In creating the foundation for the Prospective Payment System back in 1985, Congress realized the need to reimburse hospitals for cases incurring extraordinarily high costs. These cases are called "outliers" because they deviate from the normally accepted DRG amounts, and the difference remained uncompensated. In order to provide hospitals some relief for providing these uncompensated services, Congress directed CMS to reimburse hospitals for outliers by setting a target equal to 5.1% of total DRG for outliers for all Medicare hospitals. Since 2003, CMS has met this target only once. So we can only assume that many Medicare hospitals are not taking advantage of this opportunity.

Outlier Reconciliation Adjustments.

Under 42 CFR 412.84(i)(4), for discharges occurring on or after August 8, 2003, high cost outlier payments may be reconciled upon cost report settlement to account for differences between the Cost Coverage Ratio (CCR) used to pay the claim at its original submission by the provider, and the CCR determined at final settlement of the cost reporting period during which the discharge occurred.

Subject to the approval of the CMS Central Office, a hospital's outlier claims will be reconciled at the time of the cost report final settlement if they meet the following criteria:

It's important to note that the above 10% rule means that if a provider, meeting all other criteria, shows CCR totaling more or less than 10% of the> previously filed or audited CCR - that provider likely will have its outlier payments audited and recalculated. But even if a hospital does not meet the criteria for reconciliation, subject to approval of the Regional and Central Office, the Medicare contractor has the discretion to request that a hospital's outlier payments in a cost reporting period be reconciled if the hospital's most recent cost and charge data indicate that the outlier payments to the hospital were significantly inaccurate.

Conclusions and Recommendations.

We believe it is wise for all providers to appeal their acute care outlier payments. CMS historically fails to pay hospitals the 5.1% of total DRG payments that have been withheld from providers for this purpose.

If your hospital has been subjected to outlier reconciliation adjustments we recommend that the adjustments be reviewed in depth to determine if the revised outlier payment amounts have been accurately determined. The review should encompass all inpatient discharges and transfer payments. Additionally we recommend that these providers appeal the outlier reconciliation adjustments. The grounds for appeal would include the correction of any errors found and challenging CMS on the arbitrary and capricious nature of the 10% threshold that was used to identify the hospital for the reconciliation adjustments.

Quality Reimbursement Services, Inc. has been consulting hospitals on matters dealing with Medicare and Medicaid reimbursements since 1994. We work entirely on a contingency basis, requiring no up-front or maintenance charges for our services. We would be happy to meet with you, and review your circumstances to see if we may be of service.