First Coast Service Options, Inc., Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of six Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, First Coast Service Options, Inc. (First Coast), referred three cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, First Coast did not refer three cost reports that should have been referred to CMS for reconciliation. Of these three, one cost report had not been settled and should have been referred to CMS for reconciliation. As of December 31, 2011, the financial impact to Medicare of the unreconciled outlier payments associated with this cost report was approximately $472,000. The two remaining cost reports (of the three that First Coast did not refer to CMS) had been settled and exceeded the reopening limit. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with these two cost reports was approximately $799,000.

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 three cost reports that were referred to CMS with outlier payments that qualified for reconciliation, First Coast had reconciled the outlier payments associated with one cost report by December 31, 2011. However, First Coast had not reconciled the outlier payments associated with the remaining two cost reports. As of December 31, 2011, the financial impact to Medicare of the outlier payments associated with these two cost reports was approximately $5 million.

We are setting aside approximately $747,000 in outlier payments associated with claims that we could not recalculate.

We recommended that First Coast (1) review the three 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 the provider; (2) reconcile the outlier payments associated with the two 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 provider; (3) work with CMS to resolve the $747,000 in outlier payments that we could not recalculate; (4) ensure that control procedures are in place so that all cost reports with qualifying outlier payments are referred and reconciled; and (5) 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. First Coast partially concurred with our recommendations.