top of page

Are Rural Hospital Designations Doomed?

Congress has been working for years to solve the problem of hospital closures in rural America, and the result is an alphabet soup of special hospital types that qualify for higher Medicare payments: CAH, MDH, LVH, SCH, and most recently, REH.*

I’m glad that Washington recognizes the need to do something, but all those good intentions are being undermined by two more little letters: MA, or Medicare Advantage.

As the Congressional Research Service pointed out in an April 2023 study, only traditional Medicare is required by law to pay higher rates under the various rural hospital designations. Medicare Advantage plans are more like private insurance. They negotiate payment rates with individual hospitals – and small, rural providers seldom have any real negotiating power.

That’s bad news for rural healthcare because MA enrollment is growing every year. According to the Kaiser Family Foundation, 48% of older Americans are covered under MA plans today, and that number will rise to 60% by 2030. For every person who enrolls in Medicare Advantage, rural hospitals will find it that much harder to count on the advantageous reimbursement rates that Congress intended.

Take Rural Emergency Hospitals, for instance. In addition to a monthly facility payment, Congress ordered Medicare to reimburse outpatient services at a 5% premium above the rates established in the Outpatient Prospective Payment System (OPPS). That’s great for any REH with a high patient population under traditional Medicare, but if you have a high MA population, the payment boost could be almost a moot point.

We saw this issue firsthand when building our REH Conversion Calculator, which uses a dozen or so data points to determine if the REH model is a potential fit for any rural provider. Medicare revenue was one very important data point, but we also had to back out the revenue from Medicare Advantage, because it’s not automatically subject to the 5% boost.

That exercise revealed big county-level differences in MA penetration – differences that could predict success for one REH but failure for another.

In Alabama, for instance, county-level MA penetration rates range from 36% to 72%. In North Carolina, the range is 20% to 72%, and it’s 18% to 67% in Minnesota. No matter what state you’re analyzing, a high rate of MA coverage will make it harder for a Rural Emergency Hospital to succeed. Sometimes the $3.2 million annual facility payment will be sufficient, but in many cases, the proportion of services eligible for a 105% payment boost will be the deciding factor.

Clearly, Congress never intended that kind of scenario when it passed the legislation authorizing REH (not to mention CAH, MDH, LVH, or SCH), but the growth of Medicare Advantage has left rural hospitals behind, once again.

Any day now, Medicare Advantage will overtake traditional Medicare as the top insurance plan for older Americans. When that happens, what becomes of all the carefully crafted legislation for protecting rural healthcare? Congress created workable models, but those models are undermined as long as Medicare Advantage is exempted from the reimbursement requirements.


* Our alphabet-soup dictionary: Critical Access Hospital (CAH), Medicare Dependent Hospital (MDH), Low-Volume Hospital (LVH), Sole Community Hospital (SCH), Rural Emergency Hospital (REH)

52 views0 comments


bottom of page