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Medicare Program; Rural Community Hospital Demonstration Program: Solicitation of Additional Participants

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Centers for Medicare & Medicaid Services (CMS).




This notice announces a solicitation for up to 20 additional eligible hospitals to participate in the Rural Community Hospital Demonstration program for a 5-year period.


Application Submission Deadline: Applications must be received by 5 p.m. on or before October 14, 2010. Only applications that are considered “timely” will be reviewed and considered by the technical panel.


The applications should be mailed or sent by an overnight delivery service to the following address: Centers for Medicare & Medicaid Services, ATTN: Sid Mazumdar, Rural Community Hospital Demonstration, Medicare Demonstrations Program Group, Mail Stop C4-17-27, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Please allow sufficient time for mailed information to be received in a timely manner in the event of delivery delays. Because of staffing and resource limitations, and because we require an application containing an original signature, we cannot accept applications by facsimile (Fax) transmission.

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Sid Mazumdar at (410) 786-6673 or by e-mail at

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I. Background

Section 410A(a) of Public Law 108-173 required the Secretary to establish a demonstration program to test the feasibility and advisability of establishing cost-based reimbursement for “rural community hospitals” to furnish covered inpatient hospital services to Medicare beneficiaries. The demonstration pays rural community hospitals for such services under a cost-based methodology for Medicare payment purposes for covered inpatient hospital services furnished to Medicare beneficiaries. A rural community hospital, as defined in section 410A(f)(1) of Public Law 108-173, is a hospital that—

  • Has fewer than 51 acute care inpatient beds (excluding beds in a distinct psychiatric or rehabilitation unit of the hospital) as reported in its most recent cost report;
  • Provides 24-hour emergency care services; and
  • Is not designated or eligible for designation as a critical access hospital under section 1820 of the Social Security Act (the Act).

Section 410A(a)(4) of Public Law 108-173 specified that the Secretary was to select for participation from among the applicants no more than 15 rural community hospitals in rural areas of States that the Secretary identified as having low population densities. Using 2002 data from the U.S. Census Bureau, we identified the 10 States with the lowest population density in which rural community hospitals were to be located in order to participate in the demonstration: Alaska, Idaho, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the United States: 2003). We solicited eligible hospitals among these States in 2004 and again in 2008. There are currently 10 hospitals participating in the demonstration.

The demonstration is designed to test the feasibility and advisability of reasonable cost reimbursement for inpatient services to small rural hospitals. The demonstration is aimed at increasing the capability of the selected rural hospitals to meet the needs of their service areas.

Section 410A(a)(5) of Public Law 108-173 required a 5-year demonstration period of participation. The 5-year periods of performance for the hospitals originally selected will end by June 30, 2010. For the hospitals selected in 2008, the initial period of performance is scheduled to end on September 30, 2010. Section 10313 of the Patient Protection and Affordable Care Act (ACA), (Pub. L. 111-148) mandates an extension and expansion of the Rural Community Hospital demonstration for 5 years. In order for other hospitals to begin participation in this new demonstration for the 5-year extension period, rural community hospitals must be located among the 20 States with the lowest population density—according to the same criteria and data as the original demonstration. These States are: Alaska, Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of the United States: 2003). The statute States that no more than 30 rural community hospitals can participate, and that those hospitals participating in the demonstration program as of the date of the last day of the initial 5-year period will be allowed to continue in the program. Up to 20 additional hospitals will be able to begin participation in the demonstration.

II. Provisions of the Notice

This notice announces the solicitation for up to 20 additional hospitals to participate in the Rural Community Hospital Demonstration Program. Hospitals that enter the demonstration under this solicitation will be able to participate for 5 years.

A. Demonstration Payment Methodology

Hospitals selected for the demonstration will be paid the reasonable costs of providing covered inpatient hospital services, with the exclusion of services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital, using the following rules. For discharges occurring—

  • In the first cost report period upon the hospital's participation in the demonstration, reasonable costs for covered inpatient services; or
  • During the second or subsequent cost reporting period, the lesser of their reasonable costs or a target amount. The target amount in the second cost reporting period is defined as the reasonable costs of providing covered inpatient hospital services in the first cost reporting period, increased by the inpatient prospective payment system update factor (as defined in section 1886(b)(3)(B) of the Act) for that particular cost reporting period. The target amount in subsequent cost Start Printed Page 52961reporting periods is defined as the preceding cost reporting period's target amount increased by the hospital inpatient prospective payment system (IPPS) update factor for that particular cost reporting period.

Covered inpatient hospital services means inpatient hospital services (defined in section 1861(b) of the Act) and includes extended care services furnished under an agreement under section 1883 of the Act.

Section 410A of Public Law 108-173 requires that, “in conducting the demonstration program under this section, the Secretary shall ensure that the aggregate payments made by the Secretary do not exceed the amount which the Secretary would have paid if the demonstration program under this section was not implemented.” In order to achieve budget neutrality for this demonstration program in fiscal years (FYs) 2005, 2006, 2007, 2008, 2009, and 2010, we adjusted the national IPPS rates by an amount sufficient to offset the added costs of this demonstration program. We presented an estimate of the amount to offset additional costs due to the demonstration program in FY 2011, including the costs of additional rural community hospitals, in the FY 2011 inpatient prospective payment system/long-term care hospital prospective payment system (IPPS/LTCH PPS) supplemental proposed rule (see the June 2, 2010 Federal Register (75 FR 30918)).

B. Participation in the Demonstration

To participate in the demonstration, a hospital must be located in one of the identified States with low-population density and meet the criteria for a rural community hospital. Eligible hospitals that desire to participate in the demonstration must properly submit a timely application. Information about the demonstration and details on how to apply can be found on the CMS Web site:​DemoProjectsEvalRpts/​downloads/​2004_​Rural_​Community_​ Hospital_Demonstration_Program.pdf.

III. Collection of Information Requirements

The information collection requirements contained in this notice are subject to the Paperwork Reduction Act of 1995. As discussed in section II.B. of this notice, a hospital must submit the required information on the cover sheet of the CMS Medicare Waiver Demonstration Application to receive consideration by the technical review panel. The burden associated is the time and effort necessary to complete the Medicare Waiver Application and submit the information to CMS. The burden associated with this requirement is currently approved under the Office of Management and Budget control number 0938-0880 with an expiration date of November 20, 2010.

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Authority: Section 10313 of the Patient Protection and Affordable Care Act (Pub. L. 111-148)

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(Catalog of Federal Domestic Assistance Program No. 93.773 Medicare—Hospital Insurance Program; and No. 93.774, Medicare—Supplementary Medical Insurance Program).

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Dated: June 22, 2010.

Marilyn Tavenner,

Acting Administrator and Chief Operating Officer, Centers for Medicare & Medicaid Services.

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[FR Doc. 2010-21512 Filed 8-27-10; 8:45 am]