The Financial Importance of the Sole Community Hospital Payment DesignaƟon
BACKGROUND
In 1983, Congress created the Sole Community Hospital (SCH) program to support small rural hospitals for which “by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other hospitals, is the sole source of inpatient hospital services reasonably available in a geographic area to Medicare beneficiaries.”1 A hospital qualifies as a SCH by meeting the following criteria: 1) It is located at least 35 miles from a similar hospital; or 2) It is between 25 and 35 miles from a similar hospital, and meets one of the following criteria:
No more than 25% of its total inpatients or 25% of Medicare inpatients admitted are also admitted to similar hospitals within a 35 mile radius; or It has fewer than 50 acute care beds and would admit at least 75% of inpatients from the service area were it not for some patients requiring specialized care that the hospital does not offer; or 3) It is between 15 and 25 miles from other similar hospitals that are inaccessible for at least 30 days in each of two out of three years due to topography or weather; or 4) Travel time to the nearest hospital is at least 45 minutes because of distance, posted speed limits, or predictable weather.2 A SCH is often the only source of hospital care for isolated rural residents. As such, Medicare SCH classification helps to keep these institutions financially viable through certain payment enhancements and protections to the hospital. For inpatient services, Sole Community Hospitals receive the higher of payments under 1) the Inpatient Prospective Payment System (IPPS) or 2) an updated hospital-specific rate (HSR), which are payments based on their costs in a base year (1982, 1987, 1996, or 2006) updated to the current year and adjusted for changes in their case mix.3 Since 2006, SCHs also receive an additional adjustment set at 7.1% above the Outpatient Prospective Payment System (OPPS) rate for outpatient services.4 Additionally, SCHs can qualify for adjustments due to decreases in inpatient volume, participation in the Hospital Value-Based Purchasing Program, and participation.