[Federal Register Volume 63, Number 28 (Wednesday, February 11, 1998)]
[Rules and Regulations]
[Pages 6864-6869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3362]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412 and 413

[HCFA-1731-F]
RIN 0938-AG00


Medicare Program; Payment for Preadmission Services

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule responds to public comments on the January 12, 
1994, interim final rule with comment period that provided 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.

EFFECTIVE DATE: These regulations are effective on March 13, 1998.

FOR FURTHER INFORMATION CONTACT: Sandy Hetrick, (410) 786-4542.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1886 of the Social Security Act (the Act) addresses 
Medicare payment for hospital inpatient operating costs. Before the 
enactment of section 4003 of Omnibus Budget Reconciliation Act of 1990 
(Public Law 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 * * *.'' In 1966, the Medicare program established an 
administrative policy regarding payment for services furnished before 
admission to a hospital. Specifically, if a beneficiary with coverage 
under Medicare Part A was furnished outpatient hospital services and 
was thereafter admitted as an inpatient of the same hospital before 
midnight of the next day, our longstanding policy provided that 
outpatient hospital services furnished to the beneficiary were treated 
as inpatient services and included in the hospital's Part A payment.
    When the prospective payment system for hospitals was implemented 
in 1983, 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 standardized 
payment amount and the diagnosis-related group (DRG) weighting factors. 
(Hospitals excluded from payment under the prospective payment system 
continue to be paid for inpatient hospital services they furnish, as 
well as for the preadmission services described above, on the basis of 
reasonable costs up to the ceiling on the allowable rate of the 
increase for Medicare hospital inpatient operating costs, as set forth 
in the Act.) Therefore, these preadmission services could not be billed 
separately from the covered inpatient admission that follows, since 
payment for them was included in the payment made under Part A for the 
inpatient stay (that is, the DRG payment for hospitals under the 
prospective payment system or, for excluded hospitals, the reasonable 
cost payment subject to the rate-of-increase limit).
    Section 4003(a) of Pub. L. 101-508 amended the statutory definition 
of ``operating costs of inpatient hospital services'' at 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. 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 before the date 
of the patient's admission to the hospital.
    The provisions of section 4003(b) of Public Law 101-508 provided 
for implementation of the 3-day payment window in the following three 
phases:
     The first phase, effective from November 5, 1990 (the 
enactment date of Public Law 101-508) through September 30, 1991, 
included any services furnished during the day before the date of 
admission regardless of

[[Page 6865]]

whether the services are related to the admission.
     The second phase, which was effective on January 1, 1991, 
and is ongoing, includes diagnostic services (including clinical 
diagnostic laboratory tests) that are furnished during the 3 days 
immediately preceding the date of admission.
     The third phase, which was effective October 1, 1991, and 
is ongoing, includes other services related to the inpatient admission 
that are furnished during the 3 days immediately preceding the date of 
admission.
    On January 12, 1994, we published an interim final rule with 
comment period (59 FR 1654) implementing section 4003 of Pub. L. 101-
508. To implement this provision, we revised the regulations at 42 CFR 
412.2(c) for prospective payment hospitals and Sec. 413.40(c)(2) for 
hospitals excluded from the prospective payment system. At the time of 
publication of the interim final rule, the 3-day payment window applied 
to hospitals under the prospective payment system as well as to 
excluded hospitals.
    Since publication of the interim final rule, section 1886(a)(4) was 
further amended by section 110 of the Social Security Act Amendments of 
1994 (Pub. L. 103-432). That amendment revised the payment window for 
hospitals excluded from the prospective payment system to include only 
those services furnished during the 1 day (not 3 days) before a 
patient's hospital admission. In the September 1, 1995 final rule 
containing changes to the hospital inpatient prospective payment 
system, we revised Sec. 413.40(c)(2) of the regulations to provide for 
the 1-day payment window for hospitals and hospital units excluded from 
the prospective payment system (60 FR 45840). We also noted that the 
term ``day'' refers to the calendar day immediately preceding the date 
of admission, not the 24-hour time period that immediately precedes the 
hour of admission. (In this document, we will continue to refer to the 
provision as the ``3-day payment window'' with the understanding that, 
for excluded hospitals, the applicable period of the window is 1 day, 
not 3.)

