Snapshot

Infrastructure costs, lack of on-site expertise and a fierce desire to remain independent have limited rural hospitals’ ability to respond to the quality and value imperatives of reform. But innovative regional alliances and ACO models are removing these barriers while strengthening the foundation of rural care.

Rural hospitals around the country are trying out new partnership models in an attempt to remain independent while, at the same time, adapting to health care reform and reimbursement changes.

These models include accountable care organizations, regional alliances with other independent hospitals and formal partnerships with larger tertiary care hospitals.

Making informed decisions about these new partnerships while also reprioritizing financial and personnel resources are uncharted territory for community board members in rural and underserved areas. But the new environment provides unprecedented opportunities to more fully deliver on the mission of rural hospitals to safeguard the health of the populations they serve, experts say.

“The tides have changed,” says Bill T. Richardson, president and chief executive of Tift Regional Medical Center in Tifton, Ga., a 191-bed hospital. “We were doing quite well on our own but, with the new reimbursement models and mandates coming along, we felt it made a strong argument for seeking out like-minded partnerships.”

In 2012, Tift Regional announced a partnership with Navicent Health (formerly Central Georgia Health System), the second largest hospital in Georgia, located in Macon. In July 2013, the two hospitals created Stratus Healthcare, an alliance of hospitals across central and south Georgia that today includes 30 facilities — many independent and rural — and more than 2,000 physicians.

Stratus Healthcare is focused on pooling resources and problem-solving in four areas: clinical services, information technology, shared services and strategic initiatives. The shared goal is 25 percent better care for 25 percent less cost. For instance, the alliance is identifying service gaps and how to fill them with existing member services to minimize recruitment costs. It is studying the idea of developing a data repository to share population health data and improve interoperability in the region. And, to get a handle on employee health and health care spending, Stratus is exploring starting a health plan. All participating hospitals remain independent, with their own community governing boards intact.

“This is beyond economies of scale,” says Ninfa Saunders, president and CEO of Navicent Health. “We are very committed to these four areas to expand scope, structure and skills.”

The development of the alliance took some time and patience. Richardson insisted that all hospitals that agreed to join would participate in crafting the operating agreement — a process that ultimately took six months but provided extensive buy-in from the organizations. The Stratus board, comprising 50 percent physicians and 50 percent CEOs of participating hospitals, drew up the agreement. “The operating agreement supports and nurtures transparency and openness,” he says.

Richardson and Saunders made presentations on the alliance to hospital boards across central and south Georgia. “CEOs were looking for a long-term solution besides being acquired,” he says. “There was a natural draw to our concept.”

John Prince III, chairman of the board of trustees of the hospital authority of Tift County, which governs Tift Regional, says the main factor in seeking a partnership was “like-mindedness.”

“As far back as 2010, we began to evaluate options to achieve a greater regional scale of operation,” Prince said in an email. “Our health system valued its independence and autonomy, and we are fortunate to have a sound financial operation. Therefore, becoming acquired or merging with another organization was not only unnecessary in our case, it was certainly not appealing.”

Fortunately, Tift Regional was familiar with many of the potential Stratus Health partners through membership with Voluntary Hospitals of America, Prince said. “We knew their executive leadership, their physicians, their financial status, their quality and patient safety metrics because of this collegial relationship we shared through VHA Georgia,” Prince said. “Certainly the members of our executive team were aware of this and did their own internal cultural assessment, informally. Adopting a principle of physician and administrative dyad leadership was not only appealing, it was our preferred structure for the future. We did consider the competitive landscape, but have been very selective in identifying those with whom we wish to partner.”

Evolving Relationships

With whom to partner and what that partnership should look like are questions that rural hospitals around the country are grappling with today, experts say.

Some of these decisions depend on the competitive landscape and provider makeup, which can vary drastically from region to region. In central and south Georgia, for example, there are many independent rural hospitals and critical access hospitals. In other areas of the country, mergers and acquisitions have left few independent hospitals remaining. There are about 1,300 CAHs nationwide.

