New rural hospital model draws interest – and questions

Dozens of small community hospitals with low inpatient volumes will likely be good candidates to convert to the rural emergency hospital model.

But before they convert, hospitals want more clarity and adjustments on issues like maintaining swing beds, the 340B drug discount program, the status of rural health clinics, quality reporting requirements and staffing models. Trust issues with the federal government and community members’ opinions will also factor into whether hospitals decide to move forward.

In July, the Centers for Medicare and Medicaid Services proposed payment methodology for rural emergency hospitals. Under the model, rural hospitals would eliminate their inpatient beds in exchange for a 5% Medicare reimbursement boost for covered outpatient services and an average facility fee payment of $3.2 million a year, according to estimates from the Healthcare Financial Management Association. 

Hospitals with less than $2 million in annual Medicare patient revenue and with an average daily census in the low single digits are considering the rural emergency hospital model, said John Henderson, CEO of the Texas Organization of Rural and Community Hospitals.

“Obviously the community would prefer to have a hospital with inpatient beds, but if they are really vulnerable and facing hard decisions about service line cuts, I think this is a viable option,” said Henderson, noting that at least six Texas hospitals will convert in 2023 and more will likely follow. “The facility fee specifically is frankly a little bit better than we projected.” 

Bellville Medical Center in southeastern Texas is considering making the transition, CEO Daniel Bonk said. The hospital has a low inpatient census, and while a 5% increase to Medicare reimbursement isn’t a big deal, the extra $3.2 million a year could make a difference, he added. 

“We’re going to see when the final rules come out, but right now I’d say it’s a positive for us,” Bonk said. 

At least 68 hospitals of the some 1,400 eligible facilities across the country are expected to convert to rural emergency hospitals, according to a 2021 brief from the North Carolina Rural Health Research Program. 

Despite the favorable facility payment calculation, the complicated conditions of participation have deterred hospitals, said Mark Holmes, a health policy professor at the University of North Carolina and the director of the Cecil G. Sheps Center for Health Services Research.

That’s partly because CMS doesn’t have authority to change the policies operators have the biggest reservations about. Congress created the designation last year, and the general structure of its payment system is codified in law.

Unlike Kansas Hospital Association’s model, a model the group pitched to CMS’ innovation center, the rural emergency hospital proposal doesn’t specify whether there is flexibility when it comes to site of service and staffing, allowing qualified staff to move from the clinic to the emergency room, for instance, said Cindy Samuelson, senior vice president of member and public relations. CMS’ innovation center opted to pursue the Community Health Access and Rural Transformation model rather than continue to do one-off state pilot projects, she said.

“Allowing staff to wear multiple hats would be essential,” Samuelson said.

Rural healthcare experts also say the inability to access 340B discounts within the program could scare away interested hospitals. “That’s probably the deal breaker right there,” said Rodney Triplett, CEO of rural healthcare alliance Prairie Health Ventures, which serves members in Nebraska, Iowa and Kansas. 

The 340B program allows certain healthcare providers—including critical-access hospitals—to purchase outpatient drugs at a significant discount. Three-quarters of critical-access hospitals that responded to a 2020 survey reported that 340B savings helped them keep the doors open. 

Federal law specifies which provider categories can access 340B discounts, meaning Congress would need to amend the statute to add rural emergency hospitals so they qualify for the savings. Congress should look closely at making the change, said Dr. Jeff Colyer, former governor of Kansas and current chair of the National Advisory Committee on Rural Health and Human Services.  

Policymakers should allow rural emergency hospitals to have an annual per-patient average stay of up to 48 hours, Bellville’s Bonk said. The current law says the hospitals can’t exceed an annual per-patient average of 24 hours, so the Bonk’s request would require Congressional action.  

“We do a lot of surgery here, which is kind of keeping the doors open,” Bonk said. “A lot of people, they can stay one day, but some of our seniors need to stay a little bit longer than that.”

Hospitals also asked for clarification on whether provider-based rural health outpatient clinics could receive the 5% outpatient fee schedule increase as well. 

The Consolidated Appropriations Act of 2021 fixed Medicare reimbursement for services provided at rural health clinics that opened in 2019 and after at $126 per visit in 2023, and increasing to $190 by 2028. As for rural heath clinics operating before 2019, their 2020 rates were locked in.

“CMS has to clarify that because it could be a huge problem for many facilities thinking about converting,” said Brock Slabach, chief operations officer for the National Rural Health Association.

Many critical-access hospitals may be wary of transitioning from cost-based reimbursement, observers said. The hospitals receive payment based on a system that increases reimbursement as costs go up. The rural emergency hospital program would put facilities on a fixed-payment system, Triplett said. 

“The thing that would make it attractive [is] if they can remain cost-based,” Triplett said. “Otherwise, I think it’s just too risky for folks to go to a fee schedule and flat facility fee when they’re getting cost-based [reimbursement] now.”

Some experts pointed to the critical-access hospital program’s implementation in 1997, when projected adoption rates underestimated the number of conversions. While only around 40 hospitals converted to critical-access by January 1999, more than 1,300 rural hospitals have since transitioned.

“One might expect that REH might undergo a similar type of development, and that what we’ll learn in the first year will be a lot more than we know now,” Holmes said. “I think we’ll learn a lot in the first year or two as hospitals undergo [the transition to REH], and that will give Congress the opportunity to decide—does it need to change the parameters?” 

Policies aside, optics may play a role in what rural hospitals decide to do. 

Eric Shell, a principal at the consultancy Stroudwater Associates, was recently at a meeting with hospital operators in Nebraska. About 120 hospitals in the state generate less than $10 million in net patient revenue, potentially making them a good fit for the designation as long as they don’t rely on a lot of revenue from the 340B program, he said.

But one of those hospital executives said the would never pursue it. While the rural emergency hospital designation probably made financial and operational sense, the community’s perception of the loss of inpatient beds would be an insurmountable hurdle, the hospital CEO said.  

“I’ve been involved in a couple different cases where hospitals had to give up inpatient beds. In every case, it is not a pretty discussion,” Shell said. 

Lack of trust in the federal government may also deter rural hospitals, Bellville’s Bonk said.

“I think there are a lot of people in my shoes who look at the rural emergency hospital program going, ‘Let’s see, the government always does unfunded mandates, they always increase our costs, they decrease our reimbursement. Should we be skeptical? Is this really going to happen?'” he said.

Regardless of whether hospitals decide to get rid of inpatient beds, many have had to cut services. 

Nearly 200 rural hospitals eliminated obstetric care from 2011 through 2019, amounting to nearly 20% of all rural hospitals that previously offered such care, according to a 2022 report from the Chartis Center for Rural Health.

Meanwhile, two dozen rural hospitals have closed since 2020, data from UNC’s Sheps Center shows. At least a quarter of the around 1,800 rural hospitals are vulnerable to closure, according to estimates from Chartis and the Center for Healthcare Quality and Payment reform. 

In rural Texas, hospital operators considering the rural emergency hospital designation have already cut obstetric services, Henderson said. 

“They are operating from one pay cycle to the next, trying to survive,” he said. 



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