42 U.S.C. § 1395ww : US Code - Section 1395WW: Payments to hospitals for inpatient hospital services

Search 42 U.S.C. § 1395ww : US Code - Section 1395WW: Payments to hospitals for inpatient hospital services

(a) Determination of costs for inpatient hospital services;
limitations; exemptions; "operating costs of inpatient hospital
services" defined
(1)(A)(i) The Secretary, in determining the amount of the
payments that may be made under this subchapter with respect to
operating costs of inpatient hospital services (as defined in
paragraph (4)) shall not recognize as reasonable (in the efficient
delivery of health services) costs for the provision of such
services by a hospital for a cost reporting period to the extent
such costs exceed the applicable percentage (as determined under
clause (ii)) of the average of such costs for all hospitals in the
same grouping as such hospital for comparable time periods.
(ii) For purposes of clause (i), the applicable percentage for
hospital cost reporting periods beginning -
(I) on or after October 1, 1982, and before October 1, 1983, is
120 percent;
(II) on or after October 1, 1983, and before October 1, 1984,
is 115 percent; and
(III) on or after October 1, 1984, is 110 percent.
(B)(i) For purposes of subparagraph (A) the Secretary shall
establish case mix indexes for all short-term hospitals, and shall
set limits for each hospital based upon the general mix of types of
medical cases with respect to which such hospital provides services
for which payment may be made under this subchapter.
(ii) The Secretary shall set such limits for a cost reporting
period of a hospital -
(I) by updating available data for a previous period to the
immediate preceding cost reporting period by the estimated
average rate of change of hospital costs industry-wide, and
(II) by projecting for the cost reporting period by the
applicable percentage increase (as defined in subsection
(b)(3)(B) of this section).
(C) The limitation established under subparagraph (A) for any
hospital shall in no event be lower than the allowable operating
costs of inpatient hospital services (as defined in paragraph (4))
recognized under this subchapter for such hospital for such
hospital's last cost reporting period prior to the hospital's first
cost reporting period for which this section is in effect.
(D) Subparagraph (A) shall not apply to cost reporting periods
beginning on or after October 1, 1983.
(2) The Secretary shall provide for such exemptions from, and
exceptions and adjustments to, the limitation established under
paragraph (1)(A) as he deems appropriate, including those which he
deems necessary to take into account -
(A) the special needs of sole community hospitals, of new
hospitals, of risk based health maintenance organizations, and of
hospitals which provide atypical services or essential community
services, and to take into account extraordinary circumstances
beyond the hospital's control, medical and paramedical education
costs, significantly fluctuating population in the service area
of the hospital, and unusual labor costs,
(B) the special needs of psychiatric hospitals and of public or
other hospitals that serve a significantly disproportionate
number of patients who have low income or are entitled to
benefits under part A of this subchapter, and
(C) a decrease in the inpatient hospital services that a
hospital provides and that are customarily provided directly by
similar hospitals which results in a significant distortion in
the operating costs of inpatient hospital services.
(3) The limitation established under paragraph (1)(A) shall not
apply with respect to any hospital which -
(A) is located outside of a standard metropolitan statistical
area, and
(B)(i) has less than 50 beds, and
(ii) was in operation and had less than 50 beds on September 3,
1982.
(4) For purposes of this section, the term "operating costs of
inpatient hospital services" includes all routine operating costs,
ancillary service operating costs, and special care unit operating
costs with respect to inpatient hospital services as such costs are
determined on an average per admission or per discharge basis (as
determined by the Secretary), and includes the costs of all
services for which payment may be made under this subchapter that
are provided by the hospital (or by an entity wholly owned or
operated by the hospital) to the patient during the 3 days (or, in
the case of a hospital that is not a subsection (d) hospital,
during the 1 day) immediately preceding the date of the patient's
admission if such services are diagnostic services (including
clinical diagnostic laboratory tests) or are other services related
to the admission (as defined by the Secretary). Such term does not
include costs of approved educational activities, a return on
equity capital, other capital-related costs (as defined by the
Secretary for periods before October 1, 1987), or costs with
respect to administering blood clotting factors to individuals with
hemophilia.
(b) Computation of payment; definitions; exemptions; adjustments
(1) Notwithstanding section 1395f(b) of this title but subject to
the provisions of section 1395e of this title, if the operating
costs of inpatient hospital services (as defined in subsection
(a)(4) of this section) of a hospital (other than a subsection (d)
hospital, as defined in subsection (d)(1)(B) of this section and
other than a rehabilitation facility described in subsection (j)(1)
of this section) for a cost reporting period subject to this
paragraph -
(A) are less than or equal to the target amount (as defined in
paragraph (3)) for that hospital for that period, the amount of
the payment with respect to such operating costs payable under
part A of this subchapter on a per discharge or per admission
basis (as the case may be) shall be equal to the amount of such
operating costs, plus -
(i) 15 percent of the amount by which the target amount
exceeds the amount of the operating costs, or
(ii) 2 percent of the target amount,
whichever is less;
(B) are greater than the target amount but do not exceed 110
percent of the target amount, the amount of the payment with
respect to those operating costs payable under part A of this
subchapter on a per discharge basis shall equal the target
amount; or
(C) are greater than 110 percent of the target amount, the
amount of the payment with respect to such operating costs
payable under part A of this subchapter on a per discharge or per
admission basis (as the case may be) shall be equal to (i) the
target amount, plus (ii) in the case of cost reporting periods
beginning on or after October 1, 1991, an additional amount equal
to 50 percent of the amount by which the operating costs exceed
110 percent of the target amount (except that such additional
amount may not exceed 10 percent of the target amount) after any
exceptions or adjustments are made to such target amount for the
cost reporting period;
plus the amount, if any, provided under paragraph (2), except that
in no case may the amount payable under this subchapter (other than
on the basis of a DRG prospective payment rate determined under
subsection (d) of this section) with respect to operating costs of
inpatient hospital services exceed the maximum amount payable with
respect to such costs pursuant to subsection (a) of this section.
(2)(A) Except as provided in subparagraph (E), in addition to the
payment computed under paragraph (1), in the case of an eligible
hospital (described in subparagraph (B)) for a cost reporting
period beginning on or after October 1, 1997, the amount of payment
on a per discharge basis under paragraph (1) shall be increased by
the lesser of -
(i) 50 percent of the amount by which the operating costs are
less than the expected costs (as defined in subparagraph (D)) for
the period; or
(ii) 1 percent of the target amount for the period.
(B) For purposes of this paragraph, an "eligible hospital" means
with respect to a cost reporting period, a hospital -
(i) that has received payments under this subsection for at
least 3 full cost reporting periods before that cost reporting
period, and
(ii) whose operating costs for the period are less than the
least of its target amount, its trended costs (as defined in
subparagraph (C)), or its expected costs (as defined in
subparagraph (D)) for the period.
(C) For purposes of subparagraph (B)(ii), the term "trended
costs" means for a hospital cost reporting period ending in a
fiscal year -
(i) in the case of a hospital for which its cost reporting
period ending in fiscal year 1996 was its third or subsequent
full cost reporting period for which it receives payments under
this subsection, the lesser of the operating costs or target
amount for that hospital for its cost reporting period ending in
fiscal year 1996, or
(ii) in the case of any other hospital, the operating costs for
that hospital for its third full cost reporting period for which
it receives payments under this subsection,
increased (in a compounded manner) for each succeeding fiscal year
(through the fiscal year involved) by the market basket percentage
increase for the fiscal year.
(D) For purposes of this paragraph, the term "expected costs",
with respect to the cost reporting period ending in a fiscal year,
means the lesser of the operating costs of inpatient hospital
services or target amount per discharge for the previous cost
reporting period updated by the market basket percentage increase
(as defined in paragraph (3)(B)(iii)) for the fiscal year.
(E)(i) In the case of an eligible hospital that is a hospital or
unit that is within a class of hospital described in clause (ii)
with a 12-month cost reporting period beginning before November 29,
1999, in determining the amount of the increase under subparagraph
(A), the Secretary shall substitute for the percentage of the
target amount applicable under subparagraph (A)(ii) -
(I) for a cost reporting period beginning on or after October
1, 2000, and before September 30, 2001, 1.5 percent; and
(II) for a cost reporting period beginning on or after October
1, 2001, and before September 30, 2002, 2 percent.
(ii) For purposes of clause (i), each of the following shall be
treated as a separate class of hospital:
(I) Hospitals described in clause (i) of subsection (d)(1)(B)
of this section and psychiatric units described in the matter
following clause (v) of such subsection.
(II) Hospitals described in clause (iv) of such subsection.
(3)(A) Except as provided in subparagraph (C) and succeeding
subparagraphs, and in paragraph (7)(A)(ii), for purposes of this
subsection, the term "target amount" means, with respect to a
hospital for a particular 12-month cost reporting period -
(i) in the case of the first such reporting period for which
this subsection is in effect, the allowable operating costs of
inpatient hospital services (as defined in subsection (a)(4) of
this section) recognized under this subchapter for such hospital
for the preceding 12-month cost reporting period, and
(ii) in the case of a later reporting period, the target amount
for the preceding 12-month cost reporting period,
increased by the applicable percentage increase under subparagraph
(B) for that particular cost reporting period.
(B)(i) For purposes of subsection (d) of this section and
subsection (j) of this section for discharges occurring during a
fiscal year, the "applicable percentage increase" shall be -
(I) for fiscal year 1986, 1/2 percent,
(II) for fiscal year 1987, 1.15 percent,
(III) for fiscal year 1988, 3.0 percent for hospitals located
in a rural area, 1.5 percent for hospitals located in a large
urban area (as defined in subsection (d)(2)(D) of this section),
and 1.0 percent for hospitals located in other urban areas,
(IV) for fiscal year 1989, the market basket percentage
increase minus 1.5 percent for hospitals located in a rural area,
the market basket percentage increase minus 2.0 percentage points
for hospitals located in a large urban area, and the market
basket percentage increase minus 2.5 percentage points for
hospitals located in other urban areas,
(V) for fiscal year 1990, the market basket percentage increase
plus 4.22 percentage points for hospitals located in a rural
area, the market basket percentage increase plus 0.12 percentage
points for hospitals located in a large urban area, and the
market basket percentage increase minus 0.53 percentage points
for hospitals located in other urban areas,
(VI) for fiscal year 1991, the market basket percentage
increase minus 2.0 percentage points for hospitals in a large
urban or other urban area, and the market basket percentage
increase minus 0.7 percentage point for hospitals located in a
rural area,
(VII) for fiscal year 1992, the market basket percentage
increase minus 1.6 percentage points for hospitals in a large
urban or other urban area, and the market basket percentage
increase minus 0.6 percentage point for hospitals located in a
rural area,
(VIII) for fiscal year 1993, the market basket percentage
increase minus 1.55 percentage point for hospitals in a large
urban or other urban area, and the market basket percentage
increase minus 0.55 (!1) for hospitals located in a rural area,
(IX) for fiscal year 1994, the market basket percentage
increase minus 2.5 percentage points for hospitals located in a
large urban or other urban area, and the market basket percentage
increase minus 1.0 percentage point for hospitals located in a
rural area,
(X) for fiscal year 1995, the market basket percentage increase
minus 2.5 percentage points for hospitals located in a large
urban or other urban area, and such percentage increase for
hospitals located in a rural area as will provide for the average
standardized amount determined under subsection (d)(3)(A) of this
section for hospitals located in a rural area being equal to such
average standardized amount for hospitals located in an urban
area (other than a large urban area),
(XI) for fiscal year 1996, the market basket percentage
increase minus 2.0 percentage points for hospitals in all areas,
(XII) for fiscal year 1997, the market basket percentage
increase minus 0.5 percentage point for hospitals in all areas,
(XIII) for fiscal year 1998, 0 percent,
(XIV) for fiscal year 1999, the market basket percentage
increase minus 1.9 percentage points for hospitals in all areas,
(XV) for fiscal year 2000, the market basket percentage
increase minus 1.8 percentage points for hospitals in all areas,
(XVI) for fiscal year 2001, the market basket percentage
increase for hospitals in all areas,
(XVII) for fiscal year 2002, the market basket percentage
increase minus 0.55 percentage points for hospitals in all areas,
(XVIII) for fiscal year 2003, the market basket percentage
increase minus 0.55 percentage points for hospitals in all areas,
(XIX) for each of fiscal years 2004 through 2007, subject to
clause (vii), the market basket percentage increase for hospitals
in all areas; (!2) and
(XX) for fiscal year 2008 and each subsequent fiscal year, the
market basket percentage increase for hospitals in all areas.
(ii) For purposes of subparagraphs (A) and (E), the "applicable
percentage increase" for 12-month cost reporting periods beginning
during -
(I) fiscal year 1986, is 0.5 percent,
(II) fiscal year 1987, is 1.15 percent,
(III) fiscal year 1988, is the market basket percentage
increase minus 2.0 percentage points,
(IV) a subsequent fiscal year ending on or before September 30,
1993, is the market basket percentage increase,
(V) fiscal years 1994 through 1997, is the market basket
percentage increase minus the applicable reduction (as defined in
clause (v)(II)), or in the case of a hospital for a fiscal year
for which the hospital's update adjustment percentage (as defined
in clause (v)(I)) is at least 10 percent, the market basket
percentage increase,
(VI) for fiscal year 1998, is 0 percent,
(VII) for fiscal years 1999 through 2002, is the applicable
update factor specified under clause (vi) for the fiscal year,
and
(VIII) subsequent fiscal years is the market basket percentage
increase.
(iii) For purposes of this subparagraph, the term "market basket
percentage increase" means, with respect to cost reporting periods
and discharges occurring in a fiscal year, the percentage,
estimated by the Secretary before the beginning of the period or
fiscal year, by which the cost of the mix of goods and services
(including personnel costs but excluding nonoperating costs)
comprising routine, ancillary, and special care unit inpatient
hospital services, based on an index of appropriately weighted
indicators of changes in wages and prices which are representative
of the mix of goods and services included in such inpatient
hospital services, for the period or fiscal year will exceed the
cost of such mix of goods and services for the preceding 12-month
cost reporting period or fiscal year.
(iv) For purposes of subparagraphs (C) and (D), the "applicable
percentage increase" is -
(I) for 12-month cost reporting periods beginning during fiscal
years 1986 through 1993, the applicable percentage increase
specified in clause (ii),
(II) for fiscal year 1994, the market basket percentage
increase minus 2.3 percentage points (adjusted to exclude any
portion of a cost reporting period beginning during fiscal year
1993 for which the applicable percentage increase is determined
under subparagraph (I)),
(III) for fiscal year 1995, the market basket percentage
increase minus 2.2 percentage points, and
(IV) for fiscal year 1996 and each subsequent fiscal year, the
applicable percentage increase under clause (i).
(v) For purposes of clause (ii)(V) -
(I) a hospital's "update adjustment percentage" for a fiscal
year is the percentage by which the hospital's allowable
operating costs of inpatient hospital services recognized under
this subchapter for the cost reporting period beginning in fiscal
year 1990 exceeds the hospital's target amount (as determined
under subparagraph (A)) for such cost reporting period, increased
for each fiscal year (beginning with fiscal year 1994) by the sum
of any of the hospital's applicable reductions under subclause
(V) for previous fiscal years; and
(II) the "applicable reduction" with respect to a hospital for
a fiscal year is the lesser of 1 percentage point or the
percentage point difference between 10 percent and the hospital's
update adjustment percentage for the fiscal year.
(vi) For purposes of clause (ii)(VII) for a fiscal year, if a
hospital's allowable operating costs of inpatient hospital services
recognized under this subchapter for the most recent cost reporting
period for which information is available -
(I) is equal to, or exceeds, 110 percent of the hospital's
target amount (as determined under subparagraph (A)) for such
cost reporting period, the applicable update factor specified
under this clause is the market basket percentage;
(II) exceeds 100 percent, but is less than 110 percent, of such
target amount for the hospital, the applicable update factor
specified under this clause is 0 percent or, if greater, the
market basket percentage minus 0.25 percentage points for each
percentage point by which such allowable operating costs
(expressed as a percentage of such target amount) is less than
110 percent of such target amount;
(III) is equal to, or less than 100 percent, but exceeds 2/3
of such target amount for the hospital, the applicable update
factor specified under this clause is 0 percent or, if greater,
the market basket percentage minus 2.5 percentage points; or
(IV) does not exceed 2/3 of such target amount for the
hospital, the applicable update factor specified under this
clause is 0 percent.
(vii)(I) For purposes of clause (i)(XIX) for each of fiscal years
2005 through 2007, in a case of a subsection (d) hospital that does
not submit data to the Secretary in accordance with subclause (II)
with respect to such a fiscal year, the applicable percentage
increase under such clause for such fiscal year shall be reduced by
0.4 percentage points. Such reduction shall apply only with respect
to the fiscal year involved, and the Secretary shall not take into
account such reduction in computing the applicable percentage
increase under clause (i)(XIX) for a subsequent fiscal year.
(II) Each subsection (d) hospital shall submit to the Secretary
quality data (for a set of 10 indicators established by the
Secretary as of November 1, 2003) that relate to the quality of
care furnished by the hospital in inpatient settings in a form and
manner, and at a time, specified by the Secretary for purposes of
this clause, but with respect to fiscal year 2005, the Secretary
shall provide for a 30-day grace period for the submission of data
by a hospital.
(C) In the case of a hospital that is a sole community hospital
(as defined in subsection (d)(5)(D)(iii) of this section), subject
to subparagraph (I), the term "target amount" means -
(i) with respect to the first 12-month cost reporting period in
which this subparagraph is applied to the hospital -
(I) the allowable operating costs of inpatient hospital
services (as defined in subsection (a)(4) of this section)
recognized under this subchapter for the hospital for the 12-
month cost reporting period (in this subparagraph referred to
as the "base cost reporting period") preceding the first cost
reporting period for which this subsection was in effect with
respect to such hospital, increased (in a compounded manner) by
-
(II) the applicable percentage increases applied to such
hospital under this paragraph for cost reporting periods after
the base cost reporting period and up to and including such
first 12-month cost reporting period,
(ii) with respect to a later cost reporting period beginning
before fiscal year 1994, the target amount for the preceding 12-
month cost reporting period, increased by the applicable
percentage increase under subparagraph (B)(iv) for discharges
occurring in the fiscal year in which that later cost reporting
period begins,
(iii) with respect to discharges occurring in fiscal year 1994,
the target amount for the cost reporting period beginning in
fiscal year 1993 increased by the applicable percentage increase
under subparagraph (B)(iv), or
(iv) with respect to discharges occurring in fiscal year 1995
and each subsequent fiscal year, the target amount for the
preceding year increased by the applicable percentage increase
under subparagraph (B)(iv).
There shall be substituted for the base cost reporting period
described in clause (i) a hospital's cost reporting period (if any)
beginning during fiscal year 1987 if such substitution results in
an increase in the target amount for the hospital.
(D) For cost reporting periods ending on or before September 30,
1994, and for discharges beginning on or after October 1, 1997, and
before October 1, 2006, in the case of a hospital that is a
medicare-dependent, small rural hospital (as defined in subsection
(d)(5)(G) of this section), the term "target amount" means -
(i) with respect to the first 12-month cost reporting period in
which this subparagraph is applied to the hospital -
(I) the allowable operating costs of inpatient hospital
services (as defined in subsection (a)(4) of this section)
recognized under this subchapter for the hospital for the 12-
month cost reporting period (in this subparagraph referred to
as the "base cost reporting period") preceding the first cost
reporting period for which this subsection was in effect with
respect to such hospital, increased (in a compounded manner) by
-
(II) the applicable percentage increases applied to such
hospital under this paragraph for cost reporting periods after
the base cost reporting period and up to and including such
first 12-month cost reporting period, or
(ii) with respect to a later cost reporting period beginning
before fiscal year 1994, the target amount for the preceding 12-
month cost reporting period, increased by the applicable
percentage increase under subparagraph (B)(iv) for discharges
occurring in the fiscal year in which that later cost reporting
period begins,
(iii) with respect to discharges occurring in fiscal year 1994,
the target amount for the cost reporting period beginning in
fiscal year 1993 increased by the applicable percentage increase
under subparagraph (B)(iv), and
(iv) with respect to discharges occurring during fiscal year
1998 through fiscal year 2005, the target amount for the
preceding year increased by the applicable percentage increase
under subparagraph (B)(iv).
There shall be substituted for the base cost reporting period
described in clause (i) a hospital's cost reporting period (if any)
beginning during fiscal year 1987 if such substitution results in
an increase in the target amount for the hospital.
(E) In the case of a hospital described in clause (v) of
subsection (d)(1)(B) of this section, the term "target amount"
means -
(i) with respect to the first 12-month cost reporting period in
which this subparagraph is applied to the hospital -
(I) the allowable operating costs of inpatient hospital
services (as defined in subsection (a)(4) of this section)
recognized under this subchapter for the hospital for the 12-
month cost reporting period (in this subparagraph referred to
as the "base cost reporting period") preceding the first cost
reporting period for which this subsection was in effect with
respect to such hospital, increased (in a compounded manner) by
-
(II) the sum of the applicable percentage increases applied
to such hospital under this paragraph for cost reporting
periods after the base cost reporting period and up to and
including such first 12-month cost reporting period, or
(ii) with respect to a later cost reporting period, the target
amount for the preceding 12-month cost reporting period,
increased by the applicable percentage increase under
subparagraph (B)(ii) for that later cost reporting period.
There shall be substituted for the base cost reporting period
described in clause (i) a hospital's cost reporting period (if any)
beginning during fiscal year 1987 if such substitution results in
an increase in the target amount for the hospital.
