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Vulnerabilities Remain in Medicare Hospital Outlier Payments

The Department of Health and Human Services (HHS) Office of Inspector General (OIG) found that Medicare contractors did not always refer cost reports that qualified for reconciliation of the hospital outlier payments, and the Centers for Medicare & Medicaid Services (CMS) did not always ensure that the Medicare contractors performed the appropriate reconciliation, according a review of Medicare outlier payments performed between October 2003 and March 2011.

OIG’s previous reviews had identified 465 cost reports that qualified for reconciliation of outlier payments. Of these, 110 had not been referred for reconciliation as of the end of 2011. As of the same date, 287 reports had been referred, but only 153 of them had been reconciled. The remaining 68 reports were said to have inaccurate cost report data. Despite the recognition of this problem in 2011, as of last year 211 cost reports remained under review.

OIG recommended that Medicare contractors continue to identify overpayment of outlier payments and return those funds to Medicare, work to reopen cost reports that may have overlooked outlier payments, ensure that the cost reports that qualify for reconciliation are identified and referred, and maintain an effective system to identify and track cost reports submitted by Medicare contractors.

This review was undertaken after CMS implemented new hospital inpatient outlier regulations in 2003, to ensure that payments to hospitals reflected the actual costs incurred by reconciling the outlier payments before the settlement of the cost reports. CMS recognized that vulnerabilities existed with respect to outlier payments, in that hospitals could receive excessive payments through inflated charges that were above their actual costs. These regulations set “reconciliation thresholds” above which the Medicare contractor should refer the cost report to CMS so that the ratio of costs to charges and the outlier payments could be reconciled. Outlier payments are additional funds available to hospitals, above the given prospective payment for inpatient services that are designed to protect hospitals from excessive losses due to unusually high-cost cases.