Medicare Claims Processing Manual 
Chapter 3 - Inpatient Hospital Billing 
 
Table of Contents 
(Rev. 12239, Issued: 09-06-23) 
 
 
 
Transmittals for Chapter 3 
 
10 - General Inpatient Requirements 
10.1 - Claim Formats 
10.2 - Focused Medical Review (FMR) 
10.3 - Spell of Illness 
10.4 - Payment of Nonphysician Services for Inpatients 
10.5 - Hospital Inpatient Bundling 
20 - Payment Under Prospective Payment System (PPS) Diagnosis Related Groups (DRGs) 
20.1 - Hospital Operating Payments Under PPS 
20.1.1 - Hospital Wage Index 
20.1.2 - Outliers 
20.1.2.1 - Cost to Charge Ratios 
20.1.2.2 - Statewide Average Cost to Charge Ratios 
20.1.2.3 - Threshold and Marginal Cost 
20.1.2.4 - Transfers 
20.1.2.5 - Reconciliation 
20.1.2.6 - Time Value of Money 
20.1.2.7 - Procedure for Medicare contractors to Perform and Record Outlier 
Reconciliation Adjustments 
20.1.2.8 - Specific Outlier Payments for Burn Cases 
20.1.2.9 - Medical Review and Adjustments 
20.1.2.10 - Return Codes for Pricer 
20.2 - Computer Programs Used to Support Prospective Payment System 
20.2.1 - Medicare Code Editor (MCE) 
20.2.1.1 - Paying Claims Outside of the MCE 
20.2.1.1.1 - Requesting to Pay Claims Without MCE Approval 
20.2.1.1.2 - Procedures for Paying Claims Without Passing through the MCE  20.2.2 - DRG GROUPER Program 
20.2.3 - PPS Pricer Program 
20.2.3.1 - Provider-Specific File 
20.3 - Additional Payment Amounts for Hospitals with Disproportionate Share of Low-Income 
Patients 
20.3.1 - Clarification of Allowable Medicaid Days in the Medicare Disproportionate Share 
Hospital (DSH) Adjustment Calculation 
20.3.1.1 - Clarification for Cost Reporting Periods Beginning On or After January 1, 
2000 
20.3.1.2 - Hold Harmless for Cost Reporting Periods Beginning Before January 1, 2000 
20.3.1.3 - Disproportionate Share Hospital (DSH) Policy Changes Effective for Cost 
Reporting Periods beginning on or after October 1, 2009 
20.3.1.4 - Disproportionate Share Hospital (DSH) Policy Changes Effective for Cost 
Reporting Periods beginning on or after October 1, 2012 
20.3.2 - Updates to the Federal Fiscal Year (FY) 2001 
20.3.2.1 - Inpatient Hospital Payments and Disproportionate Share Hospital (DSH) 
Thresholds and Adjustments 
20.3.3 - Prospective Payment Changes for Fiscal Year (FY) 2003 
20.3.4 - Prospective Payment Changes for Fiscal Year (FY) 2004 and Beyond 
20.4 - Hospital Capital Payments Under PPS 
20.4.1 - Federal Rate 
20.4.2 - Hold Harmless Payments 
20.4.3 - Blended Payments 
20.4.4 - Capital Payments in Puerto Rico 
20.4.5 - Old and New Capital 
20.4.6 - New Hospitals 
20.4.7 - Capital PPS Exception Payments 
20.4.8 - Capital Outliers 
20.4.9 - Admission Prior to and Discharge After Capital PPS Implementation Date 
20.4.10 - Market Basket Update 
20.5 - Rural Referral Centers (RRCs) 
20.6 - Criteria and Payment for Sole Community Hospitals and for Medicare Dependent Hospitals 
20.7 - Billing Applicable to PPS 
20.7.1- Stays Prior to and Discharge After IPPS Implementation Date 
20.7.2 - Split Bills 
20.7.3 - Payment for Blood Clotting Factor Administered to Hemophilia Inpatients 
20.7.4 - Cost Outlier Bills With Benefits Exhausted  20.8 - Payment to Hospitals and Units Excluded from IPPS for Direct Graduate Medical Education 
(DGME) and Nursing and Allied Health (N&AH) Education for Medicare Advantage (MA) Enrollees 
30 - Medicare Rural Hospital Flexibility Program and Critical Access Hospitals (CAHs) 
30.1 - Requirements for CAH Services, CAH Skilled Nursing Care Services and Distinct Part Units 
30.1.1 - Payment for Inpatient Services Furnished by a CAH 
30.1.1.1 - Payment for Inpatient Services Furnished by an Indian Health Service (IHS) 
or tribal CAH 
30.1.2 - Payment for Post-Hospital SNF Care Furnished by a CAH 
30.1.3 - Costs of Emergency Room On-Call Providers 
30.1.4 - Costs of Ambulance Services 
40 - Billing Coverage and Utilization Rules for PPS and Non-PPS Hospitals 
40.1 - "Day Count" Rules for All Providers 
40.2 - Determining Covered/Noncovered Days and Charges 
40.2.1 - Noncovered Admission Followed by Covered Level of Care 
40.2.2 - Charges to Beneficiaries for Part A Services 
40.2.3 - Determining Covered and Noncovered Charges - Pricer and PS&R 
40.2.4 - IPPS Transfers Between Hospitals 
40.2.5 - Repeat Admissions 
40.2.6 - Leave of Absence 
40.3 - Outpatient Services Treated as Inpatient Services 
40.3.1 - Billing Procedures to Avoid Duplicate Payments 
50 - Adjustment Bills 
50.1 - Tolerance Guidelines for Submitting Adjustment Requests 
50.2 - Claim Change Reasons 
50.3 - Late Charges 
60 - Swing-Bed Services 
70 - All-Inclusive Rate Providers 
70.1 - Providers Using All-Inclusive Rates for Inpatient Part A Charges 
80 - Hospitals That Do Not Charge 
80.1 - Medicare Summary Notice (MSN) for Services in Hospitals That Do Not Charge 
90 - Billing Transplant Services 
90.1 - Kidney Transplant - General 
90.1.1 - The Standard Kidney Acquisition Charge 
90.1.2 - Billing for Kidney Transplant and Acquisition Services 
90.1.3 - Billing for Donor Post-Kidney Transplant Complication Services 
90.2 - Heart Transplants  90.3 - Stem Cell Transplantation 
90.3.1 - Allogeneic for Stem Cell Transplantation 
90.3.2 - Autologous Stem Cell Transplantation (AuSCT) 
90.4 - Liver Transplants 
90.4.1 - Standard Liver Acquisition Charge 
90.4.2 - Billing for Liver Transplant and Acquisition Services 
90.5 - Pancreas Transplants With Kidney Transplants 
90.5.1 - Pancreas Transplants Alone (PA) 
90.6 - Intestinal and Multi-Visceral Transplants 
100 - Billing Instructions for Specific Situations 
100.1 - Billing for Abortion Services 
100.2 - Payment for CRNA or AA Services 
100.3 - Resident and Interns Not Under Approved Teaching Programs 
100.4 - Billing for Services After Termination of Provider Agreement 
100.4.1 - Billing Procedures for a Provider Assigned Multiple Provider Numbers or a Change 
in Provider Number 
100.5 - Review of Hospital Admissions of Patients Who Have Elected Hospice Care 
100.6 - Inpatient Renal Services 
100.7 - Lung Volume Reduction Surgery 
100.8 - Replaced Devices Offered Without Cost or With a Credit 
100.9  Requirements for Processing Non Veterans Administration (VA) Authorized Inpatient Claims 
100.10  Requirements for Processing Programs of All-Inclusive Care for the Elderly (PACE) 
Disenrollments during an Inpatient Stays 
130 - Coordination With the Quality Improvement Organization (QIO) 
140 - Inpatient Rehabilitation Facility Prospective Payment System (IRF PPS) 
140.1 - Medicare IRF Classification Requirements 
140.1.1 - Criteria That Must Be Met By Inpatient Rehabilitation Facilities 
140.1.2 - Additional Criteria That Must Be Met By Inpatient Rehabilitation Units 
140.1.3 - Verification Process Used to Determine if the Inpatient Rehabilitation Facility Met 
the Classification Criteria 
140.1.4 - New IRFs 
140.1.5 - Changes in the Status of an IRF Unit 
140.1.6 - New IRF Beds 
140.1.7 - Change of Ownership or Leasing 
140.1.8 - Mergers 
140.1.9 - Retroactive Adjustments For Provisionally Excluded IRFs or IRF Beds 
140.2 - Payment Provisions Under IRF PPS  140.2.1 - Phase-In Implementation 
140.2.2 - Payment Adjustment Factors and Rates 
140.2.3 - Case-Mix Groups 
140.2.4 - Case-Level Adjustments 
140.2.5 - Facility-Level Adjustments 
140.2.5.1 - Area Wage Adjustments 
140.2.5.2 - Rural Adjustment 
140.2.5.3 - Low-Income Patient (LIP) Adjustment: The Supplemental Security Income 
(SSI)/Medicare Beneficiary Data for Inpatient Rehabilitation Facilities (IRFs) Paid 
Under the Prospective Payment System (PPS) 
140.2.5.4 - Teaching Status Adjustment 
140.2.5.4.1 - FTE Resident Cap 
140.2.5.5 - Outliers 
140.2.6 - Cost-to-Charge Ratios 
140.2.7- Use of a National Average Cost-to-Charge Ratio 
140.2.8- Reconciling Outlier Payments for IRF 
140.2.9-Time Value of Money 
140.2.10 - Procedure for Medicare Contractors to Perform and Record Outlier Reconciliation 
Adjustments for IRFs 
140.2.11- Quality Reporting Program 
140.3 - Billing Requirements Under IRF PPS 
140.3.1 - Shared Systems and CWF Edits 
140.3.1.1 - Actions When a Claim Does Not Match the Inpatient Rehabilitation 
Facility-   Patient Assessment Instrument (IRF-PAI)  
140.3.2 - IRF PPS Pricer Software 
140.3.3 - Remittance Advices 
150 - Long Term Care Hospitals (LTCHs) PPS 
150.1 - Background 
150.2 - Statutory Requirements 
150.3 - Affected Medicare Providers 
150.4 - Revision of the Qualification Criterion for LTCHs 
150.5 - Payment Provisions Under LTCH PPS 
150.5.1 - Budget Neutrality 
150.5.2 - Budget Neutrality Offset 
150.6 - Beneficiary Liability 
150.7 - Patient Classification System 
150.8 - Relative Weights  150.9 - Payment Rate 
150.9.1 - Case-Level Adjustments 
150.9.1.1 - Short-Stay Outliers 
150.9.1.2 - Interrupted Stays 
150.9.1.3 - Payments for Special Cases 
150.9.1.4 - Payment Policy for Co-Located Providers 
150.9.1.5 - High Cost Outlier Cases 
150.10 - Facility-Level Adjustments 
150.10.1 - Phase-in Implementation 
150.11 - Requirements for Provider Education and Training 
150.12 - Claims Processing and Billing 
150.12.1 - Processing Bills Between October 1, 2002, and the Implementation Date 
150.13 - Billing Requirements Under LTCH PPS 
150.14 - Stays Prior to and Discharge After PPS Implementation Date 
150.14.1-Crossover Patients in New LTCHs 
150.15 - System Edits 
150.16 - Billing Ancillary Services Under LTCH PPS 
150.17 - Benefits Exhausted 
150.17.1 - Assumptions for Use in Examples Below 
150.17.1.1 - Example 1: Coinsurance Days < Short Stay Outlier Threshold (30 Day 
Stay) 
150.17.1.2 - Example 2: Coinsurance Days Greater Than or Equal to Short Stay Outlier 
Threshold (30 day stay) 
150.17.1.3 - Example 3: Coinsurance Days Greater Than or Equal to Short Stay Outlier 
Threshold (20 day stay) 
150.17.1.4 - Example 4: Only LTR Days < Short Stay Outlier Threshold (30 day stay) 
150.17.1.5 - Example 5: Only LTR Greater Than or Equal to Short Stay Outlier 
Threshold (30 day stay) 
150.18 - Provider Interim Payment (PIP) 
150.19 - Interim Billing 
150.20 - Intermediary Benefit Payment Report (IBPR) 
150.21 - Remittance Advices (RAs) 
150.22 - Medicare Summary Notices (MSNs) 
150.23 - LTCH Pricer Software 
150.23.1 - Inputs/Outputs to Pricer 
150.24 - Determining the Cost-to-Charge Ratio 
150.25 - Statewide Average Cost-to-Charge Ratios  150.26 - Reconciliation 
150.27 - Time Value of Money 
150.28 Procedure for Medicare contractors to Perform and Record Outlier Reconciliation Adjustments 
160 - Necessary Changes to Implement Special Add-On Payments for New Technologies 
160.1 - Special Add-On Payments For New Technologies 
160.1.1 - Identifying Claims Eligible for the Add-On Payment for New Technology 
160.1.2 - Remittance Advice Impact 
170 - Billing and Processing Instructions for Religious Nonmedical Health Care Institution (RNHCI) Claims 
170.1 - RNHCI Election Process 
170.1.1 - Requirement for RNHCI Election 
170.1.2 - Revocation of RNHCI Election 
170.1.3 - Completion of the Notice of Election for RNHCI 
170.1.4 - Common Working File (CWF) Processing of Elections, Revocations and Cancelled 
Elections 
170.2 - Billing Process for RNHCI Services 
170.2.1 - When to Bill for RNHCI Services 
170.2.2 - Required Data Elements on Claims for RNHCI Services 
170.3 - RNHCI Claims Processing By the Medicare Contractor with RNHCI Specialty Workload 
170.3.1 - RNHCI Claims Not Billed to Original Medicare 
170.4 - Informing Beneficiaries of the Results of RNHCI Claims Processing 
180 - Processing Claims For Beneficiaries with RNHCI Elections by Contractors without RNHCI Specialty 
Workloads 
180.1 - Recording Determinations of Excepted/Nonexcepted Care on Claim Records 
180.2 - Informing Beneficiaries of the Results of Excepted/Nonexcepted Care Determinations by the 
Non-specialty Contractor 
190 - Inpatient Psychiatric Facility Prospective Payment System (IPF PPS) 
190.1 - Background 
190.2 - Statutory Requirements 
190.3 - Affected Medicare Providers 
190.4 - Federal Per Diem Base Rate 
190.4.1 - Standardization Factor 
190.4.2 - Budget Neutrality 
190.4.2.1 - Budget Neutrality Components 
190.4.3 - Annual Update 
190.4.4 - Calculating the Federal Payment Rate 
190.5 - Patient-Level Adjustments  
190.5.1 - Diagnosis-Related Groups (DRGs) Adjustments  190.5.2 - Application of Code First 
190.5.3 - Comorbidity Adjustments 
190.5.4 - Age Adjustments 
190.5.5 - Variable Per Diem Adjustments 
190.6 - Facility-Level Adjustments 
190.6.1 - Wage Index 
190.6.2 - Rural Location Adjustment 
190.6.3 - Teaching Status Adjustment 
190.6.3.1 - Full-Time Equivalent (FTE) Resident Cap 
190.6.3.2 - Reconciliation of Teaching Adjustment on Cost Report 
190.6.4 - Emergency Department (ED) Adjustment 
190.6.4.1 - Source of Admission for IPF PPS Claims for Payment of ED Adjustment 
190.6.5 - Cost-of- Living Adjustment (COLA) for Alaska and Hawaii 
190.7 - Other Payment Policies 
190.7.1 - Interrupted Stays 
190.7.2 - Outlier Policy 
190.7.2.1 - How to Calculate Outlier Payments 
190.7.2.2 - Determining the Cost-to-Charge Ratio 
190.7.2.3 Outlier Reconciliation 
190.7.2.4. Time Value of Money 
190.7.2.5 - Procedures for Medicare Contractors to Perform and Record Outlier 
Reconciliation Adjustments 
190.7.3 - Electroconvulsive Therapy (ECT) Payment  
190.7.4 - Stop Loss Provision (Transition Period Only) 
190.8 - Transition (Phase-In Implementation) 
190.8.1 - Implementation Date for Provider 
190.9 - Definition of New IPF Providers Versus TEFRA Providers 
190.9.1 - New Providers Defined 
190.10 - Claims Processing Requirements Under IPF PPS 
190.10.1 - General Rules 
190.10.2 - Billing Period 
190.10.3 - Patient Status Coding 
190.10.4 - Reporting ECT Treatments 
190.10.5 - Outpatient Services Treated as Inpatient Services 
190.10.6 - Patient is a Member of a Medicare Advantage Organization for Only a Portion of a 
Billing Period  190.10.7 - Billing for Interrupted Stays 
190.10.8 - Grace Days 
190.10.9 - Billing Stays Prior to and Discharge After PPS Implementation Date 
190.10.10 - Billing Ancillary Services Under IPF PPS 
190.10.11 - Covered Costs Not Included in IPF PPS Amount 
190.10.12 - Same Day Transfer Claims 
190.10.13 - Remittance Advice - Reserved 
190.10.14 - Medicare Summary Notices and Explanation of Medicare Benefits 
190.11 - Benefit Application and Limits-190 Days 
190.12 - Beneficiary Liability 
190.12.1 - Benefits Exhaust 
190.13 - Periodic Interim Payments (PIP) 
190.14 - Intermediary Benefit Payment Report (IBPR) 
190.15 - Monitoring Implementation of IPF PPS Through Pulse 
190.16 - IPF PPS System Edits 
190.17 - IPF PPS PRICER Software 
190.17.1 - Inputs/Outputs to PRICER 
200 - Electronic Health Record (EHR) Incentive Payments 
200.1 - Payment Calculation 
200.2 - Submission of Informational Only Bills for Maryland Waiver Hospitals and Critical Access 
Hospitals (CAHs) 
  250.18 - Incomplete Colonoscopies (Codes 44388, 45378, G0105 and G0121) 
 
Addendum A - Provider Specific File  10 - General Inpatient Requirements 
(Rev. 1, 10-01-03) 
HO-400, HO-400.G, HO-403, HO-412 
 
The hospital may bill only for services provided.  If the provider billing system initiates billing based on 
services ordered, the provider must confirm that the service has been provided before billing either the A/B 
MAC (B) or A/B MAC (A). 
 
