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Rural hospitals are more likely to pursue managed care strategies in highly competitive markets

Half of the community hospitals in the United States are in rural areas, and these hospitals have been struggling to survive for some time. In fact, 9 percent of rural hospitals closed due to poor financial performance during the 1980s, and many are still reporting negative operating margins. Apparently, increased market competition increases the likelihood that rural hospitals will pursue managed care strategies to bolster their financial status. High patient demand decreases that likelihood, according to a study supported by the Agency for Healthcare Research and Quality (HS08610).

University of Iowa researchers surveyed the chief executive officers of 139 rural hospitals in Iowa and Nebraska in 1997 about the hospitals' financial strategies, such as multihospital system membership, managed care activities, and joint ventures. They also analyzed data from the 1996 American Hospital Association's annual survey on hospital performance, competition, and hospital characteristics. Only 6 percent of rural hospitals reported no engagement in managed care activity, 90 percent reported having contractual agreements with managed care organizations (MCOs), 20 percent owned or partially owned MCOs, and one-third were in the process of developing an MCO.

Hospital performance measures (occupancy rates and case-mix-adjusted expenses per admission) did not increase a hospital's likelihood of establishing an MCO. However, hospitals facing greater competition (more hospitals in their service area) were more likely than other hospitals to pursue establishing an MCO alone or with other parties. Either they believe a large patient base can sustain more than one hospital, or MCOs outside the market area may be interested in a strategic partnership with a local hospital that has an established presence in that market. The higher patient demand was in an area, the less likely rural hospitals were to pursue managed care strategies, since they did not need the stable patient flow provided by managed care arrangements.

More details are in "Rural hospitals and the adoption of managed care strategies," by Shadi S. Saleh, Ph.D., Thomas Vaughn, Ph.D., and James E. Rohrer, Ph.D., in the Summer 2001 Journal of Rural Health 17(3), pp. 210-219.

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