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Rural Hospitals

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Rural hospitals are an integral part of the rural healthcare system. Because of their significant contributions to overall community well-being, they are a critical component of communities across rural America. Rural hospitals provide services across the continuum of care from primary care to long-term care.

Recent years, however, have presented challenges for rural hospitals. Factors such as low reimbursement rates, increased regulation, reduced patient volumes, and uncompensated care have caused many rural hospitals to struggle financially. Consequently, as outlined in The 21st Century Rural Hospital, rural hospitals have adapted by modifying their services and structure.

This guide provides information on the following topics related to rural hospitals:

  • Federal designations for rural hospitals
  • Economic impact of rural hospitals
  • Rural emergency department visits
  • Measuring quality of care at rural hospitals
  • Rural health networks and hospital systems
  • Impact of technology on healthcare services provided by rural hospitals
  • Availability of funding for rural hospitals
  • Prominent challenges faced by rural hospitals
  • Rural hospital closures
  • Alternative hospital models

Frequently Asked Questions

What are the various rural hospital designations/provider types?

Due to greater reliance on federal and state payers, low volume, and complexity of services provided, many rural hospitals struggle to remain financially viable under the traditional Medicare Inpatient Prospective Payment Systems (IPPS). As a solution, several payment programs, designated by the Centers for Medicare and Medicaid Services (CMS), provide consideration for special circumstances including the following:

  • Critical Access Hospital (CAH)
    Rural hospitals maintaining no more than 25 acute care beds. CAHs must be located more than 35 miles, or 15 miles by mountainous terrain or secondary roads, from the nearest hospital – unless designated by a state as a Necessary Provider prior to 2006. Unlike hospitals paid prospectively using IPPS, CAHs are reimbursed based on the hospital's Medicare allowable costs. Each CAH receives 101 percent of the Medicare share of its allowed costs for outpatient, inpatient, laboratory, therapy services, and post-acute swing bed services. See RHIhub's Critical Access Hospitals topic guide for more about this facility type.
  • Rural Referral Center (RRC)
    Rural or urban tertiary hospitals that receive referrals from surrounding rural acute care hospitals. Any acute care hospital can be classified for Medicare purposes as an RRC if it meets one of several qualifying criteria based on location, bed size, and/or referral patterns. See “Payment Adjustments” under the Acute Care Hospital Inpatient Prospective Payment System section of the Medicare Learning Network: Medicare Payment Systems website for more information about this designation.
  • Sole Community Hospital (SCH)
    A designation based on a hospital's distance in relation to other hospitals, indicating that the facility is the only like hospital serving a community. Distance requirements vary depending on whether a facility is rural and how inaccessible a region is due to weather, topography, and other factors. See “Payment Adjustments” under the Acute Care Hospital Inpatient Prospective Payment System section of the Medicare Learning Network: Medicare Payment Systems website for more information about this designation.
  • Low-Volume Hospital (LVH)
    A designation for hospitals with fewer than 3,800 patient discharges in the previous year which are more than 15 miles from the nearest IPPS acute care hospital. Qualifying hospitals receive a payment adjustment up to an additional 25% for every Medicare patient discharge. See “Payment Adjustments” under the Acute Care Hospital Inpatient Prospective Payment System section of the Medicare Learning Network: Medicare Payment Systems website for more information about this designation.
  • Medicare-Dependent Hospital (MDH)
    A designation that provides enhanced payment to support small rural hospitals with 100 or fewer beds for which Medicare patients make up at least 60% of the hospital's inpatient days or discharges. This designation is not available to rural hospitals already classified as a SCH. See “Payment Adjustments” under the Acute Care Hospital Inpatient Prospective Payment System section of the Medicare Learning Network: Medicare Payment Systems website for more information about this designation.
  • Disproportionate Share Hospital (DSH)
    A special reimbursement designation under Medicare designed to support hospitals that provide care to a disproportionate number of low-income patients. Although not a rural-specific designation, the DSH designation allows some rural facilities to remain financially viable.

In addition, there is one long-term CMS demonstration:

  • Rural Community Hospital Demonstration
    Implements cost-based reimbursement in participating small rural hospitals that are not eligible for Critical Access Hospital designation. Designed to assess the impact of cost-based reimbursement on the financial viability of small rural hospitals and test for benefits to the community.

