[Federal Register Volume 59, Number 137 (Tuesday, July 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17309]


[[Page Unknown]]

[Federal Register: July 19, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration

42 CFR Parts 412, 413, and 418

[BPD-436-F]
RIN 0938-AD71

 

Medicare Program; Periodic Interim Payments for Hospitals and 
Other Providers

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

ACTION: Final rule.

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SUMMARY: This final rule responds to public comments on the January 21, 
1988 final rule with comment period that implemented section 9311 of 
the Omnibus Budget Reconciliation Act of 1986. The January 21, 1988 
rule described the circumstances under which the periodic interim 
payment (PIP) method is available for services furnished by hospitals 
and other providers.

EFFECTIVE DATE: This final regulation is effective on August 18, 1994.

FOR FURTHER INFORMATION CONTACT: Linda Hite, (410) 966-4530.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1861(v)(1)(A) of the Social Security Act (the Act) defines 
reasonable cost under Medicare as the cost actually incurred, excluding 
any cost unnecessary in the efficient delivery of needed health 
services. That section of the Act also provides that reasonable costs 
must be determined in accordance with regulations that establish the 
methods to be used and the items to be included for purposes of 
determining which costs are allowable for various types or classes of 
institutions, agencies, and services.
    Under Medicare, providers are paid for inpatient and outpatient 
services that they furnish to beneficiaries under Part A (Hospital 
Insurance) or Part B (Supplementary Medical Insurance). Currently, most 
hospitals are paid for their hospital inpatient operating costs and 
capital-related costs under the prospective payment systems in 
accordance with sections 1886(d) and (g) of the Act and regulations at 
42 CFR part 412. Under these systems, Medicare payment is made at a 
predetermined, specific rate for inpatient operating costs and 
inpatient capital-related costs for each hospital discharge based on 
the information contained in actual bills submitted.
    Hospital outpatient services, hospitals and hospital units that are 
excluded from the prospective payment systems, as well as most other 
providers, are paid, in part, an amount based on the reasonable cost of 
items and services furnished to beneficiaries, in accordance with the 
regulations at 42 CFR part 413.
    Since actual reasonable cost cannot be determined until the end of 
a provider's cost reporting period, an interim rate of payment, 
approximating actual cost as closely as possible, is determined by the 
intermediaries for each provider, and interim payments are made on that 
basis during the year. These interim payments are required by section 
1815(a) of the Act, which states that we must pay providers at least 
monthly during the cost reporting period, pending a final determination 
of cost on the basis of a submitted cost report and any necessary 
adjustments. After receipt of the provider's cost report, the 
intermediary determines what the actual payment for the period should 
have been and a retroactive adjustment is made. The regulations that 
implement these policies are located at Sec. 413.64.
    There are two methods of interim payment for inpatient hospital 
services for hospitals not receiving payment under the prospective 
payment systems. One method is based on actual bills submitted by the 
hospital. Under this method, interim payments are calculated by 
applying a predetermined per diem amount to the number of Medicare 
patient days reflected on actual bills or by applying a predetermined 
percentage to the charges reflected on the actual bills submitted. The 
predetermined per diem amount or percentage factor applied to billed 
patient days or charges represents an estimate of the hospital's 
previous year's costs, adjusted to ensure that the current year's rate 
of payment is as close as possible to the current year's costs.
    Under the second method, referred to as the periodic interim 
payment (PIP) method, interim payments are not based on individual 
bills. Instead, payment is based on the estimated annual costs 
attributable to estimated Medicare utilization of a hospital, and equal 
biweekly payments are made to hospitals without regard to the 
submission of individual bills. PIP has been available for inpatient 
hospital services since 1968. It was offered to qualified hospitals as 
an alternative to regular interim reimbursement, which requires 
submission of a bill to receive payment.
    With either of these interim payment methods, any overestimation or 
underestimation of the hospital's actual costs, to the extent not 
adjusted during the year, is adjusted at the time of cost report 
settlement.
    Under the prospective payment system, hospitals are paid, for most 
of the Part A inpatient services they furnish, a prospectively 
determined amount for each discharge based on actual bills submitted. 
This amount constitutes final payment for each discharge claimed. 
Although no form of interim payment is necessary for hospitals 
operating under the prospective payment system, we extended the option 
to these hospitals to elect to receive PIP when the prospective payment 
system was implemented in order to avoid cash flow problems in the 
early stages of the system. Thus, prospective payment hospitals that 
met the qualifications for receiving PIP could elect to receive this 
type of interim payment, which would be based on their estimated annual 
prospective payment amounts. The PIP payment is made 2 weeks after the 
end of a biweekly period of services. In these circumstances, year-end 
reconciliation is required.
    Although the PIP method of interim payment is not based on actual 
bills submitted, a PIP hospital must continue to submit bills for 
subsequent intermediary verification of the accuracy of the rate. The 
rate is reviewed at least twice per year for hospitals paid under the 
prospective payment system and at least quarterly for hospitals and 
other providers paid on a reasonable cost basis. If necessary, as 
determined by the reviews, the rate is adjusted. Interim payments may 
be further adjusted based on cumulative payment data for the year.
    On August 15, 1986, we published a final rule in the Federal 
Register (51 FR 29386) concerning interim payments. In that rule, we 
took the following actions, which were to be effective on July 1, 1987:
     We eliminated PIP as an optional method of payment for 
inpatient hospital services furnished to Medicare beneficiaries, except 
for services furnished by a rural hospital with fewer than 100 beds.
     In order to alleviate the cash flow problems that certain 
hospitals encounter, we provided for one interim payment to hospitals 
subject to the prospective payment system for each case in which a 
patient remains in the hospital more than 30 covered days. Under this 
provision any interim payment made was to be applied against the final 
payment made for the discharge.
     We also eliminated PIP for hospitals receiving payment 
under a demonstration project authorized by section 402(a) of the 
Social Security Amendments of 1967 (Public Law 90- 248) or section 
222(a) of the Social Security Amendments of 1972 (Public Law 92-603), 
and for those hospitals paid under State reimbursement control systems 
authorized by section 1886(c) of the Act and approved by HCFA. However, 
under this provision, these hospitals were to be permitted to use a 
form of interim payment similar to PIP if that type of payment is 
specifically approved by HCFA as a part of the demonstration or control 
system.
     We provided that payment for direct medical education and 
other inpatient hospital costs excluded from the prospective payment 
system was to continue to be made biweekly on an interim payment basis.
    We issued the August 15, 1986 final rule because evidence indicated 
that the PIP method had increasingly become a burden for the 
intermediaries and that it resulted in the expenditures of considerable 
resources in attempting to identify and correct overpayments and 
underpayments. We stated that eliminating PIP for all hospitals (that 
is, those paid on the basis of reasonable costs and those subject to 
prospective payment) would allow intermediaries to utilize their 
resources more effectively to better control payments to hospitals and 
all other providers. Furthermore, we stated that the elimination of PIP 
would encourage hospitals to submit their bills on a more timely basis 
since hospitals receiving PIP have less incentive to bill timely than 
hospitals not receiving PIP.
    On October 21, 1986, the Omnibus Budget Reconciliation Act of 1986 
(Public Law 99-509) was enacted. In effect, except for the provision 
dealing with a special interim payment to prospective payment hospitals 
experiencing unusually long lengths of stay (discussed below), section 
9311 of Public Law 99-509 overrode the August 15, 1986, final rule. 
Specifically, section 9311(a) of Public Law 99-509 added a new 
paragraph (e) to section 1815 of the Act that provides for the 
following----
     Payment must be made available for inpatient hospital 
services furnished by a prospective payment hospital, including 
distinct part psychiatric or rehabilitation units, on a PIP basis 
(rather than on the basis of bills actually submitted) in the following 
cases:

