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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Impact of Not Retroactively Adjusting Outpatient Outlier Payments," (A-07-06-04059)

June 19, 2007

PDF FileComplete Text of Report is available in PDF format (887 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


The objective of this report was to assess the impact that the Centers for Medicare and Medicaid Services's (CMS) practice of not retroactively adjusting outpatient outlier payments has on the integrity of the outpatient outlier program.  In a series of reviews, we identified significant outpatient outlier overpayments to community mental health centers (CMHC). 

CMS’s practice of not retroactively adjusting outpatient outlier payments creates significant vulnerabilities in the outpatient outlier program.  The practice is also inconsistent with CMS’s policy of retroactively adjusting inpatient prospective payment system (PPS) outlier payments.  Prior audits showed that some CMHCs received significant outpatient outlier overpayments as a result of fiscal intermediaries’ and CMHCs’ mathematical and clerical errors and CMHCs’ manipulation of charge data to their advantage.  Other CMHCs received underpayments as a result of fiscal intermediaries’ errors.  Following its current practice, CMS did not adjust these erroneous payments, resulting in substantial net losses to the Medicare trust fund and payment inequities among CMHCs.  CMS’s practice also does not allow for retroactive adjustments when a fiscal intermediary’s final cost report settlement identifies errors that caused previous erroneous outlier payments.  Although our work was specific to CMHCs, similar vulnerabilities may exist in the entire outpatient outlier program. 

We recommended that CMS issue regulations to require retroactive adjustments of outpatient outlier payments within appropriately established thresholds.  Specifically, we recommend that CMS require (1) adjustments of outpatient outlier payments at final cost report settlement, retroactive to the beginning of the cost report period, and (2) retroactive adjustments of outpatient outlier payments when an error caused by the fiscal intermediary or provider is identified after the cost report is settled.  In written comments, CMS stated that it would explore the feasibility and cost effectiveness of implementing our recommendations.