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Rural Enrollment in Medicare Advantage on the Rise

Carrie Vaughan, for HealthLeaders Media, April 16, 2008

For the majority of critical-access hospitals, the financial impact of Medicare Advantage plans has been negligible since the plans were established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 as a replacement for Medicare+Choice. Only 10% of rural Medicare beneficiaries were enrolled in MA as of January, which probably explains why 26% of CAHs were unsure which type of plan—HMO, PPO, PFFS, etc.—accounted for the largest number of their hospitals' MA patients, according to a report by the NORC Walsh Center for Rural Health and the RUPRI Center for Rural Health Policy Analysis.

If the number of rural beneficiaries signing up for these plans continues to increase, however, I suspect MA plans may have a more significant impact on CAHs’ financial performance in the future. As of January 2008, MA plans had enrolled 926,381 rural beneficiaries, up from 241,706 in 2005, the NORC study found. The report, "Critical Access Hospitals' Experiences with Medicare Advantage Plans," found that growth in rural enrollment has been mostly in private fee-for-service plans, which account for 61% of rural enrollment and 76% of the two-year growth. Yet PFFS plans are not required to follow the same reimbursement rules as traditional Medicare, including three CAH-specific policies: periodic interim payment based on 101% of cost, beneficiary cost sharing, and cost settlement at the end of the hospital's fiscal year. Payment rates are negotiated between the MA plans and CAHs, and can be above, below, or comparable to traditional Medicare rates.

The report found that of the 31 CAH respondents that held at least one MA contract:

  • 29% were reimbursed for inpatient services on the basis of cost plus 1%.
  • 13% were reimbursed on the basis of cost only, i.e., at 100% of costs.
  • 26% were reimbursed on a per diem basis, but did not elaborate as to how these amounts compared to traditional Medicare reimbursement.
  • 22% reported reimbursement that was greater than that offered by Medicare, including one CAH administrator who had negotiated a contract reimbursing 105% of inpatient costs.
  • 10% were unclear as to how the MA plan covering the largest number of their Medicare beneficiaries reimbursed the hospital for inpatient services.
  • Additionally, only 10 administrators indicated that their contract included a provision for an annual or year-end cost settlement.

While MA enrollees still account for a minimal amount of CAH total revenue, some forward-thinking administrators are already raising concerns about the levels of reimbursement, lack of cost settlements, timeliness of payment, and to a lesser extent, beneficiaries’ understanding of their benefits.

The study did offer some advice for CAHs interested in negotiating with MA plans:

  • CAHs located within the same region should enter into negotiations with MA plans as a group to secure the best reimbursement terms possible.
  • When negotiating contract terms, CAHs should explain the Medicare cost report and how it is used in the cost-settlement process to ensure that they receive 101% of their costs for treating Medicare beneficiaries.
  • CAHs should weigh the reduced reimbursement versus reduced access to care for MA beneficiaries when deciding whether to contract with MA plans or not.

I just wonder if any of these tips came from the administrator who negotiated a contract that reimburses 105% of inpatient costs.


Carrie Vaughan is editor of HealthLeaders Media Community and Rural Hospital Weekly. She can be reached at cvaughan@healthleadersmedia.com.

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