Medicare overpaid hospitals at least $2.6 billion

The Medicare program overpaid hospitals $2.6 billion for the treatment of critically ill patients between 2010 and 2013, the Wall Street Journal reported.

The overpayments are tied to overestimates of the hospitals' costs in treating what are known as outlier patients, those who are so ill that their care does not typically correspond to the norm, according to the newspaper. 

Although Medicare does not pay anywhere close to what hospitals post on their chargemasters for providing care, the hospitals quickly jacked up their chargemasters to receive bigger payments from the program, the publication said. For example, the Wall Street Journal cited Christ Hospital in New Jersey as one organization that marked up prices for common diagnoses by at least 60 percent between 2012 and 2013. As a result, its payments for outlier cases rose to $2.93 million in 2013, more than four times what it collected in 2012. More than 40 percent of the payments Christ Hospital received was linked solely to its raising prices, according to the WSJ analysis.

"When prices rise faster than actual costs, the government overpays. Medicare can seek to claw back overpayments when it gets fresher information about costs, but it rarely does," the newspaper reported. Overall, the $2.6 billion in overpayments represent about one-sixth of all outlier payments. 

By contrast, Medicare underpaid some hospitals $550 million because they did not raise their list prices as quickly as their costs rose.

Christ Hospital, which is owned by hospital chain CarePoint, said it has made corrections to stop the overpayments. "CarePoint goes to great lengths to avoid receiving any undue outlier payments by notifying (Medicare) of any changes in charges immediately," a company spokesperson told the newspaper.

The $2.6 billion in overpayments is a relative drop in the bucket in terms of Medicare overpayments. Medicare may overpay providers to the tune of $60 billion a year, according to Forbes magazine. 

Price increases driving overpayments is not a new issue. The Department of Health and Human Services' Office of the Inspector General reported on the phenomenon two years ago, noting that the average outlier case was inflated by more than $15,000 as a result.

To learn more:
- read the Wall Street Journal article (subscription required)
- check out the Forbes article