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 impacts of rural agement) with other institutions. hospital networks on participating hospitals • lmplementation of quality-assurance or rural communities. To the extent that pol icymakers view voluntary networks as mech mechanisms and recruitment and reten tion of additional personnel. anisms for facilitating collaboration among rural providers and meeting health care The RHNP was not designed to demon needs in rural areas. more evaluative inform strate any one strategy for improving rural ation relating to these issues clearly would he health care, but rather to support the helpful. The evaluation of the RHNP. which development of a range of strategies to collected and analyzed data on all operational improve the delivery of health care in rural hospital networks in the United States RHNP communities. RWJF hoped that and conducted indepth studies of the 13 rural these strategies, if successful, would be hospital networks that received grant funds, replicated in other rural communities. is a step toward addressing this need. The response of rural hospitals to the announcement ofthis program in 1987 was DESCRIPTION OF TilE RHNP overwhehning. RWJF received 180 applica tions, representing approximately 1,700 The RHNP. as initially conceived, provid rural hospitals in 45 States, or approxi ed 4-year grants of up to $600,000 to partie mately two-thirds of all of the rural hospi-
HEALTH CARE F1NANCING REVIEW/Fall 1995/Volume 11. Number 1 55 tals in the United States. The applications to the evaluation was adopted in which, for were reviewed in a multistage selection various components of the research, the process that included a critique by a unit of analysis was the network, the rural national advisory committee, program hospital, and the rural resident Since the office reviews, and site visits to finalists. evaluation raised process- and outcome-ori Fourteen networks were selected as a ented research questions, both qualitative result of this process; 13 ultimately and quantitative research methodologies received funding and participated in the were employed. program. Five of the grant recipients com The different units of analysis and pleted formal applications and received research methodologies required that data loan funds from the RWJF. In three cases, collection occur at several levels. For some networks designed various types of revolv aspects of the research, secondary data ing loan pools through which member hos sources, including Medicare Cost Reports, pitals would have access to capital for the Area Resource File of the U.S. expenditures and loan guarantees. In one Department of Health and Human Services network, the loan was used as a source of (DHHS), AHA Guidebook data, and Robert funds to help reconfigure a local hospital Wood Johnson Quarterly Management into a primary-care facility. In another net Reports, proved sufficient For other ele work, the loan was used to establish a sub ments of the research, we collected data sidiary corporation that would recruit and through in-person site-visit interviews, tele employ physicians and ensure their pay phone surveys, and mail surveys. ment of salary and benefits. The major components of the evaluation included: EVALUATION OF TilE RHNP • A descriptive qualitative analysis of network development and operational The RHNP provided unique opportun experience. ities to examine the development and oper • Intensive case studies of selected pro ational experience of rural hospital net grams implemented by networks. works, to determine the effect of network • A quantitative analysis of the impact of participation on rural hospitals and rural network participation on rural hospital communities, and to assess the implications financial indicators. of voluntary, collaborative rural hospital • A quantitative analysis of the impact on networks for rural health policy. However, rural residents of network participation for valid programmatic reasons, the design by local hospitals. and implementation of the RHNP made its evaluation complex: The "intervention" (i.e., RURAL HOSPITAL NEIWORKS the rural hospital network) differed across sites and changed over time; networks were Creation of a National Data Base selected for program participation through a purposeful (rather than random) process; As part of the comprehensive evaluation existing as well as newly formed networks of the RHNP, we created an information received funding; financial assistance was base on all rural hospital networks in the provided through both grant and loan United States. The 180 applicants to the funds; and anticipated impacts were multidi RWJF provided a partial list of potential mensional and often not easily quantifiable. networks. Telephone contacts with hospi- For these reasons, a multifaceted approach
