Small-Town Grit

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The community hospital means many things to a small town. It’s usually the largest employer. It’s still a place where residents may experience a lifetime of healthcare—from birth to death—in the same building. It’s often the only source of care for a large geographic region.

Many icons of small-town America are all but gone. Wal-Mart and other big-box retailers have crippled Mom and Pop. Manufacturing plants got outsourced to another country. Hospitals, for the most part, have managed to persevere and remain a source of civic pride for many communities. But pride alone is not enough to keep a healthcare facility in business. Those pillars of the community who support the idea of a hospital in their town often are the same people who drive four hours to get treatment in urban medical centers. “The days of being able to sustain something local purely for the desirability of having something local are numbered,” says Keith Mueller, Ph.D., director of the RUPRI Center for Rural Health Policy Analysis at the University of Nebraska.

Whether you call them small town hospitals, rural hospitals or federally designated critical-access hospitals, the group remains vulnerable to questions about their mission and role. Once the healthcare version of “all things to all people,” small-town facilities now face tough questions about what services they can and should offer, what technologies they should chase, and from where the people who will provide care will come from.

A timeline of troubles

The advent of the DRG system in the 1980s devastated many rural facilities that struggled to adapt to a fixed-fee reimbursement system from a cost-based model. For those that survived—and many did not—the 1990s brought another challenge: managed care, which hampered small hospitals’ efforts to recruit and retain top medical staff. Two hundred and eight rural hospitals—7.8 percent of the national total—closed from 1990 to 2000, according to a report by the Office of Inspector General.

For the smallest and most remote rural facilities, some relief came under the Balanced Budget Act of 1997 in the form of the Medicare Rural Hospital Flexibility Program’s Critical Access Hospital designation system. Five years after the program began, only nine of some 750 CAHs had closed, according to a 2003 report by RUPRI.

But the CAH designation, which pays hospitals on a cost-based reimbursement system, does not ensure the survival of the roughly 1,270 CAHs across the nation today. Providers will likely need to adapt to multiple sources of payments that employ individual operating rules, rather than receiving payments based on provider class for Medicare services, for example. Staffing will remain an issue as community hospitals fight for physicians and nurses who are in short supply, even for large urban facilities. With limited access to capital, many rural hospitals are also unable to make renovations and capital improvements to their facilities—many of which were built with funds from the Hill-Burton Act of 1946. And even though rural and urban hospitals share some of the same challenges—consumer-driven healthcare, health information technology, quality measurement and transparency initiatives—community hospitals’ size, volumes, financial constraints and payor mix make adapting to those challenges more difficult.

Many rural hospitals have few options—especially independent facilities with fewer than 100 beds. Limited resources to compete leave such facilities vulnerable to takeover by large systems, both nonprofit and for-profit. For-profit organizations such as Community Health Systems Inc., LifePoint Hospitals Inc. and Health Management Associates Inc. often target nonurban facilities that are an area’s sole provider and have high growth potential. Yet many of the rural hospitals sold to for-profit systems could be successful on their own if they had access to capital, experts say. Although a strong sense of pride often surrounds community hospitals, these facilities also need a hefty financial commitment from their communities if they are to flourish.

High standards

Meeting community expectations is an uphill battle for many rural hospitals—especially as more people move out of metropolitan and suburban areas and into rural communities. “With a Blackberry you can be anywhere and do 90 percent of your work, and it is driving a lot of people to choose a rural lifestyle,” says Alan Morgan, chief executive officer of the National Rural Health Association.

And whether your hospital is located in a downtown urban center or 100 miles away, consumers expect the same quality of care. “They expect to find the same level of ultrasound, CAT scan or whatever equipment in our facility as they do in the bigger hospital,” says Nancy Newby, president of Washington County Hospital in Nashville, Ill. “Where in a bigger hospital you get a little more revenue and capital is just an ongoing expense, for us capital equipment is a huge chunk. It is a major purchase.”

Not only do communities expect their hospital to be an up-to-date facility, but they also expect it to grow and add new specialists. For Washington County that means a dermatologist. The 25-bed critical-access hospital 50 miles east of St. Louis has had difficulty recruiting a dermatologist, so it is currently offering patients dermatology services through a televideo clinic that connects them with a dermatologist from Springfield, Ill. “The videoconferencing is OK for some, but they expect us to provide whatever their needs are or to link them where they can get that care,” says Newby.

Best of class

Finding ways to demonstrate that community facilities’ level of care rivals that of larger urban hospitals will grow even more critical as consumerism gains momentum. Hospital comparison Web sites, for example, can leave rural hospitals at a disadvantage because they often do not have the volumes needed to be statistically significant, says Kean Spellman, CEO of 49-staffed-bed Holy Cross Hospital in Taos, N.M. “It is naturally biasing people who use the Internet to migrate to urban America for elective care, leaving the emergency, high-cost care to the rural hospitals.”

