C.F.R. » Title 42 » CHAPTER IV—CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES › SUBCHAPTER B—MEDICARE PROGRAM › PART 412—PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL SERVICES › Subpart F—Payments for Outlier Cases, Special Treatment Payment for New Technology, and Payment Adjustment for Certain Replaced Devices

42 C.F.R. § 412.84

Payment for extraordinarily high-cost cases (cost outliers)

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(a) A hospital may request its intermediary to make an additional payment for inpatient hospital services that meet the criteria established in accordance with § 412.80(a).

(b) The hospital must request additional payment—

(1) With initial submission of the bill; or

(2) Within 60 days of receipt of the intermediary's initial determination.

(c) Except as specified in paragraph (e) of this section, an additional payment for a cost outlier case is made prior to medical review.

(d) As described in paragraph (f) of this section, the QIO reviews a sample of cost outlier cases after payment. The charges for any services identified as noncovered through this review are denied and any outlier payment made for these services are recovered, as appropriate, after a determination as to the provider's liability has been made.

(e) If the QIO finds a pattern of inappropriate utilization by a hospital, all cost outlier cases from that hospital are subject to medical review, and this review may be conducted prior to payment until the QIO determines that appropriate corrective actions have been taken.

(f) The QIO reviews the cost outlier cases, using the medical records and itemized charges, to verify the following:

(1) The admission was medically necessary and appropriate.

(2) Services were medically necessary and delivered in the most appropriate setting.

(3) Services were ordered by the physician, actually furnished, and not duplicatively billed.

(4) The diagnostic and procedural codings are correct.

(g) The intermediary bases the operating and capital costs of the discharge on the billed charges for covered inpatient services adjusted by the cost to charge ratios applicable to operating and capital costs, respectively, as described in paragraph (h) of this section.

(h) For discharges occurring before October 1, 2003, the operating and capital cost-to-charge ratios used to adjust covered charges are computed annually by the intermediary for each hospital based on the latest available settled cost report for that hospital and charge data for the same time period as that covered by the cost report. For discharges occurring before August 8, 2003, statewide cost-to-charge ratios are used in those instances in which a hospital's operating or capital cost-to-charge ratios fall outside reasonable parameters. CMS sets forth the reasonable parameters and the statewide cost-to-charge ratios in each year's annual notice of prospective payment rates published in the Federal Register in accordance with § 412.8(b).

(i)(1) For discharges occurring on or after August 8, 2003, CMS may specify an alternative to the ratios otherwise applicable under paragraphs (h) or (i)(2) of this section. A hospital may also request that its fiscal intermediary use a different (higher or lower) cost-to-charge ratio based on substantial evidence presented by the hospital. Such a request must be approved by the CMS Regional Office.

(2) For discharges occurring on or after October 1, 2003, the operating and capital cost-to-charge ratios applied at the time a claim is processed are based on either the most recent settled cost report or the most recent tentative settled cost report, whichever is from the latest cost reporting period.

(3) For discharges occurring on or after August 8, 2003, the fiscal intermediary may use a statewide average cost-to-charge ratio if it is unable to determine an accurate operating or capital cost-to-charge ratio for a hospital in one of the following circumstances:

(i) New hospitals that have not yet submitted their first Medicare cost report. (For this purpose, a new hospital is defined as an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with § 489.18 of this chapter.)

(ii) Hospitals whose operating or capital cost-to-charge ratio is in excess of 3 standard deviations above the corresponding national geometric mean. This mean is recalculated annually by CMS and published in the annual notice of prospective payment rates issued in accordance with § 412.8(b).

(iii) Other hospitals for whom the fiscal intermediary obtains accurate data with which to calculate either an operating or capital cost-to-charge ratio (or both) are not available.

(4) For discharges occurring on or after August 8, 2003, any reconciliation of outlier payments will be based on operating and capital cost-to-charge ratios calculated based on a ratio of costs to charges computed from the relevant cost report and charge data determined at the time the cost report coinciding with the discharge is settled.