56 HEALTH CARE FINANCING REVIEW/FaD 1995/Volume 17, Number 1 tal association staff in each of the 50 States dueling the 1991 followup survey, we real suggested possible additional networks. ized that 13 of the organizations designated These lists and contacts yielded a total of as rural hospital networks in 1989 had in 269 potential rural hospital networks in the fact been planned networks that never mate United States, the universe for the first sur· rialized. Thus, we adjusted the baseline data vey of U.S. rural hospital networks. to reflect only the 114 networks that had Our working definition of a rural hospi· actually been operating in 1989. In addition tal network eliminated several types of hos to those 114 networks, 46 new organizations pital groups, including individual rural hos were identified as possible networks pitals working only with other non-hospital through a repeat telephone survey of State institutions or groups (e.g., nursing hospital associations. The followup survey homes, State agencies), and groups of attempted to contact representatives from rural hospitals that met for discussion pur each of those organizations. poses only. Shnilarly, groups of rural hospi We were able to contact individuals asso tals that were primarily working together ciated with all but 4 of the 114 active net due to multihospital system ownership or works identified at baseline. The telephone contract management arrangements were interviews revealed that 74 of those net eliminated, as were groups of rural hospi works were still operating as rural hospital tals that pursued a single planning and/or networks. Eleven of the 46 new organiza legislative liaison activity. tions identified by State hospital associa The initial survey consisted of struc tion staff fit our criteria for a rural hospital tured telephone interviews conducted with network and were thus added to the list of network coordinators during December operating networks in 1991, for a total of 85 1988 and January 1989. Interviewers col active networks. lected baseline information on network In addition to the network data set previ characteristics in several categories: the ously described, we also assembled a data age of each network; the reasons it was set for all rural hospitals in the United formed; the frequency of meetings; the States over the 6-year inclusive period number of hospital and non-hospital mem 1985-90. This timeframe enabled us to bers; network staff, budget, and gover examine data from 3 years prior to the ini nance structure; and the types of activities tiation of the RHNP through 3 years post pursued by the network. Interviews were initiation. Only short-term, general, non completed with 266 potential network con Federal hospitals located in non-metropoli tacts, a response rate of 99 percent. That tan areas were included. The data set con baseline survey identified 127 groups of tained data from the following sources: the rural hospitals (mcluding the 13 RHNP AHA Annual Survey; the Prospective networks) that could be considered net Payment System Minimum Data Set works, using our definition of a hospital (PPSII-VII); our two network surveys; the network; that is, a formally organized HCFA Provider Specific Files; and the group of hospitals that voluntarily came Medicare Case Mix Index Files. Individual together for specific purposes and had spe hospitals were identified as RHNP or non cific membership criteria. RHNP network or non-network partici We repeated our survey in April and May pants through our network surveys. The of 1991, beginning with the 127 organiza resultant hospital data file was then tions identified as rural hospital networks in merged with a set of county-specific socio our baseline survey. In the process of con- economic and demographic measures
REALm CARE FlNANCING REVIEW/Fall 1995/Volume 17, Number 1 57 taken from the Area Resource File. Thus stantial variation in the size and composi each hospital was assigned the set of tion of these networks. They ranged from selected measures for its county. networks containing 2 small rural hospitals We also collected information on the to networks with more than 50 members, nature and extent of the relationships including larger rural hospitals, urban hos between rural hospitals and the networks pitals, and/or non-hospital members as well in which they participate, from the per as the rural hospitals themselves. Many of spective of rural hospitals in networks. the larger networks were offshoots of State Telephone interviews were completed dur hospital associations. On average there ing February 1992 with the administrators were 15 members per network (including of 401 rural hospitals identified as mem non-hospital organizations) in 1989; the bers of the 85 active networks in 1991. The average network membership increased sampling frame was designed to adequate only slightly in 1991. ly represent the different sizes of networks Rural hospital networks were located in as well as the total population of hospital 43 States, with the heaviest concentration network members. Respondents provided in the North Central, Great Lakes, and information on the benefits hospitals Western regions of the country. New hoped to achieve when they joined a net England and the Mid-Atlantic States had work, the extent of hospital participation in the lowest