Wisconsin Physicians Service Insurance Corporation Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of 65 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, Wisconsin Physicians Service Insurance Corporation (WPS) referred 61 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, WPS did not refer four cost reports that should have been referred to CMS for reconciliation. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with two of these four cost reports was approximately $1.82 million. We also calculated that approximately $1.77 million was due from Medicare to providers for the other two cost reports of the four that should have been referred to CMS for reconciliation. The net financial impact of the outlier payments associated with these four unreferred cost reports was therefore approximately $51,000 that was due to Medicare.

Medicare supplements basic prospective payments for inpatient hospital services by making outlier payments for unusually high-cost cases. Medicare contractors refer hospitals' cost reports to CMS for reconciliation of outlier payments. Effective April 2011, CMS gave Medicare contractors the responsibility to perform reconciliations upon receipt of authorization from the CMS Central Office.

Of the 61 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, WPS had reconciled the outlier payments associated with 42 cost reports by December 31, 2011. However, WPS had not reconciled the outlier payments associated with the remaining 19 cost reports. We calculated that the financial impact to Medicare of the outlier payments associated with 9 of these 19 cost reports was approximately $11.52 million. We also calculated that approximately $5.82 million was due from Medicare to providers for 10 of the 19 cost reports. The net financial impact of the outlier payments associated with these 19 cost reports that were referred but not reconciled was therefore approximately $5.70 million that was due to Medicare.

We recommended that WPS (1) review the 4 cost reports that qualified for referral and that had been settled and reopened, refer those cost reports to CMS for reconciliation, and request CMS approval to refund the amounts due to Medicare and to providers; (2) reconcile the outlier payments associated with the 19 cost reports that were referred to CMS and work with CMS to reconcile the associated outlier payments, finalize these cost reports, and ensure the return of funds to Medicare and to providers; (3) strengthen control procedures to ensure that all cost reports whose outlier payments qualify for reconciliation are correctly identified, referred, and, if necessary, reopened; (4) strengthen policies and procedures to ensure that it reconciles all outlier payments associated with all referred cost reports that qualify for reconciliation; and (5) review all cost reports submitted since the end of our audit period and ensure that those whose outlier payments qualified for reconciliation are referred and reconciled in accordance with Federal guidelines. Although WPS did not specifically agree or disagree with our recommendations, it described corrective actions that it had taken or planned to take-actions that, when fully implemented, align closely with all of our recommendations.