On April 3, 2003, GNYHA submitted comments to the Centers for Medicare & Medicaid Services (CMS) on its proposed rule for changing the methodology for determining outlier payments under the inpatient prospective payment system (PPS). CMS had proposed extensive changes to the methodology that would take effect immediately upon publication of the final rule in response to reports last year that some hospitals may have received excessive outlier payments—stop-loss payments for individual cases that are extremely expensive—by exploiting certain provisions in the current methodology. CMS estimates the cost of each case by multiplying the charges that are billed by a ratio of cost to charges (RCC) that is calculated from each hospital's cost report. Currently, CMS uses the RCC from each hospital's latest final settled cost report, which reflects costs from several years prior to the case on whose behalf outlier payments are made. In addition, CMS substitutes a statewide average RCC for hospitals whose RCCs are extremely low. The key provisions in the proposed rule are to update the RCCs to the year matching each patient's discharge, and to eliminate the substitution of the statewide average RCC. In response, GNYHA conducted an extensive fiscal impact analysis of the proposed rule, which found that CMS's proposal would cause serious underpayments of outliers, about $2 billion annualized, or 45% of total outlier payments, and that even if the underpayment problem were solved, the proposal would redistribute about $1 billion annually. Therefore, GNYHA recommended the following: 1) do not update the RCCs before the start of the new fiscal year on October 1, 2003; lower the "threshold"—the deductible that ensures the appropriate aggregate amount of outlier payments—concurrent with updating the RCCs; 2) do not update the RCCs to the "matching" year's RCC, but rather to the most recent year's RCC available at the time of payment (otherwise, payments would be retroactive, a violation of the "prospective" payment system); 3) provide a three-year transition for most hospitals (hospitals found to have engaged in abuse of the outlier system should not automatically be eligible); 4) implement refined diagnosis-related groups, which would reduce the need for outlier payments; and 5) exclude disproportionate share hospital payments when computing the loss per case for determining outlier eligibility in order to preserve those payments for their intended purpose of paying for hospital-based uncompensated care.

CMS is expected to review comments over the next 30 to 60 days.