concentration of rural networks. networks, and the perceived benefits hos When asked about the reasons their net pitals realized from network membership. works had formed, network directors gave Finally, to estimate the impact of rural a variety of responses. The most frequently hospitals' participation in networks on cited reason (28 percent) was the desire of rural residents, we conducted telephone rural hospital members to help improve surveys in early 1989 and in early 1992 to their financial status and stability. Another collect information on community resi 12 percent of directors indicated that the dents' use of their local hospital and their availability of grant funding had served as a opinions about specific aspects of the local catalyst for the formation of their networks. hospital. For comparison purposes, we Data on organizational structure indi selected a random sample of households in cate that the structures of networks were the market areas of rural hospitals in more formalized in 1991 than in 1989. The RHNP networks (n=810), in other (non percentage of rural hospital networks hav RHNP) networks (n•600), and not partici ing a board of directors increased from 61 pating in networks (n-600). Survey percent in 1989 to 75 percent in 1991. response rates were 93 percent in 1989 and Similarly, the percentage of networks with 90 percent in 1992. a paid director increased from slightly less than one-half (45 percent) in 1989 to 75 per Characteristics cent in 1991. Sixty-five percent of networks in 1989 reported having an annual budget; Table 1 provides a comparative overview by 1991, that figure had increased to 95 of national rural hospital network charac percent Sources of funding varied consid teristics in 1989 and 1991. Formal coopera erably among the rural hospital networks. tive action among rural hospitals is relative In 1989, about one-third of the networks ly new. These rural hospital networks had generated operating revenues through been operating for an average of 5.8 years member dues, with somewhat smaller per in 1989 and 6.8 years in 1991. We found sub centages receiving funding from grants,
58 HEALTif CARE F1NANCING REVIEW/Fall 1995/Volume 11, Number 1 Tablo1 Comparison of Rural Hospital Networks in the Unhed States: Calendar Years 1989 and 1991
1989 (n-114) 1991 (n =85) Characteristic Meen Standard Deviation Moon Standard Deviation Average Age of Network {Years) 5.8 7.4 6.8 5.6 Average Number of Members (Total) 15.1 17.2 15.7 17.5 Organizational Structure (Percent of Networks) Board of Directors 61 75 Paid Director 45 60 Budget 65 95 Sources of Funding (Percent of Networks) Member Dues 35 42 Grant Funding 26 46 Revenues From Activities 26 48 Other Revenue Sources 25 29 Average Number of Activities 5.9 2.5 4.6 2.5 Type of Activities (Percent of Networks) Physician or Staff Education 80 66 Shared Services 81 56 legislative or Regulatory Issues 66 46 Recruitment of Medical or Professional Staff 52 54 Management or Anancial Setvlces 46 39 Shared S1aff 47 33 Marketing, Community Relations 61 38 Quality Assurance, Credentialing 39 44 Acute-care Bed Conversions 16 15 Specialty Clinics 44 34 Regional or Strategic Planning 55 36 NOTE: Four networks in the 1989 SUMy could not be contacted in lhe 1991 survey. SOURCE: Moscovice, 1., University of Minnesota, 1995. activities, and other sources. Networks were the least frequent network activity surveyed in 1991 were more likely to cite (18 percent of networks in 1989 and 15 activity-related revenues and grant funds percent in 1991). as revenue sources. Rural hospital networks engaged in 11 LESSONS LEARNED general categories of joint activities, rang ing from education to shared staff to the The evaluation of the RWJFs Hospital development of joint specialty clinics Based Rural Health Care Program exam (fable 1). Networks reported an average ined the development and operational of 5.8 activities in 1989. For the networks experience of rural hospital networks and reporting in 1991, the average number of assessed the effects of those networks on activities had declined to 4.6. The two their members and on the communities most frequent activities in both 1989 and they serve. The major findings of the eval 1991 were physician or staff education uation include: and shared services. Two-thirds of the joining a network is a popular, low cost networks took part in legislative or regu strategic response for rural hospitals in an latory issues in 1989, while slightly less uncertain environment. Almost one-half of then one-half of the networks did so in all of the rural hospitals in the country par 1991; in both years, approximately one ticipated in a rural hospital network at some half of the networks pursued initiatives on point between 1985-90. Voluntary coopera shared recruitment of medical or profes tion with other rural hospitals through par sional staff. Acute-care bed conversions ticipation in a rural hospital network was
