Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
M   B
EDICARE  ENEFICIARIES 
 
P N H
AI  D  EARLY  ALF OF THE 
 
C O
 OSTS FOR  UTPATIENT 
 
S C
  ERVICES AT  RITICAL 
A H  
CCESS  OSPITALS 
 
Daniel R. Levinson   
Inspector General  
 
October 2014 
OEI-05-12-00085   
    
EXECUTIVE SUMMARY:  MEDICARE BENEFICIARIES PAID NEARLY HALF OF 
THE COSTS FOR OUTPATIENT SERVICES AT CRITICAL ACCESS HOSPITALS 
OEI-05-12-00085 
 
WHY WE DID THIS STUDY 
The Critical Access Hospital (CAH) certification was created to ensure that rural beneficiaries 
would have access to hospital services.  Medicare reimburses CAHs at 101 percent of their 
reasonable costs, rather than at the predetermined rates set by the Outpatient Prospective 
Payment System (OPPS). 
 
The system that Medicare uses to calculate outpatient coinsurance amounts for beneficiaries who 
receive services at CAHs differs from that used for beneficiaries who receive services at 
acute-care hospitals.  Beneficiaries who receive services at CAHs pay coinsurance amounts 
based on CAH charges, whereas beneficiaries who receive services at acute-care hospitals pay 
coinsurance amounts based on OPPS rates.  CAH charges are typically higher than the 
reasonable costs associated with CAH services or the OPPS rates that acute-care hospitals 
receive. 
 
HOW WE DID THIS STUDY  
We used 2009 and 2012 claims data to calculate the percentages and amounts of coinsurance that 
Medicare beneficiaries paid toward the costs for outpatient services at CAHs.  Additionally, we 
calculated the percentages and amounts of coinsurance that beneficiaries would have paid at 
acute-care hospitals for 10 outpatient services that were frequently provided at CAHs.   
 
WHAT WE FOUND 
Because coinsurance amounts were based on charges, Medicare beneficiaries paid nearly half the 
costs for outpatient services at CAHs. In 2012, beneficiaries paid approximately $1.5 billion of 
the estimated $3.2 billion cost for CAH outpatient services.  Additionally, the average percentage 
of costs that beneficiaries paid in coinsurance for these services increased 2 percentage points 
between 2009 and 2012. Finally, for 10 outpatient services that were frequently provided at 
CAHs, beneficiaries paid between 2 and 6 times the amount in coinsurance than they would have 
for the same services at acute-care hospitals.  
 
WHAT WE RECOMMEND  
Because coinsurance amounts were based on charges, Medicare beneficiaries paid a higher 
percentage of the costs in coinsurance for outpatient services received at CAHs than they would 
have paid at hospitals under OPPS. Further, the percentage of costs that Medicare beneficiaries 
paid in coinsurance for outpatient services at CAHs has increased in recent years.  To reduce the 
percentage of costs that Medicare beneficiaries pay in coinsurance, we recommend that CMS 
seek legislative authority to modify how coinsurance is calculated for outpatient services 
received at CAHs. Some ways in which CMS could modify how coinsurance is calculated for 
such services include (1) computing coinsurance so that it is based on interim payment rates 
rather than charges and (2) processing claims for outpatient services at CAHs as if they were 
paid under OPPS for the purpose of calculating an OPPS-equivalent coinsurance.  CMS 
responded to the report but neither concurred nor nonconcurred with our recommendation.   
   
    
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................5 

Findings........................................................................................................7 

Because coinsurance amounts were based on charges, Medicare 

beneficiaries paid nearly half the costs for outpatient services at 

CAHs................................................................................................7 

The average percentage of costs that Medicare beneficiaries paid in 

coinsurance for outpatient services at CAHs increased slightly 

from 2009 to 2012    .........................................................................8 

Because coinsurance amounts were based on charges, Medicare 

beneficiaries paid more in coinsurance for outpatient services at 

CAHs than they would have paid at acute-care hospitals..............10 

Conclusion and Recommendation .............................................................13 

Agency Comments and Office of Inspector General Response .....15 

Appendixes ................................................................................................16 

A: 	Detailed Methodology .............................................................16 

B: 	Charges, Coinsurance Amounts, and Costs for Outpatient 

Services Frequently Provided at CAHs in 2009 and 2012 ......18 

C: Agency Comments  ...................................................................19 

Acknowledgments......................................................................................21 

 
   
