Policy Analysis | April 2019

Federal Legislation on Rural Hospitals

Nick Bowman, Research and Publications Associate

Introduction

In 2016, approximately 62 million Americans, nearly one-fifth of the total population, lived in rural areas, according to the U.S. Census Bureau. In 2017, there were 1,875 rural community hospitals and 1,971 rural hospitals in the United States, 1 per the American Hospital Association (AHA). With decreasing patient volumes and increasing regulations, many rural hospitals have struggled to maintain financial viability in recent years.

Rural hospitals provide much needed healthcare to residents in less populous areas of the United States. Defining a rural hospital or resident is challenging, as different organizations have their own distinct criteria. The Centers for Medicare and Medicaid Services (CMS) delineates rural and urban beneficiaries based on their mailing address and corresponding Census Bureau core-based statistical area (CBSA)2. Any resident of a metropolitan or micropolitan CBSA is an urban resident.3 All others are rural residents. However, CMS does not have one all-encompassing definition of a rural hospital, instead delineating six types of rural hospitals and providing criteria for each type. Additionally, the federal government has two definitions of urban vs. rural. The first is the Census Bureau’s definition. The Office of Management and Budget uses slightly different criteria, defining areas as metropolitan, micropolitan or neither.4 Further complicating matters, the Federal Office of Rural Health Policy (FORHP) employs aspects of both definitions when delineating urban and rural.5

Throughout this analysis, the term “rural hospital” shall refer to a healthcare facility—including for profit or nonprofit facilities, and public or private facilities—providing medical services to rural Americans, as defined by the U.S. Census Bureau.

In 1997, Congress created the Critical Access Hospitals (CAH) classification under Medicare for rural hospitals as part of the Balanced Budget Act (BBA) to improve access to healthcare. Under Medicare, all hospitals are classified by the types of service provided. Currently, there are six Medicare classifications for rural hospitals: Critical Access Hospital, Sole Community Hospital, Medicare Dependent Hospital, Rural Referral Center, Rural Community Hospital and Low-volume Adjustment. (For more information on these categories, see Table 1.) To maintain the CAH classification, rural hospitals must have between one and 25 acute care6 inpatient beds; be located more than 35 miles from another hospital; maintain an annual average length of patient stay of 96 hours or less for acute care patients; and provide 24-hour emergency care services. To participate in Medicare, all hospitals must be primarily engaged in providing inpatient care.

Medicare Designations for Rural Hospitals
Designation Eligibility Criteria

Critical Access Hospital (CAH)

  • Serves a rural area as defined by the U.S. Census Bureau
  • More than 35 miles from nearest hospital or CAH or more than 15 miles in areas with hazardous terrain or only secondary roads or designated by state as “necessary provider” before 2006
  • 25 acute care inpatient beds or fewer
  • 24-hour emergency services
  • Annual average length of stay of patient 96 hours or less per patient for acute care

Sole
Community
Hospital
(SCH)

More than 35 miles from other similar hospitals (excludes CAHs) or serves a rural area as defined by the U.S. Census Bureau and one of the following:

  • Between 25 and 35 miles from other similar hospitals and serves as main hospital in the vicinity
  • Between 15 and 25 miles from other similar hospitals, but other hospitals are often inaccessible
  • Nearest similar hospital is at least 45 minutes away

Medicare Dependent Hospital (MDH)

  • Serves a rural area as defined by the U.S. Census Bureau
  • Not a SCH
  • 100 beds or fewer
  • At least 60 percent of inpatient days or discharges are Medicare Part A beneficiaries

Rural Referral Center (RRC)

Serves a rural area as defined by the U.S. Census Bureau plus one of the following (42 CFR 412.96):

  • 275 acute care inpatient beds or more, or
  • Most Medicare patients referred by outside providers and most Medicare patients live more than 25 miles away, or
  • High case-mix and high discharge volume and one of the following: mostly specialty practitioners, most inpatients live 25 miles away, many patients referred by outside providers

Rural Community Hospital (RCH)

Pilot program; extended in 2016 for five years (30 participating hospitals)

  • Serves a rural area as defined by the U.S. Census Bureau
  • Fewer than 51 acute care inpatient beds
  • 24-hour emergency services
  • Not designated/eligible to be CAH

Low-volume Adjustment (LVA)

Pilot program; expired in 2017, but extended through 2022 with new criteria beginning in 2019:

  • Fewer than 3,800 total discharges
  • Located more than 15 road miles from the nearest subsection (d) hospital

Source: “2019 Rural Report,” American Hospital Association, https://www.aha.org/system/files/2019-02/rural-report-2019.pdf, accessed February 15, 2019.

