American Osteopathic Association

Advancing the distinctive philosophy and practice of osteopathic medicine

Sole Community Hospitals and Critical Access Hospitals

​Sole Community Hospital

Different GME payment provisions apply to other types of hospitals. For example, a sole community hospital (SCH) is designated by Medicare as meeting certain criteria based on location, size, or distance. An SCH receives payment for its operating costs based on the Federal Inpatient Prospective Payment System (IPPS) rate or on its hospital-specific rate, whichever results in the greatest aggregate payment. Although all SCHs can receive direct GME payment, only those that receive the Federal rate for inpatient services can receive indirect medical education (IME) payment. SCHs paid their hospital-specific rate are not eligible for IME payment. For IME purposes, it does not matter which rate is used to pay the SCH for services in its outpatient department.


A hospital paid under the Medicare IPPS is eligible to be classified as a SCH if it is located at least 35 miles from “other like hospitals” or it is rural (located in a rural area), located between 25 and 35 miles from other like hospitals AND meets one of the following criteria:
  • No more than 25% of residents who become hospital inpatients or no more than 25% of the Medicare beneficiaries who become hospital inpatients in the hospital’s service area are admitted to other like hospitals located within a 35-mile radius of the hospital or, if larger, within its service area; or
  • The hospital has fewer than 50 beds and would meet the 25% criterion above if not for the fact that some beneficiaries or residents were forced to seek specialized care outside of the service area due to the unavailability of necessary specialty services at the hospital;
  • The hospital is rural and located between 15 and 25 miles from other like hospitals but because of local topography or periods of prolonged severe weather conditions, the other like hospitals are inaccessible for at least 30 days in each of 2 out of 3 years; or
  • The hospital is rural and because of distance, posted speed limits, and predictable weather conditions, the travel time between the hospital and the nearest like hospital is at least 45 minutes.
Any IPPS hospital located in an urban area may be reclassified as rural if it meets certain criteria; therefore; some hospitals that are physically located in urban areas may be treated as rural for purposes of IPPS payment, including SCH designation.
For SCH purposes, an “other like hospital” is a hospital that furnishes short-term acute care services, is paid under the Medicare Acute Care Hospital IPPS, is not a critical access hospital and is not paid under any other Medicare prospective payment system.
Medicare makes SCH payments to a hospital based on the rate below that yields the greatest aggregate payment for the cost reporting year:
  • The IPPS Federal rate applicable to the hospital;
  • The hospital’s updated hospital-specific rate based on fiscal year (FY) 1982 costs per discharge;
  • The updated hospital-specific rate based on FY 1987 costs per discharge;
  • The updated hospital-specific rate based on FY 1996 costs per discharge; or
  • The updated hospital-specific rate based on FY 2006 costs per discharge.

Critical Access Hospital

Unlike an SCH, which is paid under the Medicare Acute Care Hospital IPPS, a critical access hospital (CAH) is a separate type of provider with its own Medicare Conditions of Participation (CoPs) and a separate method of payment. These small, rural hospitals are paid 101% of their reasonable costs, including the reasonable costs of a residency program. These costs include resident salaries and benefits, faculty salaries and benefits and overhead costs of a GME office and staff. CAHs are exempt from resident limits (caps) imposed by the Balanced Budget Act of 1997. They are not eligible for either DGME or IME payment.
Other hospitals excluded from eligibility for IME are psychiatric hospitals, rehabilitation hospitals, children’s hospitals, long-term care hospitals and cancer hospitals.  Children’s hospitals are paid for training residents from separate funding established in the yearly appropriations process.
A hospital is eligible for CMS designation as a CAH if it participates in Medicare and is:
  • Located in a state with a State Medicare Rural Hospital Flexibility Program;
  • Designated by the state as a CAH;
  • Located in a rural area or an area that is treated as rural;
  • Located either more than 35 miles from the nearest hospital or CAH or more than 15 miles in areas with mountainous terrain or only secondary roads;
  • Maintains no more than 25 inpatient beds that can be used for either inpatient or swing-bed services;
  • Maintains an annual average length of stay of 96 hours or less per patient for acute inpatient care (excluding swing-bed services and beds in distinct part units);
  • Demonstrates compliance with the CAH CoPs;
  • Furnishes 24-hour emergency care services 7 days a week.


CAHs are paid on a reasonable cost basis for most inpatient and outpatient services provided to Medicare beneficiaries. Since January 1, 2004, CAHs are eligible to receive payment at 101% of reasonable costs. This method of payment is intended to improve CAH financial performance and reduce closures of these small, rural providers.