Health & Human Services Secretary Kathleen Sebelius has announced the expansion of the Rural Community Hospital Demonstration Program. The Demonstration Program began in 2005 as per the Medicare Modernization Act. The pilot originally funded 13 hospitals that were located in 8 sparsely populated states. There are currently ten hospitals still participating in the program. With the passage of the Affordable Care Act, 20 additional hospitals (in 20 additional states, which includes Colorado) may be eligible to participate in the Program. In order for a hospital to be eligible to apply and participate in the Program they must be located in a rural area, have fewer than 51 acute care beds, provide 24-hour emergency care, and not be eligible for nor currently be designated as a Critical Access Hospital. Approximately 3 hospitals in Colorado may have the potential to apply to participate in this Program.

The Demonstration Program tests the feasibility and advisability of providing reasonable cost reimbursement for small rural hospitals. Hospitals selected for participation in the Program will receive payment for inpatient services, with the exclusion of services furnished in a psychiatric or rehabilitation unit that is a distinct part of the hospital, using the following rules:
1. Reasonable cost for covered inpatient services, for discharges occurring in the first cost reporting period on or after the implementation of the program;
2. For subsequent cost reporting periods, the lesser amount of reasonable cost or the previous year’s amount updated by the inpatient prospective payment update factor for that particular cost reporting period.