Fact sheet

Rural Community Hospital Demonstration

Rural Community Hospital Demonstration
Updated November 2017

Overview
The Centers for Medicare & Medicaid Services (CMS) is conducting the Rural Community Hospital Demonstration Program, which was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), and extended for another 5-year period by sections 3123 and 10313 of the Patient Protection and Affordable Care Act (Affordable Care Act). Section 15003 of the 21st Century Cures Act, enacted December 13, 2016, again amended section 410A of the MMA to require another 5-year extension period for the demonstration.

Section 15003 of the Cures Act allows for hospitals that were participating in the demonstration as of the last day of the initial 5-year period or as of December 30, 2014 to participate in this second extension period, unless the hospital makes an election to discontinue participation.

Section 15003 also requires that no later than 120 days after enactment of the Cures Act that the Secretary issue a solicitation for applications to select additional hospitals to participate in the demonstration program for this second 5-year extension period so long as the maximum number of 30 hospitals stipulated by the ACA is not exceeded.

CMS issued a solicitation for additional hospitals on April 17, 2017. Applications were due on May 17, 2017. CMS reviewed and evaluated these applications, and in Fall 2017 announced the hospitals selected for participation in the demonstration program, including previously participating and newly selected hospitals. (See Selected Hospitals section below.)

Background
Section 410A(a)(1) of the MMA requires this demonstration to test the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration tests payment under a reasonable cost-based methodology for Medicare inpatient hospital services furnished by rural hospitals with fewer than 51 acute care inpatient beds, that make available 24-hour emergency care services, and that are not eligible to be, or have not been designated as, Critical Access Hospitals (CAH).

CMS has conducted 3 previous solicitations for applications – in 2004 and 2008, in accordance with the MMA, and in 2010, upon re-authorization by the Affordable Care Act.

The MMA requires the demonstration to be budget neutral. Each year since 2004, CMS has included a segment specific to the demonstration program in the proposed and final rules for the Medicare inpatient prospective payment system (IPPS). On an annual basis, this segment has detailed the status of the demonstration, as well as the methodology for ensuring budget neutrality. CMS intends to continue this approach of proposing the budget neutrality methodology in annual IPPS rulemaking.

The MMA also requires a Report to Congress with recommendations for such legislation and administrative action as the Secretary determines appropriate. This evaluation will assess the impact of the demonstration on the financial viability of participating hospitals as well as their ability to serve the needs of the community.

Provisions of the 21 Century Cures Act
Section 15003 of the 21st Century Cures Act provides for the following regarding the second 5-year extension period:

  • Hospitals that were participating as of the last day of the initial 5-year period or as of December 30, 2014 will be allowed to participate in the second extension period, unless the hospital makes an election to discontinue participation.
  • Not later than 120 days after the date of enactment (December 13, 2016), the Secretary is required to issue a solicitation for applications to select additional hospitals to participate in the demonstration program.
  • The requirement in the Affordable Care Act remains that the total number of hospitals participating in the demonstration at the same time not exceed 30.
  • A newly selected hospital may be located in any state; however, priority for selection is to be given to hospitals located in one of the 20 states with the lowest population densities (as determined by the Secretary using the 2015 Statistical Abstract of the United States).
  • Applicant hospitals must meet the eligibility criteria in the original authorizing statute.
  • Rural hospital closures in the 5-year period immediately preceding the date of the enactment of the Cures Act and the population density of the state may be considered in selecting hospitals.
  • The Secretary shall submit a report to Congress no later than August 1, 2018.

Payment Methodology
Hospitals participating in the demonstration will receive payment for Medicare inpatient hospital services, with the exclusion of services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital, using the following rules:

  1. For discharges occurring in the first cost reporting period on or after the implementation of the extension, their reasonable costs of providing covered inpatient hospital services;
  2. For discharges occurring during the second or subsequent cost reporting period, the lesser of their reasonable costs or a target amount. The target amount in the second cost reporting period is defined as the reasonable costs of providing covered inpatient hospital services in the first cost reporting period, increased by the Inpatient Prospective Payment System (IPPS) update factor (as defined in section 1886(b)(3)(B)) of the Social Security Act for that particular cost reporting period. The target amount in subsequent cost reporting periods is defined as the preceding cost reporting period’s target amount increased by the IPPS update factor for that particular cost reporting period.

