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North Carolina balks at OIG audit results

Compliance Monitor, February 8, 2006

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North Carolina is disputing an OIG audit recommending the state revise its Medicaid policy to ensure that outlier payments achieve budget neutrality.

The OIG conducted the audit to determine whether North Carolina's inpatient hospital cost outlier payments were budget neutral. The OIG found that outlier payments consistently exceeded the 7.2% reduction in diagnosis-related group (DRG) payments. From fiscal years 1998 through 2003, the average cost outlier payment per discharge increased by 128.1% whereas the average DRG base payment per discharge increased by only 14.3%.

North Carolina responded that it did not intend for inpatient hospital outlier payments to be budget neutral and that it had not attempted "to limit or restrict the total amount of outlier payments to the 7.2% calculation," according to the OIG. North Carolina further stated that it "believe[s] that the OIG audit report is based on flawed assumptions," and that the state Medicaid plan made no mention of "budget neutrality."

The state acknowledged that hospitals were escalating charge amounts and said that it would consider revising the Medicaid plan to increase the 7.2% factor and the outlier thresholds.

Click here to read the audit report, "Medicaid Hospital Outlier Payments in North Carolina for State Fiscal Years 1998 through 2002," (A-07-04-04038) issued January 20, 2006.

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