Scratch the surface of a rural town and chances are the healthcare, employment, and community linchpin is the local hospital. However, a fundamental challenge causing many rural facilities to shut down is the lack of ready cash flow for new equipment, construction upgrades, or staff retention.

Yet some hospitals are refusing to close up shop so easily and, instead, are pursuing other ways of keeping their doors open. Affiliations with a larger and stronger healthcare system is one such option for accessing desperately needed deferred renovation funds and upgrades while still retaining a sense of community identity.

Doing the due diligence
Along with shared resources, access to better technologies, cash infusions, increased supply chain vendor efficiencies, and improved performance through clinical integration, affiliations often offer the chance to become the primary care outpost branch of a prestigious urban system. Most rural facilities would find these benefits difficult to turn down.

But there’s a price to pay. Large system affiliations mean the local hospital board is subsumed to the stronger hospital, with former board members relegated to advisory roles with no decision-making authority. Hospital executives must ask themselves if relinquishing control after years of acting independently is worth the benefits of keeping a facility open.

Glossing over the required due diligence before signing an agreement is another danger. Are the systems technologically compatible? If one facility is currently operating on the mandated ICD-10 Procedure Coding System while the other hasn’t yet converted, billing will inevitably snarl. What about supply chain and vendor resource-sharing issues? What are the purchasing arrangements for each hospital? Are the radiological injectables or sutures in the operating rooms the same for both facilities?

Understanding renovation needs
Similar challenges apply to proposed construction upgrades. Are there any existing structural gaps between the two facilities? What, if anything, should be invested to bring the rural building current?

“Rural hospitals are frequently underinvested in physical assets and typically operate within older facilities where no significant upgrades have been made,” says Brian Haapala, managing director at Stroudwater Associates. “It’s in the best interest of the urban center to upgrade because they don’t want to put their name on [an affiliated site] unless it’s perceived as a quality organization.” As a result, urban systems will often modernize rural infrastructures for increased care delivery efficiencies by replacing CT scanners, building out new lab offices, or even expanding certain buildings.

The same applies to smaller rural facilities affiliating with larger, stronger rural facilities. Construction renovations have “universally been seen as benefits to the local organization and have thus reinforced the fact that the affiliation was an investment in the local hospital,” says William F. Streck, MD, president of Bassett Healthcare Network in Cooperstown, New York, which has pursued affiliation partnerships since 1984. “These [changes] have often resulted in smaller hospitals, but quite improved ones in terms of facilities. Since these changes have been discussed and approved by the local hospital boards, there is typically strong local understanding and support.”

Almost 30 years and several affiliation agreements later, the Bassett Healthcare Network currently offers care and services within six corporately affiliated hospitals, nursing facilities, health centers, and health partners in related fields. More specifically, the network is a rural healthcare anchor for people living in a 5,600-square-mile region in upstate New York.

However, the type and extent of improvements made during this process can depend on the associated expense and potential long-term impact. “Maybe the urban system will add a new wing or demolish part of the hospital that hasn’t been renovated in 30 or 40 years,” cautions Doug Fenstermaker, managing director and vice president of healthcare at Warbird Consulting Partners, “but not to the point where the rural facility will compete with the urban system.” 

The Patient Protection and Affordable Care Act
Possibly the biggest catalyst driving affiliations comes from the Patient Protection and Affordable Care Act. “Between now and 2019, there will be approximately $400 billion in Medicare cuts,” Fenstermaker says.

This means facilities must improve their negotiating skills as more insurance companies look to pay as little as possible for services provided. Similarly, the increased number of Medicaid-covered patients means less robust payments for services. “The financial folks will have to do some modeling to understand the pricing better and the potential impact on a particular facility,” says Joseph R. Lupica, chairman of Newpoint Healthcare Advisors.

