Chapter 3I: Administration in Critical Access Hospitals

Rural Hospital Flexibility Program Tracking Project

Chapter 3I
Administration in Critical Access Hospitals

Amy Hagopian, M.H.A., and L. Gary Hart, Ph.D.
WWAMI Rural Health Research Center, University of Washington

Introduction

Strong hospital administration is vital to the success of critical access hospitals (CAHs). Tracking Team members from the six collaborating centers visited 40 hospitals over the first two years of this project, and found a generally competent cohort of administrators and administrative teams who had led their organizations through CAH conversion.

The Rural Hospital Flexibility Program (Flex Program) requires local implementation within each participating rural community. The purpose of this chapter is to discuss the importance of hospital administration to the success of local implementation efforts, and to explore policy options to support the effectiveness of local leadership.

Tracking Team members believe there is an important relationship between successful hospitals and strong, knowledgeable administrators who create partnerships with the communities in which their hospitals are located. We were not surprised that the first round of CAH conversions was accomplished by administrators who learned of the program earlier than many of their peers, because of strong connections with their hospital associations and/or by reading national publications. Many of these individuals were willing to take some risks, and could technically navigate the largely uncharted waters of conversion protocols.

Literature Review
There is not an extensive literature describing the roles and practices of successful rural hospital administrators. In 1996, Stephen Mick¹ discussed the relationship between strategic management activity and the financial performance of rural hospitals. He noted the "rough consensus" that emerged over the previous decade that rural hospitals are not particularly able or adept market players (although there are exceptions). He concluded that if states or the nation want to nurture a network of thriving acute care hospitals, policy makers should not rely on an approach that is based entirely on the "individual strategic actions of each rural hospital." He advocated a "coherent federal and state policy, with appropriate levels of underwriting and subsidies, that acknowledges that rural hospitals require special considerations and subsidies." Presumably programs such as the Rural Hospital Flexibility Program would constitute such considerations and subsidies. Mick concluded, "Despite the findings of our own research and that of others, the fact is that most rural hospitals have not closed and have managed to keep going despite mediocre financial performance." He writes, "Rural administrators manage quite well considering their resource poor environments," and points out that they are particularly adept at finding funding sources from their communities to keep facilities open.

Despite Mick's recommendation that rural health policy avoid reliance on the individual hospital administrator's strategic initiative, most national and state policies have done just that. Individual hospital administrators and their governing boards have been responsible for the success or failure of America's rural hospitals. In contrast, it is the rare urban or suburban hospital that sinks or swims depending on the performance of a single administrator.

In Washington State, a long-time and well-respected rural hospital administrator, Gordon McLean², has likened the rural hospital to the bumblebee. "There is no logical or aerodynamic reason why a creature so designed should be able to fly." The implication is that it is the sheer death-defying will power and magical talent of administrators, boards, clinical staff and communities that keeps these animals aloft.

Hanh Trinh wrote another article on strategic management of rural hospitals in 1999³ in which he concluded, "some rural hospitals…like organizations in general, are able to pursue and alter a variety of strategies under harsh environmental/organizational constraints." In particular, the types of changes required by CAH conversion include formulating integration strategies, which Trinh found to require complicated coordination among organizations. While he did not examine the role of hospital administrators in particular in carrying through these strategies, these individuals are clearly critically important to the process.

Rita Harmata examined the link between planning and performance in her 1997 article in the Journal of Rural Health.⁴ She noted that "community-wide planning activities were important…in developing the will and ability to act" and that "The planning process should be broadly inclusive to generate the political support for implementing the plan." Clearly, it is up to hospital administrators and their boards to organize and invest in such planning activities.

In support of Harmata's findings, Hagopian et al (1997)⁵ reported that "strong" rural hospitals were more likely to have one or more board retreats per year, conduct an annual review of mission and goals, use active board committees, apply recruitment plans for new board members, and budget for continuing board education. These investments in governance require strong administration.

Mick and colleagues (1994)⁶ thoroughly examined various rural hospital strategic initiatives to discover what correlated with financial performance, and found no consistent connections. This finding forced him to conclude: "Explanations may reside in a broader formulation of strategy. Other indicators probably need to be examined, and they include measures of community support, private fund raising, increased local tax support, political finesse, and the like…." These factors are all related to the skill and talent of local hospital administrators.