--The hospital's fiscal intermediary fails to meet the requirements of 
section 1816(c)(2) of the Act concerning the prompt payment of claims 
for 3 consecutive months, the hospital requests payment on a PIP basis, 
and the hospital meets the requirements applicable to payment on a PIP 
basis that were in effect as of October 1, 1986. The hospital can 
continue to receive PIP payments until its fiscal intermediary meets 
the prompt payment of claims requirements for 3 consecutive calendar 
months.
--The hospital has a disproportionate share adjustment percentage (as 
established in section 1886(d)(5)(F)(iv) of the Act) of at least 5.1 
percent as computed for purposes of establishing the average 
standardized amounts for discharges occurring during Federal fiscal 
year (FY) 1987 and the hospital requests payment on a PIP basis. 
Hospitals meeting this criterion can receive PIP only if they were 
being paid on a PIP basis as of June 30, 1987 and the hospital 
continues to meet the requirements applicable to payment on a PIP basis 
that were in effect as of October 1, 1986.
--The hospital is located in a rural area, has 100 or fewer beds, and 
the hospital requests payment on a PIP basis. Again, hospitals meeting 
this criterion can receive PIP only if they were being paid on a PIP 
basis as of June 30, 1987, and the hospital continues to meet the 
requirements applicable to payment on a PIP basis that were in effect 
as of October 1, 1986.

