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Medicare Compliance & Reimbursement

Hospitals:

Final Outpatient Rule Increases Outlier Thresholds

Published on Sun Nov 14, 2004

Why it'll be harder than ever for hospitals to get extra reimbursement for costly cases.

Under Medicare's final 2005 hospital outpatient payment rule, it will be harder for hospitals to get extra payments for particularly expensive patients than it would have been under the proposed rule.
 
The rule gives hospitals a 3.3-percent update to payments under the outpatient prospective payment system. That's a full "market-basket" update, fully reflecting inflation in the cost of goods and services that go into providing outpatient care. Overall, the Centers for Medicare & Medicaid Services expects hospital outpatient payments to increase from $23.1 billion in 2004 to $24.6 billion in 2005.
 
The special "outlier" payments for expensive cases, which CMS targets at 2 percent of total outpatient payments each year, are intended to remove any incentive that fixed OPPS payments might create for hospitals to skimp on care in complicated cases. In previous years, hospitals have qualified for outlier payments when costs have exceeded a specific multiple of the reimbursement normally available under the relevant "ambulatory payment classification."
 
However, in its March 2004 report, the Medicare Payment Advisory Commission found that, under this standard, 50 percent of outlier payments were going for 21 high-volume services with low payment rates, such as plain film x-rays. To redirect payments towards the "extraordinarily expensive cases" they are intended for, CMS added a dollar threshold to the APC-multiple threshold for 2005 outlier payments.
 
Thus, CMS' proposed rule said outlier payments would kick in when costs exceeded both 1.5 times the APC payment and the APC payment rate plus $625. But those thresholds were set using two-year old claims data - the most recent available - without accounting for the fact that hospitals tend to increase charges over time. In the final rule, CMS uses the same 18.76-percent "charge inflation" factor it uses in the inpatient setting; the result is an increase in the multiple threshold to 1.75 and a near-doubling in the dollar threshold to $1,175. (Outlier payments actually depend on costs, not charges, but CMS determines costs by applying hospital-specific "cost-to-charge" ratios.)
 
While both outlier thresholds increased between the proposed and the final rule, CMS points out that the final multiple 2005 threshold is still down considerably from 2004's multiple threshold of 2.6. That decrease will make it easier for higher-cost, complex services to qualify for payments in 2005, since even the final rule's higher dollar threshold of $1,175 "is a small portion of the total payment rate for high-cost services."
 
American Hospital Association Vice President for policy Don May praised the effort to direct outlier payments to more costly services. But he said, "We were a little surprised at how high the [dollar] threshold went." Noting that the 2 percent of payments set aside for outliers is subtracted from base payment rates, he said AHA would be watching to make sure the entire outlier pool is spent.

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