[Federal Register Volume 59, Number 8 (Wednesday, January 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-546]


[[Page Unknown]]

[Federal Register: January 12, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412 and 413

[BPD-731-IFC]
RIN 0938-AG00

 

Medicare Program; Payment for Preadmission Services

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule specifies that inpatient hospital 
operating costs include certain preadmission services furnished by the 
hospital (or by an entity that is wholly owned or operated by the 
hospital) to the patient up to 3 days before the date of the patient's 
admission to that hospital. These provisions implement amendments made 
to section 1886(a)(4) of the Social Security Act by section 4003 of the 
Omnibus Budget Reconciliation Act of 1990.

DATES: Effective Date: This interim final rule with comment period is 
effective on January 12, 1994. We refer the reader to section V.A. of 
this preamble for a discussion of specific provisions that apply to 
specific periods.
    Comment Period: Comments will be considered if we receive them at 
the appropriate address, as provided below, no later than 5 p.m. on 
March 14, 1994.

ADDRESSES: Mail written comments (an original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-731-IFC, P.O. Box 7517, 
Baltimore, MD 21207.
    If you prefer, you may deliver your written comments (an original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
MD 21207.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-731-IFC. Comments received timely will be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in room 309-G of 
the Department's offices at 200 Independence Avenue, SW., Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: 202-690-7890).
    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 783-3238 or by faxing to (202) 275-
6802. The cost for each copy is $4.50. As an alternative, you can view 
and photocopy the Federal Register document at most libraries 
designated as Federal Depository Libraries and at many other public and 
academic libraries throughout the country that receive the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Thomas Hoyer, (410) 966-4607.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1886(a) of the Social Security Act (the Act) establishes a 
ceiling on the allowable rate of the increase for Medicare hospital 
inpatient operating costs. Prior to the Omnibus Budget Reconciliation 
Act of 1990 (Pub. L. 101-508), section 1886(a)(4) of the Act defined 
the ``operating costs of inpatient hospital services'' to include ``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 * * *.''
    Section 3610.3 (formerly section 3608) of the Medicare Intermediary 
Manual, Part 3 (HCFA Pub. 13-3) and section 415.6 of the Medicare 
Hospital Manual (HCFA Pub. 10) provides that, if a beneficiary with 
Part A coverage is furnished outpatient hospital services and is 
thereafter admitted as an inpatient of the same hospital before 
midnight of the next day, the outpatient hospital services furnished to 
the beneficiary are treated as inpatient services and are included in 
the hospital's Part A payment. This administrative policy has been in 
effect since June 1966. It was adopted in response to a recommendation 
by the Health Insurance Benefits Advisory Council (HIBAC), which 
believed it would shorten inpatient stays by encouraging hospitals to 
perform some services connected with the stay prior to the actual 
inpatient admission.
    On October 1, 1983, the prospective payment system (PPS) was 
implemented. PPS is a system of payment for acute inpatient hospital 
stays under Medicare Part A (Hospital Insurance) based on 
prospectively-set rates. Under this system, Medicare payment is made at 
a predetermined, specific rate for each hospital discharge. All 
discharges are classified according to a list of diagnosis-related 
groups (DRGs). When PPS was introduced, the costs related to the 
longstanding policy concerning the payment for preadmission outpatient 
services as inpatient services were included in the base year costs 
used to calculate the PPS standardized payment amount and the DRG 
weighting factors (see 49 FR 250, January 3, 1984). Those hospitals 
excluded from payment under PPS continue to be paid for inpatient 
hospital services they furnish, as well as for the preadmission 
services described above, on the basis of reasonable cost up to the 
ceiling specified in section 1886(a) of the Act. Therefore, for both 
PPS and non-PPS hospitals, these preadmission services may not be 
billed separately from the covered inpatient admission that follows, 
since payment for them is included in the payment made under Part A for 
the inpatient stay.

