UA Economics Professor to Study Rural Hospital Program

A two-year, $500,000 grant will go toward a project to assess the effectiveness of 1997 federal legislation that financially helps qualified hospitals. Gautam Gowisankaran and his colleagues will conduct the research.
Nov. 17, 2010
Gautam Gowrisankaran, an associate professor of economics in the UA's Eller College of Management
Gautam Gowrisankaran, an associate professor of economics in the UA's Eller College of Management

Gautam Gowisankaran, an associate professor of economics and an Eller College Fellow at the University of Arizona, and three co-investigators have been awarded a $500,000 Agency for Healthcare Research and Quality grant that aims to shed light on the impact of the Rural Hospital Flexibility Program, or Flex, on hospital care for rural residents.
 
Congress established Flex in 1997 in response to growing concern about rural Americans' access to health care. Now Congress is revisiting the program.

"The analysis we propose should provide policymakers with important information to formulate an overall assessment of the program and guide potential changes to improve its efficacy," principal investigator Gowrisankaran said.
 
When the legislation passed in the late 1990s, he said, "there was significant concern about rural hospitals closing. The legislation ensured that people in rural areas have access to hospitals. One way it did so was to allow rural hospitals to convert to Critical Access Hospital status."
 
Critical Access Hospitals, or CAHs, receive more generous inpatient and outpatient cost-based reimbursements from Medicare. In order to qualify for CAH status, hospitals must have fewer than 25 beds, limit inpatient stays to four days, and link with other institutions to foster quality improvements.

In the years since the program was established, more than 1,300 rural hospitals, representing more than 25 percent of all U.S. hospitals, have converted to CAH status. In 1997, 15 percent of rural hospitals had 25 beds or fewer; by 2004, that number had risen to 45 percent.
 
"The unexpected result of the legislation was that hospitals were incentivized to reduce bed capacity," Gowrisankaran said. "Were the extra beds hospitals eliminated to qualify as a CAH wasted capacity, or could there be a negative effect on hospital service offerings?"
 
Gowrisankaran, along with Claudio Lucarelli (assistant professor of policy analysis and management at Cornell University), Robert Town (associate professor of health policy and management at the University of Minnesota), and Ira Moscovice (Mayo Professor and division head of the Division of Health Policy and Management at the University of Minnesota) will assess five aspects of the Flex program over the next two years.
 
"We want to understand how conversion to CAH status has affected the demand for hospital services for patients with different types of conditions," he said.

"We will also assess how CAH status has affected the quality of hospital care for rural residents with different diagnoses; measure the extent to which CAH hospitals are capacity-constrained; evaluate how the Flex program has affected the welfare and location of the inpatient care of rural residents; and consider how alternate policies such as different bed size limits and lump-sum transfers could affect the care for rural residents."
 
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