II. Provisions of the Interim Rule With Comment Period

    In the January 12, 1994 interim final rule with comment period, we 
specified that payment for inpatient operating costs includes 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 revised 
Secs. 412.2(c)(5) and 413.40(c)(2) to provide that 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. In addition, we stated that ambulance 
services are excluded from preadmission services subject to the payment 
window. Finally, in Secs. 412.2(c)(5)(ii) and 413.40(c)(2)(ii), we 
defined ``services related to the admission'' as those non diagnostic 
services that are furnished in connection with the principal diagnosis 
assigned to the inpatient admission. We specifically invited comment on 
several other approaches to defining ``services related to the 
admission.'' We suggested the following four alternatives:
     Presume that all services provided during the 3 days 
before admission are related.
     Presume that certain services are never related to the 
admission, for example, chronic maintenance dialysis.
     Develop an inclusive list of services that are medically 
related, against which all claims could be electronically screened.
     Define services related to the principal diagnosis to 
include any services that fall within the same major diagnostic 
category (MDC).

III. Discussion of Public Comments

    We received 11 comments in response to the interim final rule 
published on January 12, 1994. The majority of the comments we received 
responded to our definition of services related to the inpatient 
admission and, thus, subject to the payment window. We received four 
comments in support of our determination 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. One commenter expressed agreement with our 
statement that ambulance services are distinct from the type of 
hospital services that Congress designed the payment window provision 
to address. All four commenters stated that many hospitals that operate 
ambulance services do so at a financial loss, and that hospitals 
continue to furnish the ambulance services primarily as a means of 
ensuring access to hospital care for individuals who otherwise would be 
unable to reach hospitals. According to the commenters, 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. We also received several comments suggesting that there are 
other services that should always be excluded from the payment window.
    Comment: We received three comments that questioned whether the 3-
day payment window provision was intended to apply to home health 
services. One national organization made the point that home health 
agencies should be exempt from these provisions on much the same basis 
that ambulance services are. That is, home health services were never 
included in the hospital inpatient payment. Therefore, they could not 
be part of the services that hospitals have sought to unbundle in order 
to maximize payment.
    Two commenters believed that it is unfair to single out hospital-
based home health agencies for this provision while independent 
agencies would be exempt. The commenters also believed that it would be 
difficult to determine if the condition for which the home health 
agency provided treatment is related to the admitting diagnosis and 
that home health agencies would not know at the time they provided a 
service that it would be subject to the payment window. They pointed 
out that home health agencies have separate provider numbers and that 
their bills are processed by regional fiscal intermediaries; 
accordingly, including home health services on the payment window would 
greatly increase administrative burden on both the provider and the 
fiscal intermediaries.
    Response: We agree with the commenters that home health services 
are distinct from the types of services that Congress intended to 
address in the payment window provision. 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 Committee Report No. 881, 101st Cong., 2d 
Sess. 250 (1990).) That report further states that the services 
included in the window are not separately reimbursable under Part B. 
Home health services are generally covered under Part A and, thus, 
generally are not paid under Part B. Therefore, we are clarifying that 
services provided by home health agencies are excluded from the payment 
window provisions. In addition, we are clarifying that this exclusion 
extends to