(F)(i) In the case of a hospital (or unit described in the matter
following clause (v) of subsection (d)(1)(B) of this section) that
received payment under this subsection for inpatient hospital
services furnished during cost reporting periods beginning before
October 1, 1990, that is within a class of hospital described in
clause (iii), and that elects (in a form and manner determined by
the Secretary) this subparagraph to apply to the hospital, the
target amount for the hospital's 12-month cost reporting period
beginning during fiscal year 1998 is equal to the average described
in clause (ii).
(ii) The average described in this clause for a hospital or unit
shall be determined by the Secretary as follows:
(I) The Secretary shall determine the allowable operating costs
for inpatient hospital services for the hospital or unit for each
of the 5 cost reporting periods for which the Secretary has the
most recent settled cost reports as of August 5, 1997.
(II) The Secretary shall increase the amount determined under
subclause (I) for each cost reporting period by the applicable
percentage increase under subparagraph (B)(ii) for each
subsequent cost reporting period up to the cost reporting period
described in clause (i).
(III) The Secretary shall identify among such 5 cost reporting
periods the cost reporting periods for which the amount
determined under subclause (II) is the highest, and the lowest.
(IV) The Secretary shall compute the averages of the amounts
determined under subclause (II) for the 3 cost reporting periods
not identified under subclause (III).
(iii) For purposes of this subparagraph, each of the following
shall be treated as a separate class of hospital:
(I) Hospitals described in clause (i) of subsection (d)(1)(B)
of this section and psychiatric units described in the matter
following clause (v) of such subsection.
(II) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v)
of such subsection.
(III) Hospitals described in clause (iii) of such subsection.
(IV) Hospitals described in clause (iv) of such subsection.
(V) Hospitals described in clause (v) of such subsection.
(G)(i) In the case of a qualified long-term care hospital (as
defined in clause (ii)) that elects (in a form and manner
determined by the Secretary) this subparagraph to apply to the
hospital, the target amount for the hospital's 12-month cost
reporting period beginning during fiscal year 1998 is equal to the
allowable operating costs of inpatient hospital services (as
defined in subsection (a)(4) of this section) recognized under this
subchapter for the hospital for the 12-month cost reporting period
beginning during fiscal year 1996, increased by the applicable
percentage increase for the cost reporting period beginning during
fiscal year 1997.
(ii) In clause (i), a "qualified long-term care hospital" means,
with respect to a cost reporting period, a hospital described in
clause (iv) of subsection (d)(1)(B) of this section during each of
the 2 cost reporting periods for which the Secretary has the most
recent settled cost reports as of August 5, 1997, for each of which
-
(I) the hospital's allowable operating costs of inpatient
hospital services recognized under this subchapter exceeded 115
percent of the hospital's target amount, and
(II) the hospital would have a disproportionate patient
percentage of at least 70 percent (as determined by the Secretary
under subsection (d)(5)(F)(vi) of this section) if the hospital
were a subsection (d) hospital.
(H)(i) In the case of a hospital or unit that is within a class
of hospital described in clause (iv), for a cost reporting period
beginning during fiscal years 1998 through 2002, the target amount
for such a hospital or unit may not exceed the amount as updated up
to or for such cost reporting period under clause (ii).
(ii)(I) In the case of a hospital or unit that is within a class
of hospital described in clause (iv), the Secretary shall estimate
the 75th percentile of the target amounts for such hospitals within
such class for cost reporting periods ending during fiscal year
1996, as adjusted under clause (iii).
(II) The Secretary shall update the amount determined under
subclause (I), for each cost reporting period after the cost
reporting period described in such subclause and up to the first
cost reporting period beginning on or after October 1, 1997, by a
factor equal to the market basket percentage increase.
(III) For cost reporting periods beginning during each of fiscal
years 1999 through 2002, subject to subparagraph (J), the Secretary
shall update such amount by a factor equal to the market basket
percentage increase.
(iii) In applying clause (ii)(I) in the case of a hospital or
unit, the Secretary shall provide for an appropriate adjustment to
the labor-related portion of the amount determined under such
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average
of such costs within the same class of hospital.
(iv) For purposes of this subparagraph, each of the following
shall be treated as a separate class of hospital:
(I) Hospitals described in clause (i) of subsection (d)(1)(B)
of this section and psychiatric units described in the matter
following clause (v) of such subsection.
(II) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v)
of such subsection.
(III) Hospitals described in clause (iv) of such subsection.
(I)(i) For cost reporting periods beginning on or after October
1, 2000, in the case of a sole community hospital there shall be
substituted for the amount otherwise determined under subsection
(d)(5)(D)(i) of this section, if such substitution results in a
greater amount of payment under this section for the hospital -
(I) with respect to discharges occurring in fiscal year 2001,
75 percent of the amount otherwise applicable to the hospital
under subsection (d)(5)(D)(i) of this section (referred to in
this clause as the "subsection (d)(5)(D)(i) amount") and 25
percent of the rebased target amount (as defined in clause (ii));
(II) with respect to discharges occurring in fiscal year 2002,
50 percent of the subsection (d)(5)(D)(i) amount and 50 percent
of the rebased target amount;
(III) with respect to discharges occurring in fiscal year 2003,
25 percent of the subsection (d)(5)(D)(i) amount and 75 percent
of the rebased target amount; and
(IV) with respect to discharges occurring after fiscal year
2003, 100 percent of the rebased target amount.
(ii) For purposes of this subparagraph, the "rebased target
amount" has the meaning given the term "target amount" in
subparagraph (C) except that -
(I) there shall be substituted for the base cost reporting
period the 12-month cost reporting period beginning during fiscal
year 1996;
(II) any reference in subparagraph (C)(i) to the "first cost
reporting period" described in such subparagraph is deemed a
reference to the first cost reporting period beginning on or
after October 1, 2000; and
(III) applicable increase percentage shall only be applied
under subparagraph (C)(iv) for discharges occurring in fiscal
years beginning with fiscal year 2002.
(iii) In no case shall a hospital be denied treatment as a sole
community hospital or payment (on the basis of a target rate as
such as a hospital) because data are unavailable for any cost
reporting period due to changes in ownership, changes in fiscal
intermediaries, or other extraordinary circumstances, so long as
data for at least one applicable base cost reporting period is
available.
(J) For cost reporting periods beginning during fiscal year 2001,
for a hospital described in subsection (d)(1)(B)(iv) of this
section -
(i) the limiting or cap amount otherwise determined under
subparagraph (H) shall be increased by 2 percent; and
(ii) the target amount otherwise determined under subparagraph
(A) shall be increased by 25 percent (subject to the limiting or
cap amount determined under subparagraph (H), as increased by
clause (i)).
(4)(A)(i) The Secretary shall provide for an exception and
adjustment to (and in the case of a hospital described in
subsection (d)(1)(B)(iii) of this section, may provide an exemption
from) the method under this subsection for determining the amount
of payment to a hospital where events beyond the hospital's control
or extraordinary circumstances, including changes in the case mix
of such hospital, create a distortion in the increase in costs for
a cost reporting period (including any distortion in the costs for
the base period against which such increase is measured). The
Secretary may provide for such other exemptions from, and
exceptions and adjustments to, such method as the Secretary deems
appropriate, including the assignment of a new base period which is
more representative, as determined by the Secretary, of the
reasonable and necessary cost of inpatient services and including
those which he deems necessary to take into account a decrease in
the inpatient hospital services that a hospital provides and that
are customarily provided directly by similar hospitals which
results in a significant distortion in the operating costs of
inpatient hospital services. The Secretary shall announce a
decision on any request for an exemption, exception, or adjustment
under this paragraph not later than 180 days after receiving a
completed application from the intermediary for such exemption,
exception, or adjustment, and shall include in such decision a
detailed explanation of the grounds on which such request was
approved or denied.
(ii) The payment reductions under paragraph (3)(B)(ii)(V) shall
not be considered by the Secretary in making adjustments pursuant
to clause (i). In making such reductions, the Secretary shall treat
the applicable update factor described in paragraph (3)(B)(vi) for
a fiscal year as being equal to the market basket percentage for
that year.
(B) In determining under subparagraph (A) whether to assign a new
base period which is more representative of the reasonable and
necessary cost to a hospital of providing inpatient services, the
Secretary shall take into consideration -
(i) changes in applicable technologies and medical practices,
or differences in the severity of illness among patients, that
increase the hospital's costs;
(ii) whether increases in wages and wage-related costs for
hospitals located in the geographic area in which the hospital is
located exceed the average of the increases in such costs paid by
hospitals in the United States; and
(iii) such other factors as the Secretary considers appropriate
in determining increases in the hospital's costs of providing
inpatient services.
(C) Paragraph (1) shall not apply to payment of hospitals which
is otherwise determined under paragraph (3) of section 1395f(b) of
this title.
(5) In the case of any hospital having any cost reporting period
of other than a 12-month period, the Secretary shall determine the
12-month period which shall be used for purposes of this section.
(6) In the case of any hospital which becomes subject to the
taxes under section 3111 of the Internal Revenue Code of 1986, with
respect to any or all of its employees, for part or all of a cost
reporting period, and was not subject to such taxes with respect to
any or all of its employees for all or part of the 12-month base
cost reporting period referred to in subsection (b)(3)(A)(i) of
this section, the Secretary shall provide for an adjustment by
increasing the base period amount described in such subsection for
such hospital by an amount equal to the amount of such taxes which
would have been paid or accrued by such hospital for such base
period if such hospital had been subject to such taxes for all of
such base period with respect to all its employees, minus the
amount of any such taxes actually paid or accrued for such base
period.
(7)(A) Notwithstanding paragraph (1), in the case of a hospital
or unit that is within a class of hospital described in
subparagraph (B) which first receives payments under this section
on or after October 1, 1997 -
(i) for each of the first 2 cost reporting periods for which
the hospital has a settled cost report, the amount of the payment
with respect to operating costs described in paragraph (1) under
part A of this subchapter on a per discharge or per admission
basis (as the case may be) is equal to the lesser of -
(I) the amount of operating costs for such respective period,
or
(II) 110 percent of the national median (as estimated by the
Secretary) of the target amount for hospitals in the same class
as the hospital for cost reporting periods ending during fiscal
year 1996, updated by the hospital market basket increase
percentage to the fiscal year in which the hospital first
received payments under this section, as adjusted under
subparagraph (C); and
(ii) for purposes of computing the target amount for the
subsequent cost reporting period, the target amount for the
preceding cost reporting period is equal to the amount determined
under clause (i) for such preceding period.
(B) For purposes of this paragraph, each of the following shall
be treated as a separate class of hospital:
(i) Hospitals described in clause (i) of subsection (d)(1)(B)
of this section and psychiatric units described in the matter
following clause (v) of such subsection.
(ii) Hospitals described in clause (ii) of such subsection and
rehabilitation units described in the matter following clause (v)
of such subsection.
(iii) Hospitals described in clause (iv) of such subsection.
(C) In applying subparagraph (A)(i)(II) in the case of a hospital
or unit, the Secretary shall provide for an appropriate adjustment
to the labor-related portion of the amount determined under such
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average
of such costs within the same class of hospital.
(c) Payment in accordance with State hospital reimbursement control
system; amount of payment; discontinuance of payments
(1) The Secretary may provide, in his discretion, that payment
with respect to services provided by a hospital in a State may be
made in accordance with a hospital reimbursement control system in
a State, rather than in accordance with the other provisions of
this title, if the chief executive officer of the State requests
such treatment and if -
(A) the Secretary determines that the system, if approved under
this subsection, will apply (i) to substantially all non-Federal
acute care hospitals (as defined by the Secretary) in the State
and (ii) to the review of at least 75 percent of all revenues or
expenses in the State for inpatient hospital services and of
revenues or expenses for inpatient hospital services provided
under the State's plan approved under subchapter XIX of this
chapter;
(B) the Secretary has been provided satisfactory assurances as
to the equitable treatment under the system of all entities
(including Federal and State programs) that pay hospitals for
inpatient hospital services, of hospital employees, and of
hospital patients;
(C) the Secretary has been provided satisfactory assurances
that under the system, over 36-month periods (the first such
period beginning with the first month in which this subsection
applies to that system in the State), the amount of payments made
under this subchapter under such system will not exceed the
amount of payments which would otherwise have been made under
this subchapter not using such system;
(D) the Secretary determines that the system will not preclude
an eligible organization (as defined in section 1395mm(b) of this
title) from negotiating directly with hospitals with respect to
the organization's rate of payment for inpatient hospital
services; and
(E) the Secretary determines that the system requires hospitals
to meet the requirement of section 1395cc(a)(1)(G) of this title
and the system provides for the exclusion of certain costs in
accordance with section 1395y(a)(14) of this title (except for
such waivers thereof as the Secretary provides by regulation).
The Secretary cannot deny the application of a State under this
subsection on the ground that the State's hospital reimbursement
control system is based on a payment methodology other than on the
basis of a diagnosis-related group or on the ground that the amount
of payments made under this subchapter under such system must be
less than the amount of payments which would otherwise have been
made under this subchapter not using such system. If the Secretary
determines that the conditions described in subparagraph (C) are
based on maintaining payment amounts at no more than a specified
percentage increase above the payment amounts in a base period, the
State has the option of applying such test (for inpatient hospital
services under part A of this subchapter) on an aggregate payment
basis or on the basis of the amount of payment per inpatient
discharge or admission. If the Secretary determines that the
conditions described in subparagraph (C) are based on maintaining
aggregate payment amounts below a national average percentage
increase in total payments under part A of this subchapter for
inpatient hospital services, the Secretary cannot deny the
application of a State under this subsection on the ground that the
State's rate of increase in such payments for such services must be
less than such national average rate of increase.
(2) In determining under paragraph (1)(C) the amount of payment
which would otherwise have been made under this subchapter for a
State, the Secretary may provide for appropriate adjustment of such
amount to take into account previous reductions effected in the
amount of payments made under this subchapter in the State due to
the operation of the hospital reimbursement control system in the
State if the system has resulted in an aggregate rate of increase
in operating costs of inpatient hospital services (as defined in
subsection (a)(4) of this section) under this subchapter for
hospitals in the State which is less than the aggregate rate of
increase in such costs under this subchapter for hospitals in the
United States.
(3) The Secretary shall discontinue payments under a system
described in paragraph (1) if the Secretary -
(A) determines that the system no longer meets the requirements
of subparagraphs (A), (D), and (E) of paragraph (1) and, if
applicable, the requirements of paragraph (5), or
(B) has reason to believe that the assurances described in
subparagraph (B) or (C) of paragraph (1) (or, if applicable, in
paragraph (5)) are not being (or will not be) met.
(4) The Secretary shall approve the request of a State under
paragraph (1) with respect to a hospital reimbursement control
system if -
(A) the requirements of subparagraphs (A), (B), (C), (D), and
(E) of paragraph (1) have been met with respect to the system,
and
(B) with respect to that system a waiver of certain
requirements of this subchapter has been approved on or before
(and which is in effect as of) April 20, 1983, pursuant to
section 1395b-1(a) of this title or section 222(a) of the Social
Security Amendments of 1972.
With respect to a State system described in this paragraph, the
Secretary shall judge the effectiveness of such system on the basis
of its rate of increase or inflation in inpatient hospital payments
for individuals under this subchapter, as compared to the national
rate of increase or inflation for such payments, with the State
retaining the option to have the test applied on the basis of the
aggregate payments under the State system as compared to aggregate
payments which would have been made under the national system since
October 1, 1984, to the most recent date for which annual data are
available.
(5) The Secretary shall approve the request of a State under
paragraph (1) with respect to a hospital reimbursement control
system if -
(A) the requirements of subparagraphs (A), (B), (C), (D), and
(E) of paragraph (1) have been met with respect to the system;
(B) the Secretary determines that the system -
(i) is operated directly by the State or by an entity
designated pursuant to State law,
(ii) provides for payment of hospitals covered under the
system under a methodology (which sets forth exceptions and
adjustments, as well as any method for changes in the
methodology) by which rates or amounts to be paid for hospital
services during a specified period are established under the
system prior to the defined rate period, and
(iii) hospitals covered under the system will make such
reports (in lieu of cost and other reports, identified by the
Secretary, otherwise required under this subchapter) as the
Secretary may require in order to properly monitor assurances
provided under this subsection;
(C) the State has provided the Secretary with satisfactory
assurances that operation of the system will not result in any
change in hospital admission practices which result in -
(i) a significant reduction in the proportion of patients
(receiving hospital services covered under the system) who have
no third-party coverage and who are unable to pay for hospital
services,
(ii) a significant reduction in the proportion of individuals
admitted to hospitals for inpatient hospital services for which
payment is (or is likely to be) less than the anticipated
charges for or costs of such services,
(iii) the refusal to admit patients who would be expected to
require unusually costly or prolonged treatment for reasons
other than those related to the appropriateness of the care
available at the hospital, or
(iv) the refusal to provide emergency services to any person
who is in need of emergency services if the hospital provides
such services;
(D) any change by the State in the system which has the effect
of materially reducing payments to hospitals can only take effect
upon 60 days notice to the Secretary and to the hospitals the
payment to which is likely to be materially affected by the
change; and
(E) the State has provided the Secretary with satisfactory
assurances that in the development of the system the State has
consulted with local governmental officials concerning the impact
of the system on public hospitals.
The Secretary shall respond to requests of States under this
paragraph within 60 days of the date the request is submitted to
the Secretary.
(6) If the Secretary determines that the assurances described in
paragraph (1)(C) have not been met with respect to any 36-month
period, the Secretary may reduce payments under this subchapter to
hospitals under the system in an amount equal to the amount by
which the payment under this subchapter under such system for such
period exceeded the amount of payments which would otherwise have
been made under this subchapter not using such system.
(7) In the case of a State which made a request under paragraph
(5) before December 31, 1984, for the approval of a State hospital
reimbursement control system and which request was approved -
(A) in applying paragraphs (1)(C) and (6), a reference to a "36-
month period" is deemed a reference to a "48-month period", and
(B) in order to allow the State the opportunity to provide the
assurances described in paragraph (1)(C) for a 48-month period,
the Secretary may not discontinue payments under the system,
under the authority of paragraph (3)(A) because the Secretary has
reason to believe that such assurances are not being (or will not
be) met, before July 1, 1986.
(d) Inpatient hospital service payments on basis of prospective
rates; Medicare Geographical Classification Review Board
(1)(A) Notwithstanding section 1395f(b) of this title but subject
to the provisions of section 1395e of this title, the amount of the
payment with respect to the operating costs of inpatient hospital
services (as defined in subsection (a)(4) of this section) of a
subsection (d) hospital (as defined in subparagraph (B)) for
inpatient hospital discharges in a cost reporting period or in a
fiscal year -
(i) beginning on or after October 1, 1983, and before October
1, 1984, is equal to the sum of -
(I) the target percentage (as defined in subparagraph (C)) of
the hospital's target amount for the cost reporting period (as
defined in subsection (b)(3)(A) of this section, but determined
without the application of subsection (a) of this section), and
(II) the DRG percentage (as defined in subparagraph (C)) of
the regional adjusted DRG prospective payment rate determined
under paragraph (2) for such discharges;
(ii) beginning on or after October 1, 1984, and before October
1, 1987, is equal to the sum of -
(I) the target percentage (as defined in subparagraph (C)) of
the hospital's target amount for the cost reporting period (as
defined in subsection (b)(3)(A) of this section, but determined
without the application of subsection (a) of this section), and
(II) the DRG percentage (as defined in subparagraph (C)) of
the applicable combined adjusted DRG prospective payment rate
determined under subparagraph (D) for such discharges; or
(iii) beginning on or after April 1, 1988, is equal to -
(I) the national adjusted DRG prospective payment rate
determined under paragraph (3) for such discharges, or
(II) for discharges occurring during a fiscal year ending on
or before September 30, 1996, the sum of 85 percent of the
national adjusted DRG prospective payment rate determined under
paragraph (3) for such discharges and 15 percent of the
regional adjusted DRG prospective payment rate determined under
such paragraph, but only if the average standardized amount
(described in clause (i)(I) or clause (ii)(I) of paragraph
(3)(D)) for hospitals within the region of, and in the same
large urban or other area (or, for discharges occurring during
a fiscal year ending on or before September 30, 1994, the same
large urban or other area) as, the hospital is greater than the
average standardized amount (described in the respective
clause) for hospitals within the United States in that type of
area for discharges occurring during such fiscal year.
(B) As used in this section, the term "subsection (d) hospital"
means a hospital located in one of the fifty States or the District
of Columbia other than -
(i) a psychiatric hospital (as defined in section 1395x(f) of
this title),
(ii) a rehabilitation hospital (as defined by the Secretary),
(iii) a hospital whose inpatients are predominantly individuals
under 18 years of age,
(iv)(I) a hospital which has an average inpatient length of
stay (as determined by the Secretary) of greater than 25 days, or
(II) a hospital that first received payment under this
subsection in 1986 which has an average inpatient length of stay
(as determined by the Secretary) of greater than 20 days and that
has 80 percent or more of its annual medicare inpatient
discharges with a principal diagnosis that reflects a finding of
neoplastic disease in the 12-month cost reporting period ending
in fiscal year 1997, or
(v)(I) a hospital that the Secretary has classified, at any
time on or before December 31, 1990,(!3) (or, in the case of a
hospital that, as of December 19, 1989, is located in a State
operating a demonstration project under section 1395f(b) of this
title, on or before December 31, 1991) for purposes of applying
exceptions and adjustments to payment amounts under this
subsection, as a hospital involved extensively in treatment for
or research on cancer,
(II) a hospital that was recognized as a comprehensive cancer
center or clinical cancer research center by the National Cancer
Institute of the National Institutes of Health as of April 20,
1983, that is located in a State which, as of December 19, 1989,
was not operating a demonstration project under section 1395f(b)
of this title, that applied and was denied, on or before December
31, 1990, for classification as a hospital involved extensively
in treatment for or research on cancer under this clause (as in
effect on the day before August 5, 1997), that as of August 5,
1997, is licensed for less than 50 acute care beds, and that
demonstrates for the 4-year period ending on December 31, 1996,
that at least 50 percent of its total discharges have a principal
finding of neoplastic disease, as defined in subparagraph (E), or
(III) a hospital that was recognized as a clinical cancer
research center by the National Cancer Institute of the National
Institutes of Health as of February 18, 1998, that has never been
reimbursed for inpatient hospital services pursuant to a
reimbursement system under a demonstration project under section
1395f(b) of this title, that is a freestanding facility organized
primarily for treatment of and research on cancer and is not a
unit of another hospital, that as of December 21, 2000, is
licensed for 162 acute care beds, and that demonstrates for the 4-
year period ending on June 30, 1999, that at least 50 percent of
its total discharges have a principal finding of neoplastic
disease, as defined in subparagraph (E);
and, in accordance with regulations of the Secretary, does not
include a psychiatric or rehabilitation unit of the hospital which
is a distinct part of the hospital (as defined by the Secretary). A
hospital that was classified by the Secretary on or before
September 30, 1995, as a hospital described in clause (iv) shall
continue to be so classified notwithstanding that it is located in
the same building as, or on the same campus as, another hospital.