II. Statutory Provisions

    Section 4003(a) of Public Law 101-508 amended the definition of 
``operating costs of inpatient hospital services'' contained in section 
1886(a)(4) of the Act to include the costs of certain services 
furnished prior to admission. These preadmission services are to be 
included in the Part A payment for the subsequent inpatient stay. For 
purposes of this interim final rule with comment period, we will refer 
to the provision as the ``3-Day Payment Window.''
    As amended, section 1886(a)(4) of the Act defines the operating 
costs of inpatient hospital services to include certain preadmission 
services furnished by the hospital (or by an entity that is wholly 
owned or operated by the hospital) to the patient up to 3 days prior to 
the date of the patient's admission. The inpatient operating costs 
definition contained in section 1886(a)(4) of the Act applies to both 
PPS and non-PPS hospitals. As an amendment to that definition, the 3-
Day Payment Window provision applies to both types of hospitals as 
well. Further, this provision's placement in section 1886(a)(4) of the 
Act rather than in sections 1862(a)(14) or 1866(a)(1)(H) of the Act 
(each of which deals with rebundling--the practice of covering as 
hospital services those nonphysician services furnished to hospital 
patients by an outside supplier) indicates that the 3-Day Payment 
Window provision is separate and distinct from the rebundling 
requirement and, as such, may not be subject to the civil monetary 
penalties that apply to violations of the latter requirement.
    Section 4003(b) of Public Law 101-508 provides for implementation 
of the 3-Day Payment Window provision in the following three phases:
     The first phase, effective from November 5, 1990 (the 
enactment date of Pub. L. 101-508) through September 30, 1991, includes 
any services furnished during the day before the date of admission 
regardless of whether the services are related to the admission. The 
Conference Report accompanying Public Law 101-508 indicates that this 
phase simply represents a statutory reiteration of the existing 
administrative policy. For this reason, the conferees did not expect 
that there was a need for any further administrative action by HCFA to 
implement this phase (H.R. Conf. Rep. No. 964, 101st Cong., 2d Sess. 
701 (1990)).
     The second phase, effective January 1, 1991, involves 
diagnostic services (including clinical diagnostic laboratory tests) 
that are furnished during the 3 days immediately preceding the date of 
admission.
     The third phase, effective October 1, 1991, includes other 
services related to the admission that are furnished during the 3 days 
immediately preceding the date of admission.
    With respect to adjustments to the DRG relative weights, the 
Conference Report states that, ``[n]othing in this provision requires 
the Secretary to take special action to adjust the DRG relative weights 
to reflect the additional services that would be covered by the DRG 
payment under this provision. The conferees expect that no adjustment 
will be made before [fiscal year] FY 1993 when Part a [A] billing data 
that would include the additional services would become available to 
recalibrate the relative weights.'' (H.R. Conf. Rep. No. 964, 101st 
Cong., 2d Sess. 701 (1990).)
    Section 4003(c) of Public Law 101-508 specifically authorizes the 
Secretary to implement the 3-Day Payment Window provision through the 
issuance of interim final regulations.

