CMS Pub. 100-04, ch. 3, § 190.7.2

§124 of the Medicare, Medicaid, and SCHIP, Balance Budget Refinement Act of 1999

(BBRA) (Pub.L.106-113), mandated the development of a per diem prospective payment

system for inpatient psychiatric services furnished in hospitals and psychiatric distinct part

units of acute care hospitals. §405 (g)(2) of the Medicare Prescription Drug, Improvement,

and Modernization Act of 2003(MMA) (Pub. L. 108-173) extended the IPF PPS to distinct

part psychiatric units of critical access hospitals (CAHs). §124 of the BBRA provides the

Secretary discretion in establishing the payment methodology including payments for

cases incurring extraordinarily high costs. This additional payment known as an “outlier”

is designed to protect IPFs from large financial losses due to unusually expensive cases. If

the estimated cost of the case is greater than the adjusted fixed dollar loss threshold

amount (the fixed dollar loss threshold amount multiplied by area wage index, rural

location, teaching and COLA adjustment factors), an additional payment is added to the

IPF PPS payment amount.

The fixed dollar loss threshold amount is computed so that projected outlier payments

equal 2 percent of total IPF PPS payments to ensure that IPFs treating unusually costly

cases do not incur substantial losses and promote access to IPFs for patients who require

expensive care. The fixed dollar loss threshold amount is published in the annual IPF PPS

update notice or final rule. The specific regulations governing payments for outlier cases

are located at 42 CFR 412.424(d) (3) (i).

Under 42 CFR §412.424 (d)(3)(i), for discharges in cost reporting periods beginning on or

after January 1, 2005, high cost outlier payments may be reconciled at cost report

settlement to account for differences between the cost-to-charge ratio (CCR) used to pay

the claim at its original submission by the provider, and the CCR determined at final

settlement of the cost reporting period during which the discharge occurred. Medicare

contractors will use either the most recent settled IPF cost report or the most recent

tentatively settled IPF cost report, whichever is later, to obtain the applicable IPF CCR.

In addition, under 42 CFR § 412.424 (d)(3)(i),effective for discharges in cost reporting

periods beginning on or after January 1, 2005, at the time of reconciliation, outlier

payments may be adjusted to account for the time value of any underpayments or

overpayments based on the regulations in 42 CFR §412.84 (m), except that CMS

calculates a single overall (combined operating and capital ) CCR for IPFs and national

average IPF CCRs are used instead of statewide average CCRs.

Once the threshold amount is met, CMS will share a declining percentage of the losses for

a high cost case. The risk-sharing percentages would be 80 percent of the difference

between the cost for the case minus payment and the adjusted threshold amount for days 1

through 9 of the stay and 60 percent of the difference after the 9th day. Medicare

contractors will determine the total outlier amount and divide by the number of days, then

pay 80 percent for days 1-9 and 60 percent for days beyond that.

Outlier payments are not paid on interim bills, but they are calculated on a final discharge

bill, a benefits exhaust bill, or if the patient falls below a covered level of care. For a more

detailed explanation on the calculation of outlier payments, visit our Web site at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-

Payment/InpatientPsychFacilPPS/index.html?redirect=/inpatientpsychfacilpps

Medicare contractors may choose to review outliers if data analysis deems it a priority.

The Pricer program makes all outlier determinations except for the medical review

determinations.