What effect do rural hospitals have on the local economy?

Healthcare spending in a community has a significant impact on the local economy. Rural hospitals impact communities through their capacity to attract new businesses and through wages generated by employment. As detailed in the Economic Impact of Rural Health Care, rural hospitals impact their local communities in the following ways:

  • Quality rural health services, including emergency services, help rural communities attract business and industry, as well as retirees.
  • On average, the health sector constitutes 14% of total employment in rural communities, with rural hospitals typically being one of the largest employers in the area.
  • On average, a Critical Access Hospital maintains a payroll of $6.8 million, employing 141 people. A 26-50 bed rural hospital employs 185 individuals and spends $11.8 million in wages, salaries and benefits on average, and hospitals holding 51-100 beds employ an average of 287 people and spend $19.9 million directly on those employees.

For more information on the economic impact of healthcare on rural communities, see RHIhub's Community Vitality and Rural Healthcare topic guide.

What impact does hospital community benefit spending have on rural communities?

The IRS requires tax-exempt, non-profit rural hospitals to conduct community benefit activities, beginning with a Community Health Needs Assessment (CHNA) every three years. Results from 2018 Tax-Exempt Hospitals' Schedule H Community Benefit Reports, a 2021 report from the American Hospital Association, shows that rural hospitals spent 10.6% of total expenses on community benefit in fiscal year 2018, including 5.2% of total expenses on financial assistance and unreimbursed costs from Medicaid and other government programs.

For information on CHNAs, see What are the requirements for hospitals to conduct Community Health Needs Assessments (CHNAs)? on RHIhub's Conducting Rural Health Research, Needs Assessment, and Program Evaluation topic guide.

What services are provided at rural hospitals versus urban hospitals?

Community Impact and Benefit Activities of Critical Access, Other Rural, and Urban Hospitals, 2019, compares services available at Critical Access Hospitals, rural hospitals, and urban hospitals. As might be expected, most services are more frequently available in urban hospitals than rural hospitals. There are a few exceptions for services such as long-term care, home health services, and health fairs, which may be offered by a rural hospital because it would not otherwise be available in the community.

How does rural emergency department volume and visit type differ from urban areas?

According to the 2016 National Hospital Ambulatory Medical Care Survey, 80.5% of all emergency department (ED) visits were in metropolitan areas, with 19.5% of ED visits in nonmetropolitan areas. However, nonmetropolitan emergency departments experienced a higher visit rate per capita, and a higher percentage of visits related to injuries, than metropolitan emergency departments.

Trends in Emergency Department Use by Rural and Urban Populations in the United States shows visits to rural emergency departments increased about 70% between 2005 and 2016 (16.7 to 28.4 million visits), while urban emergency department visit rates rose nearly 19% (98.6 to 117.2 million visits). In 2005, the rate of urban emergency department visits was 10% higher per capita than in rural communities. In 2016, however, rural emergency department visits were 50% higher per capita than in urban areas.

Emergency Department Visits by Triage Category (per 100 persons)
  Rural Emergency Departments Urban Emergency Departments
  2005 2016 2005 2016
Immediate 9.6 N/A 4.8 0.8
Emergent 10.9 6.2 9.6 8.6
Urgent 39.9 36.8 33.1 31.4
Semiurgent 13.7 28.9 21.9 24.6
Nonurgent 10.9 6.1 14.5 3.9
Source: Trends in Emergency Department Use by Rural and Urban Populations in the United States

The increase in rural emergency department utilization for semiurgent care in rural areas suggests possible challenges to accessing routine primary care among these populations. See RHIhub's Healthcare Access in Rural Communities topic guide for information on the importance of primary care and barriers to healthcare access in rural areas.

Despite the higher per capita rates of emergency department use in rural areas, rural EDs typically have lower volumes due to the lower population density of their service areas. These lower volumes mean that rural EDs are less likely to have specialized staffing; a 2018 Annals of Emergency Medicine article concludes that rural EDs are less likely to be staffed by emergency medicine physicians and more likely to be staffed by non-emergency medicine physicians, such as family medicine or internal medicine physicians. Rural EDs were also slightly more likely to be staffed by advanced practice providers.

For details on emergency services provided by Critical Access Hospitals, see RHIhub's Critical Access Hospital topic guide.

