REH Designation May Help Small Share of Rural Hospitals Avoid Closure

February 13, 2023 - The new Rural Emergency Hospital (REH) designation could help nearly 88 rural hospitals avoid closures but will likely not have a widespread impact on safety-net facilities, according to a report from Chartis.

Transitioning to REHs would allow rural hospitals to continue delivering outpatient and emergency services without offering inpatient services, which can be associated with high costs and low patient volumes in rural areas.

Chartis evaluated around 1,600 rural hospitals eligible to convert to REHs and determined the likelihood of REH conversion.

The analysis found that nearly 400 rural hospitals are most likely to consider REH conversion, and 77 facilities are ideal for conversion based on their performance profile.

Over four in ten rural hospitals (41 percent) in the US have a negative operating margin. Hospitals in states that have not expanded Medicaid are more likely to have negative operating margins compared to those in expansion states (51 percent versus 39 percent).

In addition, rural hospital closures are increasing again. Nineteen hospitals closed in 2020, just two closed in 2021, and seven closed in 2022. Pandemic-related aid has helped some facilities stay afloat, but much of this assistance has expired, likely leading to more closures.

The REH designation aims to help rural hospitals avoid closure. REHs must forgo all acute inpatient services, maintain a staffed emergency department, support observation care, and maintain an annual average patient length of stay of 24 hours or less.

Hospitals that convert to REHs will also lose critical access hospital (CAH) cost-based reimbursement and 340B drug program savings.

However, REH-designated hospitals will receive monthly payments, which are expected to total more than $3 million annually in 2023.

Given the requirements accompanying the designation, conversion would likely only apply to a small subset of rural hospitals. Specifically, those with consistent negative margins, lower net patient revenue, and lower inpatient utilization may benefit from REH conversion.

Based on these factors, the analysis found that 398 rural hospitals are most likely to consider REH conversion, including 374 CAHs and 15 rural Prospective Payment System (PPS) facilities. But considerations like system affiliation, government control status, and participation in the 340B program will influence the REH decision-making process.

Further evaluation suggests that 77 hospitals among the 398 are ideal candidates for REH conversion.

“Even though 77 may represent a small percentage of REH eligible hospitals, the number is significant when you consider the broader impact the loss of a hospital has on a rural community,” researchers wrote. “This new model represents a statistically rigorous approach to understanding the potential impact of the REH designation on the rural health safety net.”

“While the new designation is not a panacea capable of curing the widespread instability and uncertainty we see across the rural health safety net, it nonetheless offers a pathway for some rural hospitals, and an opportunity for some communities to retain access to important services that would otherwise disappear.”

The analysis revealed care disparities that exist across rural communities. For example, residents in communities served by a hospital at risk of closure were less likely to be insured, had less access to care, and were more likely to die prematurely.

Rural areas are also seeing care deserts when it comes to certain specialties, including obstetrics and gynecology and chemotherapy.

The REH designation may not provide the relief that most rural hospitals are seeking, but it has the potential to save a small share of facilities from closing, the report concluded.