(C) For purposes of this subsection, for cost reporting periods
beginning -
(i) on or after October 1, 1983, and before October 1, 1984,
the "target percentage" is 75 percent and the "DRG percentage" is
25 percent;
(ii) on or after October 1, 1984, and before October 1, 1985,
the "target percentage" is 50 percent and the "DRG percentage" is
50 percent;
(iii) on or after October 1, 1985, and before October 1, 1986,
the "target percentage" is 45 percent and the "DRG percentage" is
55 percent; and
(iv) on or after October 1, 1986, and before October 1, 1987,
the "target percentage" is 25 percent and the "DRG percentage" is
75 percent.
(D) For purposes of subparagraph (A)(ii)(II), the "applicable
combined adjusted DRG prospective payment rate" for discharges
occurring -
(i) on or after October 1, 1984, and before October 1, 1986, is
a combined rate consisting of 25 percent of the national adjusted
DRG prospective payment rate, and 75 percent of the regional
adjusted DRG prospective payment rate, determined under paragraph
(3) for such discharges; and
(ii) on or after October 1, 1986, and before October 1, 1987,
is a combined rate consisting of 50 percent of the national
adjusted DRG prospective payment rate, and 50 percent of the
regional adjusted DRG prospective payment rate, determined under
paragraph (3) for such discharges.
(E) For purposes of subclauses (II) and (III) of subparagraph
(B)(v) only, the term "principal finding of neoplastic disease"
means the condition established after study to be chiefly
responsible for occasioning the admission of a patient to a
hospital, except that only discharges with ICD-9-CM principal
diagnosis codes of 140 through 239, V58.0, V58.1, V66.1, V66.2, or
990 will be considered to reflect such a principal diagnosis.
(2) The Secretary shall determine a national adjusted DRG
prospective payment rate, for each inpatient hospital discharge in
fiscal year 1984 involving inpatient hospital services of a
subsection (d) hospital in the United States, and shall determine a
regional adjusted DRG prospective payment rate for such discharges
in each region, for which payment may be made under part A of this
subchapter. Each such rate shall be determined for hospitals
located in urban or rural areas within the United States or within
each such region, respectively, as follows:
(A) Determining allowable individual hospital costs for base
period. - The Secretary shall determine the allowable operating
costs per discharge of inpatient hospital services for the
hospital for the most recent cost reporting period for which data
are available.
(B) Updating for fiscal year 1984. - The Secretary shall update
each amount determined under subparagraph (A) for fiscal year
1984 by -
(i) updating for fiscal year 1983 by the estimated average
rate of change of hospital costs industry-wide between the cost
reporting period used under such subparagraph and fiscal year
1983 and the most recent case-mix data available, and
(ii) projecting for fiscal year 1984 by the applicable
percentage increase (as defined in subsection (b)(3)(B) of this
section) for fiscal year 1984.
(C) Standardizing amounts. - The Secretary shall standardize
the amount updated under subparagraph (B) for each hospital by -
(i) excluding an estimate of indirect medical education costs
(taking into account, for discharges occurring after September
30, 1986, the amendments made by section 9104(a) of the
Medicare and Medicaid Budget Reconciliation Amendments of
1985), except that the Secretary shall not take into account
any reduction in the amount of additional payments under
paragraph (5)(B)(ii) resulting from the amendment made by
section 4621(a)(1) of the Balanced Budget Act of 1997 or any
additional payments under such paragraph resulting from the
application of section 111 of the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999, of section 302 of the
Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000, or the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003,
(ii) adjusting for variations among hospitals by area in the
average hospital wage level,
(iii) adjusting for variations in case mix among hospitals,
and
(iv) for discharges occurring on or after October 1, 1986,
excluding an estimate of the additional payments to certain
hospitals to be made under paragraph (5)(F), except that the
Secretary shall not exclude additional payments under such
paragraph made as a result of the enactment of section 6003(c)
of the Omnibus Budget Reconciliation Act of 1989, the enactment
of section 4002(b) of the Omnibus Budget Reconciliation Act of
1990, the enactment of section 303 of the Medicare, Medicaid,
and SCHIP Benefits Improvement and Protection Act of 2000, or
the enactment of section 402(a)(1) (!4) of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003.
(D) Computing urban and rural averages. - The Secretary shall
compute an average of the standardized amounts determined under
subparagraph (C) for the United States and for each region -
(i) for all subsection (d) hospitals located in an urban area
within the United States or that region, respectively, and
(ii) for all subsection (d) hospitals located in a rural area
within the United States or that region, respectively.
For purposes of this subsection, the term "region" means one of
the nine census divisions, comprising the fifty States and the
District of Columbia, established by the Bureau of the Census for
statistical and reporting purposes; the term "urban area" means
an area within a Metropolitan Statistical Area (as defined by the
Office of Management and Budget) or within such similar area as
the Secretary has recognized under subsection (a) of this section
by regulation; the term "large urban area" means, with respect to
a fiscal year, such an urban area which the Secretary determines
(in the publications described in subsection (e)(5) of this
section before the fiscal year) has a population of more than
1,000,000 (as determined by the Secretary based on the most
recent available population data published by the Bureau of the
Census); and the term "rural area" means any area outside such an
area or similar area. A hospital located in a Metropolitan
Statistical Area shall be deemed to be located in the region in
which the largest number of the hospitals in the same
Metropolitan Statistical Area are located, or, at the option of
the Secretary, the region in which the majority of the inpatient
discharges (with respect to which payments are made under this
subchapter) from hospitals in the same Metropolitan Statistical
Area are made.
(E) Reducing for value of outlier payments. - The Secretary
shall reduce each of the average standardized amounts determined
under subparagraph (D) by a proportion equal to the proportion
(estimated by the Secretary) of the amount of payments under this
subsection based on DRG prospective payment rates which are
additional payments described in paragraph (5)(A) (relating to
outlier payments).
(F) Maintaining budget neutrality. - The Secretary shall adjust
each of such average standardized amounts as may be required
under subsection (e)(1)(B) of this section for that fiscal year.
(G) Computing drg-specific rates for urban and rural hospitals
in the united states and in each region. - For each discharge
classified within a diagnosis-related group, the Secretary shall
establish a national DRG prospective payment rate and shall
establish a regional DRG prospective payment rate for each
region, each of which is equal -
(i) for hospitals located in an urban area in the United
States or that region (respectively), to the product of -
(I) the average standardized amount (computed under
subparagraph (D), reduced under subparagraph (E), and
adjusted under subparagraph (F)) for hospitals located in an
urban area in the United States or that region, and
(II) the weighting factor (determined under paragraph
(4)(B)) for that diagnosis-related group; and
(ii) for hospitals located in a rural area in the United
States or that region (respectively), to the product of -
(I) the average standardized amount (computed under
subparagraph (D), reduced under subparagraph (E), and
adjusted under subparagraph (F)) for hospitals located in a
rural area in the United States or that region, and
(II) the weighting factor (determined under paragraph
(4)(B)) for that diagnosis-related group.
(H) Adjusting for different area wage levels. - The Secretary
shall adjust the proportion, (as estimated by the Secretary from
time to time) of hospitals' costs which are attributable to wages
and wage-related costs, of the national and regional DRG
prospective payment rates computed under subparagraph (G) for
area differences in hospital wage levels by a factor (established
by the Secretary) reflecting the relative hospital wage level in
the geographic area of the hospital compared to the national
average hospital wage level.
(3) The Secretary shall determine a national adjusted DRG
prospective payment rate, for each inpatient hospital discharge in
a fiscal year after fiscal year 1984 involving inpatient hospital
services of a subsection (d) hospital in the United States, and
shall determine, for fiscal years before fiscal year 1997, a
regional adjusted DRG prospective payment rate for such discharges
in each region for which payment may be made under part A of this
subchapter. Each such rate shall be determined for hospitals
located in large urban, other urban, or rural areas within the
United States and within each such region, respectively, as
follows:
(A) Updating previous standardized amounts. - (i) For
discharges occurring in a fiscal year beginning before October 1,
1987, the Secretary shall compute an average standardized amount
for hospitals located in an urban area and for hospitals located
in a rural area within the United States and for hospitals
located in an urban area and for hospitals located in a rural
area within each region, equal to the respective average
standardized amount computed for the previous fiscal year under
paragraph (2)(D) or under this subparagraph, increased for the
fiscal year involved by the applicable percentage increase under
subsection (b)(3)(B) of this section. With respect to discharges
occurring on or after October 1, 1987, the Secretary shall
compute urban and rural averages on the basis of discharge
weighting rather than hospital weighting, making appropriate
adjustments to ensure that computation on such basis does not
result in total payments under this section that are greater or
less than the total payments that would have been made under this
section but for this sentence, and making appropriate changes in
the manner of determining the reductions under subparagraph
(C)(ii).
(ii) For discharges occurring in a fiscal year beginning on or
after October 1, 1987, and ending on or before September 30,
1994, the Secretary shall compute an average standardized amount
for hospitals located in a large urban area, for hospitals
located in a rural area, and for hospitals located in other urban
areas, within the United States and within each region, equal to
the respective average standardized amount computed for the
previous fiscal year under this subparagraph increased by the
applicable percentage increase under subsection (b)(3)(B)(i) of
this section with respect to hospitals located in the respective
areas for the fiscal year involved.
(iii) For discharges occurring in the fiscal year beginning on
October 1, 1994, the average standardized amount for hospitals
located in a rural area shall be equal to the average
standardized amount for hospitals located in an urban area. For
discharges occurring on or after October 1, 1994, the Secretary
shall adjust the ratio of the labor portion to non-labor portion
of each average standardized amount to equal such ratio for the
national average of all standardized amounts.
(iv)(I) Subject to subclause (II), for discharges occurring in
a fiscal year beginning on or after October 1, 1995, the
Secretary shall compute an average standardized amount for
hospitals located in a large urban area and for hospitals located
in other areas within the United States and within each region
equal to the respective average standardized amount computed for
the previous fiscal year under this subparagraph increased by the
applicable percentage increase under subsection (b)(3)(B)(i) of
this section with respect to hospitals located in the respective
areas for the fiscal year involved.
(II) For discharges occurring in a fiscal year (beginning with
fiscal year 2004), the Secretary shall compute a standardized
amount for hospitals located in any area within the United States
and within each region equal to the standardized amount computed
for the previous fiscal year under this subparagraph for
hospitals located in a large urban area (or, beginning with
fiscal year 2005, for all hospitals in the previous fiscal year)
increased by the applicable percentage increase under subsection
(b)(3)(B)(i) of this section for the fiscal year involved.
(v) Average standardized amounts computed under this paragraph
shall be adjusted to reflect the most recent case-mix data
available.
(vi) Insofar as the Secretary determines that the adjustments
under paragraph (4)(C)(i) for a previous fiscal year (or
estimates that such adjustments for a future fiscal year) did (or
are likely to) result in a change in aggregate payments under
this subsection during the fiscal year that are a result of
changes in the coding or classification of discharges that do not
reflect real changes in case mix, the Secretary may adjust the
average standardized amounts computed under this paragraph for
subsequent fiscal years so as to eliminate the effect of such
coding or classification changes.
(B) Reducing for value of outlier payments. - The Secretary
shall reduce each of the average standardized amounts determined
under subparagraph (A) by a factor equal to the proportion of
payments under this subsection (as estimated by the Secretary)
based on DRG prospective payment amounts which are additional
payments described in paragraph (5)(A) (relating to outlier
payments).
(C) Maintaining budget neutrality for fiscal year 1985. - (i)
For discharges occurring in fiscal year 1985, the Secretary shall
adjust each of such average standardized amounts as may be
required under subsection (e)(1)(B) of this section for that
fiscal year.
(ii) For discharges occurring after September 30, 1986, the
Secretary shall further reduce each of the average standardized
amounts (in a proportion which takes into account the differing
effects of the standardization effected under paragraph
(2)(C)(i)) so as to provide for a reduction in the total of the
payments (attributable to this paragraph) made for discharges
occurring on or after October 1, 1986, of an amount equal to the
estimated reduction in the payment amounts under paragraph (5)(B)
that would have resulted from the enactment of the amendments
made by section 9104 of the Medicare and Medicaid Budget
Reconciliation Amendments of 1985 and by section 4003(a)(1) of
the Omnibus Budget Reconciliation Act of 1987 if the factor
described in clause (ii)(II) of paragraph (5)(B) (determined
without regard to amendments made by the Omnibus Budget
Reconciliation Act of 1990) were applied for discharges occurring
on or after such date instead of the factor described in clause
(ii) of that paragraph.
(D) Computing drg-specific rates for hospitals. - For each
discharge classified within a diagnosis-related group, the
Secretary shall establish for the fiscal year a national DRG
prospective payment rate and shall establish, for fiscal years
before fiscal year 1997, a regional DRG prospective payment rate
for each region which is equal -
(i) for fiscal years before fiscal year 2004, for hospitals
located in a large urban area in the United States or that
region (respectively), to the product of -
(I) the average standardized amount (computed under
subparagraph (A), reduced under subparagraph (B), and
adjusted or reduced under subparagraph (C)) for the fiscal
year for hospitals located in such a large urban area in the
United States or that region, and
(II) the weighting factor (determined under paragraph
(4)(B)) for that diagnosis-related group;
(ii) for fiscal years before fiscal year 2004, for hospitals
located in other areas in the United States or that region
(respectively), to the product of -
(I) the average standardized amount (computed under
subparagraph (A), reduced under subparagraph (B), and
adjusted or reduced under subparagraph (C)) for the fiscal
year for hospitals located in other areas in the United
States or that region, and
(II) the weighting factor (determined under paragraph
(4)(B)) for that diagnosis-related group; and
(iii) for a fiscal year beginning after fiscal year 2003, for
hospitals located in all areas, to the product of -
(I) the applicable standardized amount (computed under
subparagraph (A)), reduced under subparagraph (B), and
adjusted or reduced under subparagraph (C) for the fiscal
year; and
(II) the weighting factor (determined under paragraph
(4)(B)) for that diagnosis-related group.
(E) Adjusting for different area wage levels. -
(i) In general. - Except as provided in clause (ii), the
Secretary shall adjust the proportion, (as estimated by the
Secretary from time to time) of hospitals' costs which are
attributable to wages and wage-related costs, of the DRG
prospective payment rates computed under subparagraph (D) for
area differences in hospital wage levels by a factor
(established by the Secretary) reflecting the relative hospital
wage level in the geographic area of the hospital compared to
the national average hospital wage level. Not later than
October 1, 1990, and October 1, 1993 (and at least every 12
months thereafter), the Secretary shall update the factor under
the preceding sentence on the basis of a survey conducted by
the Secretary (and updated as appropriate) of the wages and
wage-related costs of subsection (d) hospitals in the United
States. Not less often than once every 3 years the Secretary
(through such survey or otherwise) shall measure the earnings
and paid hours of employment by occupational category and shall
exclude data with respect to the wages and wage-related costs
incurred in furnishing skilled nursing facility services. Any
adjustments or updates made under this subparagraph for a
fiscal year (beginning with fiscal year 1991) shall be made in
a manner that assures that the aggregate payments under this
subsection in the fiscal year are not greater or less than
those that would have been made in the year without such
adjustment. The Secretary shall apply the previous sentence for
any period as if the amendments made by section 403(a)(1) of
the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 had not been enacted.
(ii) Alternative proportion to be adjusted beginning in
fiscal year 2005. - For discharges occurring on or after
October 1, 2004, the Secretary shall substitute "62 percent"
for the proportion described in the first sentence of clause
(i), unless the application of this clause would result in
lower payments to a hospital than would otherwise be made.
(4)(A) The Secretary shall establish a classification of
inpatient hospital discharges by diagnosis-related groups and a
methodology for classifying specific hospital discharges within
these groups.
(B) For each such diagnosis-related group the Secretary shall
assign an appropriate weighting factor which reflects the relative
hospital resources used with respect to discharges classified
within that group compared to discharges classified within other
groups.
(C)(i) The Secretary shall adjust the classifications and
weighting factors established under subparagraphs (A) and (B), for
discharges in fiscal year 1988 and at least annually thereafter, to
reflect changes in treatment patterns, technology (including a new
medical service or technology under paragraph (5)(K)), and other
factors which may change the relative use of hospital resources.
(ii) For discharges in fiscal year 1990, the Secretary shall
reduce the weighting factor for each diagnosis-related group by
1.22 percent.
(iii) Any such adjustment under clause (i) for discharges in a
fiscal year (beginning with fiscal year 1991) shall be made in a
manner that assures that the aggregate payments under this
subsection for discharges in the fiscal year are not greater or
less than those that would have been made for discharges in the
year without such adjustment.
(iv) The Secretary shall include recommendations with respect to
adjustments to weighting factors under clause (i) in the annual
report to Congress required under subsection (e)(3)(B) (!5) of this
section.
(5)(A)(i) For discharges occurring during fiscal years ending on
or before September 30, 1997, the Secretary shall provide for an
additional payment for a subsection (d) hospital for any discharge
in a diagnosis-related group, the length of stay of which exceeds
the mean length of stay for discharges within that group by a fixed
number of days, or exceeds such mean length of stay by some fixed
number of standard deviations, whichever is the fewer number of
days.
(ii) For cases which are not included in clause (i), a subsection
(d) hospital may request additional payments in any case where
charges, adjusted to cost, exceed a fixed multiple of the
applicable DRG prospective payment rate, or exceed such other fixed
dollar amount, whichever is greater, or, for discharges in fiscal
years beginning on or after October 1, 1994, exceed the sum of the
applicable DRG prospective payment rate plus any amounts payable
under subparagraphs (B) and (F) plus a fixed dollar amount
determined by the Secretary.
(iii) The amount of such additional payment under clauses (i) and
(ii) shall be determined by the Secretary and shall (except as
payments under clause (i) are required to be reduced to take into
account the requirements of clause (v)) approximate the marginal
cost of care beyond the cutoff point applicable under clause (i) or
(ii).
(iv) The total amount of the additional payments made under this
subparagraph for discharges in a fiscal year may not be less than 5
percent nor more than 6 percent of the total payments projected or
estimated to be made based on DRG prospective payment rates for
discharges in that year.
(v) The Secretary shall provide that -
(I) the day outlier percentage for fiscal year 1995 shall be 75
percent of the day outlier percentage for fiscal year 1994;
(II) the day outlier percentage for fiscal year 1996 shall be
50 percent of the day outlier percentage for fiscal year 1994;
and
(III) the day outlier percentage for fiscal year 1997 shall be
25 percent of the day outlier percentage for fiscal year 1994.
(vi) For purposes of this subparagraph, the term "day outlier
percentage" means, for a fiscal year, the percentage of the total
additional payments made by the Secretary under this subparagraph
for discharges in that fiscal year which are additional payments
under clause (i).
(B) The Secretary shall provide for an additional payment amount
for subsection (d) hospitals with indirect costs of medical
education, in an amount computed in the same manner as the
adjustment for such costs under regulations (in effect as of
January 1, 1983) under subsection (a)(2) of this section, except as
follows:
(i) The amount of such additional payment shall be determined
by multiplying (I) the sum of the amount determined under
paragraph (1)(A)(ii)(II) (or, if applicable, the amount
determined under paragraph (1)(A)(iii)) and, for cases qualifying
for additional payment under subparagraph (A)(i), the amount paid
to the hospital under subparagraph (A), by (II) the indirect
teaching adjustment factor described in clause (ii).
(ii) For purposes of clause (i)(II), the indirect teaching
adjustment factor is equal to c * (((1+r) to the nth power) -1),
where "r" is the ratio of the hospital's full-time equivalent
interns and residents to beds and "n" equals .405. Subject to
clause (ix), for discharges occurring -
(I) on or after October 1, 1988, and before October 1, 1997,
"c" is equal to 1.89;
(II) during fiscal year 1998, "c" is equal to 1.72;
(III) during fiscal year 1999, "c" is equal to 1.6;
(IV) during fiscal year 2000, "c" is equal to 1.47;
(V) during fiscal year 2001, "c" is equal to 1.54;
(VI) during fiscal year 2002, "c" is equal to 1.6;
(VII) on or after October 1, 2002, and before April 1, 2004,
"c" is equal to 1.35;
(VIII) on or after April 1, 2004, and before October 1, 2004,
"c" is equal to 1.47;
(IX) during fiscal year 2005, "c" is equal to 1.42;
(X) during fiscal year 2006, "c" is equal to 1.37;
(XI) during fiscal year 2007, "c" is equal to 1.32; and
(XII) on or after October 1, 2007, "c" is equal to 1.35.
