Thomas C. Ricketts, Deputy Director, Cecil G. Sheps Center
for Health Services Research
There are legitimate reasons to criticize the way
Medicare distinguishes between urban and rural places in
how it pays for medical care. But the fact that the
eligibility rules are equal for all Americans makes it a
program that can adjust and make up for geographic
differences. The question is: does it match its promise?
One way that Medicare does adjust for uneven access is
via the bonus payments available to professionals
practicing in Health Professional Shortage Areas (HPSAs).
HPSAs were originally developed to help rural, isolated,
or underserved communities get a doctor. Physicians, and
later nurse practitioners and physician assistants, then
dentists and mental health professionals, were given
incentives to accept time-limited placements in locations
where access to health care was difficult. The HPSAs
became the way to identify the communities eligible for
these placements, and, over time, for other adjustments
to federal programs or the eligibility for program
supports that were intended to improve access to care.
But HPSAs were too useful a mechanism to be tied only to
The HPSA program was not linked directly to Medicare at
its inception, but, over time, it has become tightly
connected through the Medicare Incentive Payments or
Physician Bonus Payments that were begun in 1988. In 1987
the Physician Payment Review Commission (PPRC), a
predecessor to MedPAC, recommended that Medicare pay an
amount above the allowed amount for primary care services
in underserved areas. This was done to address the
continuing maldistribution of physicians. The PPRC
recommendation was included in the Omnibus Budget
Reconciliation Act of 1987 (OBRA) section 1833 (n) and a
bonus payment system took effect in 1988. Initially the
bonus was 5 percent and to be paid only in rural areas.
It was extended in 1991 to urban areas with extreme
physician shortages, and in 1989, the 5 percent was
raised to 10 percent, where it remains.
Payments under the program are based on the actual, final
amount Medicare pays for physician services, which
protects the beneficiary who, although subject to
co-payments, is not required to pay any part of the
bonus. Those payments totaled less than $2 million in
1989 but grew to $32 million in 1991 and over $100
million in 1996. By 2011 payments under the program
totaled $560 million but only 13.6% of that total went to
rural practitioners. In 2012, that proportion rose
dramatically, of the total $664 million paid in bonuses,
17.8% went to rural practitioners or a total of
$118,254,100. Unfortunately, this is not proportional to
the numbers of Medicare beneficiaries in rural areas, 23%
in 2011 (Link no longer available online).
The bonuses were originally paid out quarterly to
individual physicians and other eligible practitioners
(dentists, podiatrists, licensed chiropractors, and
optometrists), group practices, and some Critical Access
Hospitals that bill for practitioners. Section of 5501(a)
of the Affordable Care Act added nurse practitioners,
clinical nurse specialists, and physician assistants
beginning in 2011. A rule requiring that the practice
have at least 60 percent of their total Medicare charges
in primary care was also included in 2010 and that
remains in effect.
In 2012 payments went primarily to family physicians and
general internists (87.3% of the total), but in rural
areas the proportion in those specialties dropped to
33.5% as nurse practitioners (10.4%) and physicians
assistants (22.4%) almost equaled the physician numbers.
In all, 194,428 rural practitioners received payments in
2012. That may sound like good news, but it is the
overall proportion of bonus payments that is troubling.
Why should the total paid in urban areas exceed the
proportion of beneficiaries living in urban areas given
that a larger proportion of rural Americans (19.2 million
in nonmetro HPSAs versus 9.8 in metropolitan)
live in areas designated as underserved?
The Medicare program has shown that it can be adapted to
adjust for problems with access and underservice, but it
is still not adapting sufficiently to create a truly even
playing field. Bonus payments can and should be expanded
in rural communities or perhaps marketed more effectively
to achieve the original goals expressed by the PPRC in
Back to: What do the
Medicare and Medicaid programs mean to rural health?