The provider agreement to participate in the program requires the provider to submit all information necessary 
to support claims for services.  Failure to submit such information in an individual case will result in denial of 
the entire claim, the charging of utilization in inpatient cases to the beneficiary record, and a prohibition 
against the provider billing or collecting from the beneficiary or other person for any services on the claim.  A 
provider with a common practice of failing to submit necessary information in connection with its claims 
subjects itself to possible termination of its participation in the program.  (See chapter 1.) 
 
State agencies will find that a significant deficiency exists in complying with the conditions of participation if 
the hospital repeatedly fails to transfer appropriate medical information when patients are transferred to other 
health facilities.  Appropriate medical information includes the discharge summary, the physician's medical 
orders, and a summary of departmental medical records.  The hospital must obtain the patient's consent for the 
release of medical information as soon as the decision to transfer is made, unless a blanket authorization was 
obtained at admission. 
 
10.1 - Claim Formats 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
A. - Institutional Claim Formats 
 
The ASC X12 837 institutional claim format, or where permissible, Form CMS-1450, Inpatient and/or 
Outpatient Billing, is used for all provider billing, except for the professional component of physicians 
services.  (Refer to paragraph B for the appropriate professional claim formats.)  The ASC X12 837 
institutional claim format and Form CMS-1450 are processed by the provider's A/B MAC (A).  See Chapter 
25 for instructions for hospital services.) 
 
Providers submitting claims on paper are responsible for purchasing their own paper forms. 
 
B. - Professional Claim Formats 
 
The ASC X12 837 professional claim format, or where permissible, Form CMS-1500 is the prescribed format 
for claims prepared by physicians and nonphysician practitioners whether or not the claims are assigned.  
Institutional providers may use the ASC X12 837 professional claim format or the Form CMS-1500 to bill the 
A/B MAC (B) for the professional component of physicians' services where applicable.  (For more 
information about the CMS-1500 claim form, refer to Chapter 26.  Information about billing for physician and 
other supplier services can be found in this chapter as well as chapters throughout this manual relative to 
specific policies and topics.) 
 
Providers submitting claims on paper are responsible for purchasing their own paper forms. 
 
C. - Form CMS-1490S Patient's Request for Medicare Payment 
  Only beneficiaries (or their representatives) who complete and file their own claims use this form.  Providers 
have no need for this form. 
 
10.2 - Focused Medical Review (FMR) 
(Rev. 1, 10-01-03) 
HO-419, HH-450, HH-452, HH-462.1 
 
This section has been moved to the Program Integrity Manual, which can be found at the following Internet 
address  
http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-Only-Manuals-IOMs.html. 
 
10.3 - Spell of Illness 
(Rev. 1, 10-01-03) 
A3-3622 
 
The A/B MAC (A) or (HHH) makes spell of illness determinations in accordance with the Medicare Benefit 
Policy Manual, Chapter 3, and these special instructions. 
 
A. - Beginning a Spell of Illness in Nonparticipating Provider 
 
The noncovered services furnished by a nonparticipating provider can begin a spell of illness only if the 
provider is a qualified provider.  A qualified provider is a hospital (including a psychiatric hospital) or an SNF 
that meets all requirements in the definition of such an institution even though it may not be participating. 
 
It is most unlikely that a nonparticipating hospital that is not accredited by JCAHO or a nonparticipating SNF 
satisfies the conditions of participation, particularly with regard to utilization review.  Therefore, for spell of 
illness purposes, the A/B MAC (A) or (HHH) assumes that nonparticipating providers are not qualified 
providers in the absence of evidence to the contrary.  Situations that might constitute such contrary evidence 
include cases where the provider recently dropped out of the program or, after a survey by the State agency, 
decided not to participate even though the conditions of participation were met.  Hospitals accredited by 
JCAHO are deemed to meet all requirements except utilization review.  For such a hospital, the A/B MAC (A) 
determines through the RO whether the hospital has a utilization review plan in effect. 
 
B. - Continuing a Spell of Illness 
 
1.  Hospital Services 
 
For purposes of continuing a spell of illness in a hospital, the hospital in which the stay occurs need not meet 
all requirements that are necessary for starting a spell of illness.  If there has been a stay in a hospital that 
might continue the spell of illness and the A/B MAC (A) cannot ascertain its status, the A/B MAC (A) 
contacts the RO, which maintains a list of all medical facilities and their status. 
 
2.  SNF Services 
 
For purposes of continuing a spell of illness in a SNF the spell of illness ends when the beneficiary no longer 
needs or receives a Medicare covered level of care. 
 
The A/B MAC (A) uses the following seven presumptions to determine whether the skilled level of care 
standards were met during a prior SNF stay.  If the information upon which to base a presumption is not 
readily available, the A/B MAC (A) may, at its discretion, review the beneficiary's medical records to 
determine whether the beneficiary was an inpatient of an SNF for purposes of ending a spell of illness.   
These special rules for determining whether a beneficiary in a SNF is an inpatient for benefit period purposes 
is applicable in all cases where a prior SNF stay affects benefit period status, not only when a beneficiary is 
seeking to continue a benefit period, but also where it results in the beneficiary starting a new benefit period.  
If the applicable skilled level of care standards were met during a prior SNF stay, the spell of illness is 
continued with current utilization available to the beneficiary.  If the applicable skilled level of care standards 
were not met during a prior SNF stay, the spell of illness is not continued.  A new spell of illness restores full 
utilization and imposes a cash deductible. 
 
Presumptions: 
 
Presumption 1: A beneficiary's care in a SNF met the skilled level of care standards if a Medicare SNF claim 
was paid for the care, unless such payment was made under limitation of liability rules. 
 
Presumption 2: A beneficiary's care in a SNF met the skilled level of care standards if a SNF claim was paid 
for the services provided in the SNF under the special Medicare limitation on liability rules pursuant to 
placement in a noncertified bed.  See Chapter 30. 
 
Presumption 3: A beneficiary's care in a SNF did not meet the skilled level of care standards if a claim was 
paid for the services provided in the SNF pursuant to the general Medicare limitation on liability rules in 
Chapter 30.  (This presumption does not apply to placement in a noncertified bed.  For claims paid under these 
special provisions, see Presumption 2.) 
 
Presumption 4: A beneficiary's care in a Medicaid nursing facility (NF) did not meet the skilled level of care 
standards if a Medicaid claim for the services provided in the NF was denied on the grounds that the services 
received were not at the NF level of care (even if paid under applicable Medicaid administratively necessary 
days provisions which result in payment for care not meeting the NF level of care requirements). 
 
Presumption 5: A beneficiary's care in an SNF met the skilled level of care standards if a Medicare SNF 
claim for the services provided in the SNF was denied on grounds other than that the services were not at the 
skilled level of care. 
 
Presumption 6: A beneficiary's care in an SNF did not meet the skilled level of care standards if a Medicare 
claim for the services provided in the SNF was denied on the grounds that the services were not at the skilled 
level of care and no limitation of liability payment was made. 
 
Presumption 7: A beneficiary's care in a SNF did not meet the skilled level of care standards if no Medicare 
or Medicaid claim was submitted by the SNF. 
 
Rebuttal of Presumptions 
 
Presumptions 1 through 4 cannot be rebutted.  Thus, prior Medicare and Medicaid claim determinations that 
necessarily required a level of care determination for the time period under consideration are binding for 
purposes of a later benefit period calculation.  Although Presumptions 1 through 4 are not in themselves 
rebuttable, a beneficiary may seek to reverse a benefit period determination that was dictated by one of these 
presumptions by timely appealing the prior Medicare or Medicaid claim determination which triggered the 
presumption. 
 
Presumptions 5 through 7 can be rebutted by beneficiary showings that the level of care needed or received 
is other than that which the presumption dictates.  Rebuttal showings are permitted at both A/B MAC (A) 
determination levels under 42 CFR 405, Subpart G (i.e., a rebuttal showing regarding the status of a prior SNF  stay is made at the time that an inpatient claim is submitted and/or at the reconsideration level).  Evaluate 
rebuttal documentation even if the presumption being rebutted was triggered by a Medicaid denial.  Decisions 
under presumptions 5 through 7 require the A/B MAC (A) to send a notice to advise the beneficiary of the 
basis for the determination and the right to present evidence to rebut the determination on reconsideration. 
 
Presumption 6 can be rebutted because the Medicare skilled level of care definition for coverage purposes is 
broader than the skilled level of care definition used here for benefit period determinations.  For example, 
prior hospital care related to the SNF care is included in the Medicare SNF coverage requirements but is not 
included in the standard for benefit period determinations.  Therefore, Medicare payment could have been 
denied for an SNF stay because of noncompliance with that requirement, even though skilled level of care 
requirements for benefit period determinations were in fact met by the SNF stay.  Consequently, when 
Medicare SNF payment is denied, the beneficiary must be given the opportunity to demonstrate that he/she 
still needed and received a skilled level of care for purposes of benefit period determinations to extend a 
benefit period if this would be to the beneficiary's advantage. 
 
NOTE:  Effective October 1, 1990, the levels of care that were previously covered separately under the 
Medicaid SNF and intermediate care facility (ICF) benefits are combined in a single Medicaid nursing facility 
(NF) benefit.  Thus, the Medicaid NF benefit includes essentially the same type of skilled care covered by 
Medicare's SNF benefit, but it includes less intensive care as well.  This means that when a person is found 
not to require at least a Medicaid NF level of care (as under Presumption 4), it can be presumed that he or she 
also does not meet the Medicare skilled level of care standards.  However, since the NF benefit can include 
care that is less intensive than Medicare SNF care, merely establishing that a person does require NF level 
care does not necessarily mean that he or she also meets the Medicare skilled level of care standards.  
Determining whether an individual who requires NF level care also meets the Medicare skilled level of care 
standards requires an actual examination of the medical evidence and cannot be accomplished through the 
simple use of a presumption. 
 
Medicare no payment bills submitted by an SNF result in Medicare program payment determinations (i.e., 
denials).  Therefore, such no payment bills trigger the appropriate presumptions.  This also applies in any 
State where the Medicaid program utilizes no payment bills which lead to Medicaid program payment 
determinations.  If an SNF erroneously fails to submit a Medicare claim (albeit a no-pay claim) when 
Medicare rules require such submission, request compliance.  Once the no-pay bill is submitted and denied, 
the applicable presumption (other than presumption 7) is triggered.  If a patient is moving from a SNF level of 
care to a non-SNF level of care in a facility certified to provide SNF care, occurrence code 22 (date active care 
ended) is used to signify the beginning of the no-pay period on the bill and trigger the appropriate 
presumptions. 
 
Some of the presumptions require knowledge of Medicaid's claims processing involvement with the prior 
claim.  The A/B MAC (A) uses current bill data, accompanying documentation, bill history files, and 
telephone contacts with the prior stay facility and/or the Medicaid agency to develop the Medicaid aspects.  It 
does not continue Medicaid development beyond a telephone contact.  It concludes its consideration of the 
presumption at this point based upon the Medicaid information available. 
 
10.4 - Payment of Nonphysician Services for Inpatients 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
All items and nonphysician services furnished to inpatients must be furnished directly by the hospital or billed 
through the hospital under arrangements.  This provision applies to all hospitals, regardless of whether they 
are subject to PPS. 
  A. - Other Medical Items, Supplies, and Services 
 
The following medical items, supplies, and services furnished to inpatients are covered under Part A.  
Consequently, they are covered by the prospective payment rate or reimbursed as reasonable costs under Part 
A to hospitals excluded from PPS. 
 
  Laboratory services (excluding anatomic pathology services and certain clinical pathology services); 
 
  Pacemakers and other prosthetic devices including lenses, and artificial limbs, knees, and hips; 
 
  Radiology services including computed tomography (CT) scans furnished to inpatients by a 
physician's office, other hospital, or radiology clinic; 
 
  Total parenteral nutrition (TPN) services; and 
 
  Transportation, including transportation by ambulance, to and from another hospital or freestanding 
facility to receive specialized diagnostic or therapeutic services not available at the facility where the 
patient is an inpatient. 
 
The hospital must include the cost of these services in the appropriate ancillary service cost center, i.e., in the 
cost of the diagnostic or therapeutic service.  It must not show them separately under revenue code 0540. 
 
EXCEPTIONS: 
 
  Pneumococcal Vaccine - is payable under Part B only and is billed by the hospital using the ASC X12 
837 institutional claim format or on the Form CMS-1450. 
 
  Ambulance Service - For purposes of this section "hospital inpatient" means a beneficiary who has 
been formally admitted it does not include a beneficiary who is in the process of being transferred 
from one hospital to another.  Where the patient is transferred from one hospital to another, and is 
admitted as an inpatient to the second, the ambulance service is payable under only Part B.  If 
transportation is by a hospital owned and operated ambulance, the hospital bills separately using the 
ASC X12 837 institutional claim format or on Form CMS-1450 as appropriate.  Similarly, if the 
hospital arranges for the ambulance transportation with an ambulance operator, including paying the 
ambulance operator, it bills separately.  However, if the hospital does not assume any financial 
responsibility, the billing is to the A/B MAC (B) by the ambulance operator or beneficiary, as 
appropriate, if an ambulance is used for the transportation of a hospital inpatient to another facility for 
diagnostic tests or special treatment the ambulance trip is considered part of the DRG, and not 
separately billable, if the resident hospital is under PPS. 
 
  Part B Inpatient Services - Where Part A benefits are not payable, payment may be made to the 
hospital under Part B for certain medical and other health services.  See Chapter 4 for a description of 
Part B inpatient services. 
 
  Anesthetist Services "Incident to" Physician Services - If a physician's practice was to employ 
anesthetists and to bill on a reasonable charge basis for these services and that practice was in effect as 
of the last day of the hospital's most recent 12-month cost reporting period ending before September 
30, 1983, the physician may continue that practice through cost reporting periods beginning October 1, 
1984.  However, if the physician chooses to continue this practice, the hospital may not add costs of 
the anesthetists service to its base period costs for purposes of its transition payment rates.  If it is the 
existing or new practice of the physician to employ certified registered nurse anesthetists (CRNAs) and  other qualified anesthetists and include charges for their services in the physician bills for 
anesthesiology services for the hospital's cost report periods beginning on or after October 1, 1984, and 
before October 1, 1987, the physician may continue to do so. 
 
B. - Exceptions/Waivers 
 
These provisions were waived before cost reporting periods beginning on or after October 1, 1986, under 
certain circumstances.  The basic criteria for waiver was that services furnished by outside suppliers are so 
extensive that a sudden change in billing practices would threaten the stability of patient care.  Specific criteria 
for waiver and processing procedures are in 2804 of the Provider Reimbursement Manual (CMS Pub. 15-1). 
 
10.5 - Hospital Inpatient Bundling 
(Rev. 668, Issued:  09-02-05; Effective:  Ambulance claims received on or after January 3, 2006, and 4 
years after initial determination for adjustments; Implementation:  01-03-06) 
 
Hospital bundling rules exclude payment to independent suppliers of ambulance services for beneficiaries in a 
hospital inpatient stay. The Common Working File (CWF) performs reject edits to incoming claims from 
independent suppliers of ambulance services. The CWF searches paid claim history and compares the line 
item service date on an ambulance claim to the admission and discharge dates on a hospital inpatient stay. The 
CWF rejects the line item when the ambulance line item service date falls within the admission and discharge 
dates on a hospital inpatient claim. Based on CWF rejects, the A/B MAC (B)  must deny line items for 
ambulance services billed by independent suppliers that should be bundled to the hospital. 
 
Upon receipt of a hospital inpatient claim, CWF searches paid claim history and compares the period between 
the hospital inpatient admission and discharge dates to the line item service date on an ambulance claim billed 
by an independent supplier. The CWF shall generate an unsolicited response when the line item service date 
falls within the admission and discharge dates of the hospital inpatient claim. 
 
Upon receipt of the unsolicited response, the A/B MAC (B)  shall adjust the ambulance claim and recoup the 
payment. 
 
Ambulance services with a date of service that is the same as the admission or discharge date on an inpatient 
claim are separately payable and not subject to the bundling rules. 
 
The CWF performs an additional edit before determining if the ambulance line item should be rejected when 
the beneficiary is an inpatient of a long term care facility (LTCH), inpatient psychiatric facility (IPF) or 
inpatient rehabilitation facility (IRF) and is transported via ambulance to an acute care hospital to receive 
specialized services. The CWF edits the claim for the presence of occurrence span code 74 (non-covered level 
of care) and the associated occurrence span code from and through dates. The CWF bypasses the reject edit 
when the ambulance line item service date falls within the occurrence span code 74 from and through dates 
plus one day. In this case, the ambulance line item is separately payable.  The CWF rejects the ambulance line 
item when the service date falls outside the occurrence span code 74 from and through dates plus one day. 
 
