Review of Georgia's Medicaid Cost Outlier Payments

Our objective was to determine whether Georgia's method of computing inpatient hospital cost outlier payments effectively limited outlier payments to high-cost cases.  We found that Georgia's method of computing inpatient hospital cost outlier payments did not effectively limit outlier payments to high-cost cases.  Instead of applying a current cost-to-charge ratio (costs divided by charges) to current billed charges from July 1998 through December 2002, the State agency applied an outdated cost-to-charge ratio to current billed charges, thus increasing cost outlier payments.

The State agency relied on historical cost-to-charge ratios because its State plan amendments required the use of audited cost report data to calculate cost-to-charge ratios.  Audited cost reports typically run about 4 years behind the current year.  Had the State agency applied current cost-to-charge ratios to convert billed charges to costs, it could have saved approximately $22.7 million in cost outlier payments between 1998 and 2002 at the three hospitals reviewed.

We recommended that the State agency amend its Medicaid State plan to require that the data for calculating cost-to-charge ratios be based on submitted cost reports instead of audited cost reports.  The State agreed with our recommendation.