On March 5, 2003, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule with a 30-day comment period changing the way that Medicare cost outlier payments are made to hospitals. Cost outliers are intended to cover a portion of the expenses incurred by hospitals for unusually high-cost cases. After accounting for regular Medicare payments, if a hospital's costs exceed a fixed dollar threshold, then outlier payments are available to cover 80% of the costs in excess of the threshold, currently $33,560 before adjustment for regional wage differences. Hospitals must absorb this threshold amount as non-reimbursed expenses before outlier payments become available. Because the Medicare program by law is supposed to pay between 5% and 6% of total regular hospital Medicare payments as outliers, CMS has annually adjusted the cost threshold to try and stay within the target payment amount. As more claims have been made for outlier payments, the threshold has been increased, making it more difficult to qualify for reimbursement. Last fall, public attention was drawn to disclosures that Tenet Healthcare, Inc., had been receiving unusually high outlier payments. Since then, the outlier payment formulas have been criticized as permitting some hospitals to manipulate their costs and charge schedules to qualify for greater reimbursement. CMS's proposed rule, intended as a response to those criticisms, has caused consternation because the changes go beyond those targeted at eliminating the alleged loopholes and could have a negative impact on many hospitals that had not engaged in these practices. Thus, the CMS proposal would greatly constrain hospitals' ability to change their cost profiles in order to qualify for outlier payments, an action that is expected to reduce outlier claims significantly, but CMS did not propose a change in the cost threshold that hospitals must absorb in order to qualify. Therefore, the benefit resulting from reduced claims by hospitals that may have engaged in aggressive practices would not be available for hospitals that had not engaged in such actions. U.S. House of Representatives Ways and Means Committee Chairman Bill Thomas wrote to CMS expressing support for eliminating the outlier formula flaw and lowering the outlier threshold, as well as for making focused changes needed to terminate the abuse. GNYHA has written to Chairman Thomas supporting his position and will comment in detail on the CMS proposals.