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Rural Hospital Flexibility Program Tracking Project

Introduction

In 1997, the U.S. Congress made an important decision to invest significantly in America's rural hospitals when it created the Rural Hospital Flexibility Program (Flex Program) as part of the Balanced Budget Act (BBA). In the years leading up to the authorization of the BBA, there was growing concern about the plight of our country's small rural hospitals as reports of their closures and a resulting decline in access to care were prevalent. Communities in rural America have long struggled to keep their doors open in the face of competition for markets, accelerating capital and technical requirements, a dwindling population base, lagging economic growth, disproportionate rates of uninsurance and poor insurance, health professional shortages, and changing federal reimbursement policies. In particular, the reimbursement level afforded under the Prospective Payment System (PPS) hit many rural hospitals hard and the Flex Program was designed to relieve some pressure on these hospitals. 

There are five main national goals for implementation of the Flex Program in the states and participating hospitals. These include: 1) preparing a state rural health plan, 2) converting eligible and willing hospitals, 3) improving quality of care, 4) promoting networking among hospitals, and 5) improving emergency medical services.

Two Components in the Flex Program

The Flex Program has two central components. One is the Critical Access Hospital (CAH) program, administered by the Centers for Medicaid and Medicare Services (CMS, formerly the Health Care Financing Administration, or HCFA). It allows CAH-designated hospitals ⁱ to be reimbursed by Medicare for both inpatient and outpatient services on the basis of their current Medicare-allowable costs. 

The second component of the Flex Program, administered by the Federal Office of Rural Health Policy (FORHP), is a four-year, $25 million per year grant program that awards up to $775,000 to states to be used as needed to improve rural health systems. This grant program expires at the end of FY 2002-2003, unless renewed by Congress.

Designated hospitals are exempt from the inpatient and outpatient PPS for Medicare patients, but are subject to home health and skilled nursing facility PPS. CAH swing beds are paid on a cost basis since the passage of the Benefits Improvement and Protection Act (BIPA) of 2000. These hospital reimbursement mechanisms are authorized by Congress to continue indefinitely. In 19 ⁱⁱ states, Medicaid has followed Medicare's lead and pays allowable costs for services, as well. Provisions of BIPA have improved payments to CAHs in several significant ways ⁱⁱⁱ, and its passage may prompt more eligible hospitals to convert to CAH status.

Medicare is the largest purchaser of health services from hospitals and plays a larger role for rural hospitals than for those in urban areas because rural populations are generally older. As such, Medicare has a number of special payment categories for rural hospitals, of which CAH is the newest. Other enhanced reimbursement programs include a designation for "geographically-reclassified" hospitals to be paid under a wage index other than rural, the "rural referral center" program that supports high-volume rural hospitals treating a large number of complicated cases, the "sole community hospital" designation that provides a higher percentage payment to hospitals that are geographically isolated, the "Medicare-dependent" hospital reimbursement plan for hospitals with an unusually large percentage of Medicare patients, and the "swing bed" program that allows hospitals to use beds for either acute inpatient care or post-acute care. 

There are other Medicare programs that support rural hospitals that focus on outpatient care, such as "Rural Health Clinics," and there are programs, such as the "disproportionate share" program, that support both urban and rural hospitals in a way similar to the Medicare dependent hospital program. The cost-based payment aspect of the CAH program is different from these other programs because it provides more protection from extreme loss on inpatient care. The CAH program has the potential to reduce hospital losses by increasing Medicare inpatient reimbursement to allowable cost levels and insulating the hospital from the impact of the new Outpatient Prospective Payment System (OPPS)--although most rural hospitals have a "hold harmless" provision on OPPS.

The CAH model is an outgrowth of previous experiments with limited licensure hospitals. The new Flex Program draws on those experiments by combining the best elements of them, while allowing states significant flexibility in key program parameters (broad state interpretation was absent from the Essential Access Community Hospital-Rural Primary Care Hospital [EACH-RPCH] experience). 

This document describes the Flex Program's second-year experiences. In particular, we have focused on the:

• Role of state agencies and organizations in program implementation.

• Critical access hospital characteristics and conversion experiences.

• Hospital issues, including conversion, scope of services, networking, finances, quality of care, planning, physicians and administration.

• Emergency medical services initiatives at state and local levels.

• Community development activities in CAH communities.

• Reasons why some eligible rural hospitals don't convert.

Provisions and Goals of the Flex Program 

CAH designation is available in any state (except Rhode Island and New Jersey, which have no rural hospitals) that chooses to set up such a program and provide CMS with the necessary assurances. To be designated as a CAH, a facility must be located in a state that has an approved rural health plan, and must be located in a rural area more than a 35-mile drive from any other hospital or CAH (in mountainous terrain or in areas with only secondary roads available, the mileage criterion is 15 miles), or must be certified by the state as being a necessary provider of health care services to residents in the area.

