Impact of CAH Conversion on Hospital Costs and Mix of Services

Research center:
Project funded:
September 2005
Project completed:
August 2008
Three cohorts of CAHs were followed over time, corresponding to the first three years of conversions in 1999 through 2001. For each cohort, project staff identified a similar set of rural non-CAHs for use as control hospitals. The observation period runs from 1998 through 2002, providing at least one baseline and one follow-up year for each cohort. Measures of hospital costs and expenditures were derived from the Medicare Cost Reports, and include inpatient and outpatient revenue, total margins, number of full-time equivalents (FTEs) for the facility and hospital, salary as a percent of expenditures, salary per FTE, inpatient revenue as a percent of all revenue, and revenue per bed. MedPAR discharge records were used to describe the inpatient service mix provided by study hospitals. For each of these measures, we compared the pre- and post-conversion trends observed for each cohort of CAHs with trends over the same time period for corresponding control hospitals.

Results indicate that CAH conversion resulted in significantly higher total margins for at least the first two years following conversion. The rate of growth in outpatient revenue was higher in CAHs relative to controls, while their inpatient revenue grew at a slower pace. Increases in revenue, combined with decreases in the number of beds, led to a dramatic increase in revenue per bed in the year of conversion, which persisted into the second year after conversion at a lower rate. Medicare inpatient volume, days of care, and average LOS fell significantly following CAH conversion and remained at the new lower levels. Composition of the inpatient care did not appear to change dramatically for CAHs, however, although there appears to have been some increased concentration on a smaller number of diagnosis-related groups (DRGs) and increased focus on providing basic services.

Publications

  • Impact of CAH Conversion on Hospital Finances and Mix of Inpatient Services (Final Report)
    NORC Walsh Center for Rural Health Analysis
    Date: 08/2008
    This study examined Medicare Cost Report and claims data for hospitals before and after critical access hospital (CAH) conversion in order to better understand changes in hospital costs associated with CAH conversion, factors associated with any cost growth, and changes in the mix of services provided by the facility.