Federal Rate

The standard Federal capital payment for FY 1992 and later years is based on the projected national average Medicare capital costs per discharge for each of the fiscal years. The Federal rate is adjusted for each hospital's case mix, day and cost outliers and wage index location. A hospital qualifies for a capital DSH adjustment if it is located in a large urban or other urban area, has at least 100 beds, and has a disproportionate share (DSH) percentage greater than 0.

The Federal rate is adjusted annually to reflect changes in these factors. 

An adjustment is also provided to the Federal rate for indirect costs of medical education of interns and residents. The A/B MAC (A) calculates the adjustment by dividing the hospital's full-time equivalent total of interns and residents by the hospital's total patient days (line 8, column 6 of worksheet S3 of the CMS Form 2552-89, minus the total of the lines 1B, 1C, 1D, and 7, divided by the number of days in the cost reporting period.) It reviews the hospital's records and makes any needed changes in the count at the end of the cost reporting period. It enters the indirect medical education adjustment ratio in positions 184-188 of the provider-specific file for use by Pricer

Hold Harmless Payments

A3-3611.2

In FY 1992, hospitals with a hospital-specific rate for capital that is above the Federal PPS rate for the cost reporting period that ended in FY 1990 can receive the higher of: 

• The hold harmless-old capital rate, which is 100 percent of the reasonable costs of old capital for sole community hospitals, or 85 percent of the reasonable costs associated with old capital for all other hospitals, plus a payment for new capital

• The hold harmless - 100 percent Federal rate.

The A/B MAC (A) adjusts the hospital-specific rate in the cost report for the period ending in FY 1990 for case mix. It updates the rate to FY 1992 levels using the projected increase in national average capital costs per discharge to initially determine whether a hospital should be paid under the hold harmless or the fully prospective methodology. The type of methodology is entered in the provider-specific file.

Hospitals paid under the fully prospective methodology may change to the hold harmless methodology if justified by the addition of obligated capital and other changes in remaining old capital costs subsequent to the base period. This option is available through the later of a hospital's cost reporting period beginning in FY 94 or after obligated capital has been put in use. Hospitals must request an extension from the A/B MAC (A) by the later of January 1, 1993, or within 180 days of the event causing the delay, if they will be unable to put an asset in use for inpatient care by October 1, 1996. The new hospital-specific rate reflects the disposal of old assets and the addition of obligated capital costs, but not new capital acquisitions. If the recalculated hospital-specific rate exceeds the Federal rate, the hospital will be paid under the hold harmless methodology. The payment methodology in effect for FY 94 (or after the obligated capital has been put in use, if later) determines the payment methodology applicable for the remainder of the transition period under either transition payment methodology.

The A/B MAC (A) does not hold harmless a hospital for increased costs resulting from a lease arrangement entered into after December 31, 1990.

If a hospital has such low Medicare utilization in its original capital base period that it is not required to file a cost report, its hospital-specific rate will be based on its old capital costs per discharge in the first 12-month cost reporting period for which a cost report is filed.

The A/B MAC (A) converts a reasonable cost/hold harmless hospital to the 100 percent Federal payment rate when:

• Advantageous due to reductions in depreciation and/or the allowable percentage of old capital; 

• A hospital elects to be paid at 100 percent of the Federal rate; or 

• A hospital does not maintain adequate records to identify its old capital related costs. 

The A/B MAC (A) enters the payment methodology change in the provider-specific file. 

An adjustment is also provided to the Federal rate for indirect costs of medical education of interns and residents. The A/B MAC (A) calculates the adjustment by dividing the hospital's full-time equivalent total of interns and residents by the hospital's total patient days (line 8, column 6 of worksheet S3 of the CMS Form 2552-89, minus the total of the lines 1B, 1C, 1D, and 7, divided by the number of days in the cost reporting period). It reviews the hospital's records and makes any needed changes in the count at the end of the cost reporting period. It enters the indirect medical education adjustment ratio in positions 184-188 of the provider-specific file for use by Pricer