LDN Health - Rural Medicare Costs

Why are some rural Medicare patients paying more than patients at bigger hospitals?

[March 12, 2026] By OLIVIA GIEGER/VTDigger

In November, a public comment sent a Green Mountain Care Board analyst on a curious quest: Why were some Medicare recipients paying more out of pocket for outpatient services at rural, “critical access hospitals” than they’d have paid for the same service at the state’s bigger, “acute care hospitals” — even if the hospitals’ costs for the procedure were exactly the same?

It has brought into stark relief what one official calls a “bizarre” quirk of unequal Medicare cost-sharing policies. Now the care board is pushing for a swift change to the payment system.

Addressing the problem is not so simple, though. Hospitals say that local fixes could bankrupt them or run afoul of the federal law that governs these pay structures.

“We don’t have a lot of margin for error when it comes to addressing this issue, and we want to move quickly,” said Devon Green, spokesperson for the Vermont Association of Hospitals and Health Systems.

What could the hospitals or the state do? “That’s what we’re grappling with now,” Green said.

Cost, charge and payments

To understand the differences in what patients end up paying, it helps to know how three different numbers come into play.

First, there is the cost of the service the hospital provides — how much money it takes to administer an MRI or replace a hip, say.

Then, there is the charge the hospital posts, which is essentially the price they ask insurers to base their payments on. Often this number is double the cost but sometimes can be higher, even five or six times the hospital’s cost of the service. Each hospital sets these lists of charges for billable services, which then serve as the basis for each insurer to negotiate their individual rates. It’s unusual for an insurer to pay exactly what’s listed.

What Medicare actually pays the hospital is a third separate number — 101% of the cost of the service, minus the patient’s share.

At the small, rural hospitals Medicare designates as “critical access hospitals,” Medicare beneficiaries are responsible for paying 20% of the hospital’s charges for their outpatient care.

At large hospitals without this designation, patients pay 20% of the Medicare payment amount. Because Medicare’s payment essentially matches the cost, a share based on the payment is consistently less than a share based on the hospital’s charge. It means that at a larger hospital, a Medicare patient would pay less for a service with the same cost than a patient at a critical access hospital.

The Green Mountain Care Board used a Feb. 11 hearing to discuss the issue. The board invited Jeffrey Stensland, a former analyst with the Medicare Payment Advisory Commission, which is an independent government group that does policy research and offers legislative advice on Medicare.

Stensland outlined just how burdensome this imbalance could become for some rural patients.

Take an MRI that costs the hospital $600 to administer, for instance. The hospital may post the charge as $1,000, to cover the cost and build a revenue buffer. At a critical access hospital, the patient — or their secondary insurer, such as a MediGap plan — would be responsible for 20% of the charge, or $200.

Medicare would pay the hospital the remaining $406, Stensland explained, to meet 101% of the full cost of the service ($606).

But, if the hospital posts higher charges, the patient’s payment share grows as Medicare’s shrinks.

“The hospital will get the same amount, but it’s the portion of that payment that matters, “ David Murman, a care board member, said during the meeting.

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“The higher the charges are, the more the patient pays, and the less Medicare pays. So if you have very high charges, Medicare pays very little. If the charges are lower, then we have more Medicare revenue coming into the state, and are putting less on our local populations.

“It’s a bizarre situation,” he added.

If a critical access hospital posts a $1,500 charge for that $600 MRI, the patient would pay $300 (20% of the charge), while Medicare pays $306.

Expenses to patients can quickly run rampant, Stensland showed. If the charges are five times the cost, then the patient ends up footing the entire bill — since 20% of the charge ends up being 100% of the cost, which is all Medicare is responsible for.

Worse yet, Stensland said, if the charges are higher than five times the cost, the patient pays more than what Medicare would have paid.

“In that perverse situation where the charges are really really high, the beneficiary can actually be subsidizing the Medicare program,” Sensland told the care board.

Changing locally

It’s a breakdown that worries the board chair, Owen Foster, as not only inequitable but also illegal.

“It is really, really troubling that some of our seniors may be paying a lot more if they’re in a rural community as opposed to in Chittenden County,” he said in the February meeting.

Foster followed that meeting by sending Vermont’s critical access hospitals, its industry group and insurers a letter outlining the parts of Vermont law he sees this clashing with: “Financing of health care in Vermont must be sufficient, fair, predictable, transparent, sustainable, and shared equitably.”

He requested further information from the hospitals about their charges and revenue, and he sought the hospitals’ participation and ideas on solutions the state could pursue to address this.

Solving it, though, is another issue, said Green, the hospital association spokesperson.

“We are alarmed this is happening,” she said. “We understand the problem that needs to be solved and the impact to Vermonters and hospitals. This is not good for either of us.”

The hospitals, the Medicare policy advisory group and the care board have floated a number of possible solutions on the state and federal level.

Green says the hospitals do support recommendations to tackle the issue federally, since Medicare dictates these rules.

Other potential changes, like reducing the cost of the charges, would be untenable to many of the state’s small critical access hospitals.

In a letter back to Foster, the CEO of Grace Cottage Family Health and Hospital in Townshend, wrote that even without detailed calculations, the loss of revenue from reducing its charges would “surely bankrupt” the hospital.

It’s a sentiment representatives from nearly all of the state’s eight critical access hospitals voiced.

The problem is not unique to Vermont, but it’s likely heightened here since so many more patients receive care at rural hospitals.

Foster and the care board are pushing for more information by March 16 so that the inequity can be righted for next fiscal year’s budgets. The care board has authority to set and enforce hospital budgets but has little sway over a hospital’s agreement with insurers. The state has no authority over federal Medicare rules.

“What cannot happen is delay,” Foster wrote in a subsequent letter. “We already know that rural Vermonters are being charged prices that are neither defensible nor sustainable. It is unacceptable for this to persist into another fiscal year.”

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