The CAH's average per-person length of stay must be 96 hours or less annually (it was originally set at 96 hours per case by the BBA, but the Balanced Budget Refinement Act revised it to an average 96 hours). CAHs are limited in size to 15 beds. An additional 10 beds may be set up as beds that can be used for skilled nursing facility (SNF)-level care (swing beds). While all 25 beds can be used as swing beds, only 15 of the 25 can be used for acute care.

Each state must have at least one rural health network. A network is defined as an organization consisting of at least one CAH and at least one full-service hospital, the members of which have entered into certain agreements regarding patient referral and transfer, communications, and patient transportation.

Each CAH that is a network member is required to have entered into the agreements discussed above. In addition, each CAH in a network must have an agreement for credentialing and quality assurance with at least one hospital that is a member of the network, or with a Peer Review Organization (PRO) or equivalent entity, or with another appropriate and qualified entity identified in the rural health care plan for the state.

As we emphasize throughout this report, the Flex Program is much more than the CAH program. Quality improvement, emergency medical services (EMS) and networking activities are the key features of the second (grant) portion of the Flex Program.

The FORHP is working in close partnership with state offices of rural health and related state-based entities to ensure the success of the program. Another important partner in program implementation and monitoring is the Flex Program's Technical Assistance and Services Center (TASC), which operates out of the National Rural Health Resource Center in Duluth, Minnesota (see the Web site: http://www.ruralresource.org/index.asp).

One of the strengths of the Flex Program is that there is federal leadership, backed by significant resources, with implementation provided through partnerships at the state and local levels. A resulting issue, however, is the variety of interpretations of the federal vision, and the consequent variety of implementation strategies and policies at state levels. One of the overarching goals of the Tracking Project (described in the next section) is to allow the FORHP to learn from the states about what works well in implementing the Flex Program locally.

The Tracking Project

FORHP has contracted with five rural health research centers and the Rural Policy Research Institute to track the grant program and document its successes and opportunities for improvement. 

The goal of the Rural Hospital Flexibility Program Tracking Project ("Tracking Project") is to maximize the effectiveness of the Flex Program by tracking and reporting implementation successes and barriers. The centers engaged in the Tracking Project are based at the University of North Carolina (UNC), the University of Southern Maine (USM), the University of Minnesota (UM), the Project HOPE Walsh Center for Rural Health Analysis (HOPE), the University of Washington's WWAMI Rural Health Research Center (UW), and the Rural Policy Research Institute (RUPRI) at the University of Missouri. RUPRI is responsible for disseminating research findings (see Appendix A for more about dissemination) and for managing the project Web site (http://www.rupri.org/rhfp-track/). The UW provides coordination for the Tracking Team. 

The Tracking Project's objectives are to:

• Provide a continuous stream of information on program implementation to the FORHP and the states;

• Conduct surveillance sufficient to allow early adjustments to optimize program performance;

• Disseminate good practices, policies and ideas; and

• Produce an annual report on findings.

Methods

Site Visits

During this second year ("Year 02") of the four-year Tracking Project, the research centers visited eight states and 16 CAHs. The research centers at Southern Maine, North Carolina, Minnesota and Washington conducted an equal number of these visits (two states and four hospitals each). Project HOPE accompanied site visitors in Oregon, Michigan and West Virginia for purposes of tracking EMS system changes attributable to this program. Project HOPE also visited South Dakota, for purposes of learning about EMS (see Appendix C for a list of sites visited).

Each of the visits was conducted by a team from one of the five collaborating rural research centers using a common, semi-structured site visit protocol (see Appendix D). This protocol focused on most of the same issues covered in our first-year site visits, but included additional items related to special studies that centers were conducting in this second year. Each site visit team was responsible for preparing site visit reports. 

In addition to visiting these new states and sites, Tracking Team members made telephone calls to each of the 12 states and 24 hospitals we visited last year to learn what happened since our visits. Site visit and telephone call reports were shared among the centers.

Physician Survey

Project HOPE conducted a mail survey of physicians who are affiliated with one of the 158 CAHs that had been designated prior to April 2000. Electronic telephone listings were used to identify physicians practicing in the CAH's market area, defined as the CAH's ZIP code area and all contiguous ZIP code areas. Each CAH was then telephoned, and staff there were asked for a list of physicians who either treated patients at the facility or had some affiliation with the facility. The final sampling frame contained physicians who appeared on the list provided by the CAHs and on our telephone list of market area physicians. 

A packet was mailed to 621 CAH-affiliated physicians containing a personalized cover letter, the survey instrument, a business reply envelope, and an honorarium check for $20. A reminder postcard was mailed to surveyed physicians who had not responded after the first week. Follow-up reminder calls were placed to non-responding physicians beginning three weeks after the initial mailing. The data collection period continued for approximately eight weeks. A total of 471 physicians responded to the survey. More details are provided in Chapter 3H, and a copy of the survey instruments is presented in Appendix D.

