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Rural Hospital Flexibility Program Tracking Project Chapter 3C Walter R. Gregg, M.A., M.P.H., and Ira
Moscovice, Ph.D.
The vast majority of networking relationships meet minimum standards and little more. Network relationships that extend beyond the minimum standards are most common in those states that either incorporated additional standards into their state Flex Program or had a pre-existing network development program (e.g., North Dakota, Minnesota, Kansas, and Nebraska). States with prior network development initiatives incorporated the Flex Program into their existing efforts rather than keeping it as a separate initiative. In some of these states (e.g., Michigan and North Carolina), the existing programs provided a vehicle for involving CAH networks in a wide range of community-based programs. Given the historical market conditions that have faced many CAHs, it is not a surprise that only a few ventured beyond the minimum standards for participation. Observations of network development activities during the second year of the program suggest a desire to move forward with hospital conversion as soon as possible. Hospital Networking Experiences A specific condition of participation in the Flex Program is that a state must establish at least one rural health network. At a minimum, the network must contain a CAH and at least one other acute care hospital with which the CAH has established an affiliation agreement for transfer and referral arrangements. Although federal guidelines could be interpreted as requiring a minimum of one network per state, most states require it for each and every CAH certified for federal designation. All but one CAH reported having a network affiliation. The most prevalent network relationship observed at this stage of the program has been more of a horizontal than vertical arrangement, limited mostly to a dyad link between a CAH and its "support hospital." Although the evidence is not complete, the data suggest that most of these relationships involve only a marginal expansion of pre-existing market relationships. Network affiliations that extended beyond typical open market relationships were mostly influenced directly by the strategic mission of a CAH's support hospital, or more indirectly by the organizational culture that has evolved under pre-CAH system collaboration. In the first case, the level and degree of collaborative activity would depend mostly upon the mutual interests of the CAH and its support hospital. In the latter case, the level and degree of collaborative activity would represent the sum total of inter-organizational experiences (shared history of collaboration and cooperation) that accrued prior to participation in the Flex Program (see page 3 for discussion). Network affiliations tend to be circumscribed by the affiliation agreements that have been formed between network participants. An exploration of the nature of these network agreements provides us with a potential window into the organizational relationships that are emerging and influencing the behaviors of CAHs and their network partners. In an attempt to gain a better understanding of these relationships, CAH administrators were asked in the telephone survey to identify the major areas of their existing affiliation agreements and indicate if these agreements had been in place prior to their conversion to CAH. Figure 1 illustrates those affiliation areas that were reported the most under pre-conversion and post-conversion affiliations. Figure 1. Major Content Areas for Pre-CAH Network Agreements and Post-CAH Change
External Linkages and Conversion/Post-Conversion Success All but one of the CAHs in the survey reported having an affiliation agreement with another hospital. Since affiliation agreements are not all alike and relationships between CAHs and their affiliated hospitals can take a number of forms, some CAHs may be more or less prepared for conversion and post-conversion operations than others. In some cases the level of preparation for conversion could be due to the nature of the relationship with the affiliated hospital, while in others it could be due to prior affiliation experiences and the adaptive knowledge and/or momentum gained through such experiences. Preparation for the operational requirements involved in becoming a CAH and the ability to avoid costly errors in organizing for post-conversion operations can mean the difference between success and failure (i.e., leveraging pre-CAH network relationships to obtain capital and/or operational resources in an efficient and effective manner). Hospitals in the beginning stages of network development face a formidable learning curve (i.e., expending precious time, money and opportunities in their search for the best market fit). For example, one of the CAHs in the study had been exploring the benefits of outsourcing its laboratory services to a particular company. Upon discussion with a number of network members with experience in this area, the CAH decided it was not worth it. The insights gained during discussions with network partners were extracted from outsourcing experiences rather than feasibility analyses, and therefore were not otherwise available to the CAH. One of the CAHs visited this year benefited from a strong affiliation with an urban tertiary care facility located about sixty miles away. Prior to conversion, the smaller rural hospital had operated at a significant loss (several hundred thousand dollars per year for a