criterion. 

Some attention has been focused in the past year on the location of Critical Access Hospitals relative to other short-term hospitals. In response to concerns about the proximity of these facilities to others, the Tracking Team has computed the straight-line distance between all short-term general hospitals, identified the closest facility, and calculated the straight-line distance between the two. Though the result of these calculations is not a precise determination of distance between the two hospitals and will always underestimate road miles and any derived travel times between the two facilities, it still provides a useful approximation of relative distances⁷. 

Of the 2,192 short-term, acute care facilities in rural areas, only 133 (6.1%) are more than 35 air-miles from another hospital. As would be expected, most of these facilities are located in western states such as Montana and New Mexico. Thirty-three of these 133 facilities have converted to CAH status; the others are either too large to qualify for CAH status, doing fine under PPS, or are located in states not yet active in designating CAHs. It is likely that over the next few years, some of these hospitals will become Critical Access Hospitals. 

The average distance between CAHs and their closest neighboring hospital is only slightly greater than that for rural hospitals in general. On average, CAHs are 21.4 air-miles from the next closest facility, compared with 18.9 air-miles for all rural hospitals. By state, the average distance from a CAH to its nearest neighboring facility is greater than 35 miles in Alaska, California, Montana, New Mexico, and Nevada, and in three of these states, the distance is more than 50 miles.

Looking more closely at the nearly 250 hospitals that are closer to the next hospital than the average CAH (21 miles), we found that more than 90 percent are located in counties that are currently considered HPSAs or MUAs. Nearly 60 percent are in counties designated both a HPSA and a MUA. Additionally, more than 55 percent of these facilities are the only short-term, acute care facility in the county, and many are in counties without a RHC or a FQHC. Thus, despite their proximity to other hospitals, other characteristics indicate that most of the 250 designations as essential providers may still be appropriate. 

How Rural are the Communities with Critical Access Hospitals? 

As seen in Table 3, CAHs are usually located in counties that are geographically isolated and sparsely populated. Ninety-five percent of the 401 certified CAHs are located in counties defined as rural using 1999 MSA standards and only 36 percent of the counties with CAHs even border urban areas. By comparison, 45 percent of all rural hospitals border metropolitan areas. As Map 1 on page 5 demonstrates, most of the 21 facilities located in metropolitan counties are actually located in the periphery of the MSA; by regulation, they are in census tracts considered to be rural. Despite their MSA status, these communities are usually very rural in nature, and tend to serve the populations of bordering rural counties. Further, most of the metropolitan counties with CAHs are designated as having a shortage of health professionals or as being medically underserved. 

Another indicator of extreme isolation is the Frontier County definition, which is defined here as a county with six persons or fewer per square mile. The proportion of CAHs in Frontier Counties is more than double the proportion of all rural hospitals with such sparse populations: one-quarter for CAHs compared with only 12 percent of all rural hospitals. 

What Do the Populations in these Counties Look Like?

Age and Race: Critical Access Hospitals tend to be located in the smallest rural counties. Half of them are located in counties with less than 11,400 residents. The racial composition of CAH counties is variable; the mean percent minority population is 7.3 percent, but the median is only 2 percent, indicating that a few CAHs are located in counties with a very high proportion of minority residents, but the majority are located in predominantly non-minority counties. 

Census figures indicate that 11 percent of all U.S. residents in rural areas are nonwhite. This proportion must be carefully interpreted since the national rural minority proportion is greatly affected by the Southern states, and they have limited participation in the Flex Program thus far.⁸ As CAHs are designated in the rural South, the average proportion of minority residents in communities with CAHs will likely rise.

 

Table 4a.  Population Composition: Age and Race
	Group 1	Group 2	Group 3
	All CAHs	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=401)	(N=787)	(N=2,192)
Population 19991
Median	11,406	16,864	24,062
Mean	25,702	23,459	32,448
Nonwhite Percentage of Total Population 19901
Median	2.0%	3.0%	3.7%
Mean	7.3%	10.4%	11.0%
Percent of Population Aged 5 Years old or Younger 19981
Median	7.5%	7.6%	7.6%
Mean	7.7%	7.9%	7.8%
Percent of Population Aged 65 Years or Older 19981
Median	16.4%	15.5%	15.2%
Mean	16.8%	15.9%	15.6%
Percent of Population Aged ≤ 5 Years or ≥ 65 Years 19981
Median	24.1%	23.3%	23.0%
Mean	24.5%	23.7%	23.4%
1 Source:  Area Resource File, Bureau of Health Professions, DHHS, HRSA, 2001.

Because the very young and older people tend to need and use health services most frequently, it is important to understand the age distribution of the population hospitals serve. Our definition of individuals likely to need and use health services most includes persons between the ages of 0?5 and those 65 years old or older. As Table 4a indicates, the age structure of counties with CAHs does not appear different than that of other rural counties with a hospital. The proportion of residents ages 5 years old or younger in counties with CAHs is nearly identical to that in all rural counties with hospitals, and the proportion of residents 65 years old or older is only slightly higher. 

Economic Condition of Communities: As seen in Table 4b, there is little difference between counties with CAHs and the comparison groups with regard to household income. Mean and median poverty rates are actually slightly lower for counties with CAH facilities than for those in either of the other two rural groups. Like the proportion of minority residents, these income differences are likely to change over time, as hospitals in the poorer regions of the rural South are designated.

