Reconciliation limitations led CMS to overpay hospitals $500M

Hospitals were overpaid by roughly $502 million from 2011 to 2014, according to a report from the Office of Inspector General (OIG), which blamed the overpayment on CMS limitations on the reconciliation period.

Sixty hospitals were paid $502 million more in net outlier payments than they were owed, the report found. Of those hospitals, 53 were overpaid by $541 million, while seven were underpaid $39 million. Across the four-year period, 34 hospitals received outlier payments every year. Over all four years, CMS made more than $18 billion in outlier payments to 3,366 hospitals.

According to OIG, the payment errors were not found by CMS because they didn’t meet the reconciliation requirements of a 10% threshold of cost reports. Hospitals charged higher prices than the rate of cost increases below the 10% threshold, which meant their cost-to-charge ratio (CCR) didn’t trigger reconciliation. CMS set this threshold because the agency believed it would capture the outlier payments that were substantially inaccurate.

However, lower percentage cost changes were not found. For example, 216 of 236 cost reports reconciled by OIG had a change of less than 5 percentage points in their CCRs.

The findings prompted OIG to suggest CMS requires reconciliation of all hospital cost reports with outlier payments in a cost-reporting period. For the 7 reporting Medicare Administrative Contractors (MACs) to reconcile all the 236 cost reports measured by OIG, the cost would range from $47,200 to $1.7 million for the four-year period, OIG estimated. The annual savings for reconciling all cost reports with outlier payments would reach approximately $125 million.