Medicare Compliance & Reimbursement

A new rule limiting outlier payments to hospitals will come out soon, but as a proposed rule rather than an immediately effective interim final rule, Centers for Medicare & Medicaid Services Administrator Tom Scully told reporters Feb. 20. The final rule will come out about April 1, after a 30-day comment period, he predicted.

This schedule is considerably delayed compared to Scully’s original stated intent of issuing an interim final rule on Feb. 1. In a Feb. 10 letter, 10 members of the House, Democrats and Republicans, pushed Scully to go slower. “By immediately enforcing” an interim regulation, “you will impose immediate cutbacks on the Medicare outlier payments due” to hospitals, which “cannot sustain such a reduction … without curtailment of vital services,” complained the legislators, who were joined in their sentiments by a separate letter from Senate Health and Human Services appropriations panel Chair. Arlen Specter (R-PA) and Sen. Rick Santorum (R-PA).

Scully professed no sympathy for this argument, ascribing the sentiment for delay to “people who are stealing money from the taxpayers.” He said the notice of proposed rulemaking would propose a zero transition period.

However, it also appears to be the case that, if the rule does come out April 1, hospitals that have been gaming the system will have gained two more months beyond the original Feb. 1 date to do so. Moreover, according to the Web site of the Office of Management and Budget, which reviews all federal regulations, other recently issued CMS regulations have spent between one and three months at OMB, suggesting that the actual issuance date could slip further.

One reason not to delay the rule, Scully said, is that for every hospital that has been overpaid under the current outlier regime, ten have been underpaid, and many of the losers don’t even realize it. Scully wants to lower the threshold for outlier payments to help these honest losers, who he said shouldn’t have to contend with a threshold that CMS has had to raise sharply in the last couple of years to deal with outlier cost overruns caused by the bad actors.

The CMS chief argued that it’s safe to lower the threshold because CMS has now figured out how the outlier system is being gamed, and the rule “will shut down the abuses.” According to Scully, OMB disagrees. OMB points out that CMS has repeatedly set an outlier payment threshold of five percent of inpatient hospital payments but then ended up spending seven or eight percent. Given this history, OMB believes that CMS’s desire to lower the outpatient threshold is “like saying you got arrested six times this week for DWI, and you want to drive again,” Scully said.

Scully said the NPRM will not lower the threshold, as he recommended, but that debate over whether and how to do so will continue during the comment period.