Palmetto Government Benefits Administrator Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments in Jurisdiction 1

Of 72 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, 45 cost reports had unreliable hospital-specific cost-to-charge ratios (CCRs) because their cost report data may not have accurately reflected the actual ratio of costs incurred to charges billed; we discuss these 45 cost reports below. Of the 27 remaining cost reports with outlier payments that qualified for reconciliation, Palmetto Government Benefits Administrator (Palmetto) referred 22 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, Palmetto did not refer five 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 $3.0 million. The four other cost reports had been settled and had exceeded the reopening limit. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with these cost reports was approximately $7.3 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 22 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, Palmetto had reconciled the outlier payments associated with 6 cost reports by December 31, 2011. However, Palmetto had not reconciled the outlier payments associated with the remaining 16 cost reports. We calculated that the financial impact to Medicare of the outlier payments associated with 15 of these 16 cost reports was approximately $49.5 million. We also calculated that approximately $4.0 million was due from Medicare to a provider for 1 of the 16 cost reports. The net financial impact of the outlier payments associated with these 16 cost reports that were referred but not reconciled was therefore at least $45.5 million that was due to Medicare.

We are setting aside approximately $1.1 million in outlier payments associated with claims that we could not recalculate.

Of the 45 cost reports that qualified for reconciliation and that had unreliable CCRs, Palmetto did not refer 28 cost reports that should have been referred to CMS for reconciliation. These 28 cost reports included 24,437 claims and $34.9 million in associated outlier payments. Palmetto referred the other 17 cost reports that had unreliable CCRs to CMS in accordance with Federal guidelines, but it had not reconciled the outlier payments associated with any of these cost reports by December 31, 2011. These 17 cost reports included 9,555 claims and $15.8 million in associated outlier payments. Because CMS had not resolved the issues related to the reconciliation of cost reports with unreliable CCRs, we were unable to calculate the financial impact for these cost reports and are setting aside the associated claims and the combined $50.7 million in outlier payments for resolution by Noridian and CMS.

We recommended that Noridian Healthcare Solutions, LLC (Noridian) (the Medicare contractor that assumed Palmetto's responsibilities), (1) review the 5 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 16 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 $1.1 million in outlier payments associated with the claims that we could not recalculate; (4) work with CMS to resolve the $50.7 million in outlier payments for 45 cost reports with unreliable CCRs, review 28 of these cost reports that should have been referred and, if applicable, determine whether the cost reports may be reopened, and reconcile those cost reports and the 17 other cost reports that were referred, finalize the cost reports, and ensure the return of funds to Medicare or to providers; (5) strengthen control procedures to ensure that all cost reports with qualifying outlier payments are referred and reconciled; and (6) 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.

Noridian concurred with the findings associated with our second recommendation and partially concurred with our first recommendation and with findings associated with our fourth recommendation; Noridian described corrective actions that it had taken or planned to take with respect to these recommendations. Noridian did not specifically agree or disagree with our third, fifth, or sixth recommendations but said that it would work with CMS and that it had procedures in place for reconciliation of outlier payments. After reviewing Noridian's comments, we maintain that all of our findings and recommendations remain valid.