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Medicare payment problems are generating steep financial hardships for some of Minnesota’s rural hospitals at a time when many are struggling to stay afloat.

State hospital leaders and officials at several rural hospitals say they have been vexed by a recent payment processing change by the federal Centers for Medicare & Medicaid Services that is effectively holding back millions of dollars needed to pay the bills.

“We're burning through the cash that we had in our bank, and we're running out,” said Andrew Knutson, CEO of the Mille Lacs Health System, a central Minnesota operation based in Onamia that draws about 60 percent of its income from Medicare.

The Centers for Medicare & Medicaid Services has withheld about $2.5 million in Medicare payments from the Mille Lacs Health System since early January, he added.

If they cannot resolve the issue with Medicare officials in Washington, “we will run out of money and won’t be able to pay anybody, so we'll have to close,” within six to eight weeks, said Knutson, who employs some 420 people.

Knutson and other hospital leaders point the finger at a fairly new billing regimen by the Centers for Medicare & Medicaid Services put in place nationally that is supposed to do a better job preventing improper Medicare billing.

But a significant issue with the online software system that health care providers use to submit and manage their Medicare enrollment information has led to the denial of claims for so-called 

 — health care centers vital to the health of rural America.

The updated billing method is intended to simplify administrative processes for those hospitals while ensuring compliance with Medicare requirements.

But the enrollment data from these hospitals did not transfer correctly when the federal agency implemented its new system, resulting in claim denials and delayed Medicare payments.

Mille Lacs Health System discovered that some of their health care providers had not been enrolled because they had been inadvertently removed from the CMS system in the system changeover.

“As we re-enrolled them, we found that CMS was deactivating them from Mille Lacs Health System. Not all of them, but some of them,” Knutson said. “And when we tried to figure out why they were doing that, they didn't really have a great answer for us.”

Employees in the health systems’ billing department often call CMS multiple times a day to seek solutions. But Knutson noted that the information they receive can vary significantly based on who answers the phone.

A Centers for Medicare & Medicaid Services spokesperson said that “while most claims are being processed on schedule, the agency is aware that some providers are experiencing delays and is working closely with contractors to address issues as quickly as possible.”

The agency “remains committed to both protecting taxpayer dollars and ensuring that hospitals and health systems receive the payments they are owed,” the spokesperson wrote in a statement to MPR News.

Knutson said his employees trying to work through the snafus are frustrated because they cannot call back the same Medicare representative. Instead, they must keep dialing the hotline, and each time the call is routed to a different representative.

Medicare, the federal health insurance program available to people age 65 and older and younger adults with long-term disabilities, is vital to the health of rural Minnesota and its care operations. 

If the current problems do lead to hospitals closing, it could be a huge problem for rural Minnesotans who depend on having health care nearby and would face much longer distances to get needed treatment.

Joe Schindler, the vice president of finance policy for the Minnesota Hospital Association, said they are very concerned that Medicare is “seemingly unable” to pay their bills, and especially in rural parts of the state. "We've heard this from many hospitals across Minnesota."

Rural hospitals across the country are dealing with the same problems, he added.

Many rural hospitals in Minnesota are already operating on razor thin margins. Knutson noted that beyond the $2.5 million that Medicare is holding back, the Mille Lacs health system is also owed about $1 million from UCare, one of the largest health insurers in Minnesota. 

shutting down and transferring its accounts to Medica

In Aitkin, Minn., about an hour’s drive from Onamia, Riverwood Healthcare Center said it is also struggling with the delay in Medicare payments. Its three primary care clinics and critical access hospital serve just under 33,000 people in a region that includes Aitkin, Garrison and McGregor. 

Riverwood is awaiting $2.5 million in payments owed to it from Medicare, said Casey Johnson, the chief financial officer. 

“The net impact to us then is that there's all this money that's being held, and it is really creating some hardships for us,” said Johnson, adding that he has people calling Medicare administrative contractors daily about the matter.

For the past three months, he said, Riverwood has had to cover all its expenses with 75 percent of its income.

Johnson expressed hope the situation will get resolved and payments expedited within the next month. If not, it may force decisions that would have lasting effects on Riverwood.

“Hopefully we don't get there, and I don't think we're there now, but that's always the worry,” Johnson said.

If the Medicare billing woes seen by Mille Lacs, Riverwood and other rural care operations are not resolved soon, “this would be quite a major shock to the system,” Schindler said. “These hospitals are barely surviving. So, it is a dire situation at this point in time.”

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An updated Medicare software system is holding up millions of dollars in payments to rural hospitals already struggling to pay the bills. Some hospital officials warn the holdup could shut them down in weeks if it’s not resolved soon.

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Medicare billing snafu brings new financial woes to Minnesota rural hospitals

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