Unintended Consequences:
Higher Coinsurance Burdens for
Beneficiaries at Critical Access Hospitals
Sara Freeman
Kathleen Dalton
RTI International
www.rti.org
AcademyHealth 2009
Credits and Disclosures
Funding Source:
Medicare Payment Advisory Commission (MedPAC)
Jeff Stensland, Project Officer
The policy options are the views of the authors and do not necessarily reflect the
views or policy options of any individual MedPAC staff or the Commission.
Disclosure Note:
Co-author Kathleen Dalton serves as a trustee for a non-profit health care
system that operates critical access hospitals in Kentucky and West Virginia.
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Background: Critical Access Hospitals (CAHs)
• Created under the Balanced Budget Act of
1997 to increase payments to small, isolated
rural hospitals
• Policy goal was to improve financial stability,
prevent closures, and therefore protect rural
access
– Exempt from inpatient and outpatient PPS
– Receive retrospective cost-based reimbursement
(101% cost after 2006)
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Background: Program Growth
• States expanded eligibility by
broadening definitions of “isolated” or
“critical”
• 1999 implementation of outpatient
PPS made cost option more attractive
• Very rapid growth 2000–2004;
Currently +/- 1,300 CAH facilities
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Key Study Issue
• Outpatient coinsurance under cost-based
reimbursement is set at 20% of charges
• Coinsurance under Outpatient
Prospective Payment System is set
based on PPS fee schedule (much less!)
• How does this difference affect CAH
beneficiaries?
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Study Questions
• How does the coinsurance burden differ
for CAH beneficiaries in the outpatient
setting?
• If it is higher, what policy options are there
for reducing this coinsurance burden?
• What would be the cost to the Medicare
Program of these policy options?
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Study Design: Sample
Retrospective two-period review of 1,115 CAHs:
• CAH in both periods
• Started as PPS and converted to CAH
• New CAH
Period 1
2002/2003
CAH
PPS
Period 2
2005/2006
CAH
CAH
CAH
Number of
Hospitals
621
373
121
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Study Sample by Region and Period
600
500
400
300
200
100
0
Northeast
Midwest
2002/2003
South
2005/2006
West
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Data
• Medicare cost reports
– PPS and cost-based, as applicable
• Medicare outpatient claims
– 16,211,609 claims
– Extracted from 100% OP Standard
Analytic File (SAF)
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Approach
1. Estimate claim costs using cost-to-charge ratios (CCRs)
by type of service.
2. Analyze changes in claims – volume, intensity, price
mark-up.
3. Estimate increasing coinsurance burden to
beneficiaries.
4. Identify and evaluate policy changes to relieve burden.
– Coinsurance based on 20% of costs rather than 20% of charges
– Coinsurance based on OPPS equivalent payment
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Results: Overall Hospital Changes
Over Three-year Period
Hospitals that were PPS and became CAHs
•
•
•
•
•
Number of claims
Covered charges
Covered costs
Coinsurance
Medicare Program amount
↑ 16.3%
↑ 49.2%
↑ 37.8%
↑ 145.9%
↑ 86.6%
(Medicare payment net “copays”)
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Results: Overall Hospital Changes
Over Three-year Period
Hospitals that were CAHs in both periods
•
•
•
•
•
Number of claims
Covered charges
Covered costs
Coinsurance
Medicare Program amount
↑ 12.6%
↑ 38.6%
↑ 27.6%
↑ 36.8%
↑ 19.1%
(Medicare payment net “copays”)
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Coinsurance as a Percent of Covered Costs,
by Service Group (2005/2006)
Percentiles
621 CAHs
Obs
Mean
25th
50th
75th
CAT Scan
563
56%
38%
49%
63%
Rehab Therapy
587
30
22
28
36
Cardiology/EKG
620
103
37
53
103
Emergency Room
619
23
13
20
30
Observation
609
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9
12
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Cost of Policy Change to
Cost-Based Coinsurance, in 2005-2006
Medicare Program payment is allowable costs less copays.
Decrease in
beneficiaries’ copays
=
Increase in
Medicare Program payments
Actual coinsurance paid (1,115 CAHs)
$810 million
Dollar reduction in coinsurance due
$445 million
Net cost to Medicare Program (1,292 CAHs)
$475 million
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Cost of Policy Over Time
$ Billions
Growth of Charges vs. Costs
$30
$25
$20
$15
$10
$5
$2006
2008
2010
Charges
2012
2014
2016
2018
101% Costs
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Cost of Policy Over Time
Current Regulation
(20% of Charges)
Policy Change
(20% of Costs)
$ Billions
10
8
6
4
2
0
2006 2010 2014 2018
Medicare Program
2006 2010 2014 2018
Coinsurance
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Alternative Policy Change
Require CAHs to process Part B claims as though
they are paid under OPPS, and charge
beneficiaries OPPS-equivalent coinsurance.
Estimated Cost — About the same as 20%-of-costs option
Benefits — CAH beneficiaries are not penalized for their
local hospital’s Medicare reimbursement system and
mark-up policies
Drawbacks — Administrative burden for CAHs
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Conclusion
• Classic example of unintended
consequences.
• Cost-based reimbursement was intended to
protect access for rural beneficiaries, not to
increase their out-of-pocket expenses.
• Cost of redressing problem may be too high
for Medicare Program at this time.
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For More Information
Sara Freeman
sfreeman@rti.org
919-485-2630
www.rti.org
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