According to the Wisconsin Hospital Association (WHA) Information Center, Hospital Fiscal Data Set, 2003, Wisconsin critical access hospitals (CAHs) generate annual gross patient service revenue of over $991 million. Approximately $70 million was provided to Wisconsin Medical Assistance program (“Medicaid”) beneficiaries, and an additional $24 million was provided to Medicaid health maintenance organization (HMO) beneficiaries.
Traditional Medicaid Services and Payments
The traditional Medicaid program makes interim payments to hospitals based on services provided. Interim CAH payments for traditional Medicaid services are based on the following:
- Inpatient services are reimbursed on a Diagnosis Related Group (DRG) basis. In 2004, the State set a DRG base rate of $3,200 and an outlier threshold of $300 for all CAHs. Under the DRG payment system, inpatient claims are paid at the higher of:
- Outpatient services are reimbursed on a rate-per-visit basis. The rate per visit is calculated from the most recently audited cost report inflated forward. Unlike other hospitals, the CAH Medicaid outpatient payment rate per visit does not include a budget neutrality factor.
For many CAHs, volume fluctuations can significantly impact cost-to-charge ratios. As a result, the actual outpatient cost per visit may be significantly different than the rate currently received as described above. CAHs should evaluate the actual cost per visit based on current cost report information and communicate to the State of Wisconsin if significant variances exist. In these instances, the State may adjust the payment rates to reflect current cost levels.
CAH payments for services provided to traditional Medicaid beneficiaries will be adjusted to cost based on the annual cost report submitted by each hospital and audited by the Medicare intermediary. This audit and settlement process may occur several years after the end of the fiscal year.
Medicaid HMO Services and Payments
In addition to the traditional Medicaid program, CAHs may also provide services to Medicaid HMO beneficiaries. According to the Wisconsin Department of Health and Family Services MMIS HMO report for October 2004, the following companies offer Medicaid HMO options:
Medicaid HMOs are allowed to negotiate payment terms with individual hospitals, and these terms are included in the HMO’s contract with the hospital. Medicaid HMO contracts may dictate payment terms or may allow a CAH to select from several payment options. If a Medicaid HMO does not have a contract with a provider, the Medicaid HMO is required, under their agreement with the State, to pay the hospital at the fee-for-service (FFS) rates. For CAHs, the FFS rates are the same rates paid by the traditional Medicaid program, as described above. Medicaid provides the FFS inpatient and outpatient rates to the Medicaid HMOs and also publishes rates on their Web site at
In addition to payment terms, a CAH should also evaluate the referral and prior authorization requirements of Medicaid HMO contracts. These requirements are, in some cases, stringent and can result in charges being written off because the CAH failed to meet the requirements. These types of unnecessary denials are costly and controllable!
Successfully improving the contractual payment terms in Medicaid HMO contracts are not adequate, the CAH may incur unacceptable Medicaid HMO contractual write-offs. Because of this, it is very important for CAHs to evaluate payment terms included in their Medicaid HMO contracts to ensure they are being reimbursed reasonably for the services provided. If a CAH is unsuccessful in negotiating acceptable payment terms, it may want to consider not signing a contract with the HMO so it can be paid for services provided to the Medicaid HMO’s beneficiaries at the same rates received from the traditional Medicaid program.
Successfully improving these payment terms can result in direct improvement in a CAH’s profitability. Armed with appropriate data and educational materials, a CAH should be able to successfully manage Medicaid HMO contractual allowances and payment terms.