Analysis: Medicare Overpaid Hospitals by $2.6B for Complicated Cases
Medicare overpaid hospitals by $2.6 billion from 2010 to 2013 because it incorrectly estimated hospitals' costs, according to a Wall Street Journal analysis.
Medicare generally pays hospitals fixed amounts that are determined mostly by patient conditions, not hospitals' list prices. However, hospitals can receive Medicare payments for the actual costs of treating complicated cases, referred to as "cost outliers." In such cases, hospitals generally do not provide the government with cost data until months after treatment, so Medicare must make reimbursement estimates through a formula that employs the hospital's list prices. That can lead to overpayment when list prices increase faster than actual costs.
The Journal analyzed more than 25 million hospital claims, as well as hospital financial filings. About 70% of outlier claims for the four years ending in 2013 were included in the analysis.
The analysis found that many hospitals raised list prices faster than the rate at which costs rose, which influenced the outlier payments they received from Medicare. According to the analysis, about one-sixth of payments in outlier cases were higher than they should have been. Meanwhile, in addition to $2.6 billion in overpayments, Medicare also underpaid some hospitals by about $550 million, according to the Journal.
According to the Journal, Medicare rarely seeks to recover overpayments. Over the last decade, Medicare has asked only 85 facilities to pay back a total of $140 million. However, the Journal reports that Medicare contractors have recovered payments that do not appear in reports.
In 2012, the HHS Office of Inspector General noted that there was a backlog of about 300 instances in which Medicare did not take action to recover payments despite earlier recommendations from contractors. In addition, OIG officials noted Medicare did not start recouping excess outlier payments until 2011 (Weaver et al., Wall Street Journal, 4/15).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.