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Hospitals are expecting substantial changes in payment for outliers.
CMS has been promising to overhaul the payment methodology for outliers since this past November, when a Wall Street analyst released a report questioning outlier payments to a large for-profit hospital chain.
In the March 5, 2003, Federal Register, CMS published notice of the proposed rule, suggesting that Medicare overpaid about $8 billion for outliers over the past six years. CMS suggested, in unusually strong language, that the alleged overpayments are attributable to "excessive" increases in charges by some hospitals that, in the agency's view, were "gaming" the system to inappropriately "maximize" payment.
Public comments on the proposed outlier rule were due in April 2003. The final rule is expected before the end of September. When published, the final rule will likely include several significant changes:
* The final rule will almost certainly require the use of more recent cost and charge data to determine the amount of the outlier payment due, if any, with respect to a discharge.
* The final rule will likely eliminate the current provision for default to a statewide average when a hospital's own cost-to-charge ratio is more than three standard deviations below the mean.
* The final rule may subject outlier payments to retrospective review and adjustment at the time of the cost-report settlement, although this proposal is highly controversial and widely opposed by the industry.
* If outliers are made subject to retrospective adjustment, interest would likely be paid with respect to any outlier overpayments or underpayments identified through the retrospective reconciliation at the time of cost-report settlement.
Background
Outlier payments are add-ons to the standard rates paid for hospital services under the inpatient PPS. Unlike other PPS payment adjustments, such as graduate medical education, indirect medical education, and disproportionate share hospital payments, outlier payments are not claimed and adjudicated through the Medicare cost report. Traditionally, outliers have been paid on a claim-by-claim basis, subject only to medical review or adjustments to charges for noncovered services.
Under current law, the outlier payment is 80 percent of the difference between the hospital's estimated cost of a case and the outlier threshold for the case. The current controversy with respect to outliers stems principally from the process used to estimate the...