    
OBJECTIVES 
To determine: 
1. 	  what percentage of costs beneficiaries paid in coinsurance for outpatient 
services at Critical Access Hospitals (CAHs), 
2. 	  how the percentage of costs that beneficiaries paid in coinsurance for 
outpatient services at CAHs changed over time, and 
3. 	  how the coinsurance that beneficiaries paid for outpatient services at 
CAHs compared to the coinsurance that they would have paid for 
outpatient services at acute-care hospitals.  
BACKGROUND 
Critical Access Hospitals  
The Balanced Budget Act (BBA) of 1997 created the CAH certification to 
ensure that hospital care would be accessible to beneficiaries in rural 
communities.1, 2  Small hospitals that meet specific requirements can qualify 
for the CAH certification and receive favorable Medicare reimbursements.   
There are more than 1,300 CAHs in the United States.  CAHs are located in 
each of the 50 States except Connecticut, Delaware, Maryland, New Jersey, 
and Rhode Island. CAHs provided outpatient services to approximately 
2.4 million beneficiaries in 2012.  Medicare and beneficiaries paid 
approximately $4.3 billion for these services.  
Medicare Payments to CAHs and Acute-Care Hospitals 
Medicare pays CAHs under a system different from that for paying most other 
hospitals. CAHs receive 101 percent of their reasonable costs for outpatient 
services provided.3, 4  Medicare determines these costs using information from  
CAHs cost reports, on which hospitals report their costs and charges for 
services provided.5  In contrast, Medicare pays for outpatient services at most 
 
1 BBA, P.L. No. 105-33  4201.  The BBA amended several sections of the Social Security  
Act, including  sections  1814(l), 1820, 1834(g), and 1861(mm). 
 
2 Centers for Medicare & Medicaid Services (CMS), State Operations Manual, Pub. No. 
 
100-07, ch. 2,  2254A.  Accessed  at http://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Internet-Only-Manuals-IOMs-Items/CMS1201984.html on 

April 4, 2014. 

3 Social Security Act,   1834(g), 42 U.S.C.  1395m(g). 
4 Reasonable costs are the direct and indirect costs associated with providing services to 
Medicare beneficiaries.  42 CFR   413.9(b)(1). 
5 42 CFR   413.20(a).  Costs refer to the costs of providing services, including the costs of  
staff, buildings, and equipment.  Charges refer to the amounts charged by the hospitals for 
those services.  
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   1 
   
    
acute-care hospitals using the outpatient prospective payment system (OPPS), 
which pays predetermined rates for outpatient services.6    
During the year, Medicare pays CAHs interim payments for services 
provided. Medicare calculates these interim payments using the previous 
years costs of covered services along with any adjustments it deems 
necessary. 7  Medicare intends these interim payments to reflect actual costs as 
closely as possible. 
After CAHs file their cost reports, Medicare determines the final costs and 
makes additional payment adjustments.8  For example, if the total of (1) the 
interim payments that a CAH received from Medicare and (2) the coinsurance 
CAHs received from beneficiaries is less than 101 percent of the costs of 
those services, Medicare would make an additional payment to the CAH.  
However, if the interim payments that a CAH received exceed 101 percent of 
the costs of those services, Medicare will notify the CAH that it will reduce or 
suspend the CAHs interim payments unless the CAH makes repayment 
arrangements.9       
For both CAHs and acute-care hospitals, Medicare deducts beneficiary 
payments (including coinsurance) from the costs of the services and from the 
OPPS rates, respectively, to determine the amounts it should pay for 
outpatient services.10  
Beneficiary Coinsurance Payments to CAHs and Acute-Care  
Hospitals 
Although Medicare beneficiaries are responsible for paying coinsurance for 
most outpatient services regardless of where they are received, the system that 
Medicare uses to compute coinsurance amounts for services received at CAHs 
differs from that used for beneficiaries at acute-care hospitals.  Beneficiaries 
who receive outpatient services at CAHs pay 20 percent of the charges 
submitted by CAHs for those services, as mandated by law.11    
 
6 Social Security Act,   1833(t), 42  U.S.C.  1395l(t). 

7 42 CFR   413.64(e). 

8 42 CFR   413.64(f).  

9 CMS, Medicare Financial Management Manual, Pub. No. 100-006, ch. 3,   20.1.  Accessed 
 
at http://cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-Only-Manuals-
IOMs-Items/CMS019018.html?DLPage=1&DLSort=0&DLSortDir=ascending on 
 
April 17, 2014. 

10  Social Security Act,  1833(a), 42 U.S.C.  1395l(a). 

11  Social Security Act,  1866(a)(2)(A),  42 U.S.C.  1395cc(a)(2)(A). 

Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   2 
   
    
In contrast, beneficiaries who receive outpatient services at acute-care 
hospitals pay coinsurance amounts that are a percentage of the 
OPPS-specified hospital payment rates.12    
In 2012, the Medicare Payment Advisory Commission (MedPAC) found that 
the average rate of coinsurance paid for outpatient services at acute-care 
hospitals was 22 percent of the OPPS rates.13    
Not all types of outpatient services require Medicare beneficiaries to pay 
coinsurance.14  Beneficiaries generally do not pay coinsurance for laboratory 
services or for certain preventive services.  
Figure 1 illustrates how Medicare payments and beneficiary coinsurance 
payments to CAHs are calculated. Figure 2 illustrates how Medicare 
payments and beneficiary coinsurance payments to acute-care hospitals are  
calculated.  
 
Figure 1: Calculation of Medicare Payments and Beneficiary  Coinsurance  
Payments to CAHs  
 
 
 
The beneficiary  
 
pays 20 percent of 
the  charges on the 
  claim in  
coinsurance. 
 
