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Strengthening the Rural Health Infrastructure

Network Development and Managed Care Strategies

Summary of a Workshop for State and Local Health Officials

This workshop explored the key issues regarding managed care and health care network development in rural areas. It was held in Asheville, North Carolina, November 19-21, 1997.

About the Workshop Sponsor.


The health care infrastructure in many rural areas is characterized by physician shortages and isolation, struggling small hospitals with aging equipment, a lack of capital for investment, and high levels of uninsurance among local residents. With the goal of improving access to health care services, policymakers have traditionally confronted these problems by increasing payments to providers and creating special programs to recruit and retain health professionals.

Even as these efforts continue, however, the underlying system of health care financing and delivery is changing across the entire health system—marked by the move to managed care and the rise of more integrated health care organizations. Most major health care purchasers are switching from fee-for-service payments to capitation and other risk-sharing payment methods, and policymakers in general are moving away from regulatory to more market-based strategies for containing costs. Although it is unclear how these dramatic changes will impact rural communities, it appears that the development of provider networks and managed care systems holds some promise for strengthening the rural health care infrastructure and improving access to health care services.

By early 1996, there were at least 180 rural health networks in the United States. A rural health network is defined as "a formal organizational arrangement among rural health care providers (and possibly insurers and social service providers) that uses the resources of more than one existing organization and specifies the objectives and methods by which various collaborative functions are achieved." Networks composed exclusively of hospitals are the most common, but newer networks tend to include both hospitals and physicians.

In a survey conducted by University of Minnesota researchers last year, 41 percent of network leaders said that "organizational development" had been their "most significant achievement to date," and 22 percent claimed "improving access to health services" as their top achievement. About one-fifth of rural health networks contract directly with self-insured employers, and a similar portion contract with health maintenance organizations (HMOs).

How the growth of managed care in rural areas will affect providers and consumers is not clear. Many rural providers perceive managed care organizations (MCOs) as a threat, because they:

  • May impose more financial risk on rural providers than they are capable of bearing.
  • May not make concessions for circumstances particular to rural areas (e.g., transportation barriers, larger caseloads for practitioners, and limited infrastructure in general).
  • May absorb most or all the new primary care practitioners and give them incentives to locate in urban and suburban areas, draining health care resources away from rural areas and thus exacerbating the existing maldistribution of primary care providers.

On the other hand, because many MCOs are large organizations with considerable resources, they have the potential to invest in building adequate rural health care delivery systems. They may enable rural providers to participate in more sophisticated medical management information systems. They can provide a steady income stream via capitation and other contracts to physicians and hospitals, which may be especially welcome in more economically depressed areas. It has also been argued that MCOs can better use mid-level and nonphysician practitioners than can independent providers. They may also improve access to relevant medical technologies by linking rural providers to urban health centers through telecommunications and mobile health units.

As policymakers deal with the fundamental issue of how to establish appropriate rules for health care markets that take advantage of competitive forces, they are asking specific questions about rural areas:

  • How can the Federal Government and States encourage the development of provider networks and managed care organizations that strengthen the rural health care infrastructure?
  • How can large employers and other major purchasers (including Medicaid and Medicare) structure their contracts with health plans in order to improve access to services for rural residents?
  • What would be appropriate financial solvency and quality of care requirements for health plans serving smaller and traditionally underserved communities?
  • How can new telemedicine technologies be used as tools for network development?


This workshop explored the key issues regarding managed care and health care network development in rural areas. Specific workshop objectives included the following:

  • Describe research findings on the formation of rural health networks and HMOs in rural areas.
  • Provide examples of networks and managed care systems operating in rural areas, highlighting key issues such as distributing financial risk, assuring quality of care, and involving local providers/residents in governance and decisionmaking capacities.
  • Discuss strategies HMOs can use to assure quality of care for rural enrollees and the challenges of meeting national health plan accreditation standards, especially for smaller plans serving rural populations.
  • Identify the challenges faced by providers in forming rural health networks and possible State roles and technical assistance strategies for fostering network development.
  • Explore the implications of new Federal Medicare laws increasing capitation payments for risk contracts operating in many rural areas and allowing provider-sponsored organizations to receive contracts.
  • Examine the use of "value-based" purchasing practices by large employers and how these purchasers can structure their contracts with health plans to improve service delivery in rural areas.
  • Describe the results of a recent 50-State survey examining the extent and types of Medicaid managed care programs in rural areas and the experience of leading States in implementing such programs.
  • Describe the rapid expansion of telemedicine projects in rural areas and recent changes in both telecommunications and health policy intended to benefit rural populations.


The participants for this workshop included senior State and local health officials from both the executive and legislative branches who are responsible for rural health policy development and/or the implementation of health care programs in rural areas. Among them were officials from State offices of rural health, insurance commissions, bureaus of managed care, primary care, and long-term care, directors of planning and policy commissions, officials from State Medicaid agencies, State and local health and public health departments, as well as State legislative staff and representatives of Federal agencies, national associations, and health policy centers.

Workshop Sessions


The User Liaison Program (ULP) disseminates health services research findings in easily understandable and usable formats through interactive workshops. Workshops and other support are planned to meet the needs of Federal, State, and local policymakers, and other health services research users, such as purchasers, administrators, and health plans.

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