By Jeffrey H. Brochin, J.D.
In a follow-up to their 2012 audit of outlier payment reconciliations, the Office of Inspector General (OIG) has conducted a series of reviews to determine whether Medicare contractors have properly referred their cost reports that qualified for outlier payment reconciliation, and, whether outlier payments have been reconciled in accordance with the April 2011 shift in responsibility established by CMS. The audit disclosed that vulnerabilities continue to exist in the Medicare hospital outlier payment reconciliation process, and the OIG concluded that the net financial impact of the unreferred cost reports combined with the unreconciled outlier payments now amounts to almost $426 million in funds due to Medicare (OIG Report, No. A-17-14-02800, September 14, 2017).
Background. The Medicare program supplements basic prospective payments for inpatient hospital services by making ‘outlier payments,’ which are designed to protect hospitals from excessive losses due to unusually high-cost cases. Medicare contractors calculate outlier payments on the basis of claim submissions made by hospitals and by using hospital-specific cost-to-charge ratios (CCRs). Under CMS requirements that became effective in CY 2003, Medicare contractors were to refer hospitals’ cost reports to CMS for reconciliation of outlier payments to correctly re-price submitted claims and settle cost reports. In December 2010, CMS stated that it had not performed reconciliations because of system limitations and it directed the Medicare contractors to perform backlogged reconciliations (effective April 1, 2011), as well as all future reconciliations, and it gave Medicare contractors the responsibility to perform reconciliations upon receipt of authorization from the CMS Central Office. However, the OIG found, there continue to be lapses in the referral of cost reports for reconciliation as well as with the actual reconciliations.
How OIG conducted the audit. The OIG summarized the results of their previous reviews of the Medicare contractors and, where appropriate, updated the status of the cost reports identified during those reviews which focused on determining whether Medicare contractors had referred cost reports to CMS for reconciliation in accordance with federal guidelines, and whether the outlier payments associated with qualifying cost reports had been reconciled.
Over 20 percent of cost reports not referred. The OIG’s previous reviews identified 465 cost reports that qualified for reconciliation of outlier payments, but as of the end of 2011, 110 of those cost reports had not been referred for reconciliation. As of the same date, 287 cost reports had been referred, but of those, 153 cost reports had not had their outlier payments reconciled. The remaining 68 cost reports qualified for reconciliation but may have had inaccurate cost report data. Furthermore, the audit found that CMS’ efforts to resolve the deficiencies after the issuance of the previous reviews resulted in the referral of a number of previously un-referred cost reports, and reconciliation of some of the outlier payments, that had been identified in those previous reviews. However, according to CMS, as of November 15, 2016, there were still 211 cost reports that remained under review and were pending completion of the reconciliation process.
Other CMS deficiencies cited. The audit also disclosed that CMS did not maintain a complete listing of the cost reports that Medicare contractors had referred for reconciliation. Moreover, CMS did not always ensure, after the April 1, 2011, shift in responsibility, that Medicare contractors correctly identified cost reports that qualified for reconciliation, referred all qualifying cost reports to CMS for reconciliation, and reconciled the outlier payments associated with the referred cost reports by December 31, 2011. The lack of a complete and up-to-date listing of referred cost reports adversely influenced CMS’s ability to track the cost reports on an individual basis necessary to ensure that every cost report that qualified for outlier payments was identified and correctly processed. The absence of such a listing, along with the absence of an automated system that could use actual CCRs to recalculate outlier payments without adversely affecting other data, constituted system limitations that prevented CMS from being able to perform reconciliations when it was charged with that responsibility.
Recommendations. The audit contained the OIG’s recommendations that CMS:
- ensure that the Medicare contractors continue to take the corrective actions that the OIG recommended in their previous series of reviews, and to include collecting identified overpayments and returning those funds to either Medicare or hospitals;
- determine whether the cost reports that had exceeded the 3-year reopening limit may be reopened due to similar fault and, if so, work with the Medicare contractors to reopen them;
- ensure that the Medicare contractors review all cost reports submitted since the end of the audit periods in the previous reviews and ensure that those whose outlier payments qualified for reconciliation are correctly identified, referred, and reconciled in accordance with federal guidelines; and
- maintain a system that identifies and tracks all cost reports that Medicare contractors have referred for reconciliation and that recalculates outlier payments on the basis of claim submissions made by hospitals.
In written comments in response to the OIG’s draft report, CMS concurred with the first and fourth recommendations and described corrective actions that it had taken. Although CMS did not directly agree or disagree with the other two recommendations, it described corrective actions that it had taken or planned to take that were in keeping with those recommendations.
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