  Medicare uses the  
The CAH submits  data from  the 
A Medicare   a claim  to  recently filed  cost  
  beneficiary receives   Medicare.  report to calculate  
outpatient services  final costs and 
at a  CAH.  Medicare uses data  from   make any 
  the previous  years cost   necessary  
reports to estimate the  The CAH submits its  payment 
costs associated with  the  cost report  for the   adjustments. 
  submitted charge and  year. 
makes interim  payments 
to the CAH based  on  
  those estimated costs.   
The interim payment to 
the CAH  is the difference  
  between the estimated  
cost and the coinsurance  
amount already paid. 
 
                           Source: OIG  analysis  of Medicare payment policies for outpatient services at CAHs, 2014. 
 
12 Social Security Act,  1833(t)(3)(B), 42  U.S.C  1395l(t)(3)(B).  
13 MedPAC, Payment Basics: Outpatient Hospital Services Payment System (revised 
October 2013). 

14 Social Security Act,  1866(a)(2)(A), 42  U.S.C.  1395cc(a)(2)(A).  Social Security Act, 

 1833(a)(1), 42 U.S.C.  1395l(a)(1). 
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   3 
   
    
Figure 2: Calculation of Medicare Payments and Beneficiary  Coinsurance  
Payments to Acute-Care Hospitals 
 
 
 
 
The beneficiary  
pays a  percentage  
 
of the  OPPS rates  
for the services  on 
  the claim  in  
coinsurance. 
 
 
 
The acute-care  
hospital submits a  
A Medicare  
  beneficiary receives   claim to  Medicare.  Medicare pays  the  
outpatient services at  difference between 
  an acute-care   the OPPS rates  for 
hospital.  the services  and  the  
coinsurance. 
 
 
 
 
                     Source:  OIG  analysis of Medicare payment policies for outpatient services at acute-care hospitals, 2014. 
 
Coinsurance for Medicare beneficiaries who receive outpatient services at 
acute-care hospitals has not always been determined as a percentage of OPPS.  
Prior to the creation of OPPS in 2000, coinsurance for outpatient services at 
acute-care hospitals was based on charges and had reached almost 50 percent 
of the total Medicare payments for those services.  Under OPPS, coinsurance 
declines each year until it reaches 20 percent of the predetermined OPPS 
rates.15    
 
 
15 65 Fed. Reg. 18434, 18487  (Apr. 7, 2000).   For each service, an unadjusted coinsurance 
amount was  calculated by taking 20 percent of the national median charges billed in  
1996, trended forward to  1999.  The unadjusted coinsurance amount can never be less than  
20 percent of the OPPS  payment rate.  The unadjusted coinsurance amount remains frozen  
until it equals 20 percent of the OPPS rate for the service, and then it will be  updated annually 
to remain equal to 20 percent of the OPPS rate.  Because the unadjusted coinsurance amounts 
were calculated from national  median charges, in the early years of OPPS they remained a 
high  percentage of the total Medicare payments. 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   4 
   
    
Related Work 
OIG has a body of work that examines CAH locations and services.  In 
2013, OIG found that nearly two-thirds of CAHs were located near other 
hospitals.16  OIG also found that Medicare and beneficiaries could realize 
substantial savings if CMS decertified some of these CAHs and recertified 
them as acute-care hospitals.  OIG also found in 2013 that Medicare 
beneficiaries who receive services at CAHs primarily received outpatient 
services.17  Finally, OIG is conducting a nationwide review of swing bed 
services at CAHs.18    
In 2011, MedPAC released a report that examined coinsurance payments at 
CAHs in 2008 and 2009.19 In the report, MedPAC proposed several possible 
modifications to the method used to calculate coinsurance at CAHs.   
METHODOLOGY 
Scope 
We reviewed outpatient claim files to identify the percentage of costs that 
Medicare beneficiaries paid in coinsurance for outpatient services received at 
CAHs in 2009 and in 2012. 
We excluded services for which beneficiaries paid part or all of their 
deductibles, as the deductible amounts may have reduced the amount of 
coinsurance paid.20  We also excluded services for which beneficiaries are not 
required to pay coinsurance (e.g. laboratory services).  Finally, we excluded 
services that were not paid for under traditional Medicare (e.g., services paid 
under managed care), professional services performed at CAHs, and services 
for which Medicare did not pay. Because of these exclusions, we reviewed 
outpatient services for approximately 1.7 million beneficiaries. For a 
breakdown of the number of services included and excluded from our 
analysis, see Appendix A. 
   
 
16 OIG,  Most Critical Access Hospitals Would Not Meet the Location Requirements If 
Required  To Re-Enroll in Medicare, OEI-05-12-00080, August  2013. 
17 OIG,  Services Provided  at Critical Access Hospitals in 2011, OEI-05-12-00081, 
December 2013. 
18 A swing  bed is a bed that is reimbursed  for skilled  nursing services. 
19 MedPAC, Medicare Copayments for Critical Access Hospital Outpatient Services 

2009 Update, December 2011. 

20 A deductible is the amount that a beneficiary must pay out  of pocket before Medicare will 

pay for any expenses.  In  2012, the deductible for Medicare Part B services (which includes 

outpatient services) was $140.  76 Fed. Reg.  67572, 67574 (Nov. 1, 2011). 

Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   5 
   
    
Data Sources and Analysis 
We used CMSs 2009 and 2012 National Claims History (NCH) outpatient 
claim files to calculate the average percentages of costs that Medicare 
beneficiaries paid in coinsurance toward the costs of outpatient services 
received at CAHs.  We also used the Minimum  Unadjusted Copayment 
amount published in CMSs 2012 January Web Addendum B Outpatient 
Prospective Payment file to approximate the amounts that beneficiaries would 
have paid in coinsurance at acute-care hospitals for 10 outpatient services that 
were frequently provided at CAHs.21    
For a detailed discussion of our data sources and analysis, see Appendix A. 
Limitations 
We used outpatient claims as a proxy for Medicare costs for outpatient 
services at CAHs. The amounts reported on the claims represent interim  
payments.  Medicare uses data from the previous years cost reports along 
with any other necessary adjustments to estimate its interim payments, which 
are intended to reflect the current cost  of services.  Because of Medicares 
process for estimating payments, we believe that the estimated payment 
amounts reported in the claims are reasonable approximations of the final 
costs of outpatient services.  However, because final reimbursements for 
services provided at CAHs are computed retrospectively, the actual final costs 
could be higher or lower. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General on 
Integrity and Efficiency.  
  
 
 
 
 
 
 
 
21 The Minimum Unadjusted Copayment is the lowest amount of coinsurance that an  
acute-care hospital can charge for a service.  It is equal to  20  percent of the services rate.  
66  Fed.  Reg.  44672, 44696-97 (Aug. 24, 2001). 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   6 
   
    
FINDINGS 
Because coinsurance amounts were based on charges, 
Medicare beneficiaries paid nearly half the costs for 
outpatient services at CAHs 
Of the estimated $3.2 billion CAHs received for outpatient services provided 
in 2012, approximately $1.5 billion resulted from Medicare beneficiaries 
coinsurance payments (47 percent).  Approximately 681,000 beneficiaries 
who received outpatient services at CAHs paid an average of more than half 
of the costs in coinsurance, including 146,000 who paid more than 75 percent 
of the costs in coinsurance.  Table 1 shows the distribution of the average 
percentage of costs in coinsurance paid to CAHs in 2012.    
 
Table 1: Distribution of the Average Percentage of 
Costs That Beneficiaries Paid (as Coinsurance) to 
CAHs in 2012 
Average percentage of  Number of   Percentage of  
costs   beneficiaries   beneficiaries*  
>75%  146,480   8%  
>50% and 75%  534,795   31%  
>25% and 50%  1,011,344   58%  
25%  40,969   2% 
 Total   1,733,588  100%  
Source:  OIG analysis of NCH Outpatient Files, 2012. 
* This  column does not sum to 100 percent because of rounding. 
 
Beneficiaries paid an average of 47 percent of the costs for outpatient services 
at CAHs in coinsurance because chargesthe basis for CAH coinsurance 
paymentsare typically greater than the costs of the services. A 
2011 MedPAC report found that CAHs average charges for outpatient 
services were more than double the average costs of the services.  This can 
happen because charges are not required to be tied to costs in any way; CAHs 
are allowed to set their charges at any rate.  Because charges are higher than 
costs, the amount of coinsurance calculated from charges can constitute a 
significant proportion of the cost. Figure 3 shows how coinsurance calculated 
from charges results in coinsurance payments that constitute a high percentage 
of the costs of the service. 
 
 
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   7 
   
    
Figure 3: How  Coinsurance Calculated From Charges Results in Coinsurance 
Payments That Are a High Percentage of Costs  
 
 
  Coinsurance as  a 
Percentage of   Cost 
 
Coinsurance.........$20 
The beneficiary  pays  20  
  percent of the charges  Cost....................$43 
on the  claim$20in  
  coinsurance.  Coinsurance  Coinsurance as a 
percentage of  
  $20  cost.....................47% 
Claim 
 
$100 
 
  Abe Mneefdiciciaarrye   receives   Tclhaeim C tAoH  M seudbicmairtes.   a    Cost  InteMriemd icPaaryemse  nt 
outpatient services   The claim lists $100  in   $43 
  at a CAH.  charges for  the  $23 
services. 
  Medicare uses data from   Because the beneficiary  
the previous  years  cost   has already  paid the  CAH  
  reports to  estimate that   $20 in  coinsurance,  
the services  on the claim   Medicare pays the CAH  the 
  cost $43.    remaining $23.  
 