“It definitely varies by state and that is a factor in the approach,” says Terry Hill, senior adviser for rural health leadership and policy at the National Rural Health Resource Center in Duluth, Minn.

Other factors include whether a state is compelling hospitals to show value for care provided to Medicaid patients, he says. Commercial payers in a region also are playing a role. In some cases, commercial payers are pushing rural providers to participate in accountable care organizations as part of contracts, he says.

Forming a partnership with a nearby larger organization is an option for some rural hospitals, as is pooling into an alliance, as is the case in Georgia, Hill says. Other rural hospitals are laying the initial groundwork in information technology and quality initiatives on their own, hoping to make themselves more attractive partners, he adds. Some are doing nothing at all.

“Rural hospitals are wondering which way to go,” Hill says. “Transitioning to new payment models is like having to cross a very shaky bridge.”

Rural hospitals might think they can sit on the sidelines because they have little competition for customers in their immediate areas, but that’s not the case, says John Supplitt, senior director of the American Hospital Association’s Section for Small and Rural Hospitals. What’s more, they need to make these advances without the benefit of additional resources.

The reality of doing more with less is not unfamiliar to rural hospitals, and it is driving some to develop creative ways to keep pace with technology, serve their communities and enhance quality of care.

Grinnell (Iowa) Regional Medical Center, a 49-bed independent hospital, is seeing its five-year affiliate partnership with Mercy Medical Centers of Des Moines, Iowa, evolve and strengthen. This month, Grinnell and about 24 other rural Iowa hospitals will begin participating in Mercy’s ACO through a federal grant program.

Grinnell pays an annual fee to participate in the Mercy affiliate network, and of the 38 hospital participants, it is the only independent, noncritical access hospital. Over the past five years, Grinnell and others in the Mercy affiliate network, called the Mercy Health Network, have evolved into a clinically integrated network that can share data, resources and knowledge.

“It allows individual systems and organizations to work together without going through a full asset merger,” says Todd Linden, Grinnell’s CEO. “We can work together to better deliver health care to our communities.”

The network offers two key benefits to affiliate members, says Dave Hickman, a Mercy Health Network vice president. First, affiliates can participate in 20 affinity group structures whereby functional leaders at member hospitals can share and tackle common issues and leverage the network for mutual improvement. Affinity groups include chief nursing officers, radiologists and chief informatics officers.

“We believe there is a lot of power in comparative reporting of data and analyzing that data as to who is doing well and how they are doing well,” he says. “In those affinity groups, as in finance affinity group meetings, they look at the finance dashboard to see how everyone is doing. There’s nothing secret about the measures — it’s all the usual measures. The power is in having that number of hospitals reporting together. It’s the analysis of who is doing well and how to replicate [the data] throughout the network. They get to participate in that discussion and replicate best practices.”

Second, the network offers a board liaison structure for the 23 managed hospitals and Grinnell Medical Center. A Mercy representative attends all the affiliate’s board meetings and keeps local board members apprised. “It enhances communication both ways,” Hickman says.

Several network members are experimenting with job-sharing as well, he adds. Two nearby hospitals share a Lean and performance excellence director, and two others share a radiology director. A third pair of affiliates is exploring the possibility of sharing a chief financial officer, he says.

Tackling the Triple Aim

The Mercy Health Network strategic plan is focused on the Triple Aim’s three domains of improving the patient experience, increasing clinical quality and reducing per capita costs, Hickman says. One way to tackle costs is group purchasing and contracting. For instance, a single law firm represents all the hospitals, which reduces legal fees. Group purchasing is also available via Mercy’s parent company, Catholic Health Initiatives, he says.

Grinnell also is trying to lower costs by launching its own self-funded health plan, managed by HealthPartners, a Minnesota HMO. The plan now has 900 covered lives, all Grinnell employees, spouses and dependents, and last year, it hired a health coach to work with the most at-risk members on setting and achieving health goals. Grinnell is now meeting with local employers to expand and share the plan in a cooperative structure, CEO Linden says. He says he believes Grinnell will lower its own employee health spending in the next two years.

