Many rural hospitals are badly in need of facility investments, if one considers their age and condition. The business case for such investments is often less clear, however. With high construction costs and scarce access to capital, both independent hospitals and systems operating in rural settings need to ensure that their facilities are the right size to serve their patient populations. Informed decisions, for any size project, are driven by volume growth and timing. The volume projections for a new facility must be as accurate as possible, and in the current environment, to make accurate projections, it is necessary to understand the impact of the recent recession on patient volumes.

A national study of 91 critical access hospitals (CAHs) that replaced facilities between 2000 and 2010 disclosed a difference in performance between CAHs that were replaced more than three years ago and those that were replaced three years ago, just before the beginning of the economic recession of December 2007 through June 2009.

The top exhibit depicts the median cumulative growth in volume, as measured in adjusted patient days, experienced by CAHs in the years immediately following facility replacement. Because the actual year of replacement is different for each hospital, the data are standardized into the length of time following replacement. Two groups are shown: hospitals with three years of operation following replacement (newer replacements) and hospitals with more than three years of operation following replacement (mature replacements). Year 1 represents, for each hospital, that fiscal year in which the
hospital operated for at least six months in the new facility.



Both newer and mature replacement facilities experienced strong volume gains in the first two years following replacement, with median cumulative growth of 18 percent and 16 percent, respectively. Mature replacements continued to grow in years 3, 4, and 5, but more slowly. Newer replacements showed a decline in volume during year 3. The trends suggest that the recession may have adversely affected both groups, but the impact appears to have been greater on those facilities replaced or just beginning operations in new facilities during the recession. It is important to note, however, that even with the recession's dampening effect, the overall volume increase of 12 percent for newer replacements indicates some resistance to the severe volume losses reported by other rural facilities.

Evaluating volumes by calendar year rather than by period following replacement provides some additional insight into the different volume performance between the two groups. From this perspective, mature replacements experienced declining levels of growth during this five-year period, but had positive experience overall. Newer replacements experienced large volume increases in 2007 (year 1), but growth dropped quickly in 2008 (year 2), and volume actually declined in 2009 (year 3).

Sizing a facility to the size of the market is among the most important considerations in a hospital facility replacement project. The recent recession only added to the challenge for hospital leaders and boards in making this assessment, but the data suggest that facility projects in rural hospitals have been resistant to the significant declines reported through the industry.

Publication Date: Monday, January 03, 2011

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