Payment to all hospitals would increase by an average of 3.3 percent for FY 2008 when all provisions of the rule are taken into account. Payments to specific hospitals may increase more or less than this amount depending on the patients they serve. For instance, urban hospitals generally treat more severely ill patients and are estimated to receive a 3.5 percent increase in payments.
In addition to the base payment for the DRGs, the law requires Medicare to make a supplemental payment to a hospital if its costs for treating a particular case exceed the usual Medicare payment for that case by a set threshold. Medicare sets the threshold for high cost cases at an amount that is projected to make total outlier payments equal to 5.1 percent of total inpatient payments. For FY 2008, CMS is also proposing to adopt a high cost outlier threshold of $23,015, down from $24,475 in FY 2007. By better recognizing severity of illness in the DRGs, fewer cases would be paid as outliers. However, CMS proposed to lower the outlier threshold to meet the legal requirement to continue paying between 5 and 6 percent of payments as outliers.