Government Overpaid for Swing Beds, Inspector General Reports

Published May 12, 2015

The federal government overpaid critical access hospitals (CAH) by about $4.1 billion over six years to provide skilled nursing services using hospital swing beds, says a report from the U.S. Department of Health and Human Services’ Office of the Inspector General (OIG).

OIG’s report calls for the Centers for Medicare and Medicaid Services (CMS) to push for legislation adjusting CAH swing-bed reimbursement rates to match the lower rates paid to skilled nursing facilities.

CAHs were created when Congress established the Rural Flexibility Program in 1997. They were designed to ensure patients in rural areas would have access to a range of hospital services without having to travel far from their homes.

Shortcoming of Government Planning

Devon Herrick, a senior fellow and health care researcher for the National Center for Policy Analysis, says the loophole in the law is the result of ill-conceived central planning and price controls.

“Without price signals, it’s impossible for the government to know the market price to reimburse providers for services,” said Herrick.

“But at the very least, the government should not reimburse facilities at different rates for the same service,” Herrick said. “Hospitals are currently buying physician practices because the hospital-owned practices can bill at outpatient rates that are much higher than what a physician can bill from his own office.

“Medicare pays far more for lab tests and x-rays performed in hospitals than the same service performed in a radiology clinic or an independent lab,” said Herrick. “Because of the differences in reimbursements, hospitals game the system. These types of games should stop.”

Oversight Questioned

Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says Medicare has reimbursed rural hospitals, also called “critical access hospitals,” at a higher rate than urban facilities for various services for at least the past 25 years. Proponents of the system argue rural hospitals are at greater risk of financial problems.

“Closure would force seniors to travel out of their communities for health care,” Stark said. “Of course, this is another example of the government picking winners and losers.

“The CMS oversees Medicare payments, with questionable levels of congressional oversight,” Stark said. “CMS is a huge agency, yet our elected officials have the ultimate responsibility of guarding against waste, fraud, and abuse.”

Manipulating Funding

Dr. John Dale Dunn, an emergency physician and policy advisor to The Heartland Institute, which publishes Health Care News, says the federal government is constantly trying to trim Medicare expenditures for the elderly so it can transfer the saved money to Medicaid programs for impoverished Americans.

“These bureaucrats are all about some kind of manipulation of the expenditures for [groups] whom they deem valuable,” Dunn said. “But if you cut funding for Medicaid, you’re cutting off that group’s health care. Medical ethics don’t allow us to play games with peoples’ lives or the obligations of physicians to provide the best comfort and care they can for sick and ailing people.

“At the time this law was passed, it was designed to keep CAHs alive,” said Dunn. “One of the things CAHs do is that they provide swing-bed care, which is basically higher-level care than you’d receive in a nursing home. But if you live in the big city, you probably think that the money is wasted and that the rural person should just come to a hospital in the big city for treatment, where everything is centralized and supposedly cheaper. But it can be very disruptive to move sick people around like that. I happen to think that distribution of health care in rural areas is beneficial.”

Ken Artz ([email protected]) is managing editor of Health Care News.

Internet Info:

Department of Health and Human Services, Office of Inspector General, “Medicare Could Have Saved Billions At Critical Access Hospitals If Swing-Bed Services Were Reimbursed Using The Skilled Nursing Facility Prospective Payment System Rates,” March 2015: