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OIG Calls for More Scrutiny of Medicare Hospital Outlier Payments

 |  By cclark@healthleadersmedia.com  
   November 15, 2013

The distribution of outlier payments, intended to protect hospitals from losses from extraordinarily costly Medicare cases, is disproportionate and ought to be monitored better, says the Office of Inspector General.

An examination of hospital claims processed through Medicare's Inpatient Prospective Payment System (IPPS) between 2008 and 2011, led the Office of Inspector General to identify scores of " high-outlier hospitals."

Of 3,186 acute care hospitals, 158 received an average of 12.8% of their Medicare reimbursement from "outlier" payments between 2008 and 2011. For all other hospitals, outlier payments made up only 2.2%.

Moreover, for some of these 158 hospitals, outlier payments were most of their Medicare payments: 64.8% in the case of Cancer Treatment Centers of America in Philadelphia; and 53.5% for Midwestern Region Medical Center in Zion, IL.

As a result of these findings, published Thursday by OIG, the agency is calling for "increased scrutiny" of the trend citing "concerns about why charges and estimated costs for similar patient care cases vary substantially across hospitals."

Additionally, outlier payments tended to consist of care rendered for just a few conditions, raising questions about whether Medicare's payment system should be changed, the agency said.

The OIG's list of 158 hospitals and their share of outlier payments to total Medicare payments was referenced, but not included in the OIG's report. The list was released separately, in response to a request under the Freedom of Information Act.


View the OIG list


Outlier payments are set up to compensate hospitals beyond set payment amounts for certain diagnostic categories of patients because some patients are more difficult cases, "involving extraordinary high costs," the report says. Outlier payments are intended to "protect hospitals from large financial losses because of unusually expensive cases."

The OIG report raises new questions about the wide variation of hospital charges as laid out last May when the Centers for Medicare & Medicaid Services released its controversial "Chargemaster" for the 100 most common diagnostic reasons for an inpatient stay.

How much each hospital is paid under the outlier payment system is heavily influenced not by a hospital's costs of caring for that patient, but by the "sticker price," or what it chooses to charge.

The agency's investigation also revealed other peculiar findings. Of the 158 hospitals with the highest outlier payments, 48 or 30% are in California, which has just 12% of the nation's hospitals paid under the DRG system. Jan Emerson-Shea, spokeswoman for the California Hospital Association, said her organization had not had time to review the report and could not respond.

The OIG also found that the average outlier payment was $15,482, which does not include the MS-DRG payment; 6% of outlier payments exceeded $50,000, and for several claims, "the outlier payment exceeded $1 million; the largest during the study period was $1.4 million for a single claim."

The agency said 16 MS-DRGs accounted for 41% of the outlier payments, for example, implantation of a heart assist system (DRG 215) topped the list. That was followed by heart transplant or implant of a heart assist system with major complication/comorbidity (MCC) (DRG 001), heart transplant or implant of a heart assist system without MCC (DRG 002) and pancreas transplant (DRG 010).

3 Recommendations
The OIG recommended that the Centers for Medicare & Medicaid Services make three policy changes to make sure such outlier payments are appropriate:

  1. Instruct Medicare's contractors to increase monitoring of outlier payments to hospitals with claims exceeding specified thresholds.
  2. Start reporting each hospital's outlier payments with public reporting, such as on Hospital Compare. "Such public reporting would provide greater transparency regarding Medicare payments to hospitals, further inform the public and stakeholders about how Medicare distributes limited outlier payment dollars, and demonstrate the direct effect increased charges can have on overall Medicare payments to hospitals."
  3. Examine whether codes for DRGs that frequently accompany higher outlier payments should be changed or adjusted.

"We found that 16 of the 746 of the MS-DRG (Medical Severity-Diagnostic Related Group" accounted for over 40% of outlier payments" and that "13 MS-DRGs had outlier payments on at least 25% of each MS-DRG claims, one of which had outlier payments on 37% of its claims.

"This suggests that certain MS-DRGs may result in outlier payments for reasons inherent to the MS-DRG, rather than for extraordinarily costly cases."

CMS said in response that it concurs with the OIG's three recommendations.

The OIG said that it was "beyond the scope" of its investigation to determine why certain hospitals charge so much more than other hospitals for taking care of the same type of patient, " or how their submitted charges related to the actual cost of patient care.

"In some cases, high charges could be the result of high costs because some hospitals attract a disproportionate share of exceptionally costly patients or apply costly technologies and treatments. Still, the routine receipt of outlier payments for certain MS-DRGs at high-outlier hospitals raises concerns about why charges and estimated costs for similar patient-care cases vary substantially across hospitals."

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