EXECUTIVE SUMMARY:
Under Medicare, fiscal intermediaries (FI) reimburse hospitals a predetermined amount for inpatient services furnished to Medicare beneficiaries depending on the illness and its classification under a diagnosis related group (DRG). Inpatient stays which are extremely long of have extraordinarily high costs are eligible for an additional payment called an outlier payment. This final audit report points out that Blue Cross of Rhode Island overpaid two Rhode Island hospitals almost $2 million for outlier cases over a 3-year period. These overpayments occurred because the FI misunderstood the Medicare regulations governing cost outlier payments. We recommended procedural improvements and a financial adjustment to recover the overpaid amounts.