Pennsylvania Rural Health Model

The Pennsylvania Rural Health Model seeks to test whether care delivery transformation in conjunction with hospital global budgets increase rural Pennsylvanians’ access to high-quality care and improve their health, while also reducing the growth of hospital expenditures across payers, including Medicare, and improving the financial viability of rural Pennsylvania hospitals to improve health outcomes of and maintain continued access to care for Pennsylvania’s rural residents.

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Participating hospitals include:

  • Armstrong County Memorial Hospital (Kittanning, PA)
  • Barnes-Kasson County Hospital (Susquehanna, PA)
  • Clarion Hospital (Clarion, PA)
  • Endless Mountains Health Systems (Montrose, PA)
  • Fulton County Medical Center (McConnellsburg, PA)
  • Geisinger Jersey Shore Hospital (Jersey Shore, PA)
  • Highlands Hospital and Health Center (Connellsville, PA)
  • Indiana Regional Medical Center (Indiana, PA)
  • UPMC Kane (Kane, PA)
  • Meadville Medical Center (Meadville, PA)
  • Monongahela Valley Hospital (Monongahela, PA)
  • Olean General Hospital, Bradford Regional Medical Center (McKean, PA)
  • Punxsutawney Area Hospital (Punxsutawney, PA)
  • Washington Health System Greene (Waynesburg, PA)
  • Tyrone Hospital (Tyrone, PA)
  • Washington Hospital (Washington, PA)
  • Wayne Memorial Hospital (Honesdale, PA)
  • Chan Soon-Shiong Medical Center at Windber (Windber, PA)


  • Pennsylvania hospitals in rural areas often do not have the financial resources or workforce necessary to maintain and expand access to care needed in the community, or to make investments that may improve quality of care and patient experience. As a result of these challenges, many rural Pennsylvanians have seen their local hospital close.
  • The Pennsylvania Rural Health Model (PARHM) pays participating hospitals a fixed amount upfront, regardless of patient volume, empowering these hospitals to invest in high-quality primary and specialty care that address the specific needs of the communities they serve. Model benefits may include: better coordination and linkage of medical and social needs services, chronic disease management, preventive screenings, and substance use disorder treatment. These fixed payments may also give participating hospitals financial stability, given the steady flow of payments it receives through the model.
  • Ultimately, through the model, rural Pennsylvania residents may experience greater access to high-quality care and live healthier lives.


Under this Model, CMS and other participating payers pay participating rural hospitals on a global budget—a fixed amount, set in advance--to cover all inpatient and hospital-based outpatient items and services. In addition, participating rural hospitals are working to redesign the delivery of care for their beneficiaries, to improve quality of care and better meet the health needs of their local communities. Pennsylvania, acting through its Department of Health, is a key partner in jointly administering this Model with CMS.

CMS believes this Model will further CMS’ goals of improving the health of beneficiaries in rural areas, maintaining access to health care for rural populations, and determining the impact of an alternative payment model on rural providers, who have generally had lower rates of participation in alternative payment models.

Model Details

The Model tests whether the predictable nature of global budgets will enable participating rural hospitals to invest in quality and preventive care, and to tailor their services to better meet the needs of their local communities. Participating rural hospitals prepare Rural Hospital Transformation Plans, outlining their proposed care delivery transformation, which must be approved by Pennsylvania and CMS.

The Model is open to both critical access hospitals and acute care hospitals in rural Pennsylvania. Participating payers include Medicare, Medicaid, and certain commercial plans. Pennsylvania has committed to attain broad participation in the Model among payers and rural hospitals to help transform the care that rural hospitals provide and to improve the quality of care for as many rural Pennsylvanians as possible.

CMS intends to make available up to $25 million in funding to help Pennsylvania implement the Model. Under the Model, Pennsylvania will use this funding to oversee the Model, aggregate and analyze data, compile and submit reports, propose and administer global budgets, approve Rural Hospital Transformation Plans, conduct quality assurance, and provide technical assistance to participant rural hospitals as they redesign the care they deliver. The goal of this funding is to help Pennsylvania operationalize the Model and, ultimately, to achieve the Model’s targets described below. Pennsylvania will also contribute funding for the operation of the Model.

Performance Period

There are six performance years during which rural hospitals may participate in a global budget through the Pennsylvania Rural Health Model (Performance Year 1-Performance Year 6, 2019-2024), following a pre-implementation period (“PY0”, 2017-2018). Specific details of each performance year are listed below:

  • Performance Year 0: CMS made funding available to Pennsylvania to begin Model operations, obtain participation from rural hospitals and payers, aggregate data from participating payers, and calculate global budgets. During the pre-implementation period, Pennsylvania secured final commitments from participating rural hospitals and participating payers. The participating rural hospitals developed Rural Hospital Transformation Plans describing how they intend to improve quality, increase access to preventive care, and generate savings to the Medicare program, which they submitted to Pennsylvania and CMS for approval.
  • Performance Years 1 – 6: Rural hospitals and payers began participation in the Pennsylvania Rural Health Model in Performance Year 1, beginning January 2019. During this period, the participating rural hospitals will be paid based on prospectively-set, all-payer global budgets, and will implement their Rural Hospital Transformation Plans. In addition, Pennsylvania must meet the Model targets described below, including the population health outcomes, access and quality measures and targets; Model financial targets; and payer and rural hospital participation scale targets.

