Rural Hospitals

Rural hospitals are a critical, yet vulnerable, part of our national healthcare delivery system. They provide emergency department services, inpatient care, outpatient care, long-term care, and care coordination services.

Unique circumstances, characteristics, and challenges of rural hospitals have resulted in different approaches to healthcare than those used in an urban environment. For instance, The Opportunities and Challenges for Rural Hospitals in an Era of Health Reform outlines rural-specific challenges including:

  • Rural residents are older, poorer, and more likely to have chronic diseases than urban residents.
  • Rural hospitals are typically smaller than urban hospitals.
  • Rural hospitals provide a higher percentage of care in outpatient settings and are more likely to offer home health, skilled nursing and assisted living; all of which have lower Medicare margins than inpatient care.
  • Rural hospitals rely more heavily on reimbursement from public programs whose payments fall short of costs.

This guide provides information related to rural hospitals, including:

  • Federal designations for rural hospitals
  • Economic impact of rural hospitals
  • Comparison of quality measures with urban hospitals
  • Impact of technology on healthcare services provided by rural hospitals
  • Availability of funding for rural hospitals
  • Prominent challenges faced by rural hospitals
  • Rural hospital closures

Frequently Asked Questions


What are the various rural hospital designations/provider types?

Due to higher reliance on federal and state payers, low volume, and complexity of services provided, many rural hospitals struggle to remain financially viable under traditional Medicare Prospective Payment Systems (PPS). However, rural providers are essential for ensuring access to care for rural residents. As a solution, several programs which provide consideration for the special circumstances of rural hospitals have been created, including the following:

  • Critical Access Hospital (CAH)
    Rural hospitals maintaining no more than 25 acute care beds. CAHs must be located at least 35 miles, or 15 miles by mountainous terrain or secondary roads, from the nearest hospital – unless designated as a “Necessary Provider” by a state plan prior to 2006. Unlike hospitals paid prospectively using diagnosis related groups, CAHs are reimbursed based on the hospital’s allowable costs. Each CAH receives 101 percent of the Medicare share of its allowed costs for outpatient, inpatient, laboratory, therapy services, and post-acute swing bed services. See RAC’s Critical Access Hospitals topic guide for more about this facility type.
  • Disproportionate Share Hospital (DSH)
    A special reimbursement designation under Medicare and Medicaid that is aimed at supporting hospitals at which care is provided to a large proportion of low-income patients. Although not a rural-specific designation, the DSH programs allow some rural facilities to remain financially viable.
  • Rural Referral Center (RRC)
    Rural tertiary hospitals that receive referrals from surrounding rural acute care hospitals. An acute care hospital can be classified as an RRC if it meets several criteria pertaining to location, bed size, and referral patterns.
  • Sole Community Hospital (SCH)
    A designation from the Centers for Medicare and Medicaid Services (CMS) based on a hospital’s distance in relation to other hospitals, indicating that the facility is the only like hospital serving a community. Distance requirements vary depending on whether a facility is rural and how inaccessible a region is due to weather, topography, and other factors.

What effect do rural hospitals have on the local economy?

Healthcare spending in a community has a significant impact on the local economy. Rural hospitals impact communities in both their capacity to attract new businesses and the wages generated through the facility. A few selected points from Economic Impact of Rural Health Care illustrate this:

  • Quality rural health services, including emergency services, are needed in rural communities to attract business and industry, as well as retirees
  • On average, the health sector constitutes 14% of total employment in rural communities, with rural hospitals typically being one of the largest employers in the area
  • On average, a Critical Access Hospital maintains a payroll of $6.8 million, employing 141 people

For more information on the economic impact of healthcare on rural communities, see RAC's Community Vitality and Rural Healthcare topic guide.


How does the quality of care in rural hospitals compare with urban hospitals?

The quality of care provided at hospitals, both urban and rural, is monitored by state and federal agencies to ensure the safe delivery of care. Although quality measures are standardized, there are many different definitions of, and ways to, measure quality.

Furthermore, it can be difficult to compare rural and urban quality measures due to low volume of a given type of case or procedure in rural settings and differences in the populations being served. Oftentimes rural hospitals don’t have sufficient volume for certain quality measurement to allow for meaningful comparisons.

Critical Access Hospital Year 8 Hospital Compare Participation and Quality Measure Results found that, for almost all of the quality measures considered, Critical Access Hospitals (CAHs) do not perform as well as rural Prospective Payment System (PPS) Hospitals; urban hospitals outperformed both types of rural hospitals on the majority of measures. However, it is difficult to attribute absolute significance:

“Some of the differences between CAHs and rural PPS hospitals, and between CAHs and urban PPS hospitals, were statistically significant because of the large sample sizes involved, but the differences are not large enough to be of practical significance.”

