Medicare Program; Payment for Preadmission Services

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412 and 413

[BPD-731-IFC]

RIN 0938-AG00

Medicare Program; Payment for Preadmission Services

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule specifies that inpatient hospital

operating costs include certain preadmission services furnished by the

hospital (or by an entity that is wholly owned or operated by the

hospital) to the patient up to 3 days before the date of the patient's

admission to that hospital. These provisions implement amendments made

to section 1886(a)(4) of the Social Security Act by section 4003 of the

Omnibus Budget Reconciliation Act of 1990.

DATES: Effective Date: This interim final rule with comment period is

effective on January 12, 1994. We refer the reader to section V.A. of

this preamble for a discussion of specific provisions that apply to

specific periods.

Comment Period: Comments will be considered if we receive them at

the appropriate address, as provided below, no later than 5 p.m. on

March 14, 1994.

ADDRESSES: Mail written comments (an original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: BPD-731-IFC, P.O. Box 7517,

Baltimore, MD 21207.

If you prefer, you may deliver your written comments (an original

and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,

MD 21207.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting, please refer

to file code BPD-731-IFC. Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in room 309-G of

the Department's offices at 200 Independence Avenue, SW., Washington,

DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.

(phone: 202-690-7890).

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 783-3238 or by faxing to (202) 275-

6802. The cost for each copy is $4.50. As an alternative, you can view

and photocopy the Federal Register document at most libraries

designated as Federal Depository Libraries and at many other public and

academic libraries throughout the country that receive the Federal

Register.

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

SUPPLEMENTARY INFORMATION:

I. Background

Section 1886(a) of the Social Security Act (the Act) establishes a

ceiling on the allowable rate of the increase for Medicare hospital

inpatient operating costs. Prior to the Omnibus Budget Reconciliation

Act of 1990 (Pub. L. 101-508), section 1886(a)(4) of the Act defined

the ``operating costs of inpatient hospital services'' to include ``all

routine operating costs, ancillary service operating costs, and special

care unit operating costs with respect to inpatient hospital services

as such costs are determined on an average per admission or per

discharge basis * * *.''

Section 3610.3 (formerly section 3608) of the Medicare Intermediary

Manual, Part 3 (HCFA Pub. 13-3) and section 415.6 of the Medicare

Hospital Manual (HCFA Pub. 10) provides that, if a beneficiary with

Part A coverage is furnished outpatient hospital services and is

thereafter admitted as an inpatient of the same hospital before

midnight of the next day, the outpatient hospital services furnished to

the beneficiary are treated as inpatient services and are included in

the hospital's Part A payment. This administrative policy has been in

effect since June 1966. It was adopted in response to a recommendation

by the Health Insurance Benefits Advisory Council (HIBAC), which

believed it would shorten inpatient stays by encouraging hospitals to

perform some services connected with the stay prior to the actual

inpatient admission.

On October 1, 1983, the prospective payment system (PPS) was

implemented. PPS is a system of payment for acute inpatient hospital

stays under Medicare Part A (Hospital Insurance) based on

prospectively-set rates. Under this system, Medicare payment is made at

a predetermined, specific rate for each hospital discharge. All

discharges are classified according to a list of diagnosis-related

groups (DRGs). When PPS was introduced, the costs related to the

longstanding policy concerning the payment for preadmission outpatient

services as inpatient services were included in the base year costs

used to calculate the PPS standardized payment amount and the DRG

weighting factors (see 49 FR 250, January 3, 1984). Those hospitals

excluded from payment under PPS continue to be paid for inpatient

hospital services they furnish, as well as for the preadmission

services described above, on the basis of reasonable cost up to the

ceiling specified in section 1886(a) of the Act. Therefore, for both

PPS and non-PPS hospitals, these preadmission services may not be

billed separately from the covered inpatient admission that follows,

since payment for them is included in the payment made under Part A for

the inpatient stay.

II. Statutory Provisions

Section 4003(a) of Public Law 101-508 amended the definition of

``operating costs of inpatient hospital services'' contained in section

1886(a)(4) of the Act to include the costs of certain services

furnished prior to admission. These preadmission services are to be

included in the Part A payment for the subsequent inpatient stay. For

purposes of this interim final rule with comment period, we will refer

to the provision as the ``3-Day Payment Window.''

