National Government Services, Inc., Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of 80 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, 23 cost reports had unreliable cost-to-charge ratios (CCR) because cost report data may not have accurately reflected the actual CCR. Of the 57 remaining cost reports, National Government Services, Inc., (NGS) referred 35 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, NGS did not refer 22 cost reports that should have been referred to CMS for reconciliation. Of these, 10 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 8 of these 10 cost reports was approximately $19.7 million. We also calculated that approximately $2.9 million was due from Medicare to the providers for the two other cost reports that should have been referred to CMS for reconciliation. The net financial impact of the outlier payments associated with these 10 unreferred cost reports was approximately $16.8 million that was due to Medicare. The 12 other cost reports (of the 22 that NGS 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 totaled $10.9 million. We also calculated that approximately $3.4 million was due from Medicare to the providers for 4 of the 12 cost reports. The net financial impact of the outlier payments associated with the 12 unreferred cost reports that were settled was approximately $7.5 million that was due to Medicare.

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 35 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, NGS had reconciled the outlier payments associated with 11 of these cost reports by December 31, 2011. However, NGS had not reconciled the outlier payments associated with the remaining 24 cost reports. We calculated that the financial impact of the outlier payments associated with 22 of the 24 cost reports that were referred but not reconciled was approximately $102.5 million that was due to Medicare. We also calculated that approximately $1.3 million was due from Medicare to the providers for 2 of the 24 cost reports that were referred but not reconciled. The net financial impact of the outlier payments associated with these 24 cost reports that were referred but not reconciled was therefore approximately $101.2 million that was due to Medicare.

We are setting aside approximately $10,000 in outlier payments associated with a claim that we could not recalculate.

Of the 23 cost reports that qualified for reconciliation and that had unreliable CCRs, NGS did not refer any cost reports that should have been referred to CMS for reconciliation. We were unable to calculate the financial impact for these cost reports and are setting aside the associated $94.2 million in outlier payments for resolution by NGS and CMS.

We recommended that NGS: (1) review the 22 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 to the provider; (2) reconcile the outlier payments associated with the 24 cost reports that were referred, work with CMS to reconcile the associated outlier payments, finalize these cost reports, and ensure the return of funds to Medicare and to the provider; (3) work with CMS to resolve $10,000 and $94.2 million 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. NGS concurred with most of our findings and recommendations but did not concur with our recommendations to recoup or pay the specific amounts associated with the 22 and 24 cost reports. After reviewing NGS's comments, we maintain that all of our findings and recommendations remain valid.