Keith Mueller and colleagues reported in 1999⁷ that rural hospital reactions to marketplace changes varied from defensive (deflecting the "evils of managed care") to welcoming (managed care viewed as opportunities to improve). A key factor in explaining the differences is "local leadership," which includes the hospital administrator.

A review of rural hospital CEO careers in 1994⁸ showed that 74 percent of Washington State administrators had advanced degrees (compared to 93% for urban hospitals). Twenty percent of the state's hospital administrators had administered only rural hospitals, and 17 percent had begun in urban hospitals, but moved to rural ones. Only six percent moved from rural to urban hospitals.

Survey Findings

We hypothesized that CAH administrators would be more likely than their non-converting peers to be:

"Early adopter" types, more involved in their associations and more political,
Part of bigger systems that promote conversion, or
Financially desperate.

We believe our site visits support the first hypothesis. Many of the hospital administrators we met were on their state hospital association boards or involved in national association activities, and had learned about the CAH program opportunity well before their peers.

We do not have evidence to support our second hypothesis. The survey of hospital administrators conducted by the University of Minnesota for the Tracking Team in the winter of 2000 did not indicate that early converters were any more likely to be members of hospital systems than later converters.

Our third hypothesis was found to be likely true, although the evidence is far from conclusive. Hospitals that converted prior to the year 2000 were more likely to report financial losses (81% of them) than those who converted during the year 2000 (73% of them), according to the administrator survey. This supports our hypothesis that early converters might have been more financially desperate than later converters. State office of rural health staff are also telling us that later converters in some states are larger, more stable rural hospitals.

Administrator Turnover

Tracking Team members were aware that administrator turnover can be a serious barrier to strategic decision making, stability and progress in general. Some small hospitals can have significant turnover. This coupled with the fact that the boards that recruit and employ them are highly variable in their ability to steer these organizations, hospital survival is dependent largely on the quality of a few leaders.

There were three notableⁱ findings from the administrator survey with relation to administrator turnover:

Hospitals in a more desperate financial condition were more likely to have had more than two administrators during the last five years.
Among the 50 hospitals with high turnover in the last five years, 90 percent were in desperate financial straits.ⁱⁱ Among the 114 with lower turnover, 70 percent were financially "desperate." Among the desperate, 36 percent had high turnover, compared to 13 percent among the "not desperate." (p=.006, n=164)
Hospitals with lower turnover tended to be in communities that were rated "supportive" by the administrators.
While 62 percent of the low-turnover hospitals were in reportedly "high support" communities, only 46 percent of high-turnover hospitals were in "high support" communities. Among "high support" communities, 75 percent had low turnover, compared to 58 percent low turnover in low support communities. (p=.079, n=215)

Communities that support their hospitals with tax dollars have lower turnover in their hospital administration.
While 37 percent of communities providing no tax support had high turnover, only 25 percent of those with tax support experienced high turnover. Fifty-six percent of high-turnover hospitals received no tax support, and 57 percent of low-turnover hospitals received tax support. (p=.076, n=215)

Board Relationships

CAH administrators in general tended to be more likely to praise their boards than bemoan their lack of competence. In an open-ended question, we asked administrators to name the major strengths and weaknesses of the hospital organization in governance, administration and infrastructure. While 37 administrators named a weakness in relation to their boards, there were 86 administrators who said their boards were sources of real strength for the hospital.

Hospital Strengths and Weaknesses

Hospital administrators reported that their major problems were:

Inpatient census
Medicaid
Recruiting physicians
Medicare
Modernizing
Cash flow
State legislatures

They responded that their main strengths were:

Board and administration
Quality of care
Ancillary services
Relations with the state hospital association
Relations with the state office of rural health
Network relationships

A review of these lists reveals that:

No financial strengths were listed
Only 27 percent listed reputation as a strength
Only 36 percent reported scope of services was a strength
Few have initiatives planned related to reputation or scope of services

Strategic Planning

Two-thirds of CAH chief executive officers (CEOs) have strategic plans for their facilities. While this is the good news, the bad news is that a third do not even have such plans. Of the plans in place, the focus is on:

Modernizing equipment and physical plant; 50 percent
Recruiting staff; 50 percent
Recruiting physicians; 45 percent
Improving collections; 41 percent
Expanding scope of services; 36 percent
Improving reputation; 27 percent

Administrator Characteristics

While we can profile administrators with regard to various characteristics such as education, we found no data to suggest that any of these characteristics are associated with hospital strengths or weaknesses.