(j) If any of the services are determined to be noncovered, the charges for these services will be deducted from the requested amount of reimbursement but not to exceed the amount claimed above the cost outlier threshold.

(k) Except as provided in paragraph (l) of this section, the additional amount is derived by first taking 80 percent of the difference between the hospital's adjusted operating cost for the discharge (as determined under paragraph (g) of this section) and the operating threshold criteria established under § 412.80(a)(1)(ii); 80 percent is also taken of the difference between the hospital's adjusted capital cost for the discharge (as determined under paragraph (g) of this section) and the capital threshold criteria established under § 412.80(a)(1)(ii). The resulting capital amount is then multiplied by the applicable Federal portion of the payment as determined in § 412.340(a) or § 412.344(a).

(l) For discharges occurring on or after April 1, 1988, the additional payment amount for the DRGs related to burn cases, which are identified in the most recent annual notice of prospective payment rates published in accordance with § 412.8(b), is computed under the provisions of paragraph (k) of this section except that the payment is made using 90 percent of the difference between the hospital's adjusted cost for the discharge and the threshold criteria.

(m) Effective for discharges occurring on or after August 8, 2003, at the time of any reconciliation under paragraph (i)(4) of this section, outlier payments may be adjusted to account for the time value of any underpayments or overpayments. Any adjustment will be based upon a widely available index to be established in advance by the Secretary, and will be applied from the midpoint of the cost reporting period to the date of reconciliation.

