Hospitals: Have You Checked Your Potential Outlier Payments Under the Hospital Outpatient Prospective Payment System?

The hospital outpatient prospective payment system ("HOPPS") provides for outlier payments to protect hospitals against significant losses if the Ambulatory Payment Classification ("APC") payment for a particular patient is much less (see below for how much less) than the cost incurred by the hospital in providing care to that patient. If you have not yet checked the outlier status of the patients in your high cost outpatient service areas, you may be in for a pleasant surprise.

The key to the pleasant surprise is that the outlier payment system is a throwback to the pre-HOPPS, pre-blended rate, pre-fee schedule, cost-reimbursement system. Here is how it works - remember the calculation is done for each patient (yes, on a case-by-case basis):

Step 1

First you determine the APC(s) into which the patient's charges belong. Then you determine the APC(s) payment for your hospital by taking the national weight(s) adjusted for the geographic factor for your hospital. 1
Step 2
In order to determine the outlier payment threshold, you multiply the APC amount payable to your hospital for that patient (see Step 1 above) by 2.5. (Why a factor of 2.5, I know you are asking? Well, that is one of the two numbers HCFA came up with to set the outliers at 2.5% of total HOPPS payments as Congress instructed - the other is presented in Step 5 below). The resulting amount is your outlier threshold for the cost of the care provided to the particular patient whose claim you are reviewing.
Step 3
3.A. Next you add up all of the charges on that patient's claim to determine the grand total of charges.

3.B. Now you have to estimate the costs that those gross charges represent [remember cost reimbursement?]. You multiply the gross charges on the claim by your hospital's ratio of costs to charges. That gives you the calculated costs of providing the care to that particular patient. 2

Now, how do you know if you have an outlier case?
Step 4
If your adjusted cost for the care of that patient (the Step 3 amount) is greater than your APC outlier threshold amount (the APC payment multiplied by 2.5. - see Step 2), then you are entitled to an outlier payment. How much, how much? I hear you ask.
Step 5
Surely you did not think your calculating was over yet!

5.A. First, subtract the outlier threshold amount (2.5 x APC; see Step 2) from your calculated cost for the patient involved (the Step 3 amount) to establish the "excess cost."

5.B. HCFA will pay the hospital 75% of the excess cost in addition to your APC payment amount. (Why 75%? Because that is the second number HCFA came up with to meet the Congressional requirement that outlier payments should be 2.5% of total HOPPS payments). 3

Well, this is all very well, you say, but why should I care? Let's give you a real life example from the cardiac catheterization laboratory of a real hospital.
A Real Life Cardiac Catheterization Laboratory Example

Patient receives a diagnostic cardiac catheterization with no additional items or services.
  1. HOPPS payment for APC 080 = $1,249.51
    (Includes transitional pass through amount for drugs, biologicals, and/or devices, plus any other separately billable charges.)

  2. Outlier Threshold: $1,249.51(Step 1 amount) x 2.5 = $3,123.78

  3. Calculate Costs:
    3.A. Total charges for diagnostic cardiac catheterization = $13,625.90 (Includes charges for every relevant item from the hospital's chargemaster.)

    3.B. Cost to charge ratio for hospital =0.37 Calculated costs for patient care, $13,625.90 x 0.37 = $5,041.58
  4. Is the hospital entitled to an outlier payment? Calculated cost: $5,041.58 (see 3) is greater than the outlier threshold: $3,123.78 (see 2). Therefore the hospital is entitled to an outlier payment.

  5. How much is the additional payment for this particular outlier case?
    5.A. Amount of costs over outlier threshold (3 minus 2) = $1,917.81

    5.B. Additional payment for outlier: $1,917.81 x 0.75 = $1,438.36
* Total outlier payment is:

APC payment ($1,249.51) plus additional outlier payment ($1,438.36), for a total of $2,687.87. 4

HCFA will calculate the outlier payments automatically. 5 You do not have to do anything other than file a correct patient claim including all the relevant charges. That does mean that you want to be sure every medically necessary item and service for which you can render a line item bill on the claim is on the chargemaster so that it will be reported to HCFA.

At the time of going to print, HCFA still expects to initiate HOPPS on August 1, 2000.

For further information or assistance, please contact John B. Reiss.

The Health Law Department consists of 14 lawyers who represent a wide diversity of healthcare providers, including general and specialty hospitals and hospital chains, a variety of outpatient facilities, managed care providers, entrepreneurial companies, physicians and physician groups in all types of specialties, a very large physician clinic, and numerous physician joint ventures.


  1. Don't forget that if there is more than one APC on the claim, the one with the highest APC payment will be paid at 100% of the APC payment and any additional ones at 50% of the APC payment. You also must add in any HOPPS pass-through or new technology payments.
  2. If you don't know your hospital's cost to charge ratio, the Health Care Financing Administration ("HCFA") has provided a complete listing on its web site -
  3. Congress required this amount be 3% for 2004 and in all years subsequent to FY 2004.
  4. The actual amount paid by HCFA to the hospital depends upon the Medicare Part B coinsurance payment owed by the patient, as well as the patient's deductible.
  5. Thanks to Leonard Womack ( for his assistance with the above calculations.

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