In Depth Series: Rural Emergency Hospital Designation

In Depth Series: Rural Emergency Hospital Designation

On January 13, 2021, the Congressional Quarterly posted New Medicare hospital model throws lifeline to rural facilities, which includes this excerpt:

A provision tucked into the massive year-end spending law is offering a potential lifeline to rural hospitals on the brink of closure, but the facilities will need to weather the fallout from COVID-19 first.

An increasing number of rural hospitals have closed in recent years, with 134 shuttering or converting to emergency departments since 2010. Seventeen rural facilities closed or converted in 2020 alone, according to the Cecil G. Sheps Center for Health Services Research.

In December, Congress included language carving out a new Medicare payment category for rural hospitals in the omnibus spending law (PL 116-260) at the behest of Senate Finance Chairman Charles E. Grassley, R-Iowa. The measure creates a new payment category for “rural emergency hospitals” under Medicare in 2023.

The designation allows hospitals with fewer than 50 beds to convert to standalone emergency departments, while still offering outpatient services, observation stays, ambulance services and telehealth. Because hospital outpatient departments are paid a higher rate than independent physicians, the model also preserves the higher funding stream for a hospital’s affiliated doctors.

The goal is to drop expensive, low-volume inpatient care while preserving access to more common emergency and routine services. Converted hospitals will receive a 5 percent increase to base payments through Medicare’s outpatient system, in addition to a monthly facility fee. Hospitals will also still be allowed to operate a skilled nursing facility.

The House Ways and Means Rural and Underserved Task Force summarized the bill this way:

Whether through greater funding or more flexibility, rural and underserved communities are having their health care needs prioritized in this package.
Among other provisions, the package includes:

  • Helping save rural hospitals by letting them become a new Rural Emergency Hospital, which gives them the Medicare funding and flexibility to offer health care services their community needs.
    • More specifically, the policy creates a new, voluntary Medicare payment designation that allows struggling Critical Access Hospitals (CAH) or small, rural hospitals with less than 50 beds to convert to a Rural Emergency Hospital (REH).
    • This would preserve beneficiary access to emergency medical care in rural areas that would otherwise be left with nothing if their CAH or rural hospital closed.
  • Extending payments to help physicians in areas where labor cost is lower than the national average.
  • Dedicating funding to train new doctors at rural and underserved medical schools.
  • Giving greater flexibility for rural and urban hospitals to partner and address the physician workforce needs of rural areas.
McDermott Will & Emery posted on the same topic in an article entitled  Congress Establishes New Medicare Provider Category and Reimbursement for Rural Emergency Hospitals, which includes these excerpts::

Medicare payments for REHs will be made at the OPPS rate for services provided, plus a 5% add-on to the OPPS rate and a fixed monthly payment. CMS will need to determine the fixed monthly payment, but the legislation provides that it will be calculated by reference to 2019 reimbursement for CAHs based on a statutory formula. The fixed monthly payment amount for REHs in future years will be based on the 2023 payment, increased by the hospital market basket percentage increase.


Congress has taken an important step to preserve access to hospital emergency and outpatient services in rural areas in light of an increase in the number of rural hospital closures, but key details about the requirements for operating as an REH remain subject to future rulemaking and guidance. Interested providers should continue to actively engage with CMS to ensure that the regulations and guidance surrounding REHs are developed in a manner that will best situate REHs to serve the healthcare needs of rural communities.
Among the open questions for CMS to address are the following:

  • Will hospitals that are forced to close before January 1, 2023 be eligible to reopen as REHs?
  • What will be the complete scope of services eligible for payment at enhanced REH rates?
  • What are the steps and timing considerations for conversion to an REH?
  • What CoPs will be imposed on REHs?
  • For those facilities that maintain them, will the CoPs for REHs take into account compliance with CoPs applicable to SNF operations?
  • What quality and data reporting will be required of REHs?
I have written of this initiative previously, and am proud, as an Iowan, that the Iowa Hospital Association and Senator Charles Grassley were key proponents of the change and agents in shepherding the program through the legislative process.

As the program advances to rules and regulations, we will keep track of the progress and share that information with our partners.

I believe ACUTE CARE, INC. is optimally positioned and qualified to assist partner facilities who wish to migrate to Rural Emergency Hospital status succeed in that endeavor.

Stay tuned

Paul Hudson, FACHE
Chief Operating Officer