Rural Community Hospital Demonstration Program

Program Overview

Under Section 410A of the Medicare Modernization Act of 2003, the Secretary is required to conduct a demonstration, lasting five years, to test the advisability and feasibility of establishing rural community hospitals (RCHs) to provide Medicare covered inpatient hospital services in rural areas. For the first cost reporting period on or after implementation of the program, Medicare inpatient services will be paid based on reasonable costs of providing such services to Medicare beneficiaries.  For subsequent cost reporting periods, RCH hospitals will receive reimbursement for the lesser of reasonable costs or a target amount.  The target amount for 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 update factor.  The target amount for subsequent cost reporting periods is defined as the preceding cost reporting period’s target amount increased by the inpatient prospective payment update factor for that particular cost reporting period.  Implementation of this demonstration is required to occur no later than January 1, 2005, but not before October 1, 2004.  The demonstration is aimed at increasing the capability of the selected rural hospitals to meet the needs of their service areas.  A report to Congress is required six months after completion of the program, making recommendations, as the Secretary deems appropriate.

Demonstration Program Hospitals

Program Eligibility.
The following eligibility requirements had to be met for a hospital to be considered for participation in the demonstration. These requirements are specified in the authorizing legislation. An applicant had to 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 beds, as reported in its most recent cost report;
    Makes available 24-hour emergency care services; and
  • Is not eligible for CAH designation, or has not been designated a CAH under section 1820 of the Social Security Act.

The authorizing legislation requires that the demonstration be conducted in States with low population densities, as determined by the Secretary. For this demonstration, hospitals had to be located in one of the ten least densely populated States: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, or Wyoming.  Nine small rural hospitals in seven sparsely populated states are program participants. 

List of Demonstration Program Hospitals

Program Transmittals

April 14, 2006,   Transmittal 45, Change Request 5020: Method of Cost Settlement for Inpatient Services for Rural Hospitals Participating Under Demonstration Authorized by Section 410A of the Medicare Modernization Act

March 4, 2005,  Transmittal 20.  Subject.  Full Replacement of CR 3220, Method of Reimbursement for Inpatient Services for Rural Hospitals Participating Under Demonstration Authorized by Section 410A of the Medicare Modernization Act. CR 3220 is rescinded. 

Program Regulations

Medicare Program; Rural Community Hospital Demonstration Program; Solicitation of Additional Participants announced in Federal Register, Vol. 73, No. 25, Wednesday, February 6, 2008, Notices.

Rural Community Hospital Demonstration Program announced in Federal Register, Vol. 69, No. 154/Wednesday, August 11, 2004 Final Inpatient Prospective Payment Rule for 2005.

Addendum Federal Register, Vol. 69, No. 154, Wednesday August 11, 2004 Final Inpatient Prospective Payment Rule for 2005.

Rural Community Hospital Demonstration Program announced in Federal Register, Vol. 69, No. 96, Tuesday, May 18, 2004 Proposed Inpatient Prospective Payment Rule for 2005. (.pdf 52 KB)

Addendum Federal Register, Vol. 69, No. 96, Tuesday, May 18, 2004, Proposed Inpatient Prospective Payment Rule for 2005. (.pdf 36 KB)

Website

Center for Medicare and Medicaid Services (CMS) Rural Community Hospital Demonstration Program