Why a Medicare patient can owe more at the small rural hospital

There is a quirk in how Medicare bills patients at small rural hospitals that almost no one sees until the statement arrives. It is not a mistake, not gouging, and not something the hospital chose. It is written into the rules — and it can leave a Medicare patient owing more, out of pocket, at the tiny 25-bed hospital than they would at a big-city flagship for the very same scan.

Here is the mechanic. A Critical Access Hospital — the federal designation for a small, mostly rural hospital, capped at 25 beds — is not paid by Medicare the way a normal hospital is. Instead of a fixed fee schedule, Medicare pays a CAH on the basis of its own reported costs: 101% of reasonable cost (42 CFR §413.70(b)(2)). That is meant to keep rural hospitals solvent when they run at low volume, and it is a reasonable policy.

But the patient’s share is figured on a different number. By regulation, a Medicare patient’s Part B coinsurance for a CAH’s outpatient services is 20% of the hospital’s charges — the chargemaster number — not 20% of what Medicare actually pays (42 CFR §410.152(k)(2): “Part B coinsurance being calculated as 20 percent of the customary (insofar as reasonable) charges of the CAH for the services”). Medicare’s payment is figured off cost; the patient’s coinsurance is figured off charges. When a hospital’s charges run several times its cost — as hospital charges nearly always do — those two numbers pull far apart, and the patient is standing on the larger one.

What that does to one real scan

We looked at a single, well-defined procedure at one Critical Access Hospital in our data: an MRI of the brain, before and after contrast — CPT 70553 — at Community Hospital in Torrington, Wyoming, a 25-bed CAH run by Banner Health. Here is what Torrington lists for that one code in its own machine-readable price file, retrieved June 27, 2026: a gross (“chargemaster”) charge of $2,816 and a cash price of $1,934.59. These are posted prices, not quotes — the number the hospital itself published — and your own bill can differ.

Apply the rule. A Medicare patient’s coinsurance is 20% of the charge: 20% of $2,816 is $563.20. Now compare that to what the coinsurance would be if it were figured the way it is at a normal hospital — on Medicare’s payment instead of the charge. Because Torrington is paid on cost, we estimate Medicare’s payment for this scan at about $635.69 (this figure is our bottom-up cost estimate, described at the end — not Medicare’s books). Twenty percent of that would be about $127. And at Banner’s large Casper flagship, a standard hospital paid under Medicare’s Outpatient Prospective Payment System, the coinsurance is 20% of Medicare’s payment rate for the scan — about $356.43 — which comes to roughly $71.

Read the three dots as one patient’s out-of-pocket coinsurance for the same brain MRI, figured three ways. The tallest is what the rule actually produces at the small rural hospital: $563.20. It is more than four times what a cost-based 20% would be, and nearly eight times the standard-hospital figure — for an identical scan.

The sharpest way to see it: $563.20 is more than Medicare’s entire payment for that scan at Casper. Medicare’s whole OPPS payment there — the program’s 80% plus the patient’s 20% — is $356.43. At Torrington, the patient’s coinsurance alone clears it. Look inside Torrington’s own numbers and the squeeze is just as stark: if our ~$636 cost estimate is right, then once the patient’s $563.20 is counted against Medicare’s 101%-of-cost payment, the Medicare program is left paying only about $72 of it. The rule quietly shifts most of the cost-based payment onto the patient.

Why the rule works this way

None of this is the hospital marking up a Medicare patient on purpose. The 20%-of-charges coinsurance is the statutory design (SSA §1834(g); 42 CFR §410.152(k)(2)), and the charge it lands on is set off a chargemaster — the same list price that drives the gross charges we track everywhere else on this site. Two features of the rule make it bite:

• The base is charges, not payment. At a standard hospital, coinsurance tracks Medicare’s payment rate for the service — so as charges balloon, the patient’s share does not. At a CAH it does.
• There is no per-service cap. A standard hospital’s outpatient copayment for a single service is capped at the inpatient-hospital deductible. The CAH’s 20%-of-charges coinsurance carries no such cap — MedPAC has recommended adding one, which is how we know none applies today.