III. Provisions of the Rule

    In this interim final rule with comment period, we are amending the 
Medicare regulations by adding new material to incorporate the 
provisions of section 4003(a) of Public Law 101-508 that amend section 
1886(a)(4) of the Act and to apply the effective dates to these 
provisions as required under section 4003(b) of Public Law 101-508.
    As indicated in section II of this preamble, the 3-Day Payment 
Window provision will be implemented in three phases. Phase one is 
intended simply to serve as a statutory reiteration of our existing 
policy as indicated by both section 4003(b)(1) of Public Law 101-508 
and the Conference Report (H.R. Conf. Rep. No. 964, 101st Cong., 2d 
Sess. 701 (1990)). Phase two, effective January 1, 1991, specifies that 
payment for inpatient hospital operating costs includes diagnostic 
services that are furnished during the 3 days immediately preceding the 
date of admission. Phase three specifies that payment for inpatient 
hospital operating costs includes other (that is, non-diagnostic) 
services that are related to the admission and are furnished during the 
3 days immediately preceding the date of admission. Under phase three 
of the new law, we needed to choose between two possible approaches to 
the treatment of non-diagnostic services furnished within 3 days before 
admission. (Phase two deals only with diagnostic services and, thus, is 
not relevant to this issue). Phase one of the 3-Day Payment Window 
provision and our existing policy for services furnished on the day 
before admission are both somewhat broader than phase three, in that 
they bundle all preadmission services into the inpatient payment, 
regardless of whether they are related to the admission. Thus, for the 
phase one period, we believe it is appropriate to follow the broader 
administrative policy, which is already in place. However, for the 
implementation of phase three (section 4003(b)(3) of Pub. L. 101-508) 
beginning October 1, 1991, we considered whether to apply this broader 
policy or impose a policy that follows the narrower wording of the new 
law, that is, include non-diagnostic preadmission services only to the 
extent that they are related to the admission.
    We considered that the Conference Report language (which 
characterizes the first phase of implementation as embodying the 
existing policy) could justify continuing the current, all-inclusive 
policy for the day before admission, or even expanding it to apply to 
the second and third day before admission as well. This approach would 
not require identifying any services as being related to the admission 
and would not require separating out from the inpatient payment any of 
the services not related to the admission that are furnished on the day 
before admission (all services--regardless of whether the services are 
related to the admission--are currently included in the inpatient 
payment under the existing policy). This approach would also enhance 
the program savings to be realized from the 3-Day Payment Window 
provision, since it folds into the inpatient payment a greater range of 
preadmission services that, as a consequence, would not receive a 
separate payment under Part B. Finally, by maximizing the services to 
be included in the Part A payment for the subsequent admission, this 
approach would clearly be advantageous to beneficiaries who are 
eligible only for Part A; further, even beneficiaries who are eligible 
for both Parts A and B would be able to avoid incurring the Part B 
deductible and coinsurance charges to the maximum extent possible.
    However, we note that adopting such an all-inclusive approach for 
the second and third days before admission is contrary to the clear 
language of the new law, which is worded specifically in terms of 
``other services related to the admission.'' Furthermore, we have 
determined that continuing this approach indefinitely even for the day 
before admission only would appear to be inconsistent with the new 
law's implementation provisions; unlike phases two and three, phase one 
contains both a starting date and an ending date. We believe this 
indicates that Congress intended for the existing, all-inclusive policy 
to remain in effect, but only during the finite period between those 
two dates.
    After considering these various factors, we have determined that 
services (other than diagnostic services) furnished on the second and 
third days before admission must be related to the admission in order 
to come under the 3-Day Payment Window provision. Further, we have 
determined that effective with services furnished on or after October 
1, 1991 (upon the expiration of the first phase of implementation), 
this qualification will become applicable to non-diagnostic services 
furnished on the day before admission as well. We believe that this 
approach most accurately reflects the intent of the statutory language 
of the new provision. We realize that, under this approach, the payment 
made under Part A, which currently includes the cost of all non-
diagnostic services furnished on the day before admission, will no 
longer include non-diagnostic services unless they are related to the 
admission. However, consistent with the Conference Report language set 
out above, we have to date made no DRG payment adjustments to reflect 
the effects of the 3-Day Payment Window provision.
    For purposes of this provision, we are defining ``other services 
related to the admission'' as those non-diagnostic services furnished 
in connection with the diagnosis (that is, the principal diagnosis) 
that requires the beneficiary to be admitted as an inpatient. We 
considered defining this term more broadly to include services 
furnished in connection with secondary diagnoses as well; however, 
secondary diagnoses can sometimes include complicating events that do 
not occur until after admission. Since the law specifies that this 
provision is to apply to services related to the inpatient 
``admission'' (as opposed to the ensuing inpatient stay), we believe 
that it is more accurate to use only the principal diagnosis, as 
