Medicare and Rural Health

Medicare is the federal health insurance program administered by the Centers for Medicare & Medicaid Services for Americans aged 65 and older and for adults with permanent disabilities.

In the 2010 Census, 19.3% of the population live in rural America, but 23% of Medicare beneficiaries reside in rural communities, as reported in MedPAC’s Health Care Spending and the Medicare Program Data Book. Beyond this, rural family physicians accepted Medicare beneficiaries at a higher rate than urban family physicians (83% vs. 73%), according to Medicare Beneficiary Access to Primary Care Physicians- Better in Rural, but Still Worrisome. This implies that Medicare policy has a disproportional impact on rural Medicare beneficiaries, facilities, and communities.

Medicare policy can have a significant effect on rural healthcare provision, as shown by the closure of many rural hospitals in the 1980s and 1990s, following the implementation of the Inpatient Prospective Payment system. Changes in Medicare policy have been used to try to ensure access in rural communities and correct for unintended consequences of broad Medicare policies for rural providers, particularly those operating in low-volume environments. Examples of this include the Critical Access Hospital designation and related payment methodology, as well as rural “add-ons” (e.g. super-rural add-on for ambulance service).

Frequently Asked Questions


What are the parts of Medicare and what types of services are covered by each?

Medicare consists of four parts, each providing different services:

Part A (Hospital Insurance program)
Covers inpatient hospital stays, skilled nursing facility care, hospice, and some home healthcare.

Part B (Supplementary Medical Insurance program)
An optional program that covers physician and other practitioner services, outpatient hospital services, laboratory and diagnostic tests, medical supplies and medical equipment, dialysis, preventive services and screenings, some home healthcare, and other services.

Part C (Medicare Advantage program)
Offered by a private company that contracts with Medicare, it covers Part A and B services and most prescription drugs for beneficiaries. Medicare Advantage plans may be offered by a health maintenance organization, preferred provider organization, or private fee-for-service plan.

Part D (Prescription Drug Coverage)
Also offered through private insurance companies as a supplement plan for those enrolled in Original Medicare (Parts A and B), part D provides outpatient prescription drug coverage. Plans vary in cost of premiums and sometimes will require a deductible payment and/or copayments.

Those who receive Social Security benefits based on age or disability are eligible for Medicare Part A benefits. Others can enroll, but will be charged a monthly premium. Enrollees in the program will be responsible to pay coinsurance, copayments, and deductibles on many of the services. For more information, see The Basics: Medicare from the National Health Policy Forum.


How does the access to and utilization of services under Medicare vary for rural and urban residents?

Rural Medicare beneficiaries may experience barriers to accessing healthcare, such as longer travel distances and fewer healthcare providers per capita. However, rural beneficiaries are likely to have lower expectations of convenience when it comes to using the healthcare system and often are able to find ways to overcome these barriers, although typically at a personal cost to themselves and their families.

According to Serving Rural Medicare Beneficiaries (Chapter 5 of the June 2012 MedPAC report), there are not significant differences in the rates that they access services when compared to urban beneficiaries. The authors acknowledge that rural beneficiaries must travel farther to access healthcare services, which presents a barrier for some beneficiaries, but conclude that most find ways to overcome that and other obstacles to care. Additionally, the authors note that federal, state, and local efforts and policies meant to increase access to care for rural residents are likely contributors to their findings that rural beneficiaries use similar levels of healthcare services.

Chapter 2 of the book Rural Public Health: Best Practices and Preventive Models points out that out-of-pocket costs may be a barrier to care for low-income rural beneficiaries. The chapter author writes:

“Rural, older adults are less likely to have supplemental insurance to cover cost sharing for Medicare or prescription drugs. Because of insurance and income limitations, rural older adults are more likely to report delays in getting care due to costs. Many older rural residents are classified as poor and rely on Medicare and Medicaid to help pay for their long-term care. However, even with this support, many cannot afford to utilize available services. Some families must pool their funds to help pay for services, which can cause a hardship for families.”

What are the common Medicare rural provider types?

