California’s Critical Access Hospitals: The Financial .

snapshotC A L I FOR N I AH EALTH C AREF OU NDATIONCalifornia’s Critical Access Hospitals:The Financial Landscape2010

IntroductionCritical Access HospitalsNext Critical access hospitals (CAHs) have a unique reimbursement and organizational structure and play animportant role in California’s health care delivery system. They are small, located in remote or rural parts ofthe state, and are frequently the only provider of health care services in a community. To be designated acritical access hospital, an institution must: Maintain a maximum of 25 acute care beds and up to ten additional beds for psychiatricand rehabilitative services; Be located in a rural area or 35 miles from the nearest hospital (15 miles in areas withsecondary roads); Furnish 24-hour emergency care services (staff may be on-call versus on-site); and Have an average annual length of stay of 96 hours or less.contentsNational CAHsProgram Timeline. . . . . . . . . . . . . . . . . . . . 3Conversions. . . . . . . . . . . . . . . . . . . . . . . . 4California CAHsConversions. . . . . . . . . . . . . . . . . . . . . . . . 5Locations. . . . . . . . . . . . . . . . . . . . . . . . . . 6By Ownership Type. . . . . . . . . . . . . . . . . . 7With / Without Long Term Care. . . . . . . . . 8Profitability Indicators . . . . . . . . . . . . . . . . 9Operating and Total Margins. . . . . . . . . . 10This snapshot highlights the financial health of California’s CAHs. Some of the data point to differencesFinancial and Utilization Indicators. . . . . . 11between CAHs and the state’s general acute care hospitals (GACs) as a whole.Total Discharges, by Payer Category. . . . 12Net Patient Revenue. . . . . . . . . . . . . . . . 13Some key findings:Discharges, by Profitability . . . . . . . . . . . 14 Of California’s 28 CAHs, 61 percent are district hospitals, compared to 14 percent of all generalOperating Revenue and Expense . . . . . . 15acute care hospitals in California. Almost two-thirds of the CAHs had negative operating margins in 2008. Yet for many liquidityUncompensated Care . . . . . . . . . . . . . . . 16Liquidity / Capital Structure Indicators . . . 17Current / Debt Service Coverage Ratios. . 18and capital structure indicators, CAHs performed nearly as well as or even better than CaliforniaStaffing Levels. . . . . . . . . . . . . . . . . . . . . 19GACs as a whole.Average Age of Plant. . . . . . . . . . . . . . . . 20 Financial performance varied widely among CAHs, with differences most apparent betweenhospitals with or without long term care facilities, or by the type of hospital ownership.The financial health of these institutions is important to policymakers, providers, and to the communitiesthat rely on them for health care services.Source: This snapshot is based on the 2010 Financial Health of California Critical Access Hospitals, www.chcf.org/topics/hospitals/index.cfm?itemID 134186. 2010 C alifornia H ealth C are F oundationUtilization IndicatorsCAHs and All GACs. . . . . . . . . . . . . . . . 21CAHs. . . . . . . . . . . . . . . . . . . . . . . . . . . 22Financial / Operating Indicators,Two Years Before / After Conversion. . . 23Financial Ratio Glossary,Authors, Acknowledgment,and Methodology. . . . . . . . . . . . . . 242

National Critical Access Hospital Program Timeline,Critical Access Hospitals previous1988 to 2008Next The Critical Access“State Necessary Provider”Waiver SunsetMedical Assistance Facility Program (MAF)Medicare demonstration projectCost-based reimbursement to select rural hospitalsHospital Program wascreated by the BalancedBudget Act of 1997 as aBalanced Budget Act (BBA)Medicare rural hospital flexibility programdevice to assure MedicareMAF and RPCH merged into theCritical Access Hospital Programbeneficiaries health careaccess in rural areas.198819891997200320042005200620072008Medicare Modernization Act (MMA)Allowed CAHs to increase acute care beds from 15 to 25; ended“State Necessary Provider”* waiver for distance provisionRural Primary Care Hospital Program (RPCH)Established by CongressSmall / rural hospitals could receive cost-based payments for Medicare*The “State Necessary Provider” waivers allowed hospitals to convert to CAH status without meeting CMS eligibility criteria for distance.Sources: CMS – Critical Access Hospital Fact Sheet; MedPac – Critical Access Hospital Payment Basics, 2008. 2010 C alifornia H ealth C are F oundation3

Critical Access HospitalsNational Critical Access Hospital Conversions, previous1998 to 2008Next Nationally, CAHnumber of new conversionsconversions increasedsubstantially between2252242000 and 2005 — only199190slowing in 2006 after the175“Necessary Provider”waiver clause ended.141By January 2009, therewere 1,302 CAHs, slightlymore than one in four of75all community 62007112008Notes: 2008 conversions estimated by subtracting the current number of CAHs from the total of all conversions through 2007.Sources: Flex Monitoring Program – Presentation to the National Rural Health Association – 2008, Flex Monitoring Team “List of Critical Access Hospitals in the U.S.,”January 2009. 2010 C alifornia H ealth C are F oundation4

Critical Access HospitalsCalifornia Critical Access Hospital Conversions, previous1998 to 2008Next Conversions to criticalnumber of new conversionsaccess status in California8began two years after the7first conversions nationally,with half of all conversionsin California (14) occurring5after 0072008Source: California OSHPD, List of Critical Access Hospitals – current as of June 2009; KSA analysis. 2010 C alifornia H ealth C are F oundation5

