CMS Proposes Key Details for Payment Methodology, Quality Measures and Enrollment Policies for Rural Emergency Hospitals - McDermott Will & Emery

CMS Proposes Key Details for Payment Methodology, Quality Measures and Enrollment Policies for Rural Emergency Hospitals


Rural emergency hospitals (REHs) are a new Medicare provider type that will allow Medicare to pay for emergency department and other outpatient hospital services in rural areas beginning on January 1, 2023, without requiring the facility providing the services to meet the current Medicare definition of “hospital.”

As part of the Calendar Year 2023 Outpatient Prospective Payment System proposed rule, the Centers for Medicare & Medicaid Services (CMS) has provided additional detail on the proposed payment methodology for REHs and how REHs will be treated under the Stark Law. CMS previously issued a separate proposed rule that sets forth the REH Conditions of Participation (CoPs). Please see our prior article here. We have also previously provided additional information about the statutory REH provisions and CMS’s prior request for comments on the REH CoPs and payment methodology in the following article here.


Under current Medicare program rules, Medicare does not recognize “freestanding emergency departments” or other non-hospital providers of emergency department services. Medicare will only pay for these services at facilities that meet the Medicare definition of “hospital,” which requires the provision of inpatient services, among other requirements that are often difficult for low-volume facilities to meet. This limitation has presented particular challenges for rural communities, where there may be insufficient patient volume or resources to support inpatient services, but where access to emergency services and higher-level outpatient services is still necessary and may otherwise require travel to distant communities.

General acute care hospitals with no more than 50 beds located in a rural area and critical access hospitals (CAHs) are eligible to convert to REHs.

In Depth

Proposed REH Services Eligible for Increased Reimbursement

“Rural emergency hospital services” (REH Services) are now a category of services eligible for reimbursement by Medicare. By statute, REH Services include emergency services and other medical and health services. REH Services must be paid by Medicare at the OPPS rate plus 5%.

The statute provides considerable flexibility for CMS to define the “other medical and health services” that may be reimbursed as REH Services. CMS is proposing to broadly define REH Services to include all services that are eligible for reimbursement under the OPPS. CMS is defining REH services broadly, providing REHs with considerable flexibility to tailor the services they will offer (provided the REH CoPs are met). The definition as proposed will in effect provide the higher reimbursement level for any outpatient service that is eligible for reimbursement under the OPPS. Facilities that enroll as REHs are not eligible for reimbursement for acute care inpatient services. As a result, the regulatory definition proposed by CMS will exclude acute inpatient services from the definition of “REH Services.”

The proposed CoPs for REHs would require REHs to provide basic laboratory services and certain diagnostic services. In addition, REHs may (but are not required to) provide other outpatient services, including radiology, outpatient rehabilitation, surgical, maternal health and behavioral health services. CMS is proposing that any outpatient service that does not meet the definition of an REH Service will be paid at the same rate as if the service was furnished in a hospital outpatient department and paid under a fee schedule other than the OPPS. In effect, a laboratory service furnished by an REH will be paid under the clinical laboratory fee schedule and other non-REH Services furnished by an REH will be paid under the otherwise applicable fee schedule.

Following statutory changes implemented in 2017, most off-campus hospital departments are subject to a site-neutral payment methodology that reduced payments to hospitals for services at off-campus locations that began billing Medicare after November 1, 2015. CMS interprets the site-neutral provisions such that REH Services are not subject to this payment reduction. CMS is proposing to pay for REH Services at 105% of the OPPS rate, regardless of the location or original date of Medicare billing. CMS is, however, seeking comments on alternative interpretations of the laws, such as applying the site-neutral payment reductions only to off-campus locations of non-CAH hospitals converting to REHs and to off-campus locations opened after REH conversion.

Proposed REH Reimbursement Methodology

Medicare payments for REHs will be made at the OPPS rate for services provided, plus a 5% add-on to the OPPS rate and a fixed monthly payment. By statute, this must be calculated by reference to the 2019 reimbursement for CAHs.

CMS is proposing to calculate the monthly facility payment, which is based on reimbursement to CAH through claims paid for dates of service in 2019, by including both amounts paid by the Medicare program and from beneficiary copayments. In addition to relying on the CAH claims data, CMS is proposing adjustments for certain supplemental payments Medicare makes to CAHs, including new technology payments, outlier claims payments, indirect medical education payments, disproportionate share hospital (DSH) payments, uncompensated care payments and low-volume hospital payments.

CMS estimates that the monthly REH add-on payment for 2023 will be $268,294. The monthly payment amount for REHs in future years will be based on the 2023 payment, increased by the hospital market basket percentage increase.
CMS is seeking comments on its proposed calculation methodology, including whether beneficiary copayment amounts should be included.

REH Enrollment Provisions

To facilitate enrollment of REHs, CMS is proposing that REHs would enroll through the “change of information” process, rather than having to terminate the current CAH or hospital enrollment and then submit a new enrollment as an REH. CMS does not address in the proposed rule how the process would work for CAHs or hospitals that closed since the date of enactment of the REH laws or how the specific effective date will be determined for REHs converting after January 1, 2023.