Results from the survey regarding CEOs are as follows:

Just over a third of the administrators (35%) were promoted from within the facility to the CEO job.
The average administrator had held his or her job almost six years.
The average hospital had two administrators during the past five years.
Almost a third of hospitals (30%) had more than two administrators during the last five years.
Half the administrators ended their formal educations with an undergraduate college degree.
Sixteen percent of the CEOs had an MHA, thirteen percent had an MBA, and two percent held MPH degrees.
The average age of administrators was 48, and 65 percent were male.
Forty-one percent of the CEOs reported their relationships with physicians to be excellent, and forty-three percent indicated that their relationships were very good (84% excellent or good).

Site Visit Findings
We visited at least three communities where new administrators during the last one to five years appear to have played a significant role in rescuing their hospitals from closure. In one community, there was a 20-year history of administrative turnover-ten administrators in twenty years. As might be predicted, this turnover was coupled with a reputation for poor quality care. The reputation seemed to be related to the group of physicians associated with the hospital. One physician, in particular, admitted many patients to the hospital but was known to have poor behavior with staff and patients and was not well respected. His financial value to the hospital, however, made the board and administrators reluctant to confront the problem. The physical plant had not been updated, and staff salaries lagged.

This city-owned facility was being run by a management company that provided both the CEO and the chief financial officer (CFO). There was a glitch, though. The management company was owned by the CEO assigned to this hospital, and the financial turnaround he was engineering seemed to be generated by unsustainable increases in the price structure. An audit revealed questionable practices, and the CFO, who had instigated the audit, was retained as administrator after dismissal of the management company. The new CEO convinced the board to suspend the privileges of the difficult physician whose admitting practices were suspect.

The turnaround for the facility came after this difficult period. The board made courageous decisions to restructure the hospital's leadership and make way for new physician staff. The new administrator hired seven new physicians over the past two years, and brought lab, ultrasound, physical therapy, and other diagnostic technologies back to the facility after they had been contracted out by previous administrators. The new administrator also convinced the board to convert to CAH status as part of the general package of reforms brought about by the turnaround. The $600,000 debt related to the previous administrator's price structure was repaid to Medicare, and the hospital has been breaking even ever since. Though the hospital's success can be attributed to new and effective leadership, the CAH program provided a tool for that leadership to use in the effort to keep the hospital viable.

Another hospital we visited is publicly-owned and had a history of administrative turnover, closed briefly in 1989, and was in danger of closing again five or six years ago. Prior to the arrival of the current administrator, the emergency room (ER) had been closed for several months. The current CEO, who arrived in the fall of 1999, is the seventeenth or eighteenth employed by the hospital in the past 25 years. Historically, the board engaged in micro-management (wherein the board manages at too detailed a level, which disempowers their CEOs and contributes to their not being able to focus on important strategic issues), a behavior of boards known to contribute to turnover or other dysfunction. One previous administrator had no experience in health care, but was a local elected official. She was hired during a time of serious financial distress for the facility. This individual, described as "dictatorial and confrontational," was alleged to have used retirement fund contributions during periods of cash flow difficulty. Lawsuits were filed by staff members. A variety of consultants were hired during this CEO's tenure, despite the poor reputations of these consultants in the industry.

Upon the termination of this administrator, the board managed to recruit an experienced and competent CEO who came recommended by nearby hospitals. His first priorities upon arrival were to improve employee morale and recruit physicians. The hospital started by recruiting a family physician and a nurse practitioner and now has a physician medical director who covers the ER, five additional new physicians, and a nurse practitioner.