This is crucial because of razor-thin margins. Medicare reimbursements are 30 percent below the cost of care, Linden says, and commercial reimbursement is similarly below costs of care. “There is no way to survive on Medicare payments in Iowa,” he says. “We are already efficient. We are not going to get profitable on efficiencies. It is by skill and scale and bringing value to the marketplace. You need to be part of something to scale.”

Ed Hatcher, a Grinnell board member for 15 years, says the annual fee to participate in the Mercy Health Network has been well worth it. “We’ve gotten more out of it than we have put in financially,” he says. “It provides us with possibilities to go even further.”

Grinnell also is part of the University of Iowa Health Alliance, which unites the Mercy Health Network with three other large Iowa health systems and their affiliates, comprising more than 50 hospitals and 160 physician clinics. The alliance seeks to improve clinical integration and test value-based and accountable care models.

Additionally, last July, Mercy received a $10 million, three-year grant from the Centers for Medicare & Medicaid Services to help about 25 rural hospitals in Iowa, including Grinnell, join Mercy’s ACO, which launched in 2012. The grant pays for health coaches, computer software and other resources for the hospitals to begin participating in the ACO as part of Medicare’s Shared Savings Program. The hospitals will begin participating in this month.

“It was a really big deal for us,” says Hickman of the grant. “It allows us to learn how rural health care fits into value-based contracting. There’s no playbook on this for rural health care.” 

Rebecca Vesely is a freelance writer in San Francisco.


Investment Model Defrays Startup Costs

More rural hospitals may be getting into the accountable care organization game, thanks to new funding from the Centers for Medicare & Medicaid Services. The agency announced last October the creation of a $114 million funding program for hospitals serving rural and underserved areas to participate in ACOs.

Called the ACO Investment Model, the grant program will allow hospitals to receive loans and monthly payments to develop the infrastructure to take on reimbursement risk. These up-front dollars will be paid back with deductions from bonuses the hospitals earn from the Medicare Shared Savings Program. The ACO Investment Model is being administered by the CMS Innovation Center, created by the Affordable Care Act to spur innovation in delivery and payment systems.

Participation in the ACO Investment Model is limited to hospitals that join in 2016 and to ACOs that already began participating starting in 2012 and the two years afterward.

The program will “help increase the number of beneficiaries — regardless of geographic location — that can benefit from lower costs and improved health care through Medicare ACOs,” according to a CMS news release.

Terry Hill, senior adviser for rural health leadership and policy at the National Rural Health Resource Center in Duluth, Minn., says the new program will help to boost ACO participation by rural hospitals.

“It is really going to help offset some of the risk for rural hospitals and providers,” he says.

Some of the startup costs for ACO participation can be significant, he notes. “It’s a really, really difficult job. At a bigger hospital, you have the expertise of trained people. You have to pay for consultants at smaller hospitals. It creates real challenges for these rural hospitals,” he says.

The National Rural Health Resource Center itself also recently received federal funding to provide technical assistance to 145 rural health networks, he says.

Whatever path rural hospitals take, they should choose one or risk becoming obsolete, those interviewed say.

Bill T. Richardson, president and CEO of Tift Regional Medical Center in Tifton, Ga., says that rural hospitals can seek kindred spirits with similar missions to form partnerships. “Health care is local,” he says. “We recognize that and hold it dear.” — R.V.


National ACO Lowers Cost Barriers

For some rural hospitals, finding like-minded facilities with which to align requires widening the search area. One organization is attempting to bridge this divide by knitting rural hospitals together into accountable care organizations across states.

The National Rural ACO Consortium, based in Nevada City, Calif., is a growing network of rural providers seeking to evolve from fee-for-service to a performance-based payment structure.

Lynn Barr, chief executive of the consortium, says her organization fills an important niche because many rural hospitals eager to be a part of this new landscape of population health management and pay-for-value have not had opportunities to participate.