20 - Payment Under Prospective Payment System (PPS) Diagnosis Related Groups 
(DRGs) 
(Rev. 10210, Issued: 07-10-2020, Effective: 08-10-2020 , Implementation: 08-10-2020)  
 
A. - General 
 
The Social Security Amendments of 1983 (P.L. 98-21) provided for establishment of a prospective payment  system (PPS) for Medicare payment of inpatient hospital services.  (See 20.4 for corresponding information 
for PPS capital payments and computation of capital and operating outliers for FY 1992.)  Under PPS, 
hospitals are paid a predetermined rate per discharge for inpatient hospital services furnished to Medicare 
beneficiaries.  Each type of Medicare discharge is classified according to a list of DRGs.  These amounts are, 
with certain exceptions, payment in full to the hospital for inpatient operating costs.  Beneficiary cost-sharing 
is limited to statutory deductibles, coinsurance, and payment for noncovered items and services.  Section 4003 
of OBRA of 1990 (P.L. 101-508) expands the definition of inpatient operating costs to include certain 
preadmission services.  (See 40.3.) 
 
The statute excludes children's hospitals and cancer hospitals, hospitals located outside the 50 States.  In 
addition to these categorical exclusions, the statute provides other special exclusions, such as hospitals that are 
covered under State reimbursement control systems.  These excluded hospitals and units are paid on the basis 
of reasonable costs subject to the target rate of increase limits. 
 
In accordance with Section 1814 (b) (3) of the Act, services provided by hospitals in Maryland subject to the 
Health Services Cost Review Commission (provider numbers 21000-21099) are paid at a lower percentage 
rate (plus adjustments for sequestration when applicable) instead of determining the payment amount of the 
claim through the Inpatient Prospective Payment System (IPPS) or the Outpatient Prospective Payment 
System (OPPS).  
 
For discharges occurring on or after April 1, 1988, separate standardized payment amounts are established for 
large urban areas and rural areas.  Large urban areas are urban areas with populations of more than 1,000,000 
as determined by the Secretary of HHS on the basis of the most recent census population data.  In addition, 
any New England County Metropolitan Area (NECMA) with a population of more than 970,000 is a large 
urban area. 
 
The OBRA 1987 required payment of capital costs under PPS effective with cost reporting periods that began 
October 1, 1991, or later.  A 10-year transition period was provided to protect hospitals that had incurred 
capital obligations in excess of the standardized national rate from major disruption.  High capital cost 
hospitals are known as "hold harmless" hospitals.  The transition period also provides for phase-in of the 
national Federal capital payment rate for hospitals with capital obligations that are less than the national rate.  
New hospitals that open during the transition period are exempt from capital PPS payment for their first 2 
years of operation.  Hospitals and hospital distinct part units that are excluded from PPS for operating costs 
are also excluded from PPS for capital costs. 
 
Capital payments are based on the same DRG designations and weights, outlier guidelines, geographic 
classifications, wage indexes, and disproportionate share percentages that apply to operating payments under 
PPS.  The indirect teaching adjustment is based on the ratio of residents to average daily census.  The hospital 
split bill, adjustment bill, waiver of liability and remaining guidelines that have historically been applied to 
operating payments also apply to capital payments under PPS. 
 
B. - Hospitals and Units Excluded 
 
The following hospitals and distinct part hospital units (DPU) are excluded from PPS and are paid on a 
reasonable cost or other basis: 
 
  Pediatric hospitals whose inpatients are predominately under the age of 18. 
 
Hospitals located outside the 50 States. 
 
  Hospitals participating in a CMS-approved demonstration project or State payment control system.   
  Nonparticipating hospitals furnishing emergency services have not been affected by the PPS statute 
(P.L. 97-21).  They are paid under their existing basis. 
 
 
 
C. - Situations Requiring Special Handling 
 
1. Sole community hospitals are paid in accordance with the methods used to establish the operating 
prospective rates for the first year of the PPS transition for operating costs.  The appropriate percentage of 
hospital-specific rate and the Federal regional rate is applied by the Pricer program in accordance with the 
current values for the appropriate fiscal year. 
 
2. Hospitals have the option to continue to be reimbursed on a reasonable cost basis subject to the target 
ceiling rate or to be reimbursed under PPS if the following are met: 
 
  Recognized as of April 20, 1983, by the National Cancer Institute as comprehensive cancer 
centers or clinical research centers; 
 
  Demonstrating that the entire facility is organized primarily for treatment of, and research on, 
cancer; and 
 
  Having a patient population that is at least 50 percent of the hospital's total discharges with a 
principal diagnosis of neoplastic disease. 
 
The hospital makes this decision at the beginning of its fiscal year.  The choice continues until the hospital 
requests a change.  If it selects reasonable cost subject to the target ceiling, it can later request PPS.  No 
further option is allowed. 
 
3. Regional and national referral centers within short-term acute care hospital complexes.  Rural hospitals that 
meet the criteria have their prospective rate determined on the basis of the urban, rather than the rural, 
adjusted standardized amounts, as adjusted by the applicable DRG weighting factor and the hospital's area 
wage index. 
 
4. Hospitals in Alaska and Hawaii have the nonlabor related portion of the wage index adjusted by their 
appropriate cost-of-living factor.  These calculations are made by the Pricer program and are included in the 
Federal portion of the rate. 
 
5. Kidney, heart, and liver acquisition costs incurred by approved transplant centers are treated as an 
adjustment to the hospital's payments.  These payments are adjusted in each cost reporting period to 
compensate for the reasonable expenses of the acquisition and are not included in determining prospective 
payment. 
 
6. Religious nonmedical health care institutions are paid on the basis of a predetermined fixed amount per 
discharge.  Payment is based on the historical inpatient operating costs per discharge and is not calculated by 
Pricer. 
 
7. Transferring hospitals with discharges assigned to MS-DRG 789 (neonates, died or transferred to another 
acute care facility) have their payments calculated by the Pricer program on the same basis as those receiving 
the full prospective payment.  They are also eligible for cost outliers. 
  8. Nonparticipating hospitals furnishing emergency services are not included in PPS. 
 
9. Veterans Administration (VA) hospitals are generally excluded from participation.  Where payments are 
made for Medicare patients, the payments are determined in accordance with 38 U.S.C. 5053(d). 
 
10. A hospital that loses its urban area status as a result of the Executive Office of Management and Budget 
redesignation occurring after April 20, 1983, may qualify for special consideration by having its rural Federal 
rate phased-in over a 2-year period.  The hospital will receive, in addition to its rural Federal rate in the first 
cost reporting period, two-thirds of the difference between its rural Federal rate and the urban Federal rate that 
would have been paid had it retained its urban status.  In the second reporting period, one-third of the 
difference is applied.  The adjustment is applied for two successive cost reporting periods beginning with the 
cost-reporting period in which CMS recognizes the reclassification. 
 
11. The payment per discharge under the PPS for hospitals in Puerto Rico is the sum of: 
 
  50 percent of the Puerto Rico discharge weighted urban or rural standardized rate. 
 
  50 percent of the national discharge weighted standardized rate. 
 
(The special treatment of referral centers and sole community hospitals does not apply to prospective payment 
hospitals in Puerto Rico.) 
 
There are special criteria that facilities must meet in order to obtain approval for payment for heart transplants 
and special processing procedures for these bills.  (See 90.2.)  Facilities that wish to obtain coverage of heart 
transplants for their Medicare patients must submit an application and documentation showing their initial and 
ongoing compliance with the criteria.  For facilities that are approved, Medicare covers under Part A all 
medically reasonable and necessary inpatient services. 
 
12. Hospitals with high percentage of ESRD discharges may qualify for additional payment.  These payments 
are handled as adjustments to cost reports. 
 
13. Exception payments are provided for hospitals with inordinately high levels of capital obligations.  They 
will expire at the end of the 10-year transition period.  Exception payments ensure that for FY 1992 and FY 
1993: 
 
  Sole community hospitals receive 90 percent of Medicare inpatient capital costs: 
 
  Urban hospitals with 100 or more beds and a disproportionate share patient percentage of at least 20.2 
percent receive 80 percent of their Medicare inpatient capital costs; and 
 
  All other hospitals receive 70 percent of their Medicare inpatient capital costs. 
 
A limited capital exception payment is also provided during the 10-year capital transition period for hospitals 
that experience extraordinary circumstances that require an unanticipated major capital expenditure.  Events 
such as a tornado, earthquake, catastrophic fire, or a hurricane are examples of extraordinary circumstances.  
The capital project must cost at least $5 million to qualify for this exception. 
 
D. - MS-DRG Classification 
 
The MS-DRGs (Medicare Severity DRGs) are a patient classification system which provides a means of 
relating types of patients a hospital treats (i.e., its case mix) to the costs incurred by the hospital.  Payment for  inpatient hospital services is made on the basis of a rate per discharge that varies according to the MS-DRG to 
which a beneficiary's stay is assigned.  All inpatient transfer/discharge bills from both PPS and non-PPS 
facilities, including those from waiver States, long-term care facilities, and excluded units are classified by the 
Grouper software program into one of 745 diagnosis related groups (DRGs). 
 
The following MS-DRGs receive special attention: 
 
  MS-DRGs No. 981-983 - Represent discharges with valid data, but the surgical procedure is unrelated 
to the principal diagnosis.  MS-DRGs 981 (Extensive O.R. Procedure Unrelated to the Principal Diagnosis w/ 
MCC), 982 (Extensive O.R. Procedure Unrelated to the Principal Diagnosis w/ CC), and 983 (Extensive O.R. 
Procedure Unrelated to the Principal Diagnosis w/o CC/MCC) each have relative weights assigned to them 
and will be paid.  The hospital must review the record on each of these MS-DRGs in the remittance record and 
determine that where either the principle diagnosis or surgical procedure was reported incorrectly, prepare an 
adjustment bill.  The A/B MAC (A) may elect to avoid the adjustment bill by returning the bill to the hospital 
prior to payment.  
 
  MS-DRG No. 998 - Represents a discharge reporting a principle diagnosis that is invalid as a principal 
diagnosis.  Examples include a diagnosis of diabetes mellitus or an infection of the genitourinary tract during 
pregnancy, both unspecified as to episode of care.  These diagnoses may be valid, but they are not sufficient to 
determine the principal diagnosis for MS-DRG assignment purposes.  A/B MACs (A) will return the claims.  
The hospital must enter the corrected principal diagnosis for proper MS-DRG assignment and resubmit the 
claim. 
 
  MS-DRG No. 999 - Represents a discharge with invalid data, making it ungroupable.  A/B MACs (A) 
return the claims for correction of data elements affecting proper MS-DRG assignment.  The hospital 
resubmits the corrected claim. 
 
When the bills are processed in conjunction with the MCE (see 20.2.1) coding inconsistencies in the 
information and data are identified. 
 
The MCE must be run before Grouper to identify inconsistencies before the bills are processed through the 
Grouper. 
 
E. - Difference in Age/Admission Versus Discharge 
HO-415.4 
 
When a beneficiary's age changes between the date of admission and date of discharge, the DRG and related 
payment amount are determined from the patient's age at admission. 
 
20.1 - Hospital Operating Payments Under PPS 
(Rev. 1816; Issued:  09-17-09; Effective Date:  Discharges on or after October 1, 2009; Implementation 
Date:  10-05-09) 
 
Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of 
acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set 
rates. Under the PPS, Medicare payment for hospital inpatient operating costs is made at predetermined, 
specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related 
groups (DRGs).  
 
The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a 
nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the  hospital is located; and if the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by 
a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.  
 
If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment 
applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share 
hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify 
under statutory formulas designed to identify hospitals that serve a disproportionate share of low-income 
patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the 
statutory calculations.  
 
If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid 
under the PPS (known as the indirect medical education (IME) adjustment). This percentage varies, depending 
on the ratio of residents to beds.  
 
Additional payments may be made for cases that involve new technologies that have been approved for 
special add-on payments. To qualify, a new technology must demonstrate that it is a substantial clinical 
improvement over technologies otherwise available, and that, absent an add-on payment, it would be 
inadequately paid under the regular DRG payment.  
 
The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an 
additional payment as an outlier case. This additional payment is designed to protect the hospital from large 
financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base 
payment rate, plus any DSH, IME, and new technology add-on adjustments.  
 
Although payments to most hospitals under the PPS are made on the basis of the standardized amounts, some 
categories of hospitals are paid based on the higher of a hospital-specific rate determined from their costs in a 
base year as specified in the statute, or the PPS rate based on the standardized amount. For example, sole 
community hospitals (SCHs) are the sole source of care in their areas, and small rural Medicare-dependent 
hospitals (MDHs) are a major source of care for Medicare beneficiaries in their areas. Both of these categories 
of hospitals are afforded this special payment protection in order to maintain access to services for 
beneficiaries (although the statutory payment formulas for SCHs and MDHs differ as described below in 
section 20.6).  
 
The existing regulations governing payments to hospitals under the PPS are located in 42 CFR Part 412, 
Subparts A through M. 
 
20.1.1 - Hospital Wage Index 
(Rev. 70, 01-23-04) 
 
Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective 
payments to hospitals, the Secretary must adjust the standardized amounts for area differences in hospital 
wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the 
geographic area of the hospital compared to the national average hospital wage level.  This adjustment factor 
is the wage index.  CMS defines hospital geographic areas (labor market areas) based on the definitions of 
urban (e.g., Metropolitan Statistical Areas (MSAs)) and rural areas issued by the Office of Management and 
Budget. 
 
The Act further requires the wage index to be updated annually, based on a survey of wages and wage-related 
costs of short-term, acute care hospitals.  These data are collected on Worksheet S-3, Parts II and III of the 
Medicare Cost Report (Form CMS-2552).  To ensure the accuracy of the wage index, fiscal intermediaries are 
required to perform annual desk reviews of hospitals wage data.  CMS also publishes the wage data, and  allows hospitals an opportunity to review and request corrections to the data, before the wage index is 
finalized. 
 
In computing the wage index, CMS derives an average hourly wage for each labor market area (total wage 
costs divided by total hours for all hospitals in the geographic area) and a national average hourly wage (total 
wage costs divided by total hours for all hospitals surveyed in the nation).  A labor market areas wage index 
value is the ratio of the areas average hourly wage to the national average hourly wage.  If a labor market 
areas average hourly wage is greater than the national average, the areas wage index value will be greater 
than 1.0000.  If an areas average hourly wage is less than the national average, the areas wage index value 
will be less than 1.0000.  The wage index adjustment factor is applied only to the labor portion of the 
standardized amounts. 
 
Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage 
index value applicable to any hospital that is located in an urban area may not be less than the area wage index 
value applicable to hospitals located in rural areas in that State.  Furthermore, this wage index floor is to be 
implemented in such a manner as to ensure that aggregate prospective payment system payments are not 
greater or less than those that would have been made in the year if this section did not apply. 
 
20.1.2 - Outliers 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD -10, Implementation: ICD -10: Upon Implementation of ICD -10, ASC X12: September, 23 2014)  
 
1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-participating hospitals in addition to 
the basic prospective payments for cases incurring extraordinarily high costs.  This additional payment known 
as an Outlier is designed to protect the hospital from large financial losses due to unusually expensive cases.  
To qualify for outlier payments, a case must have costs above a fixed-loss cost threshold amount (a dollar 
amount by which the costs of a case must exceed payments in order to qualify for outliers), which is published 
in the annual Inpatient Prospective Payment System final rule.  The regulations governing payments for 
operating costs under the IPPS are located in 42 CFR Part 412.  The specific regulations governing payments 
for outlier cases are located at 42 CFR 412.80 through 412.86. 
 
The actual determination of whether a case qualifies for outlier payments is made by the Medicare contractor 
using Pricer, which takes into account both operating and capital costs and Medicare severity-diagnostic 
related group (MS-DRG) payments.  That is, the combined operating and capital costs of a case must exceed 
the fixed loss outlier threshold to qualify for an outlier payment.  The operating and capital costs are computed 
separately by multiplying the total covered charges by the operating and capital cost-to-charge ratios.  The 
estimated operating and capital costs are compared with the fixed-loss threshold after dividing that threshold 
into an operating portion and a capital portion (by first summing the operating and capital ratios and then 
determining the proportion of that total comprised by the operating and capital ratios and applying these 
percentages to the fixed-loss threshold).  The thresholds are also adjusted by the area wage index (and capital 
geographic adjustment factor) before being compared to the operating and capital costs of the case.  Finally, 
the outlier payment is based on a marginal cost factor equal to 80 percent of the combined operating and 
capital costs in excess of the fixed-loss threshold (90 percent for burn MS-DRGs).  Any outlier payment due is 
added to the MS-DRG adjusted base payment rate, plus any DSH, IME and new technology add-on payment.  
For a more detailed explanation on the calculation of outlier payments, visit the CMS Web site at  
 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html 
 
The Medicare contractor may choose to review outliers if data analysis deems it a priority. 
  The IPPS outliers are not applicable to non-PPS hospitals.  The Pricer program makes all outlier 
determinations except for the medical review determination.  Outlier payments apply only to the Federal 
portion of a capital PPS payment. 
 
20.1.2.1 - Cost to Charge Ratios 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
For discharges before August 8, 2003, Medicare contractors used the latest final settled cost report to 
determine a hospitals cost-to-charge ratios (CCRs).  For those hospitals that met the criteria in part I. A. of 
PM A-03-058 (July 3, 2003), effective for discharges occurring on or after August 8, 2003 Medicare 
contractors are to use alternative CCRs rather than one based on the latest settled cost report when 
determining a hospitals CCR (to download PM A-03-058, visit our Web site at 
http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/CMS-Program-Memoranda. 
http://www.cms.hhs.gov/Transmittals/Downloads/A03058.pdf).  For all other hospitals, effective October 1, 
2003, Medicare contractors are to use CCRs from the latest final settled cost report or from the latest tentative 
settled cost report (whichever is from the later period) to determine a hospitals operating and capital CCRs. 
 
