What is an MDH?
The Medicare-Dependent, Small Rural Hospital (MDH) program was established by Congress in 1990 with the intent of supporting small rural hospitals for which Medicare patients make up a significant percentage of inpatient days or discharges. To qualify as a MDH, a hospital must be (1) located in a rural area, (2) have no more than 100 beds, and (3) demonstrate that Medicare patients constitute at least 60 percent of its inpatient days or discharges.
Because they primarily serve Medicare beneficiaries, MDHs rely heavily on Medicare payment to sustain hospital operations. These hospitals are believed to be more vulnerable to inadequate Medicare payments than other rural hospitals because they are less able to cross-subsidize inadequate Medicare payments with more generous payments from private payers. As such, Congress acknowledged the importance of Medicare reimbursement to MDHs and established special payment provisions to buttress these hospitals. Congress recognized that if these hospitals were not financially viable and failed, Medicare beneficiaries would lose an important point of access to hospital services.
A recent National Center for Health Statistics (NCHS) data brief on rural hospitals demonstrates the importance of the MDH program. Read our analysis here.
Today, more than 150 hospitals in 32 states MDH status.
The primary benefit of MDH status is eligibility for payments based on hospital-specific payment rates. Under Medicare’s Inpatient Prospective Payment System (IPPS), hospitals with MDH status receive payments based on the federal rate or hospital-specific rate, whichever is greater. If the hospital-specific rate is greater, the MDH is paid the federal rate plus 75 percent of the difference between the hospital-specific rate and federal rate.
Hospitals with MDH status are also exempt from the 12 percent disproportionate share hospital (DSH) payment adjustment cap applicable to most other rural hospitals.