REH Quality Reporting Standards

As required by statute, CMS is proposing to establish quality measure reporting requirements for REHs. Under the proposed REH Quality Reporting Program (REHQR), REHs would submit data to the Secretary each year beginning in 2023 through the QualityNet website. Reported information would be publicly available. To ease the burden that may accompany REHQR requirements for REHs, CMS is considering utilizing Medicare claims data, and it may further consider utilizing digital quality measures and aligning requirements across government and commercial payors to minimize overly burdensome reporting requirements.

The proposed rule broadly contemplates including quality reporting categories recommended by the National Advisory Committee on Rural Health and Human Services and quality measures calculated using administrative data from Medicare claims and enrollment data.

CMS is seeking comments on the currently contemplated reporting categories as well as the proposed administrative process. CMS is also seeking comments on telehealth quality reporting generally, quality reporting for maternal health, rural emergency services, mental health and how each of these categories may intersect with telehealth quality measures, health equity reporting measures and recommendations for addressing any low volume issues.

Proposed Stark Law Exception for REHs

As noted, CMS recently proposed the conditions of participation that will apply to REHs. This proposal, if finalized, will require REHs to provide radiology and certain imaging services, clinical laboratory services and outpatient prescription drugs. Each of these services are considered to be “designated health services” within the meaning of the federal self-referral law (the Stark Law). With respect to services furnished to Medicare beneficiaries, an REH would be an entity that furnishes designated health services (a DHS Entity).

There are several regulatory Stark Law exceptions that apply to physician-owned entities and that may currently be relied on by small rural hospitals and CAHs for purposes of Stark Law compliance, such as the rural provider exception and the whole hospital exception. However, once a CAH or a small rural hospital converts to an REH, the entity will no longer qualify as a “hospital” for purposes of the physician self-referral law and will not be able to qualify for the whole hospital exception. The rural provider exception, in contrast, will remain available.

CMS is concerned that the Stark Law could serve as an impediment to the enrollment of entities that are owned by or invested in by physicians that are eligible to become REHs. Accordingly, CMS is proposing to create a new REH exception (the REH Exception) that will permit physicians to own and invest in REHs, provided the elements of the exception are met.

Of note, CMS is not proposing to incorporate into the REH Exception certain limitations analogous to the limits Congress incorporated in the Affordable Care Act (ACA) that apply specifically to physician-owned hospitals, including strict limits on expansion of size and additional physician ownership or investment interests. CMS is seeking comment as to whether CMS should incorporate requirements for public disclosures of physician ownership and investment or an annual report to CMS in the REH Exception, but these are not included in the proposed regulation.

In addition to proposing the REH Exception, CMS is proposing to revise certain exceptions applicable to compensation arrangements between certain types of DHS entities and physicians to apply to REHs. Because REHs are not a hospital within the meaning of the Stark Law or its implementing regulation, these changes are necessary to ensure REHs can qualify for certain regulatory compensation exceptions. Specifically, CMS is proposing to modify the exceptions for the following types of arrangements to incorporate REHs as entities eligible to rely on the exception, when all elements of the exception are met:

  • Physician recruitment;
  • Obstetrical malpractice insurance subsidies;
  • Retention payments in rural and underserved areas;
  • Electronic prescribing items and services;
  • Assistance to compensate a non-physician practitioner; and
  • Timeshare arrangements.

CMS is seeking comment on whether revisions to the exception for medical staff incidental benefits are necessary to explicitly clarify that REHs are eligible to utilize the exception, although CMS notes that an REH could use the existing exception even absent modification. CMS is also seeking comment on the need for REHs to recruit physicians to establish or join medical practices in the geographic area served by the REH and how CMS should define an REH’s geographic service area for purposes of physician and non-physician practitioner recruitment.

Practical Implications

CMS has proposed expansive definitions that will enable REHs to provide a wide variety of services eligible for payment as “REH Services” and has generally proposed to take an REH-favorable approach to calculating the fixed monthly payment amount, although CMS could finalize a less favorable methodology. Similarly, CMS appears to have opted for an enrollment process for REHs that is less burdensome than the standard enrollment process for new providers.

Beyond the payment and enrollment proposals, CMS has proposed a relatively broad regulatory exception that would permit physicians to own and invest in REHs, without many of the restrictions that are generally applicable to physician-owned hospitals. This appears to be grounded in CMS’s concern that limitations on facility expansion or the amount of physician investment or ownership in an REH could unduly impact access to services furnished in rural and underserved areas.

Importantly, the statute establishing REHs as a provider type explicitly excludes administrative and judicial review of the REH conditions of participation, the determination of payment amounts for REHs, and the determination of whether a facility meets the statutory requirements for participation in Medicare as an REH. Accordingly, providers and other interested stakeholders should not miss this opportunity to influence the policy that will determine the payment methodology and enrollment requirements that will be applicable to REHs.

CMS is obligated to propose and finalize regulations establishing and governing REHs in time for the statutorily required effective date of January 1, 2023.