A. - Calculating a Cost-to-Charge Ratio 
 
For IPPS outlier calculations, Medicares portion of hospital costs is determined by using hospital specific 
cost-to-charge ratios (CCRs).  At the end of the cost reporting period, the hospital prepares and submits a cost 
report to its Medicare contractor, which includes Medicare allowable costs and charges.  The Medicare 
contractor completes a preliminary review of the as-submitted cost report and issue a tentative settlement.  
The cost report is later final settled, which may be based on a subsequent review, and an NPR is issued. 
 
The Medicare contractor shall update the PSF using the CCR calculated from the final settled cost report or 
from the latest tentative settled cost report (whichever is from the later period). 
 
Effective November 7, 2005, the following methodology shall be used to calculate a hospitals operating and 
capital CCRs. 
 
Inpatient PPS Operating CCR 
1)  Identify total Medicare inpatient operating costs from the Medicare cost report, from Worksheet D-1, 
Part II, line 53.  (If a positive amount is reported on line 42 for nursery costs, subtract this amount on line 42 
from the amount on line 53). 
2)  Identify total Medicare inpatient operating charges (the sum of routine and ancillary charges), from 
Worksheet D-4, column 2, the sum of lines 25 through 30 and line 103. 
3)  Determine the Inpatient PPS operating CCR by dividing the amount in step 1 by the amount in step 2. 
Inpatient Capital CCR 
 
  1) Identify total Medicare inpatient capital cost from Worksheet D Part 1, column 10, sum of lines 25 
through 30, plus column 12, sum of lines 25 through 30 plus  Medicare inpatient ancillary capital costs from 
Worksheet D Part II, column 6, line 101 plus column 8 line 101. 
 
  2) Identify total Medicare inpatient capital charges (the sum of routine and ancillary charges), from 
Worksheet D-4, column 2, the sum of lines 25 through 30 and line 103. 
 
  3) Determine the Inpatient PPS capital CCR by dividing the amount in step 1 by the amount in step 2.   
B. - Use of Alternative Data in Determining CCRs For Hospitals  
 
Effective August 8, 2003, the CMS Central Office may direct Medicare contractors to use an alternative CCR 
if CMS believes this will result in a more accurate CCR.  Also, if the Medicare contractor finds evidence that 
indicates that using data from the latest settled or tentatively settled cost report would not result in the most 
accurate CCR, then the Medicare contractor shall notify the CMS Regional Office and CMS Central Office to 
seek approval to use a CCR based on alternative data.  For example, CCRs may be revised more often if a 
change in a hospitals operations occurs which materially affects a hospitals costs and/or charges. The CMS 
Regional Office, in conjunction with the CMS Central Office, must approve the Medicare contractors request 
before the Medicare contractor may use a CCR based on alternative data.  Revised CCRs will be applied 
prospectively to all IPPS claims processed after the update. Medicare contractors shall send notification to the 
Central Office via email at outliersIPPS@cms.hhs.gov. 
 
C. - Ongoing CCR Updates Using CCRs From Tentative Settlements For Hospitals Subject to the IPPS 
 
The Medicare contractor shall continue to update a hospitals operating and capital CCRs (in the Provider 
Specific File) each time a more recent cost report is settled (either final or tentative).  Revised CCRs shall be 
entered into the Provider Specific File not later than 30 days after the date of the latest settlement used in 
calculating the CCRs. 
 
Subject to the approval of CMS, a hospitals operating and/or capital CCR may be revised more often if a 
change in a hospitals operations occurs which materially affects a hospitals costs or charges. A revised CCR 
will be applied prospectively to all hospital claims processed after the update. 
 
D. - Request for use of a Different CCR by CMS, the Medicare Contractor or the Hospital 
 
Effective August 8, 2003, CMS (or the Medicare contractor) may specify an alternative CCR if it believes that 
the CCR being applied is inaccurate.  In addition, a hospital will have the opportunity to request that a 
different CCR be applied in the event it believes the CCR being applied is inaccurate.  The hospital is required 
to present substantial evidence supporting its request. Such evidence should include documentation regarding 
its costs and charges that demonstrate its claim that an alternative ratio is more accurate.  After the Medicare 
contractor has evaluated the evidence presented by the hospital, the Medicare contractor notifies the CMS 
regional office and CMS Central Office of any such request.  The CMS Regional Office, in conjunction with 
the CMS Central Office, will approve or deny any request by the hospital or Medicare contractor for use of a 
different CCR. Medicare contractors shall send requests to the CMS Central Office via email at 
outliersIPPS@cms.hhs.gov. 
 
E. - Notification to Hospitals Under the IPPS of a Change in the CCR 
 
The Medicare contractor shall notify a hospital whenever it makes a change to its CCR.  When a CCR is 
changed as a result of a tentative settlement or a final settlement, the change to the CCR can be included in the 
notice that is issued to each provider after a tentative or final settlement is completed.  Medicare contractors 
can also issue separate notification to a hospital about a change to their CCR(s). 
 
F. - Hospital Mergers, Conversions, and Errors with CCRs 
 
Effective November 7, 2005, for hospitals that merge, Medicare contractors shall continue to use the operating 
and capital CCRs calculated from the Medicare cost report associated with the surviving provider number.  If 
a new provider number is issued, as explained in 20.1.2.2 below, Medicare contractors may use the 
Statewide average CCR because a new provider number indicates the creation of a new hospital (as stated in  42 CFR 412.84 (i)(3)(i), a new hospital is defined as an entity that has not accepted assignment of an existing 
hospitals provider agreement).  For non-IPPS hospitals (e.g., long term care, psychiatric, or rehabilitation 
hospitals) that convert to IPPS status, or IPPS hospitals that maintain their IPPS status but receive a new IPPS 
provider number the Statewide average CCR may be applied to that hospital. However, as noted in part C 
above, the Medicare contractor or the hospital may request use of a different CCR, such as a CCR based on 
the cost and charge data from the hospitals cost report before it converted to IPPS status, or received a new 
provider number. The Medicare contractor must verify the cost and charge data from that cost report. Use of 
the alternative CCR is subject to the approval of the CMS Central and Regional Offices. 
 
In instances where errors related to CCRs and/or outlier payments are discovered, Medicare contractors shall 
contact the CMS Central Office to seek further guidance.  Medicare contractors may contact the CMS Central 
Office via email at outliersIPPS@cms.hhs.gov. 
 
If a cost report is reopened after final settlement and as a result of this reopening there is a change to the CCR, 
Medicare contractors should contact the CMS Regional and Central Office for further instructions. Medicare 
contractors may contact the CMS Central Office via email at outliersIPPS@cms.hhs.gov. 
 
G. - Maintaining a History of CCRs and Other Fields in the Provider Specific File 
 
When reprocessing claims due to outlier reconciliation, Medicare contractors shall maintain an accurate 
history of certain fields in the provider specific file (PSF).  This history is necessary to ensure that claims 
already processed (from prior cost reporting periods that have already been settled) will not be subject to a 
duplicate systems adjustment in the event that claims need to be reprocessed.  As a result, the following fields 
in the PSF can only be altered on a prospective basis: -23 -Intern to Bed Ratio -24 --Bed Size -25 -Operating 
Cost to Charge Ratio -27 -SSI Ratio -28 -Medicaid Ratio -47 -Capital Cost to Charge Ratio 49 -Capital IME 
and 21 -Case Mix Adjusted Cost Per Discharge. A separate history outside of the PSF is not necessary. The 
only instances a Medicare contractor retroactively changes a field in the PSF is to update the operating or 
capital CCR when using the FISS Lump Sum Utility for outlier reconciliation or otherwise specified by the 
CMS Regional Office or Central Office. 
 
20.1.2.2 - Statewide Average Cost-to-Charge Ratios 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
For discharges prior to August 8, 2003, Statewide average CCRs are used in those instances in which a 
hospitals operating or capital CCRs fall above or below reasonable parameters.  CMS sets forth these 
parameters and the Statewide average CCRs in each years annual notice of prospective payment rates. 
 
For discharges occurring on or after August 8, 2003, the Medicare contractor may use a Statewide average 
CCR if it is unable to determine an accurate operating or capital CCR for a hospital in one of the following 
circumstances: 
 
1.  New hospitals that have not yet submitted their first Medicare cost report.  (For this purpose, a new 
hospital is defined as an entity that has not accepted assignment of an existing hospitals provider 
agreement in accordance with 42 CFR 489.18.) 
 
2.  Hospitals whose operating or capital CCR is in excess of 3 standard deviations above the 
corresponding national geometric mean.  This mean is recalculated annually by CMS and published in 
the annual notice of prospective payment rates issued in accordance with  412.8(b) of the CFR. 
 
3.  Other hospitals which accurate data with which to calculate either an operating or capital CCR (or 
both) are not available.   
However, the policies of 20.1.2.1 part C and part E can be applied as an alternative to the Statewide average. 
 
For those hospitals assigned the Statewide average operating and/or capital CCRs, these CCRs must be 
updated every October 1 based on the latest Statewide average CCRs published in each years annual notice of 
prospective payment rates until the hospital is assigned a CCR based on the latest tentative or final settled cost 
report or a CCR based on the policies of 20.1.2.1 part C of this manual. 
 
A hospital is not assigned the Statewide average CCR if its CCR falls below 3 standard deviations from the 
national mean CCR.  In such a case, the hospitals actual operating or capital CCR is used. 
 
20.1.2.3 - Threshold and Marginal Cost 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
The Medicare contractor, using Pricer, determines an appropriate additional payment for inpatient services 
where hospital charges for covered services furnished to the beneficiary, adjusted for cost, are extraordinarily 
high.  CMS annually determines, and includes in the annual IPPS Final Rule and in Pricer, the threshold 
beyond which a cost outlier is paid.  The additional payment amount is the difference between the estimated 
cost for the discharge (determined by multiplying the hospital specific CCR by the hospitals charges for the 
discharge) and the threshold criteria established for the applicable DRG multiplied by a marginal cost factor of 
80 percent.  (The marginal cost factor for burn cases is 90 percent, as described in 20.1.2.8.)  CMS includes 
the marginal cost factor in Pricer.  For more explanation on the calculation of outliers visit our Web site at 
http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage 
 
20.1.2.4 - Transfers 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
A.  Transfers Between IPPS Hospitals 
 
For transfers between IPPS hospitals, the transferring hospital is paid based upon a per diem rate.  The 
transferring hospital may be paid a cost outlier payment.  The outlier threshold for the transferring hospital is 
equal to the outlier threshold for non-transfer cases, divided by the geometric mean length of stay for the 
DRG, multiplied by a number equal to the length of stay for the case plus one day. 
 
The payment to the final discharging hospital is made at the full prospective payment rate.  The outlier 
threshold and payment are calculated the same as any other discharge without a transfer.  For further 
information on transfers between IPPS hospitals, see 40.2.4 part A of this manual. 
 
B. - Transfers from an IPPS Hospital to Hospitals or Units Excluded from IPPS that do not Fall within 
a DRG that is Subject to the Postacute Care Transfer Policy 
 
For transfers from an IPPS hospital to a hospital or unit excluded from IPPS with a DRG that is not subject to 
the postacute care transfer policy, the transferring hospital is paid the full IPPS rate.  The transferring hospital 
may be paid a cost outlier payment. The outlier threshold and payment are calculated the same as any other 
discharge without a transfer. 
 
The payment to the final discharging hospital or unit is made at the rate of its respective payment system.  For 
further information on transfers from an IPPS hospital to hospitals or units excluded from IPPS that do not fall 
within a DRG that is subject to the postacute care transfer policy, see 40.2.4 part B of this manual. 
  C. - Transfers from an IPPS Hospital to Hospitals or Units Excluded from IPPS that Fall within a DRG 
that is Subject to the Postacute Care Transfer Policy 
 
For transfers from an IPPS hospital to a hospital or unit excluded from IPPS with a DRG that is subject to the 
postacute care transfer policy, the transferring hospital is paid based upon a per diem rate.  The transferring 
hospital may be paid a cost outlier payment.  In general, the outlier threshold for the transferring hospital is 
equal to the outlier threshold for non-transfer cases, divided by the geometric mean length of stay for the 
DRG, multiplied by a number equal to the length of stay for the case plus one day.  If a discharge is assigned 
to a special pay DRG subject to the post acute care transfer policy the outlier threshold is equal to the fixed-
loss cost outlier threshold for non-transfer cases, divided by the geometric mean length of stay for the DRG, 
multiplied by 0.5 plus the product of the 0.5 multiplied by a number equal to the length of stay plus one day 
multiplied by 0.5. 
 
The payment to the final discharging hospital or unit is made at the rate of its respective payment system.  For 
further information on transfers from an IPPS hospital to hospitals or units excluded from IPPS that fall within 
a DRG subject to the postacute care transfer policy, see 40.2.4 part C and D. 
 
20.1.2.5 - Reconciliation 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
A. - General 
 
Under 42 CFR 412.84(i)(4), for discharges occurring on or after August 8, 2003, high cost outlier payments 
may be reconciled upon cost report settlement to account for differences between the CCR used to pay the 
claim at its original submission by the provider, and the CCR determined at final settlement of the cost 
reporting period during which the discharge occurred.  This new regulation was implemented in two phases 
(further explanation on these two phases is provided below).  Hospitals that Medicare contractors identified 
using the criteria in I.A. of PM A-03-058 (under which Medicare contractors identified hospitals whose 
charges appeared to have been increasing at an excessive rate) are subject to the reconciliation policies 
described in this section for discharges occurring on or after August 8, 2003.  For all other hospitals, 
reconciliation is effective beginning with discharges occurring in a hospitals first cost reporting period 
beginning on or after October 1, 2003. 
 
Subject to the approval of the CMS Central Office, a hospitals outlier claims will be reconciled at the time of 
cost report final settlement if they meet the following criteria: 
 
1. The actual operating CCR is found to be plus or minus 10 percentage points from the CCR used 
during that time period to make outlier payments, and 
 
  2. Total outlier payments in that cost reporting period exceed $500,000. 
 
To determine if a hospital meets the criteria above, the Medicare contractor shall incorporate all the 
adjustments from the cost report, run the cost report, calculate the revised CCR and compute the actual 
operating CCR prior to issuing a Notice of Program Reimbursement (NPR).  If the criteria for reconciliation 
are not met, the cost report shall be finalized.  If the criteria for reconciliation are met, Medicare contractors 
shall follow the instructions below in 20.1.2.7.  The NPR cannot be issued nor can the cost report be 
finalized until outlier reconciliation is complete. 
 
The first criterion requires a 10 percentage point fluctuation in the operating CCR only (and not the capital 
CCR).  However, if a hospital meets both criteria, claims will be reconciled using the operating and capital 
CCRs from the final settled cost report.   
As stated above, if a cost report is reopened after final settlement and as a result of this reopening there is a 
change to the CCR (which could trigger or affect outlier reconciliation and outlier payments), Medicare 
contractors shall notify the CMS Regional and Central Office for further instructions.  Notification to the 
CMS Central Office shall be sent via email to outliersIPPS@cms.hhs.gov. 
 
Even if a hospital does not meet the criteria for reconciliation, subject to approval of the Regional and Central 
Office, the Medicare contractor has the discretion to request that a hospitals outlier payments in a cost 
reporting period be reconciled if the hospitals most recent cost and charge data indicate that the outlier 
payments to the hospital were significantly inaccurate.  The Medicare contractor sends notification to the 
Central Office via email at outliersIPPS@cms.hhs.gov.  Upon approval of the CMS Regional and Central 
Office that a hospitals outlier claims need to be reconciled, Medicare contractors should follow the 
instructions in 20.1.2.7. 
 
B. - Reconciling Outlier Payments for those Hospitals Identified in PM A-03-058 
 
As stated above, for a hospital that met the criteria in I.A. of PM A-03-058, reconciliation begins for 
discharges occurring on or after August 8, 2003.  To establish whether a hospitals outlier payments are 
subject to reprocessing, Medicare contractors determine if the CCR and total outlier payments from the entire 
cost reporting period meet the two criteria in part A of this section.  However, if both criteria for reconciliation 
are met, only the discharges that occurred between August 8, 2003 and the end of the cost reporting period 
will be reconciled.  These hospitals will be subject to reconciliation in subsequent cost reporting periods if 
they meet the two criteria outlined in part A of this section.  See example A below. 
 
The Medicare contractors shall notify the CMS Regional Office and CMS Central Office of any hospital that 
meets the criteria for reconciliation. Notification to the CMS Central Office shall be sent via email to 
outliersIPPS@cms.hhs.gov.  Further instructions for Medicare contractors on reconciliation and the time value 
of money are provided below in 20.1.2.6 and 20.1.2.7. 
 
EXAMPLE A: 
 
Cost Reporting Period: 09/01/2002-08/31/2003 
 
Operating CCR used to pay original claims submitted during cost reporting period: 0.40 (In this example, this 
CCR is from the tentatively or final settled 2002 cost report) 
Final settled operating CCR from 09/01/2002-08/31/2003 cost report: 0.50 
 
Total outlier payout in 09/01/2002-08/31/2003 cost reporting period: $600,000 
 
Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 at the time of final 
settlement, and the provider received greater than $500,000 in outlier payments during that cost reporting 
period, the providers claims for discharges from August 8, 2003 through August 31, 2003 shall be reconciled 
using the correct CCR of 0.50.  The same criteria shall be applied to the cost report beginning on 09/01/2003 
to determine whether reconciliation of outlier payments for that cost reporting period is necessary. For details 
on how to apply multiple CCRs in a cost reporting period, see example C below. 
 
