An important aspect of the ongoing debate on rural health policy is how to deliver inpatient care in sparsely populated rural areas. One alternative is to create a new classification of rural inpatient facility that would deliver more limited services than available in a rural hospital, have more flexibility in staffing requirements, and possibly be reimbursed differently. The support of the Health Care Financing Administration for the concept of a limited service rural hospital is critical, since such a facility would not be financially viable without Medicare payment. Several organizational and public policy issues that merit consideration in the design and implementation of institutional alternatives to rural hospitals are discussed, including licensure and certification, scope of services, personnel, quality assurance, and payment.