Hundreds of urban hospitals have taken advantage of a 2016 policy change that allows them to be simultaneously classified by Medicare as rural and urban facilities for payment purposes, according to a new study.
Compared to three geographically urban hospitals that picked up dual classifications in 2017, 425 existing urban hospitals had obtained both administrative designations in 2023, Johns Hopkins University and Brown University researchers wrote in Health Affairs. About three-quarters of these were nonprofits, and several were large academic medical centers located in metropolitan areas.
That collection includes several large hospitals recording billions of dollars in revenues that same year, led by NewYork Presbyterian Hospital ($9.3 billion 2023 net patient revenue), Cleveland Clinic Hospital ($7 billion), Adventhealth Orlando ($6.2 billion), UCSF Medical Center ($6.1 billion) and Cedars-Sinai Medical Center ($4.3 billion).
By securing a rural designation, the hospitals can apply to reimbursement programs intended to backstop rural providers, including sole community hospital status, rural referral center status, Medicare-dependent small rural hospital status, additional graduate medical education slots and lower eligibility standards for the 340B Drug Discount Program. At the same time, they’re still able to lean on urban hospital benefits such as urban wage indexes for calculating Medicare inpatient prospective payment system reimbursements.
The Centers for Medicare & Medicaid Services (CMS) previously had policies in place to prevent hospitals from reclassifying themselves and retaining their prior administrative designation but changed its regulations in April 2016 following a pair of federal appellate court decisions (Geisinger Community Medical Center v. Secretary, Lawrence + Memorial Hospital v. Burwell) that determined the prohibition to be inconsistent with statute.
The study, published Monday, used CMS Medicare cost report data as compiled by RAND to review hospitals’ geographic locations and changes in their administrative statuses. Researchers reviewed data from 2013-23 to spot existing hospitals that made use of the policy change and excluded critical access hospitals because their reimbursement methodology does not involve wage index changes.
Across the study period, the nationwide share of administratively rural hospitals grew from 27% to 43%, while the share of administratively rural hospital beds rose from 13% to 45%, “suggesting that the new administratively rural hospitals are disproportionately larger," the researchers wrote. The share of geographically urban hospitals and their beds remained similar during the same period.
Dually classified hospitals were behind the jump, and, in 2023, represented 61% of all administratively rural hospital beds, according to the study.
Of note, dual designations were prevalent in several highly populated states and “much less common” in the central and southern parts of the country. Alaska, Maryland, Montana, Nebraska, Nevada, Vermont and Wyoming had no dually classified hospitals.
The researchers noted that their study does not quantify the direct and indirect financial benefits the hospitals could be receiving via their dual classification nor the potential impact the rise in dual reclassifications has on rural care delivery at large.
Researchers wrote that, without a fix from policymakers, more urban hospitals are likely to avail themselves of the double designation and potentially drain funds intended to serve rural populations. They described the trend as “urban hospitals’ natural response to evolving regulations” and likened it to the 340B Drug Discount Program, where “a well-intentioned policy … expanded immensely after federal policy changes that relaxed eligibility restrictions.”
Ge Bai, Ph.D., a professor of accounting and health policy at Johns Hopkins and one of the study’s coauthors, said widespread gaming of hospital designations is particularly relevant as legislators earmark billions to float rural facilities amid a broader cutback in federal funding.
“The One Big Beautiful Bill has allocated $50 billion in taxpayer dollars to rural health,” she told Fierce Healthcare. “But does the public realize that many large urban hospitals claim rural status to gain access to federal rural health benefits? Congress has a duty to close this loophole to ensure that rural health dollars are actually spent on rural residents, rather than becoming a windfall for large, wealthy facilities that aren’t even located in rural areas.”
CMS Administrator Mehmet Oz, M.D., said over the weekend that applications for the $50 billion fund will open to states in early September.