If the hospital requests payment for cost outlier, and the Medicare covered charges
converted to cost exceed the cost outlier threshold, the services which are not reasonable
and necessary (or constitute custodial care) which are noncovered, but for which the
hospital may not charge the beneficiary are determined as follows:
• The hospital determines the lesser of the following:
° The cost of the medically unnecessary services (converting the charges for the
medically unnecessary services to cost); or
° The amount by which the adjusted cost of the stay exceeds the cost outlier
threshold.
Ancillary services, which are not required to be furnished on an inpatient basis, are treated
as medically unnecessary, but nevertheless may be covered under Part B.
• If the costs in excess of the outlier threshold exceed the cost of the medically
unnecessary services, the cost of all of the medically unnecessary services are
treated as noncovered costs. If these costs exceed the costs in excess of the cost
outlier threshold, beginning with the cost of the last medically unnecessary service
in the stay, the hospital must identify, and add on, in reverse order, the cost of
other medically unnecessary services until the total cost of medically unnecessary
services reaches the costs in excess of the cost outlier threshold. If the cost of the
last service to be added on in this manner brings the cost of medically unnecessary
services over the amount of costs in excess of the cost outlier threshold, only the
portion of the cost of that last medically unnecessary service (in the order of the
addition) needed to bring the total of the medically unnecessary costs up to the
costs in excess of the cost outlier threshold is added on. In this case, the costs in
excess of the cost outlier threshold are treated as the noncovered costs.
