backTwo Congressmembers Propose Bill that Would Restrict Eligibility for Rural Reclassification
On February 5, 2026, Congressman David Taylor (R-OH) and Congresswoman Carol Miller (R-WV) proposed a bill titled the Defend Rural Health Act of 2026 (the “Bill”). The Bill would amend the Medicare statute to tighten the eligibility rules for urban hospitals to qualify for rural reclassification. Urban hospitals that were approved for rural reclassification under current law would need to demonstrate that they qualify under the new criteria to maintain their rural status. Other changes in the Bill would make rural reclassification financially unattractive and potentially compel many currently reclassified hospitals to terminate their rural reclassification status by October 1, 2026.
The Medicare statute permits qualifying urban hospitals to apply to be classified as rural so that they can avail themselves of the many benefits available to rural hospitals under the inpatient prospective payment system (“IPPS”). Today, there are 821 urban hospitals that have reclassified rural, representing one-third of urban hospitals nationwide.
One of the principal benefits of rural reclassification is cap relief for indirect medical education (“IME”). The Medicare statute limits the number of residents that hospitals can claim for IME. For urban hospitals, the cap is equal to the number of residents they claimed in their 1996 cost report. Rural hospitals (and reclassified rural hospitals) can claim up to 130 percent of the number of residents they claimed in their 1996 cost report. Urban hospitals that have reclassified as rural have collectively increased their IME resident caps by nearly 16,000, which has increased IME payments to hospitals by about $1.65 billion annually.
Another benefit of rural reclassification is that it makes it easier for hospitals to qualify for participation in the 340B Drug Discount Program. Urban hospitals generally must have a DSH percentage greater than 11.75 to qualify for 340B. Rural and reclassified rural hospitals can generally participate in 340B with a DSH percentage of just 8 percent. But there is a catch. A hospital that qualifies under the 8 percent threshold is not eligible to receive discounts for orphan drugs.
One way that an urban hospital can qualify for rural reclassification is if it is eligible to become a rural referral center (“RRC”). This is the most popular pathway to rural reclassification because most large urban hospitals qualify to become RRCs. For instance, a hospital with 275 beds automatically qualifies to become an RRC. If a hospital has fewer than 275 beds, it can still qualify if it has over 5,000 discharges, more than 50 percent of its active medical staff are board certified, and its case-mix index is above the national or regional average.
The Bill would amend the statute to remove the RRC pathway to rural reclassification. Beginning October 1, 2026, hospitals applying for rural reclassification would have to use an alternative non-RRC pathway to eligibility. And by October 1, 2029, the Bill would require an urban hospital that was approved for rural reclassification under the RRC criterion to demonstrate that it qualifies for rural reclassification under an alternative pathway.
The non-RRC pathways to rural reclassification are generally not viable options for large urban hospitals. One alternative is if the hospital is located in a rural census tract, and another is for hospitals located in areas designated as rural by state law or regulations.
Even though hospitals that reclassified as rural under the RRC criterion would be permitted to remain rural until September 30, 2029, other changes in the Bill might spur them to cancel their rural reclassification status much sooner. The Bill would prohibit hospitals from simultaneously having a rural reclassification and a geographic reclassification. Any hospital that as of October 1, 2026 has a rural reclassification and a geographic reclassification will have its geographic classification automatically terminated. This means that all rural reclassified hospitals would be assigned the rural wage index effective October 1, 2026, unless they cancel their rural reclassification before that date.
A press release published on Congresswoman Miller’s website says that the current eligibility rules for rural reclassification have enabled large urban hospitals to “divert limited federal resources away from truly rural hospitals that rely on them to keep their doors open and maintain access to care.”
A copy of the text of the bill is available here. Congresswoman Miller’s press release is available here.
Reporter, Alek Pivec, Washington, D.C., +1 202 626 2914, apivec@kslaw.com
CMS Issues Proposed “Notice of Benefit and Payment Parameters” for 2027 Plan Year
On February 9, 2026, CMS, issued its proposed “Notice of Benefit and Payment Parameters” for the 2027 plan year (the “2027 Proposed Rule”). This annual rulemaking introduces updates to the implementation of the Patient Protection and Affordable Care Act (“ACA”) and sets forth standards governing health insurance exchanges.
Program Integrity Standards
The 2027 Proposed Rule aims to bolster program integrity and shield consumers from enrollment fraud. CMS suggests tighter marketing rules for issuers, agents and brokers, banning misleading practices like offering cash incentives or misrepresenting plan costs and deadlines. The 2027 Proposed Rule would also require agents and brokers to use a standardized HHS form to ensure consistency in consumer consent and eligibility review.
