Volume Decrease Adjustment (VDA) eligibility checklist for Sole Community and Medicare-Dependent Hospitals

Published October 16, 2026 · Reimbursement Recovery Partners

Use this checklist to decide whether a VDA request is worth preparing, and to make sure nothing the MAC requires is missing. Each item cites the regulation or Centers for Medicare & Medicaid Services (CMS) manual section it comes from.

Eligibility

1. Status. Was the hospital classified as a Sole Community Hospital (SCH) under the Code of Federal Regulations, 42 CFR 412.92, or a Medicare-dependent, small rural hospital (42 CFR 412.108) for at least part of the cost reporting period? (Provider Reimbursement Manual, Part 1 (PRM-1) §2810.1.A)
2. Discharge test. Were total inpatient discharges more than 5% lower than in the immediately preceding cost reporting period? (42 CFR 412.92(e)(1))
3. Short periods. If either period is not 12 months, have you annualized discharges (monthly average × 12)? CMS example: 600 discharges in 5 months annualizes to 1,440. (PRM-1 §2810.1.C.2)
4. Sustained declines. If volume has been falling for several years, have you compared each year only with the year immediately before it? A later year does not qualify by comparison with an older, higher year. (PRM-1 §2810.1.A.2, Example B)
5. Cause. Can you document an external, unusual occurrence beyond the hospital’s control, such as a strike, flood, loss of essential physicians the hospital couldn’t replace, prolonged severe weather, or a serious, prolonged recession directly affecting admissions? (PRM-1 §2810.1.A.1)
6. Mitigation and history. Can you show reasonable steps to mitigate the decline (for example, physician recruiting or cost cuts)? Be ready to explain any prior VDA requests based on similar circumstances. (PRM-1 §2810.1.A.1)
7. Costs exceed payment. Does Program inpatient operating cost excluding pass-throughs (Worksheet D-1, Part II, line 53) exceed total inpatient operating payment (Worksheet E, Part A, line 49) plus the operating portion of any low-volume adjustment? (PRM-1 §2810.1.C.4)

Timing

8. Deadline. Is the request going in no later than 180 days after the date on the NPR for that cost report? (42 CFR 412.92(e)(2); 412.108(d)(2)) A request may be filed with the cost report or any time after it is submitted.
9. Medicare-Dependent Hospital (MDH) cost reporting periods. VDA eligibility as an MDH follows the cost reporting period. A period in which your hospital was classified as an MDH can still support a VDA request after the MDH program ends, filed within 180 days of that period’s NPR (42 CFR 412.108(d)(3)).

Documentation

10. Package complete? PRM-1 §2810.1.C requires:
    • A request signed by a hospital official, with name, address, CMS Certification Number (CCN), and date of SCH/MDH classification
    • Discharge counts for both periods (annualized where required)
    • A narrative of the circumstances: what happened, when it began and ended, and how it affected discharges
    • Cost data for both periods showing costs exceed payment
    • A narrative of actions taken to reduce costs or align them with lower volume
    • Support for the fixed and semi-fixed cost classification behind the fixed cost ratio (for periods beginning on or after October 1, 2017)

What happens next

The MAC must decide within 180 days of receiving the request and all required information (42 CFR 412.92(e)(3)(ii); 412.108(d)(3)(ii)). Only the final determination is appealable. A hospital may ask the MAC to reconsider once, within the reconsideration window, and may appeal under 42 CFR Part 405, Subpart R (PRM-1 §2810.1.D, F, G).

For the calculation itself, see the fixed cost ratio method on RRP’s VDA page.