Medicaid Hospital Outlier Payments in Virginia for State Fiscal Years 2001 Through 2003

EXECUTIVE SUMMARY:

Our objective was to determine whether Virginia's method of computing inpatient hospital cost outlier Medicaid payments resulted in reasonable payments. It did not. The State used an outdated cost-to-charge ratio in its calculations. If Virginia had applied a more current cost‑to-charge ratio to convert billed charges to costs, it could have saved approximately $5.8 million ($3.0 million Federal share) at the three hospitals reviewed. We recommended that Virginia should consider revising the State Medicaid outlier policy to use the cost-to-charge ratio from the most recently settled (tentative or final) cost report and retroactively adjust provider payments for each year based on the actual cost-to-charge ratio calculated for that year. Virginia stated that it did not disagree with our finding but did not concur with the specific recommendations. Although Virginia's actions differ from the audit recommendations, the State has taken administrative steps to reduce the possibility of using cost-to-charge ratios with material misstatements in its rebasing.