LUGPA Policy Brief:
Urban Hospitals Dual-Designated as Rural for Medicare Funding
Aug. 2025
Introduction
Recent findings published in Health Affairs reveal a concerning trend where hundreds of urban hospitals have leveraged a 2016 Medicare policy change to obtain dual classifications as both urban and rural facilities for reimbursement purposes. This practice allows these hospitals to access federal funds intended for rural healthcare support while retaining benefits associated with urban hospital designations.
Key Findings
According to a study conducted by researchers from Johns Hopkins University and Brown University, the number of urban hospitals holding dual classifications increased significantly from 2017 to 2023. By 2023, 425 urban hospitals had acquired both administrative designations, predominantly nonprofit entities and large academic medical centers located in metropolitan areas.
The financial impact of these dual designations is substantial. Hospitals such as New York Presbyterian Hospital, Cleveland Clinic Hospital, Advent health Orlando, UCSF Medical Center, and Cedars-Sinai Medical Center, among others, recorded billions in revenues while benefiting from rural-specific reimbursement programs. These include eligibility for programs like sole community hospital status, rural referral center status, and lower eligibility standards for the 340B Drug Discount Program.
Policy Background
Historically, CMS regulations prevented hospitals from reclassifying themselves until a 2016 policy change, prompted by federal court decisions, relaxed these restrictions. This shift allowed hospitals to strategically reclassify while maintaining their original urban designations for certain Medicare reimbursement calculations.
Impact on Rural Healthcare
The study highlights a significant increase in the proportion of administratively rural hospitals and beds nationwide, suggesting a disproportionate growth in larger facilities benefiting from dual designations. This trend could potentially divert critical federal funds intended for rural healthcare to financially robust urban institutions.
Policy Recommendations
To mitigate these effects and ensure equitable distribution of federal healthcare funds:
- Reevaluate CMS Regulations: Review current CMS regulations to prevent hospitals from simultaneously holding dual urban and rural classifications.
- Transparency and Oversight: Implement stricter oversight mechanisms to monitor hospital reclassifications and ensure funds designated for rural healthcare genuinely benefit rural communities.
- Legislative Action: Advocate for legislative measures that close loopholes allowing urban hospitals to exploit rural funding mechanisms.
As policymakers allocate substantial funds to bolster rural healthcare, addressing the dual designation loophole is crucial. Failure to act risks further diverting resources away from underserved rural populations to financially advantaged urban institutions. LUGPA stands ready to support efforts aimed at preserving the integrity and effectiveness of federal healthcare funding mechanisms.
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