[[Page 6866]]

other services provided under Part A, that is, services furnished by 
skilled nursing facilities and hospices. We have revised the 
regulations at Secs. 412.2(c)(5) and 413.40(c)(2) to reflect this 
policy. We note that diagnostic services provided by these facilities 
that would be payable under Part B are subject to the window.
    Comment: Three commenters requested that maintenance renal dialysis 
not be subject to the payment window. These commenters noted that 
patients must have dialysis on an ongoing basis. Because most patients 
receive dialysis three times a week, for any hospitalization, the 
patient will have at least one dialysis treatment falling in the 
payment window period. Regardless of the reason for the 
hospitalization, the patient would have received the dialysis 
treatment.
    One of the commenters expressed the opinion that inclusion of 
dialysis services in the payment window provision would increase 
administrative costs for hospital-owned dialysis units because, prior 
to billing, they would have to research the diagnosis involved in every 
hospitalization and decide whether or not it is ``related to 
dialysis.'' The commenter stated that, in such cases, dialysis units 
might seek payment or credit from the hospital rather than from 
Medicare, and that this would disrupt billing patterns and subject 
hospital-owned units to still greater fiscal constraints in the form of 
further administrative costs. Another commenter believes that excluding 
all outpatient chronic maintenance dialysis treatments would be easy to 
implement and administer. A simple directive could be issued to all 
Medicare contractors with instructions that dialysis services are not 
subject to the payment window provision.
    Response: We agree with the commenters that outpatient chronic 
renal dialysis services are distinct from the type of hospital services 
that Congress designed the payment window provision to address. 
Maintenance dialysis must be provided to patients on a scheduled basis 
as long as they suffer from end-stage renal disease. Thus, it is not an 
inpatient service that hospitals have attempted to move outside the 
inpatient stay and corresponding hospital prospective payment. 
Therefore, in this rule, we are revising Secs. 412.2(c) and 413.40(c) 
to exclude maintenance renal dialysis services from the preadmission 
services that are subject to the payment window.
    Comment: Only one commenter responded to our request for comment on 
different approaches to defining ``services related to the inpatient 
admission.'' The commenter suggested that one possible approach would 
be to define certain preadmission services that are never considered to 
be related to the admission. The commenter provided the following list 
of preadmission services (in addition to maintenance renal dialysis) 
that should always be considered not related to the subsequent 
admission:
     Outpatient chemotherapy.
     Blood transfusions for chronic conditions (e.g., 
hemophilia and renal failure).
     Physical therapy, occupational therapy, speech therapy, 
other types of rehabilitative therapy, and respiratory therapy for 
chronic or long-term care conditions.
     Radiation therapy.
    In addition, the commenter believed that any diagnostic tests 
associated with these services should also be excluded from the window.
    Response: We agree with the commenter that certain services should 
not be subject to the provisions of the payment window. As noted above, 
we have determined that Part A services (such as home health, hospice, 
and skilled nursing facility services), ambulance services, and chronic 
maintenance renal dialysis should be excluded from the payment window.
    With regard to the additional services requested by the commenter 
