Congress: New Medicare Provider Category and Reimbursement - McDermott

Congress Establishes New Medicare Provider Category and Reimbursement for Rural Emergency Hospitals


Year-end COVID-19 relief legislation approved by Congress established Rural Emergency Hospitals (REHs) as a new Medicare provider type effective January 1, 2023. REHs, defined as providers that furnish certain outpatient hospital services in rural areas, including emergency department services, will be reimbursed at a rate higher than the otherwise-applicable payment under the Medicare Outpatient Prospective Payment System (OPPS). REHs will be subject to enrollment requirements and must comply with conditions of participation to be set forth in more detail by the Centers for Medicare & Medicaid Services (CMS) in future rulemaking and guidance.

In Depth


Under current Medicare program rules, there is no provider category under which Medicare payment is available for a provider that provides only emergency department services or hospital outpatient services. Only entities defined by Medicare as “hospitals” can receive payment for emergency department and hospital outpatient services, and an entity must furnish inpatient hospital services in order to qualify for payment as a “hospital.” This limitation has presented challenges for rural communities, where there may not be sufficient patient volume or resources to support inpatient services, but where access to emergency services and higher-level outpatient services is still necessary.

On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, establishing a new Medicare provider type, “Rural Emergency Hospitals.” Under the provisions of the Act, effective January 1, 2023, facilities that meet certain criteria will be eligible to enroll in Medicare as REHs. While the general contours of the eligibility requirements for REHs are set forth in the Act, CMS will need to establish conditions of participation (CoPs) for REHs through rulemaking and guidance. In general, REHs will be permitted to provide certain outpatient hospital and emergency department services without providing inpatient care, and will be eligible for Medicare reimbursement at rates higher than those that would otherwise apply to services furnished in a hospital.


Payments to REHs will be based on the provision of “rural emergency hospital services,” a newly defined category of services eligible for Medicare reimbursement to REHs effective January 1, 2023. Services eligible for reimbursement in this category will include emergency department services and observation care furnished to patients, as well as other medical and health services furnished on an outpatient basis to be defined by CMS in future rulemaking.

The Act provides that “general acute care hospitals” (as defined by the Social Security Act) with no more than 50 beds located in a rural area and critical access hospitals (CAHs) that meet criteria set forth by the Act, as well as other requirements to be established by CMS, will be eligible to convert their Medicare enrollment category to a Rural Emergency Hospital. Among the requirements set forth in Act are that REHs must:

  • Not provide acute care inpatient services
  • Not exceed an annual per patient length of stay of 24 hours
  • Have a transfer agreement in place with a Level I or II trauma center
  • Maintain a staffed emergency department, including staffing 24 hours a day, seven days a week by a physician, nurse practitioner, clinical nurse specialist or physician assistant
  • Meet CAH-equivalent CoPs for emergency services
  • Meet applicable state licensing requirements

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. CMS will need to determine the fixed monthly payment, but the legislation provides that it will be calculated by reference to 2019 reimbursement for CAHs based on a statutory formula. The fixed monthly payment amount for REHs in future years will be based on the 2023 payment, increased by the hospital market basket percentage increase.

Although REHs will not be permitted to provide acute care inpatient services, REHs will be permitted to operate a distinct part skilled nursing facility (SNF) or off-campus provider-based departments. Neither distinct part SNFs nor off-campus provider-based departments of REHs are eligible for the enhanced payments available to REHs, and both will be subject to payments under the otherwise applicable payment systems. REHs that operated provider-based Rural Health Clinics will also be considered to be hospitals with less than 50 beds for purposes of receiving un-capped Rural Health Clinic payments.

Practical Implications

Congress has taken an important step to preserve access to hospital emergency and outpatient services in rural areas in light of an increase in the number of rural hospital closures, but key details about the requirements for operating as an REH remain subject to future rulemaking and guidance. Interested providers should continue to actively engage with CMS to ensure that the regulations and guidance surrounding REHs are developed in a manner that will best situate REHs to serve the healthcare needs of rural communities.

Among the open questions for CMS to address are the following:

  • Will hospitals that are forced to close before January 1, 2023 be eligible to reopen as REHs?
  • What will be the complete scope of services eligible for payment at enhanced REH rates?
  • What are the steps and timing considerations for conversion to an REH?
  • What CoPs will be imposed on REHs?
  • For those facilities that maintain them, will the CoPs for REHs take into account compliance with CoPs applicable to SNF operations?
  • What quality and data reporting will be required of REHs?