Palmetto Government Benefits Administrator Did Not Always Refer Medicare Cost Reports and Reconcile Outlier Payments in Jurisdiction 11

Of 23 Medicare-participating hospital cost reports with outlier payments that qualified for reconciliation, Palmetto Government Benefits Administrator (Palmetto) referred 15 cost reports to the Centers for Medicare & Medicaid Services (CMS) in accordance with Federal guidelines. However, Palmetto did not refer eight cost reports that should have been referred to CMS for reconciliation. Of these, six cost reports had not been settled or had been settled and reopened within the 3-year reopening limit and should have been referred to CMS for reconciliation. We calculated that the financial impact to Medicare of the unreconciled outlier payments associated with these six cost reports was approximately $18.8 million. The two other cost reports 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 $1.6 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 15 cost reports that were referred to CMS with outlier payments that qualified for reconciliation, Palmetto had reconciled the outlier payments associated with 1 cost report by December 31, 2011. However, Palmetto had not reconciled the outlier payments associated with the remaining 14 cost reports. We calculated that the financial impact to Medicare of the outlier payments associated with 13 of these 14 cost reports was approximately $29 million. We also calculated that approximately $387,000 was due from Medicare to a provider for 1 of the 14 cost reports. The net financial impact of the outlier payments associated with these 14 cost reports that were referred but not reconciled was therefore at least $28.6 million that was due to Medicare.

We are setting aside approximately $1.1 million in outlier payments associated with claims that we could not recalculate.

We recommended that Palmetto: (1) review the 8 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 providers; (2) reconcile the outlier payments associated with the 14 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 the $1.1 million in outlier payments associated with the claims that we could not recalculate; (4) strengthen control procedures to ensure 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.

Palmetto disagreed with our findings and recommendations. On the basis of Palmetto's comments and its additional documentation, we revised a portion of our discussion of one finding. Otherwise, though, we maintain that all of our findings, and the associated recommendations, remain valid.