The Effect of Shrinking Rural America on Medicare Productivity Standards

michael-smithIn 1900, some 40 percent of the population worked in agriculture, a century later, only two percent did.1 Manufacturing jobs in most small towns began to disappear by the 1980s. Rural America, more than much of the rest of the country, is the victim of productivity gains. And in rural America, fewer other opportunities materialize to replace the jobs the machines take.

Our transition from rural to metropolitan has been rapid. At the beginning of this century, 60 percent of the people lived on farms or in villages. Today, just 19 percent of Americans live in areas the Census department classifies as rural, down from 44 percent in 1930.

This week’s tip goes hand-in-hand with our previous posting (please see tip #22) on the importance of accurately calculating your physician and mid-level FTEs for Rural Health Clinics (RHCs). The RHCs could receive enhanced reimbursement from Medicare and Medicaid, but this is dependent upon FTE counts and the relationship to productivity thresholds.

In some situations, a RHC has the necessary physician or mid-level to provide care, but due to declining populations, economic conditions or a combination of these, insufficient patient volumes exist to prevent the RHC from being impacted by the thresholds.

Tip #28:

The Medicare Administrative Contractor that processes Part A and Medicare Part B claims has the discretion to make an exception to the productivity standards based on individual circumstances (Chapter 13, Section 80.4).

Further guidance can be found on the Centers for Medicare and Medicaid Services (CMS) website:

Medicare Benefit Policy Manual RHC/FQHC

Questions? Please contact Michael Smith at 701.239.8635 or

1“The Graying of Rural America,” by Alana Semuels, The Atlantic

Miles per Dollar and RHC FTEs

People running Outdoor activity Healthy lifestyleWhat if someone offered you $10,000 to walk 10 miles; the next person is offered $10,000 and only has to walk five miles? Then another person is offered $10,000 for one mile. Your 10-mile deal seems pretty unfair now, doesn’t it? Why should someone walk less and get paid the same? Productivity standards in health care exist to prevent this type of unfairness. A minimum level of effort is established to correspond with the dollars to be paid.

The Rural Health Clinic (RHC) program is intended to increase access to primary care services for Medicaid and Medicare patients in rural communities. A RHC is a clinic located in a rural, medically under-served area in the United States as defined by the Health Resources and Services Administration.

RHCs are staffed by a combination of physicians, nurse practitioners (NP), physician assistants (PA), and certified nurse midwives (CNM). Minimum staffing levels are required based on full-time equivalents or FTEs (which are the “miles”).

The computation of the FTE for each nurse practitioner, physician assistant, or certified nurse midwife can be confusing as only the time spent seeing patients or scheduled to see patients should be counted. The same challenge exists in computing the Physician FTE.

Tip #22:
Ensure RHC FTEs are properly computed (Chapter 13, §80.4).

Further guidance can be found on the Centers for Medicare and Medicaid Services (CMS) website:

Medicare Benefit Policy Manual RHC/FQHC

Questions? Please contact Marie White at 612.253.6546 or

Forgetta ‘bout it: Free Agents and FICA

QuarterbackFall time is synonymous with football. Just as in football, health care has it’s own brand of free agents. And just as in football, compensation and other related activities are treated differently in health care. Find out how you can say “forgetta ‘bout it” to private practice physicians and FICA and other employment-related taxes on your cost report.

Per the 2015 Medscape Physician Compensation Report, 63 percent of physicians are employed, with less than a third (32 percent) in private practice. This follows the trend reported by a major physician recruiter, which revealed a hospital employment rate of 11 percent in 2004, rising to 64 percent in 2014. This shift is occurring due to the increasingly uncertain environment and burdensome administrative requirements in private practice.

Employment of physicians is challenging for many reasons, including how it’s reported on Medicare cost report. Employed physicians’ compensation must be disclosed on Worksheet A-8-2 as either provider or professional component (see Medicare Cost Report Talk blog tip #10 posted on June 13).

Employment-related taxes, such as FICA, Workers’ Compensation and Unemployment Compensation, which are paid by a hospital on behalf of an employed physician, are considered business expenses of the hospital and not fringe benefits. Thus, the amount for A-8-2 excludes these dollars.

Tip #19:

For Worksheet A-8-2, exclude FICA from the benefits add-on to physician salary (Pub. 15-1, Section 2122.3).

Further guidance can be found on the Centers for Medicare and Medicaid Services (CMS) website:

Provider Reimbursement Manual 15-1

Questions? Please contact Marie White at 612.253.6546 or

Medical Directors’ Compensation ≠ RCE Limits

caduceusMosby’s Medical Dictionary, 8th edition, defines a medical director as “a physician who is usually employed by a hospital to serve in a medical and administrative capacity as head of the organized medical staff. He or she also may serve as liaison for the medical staff with the hospital’s administration and governing board.”

This definition may seem a little old-fashioned in the current world of medicine. Today’s medical directors are likely to add service line management and financial goals to their responsibilities. Some organizations have multiple medical directors who manage a particular department or group of departments, or who have joint responsibility for the entire organization.

Given these differing roles and responsibilities, the compensation paid for directorships can vary widely. For the Medicare cost report, Reasonable Compensation Equivalent (RCE) limits are not applicable to a medical director, chief of medical staff, or to the compensation of a physician employed in a capacity not requiring the services of a physician and can be excluded from disclosure on Worksheet A-8-2.

Tip #17:

Exclude medical directors from A-8-2 as they are not subject to RCE limits (Pub. 15-2, §Section 4018).

Further guidance can be found on the Centers for Medicare and Medicaid Services (CMS) website:

Provider Reimbursement Manual 15-2, Chapter 40

Questions? Please contact Marie White at 612.253.6546 or