Why some Medicare outpatients pay more at Minnesota’s rural hospitals

This article was produced by Kaiser Health News.

Many Medicare beneficiaries treated at primarily rural “critical access” hospitals end up paying between two and six times more for outpatient services than do patients at other hospitals, according to a report released Wednesday by the inspector general at the Department of Health and Human Services.

There are more than 1,200 critical access hospitals, which are generally the sole hospital in rural areas and can have no more than 25 beds. Medicare pays them more generously so they won’t go out of business. In Minnesota, more than 50 percent of hospitals are critical access hospitals. 

Medicare requires patients to pay 20 percent of the amount a critical access hospital charges. At other hospitals, patients also pay 20 percent coinsurance, but it is based on the amount Medicare decides to reimburse the hospital, which is almost always significantly below what the hospital charges.

As a result, Medicare patients in 2012 receiving an electrocardiogram at a critical access hospital owed an average of $33, while patients at other hospitals had to pay $5, according to the report. Patients getting an initial infusion into a vein had to pay $56 on average at a critical access hospital, while patients at other hospitals paid $25.

Many supplemental insurance policies for the elderly pick up the tab, but one in seven Medicare recipients lacks such a policy. In addition, these higher medical costs are ultimately factored into the premiums insurers set.

The inspector general’s office recommended Congress change the law so that a Medicare beneficiary’s financial responsibility better reflects the cost of the service.

Brock Slabach, a senior vice president at the National Rural Health Association, said this issue has been raised before by the Medicare Payment Advisory Commission, or MedPAC, which counsels Congress. He said that because the law requires that critical access hospitals be paid their “reasonable” costs plus 1 percent, Congress would either have to change the law or Medicare would need to pay more to make up for the lower patient portions.

“The reason this hasn’t been solved is it would require the Medicare program to subsidize more,” Slabach said.

Since the MedPAC report in 2011, which offered a number of ways to fix the system, the share of medical costs picked up by patients has risen further, the inspector general found.  The patients’ portions of critical access hospital bills in 2012 were 47 percent of Medicare’s estimate of the cost of the treatment, with Medicare paying the remainder, the report said. Medicare beneficiaries paid about $1.5 billion of the $3.2 billion in outpatient services at critical access hospitals.

Medicare offered a short response to a draft version of the report in August, saying it “thanks the OIG [inspector general’s office] for its efforts and looks forward to working with OIG on this and other issues in the future.”

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.