Rural hospitals also provide strong economic returns to rural areas, often being one of the top employers. The average CAH directly employs approximately 140 persons with an average of $6.8 million in annual wages. In the years since the BBA was passed, many rural hospitals have struggled to maintain their CAH status while participating in Medicare. According to the University of North Carolina's Sheps Center for Health Services Research, 95 rural hospitals have closed in the United States, since January 2010, with most closures taking place in the South (see Figure 1). If this trend continues, some experts project that additional rural hospital closures will have disastrous consequences.

Statistically, rural Americans tend to have lower incomes and poorer health than those living in suburban and urban areas. According to the National Rural Health Association (NHRA), one of the major proponents for the improvement of rural healthcare, the per capita income of rural residents is $9,212 lower than the national average per capita income. (Per the U.S. Census Bureau, national per capita income from 2013 to 2017 was $31,177. The national median household income during this same time frame was $57,652.) Rural Americans are more likely to use the Supplemental Nutrition Assistance Program; have greater transportation challenges when visiting a healthcare provider; be uninsured; use tobacco; have diabetes; and lack access to broadband internet. Additionally, most vehicle crash-related deaths occur in rural areas and most rural Americans must travel twice as far as urban residents to reach the nearest hospital.

To address these issues, U.S. Senator Charles Grassley (IA) sponsored the Rural Emergency Acute Care Hospital (REACH) Act in June 2015 and May 2017. On both occasions, the bill was read twice and referred to the Senate Finance Committee, which was then chaired by Senator Orrin Hatch (UT), with no further action. In 2018, Senator Hatch retired from the U.S. Senate and Senator Grassley became chair of the Finance Committee. Supporters of rural hospitals are hoping that Senator Grassley will re-introduce the bill.

Rural Hospital Closures in the U.S.: January 2010 - Present

Rural Hospital Closures in the U.S.: January 2010 - Present

Source: University of North Carolina's Sheps Center for Health Services Research (accessed February 13, 2019)

Bill Summary

The primary goal of the REACH Act is to create a new Rural Emergency Hospital (REH) classification under Medicare to prevent rural hospitals from losing Medicare funding and potentially shutting down. These REHs would maintain an emergency room and outpatient services—and still would be eligible to participate in Medicare—but would not provide inpatient services, as currently required. To provide care to patients with severe injuries or illnesses, REHs must have protocols to transport patients to hospitals that provide inpatient treatment. The Medicare reimbursement rate would be 110 percent of reasonable costs (including transportation services), compared with the current 101 percent reimbursement rate for CAHs. If the bill is passed, the CAH classification still would be available and hospitals would not be forced to convert to the REH classification. Additionally, CAH hospitals that convert to REH could revert to the CAH classification, if desired.

The REACH Act also allows REHs to add the emergency medicine specialty7 to the list of specialty professions under the National Health Service Corps (NHSC), a subdivision of the U.S. Department of Health and Human Services Health Resources and Services Administration, Bureau of Clinician Recruitment and Service. Founded in 1972, the NHSC awards scholarships and provides loan repayment options to qualifying physicians who practice at any of the more than 5,000 NHSC locations in underserved communities. To encourage new doctors to work in rural areas, the legislation would permit Medicare reimbursement for hospitals with approved residency programs when interns and residents perform emergency department rotations in REHs.

Bill Supporters

In 2017, the REACH Act was sponsored by Senator Charles Grassley and had four co-sponsors, Senator Cory Gardner (CO), Senator Amy Klobuchar (MN), Senator Susan Collins (ME) and Senator Angus King (ME). In addition, the bill has been supported by the AHA, that called it “an important first step toward ensuring access to healthcare services in some rural communities.” The AHA has called for the proposed REH policies to be extended to facilities in non-rural areas to increase healthcare access.

Save Rural Hospitals Act

The NRHA has supported the REACH Act, but prefers the Save Rural Hospitals Act (SRHA), sponsored by Representative Dave Loebsack (IA) and Representative Sam Graves (MO). Like the REACH Act, the SRHA was introduced in the 114th Congress (2015-2016) and the 115th Congress (2017-2018), but did not advance out of committee.