number of years). Its stronger network partner shouldered those losses, and only this year has taken a second look because of its own operational downturn. Converting to a CAH was an integral component in the network's strategy for stabilizing the smaller hospital. In addition to the financial support provided, the support hospital also provided joint purchasing, administrative support (now provided through a management contract) and opportunities for continuing medical education for the CAH staff through its telemedicine system. The telemedicine system is also used for dermatology, wound care and radiology consultations. This network now includes twelve hospitals and has initiated efforts to coordinate peer review and quality improvement activities. Why do support hospitals enter into the arrangements they do with CAHs? There are many possible reasons. The most obvious reason is self-interest. In some fashion organizational needs are being met for the support hospital (e.g., referrals, market protection, revenue stream from management fees). Although payment of management fees (i.e., contract management and/or other services contracts) is an explicit market transaction, CAHs can benefit immeasurably from their investments. In exchange for a management fee payment to its affiliated hospital, one CAH received recruitment support, management support, and group purchasing at an annual savings of approximately $250,000. Another, less recognized reason involves more altruistic factors. Several cases were identified during our site visits where the support hospital was the anchor member of a network and had a distinct mission to assist local communities and their providers (i.e., benefit to the support hospital was not a prerequisite for support beyond allowing them to fulfill their mission statement). For others, it could stem from a particular point of view held by the support hospital's administrator and board. Often these types of network relationships were related to non-sectarian organizations, suggesting that mission may be a key influence. The subtlety of supportive relationships and their connection to effective versus minimal collaboration warrants further investigation in future work. In addition to a unilateral mission effect, it also is possible that supportive linkages could be generated from more of a sense of shared purpose and mission (e.g., CAHs that are formal members of a provider system). In an effort to better understand these types of relationships, we divided the CAH sample into two groups: those in a linkage with a system or with a management contract, versus those that did not have these characteristics and were essentially freestanding institutions. We also explored differences between CAHs with pre-conversion affiliation agreements versus those hospitals that obtained such affiliations only after conversion to a CAH. Forty-five percent of the CAHs in the sample were identified as being owned or leased by a system or under a management contract (system), with the remaining hospitals identified as freestanding CAHs (freestanding). These two subgroups of CAHs exhibited slight differences in operating statistics. Freestanding CAHs had a slightly higher average number of set-up and staffed beds, slightly longer average length of stay for inpatients and slightly fewer medical professionals on staff. In terms of network linkages, the freestanding CAHs were more likely to link with freestanding support hospitals (i.e., 39% of system CAHs linked to freestanding facilities while nine in ten freestanding CAHs linked with freestanding hospitals). A closer look at the freestanding and system affiliation agreements revealed that the two groups of hospitals prioritized major affiliation areas similarly. The top five areas for each group were identical, including rankings (Figure 2). These same five areas also demonstrated the greatest post-conversion change when compared to the others listed as major affiliation areas. Figure 2. Major Content Areas for Post-Conversion Affiliation Agreements
The sharing of these affiliation areas by freestanding and system facilities may reflect similar collective impressions of what is important to include in an affiliation agreement. Not surprisingly, the affiliation areas that increased the most were those areas most heavily stressed by the Flex Program. Although the numbers are small, system CAHs were more likely than freestanding CAHs to have affiliation agreements for administrative support and specialty clinical personnel - networking features commonly associated with system membership. Figure 2 suggests that the system hospitals either had less incentive to develop these areas than the freestanding hospitals, or had already developed them as far as possible prior to conversion while operating as a system member. Finally, the higher degree of involvement in non-medically related areas, such as administration support and financial support, for the system CAHs compared to the freestanding CAHs is consistent with system membership benefits and access to external resources and expertise through management contracts (see Table 1).
Table 1. Pre-Conversion Administrative Affiliation Areas by Hospital Linkage Table 2 provides a snapshot of the pre-conversion affiliation areas that are related to core hospital production areas (i.e., those areas most identified with the operational activities of the hospital). Benefits are apparent for the medical side as well as for hospitals with a system linkage or management contract.
