Study: Loophole enables urban hospitals to qualify for rural subsidies

Editor's Note

Hundreds of urban hospitals have obtained dual urban-rural Medicare classifications since a 2016 policy change, enabling them to qualify for reimbursement programs intended for rural providers. Fierce Healthcare reported the news August 4.

As detailed in the article, a study published in Health Affairs by Johns Hopkins and Brown University researchers found that 425 geographically urban hospitals had dual administrative designations in 2023, up from just three in 2017. About three-quarters of these were nonprofits, including several large academic medical centers. Those institutions included NewYork Presbyterian Hospital ($9.3 billion 2023 net patient revenue), Cleveland Clinic Hospital ($7 billion), AdventHealth Orlando ($6.2 billion), UCSF Medical Center ($6.1 billion), and Cedars-Sinai Medical Center ($4.3 billion).

According to the outlet, hospitals with the rural designation may access programs such as sole community hospital and rural referral center status, additional graduate medical education slots, and lower eligibility thresholds for the 340B Drug Discount Program. At the same time, they can retain urban-related advantages, including the use of higher urban wage indexes for Medicare inpatient payment calculations.

The Centers for Medicare & Medicaid Services (CMS) changed its regulations in April 2016 after two federal appellate court rulings found that prior CMS policies prohibiting hospitals from maintaining dual status were inconsistent with statute, Fierce Healthcare reports.

The study used CMS Medicare cost report data, compiled by RAND, to review geographic and administrative changes from 2013 to 2023. During the study period, the national share of administratively rural hospitals increased from 27% to 43%, and the share of administratively rural hospital beds grew from 13% to 45%. The researchers wrote that this suggests the newly reclassified hospitals are disproportionately larger. In 2023, hospitals with dual status accounted for 61% of all administratively rural hospital beds.

The outlet reports that dually classified hospitals were more common in highly populated states and less prevalent in central and southern regions. Alaska, Maryland, Montana, Nebraska, Nevada, Vermont, and Wyoming had no hospitals with dual designations.

The study did not quantify the financial effects of dual status or its broader implications for rural healthcare access. However, the researchers warned that, absent policy intervention, more urban hospitals may pursue the designation and benefit from funds originally intended for rural providers. They likened the trend to the expansion of the 340B program following relaxed eligibility rules.

Ge Bai, Ph.D., a coauthor of the study and professor at Johns Hopkins, told Fierce Healthcare that Congress should address this trend to ensure rural health dollars are used as intended. CMS Administrator Mehmet Oz, M.D., stated that applications for the newly allocated $50 billion rural health fund will open to states in early September, the outlet reports.