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Rural Hospital Networks: Implications for Rural Health Reform

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Rural Hospital Networks: Implications for Rural Health Reform Rural Hospital Networks: Implications for Rural Health Reform Ira Moscovice, Ph.D., Jon Christianson, Ph.D., Judy Johnson, M.H.S.A, john KraJewski, Ph.D., and Willard Manning, Ph.D. This article summarizes the perspectives reform have included financial assistance gained in the course of evaluating a 4-year for the development of rural provider net­ demonstration program that supported works and also recommended the relax­ rural hospital networks as mechanisms for ation of antitrust laws to encourage collabo­ improving rural health care delivery. rative, "joint-venture" arrangements among Findings include: (I) joining a network is a providers in rural areas (Fuchs, 1994). popular, low-cost strategic response for rural The idea that increased collaboration hospitals in an uncertain environment; (2) among rural providers could benefit both rural hospital network survival is enhanced the collaborating organizations and the com­ by the mutual resource dependence of mem­ munities they serve is not new. In the past, bers and the presence of a formalized man­ collaboration among rural hospitals has agement structure; (3) rural hospitals join been advocated as a "strategic response" to networks primarily to improve cost efficiency the challenges these facilities face (Boeder, but, on average, hospitals do not appear to 1989). However, with respect to participation realize short-term economic benefitfrom net­ in multihospital systems (where two or more work membership; and (4) some ofthe bene­ hospitals are owned, leased, sponsored, or fits ofthese networks may be realized outside managed by a single entity), the published of the communities in which rural hospitals literature offers little evidence that such are located. arrangements yield significant benefits for rural hospitals (Mick and Morlock, 1990). INTRODUCIION Much less is known about rural hospital collaboration in less formal arrangements, The recent health care reform debate variously referred to as cooperatives, has once again focused attention on the alliances, coalitions, consortia, or networks special issues surrounding the delivery of (Size, 1993). These voluntary organiza­ health services in rural areas. The ability of tions of rural hospitals are a relatively new competitive models to address health care phenomenon, and their operations, effec­ needs in much of rural America is a matter tiveness, and impact on participants have of debate (Fuchs, 1994). Even the strongest not been systematically studied. In the advocates of the marketplace suggest that course of evaluating the RWJF Hospital­ "managed cooperation" among rural Based Rural Health Care Program (1988­ providers may be more appropriate in 91), we collected extensive information on many instances (Buck, 1993). Reflecting the development, operation, and impact of this view, some proposals for health care rural hospital networks. This article sum­ marizes the findings of that evaluation and The research in this article was supported by the Robert Wood Johnson Foundation (RWJF) under Grant Number 11949. The discusses their implications for future rural authors are with the Institute for Health Services Research, health reform.' School of Public Health, University of Minnesota. The opinions expressed are those of the authors and do not necessarily reflect those of RWJF. the University of Minnesota, or the Health care I A more detailed presentation of the results of the evaluation Financing Administration (HCFA). can be found in Moscovice, eta\. (1995). HEALTH CARE FINANCING REVIEW/Fall 1995/votume 11. Number 1 53 RURAL HOSPITAL NEIWORKS The rate at which rural hospitals have been linked to large multihospital systems Rural hospitals comprise one-half of all has slowed, possibly because of financial community hospitals and one-fourth of all losses incurred by these systems and/or community hospital beds in the United because of concerns by rural hospitals that States (American Hospital Association, system affiliation entails a loss of sensitivi­ 1990). Hogpitals that operate in rural areas ty to local needs and hospital autonomy (i.e., counties not included in a metropolitan (U.S. Senate, 1988). Instead, many rural statistical area) exhibit considerable divers~ hospitals have sought to establish less ty. Some, especially those located in commu­ structured, more informal, collaborative nities near urban areas, have technologically arrangements through participation in vol­ sophisticated acute-care facilities and serve untary hospital networks. relatively dense populations. Many other Networks of organizations have been rural hospitals, particularly those in more defined at a general level as "... organiza­ sparsely