to be added to that list, we are not persuaded that these services 
should be excluded from the payment window. Outpatient chemotherapy and 
radiation therapy are time-limited treatments for specific medical 
conditions. This is also true of the rehabilitation services listed by 
the commenter. We do not believe that these services fall into the same 
category as maintenance dialysis. We are also not convinced that blood 
transfusions for chronic conditions should be excluded. These 
transfusions are often related to a change in condition or an injury; 
unlike dialysis, they are not generally provided to patients on a 
weekly schedule. Therefore, we are not adding any of these services to 
our list of exclusions. We note that we have defined services as being 
related to the admission only when there is an exact match between the 
ICD-9-CM diagnosis code assigned for both the preadmission services and 
the inpatient stay. Concerning the request to exclude diagnostic 
services associated with excluded services, we believe that the statute 
requires that all diagnostic services be included in the payment 
window.
    Comment: One commenter stated that the hospital industry is making 
new arrangements for the provision of health care. Many hospitals are 
establishing facilities licensed as free-standing clinics, owned and 
operated under a corporate umbrella, with a hospital responsible for 
conducting or overseeing the clinic's routine operations. The commenter 
requested that we address the difficulty of converting outpatient 
charges for preadmission testing from the HCFA-1500 to the UB-92 
inpatient hospital billing form.
    Response: We believe that the current procedures for billing 
Medicare for preadmission services, as set forth in section 415.6 of 
the Medicare Hospital Manual (HCFA-Pub. 10), are clear. When services 
are furnished within the 3-day payment window, they are included on the 
Part A bill, the HCFA-1450 (also known as the UB-92), for the inpatient 
stay. They are not separately billed under Part B. The charges, revenue 
codes, and ICD-9-CM diagnosis and procedure codes are all included on 
the HCFA-1450.
    In the context of this comment concerning hospital arrangements, we 
would like to address the numerous telephone and written inquiries we 
have received concerning the definition of an entity ``wholly owned or 
operated'' by the hospital. The inquiries we have received include 
descriptions of various ownership/operation arrangements and requests 
to verify whether or not the 3-day payment window applies to each case. 
In general, if a hospital has direct ownership or control over another 
entity's operations, then services provided by that other entity are 
subject to the 3-day window. However, if a third organization owns or 
operates both the hospital and the entity, then the window provision 
does not apply. The following are examples of how this general policy 
is applied.
    Arrangement: A hospital owns a physician clinic or a physician 
practice that performs preadmission testing for the hospital.
    Policy: A hospital-owned or hospital-operated physician clinic or 
practice is subject to the payment window provision. The technical 
portion of preadmission diagnostic services performed by the physician 
clinic or practice must be included in the inpatient bill and may not 
be billed separately. A physician's professional service is not subject 
to the window.
    Arrangement: Hospital A owns Hospital B, which in turn owns 
Hospital C. Does the payment window apply if preadmission services are 
performed at Hospital C and the patient is admitted to Hospital A?
    Policy: Yes. We would consider that Hospital A owns both Hospital B 
and Hospital C, and the payment window would apply in this situation.

