“Give the American people a good cause, and there’s nothing they can’t lick.” – John Wayne

When it comes to grit, true grit, the men and women managing rural hospitals have it in spades. They are innovative and tenacious and in this issue of HealthSure headlines we look at how their resourcefulness is helping them to not only survive, but succeed against great challenges. While perhaps not quite as colorful in character as Marshal Rooster Cogburn, the strategic tactics used by rural hospital leaders can provide inspiration for all types of healthcare organizations.

Crossing a shaky bridge from volume to value

By Brant Couch, CIC

During a recent working lunch with TORCH CEO and president David Pearson, we were discussing how rural hospitals are meeting the challenges and managing the risks of our current economic, political, and regulatory environment.

With great clarity, Pearson pinpointed the fundamental challenge all hospitals, especially rural hospitals, are facing. “We’re being asked to cross a shaky bridge,” he said.

Pearson’s “shaky bridge” spans the revenue gap created as hospitals transition from a pay-for-service or volume-based financial model to a pay-for-value or patient-outcome-based financial model.

The ACA: Not the real threat?

An affordable, sustainable healthcare system that provides effective care is something I believe all Americans desire. As difficult as it may be to overcome polarized politics and entrenched economic systems, let alone figuring out how to fairly measure and reimburse for the value a patient actually receives, the majority of people agree our current system needs to change. As Pearson put it, “The ACA (Affordable Care Act) is not the real threat. The real threat is that the cost of our healthcare system has outpaced our ability to pay for it.”

A November 7th, 2014 Forbes article agrees, saying, “The passage of the Affordable Care Act, also known as Obamacare, has created a ‘strategic inflection point’ in U.S. healthcare. It’s that defining moment when the rules of the game begin to change.

A strategic inflection point drives a fundamental shift in business strategy for all affected parties. It’s expressed when the elements that once defined an organization’s success are no longer enough to sustain its market position. As a result, the winners of the past often grow obsolete. Just ask Barnes and Noble or Borders. Ask Kodak or Blockbuster.”

The nature of the shaky bridge was also well described in a recent PR Web article that says, “91% of chief financial officers with negative 2013 operating margins are orchestrating their technology infrastructures to support value-based models, while the majority of revenue continues to be fee for service”.

Like it or not, all hospitals have to figure out how to cross the shaky bridge. This means carefully balancing the amount they invest in their future ability to deliver high value care and earn optimal reimbursement with the practical considerations of staying in business today.

Serving the community drives survival

Life or death battles for financial survival are not new to rural hospitals… they have been going on for decades. That is why providing rural healthcare is a unique crucible in which the seemingly endless challenges are met with a gritty combination of determination, innovation, and creativity.

Among the forces at work within this crucible, perhaps the most powerfully positive is the nature of the communities rural hospitals serve. I agree with Pearson’s assessment that rural communities are fiercely independent in nature. “They want to avoid losing their hospital or have it acquired by large systems and they are willing to tax themselves in order to save their hospitals,” he says.

Beyond a fiercely independent attitude, rural communities know their hospital plays a vital role in protecting and enhancing the health of the local economy. And, they are not alone: In testimony to the U.S. Senate Committee on Appropriations, Mary Wakefield, PhD., RN, Administrator, Health Resources and Services Administration, U.S. Department of Health and Human Services, cited these findings:

  • Healthcare accounts for 15-20% of rural community employment (both primary and secondary).
  • Having one physician accounts for 8.4 jobs in the local economy.
  • Health services and schools are the most important quality-of-life factors attracting businesses, new residents, and retirees.

Once its hospital closes, a community’s ability to attract business and industry decreases. This can cause existing businesses to leave and the school system to downsize as the population declines.

Even more essential is the role a hospital plays in the health of the people it serves. As Pearson puts it, “The rural area is the breadbasket of Texas… we have to keep these people healthy.”

In response, rural hospitals have become very savvy about how they go about their business. They squeeze every ounce of value out of every dollar spent. They create and develop new sources of revenue while they continue to hone their ability to qualify for and utilize state and federal funding. They are masters at adapting to the needs of their community (as the example provided by Childress Regional demonstrates – see article.) “Hospitals are getting to know their customers (i.e. patients) better… they know just chasing dollars doesn’t work anymore. They must really figure out what their communities need,” according to Pearson.

Dollar squeezing
Rural hospitals face a combination of financial and operational challenges including a chronic shortage of physicians and other clinicians, aging facilities, daunting regulatory requirements, and declining reimbursements.

Ironically, despite having to deal with challenges that are largely beyond their control, studies show the delivery of patient care by rural hospitals may be more cost effective than the same care delivered by an urban hospital. Small rural hospitals, on average, have equal or better patient care outcomes compared with larger urban hospitals, yet Medicare payments for rural residents are 3.7% lower per beneficiary, according to a 2012 iVantage Health Analytics study. (The healthcare business and technology intelligence company estimates that applying the average cost per rural beneficiary to urban beneficiaries would save Medicare $7.2 billion annually!)

How do they do it? Among the many factors behind the ability to deliver equal or superior healthcare is squeezing as much value as possible from every dollar.
One of the newest cost savings strategies is consolidating OEM equipment maintenance and repair plans into a single program. Covering preventive and corrective maintenance, these programs simplify equipment maintenance and can save between 10-20% of OEM provided maintenance and repair cost annually. (RHIA provides this solution through the eMCA Program.)

Rural hospitals are also leading the way in cutting back on the use of pricier items doctors may prefer, but that have no impact on patient outcomes. Simply reviewing the cost of items with doctors and nursing staff on a regular basis has resulted in significant savings.

Employee health benefits are another area where simple yet innovative steps have been taken to reduce cost and optimize value for rural hospitals. In particular, as employees age and healthcare costs rise, implementing an effective wellness and disease management program has become an essential component of any health benefits program. Employees receive financial incentives in the form of lower health insurance premiums if they are active participants in the wellness program. For example, a diabetic employee’s premiums are reduced when he or she has his or her biometrics checked and participates in diabetic coaching.