Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE BENEFICIARIES 

PAID NEARLY HALF OF THE 

COSTS FOR OUTPATIENT 

SERVICES AT CRITICAL 

ACCESS HOSPITALS 

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-andGuidance/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 

year’s 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 CAH’s 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-ManualsIOMs-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 
 

 

 

 

 

 

 

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 Medicare uses data from at a CAH. make any the previous year’s 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. 

The beneficiary 

pays 20 percent of 

the charges on the 

claim in 

coinsurance. 

 

 

 

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 

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

A Medicare 

beneficiary receives 

outpatient services at 

an acute-care 

hospital. 

The acute-care 

hospital submits a 

claim to Medicare. 

The beneficiary 

pays a percentage 

of the OPPS rates 

for the services on 

the claim in 

coinsurance. 

Medicare pays the 

difference between 

the OPPS rates for 

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 CMS’s 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 CMS’s 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 year’s 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 Medicare’s 

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 service’s 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 

costs 

Number of 

beneficiaries 

Percentage of 

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 charges—the basis for CAH coinsurance 

payments—are 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 
 

 

 

 

 

 

 

 

Coinsurance as a 

Percentage of Cost 

Coinsurance.........$20 

The beneficiary pays 20 

percent of the charges Cost....................$43 

on the claim—$20—in 

A Medicare 

beneficiary receives 

outpatient services 

at a CAH. 

The CAH submits a 

claim to Medicare. 

The claim lists $100 in 

charges for the 

services. 

coinsurance. 

Claim 

$100 

Coinsurance 

$20 

Cost 

$43 

Medicare’s 

Interim Payment 

$23 

Coinsurance as a 

percentage of 

cost.....................47% 

Medicare uses data from Because the beneficiary 

the previous year’s 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. 

 

Figure 3: How Coinsurance Calculated From Charges Results in Coinsurance 

Payments That Are a High Percentage of Costs 

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 
 

S

Chart 1: Percentage Increase in Charges and Costs for Outpatient Services Frequently 

Provided at CAHs in 2009 and 2012 

0% 

5% 

10% 

15% 

20% 

25% 

30% 

CAH average charge 

CAH average cost 

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 coinsurance—both in absolute amounts and in percentage of 

costs—than 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 tracing—the most frequently provided service included in 

this analysis—beneficiaries 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 

Service 

number Service type 

Number of 

times service 

was provided 

at CAHs 

Basis for calculating 

coinsurance Coinsurance payments* 

CAHs' 

average 

charge 

OPPS 

payment 

rate at 

acute-care 

hospital 

Beneficiary 

average 

coinsurance 

amount at CAHs 

Beneficiary 

minimum 

unadjusted 

copayment 

amount at 

acute-care 

hospitals** 

Service1 Electrocardiogram 

tracing 759,686 $164.31 $26.75 $32.86 $5.35 

Service 2 Hydrate IV infusion 

add-on 655,763 $89.66 $24.81 $17.93 $4.96 

Service 3 

Therapeutic, 

prophylactic, or 

diagnostic injection; 

subcutaneous or 

intramuscular 

442,458 $70.12 $34.81 $14.03 $6.96 

Service 4 

Therapeutic, 

prophylactic, or 

diagnostic injection; 

IV push, new drug 

add-on 

338,707 $110.45 $34.81 $22.09 $6.96 

Service 5 Intravenous infusion 

(initial) 297,692 $277.77 $126.64 $55.55 $25.33 

Service 6 

Therapeutic, 

prophylactic, or 

diagnostic injection; 

IV push 

288,644 $131.31 $34.81 $26.26 $6.96 

Service 7 Cardiac rehab/monitor 238,445 $171.15 $69.61 $34.23 $13.92 

Service 8 Airway inhalation 

treatment 186,575 $84.80 $29.71 $16.96 $7.72 

Service 9 Intravenous infusion 

(additional) 180,779 $99.98 $34.81 $20.00 $6.96 

Service 10 

Transthoracic 

echocardiogram with 

Doppler complete 

89,674 $1,540.40 $392.78 $308.08 $78.56 

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 more—in terms of both the percentage of final costs and total 

amounts—than 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 CMS’s 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. CMS’s 

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 Pro2009 and 2012 

Table 5: Charges, Coinsurance Amounts, and Costs for Outpatient Services Frequently Provided at CAHs in 2009 and 

Service number Services 

CAH average charge 

Percent 

change 

Beneficiary average 

coinsurance amount at 

CAHs Percent 

change 

CAH ave

2009 2012 2009 2012 2009 

Service1 Electrocardiogram tracing $144.80 $164.31 13% $28.96 $32.86 13% $62.71 

Service 2 Hydrate IV infusion add-on $85.76 $89.66 5% $17.15 $17.93 5% $35.93 

Service 3 

Therapeutic, prophylactic, or diagnostic injection; subcutaneous or intramuscular 

$60.54 $70.12 18% $12.11 $14.03 18% $27.11 

Service 4 

Therapeutic, prophylactic, or diagnostic injection; IV push, new drug add-on 

$96.87 $110.45 14% $19.37 $22.09 14% $40.34 

Service 5 Intravenous infusion (initial) $221.91 $277.77 25% $44.38 $55.55 25% $98.37 Service 6 

Therapeutic, prophylactic, or diagnostic injection; IV push 

$114.26 $131.31 14% $22.85 $26.26 14% $49.11 

Service 7 Cardiac rehab/monitor $144.05 $171.15 19% $28.81 $34.23 18% $66.70 

Service 8 Airway inhalation treatment $71.44 $84.80 19% $14.29 $16.96 19% $29.93 

Service 9 Intravenous infusion (additional) $86.92 $99.98 15% $17.38 $20.00 15% $38.17 

Service 10 

Transthoracic echocardiogram with Doppler complete 

$1,337.43 $1,540.40 15% $267.49 $308.08 15% $578.72 

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) 
APPENDIXC 

Agency Comments 

,"'~'"""C<s"<, 

( DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

~. ~<t"'.r.ca ~ Administrator 

Washington, DC 20201 

DATE: 	 AUG Z 9 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 of costs 

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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