Novitas Solutions, Inc. (Formerly Highmark Medicare Services, Inc.), Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments

Of 43 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, Novitas Solutions, Inc., formerly Highmark Medicare Services, Inc. (Novitas), referred 29 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, Novitas did not refer 14 cost reports that should have been referred to CMS for reconciliation. Of these, five cost reports had not been settled and should have been referred to CMS for reconciliation. The financial impact to Medicare of the unreconciled outlier payments associated with these five cost reports was approximately $11.5 million. The nine remaining cost reports had been settled, had exceeded the 3-year reopening limit, and should have been referred to CMS for reconciliation. We calculated that the financial impact of the outlier payments associated with eight of these nine cost reports was approximately $11.6 million. We also calculated that approximately $653,000 was due from Medicare to a provider for one of the nine cost reports. The net financial impact of the outlier payments associated with these nine cost reports was therefore approximately $11 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 29 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, Novitas had reconciled the outlier payments associated with 27 of these cost reports by December 31, 2011. However, Novitas had not reconciled the outlier payments associated with the remaining two cost reports. The financial impact of the outlier payments associated with one of these two cost reports that were referred but not reconciled was approximately $1.4 million that was due from Medicare to a provider. The remaining cost report had been settled and had exceeded the 3-year reopening limit. We calculated that the financial impact to Medicare of the cost report that was settled and exceeded the 3-year reopening limit was approximately $2.2 million.

We recommended that Novitas (1) review the 14 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 one cost report that was referred to CMS, finalize this cost report, and refund the amount due to the provider; (3) determine whether the cost report that had been referred to CMS, had been settled, and had exceeded the 3-year reopening limit may be reopened and, if applicable, work with CMS to reconcile the associated outlier payments, finalize this cost report, and ensure the return of funds to Medicare; (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.