The SRHA would eliminate Medicare sequestration;8 extend payment levels for low-volume hospitals and Medicare-dependent hospitals; delay penalties incurred if a rural hospital fails to become an electronic health record user; make increased Medicare payments for ambulance services in rural areas permanent; and establish a program under which rural hospitals meeting specific requirements would be eligible for greater payment for qualified outpatient services. Additionally, the SRHA would create a new Medicare hospital designation, the Community Outpatient Hospital (COH), which, like the REACH Act’s proposed Rural Emergency Hospital, would not provide any inpatient services. Critical Access Hospitals and rural hospitals with 50 acute care beds or less would be eligible to become COHs, which would be reimbursed at the rate of 105 percent of reasonable cost.

Status

As of this writing, neither the REACH Act nor the SRHA have been introduced into the 116th Congress (2019-2020). Discussing the 116th Congress earlier this year, Senator Grassley said that, “My top priorities include lowering healthcare costs — including prescription drug costs, increasing quality of care for seniors, addressing rural healthcare needs and conducting rigorous oversight of the Affordable Care Act, the healthcare nonprofit sector and executive federal health care agencies,” but gave no indications regarding a potential re-introduction of the REACH Act.


Endnotes

1. “Community hospitals” are defined by the AHA as all nonfederal, short-term general, and other special hospitals. A “rural community hospital” is a community hospital in a rural area, as defined by the U.S. Census Bureau.

2. Core-based statistical areas consist of the county, counties or similar entities associated with at least one urban core (urbanized area or urban cluster) with at least 10,000 residents, plus adjacent counties having a high degree of social and economic integration with the core as measured through commuting ties with the counties that make up the core.

3. A metropolitan (metro) area contains a core urban area of 50,000 or more residents, and a micropolitan (micro) area contains an urban core of at least 10,000 (but less than 50,000) residents.

4. The Office of Management and Budget (OMB) designates counties as metropolitan, micropolitan, or neither. All counties that are not part of a metropolitan statistical area are considered rural. Micropolitan counties are considered rural along with all counties that are not classified as either metro or micro.

5. The FORHP accepts all non-metro counties as rural and uses an additional method of determining rurality called the Rural-Urban Commuting Area (RUCA) codes. Like the MSAs, these are based on Census data that is used to assign a code to each Census tract. Tracts inside metropolitan counties with the codes 4-10 are considered rural. While use of the RUCA codes has allowed identification of rural census tracts in metropolitan counties, among the more than 70,000 tracts in the United States there are some that are extremely large. In these larger tracts, use of RUCA codes alone fails to account for distance to services and sparse populations. In response to these concerns, FORHP has designated 132 large area Census tracts with RUCA codes 2 or 3 as rural. These tracts are at least 400 square miles in area with a population density of no more than 35 people. 

6. Acute care include “all promotive, preventive, curative, rehabilitative or palliative actions, whether oriented toward individuals or populations, whose primary purpose is to improve health and whose effectiveness largely depends on time-sensitive and, frequently, rapid intervention.” Source: “Health systems and services: the role of acute care,” World Health Organization, https://www.who.int/bulletin/volumes/91/5/12-112664/en/.

7. Emergency medicine focuses on the immediate decision making and action necessary to prevent death or further harm in the pre-hospital setting and in the emergency department. An emergency medicine specialist provides immediate recognition, evaluation, care and stabilization of patients. Source: “American Board of Emergency Medicine,” American Board of Medical Specialties, https://www.abms.org/member-boards/contact-an-abms-member-board/american-board-of-emergency-medicine/.

8. The federal Budget Control Act of 2011 requires cuts in federal spending, including a 2 percent reduction in Medicare reimbursements for all Medicare services provided on or after April 1, 2013.

 

Sources/Further Reading

“2019 Rural Report,” American Hospital Association, https://www.aha.org/system/files/2019-02/rural-report-2019.pdf, accessed February 15, 2019.

“About Rural Health Care,” National Rural Health Association, https://www.ruralhealthweb.org/about-nrha/about-rural-health-care#_ftn1, accessed February 13, 2019.

“About Rural Health in America,” June 9, 2018, National Organization of State Offices of Rural Health, https://nosorh.org/about-rural-health-in-america/, accessed March 12, 2019.

“Advanced Copy- Revisions to State Operations Manual (SOM) Hospital Appendix A,” Centers for Medicare and Medicaid Services, September 6, 2017, https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertificationGenInfo/Downloads/Survey-and-Cert-Letter-17-44.pdf, accessed February 13, 2019.

