Rural Medicare patients in Vermont are paying more out of pocket for outpatient care at small critical access hospitals than they would for identical services at larger acute care hospitals, and state health officials are pressing for a fast fix to what they describe as a structural flaw in federal payment policy.
The disparity surfaced last November after a public comment prompted a Green Mountain Care Board analyst to investigate why Medicare recipients at rural hospitals faced higher cost-sharing than patients at bigger facilities, even when the underlying cost of the procedure was exactly the same. The finding has since drawn sharp attention from hospital administrators, patient advocates, and state regulators alike.
Understanding the problem requires tracking three separate numbers that rarely align.
First is the actual cost of providing a service, whether that is an MRI or a hip replacement. Second is the charge a hospital lists, which functions as the sticker price it uses as the basis for insurer negotiations. That listed charge is often double the actual cost, and sometimes five or six times higher. Third is what Medicare actually pays, which is set at 101% of the service’s cost.
The trouble emerges from how patient cost-sharing is calculated differently depending on hospital type.
At critical access hospitals, the small rural facilities that receive special federal designation to preserve healthcare access in underserved areas, Medicare patients owe 20% of the hospital’s listed charges for outpatient services. At larger acute care hospitals without that designation, patients owe 20% of the Medicare payment amount. Because Medicare’s payment closely tracks actual cost, and because the listed charge at a rural hospital often runs significantly higher than actual cost, patients at critical access hospitals can end up paying far more for the same procedure.
Devon Green, spokesperson for the Vermont Association of Hospitals and Health Systems, acknowledged the urgency. “We don’t have a lot of margin for error when it comes to addressing this issue, and we want to move quickly,” Green said. When asked what hospitals or the state could do to resolve it, Green’s answer was direct: “That’s what we’re grappling with now.”
The Green Mountain Care Board used a February 11 hearing to examine the issue more closely. The board brought in Jeffrey Stensland, a former analyst with the Medicare Payment Advisory Commission, the independent federal body that researches Medicare policy and offers guidance to lawmakers. His participation signaled that the board is treating this as a policy priority rather than a technical footnote.
One official called the cost-sharing structure “bizarre,” a characterization that captures the frustration of regulators who see a system that penalizes patients for receiving care at the very hospitals built to serve them. Critical access hospitals exist specifically because rural communities need healthcare options. Saddling those communities with higher out-of-pocket costs undercuts that intent.
Fixing the problem is complicated by the federal framework that governs Medicare payment rules. Vermont hospitals warn that state-level workarounds could jeopardize their financial stability or conflict with federal law. Many critical access hospitals already operate on thin margins, and any adjustment that shifts revenue without a corresponding federal policy change could create new financial stress for facilities that already struggle to break even.
The situation carries particular weight for Vermont, a rural state where critical access hospitals serve as the primary medical option for many residents. Dartmouth’s own surrounding region includes communities where patients drive significant distances for care and depend on small hospitals to provide what larger systems cannot reach.
The Green Mountain Care Board is now working to identify what levers are actually available. That could mean advocating for a federal rule change, exploring whether hospitals can voluntarily lower their listed charges to reduce patient cost-sharing, or pursuing other regulatory approaches. Each path carries trade-offs.
What is clear is that the current structure creates an inequity that punishes rural patients for circumstances entirely outside their control. A patient choosing a small hospital close to home should not pay a premium for that choice, especially when the hospital’s cost of care is identical to what a city facility charges. Vermont regulators appear to understand that, and the question now is whether they can turn that understanding into a workable solution.
