CGS Administrators, LLC, Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of 18 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, CGS Administrators, LLC (CGS), referred 15 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, CGS did not refer three cost reports that should have been referred to CMS for reconciliation. Of these, one cost report had not been settled and should have been referred to CMS for reconciliation. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with this cost report was approximately $279,000. The two other cost reports had been settled and had exceeded the 3-year reopening limit. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with these cost reports was approximately $1.8 million.

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 15 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, CGS had reconciled the outlier payments associated with 1 cost report by December 31, 2011. However, CGS had not reconciled the outlier payments associated with the remaining 14 cost reports. We calculated that the financial impact to Medicare of the outlier payments associated with 11 of these 14 cost reports was approximately $18.3 million. We also calculated that approximately $2.0 million was due from Medicare to providers for 2 of the 14 cost reports. The other cost report had been settled and had exceeded the 3-year reopening limit. We calculated that approximately $451,000 may be due to Medicare for this cost report. The net financial impact of the outlier payments associated with these 14 cost reports that were referred but not reconciled was therefore at least $16.7 million that was due to Medicare.

We recommended that CGS (1) review the 3 cost reports that qualified for referral and, if applicable, determine whether the cost reports may be reopened, reconcile the associated outlier payments, and refund the amounts due to Medicare and to providers; (2) reconcile the outlier payments associated with the 14 cost reports that were referred, work with CMS to reconcile the associated outlier payments, finalize these cost reports, and ensure the return of funds to Medicare and to the providers; (3) continue to strengthen control procedures to ensure that all cost reports with qualifying outlier payments are referred and reconciled; and (4) 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.

CGS generally did not concur with our recommendations and added that it disagreed with our findings. CGS also described corrective actions that it had taken in response to our last two recommendations. After reviewing CGS's comments, we maintain that all of our findings and recommendations remain valid.