The requirement to successfully manage post-discharge patients is another reason to consider a large system affiliation. Since rural facilities typically do not have the administrative capacity to handle this type of tracking, a shared resources affiliation with a regional system or larger statewide system that does means rural facilities can avoid reimbursement denial due to a patient falling through the cracks.

The silver lining comes from the act’s shift to a primary care focus. As urban hospitals fight for more reach through covered patients, an increased demand for a primary care patient and physician base becomes paramount. Rural hospitals can help make this possible by converting into a primary care/emergency facility hub to stabilize patients before transporting them to a specialty care urban center, Fenstermaker says.  

Building transition upgrades might include implementing telemedicine technology, modifying operating rooms to receive a greater influx of trauma patients, building out holding units for stabilized patients waiting for ambulance transfers, or even constructing a helicopter landing pad and flight communications room for severe trauma cases requiring immediate evacuation to the affiliated urban center.

Retaining the local community brand
Unfortunately, upgrade concerns and financial distress can outweigh the need to retain a rural community’s identity. “Culture trumps strategy every time,” says Brock Slabach, senior vice president for member services at the National Rural Health Association. “You can lay out the most brilliant strategic plan, but if it doesn’t work with your culture, it can turn out to be a big fiasco.”

Successful partnerships between two systems require time, energy, and thoughtful planning. “In all of our experiences, there’s been a cultural clash that has followed a consistent pattern of discomfort for the first year or two, acceptance, and then, gradually, integration culturally and programmatically,” Streck says. “We’ve done this five times and have gotten better with each one, but it takes time to have a shared identity. There’s a history and pride of ownership that has to be addressed thoughtfully,” he says.

“There’s a misperception that once an affiliation is entered into, rural hospitals lose their identity,” Haapala says.  “But it’s not in the best interest of the urban system to complet
ely smother the smaller rural hospital.”  Instead, while the urban system will exercise behind-the-scenes financial control and have more say at the board level, the community still keeps its local hospital, even though the service focus may shift to primary and ER care.

Preserving a local brand can also be as simple as standardization. “Over the course of the last 20 years, branding has evolved as the Bassett network evolved,” Streck says. “Initially, organizations kept their logo and just listed themselves as an affiliate of Bassett. Eventually, a universal standard of branding was viewed as preferable by all affiliates and so a new (and now current) standard approach was used and the old individual logos abandoned.” 

Finding the right partner
A successful affiliation also requires knowing what the finish line looks like. “Write down your objectives and keep them in front of you,” Lupica says. “Write down the criteria for your new partners and the criteria serving these objectives.”

Hospitals should also keep in mind that the closest system won’t always make the best partner, as it may want the referrals. On the other hand, systems located much farther away are sometimes willing to invest extra time and money to make the rural facility a competitive bulwark against their larger, urban hospital rivals.

“Don’t talk with just one party,” Lupica says. “Get together with the in-state, out-of-state, for-profit, not-for-profit, Catholic, non-Catholic hospitals. Get them all in the game. Ask yourself, ‘What’s in it for me?’ and then ask, ‘What’s in it for the other side?’ Look at the deal from their perspective.”

“Envision how you want it to end,” Streck says. “Do you want it to end the way you are now or as a complementary component of a bigger system? If you’re willing to understand that there will have to be a shift, I’d look for a partner that has scale and the depth to last.” 

Rural hospitals may still be the community linchpins, but the costs of keeping the doors open are the catalysts driving large system affiliations. The key to successfully negotiating these agreements lies in an executive’s understanding and strategic leveraging of the facility’s strengths and identity.  “A good leader starts with the ending in mind,” Slabach says. “Start with this vision and work backward. Rural hospitals bring a primary care base that large urban hospitals need. This is a strength; not a weakness.”  

Gwynneth Anderson is a freelance business writer specializing in business finance and operations. She can be reached at gwynnetha.anderson@gmail.com. For more information on rural hospital options, visit the National Rural Health Association website at www.ruralhealthweb.org.