Still, some think the push for quality measurement and transparency will benefit rural facilities in the long run because of the nature of small-town healthcare delivery. With their small size and strong links to the community, rural facilities often provide a higher level of personal service. Plus, change is generally easier to initiate in smaller facilities, says Morgan, adding that larger organizations usually need to establish committees to gain staff buy-in, whereas smaller facilities can quickly make changes and adapt.

In fact, many rural hospitals welcome the idea of transparency in quality measurement, as long as they are measured on services they actually provide, says the RUPRI Center’s Mueller. The challenge, he says, will be finding ways to measure the outcomes of services that small community hospitals provide on a regular basis. Rural hospitals don’t expect to be the best at everything, but they want to show they are the best in class for the services they do provide, he adds.

The notion of transparency is nothing new for many small community hospitals; rural executives often encounter healthcare questions in unexpected places. “People stop me in the grocery store and ask me for information,” says Newby, adding that personal information is never discussed in those settings to protect patient confidentiality. And because Washington County is tax-supported, anyone can sit in on board meetings—so the board report is front-page news each month. “People have no qualms with coming into my office and sitting down and saying ‘I need to know about XYZ,’” Newby says. “That would never happen in the big city.”

Community demands

So what services do rural communities really want? First and foremost, people expect their local community hospital to have an emergency department that can respond to their needs. “Our doctors have to be trauma-certified and qualified to handle that farming accident or interstate rollover just as much as a big city hospital,” says Newby. The challenge for rural facilities, however, is staffing for that trauma. Rural facilities must have physicians and nurses in place who can respond immediately. The rest of the support team is usually on call, so the radiologist, lab and X-ray technicians can be called in very quickly, says Newby.

Communities also expect their hospital to provide basic services like primary and preventive care—and many experts believe that is where rural facilities’ focus should be. Some community health and wellness and preventive-care models are very encouraging, says Tim Johnsen, senior vice president and chief operating officer of 319-staffed-bed St. Joseph’s Mercy Health Center in Hot Springs, Ark. “That is the future of our rural hospitals, because we have to move from episodic, illness-based care to more of a preventive-care model,” adds Johnsen, who until recently was the president of 48-staffed-bed St. John’s Hospital in Lebanon, Mo.

The challenge is that people’s definition of “basic care” changes all the time, says Bill Hussey, a senior vice president for group operations at Brentwood, Tenn.-based Community Health Systems, a for-profit company that owns 77 community and rural hospitals nationwide. “Four or five years ago you would not find many nonurban hospitals offering services such as cardiac catheritization and some of the more sophisticated diagnostic pieces of equipment like MRIs. That is becoming the standard in almost every hospital now.”

Where to draw the line

Unfortunately, there is no “one size fits all” answer to the question of service lines at rural hospitals. So aside from providing the basics—med-surge and ED services—community hospitals should make sure their patient base is well-served. For Holy Cross, that means offering labor and delivery with obstetric services, even with the current malpractice climate and shortage of OB/GYNs. “We probably lose more than a million a year in OB, but it is what ties our community together,” says Spellman.

In general, rural hospitals should avoid service lines that require considerable capital and a large patient base, such as cardiovascular and neurosurgery, even though those programs are usually the most profitable. But community hospitals can still address cardiac care without a heart surgery program, Johnsen says. For example, rural hospitals can bring specialists to their community on a weekly, biweekly or monthly basis, and the hospital can provide post-acute-care follow-up through cardiac rehabilitation services.

Community hospitals need to look at service lines the way larger institutions do, advises John Sullivan, executive vice president and COO of St. Louis-based Sisters of Mercy Health System, which operates 18 hospitals in multiple states that range from 20 to 900 staffed beds. “Figure out how far you can stretch the envelope to be competent in a service line and maximize revenue at the same time.”

A continuing shift from inpatient to ambulatory care, along with increased connectivity through programs like telemedicine, will likely divide rural hospitals into two categories, says Mueller. Some will concede that their community will get care from larger centers and thus scale back to short stay, outpatient and ED services. The second group will decide that increased connectivity means it is possible to do more service delivery from local areas with smaller staffs.

Expanding services

Services like oncology that seemed out of range just a few years ago may now be within reach, depending on the market. St. John’s Hospital in Lebanon, for example, developed an oncology program with visiting oncologists and chemotherapy services, says Johnsen. With disease-management, home-health and wellness services now up for grabs, community hospitals have plenty of opportunities. But make sure to determine what services your community is missing, advises Mueller. For example, if a disease-management firm is already in your area, perhaps your facility could develop a fitness center instead.

