Strategic activity and financial performance of U.S. rural hospitals: a national study, 1983 to 1988

Service mix and financial performance in rural hospitals: A contingency theory perspective

BACKGROUND

Rural hospitals are increasingly at risk of closure. Closure reduces the availability of hospital care in rural areas, resulting in a disparity in health between rural and urban citizens, and it has broader economic impacts on rural communities as rural hospitals are often large employers and are vital to recruiting new businesses to a community. To combat the risk of closure, rural hospitals have sought partnerships to bolster financial performance, which often results in a closure of services valuable to the community, such as obstetrics and certain diagnostic services, which are viewed as unprofitable. This can lead to poor health outcomes as community members are unable to access care in these areas.

PURPOSE

In this article, we explore rural hospital service offerings and financial performance, with an aim to illuminate if specific service offerings are associated with positive financial performance in a rural setting.

METHODS

Our study used hospital organization data, as well as county-level demographics with periods of analysis from 2015 and 2019. We employed a pooled cross-sectional regression analysis with robust standard errors examining the association between total margin and service lines among rural hospitals in the United States.

RESULTS

The findings suggest that some services deemed unprofitable in urban and suburban hospital settings-such as obstetrics and drug/alcohol rehabilitation-are associated with higher margins in rural hospitals. Other unprofitable service lines-such as psychiatry and long-term care-are associated with lower margins in rural hospitals.

CONCLUSION

Our results suggest the need of rural hospitals to choose services that align with environmental circumstances to maximize financial performance.

PRACTICE IMPLICATION

Hospital administrators in rural settings need to take a nuanced look at their environmental and organizational specifics when deciding upon the service mix. Generalizations regarding profitability should be avoided to maximize financial performance.

Interorganizational Linkages and Service and Personnel Shortages in Rural Nursing Homes

Increased demands on nursing homes for more diversified and technically complex services pose particular challenges for rural facilities. Because coordinating mechanisms have been proposed as a management strategy to deal with these issues, we studied the relationship between interorganizational linkages and shortages of personnel and services in a sample of 152 rural Pennsylvania nursing homes. Significant shortages of health care personnel that are central to long-term care were reported, as were shortages of services, especially for ventilator-dependent and demented residents. Although no evidence exists that coordination efforts were effective remedies to these problems in early 1992, it is apparent that managing patient/resident flows between hospitals and nursing homes through contractual agreements and other forms of "coordination" was identified as a strategy. Further research is required to assess the effectiveness of these types of agreements in terms of ensuring the continuity and quality of long-term care services in rural areas.

Rural hospital nursing: results of a national survey of nurse executives

OBJECTIVE

The objective of the study was to describe nursing characteristics in small and larger rural hospitals and determine whether differences exist in market, hospital, and nursing characteristics.

BACKGROUND

A better description of nursing in rural settings is needed to understand the work context.

METHODS

A national sample of rural hospital nurse executives (n = 280) completed the Nurse Environment Survey and Essentials of Magnetism instrument.

RESULTS

Larger rural hospitals are more likely than small hospitals to have a clinical ladder (32.4% vs 19.4%), more baccalaureate-prepared RNs (20.8% vs 17.1%), greater perceived economic (mean, 9.5 vs 8.5) and external influences (mean, 41.1 vs 39.8), lower shared vision among hospital staff (mean, 18.4 vs 19.4), and higher levels of quality and safety engagement (mean, 16.9 vs 16.1). Most nurses employed in rural hospitals are educated at the associate degree (77.4%) level.

CONCLUSIONS

Contextual differences exist between small and larger rural hospitals. To promote the best patient outcomes, attention to contextual differences is needed to tailor nursing interventions to fit the resources, environment, and patient needs in a given healthcare setting.

Organizing for performance: what does the empirical literature reveal about the influence of organizational factors on hospital financial performance?

This chapter reviews and integrates the empirical literature on the influence of organizational factors on hospital financial performance. Five categories of organizational characteristics that research has addressed are identified and examined as part of the review: ownership, governance, integration, management strategy, and quality. With some exceptions, our review reveals a general lack of consistency and conclusiveness across studies in each area. Exceptions were found in the areas of governance (e.g., physician participation and board processes) and integration (e.g., horizontal system centralization). Despite the lack of conclusive findings across studies, our review suggests substantial opportunities for future work, including opportunities for qualitative and exploratory work. Additional implications for theory and management are discussed.