As amended, section 1886(a)(4) of the Act defines the operating

costs of inpatient hospital services to include certain preadmission

services furnished by the hospital (or by an entity that is wholly

owned or operated by the hospital) to the patient up to 3 days prior to

the date of the patient's admission. The inpatient operating costs

definition contained in section 1886(a)(4) of the Act applies to both

PPS and non-PPS hospitals. As an amendment to that definition, the 3-

Day Payment Window provision applies to both types of hospitals as

well. Further, this provision's placement in section 1886(a)(4) of the

Act rather than in sections 1862(a)(14) or 1866(a)(1)(H) of the Act

(each of which deals with rebundling--the practice of covering as

hospital services those nonphysician services furnished to hospital

patients by an outside supplier) indicates that the 3-Day Payment

Window provision is separate and distinct from the rebundling

requirement and, as such, may not be subject to the civil monetary

penalties that apply to violations of the latter requirement.

Section 4003(b) of Public Law 101-508 provides for implementation

of the 3-Day Payment Window provision in the following three phases:

The first phase, effective from November 5, 1990 (the

enactment date of Pub. L. 101-508) through September 30, 1991, includes

any services furnished during the day before the date of admission

regardless of whether the services are related to the admission. The

Conference Report accompanying Public Law 101-508 indicates that this

phase simply represents a statutory reiteration of the existing

administrative policy. For this reason, the conferees did not expect

that there was a need for any further administrative action by HCFA to

implement this phase (H.R. Conf. Rep. No. 964, 101st Cong., 2d Sess.

701 (1990)).

The second phase, effective January 1, 1991, involves

diagnostic services (including clinical diagnostic laboratory tests)

that are furnished during the 3 days immediately preceding the date of

admission.

The third phase, effective October 1, 1991, includes other

services related to the admission that are furnished during the 3 days

immediately preceding the date of admission.

With respect to adjustments to the DRG relative weights, the

Conference Report states that, ``[n]othing in this provision requires

the Secretary to take special action to adjust the DRG relative weights

to reflect the additional services that would be covered by the DRG

payment under this provision. The conferees expect that no adjustment

will be made before [fiscal year] FY 1993 when Part a [A] billing data

that would include the additional services would become available to

recalibrate the relative weights.'' (H.R. Conf. Rep. No. 964, 101st

Cong., 2d Sess. 701 (1990).)

Section 4003(c) of Public Law 101-508 specifically authorizes the

Secretary to implement the 3-Day Payment Window provision through the

issuance of interim final regulations.

III. Provisions of the Rule

In this interim final rule with comment period, we are amending the

Medicare regulations by adding new material to incorporate the

provisions of section 4003(a) of Public Law 101-508 that amend section

1886(a)(4) of the Act and to apply the effective dates to these

provisions as required under section 4003(b) of Public Law 101-508.

As indicated in section II of this preamble, the 3-Day Payment

Window provision will be implemented in three phases. Phase one is

intended simply to serve as a statutory reiteration of our existing

policy as indicated by both section 4003(b)(1) of Public Law 101-508

and the Conference Report (H.R. Conf. Rep. No. 964, 101st Cong., 2d

Sess. 701 (1990)). Phase two, effective January 1, 1991, specifies that

payment for inpatient hospital operating costs includes diagnostic

services that are furnished during the 3 days immediately preceding the

date of admission. Phase three specifies that payment for inpatient

hospital operating costs includes other (that is, non-diagnostic)

services that are related to the admission and are furnished during the

3 days immediately preceding the date of admission. Under phase three

of the new law, we needed to choose between two possible approaches to

the treatment of non-diagnostic services furnished within 3 days before

admission. (Phase two deals only with diagnostic services and, thus, is

not relevant to this issue). Phase one of the 3-Day Payment Window

provision and our existing policy for services furnished on the day

before admission are both somewhat broader than phase three, in that

they bundle all preadmission services into the inpatient payment,

regardless of whether they are related to the admission. Thus, for the

phase one period, we believe it is appropriate to follow the broader

administrative policy, which is already in place. However, for the

implementation of phase three (section 4003(b)(3) of Pub. L. 101-508)

beginning October 1, 1991, we considered whether to apply this broader

policy or impose a policy that follows the narrower wording of the new

law, that is, include non-diagnostic preadmission services only to the

extent that they are related to the admission.

