The Rural Hospital Support Act requires Medicare to recalculate (rebase) target payment amounts for sole community hospitals (SCHs) and Medicare‑dependent, small rural hospitals (MDHs) by substituting a 12‑month cost reporting period beginning in fiscal year 2016 as the new base. The rebasing applies for cost reporting periods beginning on or after October 1, 2025, and to discharges on or after that date, but only if the rebasing increases a hospital’s target amount.
The bill adds new subparagraphs to section 1886(b)(3) of the Social Security Act to codify these substitutions and timing rules.
The bill also restricts CMS from applying certain classification or weighting adjustments to rebased target amounts that were adopted after October 1, 2015, and it eliminates sunset dates so two existing rural payment enhancements — the Medicare‑dependent hospital methodology and the increased payments under the low‑volume hospital program — continue in subsequent fiscal years. These provisions change how rural hospitals’ Medicare revenue is calculated, create discrete implementation work for CMS and hospital finance teams, and will increase Medicare outlays where the rebasing produces higher targets.
At a Glance
What It Does
The bill directs CMS to substitute the 12‑month cost reporting period beginning in fiscal year 2016 as the base for calculating target amounts for SCHs and MDHs for cost reporting periods beginning on or after October 1, 2025, and to apply the new base only when it increases payment. It adds subparagraph M (SCH) and N (MDH) to section 1886(b)(3), prohibits certain post‑2015 classification/weight changes from reducing those rebased amounts, and removes date limits that previously curtailed MDH and low‑volume hospital payment boosts.
Who It Affects
Directly affected are sole community hospitals and Medicare‑dependent, small rural hospitals submitting cost reports that feed target‑based Medicare payment calculations, plus CMS payment operations and hospital billing/finance teams. Secondary effects reach rural low‑volume hospitals receiving increased payments, Medicare actuarial and budget offices, and state hospital associations advising members on reclassification choices.
Why It Matters
Rebasing can materially raise Medicare payments for qualifying rural hospitals and thereby affect hospital financial viability, local access to care, and Medicare program spending. For compliance officers and finance leaders, the bill changes base period inputs, creates a conditional eligibility test for higher payments, and imposes an administrative implementation requirement on CMS with implications for claims processing and audit exposure.
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What This Bill Actually Does
The bill changes the way Medicare computes certain rural hospitals’ ‘‘target amounts’’ — a baseline used to calculate extra payments under the inpatient prospective payment system. For sole community hospitals, it adds a new statutory subparagraph that allows CMS to replace the previously used base cost reporting period with the hospital’s 12‑month cost reporting period that began during fiscal year 2016.
That substitution applies to cost reporting periods beginning on or after October 1, 2025, and only when it increases the hospital’s payment under section 1886.
The same basic approach applies to medicare‑dependent, small rural hospitals through a separate new subparagraph: CMS must substitute the FY2016 12‑month period as the base for purposes of the MDH target calculation for discharges on or after October 1, 2025, but only if the substitution raises the target amount. Both rebasing provisions are conditional — they do not automatically increase payments for all hospitals; CMS must determine whether the alternate base produces a larger target.To preserve the rebased dollar amounts from being reduced by later technical changes, the bill amends section 1886(d)(4)(C) to prohibit CMS, for discharges using the rebased targets, from applying adjustments tied to classification or weighting changes that occurred after October 1, 2015.
The bill also removes sunset language in existing MDH and low‑volume hospital statutes, making those enhanced payment methodologies continue into subsequent fiscal years, and amends the OBRA‑93 reclassification waiver language so hospitals may continue to decline reclassification in later fiscal years.Operationally, the statute requires CMS to implement new target computations for claims and cost reporting effective October 1, 2025, and to treat the rebased target amounts differently for adjustment purposes. That will require system changes, updated audit and reconciliation procedures, and guidance to hospitals on whether and how the rebased base period applies to their facility.
The Five Things You Need to Know
The bill substitutes the 12‑month cost reporting period beginning during fiscal year 2016 as the base period for SCH and MDH target calculations for cost reporting periods beginning on or after October 1, 2025.
Rebasing only applies when the substituted FY2016 base produces a larger target amount for the hospital — it is conditional, not automatic.
For discharges using the rebased target amounts, CMS may not apply classification or weighting adjustments required by clause (iii) that occurred before October 1, 2015 to reduce those amounts.
The bill removes explicit sunset dates from the MDH payment methodology and the low‑volume hospital increased payment provisions, making those boosts continue in subsequent fiscal years indefinitely.
Amendment to the OBRA‑93 reclassification provision lets hospitals continue to decline reclassification in future fiscal years (i.e.
preserved option beyond the previously specified date range).
