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FOR RELEASE: January 24, 2002
CONTACT: Dick Gunn
405/271-5601

“Critical Access” Status Helps At-Risk Rural Hospitals Survive Financially

A recent study of 12 Oklahoma rural hospitals revealed that their conversion to “critical access hospital” (CAH) status reduced their financial losses and some hospitals even reported revenue gains after operating as a CAH. The turnaround for hospitals that were at-risk of closing their doors helped local communities and businesses remain viable, according to officials at the Oklahoma State Department of Health (OSDH).

The average loss for these hospitals was reduced from about $383,000 to $73,000 a year after becoming a CAH. “There was an 81 percent improvement in the bottom line for hospitals at risk of closing and five of the hospitals were able to report a positive cash flow as a CAH,” said Val Schott, director of the OSDH Office of Rural Health.

The study, conducted by the Oklahoma Cooperative Extension Services and OSDH Office of Rural Health, collected demographic, utilization and financial information from 12 critical access hospitals located in small communities throughout Oklahoma. The Medicare Rural Hospital Flexibility Grant Program established the new CAH hospital category to provide financial stability for small rural hospitals that were losing money after the enactment of the Balanced Budget Act of 1995.

A telephone survey was used to collect information from hospital administrators and chairpersons of their governing boards. Objectives of the study were:

  • To identify how conversion to CAH affected services and patient census.
  • To identify if there were annual gains and losses.
  • To review the attitudes of the residents in the community toward the hospital.
  • To estimate economic impact if all 12 hospitals were closed.
  • To estimate the economic impact on a community of the closure of a typical hospital.

General findings of the survey were:

  • Services and patient census declined slightly with conversion to CAH.
  • All 12 hospitals reported losses prior to conversion, totaling about $4.6 million.
  • Five hospitals reported losses after conversion.
  • The hospitals reported total losses of nearly $900,000, with a net gain of $3.7 million and an increase of 81 percent in the first year after conversion.
  • Hospitals greatly improved their financial situation by converting to CAH status and helped the local community and businesses remain stable while providing access to quality health care.

The worst-case scenario revealed that if all 12 of these hospitals had closed, the total impact would have been a loss of 1,057 full-time jobs in the hospital industry and other businesses in these communities. This would have translated into a total annual payroll loss of approximately $27 million for the State of Oklahoma.

“Using the information on all 12 hospitals to develop a typical hospital scenario for rural Oklahoma, the losses would translate into a loss of 78 full-time jobs, an annual payroll of nearly $2.3 million for each community,” said Schott.

In many rural Oklahoma towns, the hospital is the second or third largest employer in the community. To lose the hospital might result in a downward spiral of other health care services and the financial stability of the community, according to health officials.

Health departments have an interest in ensuring that all Oklahomans have access to quality health care and helping cities and rural communities remain stable financially. Hospital administrators and boards interested in reviewing the study or finding out more information about how to convert their rural hospital to a CAH should contact the OSDH Office of Rural Health at 405/271-8750.

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