Community hospitals must focus on service lines that make sense in their community, agrees Delia O’Connor, CEO of Anna Jaques Hospital in Newburyport, Mass. Anna Jaques, which serves an older, well-insured population, decided to partner with a for-profit company to develop a wound-care program. The program has seen significant success, and the facility has become a regional presence for that service, says O’Connor. Currently, the 110-staffed-bed hospital—located a mere 40 miles north of Boston—is also working closely with physicians on a pain clinic and vein service, she says.

Big pay off

Rural hospitals’ smaller size, community connections and ability to initiate rapid change can help put community facilities at the forefront of the quality and consumer-driven healthcare movements. But one huge hurdle remains: access to capital.

To stay competitive, community hospitals must find ways to pay for health information technology, physical plant upgrades, quality measurement and recruitment efforts. Most rural hospitals don’t have the cash reserves to borrow money from lending institutions, and shrinking reimbursements from Medicare and Medicaid only exacerbate the problem, says Spellman.

One solution is grant funding. Flex grant funds secured through the Illinois Critical Access Hospital Network have enabled Washington County Hospital to implement videoconferencing technology that would have otherwise been too expensive. “There is a lot of grant funding for technology. It is a lot of work and takes a lot of time, but it can be made successful,” says Johnsen.

Another avenue that many community hospitals have not explored is philanthropy. “I expect in 10 to 15 years philanthropy is going to be expected to come up with maybe 10 percent to 15 percent of your bottom line, where right now it is a nice add-on,” Johnsen says.

Mercy’s Sullivan agrees. “Being organized around fundraising could pay big dividends.” Still, raising money can be difficult for community hospitals that don’t have spare resources to actively raise funds. “The question hospitals need to answer is, ‘Will it generate enough contributions to get the capital needed?’” says Sullivan.

Joining forces

Ultimately, the best chance for survival for rural hospitals of all sizes may be through networks and collaborations with physicians, clinics and other healthcare facilities. “The days of a standalone rural community hospital operating by itself has just become a very tough, if not impossible, business model,” says Morgan. Sharing administrative, human resources, finance and payroll staff, for example, may allow small community hospitals to stretch their revenues a little further.

And with the increasing complexities of billing, reimbursement, coding and managed care contracting, most rural hospitals need help sorting through that maze, says Spellman, who turned to QHR, a Brentwood, Tenn.-based company that provides consulting, education and management programs to independent hospitals nationwide.

Likewise, being part of the Illinois Critical Access Hospital Network provides Washington County with education and support services. One of the most beneficial tools has been ICAHN’s listservs, which link all of the CAHs in the network, says Newby, who serves as ICAHN’s president. For example, if a pharmacist has a question about a drug, he can post it on the listserv and immediately get 40 answers from his peers.

In addition, coming up with $10,000 to hire a consultant for board education is very difficult for CAHs, says Newby. This past November ICAHN facilities pooled their resources for a consultant to educate all of the boards at the same time. “The network allows us to be more effective and to practice at a much higher level than we could afford to do before,” she says.

The challenge for rural hospitals seeking the support of a network? Accessing the knowledge needed to cope with the complicated business of healthcare, yet at the same time maintaining a measure of independence, says Spellman. “We don’t want to be part of a big cog in the machine.”

Carrie Vaughan is assistant managing editor with HealthLeaders magazine and editor of HealthLeaders Community and Rural Hospital Weekly. She may be reached at

Quality Focus

For many rural hospitals located in remote areas, the biggest competition they face is themselves, says Kean Spellman, CEO of Holy Cross Hospital. “In urban markets you have this great competition for patients, and then in rural America, we take care of everyone. It doesn’t really matter if they have money or don’t have insurance. We are going to take care of them anyway—there is nowhere to go.”

In general, people don’t mind traveling an hour or two to large urban centers if the service they need is unique. But for the majority of their care, patients would prefer to stick close to home, adds Bill Hussey, a senior vice president for group operations at Community Health Systems, which owns 77 community hospitals nationwide. “Healthcare is still very much a cottage industry. People want to stay close to their doctor and hospital.”

At Anna Jaques Hospital, about 40 miles north of Boston and its plethora of academic medical centers, executives are hoping that maxim is true. The 110-staffed-bed community hospital has made quality measurement a crucial component of its financial turnaround, says CEO Delia O’Connor. The hospital is focused on getting top quality metrics around general safety and all of the publicly reported measures, because eventually consumers will use this information to determine where to get healthcare, she says. “It matters right now to be more reliable, to be consistent, to use evidence-based approaches. It is not yet transparent to the public, but we believe eventually it will be, and it will create word of mouth and continence on the medical staff and in the community.”