[[Page 6867]]

    Arrangement: Corporation Z owns Hospitals A and B. If Hospital A 
performs preadmission services and the patient is subsequently admitted 
as an inpatient to Hospital B, are the services subject to the payment 
window?
    Policy: No. The payment window does not apply to situations in 
which both the admitting hospital and the entity that furnishes the 
preadmission services are owned by a third entity. The payment window 
includes only those situations in which the entity furnishing the 
preadmission services is wholly owned or operated by the admitting 
hospital itself.
    Arrangement: A hospital refers its patient to an independent 
laboratory for preadmission testing services. The laboratory does not 
perform testing by arrangement with the admitting hospital. Are the 
laboratory services subject to the payment window provisions?
    Policy: No. The payment window does not apply to situations in 
which the admitting hospital is not the sole owner or operator of the 
entity performing the preadmission testing.
    Arrangement: Hospital A is owned by Corporations Y and Z in a joint 
venture. Corporation Z is the sole owner of Hospital B. Does the 
payment window apply when one of these hospitals furnishes preadmission 
services and the patient is admitted to the other hospital?
    Policy: No. As noted above, the payment window provision does not 
apply to situations in which both the admitting hospital and the entity 
that furnishes the preadmission services are owned or operated by a 
third entity.
    Arrangement: A clinic is solely owned by Corporation Z and is 
jointly operated by Corporation Z and Hospital A. Does the payment 
window apply if preadmission services are furnished by the clinic and 
the patient is subsequently admitted to Hospital A?
    Policy: No. The payment window does not apply because Hospital A is 
neither the sole owner nor operator of the clinic.
    Comment: We received one comment on our interpretation of the 
statutory language of section 1886(a)(4) of the Act. The commenter 
asserted that we are reading the statute incorrectly, arguing that the 
statute requires us to include in the payment window only those 
diagnostic services related to the admission rather than all diagnostic 
services furnished during the 3 days preceding an inpatient admission. 
The commenter believes that since section 1886(a)(4) of the Act, as 
amended, reads, ``if such services are diagnostic services (including 
clinical diagnostic laboratory tests) or are other services related to 
the admission'' (emphasis added), Congress meant that both diagnostic 
and nondiagnostic services must be related to the admission in order to 
be subject to the payment window. The commenter claims that the use of 
the word ``other'' in ``other services related to the admission'' 
clearly indicates that the qualifier ``related to the admission'' also 
applies to the first type of services listed, diagnostic services. The 
commenter stated that by including all diagnostic services in the 3-day 
window, we could be unfairly denying hospitals payment for separate 
treatment that they have furnished.
    In addition, the commenter believes that our interpretation is 
contrary to Congressional intent since the House Budget Committee 
Report states that the purpose of the provision is to ``curb further 
unbundling which has occurred since the introduction of Medicare's 
hospital DRG payment system.'' (H.R. Budget Comm. Rep. No. 881, 101st 
Cong., 2d Sess. 250 (1990).) The commenter contends that since Congress 
expanded the definition of ``operating costs of inpatient hospital 
services'' as part of the legislation, it sought to prevent hospitals 
from unbundling services that traditionally were included in an 
inpatient hospital stay and had been included when the initial DRG 
rates were set.
    The commenter also asserted that the way Congress worded the three-
phase implementation period of the payment window legislation proves 
that the legislation was intended to apply only to diagnostic services 
related to the admission. Therefore, the commenter believes that both 
diagnostic and nondiagnostic services must be related to the admission 
in order to be subject to the window.
    Response: We believe that our reading of the statute is the proper 
one. Section 1886(a)(4) of the Act, as amended, defines ``operating 
costs of inpatient hospital services'' to include certain preadmission 
services ``if such services are diagnostic services (including 
diagnostic laboratory tests) or are other services related to the 
admission (as defined by the Secretary).'' (Emphasis added.) We believe 
that the phrase ``related to the admission'' modifies the term ``other 
services'' and not ``diagnostic services.''
    A careful reading of the statute demonstrates that our 
interpretation is the most natural reading of the statute, if not the 
only reasonable one. It is significant that the language includes the 
word ``are'' after the word ``or.'' The subject that relates to this 
use of the word ``are'' is ``such services.'' Thus, the payment window 
includes certain services ``if such services are diagnostic services 
(including diagnostic laboratory tests) or [such services] are other 
services related to the admission (as defined by the Secretary).'' The 
most natural reading of this language is that the phrase ``related to 
the admission'' modifies only ``other services.'' In fact, it is 
difficult to see how this language is consistent with the commenter's 
reading.
    The commenter argues that all services must be ``related to the 
admission'' to be included in the payment window. If Congress had 
intended that result, Congress could have simply referred to ``services 
related to the admission'' in section 1886(a)(4) of the Act. It would 
not have been necessary for Congress to refer separately to diagnostic 
services related to the admission and other services related to the 
admission.
    Even if the statute is not entirely clear, our interpretation is 
certainly consistent with the language. Similarly, our interpretation 
is consistent with the statutory language concerning the transition 
from a 1-day window to a 3-day window. For these reasons, we believe 
our interpretation of section 1886(a)(4) is the proper one, if not the 
only reasonable one.
    We note that, in Pub. L. 103-342, enacted on October 31, 1994, 
Congress amended section 1886(a)(4) to clarify application of the 
payment window to services furnished by hospitals excluded from the 
prospective payment system, but did not address application of the 
window to diagnostic services. If Congress had disagreed with our 
interpretation concerning diagnostic services--as reflected in the 
interim final rule published on January 12, 1994--Congress could have 
further amended the statute to clarify its intent.
    Finally, we would like to address the commenter's statement that, 
by including all diagnostic services in the 3-day payment window, we 
could be unfairly denying hospitals payment for separate treatment that 
they have furnished. The vast majority of diagnostic services furnished 
by a hospital, or an entity it owns or operates, to a patient who is 
admitted to that hospital within 3 days are services that are related 
to the admission. Thus, we believe there are few diagnostic services 
unrelated to the admission for which hospitals would be unable to 
receive a separate payment.

