Senators have introduced a clean extension for Medicaid to fund cost-based payment models for “tweener” rural hospitals too large to qualify for a Critical Access Hospital designation.
The act, unveiled Thursday with hospital industry backing, would allow the Rural Community Hospital Demonstration to run for an additional five years. The program has been reupped three times since first going into effect in 2004—most recently in 2021’s Consolidated Appropriations Act—and is currently set to expire at the end of June 2028.
The model tests cost-based reimbursement, rather than standard Medicare rates, for rural, non-Critical Access Hospital facilities with fewer than 51 beds and 24-hour emergency care services. Participants agree to five-year performance periods and typically receive higher Medicare payments for covered inpatient services. That increased funding is offset elsewhere in CMS’ broader annual budget for hospital inpatient payments.
The Centers for Medicare and Medicaid Services’ most recent evaluation of the program, which covered 2016 through 2021, saw new and continuing participants, respectively, receive $1.6 million and $2.7 million more through Medicare than they would have otherwise. Hospital leaders told CMS that participation “was crucial for maintaining financial viability,” though their combined inpatient and outpatient margins “still did not reach a breakeven point for all participants,” according to CMS’ evaluation.
“Through participation in the [program], Lakes Regional Healthcare has been able to maintain financial stability, reinvest in our facility, recruit and retain essential staff and continue offering high-quality care close to home,” Jason Harrington, president and CEO of Spirit Lake, Iowa-based Lakes Regional Healthcare in a statement supporting the extension.
The Rural Community Hospital Demonstration is capped at 30 participating hospitals, and has seen participation from more than 50 across its lifetime. Last year CMS filled 10 open slots with new participants.
This week’s Rural Community Hospital Demonstration Reauthorization Act was introduced by Sens. Chuck Grassley (R-Iowa) and Michael Bennet (D-Colo.), the former of whom had a hand in the program’s creation more than 20 years ago.
“With a proven track record of more than two decades, this program gives eligible hospitals financial stability to keep healthcare close to home for Iowans,” Grassley said in an announcement of the act’s introduction.
“At a time when many rural hospitals are already under significant financial strain, extending the Rural Community Hospital Demonstration program is critical to maintaining access to care,” Bennet said in the same release. “If Congress fails to extend this program, hospitals not only lose a vital source of funding, but rural Coloradans could face longer drives, delayed care, and fewer options close to home.”
Fourteen other senators from both parties cosponsored the extension, including the heads of the Senate Finance Committee. Support and applause also came from the heads of hospitals and systems in Grassley’s home state of Iowa, as well as from national groups like the National Rural Health Association and the American Hospital Association.
"Many rural hospitals face financial uncertainty from low patient volumes, sicker patient populations, a challenging payer mix, geographic isolation and shifts in care delivery,” Lisa Kidder Hrobsky, senior vice president for advocacy and political affairs at the American Hospital Association, said in a statement. “The [extension act] allows hospitals to continue providing essential care in their communities by supporting the financial stability of participating rural hospitals. Hospitals with 50 beds or less are some of the most vulnerable to closure and the RCH demo offers an important model to maintain access in rural communities around the country.”