The Rural Emergency Hospital Designation – a New Option for Rural Hospitals

June 13, 2023

By: Willard L. Boyd III

The U.S. Government’s Consolidated Appropriations Act of 2021, Pub. L. No. 116-260 (CAA) created the Rural Emergency Hospital (REH) designation.  It is viewed as one of  the most significant government actions relating to rural health since the creation of the Critical Access Hospital (CAH) designation through the Balanced Budget Act of 1997.  The REH designation is structured to help low-volume rural hospitals that are struggling financially to avoid closure while continuing to provide some critical medical services in their communities.  The REH designation became effective January 1, 2023, and implementing regulations were issued by the Centers for Medicare and Medicaid Services (CMS) at the end of 2022. See 87 Fed. Reg. 71748 (November 23, 2022).


Recent changes to the Iowa Code now allow for Rural Emergency Hospital designations in Iowa.





Since 2010, more than 140 hospitals in the United States have closed.  Most of the closures have been rural hospitals.  The Government has attempted to address the closures through changes to the Medicare program, which offers special payment terms for rural hospitals, including CAHs.  Besides REHs, all of the programs require an inpatient component.  The intent of the REH designation is to promote health care for those living in rural communities by facilitating access to needed services.


Under the CAA and the regulations implementing the CAA issued by CMS, the REH designation provides eligible rural providers the flexibility to cease inpatient operations while continuing to furnish emergency and other outpatient services.  In addition, the payment terms can help sustain an REH.  An REH also has access to technical assistance through the Rural Health Redesign Center’s REH Technical Assistance Center.





Only those providers enrolled as CAHs or Rural Hospitals with 50 beds or less when the CAA was enacted (December 27, 2020) are eligible to convert to an REH.  The bed count is determined by calculating the number of available bed days during most recent cost reporting period divided by number of days in the cost reporting period.


Facilities that closed after December 27, 2020 are eligible to reopen as an REH if they meet the REH Conditions of Participation.



Requirements of REH Designation


By statute, REH services include emergency department services and observation care and, at the election of the REH, other outpatient medical and health services furnished on an outpatient basis as specified by regulation.  An REH may not provide acute inpatient services (with the exception of post-hospital extended care services furnished as part of a distinct licensed skilled nursing facility).


An REH is subject to Medicare Conditions of Participation.  Among other things, an REH must have an organized governing body and an organized medical staff, and maintain adequate medical and nursing personnel to meet anticipated needs.


In addition, the REH Emergency Department needs to be staffed 24 hours a day, 7 days a week by an individual competent to provide emergency medical care.  A physician, physician assistant, nurse practitioner, or clinical nurse specialist must be available to be on site to provide REH services in the facility within 30 minutes (or 60 minutes if located in a frontier area).


An REH must have a transfer agreement with a level I or level II trauma center.  It also must be located in a state that licenses REHs and comply with physical plant standards.  In addition to emergency department services and observational care, an REH needs to provide:

  • Basic laboratory services
  • Diagnostic radiology services
  • Pharmacy services


An REH must have an effective discharge planning process, include QA and Performance improvement, infection prevention, and control and antibiotic stewardship.  It also must meet emergency preparedness requirements.



Other Services Offered by REH


An REH may offer diagnostic and therapeutic services furnished in a physician office setting.  These include:

  • Radiology
  • Laboratory
  • Outpatient rehabilitation
  • Surgical
  • Maternal health
  • Behavioral health services





An REH will receive a monthly facility payment ($272,866 per month in 2023). In future years, the facility payment will be increased annually by the hospital market basket percentage increase.  An REH also is to receive payment at 105 percent of the Medicare Outpatient Prospective Payment System (OPPS) rate for services that qualify as “REH services.”  REHs have flexibility in how they spend the payments but must maintain records on how the payments are spent. Ambulance services furnished by an entity owned and operated by an REH are paid under the ambulance fee schedule.  Post-hospital extended care services furnished by an REH that has a unit that is a distinct part licensed as a skilled nursing facility are to be paid under the skilled nursing facility prospective payment system.


Beneficiaries are not to be charged coinsurance on the additional 5 percent payment.  The statute is silent with regard to payment for non-REH services such as laboratory, diagnostic radiologic, and pharmacy services.



Iowa Legislation


In this year’s General Assembly session, Iowa Code Chapter 135B (Licensure and Regulation of Hospitals) was amended to expressly permit for REHs.  Iowa Code section 135B.3A provides that the Department of Inspections and Appeals will adopt rules to establish minimum standards for licensure of REHs.


Iowa’s Certificate of Need law was also amended to provide that a conversion of a CAH or general hospital to a rural emergency hospital will not require a CON.  Still, any change of a REH in licensure, organizational structure, or type of institutional health facility will require a CON.





In order to enroll as a REH, the facility needs to submit a Form CMS-855A change of information application.  As part of the application, an action plan for initiating REH services is needed.



General Considerations


There are various considerations for determining whether to seek REH status.  Importantly, a facility needs to determine the suitability of ceasing inpatient operations.  There is a loss of cost-based reimbursement for outpatient services (which might exceed 105 percent of OPPS rate).  A REH also does not have access to the 340B drug pricing program.  In addition, an REH does not have the ability to bill for physician services under CAH method II.  Finally, there is a loss of an extra 15 percent of Physician Fee Schedule amount a facility could otherwise receive.



Stark Law Considerations


Stark Law prohibits a physician from making a referral of a designated health service (DHS) payable by Medicare to an entity with which the physician (or immediate family member of the physician) has a financial relationship unless an exception is met.  DHS includes inpatient and outpatient hospital services, which themselves include those types of services that an REH is required to perform (such as radiology and imaging services, clinical laboratory services and outpatient prescription drugs) and an REH is an entity payable by Medicare. 


In the proposed regulations, CMS described various exceptions to Stark Law that might apply to an REH including the rural provider exception and the whole hospital exception.  It noted that the whole hospital exception would not apply because a critical access hospital or small rural hospital, upon becoming an REH, would no longer qualify as a hospital.  Due to concerns that the Stark Law could inhibit access to medically necessary DHS furnished by REHs that are owned or invested in by physicians and thwart the underlying goal of the CAA to safeguard or expand such access, CMS proposed a broad REH exception that would have allowed physicians to own and invest in REHs.  Still, due to concerns expressed by commenters on the risk of program or patient abuse based on the REH exception, CMS ended up not adopting such exception.


CMS also considered amendments to the “rural provider” exception, which requires that the DHS are furnished in a rural area and that the entity furnishes not less than 75 percent of the DHS that it furnishes to residents of a rural area.  For purposes of the Stark Law, a rural area is an area that is not an urban area, a term defined elsewhere in CMS regulations to include certain areas defined by the Executive Office of Management and Budget.


CMS ended up amending the regulations to allow for REHs located in rural areas to be able to rely on the rural provider exception without being required to comply with additional requirements applicable to hospitals under such an exception.  CMS also amended certain exceptions for compensation arrangements to clarify that such exceptions can be relied upon for compensation arrangements between REHs and physicians.  CMS declined to finalize a proposed exception for ownership or investment interests in an REH concluding that the rural ownership exception should be sufficient.


For more information on the legal and regulatory considerations in the REH designation contact your Nyemaster attorney.