Over the years, Congress created four designations for rural hospitals to receive enhanced reimbursement from Medicare. Each designation addresses a unique challenge rural healthcare providers face related to high fixed costs and low patient volumes, and two—Low-Volume Hospital and Medicare Dependent Hospital—face defunding on September 30, 2025, as outlined in the Full-Year Continuing Appropriations and Extensions Act, 2025 (the Act).
Key Designations
For purposes of this discussion, key designations include:
1. Critical Access Hospital (CAH)
A CAH is a short-stay acute care hospital with 25 or fewer beds located a specified distance from another facility (or designated as a “necessary provider” before 2006). Medicare reimburses CAHs based on their reasonable costs.
2. Low-Volume Hospital (LVH)
An LVH is reimbursed under the hospital prospective payment systems (PPS), but the rates are adjusted based on its total number of discharges. Presently, LVHs with 500 or fewer total discharges receive a 25% increase in their rate. For those hospitals with more than 500 but less than 3,800 total discharges, the LVH payment adjustment is calculated as 0.25 – [0.25/3300] × (number of total discharges – 500) = (95/330) – (number of total discharges/13,200). A hospital that qualifies for the LVH adjustment may also have either a Medicare Dependent Hospital (MDH) or Sole Community Hospital (SCH) designation (each defined below).
3. Medicare Dependent Hospital (MDH)
To qualify as an MDH, a hospital must be located in a rural area, have 100 or fewer beds, and have had at least 60% of its inpatient days or discharges attributable to Medicare beneficiaries. MDHs receive enhanced hospital PPS payments. An MDH may also be an LVH but cannot be an SCH.
4. Sole Community Hospital (SCH)
A hospital may qualify as an SCH if it is located more than 35 miles from other similar hospitals, or it is located in a rural area and meets certain market share or accessibility criteria. An SCH receives an enhanced facility-specific rate based on its historical costs. An SCH also can be designated as an LVH but not an MDH.
The CAH and SCH designations are available to any qualifying facility as long as Congress continues funding these programs. By contrast, Congress approves funding for the LVH and MDH programs for limited periods of time.
Financial Challenges Ahead for LVHs and MDHs
With passage of the Act, two enhanced Medicare reimbursement programs will expire on September 30, 2025, unless extended by Congress:
Low-Volume Hospital Payment Adjustment and Qualification Changes:
In the Affordable Care Act (2010), Congress expanded the LVH program from hospitals located more than 25 road miles from the nearest hospital with fewer than 200 total discharges to hospitals located more than 15 miles from the nearest hospital with fewer than 3,800 annual discharges. Since then, Congress has regularly re-authorized this expansion of the LVH program. Without Congressional intervention, the latest authorization will expire September 30, 2025.
- Key Takeaway: A hospital with a current LVH designation that has 200 or more discharges will no longer qualify for these payment adjustments for discharges on or after October 1, 2025.
Medicare Dependent Hospital Status:
MDH status was extended through the end of the then-current fiscal year through passage of the Act. Unless Congress intervenes, the MDH designation will also expire September 30, 2025.
- Key Takeaway: Hospitals with MDH status should be prepared for the possibility of losing their facility-specific rate for discharges on or after October 1, 2025.
How PYA Can Help
PYA reimbursement experts can help your organization evaluate the impact of these changes, and our strategy experts can help you evaluate how to adapt operations to changing reimbursement models. We also help clients with preparation and filing of cost reports and related filings.
Read about the PYA Center for Rural Health Advancement, and learn about our Managed Care and Reimbursement services.