A market, operation, and mission assessment of large rural for-profit hospitals with positive cash flow

CONTEXT

National benchmark data for 2002 indicate that large rural for-profit hospitals have a median cash flow margin of 19.5% compared to 9.2% for their nonprofit counterparts.

PURPOSE

This study aims to gain insight regarding the driving factors behind the high cash flow performance of large rural for-profit hospitals.

METHODS

Using 3 annual periods of Centers for Medicare and Medicaid cost report data with the last fiscal year ending between September 30, 2002, and August 30, 2003, the study found a cash flow margin of 21.5% for the large rural for-profit hospitals. All these facilities were owned by hospital management companies. To assess their underlying market, operational, and mission factors, these hospitals were compared to a similar comparison group of large rural nonprofit hospitals that are system owned and have positive cash flows.

FINDINGS

Using logistic regression analysis, the study found lower operating expense per adjusted discharge and salary expense as a percentage of total operating expense among large rural for-profit, system-owned hospitals with positive cash flows relative to nonprofits with similar traits.

CONCLUSION

Overall, the findings of this study reflect how these for-profit hospitals, which are owned by hospital management companies, focus on controlling their labor costs as well as operating costs per discharge in order to achieve a greater positive cash flow position.

Information Technologies in Florida's Rural Hospitals: Does System Affiliation Matter?

CONTEXT

The recent explosive growth of information technology in hospitals promises to improve hospital and patient outcomes. Financial barriers may cause rural hospitals to lag in adoption of information technology, however, formal studies that examine rural hospital adoption of information technology are lacking.

PURPOSE

To determine the extent to which rural Florida hospitals utilize clinical and other information technology applications, to identify related information technology issues and barriers, and to explore differences between stand-alone and system-affiliated hospitals.

METHODS

Chief information officers in rural Florida hospitals were surveyed from June 2003-October 2003. A comprehensive set of questions assessed hospital demographics, information technology priorities and barriers, clinical and other information technology systems, and staffing needs.

FINDINGS

In rural Florida, current information technology priorities included upgrading security on information technology systems to meet Health Insurance Portability and Accountability Act requirements (53.6%), implementing technology to reduce medical errors and to promote patient safety (50.0%), and implementing wireless systems (46.4%). With respect to current information technology adoption, system-affiliated rural hospitals were statistically more likely than their stand-alone counterparts to have laboratory information systems (93% vs 39%), pharmacy (87% vs 46%), pharmacy dispensing (53% vs 8%), chart deficiency (60% vs 15%), and order communication results (60% vs 23%). Financial barriers to successful information technology implementation were noted by 69% of stand-alone and 20% of system-affiliated rural hospitals.

CONCLUSIONS

Although top information technology priorities are similar for all rural hospitals examined, differences exist between system-affiliated and stand-alone hospitals in adoption of specific information technology applications and with barriers to information technology adoption.

"If you want to sit on your butts you'll get nothing!" Community activism in response to threats of rural hospital closure in southern New Zealand

Problems of ensuring rural health services in New Zealand have intensified as successive governments have attempted to limit expenditure and health agencies have seen rural services as relatively 'expendable'. From the literature two sets of indicators are identified: the factors influencing successful retention of rural services and the outcomes for the community. Interview and documentation data indicate the extent to which these characteristics and outcomes were present in nine rural community health trusts in southern New Zealand during the 1990s. Variability in outcome and success of community response to threats to rural services relates to the factors identified from the literature, particularly community leadership and capability, but also the prominent role played by local professionals. Given the common political and economic context, these local factors proved important in determining which communities successfully retained hospital services.

