The HHS OIG recently published a report detailing CMS’s and Medicare Administrative Contractor’s (“MACs’”) ongoing issues in the outlier payment reconciliation process. A previous 2012 review identified 465 cost reports that qualified for outlier payment reconciliation under CMS’s rules, but no such reconciliation had occurred. The new report examines the status of those 465 cost reports and, even for those already settled and beyond the typical three-year reopening window, OIG continues to call for payment reconciliation.
To protect themselves from financial losses, hospitals are entitled to outlier payments above typical prospective rates for cases incurring extraordinarily high costs above a fixed-loss threshold. Whether a case exceeds the threshold, and the amount of outlier payments a hospital receives for that case, is determined in part by the hospital’s cost-to-charge ratio. This ratio is used to convert the hospital’s charges for the case into costs. Because outlier payments are paid during claim submission, Medicare uses the cost-to-charge ratio from the prior year as-filed cost report to determine whether a case is eligible for outlier payments.
In 2003 and in response to allegations that hospitals were manipulating their charges to increase the amount of outlier payments, CMS promulgated regulations that subjected outlier payments to reconciliation with cost report settlement. 42 C.F.R. § 412.84(i)(2). Several years after promulgating this regulation, CMS published instructions in its Claims Processing Manual to its contractors regarding the circumstances under which it would reconcile a hospital’s outlier payments. These instructions require the MAC to refer cost reports to CMS for payment reconciliation if the hospital meets the two criteria: 1) the hospital’s actual cost-to-charge ratio for the cost reporting year in question is plus or minus 10 percentage points from the cost-to-charge ratio estimate that was used at claims payment; and 2) the hospital received more than $500,000 in outlier payments in that fiscal year. See Claims Processing Manual, Ch. 3, § 20.1.2.5.
These criteria were never submitted to the public for notice and comment. In August 2016, the United States District Court for the District of Columbia found that the Claims Processing Manual criteria were substantive regulations and thus required to go through notice and comment procedures. Clarian Health West, LLC v. Burwell, 206 F. Supp. 3d 393 (D.D.C. 2016)...