(iii) In determining such adjustment the Secretary shall not
distinguish between those interns and residents who are employees
of a hospital and those interns and residents who furnish
services to a hospital but are not employees of such hospital.
(iv) Effective for discharges occurring on or after October 1,
1997, all the time spent by an intern or resident in patient care
activities under an approved medical residency training program
at an entity in a nonhospital setting shall be counted towards
the determination of full-time equivalency if the hospital incurs
all, or substantially all, of the costs for the training program
in that setting.
(v) In determining the adjustment with respect to a hospital
for discharges occurring on or after October 1, 1997, the total
number of full-time equivalent interns and residents in the
fields of allopathic and osteopathic medicine in either a
hospital or nonhospital setting may not exceed the number (or,
130 percent of such number in the case of a hospital located in a
rural area) of such full-time equivalent interns and residents in
the hospital with respect to the hospital's most recent cost
reporting period ending on or before December 31, 1996. Rules
similar to the rules of subsection (h)(4)(F)(ii) of this section
shall apply for purposes of this clause. The provisions of
subsection (h)(7) of this section shall apply with respect to the
first sentence of this clause in the same manner as it applies
with respect to subsection (h)(4)(F)(i) of this section.
(vi) For purposes of clause (ii) -
(I) "r" may not exceed the ratio of the number of interns and
residents, subject to the limit under clause (v), with respect
to the hospital for its most recent cost reporting period to
the hospital's available beds (as defined by the Secretary)
during that cost reporting period, and
(II) for the hospital's cost reporting periods beginning on
or after October 1, 1997, subject to the limits described in
clauses (iv) and (v), the total number of full-time equivalent
residents for payment purposes shall equal the average of the
actual full-time equivalent resident count for the cost
reporting period and the preceding two cost reporting periods.
In the case of the first cost reporting period beginning on or
after October 1, 1997, subclause (II) shall be applied by using
the average for such period and the preceding cost reporting
period.
(vii) If any cost reporting period beginning on or after
October 1, 1997, is not equal to twelve months, the Secretary
shall make appropriate modifications to ensure that the average
full-time equivalent residency count pursuant to subclause (II)
of clause (vi) is based on the equivalent of full twelve-month
cost reporting periods.
(viii) Rules similar to the rules of subsection (h)(4)(H) of
this section shall apply for purposes of clauses (v) and (vi).
(ix) For discharges occurring on or after July 1, 2005, insofar
as an additional payment amount under this subparagraph is
attributable to resident positions redistributed to a hospital
under subsection (h)(7)(B) of this section, in computing the
indirect teaching adjustment factor under clause (ii) the
adjustment shall be computed in a manner as if "c" were equal to
0.66 with respect to such resident positions.
(C)(i) The Secretary shall provide for such exceptions and
adjustments to the payment amounts established under this
subsection (other than under paragraph (9)) as the Secretary deems
appropriate to take into account the special needs of regional and
national referral centers (including those hospitals of 275 or more
beds located in rural areas). A hospital which is classified as a
rural hospital may appeal to the Secretary to be classified as a
rural referral center under this clause on the basis of criteria
(established by the Secretary) which shall allow the hospital to
demonstrate that it should be so reclassified by reason of certain
of its operating characteristics being similar to those of a
typical urban hospital located in the same census region and which
shall not require a rural osteopathic hospital to have more than
3,000 discharges in a year in order to be classified as a rural
referral center. Such characteristics may include wages, scope of
services, service area, and the mix of medical specialties. The
Secretary shall publish the criteria not later than August 17,
1984, for implementation by October 1, 1984. An appeal allowed
under this clause must be submitted to the Secretary (in such form
and manner as the Secretary may prescribe) during the quarter
before the first quarter of the hospital's cost reporting period
(or, in the case of a cost reporting period beginning during
October 1984, during the first quarter of that period), and the
Secretary must make a final determination with respect to such
appeal within 60 days after the date the appeal was submitted. Any
payment adjustments necessitated by a reclassification based upon
the appeal shall be effective at the beginning of such cost
reporting period.
(ii) The Secretary shall provide, under clause (i), for the
classification of a rural hospital as a regional referral center if
the hospital has a case mix index equal to or greater than the
median case mix index for hospitals (other than hospitals with
approved teaching programs) located in an urban area in the same
region (as defined in paragraph (2)(D)), has at least 5,000
discharges a year or, if less, the median number of discharges in
urban hospitals in the region in which the hospital is located (or,
in the case of a rural osteopathic hospital, meets the criterion
established by the Secretary under clause (i) with respect to the
annual number of discharges for such hospitals), and meets any
other criteria established by the Secretary under clause (i).
(D)(i) For any cost reporting period beginning on or after April
1, 1990, with respect to a subsection (d) hospital which is a sole
community hospital, payment under paragraph (1)(A) shall be -
(I) an amount based on 100 percent of the hospital's target
amount for the cost reporting period, as defined in subsection
(b)(3)(C) of this section, or
(II) the amount determined under paragraph (1)(A)(iii),
whichever results in greater payment to the hospital.
(ii) In the case of a sole community hospital that experiences,
in a cost reporting period compared to the previous cost reporting
period, a decrease of more than 5 percent in its total number of
inpatient cases due to circumstances beyond its control, the
Secretary shall provide for such adjustment to the payment amounts
under this subsection (other than under paragraph (9)) as may be
necessary to fully compensate the hospital for the fixed costs it
incurs in the period in providing inpatient hospital services,
including the reasonable cost of maintaining necessary core staff
and services.
(iii) For purposes of this subchapter, the term "sole community
hospital" means any hospital -
(I) that the Secretary determines is located more than 35 road
miles from another hospital,
(II) that, by reason of factors such as the time required for
an individual to travel to the nearest alternative source of
appropriate inpatient care (in accordance with standards
promulgated by the Secretary), location, weather conditions,
travel conditions, or absence of other like hospitals (as
determined by the Secretary), is the sole source of inpatient
hospital services reasonably available to individuals in a
geographic area who are entitled to benefits under part A of this
subchapter, or
(III) that is located in a rural area and designated by the
Secretary as an essential access community hospital under section
1395i-4(i)(1) of this title as in effect on September 30, 1997.
(iv) The Secretary shall promulgate a standard for determining
whether a hospital meets the criteria for classification as a sole
community hospital under clause (iii)(II) because of the time
required for an individual to travel to the nearest alternative
source of appropriate inpatient care.
(v) If the Secretary determines that, in the case of a hospital
located in a rural area and designated by the Secretary as an
essential access community hospital under section 1395i-4(i)(1) of
this title as in effect on September 30, 1997, the hospital has
incurred increases in reasonable costs during a cost reporting
period as a result of becoming a member of a rural health network
(as defined in section 1395i-4(d) of this title) in the State in
which it is located, and in incurring such increases, the hospital
will increase its costs for subsequent cost reporting periods, the
Secretary shall increase the hospital's target amount under
subsection (b)(3)(C) of this section to account for such incurred
increases.
(E)(i) The Secretary shall estimate the amount of reimbursement
made for services described in section 1395y(a)(14) of this title
with respect to which payment was made under part B of this
subchapter in the base reporting periods referred to in paragraph
(2)(A) and with respect to which payment is no longer being made.
(ii) The Secretary shall provide for an adjustment to the payment
for subsection (d) hospitals in each fiscal year so as
appropriately to reflect the net amount described in clause (i).
(F)(i) For discharges occurring on or after May 1, 1986, the
Secretary shall provide, in accordance with this subparagraph, for
an additional payment amount for each subsection (d) hospital which
-
(I) serves a significantly disproportionate number of low-
income patients (as defined in clause (v)), or
(II) is located in an urban area, has 100 or more beds, and can
demonstrate that its net inpatient care revenues (excluding any
of such revenues attributable to this subchapter or State plans
approved under subchapter XIX of this chapter), during the cost
reporting period in which the discharges occur, for indigent care
from State and local government sources exceed 30 percent of its
total of such net inpatient care revenues during the period.
(ii) Subject to clause (ix), the amount of such payment for each
discharge shall be determined by multiplying (I) the sum of the
amount determined under paragraph (1)(A)(ii)(II) (or, if
applicable, the amount determined under paragraph (1)(A)(iii)) and,
for cases qualifying for additional payment under subparagraph
(A)(i), the amount paid to the hospital under subparagraph (A) for
that discharge, by (II) the disproportionate share adjustment
percentage established under clause (iii) or (iv) for the cost
reporting period in which the discharge occurs.
(iii) The disproportionate share adjustment percentage for a cost
reporting period for a hospital described in clause (i)(II) is
equal to 35 percent.
(iv) The disproportionate share adjustment percentage for a cost
reporting period for a hospital that is not described in clause
(i)(II) and that -
(I) is located in an urban area and has 100 or more beds or is
described in the second sentence of clause (v), is equal to the
percent determined in accordance with the applicable formula
described in clause (vii);
(II) is located in an urban area and has less than 100 beds, is
equal to 5 percent or, subject to clause (xiv) and for discharges
occurring on or after April 1, 2001, is equal to the percent
determined in accordance with clause (xiii);
(III) is located in a rural area and is not described in
subclause (IV) or (V) or in the second sentence of clause (v), is
equal to 4 percent or, subject to clause (xiv) and for discharges
occurring on or after April 1, 2001, is equal to the percent
determined in accordance with clause (xii);
(IV) is located in a rural area, is classified as a rural
referral center under subparagraph (C), and is classified as a
sole community hospital under subparagraph (D), is equal to 10
percent or, if greater, the percent determined in accordance with
the applicable formula described in clause (viii) or, subject to
clause (xiv) and for discharges occurring on or after April 1,
2001, the greater of the percentages determined under clause (x)
or (xi);
(V) is located in a rural area, is classified as a rural
referral center under subparagraph (C), and is not classified as
a sole community hospital under subparagraph (D), is equal to the
percent determined in accordance with the applicable formula
described in clause (viii) or, subject to clause (xiv) and for
discharges occurring on or after April 1, 2001, is equal to the
percent determined in accordance with clause (xi); or
(VI) is located in a rural area, is classified as a sole
community hospital under subparagraph (D), and is not classified
as a rural referral center under subparagraph (C), is 10 percent
or, subject to clause (xiv) and for discharges occurring on or
after April 1, 2001, is equal to the percent determined in
accordance with clause (x).
(v) In this subparagraph, a hospital "serves a significantly
disproportionate number of low income patients" for a cost
reporting period if the hospital has a disproportionate patient
percentage (as defined in clause (vi)) for that period which
equals, or exceeds -
(I) 15 percent, if the hospital is located in an urban area and
has 100 or more beds,
(II) 30 percent (or 15 percent, for discharges occurring on or
after April 1, 2001), if the hospital is located in a rural area
and has more than 100 beds, or is located in a rural area and is
classified as a sole community hospital under subparagraph (D),
(III) 40 percent (or 15 percent, for discharges occurring on or
after April 1, 2001), if the hospital is located in an urban area
and has less than 100 beds, or
(IV) 45 percent (or 15 percent, for discharges occurring on or
after April 1, 2001), if the hospital is located in a rural area
and is not described in subclause (II).
A hospital located in a rural area and with 500 or more beds also
"serves a significantly disproportionate number of low income
patients" for a cost reporting period if the hospital has a
disproportionate patient percentage (as defined in clause (vi)) for
that period which equals or exceeds a percentage specified by the
Secretary.
(vi) In this subparagraph, the term "disproportionate patient
percentage" means, with respect to a cost reporting period of a
hospital, the sum of -
(I) the fraction (expressed as a percentage), the numerator of
which is the number of such hospital's patient days for such
period which were made up of patients who (for such days) were
entitled to benefits under part A of this subchapter and were
entitled to supplementary security income benefits (excluding any
State supplementation) under subchapter XVI of this chapter, and
the denominator of which is the number of such hospital's patient
days for such fiscal year which were made up of patients who (for
such days) were entitled to benefits under part A of this
subchapter, and
(II) the fraction (expressed as a percentage), the numerator of
which is the number of the hospital's patient days for such
period which consist of patients who (for such days) were
eligible for medical assistance under a State plan approved under
subchapter XIX of this chapter, but who were not entitled to
benefits under part A of this subchapter, and the denominator of
which is the total number of the hospital's patient days for such
period.
(vii) The formula used to determine the disproportionate share
adjustment percentage for a cost reporting period for a hospital
described in clause (iv)(I) is -
(I) in the case of such a hospital with a disproportionate
patient percentage (as defined in clause (vi)) greater than 20.2 -

(a) for discharges occurring on or after April 1, 1990, and
on or before December 31, 1990, (P-20.2)(.65) + 5.62,
(b) for discharges occurring on or after January 1, 1991, and
on or before September 30, 1993, (P-20.2)(.7) + 5.62,
(c) for discharges occurring on or after October 1, 1993, and
on or before September 30, 1994, (P-20.2)(.8) + 5.88, and
(d) for discharges occurring on or after October 1, 1994,
(P-20.2)(.825) + 5.88; or
(II) in the case of any other such hospital -
(a) for discharges occurring on or after April 1, 1990, and
on or before December 31, 1990, (P-15)(.6) + 2.5,
(b) for discharges occurring on or after January 1, 1991, and
on or before September 30, 1993, (P-15)(.6) + 2.5,(!6)
(c) for discharges occurring on or after October 1, 1993,
(P-15)(.65) + 2.5,
where "P" is the hospital's disproportionate patient percentage (as
defined in clause (vi)).
(viii) Subject to clause (xiv), the formula used to determine the
disproportionate share adjustment percentage for a cost reporting
period for a hospital described in clause (iv)(IV) or (iv)(V) is
the percentage determined in accordance with the following formula:
(P-30)(.6) + 4.0, where "P" is the hospital's disproportionate
patient percentage (as defined in clause (vi)).
(ix) In the case of discharges occurring -
(I) during fiscal year 1998, the additional payment amount
otherwise determined under clause (ii) shall be reduced by 1
percent;
(II) during fiscal year 1999, such additional payment amount
shall be reduced by 2 percent;
(III) during fiscal years 2000 and 2001, such additional
payment amount shall be reduced by 3 percent and 2 percent,
respectively;
(IV) during fiscal year 2002, such additional payment amount
shall be reduced by 3 percent; and
(V) during fiscal year 2003 and each subsequent fiscal year,
such additional payment amount shall be reduced by 0 percent.
(x) Subject to clause (xiv), for purposes of clause (iv)(VI)
(relating to sole community hospitals), in the case of a hospital
for a cost reporting period with a disproportionate patient
percentage (as defined in clause (vi)) that -
(I) is less than 19.3, the disproportionate share adjustment
percentage is determined in accordance with the following
formula: (P-15)(.65) + 2.5;
(II) is equal to or exceeds 19.3, but is less than 30.0, such
adjustment percentage is equal to 5.25 percent; or
(III) is equal to or exceeds 30, such adjustment percentage is
equal to 10 percent,
where "P" is the hospital's disproportionate patient percentage (as
defined in clause (vi)).
(xi) Subject to clause (xiv), for purposes of clause (iv)(V)
(relating to rural referral centers), in the case of a hospital for
a cost reporting period with a disproportionate patient percentage
(as defined in clause (vi)) that -
(I) is less than 19.3, the disproportionate share adjustment
percentage is determined in accordance with the following
formula: (P-15)(.65) + 2.5;
(II) is equal to or exceeds 19.3, but is less than 30.0, such
adjustment percentage is equal to 5.25 percent; or
(III) is equal to or exceeds 30, such adjustment percentage is
determined in accordance with the following formula: (P-
30)(.6) + 5.25,
where "P" is the hospital's disproportionate patient percentage (as
defined in clause (vi)).
(xii) Subject to clause (xiv), for purposes of clause (iv)(III)
(relating to small rural hospitals generally), in the case of a
hospital for a cost reporting period with a disproportionate
patient percentage (as defined in clause (vi)) that -
(I) is less than 19.3, the disproportionate share adjustment
percentage is determined in accordance with the following
formula: (P-15)(.65) + 2.5; or
(II) is equal to or exceeds 19.3, such adjustment percentage is
equal to 5.25 percent,
where "P" is the hospital's disproportionate patient percentage (as
defined in clause (vi)).
(xiii) Subject to clause (xiv), for purposes of clause (iv)(II)
(relating to urban hospitals with less than 100 beds), in the case
of a hospital for a cost reporting period with a disproportionate
patient percentage (as defined in clause (vi)) that -
(I) is less than 19.3, the disproportionate share adjustment
percentage is determined in accordance with the following
formula: (P-15)(.65) + 2.5; or
(II) is equal to or exceeds 19.3, such adjustment percentage is
equal to 5.25 percent,
where "P" is the hospital's disproportionate patient percentage (as
defined in clause (vi)).
(xiv)(I) In the case of discharges occurring on or after April 1,
2004, subject to subclause (II), there shall be substituted for the
disproportionate share adjustment percentage otherwise determined
under clause (iv) (other than subclause (I)) or under clause
(viii), (x), (xi), (xii), or (xiii), the disproportionate share
adjustment percentage determined under clause (vii) (relating to
large, urban hospitals).
(II) Under subclause (I), the disproportionate share adjustment
percentage shall not exceed 12 percent for a hospital that is not
classified as a rural referral center under subparagraph (C).
(G)(i) For any cost reporting period beginning on or after April
1, 1990, and before October 1, 1994, or discharges occurring on or
after October 1, 1997, and before October 1, 2006, in the case of a
subsection (d) hospital which is a medicare-dependent, small rural
hospital, payment under paragraph (1)(A) shall be equal to the sum
of the amount determined under clause (ii) and the amount
determined under paragraph (1)(A)(iii).
(ii) The amount determined under this clause is -
(I) for discharges occurring during the 36-month period
beginning with the first day of the cost reporting period that
begins on or after April 1, 1990, the amount by which the
hospital's target amount for the cost reporting period (as
defined in subsection (b)(3)(D) of this section) exceeds the
amount determined under paragraph (1)(A)(iii); and
(II) for discharges occurring during any subsequent cost
reporting period (or portion thereof) and before October 1, 1994,
or discharges occurring on or after October 1, 1997, and before
October 1, 2006, 50 percent of the amount by which the hospital's
target amount for the cost reporting period (as defined in
subsection (b)(3)(D) of this section) exceeds the amount
determined under paragraph (1)(A)(iii).
(iii) In the case of a medicare dependent, small rural hospital
that experiences, in a cost reporting period compared to the
previous cost reporting period, a decrease of more than 5 percent
in its total number of inpatient cases due to circumstances beyond
its control, the Secretary shall provide for such adjustment to the
payment amounts under this subsection (other than under paragraph
(9)) as may be necessary to fully compensate the hospital for the
fixed costs it incurs in the period in providing inpatient hospital
services, including the reasonable cost of maintaining necessary
core staff and services.
(iv) The term "medicare-dependent, small rural hospital" means,
with respect to any cost reporting period to which clause (i)
applies, any hospital -
(I) located in a rural area,
(II) that has not more than 100 beds,
(III) that is not classified as a sole community hospital under
subparagraph (D), and
(IV) for which not less than 60 percent of its inpatient days
or discharges during the cost reporting period beginning in
fiscal year 1987, or two of the three most recently audited cost
reporting periods for which the Secretary has a settled cost
report, were attributable to inpatients entitled to benefits
under part A of this subchapter.
(H) The Secretary may provide for such adjustments to the payment
amounts under this subsection as the Secretary deems appropriate to
take into account the unique circumstances of hospitals located in
Alaska and Hawaii.
(I)(i) The Secretary shall provide by regulation for such other
exceptions and adjustments to such payment amounts under this
subsection as the Secretary deems appropriate.
(ii) In making adjustments under clause (i) for transfer cases
(as defined by the Secretary) in a fiscal year, not taking in
account the effect of subparagraph (J), the Secretary may make
adjustments to each of the average standardized amounts determined
under paragraph (3) to assure that the aggregate payments made
under this subsection for such fiscal year are not greater or
lesser than those that would have otherwise been made in such
fiscal year.
(J)(i) The Secretary shall treat the term "transfer case" (as
defined in subparagraph (I)(ii)) as including the case of a
qualified discharge (as defined in clause (ii)), which is
classified within a diagnosis-related group described in clause
(iii), and which occurs on or after October 1, 1998. In the case of
a qualified discharge for which a substantial portion of the costs
of care are incurred in the early days of the inpatient stay (as
defined by the Secretary), in no case may the payment amount
otherwise provided under this subsection exceed an amount equal to
the sum of -
(I) 50 percent of the amount of payment under this subsection
for transfer cases (as established under subparagraph (I)(i)),
and
(II) 50 percent of the amount of payment which would have been
made under this subsection with respect to the qualified
discharge if no transfer were involved.
(ii) For purposes of clause (i), subject to clause (iii), the
term "qualified discharge" means a discharge classified with a
diagnosis-related group (described in clause (iii)) of an
individual from a subsection (d) hospital, if upon such discharge
the individual -
(I) is admitted as an inpatient to a hospital or hospital unit
that is not a subsection (d) hospital for the provision of
inpatient hospital services;
(II) is admitted to a skilled nursing facility;
(III) is provided home health services from a home health
agency, if such services relate to the condition or diagnosis for
which such individual received inpatient hospital services from
the subsection (d) hospital, and if such services are provided
within an appropriate period (as determined by the Secretary); or
(IV) for discharges occurring on or after October 1, 2000, the
individual receives post discharge services described in clause
(iv)(I).