C. - Reconciling Outlier Payments for those Hospitals Not Identified in PM A-03-058 
 
Beginning with the first cost reporting period starting on or after October 1, 2003, all hospitals are subject to 
the reconciliation policies set forth in this section.  If a hospital meets the criteria in part A of this section, the 
Medicare contractor shall notify the CMS Regional Office and Central Office via email at  outliersIPPS@cms.hhs.gov. Further instructions for Medicare contractors on reconciliation and the time value 
of money are provided below in 20.1.2.6 and 20.1.2.7.  
 
The following examples demonstrate how to apply the criteria for reconciliation: 
 
EXAMPLE B: 
 
Cost Reporting Period: 01/01/2004-12/31/2004 
 
Operating CCR used to pay original claims submitted during cost reporting period: 0.40 (In this example, this 
CCR is from the tentatively settled 2002 cost report) 
 
Final settled operating CCR from 01/01/2004-12/31/2004 cost report: 0.50 
 
Total outlier payout in 01/01/2004-12/31/2004 cost reporting period: $600,000 
 
Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 at the time of final 
settlement, and the provider received greater than $500,000 in outlier payments during that cost reporting 
period, the criteria has been met to trigger reconciliation, and therefore, the Medicare contractor shall notify 
the CMS Regional Office and Central Office.  The providers outlier payments for this cost reporting period 
will be reconciled using the correct CCR of 0.50. 
 
In the event that multiple CCRs are used in a given cost reporting period, Medicare contractors should 
calculate a weighted average of the CCRs in that cost reporting period.  (See Example C below for 
instructions on how to weight the CCRs).  The Medicare contractor shall then compare the weighted CCR to 
the CCR determined at the time of final settlement of the cost reporting period to determine if reconciliation is 
required.  Again, total outlier payments for the entire cost reporting period must exceed $500,000 in order to 
trigger reconciliation. 
 
EXAMPLE C: 
 
Cost Reporting Period: 01/01/2004-12/31/2004 
Operating CCR used to pay original claims submitted during cost reporting period:  
-  0.40 from 01/01/2004-03/31/2004 (This CCR could be from the tentatively settled 2001 cost 
report) 
-  0.50 from 04/01/2004-12/31/2004 (This CCR could be from the tentatively settled 2002 cost 
report) 
Final settled operating CCR from 01/01/2004-12/31/2004 cost report: 0.35 
Total Outlier payout in 01/01/2004-12/31/2004 cost reporting period: $600,000 
Weighted Average CCR: 0.474 
 
CCR  Days  Weight  Weighted CCR 
0.40  91  0.248 (91 Days / 366 Days)  (a) 0.099= 
 (0.40 * 0.248) 
0.50  275  0.751 (275 Days / 366 Days )  (b) 0.375=  
(0.50 * 0.751) 
TOTAL  *366    (a)+(b) =0.4742 
 
*NOTE: There are 366 days in the year because 2004 was a leap year.   
The hospital meets the criteria for reconciliation in this cost reporting period because the weighted average 
CCR at the time the claim was originally paid changed from 0.474 to 0.35 (which is greater than 10 
percentage points) at the time of final settlement, and the provider received an outlier payment greater than 
$500,000 for the entire cost reporting period. 
 
20.1.2.6 - Time Value of Money 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
Effective for discharges occurring on or after August 8, 2003, at the time of any reconciliation under 
20.1.2.5, outlier payment may be adjusted to account for the time value of money of any adjustments to 
outlier payments as a result of reconciliation.  The time value of money is applied from the midpoint of the 
hospitals cost reporting period being settled to the date on which the CMS Central Office receives 
notification from the Medicare contractor that reconciliation should be performed. 
 
If a hospitals outlier payments have met the criteria for reconciliation, CMS will calculate the aggregate 
adjustment using the instructions below concerning reprocessing claims and determine the additional amount 
attributable to the time value of money of that adjustment.  The index that will be used to calculate the time 
value of money is the monthly rate of return that the Medicare trust fund earns.  This index can be found at 
http://www.ssa.gov/OACT/ProgData/newIssueRates.html. 
 
The following formula will be used to calculate the rate of the time value of money. 
 
(Rate from Web site as of the midpoint of the cost report being settled / 365) * # of days from that midpoint 
until date of reconciliation. NOTE: The time value of money can be a positive or negative amount depending 
if the provider is owed money by CMS or if the provider owes money to CMS. 
 
For purposes of calculating the time value of money, the date of reconciliation is the day on which the CMS 
Central Office receives notification via email from the Medicare contractor.  
 
The following is an example of the computation of the adjustment to account for the time value of money: 
 
EXAMPLE 
 
Cost Reporting Period: 01/01/2004-12/31/2004 
Midpoint of Cost Reporting Period: 07/01/2004 
Date of Reconciliation: 12/31/2005 
 
Number of days from Midpoint until date of Reconciliation: 549 
 
Rate from Social Security Web site: 4.625% 
 
Operating CCR used to pay actual original claims in cost reporting period: 0.40 (This CCR could be from the 
tentatively settled 2002 or 2003 cost report) 
 
Final settled operating CCR from 01/01/2004-12/31/2004 cost report: 0.50 
 
Total outlier payout in 01/01/2004-12/31/2004 cost reporting period: $600,000. 
  Because the CCR fluctuated from .40 at the time the claims were originally paid to 0.50 at the time of final 
settlement and the provider has total outlier payments greater than $500,000, the criteria have been met to 
trigger reconciliation.  The Medicare contractor notifies the CMS Regional and Central Office. 
 
The Medicare contractor reprocesses and reconciles the claims. The reprocessing indicates the revised outlier 
payments are $700,000. 
 
Using the values above, determine the rate that will be used for the time value of money: (4.625 / 365) * 549 = 
6.9565% 
 
Based on the claims reconciled, the provider is owed $100,000 ($700,000-$600,000) for the reconciled 
amount and $6,956.50 ($100,000 * 6.9565 %) for the time value of money. 
 
20.1.2.7 - Procedure for Medicare Contractors to Perform and Record Outlier 
Reconciliation Adjustments 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
The following is a step-by-step explanation of the procedures that Medicare contractors are to follow if a 
hospital is eligible for outlier reconciliation: 
 
1)  The Medicare contractor shall send notification to the CMS Central Office (not the hospital), via 
email to outliersIPPS@cms.hhs.gov and regional office that a hospital has met the criteria for 
reconciliation.  Medicare contractors shall include in their notification the provider number, provider 
name, cost reporting begin date, cost reporting end date, total operating and capital outlier payments 
in the cost reporting period, the operating CCR or weighted average operating CCR from the time 
the claims were paid during the cost reporting period eligible for reconciliation and the final settled 
operating and capital CCR. 
 
2)  If the Medicare contractor receives approval from the CMS Central Office that reconciliation is 
appropriate, the Medicare contractor follows steps 3-14 below.  NOTE:  Hospital cost reports will 
remain open until their claims have been processed for outlier reconciliation. 
 
3)  The Medicare contractor shall notify the hospital and copy the CMS Regional Office and Central 
Office via email at outliersIPPS@cms.hhs.gov that the hospitals outlier claims are to be reconciled. 
 
4)  Prior to running claims in the *Lump Sum Utility, Medicare contractors shall update the applicable 
provider records in the Inpatient Provider Specific File (IPSF) by entering the final settled operating 
and capital CCR from the cost report in the operating and capital CCR fields.  Specifically, for 
hospitals paid under the IPPS, Medicare contractors shall enter the revised operating CCR in PSF 
field 25 -Operating Cost to Charge Ratio and the revised capital CCR in PSF field 47 -Capital Cost 
to Charge Ratio.  No other elements in the IPSF (such as elements related to the DSH and IME 
adjustments) shall be updated for the applicable provider records in the IPSF that span the cost 
reporting period being reconciled aside from the elements for the operating and capital CCRs. 
 
*NOTE:  The FISS Lump Sum Utility is a Medicare contractor tool that, depending on the elements 
that are input, will produce an extract that will calculate the difference between the original PPS 
payment amounts and revised PPS payment amounts into a Microsoft Access generated report.  The 
Lump Sum Utility calculates the original and revised payments offline and will not affect the original 
claim payment amounts as displayed in various CMS systems (such as NCH). 
  5)  Medicare contractors shall ensure that, prior to running claims through the FISS Lump Sum Utility, 
all pending claims (e.g., appeal adjustments) are finalized for the applicable provider. 
 
6)  Medicare contractors shall only run claims in the Lump Sum Utility that meet the following criteria: 
 
  Type of Bill (TOB) equals 11X 
  Previous claim is in a paid status (P location) within FISS 
  Cancel date is blank 
 
7)  The Medicare contractor reconciles the claims through the applicable IPPS Pricer software and not 
through any editing or grouping software.  
 
8)  Upon completing steps 3 through 7 above, the Medicare contractor shall run the claims through the 
Lump Sum Utility.  The Lump Sum Utility will produce an extract, according to the elements in 
Table 1 below.  NOTE:  The extract must be importable by Microsoft Access or a similar software 
program (Microsoft Excel). 
 
9)  Medicare contractors shall upload the extract into Microsoft Access or a similar software program to 
generate a report that contains elements in Table 1. Medicare contractors shall ensure this report is 
retained with the cost report settlement work papers. 
 
10)  For hospitals paid under the IPPS, the Lump Sum Utility will calculate the difference between the 
original and revised operating and capital outlier amounts.  If the difference between the original and 
revised operating and capital outlier amounts (calculated by the Lump Sum Utility) is positive, then a 
credit amount (addition) shall be issued to the provider.  If the difference between the original and 
revised operating and capital amounts (calculated by the Lump Sum Utility) is negative, then a debit 
amount (deduction) shall be issued to the provider.  NOTE:  The difference between the original and 
revised operating outlier amounts and the difference between the original and revised capital outlier 
amounts are two distinct amounts calculated by the lump sum utility and are recorded on two 
separate lines on the cost report. 
 
11)  The operating and capital time value of money amounts are two distinct calculations that are 
recorded separately on the cost report.  Medicare contractors shall determine the applicable time 
value of money amount by using the calculation methodology in 20.1.2.6.  If the difference between 
the original and revised operating and capital outlier amounts is a negative amount then the time 
value of money is also a negative amount.  If the difference between the original and revised 
operating and capital outlier amounts is a positive amount then the time value of money is also a 
positive amount.  Similar to step 10, if the time value of money is positive, then a credit amount 
(addition) shall be issued to the provider.  If the time value of money is negative, then a debit amount 
(deduction) shall be issued to the provider.  NOTE:  The time value of money is applied to the 
difference between the original and revised operating and capital outlier amounts. 
 
12)  For cost reporting periods beginning before May 1, 2010, under cost report 2552-96, the Medicare 
contractor shall record the original operating and capital outlier amounts, the operating and capital 
outlier reconciliation adjustment amount (the difference between the original and revised operating 
and capital outlier amounts calculated by the Lump Sum Utility), the operating and capital time 
value of money and the rate used to calculate the time value of money on lines 50-56, of Worksheet 
E, Part A of the cost report (NOTE: the amounts recorded on lines 50-53 and 55 thru 56 can be 
positive or negative amounts per the instructions above).  The total outlier reconciliation adjustment 
amount (the difference between the original and revised operating and capital outlier amount 
(calculated by the Lump Sum Utility) plus the time value of money) shall be recorded on line 24.99  of Worksheet E, Part A.  For complete instructions on how to fill out these lines please see  3630.1 
of the Provider Reimbursement Manual, Part II.  NOTE:  Both the operating and capital amounts are 
combined and recorded on line 24.99 of Worksheet E, Part A. 
 
For cost reporting periods beginning on or after May 1, 2010, under cost report 2552-10, the 
Medicare contractor shall record the original operating and capital outlier amounts, the operating and 
capital outlier reconciliation adjustment amounts (the difference between the original and revised 
operating and capital outlier amounts calculated by the Lump Sum Utility), the operating and capital 
time value of money and the rate used to calculate the time value of money on lines 90-96, of 
Worksheet E, Part A of the cost report (NOTE: the amounts recorded on lines 90-93 and 95 thru 96 
can be positive or negative amounts per the instructions above).  The total outlier reconciliation 
adjustment amount (the difference between the original and revised operating and capital outlier 
amount (calculated by the Lump Sum Utility) plus the time value of money) shall be recorded on line 
69 of Worksheet E, Part A.  NOTE:  Both the operating and capital amounts are combined and 
recorded on line 69 of Worksheet E, Part A. 
 
13)  The Medicare contractor shall finalize the cost report, issue a NPR and make the necessary 
adjustment from or to the provider. 
 
14)  After determining the total outlier reconciliation amount and issuing a NPR, Medicare contractors 
shall restore the operating and capital CCR(s) elements to their original values (that is, the CCRs 
used to pay the claims) in the applicable provider records in the IPSF to ensure an accurate history is 
maintained.  Specifically, for hospitals paid under the IPPS, Medicare contractors shall enter the 
original operating CCR in PSF field 25 -Operating Cost to Charge Ratio and the original capital 
CCR in PSF field 47 -Capital Cost to Charge Ratio. 
 
If the Medicare contractor has any questions regarding this process it should contact the CMS Central Office 
via the address and email address provided in 20.1.2.1 (B).  
 
Table 1: Data Elements for FISS Extract 
 
List of Data Elements for FISS Extract 
Provider #  
Health Insurance Claim (HIC) Number  
Document Control Number (DCN)  
Type of Bill 
Original Paid Date 
Statement From Date  
Statement To Date  
Original Reimbursement Amount (claims page 10)  
Revised Reimbursement Amount (claim page 10)  
Difference between these amounts  
Original Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Revised Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Difference between these amounts 
Original Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Revised Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Difference between these amounts 
Original Medicare Lifetime Reserve Amount in the first calendar year period (Value 
Code 08)  List of Data Elements for FISS Extract 
Revised Medicare Lifetime Reserve Amount in the first calendar year period (Value 
Code 08) 
Difference between these amounts 
Original Medicare Coinsurance Amount in the first calendar year period (Value Code 09) 
Revised Medicare Coinsurance Amount in the first calendar year period (Value Code 09) 
Difference between these amounts 
Original Medicare Lifetime Reserve Amount in the second calendar year period (Value 
code 10) 
Revised Medicare Lifetime Reserve Amount in the second calendar year period (Value 
code 10) 
Difference between these amounts 
Original Medicare Coinsurance Amount in the second calendar year period (Value code 
11) 
Revised Medicare Coinsurance Amount in the second calendar year period (Value code 
11) 
Difference between these amounts 
Original Outlier Amount (Value Code 17) 
Revised Outlier Amount (Value Code 17) 
Difference between these amounts 
Original DSH Amount (Value Code 18) 
Revised DSH Amount (Value Code 18) 
Difference between these amounts 
Original IME Amount (Value Code 19) 
Revised IME Amount (Value Code 19) 
Difference between these amounts 
Original New Tech Add-on (Value Code 77) 
Revised New Tech Add-on (Value Code 77) 
Difference between these amounts 
Original Device Reductions (Value Code D4) 
Revised Device Reductions (Value Code D4) 
Difference between these amounts 
TOT CHRG  total billed charges (claim page 3) 
COV CHRG  total covered charges (claim page 3) 
Original Hospital Portion (claim page 14) 
Revised Hospital Portion (claim page 14) 
Difference between these amounts 
Original Federal Portion  (claim page 14) 
Revised Federal Portion  (claim page 14) 
Difference between these amounts 
Original C TOT PAY (claim page 14) 
Revised C TOT PAY (claim page 14) 
Difference between these amounts 
Original C FSP (claim page 14) 
Revised C FSP (claim page 14) 
Difference between these amounts 
Original C OUTLIER (claim page 14) 
Revised C OUTLIER (claim page 14) 
Difference between these amounts  List of Data Elements for FISS Extract 
Original C DSH ADJ (claim page 14) 
Revised C DSH ADJ (claim page 14) 
Difference between these amounts 
Original C IME ADJ (claim page 14) 
Revised C IME ADJ (claim page 14) 
Difference between these amounts 
Original Pricer Amount  
Revised Pricer Amount 
Difference between these amounts 
Original PPS Payment (claim page 14) 
Revised PPS Payment (claim page 14) 
Difference between these amounts 
Original PPS Return Code (claim page 14) 
Revised PPS Return Code (claim page 14) 
Original UNCOMP CARE AMT (claim page 40) 
Revised UNCOMP CARE AMT (claim page 40) 
Difference between these amounts 
Original VAL PURC ADJ AMT (claim page 40) 
Revised VAL PURC ADJ AMT (claim page 40) 
Difference between these amounts 
Original READMIS ADJ AMT (claim page 40) 
Revised READMIS ADJ AMT (claim page 40) 
Difference between these amounts 
Original HAC PAYMENT AMT (claim page 40) 
Revised HAC PAYMENT AMT (claim page 40) 
Difference between these amounts 
Original EHR PAY ADJ AMT (claim page 40) 
Revised EHR PAY ADJ AMT (claim page 40) 
Difference between these amounts 
Original PPS-ISLET-ADD-ON-AMT (Value Code Q7) 
Revised PPS-ISLET-ADD-ON-AMT (Value Code Q7) 
Difference between these amounts 
DRG 
MSP Indicator (Value Codes 12-16 & 41-43  indicator indicating the claim is MSP; Y 
= MSP, blank = no MSP 
Reason Code 
HMO-IME Indicator 
Filler 
 
20.1.2.8 - Special Outlier Payments for Burn Cases 
(Rev. 707, Issued:  10-12-05; Effective/Implementation Dates:  11-07-05) 
 
For discharges occurring on or after April 1, 1988, the additional payment amount for the DRGs related to 
burn cases, which are identified in the most recent annual notice of prospective payment rates is computed 
using the same methodology (as stated above in section 20.1.2.3) except that the payment is made using a 
marginal cost factor of 90 percent instead of 80 percent. 
 