We considered that the Conference Report language (which

characterizes the first phase of implementation as embodying the

existing policy) could justify continuing the current, all-inclusive

policy for the day before admission, or even expanding it to apply to

the second and third day before admission as well. This approach would

not require identifying any services as being related to the admission

and would not require separating out from the inpatient payment any of

the services not related to the admission that are furnished on the day

before admission (all services--regardless of whether the services are

related to the admission--are currently included in the inpatient

payment under the existing policy). This approach would also enhance

the program savings to be realized from the 3-Day Payment Window

provision, since it folds into the inpatient payment a greater range of

preadmission services that, as a consequence, would not receive a

separate payment under Part B. Finally, by maximizing the services to

be included in the Part A payment for the subsequent admission, this

approach would clearly be advantageous to beneficiaries who are

eligible only for Part A; further, even beneficiaries who are eligible

for both Parts A and B would be able to avoid incurring the Part B

deductible and coinsurance charges to the maximum extent possible.

However, we note that adopting such an all-inclusive approach for

the second and third days before admission is contrary to the clear

language of the new law, which is worded specifically in terms of

``other services related to the admission.'' Furthermore, we have

determined that continuing this approach indefinitely even for the day

before admission only would appear to be inconsistent with the new

law's implementation provisions; unlike phases two and three, phase one

contains both a starting date and an ending date. We believe this

indicates that Congress intended for the existing, all-inclusive policy

to remain in effect, but only during the finite period between those

two dates.

After considering these various factors, we have determined that

services (other than diagnostic services) furnished on the second and

third days before admission must be related to the admission in order

to come under the 3-Day Payment Window provision. Further, we have

determined that effective with services furnished on or after October

1, 1991 (upon the expiration of the first phase of implementation),

this qualification will become applicable to non-diagnostic services

furnished on the day before admission as well. We believe that this

approach most accurately reflects the intent of the statutory language

of the new provision. We realize that, under this approach, the payment

made under Part A, which currently includes the cost of all non-

diagnostic services furnished on the day before admission, will no

longer include non-diagnostic services unless they are related to the

admission. However, consistent with the Conference Report language set

out above, we have to date made no DRG payment adjustments to reflect

the effects of the 3-Day Payment Window provision.

For purposes of this provision, we are defining ``other services

related to the admission'' as those non-diagnostic services furnished

in connection with the diagnosis (that is, the principal diagnosis)

that requires the beneficiary to be admitted as an inpatient. We

considered defining this term more broadly to include services

furnished in connection with secondary diagnoses as well; however,

secondary diagnoses can sometimes include complicating events that do

not occur until after admission. Since the law specifies that this

provision is to apply to services related to the inpatient

``admission'' (as opposed to the ensuing inpatient stay), we believe

that it is more accurate to use only the principal diagnosis, as

identifying those preadmission services that are related to the actual

cause of admission.

Further, the statutory language charges the Secretary with defining

those non-diagnostic services that are regarded as ``related to the

admission'' and, thus, are subject to the payment window. In effect,

this gives the Secretary the authority to determine the scope of the

payment window's applicability to non-diagnostic services. In this

context, we have determined that ambulance services are not subject to

the payment window, even when furnished during the preadmission period

by the admitting hospital or by an entity that it wholly owns or

operates. The House Budget Committee Report accompanying the payment

window legislation explained that the underlying objective of this

provision is ``* * * to curb further unbundling which has occurred

since the introduction of the DRG payment system * * *'' (H.R. Budget

Comm. Rep. No. 881, 101st Cong., 2d Sess. 250 (1990).) As a Part B

benefit, ambulance services (unlike patient transportation services

furnished to inpatients) are not bundled with inpatient services and,

thus, have not been subject to the actions taken to maximize payment

under PPS, which prompted Congress's concern. Thus, we believe that

ambulance services are distinct from the type of hospital services that

Congress designed the payment window provision to address. Many

hospitals that operate ambulance services do so at a loss. The

hospitals continue to furnish the ambulance services primarily as a

means of assuring access to hospital care for individuals who otherwise

would be unable to reach hospitals. Subjecting hospitals that operate

ambulance services to still greater fiscal constraints under the

payment window provision could have a major adverse impact on their

availability, particularly in remote rural areas. Therefore, in this

rule, we are defining the preadmission services that are subject to the

payment window provision as not including ambulance services.