identifying those preadmission services that are related to the actual 
cause of admission.
    Further, the statutory language charges the Secretary with defining 
those non-diagnostic services that are regarded as ``related to the 
admission'' and, thus, are subject to the payment window. In effect, 
this gives the Secretary the authority to determine the scope of the 
payment window's applicability to non-diagnostic services. In this 
context, we have determined that ambulance services are not subject to 
the payment window, even when furnished during the preadmission period 
by the admitting hospital or by an entity that it wholly owns or 
operates. The House Budget Committee Report accompanying the payment 
window legislation explained that the underlying objective of this 
provision is ``* * * to curb further unbundling which has occurred 
since the introduction of the DRG payment system * * *'' (H.R. Budget 
Comm. Rep. No. 881, 101st Cong., 2d Sess. 250 (1990).) As a Part B 
benefit, ambulance services (unlike patient transportation services 
furnished to inpatients) are not bundled with inpatient services and, 
thus, have not been subject to the actions taken to maximize payment 
under PPS, which prompted Congress's concern. Thus, we believe that 
ambulance services are distinct from the type of hospital services that 
Congress designed the payment window provision to address. Many 
hospitals that operate ambulance services do so at a loss. The 
hospitals continue to furnish the ambulance services primarily as a 
means of assuring access to hospital care for individuals who otherwise 
would be unable to reach hospitals. Subjecting hospitals that operate 
ambulance services to still greater fiscal constraints under the 
payment window provision could have a major adverse impact on their 
availability, particularly in remote rural areas. Therefore, in this 
rule, we are defining the preadmission services that are subject to the 
payment window provision as not including ambulance services.
    Based on our interpretation of the law, we will implement phases 
two and three of the 3-Day Payment Window provision set forth in 
section 1886(a)(4) of the Act and section 4003(b) of Public Law 101-508 
by revising regulations concerning payment to PPS hospitals 
(Sec. 412.2) and non-PPS hospitals (Sec. 413.40) for inpatient hospital 
services furnished to Medicare beneficiaries. (We are not amending the 
regulations with respect to phase one since, as discussed previously, 
the Conference Report language indicates that this phase simply 
embodies our existing policy and requires no further administrative 
action to implement.) Specifically, we are adding paragraph (c)(5) to 
Sec. 412.2 and revising Sec. 413.40(c). We will specify that payment 
for inpatient operating costs for both PPS and non-PPS hospitals will 
include certain preadmission services furnished by the hospital or by 
an entity wholly owned or operated by the hospital to the patient 
during the 3 days immediately preceding the date of the patient's 
admission. We are interpreting the phrase ``wholly'' owned or operated 
to include any entity for which the hospital itself is the sole owner; 
for purposes of consistency, we are also including in this term any 
entity for which the hospital is the sole operator. We note that a 
hospital need not exercise administrative control over a facility in 
order to operate it. An operator implements facility policies, but does 
not necessarily make the policies; operating a facility simply involves 
conducting the facility's day-to-day activities, as opposed to 
``control,'' which involves the power to direct the facility's 
operations toward specific objectives.
    Thus, Secs. 412.2 and 413.40 will specify that payment for 
inpatient operating costs for both PPS and non-PPS hospitals will 
include the following services (other than ambulance services):
     Diagnostic services (including clinical diagnostic 
laboratory tests) furnished on or after January 1, 1991.
     Other services related to the admission furnished on or 
after October 1, 1991.
    We will define other services related to the admission to include 
those non-diagnostic services furnished in connection with the 
principal diagnosis that requires the beneficiary to be admitted as an 
inpatient. We invite comments on our use of this definition to identify 
admission-related services. We also invite comments on the feasibility 
of prescribing more detailed operational procedures in the regulations. 
For example, one possible approach might be simply to presume that 
certain specific types of preadmission services (such as chronic 
maintenance dialysis) are never related to the subsequent admission, or 
to presume that all preadmission services (other than certain specified 
exceptions) are admission-related. Another alternative might be to 
develop an inclusive list of procedures which are medically related, 
against which all claims could be electronically screened. Still 
another approach could be to define as related to the principal 
diagnosis any services that fall within the same major diagnostic 
category (MDC) as used under PPS. In establishing a degree of medical 
relatedness, the MDC approach would have the advantage of 
administrative simplicity for hospitals, contractors, and the 
government, as it would use a patient classification system that is 
already in place for hospital services under PPS. We invite comments on 
the feasibility of prescribing these or other implementation procedures 
in the regulations, as well as the relative administrative burden that 
each type of approach would impose on the program to develop and 
implement and on the facilities to comply.
    In response to the changes made by section 4003 of Public Law 101-
508, instructions were published in the Medicare Intermediary Manual, 
Part 3 (HCFA Pub. 13-3), ``Claims Process'' in March 1992 (Transmittal 
No. 1565) and in the Medicare Hospital Manual (HCFA Pub. 10), in March 
1992 (Transmittal No. 633).
    We note that we are making some conforming technical changes to 
Secs. 412.2 (c)(3) and (c)(4), 412.73(c)(1), 412.98(b), and 413.40 
(a)(3) and (i)(3).