Another measure of care, the CMS’ Consumer Assessment of Health Providers and Systems Survey (HCAHPS), measures quality of care from the patient’s perspective. According to Critical Access Hospital Year 8 Hospital Compare Participation and Quality Measure Results, Critical Access Hospitals had higher average HCAHPS scores than other types of hospitals in 2011.

To better understand how this quality of care is measured and compares between rural and urban hospitals, see RAC's Health Care Quality topic guide.


How is technology changing healthcare provision in rural hospitals?

Technological advancements are increasing access to, and quality of, healthcare services in rural communities. These include two prominent examples:

  • Telehealth services – Telehealth services allow for the remote delivery of healthcare and information via telecommunications technology. According to The Role of Telehealth in an Evolving Health Care Environment, telehealth drives volume, increases quality, and reduces costs by lowering the rate of readmissions and emergency department visits. For specific examples of how telehealth services are improving healthcare and quality in rural areas, see RAC's Telehealth Use in Rural Healthcare topic guide.
  • Health Information Technology (HIT) – HIT is the use of computers to store, protect, retrieve and transfer healthcare information, enabling healthcare professionals to better provide care due to improved contextual awareness of the patient’s health status. To learn more about the benefits of HIT and its application in rural communities, see RAC's Health Information Technology topic guide.

Technologies such as these have advanced communication between physicians and patients and offer innovative methods of overcoming challenges providing healthcare services to rural communities.


What funding is available for rural hospital capital improvement projects?

Capital funding is the term used for financing building and major purchases, such as:

  • Renovation or expansion of the hospital
  • Construction of a new facility
  • Major equipment, such as ambulances, CT scanners, telemedicine equipment, and Health Information Technology systems

Funding opportunities are available for rural hospitals. See RAC's Capital Funding topic guide to learn about options for financing a new facility, renovation, or purchase of major equipment.


What are the most prominent challenges faced by rural hospitals?

There are many challenges to operating a hospital in the current healthcare environment. An American Hospital Association document, The Opportunities and Challenges for Rural Hospitals in an Era of Health Reform, mentions some of the most prominent challenges today:

  • Remote geographic location – This barrier is at the root of the challenges that rural hospitals face. Low population density and distance from other providers result in low volumes and high relative operational costs.
  • Modest budgets – Low population density tends to keep hospital size small and patient volume low, thereby keeping hospitals’ budgets modest. Lean budgets with limited flexibility in cash flow make necessary capital investments in the facility or equipment difficult. This leaves facilities vulnerable, with little capacity to keep services and equipment up to current standards.
  • Workforce recruitment and retention – Workforce is an ongoing challenge closely linked to the remote geographic location of the healthcare facility. Without adequate workforce, it is difficult for hospitals to provide necessary and high-quality services to meet the needs of their communities. To read about the factors that make recruiting, retaining, and maintaining an adequate workforce difficult for rural hospitals, see RAC's Recruitment and Retention for Rural Health Facilities and Rural Healthcare Workforce topic guides.
  • Demographics of Rural America – Rural residents are older, poorer, and have more chronic conditions. This can lead to additional challenges and unique pressures to the healthcare facility providing care for these individuals.

How many rural hospitals are closing? Where are the hospitals located?

According to the North Carolina Rural Health Research Program, between January 2010 and March 2015, 48 hospitals have closed. See Rural Hospital Closures: January 2010 - Present for current information on rural hospital closures in both a list and map format.


What are the implications of health reform on rural hospitals?

The Patient Protection and Affordable Care Act of 2010: Impacts on Rural People, Places, and Providers: A Second Look analyzes the impact of the Affordable Care (ACA) act on rural communities. The law includes various Medicare payment protections to enhance reimbursements to hospitals. Incentive programs and changes aimed at helping rural hospitals include:

  • Rural physician incentive payments
  • Low-volume hospital payment adjustments
  • Changes to graduate medical education resident placement
  • Changes in CAH, home health, and laboratory service payments

The ACA also set new requirements, such as the Community Health Needs Assessment (CHNA) requirement for non-profit hospitals. Learn about CHNAs on the RAC’s Conducting Rural Health Research, Needs Assessment, and Program Evaluation topic guide.

To better understand the broad implications of health reform on rural communities, see RAC's Rural Health Reform topic guide.


Who can I contact for information and technical assistance related to rural hospitals?

For information on small or rural hospitals
American Hospital Association Section for Small or Rural Hospitals

For technical, policy, and operational assistance of rural health issues
CMS Regional Office Rural Health Coordinators