Summary
Medicare Payment for Rural or Geographically Isolated Hospitals
Medicare pays most acute-care hospitals under the inpatient prospective payment system (IPPS). Some IPPS hospitals receive payment adjustments, which may help address the potential financial distress associated with rural, geographically isolated, and low volume hospitals. These Medicare payment designations are Sole Community Hospitals (SCHs), Medicare-Dependent Hospitals (MDHs), and Low-Volume Hospitals (LVHs). Other similar acute-care hospitals—Critical Access Hospitals (CAHs)—are paid based on reasonable cost, not under IPPS.
2022
Medicare Hospital Payment
IPPS Inpatient Prospective Payment System
A predetermined, fixed, per discharge payment for inpatient services furnished to Medicare beneficiaries, subject to adjustments.
All IPPS Designations
SCH, MDH, LVH
No duplications
Hospital Designation Locations
Eligibility Criteria
Adjusted payment
No. of Hospitals
Sole Community Hospital (SCH)
Meets ONE of the following FOUR criteria:
•> 35 miles from another IPPS hospital
•Rural and 25-35 miles from another hospital and
•Is the exclusive hospital provider in the area, or
•< 50 beds, meets exclusive hospital provider criterion but for patient transfers to other hospitals for specialized care
•Rural and 15-25 miles from a hospital that is inaccessible
•Rural and ≥ 45 minute drive to nearest other hospital
The > of the following: IPPS rate FY82 FY87 FY96 FY06
Hospital-specific rate applicable reference years1
FY - Fiscal Year
459
14%
Medicare-Dependent Hospital (MDH)
Meets ALL of the following criteria:
1. Rural
2. ≤ 100 beds
3. Not an SCH
4. ≥ 60% are Medicare patients
MDH will expire effective October 1, 2022, if Congress does not extend the program.
75% of the difference between the highest historic cost and the IPPS rate
IPPS rate FY82 FY87 FY96
1+2+$
180
6%*
Low-Volume Hospital (LVH)
Meets ALL of the following criteria:
1. > 15 miles from another IPPS hospital
2. < 3,800 annual total discharges
LVH eligibility criteria are scheduled to change on October 1, 2022, if Congress does not extend the current criteria.
Continuous linear adjustment
Annual patient discharges
615
19%*
$= IPPS + (IPPS x Applicable %)
Critical Access Hospital (CAH)
Meets ALL of the following criteria:
1. Rural
2. ≤25 inpatient beds
3. 24/7 emergency services
4. Annual average length of stay of ≤96 hours
5. >35 mile drive from another IPPS hospital or CAH, or
6. > 15 mile drive in mountainous terrain, or
7. Designated as a "necessary provider" before 1/1/2006
101% CAH's reasonable costs
1,353 % not applicable
CAHs are not paid by Medicare under IPPS.
1Hospital-specific rate (HSR): A per discharge payment based on a hospital's average operating costs for furnishing inpatient services to Medicare beneficiaries. In contrast, IPPS is a per discharge payment based on the national average operating cost of furnishing inpatient services to Medicare beneficiaries. Both HSR and IPPS use costs from statutorily defined reference years, trended forward.
†Class ranges display only discrete values found in the data. Designations: Not mutually exclusive Mutually exclusive *Total number of IPPS hospitals: 3,222 (Excludes hospitals in Maryland; they are exempt from the IPPS.)
Sources: CRS analysis of relevant statute, regulations, and Centers for Medicare & Medicaid Services, "Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2022 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Changes to Medicaid Provider Enrollment; and Changes to the Medicare Shared Savings Program," 86 Federal Register 44774, August 13, 2021. CAH data as of November 2021 provided by the Flex Monitoring Team—an academic consortium—funded by the Federal Office of Rural Health Policy.
Information prepared by Marco Villagrana, Analyst in Health Care Financing, Paul Romero, Research Assistant, Domestic Social Policy, Mari Lee, Visual Information Specialist, and Calvin DeSouza, Geospatial Information Systems Analyst.