Reimbursement of sole community hospitals under Medicare's prospective payment System

Under the prospective payment system (PPS), designated sole community hospitals (SCH's), usually smaller than other rural hospitals but offering comparable services, have had higher average cost levels, in part because of underutilization of plant and equipment. This has resulted in negative operating margins on patient revenues, although local financial support and other revenue sources bring margins on total revenues into the positive range. The PPS legislation has also provided SCH's temporary protection from volume declines. SCH's are more likely than other rural hospitals to experience large volume swings, but only for declines greater than the threshold specified under PPS.