HEALTII CARE FINANCING REVIEW/FaD 1995/Volume 17, Number 1 59 more common for rural hospitals during decisions and operations of the network, this period than affiliation with a multihos presumably through governing board pital system (via management contracts, actions. Most networks were characterized lease, or ownership arrangements). Rural by hospital CEOs as having an open, par hospitals have a strong desire to maintain ticipative style and democratic decision local autonomy while still acquiring the making processes rather than being domi potential, through participation in a large nated by a single member. Thus, in addi group, to expand financial, technical, and tion to maintaining institutional autonomy, human resources. However, simply joining hospitals appeared to exercise ongoing or forming a network does not assure that influence over network decisions. substantive collaboration with other organi Rural hospital network survival is enhan zations will occur. Our research examined ced by the mutual resource dependence of many types of network activities but found membets and the presence of a formalized only a limited number of examples of net management structure. The literature sug works whose members shared decision gests that hybrid organizational forms, making, contributed significant resources such as networks, are likely to be less sta to network support, and sacrificed some ble than hierarchical organizational struc measure of their individual autonomy to tures (Powell, 1990). During a 2Vz-year reach common network goals. period from 1988 to 1991, almost one-third Joining a network can be a low-cost of rural hospital networks in the country strategy for rural hospitals, both in terms ceased operation, and the majority of net of financial commitment and in terms of works that continued operating added the degree of authority relinquished to the and/or deleted members. Based on the group. More than one-half of the rural hos existing literature and the experiences of pitals in networks did not pay dues to the the 13 RHNP networks, we developed sev network. Grants and revenues from net eral propositions concerning the factors work activities accounted for more than 60 likely to affect the survival of rural hospital percent of the average network budget. networks. We hypothesized that the proba Membership dues contributed less than bility of network survival would increase one-fourth of the financial support for rural with the perceived intensity of environ hospital networks. Some rural hospitals mental threats to participants (except balanced loyalty to a network with loyalty where threats are extreme), the level of to other dues-collecting organizations, resource dependency among participants, such as the State hospital association. In lower costs of coordination and participa other cases, networks may not have asked tion, greater homogeneity among network rural hospitals for dues for fear of losing participants, and the presence of a formal them as members (although only 19 per ized management structure; and would cent of the hospital chief executive officers decrease for new networks in their initial (CEOs) we surveyed indicated they would stage of development. not be willing to pay any dues to remain Logistic regression models were used members of their networks). to estimate the probability that a network Three-fourths of the networks were gov would survive over the 1989-91 period erned by a board of directors that general (!'able 2). The probability of network sur ly had representation from each hospital in vival was positively related to two factors: the network. Hospital CEOs reported that the mutual resource dependence of its they provided substantial input to policy members (as measured by participation
., HEALTH CARE FINANCING REVIEW/FaD 1995/Vo!urne 17. Num'- I Table 2 Logistic Regression Results on Survival of Rural Hospital Networks: Cslendar Years 1989-91 Measure Coefficient SlgnHicance Perceived Intensity of Environmental Threats Percent of Network Hospitals with Negative Operating Marglns1 51-74 Percent ·.67 .36 75-93 Percent ·.84 .23 94 Percent or More ·.21 .79 Average Percent of Admissions in Netwoli< Hospitals from Medicare/Medicald2 48-52 Percent ·.73 .27 53-59 Percent ·.52 .50 60 Percent or More -.98 .17 Level of Resource Dependency Among Parddpants Whether Network Has Urban or Large Aural Hospital Member .92 .18 Whether Network Has Shared Services Activity 1.82 .01 Average Number of Administrative Staff in Network Hospitals -.29 .11 Percent of Network Hospitals in Another Network or Multihospital System -.89 .27 Cost of Coordination and Participation Number of Hospitals in Network .04 .18 Whether Grants Funds Are Available -.48 .51 Homogeneity of Network Hospitals Percent of Hospitals That Are City or County .93 .28 Percent of Hospitals That Are Rural -.16 .86 Newness of Network Years Network Has Been in Existence 3 3·5 Years ·.62 .34 6 Years or More -.53 .42 Fonnalizatlon of Management Structure Degree of Formalization .95 .01 (0 = No Board or Paid Directors; 1 = Board or Paid Director; 2 = Board and Paid Director) Model Chi Square 30.93 (.02) , 0.50 percent category Is omitted. 2 0-47 percent cal9gory Is omitted. s 0.2 years cal9gocy Is omitted.