 
 
 
Source:  OIG analysis of Medicare payment policies for outpatient services at CAHs, 2014. 
The average percentage of costs that Medicare
beneficiaries paid in coinsurance for outpatient services
at CAHs increased slightly from 2009 to 2012  
The average percentage of costs that Medicare beneficiaries paid in 
coinsurance for outpatient services at CAHs increased from 45 percent in 
2009 to 47 percent in 2012. 
The average percentage of costs that beneficiaries paid in coinsurance for 
outpatient services at CAHs increased because charges for outpatient services 
at CAHs typically increased faster than costs.  Because coinsurance is based 
on charges, when charges increase, coinsurance also increases.  Thus, charges 
that increase faster than costs result in coinsurance amounts that make up 
increasingly larger percentages of costs.  
CAH charges increased faster than costs from 2009 to 2012 for outpatient 
services frequently provided at CAHs. The average charges for these services 
increased between 2 and 5 percentage points more than the average costs for 
these services. For example, between 2009 and 2012, CAHs average charges 
for electrocardiogram tracing increased 4 percentage points more than the 
average costs; average charges increased by 13 percent, while average costs  
increased by 9 percent. Chart 1 illustrates the percentage increase in charges 
and costs for outpatient services frequently provided at CAHs.   
See Appendix B for coinsurance amounts, costs, and charges for outpatient 
services frequently provided at CAHs in 2009 and 2012. 
  
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   8 
   
    
Chart 1:  Percentage Increase in Charges and Costs for Outpatient Services Frequently  
Provided at CAHs in 2009 and 2012  
 
30% 
 
25% 
CAH average charge 
20% 
CAH average cost 
15% 
10% 
5% 
0% 
 S 
Source:  OIG analysis of 2009 and 2012 National Claims  History (NCH) outpatient  files, 2014. 

For descriptions of these 10  services, see Table 5 on page 18. 

 
The percentage of beneficiaries who paid (as coinsurance) an 
average of more than 50 percent of the costs for outpatient 
services at CAHs has increased by 9 percentage points 
In 2009, 30 percent of Medicare beneficiaries (approximately 521,000) paid 
an average of more than half of the costs for outpatient services at CAHs in 
coinsurance. In 2012, the figure was 39 percent (nearly 700,000 
beneficiaries).  
   
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   9 
   
    
Because coinsurance amounts were based on charges, 
Medicare beneficiaries paid more in coinsurance for
outpatient services at CAHs than they would have paid 
at acute-care hospitals    
Medicare beneficiaries who received outpatient services at CAHs typically 
paid more in coinsuranceboth in absolute amounts and in percentage of 
coststhan they would have for the same services at acute-care hospitals.   
For the 10 frequently provided outpatient services, beneficiaries average 
coinsurance amounts at CAHs were between 2 and 6 times the coinsurance 
amounts for the same services provided at acute-care hospitals. In the case of 
electrocardiogram tracingthe most frequently provided service included in 
this analysisbeneficiaries who received the service at CAHs paid an average 
coinsurance amount that was more than the entire OPPS rate for the service.  
The differences in the coinsurance amounts were a result of CAHs average 
charges for these services being more than double the OPPS rate for the same  
services. Table 2 presents beneficiaries coinsurance amounts at CAHs and 
acute-care hospitals for outpatient services frequently provided at CAHs in 
2012. 
 
   
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   10 
   
    
Table 2: Beneficiaries'  Coinsurance Amounts at CAHs and Acute-Care Hospitals in 2012 for 
Frequently Provided Outpatient Services  
Basis for calculating  
Coinsurance payments*  
coinsurance 
Number of  
Beneficiary  
Service   times service 
Service type   OPPS  minimum 
number   was provided  Beneficiary  
CAHs'   payment  unadjusted 
at CAHs   average  
average   rate at  copayment  
coinsurance 
charge   acute-care  amount at 
amount at CAHs  
hospital   acute-care 
hospitals**  
Electrocardiogram  
Service1  759,686  $164.31   $26.75  $32.86   $5.35 
tracing 
Hydrate IV infusion 
Service 2  655,763  $89.66  $24.81  $17.93   $4.96 
add-on  
Therapeutic, 
prophylactic, or 
Service 3  diagnostic injection;  442,458  $70.12  $34.81  $14.03   $6.96 
subcutaneous or 
intramuscular  
Therapeutic, 
prophylactic, or 
Service 4  diagnostic injection;  338,707  $110.45  $34.81  $22.09   $6.96 
IV push, new drug  
add-on  
Intravenous infusion 
Service 5  297,692  $277.77  $126.64  $55.55   $25.33 
(initial) 
Therapeutic, 
prophylactic, or 
Service 6  288,644  $131.31  $34.81  $26.26   $6.96 
diagnostic injection; 
IV push 
Service 7  Cardiac rehab/monitor   238,445   $171.15  $69.61  $34.23   $13.92 
Airway inhalation  
Service 8  186,575  $84.80  $29.71  $16.96   $7.72 
treatment  
Intravenous infusion 
Service 9  180,779  $99.98  $34.81  $20.00   $6.96 
(additional)  
Transthoracic 
Service 10  echocardiogram with  89,674  $1,540.40  $392.78  $308.08   $78.56 
Doppler complete  
Source:  OIG analysis of 2012 NCH outpatient files, 2014. 
* The columns below compare average CAH coinsurance payments to minimum copayment amounts.  The  coinsurance amounts, 

which are presented in dollars, represent a percentage of the average charges for the services, while the copayment amounts are 
 
the minimum flat amounts that Medicare beneficiaries are required to pay at acute-care hospitals.  Beneficiaries pay the minimum 

copayment amount only when 20 percent of the cost of the service is less than the minimum copayment value. 