     Payment on a PIP basis must be made available under the 
standards established in Sec. 405.454(j) (redesignated as 
Sec. 413.64(h)), as in effect on October 1, 1986, for the following 
services if the provider qualifies for and elects to receive PIP 
payment:

--Inpatient hospital services of a hospital excluded from the 
prospective payment system.
--Inpatient hospital services of a hospital receiving payment under a 
State hospital reimbursement system under section 1814(b)(3) or 1886(c) 
of the Act, if payment on a PIP basis is an integral part of that 
reimbursement system.
--Skilled nursing facility services.
--Home health services.
--Hospice care.

     The Secretary may make appropriate accelerated payments to 
hospitals subject to the prospective payment system that have 
significant cash flow problems resulting from operations of its 
intermediary or from unusual circumstances of the hospital's operation.
    On January 21, 1988, we published a final rule with comment period 
(53 FR 1621) that implemented section 9311(a) of the Omnibus Budget 
Reconciliation Act of 1986 (Public Law 99-509, enacted October 21, 
1986). In that final rule, in addition to implementing section 9311(a) 
of Public Law 99-509, we deleted the provision at Sec. 413.64(k)(5) 
permitting a special interim payment for long lengths of stay cases.
    This provision had been set forth in our August 15, 1986, final 
rule (51 FR 29386), before the enactment of Public Law 99-509. As 
explained in detail in our January 21, 1988, final rule (53 FR 1625), 
the amendments made by section 9311(a) of Public Law 99-509 did not 
include any provision for interim payments to prospective payment 
hospitals that are not on PIP, and we believed that, in light of the 
changes it was making to PIP, Congress did not believe such a provision 
was necessary. Therefore, we deleted this provision from the 
regulations. However, as a result of comments received objecting to the 
elimination of this provision, we reconsidered our position and 
subsequently revised our policy in regulations at Sec. 412.116(d) in 
the final rule published on September 1, 1989 (54 FR 36495). (This 
issue is also discussed below in response to public comments.)

II. Discussion of Comments

    In response to the January 21, 1988 final rule with comment period 
(53 FR 1621), we received 31 comments from or on behalf of hospitals 
and their associations. The following is a summary of the comments and 
our responses to them.