populated areas, function under tional arrangements that use resources considerably less favorable circumstances. and/or governance structures from more The strategies pursued by rural hoSPi­ than one existing organization" (Borys and tals to regpond to their changing environ­ Jemison 1989). In essence, the parties to a ments have also been diverse, depending network voluntarily agree to pursue collec­ in part on hogpital-specific characteristics, tive action in some areas, while maintaining regional circumstances, and the hospitals' organizational autonomy in others. In apply­ capacities to change. Strategies have ing this general concept to hospitais, the included diversification of services, con­ American Hospital Association (AHA) version to other uses such as long-term defines a hospital network as a formally care or mental health facilities, and, in par­ organized group of hospitals or hospital sys­ ticular, ownership, lease, or management tems that has come together for specific contracts with multihospital systems purposes and has specific membership cri .. (Mick et al., 1993). teria (American Hospital Association, 1987). The potential benefits of multihospital With respect to rural hospital networks, a system affiliations include cost savings 1986 survey found 9 such networks ranging due to economies of size, improved ability in size from 4 to 25 hospitals (American to recruit staff, and easier access to capi­ Hospital Association, 1986). Two years later, tal (Moscovice eta!., 1991). Empirical evi­ a 1986 staff report to the Senate's Special dence has failed to document achieve­ Committee on Aging estimated that as ment of those potential benefits from this many as one-fourth of rural hospitals earlier generation of multihospital link­ (approximately 650) participated in a hospi­ ages (Shortell, 1988; Moscovice, 1989). tal network (U.S. Senate, 1988). A national However, initial results from a recent survey conducted in 1989 as part of the eval­ study of 11 integrated delivery systems uation of the Hospital-Based Rural Health that have added physician and insurance Care Program (referred to throughout this components to hospital systems indicate article as the Rural Hospital Network that systems that were more integrated Program (RHNP)) yielded 127 rural hospi­ had better financial performance as mea­ tal networks (Moscovice et al., 1991). sured by inpatient productivity, total oper­ Hospital networks can provide a frame­ ating margin, and total net revenue work for developing a wide range of joint (Shortell, Gillies, and Anderson, 1994). programs among member institutions. 54 HEALTII CARE FINANCING REVIEW/Fall 1995/Yolume 17, Number 1 Some network-sponsored programs-such ipating networks of rural hospitals or net­ as shared educational programs, marketing works containing both rural hospitals and surveys, or physician and staff recruit­ other providers. These grants could be ment-are relatively straightforward and used to support personnel, consultants, low in cost Others require more coopera­ traveL supplies, and equipment, as well as tion and/or resources (e.g., shared startup and marketing expenses associat­ staffing, joint purchase of equipment, or ed with new services. Grant recipients joint development of primary or specialty were also eligible to apply for up to clinics). Still other network activities neces­ $500,000 in low-interest loans. RWJF sitate extensive cooperation and a high arranged for faculty from the Graduate level of trust among participating hospitals School of Public Administration of New and may involve a loss or change in the York University to provide technical assis­ identity and mission of an institution (e.g., tance to RHNP grantees. acute-care hed conversions and joint quality­ 1n order to receive this funding, existing assurance or credentiating programs). or prospective networks were required to While the combination of affiliation and submit proposals to RWJF in which they autonomy has made network participation described how they would implement one a potentially attractive strategy for many or more of the folloWing strategies: rural hospitals, some skeptics have pointed • Enhancement of revenues through out that networks can be complex, difficult diversification of services (e.g., long­ to manage, and inherently fluid and fragile. term care, preventive care) or through They have also questioned the ability of improved management practices with networks to respond well to rapidly chang­ ing economic conditions (fohnson, 1987). the institution. In part because data on the operation of • Reduction of costs through increased efficiency, consolidation and merger, or rural hospital networks have been largely shared service arrangements (e.g., labo­ unavailable, no systematic attempts have ratory, X-ray, purchasing, and data man­ been made to determine the
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