Table 2. Pre-Conversion Operational Affiliation Areas by Hospital Linkage
Since the guidelines shaping the Flex Program offer considerable flexibility for interpretation and implementation, it is not surprising that many participating hospitals report little if any operational change following conversion. It is also possible that the changes that have been reported could be the result of other unidentified actions that started prior to program participation and which were complementary to conversion. The implications of prior network affiliation experiences and system or management contract linkage benefits were examined by dividing the sample of CAHs into four groups: 1) Freestanding CAHs that also had a pre-CAH linkage agreement with one or more providers; 2) Freestanding CAHs that did not have a pre-CAH agreement; 3) System Contract Managed CAHs that had a pre-CAH agreement; and 4) System Contract Managed CAHs that did not have a pre-CAH agreement. The last group represents facilities that either became linked with a system or formed a management contract at the time of conversion. These subgroups were then compared in terms of changes in scope of services following conversion. Post-conversion scope of service characteristics were defined as follows: 1) dropped as a service; 2) limited in scope compared to pre-CAH levels; 3) the same as before conversion to CAH; 4) expanded in scope compared to pre-CAH levels; and 5) added as a new service following conversion. We compared the four hospital subgroups to examine whether linkage or affiliation history had an impact on post-conversion scope of services (see Tables 3 and 4). The five hospital services that had the most post-conversion change included general inpatient surgery, obstetrical services, inpatient rehabilitation services, outpatient surgery, and outpatient specialty clinics. Each of these services was less influenced by system linkages than pre-conversion affiliation agreements. For all but inpatient rehabilitation services, provision of the service prior to conversion was more likely if there had not been a pre-conversion affiliation agreement. The relationship between pre-conversion affiliation agreements and post-conversion scope of services warrants further scrutiny in future analyses.
Table 3. Post-CAH Scope of Inpatient and Outpatient Services by Hospital
* FS = freestanding
Table 4. Post-CAH Scope of Support and Sub-Acute Care Service by Hospital
Service capacity was improved for outpatient surgery, where four hospitals added, 47 expanded and only six dropped services, and for specialty clinics, where five hospitals added new services, 53 expanded existing services and only four limited and one dropped services. There were significant increases in capacity for the two support services of radiology and laboratory. Radiological services were expanded in 53 hospitals and limited in only two, and laboratory services were added to one hospital, expanded in 42 and limited in only one.
Swing bed services demonstrated a slight gain, perhaps reflecting the common strategy of either adding swing bed services before seeking designation or combining a swing bed application with the application to convert to a CAH. The largest drop in availability of services involved home health services, most likely due to the implementation of a Prospective Payment System (PPS) for home health services. Networking Lessons The degree of network development witnessed during the second year of the Flex Program has been more limited than we expected. The networks that have emerged within the program generally have been crafted to meet the minimum requirements of the federal and state guidelines and conditions for participation. However, during our site visits to the participating states we observed several examples of network development occurring outside the minimum requirements (e.g., the peer review and credentialing networks that have developed in states such as North Dakota and Kansas). These observations provide credence to the adage "form follows function." They do not speak specifically to the effectiveness of the Flex Program in fostering effective rural health network development. However, they are consistent with the overwhelming influence of a long history of rural health market crises on the ability of key stakeholders to focus their efforts and decide which priorities should receive the limited resources available to rural areas. The majority of network relationships formed through participation in the Flex Program were with an affiliated hospital. Such connections were expressly outlined in both federal and state program guidelines, and participants suggested that they were a significant factor in conversion success and in achieving organizational change. They provided planning expertise, financial support, staff assistance, administrative expertise, clinical expertise, and equipment to the CAHs when they most needed them. These observations indicate the need for CAH administrators and staff to pay careful attention to the relationships they choose to develop with a support hospital. Most of the comments provided by CAH administrators referred to effectively nurturing relationships with their support hospital and not with fellow network participants. The Decision to Network May Be Difficult For some, the realization that collaborating with one or more area providers could result in mutual benefits was new. There are still many small rural hospitals whose administrators, board members and/or medical staff delay collaborative ventures for fear of losing organizational or practice-related autonomy. One CAH administrator noted that "indecision is a decision." Leadership is just as important for network development as it is for managing the conversion of a CAH, and indecision is not a leadership quality. Success for the CAH administrator depends upon the ability to understand and grasp opportunities to further secure organizational linkages that are beneficial to the CAH. "You need a good strong tertiary care partner…to make it work and most of the time you have to sell the bargain to the support hospital - you can't do that from a position of fear and mistrust." Pick Your Partner Carefully CAH administrators need to examine the potential relationships with their support hospitals very carefully to ensure that the growing relationship is based on clear understandings and expectations. For example, one hospital