Medicaid Hospital Outlier Payments in North Carolina for State Fiscal Years 1998 through 2002

EXECUTIVE SUMMARY:

Our objective was to determine whether North Carolina's inpatient hospital cost outlier payments were budget neutral.  They were not.  Outlier payments consistently exceeded the 7.2 percent reduction in diagnosis-related group (DRG) payments.  From State fiscal years 1998 through 2003, the average cost outlier payment per discharge increased by 128.1 percent, whereas the average DRG base payment per discharge increased by only 14.3 percent.  We recommended that North Carolina revise its current Medicaid outlier payment policy to ensure that future outlier payments achieve budget neutrality and also that the State develop policies and procedures to more closely monitor cost outlier payments.  North Carolina disagreed.