By Lauren Phillips 

Small and rural hospitals have the advantage of being nimble and having to corral fewer people to consensus than large hospitals, but finding information technology skills and funds is often a constant struggle. The nontraditional financing approaches highlighted in this article may help shrink the disparities between small/rural and large/urban hospitals.

Given the high cost and complexity of electronic health record (EHR) implementation, it is not surprising that small and rural hospitals continue to lag behind: Only 13.9 percent of small hospitals and 12.9 percent of rural hospitals were in a position to qualify for Stage 1 meaningful use incentives at the end of 2011, according to a May 2012 Health Affairs study.a In comparison, 29.7 percent of large hospitals and 20.3 percent of urban hospitals qualified.

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In fact, this EHR gap grew from 2010 to 2011: Small and rural hospitals that had some form of EHR jumped about 10 percent in that time, compared with 17.3 percent and 12.1 percent growth for large and urban hospitals, respectively.

Yet, says Tracey Mayberry, partner, CSC Healthcare Group, most organizations understand that, even if they can’t move fast enough to meet the deadlines for meaningful use incentive payments, they must act in time to avoid the penalties for noncompliance that go into effect in 2015. To do otherwise “is really almost an admission that you’re done as a hospital.”

The problem, of course, is resources?or rather, the lack of them. “Hospitals in the rural market find it difficult to make the significant investment in EHRs due to constraints in available financing, competing priorities for limited capital dollars, and thin operating margins,” says HFMA’s Todd Nelson, technical director for senior financial executives/accounting.

While bank loans and other traditional financing options may be an option for some well-positioned small/rural facilities, others may find better luck with philanthropy and nontraditional financing approaches, such as the ones highlighted in this article. 

Government Funding Opportunities

Small and rural hospitals have a number of government-sponsored funding options to explore, says Aaron Fischbach, public health analyst, Federal Office of Rural Health Policy. 

Community Facility Direct and Guaranteed Loan Program.
 Under the auspices of the U.S. Department of Agriculture’s (USDA’s) Rural Development offices, the Community Facility program covers health IT and is intended to foster compliance with meaningful use in not-for-profit and public hospitals and clinics in communities of less than 10,000 people.

The Community Facility program has little grant money, says Fischbach. However, hospitals can use anticipated meaningful use incentive funds as collateral to borrow funds from the Community Facility program. The terms on these loans give hospitals enough time to implement an EHR, attest to meaningful use, and then use the incentive payments to repay at least a major portion of the loan.

Clinics need to take a more circuitous route. Unlike hospitals, clinics do not qualify for direct EHR incentive payments; instead, the Centers for Medicare and Medicaid Services (CMS) program pays their clinicians, who typically reassign the payments to the clinic under their employment agreements.

USDA and Small Business Administration loans. To the extent that for-profit hospitals can prove that job retention and/or creation is involved, they can apply for loans or loan guarantees to cover IT improvements from the USDA Rural Development’s Business & Industry Program or from the Small Business Administration’s capital loan programs.

USDA Rural Development also sponsors three other programs where hospitals can look for funding assistance with telecommunications software, hardware, and connectivity:

  • The Rural Utilities Service Telecommunications Infrastructure Loan Program
  • The RUS Broadband Initiatives Program
  • The Distance Learning and Telemedicine Loan and Grant Program

HUD block grants. Hospitals in counties or cities that are Entitlement Communities and, thus, eligible for monies under The U.S. Department of Housing and Urban Development (HUD) Community Development Block Grant Program, may qualify for funds for equipment designed to provide improved community facilities and services?including hardware to improve health services.

CAH-specific programs. Critical access hospitals (CAHs) and other hospitals with fewer than 49 beds can apply to their states for funds to help with activities related to quality improvement and the effective use of IT, which are available from the Health Resources and Administration’s Small Hospital Improvement Program (SHIP) and Medicare Rural Hospital Flexibility Grant (Flex) Program. Fischbach explains that these programs grant money to the states for assistance to hospitals to provide, for example, technical or training help?rather than funds to purchase hardware or software.