Based on our interpretation of the law, we will implement phases

two and three of the 3-Day Payment Window provision set forth in

section 1886(a)(4) of the Act and section 4003(b) of Public Law 101-508

by revising regulations concerning payment to PPS hospitals

(Sec. 412.2) and non-PPS hospitals (Sec. 413.40) for inpatient hospital

services furnished to Medicare beneficiaries. (We are not amending the

regulations with respect to phase one since, as discussed previously,

the Conference Report language indicates that this phase simply

embodies our existing policy and requires no further administrative

action to implement.) Specifically, we are adding paragraph (c)(5) to

Sec. 412.2 and revising Sec. 413.40(c). We will specify that payment

for inpatient operating costs for both PPS and non-PPS hospitals will

include certain preadmission services furnished by the hospital or by

an entity wholly owned or operated by the hospital to the patient

during the 3 days immediately preceding the date of the patient's

admission. We are interpreting the phrase ``wholly'' owned or operated

to include any entity for which the hospital itself is the sole owner;

for purposes of consistency, we are also including in this term any

entity for which the hospital is the sole operator. We note that a

hospital need not exercise administrative control over a facility in

order to operate it. An operator implements facility policies, but does

not necessarily make the policies; operating a facility simply involves

conducting the facility's day-to-day activities, as opposed to

``control,'' which involves the power to direct the facility's

operations toward specific objectives.

Thus, Secs. 412.2 and 413.40 will specify that payment for

inpatient operating costs for both PPS and non-PPS hospitals will

include the following services (other than ambulance services):

Diagnostic services (including clinical diagnostic

laboratory tests) furnished on or after January 1, 1991.

Other services related to the admission furnished on or

after October 1, 1991.

We will define other services related to the admission to include

those non-diagnostic services furnished in connection with the

principal diagnosis that requires the beneficiary to be admitted as an

inpatient. We invite comments on our use of this definition to identify

admission-related services. We also invite comments on the feasibility

of prescribing more detailed operational procedures in the regulations.

For example, one possible approach might be simply to presume that

certain specific types of preadmission services (such as chronic

maintenance dialysis) are never related to the subsequent admission, or

to presume that all preadmission services (other than certain specified

exceptions) are admission-related. Another alternative might be to

develop an inclusive list of procedures which are medically related,

against which all claims could be electronically screened. Still

another approach could be to define as related to the principal

diagnosis any services that fall within the same major diagnostic

category (MDC) as used under PPS. In establishing a degree of medical

relatedness, the MDC approach would have the advantage of

administrative simplicity for hospitals, contractors, and the

government, as it would use a patient classification system that is

already in place for hospital services under PPS. We invite comments on

the feasibility of prescribing these or other implementation procedures

in the regulations, as well as the relative administrative burden that

each type of approach would impose on the program to develop and

implement and on the facilities to comply.

In response to the changes made by section 4003 of Public Law 101-

508, instructions were published in the Medicare Intermediary Manual,

Part 3 (HCFA Pub. 13-3), ``Claims Process'' in March 1992 (Transmittal

No. 1565) and in the Medicare Hospital Manual (HCFA Pub. 10), in March

1992 (Transmittal No. 633).

We note that we are making some conforming technical changes to

Secs. 412.2 (c)(3) and (c)(4), 412.73(c)(1), 412.98(b), and 413.40

(a)(3) and (i)(3).

IV. Other Required Information

A. Effective Dates

The effective date of this interim final rule with comment period

is January 12, 1994. As discussed previously, the Conference Report

language indicates that the changes made by section 4003(b)(1) of

Public Law 101-508 (which are effective from November 5, 1990, through

September 30, 1991) simply embody our existing policy and require no

further administrative action to implement; thus, we are not amending

the regulations with respect to this aspect of the provision. Changes

made by section 4003(b)(2) of Public Law 101-508 that include as

inpatient hospital services those diagnostic services that are

furnished during the 3 days immediately preceding the date of admission

are applicable for services furnished on or after January 1, 1991.

Changes made by section 4003(b)(3) of Public Law 101-508 that include

as inpatient hospital services any other services related to the

admission furnished during the 3 days immediately preceding the date of

admission are applicable for services furnished on or after October 1,

1991.

