For decades, health care has been shifting from inpatient care to outpatient care. As hospitals reduce inpatient care, revenue from outpatient care becomes critically important. In most rural hospitals, the greatest portion of net patient revenue is from outpatient services versus urban hospitals that have, on average, about half from outpatient and half from inpatient services. In addition, Medicare accounts for a higher percentage of outpatient revenue in rural hospitals. Therefore, outpatient services in total, and Medicare as a payer for outpatient services, are more important in rural hospitals than urban hospitals.

The purpose of this brief is to describe differences in Medicare Outpatient Prospective Payment System (OPPS) payments between rural and urban hospitals by Medicare payment classification and by number of acute beds. The study found that, compared to urban hospitals, OPPS payments to rural hospitals are a higher percent of total net patient revenue, and cover a lower percentage of the cost of outpatient services across all Medicare payment classifications (except Rural Referral Centers) and in hospitals with 0-25 beds. Critical Access Hospitals excluded because they are reimbursed via cost-based reimbursement, a different model from OPPS.