Rural Health Care Program. One program that Fischbach says is “very under-subscribed” is the Rural Health Care Program, run by the Universal Service Administrative Company under the oversight of the FCC. “Every monthly bill for phone service includes a universal service fee. Those fees are used to subsidize the costs of telecommunications for public and not-for-profit healthcare providers in rural areas, which may pay four or five times as much as their nearby metro counterparts for the same services. The subsidies can be significant?and there is a lot of money that isn’t being spent right now.” 

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Networking Opens Other Doors

One way small hospitals can obtain IT resources is by joining networks and consortia that take advantage of discounted pricing and economies of scale. Mayberry has seen a number of community hospitals leverage strategic partnerships?either by affiliating or by joining large, mature independent delivery networks?to gain access to solutions, products, and talent they might not otherwise be able to afford.

“Smaller organizations with non-overlapping geographies can form collaboratives to work on IT initiatives, especially if they have a common vendor. For example, they might start a shared service organization, essentially combining their IT operations,” he says.

Fischbach cites another advantage of affiliation. “Small, independent hospitals tend to be the last priority for vendors that can make more money working with a big health system like Mayo or Kaiser Permanente. So if the small hospitals can group together, they can not only save on hardware purchases but they can also probably get the attention of a vendor sooner.”

To encourage collaboration among rural providers, HHS allocated $12 million in 2011 for grants to networks of rural healthcare organizations in support of IT adoption and and meaningful use. The money must be used for purchasing technology, installing broadband networks, and training staff.

In 2011, when 25-bed Jersey Shore Hospital in north central Pennsylvania decided to team up with 21-bed Fulton County Medical Center in McConnelsburg, 2.5 hours away, the two CAHs didn’t even know about the availability of these HHS grants. They were just looking for a means to share IT resources needed to achieve meaningful use, including joint installation of an EHR that would otherwise have cost each organization an estimated $2.3 million, according to Carey Plummer, Jersey Shore’s CEO.

Thanks to the Pennsylvania Mountains Healthcare Alliance, a 19-hospital collaborative to which both belong, they found each other, a partnership that has saved each some $300,000 on EHR implementation?and provided grant money, too. Both hospitals expect to attest to stage 1 meaningful use criteria by Sep. 1, 2013. (For more details, see the case study " Two CAHs Team Up to Achieve Meaningful Use" in this newsletter.) 

Vendor Relationships

Not all small and rural healthcare organizations are struggling to find IT dollars and meet meaningful use deadlines; some of them were close to the finish line when the American Recovery and Reinvestment Act was enacted. Winona Health Services, a Minnesota system consisting of one 99-bed hospital, a nursing home, an assisted living community, and 45 employed physicians, started its EHR journey more than 10 years ago and was ready to attest in November 2011, says CFO and treasurer Michael M. Allen, FHFMA, CPA.

“We really just needed to go the last mile. There were a few small pieces of functionality to put in place, and there was still work to do with the medical staff to bring a few operational processes in line with meaningful use criteria.”

Central to Winona’s success, according to Allen, is something he recommends that every small hospital pursue: a close, strategic, integrated relationship with its EHR provider.

“As a small, independent system that wanted to accomplish big things, we knew we’d get lost in the shuffle with any vendor if the relationship was simply based on a transaction. The EHR is so critical to the goals of the organization and of the community. You need to feel comfortable with your partner, and be able to work together over the long haul.”

Despite due diligence, Allen cautions that hospitals are not going to fully understand what they’re getting from a vendor at proposal time; it’s just too complex.

“Increasingly, however, EHR systems are going to cost about the same and have about the same functionality. If you have a strong, give-and-take relationship, the cost and other issues will fall into line.”

What does a give-and-take relationship look like from the provider side? Feedback plays a prominent role. Allen himself sits on the vendor’s client care council with 35 or 40 other hospitals and systems.

“We get together at least twice a year and at other times on the phone, and work on improvements and solutions to problems in the delivery or use of software or the billing for software?whatever it might be. It’s rewarding from my perspective because I’ve got colleagues from all these other places in the room, and we learn from each other.”