Extension Period Under the Cures Act

Implementation
CMS has developed a participation agreement specifying payment principles, as well as administrative, auditing, and reporting requirements. This participation agreement will apply to each hospital participating in the second extension period.

Extension Period for Previously Participating Hospitals
In the Fiscal Year 2018 Inpatient Prospective Payment System Final Rule (82 FR 37990, August 14, 2017), CMS finalized the terms of continuation for the previously participating hospitals. For each hospital choosing to continue participation, the demonstration cost-based payment methodology will be effective to the conclusion of the hospital’s period of participation under the Affordable Care Act.  

Eligibility Requirements
As stipulated in section 410A of the Medicare Prescription Drug Improvement and Modernization Act of 2003, a hospital must:

  • be located in a rural area;
  • have fewer than 51 acute care beds (not including beds in a psychiatric or rehabilitation unit that is a distinct part of the hospital), as reported on its most recent cost report;
  • make available 24-hour emergency services; and
  • not be eligible for designation or be designated as a Critical Access Hospital.

The authorizing statute in the 21st Century Cures Act states that additional hospitals selected for the demonstration under this solicitation may be located in any State.   The authorizing statute adds that in determining which hospitals to select for participation in the demonstration, priority should be given to hospitals among the 20 States with the lowest population density according to the 2015 Statistical Abstract of the United States.

The solicitation for additional participants for the RCH Demonstration, issued on April 17, 2017, identified the 20 States with lowest population density according to population estimates from the Census Bureau for 2013, from the ProQuest Statistical Abstract of the United States, 2015. These 20 States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming.

Selected Hospitals

The authorizing statute in the Affordable Care Act stipulates a maximum of 30 hospitals to participate in the demonstration. Section 15003 of the Cures Act, which authorizes the current extension period, states that hospitals that participated in the demonstration through the end of the first extension period, authorized by the Affordable Care Act, or participating effective December 30, 2014, are allowed to continue participation for the current extension period.

CMS confirmed that 17 of the previously participating hospitals will continue participation in the demonstration. So as to allow for the maximum of 30 hospitals to participate in the current extension period, CMS selected 13 additional hospitals. These 13 hospitals will begin their period of participation effective the start of the first cost reporting period on or after October 1, 2017.

The following are the 13 new selected hospitals:

Montrose Memorial Hospital; Montrose, CO
Trinity Regional Medical Center; Fort Dodge, IA
St. John’s Medical Center; Jackson, WY
Valley View Hospital; Glenwood Springs, CO
Great Plains Regional Medical Center; Elk City, OK
The Aroostook Medical Center; Presque Isle, ME
Anderson Regional Medical Center - South; Meridian, MS
McPherson Hospital; McPherson, KS
Avera St. Luke’s Hospital; Aberdeen, SD
Highland Community Hospital; Picayune, MS
Morton County Health System; Elkhart, KS
St. Anthony Summit Medical Center; Frisco, CO
Avera Queen of Peace Hospital; Mitchell, SD

The following are the 17 hospitals that participated previously and are continuing participation:

Central Peninsula Hospital; Soldotna, AK
Bartlett Regional Hospital; Juneau, AK
Brookings Health System; Brookings, SD
Columbus Community Hospital; Columbus, NE
Delta County Memorial Hospital; Delta, CO
Yampa Valley Medical Center; Steamboat Springs, CO
St. Anthony Regional Hospital and Nursing Home; Carroll, IA
Grinnell Regional Medical Center; Grinnell, IA
Skiff Medical Center; Newton, IA
Lakes Regional Healthcare; Spirit Lake, IA
Mercy Hospital Fort Scott; Fort Scott, KS
Geary Community Hospital; Junction City, KS
Bob Wilson Memorial Grant County Hospital; Ulysses, KS
Inland Hospital; Waterville, ME
Maine Coast Memorial Hospital; Ellsworth, ME
Marion General Hospital; Columbia, MS
Alta Vista Regional Hospital; Las Vegas, NM

For more information, please visit: https://innovation.cms.gov/initiatives/Rural-Community-Hospital/.

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