Effect of medicare payment on rural health care systems

Medicare payments constitute a significant share of patient-generated revenues for rural providers, more so than for urban providers. Therefore, Medicare payment policies influence the behavior of rural providers and determine their financial viability. Health services researchers need to contribute to the understanding of the implications of changes in fee-for-service payment policy, prospects for change because of the payment to Medicare+Choice risk plans, and implications for rural providers inherent in any restructuring of the Medicare program. This article outlines the basic policy choices, implications for rural providers and Medicare beneficiaries, impacts of existing research, and suggestions for further research. Topics for further research include implications of the Critical Access Hospital program, understanding how changes in payment to rural hospitals affect patient care, developing improved formulas for paying rural hospitals, determining the payment-to-cost ratio for physicians, measuring the impact of changes in the payment methodology used to pay for services delivered by rural health clinics and federally qualified health centers, accounting for the reasons for differences in historical Medicare expenditures across rural counties and between rural and urban counties, explicating all reasons for Medicare+Choice plans withdrawing from some rural areas and entering others, measuring the rural impact of proposals to add a prescription drug benefit to the Medicare program, and measuring the impact of Medicare payment policies on rural economies.

Rural hospitals: trends, challenges, and a future research and policy analysis agenda

Previous reviews of the status of rural hospitals conclude that rural hospitals play a major role in ensuring the provision of health services in rural areas, are an essential part of the social and economic identity of rural communities, have had mixed success in their ability to respond to environmental threats, and are very sensitive to public policies due, in part, to their small size. The evolving hospital paradigm in the United States and a turbulent economic and health care environment have created an uncertain future for the rural hospital. Hospitals are being forced to shift their emphasis from filling acute inpatient care beds to providing a more diversified set of services through linkages with other institutions and provider groups. This presents challenges for rural hospitals, which often serve as the foundation for health care delivery in rural communities yet struggle to overcome the effects of troubled local economies, shortages of health professionals, and public policy inequities. This article reviews key trends and challenges facing rural hospitals from the perspective of their structure and organization, financial sustainability, quality of care provided, and strategic linkages with other entities. It concludes with the presentation of a research and policy analysis agenda that addresses the feasibility of the role of the rural hospital as the hub or coordinator of the rural health care delivery system, the fiscal viability of the rural hospital in the post-Balanced Budget Act period, strategies for measuring and improving the quality of care provided by rural hospitals, and the structure and value of horizontal and vertical linkages of rural hospitals.

Rural Long-Term Care Integration Developing Service Capacity

This article uses a case study–based framework for analyzing acute and long-term care systems' integration efforts in rural areas and their impacts on service capacity. The article examines opportunities for enhancing service capacity, as illustrated by the experiences of rural programs in three states: Arizona, Illinois, and Vermont. Local control, local leadership, the medical/ social paradigm, and policy stimulation are the dimensions used to examine the unique characteristics of rural integration efforts and their influence on rural long-term care service capacity. The article discusses the importance of technical support, professional collaboration, financing flexibility, and attention to protection of rural safety-net services in developing rural long-term care infrastructures.

Consequences of organizational change in U.S. hospitals

Organizational change has become commonplace among U.S. hospitals. Empirical investigations of the consequences of organizational change, however, are relatively scarce, and findings of existing studies are inconsistent. In this article, the authors review the rationale and performance implications of hospital organizational change in three areas: (1) the development of new multi-institutional arrangements, (2) change in traditional ownership and management configurations, and (3) diversification in organizational products/services and consolidation of organizational scale. Empirical research on hospital change published between 1980 and 1999 in the health services research, social science, and business literatures is reviewed to highlight the potential pitfalls that hospitals may encounter in their effort to remain viable. The article also summarizes the strengths and weaknesses of current hospital change research and provides specific suggestions for future research in this area.

