Discrepancy in Hospital Outpatient Prospective Payment System Methodology Leads to Inaccurate Beneficiary Copayments and Medicate Payments

GAO-04-103R: Published: Oct 6, 2003. Publicly Released: Oct 6, 2003.

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Under the Medicare hospital outpatient prospective payment system (OPPS), beneficiaries can be responsible for paying 50 percent or more of the total payment for outpatient services they receive in hospitals. The Balanced Budget Act of 1997 (BBA) introduced a mechanism to gradually decrease beneficiary cost sharing to 20 percent of the payment rate for each hospital outpatient service. The Centers for Medicare & Medicaid Services (CMS) published a final rule that implemented, effective with the 2002 payment rates, a methodology for calculating copayment amounts that was designed to ensure that even as certain changes affect the payment rates for hospital outpatient services over time, beneficiary coinsurance for services would eventually be 20 percent of the total payment rate for each service. Under this 2002 methodology, the copayment amount for each outpatient payment group of services, called an ambulatory payment classification (APC) group, could not increase from year to year, and the beneficiary coinsurance percentage would remain the same or decrease, eventually reaching 20 percent for each APC. When CMS published the final rule updating the OPPS payment rates for 2003, the agency stated that it used the methodology implemented in 2002 for determining 2003 copayments. However, in the course of other ongoing work, GAO found several APCs for which copayment amounts increased from 2002 to 2003, contrary to the methodology implemented in 2002. For a federal agency to adopt a new position or payment methodology that is inconsistent with existing rules and regulations, it must follow Administrative Procedure Act rulemaking requirements, which generally include publishing its intentions and allowing for public comment. Because of our concerns about this methodological discrepancy, we discussed the issue with CMS staff in May 2003. Thereafter, in its August 2003 proposed rule setting forth the 2004 OPPS payment rates, CMS stated that it would revise and clarify the copayment methodology implemented in 2002, and that this revised methodology would be used to calculate copayment amounts beginning in 2004. In this report, we present our complete analysis of the 2003 copayment methodology and the implications its use holds for copayment amounts in 2003 and future years. We also present the estimated financial impact this methodology has had on both beneficiary cost sharing and Medicare payments in 2003.

GAO found that use of a copayment methodology in 2003 that differed from the copayment methodology in 2002 has resulted in inaccurate 2003 copayment amounts for 75 APCs. For 28 APCs, this methodology has resulted in beneficiaries being responsible for higher copayments than they would have been under the 2002 methodology. For 47 APCs, beneficiaries are responsible for lower copayments, and, therefore, Medicare is making higher payments than it would have under the 2002 methodology. Moreover, under this methodology, copayment amounts for some APCs may never decline to 20 percent of the APC payment rate. Although CMS is proposing to revise the copayment methodology for 2004, the agency did not recalculate the 2003 copayment amounts using the 2002 methodology before using them as the basis for calculating the 2004 copayment amounts. Thus, certain proposed 2004 copayment amounts are higher and others are lower than they would have been if CMS had used the 2002 methodology in 2003. In addition, the time it will take for the copayment amounts for some of these APCs to reach 20 percent of the APC payment rate will increase. We estimate that in 2003 the methodology used by CMS will result in about $414 million in inaccurate copayments, with a net of $192 million in Medicare program overpayments. Specifically, we estimate beneficiaries will be overcharged by approximately $111 million for certain services, and Medicare will overpay by approximately $303 million for other services.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: CMS did not implement GAO's recommendation that the 2004 co-payment amounts be based on 2003 co-payment amounts revised by application of the 2002 co-payment methodology. GAO does not intend to revisit this issue in future updates of payment and co-payment amounts under the hospital outpatient PPS.

    Recommendation: For the purpose of calculating the 2004 OPPS beneficiary copayment amounts, the Administrator of CMS should first apply the 2002 copayment methodology to the 2003 APCs for which beneficiaries were inaccurately charged. The 2004 copayment amounts should then be based on these revised 2003 copayment amounts.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services


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