Qualified Health Plan Flexibilities for States
The 2027 Proposed Rule also gives states more authority and flexibility in Qualified Health Plan (“QHP”) certification, allowing Federally-facilitated Exchange (“FFE”) states to conduct their own provider access and essential community provider (“ECP”) reviews if they meet certain criteria. CMS plans to continue collecting provider and ECP data from all issuers in FFE states, regardless of who conducts certification reviews to help monitor consumer access, offer technical assistance, and ensure CMS steps in to review QHP issuers if a state lacks effective review programs.
Additionally, the 2027 Proposed Rule would restore aspects of network adequacy authority to State-based Exchanges (“SBEs”) and State-based Exchanges on the Federal Platform (“SBE-FPs”) by removing the requirement that these exchanges establish quantitative time and distance standards at least as stringent as those for FFE QHPs by 2026. CMS instead proposes to allow non-network plans to receive QHP certification beginning with plan year 2027 by demonstrating a sufficient choice of providers, a new option that CMS states may reduce overall health care costs by empowering enrollees to use price transparency information to shop for lower prices and by eliminating administrative overhead associated with traditional network management.
Also, beginning with the 2027 plan year, CMS proposes allowing non-network plans to obtain QHP certification if they demonstrate sufficient provider choice consistent with the ACA, rather than relying on traditional provider networks. These non-network plans must ensure that enrollees have access to essential community providers and specialists, including those in mental health and substance use disorder services, with providers who accept the plan’s set benefit amounts as full payment and can deliver services without unreasonable delay.
Promoting Other State Flexibilities
Moreover, CMS proposes to allow states transitioning from a FFE to a SBE to move directly to SBE status without first operating as an SBE-FP for a year. CMS also suggests eliminating the requirement for states to provide additional progress documentation when seeking SBE approval, streamlining the process. Additionally, CMS introduces an optional State Exchange Enhanced Direct Enrollment model, which would let SBEs use private web-brokers for eligibility and enrollment instead of maintaining their own centralized enrollment websites.
Essential Health Benefits and Cost Defrayal
Furthermore, CMS proposes banning routine adult dental services as Essential Health Benefits (“EHB”) and requiring states to cover costs for any mandated benefits added after December 31, 2011. CMS proposes that any state-required benefit would be considered “in addition to EHB” if enacted after December 31, 2011, requiring states to defray the cost of such additional mandated benefits.
Access to Coverage
The 2027 Proposed Rule would expand eligibility for hardship exemptions, allowing individuals ineligible for advance premium tax credit (“ATPC”) or cost-sharing reductions (“CSRs”) due to projected household income below 100% or above 250% of the FPL to qualify. Following HHS guidance published on September 4, 2025, this expansion would apply in all states and allow those aged 30 and older who receive a hardship exemption to enroll in catastrophic coverage if otherwise eligible.
CMS also proposes new standards for catastrophic plans, including allowing multi-year contracts of up to 10 years and enabling issuers to make plan-level adjustments and use value-based insurance designs. Additionally, the 2027 Proposed Rule updates cost-sharing parameters for bronze and catastrophic plans, aiming to enhance access to affordable coverage and give consumers more flexibility in tailoring their health insurance.
Working Families Tax Cut Alignment
The 2027 Proposed Rule also proposes making changes to align with the Working Families Tax Cut (“WFTC”), such as limiting APTC and CSR eligibility for those with income below 100% of the FPL due to immigration status and adding failure-to-file requirements. The 2027 Proposed Rule also strengthens the Special Enrollment Period Integrity Monitoring (“SEIPM”) program to measure improper payments of APTC administered by SBEs. CMS currently has a process in place to measure improper payments of APTC for the FFEs, but not one for SBEs.
The Federal Exchange
CMS proposes to eliminate the requirement for FFE and SBE-FP issuers to offer standardized plan options in the individual market, as well as the cap on non-standardized plan offerings and related exceptions. Issuers would have the flexibility to decide whether to discontinue or continue existing standardized and chronic and high-cost condition plans, potentially with modifications.
The 2027 Proposed Rule also recalibrates the HHS-operated risk adjustment models. User fee rates remain at 2.5% for FFEs, 2.0% for SBE-FPs, and $0.20 per member per month for risk adjustment.
