CMS Pub. 100-04, ch. 3, § 20.1.2.5

A. - General

Under 42 CFR §412.84(i)(4), for discharges occurring on or after August 8, 2003, high cost

outlier payments may be reconciled upon cost report settlement to account for differences

between the 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. This new regulation was implemented in two phases (further explanation on these

two phases is provided below). Hospitals that Medicare contractors identified using the

criteria in §I.A. of PM A-03-058 (under which Medicare contractors identified hospitals

whose charges appeared to have been increasing at an excessive rate) are subject to the

reconciliation policies described in this section for discharges occurring on or after August 8,

2003. For all other hospitals, reconciliation is effective beginning with discharges occurring

in a hospital’s first cost reporting period beginning on or after October 1, 2003.

MACs shall refer cost reports to the CMS Central Office for approval of reconciliation of the

outlier payments of IPPS hospitals at the time of cost report settlement if they meet the

following criteria:

1. The actual operating CCR is found to be plus or minus 10 percentage points or

more from the CCR used during that time period to make outlier payments, and

2. The sum of operating and capital outlier payments in that cost reporting period

exceed $500,000.

In addition to the criteria above, for cost reports with a begin date on or after October 1,

2024, MACs shall refer cost reports to the CMS Central Office for approval of reconciliation

of the outlier payments of IPPS hospitals at the time of cost report settlement if they meet the

following criteria (see Example B below):

1. The actual operating CCR is found to be plus or minus 20 percent or more from the

CCR used during that time period to make outlier payments, and

2. The sum of operating and capital outlier payments in that cost reporting period

exceed $500,000.

Also, for hospitals paid under the IPPS, for cost reporting periods with a begin date on or

after October 1, 2024, MACs shall refer to the CMS Central Office for approval of

reconciliation at the time of cost report settlement any new hospital in its first cost reporting

period (regardless of the change to the operating CCR and no matter the amount of outlier

payments during the cost reporting period).

To determine if a hospital meets the criteria above (the 10 percentage points or 20 percent

fluctuation in the operating CCR), the Medicare contractor shall incorporate all the

adjustments from the cost report, run the cost report, calculate the revised CCR and compute

the actual operating CCR prior to issuing a Notice of Program Reimbursement (NPR). If the

criteria for reconciliation are not met, the cost report shall be finalized. If the criteria for

reconciliation are met, Medicare contractors shall follow the instructions below in §20.1.2.7.

The NPR cannot be issued nor can the cost report be finalized until outlier reconciliation is

complete.

The criteria require a 10 percentage point or 20 percent fluctuation in the operating CCR

only (and not the capital CCR). However, if a hospital meets either criterion, claims will be

reconciled using the operating and capital CCRs from the final settled cost report. New

hospitals will have their outlier claims reconciled regardless of the change to the CCR and no

matter the amount of outlier payments during the cost reporting period.

As stated above, if a cost report is reopened after final settlement and as a result of this

reopening there is a change to the CCR (which could trigger or affect outlier reconciliation

and outlier payments), Medicare contractors shall notify the CMS Regional and Central

Office for further instructions. Notification to the CMS Central Office shall be sent via

email to outliersIPPS@cms.hhs.gov.

Even if a hospital does not meet the criteria for reconciliation, subject to approval of the

Regional and Central Office, the Medicare contractor has the discretion to request that a

hospital’s outlier payments in a cost reporting period be reconciled if the hospital’s most

recent cost and charge data indicate that the outlier payments to the hospital were

significantly inaccurate. The Medicare contractor sends notification to the Central Office via

email at outliersIPPS@cms.hhs.gov. Upon approval of the CMS Regional and Central

Office that a hospital’s outlier claims need to be reconciled, Medicare contractors should

follow the instructions in §20.1.2.7.

B. - Reconciling Outlier Payments

The Medicare contractors shall notify the CMS Regional Office and CMS Central Office of

any hospital that meets the criteria for reconciliation. Notification to the CMS Central Office

shall be sent via email to outliersIPPS@cms.hhs.gov. Further instructions for Medicare

contractors on reconciliation and the time value of money are provided below in §§20.1.2.6

and 20.1.2.7.

EXAMPLE A:

Cost Reporting Period: 09/01/2014-08/31/2014

Operating CCR used to pay original claims submitted during cost reporting period: 0.40 (In

this example, this CCR is from the tentatively or final settled 2012 cost report)

Final settled operating CCR from 09/01/2014-08/31/2014 cost report: 0.50

Total outlier payout in 09/01/2014-08/31/2014 cost reporting period: $600,000

Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 at

the time of final settlement, and the provider received greater than $500,000 in outlier

payments during that cost reporting period, the criteria has been met to trigger reconciliation,

and therefore, the Medicare contractor shall notify the CMS Regional Office and Central

Office. The provider’s outlier payments for this cost reporting period will be reconciled

using the correct CCR of 0.50.

In the event that multiple CCRs are used in a given cost reporting period, Medicare

contractors should calculate a weighted average of the CCRs in that cost reporting period.

(See Example B below for instructions on how to weight the CCRs). The Medicare

contractor shall then compare the weighted CCR to the CCR determined at the time of final

settlement of the cost reporting period to determine if reconciliation is required. Again, total

outlier payments for the entire cost reporting period must exceed $500,000 in order to trigger

a referral to CMS for approval of reconciliation.

EXAMPLE B:

Cost Reporting Period: 01/01/2025-12/31/2025

Operating CCR used to pay original claims submitted during cost reporting period:

- 0.10 from 01/01/2025-03/31/2025 (This CCR could be from the tentatively settled

2023 cost report)

- 0.08 from 04/01/2025-12/31/2025 (This CCR could be from the tentatively settled

2024 cost report)

Final settled operating CCR from 01/01/2025-12/31/2025 cost report: 0.05

Total Outlier payout in 01/01/2025-12/31/2025 cost reporting period: $600,000

Weighted Average CCR: 0.085

CCR Days Weight Weighted CCR

0.10 90 0.247 (90 Days / 365 Days) (a) 0.0247=

(0.10 * 0.247)

0.08 275 0.753 (275 Days / 365 Days) (b) 0.0602=

(0.08 * 0.753)

TOTAL *365 (a)+(b) =0.085

*NOTE: Total Days in a year may be 366 if the year is a leap year.

The hospital meets the criteria for reconciliation in this cost reporting period because the

weighted average CCR at the time the claim was originally paid changed from 0.085 to 0.05

(which is greater than 20 percent) at the time of final settlement, and the provider received an

outlier payment greater than $500,000 for the entire cost reporting period.