Rural Hospital Flexibility Grants

Authorizing Legislation - Section 1820(j), Title XVIII of the Social Security Act.

Program Description and Accomplishments
The Rural Hospital Flexibility activities are a component of the Office of Rural Health Policy and support a range of activities focusing on small rural hospitals including Critical Access Hospitals. There are three grant programs administered under this authority, two of which work directly with small rural hospitals while the third works to address health disparities and address infrastructure challenges in the Delta region of Mississippi.

The first program is the Rural Hospital Flexibility (Flex) grant program, which began in 1999. This program provides grants to States to support small rural and critical access hospitals (CAHs). The purpose of the program is to provide support to the more than 1,282 small, financially vulnerable hospitals that have converted to Critical Access Hospital (CAH) status by focusing on a range of performance and quality improvement activities. The 45 grants awarded through the program also encourage States to encourage CAHs to work with rural emergency medical service providers to promote coordination and integration of pre-hospital care. In 2007, there was an additional $25 million in this program which supported 16 additional grants that focused on assisting CAHs and other health care providers in implementing health information technology.

The second program is the Small Hospital Improvement Program (SHIP), which began in 2002. This program provides grants of about $9,000 to more than 1,600 eligible hospitals (hospitals of 50 beds or less located in a rural area). The purpose of the program is to assist small rural hospitals in quality and performance improvement. The 48 grants awarded through this program can be used to meet the requirements of the Medicare Prospective Payments System; comply with the provisions of the Health Insurance Portability and Accountability Act (HIPAA); and/or reduce medical errors and support quality improvement.

The Flex performance measures reflect efforts to increase the financial viability of Critical Access Hospitals (CAHs) so they can continue to provide needed access to inpatient, outpatient and emergency care for isolated rural communities. The program uses CAH financial operating margin data as a measure of financial viability. In FY 1997, when this designation first became available, CAHs had an average operating margin of -28 percent. The most recent period for which Medicare cost report data is available shows that in FY 2006, CAHs had an average operating margin of -8.8 percent, which is an improvement from the original baseline margin of -14.05 and better than the 2005 performance of -9.6.

This program was covered in OMB’s combined PART assessment of HRSA’s Rural Health Activities during 2003. The rural health activities received a rating of Adequate. (See earlier Office of Rural Health Policy Summary Request.)

Funding includes costs associated with grant reviews, processing of grants through the Grants Administration Tracking and Evaluation System (GATES) and HRSA’s electronic handbook, and follow-up performance reviews.

Funding History

Budget Request
There is no FY 2009 request for this program. The need for this program has decreased as the result of the approximately $25 billion investment in rural provisions within the Medicare Modernization Act of 2003 (MMA). There is no target for this program’s performance measures because there is no request.

See Table