20.1.2.9 - Medical Review and Adjustments  (Rev. 1571; Issued:  08-07-08; Effective Date:  08-01-08; Implementation Date:  08-15-08) 
 
Effective April 1, 2008, QIOs are no longer performing the majority of medical review for payment of acute 
inpatient prospective payment system (IPPS) hospital and long term care hospital (LTCH) claims.  These 
reviews are the responsibility of the A/B MACs (A).  An exception occurs when a provider requests a higher-
weighted DRG review from the QIO.  The QIO will continue to perform those reviews. 
 
The A/B MAC (A) may review a sample of cost outlier cases after payment.  The charges for any services 
identified as non-covered through this review are denied and any outlier payment made for these services is 
recovered, as appropriate, after a determination as to the providers liability has been made. 
 
If the A/B MAC (A) finds a pattern of inappropriate utilization by a hospital, all cost outlier cases from that 
hospital may be subject to medical review, and this review may be conducted prior to payment until the A/B 
MAC (A) determines that appropriate corrective actions have been taken. 
 
When the A/B MAC (A) reviews cost outlier cases, they shall do so using the medical records and itemized 
charges, to verify the following: 
 
1.  The admission was medically necessary and appropriate; 
 
2.  Services were medically necessary and delivered in the most appropriate setting; 
 
3.  Services were ordered by the physician, actually furnished, and not duplicatively billed; and 
 
4.  The diagnostic and procedural coding are correct. 
 
Where the A/B MAC (A)s decision changes previously processed bills, an adjustment bill is prepared to 
correct the bill. 
 
When the hospital provides the A/B MAC (A) with medical records for cost outlier review, the hospital must 
indicate the precise revenue code for each charge billed.  In case adjustments are needed, revenue codes are 
necessary to ensure proper accounting for cost report purposes.  It is not acceptable for the hospital to merely 
provide listings of revenue codes expecting the A/B MAC (A) to assign the charges to the appropriate code.  If 
the correct revenue codes are not provided, the A/B MAC (A) will deny the bill. 
 
20.1.2.10 - Return Codes for Pricer 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
The following return codes are calculated by PRICER and passed back to the calling program.  Depending on 
the type of payment and case, return codes 30, 44, 33, 40 and 42 indicate that an outlier would be paid if the 
cost-to-charge ratio would rise by 20 percentage points.  If a provider(s) (CCR rises by 10 percentage points 
and) meets the criteria of reconciliation, the CMS Central Office uses return codes 30, 44, 33, 40 and 42 to 
determine a smaller pool of claims for reprocessing claims due to outlier reconciliation. 
 
Acute Care 
 
Return Code 00: Paid normal DRG payment. 
 
Return Code 02: Paid normal DRG payment plus a cost outlier. 
  Return Code 14: Paid normal DRG payment with per diem days equal or greater than geometric mean length 
of stay. 
 
Return Code 16: Paid normal DRG payment plus a cost outlier with per diem days equal to or greater than 
geometric mean length of stay. 
 
Return Code 30: Paid normal DRG payment and indicates an outlier payment would be necessary if the CCR 
would increase by 20 percentage points. 
 
Return Code 44: Paid normal DRG payment with per diem days equal or greater than geometric mean length 
of stay and indicates an outlier payment would be necessary if the CCR would increase by 20 percentage 
points. 
 
Transfer Cases 
 
Return Code 03:  Paid a per diem payment to the transferring IPPS hospital (when the patient transfers to an 
IPPS hospital) up to and including the full DRG payment if the covered days are less than the geometric mean 
length of stay for the DRG.  If covered days equal or exceed the geometric mean length of stay, the standard 
payment is calculated. 
 
Return Code 05:  Paid a per diem payment to the transferring IPPS hospital (when the patient transfers to an 
IPPS hospital) up to and including the full DRG payment if the covered days are less than the geometric mean 
length of stay for the DRG.  If covered days equal or exceed the geometric mean length of stay, the standard 
payment is calculated.  Also indicates case qualified for a cost outlier payment. 
 
Return Code 06: Paid a per diem payment to the transferring IPPS hospital (when the patient transfers to an 
IPPS hospital) up to and including the full DRG payment if the covered days are less than the geometric mean 
length of stay for the DRG.  If covered days equal or exceed the geometric mean length of stay, the standard 
payment is calculated. Also indicates provider refused cost outlier payment. 
 
Return Code 33:  Paid a per diem payment to the transferring IPPS hospital (when the patient transfers to an 
IPPS hospital) up to and including the full DRG payment if the covered days are less than the geometric mean 
length of stay for the DRG.  If covered days equal or exceed the geometric mean length of stay, the standard 
payment is calculated.  Also indicates an outlier payment would be necessary if the CCR increased by 20 
percentage points. 
 
Postacute Transfer Cases 
 
Return Code 10: Makes payment to the transferring IPPS hospital (when the patient transfers to a non-IPPS 
hospital) for postacute transfer DRGs (that have double the payment on the 1st day for purposes of the 
postacute care transfer policy) as published in the annual IPPS Final Rule.  Will calculate a per diem payment 
based on the standard DRG payment if the covered days are less than the geometric mean length of stay for 
the DRG.  If covered days equal or exceed the geometric mean length of stay the standard payment is also 
calculated.  The cost outlier portion of the payment is calculated if the adjusted charges on the bill exceed the 
outlier threshold. 
 
Return Code 12: Makes payment to the transferring IPPS hospital (when the patient transfers to a non-IPPS 
hospital) for postacute transfer DRGs (that receive 50 percent of the prospective payment on the 1st day of the 
stay for purposes of the postacute care transfer policy) as published in the annual IPPS Final Rule. Will 
calculate a per diem payment based on the standard DRG payment if the covered days are less than the 
geometric mean length of stay for the DRG.  If covered days equal or exceed the geometric mean length of  stay, the standard payment is calculated.  The cost outlier portion of the payment is calculated if the adjusted 
charges on the bill exceed the outlier threshold. 
 
Return Code 40: Makes payment to the transferring IPPS hospital (when the patient transfers to a non-IPPS 
hospital) for postacute transfer DRGs (that have double the payment on the 1st day for purposes of the 
postacute care transfer policy) as published in the annual IPPS Final Rule.  Will calculate a per diem payment 
based on the standard DRG payment if the covered days are less than the geometric mean length of stay for 
the DRG.  If covered days equal or exceed the geometric mean length of stay, the standard payment is 
calculated.  Also indicates an outlier payment would be necessary if the CCR increased by 20 percentage 
points. 
 
Return Code 42: Makes payment to the transferring IPPS hospital (when the patient transfers to a non-IPPS 
hospital) for postacute transfer DRGs (that receive 50 percent of the prospective payment on the 1st day of the 
stay for purposes of the postacute care transfer policy) as published in the annual IPPS Final Rule. Will 
calculate a per diem payment based on the standard DRG payment if the covered days are less than the 
geometric mean length of stay for the DRG.  If covered days equal or exceed the geometric mean length of 
stay, the standard payment is calculated. Also indicates an outlier payment would be necessary if the CCR 
increased by 20 percentage points. 
 
20.2 - Computer Programs Used to Support Prospective Payment System 
(Rev. 11140, Issued:12-02-21, Effective:01-04-22, Implementation: 01-04-22) 
 
 
Medicare Code Editor 
 
The Medicare Code Editor (MCE) is a front-end software program that edits claims to detect incorrect billing 
data.  The MCE addresses three basic types of edits which will support the DRG assignment.  They include 
correct diagnosis and procedure coding, coverage, and clinical edits. 
 
Built into the MCE, which is the first portion of the Grouper program, are edits which reject incomplete or 
impossible codes.  Claims submitted with valid diagnoses and valid diagnoses-surgical procedure 
combinations but are incorrect in that they do not represent the actual diagnosis or procedure, cannot be 
detected.  The responsibility for accuracy rests with the hospital.  However, a post claim approval review may 
be conducted by the A/B MACs (A), using medical records and the approved claim. 
 
Grouper Program 
 
The Grouper program determines the DRG from data elements the hospital reported.  It is used on all inpatient 
discharge/transfer bills received from both PPS and non-PPS facilities, including those from waiver States, 
long-term care hospitals, and excluded units. 
 
Pricer Program 
 
The Pricer program determines the amount to pay under prospective payment. 
 
The Pricer program applies the DRG relative weights, hospital urban or rural and census division location, 
hospital specific data, and beneficiary hospital data from the bill to determine the amount payable for each 
PPS discharge bill. 
 
Most hospitals should not need a Pricer program because only one rate per DRG applies unless the claim 
results in a cost outlier for a beneficiary whose benefits are exhausted during the stay.  For those claims, the  provider must identify the outlier threshold to properly bill covered days on an inpatient claim.  See 20.7.4 
below.   
 
20.2.1 - Medicare Code Editor (MCE) 
(Rev. 11059; Issued: 10-21-21; Effective: 04-01-22; Implementation: 04-04-22) 
 
A. - General 
 
The MCE edits claims to detect incorrect billing data.  In determining the appropriate MS-DRG for a 
Medicare patient, the age, sex, discharge status, principal diagnosis, secondary diagnosis, and procedures 
performed must be reported accurately to the Grouper program.  The logic of the Grouper software assumes 
that this information is accurate and the Grouper does not make any attempt to edit the data for accuracy.  
Only where extreme inconsistencies occur in the patient information will a patient not be assigned to a MS-
DRG.  Therefore, the MCE is used to improve the quality of information given to Grouper. 
 
The MCE addresses three basic types of edits which will support the MS-DRG assignment: 
 
  Code Edits - Examines a claim for the correct use of diagnosis and procedure codes.  They include 
basic consistency checks on the interrelationship among a patient's age, sex, and diagnoses and 
procedures reported. 
 
  Coverage Edits - Examines the type of patient and procedures performed to determine if the services 
are covered. 
 
  Clinical Edits - Examines the clinical consistency of the diagnostic and procedural information on the 
claim to determine if they are clinically reasonable and, therefore, should be paid. 
 
B. - Implementation Requirements 
 
The A/B MAC (A) processes all inpatient Part A discharge/transfer claims for both PPS and non-PPS facilities 
(including waiver States, long-term care hospitals, and excluded units) through the MCE.  It processes claims 
that have been reviewed by the QIO prior to billing through the MCE only for edit types 1, 2, 3, 4, 7, and 12.  
It does not process the following kinds of claims through the MCE: 
 
  Where no Medicare payment is due (amounts reported by value codes 12, 13, 14, 15, or 16 equal or 
exceed charges). 
 
  Where no Medicare payment is being made.  Where partial payment is made, editing is required. 
 
  Where QIO reviewed prior to billing (condition code C1 or C3).  It may process these exceptions 
through the program and ignore development codes or bypass the program. 
 
The MCE software contains multiple versions.  The version of the MCE accessed by the program depends 
upon the patient discharge date entered on the claim. 
 
C. - Bill System/MCE Interface 
 
The A/B MAC (A) installs the MCE online, if possible, so that prepayment edit requirements identified in 
subsection C can be directed to hospitals without clerical handling. 
The MCE needs the following data elements to analyze the claim: 
    Age; 
 
  Sex; 
 
  Discharge status; 
 
  Diagnosis (25 maximum - principal diagnosis and up to 24 additional diagnoses); 
 
  Procedures (25 maximum); and 
 
  Discharge date. 
 
The MCE provides the A/B MAC (A) an analysis of "errors" on the claim as described in subsection D.  The 
A/B MAC (A) develops its own interface program to provide data to MCE and receive data from it. 
 
The MCE Installation Manual describes the installation and operation of the program, including data base 
formats and locations. 
 
D. - Processing Requirements 
 
The hospital must follow the procedure described below for each error code.  For claims returned to the 
provider, the A/B MAC (A) considers the claim improperly completed for control and processing time 
purposes.  (See chapter 1.) 
 
NOTE:  The following instructions are based on ICD-9-CM diagnosis and procedure codes, ICD-10-CM and 
ICD-10-PCS codes.   
 
1. Invalid Diagnosis or Procedure Code 
 
The MCE checks each diagnosis code, including the admitting diagnosis, and each procedure code against a 
table of valid diagnosis and procedure codes.  An admitting diagnosis, a principal diagnosis, and up to 24 
additional diagnoses may be reported.  Up to 25 total procedure codes may be reported on an inpatient claim.  
If the recorded code is not in this table, the code is invalid, and the A/B MAC (A) returns the claim to the 
provider. 
 
For a list of valid diagnosis or procedure codes see the "International Classification of Diseases revision 
applicable to the date of the inpatient discharge or other service and the "Addendum/Errata" and new codes 
furnished by the A/B MAC (A).  The hospital must review the medical record and/or face sheet and enter the 
correct diagnosis/procedure codes before returning the claim. 
 
2. External Cause of Injury Code as Principal Diagnosis 
 
External Cause of Injury codes describe the circumstances that caused an injury, not the nature of the injury, 
and therefore are not recognized by the Grouper program as acceptable principal diagnoses.  In ICD-9-CM the 
external cause of injury diagnosis codes begin with the letter E.  In ICD-10-CM the external cause of injury 
codes begin with the letters V, W, X and Y.  For a list of all External cause of injury codes, see International 
Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM), and the International 
Classification of Diseases, Tenth Revision, Clinical Modification (ICD-10-CM).  The hospital must review the 
medical record and/or face sheet and enter the correct diagnosis before returning the claim. 
 
3. Duplicate of Principal Diagnosis    
Any secondary diagnosis reported on the claim that is the same code as the principal diagnosis reported on the 
claim is identified as a duplicate of the principal diagnosis.  This is unacceptable because the secondary 
diagnosis may cause an erroneous assignment to a higher severity level MS-DRG.  Hospitals may not repeat a 
diagnosis code.  The A/B MAC (A) will delete the duplicate secondary diagnosis and process the claim. 
 
4. Age Conflict 
 
The MCE detects inconsistencies between a patient's age and any diagnosis on the patient's record.  Examples 
are: 
 
  A 5-year-old patient with benign prostatic hypertrophy. 
 
  A 78-year-old who delivers a baby. 
 
In the above cases, the diagnosis is clinically impossible in a patient of the stated age.  Therefore, either the 
diagnosis or age is presumed to be incorrect.  Four age code categories are described below. 
 
  A subset of diagnoses is intended only for perinatal/newborn.  These are diagnoses that occur during 
the perinatal or newborn period of age 0.   
 
  Certain diagnoses are considered reasonable only for children between the ages of 0 and 17.  These are 
"Pediatric" diagnoses. 
 
  Diagnoses identified as "Maternity" are coded only for patients between the ages of 9 and 64. 
 
  A subset of diagnoses is considered valid only for patients over the age of 14.  These are "Adult" 
diagnoses.  For "Adult" diagnoses the age range is 15 through 124. 
 
The list of diagnoses that are acceptable for each age category can be located in the most current version of the 
Definition of Medicare Code Edits manual which is posted at:  
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-
Classifications-and-Software 
 
Prior versions of the manual can be located at:  
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS  
and select the final rule for the applicable Fiscal Year (FY) from the list on the left.  Then select the 
FY(CCYY) Final Rule Data Files, and scroll down to the Definition of Medicare Code Edits link. 
 
If the A/B MAC (A) edits online, it will return claims for a proper diagnosis or correction of age as applicable.  
If the A/B MAC (A) edits in batch operations after receipt of the admission query response, it uses the age 
based on CMS records and returns claims that fail this edit.  The hospital must review the Electronic Health 
Record (EHR), paper medical record, and/or face sheet and enter the proper diagnosis or patients age before 
returning the claim. 
 
5. Sex Conflict 
 
The MCE detects inconsistencies between a patient's sex and a diagnosis or procedure on the patient's record.  
Examples are: 
 
  Male patient with cervical cancer (diagnosis).   
  Male patient with a hysterectomy (procedure). 
 
In both instances, the indicated diagnosis or the procedure conflicts with the stated sex of the patient.  
Therefore, either the patient's diagnosis, procedure or sex is incorrect. 
 
The MCE contains listings of male and female related diagnosis and procedure codes and the corresponding 
English descriptions.  The hospital should review the EHR, paper medical record, and/or face sheet and enter 
the proper sex, diagnosis, and procedure before returning the claim. 
 
6. Manifestation Code as Principal Diagnosis 
 
A manifestation code describes the manifestation of an underlying disease, not the disease itself, and 
therefore, cannot be a principal diagnosis.  The MCE contains listings of diagnosis codes identified as 
manifestation codes.  The hospital should review the EHR, paper medical record, and/or face sheet and enter 
the proper diagnosis before returning the claim. 
 
7. Nonspecific Principal Diagnosis 
 
Effective October 1, 2007 (FY 2008), the non-specific principal diagnosis edit was discontinued and is only 
applicable when processing claims using MCE version 2.0-23.0 only. 
 
8. Questionable Admission 
 
There are some diagnoses which are not usually sufficient justification for admission to an acute care hospital. 
 
The MCE contains a listing of diagnosis codes identified as "Questionable Admission" when used as principal 
diagnosis. 
 
