Medicare Compliance & Reimbursement

Only a small number of hospitals will have to go through the onerous process of reconciling their outlier payments with their settled cost reports, the Centers for Medicare & Medicaid Services suggests in its much-anticipated final rule on outliers. That concession from CMS' original outlier proposal - an allowance much sought after by the American Hospital Association - should relieve honest facilities of some needless administrative burdens.

CMS says only hospitals believed to have received excessive payments will have to go through the reconciliation process. The agency plans to issue separate instructions - in the form of program memoranda to fiscal intermediaries - on how to identify potentially wayward hospitals.

Under the outlier rule, published in the June 9 Federal Register, hospitals will have until Oct. 1, 2003 before their most up-to-date cost data is used to calculate outlier payments.

Outlier payments provide extra reimbursement for extraordinarily complex, high-cost cases. The feds, however, believe some hospital operators, notably Tenet Healthcare Corp., have gamed the system to obtain excessive outlier payments. The new rule is designed to halt such practices.

How it works: Until now, Medicare has calculated each hospital's cost-to-charge ratio (CCR) using its most recent settled cost report, which tends to run a year or so behind the most recent submitted cost report. This has allowed some hospitals to dramatically jack up charges, which when compared with an outdated CCR results in an artificially high number of apparent high-cost cases qualifying for outlier payments.

Under the new rule, CMS will base CCRs on the most recent settled or submitted cost report - whichever is later - but not until the beginning of the next fiscal year. Many hospital groups had called for a more substantial transition period, but CMS administrator Tom Scully has publicly opposed any delay.

Other provisions in the rule will go into effect Aug. 8; they include: eliminating the use of statewide CCRs to determine a hospital's costs when a hospital's own CCR falls below established parameters; allowing fiscal intermediaries to review outlier payments, and to reconcile them and add interest if there are indications of potential abuse; and allowing a hospital to request that an FI change its CCR to avoid under- or overpayments for outlier cases.

Lesson Learned: Hospitals should brace themselves for a relatively speedy transition to CMS' new approach to outliers, since the phase-in is far shorter than many in the industry had hoped for.