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A Medicare payment processing snafu that has effectively withheld millions of dollars from Minnesota rural hospitals for months and pushed some to the brink of closure appears to be easing.

Problems tied to an updated software system led the federal Centers for Medicare & Medicaid Services to reject legitimate claims for Medicare reimbursement to 

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

That forced some hospitals to burn through their cash reserves as they struggled to get answers from the Medicare bureaucracy. MPR News last week reported that Mille Lacs Health System in Onamia was 

National and local hospital leaders this week said 

 helped get the attention of Medicare administrators who have fixed the problem and are now processing the backup claims.

Billing snafu brings new financial woes to Minnesota rural hospitals

“We’re seeing some movement when we look at our claims from Medicare,” said Andrew Knutson, the CEO of Mille Lacs Health System. “No cash has come in yet, but we're pretty hopeful that within the next couple weeks, some of those Medicare payments will start rolling in.”

Claims should be paid within the next two weeks, said Brock Slabach, chief operations officer at the National Rural Health Association. He said his group had been working on this “systemic problem” for months and that the payment holdups had created desperate financial conditions for rural hospitals across the country.

At least one Minnesota hospital has already begun receiving payments for claims from December and January previously withheld by the Centers for Medicare & Medicaid Services, he added.

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 care infrastructure of rural Minnesota.

Medicare reimbursements generate the majority of income at many of those small hospitals which run already on razor thin margins. A problem with Medicare funding can imperil the hospital and the communities it serves.

Mille Lacs Health System draws about 60 percent of its income from Medicare. Roughly $2.5 million in payments have been in limbo since early January. Leaders of the hospital system, which employs some 420 people, worried they would have to close within eight weeks if the money did not start flowing.

In Aitkin about an hour's drive from Onamia, Casey Johnson, chief financial officer of Riverwood Healthcare Center, said the hospital is also awaiting $2.5 million in payments owed from Medicare. Riverwood’s three primary care clinics and critical access hospital serve nearly 33,000 people across Aitkin, Garrison, and McGregor.

Johnson said Riverwood has been forced to cover all its expenses with 75 percent of its income over the past three months.

Riverwood has also seen about 70 percent of its Medicare claims processed without errors, but about $1 million is still affected by a system error. 

Johnson and Knutson said problems with two billing codes in the updated software system caused the payment snafu and that the system is now processing claims initially rejected. Knutson said this situation accounted for roughly 85 percent of the problem.

Johnson said officials with the Centers for Medicare & Medicaid Services are increasing communication and responsiveness, although not all issues have been resolved.

“We're still waiting to see all the cash come in from the claims that have gone through,” Johnson said. “But it's a very positive step that those claims are now going through without error.”

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Erica Zurek

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Incorrectly denied Medicare claims the past few months led to holdups in millions of dollars in reimbursement payments to some rural state hospitals that put at least one near the brink of closing. Officials say the problems have been fixed and money should start moving soon.

Two people walk inside a Medicare Services office.

Medicare payments set to flow again to Minnesota rural hospitals after months of delay

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