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February 15, 2016 - Kim Moore [see other posts]

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Rural Options--Second Installment: Affiliate and Modify

Note: this is the second in a multi-part series on strategies for responding to the issues of rural population decline in Kansas communities.

In an Issue Brief issued in December, the Kansas Health Institute discussed “Cross-Jurisdictional Public Health Sharing Arrangement in Kansas.”  Existing public health departments—generally single county in Kansas—come together by agreement to share services or administrative functions. These arrangements are not prescribed by any higher authority but are developed to achieve cost savings, efficiencies and perhaps expanded services. Sometimes the arrangements result in division of services—one county health department delivers environmental protection services for the entire group of counties or emergency preparedness for all members, including grant application preparation (a constant in the lives of public health departments). Although noting challenges to such arrangements, KHI concluded, “cross-jurisdictional sharing arrangements can be excellent tools for health departments looking to improve current services or acquire new ones, while maximizing the use of their resources.”

These public health multiple jurisdiction arrangements are a great example of the second option for rural communities facing difficulties in maintaining services due to low volumes and limited resources. The entity in the county or community (i.e., the health department, school, or hospital) remains a free-standing entity providing its usual services, but some of those functions are performed through a sharing arrangement or affiliation. Examples of this general approach abound in Kansas. School districts share a superintendent. School districts form a special education cooperative. Small districts transport high school students to a neighboring district to form a joint football or basketball team. Rural water districts sell water to city water systems. This affiliation approach has the advantage of retaining local control and identity while achieving some scale and efficiency and preserving most local jobs.

Affiliations and sharing arrangements have moved in a singular direction for Kansas rural hospitals. These arrangements have been accomplished on an upstream/downstream basis. A hospital in a large or mid-sized community (such as Hays, Salina, Wichita and Topeka) develops relationships with one or more smaller community hospitals. The recent announcement of a management and clinical affiliation between Salina Regional Health Center and Cloud County Health Center (Concordia) is a good example. I am not aware of a peer-to-peer small hospital affiliation in Kansas or network which involves any sharing of services, administration, group purchasing, etc. There are many of these around the country but not in Kansas. I believe some rural health systems need to seriously consider crossing those old borders of antagonism and competition (county and hospital district boundaries) and discuss affiliation and sharing with their neighboring hospitals. 

Why do I say this? The picture for rural health care is cloudy at best. Except for optometry, dental and chiropractic services, health care is principally organized around and through the local hospital in rural Kansas. The hospital is frequently the physical facility and administrative base for much of health care in the community. Hospitals are by definition inpatient care providers—they serve patients on premises overnight and during multi-day episodes. They have the emergency rooms, although it is possible to have a free-standing emergency room (very difficult for reimbursement reasons). Rural hospitals have outpatient services (their high volume services), but these outpatient services are not by definition or law a mandatory part of being a hospital. In fact, physician groups in many communities have “cherry-picked” outpatient services beyond the doctor visit (those with good reimbursement) and refer their patients to the physician-owned outpatient services, depleting business from the local hospital.

The trend is strong toward reduced use of inpatient services in the American health care system. Payers see hospital care as the most expensive care and want its use restricted to necessity. Women no longer stay in the hospital three days after giving birth. People are not admitted to the hospital to die, staying there for weeks at a time (certainly a prevalent practice in the 1950’s, 1960’s and 1970’s). People come to hospitals with a complaint requiring diagnosis and they are held for observation, not admitted to inpatient care (a payer device to pay a lower rate for care). Many procedures are now outpatient services (no overnight stay) that were term hospitalizations just a few years ago. Many experts believe that hospital organizations will either shrink dramatically to serve a very discrete and narrow section of the market or reform themselves into health care systems providing the full range of primary and specialty case as well as inpatient services. This is the underlying reason hospital systems in urban areas and mid-sized communities are employing physicians.

Our rural hospitals are in this new world of reduced demand for inpatient services (and squeezing on payments for those services) while their population service bases decline. In addition to this “double-whammy,” there is evidence of considerable out-migration of residents from rural counties to other health care systems for services. (see map at end of article). However, rural health systems have an inherent advantage in this new world—they have physician and hospital care together. The intertwining of local employed physicians with the hospital creates a financially integrated entity where there are no differences in financial incentives for physicians and hospitals. Care coordination and case management should be strengths because the basis for communication and operational integration is present.

It seems the situation is ripe for the option of affiliation of small independent hospitals to occur whereby rural hospitals like public health departments can “… improve current services or acquire new ones, while maximizing the use of their resources.” Hopefully, rural health networks, cross jurisdictional arrangements and other peer-to-peer arrangements can be developed in spite of the “competition” of neighboring hospitals. It seems like a promising option for some rural hospitals (and other service providers in rural Kansas) between preserve and protect and consolidation or even total closing.