For additional information on rural medical services, including statistics and data on trauma-related deaths and nonfatal injuries treated in emergency departments, see RHIhub's Rural Emergency Medical Services (EMS) and Trauma topic guide.

What do we know about quality of care at rural hospitals?

The quality of care provided at hospitals, both urban and rural, is monitored by state and federal agencies to ensure the safe delivery of care. Although many quality measures are standardized, there are several ways to define and measure quality such as patient experience, cost effectiveness, and patient outcomes, and following evidence-based guidelines for care.

An October 2019 CMS fact sheet, CMS Hospital Value-Based Purchasing Program Results for Fiscal Year 2020, looked at adjustments made for Medicare payments to hospitals based on their performance on a set of quality measures. Rural and smaller (non-CAH) hospitals generally performed better in the following areas compared to urban hospitals: safety, person and community engagement, and efficiency and cost reduction.

However, Performance Measurement for Rural Low-Volume Providers, a 2015 report from the National Quality Forum, highlights some challenges to healthcare quality in rural areas including fewer providers, lack of information technology, and many demands falling on fewer people. Furthermore, it can be difficult to compare rural and urban quality measures due to low volume of a given type of case or procedure in rural settings and differences in the populations being served. Oftentimes rural hospitals don't have a sufficient volume of patients for certain quality measurements to allow for meaningful comparisons.

A June 2017 brief from the North Carolina Rural Health Research Program, CMS Hospital Quality Star Rating: for 762 Rural Hospitals, No Stars Is the Problem, reports that a majority of the hospitals excluded from the April 2017 CMS Hospital Quality Star Rating list were rural. Hospitals that don't meet the minimum number of cases to report are not given a star rating. In fact, 34% of rural hospitals did not receive a star rating in 2017, compared to only 12% of urban hospitals. The brief points out that a consumer looking at the ratings may not realize that lack of a star rating does not indicate low quality and may simply be due to a lack of sufficient data. Additionally, Critical Access Hospitals are not required to participate in the star rating program.

Addressing Low Case-Volume in Healthcare Performance Measurement in Rural Providers: Recommendations from the MAP Rural Health Technical Expert Panel, a 2019 report, describes health care quality measures and data collection and analysis techniques that address the challenges posed by small rural hospitals and other low case-volume providers.

For more information on issues related to quality of care in rural hospitals, see RHIhub's Healthcare Quality topic guide.

How are rural hospitals leveraging health networks and hospital systems to benefit rural communities?

Affiliations between rural hospitals and other healthcare providers or community organizations can be informal short-term collaborations around a specific need, formal long-lasting partnerships, or somewhere in between. A health network is defined in RHIhub's Rural Health Networks and Coalitions Toolkit as a group of three or more rural health providers and/or other stakeholders that join forces to address mutually agreed-upon needs in the community. A health system is defined by the American Hospital Association's Fast Facts on U.S. Hospitals, 2019, as two or more hospitals owned, leased, sponsored, or contract managed by a central organization. According to the AHA, a single free-standing hospital may also be considered a hospital system by bringing into membership three or more, and at least 25% of their owned or leased non-hospital pre-acute or post-acute health care organizations. The Rural Hospital and Health System Affiliation Landscape – A Brief Review provides an overview of different types of network and system affiliations.

According to Trends in Hospital System Affiliation, 2007-2016, 56.1% of all nonmetropolitan hospitals are affiliated with healthcare systems in 2016, up from 45.6% in 2007. Critical Access Hospital affiliation with hospital systems increased from 36.6% in 2007 to 42.8% in 2016. Table 2 of this report also highlights that larger hospitals are affiliated with health systems at a higher rate than smaller hospitals.

The Rural Hospital and Health System Affiliation Landscape – A Brief Review outlines factors rural hospitals, Critical Access Hospitals, and health systems may consider when they pursue affiliation agreements. Rural hospitals and healthcare networks and systems can leverage each member's resources and expertise to improve the health of the community while reducing overall costs. For example, members of a rural healthcare network may pool resources to purchase an expensive piece of medical equipment or share administrative staff. Health systems may pursue agreements with rural hospitals to increase their market share or gain territory, increase subspecialty referrals, and reduce costs, among other reasons. By working together, participants in health networks and systems aim to improve the clinical and financial performance of rural hospitals. However, Access, Quality, and Financial Performance of Rural Hospitals Following Health System Affiliation found that while rural hospitals saw increased margins after affiliating with a health system, the now-affiliated rural hospitals also experienced reductions in obstetric and primary care service lines and on-site imaging technologies.