Increased Audit Authority
The 2027 Proposed Rule enhances CMS’s audit authority over issuers, introduces civil money penalties for non-compliance, and establishes a streamlined process for administrative review. Issuers are required to maintain accurate records and respond promptly to federal oversight inquiries, supporting transparency and consumer trust.
Public Comment
Finally, the 2027 Proposed Rule seeks public comment on many topics, including on possible medical loss ratio adjustments in the individual market.
Public comments on the 2027 Proposed Rule are due by March 13, 2026.
The 2027 Proposed Rule can be found here.
Reporter, Priya Sinha, Atlanta, GA, +1 404 572 3548, psinha@kslaw.com
Also In the News
DOGE Releases Open-Source Medicaid Claims Dataset
A team associated with the Department of Government Efficiency (“DOGE”) announced that it has open-sourced what it describes as the largest open Medicaid dataset to date, covering aggregated provider-level claims data from January 2018 through December 2024. The dataset includes beneficiary counts, claims volume, procedures billed, and total Medicaid payments by provider type and service category. The dataset reportedly incorporates de-identification and cell suppression measures to protect beneficiary privacy.
Upcoming Events
Is the NSA IDR Process Dead?
- February 18, 2026, Noon – 1:00 P.M. ET
- Virtual
Congress passed the No Surprises Act (NSA) effective January 1, 2022, establishing an Independent Dispute Resolution (IDR) process that allows noncontracted healthcare providers to challenge payments made by health plans. While many providers have successfully used the IDR process to obtain favorable rulings, ongoing litigation and recent court decisions have created uncertainty about its future and its effectiveness.
This program will provide an update on the latest legal developments surrounding the IDR process, including:
- The enforceability of IDR rulings in light of the Supreme Court’s recent refusal to review a Fifth Circuit decision that found that providers could not enforce IDR rulings in court;
- Whether the IDR process is mandatory, and if so whether it is constitutional;
- If there are specific state laws that allow providers to recover reasonable amounts for out-of-network services; and
- Alternative avenues for noncontracted providers to dispute underpayments.
You do not have to be a client to attend, and there is no charge. RSVP by February 17. For questions, contact Sydney Forte.
Understanding Supplemental Medicaid Opportunities via the Medicaid DSH Program
- March 4, 2026, 1:00 – 2:00 P.M. ET
- Virtual
Supplemental Medicaid programs provide critical funding to hospitals that care for low-income and Medicaid patients. Unfortunately, many hospitals do not receive the full amount they are due, largely because of a lack of legal strategy.
This roundtable uses the Medicaid Disproportionate Share Hospital (DSH) program as an example to explore how supplemental Medicaid programs are structured, tailored state by state, financed and regulated. The discussion will also explore case studies and various ways to assist clients with navigating these programs, which are especially important considering the recent Medicaid financing changes mandated by the One Big Beautiful Bill Act.
You do not have to be a client to attend, and there is no charge. RSVP by March 3. For questions, contact Sydney Forte.
35th Annual King & Spalding Health Law & Policy Forum
- Thursday, March 12, 2026, 8:00 A.M. ET
- Atlanta, GA
Join us for our annual forum focusing on the foremost legal and political developments impacting the healthcare industry. This full-day program will feature thought-provoking sessions and a keynote address from award-winning legal affairs correspondent Nina Totenberg, whose deep knowledge of the inner workings of the Supreme Court will provide attendees with rare insights into today’s judicial headlines.
Highlights include:
- Leading practitioners providing policy and regulatory enforcement updates and other industry developments, including insights from in-house counsel on their priorities for the coming year
- What’s next in strategic priorities for nonprofit health systems
- Perspectives from a former U.S. attorney on key issues facing the healthcare industry
- Regulatory and legislative impacts of the current administration on the healthcare industry
Attendees will also enjoy multiple networking opportunities, including a reception following the sessions.
The registration fee for the full program is $95. For questions, or for information about registering, contact the K&S Events Team.
King & Spalding Reception at the AHLA Institute on Medicare and Medicaid Payment Issues
- Thursday, March 19, 6:00 – 8:00 P.M. ET
- Baltimore Marriott Waterfront
700 Aliceanna Street
Baltimore
Laurel Room, 4th Floor
Join us for cocktails and conversation at AHLA’s Institute on Medicare and Medicaid Payment Issues.
For questions and to RSVP by March 12, contact Monique Wharton
Editors: Chris Kenny and Ahsin Azim
Issue Editors: Will Mavity and Kasey Ashford