Federal Support for Financially Distressed Hospitals
INSIGHTi
Federal Support for Financially
Distressed Hospitals
December 1, 2022
Recent reports of hospitals closing or reducing services in urban areas (such as in Atlanta and Cleveland)
and ongoing issues of rural hospital closures have raised concerns about access to care. In addition, some
hospitals report experiencing financial strain and are reducing services (particularly labor and delivery
services). These reports raise questions about federal support for hospitals and potential options to aid
financially distressed hospitals. This Insight addresses Medicare hospital payments, other sources of
federal support for hospitals (programs that support other types of health facilities are not discussed), and
temporary financial assistance available for expenses related to COVID-19.
Federal Payment for Health Care Services Provided to Beneficiaries
Insurance programs such as Medicare, Medicaid, and private health insurance generally pay for services
furnished to beneficiaries and enrollees; they do not provide general financial support to hospitals. For
example, Medicare is the largest source of federal government insurance spending for hospital services.
Medicare pays most hospitals a predetermined fixed payment rate for each Medicare beneficiary inpatient
hospital stay—referred to as the base payment rate—under the Medicare inpatient prospective payment
system (IPPS). The IPPS base rate was set using hospital operating and capital costs in the early 1980s,
updated for inflation. Thus, it is a rate based on the average cost of furnishing inpatient hospital services
to a Medicare beneficiary; it is not a hospital’s actual cost of furnishing inpatient care. The IPPS base rate
is subject to numerous adjustments to account for the relative difference in costs due to patient conditions,
geographic labor costs, and certain characteristics of a hospital, such as whether the hospital trains
medical residents or treats a disproportionate share of low-income patients.
In addition to the aforementioned payment adjustments, some qualifying hospitals may change the
baseline costs used to set their IPPS base rate if such change would result in a higher IPPS payment rate.
These are referred to as Medicare payment designations (e.g., Sole Community Hospital), which are often
targeted to small rural hospitals. However, even these hospitals are still paid under IPPS, not at-cost.
Thus, Medicare does not provide general financial support to hospitals. Rather, Medicare is primarily
insurance coverage; it pays providers (e.g., hospitals) for services furnished to Medicare beneficiaries.
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Federal Support for Hospitals
Few current grant programs (see here for a past hospital funding program) directly target financial support
to hospitals; however, a number of broader funding opportunities may be relevant. Below are selected
examples; this list is not comprehensive. Note that hospitals often seek capital funding for construction or
renovation projects. Many grants specifically preclude funding capital projects, but examples that can
support such projects are noted. Also, see further CRS resources on grants and federal assistance.
Preventive Health and Health Services Block Grants (PHHS) provides funds to states,
territories, and tribes to address public health needs. See here for state agency contact
information.
Community Services Block Grants (CSBG) provide federal funds to states, territories,
and tribes for distribution to local agencies to support a wide range of community-based
activities to reduce poverty. See here for state agency contact information.
Hospital Preparedness Program (HPP) and Public Health Emergency Preparedness
(PHEP) provides funding to promote prepared and resilient communities.
Community Development Block Grant (CDBG) through the Department of Housing and
Urban Development (HUD) provides funds to address a wide range of unique community
development needs. HUD Community Development and Planning Field Offices can
confirm site eligibility. (Capital projects eligible.)
Investments for Public Works and Economic Development Facilities grants support the
construction or rehabilitation of essential public infrastructure and facilities. (Capital
projects eligible.)
Community Facilities Direct Loan & Grant Program (USDA) provides affordable
funding to develop essential community facilities in rural areas. (Capital projects
eligible.)
HUD’s Office of Hospital Facilities administers the Section 242 Hospital Mortgage
Insurance program to assist hospitals with obtaining financing. (Capital projects eligible.)
The Small Business Administration (SBA) provides a wide range of resources and
opportunities for finding funding, including grants and loans. See here for contact
information for SBA District Offices. (Capital projects eligible.)
For capital projects that incorporate energy efficiency, the U.S. Department of Energy
maintains a database (DSIRE) of energy efficiency incentives. Incentives are searchable
by state, coverage area, eligible sector (e.g., nonprofit), and other filters. (Capital projects
eligible.)
U.S. General Services Administration’s Office of Personal Property Management helps
state and local agencies and nonprofits acquire surplus federal property, which may
include equipment, furniture, and vehicles, among other items. Organizations can contact
their State Agency for Surplus Property.
The federal government also supports technical assistance to providers through the following:
RHIhub (the Rural Health Information Hub), funded by Department of Health and
Human Services (HHS), which provides extensive information, including how-to-guides
such as Applying for Grants to Support Rural Health Projects and Capital Funding for
Rural Healthcare. It also has a listing of Rural Funding & Opportunities and customized
searches available.
HHS’s Federal Office of Rural Health Policy, which administers programs that provide
technical assistance to rural hospitals in financial distress or at risk of closure.
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HHS’s Office of Minority Health, which conducts funding searches for entities to
identify available opportunities.
The FY2022 appropriations law (P.L. 117-103) provided infrastructure funds to health facilities through
Community Project Funding. Similar requests in the Senate and House were advanced for FY2023
appropriations; as of the date of this Insight, FY2023 full-year appropriations have not been enacted.
Supplemental Funding for Hospitals
COVID-19 relief funding through the $178 billion Provider Relief Fund (PRF) provided direct funding to
hospitals for increased costs and reduced revenue due to the coronavirus. This included funds targeted for
safety net hospitals, rural hospitals, and hospitals that treated large numbers of COVID-19 patients. The
American Rescue Plan Act (ARPA; P.L. 117-2) also included two programs to support rural providers.
The first was administered in conjunction with the PRF and provided $8.3 billion to rural providers for
COVID-19-related increased costs and reduced expenses. The second program—Emergency Rural Health
Care Grants, administered by USDA—has two tracks. The first is for immediate rural health care needs,
and the second is for long-term rural health care needs; in both cases, these needs must be caused by
COVID-19.
Author Information
Elayne J. Heisler
Marco A. Villagrana
Specialist in Health Services
Analyst in Health Care Financing
Michele L. Malloy
Research Librarian
Disclaimer
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to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
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