Due to the low volume of services provided, many rural providers struggle to remain financially viable under traditional Medicare Prospective Payment Systems (PPS). However, rural providers are often essential for ensuring access to care for rural Medicare beneficiaries. As a solution, several types of special rural designations have been created, which are listed below:

  • Critical Access Hospital (CAH)
    Rural hospitals maintaining no more than 25 acute care beds. CAHs must be located at least 35 miles, or 15 miles by mountainous terrain or secondary roads, from the nearest hospital - unless designated as a “Necessary Provider” by a state plan prior to 2006. Unlike hospitals paid prospectively using diagnosis related groups, CAHs are reimbursed based on the hospital’s allowable costs. Each CAH receives 101 percent of the Medicare share of its allowed costs for outpatient, inpatient, laboratory, therapy services, and post-acute swing bed services. See RAC’s Critical Access Hospitals topic guide for more about this facility type.
  • Disproportionate Share Hospital (DSH)
    A special reimbursement designation under Medicare and Medicaid that is aimed at supporting hospitals at which care is provided to a large proportion of low-income patients. Although not a rural-specific designation, the DSH programs allow some rural facilities to remain financially viable.
  • Federally Qualified Health Center (FQHC)
    FQHCs are safety net providers that typically receive grant funding under Section 330 of the Public Health Service Act or meet the requirements of the program. While not a rural-specific designation, FQHCs provide healthcare access in many rural communities, particularly for the low-income and uninsured. See RAC’s Federally Qualified Health Centers topic guide for more about this facility type.
  • Rural Referral Center (RRC)
    Rural tertiary hospitals that receive referrals from surrounding rural acute care hospitals.  An acute care hospital can be classified as an RRC if it meets several criteria pertaining to location, bed size, and referral patterns.
  • Rural Health Clinic (RHC)
    A clinic located in a rural area that is also  medically underserved or a health professional shortage area. RHCs are required to be staffed by at least one nurse practitioner (NP) or physician assistant (PA), and an NP, PA, or certified nurse midwife (CNM) must be on site at least 50 percent of the time in operation. RHCs receive Medicare payment on a cost-related basis for outpatient physician and certain nonphysician services. See RAC’s Rural Health Clinics topic guide for more about this facility type.
  • Sole Community Hospital (SCH)
    A CMS designation based on a hospital’s distance in relation to other hospitals, indicating that the facility is the only like hospital serving a community. Distance requirements vary depending on whether a facility is rural and how inaccessible a region is due to weather, topography, and other factors.

Medicare is also an important payer for other healthcare providers and facilities in rural areas, including home health agencies, hospice, skilled nursing facilities, and others.

For more information about these and other providers and designations, refer to the Centers for Medicare & Medicaid Services website. For more information on billing practices for these and other rural providers, refer to the Medicare Billing Information for Rural Providers, Suppliers, and Physicians.


How many rural Medicare beneficiaries have enrolled in Medicare Advantage?

According to the March 2013: Medicare Advantage Update from the RUPRI Center for Rural Health Policy Analysis, over 1.9 million rural beneficiaries participated in Medicare Advantage (MA) and other prepaid plans, accounting for 13.4% of MA enrollees. While rural participation is not proportionate to urban participation, strong rural enrollment in the previous year had narrowed the gap. The RUPRI report also notes that 51% of rural MA participants are enrolled in a Preferred Provider Organization (PPO) plan, which is likely due to the fact that rural beneficiaries typically have less access to a variety of plan types, including Health Maintenance Organization (HMO) plans.


How does Medicare impact the rural economy?

Healthcare spending in a community has a significant impact on the local economy. In rural areas, Medicare reimbursement is a critical source of that healthcare spending, particularly since the higher percentage of elderly population in rural areas mean that Medicare accounts for a higher percentage of rural healthcare facilities’ revenue. Due to the fragile financial situation of many rural healthcare facilities, adequate Medicare reimbursement is necessary in order to keep the facility open.

For more information on the economic impact of healthcare on rural communities, see Community Vitality and Rural Healthcare.


What Medicare changes were included in the Affordable Care Act and how have those changes impacted rural communities?

The Affordable Care Act included numerous provisions related to the Medicare program. Many of the provisions were focused on increasingly reimbursing healthcare providers for value rather than the volume of services provided. The ACA also placed a larger focus on preventive services, population health, and cost containment within the Medicare program.

In April 2014, the RUPRI Health Panel analyzed the effects of the ACA on rural healthcare in their publication, The Patient Protection and Affordable Care Act of 2010: Impacts on Rural People, Places, and Providers: A Second Look. Among their findings, the panel identified the following Medicare-related provisions and their effects through 2013:

  • Medicare Physician Fee Schedule Update – the Geographic Practice Cost Indices were updated and physician personal income increases are greater in entire-state Medicare payment localities, which are typically more rural.
  • Primary Care Incentive Payment & HPSA Surgical Incentive Payment – In 2011, rural providers received $76 million due to these incentive programs, with roughly 80% of rural family practice physicians and 65% of general internists qualifying.
  • Hospital Payment – The ACA temporarily extended several rural protections related to hospital payments. In addition, the legislation reauthorized the Medicare Rural Hospital Flexibility program and adjusted acute care hospital and skilled nursing facility market basket updates.
  • New Payment Systems – Established provider type of Accountable Care Organizations (ACOs) and implemented a shared savings program. Also established a Value-Based Purchasing (VBP) program, and established a Critical Access Hospital VBP demonstration which has yet to be funded. Bundled payment demonstrations have been implemented, some of which include rural providers; however, the effectiveness and broad rural application have not been established.
  • Medicare Advantage – The ACA reduces the payments to companies providing Medicare Advantage plans over time to bring them more in line with costs for traditional Medicare. With Medicare Advantage growth continuing in rural areas between 2012 and 2013, this does not appear to have had a negative effect on the program’s enrollment in rural areas.
  • Center for Medicare and Medicaid Innovation (CMMI) – CMMI, also known as the CMS Innovation Center, has been funding innovative demonstrations, with rural sites being included in a few projects. Evaluations of these programs are ongoing.
  • Rural Payment Research – The Medicare Payment Advisory Commission (MedPAC) was tasked with studying geographic payment variation. They released a report chapter with their findings and related suggestions.

Do differences exist in rural and urban Medicare enrollee populations?

According to MedPAC’s Report to the Congress (June 2012), rural Medicare beneficiaries represent 23 percent of all fee-for-service beneficiaries. Compare that to the 2010 Census finding that rural people make up 19% of the U.S. population and you will see why the Medicare program is vital to the provision of rural healthcare. The chart below displays selected statistics from this report to demonstrate differences between rural and urban Medicare enrollee populations. See the report for additional statistics.

Health and Demographic Characteristics of
Medicare Beneficiaries, 2008

  Metropolitan
(Urban)
Rural
Micropolitan
Rural
Adjacent
Rural
Nonadjacent
Mean Age (Years) 71.8 70.7 69.8 72.3
Education Less than High School 23.9% 31.5% 42.4% 29.6%
Medicaid (Dual Eligibles) 19.3% 20.6% 25.2% 18.4%
Self-Rated Health as Fair/Poor 25.5% 28.3% 33.6% 25.4%
Any Activity of Daily Living Limitations 31.4% 35.4% 23.3% 28.4%

Source: Chart 5-2, MedPAC’s Report to the Congress (June 2012)


Who are dual eligible beneficiaries? What is the impact of dual eligible policies on rural healthcare?

Medicare beneficiaries that are also eligible for Medicaid coverage due to income and disability status are referred to as dual eligible beneficiaries. According to Characteristics, Utilization Patterns, and Expenditures of Rural Dual Eligible Medicare Beneficiaries, rural beneficiaries are more likely to be dual eligible than their urban counterparts (17.9 percent and 15.8 percent, respectively).

Dual eligible beneficiaries have higher rates of disease, disability, and multiple chronic conditions, according to MedPAC’s annual data book, Health Care Spending and the Medicare Program. Medicare per capita costs for dual eligible beneficiaries, as a result, are nearly twice as high as those covered only by Medicare.

With a higher ratio of dual eligible beneficiaries and the higher associated medical expenses, policies affecting dual eligible beneficiaries have a direct and significant impact on rural healthcare.  For example, many states have begun participating in demonstrations to enroll dual eligible beneficiaries in managed care, which may affect payments to rural providers and access to some services for rural beneficiaries.


Where can I get data and statistics regarding the Medicare program in rural America?

MedPAC produces numerous reports and fact sheets with statistics about the Medicare program and its application in rural areas. These two reports may be especially helpful:

  • A Data Book: Healthcare Spending and the Medicare Program includes numerous data tables — many including rural/urban splits — related to Medicare spending, beneficiary demographic, beneficiary and other payer financial liability, dual eligible beneficiaries, quality of care, acute inpatient services, ambulatory care, post-acute care, Medicare Advantage, prescription drugs, and other services.
  • Serving Rural Medicare Beneficiaries – Chapter 5 of the June 2012 MedPAC report, this document includes data tables related to health and demographic characteristics of rural beneficiaries, regional variations, rural/urban service rate use, access to care, and quality measures.

The Federal Office of Rural Health Policy-funded Rural Health Research Centers are also a good source of data and analysis regarding rural Medicare payment and utilization. See the Rural Health Research Gateway’s Medicare page for more about their work on this topic.


Who can I contact for assistance and questions about Medicare regulations?

For technical, policy, and operational assistance on rural health issues including CMS regulations contact:

CMS Regional Office Rural Health Coordinators