SOURCE: Moscovice, 1., Unlvers~y of Minnesota, 1995. in a shared service activity, which result with substantial numbers of networks dis ed in a six-fold increase in the odds of sur solving or changing membership each year vival); and the presence of a formalized and new networks forming. They may be rel management structure (as measured by atively easy to disband because of the limit the presence of a paid director and a gov ed degree of integration of the members in erning board of directors, which resulted many networks. However, the decrease in in a 260-percent increase in the odds of the number of networks does not necessari survival). There was no significant rela ly suggest that rnral hospital networks are a tionship between network survival and dying breed. In fact, new starts also the intensity of environmental threats to a occurred during the study period. One-sev network's members. Networks may form enth of the 85 networks operational at the primarily as defense mechanisms for end of that period had not existed in late rural hospitals to adapt to an uncertain 1988. It remains to be seen whether the health care environment, but to survive decrease in the number of voluntary net over time those networks must add value works continues in the 1990s or whether to their member institutions. public and private sector health care reform It is not surprising that rural hospital net efforts precipitate the development of more works are rapidly evolving organizations, and different types of networks.
HEAL111 CARE FINANCING REVIEW/FaD 1995/Volume 11, Number 1 61 Table 3 Effect of Network Participation on Rural Hosphal Financial Performance, by Network Type: C&lendar Years 1985-901 Fixed Effects Random Effects Estimate of Effect of Estimate of Effect of Measures of Performance Network Participation t -Statistic Network Participation t -Statistic Profitability Operating Margin RHNP .005 1.524 -.006 -1.196 Non-RHNP -.001 -.647 .001 .726 Liquidity Current RatiO (log) AHNP -.001 -.111 -.27x10-3 -.014 Non-RHNP -.012 -1.671 .021 1.877 Capital Structure Equity Financing Ratio RHNP .016 .814 NA NA Non-RHNP -.016 -1.191 NA NA Long-Term Debt-to-Equity Ratio RHNP -.002 -.227 .001 .079 Non-RHNP .001 .186 .012 "2.026 Oth.. Average Daily Census (log) RHNP .010 1.123 ·.006 -.452 Non-RHNP .012 "2.166 -.46x1 Q-3 -.066 • SignHicant at the .05 level. 1The independent variables used in the analysis included hospital bed size, bed SU:a squared, Me 62 HEALTII CARE FINANCING REVIEW/Fall 1995/Yolume 17. Number l ratio, and average daily census. This does approach similar to the one used in the not imply that specific hospitals did not financial performance analyses (i.e., benefit financially from network participa before/after comparison using two control tion or that individual network activities groups). The community survey data pre were not effective. It may be that relatively viously described allowed us to examine new organizations, such as networks, time trends for the period 1989-92 for four require longer periods of time before they measures: (1) willingness to use local undertake the kinds of shared programs providers if help was needed for various that can yield direct financial benefits. specific situations, (2) actual use of the Programs that focus on improving access local hospital for hospitalizations during or quality of care may yield benefits to the past year, (3) perception of the local rural communities, but those programs do hospital along specific dimensions, and (4) not necessarily provide short-term solu satisfaction with various aspects of the tions to the financial problems of individual health care received from all sources. For institutions. Also, rural hospitals typically the analysis of consumer satisfaction, per devote a relatively small portion of their ceptions, and willingness-to-use measures, overall resources to network activities. The we examined change scores as a function scale of these activities, relative to overall of whether the resident was in a RHNP or hospital operations, may not be large non-RHNP hospital market area and a set enough to have a significant impact on a of individual, household, geographic area, hospital's bottom line. and local hospital characteristics. For the Some of the benefits of rural hospital net analysis of actual use of local hospitals and works may be realized outside ofthe commu of the willingness to use local providers, we nities in which rural hospitals are located. also employed weighted least squares Urban hospitals, larger rural hospitals, and methods. In the case of actual use, we used State hospital