An Early Look at Profitability Before and After Conversion to Rural Emergency Hospital

View Policy Brief

03/2026

Converting to a Rural Emergency Hospital (REH) may provide struggling, low-volume rural hospitals with a more stable financial model by eliminating unprofitable inpatient services in exchange for some significant financial benefits. This brief provides an early assessment of financial performance before and after conversion to REH status.

Key Findings:

The REH designation became effective on January 1, 2023, as part of the Consolidated Appropriations Act of 2021. REHs are required to submit annual cost reports to the Centers for Medicare & Medicaid Services (CMS). Medicare cost reports for 32 hospitals before and after conversion to REH show the following:

• Early results of profitability after conversion to REH appear to be promising. Although some REHs are not yet profitable, most have seen a substantial increase in total margin and operating margin since conversion to REH.
• Median total margin improved from –17.9% immediately before conversion to 7.4% immediately after conversion, an increase of 25.3 percentage points. Median operating margin showed a similar increase, rising from –22.2% immediately before conversion to 5.4% immediately after conversion, an increase of 27.6 percentage points.
• These results should be interpreted cautiously because ratios based on less than a full year of data may not reflect annual profitability.

North Carolina Rural Health Research and Policy Analysis Center

Aditya Pillutla, George Pink, Kristie Thompson, Mark Holmes

Health services, Healthcare access, Hospitals and clinics, Medicare, Rural Emergency Hospitals (REHs)