Once you hit 65, there’s a line of thinking that goes like this: Medicare is there to protect your health, and your wallet.
That’s mostly true. But about 10 percent of Medicare beneficiaries in New Hampshire – about 26,000 people – are susceptible to hospital charges that would be illegal on the private insurance market.
And most of those people are probably unaware if and when they pay those charges.
Richard Greene is one of those people. It all started with a pain in his shoulder.
"It turned out to be a rotator cuff problem, which is a kind of a difficult surgery," says Greene. "And I’d had a good recommendation from a friend of mine that had that same surgery done by a surgeon up in Littleton, New Hampshire. I went to him without question. I thought it was the best thing to do."
Medically, he was right. A year later Richard says his injured shoulder is in better shape than his other shoulder. But financially, he was wrong.
Once Medicare settled its portion of the bill, it notified Richard how much he owed.
"Based on what they paid I didn’t understand why I would owe so much. They showed that I owed $3,900," says Greene.
Seemed like a mistake. But it wasn’t.
It turns out, Richard was not only on the hook for that bill, but that he was sort of a cog in a machine designed by Congress built to prop up rural hospitals with extra cash.
Here’s how a payment normally works. The hospital sends a big bill to Medicare. Medicare then says…uh uh…we’re going to pay this smaller number. Medicare then pays the hospital 80 percent of the small number, and the Medicare patient pays 20 percent.
Well, Richard’s bill was way more than 20 percent of the small number. Why?
First he called the hospital, and they told him to call Medicare. He got shuffled around on the phone to a Medicare supervisor who said he should appeal it.
"So I did," says Green.
But the response from the appeal was the same: You owe the hospital the money. Richard called AARP, but they didn’t know what was going on. Finally, a staffer in Congresswoman Carol Shea-Porter’s office helped him figure it out.
"There certainly is a difficulty in getting the answers on this," says Greene.
Turns out Littleton is what Medicare calls a Critical Access Hospital – one that provides critical healthcare access for rural Americans. There are perks – these hospitals are exempt from certain fines, and they get more generous reimbursements from Medicare.
So in Richard’s scenario - as an outpatient at a Critical Access Hospital - Medicare pays 80 percent of that small number. But then it makes Richard pay 20 percent of the big number. If he had gone to a more urban hospital with the same list price for rotator cuff surgery, his out of pocket costs would be about $1,000, or 75 percent less.
"When you’re on Medicare you typically expect Medicare is going to protect you from these outrageous list prices that hospitals charge," says Greene. "I mean, nobody pays those things, supposedly."
An Obscure Problem
I called around to a lot of health economists who study Medicare and rural hospitals. Most were kind of flabbergasted.
"This example here is just, you know, outrageous," says Michael Rosko, a professor at Widener University in Pennsylvania.
"That strikes me as that your person has a real complaint," says Robert Berenson, a physician and fellow at the Urban Institute.
Here’s why it happens.
Back in the early 1980s, Medicare changed the way it paid hospitals. Instead of paying exactly what the hospitals billed, Medicare started paying what it felt was a fair price: that’s the difference between that big and small number. Medicare’s new payment scheme hurt rural hospitals. Hundreds closed their doors.
The problem with a rural hospital closing is the next hospital may not be very close," says Michael Rosko. "So this really creates a severe access problem. So Medicare felt it was necessary to prop up these failing rural hospital – so they went backwards."
Backwards, meaning Medicare decided to pay Critical Access Hospitals closer to what the hospital wanted, rather than what Medicare wanted.
And that wasn’t the only change. The feds allowed states to designate Critical Access Hospitals, and under looser rules.
"There’s been just huge proliferation of hospitals that have gotten themselves designated as Critical Access Hospitals," says Robert Berenson. "You know there’s sort of this concern about keeping these hospitals alive. They do have a lot of benefits that help them financially. And yet there are Critical Access Hospitals that go out of business."
Right now, half the hospitals in New Hampshire are Critical Access Hospitals. And that’s a lot: only 12 states have a higher percentage.
The Blame Game
Now, here’s what’s really strange about Richard’s situation. The type of bloated charge he paid for his surgery? That’s illegal in the private insurance market in New Hampshire and 48 other states.
That means the federal government is dispensing payments to retirees that states say are unfair.
Plus, remember that arduous, seven-month process Richard Greene went through to figure all this out? The hospital knew about this rule. So did Medicare. But no one told him. They didn’t tell him before the surgery, and they didn’t even tell him after his surgery.
When you ask people about this issue, everyone seems to agree it’s an unintended consequence of the law that created these hospitals. But it remains an obscure problem.
"Well I guess I would put the onus back on the Critical Access Hospital to [disclose this]," says Andy Coburn is a professor at the University of Southern Maine. "You would hope that there would be that kind of transparency on the part of the hospital."
So the economist blames the hospital. And who does the hospital blame?
"We do what Medicare tells us to do and what we’re required to do," says Nick Braccino, the Chief Financial Officer at Littleton Hospital.
Braccino points out it’s not a picnic being a Critical Access Hospital. They have to take Medicaid patients - which means much less revenue - and they can’t grow past 25 beds.
He says they need those bigger payments. Perhaps, but there’s also research suggesting those bigger payments lead to inefficiency.
Either way he says it would be risky for hospitals like Littleton to spell all this out to a patient like Richard Greene.
"Any one hospital that becomes totally transparent does have that problem that if they’re the first one and the information is misunderstood it has a very negative impact on them," says Braccino.
So the hospital blames Medicare. And who does Medicare blame? In a statement, the Centers for Medicare and Medicaid Services says it is open to hearing from beneficiaries, but ultimately it will take an act of Congress to fix this rule.
Actually, a recent report from the Office of the Inspector General backs this up. That report also says Medicare beneficiaries who go to Critical Access Hospitals are essentially paying more than double than beneficiaries in urban areas.
The offices of both New Hampshire U.S. senators say they are aware of this problem.
In a statement, Kelly Ayotte says patients of Critical Access Hospitals deserve to know up front how much they’ll pay for services.
And last year Jeanne Shaheen was one of a group of four senators from both parties who wrote a letter to the Government Accountability Office, asking for a report on this issue. That report is due out any day now.
Most Medicare beneficiaries have a backup insurance policy that makes up the difference on these high charges. But in New Hampshire, about 26,000 people on Medicare don't have backup insurance. Those are the folks this impacts.
Richard Green says those people better stay on their toes because those in a position to help have little incentive to do so.
"It would be pretty embarrassing to Medicare to have this widely known. And I think it would hurt the hospitals because people would stop going to them if they knew they were going to be charged a lot. So there’s probably two separate reasons this isn’t getting out, besides that fact that people just can’t figure it out."
So, in case you want to know, here's a list of Critical Access Hospitals in New Hampshire – and the rest of the country.