“Everyone was talking about these transitions, but there was nothing in place to help rural hospitals do this,” she says.

Barr and others approached Medicare in 2013 about forming an ACO across nine unaffiliated, independent rural hospitals in three states to meet beneficiary number requirements for Medicare’s Shared Savings Program, a federal ACO initiative. The program requires at least 5,000 Medicare beneficiaries to participate, an unattainable number for most independent rural hospitals, Barr says.

Medicare allowed the rural hospitals to try out this shared ACO model under Barr’s direction. In 2014, five hospitals in California, two in Indiana and two in Michigan began the program. The National Rural ACO Consortium oversees all aspects of Medicare Shared Savings Program requirements. Participating hospitals pay $10,000 per month to participate. In return, they receive guidance from the consortium, such as legal advice, and access to specialized staff members, including care coordinators and health information professionals.

Each member hospital owns a share of the ACO, which has its own governing board comprising executives and physicians at each participating hospital. The ACO governing board meets monthly to review data and share trends and learning with one another.

Importantly, the ACO allows participating rural hospitals to get exemptions from some antikickback and patient inducement laws that previously barred them from certain types of negotiations with medical device companies, or from negotiating with referral hospitals for better rates, Barr says. For example, ACO members can purchase glucose strips for dual-eligible Medicare and Medicaid beneficiaries with diabetes who cannot afford them. Or the hospital can build a railing at the home of a patient at risk for falls once he or she is discharged from the facility. This type of “patient inducement” offered to Medicare beneficiaries is generally prohibited.

“These exemptions help hospitals to provide the best care to their communities,” Barr says.

Margaret Mary Health, a 25-bed critical access hospital in Batesville, Ind., was one of the initial hospitals to participate in the National Rural ACO Consortium. Tim Putnam, CEO of Margaret Mary, says the ACO offers a chance to participate in the new population health management environment.

“We were watching what was happening, but we had no opportunity to get into it,” he says. “The ACO gave us a pathway to step into the concept of population health and understand what that change would look like.”

Putnam says the ACO has changed the conversation in the community of Batesville, a manufacturing town located between Indianapolis and Cincinnati.

“We are about health and wellness, not just illness and injury,” he says. “It’s not about a building or a technology infrastructure, it is engaging with the community to work with other organizations to improve health.”

One of the most valuable aspects of the ACO is newly available access to Medicare data about beneficiaries served at the hospital, he notes.

“I had really underestimated the value of payment data,” he says. “It tells me what kind of care each patient is getting, how they are receiving it and how fragmented it is. It’s looking at patients’ receiving the most care and identifying ways to make it better.”

For example, access to the Medicare beneficiary data helped the hospital to determine that transportation to and from appointments was a major problem for patients. Missed appointments were largely the result of a lack of transportation across a rural area with little in the way of public transportation.

“Once we figure out that certain patients are having transportation problems, we can talk about perhaps helping with transportation or being more flexible with appointment scheduling,” Putnam says.

As for any shared savings from Medicare for participation in the ACO, Putnam says they won’t be available until June 2015, and he does not expect to receive any. Margaret Mary did not factor shared savings into financial costs of the ACO. One important finding through the ACO is that Margaret Mary’s annual Medicare costs per beneficiary were already $2,000 less than the average prior to starting the ACO, in part because of a strong primary care program already in place. This means the hospital would be unlikely to receive any savings for further reducing costs while maintaining quality.

Additionally, the initial nine participant hospitals in the ACO don’t expect shared savings this year because one of the organizations converted to a critical access hospital, which drastically increased its Medicare rates, skewing the results higher than initially expected, Barr says.

But Putnam is unfazed. “We see the cost of participation as tuition,” he says. “We are spending to learn how to work in this world and this has been the least expensive way we saw to get into this.”

Savings expectations aren’t deterring new entrants to the program. In 2015, the National Rural ACO Consortium will expand — 30 hospitals in nine states will participate in a total of six ACOs, Barr says. — R.V


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