[50 FR 12741, Mar. 29, 1985, as amended at 50 FR 35689, Sept. 3, 1985; 51 FR 31496, Sept. 3, 1986; 53 FR 38529, Sept. 30, 1988; 54 FR 36494, Sept. 1, 1989; 55 FR 15174, Apr. 20, 1990; 56 FR 43448, Aug. 30, 1991; 57 FR 39823, Sept. 1, 1992; 59 FR 45398, Sept. 1, 1994; 62 FR 46028, Aug. 29, 1997; 68 FR 34515, June 9, 2003; 71 FR 48138, Aug. 18, 2006]
Notes of Decisions
Cited in 25 cases, 2005–2020 · leading case: Clarian Health West, LLC v. Eric Hargan, 878 F.3d 346 (D.C. Cir. 2017).
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Clarian Health West, LLC v. Eric Hargan, 878 F.3d 346 (D.C. Cir. 2017). · cites it 9× “at 34,501; 42 C.F.R. § 412.84 (i)(4). The regulation did not determine how hospitals would be selected for this reconciliation procedure.”
Dist. Hosp. Partners v. Sylvia Mathews Burwell, 786 F.3d 46 (D.C. Cir. 2015). · cites it 5× “See 42 C.F.R. § 412.84 (i)(2). The ratio represents a hospital’s “average markup.”
Banner Health v. Sebelius, 126 F. Supp. 3d 28 (D.D.C. 2015). · cites it 13× “The first set of regulations consists of three rules — promulgated in 1988, 1994, and 2004 — revising the outlier payment regulations, which are codified at 42 C.F.R. § 412.84 . As presented below in greater detail, these regulations set a formula for how individual outlier…”
Banner Health v. Thomas Price, 867 F.3d 1323 (D.C. Cir. 2017). · cites it 3× “84© (1997); 42 C.F.R. § 412.84 (k) (2003). Finally, in calculating the fixed-loss threshold, HHS must ensure that the total amount of outlier payments is not “less than 5 percent nor more than 6 percent” of total payments “projected or estimated to be made” under the inpatient…”
State of Fla., Off. of Atty. v. Tenet Healthcare, 420 F. Supp. 2d 1288 (S.D. Fla. 2005). · cites it 4× “” 3 Id; see 42 C.F.R. § 412.84 . Under IPPS, a hospital may receive outlier payments when the cost it incurs to treat a patient exceeds the normal IPPS payment by a fixed deductible, the exact magnitude of which is established by a computer program on an annual basis (i.”
Boca Raton Cmty. Hosp., Inc. v. Tenet Healthcare Corp., 502 F. Supp. 2d 1237 (S.D. Fla. 2007). · cites it 6× “See 42 C.F.R. § 412.84 (i)(2). In particular, CMS instructed (for discharges occurring on or after October 1, 2003) that the operating and capital cost-to-charge ratios applied at the time a claim is processed must be based on either the most recent settled cost report or the…”
Boca Raton Cmty. Hosp., Inc. v. Tenet Healthcare Corp., 238 F.R.D. 679 (S.D. Fla. 2006). · cites it 7× “See 42 C.F.R. § 412.84 (i)(2). In particular, CMS instructed (for discharges occurring on or after October 1, 2003) that the operating and capital cost-to-charge ratios applied at the time a claim is processed must be based on either the most recent settled cost report or the…”
Banner Health v. Sebelius, 905 F. Supp. 2d 174 (D.D.C. 2012). · cites it 2× “See 42 C.F.R. § 412.84 (k). In this way, “[t]he amount of the outlier payment is proportional to the amount by which the hospital’s loss exceeds the [fixed loss] threshold.”
Univ. of Colorado Health at Mem'l Hosp. v. Burwell, 151 F. Supp. 3d 1 (D.D.C. 2015). · cites it 2× “” See 42 C.F.R. § 412.84 (i)(2). As indicated above, the fixed loss threshold is the “fixed dollar amount” above the DRG prospective payment rate that the cost of a patient’s care must excéed before a hospital becomes' eligible for an ' outlier payment.”
Banner Health v. Sebelius, 945 F. Supp. 2d 1 (D.D.C. 2013). · cites it 2× “See 42 C.F.R. § 412.84 (k). In this way, “[t]he amount of the outlier payment is proportional to the amount by which the hospital’s loss exceeds the [fixed loss] threshold.”
Banner Health v. Sebelius, 797 F. Supp. 2d 97 (D.D.C. 2011). · cites it 2× “See 42 C.F.R. § 412.84 (k). In this way, “[t]he amount of the outlier payment is proportional to the amount by which the hospital’s loss exceeds the [fixed loss] threshold.”
Univ. of Colorado Health at Mem'l Hosp. v. Burwell, 233 F. Supp. 3d 69 (D.D.C. 2017). · cites it 2× “The outlier payment system is also governed-by a set-of overall-regulations, codified at 42 C.F.R. § 412.84 . These regulations are not updated every year, and the 2003 amendments apply to the reimbursements at issue here, 4th Am.”
Show all 25 citing cases →
— 42 C.F.R. § 412.84(g) — 1 case
Boca Raton Cmty. Hosp., Inc. v. Tenet Healthcare Corp., 502 F. Supp. 2d 1237 (S.D. Fla. 2007). “See 42 C.F.R. § 412.84 (i)(2). In particular, CMS instructed (for discharges occurring on or after October 1, 2003) that the operating and capital cost-to-charge ratios applied at the time a claim is processed must be based on either the most recent settled cost report or the…”
— 42 C.F.R. § 412.84(i)(4) — 1 case
Clarian Health West, LLC v. Eric Hargan, 878 F.3d 346 (D.C. Cir. 2017). “at 34,501; 42 C.F.R. § 412.84 (i)(4). The regulation did not determine how hospitals would be selected for this reconciliation procedure.”
— 42 C.F.R. § 412.84(k) — 1 case
Banner Health v. Sebelius, 945 F. Supp. 2d 1 (D.D.C. 2013). “See 42 C.F.R. § 412.84 (k). In this way, “[t]he amount of the outlier payment is proportional to the amount by which the hospital’s loss exceeds the [fixed loss] threshold.”
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