August 27, 2025
Urban Hospitals Increasingly Poaching Rural Funds
A regulatory loophole has allowed hundreds of large, urban hospitals to claim rural benefits, raining alarms from lawmakers and experts who warn that taxpayer dollars are being diverted from the very communities Congress intended to protect.
In 2016, CMS revised its regulations in response to two federal court decisions: Geisinger Community Medical Center v. Secretary and Lawrence and Memorial Hospital v. Burwell. The rule change effectively permitted hospitals to use a two-step reclassification process to be designated as both urban and rural for Medicare purposes, a practice CMS had previously prohibited.
The impact was immediate.
According to a study published in Health Affairs in August, the number of urban hospitals claiming rural status jumped from just three in 2017 to 425 in 2023. The number o hospital beds in dual-classified facilities skyrocketed from fewer than 400 in 2017 to more than 162,000 in 2023, representing 61% of all beds in administratively rural hospitals nationwide.
More than 75% were nonprofit organizations, and all of the top 20 highest-revenue facilities with dual status were teaching hospitals, with net patient revenues ranging from $2.9 billion to more than $9 billion. New York City-based New York Presbyterian Hospital, with 2,850 beds and nearly $9.3 billion in patient revenue, topped the list.
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