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

Effective Date

We ordinarily publish a notice of proposed rulemaking for a

regulation to provide a period for public comment. However we may waive

that procedure if we find good cause that prior notice and comment are

impracticable, unnecessary, or contrary to public interest. In

addition, section 1871(b)(2)(A) of the Act provides that the notice of

proposed rulemaking is not required if a statute specifically permits a

regulation to be issued in interim final form. Section 4003(c) of

Public Law 101-508 permits the Secretary to publish the regulations,

which will implement the 3-Day Payment Window provision, on an interim

final basis. Therefore, we are implementing this interim final rule

with comment period without first issuing a notice of proposed

rulemaking. Nonetheless, we are providing a 60-day period for public

comment, as indicated at the beginning of this interim final rule.

In addition, we normally provide a delay of 30 days in the

effective date for documents such as this. However, we may waive the

delay in the effective date if we find good cause that adherence to

this procedure would be impracticable, unnecessary, or contrary to

public interest. We believe that it is unnecessary to provide a 30-day

delay in the effective date since the Conference Report language, as

discussed previously, indicates that no further administrative action

is necessary to effect the first phase of implementation, and section

4003(b) of Public Law 101-508 prescribes specific effective dates for

the remaining two phases. The regulations in this interim final rule

with comment period merely conform to the effective date requirements

set forth in section 4003(b) of Public Law 101-508. Therefore, we find

good cause to waive the usual 30-day delay.

C. Collection of Information Requirements

This document does not impose information collection and

recordkeeping requirements. Consequently, it need not be reviewed by

the Office of Management and Budget under the authority of the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

D. Response to Comments

Because of the large number of items of correspondence we normally

receive on FR documents published for comment, we are not able to

acknowledge or respond to them individually. We will consider all

comments we receive by the date and time specified in the DATES section

of this preamble, and, if we proceed with a subsequent document, we

will respond to the comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Executive Order 12291

Executive Order 12291 (E.O. 12291) requires us to prepare and

publish a regulatory impact analysis for any interim final rule with

comment period that meets one of the E.O. 12291 criteria for a ``major

rule''; that is, that will be likely to result in--

An annual effect on the economy of $100 million or more;

A major increase in costs or prices for consumers,

individual industries, Federal, State, or local government agencies, or

geographic regions; or

Significant adverse effects on competition, employment,

investment, productivity, innovation, or on the ability of United

States-based enterprises to compete with foreign-based enterprises in

domestic or export markets.

This interim final rule with comment period is considered a major

rule under E.O. 12291 criteria based on our cost projections for the

next 5 Federal fiscal years (FYs). The following discussion constitutes

a regulatory impact analysis.

This interim final rule with comment period implements section 4003

of Public Law 101-508, which contains a provision that expands the

timeframe for folding preadmission services into the Part A payment for

the subsequent inpatient stay. The first sentence of section 1886(a)(4)

of the Act is amended to include certain preadmission services,

furnished by the hospital, or by an entity that is wholly owned or

operated by the hospital, up to 3 days before the date of the patient's

admission. This provision becomes effective in three phases.

The first phase, effective November 5, 1990 through September 30,

1991, included services furnished the day before admission. This phase

merely represented a statutory reiteration of the existing policy. The

second phase, effective January 1, 1991, included diagnostic services

that are furnished during the 3 days immediately preceding the date of

admission. The third phase, effective October 1, 1991, includes other

services related to the admission that are furnished during the 3 days

immediately preceding the date of admission.

This regulation will result in program savings from discontinuing

separate payment under Part B for services performed up to 3 days

before the date of admission instead of 1 day, without an immediate,

corresponding increase in the DRG payments under Part A. The estimated

savings will be reduced if physicians elect to have preadmission

services performed at a non-hospital site or more than 3 days before

admission.

There will be some savings to beneficiaries as a result of shifting

payment for services from Part B outpatient to Part A inpatient rates.

Beneficiaries are responsible for 20 percent copayment for non-

diagnostic outpatient services. Beneficiaries will not be responsible

for copayment if the same services are performed up to 3 days before

the date of a hospital admission and are folded into the hospital's

inpatient payment. However, because we do not have a breakdown of the

cost or type of services that will be included in the inpatient

payment, we are not able to estimate the annual savings that will be

realized by beneficiaries.