Likewise, Winona physicians sit on the vendor’s physician council, which focuses on how physicians use the software to improve patient care and workflows, and how changes could enhance and accelerate those improvements.

“We also open ourselves up for site visits by other small hospitals that want to see how the system is working,” says Allen. “The vendor organizes the visits, but it still takes a day of our time every time.”

In return, Allen explains, the vendor helps Winona mature its software. “Maybe they need a beta partner for some new software, which is exciting and interesting but also very time intensive. So, typically, they will end up giving us that functionality or discounting it significantly.”

Sometimes there are gray areas in the agreement, things the provider and vendor don’t see eye to eye on. Because Winona has been generous in working with the vendor, “they’re going to be more flexible and understanding,” says Allen.

“If all you do is take, at some point the relationship is just not going to be there when you need it most,” he continues. “You need to make investments of money and effort both. Structure the contract in a way that you can manage financially, then roll up your sleeves and put in the time.” 

Maximum Value

Once a hospital has an EHR in place that will allow it to qualify for meaningful use incentives, how can the hospital be sure it is getting maximum value from that system? The trick, says Jim D’Itri, partner, CSC Healthcare Group, is to not stop there.

“In a small way, meaningful use is pushing the effective application of automation to make the hospital more efficient, but it doesn’t go far enough in terms of safety and quality. The hospital has to engrain the meaningful use values into its culture, into its normal workflows. For example, meaningful use requires 30 percent of medical orders to be done through computerized provider order entry. But it makes no sense to stop at 30 percent.”

Meaningful use, like the EHR, is part of a much bigger agenda, says D’Itri. “In the end, it’s about harmonizing investments to foster accountability, assuming responsibility for the health of a population, and managing consumption wisely.”

 a DesRoches, CM, et al, “Small, Nonteaching, and Rural Hospitals Continue to Be Slow in Adopting Electronic Health Record Systems,” Health Affairs, April 2012, vol. 31, no. 7. 

Lauren Phillips is president, Phillips Medical Writers, Ltd., Bellingham, Wash., and a frequent contributor to Strategic Financial Planning (

Interviewed for this article (in order of appearance):

Tracey Mayberry is partner, CSC Healthcare Group, Powell, Ohio (

Todd Nelson, technical director for senior financial executives/accounting, HFMA, Westchester, Ill. (

Aaron Fischbach is public health analyst, Federal Office of Rural Health Policy, Rockville, Md.

Carey Plummer is CEO, Jersey Shore Hospital, Jersey Shore, Pa (

Michael M. Allen, FHFMA, CPA, is CFO and treasurer, Winona Health Services, Winona, Minn., and a member of HFMA’s Minnesota Chapter (

Jim D’Itri, partner, CSC Healthcare Group, Pittsburgh ( 

Government IT Assistance: Looking for Guidance?

A good place to turn is the 70+ Regional Extension Centers, funded by the Office of the National Coordinator, which offer technical assistance, guidance, and information on best practices to support and accelerate providers’ efforts to achieve meaningful use. This includes on-site technical assistance to “priority primary care providers” that have not yet adopted an electronic health record (EHR) or that have certified EHR technology but need help meeting meaningful use criteria.

Find the extension center that serves your region at



Leasing Now an Option for CAHs

Many critical access hospitals (CAHs) breathed a sigh of relief in July when the Centers for Medicare & Medicaid Services (CMS) changed its policy to allow CAH’s meaningful use incentive payments to include the cost of capital leases for certified electronic health record (EHR) technology.

Previously, while a CAH could include lease costs on its cost report, only reasonable costs to which purchase depreciation would apply were allowable for incentive payments. But in July, CMS decided that a capital lease is essentially the same as a virtual purchase agreement and meets the intent of the statute and regulation to qualify the leased asset as a purchased asset. The cost must be based on the fair market value of the asset at the date the lease was initiated. For more information about this reversal, visit

Publication Date: Wednesday, August 22, 2012