IV. Other Required Information

A. Effective Dates

    The effective date of this interim final rule with comment period 
is January 12, 1994. As discussed previously, the Conference Report 
language indicates that the changes made by section 4003(b)(1) of 
Public Law 101-508 (which are effective from November 5, 1990, through 
September 30, 1991) simply embody our existing policy and require no 
further administrative action to implement; thus, we are not amending 
the regulations with respect to this aspect of the provision. Changes 
made by section 4003(b)(2) of Public Law 101-508 that include as 
inpatient hospital services those diagnostic services that are 
furnished during the 3 days immediately preceding the date of admission 
are applicable for services furnished on or after January 1, 1991. 
Changes made by section 4003(b)(3) of Public Law 101-508 that include 
as inpatient hospital services any other services related to the 
admission furnished during the 3 days immediately preceding the date of 
admission are applicable for services furnished on or after October 1, 
1991.

B. Waiver of Notice of Proposed Rulemaking and 30-Day Delay in the 
Effective Date

    We ordinarily publish a notice of proposed rulemaking for a 
regulation to provide a period for public comment. However we may waive 
that procedure if we find good cause that prior notice and comment are 
impracticable, unnecessary, or contrary to public interest. In 
addition, section 1871(b)(2)(A) of the Act provides that the notice of 
proposed rulemaking is not required if a statute specifically permits a 
regulation to be issued in interim final form. Section 4003(c) of 
Public Law 101-508 permits the Secretary to publish the regulations, 
which will implement the 3-Day Payment Window provision, on an interim 
final basis. Therefore, we are implementing this interim final rule 
with comment period without first issuing a notice of proposed 
rulemaking. Nonetheless, we are providing a 60-day period for public 
comment, as indicated at the beginning of this interim final rule.
    In addition, we normally provide a delay of 30 days in the 
effective date for documents such as this. However, we may waive the 
delay in the effective date if we find good cause that adherence to 
this procedure would be impracticable, unnecessary, or contrary to 
public interest. We believe that it is unnecessary to provide a 30-day 
delay in the effective date since the Conference Report language, as 
discussed previously, indicates that no further administrative action 
is necessary to effect the first phase of implementation, and section 
4003(b) of Public Law 101-508 prescribes specific effective dates for 
the remaining two phases. The regulations in this interim final rule 
with comment period merely conform to the effective date requirements 
set forth in section 4003(b) of Public Law 101-508. Therefore, we find 
good cause to waive the usual 30-day delay.

C. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

D. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on FR documents published for comment, we are not able to 
acknowledge or respond to them individually. We will consider all 
comments we receive by the date and time specified in the DATES section 
of this preamble, and, if we proceed with a subsequent document, we 
will respond to the comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Executive Order 12291

    Executive Order 12291 (E.O. 12291) requires us to prepare and 
publish a regulatory impact analysis for any interim final rule with 
comment period that meets one of the E.O. 12291 criteria for a ``major 
rule''; that is, that will be likely to result in--
     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers, 
individual industries, Federal, State, or local government agencies, or 
geographic regions; or
     Significant adverse effects on competition, employment, 
investment, productivity, innovation, or on the ability of United 
States-based enterprises to compete with foreign-based enterprises in 
domestic or export markets.
    This interim final rule with comment period is considered a major 
rule under E.O. 12291 criteria based on our cost projections for the 
next 5 Federal fiscal years (FYs). The following discussion constitutes 
a regulatory impact analysis.
    This interim final rule with comment period implements section 4003 
of Public Law 101-508, which contains a provision that expands the 
timeframe for folding preadmission services into the Part A payment for 
the subsequent inpatient stay. The first sentence of section 1886(a)(4) 
of the Act is amended to include certain preadmission services, 
furnished by the hospital, or by an entity that is wholly owned or 
operated by the hospital, up to 3 days before the date of the patient's 
admission. This provision becomes effective in three phases.
    The first phase, effective November 5, 1990 through September 30, 
1991, included services furnished the day before admission. This phase 
merely represented a statutory reiteration of the existing policy. The 
second phase, effective January 1, 1991, included diagnostic services 
that are furnished during the 3 days immediately preceding the date of 
admission. The third phase, effective October 1, 1991, includes other 
services related to the admission that are furnished during the 3 days 
immediately preceding the date of admission.
    This regulation will result in program savings from discontinuing 
separate payment under Part B for services performed up to 3 days 
before the date of admission instead of 1 day, without an immediate, 
corresponding increase in the DRG payments under Part A. The estimated 
savings will be reduced if physicians elect to have preadmission 
services performed at a non-hospital site or more than 3 days before 
admission.
    There will be some savings to beneficiaries as a result of shifting 
payment for services from Part B outpatient to Part A inpatient rates. 
Beneficiaries are responsible for 20 percent copayment for non-
diagnostic outpatient services. Beneficiaries will not be responsible 
for copayment if the same services are performed up to 3 days before 
the date of a hospital admission and are folded into the hospital's 
inpatient payment. However, because we do not have a breakdown of the 
cost or type of services that will be included in the inpatient 
payment, we are not able to estimate the annual savings that will be 
realized by beneficiaries.
    The following table reflects estimated program savings solely as a 
result of discontinuing separate Part B payment for services performed 
up to 3 days before the date of admission instead of 1 day, without a 
corresponding DRG relative weight adjustment for the inpatient stay.

