Pinnacle Business Solutions Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of 23 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, Pinnacle Business Solutions (Pinnacle) referred 12 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, Pinnacle did not refer 11 cost reports that should have been referred to CMS for reconciliation. Of these, four cost reports had not been settled and should have been referred to CMS for reconciliation. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with two of these four cost reports was approximately $3.1 million. We also calculated that approximately $1.7 million was due from Medicare to providers for the other two cost reports of the four that should have been referred to CMS for reconciliation. The net financial impact of the outlier payments associated with these four unreferred cost reports was therefore approximately $1.4 million that was due to Medicare. The 7 other cost reports (of the 11 that Pinnacle did not refer to CMS) had been settled and had exceeded the reopening limit. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with these cost reports was approximately $5.9 million.

Medicare supplements basic prospective payments for inpatient hospital services by making outlier payments for unusually high-cost cases. Medicare contractors refer hospitals' cost reports to CMS for reconciliation of outlier payments. Effective April 2011, CMS gave Medicare contractors the responsibility to perform reconciliations upon receipt of authorization from the CMS Central Office.

Of the 12 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, Pinnacle had not reconciled the outlier payments associated with any of these cost reports by December 31, 2011. We calculated that the financial impact to Medicare of the outlier payments associated with 8 of these 12 cost reports was approximately $8.6 million. We also calculated that approximately $1.2 million was due from Medicare to providers for 2 of the 12 cost reports. The other two cost reports had been settled and had exceeded the 3-year reopening limit. We calculated that approximately $292,000 may be due from Medicare to providers for these two cost reports. The net financial impact of the outlier payments associated with these 12 cost reports that were referred but not reconciled was therefore at least $7.1 million that was due to Medicare.

We are setting aside approximately $185,000 in outlier payments associated with claims that we could not recalculate.

We recommended that Novitas Solutions, Inc. (Novitas) (the Medicare contractor that assumed Pinnacle's responsibilities): (1) review the 11 cost reports that qualified for referral and, if applicable, determine whether the cost reports may be reopened, reconcile the associated outlier payments, and refund the amounts due to Medicare and due to providers; (2) reconcile the outlier payments associated with the 12 cost reports that were referred and, if applicable, determine whether these cost reports may be reopened, work with CMS to reconcile the associated outlier payments, finalize these cost reports, and ensure the return of funds to Medicare and to the providers; (3) work with CMS to resolve the $185,000 in outlier payments that we could not recalculate; (4) ensure that control procedures are in place so that all cost reports with qualifying outlier payments are referred and reconciled; and (5) review all cost reports submitted since the end of our audit period and ensure that those whose outlier payments qualified for reconciliation are referred and reconciled in accordance with Federal guidelines. Novitas concurred with all of our recommendations and described corrective actions that it had taken or planned to take.