Impact of Medicare Reimbursement Limits on Small Rural Hospitals

In response to a congressional request, GAO reviewed the legislative and regulatory basis for the sole community provider (SCP) exemption to routine inpatient hospital operating cost reimbursement limits, the effect of the SCP exemptions on small rural hospitals, the administration of the SCP exemption program, and a sample of Montana hospital SCP cases to see if all the relevant factors were considered.

The Social Security Amendments of 1972 provided that the Department of Health and Human Services (HHS) could establish limits on costs necessary for the efficient delivery of needed health services to individuals covered by Medicare. The provision was intended to curtail reimbursement of costs stemming from inefficiency in operations, conditions, or excessive service. Medicare reimbursement of costs in excess of these limits is precluded, except in certain specified cases such as the SCP exemption for the only providers reasonably accessible to the beneficiaries in an area. To apply for an exemption, a provider must either incur actual costs that exceed its reimbursement limit or it must wait until it files a cost report. Problems with the administration of SCP exemptions stem from the lack of a definition of certain key terms in the guidelines, the absence of specific criteria for evaluating exemption requests, and difficulties in obtaining necessary data. Decisions on the SCP exemptions for the Montana cases reviewed were based primarily on the question of distance from other hospitals even though other factors are supposed to be considered. The GAO analysis indicated that those rural hospitals with fewer than 50 beds are being affected comparatively more by the limits than larger hospitals. If a separate reimbursement limit were established for rural hospitals with fewer than 50 beds, the impact on them would be reduced while Medicare could save an estimated $3.7 million because of the resulting revised limits on other hospitals.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Michael Zimmerman Team: General Accounting Office: Human Resources Division Phone: (202) 275-6195