Medicaid Hospital Outlier Payments in Pennsylvania for State Fiscal Years 1998-1999 Through 2002-2003

EXECUTIVE SUMMARY:

This is one of a series of audits of State Medicaid outlier payments.  Our objective was to determine whether Pennsylvania's method of computing inpatient hospital day outlier and cost outlier Medicaid payments resulted in reasonable payments.  For the three hospitals reviewed, Pennsylvania's method resulted in reasonable day outlier payments.  However, it did not result in reasonable cost outlier payments because the State used an outdated cost-to-charge ratio in its calculation.

We recommended that Pennsylvania:  develop a methodology to monitor the cost-to-charge ratio during the fiscal year and adjust the ratio as necessary, and revise the State cost outlier policy to use the cost-to-charge ratio from the most recent cost reporting period and retroactively adjust provider payments for each year based on the actual cost-to-charge ratio calculated for that year.  In response to our draft report, the State has taken positive actions to update its payment system.