MedPAC Focuses on Rural Emergency Hospitals and Payment for Software as a Medical Service

November 13, 2023

At its November 2 public meeting, the Medicare Payment Advisory Commission (MedPAC) discussed a new Medicare provider type called rural emergency hospitals (REHs) and payments for software as a medical service (SaMS).

The Consolidated Appropriations Act, 2021 (CAA) established REHs, effective January 1, 2023, over concerns about closures of rural hospitals and critical access hospitals (CAHs). Hospitals are eligible to convert to REHs if they are CAHs or rural with less than 50 beds. REHs cannot maintain acute inpatient beds or swing beds, must have an emergency department staffed 24/7 and offer hospital observation services, must maintain an average length of stay of 24 hours or less, and must have a transfer agreement with a Level I or II trauma center. REHs receive 105% of the outpatient prospective payment system (OPPS) rate for all OPPS services in addition to a fixed monthly payment ($272,866 in 2023).

The CAA requires MedPAC to review payments to REHs annually starting in 2024. MedPAC found that as of October 2023, 17 hospitals have converted to REHs. Prior to converting, the volume of inpatient care at these hospitals was low and declining. In 2021, these hospitals averaged less than one inpatient admission per day across all payers. In 2022, the median all-payer profit margin was -13%. Results from MedPAC’s interviews and site visits show that while REH representatives said their facilities would have closed without the option to convert to an REH, the communities’ most prominent concern about the conversion was the loss of inpatient services. MedPAC will continue to monitor the development of REHs and will analyze payments when claims data become available.

MedPAC also began its work on payment for SaMS. SaMS has two forms: software as a service (SaaS) refers to algorithm-driven software that helps clinicians make clinical assessments; and prescription digital therapeutics (PDTs), which are software applications delivered on beneficiaries’ personal devices that treat illness or injury. Medicare has covered and paid for SaaS since 2018 but does not cover most PDTs because such software does not fit into an existing Medicare benefit category and is not consistent with Medicare’s definition of durable medical equipment. Medicare typically pays separately for SaaS under the OPPS and physician fee schedule rather than packaging it with other services. As of 2022, volume and spending across the 10 covered SaaS devices has been very low in the OPPS. Under the inpatient PPS, SaMS is usually bundled into the payment rate for the applicable diagnostic-related group, but manufacturers can also apply for a new technology add-on payment (NTAP). Six SaMS devices have received NTAP status. MedPAC will focus its efforts on ensuring that covered services improve health outcomes and developing general payment principles for these services.