Critical Access Hospitals: Expensive and Dangerous

Comparing Costs for Outpatient Care

Medicare patients pay far more out of pocket for outpatient care at the small, rural hospitals known as critical-access hospitals

The Wall Street Journal – December 25, 2015

Due to an obscure bit of regulatory wording, Medicare patients pay far more out of pocket for outpatient care at the small, rural hospitals known as critical-access hospitals than they would for the same care elsewhere, according a Wall Street Journal analysis of Medicare billing records.

For example, Medicare patients who had colonoscopies at critical-access hospitals had copays of $840.22 on average in 2013, more than three times the $270.53 average copay at general hospitals, according to the Journal’s analysis. Copays for outpatient hernia surgery averaged $1,926.60 at critical-access hospitals, compared with $562.52 at other hospitals. For bunion surgery, Medicare patients paid copays of $2,272.56 on average at the small rural hospitals, compared with $780.79 at other hospitals.

The reason is buried in a 1997 law that created the critical-access designation to help small, struggling hospitals. Under the program, Medicare pays such hospitals more than it pays general hospitals, using a different formula. The law also set the Medicare copay for outpatient care at qualifying hospitals at 20% of hospital “charges,” as the facilities call their list prices. At most hospitals, patients only pay 20% of the rates Medicare sets for outpatient services, which are generally much lower than list prices.

Charges, also known as chargemaster prices, are the high and wildly varying rates hospitals set for services, knowing that insurers will negotiate them down. Hospital charges have soared since 1997, creating a widening gap between what Medicare patients pay at critical-access hospitals and everywhere else.

“Initially, it wasn’t a problem, but as time went on, charges increased a lot,” says Sara Freeman, a research economist at RTI International, a nonprofit commissioned by an independent congressional agency called the Medicare Payment Advisory Commission, or MedPAC, to study the issue in 2009 and 2011. “It was an unintended consequence of the law designed to help rural hospitals.”

Ironically, critical-access hospitals don’t get more money from those higher copays; patients simply pay a greater portion of the total reimbursement the hospitals get from Medicare (currently set at 101% of their “reasonable costs”). In 2012, Medicare beneficiaries paid $1.5 billion of the total $3.2 billion Medicare spent on outpatient care at critical-access hospitals—nearly 50%, compared with 22% at other hospitals, according to a report by the Health and Human Services Department’s Inspector General.

In four states—Florida, Massachusetts, Virginia and Kentucky—the median patient copays for CT scans and MRIs are higher than the total amount Medicare allows for those services, so patients are paying the entire sum, according to the Inspector General’s report, which urged Medicare officials to seek authorization from Congress to change how the copays are calculated.

A Medicare spokeswoman said any proposed legislative changes in how copays are calculated would come in the president’s proposed budget for 2017.

Very few of the 2.4 million Medicare patients who get care at critical-access hospitals are aware they are paying a premium at those facilities, experts say. Nearly 90% of Medicare beneficiaries have Medigap policies that cover some or all of their copays, and many patients are inured to inscrutable medical bills. The difference in copays isn’t explained in Medicare billing statements, and is mentioned only in one sentence in the 160-page “Medicare and You” booklet.

Richard Greene, a retired corporate controller in Meredith, N.H., was surprised when Medicare informed him that his copay for rotator cuff surgery at Littleton Regional Hospital in 2013 was $3,934.87—about three times what he expected based on the $4,954.61 that Medicare paid.

Mr. Greene says it took more than six months to get an explanation. Both the surgeon and the hospital told him to ask Medicare. After he made four calls to the agency’s 800 number, a supervisor advised him to appeal, he says. He did and got back a form letter explaining how copays are calculated at regular hospitals.

“At no point did Medicare ever use the words ‘critical-access hospital’ or explain there is a different formula for calculating the copay there,” Mr. Greene says. He says he found out only when he complained to his congresswomen and an intern in her office discovered the MedPAC report.

“I guess if they told you, nobody would go to critical-access hospitals,” says Mr. Green, who eventually paid the bill in full.

A spokeswoman for Littleton said an FAQ on the hospital’s website does state that Medicare copays are “assessed at 20% of submitted charges” and that it tells patients to contact Medicare with any questions.


New Risks at Rural Hospitals

Financial incentives are leading small facilities to perform more surgeries

The Wall Street Journal – December25, 2015

Arlene Thomas chose to have her May 2013 knee replacement close to home, at a small hospital in rural Neillsville, Wis.

Seven days later, she died of a heart attack at a bigger hospital 30 miles away in Marshfield, according to billing and medical documents viewed by The Wall Street Journal. A doctor there noted that the attack was likely a complication of the surgery.

“We thought it was just a routine procedure,” said Brent Tuthill, Ms. Thomas’s son-in-law, of the decision to have her knee surgery locally.

The hospital where the surgery was performed, Memorial Medical Center, said the care it

Small rural hospitals called critical-access hospitals have in recent years been performing more and more inpatient orthopedic surgeries, even as their overall stays decline, a Journal analysis of Medicare billing records shows. Inpatient joint-replacement surgeries covered by Medicare rose 42.6% at the hospitals from 2008 to 2013, far outpacing the growth of those services at general hospitals.

The trend reflects financial incentives built into the way Medicare pays the nation’s roughly 1,300 critical-access hospitals—generally isolated facilities with 25 or fewer beds—experts say, but it has troubling implications for patient safety.