“AHA Expresses Support for the Rural Emergency Acute Care Hospital (REACH) Act, S. 1130,” American Hospital Association, https://www.aha.org/letter/2017-05-18-aha-expresses-support-rural-emergency-acute-care-hospital-reach-act-s-1130, accessed February 13, 2019.

Cecil G. Sheps Center for Health Services Research, “95 Rural Hospital Closures: January 2010 – Present,” The University of North Carolina at Chapel Hill, https://www.shepscenter.unc.edu/programs-projects/rural-health/rural-hospital-closures/, accessed February 12, 2019.

“Critical Access Hospital,” Centers for Medicare and Medicaid Services, August 2017, https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/critaccesshospfctsht.pdf, accessed February 13, 2019.

“Critical Access Hospitals,” Rural Health Information Hub, https://www.ruralhealthinfo.org/topics/critical-access-hospitals, accessed February 13, 2019.

David Wright, Marie Vasbinder and Lisa Marunycz, “CMS Definition of a Hospital Requirements: Primarily Engaged,” Centers for Medicare and Medicaid Services, November 2, 2017, https://www.cms.gov/Outreach-and-Education/Outreach/NPC/Downloads/2017-11-02-Hospital-Call-Presentation.pdf, accessed February 13, 2019.

“Fast Facts on U.S. Hospitals, 2019,” American Hospital Association, https://www.aha.org/statistics/fast-facts-us-hospitals, accessed February 15, 2019.

“H.R. 2957 – Save Rural Hospitals Act,” United States Congress, https://www.congress.gov/bill/115th-congress/house-bill/2957, accessed March 12, 2019.

Kaitlyn Houseman, “What the Sequestration Means to Medicare Payments for Providers,” March 11, 2013, Group One Health Source, http://www.grouponehealthsource.com/news/bid/63514/what-the-sequestration-means-to-medicare-payments-for-providers, accessed March 12, 2019.

“National Health Service Corps (NHSC),” U.S. Department of Health and Human Services, https://www.usphs.gov/student/nhsc.aspx, accessed March 14, 2019.

“National Health Service Corps,” Health Resources and Services Administration, https://bhw.hrsa.gov/loansscholarships/nhsc, accessed March 14, 2019.

“Quick Facts,” United State Census Bureau, https://www.census.gov/quickfacts/fact/table/ US/SEX255217, accessed February 13, 2019.

“S.1130 – Rural Emergency Acute Care Hospital Act,” May 16, 2017, U.S. Congress, https://www.congress.gov/bill/115th-congress/senate-bill/1130/text?q=%7B%22search%22%3A%5B%22Rural+Emergency+Acute+Care+Hospital+Act%22%5D%7D&r=1, accessed February 11, 2019.

Sara Heath, “AHA Lauds Bill for Patient Access to Rural Emergency Hospitals,” May 19, 2017, Patient Engagement Hit, https://patientengagementhit.com/news/aha-lauds-bill-for-patient-access-to-rural-emergency-hospitals, accessed February 13, 2019.

Senator Charles Grassley, “Top Priority is reducing health care costs,” Office of United States Senator Charles Grassley, January 14, 2019, https://www.grassley.senate.gov/news/news-releases/grassley-op-ed-top-priority-reducing-health-care-costs, accessed March 20, 2019.

“Sponsor the Save Rural Hospitals Act (H.R. 957),” National Rural Health Association, https://www.ruralhealthweb.org/NRHA/media/Emerge_NRHA/Advocacy/Government%20affairs/2018/2018-NRHA-Save-Rural-Hospitals-Act-(H-R-2957)-sponsor-request.pdf, accessed March 12, 2019.

“The Rural Emergency Acute Care Hospital (REACH) Act: A Solution for Rural Acute Care Access,” June 23, 2015, The Office of United States Senator Charles Grassley, https://www.grassley.senate.gov/sites/default/files/news/upload/White%20Paper%20on%20REACH%20Act_FINAL2.pdf, accessed February 11, 2019.

“Urban and Rural,” United States Census Bureau, https://www.census.gov/geo/reference/urban-rural.html, accessed March 12, 2019.

“What Are Community Hospitals?” Athena Health, https://www.athenahealth.com/knowledge-hub/community-hospitals/what-are-community-hospitals, accessed March 14, 2019.