Review of Ohio's Medicaid Hospital Outlier Payments for State Fiscal Years 2000 Through 2003

EXECUTIVE SUMMARY:

The objective of our audit was to determine whether Ohio's methods of computing inpatient cost outlier payments were reasonable.  Ohio's 'fixed ratio' method of computing inpatient cost outlier payments was not reasonable.  Instead of using recent cost-to-charge ratios, Ohio used outdated fixed ratios to convert allowable billed charges to outlier payments.  During State fiscal years 2000 through 2003, cost outlier payments to hospitals under this method exceeded estimated costs calculated using recent hospital-specific cost-to-charge ratios by about $24.7 million ($14.5 million Federal share).  Because these payments did not reflect an efficient and economical application of payment methodology, they were not reasonable.  Ohio's two other methods of computing costs outlier payments were reasonable.  We recommended that the Ohio Department of Job and Family Services work with the State legislature to revise the State's 'fixed ratio' cost outlier payment method to ensure that payments to hospitals do not exceed the costs calculated through the application of current cost-to-charge ratios.  Ohio agreed with our recommendation.