How CMS’ rural hospital program got providers out of the red

Modern Healthcare – Thursday, January 22, 2026
By Alex Kacik

The rural emergency hospital program is helping keep facilities afloat, but fading momentum is fueling calls to ensure the initiative and its participants remain successful.

The program, which began in 2023, requires small, rural hospitals to no longer provide inpatient care, participate in the 340B drug discount program and operate swing beds for long-term patients outside of distinct skilled nursing units, among other restrictions. In return, they receive a 5% boost to Medicare outpatient reimbursement and an average facility fee payment of more than $3.2 million a year.

In its first year, 18 converted and 18 more followed in 2024. Last year only six facilities converted, according to data from the University of North Carolina.

Hospitals that made the switch at least a year ago praise the program and are finding different ways to use it to keep them viable. Among them is Mercy Hospital in Moundridge, Kansas.

Mercy Hospital treated on average less than one acute care patient and about three swing bed patients per day before the 15-bed hospital converted to a rural emergency hospital in January 2024. The hospital generated negative operating margins of at least 20% in fiscal years 2022 and 2023 ended Sept. 30.

Mercy made money in fiscal 2025 for the first time in about a decade, reporting a 1.49% operating margin, Administrator Aaron Herbel said.

Since converting, Mercy has expanded outpatient services, including a walk-in clinic with extended hours, outpatient infusion, endoscopy, therapy, lab and imaging services. The hospital doubled its outpatient infusion volumes by repurposing space once occupied by inpatient beds.

“I wouldn’t say the rural emergency hospital program is a slam dunk,” Herbel said. “But it has allowed us to turn an eye to our future and add services that may generate small revenues and provide care the community needs.”

In Lanier, Alabama, East Alabama Medical Center-Lanier credits the program with enabling it to break even for the first time in several years. It converted to a rural emergency hospital in December 2024.

EAMC-Lanier has increased its marketing budget, which helped grow its radiology services, said Greg Nichols, the hospital’s administrator. It’s also considering adding a prenatal clinic, among other outpatient services.

“We have a path to sustainability,“ Nichols said. “I don’t know if we would’ve been able to make it work without the program.”

St. Bernards Five Rivers Medical Center in Pocahontas, Arkansas, which converted to a rural emergency hospital in September 2023, repurposed former inpatient space to offer specialty services including general surgery. The outpatient care additions, such as preadmission testing, have helped it record a positive operating margin while keeping more care in the community, Administrator Randy Barymon said.

After converting, the hospital had financial flexibility to replace its decades-old medical resonance imaging machine, driving a 55% increase in volume, and recoup reimbursement quicker by upgrading its electronic health record.

“The future really looked bleak. We were climbing uphill with no end in sight,” Barymon said. “Now we’re on a sustainable path.”

Still, the federal program could be tweaked to attract more hospitals and keep more care at rural facilities, he said.

Hospitals treated a high number of flu cases late last year, limiting patient transfers to the busiest hospitals. Allowing rural emergency hospitals to treat a limited number of acute care patients could keep more care in rural areas and cut down on unnecessary transfers, Barymon said.

“The program has such rigid guidelines, making it difficult to keep the patients that you probably should,” he said.

Rural hospitals that don’t treat many hospital patients are often willing to forgo inpatient care and the associated expense. Many executives aren’t willing to part with 340B drug discounts, which offer hospitals that treat many low-income patients an estimated 25% to 50% discount on outpatient drugs. And they don’t want to lose their swing beds, where inpatient beds switch to skilled nursing beds for long-term patients.

In addition, rural emergency hospitals may lose Medicare and Medicaid supplemental payments and grant funding because many states classify rural emergency hospitals as clinics rather than hospitals. That distinction could lead to higher costs and lower revenue tied to programs such as the Nurse Corps Loan Repayment Program, which subsidizes nurse education for clinicians that work in underserved areas, and the certified registered nurse anesthetist pass-through exemption, which boosts reimbursement for low-volume hospitals with anesthesia services.

Mercy lost roughly $50,000 in annual reimbursement from pass-through payments since the hospital converted, Herbel said.

Congress would have to pass another law to modify the rural emergency hospital program and the Centers for Medicare and Medicaid Services must finalize any regulatory changes through the notice-and-comment rulemaking process.

A CMS spokesperson declined to say whether the agency is considering any policy changes.

“If Congress makes some of these legislative changes, the pool of interested hospitals in the rural emergency hospital program would expand significantly,” Herbel said.

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