FACT SHEET

FOR IMMEDIATE RELEASE
April 17, 2017

Contact: CMS Media Relations
(202) 690-6145 | CMS Media Inquiries

Rural Community Hospital DemonstrationUpdated April 2017

Overview

The Centers for Medicare & Medicaid Services (CMS) is conducting the Rural Community Hospital Demonstration Program, which was originally authorized for a 5-year period by section 410A of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), and extended for another 5-year period by sections 3123 and 10313 of the Patient Protection and Affordable Care Act (Affordable Care Act). Section 15003 of the 21^st Century Cures Act, enacted December 13, 2016, again amended section 410A of the MMA to require another 5-year extension period for the demonstration.

Section 15003 of the Cures Act allows for hospitals that were participating in the demonstration as of the last day of the initial 5-year period or as of December 30, 2014 to participate in this second extension period, unless the hospital makes an election to discontinue participation.

Section 15003 also requires that no later than 120 days after enactment of the Cures Act that the Secretary issue a solicitation for applications to select additional hospitals to participate in the demonstration program for this second 5-year extension period so long as the maximum number of 30 hospitals stipulated by the ACA is not exceeded.

Background

The MMA requires testing the feasibility and advisability of establishing rural community hospitals to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration tests payment under a reasonable cost-based methodology for Medicare inpatient hospital services furnished by rural hospitals with fewer than 51 acute care inpatient beds, that make available 24-hour emergency care services, and that are not eligible to be, or have not been designated as, Critical Access Hospitals (CAH).

CMS has conducted 3 previous solicitations for applications – in 2004 and 2008, in accordance with the MMA, and in 2010, upon re-authorization by the Affordable Care Act.

The MMA requires the demonstration to be budget neutral. Each year since 2004, CMS has included a segment specific to the demonstration program in the proposed and final rules for the Medicare inpatient prospective payment system (IPPS). On an annual basis, this segment has detailed the status of the demonstration, as well as the methodology for ensuring budget neutrality. CMS intends to continue this approach of proposing the budget neutrality methodology in annual IPPS rulemaking.

The MMA also requires a Report to Congress with recommendations for such legislation and administrative action as the Secretary determines appropriate. This evaluation will assess the impact of the demonstration on the financial viability of participating hospitals as well as their ability to serve the needs of the community.

Provisions of the 21 Century Cures Act

Section 15003 of the 21^st Century Cures Act provides for the following regarding the second 5-year extension period:

Hospitals that were participating as of the last day of the initial 5-year period or as of December 30, 2014 will be allowed to participate in the second extension period, unless the hospital makes an election to discontinue participation.
Not later than 120 days after the date of enactment (December 13, 2016), the Secretary is required to issue a solicitation for applications to select additional hospitals to participate in the demonstration program.
The requirement in the Affordable Care Act remains that the total number of hospitals participating in the demonstration at the same time not exceed 30.
A newly selected hospital may be located in any state; however, priority for selection is to be given to hospitals located in one of the 20 states with the lowest population densities (as determined by the Secretary using the 2015 Statistical Abstract of the United States).
Applicant hospitals must meet the eligibility criteria in the original authorizing statute.
Rural hospital closures in the 5-year period immediately preceding the date of the enactment of the Cures Act and the population density of the state may be considered in selecting hospitals.
The Secretary shall submit a report to Congress no later than August 1, 2018.

Demonstration Payment Methodology

Hospitals participating in the demonstration will receive payment for Medicare inpatient hospital services, with the exclusion of services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital, using the following rules:

For discharges occurring in the first cost reporting period on or after the implementation of the extension, their reasonable costs of providing covered inpatient hospital services;
For discharge es occurring during the second or subsequent cost reporting period, the lesser of their reasonable costs or a target amount. The target amount in 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 System (IPPS) update factor (as defined in section 1886(b)(3)(B)) of the Social Security Act for that particular cost reporting period. The target amount in subsequent cost reporting periods is defined as the preceding cost reporting period’s target amount increased by the IPPS update factor for that particular cost reporting period.

Implementation

CMS will develop a participation agreement specifying payment principles, as well as administrative, auditing, and reporting requirements. This participation agreement will apply to each hospital participating in the second extension period. CMS will communicate with the hospitals on policy and operational issues.

Extension Period for Previously Participating Hospitals under the Cures Act

In general, each hospital that participated in the Affordable Care Act-authorized extension period began its period of performance under the extension period with the start of its cost report period (in 2010, 2011, or 2012 depending on when the hospital was originally selected), and concluded with the end of the fifth consecutive cost report period. Accordingly, hospitals ended their periods of performance under this first extension period on a rolling basis from December 31, 2014 through December 31, 2016. Twenty-one hospitals remained in the demonstration for the duration of their hospital-specific 5-year periods for this first extension period.

CMS is seeking public comment in the Fiscal Year 2018 IPPS proposed rule (CMS-1677-P) with regard to the initiation of the period of performance for those among these previously participating hospitals that decide to participate in the extension period authorized by the legislation. CMS is proposing that the 5-year period of performance for each of these hospitals, as well as for each of the additional hospitals newly selected would begin with the start of the first cost reporting period on or after October 1, 2017 following upon the announcement of the selection of additional hospitals. More information about this proposal can be found in the Fiscal Year 2018 IPPS/LTCH PPS proposed rule. CMS is accepting comments through 06-13-2017.

Request for Applications

The Request for Applications solicits information from interested hospitals regarding their financial and service-oriented challenges, as well as strategies and proposals for addressing them. We are also asking hospitals to describe the impact of rural hospital closures on the needs of their service area, and problems posed by the need to serve a sparse population.

As permitted by the 21^st Century Cures Act, additional hospitals selected for the demonstration under this solicitation may be located in any State.

The solicitation identifies the 20 states with lowest population density according to the most recent data source, i.e., population estimates from the Census Bureau for 2013, from the ProQuest Statistical Abstract of the United States, 2015. The U.S. Census Bureau no longer publishes the Statistical Abstract; instead, ProQuest compiles data and tables from the Census Bureau and produces this compendium. These 20 States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont, and Wyoming. CMS will give priority for selection among the highest scoring applications to applicants from these States.

The following eligibility requirements must be met for a hospital to be considered for participation in the demonstration. These requirements are specified in section 410A of the MMA, the original authorizing legislation. An applicant must 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 inpatient beds, as reported in its most recent cost report (not including beds in a psychiatric or rehabilitation unit of the hospital which is a distinct part of the hospital);
Makes available 24-hour emergency care services; and
Is not eligible for Critical Access Hospital (CAH) designation, or has not been designated a CAH under section 1820 of the Social Security Act.

The due date for applications to CMS is May 17, 2017. The Request for Applications is available athttps://innovation.cms.gov/initiatives/Rural-Community-Hospital/. The goal is to finalize selections by June 2017.