The SOLES Act amends Medicare’s hospital outpatient prospective payment system (OPPS) to ensure sole community hospitals located in Alaska and Hawaii receive at least 94% of their reasonable costs for covered outpatient department (OPD) services. When OPPS payments fall short of that threshold, the bill directs CMS to increase those payments by the difference.
This change is narrowly targeted at a small set of hospitals that serve geographically isolated communities and frequently operate at losses under OPPS rates. By exempting the increases from budget-neutrality adjustments and requiring CMS rulemaking, the bill would preserve emergency and outpatient services in places where market economics otherwise threaten them — but it also creates a direct increase in Medicare outlays and administrative work for CMS.
At a Glance
What It Does
The bill adds a new paragraph to 42 U.S.C. 1395l(t) that requires the Secretary to boost OPPS payments to any sole community hospital in Alaska or Hawaii whose OPPS receipts for covered OPD services are below 94% of its reasonable costs, increasing payment by the shortfall. It specifies that the copayment for beneficiaries is unchanged and that the increases are not subject to OPPS budget-neutral offsets.
Who It Affects
Directly affects Medicare-certified sole community hospitals in Alaska and Hawaii (the statutory S.C.H. definition in 1886(d)(5)(D)(iii)), CMS as the implementing agency, and Medicare beneficiaries receiving OPD services at those hospitals. It also has fiscal implications for the Medicare trust fund and Congressional appropriations because the increases are not implemented budget-neutrally.
Why It Matters
This is a geographically narrow but policy-significant carve-out from OPPS principles: it preserves small rural hospitals’ outpatient/emergency capacity by aligning Medicare payments closer to their costs, sets a precedent for statutory floors tied to reasonable cost measurements, and increases direct Medicare spending rather than reallocating rates across providers.
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What This Bill Actually Does
The bill works by inserting a single new paragraph into the statutory OPPS payment rules. That paragraph tells CMS to compare what OPPS actually pays a qualifying sole community hospital for covered outpatient department services to the hospital’s reasonable costs as defined in the Medicare cost report rules.
If the paid amount is less than 94% of those reasonable costs, CMS must lift the payment up to that 94% floor by paying the difference.
Two implementation features are important. First, the bill explicitly preserves beneficiary copayments — the patient share remains governed by existing law.
Second, the additional sums are carved out of OPPS’ usual budget-neutral framework: CMS cannot offset these increases by cutting rates elsewhere or treating them as the kind of payment adjustment that triggers automatic redistribution under the statute.For operational rollout, the statute gives CMS six months to write regulations and makes the new payment rule effective for covered OPD services furnished on or after the first January 1 following the regulation date. The text cross-references existing definitions (sole community hospital and reasonable cost), which means CMS will rely on current cost-reporting systems and the established S.C.H. designation to identify eligible hospitals.Although the amendment is narrowly targeted to Alaska and Hawaii, the practical work for CMS will include defining the measurement period, reconciling OPPS payments with cost-report data, and determining whether adjustments are calculated per claim, per cost-report period, or as an aggregate reconciliation.
The statute leaves those procedural details to the rulemaking, so the regulatory phase will decide timing, reporting requirements, and whether payments are prospective or reconciled retroactively.
The Five Things You Need to Know
The bill adds a new paragraph (23) to 42 U.S.C. 1395l(t) requiring CMS to raise OPPS payments to 94% of a sole community hospital’s reasonable costs when actual OPPS payments fall below that level.
The 94% floor uses the statutory definition of ‘‘reasonable costs’’ in section 1861(v) and the existing S.C.H. definition in 1886(d)(5)(D)(iii) to identify eligible hospitals and cost bases.
Congress bars CMS from treating these additional payments as budget-neutral adjustments under paragraph (2)(E); the increases are not subject to offsetting rate reductions elsewhere in OPPS.
Beneficiary copayments remain governed by existing law — the bill explicitly states it does not change the copayment amount under paragraph (8).
CMS must promulgate implementing regulations within six months of enactment, and the payment floor applies to covered OPD services furnished on or after the first January 1 following the rule date.