associations have shown sub a fixed effects regression model, with the stantial interest in rural hospital networks. fixed effect being specified as a market Most rural hospital networks have an urban level variable.' and/or larger rural hospital member, and Although not statistically significant, several State hospital associations have use of the local hospital for hospitaliza responded with technical assistance and tions during the prior year decreased by other support to help their rural members 16 percentage points for the residents of form networks. These institutions have non-RHNP network hospital market areas resources that can benefit networks. In and 7 percentage points for the residents addition, they are able to assume the risks of RHNP hospital market areas relative to involved in network formation, and are like the residents of non-network market ly to place greater weight on the long-term areas. At the very least, this indicates that benefits of networks. The participation of participation in networks did not improve these institutions raises the issue of who 2 The use of change scores and of fixed effects models implies benefits from network relationships. that our estimates may be less precise than they could have been Multivariate analyses of the impact of if the site effects for individual market characteristics were uncorrelated with being in the RHNP, non-RHNP, or non-network network participation by local hospitals on groups. As an alternative, the data set was structured as a panel the health behavior and beliefs of rural res of two observations per respondent, and we employed weighted least squares estimators, with a correction in the variance covari idents found no statistically significant ance matrix for cluster effects. We also substituted logistic regression for the least squares estimator for dichotomous out effect at the 5-percent level (Table 4). For comes. The estimates and conclusions from these alternative these analyses, we used an analytic models do not differ qualitatively from those reported here. HEALTH CARE FINANCING REVIEW/FaD 1995/Volum Percent Who Used Local Hospital for Hospitalization -.072 -.764 -.156 *-1.765 During Past Year Perception of Local Hospital (9 Item Scale .028 "1.89 .005 .301 Normalized to 0 to 1 Range With 1 Indicating Highest Perception) Satisfaction With Health care Received -.005 -.358 -.019 -1.018 (6 Item Scale Normalized to 0 to 1 Range With 1 Indicating Highest Satisfaction) •p<.10. 1The control variables used in the multivariate analysis inctucled Individual and household characterislics (age, age-squared, gender, household size, household illrome, length of time living in area, education leV$!, health insurance coverage, perceived health status, tmV$1 time to nearest hospital, lfavel time to next nearest hospital, usual source of care In local community, shop for essentials such as food in local community), geographiC area characteristics (physicians per capita in the county, hospital b&ds per capita in the county, census region, per capita income in the county, percent population below poverty level in the county), and local hospital cl'laracterislics (bed size, bed size squared, control status, Joint Commission on Accreditation of Healthcare Organizations status, number ol seMces provkjed, number of medical units, regional relerral center, sole community hospitaO. Forthe actual use run, the control variables also Included a variable that Indicated whether the hospitalization was for a surgical procedure. NOTe: RHNP Is the Rural Hospital Network Program. SOURCE: Mosoovice, 1., University of Minnesota, 1995. inpatient market share for rural hospitals share for local rural hospitals unless it is in the short term. In conjunction with the able to alter the centralization of specialists finding of no clear impact of network par and technology and the referral patterns of ticipation on the financial performance of physicians. On the other hand, network rural hospitals, the previous result raises participation may be able to help rural hos two pertinent issues: Why are patients not pitals to meet the health needs of their using the local hospital more frequently? local communities through other means, Which institutions are benefitting from such as the development of outpatient clin network relationships? ics, shared staffing and services, and qual When rural residents who were hospital ity assurance or credentialing programs. ized outside their local community were asked why they used a non-local hospital, IMPliCATIONS FOR RURAL they cited the availability of specialists and HEALTH REFORM