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Hospital directors and health officials from rural areas complained that they are being shortchanged by Medicare's calculations of labor costs in sparsely populated sections of the country. They are preparing to lobby Congress for new laws to funnel more money to rural hospitals that rely heavily on Medicare for their operating budgets.

``We have been funding urban medical centers because we are being penalized,'' said Val Schott, Oklahoma's director of rural health. He noted that Medicare reimburses hospitals in his state 78 cents for each dollar they spend on labor costs, while many urban hospitals get $1.10 or more back for each dollar spent. The partial payment makes up as much 71% of all Medicare money that goes to hospitals for outpatient care in the state.

``We are talking about well-run institutions that may not be able to keep their doors open because of federal payment techniques,'' Schott said.

The upcoming lobbying effort is the latest in a string of moves by rural health centers to regain funding that was cut as part of the Balanced Budget Act passed by Congress in 1997. Lawmakers passed two major ``giveback'' bills since then to restore some payments to hospitals, health plans, and others who administer or deliver Medicare services.

Rural providers are hoping to capitalize on a Senate Finance Committee likely to be heavily focused on rural issues. The committee--which has jurisdiction over Medicare legislation--has a new chairman and new ranking member, both from heavily rural states.

``It's clearly a very high priority for the committee,'' said Keith Miller the chief lobbyist for the National Rural Health Association. Chairman Charles Grassley (R-Iowa) and ranking Democrat Max Baucus (D-Mont.) ``are strong rural advocates,'' he said.

A study released at the organization's meeting showed that Medicare's ``labor index'' pays rural hospitals 21% less on average for their labor costs than it pays to urban hospitals. Some of the difference owes to the fact that wages and other labor related costs are lower at small rural hospitals than at large city facilities.

But an 18% gap in labor-related reimbursement remained after the researchers compared equally sized rural and urban hospitals, according to Rebecca T. Slifkin, director of the North Carolina Rural Health Research and Policy Analysis Center.

Rural hospitals are hoping to convince lawmakers to reduce the percentage of their total Medicare reimbursement that comes from labor costs, arguing that they spend more money than urban hospitals do on health care equipment and other non-labor items.

``We want them to know that rural health care is not just a scaled down version of urban care,'' Schott said.

Sen. Baucus told the group that both he and Sen. Grassley would work to overcome Congress' historic ``failure to understand the special nature of rural health care.'' Issues including a Medicare prescription drug benefit and help for people without one could serve as a platform for the committee to pass amendments that again increase rural hospitals' share of Medicare money.

The committee is awaiting a report on the effect of Medicare policy on rural health care due out in June from the Medicare Payment Advisory Commission before deciding how much of an increase in labor reimbursement to push for, Sen. Baucus told Reuters Health.

``I want to wait and see the data first and then decide,'' he said.