Scully Says Altering Medicare Outlier Payment System Will Prevent Abuse

Speaking before the Senate Appropriations subcommittee for labor, health and human services and education on March 11, CMS Administrator Thomas Scully defended proposed changes to the Medicare outlier payment system, which reimburses hospitals for unusually costly care, the Philadelphia Inquirer reports (Jakes Jordan, Philadelphia Inquirer, 3/12). Scully in early February said his agency will close loopholes that purportedly had allowed some hospitals to manipulate the outlier payment formula and receive more payments from the federal government. The plan reportedly could eliminate approximately $2 billion in outlier payments this year to hospitals nationwide. The decision follows a federal investigation of Tenet Healthcare, which investigators said had been receiving an "extraordinarily high share" of outlier payments (Kaiser Daily Health Policy Report, 2/4). Scully estimated that 3% of hospitals nationwide are "taking advantage" of the outlier payment system and are taking money away from hospitals that are not. "We don't think that's fair. And that's why we thought that we should close this, what we consider to be a loophole, immediately," he added. However, subcommittee Chair Arlen Specter (R-Pa.) warned that any changes to the outlier payment system should be implemented gradually. Delaware Valley Healthcare Council President Andrew Wigglesworth said that a "radical" change in the outlier payment policy could cut payments to Philadelphia-area hospitals in particular by as much as $100 million, the Inquirer reports. Specter urged Scully to consider employing a "transition" period for hospitals to prepare for changes in the payment policy. Specter's request comes after 10 House members sent Scully a letter on Feb. 10, saying that changing the outlier payment system could "be financially devastating" to providers and urging Scully to "hold off" on changing the payment structure (Philadelphia Inquirer, 3/12).