What is an SCH?
The Sole Community Hospital (SCH) program was created to maintain access to needed health services for Medicare beneficiaries in isolated communities. The SCH program ensures the viability of hospitals that are geographically isolated and thus play a critical role in providing access to care. Hospitals qualify for SCH status by demonstrating that because of distance or geographic boundaries between hospitals they are the sole source of hospital services available in a wide geographic area. There are a variety of ways in which hospitals can qualify for SCH status, but the majority qualify by being more than 35 miles from another provider.
Currently, approximately 300 hospitals in 46 states have SCH status.
SCHs provide rural populations with local access to a wide range of health care services. In so doing, SCHs localize care, minimize the need for referrals and travel to urban areas, and provide services at costs lower than would be incurred in urban areas. These hospitals also commonly establish satellite sites and outreach clinics to provide primary and emergency care services to surrounding underserved communities, a function which is becoming increasingly important as economic factors force many small rural hospitals to close.
Additionally, SCHs are vital to their local economies. These hospitals typically are significant employers, generating considerable cash outflow into the area economy and boosting the area tax base.
For these and other reasons, Congress has long appreciated the special role of SCHs in the rural health care community. Congress also has recognized that SCHs have above-average costs for the mix of patients they serve. Congress has sought to buttress SCHs, and ensure their continued viability by establishing special Medicare payment provisions.
SCHs are reimbursed by Medicare for operating costs associated with inpatient services provided to program beneficiaries on the greater of the federal payment rate applicable to the hospital (i.e., the payment that the hospital would otherwise receive under the inpatient service prospective payment system ("PPS")) or a cost-based payment, which is determined based on the hospital’s costs in a base year: 1982, 1987, 1996 or 2006 trended forward, whichever is highest). A hospital that qualifies for SCH status will continue to be reimbursed under the PPS for as long as reimbursement under the PPS is more than reimbursement on a cost-basis; the hospital will be paid on a cost-basis if cost-based reimbursement is greater than reimbursement under the PPS.
A hospital with SCH status also is eligible for an upwards payment adjustment for any cost reporting period during which the hospital experiences a more than 5 percent decrease in its total inpatient discharges as compared to its immediately preceding cost reporting period due to experiences beyond its control. The adjustment is determined based on a variety of considerations, but can be as high as the difference between the hospital’s operating costs and the federal payment rate applicable to the hospital for the year in question.
Additionally, SCHs are eligible for "special access" rules for purposes of Medicare geographic reclassification, which means that a hospital with SCH status applying for reclassification from an urban area does not have to be within 15 miles of the area to which it seeks reclassification, and may apply to the nearest MSA.
SCHs are also eligible to participate in the 340B program at a lower DSH threshold. In addition, rural SCHs also are exempt from the 22.5 percent reduction in Medicare payment for covered outpatient drugs purchased through the 340B program implemented by CMS in 2018.
CHAMPUS/TRICARE and some state Medicaid programs and private payors also specially treat hospitals with the SCH designation.
Hospitals with Sole Community Hospital status receive a 7.1 percent adjustment to OPPS payments.