Section-by-Section Breakdown
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Add paragraph (23) — new special rule for S.C.H.s in Alaska and Hawaii
The bill inserts a single, numbered paragraph at the end of section 1833(t) that creates the statutory authority for the payment floor. This is not a temporary demonstration or grant program; it is a statutory change to how OPPS payments are calculated for the narrowly defined subset of hospitals. Because the text ties the provision into the existing OPPS subsection, it leverages established payment terminology and mechanisms rather than creating a parallel payment stream.
Trigger and calculation of the 94% floor
Subparagraph (A) sets the operative test and remedy: when the OPPS payment for covered OPD services furnished by an eligible sole community hospital falls below 94% of that hospital’s reasonable costs, CMS must increase the payment by the amount of the shortfall. The provision relies on cost-report definitions already in the Social Security Act, which means CMS will use hospital cost reports and its reasonable-cost methodology as the basis for the comparison. The statute does not specify whether CMS will measure shortfalls on a per-claim basis, per cost-report period, or aggregately, leaving that choice to regulatory guidance.
No change to beneficiary copayments
Subparagraph (B) explicitly preserves the existing copayment rules under paragraph (8). Practically, that means the additional sums paid to hospitals are intended to defray provider shortfalls without changing the patient financial obligation calculated under OPPS rules; hospitals will receive higher Medicare reimbursements but cannot increase beneficiary coinsurance as a result of this provision.
Payments excluded from budget-neutral adjustments
Subparagraph (C) does two things: it forbids treating the additional payments as an ‘‘adjustment’’ under paragraph (2)(E) and states that the payments ‘‘shall not be implemented in a budget neutral manner.’’ That removes the statutory obligation to offset OPPS increases by reducing other rates. The upshot is a direct increase in Federal spending rather than a redistribution across providers within OPPS.
Six-month regulatory deadline and effective date timing
Subparagraph (D) directs the Secretary to promulgate regulations within six months and ties effectiveness to covered OPD services furnished on or after the first January 1 following promulgation. The timeline forces CMS into a relatively short regulatory window and effectively delays implementation until the following calendar year, which raises practical questions about how CMS will phase-in or reconcile payments for services provided between enactment and the effective date.
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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 in Alaska and Hawaii — increases Medicare OPPS receipts toward 94% of reasonable costs, reducing operating losses tied to outpatient and emergency departments and improving financial viability in isolated markets.
- Rural patients and communities in Alaska and Hawaii — better odds that local hospitals can continue emergency and outpatient services, which preserves access to care where alternate facilities are distant or impractical.
- State and local health systems and EMS networks — stabilizing hospitals reduces patient transfer demands, long-distance ambulance costs, and disruption to coordinated regional care pathways.
Who Bears the Cost
- Medicare trust fund / federal budget — because the payment increases are not budget-neutral, they represent an added spending obligation on Medicare with no automatic offset.
- CMS and its contractors — will face new administrative workload to define measurement methods, reconcile cost reports against OPPS payments, and implement the regulatory framework in a short six-month window.
- Other Medicare stakeholders (indirect) — while OPPS rates elsewhere are not statutorily reduced, Congress’ choice to fund a narrowly targeted increase could crowd out future appropriation choices or spur requests for similar carve-outs from other regions or hospital types.
Key Issues
The Core Tension
The central tension is between preserving geographically essential hospital services by aligning Medicare outpatient payments with hospital costs, and protecting fiscal discipline and equity across Medicare payments: ensuring access in remote areas costs money and risks setting a precedent that could erode the OPPS’ rate-setting principles.
The bill solves a narrow access problem by tying OPPS payments to hospital reasonable costs, but it leaves key implementation choices to CMS. The statute does not specify whether CMS must reconcile payments on a per-encounter basis, by cost-report year, or as an aggregate reconciliation; each approach has different administrative burdens and incentives.
Using cost-report aggregates will smooth random variation but delays payments; per-claim adjustments would be administratively complex and may require new claims-cost linkages that CMS does not currently maintain under OPPS.
There are also incentive and precedent risks. A statutory floor anchored to ‘‘reasonable costs’’ creates an incentive for hospitals to document higher costs or reclassify services to increase the baseline used in the comparison.
Limiting the carve-out to Alaska and Hawaii reduces immediate fiscal exposure but creates a fairness question: other remote or high-cost areas may press for similar language. Finally, the exclusion from budget neutrality increases direct Medicare spending, raising budgetary trade-offs that Congress will have to absorb elsewhere; the bill does not specify scoring or appropriations language to accommodate that new outlay.
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