The hospital is looking to health information technology to support the quality effort and improve efficiency. And fortunately for Anna Jaques, which just inched its way back into the black after losing $1.4 million on operations in 2005, the hospital’s physicians were able to help secure a grant from Blue Cross and Blue Shield that helps connect the hospital and its medical staff through an electronic medical record system. The hospital is also about two years away from full implementation of a computerized physician order entry system, O’Connor says. “For a small hospital it is always a tradeoff: Do you redo the lobby or do you do an EMR? Eventually you have to do both.”

With some teaching hospitals in Massachusetts expanding their reach and competing more directly with community hospitals, continually updating and modernizing your facility to reinforce the community’s confidence in your level of care is crucial, says O’Connor. “We are obviously trying to concentrate on being modern and completely cutting edge in high-volume technology that is clearly within the parameters of what is appropriate for a community hospital and our medical staff.”

—Carrie Vaughan

Recruitment Efforts

Concerns about physician staffing shortages have been growing in recent years; by some estimates the shortage will reach 85,000 to 200,000 physicians by 2020. Even though debate still surrounds the magnitude of the shortage, one thing is certain: Many rural and community hospitals are already feeling the pinch. On average, rural residents have 53 primary-care physicians—internists, general practitioners and pediatricians—per 100,000 people compared with 78 PCPs per 100,000 urban residents, according to a January 2005 survey by the Center for Studying Health System Change.

Rural areas face various recruitment barriers, including greater on-call frequency, limited medical backup, lower volume for specialty services, a lack of state-of-the-art technology and limited cultural outlets. Overcoming these obstacles and finding the right physician match is an ongoing challenge. There is some good news, however. Even though average annual physician incomes are slightly lower in rural areas than in urban areas—$204,000 versus $218,000—a different picture emerges when cost of living is considered. The average income of rural physicians, adjusted for the cost of living, was $225,000 compared with $199,000 for urban physicians—which translates to 13 percent more purchasing power for rural docs, according to the HSC.

Here are some helpful hints when it comes to rural recruitment efforts:

  • Focus on retaining physicians from the start. Build in physician-satisfaction measures and ongoing hospital-physician communication.

  • Connect to a nearby residency program. “There is a selection of residents that would prefer to be in a rural area, so it is a matter of who works the hardest to make their need known and how to roll out the red carpet,” says John Sullivan, executive vice president and COO of Sisters of Mercy Health System.

  • Set up a tuition-reimbursement program. Physicians out of medical school often have large debts. With a little foresight, rural hospitals can get docs to their area—even for a limited period of time—by offsetting some of the costs of education.

  • Make sure the administration and existing physicians and clinical staff have a strong relationship. If potential recruits come through the interview process and hear that there is a good, responsive administration who listens to the docs, then that is a positive, says Delia O’Connor, CEO of Anna Jaques Hospital.

  • Be flexible. Rural and community hospitals may want to offer the private medical staff income guarantees or employment contracts to get them in—within the realm of what is legal. “There has to be a menu of approaches to help the private medical staff replace retiring physicians as well as grow their practices,” says O’Connor.

—Carrie Vaughan

Success Factors

It takes more than access to capital and networking for a small-town hospital to be successful in today’s healthcare environment. Here are a few additional areas of focus.

  • Leadership—Having a top-notch management staff that actively listens to staff members’ ideas on shaping the hospital’s direction will not only help hospitals cope with an increasingly complicated healthcare business market, but also help attract and retain high-quality medical staff.

  • Clinicians—All hospitals want to attract and retain the best physicians and nurses they can find. But rural hospitals should focus physician recruitment efforts around the service lines their communities really need. Crafting service lines around the strengths of clinicians can aid physician relations, as well, says Delia O’Connor, CEO of Anna Jaques Hospital. “A lot of maximizing decisions around technology, marketing and how you position the hospital goes to who is on your medical staff and who has the energy and the quality to carry a program and to work with you,” she says. “We have some terrific orthopedic surgeons who are really pushing us to get off our butts and market them better.”

  • Creativity—Finding new and innovative ways to expand services and recruit physicians will be increasingly important. Rural hospitals need to figure out how to adapt and meet their community’s expectations. For example, if members of your community are enamored by the reputation of an academic medical center 100 miles up the road, try to recruit physicians trained there so you are bringing that level of quality and reputation back to the community, says John Sullivan, executive vice president and COO of Sisters of Mercy Health System.

  • Community—A strong sense of community is essential to any rural hospital. Successful rural facilities serve as community leaders and use local newspapers and other outlets to convey what the hospital needs to grow.

  • Technology—Rural hospitals can’t afford to wait for lower IT prices—they must find ways to invest in IT now. Establishing systems that connect physicians, hospitals and clinics, as well as support quality-measurement programs and decision-making software, will be crucial going forward. But make sure to evaluate your hospital’s needs, because an error could destroy your capital budget for the next five years.

—Carrie Vaughan




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