Let me set this up by saying I love critical access hospitals. They do incredible work providing healthcare services in the rural communities they support. Their administrators and clinicians wear many hats and are stretched in ways hospitals in urban areas would probably never ever understand. Quite often, they are a beacon of the local community they serve. We are talking about some pretty amazing people here.
But the outpatient Medicare payment methodology for critical access hospitals is a bit of a trojan horse. It leaves the critical access hospital and the patients they care for day and night holding the bag. The Office of Inspector General (OIG) already knows this. They reported the problem back to Medicare way back in 2013. Unfortunately, we haven’t seen any changes.
Come 2021, price transparency becomes even more important. So I thought now would be a great time to shed some transparency on the supersized Medicare out-of-pocket costs in the critical access setting. Some simple math and a CAT scan of the head will fully illustrate the problem. We might all need a head CT at the end of this one.
Medicare Critical Access Hospital Reimbursement
Hospitals with a critical access designation have a favorable reimbursement structure with the traditional Medicare program. In short, their payment is 101% of the cost for the services they provide for Medicare beneficiaries. They settle annually through the Medicare cost report using their cost to provide care as the basis. However, it is a cumbersome settlement process. The hospital is paid an interim rate throughout the year and then they settle up at the end of the year based on their actual cost to provide those services. Think of it just like a tax return. Some years you get a refund, but others you end up owing the taxman. I have seen some pretty wild swings in these settlements over the years. Don’t worry, there is an army of expensive consultants out there to help us figure this stuff out.
According to the Flex Monitoring Team, there are about 1,350 hospitals in the country with this critical access designation.
There is a major problem with the outpatient reimbursement calculation, though. According to the OIG, Medicare beneficiaries pay nearly half of the cost of outpatient services provided in critical access hospitals.
It goes like this. A Medicare beneficiary receives outpatient services provided by the critical access hospital. They rack up a bill just like they would at any other hospital in America. Then, a 20% Medicare coinsurance hits that bill as an out-of-pocket cost to the patient after they meet the Medicare Part B deductible.
The problem is, for critical access hospitals, the 20% coinsurance applies to the total gross charge. This is very different from how it works in most urban areas. Payments made to urban hospitals fall under the Outpatient Prospective Payment System (OPPS). For these hospitals, the coinsurance hits the “allowed amount”. Medicare sets the pricing for the allowed amount under the OPPS system.
Head CT Without Contrast
For example, take a simple CT scan of the head/brain without contrast. We might see a service like this provided in the emergency room or on its own in the outpatient setting. Depending on the hospital providing the service, pricing will be all over the board. I have personally seen this charged anywhere from $1,000 to $2,400 in the critical access hospital depending on the region. I will take the lower end of that range and use a $1000 charge for demonstration purposes.
The 2020 OPPS national Medicare payment rate for this head CT is $112.08 regardless of the hospital charge. Wage index adjustments are made to this payment depending on where in the country the services are provided. For example, an urban hospital in a place like Greensboro, NC will get paid closer to $100 for the CT scan. A hospital in Las Vegas gets about $122 for the same service. They are trying to account for wage differences around the country. That adjustment won’t move the charge materially for this demonstration, so we will stick with the national rate of $112.08. The minimum adjusted co-payment to the patient is about $22.42, which is 20% of the allowable. You can find this pricing right on the Medicare website.
$112.08 allowable X 20% coinsurance = $22.42 out-of-pocket to the patient
Critical Access Payment
For the critical access hospital, Medicare slaps the bill with a 20% coinsurance on the total gross charge.
$1,000 gross charge X 20% coinsurance = $200 out-of-pocket to the patient
So, from the get-go, the patient in the critical access hospital is already on the hook for almost 9 times the bill the patient in the OPPS hospital is getting hit with. Not only that, but they are also paying more than the entire allowable at an urban hospital. The hospital is then paid its “interim rate” less the $200 beneficiary coinsurance.
From there, the task of collecting and explaining the oversized bill lands with the critical access hospital. That hospital with the $2,400 head CT I mentioned above? Their patient’s coinsurance comes in at $480 for the exact same service. Did somebody say supersize me?
Unfortunately, this calculation only gets more detrimental to the patient when we start looking at high-cost services like chemotherapy.
What if the Patient Doesn’t Bother Paying?
Now, sometimes the patient doesn’t pay and there is no Medicare supplement plan to pick up the coinsurance. In this case, the balance is often written off to financial aid or sent to a bad debt collection company. If the balance is determined worthless (uncollectible), the Medicare program will come back and pay 65% of the uncollected coinsurance. In this simple example, the critical access hospital would get $130 of the $200 back on the cost report. But the administrative burden of collecting that bad debt settlement is costly.
In my mind, Medicare would need to pay these uncollected bad debt balances at 100% to truly make the hospital whole, as they did up through 2012. By 2015, Medicare reduced payment for critical access hospital bad debts to 65%.
Clearly, much of the critical access outpatient Medicare reimbursement comes on the back of the local community they support. We need to take a closer look at this archaic payment method and make improvements where we can.
The Office of Inspector General offered a few potential solutions. What if the Medicare program calculated the coinsurance based on that national payment rate set by the OPPS system? Then, send that bill to the patient (in this case $22.42 instead of $200). The critical access hospital would still get 101% of the cost, but the burden of this broken out-of-pocket calculation would come off the shoulders of the hospital and the patients they care for.
I am sure others will argue that the critical access hospital should just lower their charges. Unfortunately, razor-thin budgets and tricky commercial payer contracts make that easier said than done. So in the meantime, I think we should take a look at this broken payment methodology and try to even out the playing field between urban and rural out-of-pocket costs.