** CMS 2012 January Web Addendum B file.  Coinsurance amounts are adjusted for geographic location and the complexity of the 
 
services provided. 

 
Previous OIG work found similar results.  In a report published in 2013, OIG 
found that Medicare beneficiaries paid an average of $400 more in 
coinsurance for outpatient services received at some CAHs in 2011 than they  
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   11 
   
    
would have if those CAHs were recertified as acute-care hospitals and paid 
under OPPS.22     
Finally, Medicare beneficiaries typically paid a greater percentage of the costs 
in coinsurance for outpatient services received at CAHs than they would have 
for the same services at acute-care hospitals.  As previously stated, 
beneficiaries paid an average of 47 percent of costs for outpatient services at 
CAHs in 2012. In contrast, MedPAC  found that beneficiaries coinsurance 
payments for outpatient services at acute-care hospitals paid under OPPS 
accounted for 22 percent of the OPPS rates in that same year.  
 
 
 
   
 
22 OIG, Most Critical Access Hospitals Would Not Meet the Location Requirements If 
Required  To Re-Enroll in Medicare, OEI-05-12-00080, August 2013. 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   12 
   
    
CONCLUSION AND RECOMMENDATION 
Because coinsurance amounts were based on charges, Medicare beneficiaries 
paid a higher average percentage of the costs in coinsurance for outpatient 
services received at CAHs than they would have paid at hospitals under 
OPPS. Beneficiaries paid an average of 47 percent of the costs for outpatient 
services received at CAHs, compared to an average of 22 percent of the OPPS 
rates for outpatient services received at acute-care hospitals in 2012.   
Further, the percentage of costs that Medicare beneficiaries paid in 
coinsurance for outpatient services at CAHs increased from 45 percent in 
2009 to 47 percent in 2012, as charges have typically increased faster than 
costs. 
Also because coinsurance amounts were based on charges, beneficiaries paid 
more in coinsurance for outpatient services provided at CAHs than they would 
have paid at acute-care hospitals. For the 10 outpatient services most 
frequently provided at CAHs, CAH beneficiaries paid coinsurance amounts 
that were 2 to 6 times the OPPS coinsurance rates.  For one of these services, 
the average coinsurance amount that CAH beneficiaries paid was more than 
the total OPPS rate.  
With the creation of OPPS, CMS has successfully addressed concerns about 
coinsurance amounts that were a large percentage of the costs of outpatient 
services at acute-care hospitals.  Prior to OPPS, Medicare beneficiaries who 
received outpatient services at acute-care hospitals were paying 50 percent of 
the costs for those services in coinsurance.  CMS implemented OPPS, in part, 
to bring beneficiaries coinsurance amounts down to 20 percent of the 
Medicare reimbursements for outpatient services at acute-care hospitals.  To 
achieve a similar change for beneficiaries receiving outpatient services at 
CAHs, we recommend that CMS: 
Seek legislative authority to modify how coinsurance is 
calculated for outpatient services received at CAHs   
CMS should draft, and submit to HHS for review, a legislative proposal that 
would modify how coinsurance is calculated for outpatient services at CAHs.  
Because the method for calculating coinsurance for outpatient services at 
CAHs is mandated by law, any change would require legislative authority.   
CMS could include in the proposal one of several modifications that would 
change the method for calculating coinsurance from a figure based on charges 
to a figure that more closely represents costs.   
Several possible modifications that CMS could use can be found in a 
2011 report by MedPAC.  Medicare could apply to coinsurance calculations 
the same process currently used to estimate CAHs interim payments, so that 
coinsurance amounts would be based on interim payments rather than on 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   13 
   
    
charges.  Alternatively, Medicare could process outpatient claims at CAHs as 
though they were being paid for under OPPS and charge beneficiaries the 
OPPS coinsurance rates. 
Implementing this recommendation would result in increased Medicare 
payments to CAHs for outpatient services.  Medicare pays the difference 
between the costs of the services and the amount beneficiaries pay in 
coinsurances and deductibles. Therefore, if beneficiary payments were to 
decrease, Medicare payments would increase. 
If CMS wanted to take steps to mitigate the potential increase in Medicare 
expenditures, it could do so in multiple ways, seeking legislative changes as  
needed. As it did with OPPS, it could phase in the changes over several years 
to reduce the immediate burden to Medicare.  It could also offset the potential 
increase in Medicare expenditures by ensuring that only those CAHs that 
meet all participation requirements continue to receive cost-based 
reimbursements.  In 2013, OIG found that most CAHs would not meet the 
location requirements if required to re-enroll in Medicare because a 
significant number of these CAHs were located near hospitals or other CAHs.  
In response to the 2013 report, CMS agreed to periodically reassess CAHs 
compliance with all location-related participation requirements.    
   