The new administrator made himself visible in the community, and continues to make an effort to speak to community groups such as Rotary and Kiwanis. This was considered important to attracting patients back to the hospital after a long period of turmoil. Another effort of the administrator is to network with other hospitals and four American Indian tribes in the region. The hospital is also working closely with the local health department. Our site visitors felt that one of the reasons this administrator has been so successful was because of the strong collaboration among the four competent hospital administrators in the region, who have elected to be mutually supportive. These hospitals form a mini-network within a larger hospital network, and have found many creative ways to collaborate. For example, a project with the nearby American Indian tribe is using casino profits to purchase equipment and place the equipment at the most logical hospital.

In a third example, we visited a hospital that had been sold to a religiously-affiliated chain a couple of decades ago. The chain went through some difficulties with poor administration itself, and the hospital was threatened with closure. In the mid-1990s, local government entities created a consortium to purchase back the facility at a price of $2 million, but not before it lost its Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) accreditation and was put on probation by HCFA. Also during this time, three physicians lost their licenses (e.g., for substance abuse and fraud). Relations with the Federally Qualified Health Centers (FQHCs) in town deteriorated during this time, as the physicians were on staff there as well.

The current administrator was hired in the midst of this turmoil. She is one of the longest-term administrators in the state at this point, and is running one of the most isolated hospitals in a stand-alone arrangement. She found one loyal and competent physician to stand by the hospital, and recruited several additional J-1 waiver physicians and opened a Rural Health Clinic. The hospital is now planning a building replacement project, and is feeling quite optimistic. This was another example of an administrator who was active in her association and kept abreast of national affairs as they relate to rural hospitals. This meant she was ready when the CAH program came along, and seized the opportunity for her facility.

The state offices of rural health we visited had mixed reports on the state of hospital administration in their states. One state office reported a fair amount of rotation among administrators at CAHs and other small rural hospitals. About half of the individuals were reported to be "adequate " and the rest were "well over their heads." Confirming our hypothesis about the importance of effective administration in the decision to convert to CAH, the state office representatives reported that most of the struggling administrators were at facilities that have not converted and do not have plans to do so.

Tracking Team members were unlikely to visit hospital administrators who were in serious trouble. We usually selected sites on the recommendation of state office of rural health staff, who understood the goals of our project and were unlikely to recommend visiting hospitals that were failing or had poor administration. One site we visited in Year 01, however, was selected because it was one of only two available CAHs to visit in the state at that time. When we called this hospital to check back during Year 02, we discovered the first administrator had died while on the job several months after our visit. The new administrator seemed like a competent individual, squeezed out of his previous hospital administration job when the hospital was sold to a for-profit organization. He has not moved to the community where his new job is, however, and commutes from across the state a few days a week. His new position is very challenging, since the hospital has nearby competition (there is another small hospital in the county), suppliers were requiring cash to deliver goods because of a history of bankruptcy, and one of the two local physicians had just left. The nursing home on the hospital campus shares no services with the hospital and is privately owned by a local physician. The health department competes with the hospital by operating a Rural Health Clinic. Relations with the network hospital have not progressed, and the emergency medical system (EMS) operates at a basic-only level.

While this situation would seem disastrous to most, our intrepid interim administrator saw it as an interesting challenge. He made himself a list of short-term strategies, which included converting the ER to an on-call basis to save the huge fees being charged by the staffing agency, recruiting a new physician, applying for Health Professional Shortage Area (HPSA) status, applying for financing to upgrade radiology, and establish occasional specialty clinics. These changes coupled with the increased CAH reimbursement are moving this hospital closer to financial stability and improving quality of care.

The lesson from this situation is to underscore Stephen Mick's finding, cited earlier: despite the odds, the vast majority of these hospitals remain open, driven by compelling missions and administrators with guts and gumption. With a little support and direction from a state office of rural health or hospital association, these administrative jobs might be a little more manageable and might retain people in a ratio better than the current average of two administrators in five years.

Policy Implications

The Center for Health Care Leadership collaborated with Arthur Andersen Consulting, and Dr. Stephen Shortell of the University of California at Berkeley, to publish findings⁹ of a study on hospital quality that included a significant component on hospital leadership. The findings were that the following are factors that relate to improving quality and value (and they all depend on administrative leadership):

How does the administrator relate to the board? (Does s/he share information, decision making?)
Is there a customer-service ethic? (a culture of service, quality and value?)
Are physicians an active, positive part of the team? Does the administrator relate well to physicians?
Are performance incentives aligned with goals?
Does the culture seem open? Is there a spirit of teamwork and information sharing?

