The Pennsylvania Rural Health Model: Lessons Learned and What’s Next for Rural Payment Policies

Health Highlights

Since 2010, a reported 140 rural hospitals have closed their doors, including a record 19 hospitals in 2020 alone as a result of the financial pressures of COVID-19 compounded by many other long-standing challenges facing these health systems.1 Many health care providers in rural communities have long faced precarious financial situations stemming from low patient volume and a more vulnerable patient mix of older, sicker and poorer patients. These problems are exacerbated by transportation challenges, poor reimbursement because rural hospitals are more reliant on public payers (e.g., Medicare and Medicaid), and workforce challenges.2 Though the federal COVID-19 support provided a lifeline to many providers during the pandemic, the surge in rural hospital closures over the past decade and the uptick as federal financial support dries up signal a growing problem that requires a reassessment of federal payment policies that are key to the financial viability of rural providers.3 In order to be successful, options for payment reform should consider not just what ought to be changed, but should build upon lessons learned from piloted models’ early successes. One such model is the Center for Medicare and Medicaid Innovation’s (CMMI) Pennsylvania Rural Health Model (PARHM).

Pennsylvania Rural Health Model

Launched in 2017 and implemented in January 2019, the PARHM was created to address the financial challenges faced by rural hospitals and seeks to transition hospitals from volume-based, fee-for-service (FFS) payments to value-driven payments through the use of an all-payer global budget payment system. Each hospital participating in the model receives a fixed amount to cover all inpatient and hospital-based outpatient services, regardless of volume or utilization. These rates are set prospectively and are based on net revenue for inpatient and outpatient hospital-based services from all participating payers. Participating payers include Medicare, Medicaid and several commercial plans; currently, six payers are participating in the model.4  

Additionally, participant hospitals are engaged in population health initiatives and care delivery transformation efforts to expand access to high-quality care and better meet the needs of the communities they serve. Each participating hospital is required to have a formal transformation plan, informed by a Community Health Needs Assessment. In particular, Pennsylvania has committed to (1) increasing access to primary and specialty care and (2) utilizing chronic disease management and preventive screenings and tools to reduce health disparities, improve access to opioid use disorder treatments and decrease substance use disorder-related deaths.5 

Currently, 18 health systems from the most disparate, rural areas of Pennsylvania participate in the PARHM and over 1 million lives are covered.6 PARHM participant hospitals stretch across 15 rural counties across the commonwealth and touch the lives of an estimated 10% of Pennsylvania’s population.7 The model is open to both critical access hospitals and acute care hospitals. Prior to the PARHM, a global budget methodology had never been utilized at scale in Pennsylvania. In order to implement this innovative design, participant hospitals and payers alike had to develop a new payment infrastructure to meet the parameters of the new model.  

Initial Results From Pennsylvania

Despite the initial learning curve in standing up this global budget model, as well as the paradigmatic shift necessary for participants in pivoting from FFS to quality and population health, early results from the first few years of the model show promise. While only five rural hospitals and five payers participated in the first performance year (in 2019), eight new hospitals joined in January 2020 and Aetna also joined as a new commercial payer. Five additional hospitals joined in 2021. As Janice Walters, the Rural Health Redesign Center’s chief operating officer who has led implementation of the PARHM, noted, participation in the demonstration is largely what kept these hospitals afloat during the pandemic due to the predictable receipt of ongoing global budget payments despite the precipitous drop in volume. Further, initial data evaluating the first three performance years (2019, 2020 and 2021) have shown Medicare spend per member per month among participating PARHM continues to be below the rural spend by beneficiary when compared to the national rural average. In addition, in examining quality improvements among PARHM participants, 80% of participating hospitals improved avoidable utilizations, 83% have improved their metrics on hospital-acquired conditions and 100% of PARHM have maintained their CMS readmission rates. All told, cost per beneficiary remains below the national average while quality measures exceed national measures. 

As discussed in our February 28 webinar, the global budget allowed the participating hospitals to “recapture some historical revenue that was actually lost based on the FFS payment system,” in the words of Walters. And while the PARHM does not provide a “secure financial future” per se, Walters noted that the PARHM represented “a step in the right direction for our participant hospitals.

What’s Next for Rural Payment Policies?

In August 2020, CMMI unveiled the Community Health Access and Rural Transformation (CHART) Model, which, according to the Innovation Center, “aims to continue addressing disparities by providing a way for rural communities to transform their health care delivery systems by leveraging innovative financial arrangements as well as operational and regulatory flexibilities.” While it seemed like this model was trying to build off the initial success of the PARHM as well as other CMMI demonstrations, like the Vermont All-Payer ACO Model, with similar elements like predictable capitated payments and operational and regulatory flexibilities, there was little interest from hospitals in participating in the CHART Model given the aggressive savings goal outlined in the demonstration. As a result, CMMI announced the early termination of the model effective as of September 30, 2023. The CHART Model was required to show improved outcomes and savings and, as noted by one of the webinar participants, “how you define savings can doom a payment model from the outset.” The CHART Model proposed aggressive savings goals, which dissuaded many rural providers from participating given that the nature of rural communities largely hinders the potential savings that can be generated.  

As CMMI considers the next steps of any payment model to support rural providers and improve their financial outlooks, the challenges overcome in launching the PARHM and the lessons learned from the feedback on the CHART Model must be taken into account. Many of the PARHM participants have called for a next generation of the model because, as Karen Murphy, Executive Vice President and Chief Innovation Officer for Geisinger, noted, “The challenge with any kind of test that has to do with true transformation is the fear that it’s going to end.” Furthermore, any future models targeting transformation in rural health must include flexibilities to meet the needs of these rural hospitals, including technical assistance to implement any shift toward value, long-term investment in providers and communities, and ample consideration for the limited resources with which many of these inherently low-volume providers grapple.

Murphy summed it up best: “The math has to work for both sides—the payers and providers.” It is increasingly evident that the math in FFS does not work for rural providers. However, as CMMI considers a shift toward value and a drive to financially stabilize these at-risk rural providers, the unique circumstances that face rural health systems—and, often, their fundamental inability to meet traditional savings targets—are critical components to any successful model. 

NOTE: For more information, view and download materials from Manatt’s recent webinar “The Promise and Challenge of Alternative Payment Models for Rural Providers.”

1 UNC Cecil G. Sheps Center for Health Services Research, Rural Hospital Closures |

2 Payment-Policies-for-Rural-Hospitals.December-2022.2.pdf (

3 While 19 rural hospitals closed in 2020, only 3 closed in 2021 and 7 in 2022 as a result of the federal financial support enacted by Congress during COVID-19. However, in 2023 to date, four additional rural hospitals have closed thus far, signaling ongoing problems as federal support dries up with the conclusion of the COVID-19 public health emergency.




7 The Critical Reality of PARHM Communities



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