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   14 
   
    
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS responded to the report but neither concurred nor nonconcurred with our 
recommendation.   
We continue to encourage CMS to seek legislative authority to modify how 
coinsurance is calculated for outpatient services received at CAHs.  Because 
coinsurance for outpatient services is calculated from submitted charges rather 
than from final costs, beneficiaries who receive outpatient services at CAHs 
typically pay morein terms of both the percentage of final costs and total 
amountsthan beneficiaries who receive outpatient services from hospitals 
paid under OPPS.  
Prior to the creation of OPPS, all beneficiaries paid high percentages of the 
final costs for outpatient services. OPPS reduced coinsurance for outpatient 
services to 20 percent of the final costs for beneficiaries who received services 
at hospitals paid under OPPS. A similar change should be made to the way 
coinsurance is calculated for services  at CAHs so that CAH beneficiaries are 
not subject to coinsurance amounts that are almost 50 percent of the costs.  We  
will routinely follow up with CMS about implementing this recommendation. 
For the full text of CMSs comments, see Appendix C. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   15 
   
    
APPENDIX A 
Detailed Methodology 

Data Sources  

2009 and 2012 NCH outpatient files.   The NCH outpatient files contain the 
outpatient claims data submitted by CAHs for Medicare reimbursement.   
We excluded certain claim lines from our analysis if any of the following 
were applicable:  the beneficiary paid  a deductible, the beneficiary did not pay 
coinsurance, traditional Medicare was not the payer, the claim lines 
represented professional services, or Medicare did not pay for the service on 
the claim line.  Table 4 shows the number of claim lines that we eliminated 
from our analysis for each of these reasons in 2009 and 2012. 
Table 4: Number of Claim Lines Excluded From Analysis  
  2009  2012  
Total claim lines  53,307,846  58,992,752  
Claim lines for which beneficiaries paid a deductible  1,516,232   1,700,278  
Claim lines for which beneficiaries did not pay coinsurance*  28,176,500   31,243,246  
Claim lines for which traditional Medicare was not the payer   0  1,797  
Claim lines that represented professional services  2,565,891   2,971,289  
Claim lines for which Medicare did not pay  1  35 
Total claim lines used in analysis  21,049,222   23,076,107  
Source:  OIG analysis of 2009 and 2012 NCH outpatient files, 2014. 
* For both 2009 and 2012, more  than  90 percent of the  claim lines  for which beneficiaries did not pay coinsurance were laboratory services.  
 
2012 January Web Addendum B Outpatient Prospective Payment file.  CMSs 
2012 January Web Addendum B outpatient prospective payment file contains 
status indicators, costs, and coinsurance amounts for all outpatient services.    
Data Analysis  
Average percentage of costs paid in coinsurance.  We used the NCH 
outpatient files to calculate the percentage of the costs that beneficiaries paid 
in coinsurance for outpatient services received at CAHs in 2009 and 2012.  
We divided the total coinsurance amount by the total coinsurance amount plus 
the total Medicare payment amount for each service to determine the 
percentage of the estimated costs for outpatient services at CAHs that was 
paid as coinsurance.  We then calculated the average percentage of costs in 
coinsurance that beneficiaries paid to CAHs in each year.   
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   16 
   
    
Frequently provided outpatient services at CAHs.  We used the NCH 
outpatient files to identify frequently provided outpatient services at CAHs in 
2012.  We used the 2012 January Addendum B file to identify outpatient 
services categorized as significant procedures.  We selected the 10 most 
frequently provided significant procedures to include in our analysis. 23  We  
then excluded any services that were billed with a modifier to ensure that we 
were comparing similar services between CAHs and acute-care hospitals.24    
We calculated the average charges, costs, and coinsurance amounts for these 
frequently provided outpatient services.  To determine the average charge for 
each service, we summed the charges and divided by the number of times the 
service was provided. To determine the average cost for each service, we 
added the coinsurance amounts plus the Medicare payment amounts and 
divided by the number of times the service was performed.  To determine the 
average coinsurance amount for each service, we summed the coinsurance 
amounts for each service and divided by the number of times the service was 
provided. 
We also analyzed 2009 NCH outpatient data as described above to calculate 
the average charges, costs, and coinsurance amounts for the same set of 
10 outpatient services frequently provided at CAHs.  We identified these 
10 services using the 2012 outpatient data. 
 
23  Significant procedures were identified by selecting services associated with status indicator 
codes S (Significant Procedure, Not Discounted when Multiple) and T (Significant Procedure, 
Multiple Reduction  Applies). 
24 Modifiers are used to provide additional details about the services provided.  Some  
modifiers affect payments.    
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   17 
   
