Rural Emergency Hospitals Collect Three Dollars From Medicare to Stand By for Every Dollar of Care Billed

Since January 2005, 197 rural hospitals have closed or stopped admitting patients, per the Cecil G. Sheps Center for Health Services Research at UNC — 109 shut down completely, 88 converted to something smaller.▸ Congress built one specific off-ramp for hospitals in that second group: convert to a Rural Emergency Hospital, give up every inpatient bed, keep a 24/7 emergency room, and Medicare will pay a fixed monthly fee just for existing — on top of whatever it pays for the care actually delivered. In the program's first full year, that fixed fee outran the billed care three to one.

The Rural Emergency Hospital (REH) designation, created by the Consolidated Appropriations Act, 2021, lets a struggling critical access hospital or small rural hospital (50 or fewer beds, as of Dec. 27, 2020) trade away inpatient care for financial stability.▸ An REH cannot furnish inpatient care and cannot average more than a 24-hour length of stay. In return, it must run a 24/7 emergency department, and Medicare pays it two ways: 105% of standard hospital outpatient (OPPS) rates for every emergency and outpatient claim, plus a fixed monthly "facility payment" that arrives whether the hospital treats one patient that month or a thousand. Twenty-one hospitals converted in 2023, the program's first year; by the time MedPAC analyzed full-year claims, 36 were active, and the Rural Health Information Hub counted 42 nationwide as of October 2025.

MedPAC, which Congress requires to report on REH payments annually, ran the CY2023 numbers for the original 21 hospitals with a full year of claims data.▸ FFS Medicare paid about $10 million for the outpatient and ED care those hospitals actually billed — more than $8 million of it through OPPS, which came to roughly $400,000 more than standard rates because REHs are paid the 5% enhanced rate. Separately, the same 21 hospitals collected about $30 million in fixed monthly facility payments, which in CY2023 ran about $267,000 per hospital per month after the Medicare sequester. In MedPAC's own words: "Monthly fixed payments were three times as high as FFS Medicare's claims-based payments."

MedPAC frames the imbalance as the point, not a flaw: without a payment large enough to cover the standby cost of an emergency department that sees relatively few patients, the theory goes, the ED closes too.▸ The Commission first recommended this exact structure to Congress in 2018, after concluding that Medicare's traditional inpatient-based payments no longer supported hospitals whose inpatient volume had largely disappeared.

The facility payment isn't a one-time number — it updates every year by the hospital market-basket percentage, under 42 CFR 419.92(b).▸ CMS files a new transmittal each December setting the following January's amount. For CY2026, effective Jan. 1, 2026, that payment is $301,073 a month before Medicare's sequester reduction, $295,051.54 after — a guaranteed $3.54 million a year per hospital, regardless of patient volume, on top of whatever outpatient claims it bills.

The payment grew about 10% from CY2023 to CY2026 in nominal dollars — not because more patients showed up, but because the statute indexes it to hospital input costs, the same market-basket measure used to update Medicare's inpatient and outpatient payment systems generally.

Converting to REH status is what a hospital does instead of closing outright.▸ The alternative is visible in Federal Reserve research on the 74 rural hospitals that closed completely, rather than converted, in isolated rural counties between 2011 and 2019. Comparing each hospital's peak year after 2010 to its final year of operation, Kelly Edmiston of the Federal Reserve Bank of Kansas City found employment had already fallen 24.3% — from an average 115 jobs at peak to 87 in the closure year — before the hospital shut its doors for good.

Inpatient visits fell 52.1% from peak to final year — the clearest sign these hospitals were already functioning close to REH status, just without the fixed payment, before they closed entirely.▸ Payroll dropped 28.9% and staffed beds declined a comparatively modest 8.9%, meaning hospitals kept beds open even as the patients and the payroll to staff them disappeared. Nationally, Edmiston found counties that lost a hospital saw employment shrink at an annual rate of 0.5% in the three years after closure, versus 0.7% average annual growth in counties that kept theirs.

REH payment and utilization figures cover federal fiscal/calendar-year data reported by MedPAC (CY2023, the first full year with complete claims) and CMS (CY2026, the most recent payment update); MedPAC's CY2023 dollar figures are the Commission's own rounded estimates, not exact totals. Employment and closure figures cover a separate population — the 74 rural hospitals that closed completely, not REH conversions — and are presented as context for what REH conversion is designed to avoid, not as a direct measurement of REH-specific job losses, which are not separately published.