The following table reflects estimated program savings solely as a

result of discontinuing separate Part B payment for services performed

up to 3 days before the date of admission instead of 1 day, without a

corresponding DRG relative weight adjustment for the inpatient stay.

Estimated Medicare Part B Savings

[In millions]\1\

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

FY 1993 FY 1994 FY 1995 FY 1996 FY 1997

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

$40.......... $70 $80 $90 $100

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

\1\Rounded to the nearest $10 million.

As indicated above, we do not anticipate that this new provision

will cause a significant change in the timing of services that, until

now, have been furnished during the preadmission period.

We are limiting the inclusion of non-diagnostic services, even when

furnished on the day before admission, to those that are related to the

admission. We believe this interpretation more accurately implements

the provisions of the statute. This means that services furnished on

the day before admission which are neither diagnostic nor admission-

related will no longer be rebundled into the inpatient payment.

Further, since the law permits the Secretary to define the types of

admission-related services to be included in the payment window, we

have determined that it should not include ambulance services, to which

special conditions apply. As a Part B benefit, ambulance services

(unlike patient transportation services furnished to inpatients) are

not bundled with inpatient services, and thus, have not been subject to

the attempts to maximize PPS payment through unbundling which prompted

Congress to enact the payment window legislation. The unbundling

provision may generate a small amount of additional Part B costs;

however, as indicated above, we anticipate that the overall degree of

change that this provision will produce in existing patterns of service

delivery will be minimal.

B. Regulatory Flexibility Act

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612) unless the Secretary certifies that an interim final rule

with comment period will not have a significant economic impact on a

substantial number of small entities. For purposes of the RFA, we

consider all hospitals to be small entities.

This interim final rule with comment period will affect all

hospitals that are paid under the prospective payment system, dependent

upon the number of additional services that will have to be included in

the DRG payment rate. Since the estimated savings represent less than

one-half of one percent of total Medicare funding to hospitals, we have

determined, and the Secretary certifies, that this interim final rule

with comment period will not have a substantial impact on a substantial

number of small entities, and we have, therefore, not prepared a

regulatory flexibility analysis.

C. Small Rural Hospitals

Section 1102(b) of the Act requires the Secretary to prepare a

regulatory impact analysis if an interim final rule with comment period

may have a significant impact on the operations of a substantial number

of small rural hospitals. This analysis must conform to the provisions

of section 604 of the RFA. For purposes of section 1102(b) of the Act,

we define a small rural hospital as a hospital that is located outside

of a Metropolitan Statistical Area and has fewer than 50 beds.

We believe the 3-Day Payment Window provision will affect small

rural hospitals to a lesser degree than larger facilities where complex

procedures are performed and specialized medical conditions are

treated, requiring additional preadmission testing. Therefore, we have

determined, and the Secretary certifies, that this interim final rule

with comment period will not have a significant economic impact on the

operations of a substantial number of small rural hospitals.

Consequently, we are not preparing an analysis for section 1102(b) of

the Act.

List of Subjects

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,

Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,

Reporting and recordkeeping requirements.

42 CFR chapter IV is amended as set forth below:

A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL

SERVICES

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

follows:

Authority: Secs. 1102, 1815(e), 1871, and 1886 of the Social

Security Act (42 U.S.C. 1302, 1395g(e), 1395hh, and 1395ww).

Subpart A--General Provisions

2. In Sec. 412.2, the introductory language in paragraph (c) is

republished, paragraphs (c)(3) and (4) are revised, and paragraph

(c)(5) is added to read as follows:

Sec. 412.2 Basis of payment.

* * * * *

(c) Inpatient operating costs. The prospective payment system

provides a payment amount for inpatient operating costs, including--

* * * * *

(3) Special care unit operating costs (intensive care type unit

services, as described in Sec. 413.53(b) of this chapter);

(4) Malpractice insurance costs related to services furnished to

inpatients; and

(5) Certain preadmission services furnished by the hospital or by

an entity wholly owned or operated by the hospital (that is, any entity

for which the hospital itself is the sole owner or operator) to the

patient during the 3 days immediately preceding the date of the

patient's admission to the hospital. A hospital is considered the sole

operator of an entity if the hospital has exclusive responsibility for

conducting or overseeing the entity's routine operations, regardless of

whether the hospital also has policymaking authority over the entity.

