“Code Blue”: Medicare reimbursement reform needed to save the life of rural hospitals.

The healthcare industry has undergone drastic reforms over the last few years. It has been strained by inflating costs and pressed with questions about the Affordable Care Act’s implementation and future. Few hospitals and patients are immune from these stressors. Rural hospitals have been impacted especially hard. The hardships that rural hospitals face are largely a byproduct of the special Medicare rules for rural hospitals. These rules substantially differ from that of urban and suburban hospitals. 


Rural areas typically have hospitals that are categorized as “critical access” hospitals. Critical access hospitals are much smaller than their urban counterparts. These hospitals can have no more than 25 inpatient beds, they must maintain an annual average length of stay of no more than 96 hours, and they have to be a minimum 35 miles from the next nearest hospital.


Certification as a critical access hospital allows that hospital to receive cost-based reimbursement from Medicare, as opposed to the flat rate reimbursement that non-critical access hospitals typically receive. Medicare requires that a patient pay 20 percent of the amount that the critical access hospital charges. Patients also pay 20 percent coinsurance at non-critical access hospitals, however that 20 percent is based on the amount Medicare reimburses, which is typically significantly lower than what the hospital charges.


This reimbursement structure stresses both the critical access hospital and the rural Medicare patient. For example, in 2012, when a Medicare patient received an electrocardiogram at a rural critical access hospital, they owed an average of $33 for that procedure. Patients at other, more urban hospitals would only have had to pay about $5. According to a recent report by the inspector general at the Department of Health and Human Services, many Medicare beneficiaries who received treatment at these rural critical access hospitals have ended up paying between two to six times more for services than patients non-critical access hospitals.


When interviewed on this topic, Eric Draime, chief financial officer for Avita Health Systems, stated that this difference is not the rural hospitals' fault. "Critical access hospitals don't charge more. They charge less, but the way Medicare developed the system, the enrollee ends up footing more of the bill," CFO Draime said.


To make matters worse, the rural population is not only paying more, but their hospitals are closing due to this payment structure. USA Today recently reported on these closures, stating: “[l]ow Medicare and Medicaid reimbursements hurt these hospitals more than others because it's how most of their patients are insured, if they are at all.”

Thus, the costs that the rural population is currently facing is not only financial, but the cost in the length of time that it takes to get to the next nearest hospital post critical access hospital closure. In another USA Today report, this issue was shockingly addressed in the case of a man who had a stroke and, because of the closure of his local critical access hospital, had to be ambulanced for nearly 40 minutes to the county’s urban hospital. 

The inspector general’s office has advised that 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 that “[t]he reason this hasn’t been solved is it would require the Medicare program to subsidize more. . . .” 

In addition to reconfiguring the reimbursement aspect of Medicare, Congress should mandate that the 23 states that refuse to participate in the Medicaid expansion do so. Without reform, more hospitals will close, cost will continue to rise, and rural Americans will bear the burden of the very program intended to help them.