Skip Navigation HRSA - U.S Department of Health and Human Services, Health Resources and Service Administration U.S. Department of Health & Human Services
Order Publications
Grants Find Help Service Delivery Data Health Care Concerns About HRSA

Opportunities To Use Medicaid in Support of Access to Health Care Services

Rural Health Services

To view or download complete fact sheet:
HTML  |  Adobe Acrobat (61 K)  |  MS Word (102 K)

The opportunities to use Medicaid as a source of financing will vary with each program and with each State. However, a careful review of any State Medicaid program will likely identify opportunities in which Medicaid can help finance State or local health programs.

Rural areas pose challenges to the availability and access to health care. Medicaid funding can assist in addressing the issues in several ways. Each strategy will involve discussions and agreements with the Medicaid agency regarding adoption and implementation. While this overview broadly describes these strategies, each raises detailed implementation issues that will vary from State to State. The following avenues are worth consideration as part of a rural health strategy.

Rural Health Clinics (RHCs): Hospital outpatient departments and independent primary care clinics can qualify for rural health clinic status, and thereby qualify for special reasonable cost reimbursement from Medicaid and Medicare. Both provider-based (hospital owned) and independent RHCs are subject to a maximum payment limits for services classified as RHC services.

Federally Qualified Health Centers (FQHCs): All federally-funded health centers that receive grants under Section 330 of the Public Health Service Act are FQHCs. In addition, community based health care providers that satisfy federal grant requirements can gain FQHC status as “look alikes”. There are currently look alike FQHCs. The Balanced Budget Act (BBA) as amended by the Balanced Budget Reconciliation Act (BBRA) continues reasonable cost based reimbursement on a phase-down basis through 2004.

Local Health Departments: At State discretion, Medicaid can reimburse local health departments for the reasonable cost of services delivered to Medicaid patients. Medicaid patients are a majority of patients for many health departments. Overall eligibility changes may have the effect of increasing the number of Medicaid patients.

Critical Access Hospitals: Small rural hospitals, with fewer than 15 beds, providing emergency services and at least 35 miles from another hospital can qualify for status as a Critical Access Hospital. These hospitals receive reasonable cost reimbursement from Medicare. Medicaid can at State discretion pay such a hospital using a reasonable cost methodology.

Support for Rural Physicians: Providing 24-hour coverage is a critical issue for doctors in rural areas. Medicaid can contract and pay for services that support these physicians. An example would be a 24-hour nurse helpline, based at a local hospital, whose costs would qualify for Medicaid reimbursement as either a medical or administrative fee.

Adequate Reimbursement for Rural Providers: Medicaid payment is often very low. Low payment rates discourage provider participation in Medicaid. Because rural areas usually do not have sufficient patients to fully support a doctor’s practice, Medicaid can pay rural providers at a rate more generous than that used for providers in non-rural areas. This will help make a rural practice financially viable.

Medicaid Payment for Telemedicine: New technologies are bringing advanced specialty and sub-specialty medical care to remote areas, via telemedicine. Medicaid reimbursement can be set to compensate both in person and telemedicine based on consultation.

Medicaid Enrollment of Ancillary Providers: Within the scope of each State’s practice acts, Medicaid can increase availability of medical care in underserved areas by allowing reimbursement for services provided by nurse practitioners, physician assistants or other ancillary providers. Coverage of nurse midwifery and nurse practitioner services is mandatory where such practice is permitted by State law.

Graduate Medical Education (GME): Medicaid can compensate for GME costs incurred by accredited training programs in order to encourage the provision of care in geographic and specialty shortage areas.

Disproportionate Share Hospital (DSH) Payments: Medicaid can define the criteria for hospitals to qualify for DSH payments. It is possible to set the criteria such that rural hospitals that serve low-income patients receive enhanced Medicaid payments.

Enrolling Eligible Adults and Children: Medicaid funding can only support care for persons who are actually enrolled in Medicaid. Experience has shown that many eligible persons are not enrolled, but that certain strategies increase the likelihood of their enrollment. These strategies include: outreach; radio and TV public service announcements; simplified forms and procedures; and outstationed assistance to applicants. These efforts are particularly important for children, pregnant women and the elderly, and migrant agricultural workers.

Outstationed Medicaid Eligibility Workers: Medicaid funding is available to support workers located in sites such as hospitals, community health centers or local health departments. The outstationed eligibility workers can provide information, assist in application and eligibility determination, and facilitate enrollment in Medicaid.

Medical Transportation: In addition to emergency transport, transportation related to an eligible medical service is a covered benefit under Medicaid. This service can be especially important to rural residents who need prescription drugs or on-going medical treatment. Medicaid can contract with a transportation system, or reimburse mileage or specific transportation providers who meet Medicaid requirements.


This document provides an overview of the potential for State and local health programs to use Medicaid as a source of financing for rural health programs. Medicaid has become a significant source of funding for almost every health-related program in the U.S. that serves low-income persons. Over the past decade, the use of Medicaid has increased significantly. It is likely that new opportunities for Medicaid to support such services will continue to emerge. A periodic review may identify new ways for a State to take advantage of Medicaid as a source of funding to finance health services.

Other Opportunities to Use Medicaid

In addition to rural health programs, Medicaid is also a potential source of financing for a number of State or local health programs. Specific areas where Medicaid can be a source of funding include: oral health, maternal and child health, school-based health care, and mental health and substance abuse services; and services for children with special health care needs, homeless populations, and persons with HIV/AIDS.

Contact Information

If you have questions or wish to obtain additional information on implementation strategies, contact:

Alexander Ross
U.S. Department of Health and Human Services
Health Resources and Services Administration
Health Systems and Financing Group
5600 Fishers Lane, Room 10-29
Rockville, Maryland 20857

Phone: 301-443-1512
Fax: 301-443-5641

For copies of this document, contact:
HRSA Information Center
P.O. Box 2910
Merrifield, VA  22116
Fax: 703-821-2098
Se Habla Espanol


Visit the HRSA web site at:

This document was prepared by Health Management Associates under contract with HRSA.

Related Links

HRSA Provider Reimbursement

Centers for Medicare and Medicaid Services

Kaiser Commission on Medicaid and the Uninsured (not a U.S. Government Web site)

National Academy for State Health Policy (not a U.S. Government Web site)

National Health Law Program (not a U.S. Government Web site)

Center on Budget and Policy Priorities (not a U.S. Government Web site)

Urban Institute New Federalism Project (not a U.S. Government Web site)

Rural Policy Research Institute (not a U.S. Government Web site)