Tracking Hospital and State Activity

UNC engaged in continuous monitoring of activities in the states through e-mail and telephone contacts. UNC identified a "Flex contact" in each state, and these individuals are contacted regularly by telephone and/or e-mail to collect data. Contacts at CMS were also identified in 1998 and 1999 and continue to provide information about newly designated CAHs as they enter the CMS reporting systems. Communication with these state Flex contacts occurs on a monthly basis, at which time updates to the CMS reporting systems are shared.

The core data set contains hospital identification numbers, activity status, and contact names. 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 collected from the contacts in the states and through federal agencies are then merged with other data sets to create a relational database. See details in Chapter 2.

Other Data-Gathering Activities

The UW compiled information from each state's applications for funding for fiscal year 2000-2001, presented in Appendix B.

UNC reviewed Medicare cost reports for CAHs, presented in Chapter 3E.

The UW conducted telephone interviews with 36 administrators of eligible rural hospitals that had not converted to CAH status. Results are presented in Chapter 6.

Survey of CAH Administrators

One of the primary data sources for this year's report was a telephone survey of the administrators of CAHs certified as of September 1, 2000. There were 239 eligible CAHs, and 217 (92%) responded to the survey fielded by the Survey Research Center, Division of Health Services Research and Policy, University of Minnesota. The survey collected information on CAH governance, administration and infrastructure, the decision to convert, strategic planning, scope of services, EMS, quality assurance and improvement activities, and access to capital. The survey instrument appears in Appendix D.

Figure 1 provides information on the geographic distribution of the CAHs that responded to the phone survey across 29 states. CAHs in the sample had strong representation in the Midwest and limited representation in the Far West and Eastern parts of the country.

Table 1 profiles how the acute care capacity of these hospitals compared to the program guidelines and underscores the degree of change that occurred with program participation.

In large part the inpatient capacity of hospitals that converted to CAH status required little adjustment. Two thirds of the hospitals met the 25-bed limit before they converted to CAH and nine of ten had fewer than 37 beds. The decrease in average bed size reflects the truncation to a maximum of 25 beds for all participants.

At least 90 percent of the hospitals reported a pre-conversion length of stay of 4.2 days or less, with three-quarters of the facilities well under the program limit. As might be expected, there was a decrease in average Medicare length of stay after conversion. While only three-quarters of the pre-CAH hospitals reported length of stays less than four days, 99 percent of the CAHs reported lengths of stay of four days or less after conversion.

Both physician and mid-level staff grew following the conversion to CAH status. There was a modest two percent gain in medical staff for these hospitals following conversion. The number of mid-level practitioners on staff grew more dramatically with a 13 percent gain. At least eight of the 47 new mid-level practitioners were employed at hospitals that had previously reported no mid-level practitioners.

Table 1.  Characteristics of CAHs in Phone Survey Sample (n=217)
	Before CAH Average	After CAH Average
Total beds (set up and staffed)	22.68	18.30
Length of stay (all inpatients)	3.28	2.93
Length of stay (Medicare patients)	3.35	2.99
Physicians on staff (MDs and DOs)	4.82	4.93
Mid-level practitioners (NPs and PAs)	1.69	1.90

The Year 02 Tracking Report

As indicated throughout this report, the pace of implementation in the Flex Program has increased dramatically in the second year.  The number of hospitals that have converted to Critical Access Hospital status has more than doubled in the last year.  As important as these conversions are as indicators of program success, there are critical, collateral activities, many of them undertaken by the states, that are also useful indicators of the extent of implementation success and, to a limited extent, of program impact.  From rural health plan development and implementation to providing funding and technical assistance for hospitals and communities to build and/or strengthen their rural health networks, the states' roles in the Flex Program have been growing and evolving.  As might be expected by the pace of hospital conversions, we have seen a corresponding increase in these collateral, state-level activities in the second year of the Flex Program.

Figure 1.  Distribution of Critical Access Hospital CEOs Who Responded to the Survey (n=217)

Chapter 1: The Evolving State Role in the Implementation of the Rural Hospital Flexibility Program  

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Footnotes

ⁱ There were 401 CAHs as of May 1, 2001, or about 18 percent of all rural hospitals. 

ⁱⁱ 17 states reimburse allowable costs for both inpatient and outpatient Medicaid services; Minnesota reimburses only for outpatient services and California reimburses for only inpatient services. 

ⁱⁱⁱ BIPA Sec 201 eliminated beneficiary cost-sharing for lab services and changed hospitals to cost-based reimbursement rather than a fee schedule; Sec 202 allowed an all-inclusive payment for physician services at 115 percent of the fee schedule; Sec 203 put CAH swing beds on cost-based reimbursement; Sec 204 pays CAHs for emergency room (ER) on-call physicians; Sec 205 allows eligible CAH-owned and operated ambulance services to be cost-based; and Sec 206 launched a General Accounting Office study on the feasibility of distinct part units as part of CAHs and the effects of seasonal variations on CAH census (report due December of 2001).

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