The A/B MACs (A) may review on a post-payment basis all questionable admission cases.  Where the A/B 
MAC (A) determines the denial rate is sufficiently high to warrant, it may review the claim before payment. 
 
9. Unacceptable Principal Diagnosis 
 
There are selected codes that describe a circumstance which influences an individual's health status but is not 
a current illness or injury; therefore, they are unacceptable as a principal diagnosis.  For example, the 
diagnosis code for family history of a certain disease would be an unacceptable principal diagnosis since the 
patient may not have the disease. 
 
In a few cases, there are codes that are acceptable as a principal diagnosis if a secondary diagnosis is coded.  If 
no secondary diagnosis is present the message "requires secondary dx" will be returned by the MCE.  The A/B 
MAC (A) may review claims with codes from the Unacceptable Principal Diagnosis section and a secondary 
diagnosis.  A/B MACs (A) may choose to review as a principal diagnosis if data analysis deems it a priority. 
 
If codes from the unacceptable principal diagnosis edit code list are identified without a secondary diagnosis, 
the A/B MAC (A) returns the claim to the hospital and requests that the applicable secondary diagnosis be 
entered.  Also, any claims containing other "unacceptable principal diagnosis" codes are returned. 
 
The hospital reviews the EHR, paper medical record, and/or face sheet and enters the appropriate principal 
diagnosis that describes the illness or injury before resubmitting the claim. 
  10. Nonspecific O.R. Procedures 
 
Effective October 1, 2007 (FY 2008), the non-specific O.R. procedure edit was discontinued and is only 
applicable when processing claims using MCE version 2.0-23.0 only. 
 
11. Noncovered O.R. Procedures 
 
There are some O.R. procedures for which Medicare does not provide payment. 
The A/B MAC (A) will return the claim requesting that the non-covered procedure and its associated charges 
be removed from the claim, Type of Bill (TOB) 11X.  If the hospital wishes to receive a Medicare denial, etc., 
the hospital may submit a non-covered claim, TOB 110, with the non-covered procedure/charges.  (For more 
information on billing non-pay claims, see Chapter 1 of this Manual, Section 60.1.4). 
 
12. Open Biopsy Check 
 
Effective October 1, 2010, the open biopsy check edit was discontinued and is only applicable when 
processing claims using MCE version 2.0 - 26.0.  
 
13. Bilateral Procedure 
 
Effective October 1, 2015, the bilateral procedure edit was discontinued and is only used when processing 
claims using MCE version 2.0-33.0. 
 
14. Invalid Age 
 
If the hospital reports an age over l24, the A/B MAC (A) requests the hospital confirm if it made a claim 
preparation error.  If the beneficiary's age is confirmed to be over l24, the hospital enters 123. 
 
15. Invalid Sex 
 
A patient's sex is sometimes necessary for appropriate MS-DRG assignment. The sex code reported must be 
either 1 (male) or 2 (female). 
 
16. Invalid Discharge Status 
 
A patient's discharge status is sometimes necessary for appropriate MS-DRG assignment.  Discharge status 
must be coded according to the Form CMS-1450 and UB-04 conventions.  See Chapter 25. 
 
17. Limited Coverage 
 
For certain procedures whose medical complexity and serious nature incur extraordinary associated costs, 
Medicare limits coverage to a portion of the cost. 
 
18. Wrong Procedure Performed 
 
Certain external causes of morbidity codes indicate that the wrong procedure was performed.  
 
19. Procedure inconsistent with length of stay (LOS)  
 
The following procedure code should only be coded on claims when the respiratory ventilation is provided for 
greater than four consecutive days during the length of stay.   
Effective with discharges on and after October 1, 2015, ICD-10-PCS code, 5A1955Z - Respiratory 
Ventilation, Greater than 96 Consecutive Hours 
 
Prior to this date, discharges on and after October 1, 2012, ICD-9-CM procedure code, 96.72, Continuous 
invasive mechanical ventilation for 96 consecutive hours or more 
 
20. Unspecified Code  
 
Unspecified codes exist for circumstances when documentation in the medical record does not provide the 
level of detail needed to support reporting a more specific code. However, in the inpatient setting, there should 
generally be very limited and rare circumstances for which the laterality (right, left, bilateral) of a condition is 
unable to be documented and reported. 
 
Effective April 1, 2022, the Unspecified Code edit will be triggered for certain unspecified diagnoses codes 
currently designated as either a Complication or Comorbidity (CC) or Major Complication or Comorbidity 
(MCC), that include other codes available in that code subcategory that further specify the anatomic site, when 
entered on the claim. This edit message indicates that a more specific code is available to report. It is the 
providers responsibility to determine if a more specific code from that subcategory is available in the medical 
record documentation by a clinical provider.  
 
If, upon review, additional information to identify the laterality from the available EHR or paper medical 
record, or documentation by any other clinical provider is unable to be obtained or there is documentation in 
the record that the physician is clinically unable to determine the laterality because of the nature of the 
disease/condition, then the provider must enter that information into the remarks section.   
 
The provider should submit the billing note/remarks that best identifies the primary reason why specificity 
could not be determined: 
 
 
Billing Note/Remarks  Definition 
UNABLE TO DET LAT 1  Provider is unable to obtain additional information to 
specify laterality. 
UNABLE TO DET LAT 2  Physician is clinically unable to determine laterality. 
 
20.2.1.1 - Paying Claims Outside of the MCE 
(Rev. 1649; Issued:  12-18-08; Effective/Implementation Date:  11-25-08) 
 
All institutional inpatient claims are routed through the MCE before they are processed to payment.  There 
may be special circumstances, however, when it is necessary to pay claims bypassing MCE edits. The CMS 
will notify the contractor of these instances.  They include:  
 
  New coverage policies are enacted by Congress with effective dates that preclude making the 
necessary changes timely; and  
 
  Errors are discovered that cannot be corrected timely. 
 
A/B MACs (A) are responsible for reporting problems timely. 
 
20.2.1.1.1 - Requesting to Pay Claims Without MCE Approval  (Rev. 1649; Issued:  12-18-08; Effective/Implementation Date:  11-25-08) 
 
The contractor may also request approval from the RO in specific situations to pay claims without first 
sending them through the MCE. Examples of such situations are:  
 
  A systems error cannot be corrected timely, and the provider's cash flow will be substantially 
impacted; and/or  
 
  Administrative Law Judge (ALJ) decisions, court decisions, and CMS instructions in particular cases 
may necessitate that payment be made outside the normal process. 
 
20.2.1.1.2 - Procedures for Paying Claims Without Passing through the MCE 
(Rev. 2117, Issued: 12-10-10, Effective: 01-12-11, Implementation: 01-12-11) 
 
Before an inpatient claim may be paid without first going through the MCE, the contractor shall obtain 
approval from CMS Central Office or the RO. 
 
Note:  In certain situations, contractors bypass the MCE through an established, CMS-instructed claim 
processing procedure (e.g., to verify a facility is certified to perform a specified service after a MCE limited 
coverage edit is applied).  Such scenarios do not require approval from the RO as the approval for such a 
bypass was inherently implied when the established procedure was first implemented. 
 
In all instances involving payment outside the normal inpatient editing process, the contractor applies the 
following procedures:  
 
  Contractors shall submit the claim overriding the MCE using the appropriate field in FISS.  
 
  Pay interest accrued through the date payment is made on clean claims. Do not pay any additional 
interest.  
 
  Maintain a record of payment and implement controls to be sure that incorrect payment is not made, 
i.e., when the claim is paid without being subject to normal editing. 
 
  Monitor MCE software to determine when the impediment to processing is removed. 
 
  Consider the claim processed for workload and expenditure reports when it is paid. 
 
  Submit to the RO Consortium Contractor Manager (CCM) by the 20th of each month a report of all 
inpatient claims paid without processing through the MCE with the exception of override situations 
explained in the Note above (e.g., for limited coverage edits).  The list of claims paid outside of the 
MCE is to include the following information: 
 
  HIC 
o
  DCN 
o
  TOB 
o
  DOS (From/Through) 
o
  Provider Number 
o
  MCE/OCE OVR (Claim/Line) 
o
  Reimbursement Amount 
o
  Receipt Date 
o   Process Date 
o
  Paid Date 
o
 
Also, include summary data for each edit code showing claim volume and payment.  Any override approvals 
received and/or relevant JSM references should be annotated on the reports. 
 
20.2.2 - DRG GROUPER Program 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
The A/B MAC (A) pays for inpatient hospital services on the basis of a rate per discharge that varies 
according to the MS-DRG to which a beneficiary's stay is assigned.  Each MS-DRG represents the average 
resources required to care for a case in that particular MS-DRG relative to the national average of resources 
consumed per case.  The MS-DRG weights used to calculate payment are in the Pricer DRGX file. 
 
The A/B MAC (A) uses the GROUPER program to assign the MS-DRG number.  GROUPER determines the 
MS-DRG from data elements reported by the hospital.  This applies to all inpatient discharge/transfer bills 
received from both PPS and non-PPS facilities, including those from waiver States, long-term care hospitals, 
and excluded units. 
 
The Pricer (PPSMAIN) driver program calls the correct fiscal year GROUPER based upon the discharge date.  
If the A/B MAC (A) or shared system writes its own driver program, it must access the GROUPER for the 
correct FY based on discharge date.  GROUPER does not determine the MS-DRG price.  GROUPER 
input/output are specified below.  The A/B MAC (A) determines the best place in its total system to place the 
GROUPER program. 
 
Grouper requires the following items: 
 
1. Principal and up to 24 other diagnoses 
 
2. Principal and up to 24 additional procedures 
 
3. Age at last birthday at admission 
 
4. Sex (1=male and 2=female) 
 
5. Discharge destination (patient status code from the claim) 
 
The claim sex coding is M for male and F for female while GROUPER is l for male and 2 for female.  
Discharge destination codes are similar to claim definitions for patient status except codes 20-29 are 
summarized as 20.  The A/B MAC (A) calculates age at admission.  GROUPER needs age rather than date of 
birth. 
 
Grouper responds with the following information: 
 
1.  Major diagnostic category 
 
2.  MS-DRG number 
 
3.  Grouper return code (a one position code indicating the action taken by the program) 
  4.  Procedure code used in determining the MS-DRG 
 
5.  Diagnosis code used in determining the MS-DRG 
 
6.  Secondary diagnosis code used in determining the MS-DRG, if applicable 
 
20.2.3 - PPS Pricer Program 
(Rev. 1, 10-01-03) 
 
A3-3615.3, A3-3656.3 
 
The CMS provides a Pricer program to determine the price upon which to base payment under prospective 
payment.  A separate Pricer installation guide is provided.  The A/B MAC (A) uses the Pricer appropriate for 
the date of discharge. 
 
After GROUPER determines the DRG, the A/B MAC (A) 's system calls the Pricer program.  Pricer 
determines the price to pay and prepares a report. 
 
Four data files are included.  CMS maintains three: 
 
  DRGX file - contains DRG weights, average length of stay and outlier cutoff points. 
 
  MSAX file - contains urban and rural wage indexes used in calculating payment.  CMS may request 
that the A/B MAC (A) make interim changes to this file when index changes are issued for individual 
hospitals after issuance of Pricer for the period. 
 
  RATE file - contains census division values and updating amounts used in calculating payment. 
 
The A/B MAC (A) maintains the provider-specific file, (PROV file).  This contains information about the 
facts specific to the provider that affect computations, e.g., effective dates for PPS, type of provider (for 
application of special computation rules), census division, MSA, adjusted cost per discharge, disproportionate 
share adjustment percentage, and capital data. 
 
Pricer also calculates the disproportionate share adjustment and adds it to the DRG payment.  Correct 
calculation depends upon the accuracy of related information the A/B MAC (A) includes in the PRICER 
PROV file. 
 
The Pricer program applies the DRG relative weights, hospital urban or rural and census division location, 
provider-specific data, and beneficiary hospital data from the bill to determine the amount payable for each 
PPS discharge bill. 
 
Pricer uses the Intern-to-Bed ratio in calculating the indirect teaching adjustment for operating costs for the 
A/B MAC (A) to accumulate and use in related payments.  Pricer uses the intern-to-average daily census ratio 
to calculate the indirect teaching adjustment for capital costs.  The A/B MAC (A) ensures that these ratios are 
available for Pricer to compute payment for teaching hospitals.  It includes the ratios in its PROV file to 
ensure that cost outliers are not overpaid to its teaching hospitals. 
 
Pricer does not calculate utilization days required for the PS&R, CWF, or cost report.  It does not determine 
the amount to pay after deduction for deductible, coinsurance, or the primary payment where Medicare is 
secondary.  The A/B MAC (A) must calculate the price and make adjustments to the price furnished before 
making payment.   
The A/B MACs (A) use the Pricer implementation guide for information concerning Pricer processing reports, 
input parameters and data requirements. 
 
20.2.3.1 - Provider-Specific File 
(Rev. 3836, Issued: 08-18-17, Effective: 11-21-17, Implementation: 11-21-17) 
 
The PROV file contains needed information about each provider to enable the pricing software to calculate the 
payment amount.  The FI maintains the accuracy of the data in accordance with the following criteria. 
 
Whenever the status of any element changes, the FI prepares an additional record showing the effective date.  
For example, when a hospital's FY beginning date changes as a result of a change in ownership or other "good 
cause," the FI makes an additional record showing the effective date of the change. 
 
The format and data required by the PRICER program and by the provider-specific file is found in Addendum 
A. 
 
The FIs submit a file of provider-specific payment data to CMS CO every three months for PPS and non-PPS 
hospitals, inpatient rehabilitation hospitals or units (referred to as IRFs), long term care hospitals (LTCHs), 
inpatient psychiatric facilities (IPFs), SNFs, and hospices, including those in Maryland.  Regional home health 
FIs (RHHIs) submit a file of provider specific data for all home health agencies.  FIs serving as the audit FI 
for hospital based HHAs do not submit a file of provider specific data for HHAs. 
 
The FIs create a new record any time a change occurs for a provider.  Data must be reported for the following 
periods:  October 2 - January 1, January 2 - April 1, April 2 - July 1, and July 2 - October 1.  This file must be 
received in CO within seven business days after the end of the period being reported. 
 
NOTE:  FIs submit the latest available provider-specific data for the entire reporting period to CO by the 
seven-business day deadline.  If CO fails to issue applicable instructions concerning changes or additions to 
the file fields by 10 calendar days before the end of the reporting period, the FI may delay reporting of data 
related to the CO instructions until the next file due date.  For example, if CO instructions changing a file field 
are issued on or after September 21 with an effective date of October 1, the FI may exclude the October 1 CO-
required changes from the file submitted by October 9.  The FI includes the October 1 CO-required changes, 
and all subsequent changes through January 1 in the file submitted in January. 
 
A.  PPS Hospitals 
 
The FIs submit all records (past and current) for all PPS providers every three months.  Duplicate the provider 
file used in the "PRICER" module of the claims processing system. 
 
B.  Non-PPS Hospitals and Exempt Units 
 
The FIs create a provider specific history file using the listed data elements for each non-PPS hospital and 
exempt hospital unit.  Submit the current and the preceding fiscal years every three months.  Code Y in 
position 49 (waiver code) to maintain the record in the PRICER PROV file. 
 
C.  Hospice 
 
The FIs create a provider specific history file using the following data elements for each hospice.  Submit the 
current and the preceding fiscal years every three months.  Data elements 3, 4, 5, 6, 9, 10, 13, and 17 are 
required.  All other data elements are optional for this provider type.   
Effective October 1, 2005, data element 13 is no longer applicable to payment applications but is still 
required.  Data element 35 is required for all hospices.  Data elements 33 and 38 are optional and may be 
populated if needed. 
 
Effective October 1, 2013, data element 34 (Hospital Quality Indicator) is required. 
 
D.  Skilled Nursing Facility (SNF) 
 
The FIs create a provider specific history file using the following data elements for each SNF beginning with 
their first cost reporting period that starts on or after July 1, 1998. 
The FIs submit the current and the preceding fiscal years every three months.  For PPS-exempt providers, 
code Y in position 49 (waiver code) to maintain the record in the PRICER PROV file.  Data elements 3, 4, 5, 
6, 9, 10, 13, 19, and 21 are required.  All other data elements are optional for this provider type. 
 
Effective October 1, 2005, data element 13 is no longer applicable to payment applications but is still 
required.  Data element 35 is required for all SNFs.  Data elements 33 and 38 are required if there is a special 
wage index.  Effective October 1, 2005, through September 30, 2006, data elements 33 and 38 are required 
since there is a special wage index. 
 
E.  Home Health Agency (HHA) 
 
The FIs create a provider specific history file using the following data elements for each HHA.  Regional 
home health FIs (RHHIs) submit the current and the preceding fiscal years every three months.  Data elements 
3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 19 and 30 are required.  All other data elements are optional for this provider 
type.  All fields must be zero filled if not completed.  Update the effective date in data element 4 annually.  
Ensure that the current census division in data element 11 is not zero.  Ensure that the waiver indicator in data 
element 8 is N.  Ensure that the MSA code reported in data element 13 is a valid MSA code. 
 
F.  Inpatient Rehabilitation Facilities (IRFs) 
 
The FIs create a provider specific history file using the following data elements for each IRF beginning with 
their first cost reporting period that starts on or after January 1, 2002.  FIs submit the current and the preceding 
fiscal years every three months.  For PPS-exempt providers, code Y in position 49 (waiver code) to maintain 
the record in the PRICER PROV file.  Data elements 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 18, 19, 21, 25, 27, 28, 
and 42 are required.  All other data elements are optional for this provider type. 
 
