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- Many of the smallest rural hospitals were not able to recover their Medicare costs under the prospective payment system (PPS) rates (Dalton, et al, 2005; Stensland, et al, 2004)
- Medicare Rural Hospital Flexibility Program of the 1997 Balanced Budget Act
- To protect small, financially vulnerable rural hospitals
- Allowed hospitals meeting certain criteria to convert to critical access hospitals (CAHs)
- Changed Medicare reimbursement mechanism from prospective (PPS) to cost-based.
- One of the objectives of the policy was to increase the quality of care in these hospitals
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