A. Capital-Related Costs of Inpatient Hospital Services

    As part of the January 21, 1988 final rule, which dealt primarily 
with PIP, we made an unrelated change to the regulations. Section 
413.64(k)(6), dealing with reductions in capital payments under section 
1886(g)(3) of the Act, was revised and redesignated as a new 
Sec. 412.113(a)(2). As part of that change, we made a technical change 
in Sec. 412.113(a)(1) by removing the language, ``For cost reporting 
periods beginning before October 1, 1986,'' to reflect the fact that 
hospitals subject to the prospective payment system continued to be 
paid in part on a hospital-specific basis during the transition period 
to fully prospective payment, which was in effect for cost reporting 
periods beginning on or after October 1, 1983, and before October 1, 
1987.
    Comment: One commenter requested that the date be changed to 
October 1, 1987 and that the language be reinserted in 
Sec. 412.113(a)(1). The request was made to reflect the fact that for 
cost reporting periods beginning on or after October 1, 1987, with the 
exception of sole community hospitals (see Sec. 412.92), prospectively 
determined payments based on national and regional standardized rates 
do not depend upon an individual hospital's cost experience. Therefore, 
according to the commenter, the capital consistency rule (discussed 
fully in the final prospective payment system rule published September 
30, 1988 (53 FR 38517)) addressed in Sec. 412.113(a)(1) would not be 
applicable for periods beginning on or after October 1, 1987. The 
commenter also believed that the capital consistency rule should not be 
applicable to sole community hospitals after that date, notwithstanding 
that those hospitals continue to receive a prospective payment, part of 
which is based on their own cost experience.
    Response: As we explained in our September 30, 1988, final rule (53 
FR 38517), the consistency rule required that the classification of 
capital-related and direct medical education costs remain constant for 
each hospital during the prospective payment transition period. This 
rule was necessary since a portion of the prospectively determined 
payment during the transition to fully Federal standardized rates was 
based upon a hospital's own cost experience (that is, the hospital-
specific rate).
    In that final rule, we noted that the consistency rule, for 
capital-related costs and for direct medical education costs, was no 
longer necessary due to the expiration of the prospective payment 
transition period. Accordingly, we removed the language from the 
regulations text concerning the consistency rule. With regard to the 
commenter's concern regarding sole community hospitals, we agree that 
the capital consistency rule is no longer applicable for these 
hospitals.
    Comment: A commenter noted that the capital reduction percentages 
in Sec. 412.113(a)(2) have been superseded by section 4006 of the 
Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203).
    Response: Section 4006 of OBRA 1987 amended section 1886(g)(3)(A) 
of the Act and provided that the inpatient capital reduction be 
increased to 12 percent for FY 1988, effective for discharges or 
portions of cost reporting periods occurring on or after January 1, 
1988. For discharges or portions of cost reporting periods occurring in 
FY 1989, the reduction was 15 percent. Section 6002 of OBRA 1989 
amended section 1886(g)(3)(A) of the Act and mandated a reduction of 15 
percent of payments for capital-related costs of hospital inpatient 
services identified under section 1886(d) attributable to portions of 
cost reporting periods or discharges occurring during the period 
beginning January 1, 1990 and ending September 30, 1990. Section 
4001(a) of OBRA 1990 extended the 15 percent reduction applicable to 
prospective payment hospitals to September 30, 1991. These provisions 
were incorporated into regulations at Sec. 412.113 on August 30, 1991 
(56 FR 43448).
    In addition to those changes, additional changes to Sec. 412.113 
were necessary to conform the regulations with the statute. 
Specifically, we revised Sec. 412.113(a)(2) (B), (C), and (D) to 
conform the dates and the percentages specified in these sections to 
the law.

B. Special Interim Payment for Unusually Long Lengths of Stay

    Comment: Twenty-nine commenters objected to our elimination of the 
provision for special interim payments for unusually long lengths of 
stay. The commenters generally stated that the fact that the 
legislation did not address this provision indicated Congressional 
intent that it be retained. They noted that the legislation included a 
specific provision permitting the Secretary to make appropriate 
accelerated payments to a hospital subject to the prospective payment 
system that has significant cash-flow problems resulting from the 
operation of its intermediary or from unusual circumstances of the 
hospital's operation. They asserted that this provision was intended to 
address a variety of unusual circumstances that cause cash-flow 
problems, including situations in which a hospital experiences cash-
flow problems due to long-stay patients.
    Many commenters said that we had originally provided for the 
special interim payments in order to alleviate the cash-flow problems 
that certain hospitals might encounter after they no longer received 
PIP. The commenters indicated that a cash-flow shortage continues to be 
a problem for a hospital that cannot receive any Medicare payment for a 
patient who has been in the hospital for an unusually long stay. Some 
commenters stated that the problem was more acute for small hospitals 
or for rural hospitals, but all believed that not receiving an interim 
payment for a long-stay patient represented a hardship to a hospital.
    Some pointed out that an interim payment is particularly important 
for long-stay patients because, generally, the most intensive resource 
consumption occurs early in a patient's stay. Others commented that the 
problem is exacerbated in areas where there is a shortage of Medicare-
participating skilled nursing facility (SNF) beds, since such shortages 
tend to increase the number of long-stay patients remaining in the 
hospitals awaiting SNF placement.
    One commenter recommended that the threshold for interim billing be 
based on the outlier threshold for the DRG assigned to the case and 
that the hospital should be given an opportunity to submit an interim 
bill for long-stay patients every 30 days after the original interim 
bill.
    Response: Due to the importance of this issue to the hospital 
industry, we have already responded to these comments and addressed 
these issues in a final rule published on September 1, 1989 (54 FR 
36495). As we explained in detail in that document, based on our review 
of these comments, we reconsidered our position on this issue and 
revised Sec. 412.116(d) accordingly.
    Prospective payment system hospitals that do not receive PIP may 
request special interim payments after a patient has been in the 
hospital at least 60 covered days and thereafter at intervals of at 
least 60 days. The initial special interim payment will be made at the 
rate for the appropriate DRG based on the diagnosis, procedures and 
other pertinent information reported on the initial interim bill.
    The payment for the initial interim bill will be determined as if 
the bill were the final bill. That is, the intermediary will pay the 
hospital based on the DRG determined for the bill plus any outlier 
payments as of the date of the last day for which services have been 
billed. Subsequent interim bills, including the final bill, will be 
processed as adjustment bills, with payment determined as if the bill 
were the final bill. Generally, the adjusted payment from subsequent 
bills will result from outlier payments accruing since the previous 
bill. These special interim payments were effective September 1, 1989 
for all qualifying current and subsequent inpatient admissions.