If you are considering developing or expanding a health network, see RHIhub's Rural Health Networks and Coalitions Toolkit.

The Health Resources and Services Administration (HRSA) and Federal Office of Rural Health Policy operate a competitive Rural Health Network Development grant program that funds rural health networks in order to improve efficiency, access, and quality of care. Grantee Directory: Rural Health Network Development Grant Program: 2017-2020 provides brief overview of the 51 initiatives funded for the 2017-2020 grant cycle.

How is technology changing healthcare provision in rural hospitals?

Technological advancements have the potential to increase access to, and the quality of, healthcare services in rural communities. These include two prominent examples:

  • Telehealth services – Telehealth services allow for the remote delivery of healthcare and information via telecommunications technology. According to How Rural Hospitals Improve Value and Affordability, a 2019 issue brief by the American Hospital Association, telehealth services help improve access to specialty services, allow patients to stay in the community, reduce healthcare costs, and reduce rural provider burnout. For specific examples of how telehealth services are improving healthcare and quality in rural areas, see RHIhub's Telehealth Use in Rural Healthcare topic guide.
  • Health Information Technology (HIT) – HIT is the use of computers to store, protect, retrieve, and transfer healthcare information, enabling healthcare professionals to better provide care due to improved contextual awareness of the patient's health status. Electronic Capabilities for Patient Engagement among U.S. Non-Federal Acute Care Hospitals: 2013-2017, a 2019 brief from the Office of the National Coordinator for Health Information Technology, notes that all non-federal acute care hospitals had a similar ability to provide patients the opportunity to view, download, and transmit (VDT) electronic health information in 2017. However, small and rural hospitals saw lower rates of patients doing so. For example, 66% of rural hospitals reported that fewer than 25% of patients activated their patient portal. Likewise, Variation in Interoperability among U.S. Non-federal Acute Care Hospitals in 2017 highlights that rural hospitals are less likely than urban hospitals to be able to send, receive, and use patient summary of care records from external sources. To learn more about the benefits of HIT and its application in rural communities, see RHIhub's Health Information Technology in Rural Healthcare topic guide.

Technologies such as these have advanced communication between physicians and patients and offer innovative methods of overcoming challenges providing healthcare services to rural communities.

What funding is available for rural hospital capital improvement projects?

Capital funding is the term used for financing construction costs and/or major purchases, such as:

  • Renovation or expansion of the hospital
  • Construction of a new facility
  • Major equipment, such as ambulances, CT scanners, telemedicine equipment, and health information technology systems

Several funding opportunities are available for rural hospitals. See RHIhub's Capital Funding for Rural Healthcare topic guide to learn about options for financing a new facility, renovating an existing facility, or purchasing major equipment.

What are the most prominent challenges faced by rural hospitals?

There are many challenges to operating a hospital in the current healthcare environment:

  • Remote geographic location – This barrier is at the root of the challenges that rural hospitals face. Low population density results in low volumes and high relative operational costs.
  • Modest budgets – Low population density tends to keep hospital size small and patient volume low, thereby keeping hospitals' budgets modest. Lean budgets with limited flexibility in cash flow make necessary capital investments in the facility or equipment difficult. This leaves facilities vulnerable, with little capacity to keep services and equipment up to current standards.
  • Workforce recruitment and retention – Workforce is an ongoing challenge closely linked to the remote geographic location of the healthcare facility. Without adequate workforce, it is difficult for hospitals to provide necessary and high-quality services to meet the needs of their communities. To read about the factors that make recruiting, retaining, and maintaining an adequate workforce difficult for rural hospitals, see RHIhub's Recruitment and Retention for Rural Health Facilities and Rural Healthcare Workforce topic guides.
  • Demographics of Rural America – On average, rural residents are older, poorer, and have more chronic conditions than urban residents. Characteristics of Communities Served by Rural Hospitals Predicted to be at High Risk of Financial Distress in 2019 describes that rural hospitals experiencing financial distress are more likely to serve populations with lower educational levels, higher unemployment, and poor health status.
  • Rapid changes within healthcare – Changes to reimbursement, quality reporting requirements, and the related transition to value-based care and focus on population health are opening up new opportunities for rural hospitals but also require new approaches and adaptation. A 2019 report from the American Hospital Association, Rural Report: Challenges Facing Rural Communities and the Roadmap to Ensure Local Access to High-Quality, Affordable Care, discusses how these changes are impacting rural hospitals.

