The purpose of this project was to identify peer groups of CAHs for analyzing quality performance and to review CAH financial peer groups to ensure that they were still appropriate.

The Flex Monitoring Team (FMT) has used peer groups for financial reporting for approximately ten years, allowing CAHs to compare their performance to similar CAHs. These peer groups are defined by four indicators: whether the CAH provides long term care; whether the CAH operates a provider-based Rural Health Clinic; whether the CAH is owned by a government entity; and the size of net patient revenue. These have been refined over the years by using slightly different definitions or rescaling net patient revenue to recognize CAH revenue growth. Since the financial peer groups were first developed, the number of CAHs had doubled, the eligible bed size increased from 15 to 25, the prevalence of CAHs providing long term care had decreased, as well as many other changes in Medicare policy, reimbursement rates, cost inflation, market share, and ownership. These changes suggested that it was time to revisit the original financial peer groups to assess whether they were still the best method of identifying “similar” hospitals.

The Medicare Beneficiary Quality Improvement Project (MBQIP) and the growing use of quality data for payment reform are increasing interest in CAH quality peer group comparisons. The FMT has compared CAH quality performance at the state and regional levels; while state and regional quality analyses are useful for planning State Flex Program activities, the wide range in the number of CAHs per state suggested that it was important to examine alternative peer groups for quality comparisons.

The FMT identified factors to consider in constructing quality peer groups, analyzed the relationships between quality performance and potential peer groups, and consulted with relevant stakeholders and experts. The financial indicators review included a multivariate analysis of hospital characteristics that are important to control for when assessing financial performance of CAHs.