CMS solicits applications for Rural Community Hospital Demonstration

CMS is soliciting applications for additional hospitals to participate in the Rural Community Hospital Demonstration Program, which tests payment under a reasonable cost-based methodology for Medicare inpatient hospital services furnished by eligible rural hospitals. No more than 30 hospitals can participate in the program at the same time. Applications are due May 17, 2017, and CMS’ goal is to finalize selections by June 2017.

Section 410A of the Medicare Modernization Act (MMA) (P.L. 108-173) originally authorized the demonstration for five years, and Sections 3123 and 10313 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) extended it for another five-year period. Section 15003 of the 21st Century Cures Act (P.L. 114-255) again amended section 410A to require another five-year extension of the demonstration (see 21st Century Cures clears House, now set for Senate vote, December 1, 2016).

Eligibility

To be eligible to participate in the program, a hospital must: (1) be located in a rural area or be treated as such pursuant to Soc. Sec. Act Sec. 1886(d)(8)(E); (2) have fewer than 51 acute care inpatient beds, as reported in its most recent cost report; (3) make available 24-hour emergency care services; and (4) not be designated or eligible for designation as a critical access hospital pursuant to Soc. Sec. Act Sec. 1820.

Hospitals that were participating in the demonstration as of the last day of the initial five-year period or as of December 30, 2014 may participate in this second extension period, unless the hospital elects to discontinue participation. A newly selected hospital may be located in any state; however, priority will be given to hospitals located in one of the 20 states with the lowest population densities.

Payment

For discharges occurring in the first cost reporting period on or after the implementation of the extension, hospitals participating in the demonstration will receive payment for their reasonable costs of providing covered inpatient hospital services (except for services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital). For discharges occurring during the second or later cost reporting period, hospitals will be paid the lesser of their reasonable costs or a target amount.

For most of the previously participating hospitals, there is a gap between the end date of the hospital’s participating in the first five-year extension and the enactment of the Cures Act on December 13, 2016 that the legislation did not address. In the fiscal year 2018 hospital inpatient prospective payment system (IPPS) Proposed rule, CMS solicited comments on proposed terms of continuation for previously participating hospitals (see IPPS spending to increase $3B, LTCH PPS to decrease $173B, April 17, 2017).

The MMA requires the demonstration to be budget neutral. The IPPS proposed rule detailed the status of the demonstration and the methodology for ensuring budget neutrality.