And this is not a rounding error at the edges. MedPAC — the independent commission that advises Congress on Medicare — reports that in 2022, beneficiaries paid $3.3 billion in coinsurance for outpatient CAH services, more than the $3.2 billion Medicare’s program paid for those same services, averaging about $1,750 per person (MedPAC, June 2025 Report to Congress, Chapter 7). Nationally, at CAHs, patients now contribute more than the program does.

What a Medicare patient can do

We are describing a payment mechanic, not giving medical, legal, or financial advice. But a few things are worth knowing before the bill lands:

• Supplemental coverage usually absorbs it. Medicare’s own figures count CAH coinsurance as paid “out of pocket or through supplemental insurers.” A Medigap policy or Medicaid generally picks up this coinsurance; the direct hit falls on the roughly one in six Medicare beneficiaries using CAH outpatient services who have no supplemental coverage and are billed the 20%-of-charges amount themselves.
• The posted charge is your early-warning number. Because the coinsurance is figured on the charge, the hospital’s posted price is the base for your share. Our live pages for Banner Torrington and the comparison page for CPT 70553 show the posted charge and the Medicare reference, and stay current as the data refreshes.
• Ask for a written estimate, and know your rights. Posted prices are not quotes. Before you schedule, give the hospital the code — 70553 — and ask for a good-faith estimate in writing. Our next steps page walks through requesting an itemized bill, your estimate rights, and how to dispute a bill that lands far above what you were told.

The assumptions in this example

To keep the worked math clean, we set a few things aside, and we say so plainly:

• We ignored the annual Part B deductible. By rule, CAH outpatient services are subject to “the Part B deductible and coinsurance” (42 CFR §413.70(b)(2)). The deductible is a separate, once-a-year amount that applies before the coinsurance math; our example assumes it is already met and looks only at the coinsurance on this one scan.
• The radiologist’s fee is separate. The $2,816 is the facility (technical) charge — the number the price file lists. The radiologist’s professional reading fee is billed and cost-shared on its own and is excluded here, consistent with how we compare technical charges everywhere on this site. The CAH’s billing-method election changes only how that professional fee is billed, not the facility charge or its coinsurance.
• One figure is ours, and labeled. The $2,816 charge and $1,934.59 cash price are Torrington’s own posted numbers. The regulatory rule — 20% of charges — applied to that posted charge gives the $563.20, and that is the firmest number here. The ~$635.69 cost-based payment (and anything derived from it, like the “~$127” and the “~$72 left to the program”) is our bottom-up estimate, not an official Medicare figure: we build it from named, individually documented assumptions — technologist labor, contrast, equipment, and overhead — adjusted for Torrington’s low scan volume and its leased mobile MRI. It is an estimate, not a quote.

Sources

The mechanic in this article is regulation, not our interpretation. The primary sources:

• 42 CFR §410.152(k)(2) — CAH Part B coinsurance is “20 percent of the customary (insofar as reasonable) charges of the CAH.” (Cornell LII mirror of the eCFR.)
• 42 CFR §413.70(b)(2) — a CAH’s outpatient services are paid at 101% of reasonable cost, subject to the Part B deductible and coinsurance.
• SSA §1834(g) / 42 U.S.C. §1395m(g) — the statutory basis for cost-based CAH outpatient payment and the Method I / Method II billing election.
• MedPAC, June 2025 Report to Congress, Chapter 7 — “Reducing beneficiary cost sharing for outpatient services at critical access hospitals”: the charge-based-vs-payment-based contrast, the missing per-service cap, and the 2022 figures.
• HHS Office of Inspector General, OEI-05-12-00085 (2014) — found beneficiaries paid nearly half the cost of CAH outpatient services precisely because coinsurance is charge-based.

These figures are frozen from our July 2026 dataset; Torrington’s prices were retrieved June 27, 2026, and the live pages linked above stay current as the data refreshes. The site’s full published dataset is available on GitHub, and our sources and method are laid out on the about page.