Rural Hospital Lifeline: New Bill Lets States Bypass Distance Rules, Boost Funding - But Caps at 120 Hospitals

The "Rural Hospital Closure Relief Act of 2025" is basically throwing a lifeline to struggling rural hospitals. The core idea? Allowing states to bend the usual rules and get more hospitals designated as "critical access," which unlocks better Medicare payments. But it's not a free-for-all – there are some serious strings attached, and a ticking clock.

Getting Around the "35-Mile Rule"

The big change here is letting states ignore the rule that says a critical access hospital needs to be 35 miles away from other hospitals. Section 2 of the bill says states can now greenlight hospitals for this special status even if they're closer, if they meet certain criteria. We're talking about hospitals in counties with high poverty rates (higher than the national or state average) and where a bigger chunk of patients are on Medicare Part A than the national or state average. Plus, these hospitals have to promise to add or expand a "high-demand" service – think obstetrics or behavioral health. Think of a small-town hospital that's been losing money for two years. If they're in a high-poverty area and agree to, say, finally open a maternity ward, they might qualify. This could be a game-changer for towns worried about losing their only hospital.

The Catch: Caps and Competition

Here's where it gets tricky. The bill only allows 120 hospitals nationwide to get this special designation, and no more than 5 per state (Section 2). This could create some serious competition. Imagine two hospitals in neighboring counties, both desperate for the critical access status. Only one might get it, leaving the other in a tough spot. The Secretary of Health and Human Services will decide who gets these slots "based on need" – but that's pretty vague. The bill also requires hospitals to keep reporting on their new services, and if they mess up, they could lose their critical access status. So, there's a lot of oversight.

The Long Game: New Payment Models

This bill isn't just a quick fix. It also sets up some major long-term changes. Section 3 orders a big study by the Medicare Payment Advisory Commission (MedPAC) to figure out better ways to pay rural hospitals. They'll be looking at data from 2018 all the way to 2028, and they have to report back to Congress within 8 years with recommendations. But here's the kicker: Section 4 says that within 9 years, the Secretary must create a system for these critical access hospitals to switch to new payment models. And that transition has to happen within one year. This could mean going back to the way they were paid before, becoming a "rural emergency hospital," or adopting one of the new models MedPAC comes up with. This "sunset" clause is a big deal – it means the benefits of this bill might not be permanent, and hospitals could face another major shakeup down the line. It's like getting a temporary boost, but knowing you'll have to adapt to a whole new system in a decade. This could be good if the new system is better, but it's a risk.

Bottom Line

This bill offers a potential lifeline to some rural hospitals, but it's not a simple solution. It's a mix of immediate relief and long-term uncertainty. While it could help keep hospitals open and expand services in some areas, the limits and the eventual forced transition to new payment models create real challenges. It's a complex situation, and whether it ultimately helps or hurts rural healthcare remains to be seen.