Rural Community Hospital Demonstration

Background

The Rural Community Hospital Demonstration was initially mandated (under section 410A of the Medicare Modernization Act of 2003) as a 5-year program to be implemented in the 10 least populated states, with a maximum of 15 hospital participants . Since then, the program has been extended by statute:

• Affordable Care Act, 2010 – Expanded to 20 least densely populated states, up to 30 hospitals
• 21st Century Cures Act, 2016 – Opened to all states, with priority to the 20 least densely populated
• Consolidated Appropriations Act, 2021 – extended for another five years to run through June 30, 2028, open to participants in the 20 least densely populated states.

Aims

The aim of the RCHD program is to improve the financial health of small rural hospitals by providing potentially higher Medicare payments for covered inpatient hospital services. In turn, participant hospitals may achieve their individualized goals for achieving financial viability and capacity while continuing to serve communities with few or no other nearby options.

Design

Participating hospitals are paid based on inpatient costs, not standard Medicare rates. Participation agreements consist of 5-year performance periods, including a Base Year plus 4 subsequent years. After the Base Year, hospitals targets are “re-based” for subsequent years:

• Year 1 (Base Year): Paid for reasonable costs for Medicare beneficiaries during inpatient acute care and swing-bed stays
• Subsequent Years: Paid the lesser of actual costs or a target amount (adjusted for inflation, case-mix, and discharges). 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.

Statute requires that the RCHD program be budget neutral. CMS has met this requirement by offsetting the amount of payment enhancement attributable to the program from the national 
payment rates to hospitals. On an annual basis, the proposed and final rules for the Medicare IPPS have updated the status of the demonstration and explained the methodology for estimating additional costs for the demonstration. CMS intends to continue this approach in future IPPS rulemaking.

To participate, hospitals must:

• Be in a rural area
• Have fewer than 51 beds
• Make available 24-hour emergency care services
• Not qualify as a Critical Access Hospital

In 2024, CMS published a Request for Applications for 10 additional participants to start in 2025 and end on June 30, 2028. The selected 10 hospitals join the 20 hospitals already participating in the demonstration. See a full list of the 30 participating hospitals (PDF) as of May, 2025.Hospitals not selected under the 2024 RFA are on a waitlist (in order of their applicant assessment score) to fill any potential vacancies should a participating hospital voluntarily terminate from the demonstration.

Participant Resources

• 2024 RCH Application (PDF)
• 2024 RCH RFA Federal Register Notice
• Medicare Waiver Demonstration Application (PDF)

CMS conducts intensive evaluation of the demonstration, assessing the financial impact on participating hospitals, as well as the effect on health care for the populations served.

Latest Evaluation Report

The most recent evaluation, covering 2016 to 2021, found that the RCHD did impact and improve Medicare inpatient margins and that hospital leaders consistently reported that RCHD participation was crucial for maintaining financial viability, especially in hospitals operating with negative margins.

• Final Evaluation Report (2016-2021)
  • At-a-Glance (Two-Pager) (PDF)
  • Executive Summary (PDF)
  • Final Evaluation Report (PDF)
  • Report Appendices (PDF)

Prior Evaluation Reports

• Second Interim Evaluation (2016-2018)
  • At-a-Glance (Two-Pager) (PDF)
  • Second Interim Report (PDF)
• First Interim Evaluation (2005-2017)
  • At-a-Glance (Two-Pager) (PDF)
  • First Interim Report (PDF)

For additional evaluation reports, visit the CMS Innovation Center Evaluations & Research Reports webpage.
 

• Fact Sheet/Participant List (PDF)
• Frequently Asked Questions
• FY 2025 IPPS Final Rule Home Page
• Rural Community Hospital Demonstration - Report to Congress (PDF)
• Archives