Rural Hospital Program: Extra Cash for Emergency and Outpatient Services Stuck in Neutral

In 2021, Congress passed the Consolidated Appropriations Act of 2021. Within the Act, a new Medicare provider was created – the Rural Emergency Hospital (REH). The final rule is available here: Rural Emergency Hospital Final Rule

REHs were created to improve and increase, access to emergency services and ideally, expanded outpatient services in rural areas. Starting in January 2023, Critical Access Hospitals (CAHs) and small rural hospitals with no more than 50 beds may apply for REH designation and receive enhanced Medicare payment for providing emergency services.

Just 18 of the more than 1,700 eligible rural hospitals nationally have applied for and obtained the new designation. Many hospitals don’t want to give up inpatient services (a requirement for the program designation). Some hospitals are concerned about how other payment streams could be affected.  The new designation’s unclear definition of “rural” has also caused confusion.

Critical Access Hospitals by definition must be located in rural areas and must meet one of the following criteria:

• Be more than a 35-mile drive from another hospital, or
• Be more than a 15-mile drive from another hospital in an area with mountainous terrain or only secondary roads.

If a CAH was designated by its state, prior to January 2006, as a Necessary Provider the hospital is exempt from the distance qualifications. 

Current CAH designation requirements (created in the Balanced Budget Act of 1997) are as follows:

• Have 25 or fewer acute care inpatient beds.
• Be located more than 35 miles from another hospital (exceptions may apply).
• Maintain an annual average length of stay of 96 hours or less for acute care patients.
• Provide 24/7 emergency care services.

The REH program provides CAHs that convert to rural emergency hospitals receive a 5% increase in Medicare payments, plus an average annual payment of about $3.2 million, in exchange for giving up their inpatient beds and focusing solely on emergency and outpatient care. With staffing issues (labor scarcity and costs) and declining inpatient bed utilization, many rural hospitals are at-risk of closure https://rhislop3.com/2023/08/21/trouble-for-rural-hospitals/ . Since 2010, 140 rural hospitals have closed.

To be an REH and receive the Medicare incentive payments, hospitals must quality as a CAH or a rural hospital with no more than 50 beds. The further must agree to,

• Not provide acute care inpatient services (with some exceptions, such as post-hospital extended care services).
• Not exceed an annual average patient length of stay of 24 hours.
• Have a transfer agreement with a level I or II trauma center.
• Meet certain licensure and staffing requirements.

As one would expect, the popularity of the program has been stuck in neutral due to its rigidity and definitional flaws. For example, many CAHs are wary of giving up all of their inpatient beds.  The concern is that available inpatient care may be over 100 miles or more away and that the resource, while not heavily used, is still in demand by the community. 

Additionally, the program as presently designed doesn’t allow facilities that closed prior to 2020 to participate or apply to become REHs.  It also does not allow REHs to participate in 340B a/k/a, the Federal Drug Discount program. 

Even with declining inpatient utilization, current RAHs are skeptical of complete closure (required) of all inpatient beds under the REH definition.  Transfer agreements are fine as a start but even then, access is challenging.  Many Level I and Level II regional trauma centers are often on diversion these days, due to their own staffing challenges and the need to support with inpatient beds, their own surgical and intensive procedures. 

Getting more REH participation is going to require additional flexibility from CMS. The reimbursement incentive is only as attractive as providers can find ways to make it fit within the healthcare demands of their communities, considering the trade-offs.  Greater participation will likely require some flexibility around the ability for providers, if so desired, to maintain a certain number of inpatient beds and flex beds (swing beds). Further flexibility around the average annual length of stay metric (24 hours current) is also warranted or certainly, should be structured to be applicable for certain diagnostic (coding) criteria.