Article
What happened
Since early January, Medicare rejected valid claims from critical access hospitals after a software update, MPR News reported April 2. Leaders at two Minnesota hospitals traced most of the problem to two billing codes. Mille Lacs Health System in Onamia, which relies on Medicare for about 60% of its income, had about $2.5 million in limbo. Its leaders warned that the system could close within eight weeks without the money. Riverwood Healthcare Center in Aitkin was waiting on about $2.5 million as well.
CMS has fixed the issue and is processing the backlog. The National Rural Health Association called it a nationwide, systemic problem and expects claims to be paid within about two weeks. Hospital leaders said claims are moving, though cash had not yet arrived for all of them.
In a separate notice this week, CMS told Method II critical access hospitals that contractors will reprocess claims wrongly returned with reassignment reason codes since Jan. 1. Payment is expected in about two weeks, and hospitals do not need to act.
Why a processing error becomes a survival issue
Many critical access hospitals operate with thin cash reserves and depend heavily on Medicare. A large system can absorb a three-month payment delay from one payer. A small rural hospital with a few weeks of cash cannot, and payroll does not wait for a fix. These hospitals are often the only source of emergency and inpatient care for wide areas, so a cash crisis quickly becomes a community access problem.
Steps rural leaders can take now
- Watch rejections daily. Track rejection and return rates by payer and reason code, and escalate unusual spikes within days rather than at month-end close.
- Map the escalation path. Know the contacts at your Medicare administrative contractor, state hospital association, national rural groups and congressional offices before you need them.
- Set a cash floor. Agree with the board on a minimum days-cash level and line up a credit facility while finances are stable.
- Keep lenders and boards informed. Early disclosure preserves options and trust.
- Reconcile reprocessed claims. Confirm that every corrected claim is actually paid, at the correct amount.
Health systems with rural affiliates or managed critical access hospitals should check whether those sites were affected and whether system treasury support is needed.
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