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Rural hospitals face difficult decision in determining whether to convert to Rural Emergency Hospital (REH)

Week of January 8 - January 14, 2023
5 minutes

Rural hospitals have been under significant financial strain for more than a decade. As the Chartis Center for Rural Health (CCRH) analysis shows, 140 rural hospitals have closed since 2010 (including a record 19 in 2020 alone), and another 453 are vulnerable to closure. Since late 2020, pandemic-related relief dollars helped to temporarily stabilize many rural hospitals, but those funds expired on December 31st. Additionally, structural cuts such as the 2% sequester, which had been on hold during the height of the pandemic, have now been fully reinstated, and persistent nurse staffing shortages, increased labor expenses, and lagging payment rates are once again creating uncertainty for rural hospitals.  

In an attempt to prevent additional closures and keep services in rural communities, which are home to more than 46 million Americans, Congress established a new provider type—Rural Emergency Hospitals (REH) under Medicare through the Consolidated Appropriations Act. The new designation went into effect on January 1st and offers the nation’s approximately 2,200 rural hospitals the opportunity to provide emergency services and observation care, and outpatient services with a commitment to discharging or transferring patients that need ongoing inpatient care within 24 hours. In exchange for surrendering inpatient care, each REH would receive monthly payments (totaling more than $3 million for 2023) as well as higher Medicare reimbursements. With nearly 80% of rural hospital revenue associated with outpatient services, the new REH designation could provide an injection of stability necessary to maintain health services in some already vulnerable rural areas. 

As REH is the government’s first non-pandemic-related action aimed at addressing the financial instability of rural hospitals, there is a considerable level of attention being given to this designation. While a few rural hospitals and one recently closed facility appear ready to pursue REH, most are waiting for a more detailed analysis. Rural leadership teams will need to consider the following factors in their evaluation of REH: 

  • Operating margin, and more specifically, the number of times during the last three years a hospital has operated in the red.
  • The number of patients currently utilizing inpatient services. 
  • Average daily census of “Swing Bed,” a program specific to Critical Access Hospitals allowing for the number of skilled nursing patients to be reimbursed as if they were inpatients. 
  • Percentage of inpatient revenue to total patient revenue.
  • Case mix.
  • Medicare outpatient charges as a percentage of total outpatient charges.  
  • 340B revenue, as the financially beneficial program, is not allowed with REH conversion. 
  • Government control status. 

CCRH has developed an REH data model around those factors to help identify locations likely to consider conversion and notes that there are 387 rural hospitals most likely to consider REH. Preliminary analysis suggests that for other rural hospitals, the REH payment structure won’t be enough to offset the loss of inpatient services and swing beds.

Why It Matters: 

At many rural facilities, leadership teams feel stuck between a rock and a hard place. They have an unsustainable financial situation, but embracing the new REH designation would mean the loss of services and potentially create backlash within the community. Rural hospitals are often one of the largest employers in the community. According to the American Hospital Association, rural hospitals support one in every 12 rural jobs, and eliminating inpatient services through REH conversion would result in job loss, especially acute care nursing. When high-skilled jobs leave rural communities, much of the population typically follows, leaving an impact beyond care delivery.   

Additionally, many rural health providers have indicated that transferring patients within 24 hours as stipulated by REH is extraordinarily difficult. Not surprisingly, rural areas face transportation-related challenges around increased drive times to the next level of care. The population of rural areas is older with more chronic conditions making maintaining the health of patients during transfer that much more difficult. With many larger hospitals and health systems at capacity due to the tripledemic, rural hospitals are likely to continue to experience delays in transfers, especially if they are unaffiliated with a larger system. 

When the Critical Access Hospital designation was created in the late 1990s, similar questions and concerns about conversion were not uncommon. Yet more than two decades later, about 60% of rural hospitals are now designated critical access. And recent amendments to the definition may open the door for more rural and community hospitals to become Critical Access Hospitals.  

The CCRH model suggests that only a small percentage of the nation’s roughly 2,200 rural hospitals may be ideally suited for REH at this time. While the new designation is not a panacea capable of curing widespread instability across the rural health safety net, it nonetheless offers a path to viability for the smallest of rural hospitals. That said, the appeal of REH may grow over time given the various considerations involved and unique circumstances many rural hospitals face, and the unlikelihood that the rural health safety net stabilizes on its own in the future.  


New York Times:
A Rural Hospital’s Excruciating Choice: $3.2 Million a Year or Inpatient Care? 

Becker's Hospital Review:
Executives Grapple with Decisions on CMS' Rural Emergency Hospital Designation

Fierce Healthcare:
2023 Forecast: Amid Dwindling COVID Relief Funds, Rural Hospitals Face a 'Fiscal Cliff'

CMS Proposal Details How to Become New Rural Hospital Designation


Editorial advisor: Roger Ray, MD, Chief Physician Executive.

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