Medicare Program; Payment for Preadmission Services

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