                    Estimated Medicare Part B Savings                   
                            [In millions]\1\                            
------------------------------------------------------------------------
   FY 1993        FY 1994        FY 1995        FY 1996        FY 1997  
------------------------------------------------------------------------
$40..........        $70            $80            $90           $100   
------------------------------------------------------------------------
\1\Rounded to the nearest $10 million.                                  


    As indicated above, we do not anticipate that this new provision 
will cause a significant change in the timing of services that, until 
now, have been furnished during the preadmission period.
    We are limiting the inclusion of non-diagnostic services, even when 
furnished on the day before admission, to those that are related to the 
admission. We believe this interpretation more accurately implements 
the provisions of the statute. This means that services furnished on 
the day before admission which are neither diagnostic nor admission-
related will no longer be rebundled into the inpatient payment. 
Further, since the law permits the Secretary to define the types of 
admission-related services to be included in the payment window, we 
have determined that it should not include ambulance services, to which 
special conditions apply. As a Part B benefit, ambulance services 
(unlike patient transportation services furnished to inpatients) are 
not bundled with inpatient services, and thus, have not been subject to 
the attempts to maximize PPS payment through unbundling which prompted 
Congress to enact the payment window legislation. The unbundling 
provision may generate a small amount of additional Part B costs; 
however, as indicated above, we anticipate that the overall degree of 
change that this provision will produce in existing patterns of service 
delivery will be minimal.

B. Regulatory Flexibility Act

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless the Secretary certifies that an interim final rule 
with comment period will not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, we 
consider all hospitals to be small entities.
    This interim final rule with comment period will affect all 
hospitals that are paid under the prospective payment system, dependent 
upon the number of additional services that will have to be included in 
the DRG payment rate. Since the estimated savings represent less than 
one-half of one percent of total Medicare funding to hospitals, we have 
determined, and the Secretary certifies, that this interim final rule 
with comment period will not have a substantial impact on a substantial 
number of small entities, and we have, therefore, not prepared a 
regulatory flexibility analysis.

C. Small Rural Hospitals

    Section 1102(b) of the Act requires the Secretary to prepare a 
regulatory impact analysis if an interim final rule with comment period 
may have a significant impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the provisions 
of section 604 of the RFA. For purposes of section 1102(b) of the Act, 
we define a small rural hospital as a hospital that is located outside 
of a Metropolitan Statistical Area and has fewer than 50 beds.
    We believe the 3-Day Payment Window provision will affect small 
rural hospitals to a lesser degree than larger facilities where complex 
procedures are performed and specialized medical conditions are 
treated, requiring additional preadmission testing. Therefore, we have 
determined, and the Secretary certifies, that this interim final rule 
with comment period will not have a significant economic impact on the 
operations of a substantial number of small rural hospitals. 
Consequently, we are not preparing an analysis for section 1102(b) of 
the Act.

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

    42 CFR chapter IV is amended as set forth below:
    A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 continues to read as 
follows:

    Authority: Secs. 1102, 1815(e), 1871, and 1886 of the Social 
Security Act (42 U.S.C. 1302, 1395g(e), 1395hh, and 1395ww).

Subpart A--General Provisions

    2. In Sec. 412.2, the introductory language in paragraph (c) is 
republished, paragraphs (c)(3) and (4) are revised, and paragraph 
(c)(5) is added to read as follows:


Sec. 412.2  Basis of payment.

* * * * *
    (c) Inpatient operating costs. The prospective payment system 
provides a payment amount for inpatient operating costs, including--
* * * * *
    (3) Special care unit operating costs (intensive care type unit 
services, as described in Sec. 413.53(b) of this chapter);
    (4) Malpractice insurance costs related to services furnished to 
inpatients; and
    (5) Certain preadmission services furnished by the hospital or by 
an entity wholly owned or operated by the hospital (that is, any entity 
for which the hospital itself is the sole owner or operator) to the 
patient during the 3 days immediately preceding the date of the 
patient's admission to the hospital. A hospital is considered the sole 
operator of an entity if the hospital has exclusive responsibility for 
conducting or overseeing the entity's routine operations, regardless of 
whether the hospital also has policymaking authority over the entity. 
The specific preadmission services (other than ambulance services) 
included in the inpatient hospital operating costs are the following:
    (i) Diagnostic services (including clinical diagnostic laboratory 
tests) furnished on or after January 1, 1991.
    (ii) Other services related to the admission furnished on or after 
October 1, 1991. Other services related to the admission means services 
(other than diagnostic services) that are furnished in connection with 
the principal diagnosis that requires the beneficiary to be admitted as 
an inpatient.
* * * * *

