. . . . . Hospitals . . . . . © 2006 National Rural Health Association 229 Summer 2006 Financial Indicators for Critical Access Hospitals George H. Pink, PhD; 1,2 G. Mark Holmes, PhD; 1 Cameron D ’Alpe, MSPH; 3 Lindsay A. Strunk, BSPH; 1 Patrick McGee, MSPH, CPA; 2 and Rebecca T. Slifkin, PhD 1 T he purpose of this article is to describe the development of a set of financial indicators included in the CAH Financial Indicators Report that was produced and disseminated to 853 CAHs in the summer of 2004 and 1,092 CAHs in the summer of 2005. The indicators described in this study are designed to specifically measure financial performance and condition of CAHs. Unlike other small hospitals that receive prospective payment, CAHs receive cost-based reimbursement, and the incentives, financial management, and utilization practices under these 2 payment methods ABSTRACT: Context: There is a growing recognition of the need to measure and report hospital financial performance. However, there exists little comparative financial indicator data specifically for critical access hospitals (CAHs). CAHs differ from other hospitals on a number of dimensions that might affect appropriate indicators of performance, including differences in Medicare reimbursement, limits on bed size and average length of stay, and relaxed staffing rules. Purpose: To develop comparative financial indicators specifically designed for CAHs using Medicare cost report data. Methods: A technical advisory group of individuals with extensive experience in rural hospital finance and operations provided advice to a research team from the University of North Carolina at Chapel Hill. Twenty indicators deemed appropriate for assessment of CAH financial condition were chosen and formulas determined. Issues 1 and 2 of the CAH Financial Indicators Report were mailed to the chief executive officers of 853 CAHs in the summer of 2004 and 1,092 CAHs in the summer of 2005, respectively. Each report included indicator values specifically for their CAH, indicator medians for peer groups, and an evaluation form. Findings: Chief executive officers found the indicators to be useful and the underlying formulas to be appropriate. The multiple years of data provide snapshots of the industry as a whole, rather than trend data for a constant set of hospitals. Conclusions: The CAH Financial Indicators Report is a useful first step toward comparative financial indicators for CAHs. differ substantially. Furthermore, CAHs are almost exclusively not-for-profit, have limits on bed size and average length of stay, have relaxed staffing rules, and are highly dependent on Medicare and Medicaid. The reimbursement and organizational differences between CAHs and other small hospitals make it important for CAHs to have financial indicators specific to their own circumstances for performance assessment. Because these hospitals tend to have a higher risk of financial insolvency, assessing their financial performance is key to ensuring their long-term financial survival. Method Selection of the Technical Advisory Group. To ground the research in practical financial management, a technical advisory group (TAG) was selected to provide advice on the selection and use of financial indicators for CAHs. Four individuals who are knowledgeable regarding CAH financial and operational issues, data, and reporting practices agreed to serve on the TAG: Dave Berk (Rural Health Financial Services, Anacortes, Wash.), Brandon Durbin, CPA (Durbin & Company, LLP, 1 North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center for Health Services Research, University of North Carolina at Chapel Hill, Chapel Hill, NC. 2 Department of Health Policy and Administration, University of North Carolina at Chapel Hill, Chapel Hill, NC. 3 Kaiser Permanente Northern California Region, Oakland, Calif. The authors gratefully acknowledge Dave Berk, Brandon Durbin, Roger Thompson, and Greg Wolf for their guidance and advice throughout this project and the chief financial officers of 2 critical access hospitals who reviewed an early version of the CAH financial indicators report. This work was funded through a cooperative agreement with the federal Office of Rural Health Policy, Health Resources and Services Administration, US Department of Health and Human Services (PHS Grant No. U27RH01080). For further information, contact: George H. Pink, PhD, North Carolina Rural Health Research and Policy Analysis Center, Cecil G. Sheps Center for Health Services Research, The University of North Carolina at Chapel Hill, CB#7590, 725 Martin Luther King Blvd., Chapel Hill, NC 27599-7590; e-mail gpink@schsr.unc.edu.