Vermont’s Green Mountain Care Board is pressing for a swift change to Medicare payment rules after testimony and a board discussion highlighted a gap in how Medicare cost-sharing works for outpatient services at rural “critical access hospitals.” The issue came into focus after a public comment prompted state officials to question why some Medicare recipients could pay more out of pocket for the same procedure at critical access hospitals than they would at larger “acute care hospitals,” even when the hospitals’ underlying costs were the same.
At the heart of the dispute is how three numbers—cost, hospital charge, and Medicare’s payment—interact in Medicare’s outpatient payment system. Testimony and board materials described cost as what it takes for a hospital to administer a service such as an MRI or a hip replacement. They described hospital charges as the posted price hospitals place on billable services, which insurers often use as a starting point when negotiating rates. And they described Medicare’s payment as an amount tied to the service cost, described in the hearing record as 101% of the cost of the service, minus the patient’s share.
The board’s analysis also tied the problem to different cost-sharing formulas for critical access hospitals versus larger hospitals. Under the system discussed at the Feb. 11 hearing, Medicare beneficiaries are responsible for paying 20% of the hospital’s charges for outpatient care at critical access hospitals. For patients at large hospitals that do not have the critical access designation, beneficiaries instead pay 20% of the Medicare payment amount. Because Medicare’s payment tracks costs while the patient share at critical access hospitals is tied to charges, the board said the same cost procedure can lead to different patient payments depending on which type of hospital provides the service.
Jeffrey Stensland, a former Medicare Payment Advisory Commission analyst whom the board invited to the hearing, laid out example scenarios illustrating how higher posted charges at critical access hospitals can raise patient cost-sharing even while Medicare’s payment portion adjusts downward. In one example described to the board, Stensland said a $600 MRI cost could lead a hospital to post a $1,000 charge; at a critical access hospital, the patient (or a secondary insurer) would pay 20% of the charge, while Medicare would cover the rest to reach 101% of the full cost as described in the hearing materials. The board discussion further said that if a hospital posts higher charges, the patient’s payment share rises as the Medicare portion shrinks, producing a situation the board characterized as inconsistent with fairness.
David Murman, a care board member, said the hospital would ultimately receive the same total amount, but that the portion of that payment matters for the patient. During the meeting, he said higher charges mean patients pay more and Medicare pays less, calling it “a bizarre situation.” He also said if charges are set lower, Medicare revenue comes into the state more, shifting more of the payment away from local populations and onto Medicare’s share.
The hearing record also described how extreme charge-to-cost relationships could worsen the burden for some patients. Stensland said that when charges reach five times the cost, the board’s discussion noted that patients could end up footing the entire bill because the patient’s 20% of the charge would equal the full cost, which is the portion Medicare is responsible for under the described structure. He further said that when charges exceed five times the cost, the patient could pay more than Medicare would have paid, with the hearing discussion describing a “perverse” situation in which beneficiaries subsidize Medicare.
Board chair Owen Foster said the problem is not only inequitable but also conflicts with Vermont law governing health care financing. He said it was “really, really troubling” that some seniors might pay more in a rural community than they would in Chittenden County, and he sent a letter to Vermont’s critical access hospitals, the hospital industry group, and insurers outlining the parts of Vermont law he believes clash with the current dynamic. Foster requested further information from hospitals about their charges and revenue, asked for the hospitals’ participation in solutions, and tied the state’s next steps to the board’s budget-setting timeline.
Hospitals and their representatives, including Devon Green of the Vermont Association of Hospitals and Health Systems, urged caution about changing the payment structure locally. Green said hospitals wanted to move quickly, but also warned that local fixes could bankrupt facilities or run afoul of federal law that governs the Medicare payment arrangements. The hearing and related board communications also reflected concern that proposals such as reducing charges could jeopardize small rural hospitals’ finances, with one hospital chief describing the potential revenue loss as sufficient to “surely bankrupt” the hospital.
Foster and the board said they are seeking additional information and pushing for changes before next fiscal year’s budgets are set. They said the care board has authority to set and enforce hospital budgets but has limited leverage over how hospitals contract with insurers, and that Vermont has no authority over federal Medicare rules. Foster said “What cannot happen is delay,” and he urged that the charging of prices he described as neither defensible nor sustainable should not persist into another fiscal year, while hospitals and state officials continue working through what solutions—at the federal level or elsewhere—can be made without undermining rural facilities.