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"There are clearly hospitals that manage actual high-cost cases, and they should be properly reimbursed However we also need to be certain that other hospitals are not inappropriately gaming the system. Any hospital billing very high outlier rates better be absolutely sure that they are right, or they are likely to be very sorry."

--CMS administrator Tom Scully announcing new steps CMS is taking to protect Medicare from abusive billing practices by hospitals.

Under Medicare's prospective payment system (PPS), CMS makes outlier payments to hospitals. These outlier payments supplement the standard payment under PPS when the costs of furnishing care to a particular patient are significantly greater than the prospective rate that is established for that patient's DRG. In recent years, hospitals have become eligible for outlier payments when their charges for the services, adjusted to costs, exceed the PPS rate by a specified amount.

Outlier payments generally are based on a hospital's own pricing policies and on the services it furnished to patients. Recently, when CMS discovered that outlier payments exceeded projected budget levels, it initiated an investigation of certain hospital practices that generated significant outlier payments. First, CMS is evaluating whether hospitals that have received high outlier payments have adopted pricing policies that are inconsistent with Medicare requirements. Second, CMS is investigating whether hospitals receiving high outlier payments have provided medically unnecessary services to outlier patients.

Background

Medicare regulations have established several steps to determine whether a hospital is entitled to receive an outlier payment for services it furnishes to a Medicare patient and how much the outlier payment will be (see generally 42 C.F.R. [sections] 412.84).

First, the hospital's charges for the services furnished to the Medicare patient are adjusted to reflect the hospital's own costs of those services. To do this, a hospital generally must use its own ratio of costs to charges (RCC). The hospital's charges, adjusted to costs, are the product of the hospital's charges for the services furnished to the Medicare patient multiplied by the hospital-specific RCC.

The hospital's charges, adjusted to costs, then are compared with an outlier threshold for the patient's DRG. The outlier threshold is an estimate of the minimum costs that a hospital should incur in treating a patient before it is entitled to any supplemental payments for that patient in addition to the fixed rate set under PPS. The outlier threshold is the sum of the PPS rate for the DRG, payments (if any) to the hospital for either graduate medical education programs or for the disproportionate share of low-income patients, and a stop-loss fixed dollar amount.

To calculate the actual outlier payment to a hospital, CMS has adopted a formula to estimate the marginal cost of the care furnished to the patient in excess of the outlier threshold, Specifically Medicare pays the hospital 80 percent of the difference between the hospital's charges, adjusted to costs of the services furnished to the patient, minus the outlier threshold for the patient's DRG.

An important exception to this general formula is that if the hospital's own RCC is significantly more or less than the national RCC, the hospital must use a statewide average RCC for the state in which it is located, rather than its own RCC. The hospital's charges for services furnished to the Medicare patient are multiplied by the statewide RCC to determine the hospital's estimated costs of furnishing care to that patient.

This exception can yield significant advantages for a hospital with an inflated charge schedule. If the standard formula were used, a hospital with inflated charges would have a very low hospital-specific ratio of costs to charges, and its charges adjusted to costs would be relatively low. However, when the hospital applies the higher, statewide RCC to its high charges, the hospital's charges, adjusted to costs, are correspondingly higher.

As a result, a hospital with a high charge schedule that uses the statewide RCC increases its PPS outlier payment in two ways. First, the hospital will qualify for outlier payments more frequently than it would otherwise. Second, when the hospital is entitled to an outlier payment for an individual patient, it will receive a greater outlier payment than it would otherwise.

# posted by Medical Information : 3:36 AM