C. Method of Payment

    Comment: One commenter asked that we reconsider our position and 
revoke the regulation that eliminates PIP for many hospitals. The 
commenter pointed out that as hospitals deplete their working capital, 
operating cash becomes very critical, and the new regulation will 
create additional cash-flow problems for the hospital industry.
    Response: We believe that the regulation properly implements the 
statutory provisions, and, therefore, should continue in effect. 
However, as discussed above, we have reconsidered our elimination of 
the provision for an interim payment after a Medicare beneficiary's 
length of stay exceeds 60 days. The special interim payment provision 
at Sec. 412.116(d) should assist prospective payment hospitals in 
maintaining cash flow in cases of long-stay Medicare patients.

D. Periodic Interim Payments

    Comment: One commenter stated that certain disproportionate share 
hospitals and small rural hospitals that could elect PIP under the 
provisions in Sec. 412.116 (b)(1)(ii) or (b)(1)(iii) may not have been 
given clear instructions in sufficient time to make a proper request 
for PIP prior to July 1, 1987, as required in Secs. 412.116 (b)(1)(ii) 
and (b)(1)(iii). Accordingly, the commenter requested that HCFA provide 
a 60-day window of opportunity to eligible disproportionate share and 
small rural hospitals to request PIP.
    Response: We believe that eligible disproportionate share and small 
rural hospitals had adequate notice to request PIP prior to July 1, 
1987. In May of 1987, we issued Program Memorandum A-87-4 that advised 
intermediaries to notify the hospitals to request PIP. (Subsequent 
instructions were included in the Intermediary Manual Part 3, section 
3600.1.) Intermediaries, accordingly, notified their providers. Since 
we received no other comments indicating any problems in this regard, 
we do not believe that an additional extension was necessary for these 
hospitals to request PIP.

E. Payment to Providers of Service

    Comment: One commenter asked whether a small rural hospital that 
qualifies for prospective payment as an urban hospital under section 
1886(d)(8)(B) of the Act, as added by section 4005(a) of the Omnibus 
Budget Reconciliation Act of 1987 (Public Law 100-203), would become 
ineligible to receive PIP when section 4005(a) went into effect.
    Response: Section 1886(d)(8)(B) of the Act provides that if certain 
conditions are met, hospitals located in a rural county adjacent to one 
or more urban areas are treated, for purposes of determining 
prospective payment amounts, as being located in the urban metropolitan 
statistical area to which the greatest number of workers in the county 
commute. This provision relates solely to the amount of prospective 
payment a hospital will receive based on its geographic classification, 
and does not change the status of small rural hospitals that have 
qualified to receive PIP under section 1815(e) of the Act.

