Rural emergency hospital (REH) is a new Medicare provider type created to preserve essential emergency and outpatient access in rural communities, where low patient volumes make full-service hospitals financially unsustainable. In exchange for giving up acute inpatient care, they receive an increased outpatient payment and a fixed monthly facility payment. CMS has a REH fact sheet that gives a high level overview, but here are some more details.
What is Rural Emergency Hospital?
A rural emergency hospital is a rural facility that provides an emergency department, observation, and other outpatient services, but does not provide acute inpatient care, except in separate units such as skilled nursing or some behavioral health units. REH was established as a separate Medicare provider category with dedicated terms of participation and payment rules, effective January 1, 2023. CMS codified the REH conditions of participation at 42 CFR Part 485 Subpart E.
Why were REHs created?
The CMS website states that the REH was created in response to the rapid closure of rural hospitals and persistently low patient volumes at many small rural hospitals, particularly critical access hospitals (CAHs). The 2024 MedPAC report states that converting to REH could preserve 24/7 emergency access and key outpatient services in communities that cannot support a largely vacant inpatient unit. CMS and Congress designed this model as a way to stabilize the finances of rural providers by explicitly paying for excess emergency capacity rather than subsidizing low-occupancy inpatient beds.
Which law created the REH provider types?
The REH provider type was created by Section 125 of the Consolidated Appropriations Act (CAA) of 2021, which directed the Secretary of Health and Human Services to establish a new rural emergency hospital category under Medicare. CMS implemented this statutory authority in the CY 2023 Outpatient Prospective Payment System (OPPS) final rule, which finalized REH payment policies, terms of participation, quality reporting, and enrollment rules, effective January 1, 2023. The Act also mandated MedPAC to report annually on payments to REHs, beginning with the March 2024 report to Congress.
How does a hospital qualify and convert to REH?
To qualify, a facility must be located in a rural area and, as of December 27, 2020, must be either (i) a critical access hospital (CAH) or (ii) a rural prospective payment system (PPS) hospital with no more than 50 beds. The hospital must enroll in Medicare as a REH, certify to meet REH conditions of participation (including transfer agreements, staffing, and quality program requirements), and agree not to provide acute inpatient services other than permitted specialty-part units. CMS guidance also requires REHs to keep their annual average inpatient length of stay less than 24 hours and maintain a 24/7 staffed emergency department.
How are REHs paid by Medicare, and how does it differ from standard hospitals?
Medicare pays REHs the standard OPPS rate for outpatient services and a 5 percent add-on for REH-designated services, while beneficiary co-payments are calculated on the underlying OPPS amount without the 5 percent increase. In addition, REHs receive a fixed monthly facility payment – approximately $3.2–3.3 million annually in 2023 – updated annually by the hospital market basket (e.g., approximately $276–286 thousand per month in 2024–2025). In contrast, standard rural PPS hospitals and CAHs are paid under IPPS/OPPS (or CAH cost-based methods) without this dedicated monthly facility payment and typically without the 5 percent outpatient bump across the board for forgoing inpatient services.
What services can REHs provide, and what are the key operational requirements?
The REH must operate a 24/7 emergency department and offer a wide range of outpatient services, including emergency care, observation, imaging, laboratory, outpatient surgery, maternal health and behavioral health services. They may operate specialty-part skilled nursing facility units or some other inpatient-type units under different payment rules, but they cannot maintain a general acute inpatient hospital unit. Operationally, REHs must meet CAH-like conditions of participation, including staffing with qualified emergency physicians, maintaining a transfer agreement with at least one Medicare-certified Level I or II trauma hospital, and operating a data-driven quality assessment and performance improvement program.
What does the early evidence from MedPAC say about the impact of REH?
Medpac’s 2024 report states that 21 hospitals converted to REH status in the first year and that these hospitals were already providing relatively low volumes of patient care before the conversion. The Commission concluded that the REH designation likely prevented some rural closures in 2023 and appears to be more efficient than subsidizing largely unused inpatient capacity while preserving emergency and basic outpatient access. Additionally, MedPAC notes variation in distance to alternative hospitals and calls for continued monitoring of payments, volume, and community impact in future reports.
The CMS website has more details on REH for those interested.