Two key components the model that will be present throughout the performance years include:

  • Hospital Global Budgets: Each performance year of the Model, Pennsylvania will prospectively set the all-payer global budget for each participating rural hospital, based primarily on hospitals’ historical net revenue for inpatient and outpatient hospital-based services from all participating payers. Each participating payer will then pay participating rural hospitals for all inpatient and outpatient hospital-based services based on the payer’s respective portion of this global budget. The Medicare fee for service (FFS) portion of the global budgets that Pennsylvania proposes for each participating rural hospital, as well as Pennsylvania’s methodology for calculating the global budgets are subject to CMS review and approval.
  • Hospital Care Delivery Transformation: Participating rural hospitals will also plan deliberate changes to redesign the care they provide. As part of their Rural Hospital Transformation Plans, hospitals develop plans to invest in quality and coordinate care, to obtain support and continuous feedback from stakeholders in the community, and to tailor the services they provide to the needs of their local community. Pennsylvania and CMS must approve a rural hospital’s Rural Hospital Transformation Plan before that hospital can participate in the Model. Pennsylvania will provide rural hospitals with the technical assistance they need to prepare Rural Hospital Transformation Plans in accordance with the requirements of the Model. Pennsylvania and CMS expect that this care delivery transformation will help rural hospitals make meaningful improvements in the quality of the care they provide and impact the largest health needs in their community.

Model Targets

Under the Pennsylvania Rural Health Model, Pennsylvania agrees to meet a number of different targets:

  • payer and rural hospital participation scale targets;
  • financial targets; and
  • population health outcomes, access, and quality targets.

Together, these targets create incentives for Pennsylvania to help hospitals  improve quality; enhance collaboration among health care providers and the Pennsylvania public health system to improve health for the rural population of Pennsylvania; and reduce the growth in hospital expenditures.

Pennsylvania will encourage rural hospitals to participate in this Model, and commits to achieving rural hospital participation scale targets for each Performance Year.

Additionally, Pennsylvania has secured the participation of commercial payers and Medicaid. Pennsylvania commits to having each participating rural hospital’s global budget represent at least 75 percent of that hospital’s net revenue for inpatient and outpatient hospital-based services in Performance Year 1 (2019), and at least 90 percent of each participating rural hospital’s global budget for each of Performance Years 2 through 6.

Pennsylvania commits to achieving $35 million in cumulative Medicare hospital savings over the course of the model. In addition, the growth rate of rural Pennsylvania total Medicare expenditures per beneficiary must not exceed the growth rate of the rural National total Medicare expenditures per beneficiary by more than a certain percentage for Performance Years 2 through 5.

Across all participating payers, Pennsylvania agrees to an all-payer financial target of no more than 3.38% in cumulative annual hospital cost of care growth on inpatient and outpatient hospital-based items and services per beneficiary (for the purposes of this calculation, a beneficiary is a Pennsylvania resident who resided in a rural area of Pennsylvania served by a participating rural hospital and received coverage from a participating payer). 3.38% represents the compound annual growth rate for Pennsylvania’s gross state product from 1997 to 2015.

Pennsylvania commits to achieving targets related to population health outcomes and access under this Model, and may tie financial incentives for participating rural hospitals to Pennsylvania’s performance on the following three goals:

  1. increasing access to primary and specialty care;
  2. reducing rural health disparities through improved chronic disease management and preventive screenings; and
  3. decreasing deaths from substance use disorder and improve access to treatment for opioid abuse.

Pennsylvania will commit to meeting population health outcomes and access measures and targets, and participating rural hospitals are held accountable for a targeted set of quality measures. State-specific measures and targets under an all-payer quality program designed by Pennsylvania, subject to approval by CMS, will be announced at a later date.

State Models

The Pennsylvania Rural Health Model is the third state specific model being tested by the Innovation Center. CMS has been working with Maryland since 2014 through the testing of the Maryland All-Payer Model and more recently the Maryland Total Cost of Care Model to test innovative hospital payments, advanced primary care incentives, and total cost of care accountability. In October 2016, CMS announced the Vermont All-Payer Accountable Care Organization (ACO) Model, which offers a Medicare ACO model tailored to the state and provides Vermont up to $9.5M in start-up investment to assist Vermont providers with care coordination and bolster their collaboration with community-based providers. Pennsylvania also participated in the State Innovation Models Initiative as a Round 2 Model Design State, which has helped support the development of the Pennsylvania Rural Health Model. We anticipate that the Pennsylvania Rural Health Model will provide valuable insight for other opportunities for CMS to design and implement state-driven, all-payer payment and care delivery transformation efforts that address the challenges faced by rural health care providers.

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