Critical Access Hospital Locations, California, 2008Critical Access Hospitals en222Humboldt1020TehamaMendocinoPlumasButteGlenn15 825 rEl DoradoYoloSacraAlpineSonoma ntraJoaquinCostaSan FranciscoAlamedaSan MateoSantaClaraStanislaus131 St. Helena Hospital –ClearlakeClearlake2 Banner LassenMedical CenterSusanville3 Biggs-GridleyMemorial Hospital28 CAHs in California —Avalon11 John C. FremontHealthcare DistrictMariposa4 Catalina IslandMedical Center19 of them located northNeedles12 Kern ValleyHealthcare DistrictLake Isabella5 Colorado RiverMedical Center13 Mammoth HospitalMammoth Lakes6 Eastern PlumasHealth CarePortola14 MayersMemorial HospitalFall River Mills7 FairchildMedical CenterYreka15 Mendocino CoastDistrict HospitalFort Bragg16 Mercy Medical Center,Mt. ShastaMt. Shasta17 MountainsCommunity HospitalLake Arrowhead18 North Sonoma CountyHospital District/Healdsburg DistrictHospitalHealdsburg19 Northern Inyo HospitalBishop20 Plumas District HospitalQuincy21 RedwoodMemorial HospitalFortuna22 SenecaHealthcare DistrictChester23 Southern Inyo HospitalLone Pine24 Surprise ValleyHealth Care ulareKings1227San LuisObispoKernSan BernardinoSanta BarbaraVenturaWillowsGarbervilleMaderaSanta Cruz9 Glenn Medical CenterIn 2008, there wereGridleyMariposaMercedWillits10 Jerold PhelpsCommunity HospitalMono118 Frank R. HowardMemorial HospitalNext Los AngelesOrange5of the Bay Area.25 Sutter Lakeside Hospital Lakeport17Riverside4San DiegoImperial26 Tahoe ForestHospital DistrictTruckee27 Tehachapi ValleyHealthcare DistrictTehachapi28 Trinity HospitalWeavervilleSource: California OSHPD, List of Critical Access Hospitals. 2010 C alifornia H ealth C are F oundation6

Critical Access HospitalsCAHs vs. All GACs, previousby Ownership Type, California, 2008Next While the majority ofCritical Access HospitalsAll General Acute Care HospitalsCity/County4%general acute carehospitals are nonprofit,most CAHs are strict61%City/County6%Nonprofit54%Note: Pie segments may not total 100 percent due to rounding.Source: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation7

Critical Access HospitalsCAHs with and Without Long Term Care, previousby Ownership Type, California, 2008Next Slightly more than half ofAllwithLong Term CareWithoutLong Term CarePercentof All281513100%103736%61521%with long term care unitsInvestor0000%were ber of HospitalsOwnership TypeNonprofitSystem Affiliationthe 28 CAHs operated along term care unit. Eightypercent of the facilitiesSource: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation8

Critical Access HospitalsProfitability Indicators, previousCAHs vs. All GACs, California, 2008Next Critical access hospitalsMedian Indicatorsas a group stuggle tocritical access hospitalsAllwithLong Term CareWithoutLong Term CareGeneralAcute CareHospitals261412326– 3.7%– 10.6%2.3%1.4%operating margins than theTotal Margin3.8%1.6%5.2%2.6%state’s general acute careReturn on Equity10.9%9.9%16.6%9.7%hospitals, but performedNumber of HospitalsOperating Marginbreak even on operations.CAHs had lower medianslightly better on othermeasures of profitability.CAHs without longterm care significantlyoutperformed those withlong term care.Note: Two hospitals converted to CAH status in 2008 and were excluded from the analysis of 2008 data.Source: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation9

Critical Access HospitalsOperating and Total Margins, previousby Ownership Type, California, 2008 Median Operating MarginNext Operating margin and Median Total Margintotal margin also vary9.3%by ownership type.In 2008, only system-6.2%affiliated, nonprofithospitals reported3.8%3.2%2.9%positive medians forboth. Non-systemnonprofits and district– 3.5%– 3.7%hospitals wereable to offset large– 7.9%All g deficits withnon-operating revenue.DistrictNote: One CAH under city/county control was excluded from this analysis due to large fluctuations in reported operating and total margins.Source: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation10

Financial and Utilization Indicators,Critical Access Hospitals previousby Profitability, CAHs, California, 2008Next In 2008 only one-thirdMedian Indicatorswith PositiveOperating Marginwith NegativeOperating Margin917Operating Margin9.3%– 10.6%Total Margin6.2%1.8%Non-operating Revenue as aPercent of Total Revenue1.2%9.3%Total Discharges1,289388Average Daily Census, Acute Care11.64.5Number of HospitalsFinancialof CAHs had positiveoperating margins. Thosewith positive marginshad higher volumesand relied less onnon-operating revenue.UtilizationSource: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation11

Critical Access HospitalsTotal Discharges, by Payer Category, previousCAHs and All GACs, California, 2008Next Medicare patientsCritical Access HospitalsAll General Acute Care Hospitalsaccounted for 50 percentof critical access hospitals’discharges, more thanCalifornia acute edicare50%37%Commercialpercent of commercially30%insured inpatientsMedi-Cal22%CAHs also had a lowerMedi-Cal27%compared to GACs(20 percent versus30 percent).Source: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation12

Critical Access HospitalsNet Patient Revenue, by Payer Category, previousCAHs and All GACs, California, 2008Next Although the mix ofCritical Access HospitalsAll General Acute Care HospitalsTotal Revenue: 715.9 millionTotal Revenue: 59.4 billionn 26n 326Other5%patients differs, thebreakdown of net patientrevenue by payer wasOther4%similar for CAHS l18%GACs, rely on commercialpayers for more thanCommercial44%CAHs, like all California44 percent of all revenue.Medi-Cal19%Note: Pie segments may not total 100 percent due to rounding.Source: OSHPD Hospital Annual Financial Data 2008; KSA analysis. 2010 C alifornia H ealth C are F oundation13