(iii) Subject to clause (iv), a diagnosis-related group described
in this clause is -
(I) 1 of 10 diagnosis-related groups selected by the Secretary
based upon a high volume of discharges classified within such
groups and a disproportionate use of post discharge services
described in clause (ii); and
(II) a diagnosis-related group specified by the Secretary under
clause (iv)(II).
(iv) The Secretary shall include in the proposed rule published
under subsection (e)(5)(A) of this section for fiscal year 2001, a
description of the effect of this subparagraph. The Secretary may
include in the proposed rule (and in the final rule published under
paragraph (6)) for fiscal year 2001 or a subsequent fiscal year, a
description of -
(I) post-discharge services not described in subclauses (I),
(II), and (III) of clause (ii), the receipt of which results in a
qualified discharge; and
(II) diagnosis-related groups described in clause (iii)(I) in
addition to the 10 selected under such clause.
(K)(i) Effective for discharges beginning on or after October 1,
2001, the Secretary shall establish a mechanism to recognize the
costs of new medical services and technologies under the payment
system established under this subsection. Such mechanism shall be
established after notice and opportunity for public comment (in the
publications required by subsection (e)(5) of this section for a
fiscal year or otherwise). Such mechanism shall be modified to meet
the requirements of clause (viii).
(ii) The mechanism established pursuant to clause (i) shall -
(I) apply to a new medical service or technology if, based on
the estimated costs incurred with respect to discharges involving
such service or technology, the DRG prospective payment rate
otherwise applicable to such discharges under this subsection is
inadequate (applying a threshold specified by the Secretary that
is the lesser of 75 percent of the standardized amount (increased
to reflect the difference between cost and charges) or 75 percent
of one standard deviation for the diagnosis-related group
involved);
(II) provide for the collection of data with respect to the
costs of a new medical service or technology described in
subclause (I) for a period of not less than two years and not
more than three years beginning on the date on which an inpatient
hospital code is issued with respect to the service or
technology;
(III) provide for additional payment to be made under this
subsection with respect to discharges involving a new medical
service or technology described in subclause (I) that occur
during the period described in subclause (II) in an amount that
adequately reflects the estimated average cost of such service or
technology; and
(IV) provide that discharges involving such a service or
technology that occur after the close of the period described in
subclause (II) will be classified within a new or existing
diagnosis-related group with a weighting factor under paragraph
(4)(B) that is derived from cost data collected with respect to
discharges occurring during such period.
(iii) For purposes of clause (ii)(II), the term "inpatient
hospital code" means any code that is used with respect to
inpatient hospital services for which payment may be made under
this subsection and includes an alphanumeric code issued under the
International Classification of Diseases, 9th Revision, Clinical
Modification ("ICD-9-CM") and its subsequent revisions.
(iv) For purposes of clause (ii)(III), the term "additional
payment" means, with respect to a discharge for a new medical
service or technology described in clause (ii)(I), an amount that
exceeds the prospective payment rate otherwise applicable under
this subsection to discharges involving such service or technology
that would be made but for this subparagraph.
(v) The requirement under clause (ii)(III) for an additional
payment may be satisfied by means of a new-technology group
(described in subparagraph (L)), an add-on payment, a payment
adjustment, or any other similar mechanism for increasing the
amount otherwise payable with respect to a discharge under this
subsection. The Secretary may not establish a separate fee schedule
for such additional payment for such services and technologies, by
utilizing a methodology established under subsection (a) or (h) of
section 1395m of this title to determine the amount of such
additional payment, or by other similar mechanisms or
methodologies.
(vi) For purposes of this subparagraph and subparagraph (L), a
medical service or technology will be considered a "new medical
service or technology" if the service or technology meets criteria
established by the Secretary after notice and an opportunity for
public comment.
(vii) Under the mechanism under this subparagraph, the Secretary
shall provide for the addition of new diagnosis and procedure codes
in April 1 of each year, but the addition of such codes shall not
require the Secretary to adjust the payment (or diagnosis-related
group classification) under this subsection until the fiscal year
that begins after such date.
(viii) The mechanism established pursuant to clause (i) shall be
adjusted to provide, before publication of a proposed rule, for
public input regarding whether a new service or technology
represents an advance in medical technology that substantially
improves the diagnosis or treatment of individuals entitled to
benefits under part A of this subchapter as follows:
(I) The Secretary shall make public and periodically update a
list of all the services and technologies for which an
application for additional payment under this subparagraph is
pending.
(II) The Secretary shall accept comments, recommendations, and
data from the public regarding whether the service or technology
represents a substantial improvement.
(III) The Secretary shall provide for a meeting at which
organizations representing hospitals, physicians, such
individuals, manufacturers, and any other interested party may
present comments, recommendations, and data to the clinical staff
of the Centers for Medicare&Medicaid Services before
publication of a notice of proposed rulemaking regarding whether
service or technology represents a substantial improvement.
(ix) Before establishing any add-on payment under this
subparagraph with respect to a new technology, the Secretary shall
seek to identify one or more diagnosis-related groups associated
with such technology, based on similar clinical or anatomical
characteristics and the cost of the technology. Within such groups
the Secretary shall assign an eligible new technology into a
diagnosis-related group where the average costs of care most
closely approximate the costs of care of using the new technology.
No add-on payment under this subparagraph shall be made with
respect to such new technology and this clause shall not affect the
application of paragraph (4)(C)(iii).
(L)(i) In establishing the mechanism under subparagraph (K), the
Secretary may establish new-technology groups into which a new
medical service or technology will be classified if, based on the
estimated average costs incurred with respect to discharges
involving such service or technology, the DRG prospective payment
rate otherwise applicable to such discharges under this subsection
is inadequate.
(ii) Such groups -
(I) shall not be based on the costs associated with a specific
new medical service or technology; but
(II) shall, in combination with the applicable standardized
amounts and the weighting factors assigned to such groups under
paragraph (4)(B), reflect such cost cohorts as the Secretary
determines are appropriate for all new medical services and
technologies that are likely to be provided as inpatient hospital
services in a fiscal year.
(iii) The methodology for classifying specific hospital
discharges within a diagnosis-related group under paragraph (4)(A)
or a new-technology group shall provide that a specific hospital
discharge may not be classified within both a diagnosis-related
group and a new-technology group.
(6) The Secretary shall provide for publication in the Federal
Register, on or before the August 1 before each fiscal year
(beginning with fiscal year 1984), of a description of the
methodology and data used in computing the adjusted DRG prospective
payment rates under this subsection, including any adjustments
required under subsection (e)(1)(B) of this section.
(7) There shall be no administrative or judicial review under
section 1395oo of this title or otherwise of -
(A) the determination of the requirement, or the proportional
amount, of any adjustment effected pursuant to subsection (e)(1)
of this section or the determination of the applicable percentage
increase under paragraph (12)(A)(ii), and
(B) the establishment of diagnosis-related groups, of the
methodology for the classification of discharges within such
groups, and of the appropriate weighting factors thereof under
paragraph (4).
(8)(A) In the case of any hospital which is located in an area
which is, at any time after April 20, 1983, reclassified from an
urban to a rural area, payments to such hospital for the first two
cost reporting periods for which such reclassification is effective
shall be made as follows:
(i) For the first such cost reporting period, payment shall be
equal to the amount payable to such hospital for such reporting
period on the basis of the rural classification, plus an amount
equal to two-thirds of the amount (if any) by which -
(I) the amount which would have been payable to such hospital
for such reporting period on the basis of an urban
classification, exceeds
(II) the amount payable to such hospital for such reporting
period on the basis of the rural classification.
(ii) For the second such cost reporting period, payment shall
be equal to the amount payable to such hospital for such
reporting period on the basis of the rural classification, plus
an amount equal to one-third of the amount (if any) by which -
(I) the amount which would have been payable to such hospital
for such reporting period on the basis of an urban
classification, exceeds
(II) the amount payable to such hospital for such reporting
period on the basis of the rural classification.
(B)(i) For purposes of this subsection, the Secretary shall treat
a hospital located in a rural county adjacent to one or more urban
areas as being located in the urban metropolitan statistical area
to which the greatest number of workers in the county commute, if
the rural county would otherwise be considered part of an urban
area, under the standards for designating Metropolitan Statistical
Areas (and for designating New England County Metropolitan Areas)
described in clause (ii), if the commuting rates used in
determining outlying counties (or, for New England, similar
recognized areas) were determined on the basis of the aggregate
number of resident workers who commute to (and, if applicable under
the standards, from) the central county or counties of all
contiguous Metropolitan Statistical Areas (or New England County
Metropolitan Areas).
(ii) The standards described in this clause for cost reporting
periods beginning in a fiscal year -
(I) before fiscal year 2003, are the standards published in the
Federal Register on January 3, 1980, or, at the election of the
hospital with respect to fiscal years 2001 and 2002, standards so
published on March 30, 1990; and
(II) after fiscal year 2002, are the standards published in the
Federal Register by the Director of the Office of Management and
Budget based on the most recent available decennial population
data.
Subparagraphs (C) and (D) shall not apply with respect to the
application of subclause (I).
(C)(i) If the application of subparagraph (B) or a decision of
the Medicare Geographic Classification Review Board or the
Secretary under paragraph (10), by treating hospitals located in a
rural county or counties as being located in an urban area, or by
treating hospitals located in one urban area as being located in
another urban area -
(I) reduces the wage index for that urban area (as applied
under this subsection) by 1 percentage point or less, the
Secretary, in calculating such wage index under this subsection,
shall exclude those hospitals so treated, or
(II) reduces the wage index for that urban area by more than 1
percentage point (as applied under this subsection), the
Secretary shall calculate and apply such wage index under this
subsection separately to hospitals located in such urban area
(excluding all the hospitals so treated) and to the hospitals so
treated (as if such hospitals were located in such urban area).
(ii) If the application of subparagraph (B) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10), by treating hospitals located in a rural
county or counties as not being located in the rural area in a
State, reduces the wage index for that rural area (as applied under
this subsection), the Secretary shall calculate and apply such wage
index under this subsection as if the hospitals so treated had not
been excluded from calculation of the wage index for that rural
area.
(iii) The application of subparagraph (B) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10) may not result in the reduction of any
county's wage index to a level below the wage index for rural areas
in the State in which the county is located.
(iv) The application of subparagraph (B) or a decision of the
Medicare Geographic Classification Review Board or of the Secretary
under paragraph (10) may not result in a reduction in an urban
area's wage index if -
(I) the urban area has a wage index below the wage index for
rural areas in the State in which it is located; or
(II) the urban area is located in a State that is composed of a
single urban area.
(v) This subparagraph shall apply with respect to discharges
occurring in a fiscal year only if the Secretary uses a method for
making adjustments to the DRG prospective payment rate for area
differences in hospital wage levels under paragraph (3)(E) for the
fiscal year that is based on the use of Metropolitan Statistical
Area classifications.
(D) The Secretary shall make a proportional adjustment in the
standardized amounts determined under paragraph (3) to assure that
the provisions of subparagraphs (B) and (C) or a decision of the
Medicare Geographic Classification Review Board or the Secretary
under paragraph (10) do not result in aggregate payments under this
section that are greater or less than those that would otherwise be
made.
(E)(i) For purposes of this subsection, not later than 60 days
after the receipt of an application (in a form and manner
determined by the Secretary) from a subsection (d) hospital
described in clause (ii), the Secretary shall treat the hospital as
being located in the rural area (as defined in paragraph (2)(D)) of
the State in which the hospital is located.
(ii) For purposes of clause (i), a subsection (d) hospital
described in this clause is a subsection (d) hospital that is
located in an urban area (as defined in paragraph (2)(D)) and
satisfies any of the following criteria:
(I) The hospital is located in a rural census tract of a
metropolitan statistical area (as determined under the most
recent modification of the Goldsmith Modification, originally
published in the Federal Register on February 27, 1992 (57 Fed.
Reg. 6725)).
(II) The hospital is located in an area designated by any law
or regulation of such State as a rural area (or is designated by
such State as a rural hospital).
(III) The hospital would qualify as a rural, regional, or
national referral center under paragraph (5)(C) or as a sole
community hospital under paragraph (5)(D) if the hospital were
located in a rural area.
(IV) The hospital meets such other criteria as the Secretary
may specify.
(9)(A) Notwithstanding section 1395f(b) of this title but subject
to the provisions of section 1395e of this title, the amount of the
payment with respect to the operating costs of inpatient hospital
services of a subsection (d) Puerto Rico hospital for inpatient
hospital discharges is equal to the sum of -
(i) the applicable Puerto Rico percentage (specified in
subparagraph (E)) of the Puerto Rico adjusted DRG prospective
payment rate (determined under subparagraph (B) or (C)) for such
discharges,
(ii) the applicable Federal percentage (specified in
subparagraph (E)) of -
(I) for discharges beginning in a fiscal year beginning on or
after October 1, 1997, and before October 1, 2003, the
discharge-weighted average of -
(aa) the national adjusted DRG prospective payment rate
(determined under paragraph (3)(D)) for hospitals located in
a large urban area,
(bb) such rate for hospitals located in other urban areas,
and
(cc) such rate for hospitals located in a rural area,
for such discharges, adjusted in the manner provided in
paragraph (3)(E) for different area wage levels; and
(II) for discharges in a fiscal year beginning on or after
October 1, 2003, the national DRG prospective payment rate
determined under paragraph (3)(D)(iii) for hospitals located in
any area for such discharges, adjusted in the manner provided
in paragraph (3)(E) for different area wage levels.
As used in this section, the term "subsection (d) Puerto Rico
hospital" means a hospital that is located in Puerto Rico and that
would be a subsection (d) hospital (as defined in paragraph (1)(B))
if it were located in one of the 50 States.
(B) The Secretary shall determine a Puerto Rico adjusted DRG
prospective payment rate, for each inpatient hospital discharge in
fiscal year 1988 involving inpatient hospital services of a
subsection (d) Puerto Rico hospital for which payment may be made
under part A of this subchapter. Such rate shall be determined for
such hospitals located in urban or rural areas within Puerto Rico,
as follows:
(i) The Secretary shall determine the target amount (as defined
in subsection (b)(3)(A) of this section) for the hospital for the
cost reporting period beginning in fiscal year 1987 and increase
such amount by prorating the applicable percentage increase (as
defined in subsection (b)(3)(B) of this section) to update the
amount to the midpoint in fiscal year 1988.
(ii) The Secretary shall standardize the amount determined
under clause (i) for each hospital by -
(I) excluding an estimate of indirect medical education
costs,
(II) adjusting for variations among hospitals by area in the
average hospital wage level,
(III) adjusting for variations in case mix among hospitals,
and
(IV) excluding an estimate of the additional payments to
certain subsection (d) Puerto Rico hospitals to be made under
subparagraph (D)(iii) (relating to disproportionate share
payments).
(iii) The Secretary shall compute a discharge weighted average
of the standardized amounts determined under clause (ii) for all
hospitals located in an urban area and for all hospitals located
in a rural area (as such terms are defined in paragraph (2)(D)).
(iv) The Secretary shall reduce the average standardized amount
by a proportion equal to the proportion (estimated by the
Secretary) of the amount of payments under this paragraph which
are additional payments described in subparagraph (D)(i)
(relating to outlier payments).
(v) For each discharge classified within a diagnosis-related
group for hospitals located in an urban or rural area,
respectively, the Secretary shall establish a Puerto Rico DRG
prospective payment rate equal to the product of -
(I) the average standardized amount (computed under clause
(iii) and reduced under clause (iv)) for hospitals located in
an urban or rural area, respectively, and
(II) the weighting factor (determined under paragraph (4)(B))
for that diagnosis-related group.
(vi) The Secretary shall adjust the proportion (as estimated by
the Secretary from time to time) of hospitals' costs which are
attributable to wages and wage-related costs, of the Puerto Rico
DRG prospective payment rate computed under clause (v) for area
differences in hospital wage levels by a factor (established by
the Secretary) reflecting the relative hospital wage level in the
geographic area of the hospital compared to the Puerto Rican
average hospital wage level.
(C) The Secretary shall determine a Puerto Rico adjusted DRG
prospective payment rate, for each inpatient hospital discharge
after fiscal year 1988 involving inpatient hospital services of a
subsection (d) Puerto Rico hospital for which payment may be made
under part A of this subchapter. Such rate shall be determined for
hospitals located in urban or rural areas within Puerto Rico as
follows:
(i)(I) For discharges in a fiscal year after fiscal year 1988
and before fiscal year 2004, the Secretary shall compute an
average standardized amount for hospitals located in an urban
area and for hospitals located in a rural area equal to the
respective average standardized amount computed for the previous
fiscal year under subparagraph (B)(iii) or under this clause,
increased for fiscal year 1989 by the applicable percentage
increase under subsection (b)(3)(B) of this section, and adjusted
for subsequent fiscal years in accordance with the final
determination of the Secretary under subsection (e)(4) of this
section, and adjusted to reflect the most recent case-mix data
available.
(II) For discharges occurring in a fiscal year (beginning with
fiscal year 2004), the Secretary shall compute an average
standardized amount for hospitals located in any area of Puerto
Rico that is equal to the average standardized amount computed
under subclause (I) for fiscal year 2003 for hospitals in a large
urban area (or, beginning with fiscal year 2005, for all
hospitals in the previous fiscal year) increased by the
applicable percentage increase under subsection (b)(3)(B) of this
section for the fiscal year involved.
(ii) The Secretary shall reduce each of the average
standardized amounts (or for fiscal year 2004 and thereafter, the
average standardized amount) by a proportion equal to the
proportion (estimated by the Secretary) of the amount of payments
under this paragraph which are additional payments described in
subparagraph (D)(i) (relating to outlier payments).
(iii) For each discharge classified within a diagnosis-related
group for hospitals located in an urban or rural area,
respectively, the Secretary shall establish a Puerto Rico DRG
prospective payment rate equal to the product of -
(I) the average standardized amount (computed under clause
(i) and reduced under clause (ii)), and
(II) the weighting factor (determined under paragraph (4)(B))
for that diagnosis-related group.
(iv)(I) The Secretary shall adjust the proportion (as estimated
by the Secretary from time to time) of hospitals' costs which are
attributable to wages and wage-related costs, of the Puerto Rico
DRG prospective payment rate computed under clause (iii) for area
differences in hospital wage levels by a factor (established by
the Secretary) reflecting the relative hospital wage level in the
geographic area of the hospital compared to the Puerto Rico
average hospital wage level. The second and third sentences of
paragraph (3)(E)(i) shall apply to subsection (d) Puerto Rico
hospitals under this clause in the same manner as they apply to
subsection (d) hospitals under such paragraph and, for purposes
of this clause, any reference in such paragraph to a subsection
(d) hospital is deemed a reference to a subsection (d) Puerto
Rico hospital.
(II) For discharges occurring on or after October 1, 2004, the
Secretary shall substitute "62 percent" for the proportion
described in the first sentence of clause (i), unless the
application of this subclause would result in lower payments to a
hospital than would otherwise be made.
(D) The following provisions of paragraph (5) shall apply to
subsection (d) Puerto Rico hospitals receiving payment under this
paragraph in the same manner and to the extent as they apply to
subsection (d) hospitals receiving payment under this subsection:
(i) Subparagraph (A) (relating to outlier payments).
(ii) Subparagraph (B) (relating to payments for indirect
medical education costs), except that for this purpose the sum of
the amount determined under subparagraph (A) of this paragraph
and the amount paid to the hospital under clause (i) of this
subparagraph shall be substituted for the sum referred to in
paragraph (5)(B)(i)(I).
(iii) Subparagraph (F) (relating to disproportionate share
payments), except that for this purpose the sum described in
clause (ii) of this subparagraph shall be substituted for the sum
referred to in paragraph (5)(F)(ii)(I).
(iv) Subparagraph (H) (relating to exceptions and adjustments).
(E) For purposes of subparagraph (A), for discharges occurring -
(i) on or after October 1, 1987, and before October 1, 1997,
the applicable Puerto Rico percentage is 75 percent and the
applicable Federal percentage is 25 percent;
(ii) on or after October 1, 1997, and before April 1, 2004, the
applicable Puerto Rico percentage is 50 percent and the
applicable Federal percentage is 50 percent;
(iii) on or after April 1, 2004, and before October 1, 2004,
the applicable Puerto Rico percentage is 37.5 percent and the
applicable Federal percentage is 62.5 percent; and
(iv) on or after October 1, 2004, the applicable Puerto Rico
percentage is 25 percent and the applicable Federal percentage is
75 percent.
(10)(A) There is hereby established the Medicare Geographic
Classification Review Board (hereinafter in this paragraph referred
to as the "Board").
(B)(i) The Board shall be composed of 5 members appointed by the
Secretary without regard to the provisions of title 5, governing
appointments in the competitive service. Two of such members shall
be representative of subsection (d) hospitals located in a rural
area under paragraph (2)(D). At least 1 member shall be
knowledgeable in the field of analyzing costs with respect to the
provision of inpatient hospital services.
(ii) The Secretary shall make initial appointments to the Board
as provided in this paragraph within 180 days after December 19,
1989.
(C)(i) The Board shall consider the application of any subsection
(d) hospital requesting that the Secretary change the hospital's
geographic classification for purposes of determining for a fiscal
year -
(I) the hospital's average standardized amount under paragraph
(2)(D), or
(II) the factor used to adjust the DRG prospective payment rate
for area differences in hospital wage levels that applies to such
hospital under paragraph (3)(E).
(ii) A hospital requesting a change in geographic classification
under clause (i) for a fiscal year shall submit its application to
the Board not later than the first day of the 13-month period
ending on September 30 of the preceding fiscal year.
(iii)(I) The Board shall render a decision on an application
submitted under clause (i) not later than 180 days after the
deadline referred to in clause (ii).