Risk-adjusted in-hospital death rates for peer hospitals in rural and urban regions

The purpose of this research project was to compare inpatient mortality rates for rural hospitals with mortality rates of urban hospitals of given sizes and ranges of service. Statistical adjustments for risk were made in the probability of death during hospitalization for 43,000 patients across 166 hospitals by age, gender, principal diagnosis, principal surgical procedure, characteristics of the secondary diagnoses, and whether or not cancer was a secondary diagnosis. Eighty-three small hospitals that had a relatively unspecialized range of services constituted the study group. Patient characteristics of this study group were moderately representative of the national population. A standardized score was calculated for each hospital using a formula based on the actual hospital death rate and the death rate expected for a given hospital with patients of the same demographic and medical characteristics. Patients admitted to hospitals in nonmetropolitan areas had a mortality rate of 0.41 percent compared with a mortality rate of 0.66 percent in peer hospitals in metropolitan areas. After mortality rates were risk-adjusted and converted to z scores, nonmetropolitan areas had an average z of +0.16, and metropolitan areas had an average z of -0.25, where positive z scores reflect a lower-than-average adjusted mortality rate. The metropolitan-nonmetropolitan (urban-rural) difference was not statistically significant, but it is meaningful in that rural hospitals tended to have a lower adjusted mortality rate than urban hospitals of the same size and type, indicating that rural hospitals had the same or lower adjusted mortality rates. The possibility of urban hospitals having riskier patients was minimized but could not be definitively ruled out. Taken together with other studies, the data are consistent with the view that small rural hospitals generally make appropriate transfer decisions for severely ill patients and provide quality care for retained patients.

Hospital mergers and closures: survival of rural hospitals

There are two major models to save financially failing rural hospitals: (1) expanding through an affiliation or merger with other hospitals to increase the utilization and diversity of services, or (2) downsizing by employing the limited-service model and providing only emergency and primary care service with limited acute care. This study investigates hospital mergers and closures from 1990 to 1992 using the American Hospital Association's (AHA's) data from the Annual Survey of U.S. Hospitals. The presence of potential scale and scope economies among merging and closing hospitals prior to the merger or closure suggests that rural hospitals are operating at a size level that has great potential for achieving scope and scale efficiencies through mergers.

Conditions affecting rural hospital specialization, conversion, and closure: a case-based analysis of threat and change

The purpose of this analysis is to increase understanding of how and why rural hospitals change, with an eye toward the relevance of these questions to overall access and quality in the rural community. This study reports the threats that precipitated three major classes of organizational change (specialization, conversion, and closure) in 16 rural hospital cases. The authors identify the types and levels of threat faced by the case hospitals and examine how different threat situations may lead toward different classes of change. Conversions and closures typically seem to result from moderate- or high-threat situations. Specializations seem to result from low- or moderate-threat situations.

Strategic adaptation of US rural hospitals during an era of limited financial resources: a longitudinal study, 1983 to 1993

This research investigated the competing effects of environmental and organizational pressures on rural hospitals' revenue-enhancing and cost-containment strategies from 1993 to 1993. In general, organizational pressures (multihospital system membership and non-government control) exerted more influence than environmental ones. Also, strategies generally were sustained over time and were particularly interdependent with hospitals' maintenance of staffed beds. Strategies did respond to environmental pressures, however, with revenue enhancement associated with local market competition and munificence, and cost containment associated with pressures from Medicare reimbursement.

Financial performance of safety-net hospitals in a changing health care environment

Safety-net hospitals serving the poor and indigent in inner-cities have received inadequate research attention regarding the determinants of their financial performance in the changing health care environment. We analyze how the 1990-92 financial performance of 275 such hospitals is related to exogenous and endogenous factors such as payer mix, service mix, staffing and ownership. Models of hospital financial performance are developed using operating margin, cost per discharge and revenue per discharge as measures of performance. Stepwise regression is used to test the model with data from the American Hospital Association (AHA) and Health Care Investment Analysts (HCIA). Results suggest that: 1) The profitability of inner-city hospitals appears positively related with technical complexity of care; 2) High interest and low operating surplus may constrain the addition of technically sophisticated services to enhance profitability; 3) There is some evidence that new governmental programs, e.g. Medicaid managed care and Medicaid Diagnosis Related Groups (DRGs), may not have improved operating margins, though Medicaid DRGs appear to have contained costs. Follow-up research is needed on this issue; 4) Given external fiscal realities, internal management strategies for inner-city hospitals require research, e.g. developing appropriate managed care systems and timely expansion of sub-acute services and; 5) Services such as AIDS treatment and community health education represent opportunities to respond to community needs, especially since unit cost of such services will decline with high volume.