Estimation of the Fixed and Variable Costs of a Rural Emergency Hospital

Lead researcher:
Project funded:
September 2021
Project completed:
October 2022

The Consolidated Appropriations Act 2021 creates a new facility called a "Rural Emergency Hospital" (REH), which is defined as a facility that: provides emergency department (ED) and observation care and other outpatient services specified through rulemaking. An REH may provide skilled nursing facility (SNF) care in a distinct part unit (DPU). REHs do not provide acute care inpatient or swing bed services. REHs must: 1) not exceed an annual per patient average length of stay of 24 hours; 2) be staffed 24 hours-a-day, 7 days-a-week by a physician, nurse practitioner, clinical nurse specialist, or physician assistant; 3) meet the licensure requirements and staffing responsibilities of an ED; 4) have a transfer agreement in place with a level I or II trauma center; 5) meet conditions of participation applicable to Critical Access Hospital (CAH) emergency services and hospital EDs; 6) where the REH includes a distinct part unit (DPU) of the facility that is licensed as a skilled nursing facility, such distinct part meets the requirements applicable to skilled nursing facilities under this title. The Emergency Medical Treatment and Labor Act will apply, and the REH can be an originating telehealth site. The Medicare payment for REHs will include a monthly additional facility payment, the current Outpatient Prospective Payment System X 1.05, a SNF-DPU at current SNF-PPS rates, ambulance at the current ambulance fee schedule, and rural health clinics (RHCs) at same rate as < 50 bed hospitals (payment limit exception).

REHs will likely have relatively low volumes and patients who are sicker, older, and more likely to be uninsured than the average CAH. They will face challenges meeting the licensure requirements of an ED, particularly maintaining minimum staffing levels. The financial viability of a REH will depend upon careful management of the fixed and variable costs.

The overall goal of this project was to estimate the relative variable and fixed costs of patient care for an REH. The specific goals were as follows:

  • To estimate REH fixed costs - It is likely that the majority of cost in providing REH services is related to buildings, equipment, salaried labor, and overhead, which are fixed over the short term (that is, they do not vary with patient volume).
  • To estimate REH variable costs - (e.g., hourly labor, medication, and supplies) are incurred only when a service is provided (that is, they vary directly with patient volume).
  • To produce a proforma tool that rural hospitals can use to estimate the cost of operating a REH.