Medicare Program; Periodic Interim Payments for Hospitals and Other Providers

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]

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