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New Medicare Designation Could Prevent Closure of Struggling Rural Hospitals

With rural hospital closures on the rise and other facilities operating in the red, the rural emergency hospital designation provides a potential lifeline in the form of additional federal funds.

By Kevin Davenport  |  May 11, 2023

As rural hospitals across the nation continue to struggle financially and sometimes close, states are searching for strategies to ensure access to critical health care services for Americans living in those communities.

Since 2010, at least 149 rural hospitals have closed completely or converted to facilities that offer some health care services but no longer provide inpatient care, according to the University of North Carolina’s Cecil G. Sheps Center for Health Services Research. COVID-19 pandemic relief funds slowed that trend in recent years, and only 10 rural hospitals closed completely or dropped inpatient care in 2021 and 2022 combined. Since the beginning of 2023, however, many rural hospitals are once again operating in the red and in jeopardy of closing.  

When a rural hospital closes, it can disrupt both the health care and the economy of a community. Residents might have to travel longer distances to access care and have greater challenges in finding in-network providers for certain services.

To preserve access to important emergency and other outpatient care in rural communities, Congress created a new Medicare provider type, rural emergency hospital (REH), under the Consolidated Appropriations Act of 2021.

The REH designation allows eligible hospitals to receive additional monthly facility payments and an added 5% payment on top of Medicare rates for outpatient services. The designation is limited to critical access or other rural hospitals with 50 or fewer beds that were open as of Dec. 27, 2020.

To receive REH designation, a hospital must provide specific types of services and care, such as 24-hour emergency and observation services. The hospital may provide outpatient services—behavioral health, radiology, laboratory, outpatient rehabilitation—but may not provide acute care inpatient services, except for certain post-hospital, extended care services provided in a licensed, distinct unit of a skilled nursing facility.

Overall, the REH designation presents a unique opportunity for eligible rural hospitals to receive additional Medicare funds. Some hesitancy remains, however, because eliminating inpatient services could mean reduced revenue for some rural hospitals and might negatively impact community members who require inpatient services.


The Outpatient Prospective Payment System is what Medicare uses to determine how much money a hospital will receive for outpatient care provided to patients covered by the program. The hospital reimbursement rates vary by location. REHs receive 5% in addition to their payment system service rate; they will also receive a monthly facility payment of $272,866 in 2023.

The monthly facility payment is set to increase in subsequent years following the hospital market basket percentage increase.

Federal Requirements

To qualify for the REH designation, hospitals must meet several requirements set by the Centers for Medicare & Medicaid Services:

  • Be a Medicare provider.
  • Have a transfer agreement in effect with a Level I or Level II trauma center.
  • Not exceed an annual length of stay of 24 hours per patient. The length of stay begins at time of registration, check-in or triage of patient—whichever occurs first—and ends upon discharge.
  • Not provide any acute care inpatient services, other than post-hospital extended care services provided in a distinct unit licensed as a skilled nursing facility.
  • Be either a critical access hospital or small rural hospital with no more than 50 beds.

Additionally, CMS established staffing requirements and other conditions of participation for REHs:

  • They must maintain an emergency department that is staffed 24 hours a day, seven days a week, with staffing requirements such as those for critical access hospitals.
  • They must have a physician, nurse practitioner, clinical nurse specialist or physician assistant to provide REH services, 24 hours a day.

State Action

State legislatures play an important role in licensing health care facilities, including REHs. In addition to the qualifications listed above, to become an REH, a facility must be:

  • Located in a state that provides for licensing of such hospitals under state or local law.
  • Licensed under such law.
  • Approved by the state or local agency as meeting the standards for such license.

At least 10 states have enacted legislation or adopted regulations to create licensure requirements for REHs. Those states include Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Nebraska, New Mexico, New York, South Dakota, Texas and West Virginia. Kentucky and Tennessee have adopted emergency regulations allowing for such licensure. At least two more states have pending legislation regarding REHs.

With rural hospital closures on the rise again and others operating in the red, the new REH designation is one of many tools states can use to keep these vital facilities running.

Additional Resources

Kevin Davenport is a policy associate in NCSL’s Health Program.

This resource is supported by the Health Resources and Services Administration of the U.S. Department of Health and Human Services as part of an award totaling $813,543, with 100% funded by HRSA/HHS. The contents are those of the author(s) and do not necessarily represent the official views of, nor an endorsement by, HRSA, HHS or the U.S. government.

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