F. Payment to Hospitals Subject to the Prospective Payment System

    Comment: In the January 21, 1988 final rule, we stated that when an 
intermediary that had not met the prompt payment standard has again met 
that standard for 3 consecutive calendar months, the hospitals will 
receive notice (concurrent with their removal from PIP) that they will 
no longer receive PIP, effective with discharges occurring the first 
day of the month following the third consecutive month in which the 
requirements were met (53 FR 1624). One commenter asserted that this 
policy did not provide sufficient time for intermediaries to change the 
payment method from PIP to claim-by-claim. The commenter also pointed 
out that providers would have no advance notice of PIP removal. Another 
commenter suggested that removal should be no sooner than 2 weeks after 
notification.
    Response: We agree that providers need advance notification of 
removal from PIP, and intermediaries need additional time to make 
changes in their payment method. Accordingly, intermediaries now will 
notify hospitals as follows:
    If an intermediary that has consistently failed (that is, for 3 
consecutive months) to meet the prompt payment requirements 
subsequently meets the requirements for 2 consecutive calendar months, 
it must so notify its hospitals within 7 working days after the end of 
the 2nd month. Within 7 working days after the end of the following 
month, the intermediary must notify the hospitals whether it met or 
failed the prompt payment requirements for that month.
     If the intermediary failed to meet the requirements, its 
hospitals may continue to receive PIP, and the intermediary is not 
required to further notify the hospitals until the intermediary again 
meets the prompt payment requirements for 2 consecutive calendar 
months.
     If the intermediary met the requirements (that is, 
complied with the prompt payment requirements for 3 consecutive 
calendar months), the intermediary will notify its hospitals that they 
will no longer receive PIP effective with discharges occurring on the 
first day of the following month, that is, 30 days after the 
intermediary meets the requirements. The intermediary is not required 
to further notify the hospitals regarding its timeliness in paying 
claims until it again fails to meet the prompt payment requirements for 
2 consecutive calendar months.
    If an intermediary has consistently met the requirements but 
subsequently fails to meet them for 2 consecutive calendar months, it 
must so notify the hospitals within 7 working days after the end of the 
2nd month. Within 7 working days after the end of the following month, 
the intermediary must notify the hospitals whether it met or failed to 
meet the requirements for that month.
     If the intermediary met the requirements, the hospitals 
continue not to receive PIP, and the intermediary is not required to 
further notify the hospitals until the intermediary again fails to meet 
the requirements for 2 consecutive calendar months.
     If the intermediary failed to meet the requirements (that 
is, did not comply with prompt payment requirements for 3 consecutive 
calendar months), the intermediary will notify the hospitals that they 
may request to receive PIP.
    If a hospital's request is received by the intermediary by the 15th 
day of the month (or the first regular business day after the 15th day 
of the month), the intermediary will initiate PIP for a qualifying 
hospital effective with discharges occurring on or after the first day 
of the following month, that is, 30 days after the intermediary failed 
to meet the requirements for 3 consecutive calendar months. If the 
hospital's request is not received by the intermediary by the 15th day 
of the month (or the first regular business day after the 15th day of 
the month), the intermediary will process the request for PIP under its 
usual procedures for PIP requests. The intermediary is not required to 
further notify its hospitals regarding its timeliness in paying claims 
until it meets the prompt payment requirements for 2 consecutive 
calendar months.

G. Limitation on Reelection

    In addition to the changes discussed above, we are making an 
additional revision to the PIP regulations at Sec. 412.116(b)(4)(iii) 
concerning the limitation on the reelection of PIP. Although we 
received no public comments on this issue, we believe that the change 
is necessary to remedy a flaw in the regulations set forth in our 
January 21, 1988, final rule, and that it is clearly beneficial to 
hospitals. Section 412.116(b)(4)(iii) provides that if a 
disproportionate share hospital or a small rural hospital receiving PIP 
under the criteria set forth in Sec. 412.116 (b)(1)(ii) or (b)(1)(iii), 
respectively, is removed from PIP, either by its own request or by the 
intermediary, it may reelect to receive PIP only under the criteria set 
forth in Sec. 412.116(b)(1)(i). (That is, the availability of PIP to 
the hospital would be subject to the intermediary's prompt payment of 
claims.) We believe that if a hospital requests to be removed from PIP, 
Sec. 412.116(b)(4)(iii) should continue to apply. However, 
Sec. 412.116(b)(4)(iii) may, in some cases, discourage intermediaries 
from properly removing hospitals that no longer qualify since such 
hospitals could no longer receive PIP except under the provisions of 
Sec. 412.116(b)(1)(i).
    Accordingly, we are revising Sec. 412.116(b)(4)(iii) to provide 
that if an intermediary removes a qualifying disproportionate share 
hospital or a small rural hospital from PIP because the hospital no 
longer meets the requirements for PIP under Sec. 413.64(h), a hospital 
qualifying under Sec. 412.116 (b)(1)(ii) or (b)(1)(iii) may 
subsequently reelect to receive PIP, subject to the requirements of 
Sec. 413.64(h). This reelection also applies in situations, with regard 
to a hospital that has changed ownership or undergone a change in 
management, in which the intermediary removes the hospital from PIP 
temporarily to evaluate whether or not the hospital, under its new 
ownership or new management, meets the requirements of Sec. 413.64(h).