(II) Appeal of decisions of the Board shall be subject to the
provisions of section 557b (!7) of title 5. The Secretary shall
issue a decision on such an appeal not later than 90 days after the
date on which the appeal is filed. The decision of the Secretary
shall be final and shall not be subject to judicial review.
(D)(i) The Secretary shall publish guidelines to be utilized by
the Board in rendering decisions on applications submitted under
this paragraph, and shall include in such guidelines the following:
(I) Guidelines for comparing wages, taking into account (to the
extent the Secretary determines appropriate) occupational mix, in
the area in which the hospital is classified and the area in
which the hospital is applying to be classified.
(II) Guidelines for determining whether the county in which the
hospital is located should be treated as being a part of a
particular Metropolitan Statistical Area.
(III) Guidelines for considering information provided by an
applicant with respect to the effects of the hospital's
geographic classification on access to inpatient hospital
services by medicare beneficiaries.
(IV) Guidelines for considering the appropriateness of the
criteria used to define New England County Metropolitan Areas.
(ii) Notwithstanding clause (i), if the Secretary uses a method
for making adjustments to the DRG prospective payment rate for area
differences in hospital wage levels under paragraph (3)(E) that is
not based on the use of Metropolitan Statistical Area
classifications, the Secretary may revise the guidelines published
under clause (i) to the extent such guidelines are used to
determine the appropriateness of the geographic area in which the
hospital is determined to be located for purposes of making such
adjustments.
(iii) Under the guidelines published by the Secretary under
clause (i), in the case of a hospital which has ever been
classified by the Secretary as a rural referral center under
paragraph (5)(C), the Board may not reject the application of the
hospital under this paragraph on the basis of any comparison
between the average hourly wage of the hospital and the average
hourly wage of hospitals in the area in which it is located.
(iv) The Secretary shall publish the guidelines described in
clause (i) by July 1, 1990.
(v) Any decision of the Board to reclassify a subsection (d)
hospital for purposes of the adjustment factor described in
subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year
thereafter shall be effective for a period of 3 fiscal years,
except that the Secretary shall establish procedures under which a
subsection (d) hospital may elect to terminate such
reclassification before the end of such period.
(vi) Such guidelines shall provide that, in making decisions on
applications for reclassification for the purposes described in
clause (v) for fiscal year 2003 and any succeeding fiscal year, the
Board shall base any comparison of the average hourly wage for the
hospital with the average hourly wage for hospitals in an area on -

(I) an average of the average hourly wage amount for the
hospital from the most recently published hospital wage survey
data of the Secretary (as of the date on which the hospital
applies for reclassification) and such amount from each of the
two immediately preceding surveys; and
(II) an average of the average hourly wage amount for hospitals
in such area from the most recently published hospital wage
survey data of the Secretary (as of the date on which the
hospital applies for reclassification) and such amount from each
of the two immediately preceding surveys.
(E)(i) The Board shall have full power and authority to make
rules and establish procedures, not inconsistent with the
provisions of this subchapter or regulations of the Secretary,
which are necessary or appropriate to carry out the provisions of
this paragraph. In the course of any hearing the Board may
administer oaths and affirmations. The provisions of subsections
(d) and (e) of section 405 of this title with respect to subpenas
shall apply to the Board to the same extent as such provisions
apply to the Secretary with respect to subchapter II of this
chapter.
(ii) The Board is authorized to engage such technical assistance
and to receive such information as may be required to carry out its
functions, and the Secretary shall, in addition, make available to
the Board such secretarial, clerical, and other assistance as the
Board may require to carry out its functions.
(F)(i) Each member of the Board who is not an officer or employee
of the Federal Government shall be compensated at a rate equal to
the daily equivalent of the annual rate of basic pay prescribed for
grade GS-18 of the General Schedule under section 5332 of title 5
for each day (including travel time) during which such member is
engaged in the performance of the duties of the Board. Each member
of the Board who is an officer or employee of the United States
shall serve without compensation in addition to that received for
service as an officer or employee of the United States.
(ii) Members of the Board shall be allowed travel expenses,
including per diem in lieu of subsistence, at rates authorized for
employees of agencies under subchapter I of chapter 57 of title 5,
while away from their homes or regular places of business in the
performance of services for the Board.
(11) Additional payments for managed care enrollees. -
(A) In general. - For portions of cost reporting periods
occurring on or after January 1, 1998, the Secretary shall
provide for an additional payment amount for each applicable
discharge of any subsection (d) hospital that has an approved
medical residency training program.
(B) Applicable discharge. - For purposes of this paragraph, the
term "applicable discharge" means the discharge of any individual
who is enrolled under a risk-sharing contract with an eligible
organization under section 1395mm of this title and who is
entitled to benefits under part A of this subchapter or any
individual who is enrolled with a Medicare+Choice organization
under part C of this subchapter.
(C) Determination of amount. - The amount of the payment under
this paragraph with respect to any applicable discharge shall be
equal to the applicable percentage (as defined in subsection
(h)(3)(D)(ii) of this section) of the estimated average per
discharge amount that would otherwise have been paid under
paragraph (5)(B) if the individuals had not been enrolled as
described in subparagraph (B).
(D) Special rule for hospitals under reimbursement system. -
The Secretary shall establish rules for the application of this
paragraph to a hospital reimbursed under a reimbursement system
authorized under section 1395f(b)(3) of this title in the same
manner as it would apply to the hospital if it were not
reimbursed under such section.
(12) Payment adjustment for low-volume hospitals. -
(A) In general. - In addition to any payments calculated under
this section for a subsection (d) hospital, for discharges
occurring during a fiscal year (beginning with fiscal year 2005),
the Secretary shall provide for an additional payment amount to
each low-volume hospital (as defined in subparagraph (C)(i)) for
discharges occurring during that fiscal year that is equal to the
applicable percentage increase (determined under subparagraph (B)
for the hospital involved) in the amount paid to such hospital
under this section for such discharges (determined without regard
to this paragraph).
(B) Applicable percentage increase. - The Secretary shall
determine an applicable percentage increase for purposes of
subparagraph (A) as follows:
(i) The Secretary shall determine the empirical relationship
for subsection (d) hospitals between the standardized cost-per-
case for such hospitals and the total number of discharges of
such hospitals and the amount of the additional incremental
costs (if any) that are associated with such number of
discharges.
(ii) The applicable percentage increase shall be determined
based upon such relationship in a manner that reflects, based
upon the number of such discharges for a subsection (d)
hospital, such additional incremental costs.
(iii) In no case shall the applicable percentage increase
exceed 25 percent.
(C) Definitions. -
(i) Low-volume hospital. - For purposes of this paragraph,
the term "low-volume hospital" means, for a fiscal year, a
subsection (d) hospital (as defined in paragraph (1)(B)) that
the Secretary determines is located more than 25 road miles
from another subsection (d) hospital and has less than 800
discharges during the fiscal year.
(ii) Discharge. - For purposes of subparagraph (B) and clause
(i), the term "discharge" means an inpatient acute care
discharge of an individual regardless of whether the individual
is entitled to benefits under part A of this subchapter.
(13)(A) In order to recognize commuting patterns among geographic
areas, the Secretary shall establish a process through application
or otherwise for an increase of the wage index applied under
paragraph (3)(E) for subsection (d) hospitals located in a
qualifying county described in subparagraph (B) in the amount
computed under subparagraph (D) based on out-migration of hospital
employees who reside in that county to any higher wage index area.
(B) The Secretary shall establish criteria for a qualifying
county under this subparagraph based on the out-migration referred
to in subparagraph (A) and differences in the area wage indices.
Under such criteria the Secretary shall, utilizing such data as the
Secretary determines to be appropriate, establish -
(i) a threshold percentage, established by the Secretary, of
the weighted average of the area wage index or indices for the
higher wage index areas involved;
(ii) a threshold (of not less than 10 percent) for minimum out-
migration to a higher wage index area or areas; and
(iii) a requirement that the average hourly wage of the
hospitals in the qualifying county equals or exceeds the average
hourly wage of all the hospitals in the area in which the
qualifying county is located.
(C) For purposes of this paragraph, the term "higher wage index
area" means, with respect to a county, an area with a wage index
that exceeds that of the county.
(D) The increase in the wage index under subparagraph (A) for a
qualifying county shall be equal to the percentage of the hospital
employees residing in the qualifying county who are employed in any
higher wage index area multiplied by the sum of the products, for
each higher wage index area of -
(i) the difference between -
(I) the wage index for such higher wage index area, and
(II) the wage index of the qualifying county; and
(ii) the number of hospital employees residing in the
qualifying county who are employed in such higher wage index area
divided by the total number of hospital employees residing in the
qualifying county who are employed in any higher wage index area.
(E) The process under this paragraph may be based upon the
process used by the Medicare Geographic Classification Review Board
under paragraph (10). As the Secretary determines to be appropriate
to carry out such process, the Secretary may require hospitals
(including subsection (d) hospitals and other hospitals) and
critical access hospitals, as required under section
1395cc(a)(1)(T) of this title, to submit data regarding the
location of residence, or the Secretary may use data from other
sources.
(F) A wage index increase under this paragraph shall be effective
for a period of 3 fiscal years, except that the Secretary shall
establish procedures under which a subsection (d) hospital may
elect to waive the application of such wage index increase.
(G) A hospital in a county that has a wage index increase under
this paragraph for a period and that has not waived the application
of such an increase under subparagraph (F) is not eligible for
reclassification under paragraph (8) or (10) during that period.
(H) Any increase in a wage index under this paragraph for a
county shall not be taken into account for purposes of -
(i) computing the wage index for portions of the wage index
area (not including the county) in which the county is located;
or
(ii) applying any budget neutrality adjustment with respect to
such index under paragraph (8)(D).
(I) The thresholds described in subparagraph (B), data on
hospital employees used under this paragraph, and any determination
of the Secretary under the process described in subparagraph (E)
shall be final and shall not be subject to judicial review.
(e) Proportional adjustments in applicable percentage increases
(1)(A) For cost reporting periods of hospitals beginning in
fiscal year 1984 or fiscal year 1985, the Secretary shall provide
for such proportional adjustment in the applicable percentage
increase (otherwise applicable to the periods under subsection
(b)(3)(B) of this section) as may be necessary to assure that -
(i) the aggregate payment amounts otherwise provided under
subsection (d)(1)(A)(i)(I) of this section for that fiscal year
for operating costs of inpatient hospital services of hospitals
(excluding payments made under section 1395cc(a)(1)(F) of this
title),
are not greater or less than -
(ii) the target percentage (as defined in subsection (d)(1)(C)
of this section) of the payment amounts which would have been
payable for such services for those same hospitals for that
fiscal year under this section under the law as in effect before
April 20, 1983 (excluding payments made under section
1395cc(a)(1)(F) of this title);
except that the adjustment made under this subparagraph shall apply
only to subsection (d) hospitals and shall not apply for purposes
of making computations under subsection (d)(2)(B)(ii) of this
section or subsection (d)(3)(A) of this section.
(B) For discharges occurring in fiscal year 1984 or fiscal year
1985, the Secretary shall provide under subsections (d)(2)(F) and
(d)(3)(C) of this section for such equal proportional adjustment in
each of the average standardized amounts otherwise computed for
that fiscal year as may be necessary to assure that -
(i) the aggregate payment amounts otherwise provided under
subsection (d)(1)(A)(i)(II) and (d)(5) of this section for that
fiscal year for operating costs of inpatient hospital services of
hospitals (excluding payments made under section 1395cc(a)(1)(F)
of this title),
are not greater or less than -
(ii) the DRG percentage (as defined in subsection (d)(1)(C) of
this section) of the payment amounts which would have been
payable for such services for those same hospitals for that
fiscal year under this section under the law as in effect before
April 20, 1983 (excluding payments made under section
1395cc(a)(1)(F) of this title).
(C) For discharges occurring in fiscal year 1988, the Secretary
shall provide for such equal proportional adjustment in each of the
average standardized amounts otherwise computed under subsection
(d)(3) of this section for that fiscal year as may be necessary to
assure that -
(i) the aggregate payment amounts otherwise provided under
subsections (d)(1)(A)(iii), (d)(5), and (d)(9) of this section
for that fiscal year for operating costs of inpatient hospital
services of subsection (d) hospitals and subsection (d) Puerto
Rico hospitals,
are not greater or less than -
(ii) the payment amounts that would have been payable for such
services for those same hospitals for that fiscal year but for
the enactment of the amendments made by section 9304 of the
Omnibus Budget Reconciliation Act of 1986.
(2) Repealed. Pub. L. 105-33, title IV, Sec. 4022(b)(1)(A)(i),
Aug. 5, 1997, 111 Stat. 354.
(3) The Secretary, not later than April 1, 1987, for fiscal year
1988 and not later than March 1 before the beginning of each fiscal
year (beginning with fiscal year 1989), shall report to the
Congress the Secretary's initial estimate of the percentage change
that the Secretary will recommend under paragraph (4) with respect
to that fiscal year.
(4)(A) Taking into consideration the recommendations of the
Commission, the Secretary shall recommend for each fiscal year
(beginning with fiscal year 1988) an appropriate change factor for
inpatient hospital services for discharges in that fiscal year
which will take into account amounts necessary for the efficient
and effective delivery of medically appropriate and necessary care
of high quality. The appropriate change factor may be different for
all large urban subsection (d) hospitals, other urban subsection
(d) hospitals, urban subsection (d) Puerto Rico hospitals, rural
subsection (d) hospitals, and rural subsection (d) Puerto Rico
hospitals, and all other hospitals and units not paid under
subsection (d) of this section, and may vary among such other
hospitals and units.
(B) In addition to the recommendation made under subparagraph
(A), the Secretary shall, taking into consideration the
recommendations of the Commission under paragraph (2)(B), recommend
for each fiscal year (beginning with fiscal year 1992) other
appropriate changes in each existing reimbursement policy under
this subchapter under which payments to an institution are based
upon prospectively determined rates.
(5) The Secretary shall cause to have published in the Federal
Register, not later than -
(A) the April 1 before each fiscal year (beginning with fiscal
year 1986), the Secretary's proposed recommendations under
paragraph (4) for that fiscal year for public comment, and
(B) the August 1 before such fiscal year after such
consideration of public comment on the proposal as is feasible in
the time available, the Secretary's final recommendations under
such paragraph for that year.
The Secretary shall include in the publication referred to in
subparagraph (A) for a fiscal year the report of the Commission's
recommendations submitted under paragraph (3) for that fiscal year.
To the extent that the Secretary's recommendations under paragraph
(4) differ from the Commission's recommendations for that fiscal
year, the Secretary shall include in the publication referred to in
subparagraph (A) an explanation of the Secretary's grounds for not
following the Commission's recommendations.
(f) Reporting of costs of hospitals receiving payments on basis of
prospective rates
(1)(A) The Secretary shall maintain a system for the reporting of
costs of hospitals receiving payments computed under subsection (d)
of this section.
(B)(i) Subject to clause (ii), the Secretary shall place into
effect a standardized electronic cost reporting format for
hospitals under this subchapter.
(ii) The Secretary may delay or waive the implementation of such
format in particular instances where such implementation would
result in financial hardship (in particular with respect to
hospitals with a small percentage of inpatients entitled to
benefits under this subchapter).
(2) If the Secretary determines, based upon information supplied
by a utilization and quality control peer review organization under
part B of subchapter XI of this chapter, that a hospital, in order
to circumvent the payment method established under subsection (b)
or (d) of this section, has taken an action that results in the
admission of individuals entitled to benefits under part A
unnecessarily, unnecessary multiple admissions of the same such
individuals, or other inappropriate medical or other practices with
respect to such individuals, the Secretary may -
(A) deny payment (in whole or in part) under part A of this
subchapter with respect to inpatient hospital services provided
with respect to such an unnecessary admission (or subsequent
admission of the same individual), or
(B) require the hospital to take other corrective action
necessary to prevent or correct the inappropriate practice.
(3) The provisions of subsections (c) through (g) of section
1320a-7 of this title shall apply to determinations made under
paragraph (2) in the same manner as they apply to exclusions
effected under section 1320a-7(b)(13) of this title.
(g) Prospective payment for capital-related costs; return on equity
capital for hospitals
(1)(A) Notwithstanding section 1395x(v) of this title, instead of
any amounts that are otherwise payable under this subchapter with
respect to the reasonable costs of subsection (d) hospitals and
subsection (d) Puerto Rico hospitals for capital-related costs of
inpatient hospital services, the Secretary shall, for hospital cost
reporting periods beginning on or after October 1, 1991, provide
for payments for such costs in accordance with a prospective
payment system established by the Secretary. Aggregate payments
made under subsection (d) of this section and this subsection
during fiscal years 1992 through 1995 shall be reduced in a manner
that results in a reduction (as estimated by the Secretary) in the
amount of such payments equal to a 10 percent reduction in the
amount of payments attributable to capital-related costs that would
otherwise have been made during such fiscal year had the amount of
such payments been based on reasonable costs (as defined in section
1395x(v) of this title). For discharges occurring after September
30, 1993, the Secretary shall reduce by 7.4 percent the unadjusted
standard Federal capital payment rate (as described in 42 CFR
412.308(c), as in effect on August 10, 1993) and shall (for
hospital cost reporting periods beginning on or after October 1,
1993) redetermine which payment methodology is applied to the
hospital under such system to take into account such reduction. In
addition to the reduction described in the preceding sentence, for
discharges occurring on or after October 1, 1997, the Secretary
shall apply the budget neutrality adjustment factor used to
determine the Federal capital payment rate in effect on September
30, 1995 (as described in section 412.352 of title 42 of the Code
of Federal Regulations), to (i) the unadjusted standard Federal
capital payment rate (as described in section 412.308(c) of that
title, as in effect on September 30, 1997), and (ii) the unadjusted
hospital-specific rate (as described in section 412.328(e)(1) of
that title, as in effect on September 30, 1997), and, for
discharges occurring on or after October 1, 1997, and before
October 1, 2002, reduce the rates described in clauses (i) and (ii)
by 2.1 percent.
(B) Such system -
(i) shall provide for (I) a payment on a per discharge basis,
and (II) an appropriate weighting of such payment amount as
relates to the classification of the discharge;
(ii) may provide for an adjustment to take into account
variations in the relative costs of capital and construction for
the different types of facilities or areas in which they are
located;
(iii) may provide for such exceptions (including appropriate
exceptions to reflect capital obligations) as the Secretary
determines to be appropriate, and
(iv) may provide for suitable adjustment to reflect hospital
occupancy rate.
(C) In this paragraph, the term "capital-related costs" has the
meaning given such term by the Secretary under subsection (a)(4) of
this section as of September 30, 1987, and does not include a
return on equity capital.
(2)(A) The Secretary shall provide that the amount which is
allowable, with respect to reasonable costs of inpatient hospital
services for which payment may be made under this subchapter, for a
return on equity capital for hospitals shall, for cost reporting
periods beginning on or after April 20, 1983, be equal to amounts
otherwise allowable under regulations in effect on March 1, 1983,
except that the rate of return to be recognized shall be equal to
the applicable percentage (described in subparagraph (B)) of the
average of the rates of interest, for each of the months any part
of which is included in the reporting period, on obligations issued
for purchase by the Federal Hospital Insurance Trust Fund.
(B) In this paragraph, the "applicable percentage" is -
(i) 75 percent, for cost reporting periods beginning during
fiscal year 1987,
(ii) 50 percent, for cost reporting periods beginning during
fiscal year 1988,
(iii) 25 percent, for cost reporting periods beginning during
fiscal year 1989, and
(iv) 0 percent, for cost reporting periods beginning on or
after October 1, 1989.
(3)(A) Except as provided in subparagraph (B), in determining the
amount of the payments that may be made under this subchapter with
respect to all the capital-related costs of inpatient hospital
services of a subsection (d) hospital and a subsection (d) Puerto
Rico hospital, the Secretary shall reduce the amounts of such
payments otherwise established under this subchapter by -
(i) 3.5 percent for payments attributable to portions of cost
reporting periods occurring during fiscal year 1987,
(ii) 7 percent for payments attributable to portions of cost
reporting periods or discharges (as the case may be) occurring
during fiscal year 1988 on or after October 1, 1987, and before
January 1, 1988,
(iii) 12 percent for payments attributable to portions of cost
reporting periods or discharges (as the case may be) in fiscal
year 1988, occurring on or after January 1, 1988,
(iv) 15 percent for payments attributable to portions of cost
reporting periods or discharges (as the case may be) occurring
during fiscal year 1989, and
(v) 15 percent for payments attributable to portions of cost
reporting periods or discharges (as the case may be) occurring
during the period beginning January 1, 1990, and ending September
30, 1991.
(B) Subparagraph (A) shall not apply to payments with respect to
the capital-related costs of any hospital that is a sole community
hospital (as defined in subsection (d)(5)(D)(iii) of this section)
or a critical access hospital (as defined in section 1395x(mm)(1)
of this title).
(4) In determining the amount of the payments that are
attributable to portions of cost reporting periods occurring during
fiscal years 1998 through 2002 and that may be made under this
subchapter with respect to capital-related costs of inpatient
hospital services of a hospital which is described in clause (i),
(ii), or (iv) of subsection (d)(1)(B) of this section or a unit
described in the matter after clause (v) of such subsection, the
Secretary shall reduce the amounts of such payments otherwise
determined under this subchapter by 15 percent.
(h) Payments for direct graduate medical education costs
(1) Substitution of special payment rules
Notwithstanding section 1395x(v) of this title, instead of any
amounts that are otherwise payable under this subchapter with
respect to the reasonable costs of hospitals for direct graduate
medical education costs, the Secretary shall provide for payments
for such costs in accordance with paragraph (3) of this
subsection. In providing for such payments, the Secretary shall
provide for an allocation of such payments between part A and
part B of this subchapter (and the trust funds established under
the respective parts) as reasonably reflects the proportion of
direct graduate medical education costs of hospitals associated
with the provision of services under each respective part.
