Medical Rural Reform Act of 1989

Medical Rural Reform Act of 1989 - Amends title XVIII (Medicare) of the Social Security Act to permit small rural hospitals and declining-volume rural hospitals to elect to be paid for inpatient hospital services on the basis of prospective rates. Limits the application of such payment methodology in the case of small rural hospitals to the first four cost-reporting periods succeeding such election.

Permits hospitals to classify an inpatient hospital discharge by the diagnosis-related group (DRG) which is applicable at the time of admission or by the DRG which is applicable thereafter.

Amends part A (Hospital Insurance) of the Medicare program to eliminate the requirement that part A providers be paid the lesser of the reasonable cost of such services or the customary charges for such services.

Eliminates the reduction of reasonable cost reimbursement by costs determined to be unnecessary in the efficient delivery of health services.

Directs the Administrator of the Health Care Financing Administration to conduct a study and report to the Congress within three years of this Act's enactment on the effectiveness of the various methods under which rural hospitals are paid for Medicare inpatient hospital services.