Subpart E--Determination of Transition Period Payment Rates for 
Inpatient Operating Costs


Sec. 412.73  [Amended]

    3. In Sec. 412.73(c)(1), the phrase ``the rate-of-increase 
percentage determined under Sec. 413.40(c)(2) of this chapter,'' is 
revised to read ``the rate-of-increase percentage determined under 
Sec. 413.40(c)(3) of this chapter,''.

Subpart G--Special Treatment of Certain Facilities Under the 
Prospective Payment System for Inpatient Operating Costs


Sec. 412.98  [Amended]

    4. In Sec. 412.98(b), in the first sentence, the phrase ``under 
Sec. 413.40(c)(3) of this chapter'' is revised to read ``under 
Sec. 413.40(c)(4) of this chapter''.
    B. Part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES

    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1814(b), 1815, 1833 (a), (i), and (n), 
1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42 
U.S.C. 1302, 1395f(b), 1395g, 1395l(a), (i), and (n), 1395x(v), 
1395hh, 1395rr, 1395tt, and 1395ww); sec. 104(c) of Pub. L. 100-360 
as amended by sec. 608(d)(3) of Pub. L. 100-485 (42 U.S.C. 1395ww 
(note)); and sec. 101(c) of Pub. L. 101-234 (42 U.S.C. 1395ww 
(note)).

Subpart C--Limits on Cost Reimbursement


Sec. 413.40  [Amended]

    2. Section 413.40 is amended as follows:
    a. In paragraph (a)(3), in the definition for ``net inpatient 
operating costs'', the first sentence is revised.
    b. Paragraphs (c)(2) through (c)(4) are redesignated as paragraphs 
(c)(3) through (c)(5), and a new paragraph (c)(2) is added.
    c. In redesignated paragraph (c)(4)(ii), the phrase ``unless the 
provisions of paragraph (c)(4)(ii) of this section apply.'' is revised 
to read ``unless the provisions of paragraph (c)(5)(ii) of this section 
apply.''
    d. In paragraph (i)(3), the phrase ``the applicable rate-of-
increase percentages (update factors) described in paragraph (c)(2) of 
this section.'' is revised to read ``the applicable rate-of-increase 
percentages (update factors) described in paragraph (c)(3) of this 
section.''
    The revision and addition are to read as follows:


Sec. 413.40  Ceiling on the rate of increase in hospital inpatient 
costs.

    (a) * * *
    (3) * * *
    Net inpatient operating costs include the costs of certain 
preadmission services as specified in Sec. 413.40(c)(2), the costs of 
routine services, ancillary services, and intensive care services (as 
defined in Sec. 413.53(b)) incurred by a hospital in furnishing covered 
inpatient services to Medicare beneficiaries. * * *
* * * * *
    (c) * * *
    (2) Preadmission services. Net inpatient operating costs include 
certain preadmission services furnished by the hospital or by an entity 
wholly owned or operated by the hospital (that is, any entity for which 
the hospital itself is the sole owner or operator) to the patient 
during the 3 days immediately preceding the date of the patient's 
admission to the hospital. A hospital is considered the sole operator 
of an entity if the hospital has exclusive responsibility for 
conducting or overseeing the entity's routine operations, regardless of 
whether the hospital also has policymaking authority over the entity. 
The specific preadmission services (other than ambulance services) 
included in the net inpatient hospital operating costs are the 
following:
    (i) Diagnostic services (including clinical diagnostic laboratory 
tests) furnished on or after January 1, 1991.
    (ii) Other services related to the admission furnished on or after 
October 1, 1991. Other services related to the admission means services 
(other than diagnostic services) that are furnished in connection with 
the principal diagnosis that requires the beneficiary to be admitted as 
an inpatient.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 20, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: August 30, 1993.
Donna E. Shalala,
Secretary.
[FR Doc. 94-546 Filed 1-11-94; 8:45 am]
BILLING CODE 4120-01-P