The Centers for Medicare & Medicaid Services Did Not Reconcile Medicare Outlier Payments in Accordance With Federal Regulations and Guidance

Contrary to Federal regulations and guidance, CMS did not reconcile outlier payments associated with 292 of the 305 cost reports that were referred to it by 9 selected Medicare contractors. As a result, the Medicare contractors did not reach final settlement of the 292 cost reports. For the 13 remaining cost reports, CMS evaluated information submitted by the Medicare contractors and correctly determined that reconciliations of outlier payments were not required. CMS adjusts basic prospective payments for unusually high costs. These additional payments, known as outlier payments, are designed to protect hospitals from excessive losses due to unusually high-cost cases. Medicare contractors refer hospitals' cost reports to CMS for reconciliation of outlier payments.

Because CMS did not reconcile the outlier payments, Medicare contractors were unable to reach final settlement of 292 cost reports as of the conclusion of our fieldwork. The delayed payments to Medicare, along with associated interest, represent funds that should have been returned to the Medicare Trust Fund. At the same time, the delayed processing of outlier payments due from Medicare to hospitals, along with associated interest, could have affected those hospitals' financial viability. In addition, Medicare lost the interest that stopped accruing once the Medicare contractors referred the cost reports to CMS for reconciliation of outlier payments.

We recommended that CMS (1) ensure that Medicare contractors reconcile outlier payments and perform final settlement on the 292 cost reports we reviewed in accordance with Federal regulations and guidance, (2) ensure that Medicare contractors reconcile outlier payments and perform final settlement on all cost reports submitted after our audit period in accordance with Federal regulations and guidance, (3) implement an automated system that will recalculate outlier claims to facilitate reconciliations, and (4) work with the Medicare contractors to develop and maintain a complete and accurate list of the cost reports with outlier payments requiring reconciliation. CMS concurred with all of our recommendations and described corrective actions that it had implemented or planned to implement.