Section-by-Section Breakdown
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Rebase SCH target amounts to FY2016 cost year
This section adds subparagraph (M) to 1886(b)(3) and instructs CMS to substitute the 12‑month cost reporting period beginning during fiscal year 2016 as the base cost reporting period for sole community hospitals for cost reporting periods beginning on or after October 1, 2025. The substitution is implemented by treating references to the ‘‘target amount’’ as if that FY2016 base were the original base, but CMS applies any applicable percentage increases only for discharges on or after October 1, 2025. The practical effect is a one‑time re‑anchoring of the SCH payment baseline to an earlier cost year if doing so raises a hospital’s computed target.
Rebase MDH target amounts to FY2016 cost year
This addition creates subparagraph (N) for medicare‑dependent, small rural hospitals and makes the FY2016 12‑month cost reporting period the substitute base when applying the MDH target formula for discharges on or after October 1, 2025. Like the SCH rebasing, the MDH substitution applies only if it increases the hospital’s target amount. Administratively, CMS must apply the revised base within the MDH eligibility and target computation framework already in statute, which means updating calculations and claims adjudication logic for MDH‑qualified facilities.
Limits post‑2015 classification/weighting adjustments against rebased targets
This amendment inserts a savings clause: for discharges using rebased targets under new subparagraphs M or N, the Secretary may not apply certain adjustments tied to classification and weighting changes that were required by clause (iii) prior to October 1, 2015. That effectively freezes the classification/weighting status used to adjust the rebased target amounts at (or before) that date for purposes of these rebased payments, preventing later technical DRG or classification changes from reducing the new, higher targets.
Extends MDH methodology and low‑volume increases; preserves reclassification opt‑out
These paired amendments remove date‑limited language that previously restricted the MDH methodology and the low‑volume hospital increased payments to specific fiscal years. By striking the sunset phrases and replacing them with ‘‘a subsequent fiscal year,’’ the bill makes those payment enhancements ongoing. The OBRA‑93 cross‑reference is changed so hospitals retain the statutory option to decline reclassification in future years. Practically, these changes remove a scheduled expiration and require CMS to apply the MDH and low‑volume rules beyond the earlier cutoff dates.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Sole community hospitals — the rebasing can increase their target amounts and Medicare revenue where the FY2016 base yields a higher baseline, directly supporting rural hospital operating margins.
- Medicare‑dependent, small rural hospitals — they receive the same rebasing opportunity as SCHs for discharges on or after Oct 1, 2025, potentially boosting inpatient revenue tied to MDH target calculations.
- Low‑volume rural hospitals — the bill removes sunset language and makes the increased payments under the low‑volume hospital program continue into subsequent fiscal years, securing an ongoing revenue uplift.
- Hospital finance and billing teams at affected rural hospitals — securing eligibility for larger targets reduces near‑term revenue risk and justifies investments in compliance and billing updates to capture rebased payments.
Who Bears the Cost
- Centers for Medicare & Medicaid Services (CMS) — must modify claims systems, update program guidance, and perform new audits and reconciliations, creating administrative and IT costs.
- Medicare Trust Funds / federal budget — where rebasing produces larger target amounts, Medicare outlays will rise, increasing program spending and affecting actuarial projections.
- Hospitals that do not benefit from rebasing — facilities with lower relative costs in FY2016 or different case mix may see no change while neighboring hospitals gain, creating relative competitive shifts that some rural providers will bear.
- State hospital associations and compliance vendors — they must advise members, revise model documentation, and may face time‑intensive casework helping hospitals determine eligibility and opt‑out consequences.
Key Issues
The Core Tension
The bill pits two legitimate goals against each other: stabilizing payments to fragile rural hospitals by anchoring targets to a historical cost year that often produces higher payments, versus preserving alignment between Medicare payments and current clinical, coding, and regional cost realities and controlling long‑term program spending. Choosing one objective strengthens rural hospital finances but risks outdated baselines, fiscal cost, and inequities relative to hospitals whose current operations differ substantially from 2016.
The bill’s approach — fixing the payment base to a FY2016 cost year — buys a straightforward upward correction for some rural hospitals but introduces several implementation and equity questions. Using an older cost year can overstate current cost baselines if local case mix, productivity, or service lines have changed materially since 2016; rebasing also interacts awkwardly with later DRG, classification, or wage index reforms that reflect current clinical practice and regional costs.
The statutory prohibition on applying post‑2015 classification/weighting adjustments to rebased discharges locks a portion of the payment calculation to historical rules, increasing predictability for beneficiaries but risking misalignment with contemporary clinical and coding realities.
Operationally, CMS will need to change target‑calculation routines, claims processing logic, and audit scripts, and to publish guidance on how hospitals can determine whether the substitution ‘‘results in an increase’’ and therefore applies. The conditional nature of the substitution creates a need for pre‑implementation modeling and individualized notices to hospitals; absent clear transitional guidance there is a risk of accrual discrepancies, overpayments, or disputes on audit.
Finally, by removing sunset dates for MDH and low‑volume boosts the bill increases ongoing program costs, which will matter for broader Medicare budget negotiations and could constrain other payment reforms unless offsetting adjustments are made elsewhere.
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