Medicare Payment for Rural or Geographically Isolated Hospitals, 2026

Summary

Medicare Payment for Rural or Geographically Isolated Hospitals

Traditional Medicare pays most acute-care hospitals under the inpatient prospective payment system (IPPS). Some IPPS hospitals receive payment adjustments, which may help address the potential financial distress associated with rural, geographically isolated, and low-volume hospitals. These Medicare payment designations are Sole Community Hospitals (SCHs), Medicare-Dependent Hospitals (MDHs), and Low-Volume Hospitals (LVHs). Other similar acute-care hospitals—Critical Access Hospitals (CAHs)—are paid based on reasonable cost, not under IPPS. 2026

Medicare Hospital Payment

IPPS Inpatient Prospective Payment System

A predetermined, fixed, per discharge payment for inpatient services furnished to Medicare beneficiaries, subject to adjustments.

All IPPS Hospital Designations

SCH, MDH, LVH

Duplicated; designations not mutually exclusive

Hospital Designation Locations

Eligibility Criteria

Adjusted payment

No. of hospitals

Sole Community Hospital (SCH)

Meets ONE of the following FOUR criteria:

•> 35 miles from another IPPS hospital

•Rural and 25-35 miles from another hospital and

•Is the exclusive hospital provider in the area, or

•< 50 beds, meets exclusive hospital provider criterion but for patient transfers to other hospitals for specialized care

•Rural and 15-15 miles from another hospital(s) that is inaccessible due to topography or severe weather conditions

•Rural and ≥ 45-minute drive to nearest other hospital (due to distance, speed limits, and weather conditions)

The > of the following:

Hospital-specific rate applicable reference years1 FY - Fiscal Year 423 14%*

Medicare-Dependent Hospital (MDH)

Meets ALL of the following criteria:

•Rural

•≤ 100 beds

•Not an SCH

•≥ 60% are Medicare patients

MDH is a temporary program that will expire January 1, 2027, if Congress does not extend or make it permanent.

162 5%*

Low-Volume Hospital (LVH)

Meets ALL of the following criteria:

•> 15 miles from another IPPS hospital

•< 3,800 annual total discharges

LVH eligibility criteria will change effective January 1, 2027, if Congress does not extend the current criteria. Continuous linear adjustment

Annual patient discharges $ = IPPS + (IPPS x Applicable %) 572 19%*

Critical Access Hospital (CAH)

Meets ALL of the following criteria:

•Rural

•≤ 25 inpatient beds

•24/7 emergency services

•Annual average length of stay of ≤ 96 hours

•> 35-mile drive from another IPPS hospital or CAH, or

•> 15-mile drive in mountainous terrain, or

••Designated as a "necessary provider" before January 1, 2006 101% CAH's reasonable costs 1,378 %

CAHs are not paid by Medicare under IPPS.

1Hospital-specific rate (HSR): A per discharge payment based on a hospital's average operating costs for furnishing inpatient services to Medicare beneficiaries. In contrast, IPPS is a per discharge payment based on the national average operating cost of furnishing inpatient services to Medicare beneficiaries. Both HSR and IPPS use costs from statutorily defined reference years, trended forward.

Designations: Mutually exclusive Not mutually exclusive *Total number of IPPS hospitals: 3,155 (Excludes Maryland hospitals because they are exempt from IPPS.)

Sources: CRS analysis of relevant statute, regulations, and Centers for Medicare & Medicaid Services "FY2026 Impact File," www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2026-ipps-final-rule-home-page; and Health Resources and Services Administration, Data Warehouse, Data Explorer "Health Care Facilities (CMS)" data, https://data.hrsa.gov/data/data-explorer, accessed March 25, 2026.

Information as of April 30, 2026. Prepared by Marco Villagrana, Analyst in Health Care Financing; Joe Angert, Research Assistant; Mari Lee, Visual Information Specialist; and Molly Cox, Geospatial Information Systems Analyst.

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