Cover: Cost Estimates for Cost Outlier Cases Under Medicare's Prospective Payment System

Cost Estimates for Cost Outlier Cases Under Medicare's Prospective Payment System

Published 1994

by Grace M. Carter, J. David Rumpel


Download eBook for Free

FormatFile SizeNotes
PDF file 1.9 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.


Purchase Print Copy

 Format Price
Add to Cart Paperback48 pages $23.00

The authors studied the ratio of costs to charges (RCC) used to estimate the cost of Medicare hospital cases in the formula which sets cost outlier payments. The authors estimate that, under current payment policy, the cost of the average cost outlier case is overestimated by 23 percent. The causes of this overestimate are a secular decline in RCC of between 2 and 3 percent a year and the fact that cost outlier cases typically receive a higher percentage of ancillary charges that have a very low actual RCC. The inaccurate estimate of the cost of cost outlier cases contravenes current policy intent in two important ways. First, it changes the fraction of the excess costs that are insured from the intended 75 percent to 92 percent. Secondly, cases face different cost outlier thresholds, and therefore receive different payment amounts, depending on the mix of ancillary and accommodation services required by the patient. It would be possible to improve the measurement of the cost of cost outlier cases by using separate RCCs for ancillary and accommodation charges. The outcomes of alternative policies are estimated in the report.

This report is part of the RAND monograph report series. The monograph/report was a product of RAND from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.