Pennsylvania Rural Health Model

The Pennsylvania Rural Health Model seeks to increase rural Pennsylvanians’ access to high-quality care and improve their health, while also reducing the growth of hospital expenditures across payers, including Medicare, and increasing the financial viability of rural Pennsylvania hospitals to ensure continued access to care.


Under this Model, participating rural hospitals would be paid based on all-payer global budgets—a fixed amount that is set in advance for inpatient and outpatient hospital-based services, and paid monthly by Medicare fee-for-service and all other participating payers. In addition, the rural hospitals would deliberately redesign the delivery of care to improve quality of care and meet the health needs of their local communities. Pennsylvania, through its Department of Health, will be a key partner in jointly administering this Model with CMS.

CMS believes this model will further CMS’ goals of improving the health of beneficiaries in rural areas, maintaining access to health care for rural populations, and determining the impact of an alternative payment model on rural providers, who have generally had lower rates of participation in alternative payment models.

Model Details

The Model will test whether the predictable nature of the global budgets will enable participating rural hospitals to invest in quality and preventive care, and to tailor the services they deliver to better meet the needs of their local communities. Participating rural hospitals will plan these changes to service delivery by preparing a Rural Hospital Transformation Plan that must be approved by Pennsylvania and CMS.

The Model is open to both critical access hospitals and acute care hospitals in rural Pennsylvania as well as other payers in Pennsylvania, including Medicaid and commercial plans. Pennsylvania is committing to attain broad participation in the Model among payers and rural hospitals to help transform the care that rural hospitals provide and improve the quality of care for as many rural Pennsylvanians as possible.

CMS intends to provide $25 million in funding over four years to help Pennsylvania begin its implementation of the Model. Under the Model, Pennsylvania will use this funding to oversee the Model, aggregate and analyze data, compile and submit reports, propose and administer global budgets, approve Rural Hospital Transformation Plans, conduct quality assurance, and provide technical assistance to participant rural hospitals as they redesign the care they deliver. The goal of this funding is to help Pennsylvania operationalize the Model and to ultimately achieve the Model’s targets described below. Pennsylvania will also contribute funding for the operation of the Model.

Performance Period

There will be seven performance years for the Pennsylvania Rural Health Model (PY0-PY6). The Model will begin on January 12, 2017, and conclude on December 31, 2024. Specific details of each performance year is listed below:

  • Performance Year 0: CMS intends to make funding available to Pennsylvania to begin Model operations, obtain participation from rural hospitals and payers, aggregate data from participating payers, and calculate global budgets. Pennsylvania will secure final commitments and sign agreements with participating rural hospitals and participating payers, and CMS will also sign agreements with the participating rural hospitals. The participating rural hospitals will develop Rural Hospital Transformation Plans describing how they intend to improve quality, increase access to preventive care, and create savings to the Medicare program, which they will submit to Pennsylvania and CMS for approval.

  • Performance Years 1 – 6: Rural hospitals and payers will participate in the Pennsylvania Rural Health Model. The participating rural hospitals will be paid based on prospectively-set, all-payer global budgets, and will implement their Rural Hospital Transformation Plans. In addition, Pennsylvania be responsible for must meet the Model targets described below, including the population health outcomes, access and quality measures and targets; Model financial targets; and payer and rural hospital participation scale targets.

Two key components the model that will be present throughout the performance years include:

  • Hospital Global Budgets: Each performance year of the Model, Pennsylvania will prospectively set the all-payer global budget for each participating rural hospital, based primarily on hospitals’ historical net revenue for inpatient and outpatient hospital-based services from all participating payers.  Each participating payer will then pay participating rural hospitals for all inpatient and outpatient hospital-based services based on the payer’s respective portion of this global budget. CMS will review and approve the global budgets that Pennsylvania proposes for each participating rural hospital, as well as Pennsylvania’s methodology for calculating the global budgets.