that we visited this year had an affiliate hospital that was helpful in encouraging specialists to travel to the CAH for clinics. The community benefited from the increase in access to specialty services, and the CAH received a secondary benefit from increased community satisfaction with availability of services. However, the financial benefits for the CAH were less clear. The specialists were given free use of clinic space and billed patients out of their home offices rather than through the CAH. The increase in specialty services appears to have had little impact on the CAH's inpatient volume, and some patients are choosing to drive to the more distant hospital for follow-up and additional services. The relationship should not be solely based on fulfilling the Flex Program guidelines. "Get specifics on what the relationship will provide"… and when you get close to setting the terms, get it in writing. A successful relationship between a CAH and its support hospital "needs to be two ways…benefiting both members of the partnership…a financial connection work(s) best." With minimal effort one can translate financial aspects into a benefit or cost. However, non-financial connections will also work if they can be translated into measurable outcomes for the partners involved. Some Environments Are More Fertile than Others A number of respondents noted that sometimes you can just be lucky to find yourself in a social environment that supports the development of collaborative relationships. For example, some locales have a natural "shared spirit and identity" that can jumpstart collaborative ventures. In other cases, the administrators or various providers may have had the opportunity to develop close personal ties with each other (this may be more common in situations where providers already share an organizational linkage through a system or management contract). Our site visits uncovered a number of examples of networks that developed because of internal, shared interests and visions of provider administrators. In one case a number of CAHs worked together on quality issues involving peer review. In another site, the close personal ties between hospital chief executive officers (CEOs) made it possible to move smoothly toward a more collaborative structure for several CAHs that might otherwise have gone their separate ways. The support hospital was afforded some protection against encroachment from other larger hospitals, while the smaller hospitals received access to a teleconferencing system, EKG reading support, billing and coding support, equipment purchases, cardiology support and specialty physician clinics. The support hospital is running a training program that can be used by the CAHs in the network for radiology technicians and emergency room (ER) nurse training. A more tacit benefit that was unexpected was the increased presence that these hospitals gained in relation to the state hospital association. These represent opportunities for collaborative ventures and networking success to foster continuing efforts with increasing degrees of investment/commitment to the continued operation and survival of a network. Larger Facilities Need to See Smaller CAHs as Partners These comments from CAH administrators point to ways in which the support facility can interact with the CAH so as to minimize fears about loss of autonomy. It can "give CAHs the sense that they are in charge and that support hospitals are facilitating their development." The more flexible the larger hospital's management team, the easier this balance is to achieve. However, it does not depend solely upon the relationships that develop between the administrators. "Relationships must begin at the physician level so that they are ready and willing to conduct outreach efforts with the smaller hospital's medical staff." The administrators must be in tune with each other, but if the physicians are not, the whole effort can be undermined. The CAH management team often must explore ways to educate the support hospitals (especially middle management) as to what is involved in running a CAH and how operations need to be configured. A potential trouble spot is an increase in errors related to transfers between the support hospital and the CAH. A CAH's selection of an affiliate hospital is a cornerstone of the Flex Program. However, the development of effective network affiliations between CAHs and support hospitals has been limited. Although some CAHs receive significant benefits from their support hospital affiliations both in terms of services and access to capital resources, many CAHs do not. There are a variety of possible explanations for why some hospitals currently are not involved in effective network affiliations. For example, hospital administrators may have had their hands full with pending financial crises and needed to focus on CAH conversion as quickly as possible for financial relief. Other hospitals, by virtue of their leadership, organizational culture, or history, may never have been interested in network membership and did not find sufficient incentive in the Flex Program to change their attitudes. Successful affiliations are more likely when the need is evident, intentions are known and expectations are clear. Bringing these ingredients together and convening potential partners takes time and energy. At this point in time, it is impossible to determine the potential benefit of a supportive network affiliation for the conversion and operation of CAHs. We know that some network relationships work very well but we don't know if the ingredients of their success can be generalized to other environments. We expect that as CAHs stabilize their finances it will become easier to identify how network relationships may play a supportive role. Our observations of rural health networks to date suggest that the most likely form that post-conversion affiliations will take is that of a horizontal network (i.e., hospital to hospital) and that the most likely way that non-acute care providers will be involved will be through their existing corporate ties with the hospitals involved in the network. The degree to which CAH network forms may differ will depend largely upon the existence of market incentives (e.g., revenue opportunities, regulatory relief, and state guidance). Chapter 3D: Local Networking Strategies Used by Critical Access Hospitals RHFP
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