H. Editorial Comment

    Comment: One commenter pointed out two errors in the preamble of 
the January 21, 1988 final rule. Specifically, the commenter noted that 
on page 1621, column 3, paragraph 3, in the sentence reading ``These 
interim payments are determined by estimating the reimbursable amount 
for the year based on the previous year's experience and on information 
for the current year and dividing that amount in to 29 equal payments 
made biweekly.'', ``29'' should be changed to ``26''. Also, in the same 
paragraph, the last sentence reading ``These payments will continue to 
be made on a biweekly basis'' should have read ``These payments will 
continue to be made 2 weeks after the end of a biweekly period of 
service.''
    Response: The commenter correctly suggested that the preamble read 
incorrectly. However, the regulations at Sec. 412.116(c) do read 
correctly, and thus we did not believe it was necessary to publish a 
correction notice. We note that payment for the indirect teaching 
adjustment and capital-related costs are no longer made on a biweekly 
basis. As discussed in the September 30, 1988 Federal Register (53 FR 
38517), payment for the indirect teaching adjustment is now made on a 
bill-by-bill basis. In addition, the payment methodology for hospital 
inpatient capital-related costs for hospitals paid under the 
prospective payment system has been revised. Under the current 
methodology, in effect since October 1, 1991, a predetermined amount 
per discharge is made for Medicare inpatient capital-related costs. 
However, payments on an interim basis are still made for direct medical 
education.

III. Changes to the Regulations

    This final rule responds to the comments concerning the changes we 
made in the January 21, 1988, final rule with comment period (53 FR 
1621). As discussed in section II above, we are making, or have made, 
the following changes to the regulations.
     As a result of comments received objecting to the 
elimination of the provision for special interim payments for unusually 
long lengths of stay, we reconsidered our position and revised our 
policy. Due to the importance of this issue to the hospital industry, 
we have already published this policy in regulations at Sec. 412.116(d) 
in the final rule published on September 1, 1989 (54 FR 36495).
     As discussed above, we are revising 
Sec. 412.116(b)(4)(iii) to provide that if a hospital that is receiving 
periodic interim payments under the criterion set forth in 
Secs. 412.116 (b)(1)(ii) or (b)(1)(iii) is removed from that method of 
payment at its own request, it may reelect to receive periodic interim 
payments only under the criterion set forth in paragraph 
Sec. 412.116(b)(1)(i). However, if the hospital is removed from that 
method of payment by its intermediary because it no longer meets the 
requirements for PIP under Sec. 413.64(h), a hospital qualifying under 
the provisions of Secs. 412.116 (b)(1)(ii) or (b)(1)(iii) may later 
reelect to receive periodic interim payments subject to the 
requirements in Sec. 413.64(h).
     As a result of section 9311(a) of Public Law 99-509, PIP 
was made available for prospective payment hospitals, including 
distinct part psychiatric or rehabilitation units, if--(1) The 
intermediary fails to meet the prompt payment requirements for three 
consecutive months, (2) the hospital has a disproportionate share 
adjustment percentage of at least 5.1 percent, or (3) the hospital is a 
rural hospital that has 100 or fewer beds. These provisions were 
discussed extensively in the January 21, 1988, final rule with comment 
period (53 FR 1623), and were at that time incorporated in regulations 
at Sec. 412.116(b). Section 9311(a) of Public Law 99-509 also allowed 
hospices to receive PIP. This provision was also addressed in the 
preamble to the January 21, 1988, final rule with comment period (53 FR 
1625), and was at that time incorporated in regulations at 
Sec. 418.307. However, when we added Sec. 412.116(b) in the January 21, 
1988 rule, we did not also specify in Sec. 413.64(h) that PIP was 
available to distinct part psychiatric and rehabilitation units, and to 
hospices. To remedy that inadvertent omission, we are now adding 
Sec. 413.64(h)(2) (v) and (vi) to specify that PIP is available to 
distinct part psychiatric units and rehabilitation units, and to 
hospices, respectively. In addition, we are revising Sec. 418.307 by 
adding the explanation of how payments are made under the PIP method, 
now located only in Sec. 413.64(h).

IV. Impact Statement

    Unless the Secretary certifies that a final rule will not have a 
significant economic impact on a substantial number of small entities, 
we generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612). For purposes of the RFA, we consider all hospitals to be 
small entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any final rule that may have 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. With the exception of hospitals located in 
certain rural counties adjacent to urban areas, for purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital with 
fewer than 50 beds.
    This final rule confirms and responds to comments on our January 
21, 1988 interim final rule. We received no comments on our statement 
in that rule that the PIP provisions would not have a substantial 
economic impact, and we are making no significant changes in this final 
rule.
    We have determined, and the Secretary certifies, that this final 
rule will not have a significant effect on either a substantial number 
of small entities or on small rural hospitals. Therefore, we have not 
prepared a regulatory flexibility analysis or an analysis of the 
effects of this rule on small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.

