Medicare Waste: Rural Hospitals Reap Billions From Medicare While Nearby Facilities Offer Cheaper Care, Report Says

The U.S. government has spent $4.1 billion over six years on Medicare reimbursements to rural hospitals for patients who could easily have been treated elsewhere for one-fourth the cost, according to a report published Monday by the inspector general of the U.S. Department of Health and Human Services. The hospitals receive higher payments than nursing homes for providing the same services, as part of a measure meant to support their work in underserved areas, but the rules discourage staff from transferring elderly patients out from under their care.

Under Medicare, skilled-nursing facilities, including nursing homes that treat elderly patients, are reimbursed for the cost of essential services such as the day-to-day duties of nurses, dietary counseling, physical therapy, meals and medications. But since Congress instated the Rural Hospital Flexibility Grant Program in 1997, about 1,300 hospitals identified as “critical access hospitals” in rural areas can also receive reimbursements for these same services at a slightly higher rate -- receiving a check from the federal government for 101 percent of the costs they incur, as the report states.

The inspector general’s office analyzed data from a sample of 100 critical access hospitals to determine whether rural patients were truly dependent on their care or whether they could instead find similar help in a nearby facility for less money. The report also put a price tag on the cost of reimbursing the hospitals for care at the higher rate.

On average, the payments doled out to rural hospitals for skilled nursing care amounted to about $1,261 a day in 2010, according to the report, while treating the same patient in a different facility would have cost $273 a day. The authors estimated 90 percent of patients treated in these hospitals could have been moved to a facility where services were cheaper and still remain within 35 miles of the original hospital.

Furthermore, the number of claims by rural hospitals is on the rise -- the total number of treatment days for which these hospitals were reimbursed by Medicare increased from 789,000 in 2005 to 914,000 in 2010, the report states, and the amount of money that Medicare spent on these services nearly doubled during the same period to just over $1 billion.

Kansas has more critical access hospitals than any other state with 84 facilities while Iowa is second with 82, according to a consortium of universities known as the Flex Monitoring Team. Many of the nation’s designated hospitals are concentrated in the Midwest.

Marilyn Tavenner, administrator for the Centers for Medicare and Medicaid Services voiced her concerns about the report in a letter to Daniel Levinson, inspector general and lead author, saying that the study did not take into account the fact that patients who are treated in hospitals are likely more “medically complex” than those served in other facilities, and that the extra distance that families would have to travel to see their loved ones if transferred to a new facility would add an extra burden.

The Obama administration’s 2016 budget proposal includes a measure to reduce rural hospitals’ Medicare reimbursements for treating these patients to 100 percent of costs, which it estimates will save the government $1.7 billion over the next decade, as reported by HealthLeaders Media.