IV. Provisions of the Final Regulations

    In this final rule, we are adopting the provisions as set forth in 
the interim final rule with comment period with two revisions. 
Specifically, as a result of

[[Page 6868]]

public comments, we are revising the regulations as follows:
     We are revising paragraphs (c)(5) and (c)(5)(i) of 
Sec. 412.2 and paragraphs (c)(2) and (c)(2)(i) of Sec. 413.40 to 
provide that Part A services furnished by home health agencies, skilled 
nursing facilities, and hospices are excluded from the payment window 
provisions.
     We are revising Sec. 412.2(c)(5)(iii) and 
Sec. 413.40(c)(2)(iii) to exclude outpatient maintenance dialysis 
services from the preadmission services that are subject to the payment 
window.

V. Impact Statement

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless we certify that a final rule such as this 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.
    In the interim final rule with comment period, we discussed in 
detail the impact that implementation of section 4003 of Public Law 
101-508 would have on hospitals. Section 4003 amended section 
1886(a)(4) of the Act 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. We stated that the interim final rule would result in 
continuing Medicare program savings from terminating 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. We also noted that the 
interim final rule would result in some savings to beneficiaries by 
shifting payment for services from Part B outpatient to Part A 
inpatient rates. 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. This final rule will not have a significant impact for 
purposes of the RFA because it merely responds to comments on the 
interim final rule and makes a few clarifying changes. Therefore, we 
have not prepared a regulatory flexibility analysis.
    Section 1102(b) of the Social Security Act requires us to prepare a 
regulatory impact analysis for any final rule that may have a 
significant impact on the operation of a substantial number of small 
rural hospitals. Such an 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 provisions 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 testings. Therefore, we are not preparing a 
rural impact statement since we have determined, and certify, that this 
final rule will not have a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

VI. 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 1995.

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.
    Accordingly, the interim rule amending 42 CFR chapter IV which was 
published at 59 FR 1654, on January 12, 1994, is adopted as final with 
the following changes:
    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 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart A--General Provisions

    2. In Sec. 412.2, the introductory text of paragraph (c) is 
republished and paragraph (c)(5) is revised 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--
* * * * *
    (5) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary during the 3 calendar days immediately 
preceding the date of the beneficiary's admission to the hospital that 
meet the following conditions:
    (i) The services are furnished by the hospital or by an entity 
wholly owned or operated by the hospital. An entity is wholly owned by 
the hospital if the hospital is the sole owner of the entity. An entity 
is wholly operated by a hospital if the hospital has exclusive 
responsibility for conducting and overseeing the entity's routine 
operations, regardless of whether the hospital also has policymaking 
authority over the entity.
    (ii) For services furnished after January 1, 1991, the services are 
diagnostic (including clinical diagnostic laboratory tests).
    (iii) For services furnished on or after October 1, 1991, the 
services are furnished in connection with the principal diagnosis that 
requires the beneficiary to be admitted as an inpatient and are not the 
following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis.
* * * * *
    B. Part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

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

    Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

Subpart C--Limits on Cost Reimbursement

    2. In Sec. 413.40, paragraph (c)(2) is revised to read as follows:


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

* * * * *
    (c) Costs subject to the ceiling. * * *
* * * * *
    (2) Preadmission services otherwise payable under Medicare Part B

[[Page 6869]]

furnished to a beneficiary during the calendar day immediately 
preceding the date of the beneficiary's admission to the hospital that 
meet the following conditions:
    (i) The services are furnished by the hospital or any entity wholly 
owned or operated by the hospital. An entity is wholly owned by the 
hospital if the hospital is the sole owner of the entity. An entity is 
wholly operated by a hospital if the hospital has exclusive 
responsibility for conducting and overseeing the entity's routine 
operations, regardless of whether the hospital also has policymaking 
authority over the entity.
    (ii) For services furnished after January 1, 1991, the services are 
diagnostic (including clinical diagnostic laboratory tests).
    (iii) For services furnished on or after October 1, 1991, the 
services are furnished in connection with the principal diagnosis that 
requires the beneficiary to be admitted as an inpatient and are not the 
following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    Dated: October 17, 1997.
Nancy-Ann Min DeParle,
Deputy Administrator, Health Care Financing Administration.

    Dated: December 11, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 98-3362 Filed 2-10-98; 8:45 am]
BILLING CODE 4120-01-P