To determine the potential penalty, the amount of excessive payments made for each of the 3 conditions must be calculated. The PPACA defines excessive payments as the product of the number of patients with the applicable condition, the base DRG payment made for those patients and the percentage of readmissions above the expected rate for that specific hospital.
Sample Hospital: (Number of patients with condition) x (Average reimbursement for condition) x (% Higher than expected) = Excessive payment for condition
|Condition||# of Patients||Avg Reimbursement||% Higher Than Expected||Excessive Payment|
|Total Excess Payment||$705,000|
Continuing with the example from the worst-case scenario, if the above sample hospital’s total inpatient operating payments from Medicare were $50 million in FY 2012, then their excessive payments were 1.4% of total operating payments ($705,000 divided by $50 million). However, the maximum penalty in FY 2013 is 1% of the total operating payments, which is less than this hospital’s total excessive payments. Based on this example, this hospital would lose $500,000 (1% of $50 million) of its inpatient operating payments in FY 2013. On the other hand, if excessive payments were determined to be 0.8% (instead of 1.4%), then the hospital would be penalized $400,000 (0.8% of $50 million).