 

Table 4b.  Population Characteristics:  Economic Condition of Communities
	Group 1	Group 2	Group 3
	All CAHs	Small Rural Hospitals (excluding CAHs)	All Rural Hospitals (including CAHs)
	(N=401)	(N=787)	(N=2192)
Median Household Income 19951
Median	$27,921	$27,494	$28,173
Mean	$28,177	$27,942	$28,302
Percent of Population Below Federal Poverty Level-19971
Median	13.2%	14.6%	14.5%
Mean	14.5%	15.7%	15.5%
1 Source:  Area Resource File, Bureau of Health Professions, DHHS, HRSA, 2001.

Summary and Conclusions

How Are Critical Access Hospitals Different and Why Is the Flex Program Important for Rural Areas? 

By statute, Critical Access Hospitals are the smallest of the rural facilities. They are less likely than other rural hospitals to offer obstetrical care or critical care services (i.e. have at least three routine newborn days per year and/or one intensive care unit day per year), but are required to have a 24-hour emergency room. These facilities have very few inpatients on a given day- usually no more than 6 or 7- and have lower occupancy rates than do other rural hospitals. Their average length of stay is just over three days (somewhat longer for Medicare patients and shorter for Medicaid patients). They are highly dependent on Medicare, but have fewer Medicaid patients, because they provide fewer maternity-related services. Their costs per discharge and per day are higher than those of similarly sized rural hospitals. Their operating margins are substantially lower than those of other rural facilities, and they are less successful in recovering those operating losses through non-operating income. In sum, our data on the operating characteristics of CAHs identify them as a group of financially at-risk, vulnerable providers. 

The communities in which CAHs are located thus far are not very different than those of other rural areas with respect to age, race, and income distribution. However, they are smaller, more likely to be sparsely populated, more remote from urban areas, and nearly all located in designated provider shortage areas. For these reasons, CAHs have been identified within their states as essential health care providers.

The Flex Program was designed to target reimbursement relief to the most vulnerable hospitals in the most vulnerable rural communities. The data presented in this chapter confirm that CAH conversions, thus far, appear to be consistent with this objective. However, estimates of the total reimbursement impact of conversions are not yet available, and it is too soon to be able to tell if the additional Medicare dollars will be enough to stabilize the financial conditions of these facilities.

The Future of the Rural Hospital Flexibility Program 

In the fourth and subsequent years of the Flex Program, we expect to see a slower though continued stream of new CAH designations, especially in states that have only recently completed their CAH application process. The rate at which eligible hospitals elect to convert will depend on other legislative and regulatory changes that occur with the Medicare prospective payment systems for both inpatient and outpatient care. If the rates paid to rural facilities under the traditional PPS are improved, fewer of the eligible facilities will find it beneficial to convert to cost-based reimbursement, and the pace of new CAH designations may slow even further. 

We also expect to see increased emphasis in the coming year on Flex Program activities other than CAH conversion, for example, emergency medical service improvements and the development of stronger hospital network collaborations. The North Carolina Rural Health Research and Policy Analysis Center will continue to track the conversion of hospitals to CAH status and other Flex Program activities by way of regular contact with officials at state offices of rural health. Though this chapter focuses primarily on CAHs, other information about the Flex Program's activities and effects, partially summarized in other chapters and forthcoming in special reports from the authors of this chapter, was and will continue to be collected using the survey instrument found as Chapter 2's Appendix C.

Chapter 3A: Hospital Conversion Processes

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Footnotes

¹ The total number of Critical Access Hospitals changes continuously. For the most current information on CAHs, please refer to the Tracking Team's Web site: http://www.rupri.org/rhfp-track.

² Three states are not participating in the Flex Program: New Jersey, Rhode Island, and Delaware.  New Jersey and Rhode Island are not eligible for participation in the program due to the urban nature of these two states; Delaware has elected not to participate due to a lack of interest from its one rural hospital.  The Connecticut Office of Rural Health is currently drafting a rural health plan that will allow the state to participate in the program by making its hospitals eligible for CAH status. 

³ The EACH/RPCH program was conducted in seven states: Colorado, California, Kansas, North Carolina, New York, South Dakota, and West Virginia. Additionally, one facility in Nebraska participated in the program as the network affiliate for a Kansas hospital. The MAF program operated in Montana alone. 

⁴ The BBRA provision believed to have the greatest impact on the number of hospitals eligible for CAH status is the change from a 96-hour limit on individual patient stays to an annual 96-hour average patient length of stay. 

⁵ Connecticut's rural health plan was submitted to CMS in April of 2001 and approval is pending.

⁶ Missing data: HCRIS did not contain data for 100 percent of operating hospitals. Hospitals were identified and included in the analysis using OSCAR and HCRIS, but reliable data describing hospital characteristics and operations were only available for 327 (82%) of the 401 certified CAHs (Group 1) and 1,971 (90%) of all rural hospitals (Group 3). Group 2 (small rural hospitals) includes 787 facilities and was created from a subset of Group 3. If data were present in the data set but were out of normal range or missing for a key variable, such as beds or days, the hospital's HCRIS data were not analyzed or reported.

⁷ The method for calculating distance is not precise in that it does not take into account the location or conditions of existing roads between the hospitals, nor does it place the hospitals in their exact latitude and longitude based on street address. Instead, the latitude and longitude of each hospital's ZIP code centroid is entered into the calculation as the facility's location to determine its proximity in straight-line miles to the closest hospital.

⁸ In Rural Health in the United States, 1999, Ricketts et al. examine the racial composition of rural areas by Census Region. This analysis finds the greatest concentration of rural nonwhite residents in the South, where the nonwhite proportion of the population is 20.8 percent.

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