New Medicare designation could save vulnerable rural hospitals

A new Medicare designation may save the most vulnerable rural hospitals from closing.

The Rural Emergency Hospital (REH) designation, which took effect in January, awards participating hospitals with an additional 5% reimbursement for Medicare outpatient care payments and a monthly facility payment. The Centers for Medicare and Medicaid Services (CMS) will pay participating hospitals more than $3 million a year through the new designation, according to a 2023 report from healthcare advisory firm Chartis.

The funding might help a facility retain their emergency departments, outpatient care, and clinics at a time when rural hospitals are facing existential crises.

The number of rural hospital closures is expected to rise as Covid-19 relief funds dry up, according to the report.

More than 40% of all US rural hospitals and 51% of those in states without Medicaid expansion are operating in the red, per the report. In 2020, there were 453 rural hospitals that were vulnerable to closure, Chartis found.

“For some hospitals, our data model suggests the REH designation will serve as a desperately needed relief valve to avoid closing and provide a significant reversal in fortune for the vulnerable communities they serve,” Michael Topchik, national leader of the Chartis Center for Rural Health, said in a statement. “But the decision to convert is highly nuanced, and as a result, we expect to see a relatively small number of hospitals embrace REH.”

Only 77 of the approximately 1,600 REH-eligible hospitals are ideal candidates for the conversion. These hospitals are smaller in revenue size, reported YoY negative operating margins, and lower average inpatient numbers, per the Chartis report.

Among other requirements, hospitals with REH designation must forgo all inpatient services and participation in the 340B drug pricing program—which protects from escalating drug prices by allowing hospitals to purchase outpatient drugs at a discount—according to the Chartis report.

Still, saving 77 rural hospitals from closing is “not insignificant,” per the Chartis report.

Shutting down a rural hospital can put strain on other hospitals up to 30 miles away, a 2022 Penn State College of Medicine review found.

The REH designation instead “represents momentum toward solutions capable of averting more closures and retaining services in these already vulnerable communities,” Topchik said in the statement.