The Essential Access Community Hospital (EACH) Program is testing a concept for limited-service hospitals established under Medicare called the Rural Primary Care Hospital (RPCH). The program uses cost-based reimbursement and relaxed regulatory requirements to help low-volume rural hospitals shift emphasis from acute care to primary care and emergency services. RPCHs must form "horizontal" networks with larger hospitals and may form "vertical" arrangements with ambulatory service providers and practitioners. A small number of rural hospitals have converted to the RPCH status since the program entered the implementation stage in late 1993. It is unclear how many other hospitals will convert given uncertainty regarding the financial impact of RPCH conversion and concerns with certain requirements. The program illustrates how payment policies can provide incentives for network development and reflects the importance of physician involvement and technical assistance in developing limited-service hospitals. In addition, it appears that EACH/RPCH networks that form under the program may serve as building blocks for broader networks, as the seven states involved in the program look to develop rural health networks that go beyond the EACH/RPCH model.