Billions in Extra Medicare Funds Go to “Critical Access Hospitals” to Prevent them from Closing

Federal investigators disclose of a government law that allows rural hospitals to bill Medicare for rehabilitation services for seniors even at higher rates compared to that of nursing homes and other medical facilities has led to billions of dollars in extra government spending.

The Inspector General of the U.S. Department of Health and Human Services, expressed, in a report being released on a Monday, “most patients could have been moved to a skilled-nursing facility within 35 miles of the hospital at about one-fourth the cost.” In addition, hospitals juggling tough balance sheets have come to view such “swing-bed” patients as profitable, fueling a steady rise in the number of people getting such care and costing Medicare an additional $4.1 billion over six years, the report said.

The authors wrote that the windfall helps to “support a hospital’s fixed costs and offset losses from other lines of business.”

A legislation being passed by Congress in 1997 created the designation of “critical access hospitals” to help small facilities in remote areas from falling and make them survive. Rather than paying set rates for services as throughout the rest of the Medicare system, the federal government reimburses the hospitals for 101 percent of their costs. They also often receive state funding and grants.

In most U.S. hospitals, Medicare patients who break their hip, for example, would receive in-patient treatment until they are ready to return home or receive rehabilitative services at a nursing home or elsewhere. But critical access hospitals are allowed to provide those rehabilitation services in the very same bed as in-patient ones. They continue to bill for their full costs, rather than the far lower price of providing those services elsewhere.

Alan Morgan, CEO of the National Rural Health Association, did not dispute that Medicare could save money by modifying the system. But he said dozens of rural hospitals have closed in the past five years, and nearly 300 others are on the brink. The Obama administration has already proposed a reduction to all reimbursements made to critical access hospitals that Morgan said would further accelerate the closures if enacted.

“Medicare could save money in many ways. That’s not the question,” he said. “The question is what is right for our rural patients and their access to high-quality services designed to care for the frail, elderly patients in their home communities.”

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