The specific preadmission services (other than ambulance services)

included in the inpatient hospital operating costs are the following:

(i) Diagnostic services (including clinical diagnostic laboratory

tests) furnished on or after January 1, 1991.

(ii) Other services related to the admission furnished on or after

October 1, 1991. Other services related to the admission means services

(other than diagnostic services) that are furnished in connection with

the principal diagnosis that requires the beneficiary to be admitted as

an inpatient.

* * * * *

Subpart E--Determination of Transition Period Payment Rates for

Inpatient Operating Costs

Sec. 412.73 [Amended]

3. In Sec. 412.73(c)(1), the phrase ``the rate-of-increase

percentage determined under Sec. 413.40(c)(2) of this chapter,'' is

revised to read ``the rate-of-increase percentage determined under

Sec. 413.40(c)(3) of this chapter,''.

Subpart G--Special Treatment of Certain Facilities Under the

Prospective Payment System for Inpatient Operating Costs

Sec. 412.98 [Amended]

4. In Sec. 412.98(b), in the first sentence, the phrase ``under

Sec. 413.40(c)(3) of this chapter'' is revised to read ``under

Sec. 413.40(c)(4) of this chapter''.

B. Part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE SERVICES

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

follows:

Authority: Secs. 1102, 1814(b), 1815, 1833 (a), (i), and (n),

1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42

U.S.C. 1302, 1395f(b), 1395g, 1395l(a), (i), and (n), 1395x(v),

1395hh, 1395rr, 1395tt, and 1395ww); sec. 104(c) of Pub. L. 100-360

as amended by sec. 608(d)(3) of Pub. L. 100-485 (42 U.S.C. 1395ww

(note)); and sec. 101(c) of Pub. L. 101-234 (42 U.S.C. 1395ww

(note)).

Subpart C--Limits on Cost Reimbursement

Sec. 413.40 [Amended]

2. Section 413.40 is amended as follows:

a. In paragraph (a)(3), in the definition for ``net inpatient

operating costs'', the first sentence is revised.

b. Paragraphs (c)(2) through (c)(4) are redesignated as paragraphs

(c)(3) through (c)(5), and a new paragraph (c)(2) is added.

c. In redesignated paragraph (c)(4)(ii), the phrase ``unless the

provisions of paragraph (c)(4)(ii) of this section apply.'' is revised

to read ``unless the provisions of paragraph (c)(5)(ii) of this section

apply.''

d. In paragraph (i)(3), the phrase ``the applicable rate-of-

increase percentages (update factors) described in paragraph (c)(2) of

this section.'' is revised to read ``the applicable rate-of-increase

percentages (update factors) described in paragraph (c)(3) of this

section.''

The revision and addition are to read as follows:

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

costs.

(a) * * *

(3) * * *

Net inpatient operating costs include the costs of certain

preadmission services as specified in Sec. 413.40(c)(2), the costs of

routine services, ancillary services, and intensive care services (as

defined in Sec. 413.53(b)) incurred by a hospital in furnishing covered

inpatient services to Medicare beneficiaries. * * *

* * * * *

(c) * * *

(2) Preadmission services. Net inpatient operating costs include

certain preadmission services furnished by the hospital or by an entity

wholly owned or operated by the hospital (that is, any entity for which

the hospital itself is the sole owner or operator) to the patient

during the 3 days immediately preceding the date of the patient's

admission to the hospital. A hospital is considered the sole operator

of an entity if the hospital has exclusive responsibility for

conducting or overseeing the entity's routine operations, regardless of

whether the hospital also has policymaking authority over the entity.

The specific preadmission services (other than ambulance services)

included in the net inpatient hospital operating costs are the

following:

(i) Diagnostic services (including clinical diagnostic laboratory

tests) furnished on or after January 1, 1991.

(ii) Other services related to the admission furnished on or after

October 1, 1991. Other services related to the admission means services

(other than diagnostic services) that are furnished in connection with

the principal diagnosis that requires the beneficiary to be admitted as

an inpatient.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: July 20, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: August 30, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94-546 Filed 1-11-94; 8:45 am]

BILLING CODE 4120-01-P