Pennsylvania's Rural Health Redesign Center Pilots New Payment Model to Transform Rural Hospitals

The state's new value-based payment program aims to help rural hospitals right-size and refocus services on community needs.

Mar. 30, 2026 at 9:08pm

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After a previous rural hospital payment model in Pennsylvania showed mixed results, the state is now proposing a new value-based payment program as part of its application for federal Rural Health Transformation funds. The goal is to allow rural hospitals to stop chasing high-margin, low-demand services and instead focus on core needs like primary care, mental health, and substance abuse treatment. However, the transformation will require a commitment from both payers and providers to change the payment paradigm and delivery of care in rural communities.

Why it matters

Rural hospitals across the country have faced severe financial challenges for decades, leading to numerous closures. New payment models like the one in Pennsylvania aim to address the root causes by incentivizing rural hospitals to right-size and refocus their services on the specific needs of their local populations. If successful, this approach could serve as a blueprint for other states looking to stabilize and transform their rural healthcare systems.

The details

The previous Pennsylvania Rural Health Model (PRHM), which ran from 2019 to 2024, provided rural hospitals with all-payer global budgets to improve their finances and population health outcomes. While it reduced financial losses for many hospitals, it did not lead to meaningful improvements in quality metrics. A key shortcoming was that the global budgets would penalize hospitals for giving up high-revenue, low-demand services like orthopedic surgery in favor of focusing on core community needs. The new proposed model will include fixed facility payments, workforce development, and data-driven solutions to enable rural hospitals to narrow their focus to primary care, mental healthcare, substance abuse treatment, and other essential services.

  • The PRHM ran from 2019 through 2024.
  • Pennsylvania has proposed a new version of the rural hospital value-based payment model as part of its application for federal Rural Health Transformation Program funds.

The players

Janice Walters

Chief Executive Officer of the Rural Health Redesign Center in Harrisburg, Pennsylvania, and former executive director of the Pennsylvania Rural Health Model.

Pennsylvania Department of Health

State agency that partnered with the CMS Innovation Center to launch the Pennsylvania Rural Health Model.

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What they’re saying

“For most of our hospitals, while it improved their bottom line, it didn't get them to margin. It reduced their loss significantly. But it still wasn't enough to say, 'OK, I need you to give up the orthopedics or partner.' Should you do an orthopedics partnership for your region? Because they still would have taken a hit to the global budget.”

— Janice Walters, Chief Executive Officer, Rural Health Redesign Center

“When we talk about right-sizing rural hospitals, I have one hospital CEO who will say to me, 'Just tell me what you want me to be, and I will do that really, really well,' because they're exhausted from trying to keep their facilities open.”

— Janice Walters, Chief Executive Officer, Rural Health Redesign Center

What’s next

Pennsylvania has proposed a new version of its rural hospital value-based payment model as part of its application for a share of the $50 billion federal Rural Health Transformation Program. The new model will include components on workforce development and data-driven solutions in addition to the fixed facility payments.

The takeaway

Transforming rural healthcare will require a commitment from both payers and providers to change the payment paradigm and delivery of care. By allowing rural hospitals to focus on their core community needs rather than chasing high-margin, low-demand services, new value-based payment models like the one in Pennsylvania could serve as a blueprint for stabilizing and strengthening rural healthcare systems across the country.