The OIG recently issued a report concluding that Medicare hospital outlier payments warrant increased scrutiny by CMS.  Outlier payments are supplemental payments to hospitals that are designed to protect hospitals from significant financial losses resulting from cases that involve extraordinarily high costs.  The OIG report examined all hospital claims processed through Medicare’s Inpatient Prospective Payment System (IPPS) during 2008-2011 and analyzed, among other things, the amount and volume of outlier payments and each hospital’s outlier payments as a percentage of its total IPPS payments. 

The OIG report found that during the four year period, nearly all hospitals reviewed received at least one outlier payment, and Medicare paid approximately $15.8 billion in outlier payments.  The report also found that 158 hospitals out of 3,028 hospitals received a much higher proportion of reimbursement from outlier payments.  For example, these high-outlier hospitals received an average of $25.9 million in outlier payments during the four years studied, compared to $3.9 million on average for the other hospitals.  These high-outlier hospitals tended to be larger and located in urban areas, and were more likely to be teaching hospitals.

In addition, the OIG report concluded that certain Medicare Severity Diagnosis Related Groups (MS-DRGs) triggered outlier payments more frequently than all other MS-DRGs.  Sixteen MS-DRGs accounted for more than 41 percent of outlier payments, with MS-DRG 003 (tracheostomy with required ventilation) being the MS-DRG associated with the most outlier payments ($1.3 billion, or 8.3 percent).  The report noted that high-outlier hospitals charged Medicare substantially more for the same MS-DRGs, compared to all other hospitals, yet had similar lengths of stay.  According to OIG, this suggests that high charges are not necessarily associated with more patient care.

As a result of its findings, OIG recommends that CMS:

• Instruct Medicare contractors to increase monitoring of outlier payments.  OIG suggests CMS develop certain thresholds—for example, for charges, estimated costs, percentage of MS-DRGs that result in outlier payments, and the ratio of outlier payments to all IPPS payments—that, if exceeded, would prompt further review by contractors.
• Publicly report information about hospital outlier payments to promote greater transparency with respect to Medicare payments to hospitals.  OIG also suggests CMS include information about outlier payments in PEPPER reports issued to individual hospitals.
• Examine whether coding changes may be warranted for the MS-DRGs associated with high rates of outlier payments.

The OIG report, “Medicare Hospital Outlier Payments Warrant Increased Scrutiny,” is available here.

Reporter, Jennifer S. Lewin, Atlanta, +1 404 572 3569, jlewin@kslaw.com.