J as a Survival Strategy for Rural Hospitals Under the Prospective Payment System

The introduction of Medicare's Prospective Payment System (PPS) has disproportionately increased financial pressures on rural hospitals and posed challenges to the survival of these institutions. Increasingly, rural hospitals are seeking strategies that can enhance their chances for survival in a turbulent and hostile environment. This study examined the survival effects of one such strategy, multihospital system affiliation. Specifically, we assessed: (1) whether and how different types of system affiliation in the post-PPS era affect the likelihood of rural hospital survival; (2) whether particular structural, environmental and hospital performance characteristics moderate the effects of system affiliation on rural hospital survival; and (3) whether Systematic selection by rural hospitals into multihospital systems potentially accounts for observed relationships between system affiliation and survival. Proportional hazards analyses indicate that system affiliation with investor-owned systems significantly reduces survival probabilities of rural hospitals. Affiliation with not-for-profit systems or system affiliation under contract management arrangements does not affect survival probabilities of rural hospitals. These general findings are moderated by the effects of hospital ownership and size at the time of affiliation. Finally, study findings indicated that systematic selection by poor performing rural hospitals into investor-owned systems has occurred in the post-PPS era. No evidence of selection into not-for-profit systems was discovered. he economic changes created by Medicare's Prospective Payment System (PPS) have posed a threat to the survival of rural hospitals. Rural hospitals serve disproportionately more patients in urban hospitals for the same procedures due to urban/ruraI payment differentials (Moscovice, 1989). Problems posed by PI'S in rural areas have been This research was supported by National Science Foundation grant number SES-8821592. Additional support was provided bv the Center on T categories affected bv this change, including indgents and the elderly (Hart,-Amundson, & Rosenblatt, 1990; ~ ~ ~ ~ ~ ~ i ~ ~ , 1989). hospitals often receive lower reimbursements than Aging and Health in Rural America h i Pennsyivania State University. For further information, contact: Michael T . Halpern, The University of Michigan, Public Health Policy and Administration, M4110 School of Public Health 11,1420 Washington Heights, Ann Arbor, MI 48109-2029. addition, rural Halpern, Alexander, and Fennell 93 Spring 1992 exacerbated by other economic challenges to rural hospitals, including decreased revenues, increased liability concerns, loss of patients to urban facilities, shortage of capital, and declining operating margins (Government Accounting Office, 1990; Mick & Morlock, 1990). As rural hospitals are being challenged by PPS and other concomitant environmental changes, many are considering available strategic options that can potentially enhance their chances for survival. This study examined whether the strategy of multihospital system affiliation in the post-PI'S environment affects the survival probabilities of rural hospitals. Specifically, we investigated three issues: (1) whether and how different types of multihospital system affiliation affect the likelihood of rural hospital survival; (2) whether structural, environmental, and performance characteristics of hospitals moderate the effects of multihospital system affiliation on rural hospital survival; and (3) whether systematic selection by rural hospitals into multihospital systems potentially accounts for observed relationships between system affiliation and survival.