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Rural Hospitals

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
  • Measuring quality of care at rural hospitals
  • 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 provide consideration for the special circumstances of rural hospitals, 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 tertiary hospitals that receive referrals from surrounding rural acute care hospitals. An 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.
  • 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.
  • Medicare-Dependent Hospital (MDH)
    A designation from the CMS 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.
  • Disproportionate Share Hospital (DSH)
    A special reimbursement designation under Medicare and Medicaid 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.

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 community benefit spending by hospitals have on rural communities?

Tax-exempt hospitals are required by the IRS to undertake community benefit activities, beginning with a Community Health Needs Assessment (CHNA) every three years, followed by a response to the needs identified. Comparing the Community Benefit Spending of Critical Access, Other Rural, and Urban Hospitals, a 2016 report from the Flex Monitoring Team, reports that rural non-CAH hospitals spent 8.1% of total expenses on community benefit in fiscal year 2009-2010. Most of that spending (7.2% of total expenses) went to direct patient care services, with the remainder (0.91% of total expenses) invested in community-focused activities. Of the community benefit spending, spending on community building activities made up 0.3% of total expenses, with the biggest activity being workforce development.

For more 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?

The 21st Century Rural Hospital: A Chart Book, a 2015 publication from the North Carolina Rural Health Research Program, reports on services available at short-term, acute care hospitals in rural and urban counties. As might be expected, most of these services are available in more urban hospitals than rural hospitals. There are a few exceptions for services such as skilled nursing, hospice, and home health, which may be offered by a rural hospital because it would not otherwise be available. The chart book also looked at these services for large, small, and isolated rural areas and shows two additional rural-only services: swing beds and Rural Health Clinics. Service availability is typically higher in large rural areas compared to small and isolated areas. Swing beds and Rural Health Clinics, however, become more common as rurality increases.

Percentage of Hospital Services by Location, 2012-2013
Urban Rural Overall Large Rural Areas Small Rural Areas Isolated Rural Areas
Surgical services* 97.3 85.6 94.5 87.3 66.1
Obstetric services* 72.3 58.3 77.7 54.6 29.6
Intensive care units 82.5 45.5 73.7 35.8 11.4
Swing beds - - 47.5 85.9 94.0
Skilled nursing facilities 16.6 21.2 22.5 18.3 24.2
Psychiatric units 34.4 15.7 25.9 11.2 5.2
Rehabilitation units 30.5 8.4 17.9 3.1 0.6
Rural Health Clinics - - 27.6 47.0 58.6
Outpatient surgery* 97.7 91.2 95.8 93.1 79.1
Hospice 9.5 14.5 18.5 14.4 7.6
Home health 19.2 31.2 33.3 32.5 24.8
Outpatient cardiac rehabilitation* 78.0 60.9 67.3 58.9 52.3
Breast cancer screening/Mammography* 91.5 86.7 90.3 88.7 75.8
Chemotherapy* 84.1 49.3 62.3 44.7 33.3
Dental services* 47.0 26.4 27.7 23.7 29.1
Outpatient alcohol/drug abuse treatment services* 43.7 12.1 17.9 8.2 8.5
Health fair* 89.6 84.8 87.8 85.5 77.6
*2012 data
Source: The 21st Century Rural Hospital: A Chart Book, North Carolina Rural Health Research Program, 3/2015

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.

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 sufficient volume for certain quality measurement to allow for meaningful comparisons.

An October 2015 Government Accountability Office report, Hospital Value-Based Purchasing: Initial Results Show Modest Effects on Medicare Payments and No Apparent Change in Quality-of-Care Trends, looked at adjustments made for Medicare payments to hospitals based on their performance on a set of quality measures. For fiscal years 2013 through 2015, small rural (non-CAH) hospitals had payment adjustments similar to or better than Hospital Value-based Purchasing hospitals overall. The same report stated that small rural hospitals generally did better on patient experience and cost efficiency than hospitals overall, and less well on clinical processes and patient outcomes.

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. 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. The rural hospitals most likely not to receive a star rating were:

  • Critical Access Hospitals
  • Small rural hospitals, based on net patient revenue
  • Rural hospitals located in the West and Midwest

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

How is technology changing healthcare provision in rural hospitals?

Technological advancements are increasing access to, and 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 Hospital Views of Factors Affecting Telemedicine, an April 2015 brief from the RUPRI Center for Rural Health Policy Analysis, telehealth helps improve access, allow patients to stay in the community, and helps the hospitals meet their mission and stay competitive. 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. A 2016 Health Affairs article, Variation in Rural Health Information Technology Adoption and Use, examines HIT functions at rural compared to urban hospitals based on 2014 data. The article reports that electronic prescribing and electronic transmission of care summaries are more common in rural hospitals. However, rural hospitals have lower rates of patient viewing, downloading, and transmitting electronic health information, and rates similar to urban hospitals for electronic reporting to immunization information systems. 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. This can lead to additional challenges and unique pressures to the healthcare facility providing care for these individuals.
  • Rural health disparities – Rural residents face various health disparities, and in particular rural racial and ethnic minorities face challenges related to access and health status, as reported in the 2017 MMWR article Racial/Ethnic Health Disparities Among Rural Adults — United States, 2012–2015. For more on the health challenges rural residents face, see the CDC MMWR Rural Health Series and RHIhub's Rural Health Disparities topic guide.
  • Rapid changes within healthcare – Changes to reimbursement, quality reporting requirements, and the related transition from volume- 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 2015 policy brief from the National Advisory Committee on Rural Health and Human Services, Delivery System Reform and Implications for Rural Communities, discusses the changes facing rural providers.

How many rural hospitals are closing?

According to the North Carolina Rural Health Research Program, between January 2010 and May 16, 2018, 83 rural hospitals have closed. See Rural Hospital Closures: January 2010 - Present for current information on rural hospital closures in both a list and map format.

For an overview of hospital closures and their impact, see these Rural Health Research Recaps, which summarize findings 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 alternative hospital models have been proposed to serve rural communities?

Rural Freestanding Emergency Departments (RFEDs)
RFEDs can help maintain emergency services in a rural community. These facilities offer outpatient and emergency services and do not offer inpatient beds or surgical services. They may be affiliated with a hospital, allowing for Medicare reimbursement, or independent, with no facility 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. For examples of rural communities that have developed RFEDs:

Frontier Community Health Integration Project (FCHIP)
FCHIP is 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 are participating in the demonstration, which will provide enhanced payment for certain services with the aim of keeping patients in the community who might otherwise be transferred to distant providers.

Proposed Alternative Hospital Models
The following hospitals models have been proposed to help maintain services in rural communities. Each would eliminate inpatient services while maintaining outpatient and emergency services.

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

For information on small or rural hospitals
American Hospital Association Section for Small or Rural Hospitals

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: 5/29/2018