The Financial Importance of the Sole Community Hospital Payment Designation


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."

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. Since 2006, SCHs also receive an additional adjustment set at 7.1% above the Outpatient Prospective Payment System (OPPS) rate for outpatient services. Additionally, SCHs can qualify for adjustments due to decreases in inpatient volume, participation in the Hospital Value-Based Purchasing Program, and participation in the Hospital Readmissions Reduction Program.

The purpose of this study was to assess the financial importance of the Sole Community Hospital (SCH) program by investigating: 1) the proportion of SCHs that was reimbursed at the hospital specific rate between 2006 and 2015; 2) the profitability of providing services to Medicare patients in SCHs between 2006 and 2015, and; 3) the financial consequences if the SCH program had not existed in 2015.

Conclusion: If the SCH program did not exist, the study findings suggest that there would be: 1) significant financial consequences for most SCHs, and 2) geographic variation in the magnitude of the financial consequences.

North Carolina Rural Health Research and Policy Analysis Center
Sharita Thomas, Randy Randolph, Mark Holmes, George Pink