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As the only acute care option for the 17 percent of Americans who live in rural areas, rural community hospitals are a key delivery resource for health care in our country. Rural hospitals provide emergency, outpatient, long-term care, and many other services locally for residents and are key access points for larger acute care hospitals caring for sicker patients. However, due to the demographic and economic realities in rural areas, economic sustainability is becoming increasingly difficult. According to a report published by the CDC in April, rural hospitals had a higher percentage of inpatients aged over 65 (51 percent) than did urban hospitals (37 percent), and the average number of diagnoses and average length-of-stay also were lower in rural hospitals, creating an uphill reimbursement battle. Rural hospitals also often serve as entry points for higher levels of care performed at larger regional hospitals. According to the same study, patients in rural hospitals were transferred to other acute care hospitals 7 percent of the time, while urban hospitals transferred their patients only 3 percent of the time.
Over the past several years, independent community hospitals—especially those in rural communities and those not designated as critical access hospitals—have been asking themselves: When should we seek affiliation? The answer is now. However, this assertion does not mean leadership should forego seeking capital through traditional routes, or should make recommendations to the Board to seek to sell, shut down, or merge with another facility. It does mean that leaders should be considering what types of affiliation options exist and how to access the capital needed to deploy this strategy. Leaders of rural community hospitals should realize that traditional options such as the debt markets, sale-leaseback structures, taxes, and outright asset sales may not be the only path.
Leadership can fight the uphill battle against reimbursement pressure by seeking alternative types of affiliation as well. Hospital executives should communicate with their boards to educate them on these options. They should view affiliation as a type of managed integration within the delivery system as a whole. The important thing is for leaders to take an active approach to managing the current relationships that exist along the spectrum, and focus on creating new ones where they are lacking and leveraging existing networks for financial success.
Many rural hospitals have strong and productive relationships with federally qualified health centers and long-term care providers that have mutually aligned incentives and goals. These types of relationships can be extended to all ancillary services in the community, including hospice, home health, imaging, ambulatory surgery, and others. This strategy can facilitate the adoption of new payment models that emphasize clinical integration and risk-based reimbursement. Rural communities will naturally be slower to adapt to these types of care models based on geographic and demographic limitations, but rural hospitals cannot ignore these changes.
Likewise, large hospital systems and tertiary and quaternary providers that depend on independent rural hospitals for admissions should investigate how they fit into the plans of these hospitals and leverage rural care delivery systems as the low-cost and most efficient local option. The risk- and value-based models will drive large acute care facilities to integrate with local providers to reduce expenses and improve patient satisfaction. The solution for large hospitals, therefore, is not only to look at acquiring a rural facility but also to seek to understand the nuanced relationships that exist and improve integration.
When assessing integration, hospitals first need to define their role in the continuum of care. What are the services the hospital provides to the community, and what are the services that are fundamentally not feasible? For instance, hospitals that do not provide tertiary and quaternary care should understand where their patients receive this care and proactively manage the relationships with these hospitals. A merger or other formal affiliation with a tertiary or quaternary partner might be the best approach. Before deciding whether to explore such an option, however, the hospital should define and understand the relationship. Rural hospitals are fundamental as entry points for tertiary and quaternary care and often provide the highest value for the continued care a patient might receive after a tertiary or quaternary episode. Managing the integration that already exists with quaternary and tertiary partners is a good way to stay relevant and fulfill a rural hospital’s mission, vision, and values.
Peter Salisbury is a Senior Consultant, The Camden Group, Los Angeles.
Publication Date: Thursday, May 22, 2014
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