Threshold and Marginal Cost

20.1.2.3 - Threshold and Marginal Cost (Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) The Medicare contractor, using Pricer, determines an appropriate additional payment for inpatient services where hospital charges for covered services furnished to the beneficiary, adjusted for cost, are extraordinarily high. CMS annually determines, and includes in the annual IPPS Final Rule and in Pricer, the threshold beyond which a cost outlier is paid. The additional payment amount is the difference between the estimated cost for the discharge (determined by multiplying the hospital specific CCR by the hospital’s charges for the discharge) and the threshold criteria established for the applicable DRG multiplied by a marginal cost factor of 80 percent. (The marginal cost factor for burn cases is 90 percent, as described in §20.1.2.8.) CMS includes the marginal cost factor in Pricer. For more explanation on the calculation of outliers visit our Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage