Audit of the Effectiveness of the Revised Medicare Outlier Payment Regulations for Inpatient Acute Care Hospitals

Our objective was to determine whether the 2003 revision of the Medicare outlier payment regulations reduced operating outlier payments for specific hospitals. The revised outlier payment regulations reduced collective operating outlier payments to 362 hospitals that had received high levels of such payments. For those hospitals, operating outlier payments decreased from 9.1 percent of Medicare operating diagnosis-related group payments in December 2002 to 5.2 percent in December 2003. Further outlier payment adjustments may occur when the fiscal intermediaries conduct final settlements of the hospitals' cost reports. We recommended that CMS continue to monitor Medicare outlier payments to all prospective payment system hospitals to ensure that the payments comply with Medicare regulations. CMS concurred.