Medically Unnecessary Outlier Costs for Which the Hospital May Not Charge

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.

• Once the costs of medically unnecessary services to be treated as noncovered are determined, convert them to charges for each applicable service/revenue category, e.g., accommodations, radiology, pharmacy, by dividing the costs treated as not medically necessary in each category by 72 percent. The medically unnecessary charges determined are treated as noncovered charges. Days for which all costs are found to be noncovered are treated as noncovered days.

• The hospital determines which medically unnecessary services and days treated as noncovered are services and days for which the beneficiary can be charged under §40.2.2C or E. The remainder of the services and days are the medically unnecessary services and days treated as noncovered even though the hospital may not charge the beneficiary. However, the distinction between medically unnecessary services and days for which the hospital may charge, and those for which it may not, will not be reflected in the charges shown on the inpatient hospital billing. Both are combined and shown as noncovered services and days.

The determination of medically unnecessary cost outliers is not affected by nonentitlement days or days after benefits are exhausted. If the stay is covered or treated as covered, the beneficiary is treated as entitled to Part A, and as having benefits available throughout the stay.