  • Hospital Care Delivery Transformation: Participating rural hospitals will also plan deliberate changes to redesign the care they provide. As part of their Rural Hospital Transformation Plans, hospitals will develop plans to invest in quality and preventive care, to obtain support and continuous feedback from stakeholders in the community, and to tailor the services they provide to the needs of their local community. Pennsylvania and CMS must approve a rural hospital’s Rural Hospital Transformation Plan before that hospital can participate in the Model. Pennsylvania will provide rural hospitals with the technical assistance they need to prepare Rural Hospital Transformation Plans in accordance with the requirements of the Model. Pennsylvania and CMS expect that this care delivery transformation will help rural hospitals make meaningful improvements in the quality of the care they provide and impact the largest health needs in their community.

Model Targets

Under the Pennsylvania Rural Health Model, Pennsylvania agrees to meet targets related to the following characteristics:

  • scale of payer and rural hospital participation;
  • financial impact; and
  • impact on population health outcomes, access and quality.

Together, these targets create incentives for Pennsylvania to help hospitals  improve quality; enhance collaboration among health care providers and the Pennsylvania public health system to improve health for the rural population of Pennsylvania; and reduce the growth in hospital expenditures.

Pennsylvania will encourage rural hospitals to participate in this Model, and commits to achieving the following rural hospital participation scale targets: At least 6 rural hospitals will participate during Performance Year 1 (2019), at least 18 rural hospitals will participate during Performance Year 2 (2020), and at least 30 rural hospitals will participate during each of Performance Years 3 through 6 (2021-2024).

Additionally, Pennsylvania will encourage commercial payers to participate in the Model, and will also work to achieve Medicaid participation in the Model, which is necessary for the Model to be implemented. Pennsylvania commits to having each participating rural hospital’s global budget represent at least 75 percent of that hospital’s net revenue for inpatient and outpatient hospital-based services by Performance Year 1 (2019), and at least 90% for each of Performance Years 2 through 6.

Pennsylvania commits to achieving $35 million in Medicare hospital savings over the course of the model. In addition, the growth rate of rural Pennsylvania total Medicare expenditures per beneficiary must not exceed the growth rate of the rural National total Medicare expenditures per beneficiary, making this Model budget neutral for Medicare.

Across all participating payers, Pennsylvania agrees to an all-payer financial target of no more than 3.38% in annual hospital spending growth on inpatient and outpatient hospital-based services per resident of Pennsylvania’s rural areas served by participating rural hospitals. 3.38% represents the compound annual growth rate for Pennsylvania’s gross state product from 1997 to 2015.

Pennsylvania will commit to achieving targets related to population health outcomes and access under this Model, and may tie financial incentives for participating rural hospitals to Pennsylvania’s performance on the following three goals:

  1. increasing access to primary and specialty care;
  2. reducing rural health disparities through improved chronic disease management; and
  3. decreasing deaths from substance use.

Specific measures and targets will be announced at a later date.

Quality of care delivery will be measured by Pennsylvania among participating rural hospitals and the non-hospital providers they work with to provide care to rural residents. Pennsylvania will commit to meeting quality measures and targets, and participating rural hospitals may be held accountable for a targeted set of quality measures. Specific targets will be announced at a later date under an all-payer quality program designed by Pennsylvania.

State Partnerships for Delivery System Reform

The Pennsylvania Rural Health Model aims to build on CMS’ partnerships with states to deliver high-quality, innovative care. CMS has been partnering with Maryland since 2014 through the Maryland All-Payer Model to shift hospital payments to global budgets that reward value over volume. In October 2016, CMS announced the Vermont All-Payer Accountable Care Organization (ACO) Model to build on the Maryland All-Payer Model by transforming care statewide, beyond the hospital. Pennsylvania also participated in the State Innovation Models Initiative as a Round 2 Design State, which has helped support the development of the Pennsylvania Rural Health Model. The Pennsylvania Rural Health Model will provide valuable insight for other opportunities for CMS to participate in state-driven, all-payer payment and care delivery transformation efforts that address the challenges faced by rural health care providers.

Additional Information