As we learned in the literature review on rural hospital administration, however, much of the work on hospital leadership is oriented towards managers of large urban or suburban facilities. The guidelines above would certainly relate to rural facilities as well as urban ones, but there are few organizations that work on upgrading the quality of rural hospital administration. This is not a serious focus of either university training programs, health system associations or government, although there have been a few isolated efforts. ⁱⁱⁱ

One of the benefits of the Flex Program is that it allows grantees at the state level to bring together hospital administrators for CAH meetings, where discussion and education can take place about current trends in the profession, common problems, and the celebration of successes. It has also allowed state office representatives and consultants to work directly on site in communities with hospital boards, facilitate networking among providers within towns, and promote networking among hospital administrators within a region.

Some of the activities that state offices of rural health and the Federal Office of Rural Health Policy (FORHP) may want to explore as they create opportunities for administrators to gain continuing education include:

Team building and communication
Strategic planning
Assessing community needs
Improving governance
Strengthening finances
Networking with other health providers in the same community
Networking with health providers in other communities
Improving quality of care
Working with physicians

A focus group we conducted with a group of CAH administrators in Washington State (June 2001) indicated that they very much appreciated having a new peer group with which to interact, and were eager for learning opportunities offered by the state office of rural health that they could attend together. As discussed above in the results sections, the hospital association involvement, financial stability, community support, application of inventive programs, and the like are all associated with CAH success. We believe that many of these CEO relationships and skills are being enhanced through Flex Program activities.

Chapter 4: EMS Activities Under the Rural Hospital Flexibility Program

Back to Table of Contents

Footnotes

ⁱ We present findings significant at the p<.10 level.

ⁱⁱ Desperate was defined as having a bottom line in the year prior to conversion of a positive $10,000 or less. We selected this definition prior to analysis of results. Seventy-four percent of CAHs lost money in the year prior to conversion, with the median loss equal to $200,000. A hospital breaking even (clearing $10,000 is basically breaking even) or losing money is by definition moving toward going out of business.

ⁱⁱⁱ The Association of University Programs in Health Administration has a grant from the Robert Wood Johnson Foundation to develop core competencies in several curricular domains, towards an evidence-based educational model. One of these domains will likely be "rural health," with competencies unique to rural health administration.

¹ Mick S. Commentary: The Future of Rural Hospitals in the United States. Health Care Manage Rev, 1996, 21(2), 26-28.

² McLean G. Speech to NW Regional Rural Health Conference, March 2001, Spokane, Washington. Contact: Whitman Hospital and Medical Center, Colfax, Washington 99111; 509-397-3435.

³ Trinh H. Are Rural Hospitals "Strategic"? Health Care Manage Rev, 1999, 24(3), 42-54.

⁴ Harmata R and Bogue R. Conditions Affecting Rural Hospital Specialization, Conversion, and Closure: A Case-based Analysis of Threat and Change. J of Rural Health, 1997, 13(2), 152-163.

⁵ Hagopian A, House P, Dyck S and Hart LG. Which Activities of Small Rural Hospital Boards are Associated with Success? WWAMI Rural Health Research Center Working Paper #43. November 1997.

⁶ Mick S, et al. Strategic Activity and Financial Performance of US Rural Hospitals: A National Study, 1983 to 1988. J of Rural Health, 1994, 10(3), 150-167.

⁷ Mueller K, Coburn A and Cordes S. The Changing Landscape of Health Care Financing and Delivery: How are Rural Communities and Providers Responding? The Milbank Quarterly, 1999, 77(4), 485-510.

⁸ Lishner DM, Robertson DG, Rosenblatt RA and Hart LG. Educational and Geographic Career Pathways of Rural vs. Urban Hospital Administrators. Hospital & Health Services Administration, 1994, 39(3), 359-367.

⁹ National Hospital Quality Improvement Survey. Study conducted by Arthur Andersen and the American Hospital Association. Knowledge Leadership Series, Issue 3. Available from Matthew Share at Arthur Andersen, 312-507-1269 or matthew.e.share@us.arthurandersen.com.

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