V. 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.).

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 Part 418

    Health facilities, Hospice care, Medicare, Reporting and 
recordkeeping requirements.

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

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), 1820, 1871 and 1886 of the 
Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh and 
1395ww).

    2. In Sec. 412.116, paragraph(b)(4)(iii) is revised to read as 
follows:


Sec. 412.116   Method of Payment.

* * * * *
    (b) Periodic interim payments * * *
* * * * *
    (4) Termination of periodic interim payments. * * *
* * * * *
    (iii) Limitation on reelection. If a hospital that is receiving 
periodic interim payments under the criterion set forth in paragraph 
(b)(1)(ii) or (b)(1)(iii) of this section is removed from that method 
of payment at its own request, it may reelect to receive periodic 
interim payments only under the criterion set forth in paragraph 
(b)(1)(i) of this section. However, if the hospital is removed from 
that method of payment by its intermediary because it no longer meets 
the requirements of Sec. 413.64(h) of this chapter, that hospital may 
subsequently reelect to receive periodic interim payments if it 
qualifies under the provisions of paragraph (b)(1)(ii) or (b)(1)(iii) 
of this section, subject to the requirements in Sec. 413.64(h) 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)).

    2. In Sec. 413.64, paragraphs (h) (2), (3), (4), (5), and (6), are 
redesignated as paragraphs (h) (3), (4), (5), (6), and (7), 
respectively; a new paragraph (h)(2) is added; paragraphs (h)(1) (i), 
(ii), (iii), and (iv) are redesignated as paragraphs (h)(2) (i), (ii), 
(iii), and (iv) respectively; paragraph (h)(1) is revised; and new 
paragraphs (h)(2) (v) and (vi) are added to read as follows:


Sec. 413.64   Payments to providers: Specific rules.

* * * * *
    (h) Periodic interim payment method of reimbursement--(1) Covered 
services furnished before July 1, 1987. In addition to the regular 
methods of interim payment on individual provider billings for covered 
services, the periodic interim payment (PIP) method is available for 
Part A hospital and SNF inpatient services and for both Part A and Part 
B HHA services.
    (2) Covered services furnished on or after July 1, 1987. Effective 
with claims received on or after July 1, 1987, the periodic interim 
payment (PIP) method is available for the following:
* * * * *
    (v) Part A services furnished in hospitals paid under the 
prospective payment system, including distinct part psychiatric or 
rehabilitation units, as described in Sec. 412.116(b) of this chapter.
    (vi) Services furnished in a hospice as specified in part 418 of 
this chapter. Payment on a PIP basis is described in Sec. 418.307 of 
this chapter.
* * * * *
    C. Part 418 is amended as follows:

PART 418--HOSPICE CARE

    1. The authority citation for Part 418 continues to read as 
follows:

    Authority: Secs. 1102, 1812(a)(4), 1812(d), 1813(a)(4), 
1814(a)(7), 1814(i), 1816(e)(5), 1861(dd), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395d(a)(4), 1395d(d), 1395e(a)(4), 
1395f(a)(7), 1395f(i), 1395h(e)(5), 1395x(dd), and 1395hh); and sec. 
353 of the Public Health Service Act (42 U.S.C. 263a).

    2. Section 418.307 is revised to read as follows:


Sec. 418.307  Periodic interim payments.

    Subject to the provisions of Sec. 413.64(h) of this chapter, a 
hospice may elect to receive periodic interim payments (PIP) effective 
with claims received on or after July 1, 1987. Payment is made biweekly 
under the PIP method unless the hospice requests a longer fixed 
interval (not to exceed one month) between payments. The biweekly 
interim payment amount is based on the total estimated Medicare 
payments for the reporting period (as described in Secs. 418.302-
418.306). Each payment is made 2 weeks after the end of a biweekly 
period of service as described in Sec. 413.64(h)(5) of this chapter. 
Under certain circumstances that are described in Sec. 413.64(g) of 
this chapter, a hospice that is not receiving PIP may request an 
accelerated payment.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    Dated: March 24, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: May 16, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-17309 Filed 7-18-94; 8:45 am]
BILLING CODE 4120-01-P