(2) Determination of hospital-specific approved FTE resident
amounts
The Secretary shall determine, for each hospital with an
approved medical residency training program, an approved FTE
resident amount for each cost reporting period beginning on or
after July 1, 1985, as follows:
(A) Determining allowable average cost per FTE resident in a
hospital's base period
The Secretary shall determine, for the hospital's cost
reporting period that began during fiscal year 1984, the
average amount recognized as reasonable under this subchapter
for direct graduate medical education costs of the hospital for
each full-time-equivalent resident.
(B) Updating to the first cost reporting period
(i) In general
The Secretary shall update each average amount determined
under subparagraph (A) by the percentage increase in the
consumer price index during the 12-month cost reporting
period described in such subparagraph.
(ii) Exception
The Secretary shall not perform an update under clause (i)
in the case of a hospital if the hospital's reporting period,
described in subparagraph (A), began on or after July 1,
1984, and before October 1, 1984.
(C) Amount for first cost reporting period
For the first cost reporting period of the hospital beginning
on or after July 1, 1985, the approved FTE resident amount for
the hospital is equal to the amount determined under
subparagraph (B) increased by 1 percent.
(D) Amount for subsequent cost reporting periods
(i) In general
Except as provided in a subsequent clause, for each
subsequent cost reporting period, the approved FTE resident
amount for the hospital is equal to the approved FTE resident
amount determined under this paragraph for the previous cost
reporting period updated, through the midpoint of the period,
by projecting the estimated percentage change in the consumer
price index during the 12-month period ending at that
midpoint, with appropriate adjustments to reflect previous
under- or over-estimations under this subparagraph in the
projected percentage change in the consumer price index.
(ii) Freeze in update for fiscal years 1994 and 1995
For cost reporting periods beginning during fiscal year
1994 or fiscal year 1995, the approved FTE resident amount
for a hospital shall not be updated under clause (i) for a
resident who is not a primary care resident (as defined in
paragraph (5)(H)) or a resident enrolled in an approved
medical residency training program in obstetrics and
gynecology.
(iii) Floor for locality adjusted national average per
resident amount
The approved FTE resident amount for a hospital for the
cost reporting period beginning during fiscal year 2001 shall
not be less than 70 percent, and for the cost reporting
period beginning during fiscal year 2002 shall not be less
than 85 percent, of the locality adjusted national average
per resident amount computed under subparagraph (E) for the
hospital and period.
(iv) Adjustment in rate of increase for hospitals with FTE
approved amount above 140 percent of locality adjusted
national average per resident amount
(I) Freeze for fiscal years 2001 and 2002 and 2004 through
2013
For a cost reporting period beginning during fiscal year
2001 or fiscal year 2002 or during the period beginning
with fiscal year 2004 and ending with fiscal year 2013, if
the approved FTE resident amount for a hospital for the
preceding cost reporting period exceeds 140 percent of the
locality adjusted national average per resident amount
computed under subparagraph (E) for that hospital and
period, subject to subclause (III), the approved FTE
resident amount for the period involved shall be the same
as the approved FTE resident amount for the hospital for
such preceding cost reporting period.
(II) 2 percent decrease in update for fiscal years 2003,
2004, and 2005
For the cost reporting period beginning during fiscal
year 2003, if the approved FTE resident amount for a
hospital for the preceding cost reporting period exceeds
140 percent of the locality adjusted national average per
resident amount computed under subparagraph (E) for that
hospital and preceding period, the approved FTE resident
amount for the period involved shall be updated in the
manner described in subparagraph (D)(i) except that,
subject to subclause (III), the consumer price index
applied for a 12-month period shall be reduced (but not
below zero) by 2 percentage points.
(III) No adjustment below 140 percent
In no case shall subclause (I) or (II) reduce an approved
FTE resident amount for a hospital for a cost reporting
period below 140 percent of the locality adjusted national
average per resident amount computed under subparagraph (E)
for such hospital and period.
(E) Determination of locality adjusted national average per
resident amount
The Secretary shall determine a locality adjusted national
average per resident amount with respect to a cost reporting
period of a hospital beginning during a fiscal year as follows:
(i) Determining hospital single per resident amount
The Secretary shall compute for each hospital operating an
approved graduate medical education program a single per
resident amount equal to the average (weighted by number of
full-time equivalent residents, as determined under paragraph
(4)) of the primary care per resident amount and the non-
primary care per resident amount computed under paragraph
(2) for cost reporting periods ending during fiscal year
1997.
(ii) Standardizing per resident amounts
The Secretary shall compute a standardized per resident
amount for each such hospital by dividing the single per
resident amount computed under clause (i) by an average of
the 3 geographic index values (weighted by the national
average weight for each of the work, practice expense, and
malpractice components) as applied under section 1395w-4(e)
of this title for 1999 for the fee schedule area in which the
hospital is located.
(iii) Computing of weighted average
The Secretary shall compute the average of the standardized
per resident amounts computed under clause (ii) for such
hospitals, with the amount for each hospital weighted by the
average number of full-time equivalent residents at such
hospital (as determined under paragraph (4)).
(iv) Computing national average per resident amount
The Secretary shall compute the national average per
resident amount, for a hospital's cost reporting period that
begins during fiscal year 2001, equal to the weighted average
computed under clause (iii) increased by the estimated
percentage increase in the consumer price index for all urban
consumers during the period beginning with the month that
represents the midpoint of the cost reporting periods
described in clause (i) and ending with the midpoint of the
hospital's cost reporting period that begins during fiscal
year 2001.
(v) Adjusting for locality
The Secretary shall compute the product of -
(I) the national average per resident amount computed
under clause (iv) for the hospital, and
(II) the geographic index value average (described and
applied under clause (ii)) for the fee schedule area in
which the hospital is located.
(vi) Computing locality adjusted amount
The locality adjusted national per resident amount for a
hospital for -
(I) the cost reporting period beginning during fiscal
year 2001 is the product computed under clause (v); or
(II) each subsequent cost reporting period is equal to
the locality adjusted national per resident amount for the
hospital for the previous cost reporting period (as
determined under this clause) updated, through the midpoint
of the period, by projecting the estimated percentage
change in the consumer price index for all urban consumers
during the 12-month period ending at that midpoint.
(F) Treatment of certain hospitals
In the case of a hospital that did not have an approved
medical residency training program or was not participating in
the program under this subchapter for a cost reporting period
beginning during fiscal year 1984, the Secretary shall, for the
first such period for which it has such a residency training
program and is participating under this subchapter, provide for
such approved FTE resident amount as the Secretary determines
to be appropriate, based on approved FTE resident amounts for
comparable programs.
(3) Hospital payment amount per resident
(A) In general
The payment amount, for a hospital cost reporting period
beginning on or after July 1, 1985, is equal to the product of -

(i) the aggregate approved amount (as defined in
subparagraph (B)) for that period, and
(ii) the hospital's medicare patient load (as defined in
subparagraph (C)) for that period.
(B) Aggregate approved amount
As used in subparagraph (A), the term "aggregate approved
amount" means, for a hospital cost reporting period, the
product of -
(i) the hospital's approved FTE resident amount (determined
under paragraph (2)) for that period, and
(ii) the weighted average number of full-time-equivalent
residents (as determined under paragraph (4)) in the
hospital's approved medical residency training programs in
that period.
The Secretary shall reduce the aggregate approved amount to the
extent payment is made under subsection (k) of this section for
residents included in the hospital's count of full-time
equivalent residents.
(C) Medicare patient load
As used in subparagraph (A), the term "medicare patient load"
means, with respect to a hospital's cost reporting period, the
fraction of the total number of inpatient-bed-days (as
established by the Secretary) during the period which are
attributable to patients with respect to whom payment may be
made under part A of this subchapter.
(D) Payment for managed care enrollees
(i) In general
For portions of cost reporting periods occurring on or
after January 1, 1998, the Secretary shall provide for an
additional payment amount under this subsection for services
furnished to individuals who are enrolled under a risk-
sharing contract with an eligible organization under section
1395mm of this title and who are entitled to part A of this
subchapter or with a Medicare+Choice organization under part
C of this subchapter. The amount of such a payment shall
equal, subject to clause (iii), the applicable percentage of
the product of -
(I) the aggregate approved amount (as defined in
subparagraph (B)) for that period; and
(II) the fraction of the total number of inpatient-bed
days (as established by the Secretary) during the period
which are attributable to such enrolled individuals.
(ii) Applicable percentage
For purposes of clause (i), the applicable percentage is -
(I) 20 percent in 1998,
(II) 40 percent in 1999,
(III) 60 percent in 2000,
(IV) 80 percent in 2001, and
(V) 100 percent in 2002 and subsequent years.
(iii) Proportional reduction for nursing and allied health
education
The Secretary shall estimate a proportional adjustment in
payments to all hospitals determined under clauses (i) and
(ii) for portions of cost reporting periods beginning in a
year (beginning with 2000) such that the proportional
adjustment reduces payments in an amount for such year equal
to the total additional payment amounts for nursing and
allied health education determined under subsection (l) of
this section for portions of cost reporting periods occurring
in that year.
(iv) Special rule for hospitals under reimbursement system
The Secretary shall establish rules for the application of
this subparagraph to a hospital reimbursed under a
reimbursement system authorized under section 1395f(b)(3) of
this title in the same manner as it would apply to the
hospital if it were not reimbursed under such section.
(4) Determination of full-time-equivalent residents
(A) Rules
The Secretary shall establish rules consistent with this
paragraph for the computation of the number of full-time-
equivalent residents in an approved medical residency training
program.
(B) Adjustment for part-year or part-time residents
Such rules shall take into account individuals who serve as
residents for only a portion of a period with a hospital or
simultaneously with more than one hospital.
(C) Weighting factors for certain residents
Subject to subparagraph (D), such rules shall provide, in
calculating the number of full-time-equivalent residents in an
approved residency program -
(i) before July 1, 1986, for each resident the weighting
factor is 1.00,
(ii) on or after July 1, 1986, for a resident who is in the
resident's initial residency period (as defined in paragraph
(5)(F)), the weighting factor is 1.00,
(iii) on or after July 1, 1986, and before July 1, 1987,
for a resident who is not in the resident's initial residency
period (as defined in paragraph (5)(F)), the weighting factor
is .75, and
(iv) on or after July 1, 1987, for a resident who is not in
the resident's initial residency period (as defined in
paragraph (5)(F)), the weighting factor is .50.
(D) Foreign medical graduates required to pass FMGEMS
examination
(i) In general
Except as provided in clause (ii), such rules shall provide
that, in the case of an individual who is a foreign medical
graduate (as defined in paragraph (5)(D)), the individual
shall not be counted as a resident on or after July 1, 1986,
unless -
(I) the individual has passed the FMGEMS examination (as
defined in paragraph (5)(E)), or
(II) the individual has previously received certification
from, or has previously passed the examination of, the
Educational Commission for Foreign Medical Graduates.
(ii) Transition for current FMGS
On or after July 1, 1986, but before July 1, 1987, in the
case of a foreign medical graduate who -
(I) has served as a resident before July 1, 1986, and is
serving as a resident after that date, but
(II) has not passed the FMGEMS examination or a previous
examination of the Educational Commission for Foreign
Medical Graduates before July 1, 1986,
the individual shall be counted as a resident at a rate equal
to one-half of the rate at which the individual would
otherwise be counted.
(E) Counting time spent in outpatient settings
Such rules shall provide that only time spent in activities
relating to patient care shall be counted and that all the time
so spent by a resident under an approved medical residency
training program shall be counted towards the determination of
full-time equivalency, without regard to the setting in which
the activities are performed, if the hospital incurs all, or
substantially all, of the costs for the training program in
that setting.
(F) Limitation on number of residents in allopathic and
osteopathic medicine
(i) In general
Such rules shall provide that for purposes of a cost
reporting period beginning on or after October 1, 1997,
subject to paragraph (7), the total number of full-time
equivalent residents before application of weighting factors
(as determined under this paragraph) with respect to a
hospital's approved medical residency training program in the
fields of allopathic medicine and osteopathic medicine may
not exceed the number (or, 130 percent of such number in the
case of a hospital located in a rural area) of such full-time
equivalent residents for the hospital's most recent cost
reporting period ending on or before December 31, 1996.
(ii) Counting primary care residents on certain approved
leaves of absence in base year FTE count
(I) In general
In determining the number of such full-time equivalent
residents for a hospital's most recent cost reporting
period ending on or before December 31, 1996, for purposes
of clause (i), the Secretary shall count an individual to
the extent that the individual would have been counted as a
primary care resident for such period but for the fact that
the individual, as determined by the Secretary, was on
maternity or disability leave or a similar approved leave
of absence.
(II) Limitation to 3 FTE residents for any hospital
The total number of individuals counted under subclause
(I) for a hospital may not exceed 3 full-time equivalent
residents.
(G) Counting interns and residents for FY 1998 and subsequent
years
(i) In general
For cost reporting periods beginning during fiscal years
beginning on or after October 1, 1997, subject to the limit
described in subparagraph (F), the total number of full-time
equivalent residents for determining a hospital's graduate
medical education payment shall equal the average of the
actual full-time equivalent resident counts for the cost
reporting period and the preceding two cost reporting
periods.
(ii) Adjustment for short periods
If any cost reporting period beginning on or after October
1, 1997, is not equal to twelve months, the Secretary shall
make appropriate modifications to ensure that the average
full-time equivalent resident counts pursuant to clause (i)
are based on the equivalent of full twelve-month cost
reporting periods.
(iii) Transition rule for 1998
In the case of a hospital's first cost reporting period
beginning on or after October 1, 1997, clause (i) shall be
applied by using the average for such period and the
preceding cost reporting period.
(H) Special rules for application of subparagraphs (F) and (G)
(i) New facilities
The Secretary shall, consistent with the principles of
subparagraphs (F) and (G) and subject to paragraph (7),
prescribe rules for the application of such subparagraphs in
the case of medical residency training programs established
on or after January 1, 1995. In promulgating such rules for
purposes of subparagraph (F), the Secretary shall give
special consideration to facilities that meet the needs of
underserved rural areas.
(ii) Aggregation
The Secretary may prescribe rules which allow institutions
which are members of the same affiliated group (as defined by
the Secretary) to elect to apply the limitation of
subparagraph (F) on an aggregate basis.
(iii) Data collection
The Secretary may require any entity that operates a
medical residency training program and to which subparagraphs
(F) and (G) apply to submit to the Secretary such additional
information as the Secretary considers necessary to carry out
such subparagraphs.
(iv) Nonrural hospitals operating training programs in rural
areas
In the case of a hospital that is not located in a rural
area but establishes separately accredited approved medical
residency training programs (or rural tracks) in an (!8)
rural area or has an accredited training program with an
integrated rural track, the Secretary shall adjust the
limitation under subparagraph (F) in an appropriate manner
insofar as it applies to such programs in such rural areas in
order to encourage the training of physicians in rural areas.
(5) Definitions and special rules
As used in this subsection:
(A) Approved medical residency training program
The term "approved medical residency training program" means
a residency or other postgraduate medical training program
participation in which may be counted toward certification in a
specialty or subspecialty and includes formal postgraduate
training programs in geriatric medicine approved by the
Secretary.
(B) Consumer price index
The term "consumer price index" refers to the Consumer Price
Index for All Urban Consumers (United States city average), as
published by the Secretary of Commerce.
(C) Direct graduate medical education costs
The term "direct graduate medical education costs" means
direct costs of approved educational activities for approved
medical residency training programs.
(D) Foreign medical graduate
The term "foreign medical graduate" means a resident who is
not a graduate of -
(i) a school of medicine accredited by the Liaison
Committee on Medical Education of the American Medical
Association and the Association of American Medical Colleges
(or approved by such Committee as meeting the standards
necessary for such accreditation),
(ii) a school of osteopathy accredited by the American
Osteopathic Association, or approved by such Association as
meeting the standards necessary for such accreditation, or
(iii) a school of dentistry or podiatry which is accredited
(or meets the standards for accreditation) by an organization
recognized by the Secretary for such purpose.
(E) FMGEMS examination
The term "FMGEMS examination" means parts I and II of the
Foreign Medical Graduate Examination in the Medical Sciences or
any successor examination recognized by the Secretary for this
purpose.
(F) Initial residency period
The term "initial residency period" means the period of board
eligibility, except that -
(i) except as provided in clause (ii), in no case shall the
initial period of residency exceed an aggregate period of
formal training of more than five years for any individual,
and
(ii) a period, of not more than two years, during which an
individual is in a geriatric residency or fellowship program
or a preventive medicine residency or fellowship program
which meets such criteria as the Secretary may establish,
shall be treated as part of the initial residency period, but
shall not be counted against any limitation on the initial
residency period.
Subject to subparagraph (G)(v), the initial residency period
shall be determined, with respect to a resident, as of the time
the resident enters the residency training program.
(G) Period of board eligibility
(i) General rule
Subject to clauses (ii), (iii), (iv), and (v), the term
"period of board eligibility" means, for a resident, the
minimum number of years of formal training necessary to
satisfy the requirements for initial board eligibility in the
particular specialty for which the resident is training.
(ii) Application of 1985-1986 directory
Except as provided in clause (iii), the period of board
eligibility shall be such period specified in the 1985-1986
Directory of Residency Training Programs published by the
Accreditation Council on Graduate Medical Education.
(iii) Changes in period of board eligibility
On or after July 1, 1989, if the Accreditation Council on
Graduate Medical Education, in its Directory of Residency
Training Programs -
(I) increases the minimum number of years of formal
training necessary to satisfy the requirements for a
specialty, above the period specified in its 1985-1986
Directory, the Secretary may increase the period of board
eligibility for that specialty, but not to exceed the
period of board eligibility specified in that later
Directory, or
(II) decreases the minimum number of years of formal
training necessary to satisfy the requirements for a
specialty, below the period specified in its 1985-1986
Directory, the Secretary may decrease the period of board
eligibility for that specialty, but not below the period of
board eligibility specified in that later Directory.
(iv) Special rule for certain primary care combined residency
programs
(I) In the case of a resident enrolled in a combined
medical residency training program in which all of the
individual programs (that are combined) are for training a
primary care resident (as defined in subparagraph (H)), the
period of board eligibility shall be the minimum number of
years of formal training required to satisfy the requirements
for initial board eligibility in the longest of the
individual programs plus one additional year.
(II) A resident enrolled in a combined medical residency
training program that includes an obstetrics and gynecology
program shall qualify for the period of board eligibility
under subclause (I) if the other programs such resident
combines with such obstetrics and gynecology program are for
training a primary care resident.
(v) Child neurology training programs
In the case of a resident enrolled in a child neurology
residency training program, the period of board eligibility
and the initial residency period shall be the period of board
eligibility for pediatrics plus 2 years.
(H) Primary care resident
The term "primary care resident" means a resident enrolled in
an approved medical residency training program in family
medicine, general internal medicine, general pediatrics,
preventive medicine, geriatric medicine, or osteopathic general
practice.
(I) Resident
The term "resident" includes an intern or other participant
in an approved medical residency training program.
(J) Adjustments for certain family practice residency programs
(i) In general
In the case of an approved medical residency training
program (meeting the requirements of clause (ii)) of a
hospital which received funds from the United States, a
State, or a political subdivision of a State or an
instrumentality of such a State or political subdivision
(other than payments under this subchapter or a State plan
under subchapter XIX of this chapter) for the program during
the cost reporting period that began during fiscal year 1984,
the Secretary shall -
(I) provide for an average amount under paragraph (2)(A)
that takes into account the Secretary's estimate of the
amount that would have been recognized as reasonable under
this subchapter if the hospital had not received such
funds, and
(II) reduce the payment amount otherwise provided under
this subsection in an amount equal to the proportion of
such program funds received during the cost reporting
period involved that is allocable to this subchapter.
(ii) Additional requirements
A hospital's approved medical residency program meets the
requirements of this clause if -
(I) the program is limited to training for family and
community medicine;
(II) the program is the only approved medical residency
program of the hospital; and
(III) the average amount determined under paragraph
(2)(A) for the hospital (as determined without regard to
the increase in such amount described in clause (i)(I))
does not exceed $10,000.
(6) Incentive payment under plans for voluntary reduction in
number of residents
(A) In general
In the case of a voluntary residency reduction plan for which
an application is approved under subparagraph (B), subject to
subparagraph (F), each hospital which is part of the qualifying
entity submitting the plan shall be paid an applicable hold
harmless percentage (as specified in subparagraph (E)) of the
sum of -
(i) the amount (if any) by which -
(I) the amount of payment which would have been made
under this subsection if there had been a 5-percent
reduction in the number of full-time equivalent residents
in the approved medical education training programs of the
hospital as of June 30, 1997, exceeds
(II) the amount of payment which is made under this
subsection, taking into account the reduction in such
number effected under the reduction plan; and
(ii) the amount of the reduction in payment under
subsection (d)(5)(B) of this section for the hospital that is
attributable to the reduction in number of residents effected
under the plan below 95 percent of the number of full-time
equivalent residents in such programs of the hospital as of
June 30, 1997.
The determination of the amounts under clauses (i) and (ii) for
any year shall be made on the basis of the provisions of this
subchapter in effect on the application deadline date for the
first calendar year to which the reduction plan applies.
