What is the goal of the Rural Community Hospital Demonstration?
The goal of the demonstration is to test the feasibility and advisability of the establishment of rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration provides and tests payment under a reasonable cost-based methodology for inpatient hospital services furnished by participating hospitals.
What information will be included in the solicitation for additional participants for the demonstration?
The Request for Information(RFA) solicits information from interested hospitals. Hospitals interested in applying should include a problem statement, strategies for ongoing financial viability, goals for participation in the demonstration, and plans for collaboration with other providers in the area.
CMS is asking applicant hospitals to describe the impact of rural hospital closures on the needs of their service area, and also problems posed by the need to serve a sparse population. The due date for new applications to CMS is March 1, 2025 by 11:59 p.m. Eastern Standard Time. For more information, please see the RFA, which is available on the Rural Community Hospital Demonstration webpage.
What are the eligibility requirements for the demonstration?
As stipulated in section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, an applicant must be a hospital that:
- Is located in a rural area (as defined in section 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 1395ww(d)(2)(D)) or treated as being so located pursuant to section 1886(d)(8)(E) of the Act (42 U.S.C. 1395ww(d)(8)(E)));
- Has fewer than 51 acute care inpatient beds, as reported in its most recent cost report (not including beds in a psychiatric or rehabilitation unit which is a distinct part of the hospital);
- Makes available 24-hour emergency care services; and
- Is not eligible for Critical Access Hospital (CAH) designation, or has not been designated a CAH under section 1820 of the Social Security Act.
Please note: Section 1886(d)(2)(D) of the Act uses Metropolitan Statistical Areas (as defined by the Office of Management and Budget) to determine whether a hospital is in a “rural area”; this differs from other governmental designations such as “health professional shortage area”, etc. In order to determine eligibility under section 1886(d)(8)(E) of the Act, please review the provisions under that section and submit documentation accordingly.
Are hospitals required to be located in any particular states?
In keeping with the requirement in section 410A that rural community hospital be located in rural areas of states with low population densities, CMS is requiring that the additional hospitals selected for the demonstration under this solicitation, or RFA, be located in one of the 20 least densely populated states, according to 2020 data from the U.S. Census Bureau.
These 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. CMS will not accept applications from hospitals located in other states or in the U.S. territories.
CMS will select hospitals from these states with the highest scoring applications. Information on how hospitals are scored is included in the RFA.
Is there a streamlined application process for hospitals that have already participated in the demonstration?
Hospitals that are participating in the demonstration as of the date of this RFA do not have to complete this solicitation.
What is the payment methodology for the demonstration?
Hospitals participating in the demonstration will receive payment for inpatient hospital services furnished to Medicare beneficiaries, with the exclusion of services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital, using the following rules:
- 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;
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.
What agreement will govern the hospitals’ participation in the demonstration?
CMS uses for currently participating hospitals a participation agreement specifying payment principles, as well as administrative, auditing, and reporting requirements. This participation agreement will apply to each hospital selected under the current RFA. CMS will communicate to the hospitals on policy and operational issues.
Will CMS apply the same methodology for determining budget neutrality for the new participants?
As previously, for FY 2026 and future years, CMS is proposing to adjust the IPPS rates by an amount sufficient to account for the added costs of this demonstration program, thus applying budget neutrality across the inpatient prospective payment system as a whole rather than merely across the participants in the demonstration program.
What will be the period of participation for the demonstration?
The current participation period, authorized by the Consolidated Appropriations Act of 2021, ends June 30, 2028. Participation for hospitals joining the demonstration under this RFA will end on that date.
How will the wait list work?
Hospitals not selected for the initial 10 open slots under the RFA will be placed on a wait list. When a participating hospital voluntarily terminates from the demonstration, CMS will utilize a wait list from the RFA to fill any vacant spots as they become available. Wait list placement will be based on an applicant’s overall score, meaning those with higher scores that are not selected will be placed at the top of the wait list, and will be prioritized when a new slot in the demonstration becomes available.
Will currently participating hospitals whose period of participation ends in 2025 be able to apply for demonstration spaces under this new RFA?
The existing participation period is authorized by section 128 of the Consolidated Appropriations Act of 2021, which authorized an extension for 5 years. Each hospital is allowed a 5-year participation period from its start date. Currently participating hospitals cannot participate beyond their current end date or the end date of the authorization period, whichever comes first.
Is there a requirement that the facility be a minimum distance from other facilities to qualify for the demonstration?
There is no requirement for the Rural Community Hospital Demonstration that the applicant be a certain distance from the closest similar facility. To be eligible for the demonstration, a hospital must be located in a rural area or be treated as being located in a rural area, and meet the other criteria as defined in section 410A(f) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and also stated under “Eligibility Requirements for Participation” in the RFA, including being located in one of the identified States. CMS will evaluate applications according to the criteria stated in the RFA.
Will a hospital lose its Sole Community Hospital (SCH) designation if it participates in the Rural Community Hospital Demonstration? Specifically, will participating in the demonstration have an impact on Medicare Outpatient Prospective Payment System (OPPS) payment for a hospital that is classified as an SCH?
A hospital will not lose its SCH designation as a result of participating in the demonstration, and will be able to return to SCH payment under the IPPS when it ends its participation in the demonstration, provided that it still meets the SCH requirements. Medicare OPPS payments will not be affected by the demonstration.
If hospitals are accepted into the Rural Community Hospital Demonstration, can they withdraw at any time?
Participation in the demonstration is voluntary and a hospital can withdraw at any time. If a hospital is selected into the demonstration program, it will be able to opt out of participation prior to the beginning of its participation period (i.e., cost report start date). Once the period of participation has begun, CMS would prefer that the hospital remain in the demonstration until the end of the cost report year. Hospitals are advised to inform CMS when they intend to terminate from the demonstration.
Will Medicare separately reimburse inpatient capital on a cost basis for the demonstration hospitals?
Inpatient capital costs are included in the cost-based payment methodology for Medicare inpatient hospital services furnished under the Rural Community Hospital Demonstration.
Will Medicare payment on a reasonable cost basis under the demonstration apply to swing beds?
Yes, section 410A authorizes payment under the demonstration methodology for “extended care services furnished under an agreement under section 1883 of the Social Security Act” (i.e., swing beds).
Will Medicare payment under the demonstration include nursing facility care in a distinct part skilled nursing facility unit of the hospital?
No, Medicare reasonable cost-based payment under the demonstration will not apply to skilled nursing facility services provided in a distinct part unit of the hospital.
Will IPPS add-ons and incentive payments apply to hospitals participating in the demonstration?
Because a participating hospital will receive Medicare payment for inpatient hospital services based on a reasonable cost methodology, it will not receive add-ons associated with the IPPS. Therefore, the hospital will not receive the low volume hospital payment adjustment, indirect medical education payments, or any additional payments as a Sole Community Hospital (SCH) or Medicare Disproportionate Share Hospital (DSH) (or any additional payments under the Medicare Dependent Hospital (MDH) program).
Because hospitals participating in the demonstration are subsection (d) hospitals, the Hospital Value- Based Purchasing Program, Hospital Readmissions Reduction Program, and Hospital-Acquired Conditions Reduction Program will apply.
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