    
APPENDIX B 
Charges, Coinsurance Amounts, and Costs for Outpatient Services Frequently Provided at CAHs in 
2009 and 2012 
Table 5: Charges, Coinsurance Amounts, and Costs for Outpatient Services Frequently  Provided at CAHs in 2009 and 2012   
Beneficiary average 
CAH average charge    coinsurance amount at  CAH average cost  
Service   Percent  CAHs   Percent  Percent 
Services   
number   change   change   change  
2009  2012   2009   2012   2009   2012  
Service1  Electrocardiogram  tracing  $144.80  $164.31  13%   $28.96  $32.86  13%   $62.71  $68.24  9%  
Service 2  Hydrate IV infusion add-on   $85.76  $89.66   5%   $17.15  $17.93  5%   $35.93  $36.84  3%  
Therapeutic, prophylactic, 
or diagnostic injection; 
Service 3  $60.54  $70.12  18%   $12.11  $14.03  18%   $27.11  $30.55  15%  
subcutaneous or 
intramuscular  
Therapeutic, prophylactic, 
Service 4  or diagnostic injection;  $96.87  $110.45  14%   $19.37  $22.09  14%   $40.34  $44.24  9%  
IV push, new drug add-on  
Intravenous infusion 
Service 5  $221.91  $277.77  25%   $44.38  $55.55  25%   $98.37  $119.22  21%  
(initial) 
Therapeutic, prophylactic, 
Service 6  or diagnostic injection;  $114.26  $131.31  14%   $22.85  $26.26  14%   $49.11  $54.42  10%  
IV push 
Service 7  Cardiac rehab/monitor   $144.05  $171.15  19%   $28.81  $34.23  18%   $66.70  $76.50  15%  
Airway inhalation  
Service 8  $71.44  $84.80  19%   $14.29  $16.96  19%   $29.93  $34.86   17%  
treatment  
Intravenous infusion 
Service 9  $86.92  $99.98  15%   $17.38  $20.00  15%   $38.17  $43.05  13%  
(additional)  
Transthoracic 
Service 10  echocardiogram with  $1,337.43  $1,540.40  15%   $267.49  $308.08  15%   $578.72  $648.79  12%  
Doppler complete  
Source:  OIG analysis of 2009 and 2012 NCH outpatient files, 2014. 
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   18
  APPENDIXC 
Agency Comments 
,"'~'"""C<s"<, 
~
(  DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
~.  ~ 
~<t"'.r.ca  Administrator 
Washington, DC 20201 
DATE: 	 AUG Z9  2014 
TO: 	 Daniel R. Levinson 
Inspector General 
FROM: 	 Marilyn Taveuher 
Administrator 
SUBJECT: 	 Office of Inspector General (OIG) Draft Report:  Medicare Beneficiaries Paid 
Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals 
(OEI-05-12-00085) 
Thank you for the opportunity to review and comment on the above-subject report. OIG 's 
objective was to determine-( 1) The percentage of costs beneficiaries paid in coinsurance tor 
outpatient services at Critical Access Hospitals (CAHs); (2) How the percentage ofcosts 
beneficiaries paid in coinsurance for outpatient services at CAHs changed over time; and (3) 
How the coinsurance beneficiaries paid for outpatient services at CAHs compared to the 
coinsurance beneficiaries would have paid for outpatient services at acute-care hospitals. 
Medicare reimburses CAHs at 101 percent of their reasonable costs, rather than at the 
predetermined rates set by the Outpatient Prospective Payment System (OPPS).  Medicare 
calculates outpatient coinsurance amounts differently for beneficiaries who receive services at 
CAHs than for beneficiaries who receive services at most other hospitals.  Beneficiaries who 
receive services at CAHs pay coinsurance amounts based on CAH charges, consistent with 
payment based on reasonable cost.  Under the OPPS, beneficiary co payment is based on the 
OPPS payment rate.  In the final rule on OPPS payment policies for calendar year 2014, CMS 
estimated that, in aggregate, beneficiary liability would be 21.7 percent ofOPPS payment. 
CAH charges are typically higher than the reasonable costs associated with CAH services or the 
OPPS rates that most hospitals receive. 
The OIG report relied on 2009 and 2012 claims data to calculate the percentages and amounts of 
coinsurance that Medicare beneficiaries paid toward the costs for outpatient services at CAHs. 
OIG also calculated the percentages and amounts of coinsurance that Medicare beneficiaries 
would have paid at hospitals paid under the OPPS for 10 frequently provided outpatient services 
at CAHs. 
Coinsurance based on charges resulted in Medicare beneficiaries paying nearly half the costs for 
outpatient services at CAHs.  In 2012, beneficiaries paid approximately $1.5 billion of the 
estimated $3.2 billion cost for CAH outpatient services (4  7 percent).  Approximately 681,000 
Medicare beneficiaries who received outpatient services at CAHs paid, on average, more than 
half of the costs in coinsurance, including 146,000 who paid more than 75 percent of the costs in 
coinsurance. Additionally, the average percentage of costs that Medicare beneficiaries paid in 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)  19   
    
 
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   20 
   
    
ACKNOWLEDGMENTS 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office; Thomas Komaniecki, Deputy Regional Inspector General; and 
Laura Kordish, Deputy Regional Inspector General.  
Lisa Minich served as the team leader for this study, and Brian Jordan 
served as the lead analyst. Central office staff who provided support 
include Clarence Arnold, Heather Barton, and Christine Moritz. 
  
 
Beneficiaries Paid Nearly Half of the Costs for Outpatient Services at Critical Access Hospitals (OEI-05-12-00085)   21 
   
    
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