(B) Approval of plan applications
The Secretary may not approve the application of an
qualifying entity unless -
(i) the application is submitted in a form and manner
specified by the Secretary and by not later than November 1,
1999,(!9)
(ii) the application provides for the operation of a plan
for the reduction in the number of full-time equivalent
residents in the approved medical residency training programs
of the entity consistent with the requirements of
subparagraph (D);
(iii) the entity elects in the application the period of
residency training years (not greater than 5) over which the
reduction will occur;
(iv) the entity will not reduce the proportion of its
residents in primary care (to the total number of residents)
below such proportion as in effect as of the applicable time
described in subparagraph (D)(v); and
(v) the Secretary determines that the application and the
entity and such plan meet such other requirements as the
Secretary specifies in regulations.
(C) Qualifying entity
For purposes of this paragraph, any of the following may be a
qualifying entity:
(i) Individual hospitals operating one or more approved
medical residency training programs.
(ii) Two or more hospitals that operate such programs and
apply for treatment under this paragraph as a single
qualifying entity.
(iii) A qualifying consortium (as described in section 4628
of the Balanced Budget Act of 1997).
(D) Residency reduction requirements
(i) Individual hospital applicants
In the case of a qualifying entity described in
subparagraph (C)(i), the number of full-time equivalent
residents in all the approved medical residency training
programs operated by or through the entity shall be reduced
as follows:
(I) If the base number of residents exceeds 750
residents, by a number equal to at least 20 percent of such
base number.
(II) Subject to subclause (IV), if the base number of
residents exceeds 600 but is less than 750 residents, by
150 residents.
(III) Subject to subclause (IV), if the base number of
residents does not exceed 600 residents, by a number equal
to at least 25 percent of such base number.
(IV) In the case of a qualifying entity which is
described in clause (v) and which elects treatment under
this subclause, by a number equal to at least 20 percent of
the base number.
(ii) Joint applicants
In the case of a qualifying entity described in
subparagraph (C)(ii), the number of full-time equivalent
residents in the aggregate for all the approved medical
residency training programs operated by or through the entity
shall be reduced as follows:
(I) Subject to subclause (II), by a number equal to at
least 25 percent of the base number.
(II) In the case of such a qualifying entity which is
described in clause (v) and which elects treatment under
this subclause, by a number equal to at least 20 percent of
the base number.
(iii) Consortia
In the case of a qualifying entity described in
subparagraph (C)(iii), the number of full-time equivalent
residents in the aggregate for all the approved medical
residency training programs operated by or through the entity
shall be reduced by a number equal to at least 20 percent of
the base number.
(iv) Manner of reduction
The reductions specified under the preceding provisions of
this subparagraph for a qualifying entity shall be below the
base number of residents for that entity and shall be fully
effective not later than the 5th residency training year in
which the application under subparagraph (B) is effective.
(v) Entities providing assurance of increase in primary care
residents
An entity is described in this clause if -
(I) the base number of residents for the entity is less
than 750 or the entity is described in subparagraph
(C)(ii); and
(II) the entity represents in its application under
subparagraph (B) that it will increase the number of full-
time equivalent residents in primary care by at least 20
percent (from such number included in the base number of
residents) by not later than the 5th residency training
year in which the application under subparagraph (B) is
effective.
If a qualifying entity fails to comply with the
representation described in subclause (II) by the end of such
5th residency training year, the entity shall be subject to
repayment of all amounts paid under this paragraph, in
accordance with procedures established to carry out
subparagraph (F).
(vi) "Base number of residents" defined
For purposes of this paragraph, the term "base number of
residents" means, with respect to a qualifying entity (or its
participating hospitals) operating approved medical residency
training programs, the number of full-time equivalent
residents in such programs (before application of weighting
factors) of the entity as of the most recent residency
training year ending before June 30, 1997, or, if less, for
any subsequent residency training year that ends before the
date the entity makes application under this paragraph.
(E) Applicable hold harmless percentage
For purposes of subparagraph (A), the "applicable hold
harmless percentage" for the -
(i) first and second residency training years in which the
reduction plan is in effect, 100 percent,
(ii) third such year, 75 percent,
(iii) fourth such year, 50 percent, and
(iv) fifth such year, 25 percent.
(F) Penalty for noncompliance
(i) In general
No payment may be made under this paragraph to a hospital
for a residency training year if the hospital has failed to
reduce the number of full-time equivalent residents (in the
manner required under subparagraph (D)) to the number agreed
to by the Secretary and the qualifying entity in approving
the application under this paragraph with respect to such
year.
(ii) Increase in number of residents in subsequent years
If payments are made under this paragraph to a hospital,
and if the hospital increases the number of full-time
equivalent residents above the number of such residents
permitted under the reduction plan as of the completion of
the plan, then, as specified by the Secretary, the entity is
liable for repayment to the Secretary of the total amounts
paid under this paragraph to the entity.
(G) Treatment of rotating residents
In applying this paragraph, the Secretary shall establish
rules regarding the counting of residents who are assigned to
institutions the medical residency training programs in which
are not covered under approved applications under this
paragraph.
(7) Redistribution of unused resident positions
(A) Reduction in limit based on unused positions
(i) Programs subject to reduction
(I) In general
Except as provided in subclause (II), if a hospital's
reference resident level (specified in clause (ii)) is less
than the otherwise applicable resident limit (as defined in
subparagraph (C)(ii)), effective for portions of cost
reporting periods occurring on or after July 1, 2005, the
otherwise applicable resident limit shall be reduced by 75
percent of the difference between such otherwise applicable
resident limit and such reference resident level.
(II) Exception for small rural hospitals
This subparagraph shall not apply to a hospital located
in a rural area (as defined in subsection (d)(2)(D)(ii) of
this section) with fewer than 250 acute care inpatient
beds.
(ii) Reference resident level
(I) In general
Except as otherwise provided in subclauses (II) and
(III), the reference resident level specified in this
clause for a hospital is the resident level for the most
recent cost reporting period of the hospital ending on or
before September 30, 2002, for which a cost report has been
settled (or, if not, submitted (subject to audit)), as
determined by the Secretary.
(II) Use of most recent accounting period to recognize
expansion of existing programs
If a hospital submits a timely request to increase its
resident level due to an expansion of an existing residency
training program that is not reflected on the most recent
settled cost report, after audit and subject to the
discretion of the Secretary, the reference resident level
for such hospital is the resident level for the cost
reporting period that includes July 1, 2003, as determined
by the Secretary.
(III) Expansions under newly approved programs
Upon the timely request of a hospital, the Secretary
shall adjust the reference resident level specified under
subclause (I) or (II) to include the number of medical
residents that were approved in an application for a
medical residency training program that was approved by an
appropriate accrediting organization (as determined by the
Secretary) before January 1, 2002, but which was not in
operation during the cost reporting period used under
subclause (I) or (II), as the case may be, as determined by
the Secretary.
(iii) Affiliation
The provisions of clause (i) shall be applied to hospitals
which are members of the same affiliated group (as defined by
the Secretary under paragraph (4)(H)(ii)) as of July 1, 2003.
(B) Redistribution
(i) In general
The Secretary is authorized to increase the otherwise
applicable resident limit for each qualifying hospital that
submits a timely application under this subparagraph by such
number as the Secretary may approve for portions of cost
reporting periods occurring on or after July 1, 2005. The
aggregate number of increases in the otherwise applicable
resident limits under this subparagraph may not exceed the
Secretary's estimate of the aggregate reduction in such
limits attributable to subparagraph (A).
(ii) Considerations in redistribution
In determining for which hospitals the increase in the
otherwise applicable resident limit is provided under clause
(i), the Secretary shall take into account the demonstrated
likelihood of the hospital filling the positions within the
first 3 cost reporting periods beginning on or after July 1,
2005, made available under this subparagraph, as determined
by the Secretary.
(iii) Priority for rural and small urban areas
In determining for which hospitals and residency training
programs an increase in the otherwise applicable resident
limit is provided under clause (i), the Secretary shall
distribute the increase to programs of hospitals located in
the following priority order:
(I) First, to hospitals located in rural areas (as
defined in subsection (d)(2)(D)(ii) of this section).
(II) Second, to hospitals located in urban areas that are
not large urban areas (as defined for purposes of
subsection (d) of this section).
(III) Third, to other hospitals in a State if the
residency training program involved is in a specialty for
which there are not other residency training programs in
the State.
Increases of residency limits within the same priority
category under this clause shall be determined by the
Secretary.
(iv) Limitation
In no case shall more than 25 full-time equivalent
additional residency positions be made available under this
subparagraph with respect to any hospital.
(v) Application of locality adjusted national average per
resident amount
With respect to additional residency positions in a
hospital attributable to the increase provided under this
subparagraph, notwithstanding any other provision of this
subsection, the approved FTE resident amount is deemed to be
equal to the locality adjusted national average per resident
amount computed under paragraph (4)(E) for that hospital.
(vi) Construction
Nothing in this subparagraph shall be construed as
permitting the redistribution of reductions in residency
positions attributable to voluntary reduction programs under
paragraph (6), under a demonstration project approved as of
October 31, 2003, under the authority of section 402 of
Public Law 90-248, or as affecting the ability of a hospital
to establish new medical residency training programs under
paragraph (4)(H).
(C) Resident level and limit defined
In this paragraph:
(i) Resident level
The term "resident level" means, with respect to a
hospital, the total number of full-time equivalent residents,
before the application of weighting factors (as determined
under paragraph (4)), in the fields of allopathic and
osteopathic medicine for the hospital.
(ii) Otherwise applicable resident limit
The term "otherwise applicable resident limit" means, with
respect to a hospital, the limit otherwise applicable under
subparagraphs (F)(i) and (H) of paragraph (4) on the resident
level for the hospital determined without regard to this
paragraph.
(D) Judicial review
There shall be no administrative or judicial review under
section 1395ff, 1395oo of this title, or otherwise, with
respect to determinations made under this paragraph.
(i) Avoiding duplicative payments to hospitals participating in
rural demonstration programs
The Secretary shall reduce any payment amounts otherwise
determined under this section to the extent necessary to avoid
duplication of any payment made under section 4005(e) of the
Omnibus Budget Reconciliation Act of 1987.
(j) Prospective payment for inpatient rehabilitation services
(1) Payment during transition period
(A) In general
Notwithstanding section 1395f(b) of this title, but subject
to the provisions of section 1395e of this title, the amount of
the payment with respect to the operating and capital costs of
inpatient hospital services of a rehabilitation hospital or a
rehabilitation unit (in this subsection referred to as a
"rehabilitation facility"), other than a facility making an
election under subparagraph (F) in a cost reporting period
beginning on or after October 1, 2000, and before October 1,
2002, is equal to the sum of -
(i) the TEFRA percentage (as defined in subparagraph (C))
of the amount that would have been paid under part A of this
subchapter with respect to such costs if this subsection did
not apply, and
(ii) the prospective payment percentage (as defined in
subparagraph (C)) of the product of (I) the per unit payment
rate established under this subsection for the fiscal year in
which the payment unit of service occurs, and (II) the number
of such payment units occurring in the cost reporting period.
(B) Fully implemented system
Notwithstanding section 1395f(b) of this title, but subject
to the provisions of section 1395e of this title, the amount of
the payment with respect to the operating and capital costs of
inpatient hospital services of a rehabilitation facility for a
payment unit in a cost reporting period beginning on or after
October 1, 2002, or, in the case of a facility making an
election under subparagraph (F), for any cost reporting period
described in such subparagraph, is equal to the per unit
payment rate established under this subsection for the fiscal
year in which the payment unit of service occurs.
(C) TEFRA and prospective payment percentages specified
For purposes of subparagraph (A), for a cost reporting period
beginning -
(i) on or after October 1, 2000, and before October 1,
2001, the "TEFRA percentage" is 66 2/3 percent and the
"prospective payment percentage" is 33 1/3 percent; and
(ii) on or after October 1, 2001, and before October 1,
2002, the "TEFRA percentage" is 33 1/3 percent and the
"prospective payment percentage" is 66 2/3 percent.
(D) Payment unit
For purposes of this subsection, the term "payment unit"
means a discharge.
(E) Construction relating to transfer authority
Nothing in this subsection shall be construed as preventing
the Secretary from providing for an adjustment to payments to
take into account the early transfer of a patient from a
rehabilitation facility to another site of care.
(F) Election to apply full prospective payment system
A rehabilitation facility may elect, not later than 30 days
before its first cost reporting period for which the payment
methodology under this subsection applies to the facility, to
have payment made to the facility under this subsection under
the provisions of subparagraph (B) (rather than subparagraph
(A)) for each cost reporting period to which such payment
methodology applies.
(2) Patient case mix groups
(A) Establishment
The Secretary shall establish -
(i) classes of patient discharges of rehabilitation
facilities by functional-related groups (each in this
subsection referred to as a "case mix group"), based on
impairment, age, comorbidities, and functional capability of
the patient and such other factors as the Secretary deems
appropriate to improve the explanatory power of functional
independence measure-function related groups; and
(ii) a method of classifying specific patients in
rehabilitation facilities within these groups.
(B) Weighting factors
For each case mix group the Secretary shall assign an
appropriate weighting which reflects the relative facility
resources used with respect to patients classified within that
group compared to patients classified within other groups.
(C) Adjustments for case mix
(i) In general
The Secretary shall from time to time adjust the
classifications and weighting factors established under this
paragraph as appropriate to reflect changes in treatment
patterns, technology, case mix, number of payment units for
which payment is made under this subchapter, and other
factors which may affect the relative use of resources. Such
adjustments shall be made in a manner so that changes in
aggregate payments under the classification system are a
result of real changes and are not a result of changes in
coding that are unrelated to real changes in case mix.
(ii) Adjustment
Insofar as the Secretary determines that such adjustments
for a previous fiscal year (or estimates that such
adjustments for a future fiscal year) did (or are likely to)
result in a change in aggregate payments under the
classification system during the fiscal year that are a
result of changes in the coding or classification of patients
that do not reflect real changes in case mix, the Secretary
shall adjust the per payment unit payment rate for subsequent
years so as to eliminate the effect of such coding or
classification changes.
(D) Data collection
The Secretary is authorized to require rehabilitation
facilities that provide inpatient hospital services to submit
such data as the Secretary deems necessary to establish and
administer the prospective payment system under this
subsection.
(3) Payment rate
(A) In general
The Secretary shall determine a prospective payment rate for
each payment unit for which such rehabilitation facility is
entitled to receive payment under this subchapter. Subject to
subparagraph (B), such rate for payment units occurring during
a fiscal year shall be based on the average payment per payment
unit under this subchapter for inpatient operating and capital
costs of rehabilitation facilities using the most recent data
available (as estimated by the Secretary as of the date of
establishment of the system) adjusted -
(i) by updating such per-payment-unit amount to the fiscal
year involved by the weighted average of the applicable
percentage increases provided under subsection (b)(3)(B)(ii)
of this section (for cost reporting periods beginning during
the fiscal year) covering the period from the midpoint of the
period for such data through the midpoint of fiscal year 2000
and by an increase factor (described in subparagraph (C))
specified by the Secretary for subsequent fiscal years up to
the fiscal year involved;
(ii) by reducing such rates by a factor equal to the
proportion of payments under this subsection (as estimated by
the Secretary) based on prospective payment amounts which are
additional payments described in paragraph (4) (relating to
outlier and related payments);
(iii) for variations among rehabilitation facilities by
area under paragraph (6);
(iv) by the weighting factors established under paragraph
(2)(B); and
(v) by such other factors as the Secretary determines are
necessary to properly reflect variations in necessary costs
of treatment among rehabilitation facilities.
(B) Budget neutral rates
The Secretary shall establish the prospective payment amounts
under this subsection for payment units during fiscal years
2001 and 2002 at levels such that, in the Secretary's
estimation, the amount of total payments under this subsection
for such fiscal years (including any payment adjustments
pursuant to paragraphs (4) and (6) but not taking into account
any payment adjustment resulting from an election permitted
under paragraph (1)(F)) shall be equal to 98 percent for fiscal
year 2001 and 100 percent for fiscal year 2002 of the amount of
payments that would have been made under this subchapter during
the fiscal years for operating and capital costs of
rehabilitation facilities had this subsection not been enacted.
In establishing such payment amounts, the Secretary shall
consider the effects of the prospective payment system
established under this subsection on the total number of
payment units from rehabilitation facilities and other factors
described in subparagraph (A).
(C) Increase factor
For purposes of this subsection for payment units in each
fiscal year (beginning with fiscal year 2001), the Secretary
shall establish an increase factor. Such factor shall be based
on an appropriate percentage increase in a market basket of
goods and services comprising services for which payment is
made under this subsection, which may be the market basket
percentage increase described in subsection (b)(3)(B)(iii) of
this section.
(4) Outlier and special payments
(A) Outliers
(i) In general
The Secretary may provide for an additional payment to a
rehabilitation facility for patients in a case mix group,
based upon the patient being classified as an outlier based
on an unusual length of stay, costs, or other factors
specified by the Secretary.
(ii) Payment based on marginal cost of care
The amount of such additional payment under clause (i)
shall be determined by the Secretary and shall approximate
the marginal cost of care beyond the cutoff point applicable
under clause (i).
(iii) Total payments
The total amount of the additional payments made under this
subparagraph for payment units in a fiscal year may not
exceed 5 percent of the total payments projected or estimated
to be made based on prospective payment rates for payment
units in that year.
(B) Adjustment
The Secretary may provide for such adjustments to the payment
amounts under this subsection as the Secretary deems
appropriate to take into account the unique circumstances of
rehabilitation facilities located in Alaska and Hawaii.
(5) Publication
The Secretary shall provide for publication in the Federal
Register, on or before August 1 before each fiscal year
(beginning with fiscal year 2001), of the classification and
weighting factors for case mix groups under paragraph (2) for
such fiscal year and a description of the methodology and data
used in computing the prospective payment rates under this
subsection for that fiscal year.
(6) Area wage adjustment
The Secretary shall adjust the proportion (as estimated by the
Secretary from time to time) of rehabilitation facilities' costs
which are attributable to wages and wage-related costs, of the
prospective payment rates computed under paragraph (3) for area
differences in wage levels by a factor (established by the
Secretary) reflecting the relative hospital wage level in the
geographic area of the rehabilitation facility compared to the
national average wage level for such facilities. Not later than
October 1, 2001 (and at least every 36 months thereafter), the
Secretary shall update the factor under the preceding sentence on
the basis of information available to the Secretary (and updated
as appropriate) of the wages and wage-related costs incurred in
furnishing rehabilitation services. Any adjustments or updates
made under this paragraph for a fiscal year shall be made in a
manner that assures that the aggregated payments under this
subsection in the fiscal year are not greater or less than those
that would have been made in the year without such adjustment.
(7) Limitation on review
There shall be no administrative or judicial review under
section 1395ff of this title, 1395oo of this title, or otherwise
of the establishment of -
(A) case mix groups, of the methodology for the
classification of patients within such groups, and of the
appropriate weighting factors thereof under paragraph (2),
(B) the prospective payment rates under paragraph (3),
(C) outlier and special payments under paragraph (4), and
(D) area wage adjustments under paragraph (6).
(k) Payment to nonhospital providers
(1) In general
For cost reporting periods beginning on or after October 1,
1997, the Secretary may establish rules for payment to qualified
nonhospital providers for their direct costs of medical
education, if those costs are incurred in the operation of an
approved medical residency training program described in
subsection (h) of this section. Such rules shall specify the
amounts, form, and manner in which such payments will be made and
the portion of such payments that will be made from each of the
trust funds under this subchapter.
(2) Qualified nonhospital providers
For purposes of this subsection, the term "qualified
nonhospital providers" means -
(A) a Federally (!10) qualified health center, as defined in
section 1395x(aa)(4) of this title;
(B) a rural health clinic, as defined in section 1395x(aa)(2)
of this title;
(C) Medicare+Choice organizations; and
(D) such other providers (other than hospitals) as the
Secretary determines to be appropriate.
(l) Payment for nursing and allied health education for managed
care enrollees
(1) In general
For portions of cost reporting periods occurring in a year
(beginning with 2000), the Secretary shall provide for an
additional payment amount for any hospital that receives payments
for the costs of approved educational activities for nurse and
allied health professional training under section 1395x(v)(1) of
this title.
(2) Payment amount
The additional payment amount under this subsection for each
hospital for portions of cost reporting periods occurring in a
year shall be an amount specified by the Secretary in a manner
consistent with the following:
(A) Determination of managed care enrollee payment ratio for
graduate medical education payments
The Secretary shall estimate the ratio of payments for all
hospitals for portions of cost reporting periods occurring in
the year under subsection (h)(3)(D) of this section to total
direct graduate medical education payments estimated for such
portions of periods under subsection (h)(3) of this section.
(B) Application to fee-for-service nursing and allied health
education payments
Such ratio shall be applied to the Secretary's estimate of
total payments for nursing and allied health education
determined under section 1395x(v) of this title for portions of
cost reporting periods occurring in the year to determine a
total amount of additional payments for nursing and allied
health education to be distributed to hospitals under this
subsection for portions of cost reporting periods occurring in
the year; except that in no case shall such total amount exceed
$60,000,000 in any year.
(C) Application to hospital
The amount of payment under this subsection to a hospital for
portions of cost reporting periods occurring in a year is equal
to the total amount of payments determined under subparagraph
(B) for the year multiplied by the ratio of -
(i) the product of (I) the Secretary's estimate of the
ratio of the amount of payments made under section 1395x(v)
of this title to the hospital for nursing and allied health
education activities for the hospital's cost reporting period
ending in the second preceding fiscal year, to the hospital's
total inpatient days for such period, and (II) the total
number of inpatient days (as established by the Secretary)
for such period which are attributable to services furnished
to individuals who are enrolled under a risk sharing contract
with an eligible organization under section 1395mm of this
title and who are entitled to benefits under part A of this
subchapter or who are enrolled with a Medicare+Choice
organization under part C of this subchapter; to
(ii) the sum of the products determined under clause (i)
for such cost reporting periods.