services (36 percent) and referral patterns of local and non-local physicians (25 per Relatively few examples of rural-based cent). In contrast, the local hospital's quali networks that provide a full range of acute ty of care was mentioned only 7 percent of inpatient and outpatient services to rural the time as a factor affecting non-local use. communities currently exist (Christianson This suggests that network participation is and Moscovice, 1993)_Existing rural health not likely to increase inpatient market networks tend to be groups of similar 64 HEALTH CARE FINANCING REVIEW/FaD 1995/Volume 11, Number 1 providers, such as rural hospitals, that form that they receive. To reduce this asymme to address common problems or to respond try, the focus and goals for IRHNs should to reimbursement opportunities. The expe be clearly articulated by their members. rience of these more limited networks has • All local constituencies may not benefit demonstrated that rural providers can work equally from the development of IRHNs. together cooperatively. However, that same The distribution of institutional and com experience provides little evidence regard munity benefits resulting from participa ing the abili1y of rural networks to effective tion in networks should be monitored ly assume responsibility for ali of the medi and used to assess the effect of network cal care of entire communities, to operate participation on the residents and health within a constrained budge~ to guarantee care organizations in rural communities. access to needed services, or, in fact, to genw • In many areas, the rural health care infra erate substantial benefits for their members. structure will need strengtheniog in order Nonetheless, some recent State-level to support the development of IRHNs. reform efforts (e.g., Minnesota, Florida, State and Federal government can New York, Washington) have adopted enhance infrastructure development rural health network formation as one of through a variety of mechanisms. their cornerstones. These State programs Substantial amounts of initial grant sup have created incentives for rural health port may actually serve as an impediment professionals and institutions to develop to the maturation of IRHNs. While grant networks that can offer a comprehensive support makes network startup easier, range of services. In addition, the Federal receiving a grant can postpone the devel Government has been promoting rural net opment of member conunitmen~ long work development through programs such term planniog, and the development of as HCFA's Rural Health Network Reform funding sources. When the grant period Initiative (Health Care Financing ends, the survival of the network is at sub Administration, 1993). These initiatives stantial risk. Startup grant support may carry the explicit or implicit expectation allow network members to avoid facing that rural health networks in the future will the difficult tradeoffs between operating need to provide a broader range of serv joint programs and maintaining total ices and have a more diverse membership autonomy. The use of low-interest loan than the rural hospital networks discussed funds is an alternative that may stimulate in this article. the long-term interes~ conunitmen~ and Many of the lessons learned from the involvement of local residents and health RHNP evaluation could arguably apply to professionals. Loan funds can be used as integrated rural health networks (IRHNs), leverage to obtain other sources of fund the organizations that may provide the full ing, and their acquisition often requires an range of health services to rural communi explicit conunitment of network members ties in the future. Based on our observations to a shared and financially linked future. of rural hospital networks, we expect that: • Establishing IRHNs with members that assume shared financial risk will be diffi • Newly formed IRHNs may be relatively cult and much more complicated than unstable, particularly if they involve a establishing networks whose members diverse set of parties. Asymmetry may simply participate in collaborative activi exist between the motivations of partici ties with little or no economic conse pants for joining IRHNs and the benefits quence. However, IRHNs may not be HEALTII CARE FINANCING REVIEW/Fall 1995/Volume 11, Number 1 65 effective structures on which to base • How different environments (i.e., eco rural health reform unless their members nomic, regulatory, geographic) influ have a closely integrated financial future. ence network performance. 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