Many studies suggest that patients generally get better results when their procedures are done at hospitals that perform them frequently.

The average critical-access hospital performing inpatient joint replacements in 2013 did about 26 that year, compared to about 132 at general hospitals. Hospitals doing more than 100 procedures a year have the lowest risks, said Nelson SooHoo, an orthopedic surgeon at UCLA’s David Geffen School of Medicine who has studied the issue.

Cases like Ms. Thomas’s aren’t uncommon, the Journal found. Patients getting the five most common major orthopedic procedures at critical-access hospitals, including joint replacements, were about 34% more likely to die within 30 days than those getting the same services at typical general hospitals during the period from 2010 through 2013, according to the billing data.

The Journal’s analysis “suggests there is not just a financial cost but a huge clinical cost” to the rising number of surgeries, said Ashish Jha, a Harvard professor who has studied critical-access hospitals. “Patients are getting bad outcomes, probably because they are getting procedures at hospitals without the experience to do it well,” he said.

Dr. Jha and associates at the Harvard T.H. Chan School of Public Health reviewed the Journal’s findings using a statistical method that corrects for the effects of patients’ varying health conditions, ages and other factors. That analysis found the 30-day mortality rate for inpatient joint replacements was about 9 per 1,000 at critical-access hospitals in 2013, compared with around 5 in 1,000 at general hospitals.

Financial incentives can make doing more surgeries appealing to critical-access hospitals, thanks to their special status with Medicare, especially as the rural hospitals merge with larger rivals. Under a 1997 program to keep rural hospitals afloat and help provide emergency care, critical-access hospitals are typically paid more than general hospitals for the same services. The special payments are supposed to guarantee that they make more than their costs.

The Journal’s analysis shows that the fastest-growing procedures at critical-access hospitals are often-elective orthopedic surgeries that could otherwise be scheduled at facilities with more experience.

Experts say that as the hospitals’ experience grows, patients’ outcomes should improve. But so far, mortality rates have held fast, according to the analyses by the Journal and Harvard researchers.

A spokeswoman for the Centers for Medicare and Medicaid Services said the agency, which oversees Medicare, “agrees that changes should be made to Critical Access Hospital designation and payment systems.” She said, “Medicare should be a purchaser of effective and efficient health care for all beneficiaries.”

Hospital executives gave a range of reasons for increasing orthopedic surgeries, from hiring new surgeons to business decisions after mergers. Some of the hospitals are now doing high volumes of the procedures.

Among the facilities that contributed most to the increase in orthopedic surgeries at critical-access hospitals is Selby General Hospital, in Marietta, Ohio. The 25-bed critical-access hospital merged in 2008 with Marietta Memorial Hospital, a 130-bed general hospital a couple miles away. In 2008, Selby did only 30 inpatient major joint replacements; the total rose to 180 in 2013 as Marietta’s volumes of the same procedures dwindled, billing data show.

Hospital officials say they made a concerted effort to shift their orthopedic services to Selby, because the services are well suited to small, specialized hospitals and executives believed focusing on one service line at the facility would improve care. “When it is what you do every day, it allows you to get better and better at it,” said Scott Cantley, CEO of the hospitals’ parent, Memorial Health System.

The services can be lucrative, researchers say. “A strong and active surgery program is one of the primary predictors of financially successful hospitals,” said Mark Holmes, a University of North Carolina rural health researcher.

The special status is costly to Medicare. Federal health-department auditors said Medicare could save $860,000 a year on average, per hospital, if it stripped from the program some hospitals that don’t meet all the requirements. The Obama administration has proposed cutting the facilities’ payments.

Critical-access hospitals are exempted from federal rules that require most facilities to report quality measures, such as rates of surgical complications, giving patients little chance to compare their results. Some experts—including critical-access hospital personnel—say it is time to change that.

“If the government is going to help keep your doors open…there should be mandatory reporting,” said Erik Severson, an orthopedic surgeon at Cuyuna Regional Medical Center, a critical-access hospital.

Medicare’s spokeswoman said many critical-access hospitals voluntarily report quality measures and that the federal agency provides technical assistance to help them do so.

At Memorial Medical Center in Neillsville where Ms. Thomas had her surgery, doctors performed just 13 major inpatient joint replacements on Medicare patients in 2013, and far fewer in each of the five years before, the claims data show.

An outside lawyer for Memorial Medical Center, Sean Gaynor, said the hospital hired an orthopedic surgeon in 2012 and expanded its services. He said the facility’s complication rates are lower than average for orthopedic procedures, and that outside reviewers had found the care provided to Ms. Thomas met professional standards. “Even when the best care is provided, untoward outcomes can occur,” he said.

After Ms. Thomas’s May 28 knee surgery, she was sent home on June 3, discharge notes show. Her daughter complained that Ms. Thomas was short of breath and experiencing chest pain at the time. Just hours later, an ambulance took her from her home to a larger hospital nearby.

At the bigger hospital in Marshfield, Wis., doctors diagnosed a heart attack. A doctor there told family members that it “likely was a postoperative complication,” according to medical records.

Ms. Thomas, 83 years old, died on June 4, 2013.

That November, state inspectors visited the Neillsville medical facility that performed the joint replacement, in response to a complaint by Ms. Thomas’s family, finding a nurse should have done an additional assessment before discharge.

The hospital said it hasn’t been sanctioned or disciplined in connection with Ms. Thomas’s care.


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