Variations in reimbursement policies and swing bed use suggest that the incentives influencing the decisions of CAHs regarding their Skilled Nursing Facility (SNF) units may differ from those of urban hospitals. Based on a review of the literature and conversations with members of the Flex Monitoring Team’s Expert Work Group, we expected the financial decision regarding SNF unit operation to be more complex for CAHs than for PPS hospitals largely because the decision involves the profitability of a PPS-reimbursed SNF within a cost-based facility. In the case of the CAH, the indirect and facility costs associated with operating a PPS-reimbursed SNF unit must be subtracted from the cost base of the cost-reimbursed acute care services thereby reducing reimbursement for those services. We also expected that the availability of swing beds (which can be used effectively to manage acute care length of stay issues without compromising acute care reimbursement) would be a significant factor in decisions to close SNF units. We identified other factors that might influence a CAH’s decision to retain a SNF unit including: the need for an alternative to swing beds to manage length of stay issues for CAHs with consistently high acute care census levels; community need and preference (which might be particularly important for municipal and county-owned hospitals); and limitations on SNF unit closure imposed by state Certificate of Need regulations. Among the potential factors influencing a CAH’s decision to close or retains its SNF units, only the latter factor (i.e., the influence of Certificate of Need regulations) was not supported by our study.

We interviewed 20 CAHs operating in eleven states, including 11 hospitals that had closed their SNF units and 9 that continued to operate their services. This report discusses our findings in detail; there is also a policy brief which highlights the same findings.