Rural Hospitals Labeled as Such Only When Being Rural Proves Lucrative
In a surprising turn of events, hundreds of urban hospitals, including many large nonprofit medical centers, have obtained "Medicare administratively rural" status. This trend, which began in 2017 following a CMS rule change, has since grown rapidly and steadily.
This designation gives these hospitals access to federal benefits intended for rural communities, such as lower thresholds for qualifying for the 340B Drug Pricing Program and expanded graduate medical education slots. The study published in Health Affairs showed that many so-called "rural" hospitals are actually located in urban areas.
By 2023, the number of these "administratively rural" but urban-located hospitals had reached 425, accounting for around one-third of community hospital beds in the U.S. This maneuver is relatively straightforward for large hospitals, a majority could soon claim "administrative rural" status, unless Congress intervenes.
The Centers for Medicare and Medicaid Services (CMS) will soon open applications for its $50 billion Rural Health Transformation Program. Rapid technological advances, when combined with directly funding patients and unleashing all providers to competition, can organically create affordable, flexible, sustainable, and dynamic access that rural Americans truly need.
The question arises, why are urban hospitals seeking this designation? Rural areas often lack the population density and sustainable demand needed to support the financial viability of sophisticated facilities and medical specialists. Federal financial support for small rural hospitals (designated as critical access hospitals) can distort competition and inflate hospital costs, without preventing hospital closure.
A study published in the Journal of Health Economics found that the natural closure of low-performing rural hospitals can reduce patient mortality in the long run by channeling patients to better care options. This suggests that the influx of urban hospitals claiming "administrative rural" status may not necessarily be beneficial for rural healthcare.
However, there are alternatives that could improve rural access to care. Low-cost, flexible facilities and care delivery models, such as mid-level clinician practices, mobile primary care and radiology services, telehealth, emergency hospitals with advanced transport capability but no inpatient beds, are key to addressing the unique challenges faced by rural communities.
Moreover, policies inspired by Europe's Open Skies policy could be applied to rural healthcare markets. Removing competition restrictions, liberating markets, and promoting affordability and broad access could produce comparable results in rural America.
The $50 billion Rural Health Transformation Program represents a rare opportunity to transform rural health in America. By empowering patients with Health Savings Accounts and other flexible spending arrangements, we could stimulate patient-centered care delivery and innovation. The future of rural healthcare lies in embracing change and fostering a competitive, patient-focused environment.
