Corporate Compliance

Note from the instructor: Critical Access Hospitals and Patient Coinsurance Amounts

Medicare Insider, October 21, 2014

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This week’s note from the instructor is written by Debbie Mackaman, RHIA, CHCO, regulatory specialist for HCPro.  
Last week, the OIG published a report regarding the amount of coinsurance a Medicare beneficiary pays when receiving outpatient services at a critical access hospital (CAH). A CAH is a rural hospital that is reimbursed based on a reasonable cost methodology rather than being paid a prospectively determined amount under the outpatient APC or inpatient MS-DRG payment systems. As of July 1, there are 1,326 CAHs in the country which creates a significant impact on the Medicare system and its beneficiaries.  
A CAH must follow unique licensure limitations including operating a combined maximum of 25 acute care beds and swing beds used for skilled nursing services. A CAH is also limited to an annual average per patient length of stay of 96 hours. With the implementation of the 2-midnight rule, a physician must also certify that the patient can be expected to be discharged or transferred from the CAH within 96 hours of the order to admit.
A CAH is reimbursed 101% of its reasonable costs for inpatient and outpatient services. Each CAH submits a cost report on an annual basis which is used by the MAC to identify its reasonable costs and create the CAH-specific annual interim payment rate. The patient’s deductible and coinsurance for inpatient services is calculated in exactly the same manner as a PPS hospital based on a benefit period. However, when the patient is receiving outpatient services, the patient pays 20% of the CAH’s reasonable charge rather than a pre-determined amount that is a portion of the total APC payment.
In a CAH, a unique situation is born in that a patient who receives an outpatient service in a CAH actually pays more out of pocket for the same exact service that could have been provided in a PPS hospital. In the report, the OIG cites that Medicare patients paid two to six times more for coinsurance at a CAH than at a PPS hospital.  According to the 2009 and 2012 claims data for 10 common HCPCS codes, the patient paid on average 47% of the costs for outpatient services.
As with most hospitals, a CAH’s charge for an individual service is usually more than the actual cost of the service or the Medicare payment.  Although a CAH’s charges are not directly tied to their costs, their charges must be reasonable according to the Medicare Provider Reimbursement Manual and general principles of cost reimbursement. Because charges are higher than costs, the amount of coinsurance when calculated based on the charge can represent a considerable proportion of actual payment.
There are several examples listed in the OIG report and here is a general comparison for an Emergency Room Evaluation and Management service between a CAH and an OPPS hospital and the difference in the beneficiary’s out of pocket expense.
E/M = 99284
Cost/Charge Ratio
Wage Index
Total Payment
Patient’s Coinsurance
In the report, the OIG recommends CMS seek legislative authority to modify how coinsurance amounts are calculated for outpatient services received at CAHs. One of the OIG’s suggestions was to calculate the coinsurance based on the interim payment rate, which would significantly decrease the beneficiary’s coinsurance amounts. Another suggestion was to use the same coinsurance amounts that are assessed under OPPS. CMS responded to the report but did not agree with or comment on the recommendations.
CAHs have been under much scrutiny by the OIG and CMS over the past 18 months and changes are imminent due to the costs to the Medicare program and its beneficiaries. We recently saw this when some CAHs, including necessary provider CAHs, were reclassified as urban under the revised wage indices and now must reapply to maintain their CAH designation. If the coinsurance calculation were to change as recommended by the OIG, this would significantly impact the bottom line of the CAHs across the country unless CMS agrees to make up the difference-which is doubtful.

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