How many rural hospitals are closing?

According to the North Carolina Rural Health Research Program, 136 rural hospitals have closed between January 2010 and March 18, 2021. See Rural Hospital Closures: January 2010 – Present for current information on rural hospital closures in both a list and map format.

Rural Hospital Closures: Number and Characteristics of Affected Hospitals and Contributing Factors, a 2018 report from the Government Accountability Office, examines the causes and impact of rural hospital closures. The following Rural Health Research Recaps further summarize findings on rural hospital closures from FORHP-funded rural health research centers:

A recording of a January 2018 webinar, Rural Hospital Closures, discusses hospital closures nationwide, causes for the closures, and potential solutions.

What are Rural Emergency Hospitals?

Rural Emergency Hospital is a new Medicare provider type established as part of the Consolidated Appropriations Act, 2021, and effective January 1, 2023. Designed to preserve access to emergency and outpatient care in rural communities, the law allows Critical Access Hospitals and other small rural hospitals meeting eligibility criteria to convert to Rural Emergency Hospital (REH) status. According to the law, REHs must:

  • Provide 24/7 emergency services and observation care
  • Be staffed 24/7, and a physician, nurse practitioner, clinical nurse specialist, or physician assistant must be available to provide emergency services
  • Have a transfer agreement with a level I or II trauma center
  • Meet state licensure requirements

Additionally, REHs are not permitted to provide inpatient services. They may provide extended post-acute care services through distinct part unit (DPU) skilled nursing facilities (SNF) and other outpatient services.

Rural Emergency Hospitals will be reimbursed at 105% of the outpatient prospective payment system (OPPS) for all emergency and outpatient care services in addition to a fixed monthly payment. Other services provided will be reimbursed at traditional fee-for-service rates. REHs will also be able to serve as originating sites for telehealth services. In addition, REHs will be required to submit quality reporting data.

The Centers for Medicare and Medicaid Services (CMS) will publish additional requirements for Rural Emergency Hospitals through regulations and guidance. RHIhub will add additional resources on Rural Emergency Hospitals to the online library as more information becomes available.

What other alternative hospital models have been used or proposed to serve rural communities?

Rural Freestanding Emergency Departments (RFEDs)
RFEDs are an existing model that have been used in some communities to maintain emergency services. These facilities offer outpatient and emergency services and do not offer inpatient beds or surgical services. A limitation of this model is that RFEDs must be affiliated with a hospital to receive Medicare reimbursement. Independent RFEDs are not eligible to receive Medicare reimbursement. A 2015 report from the North Carolina Rural Health Research Program, Estimated Costs of Rural Freestanding Emergency Departments, discusses three models of RFEDs based on patient volume, with information on staffing, beds, and cost. The same organization offers The Freestanding Emergency Department Financial Assessment Strategic Tool (FED FAST), an Excel spreadsheet that communities can use to determine whether transforming their hospital into a RFED will be financially feasible. Examples of rural communities that have developed RFEDs:

Frontier Community Health Integration Project (FCHIP)
FCHIP was a CMS demonstration program to develop and test new models for the delivery of healthcare services in frontier areas. Ten Critical Access Hospitals in Montana, North Dakota, and Nevada participated in the demonstration, which provided enhanced payment for certain services with the aim of keeping patients in the community who might otherwise be transferred to distant providers. In September 2018, the U.S. Department of Health and Human Services released preliminary findings on FCHIP in its Report to Congress: Demonstration Project on Community Health Integration Models in Certain Rural Counties, Interim Report 2018.

Who can I contact for information and technical assistance related to rural hospitals?

For information on small or rural hospitals
American Hospital Association Rural Health Services

For support, resources, and technical assistance
State Offices of Rural Health

For technical, policy, and operational assistance of rural health issues
CMS Regional Office Rural Health Coordinators

Last Reviewed: 3/31/2020