Effective October 1, 2005, data element 13 is no longer applicable to payment applications but is still 
required.  Data element 35 is required for all IRFs.  Data elements 17, 33, 38, and 49 are required if applicable 
to the IRF. 
 
Effective October 1, 2013, data element 34 (Hospital Quality Indicator) is required. 
 
G.  Long Term Care Hospital (LTCH) 
 
The FIs create a provider specific history file using the following data elements for each LTCH beginning 
with their first cost reporting period that starts on or after October 1, 2002.  FIs submit the current and the 
preceding fiscal years every three months.  For PPS-exempt providers, code Y in position 49 (waiver code) to 
maintain the record in the PRICER PROV file.  Data elements 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 18, 19, 
21, 22, and 25 are the minimum required fields for entering a provider under LTCH PPS. 
  Effective July 1, 2005, data element 35 is required.  Data elements 33 and 38 are optional and may be 
populated if needed.  Data elements 12, 13, and 14 are no longer applicable. 
 
Effective July 1, 2006, data elements 23, 24, 27, 28, and 49 are required. 
 
Effective October 1, 2013, data element 34 (Hospital Quality Indicator) is required. 
 
H.  Inpatient Psychiatric Facilities (IPF) 
 
The FIs create a provider specific history file using the following data elements for each IPF beginning with 
their first cost reporting period that starts on or after January 1, 2005. 
 
The FIs submit the current and the preceding fiscal years every three months.  For PPS-exempt providers, 
code Y in position 49 (waiver code) to maintain the record in the PRICER PROV file.  Data elements 1, 2, 3, 
4, 5, 6, 7, 8, 9, 10, 13, 17, 18, 19, 21, 22, 23, 25, 33, 35, 38, and 48 are required.  All other data elements are 
optional for this provider type.  Although data element 25 refers to the operating cost to charge ratio, ensure 
that both operating and capital cost-to-charge ratio are entered in data element 25 for IPFs.  Ensure that data 
element 21 (Facility Specific Rate) will be determined using the same methodology to determine the interim 
payment per discharge under the TEFRA system. 
 
Effective July 1, 2006, data element 13 is no longer required.  Data elements 33 and 38 are optional and may 
be populated if needed. 
 
Effective October 1, 2013, data element 34 (Hospital Quality Indicator) is required. 
 
NOTE: All data elements, whether required or optional, must have a default value of 0 (zero) if numerical, 
or a blank value if alphanumerical. 
 
The provider specific file (PSF) should be transferred to CO using the Network Data Mover (NDM) system, 
COPY TO and RUN JOB statements, which will notify CO of PSF file transfer.  FIs must set up an NDM 
transfer from the FI's system for which it is responsible.  It is critical that the provider specific data is copied 
to the CMS Data Center using the following input data set names ("99999" should be changed to the FI's 5-
digit number): 
 
Data set Name ---COPY TO: --MU00.@FPA2175.intermediary99999 
 
DCB=(HCFA1.MODEL,BLKSIZE=2400,LRECL=2400,RECFM=FB) 
 
Data set Name ---RUN JOB:  --MU00.@FPA2175.CLIST(intermediary99999) 
 
20.3 - Additional Payment Amounts for Hospitals with Disproportionate Share of Low-
Income Patients 
(Rev. 2393, Issued: 01-25-12, Effective: 10-01-11, Implementation: 07-02-12) 
 
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, (Public Law: 99-272), provides for 
an additional payment to an urban hospital of 100 or more beds that serves a disproportionate share of low-
income patients. 
 
Adjustments are made in the Federal portion of the operating cost DRG payment to increase payments to 
hospitals serving a disproportionate share of low-income patients.  The additional payment equals the Federal 
portion of the operating cost DRG payment and outlier payments, but excludes any additional payments for 
the costs of indirect medical education multiplied by an adjustment percentage.   
If a hospital meets the disproportionate share hospital (DSH) definition, an additional operating cost payment 
will be made for discharges occurring on or after May 1, 1986.  The DSH adjustment is applied only to the 
Federal portion of the operating cost DRG payment (including outlier payments).  It is basically a year-end 
lump sum adjustment.  However, the A/B MAC (A) will identify hospitals that are eligible to receive the DSH 
adjustment and make interim payments subject to a year-end settlement based upon the hospital's DSH 
percentage for the cost reporting period.  The DRG payment a hospital receives includes the interim operating 
cost DSH payment and an interim operating indirect medical education adjustment. 
 
For services on or after October 1, 1997, the DSH percentage is not applied to outlier payments. 
 
The Supplemental Security Income (SSI)/Medicare Beneficiary Data for IPPS hospitals is located at the 
following CMS web address: 
 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.html 
 
The data is used for settlement purposes for hospitals.  
 
Note that CMS issues a Recurring Update Notification prior to the Federal Fiscal Year beginning date to 
provide contractors with the updated SSI file information. 
 
A. - Regular Calculation of DSH Percentage 
 
The operating DSH percentage is the sum of: 
 
  The percentage of the hospital's total Medicare Part A patient days attributable to Medicare patients 
who are also SSI recipients (this percentage will be supplied to the A/B MAC (A) by CMS).  Since the 
SSI/Medicare percentages are determined by CMS on a fiscal year basis, hospitals will be afforded the 
option (for settlement purposes) of determining their SSI/Medicare percentage based upon data from 
their own cost reporting period.  If a hospital avails itself of this option, it must furnish its FI, in a 
manner and format prescribed by CMS, data on its Medicare patients for the cost reporting period.  
CMS will match these data to data supplied by SSA to determine the patients dually entitled to 
Medicare Part A and SSI for the hospital's cost reporting period.  The hospital bears the full cost of this 
process, including the cost of verification by SSA. 
 
Consistent with the regulations at 42 CFR 412.106(b)(2)(i) and 412.106(b)(2)(iii), patients who are 
enrolled in Medicare Advantage (administered through Medicare Part C) should also be included in the 
Medicare fraction. These days will be included in the Medicare/SSI fraction, but in order for them to be 
counted, the hospital must submit an informational only bill (TOB 111) which includes Condition Code 04 
to their Medicare contractor.  This will ensure that these days are included in the hospitals SSI ratio for 
Fiscal Year 2007 and beyond. 
 
Acute Care hospitals that received DSH during FY 2006 are also required to submit informational only 
bills for their Medicare Advantage patients.  
 
For MA patients, Long Term Care Hospitals are also required to submit informational only bills (TOB 
111) with Condition Code 04.  
 
For MA patients, Inpatient Rehabilitation Facilities are also required to submit informational only bills 
(TOB 111) with both Condition Code 04 and the Case Mix Group (CMG) from the IRF PAI. Refer to 
section 140.2.4.3 for the requirements for Inpatient Rehabilitation Facilities.   
(Teaching hospitals do not need to submit additional claims with Condition Code 04 as they already 
submit claims for Indirect Medical Education for MA beneficiaries with Condition Codes 04 and 69.  We 
will capture SSI information from these claims.) 
 
  The percentage of total patient days attributable to patients entitled to Medicaid, but not to Medicare 
Part A.  (Medicaid days and total days are available on the cost report.) 
 
For operating DSH payments: 
 
For discharges between May 1, 1986, and March 31, 1990, a hospital qualifies for an operating cost DSH 
adjustment if it has a DSH percentage of: 
 
  At least 15 percent for an urban hospital with 100 or more beds; 
 
  At least 40 percent for an urban hospital with less than 100 beds; or 
 
  At least 45 percent for a rural hospital, with fewer than 500 beds. 
 
For discharges on and after October 1, 1986, the hospital qualifies for an operating cost DSH adjustment if it 
has a DSH percentage of at least 15 percent, is located in a rural area, and has 500 or more beds. 
 
For discharges between April 1, 1990 and December 31, 1995, a hospital qualifies for an operating DSH 
adjustment if it has a DSH percentage of: 
 
  At least 15 percent for an urban hospital with 100 or more beds, or a rural hospital with 500 or more 
beds; 
 
  At least 40 percent for an urban hospital with fewer than 100 beds; 
 
  At least 45 percent for a rural hospital with 100 beds or fewer, if it is not also classified as a sole 
community hospital; or 
 
  At least 30 percent for a rural hospital with more than 100 beds which is classified as a sole 
community hospital. 
 
A hospital qualifies for a capital DSH adjustment if it is located in a large urban or other urban area, has at 
least 100 beds, and has a DSH percentage greater than 0. 
 
For the DSH determination, the number of beds in a hospital is determined by counting the number of 
inpatient care bed days available during the cost reporting period, excluding beds assigned to newborns, 
custodial care, and PPS excluded distinct part hospital units, and dividing that number by the number of days 
in the cost reporting period.  Inpatient care bed days available should be the same as Indirect Medical 
Education (IME) bed days.  Available beds may not match the number of licensed beds. 
 
B. - Determination of Operating DSH Adjustment Percentage 
 
Hospitals that meet the DSH percentage criteria are entitled to adjustments to the Federal portion of their 
operating cost DRG payments (including the Federal portion of outlier payments) as follows.  For hospitals 
that qualify for DSH payment, Pricer calculates the DSH adjustment percentage.  (See 20.2.3.)  The 
following procedures are used to calculate the DSH adjustment.   
For the period May 1, 1986 - September 30, 1988: 
 
Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds - The lesser of 15 
percent or the percentage determined by using the following formula: 
 
(DSH % - 15)(.5) + 2.5 
 
EXAMPLES: 
 
Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21.  Its DSH payment factor is 
computed: 
 
(21 - 15)(.5) + 2.5 = 5.5% 
 
DSH adjustment factor = 5.5% (.0550) 
 
Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45.  Its DSH payment adjustment 
factor is computed: 
 
(45 - 15)(.5) + 2.5 = 17.5% 
 
DSH adjustment factor = 15% (.1500) (the maximum adjustment under the law) 
 
  Urban hospitals with fewer than 100 beds - 5 percent. 
 
  Rural hospitals with fewer than 500 beds - 4 percent. 
 
For the period October 1, 1988 - March 31, 1990: 
 
  Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds - the following 
formula is used: 
 
(DSH % - 15) (.5) + 2.5 
 
EXAMPLES: 
 
Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent.  Its DSH payment 
factor is computed: 
 
(21-15)(.5) + 2.5 = 5.5% 
 
DSH adjustment factor = 5.5% (.0550) 
 
Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent.  Its DSH payment 
adjustment factor is computed: 
 
(45-15) (.5) + 2.5 = 17.5% 
 
DSH adjustment factor = 17.5% (.1750, the limit was removed effective 10/1/88) 
    Urban hospitals with fewer than 100 beds - 5 percent. 
 
  Rural hospitals with fewer than 500 beds - 4 percent. 
 
For the period April 1, 1990 - December 31, 1995: 
 
  Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose DSH 
percentage is greater than 20.2  - the following formula is used: 
 
Through December 31, 1990 - (DSH % - 20.2) (.65) + 5.62 
 
January 1, 1991, and later - (DSH % - 20.2) (.7) + 5.62 
 
EXAMPLES: 
 
Hospital A is an urban hospital with 200 beds and has a DSH percentage of 21 percent.  Its December 1990 
DSH payment factor is computed: 
 
(21 - 20.2) (.65) + 5.62 = 6.14% 
 
DSH adjustment factor = 6.14% (.0614) 
 
Hospital B is an urban hospital with 250 beds and has a DSH percentage of 45 percent.  Its December 1990 
DSH payment adjustment factor is computed: 
 
(45 - 20.2) (.65) + 5.62% = 21.74% 
 
DSH adjustment factor = 21.74% (.2174) 
 
Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose DSH percentage 
is equal to or less than 20.2 - the following formula is used: 
 
(DSH % - 15) (.6) + 2.5 
 
  Urban hospitals with fewer than 100 beds - 5 percent. 
 
  Rural hospitals that are RRCs and sole community hospitals - the greater of 10 percent or the 
percentage determined using the following formula: 
 
(DSH % - 30) (.6) + 4.0 
 
EXAMPLES: 
 
Hospital C is a rural hospital that is an RRC and a sole community hospital, and has a DSH percentage of 35 
percent.  Its DSH payment factor is computed: 
 
(35 - 30) (.6) + 4.0 = 7% 
 
DSH adjustment factor = 10% (.1000) 
  Hospital D is a rural hospital which is a RRC and a sole community hospital.  It has a DSH percentage of 45 
percent.  Its DSH payment factor is computed: 
 
(45 - 30) (.6) + 4.0 = 13% 
 
DSH adjustment factor is 13% (.1300) 
 
  Rural hospitals that are RRCs, but are not sole community hospitals-the following formula is 
used: 
 
(DSH % - 30) (.6) + 4.0 
 
  Rural hospitals that are sole community hospitals, but are not RRCs - 10 percent. 
 
  Rural hospitals not described above with 100 beds or less - 4 percent if DSH percentage is 45 
percent or more. 
 
  Rural hospitals not described above with more than 100 beds but fewer than 500 beds - 4 percent 
if DSH percentage is 30 percent or more. 
 
  Urban hospitals with 100 or more beds whose DSH percentage is less than or equal to 20.2 - the 
following formula is used: 
 
(DSH % - 15) (.6) + 2.5 
 
For the period October 1, 1993, through September 30, 1994: 
 
  Urban hospitals with 100 or more beds whose DSH percentage is greater than 20.2-the following 
formula is used: 
 
(DSH % - 20.2) (.8) + 5.88 
 
  Urban hospitals with 100 or more beds whose DSH percentage is less than or equal to 20.2 - the 
following formula is used: 
 
(DSH % - 15) (.6) + 2.5 
  Rural hospitals that are RRCs and sole community hospitals - the greater of 10 percent or the 
percentage determined using the following formula: 
 
(DSH % - 30) (.6) + 4.0 
 
 
EXAMPLES: 
 
Hospital C is a rural hospital that is a RRC and a sole community hospital.  It has a DSH percentage of 35 
percent.  The DSH payment factor is computed: 
 
(35 - 30) (.6) + 4.0 = 7% 
 
DSH adjustment factor = 10% (.1000), the greater payment 
  Hospital D is a rural hospital that is a RRC and a sole community hospital.  It has a DSH percentage of 45 
percent.  Its DSH payment factor is computed: 
 
(45 - 30) (.6) + 4.0 = 13% 
 
DSH adjustment factor = 13% (.1300) 
 
Rural hospitals that are RRCs and are not sole community hospitals - the percentage is determined using 
the following formula: 
 
(DSH % - 30) (.6) + 4.0 
 
  Rural hospitals that are sole community hospitals and are not RRCs - 10 percent. 
 
  Rural hospitals not described above - 4 percent. 
 
For discharges after September 30, 1994: 
 
  Urban hospitals with 100 or more beds and rural hospitals with 500 or more beds whose DSH 
percentage is greater than 20.2 - the percentage is determined using the following formula: 
 
(DSH % - 20.2) (.825) + 5.88 
 
  Urban hospitals with 100 or more beds whose DSH percentage is less than or equal to 20.2 - the 
following formula is used: 
 
(DSH % - 15) (.65) + 2.5 
 
  Rural hospitals that are RRCs and sole community hospitals - the greater of 10 percent or the 
percentage determined with the following formula: 
 
(DSH % - 30) (.6) + 4.0 
 
EXAMPLES: 
 
Hospital C is a rural hospital that is an RRC and a sole community hospital.  It has a DSH percentage of 35 
percent.  Its October 1994 DSH payment factor is computed: 
 
(35 - 30) (.6) + 4.0 = 7% 
 
DSH adjustment factor = 10% (.1000), the greater rate 
 
Hospital D is a rural hospital that is an RRC and a sole community hospital.  It has a DSH percentage of 45 
percent.  Its October 1994 DSH payment factor is computed: 
 
(45 - 30) (.6) + 4.0 = 13% 
 
DSH adjustment factor = 13% (.1300) 
 
  Rural hospitals that are RRCs, but not sole community hospitals - Use the following formula: 
  (DSH % - 30) (.6) + 4.0 
 
  Rural hospitals that are sole community hospitals and are not RRCs - 10 percent. 
 
  Rural hospitals not described above - 4 percent. 
 
The amount of the operating cost DSH adjustment is computed by multiplying the Federal portion of the 
hospital's operating cost DRG revenues by the appropriate DSH adjustment factor. 
 
EXAMPLE:  Hospital A's DSH payment adjustment factor is 5.5 percent (.0550).  The Federal portion of its 
DRG revenues including appropriate outlier payments, but excluding any payments for indirect medical 
education costs, equals $100,000. 
 
Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055 = $5,500 
 
The A/B MAC (A) will accumulate a record of the DSH amount paid, the Federal portion of the operating cost 
DRG and any outlier amount for hospital discharges after April 30, 1986, to use at cost settlement. 
 
C. - Computation of DSH Adjustment 
 
Compute the amount of the DSH adjustment by multiplying the Federal portion of the hospital's DRG 
revenues by the appropriate DSH adjustment factor. 
 
EXAMPLE:  Hospital A's DSH payment adjustment factor is 5.5 percent (or .0550).  The Federal portion of 
its DRG revenues (including appropriate outlier payments, but excluding any payments for indirect medical 
education costs) equals $100,000. 
 
Federal DRG revenues x DSH adjustment factor = DSH adjustment amount $100,000 x .055 = $5,500 
 
D. - DSH Exception 
 
The law contains a provision whereby a hospital can qualify for an operating cost DSH adjustment of: 
 
  15 percent for discharges prior to October 1, 1988; 
 
  25 percent for discharges between October 1, 1988, and April 1, 1990; 
 
  30 percent for discharges from April 1, 1990, through September 31, 1991; 
 
  35 percent for discharges on or after October 1, 1991, if: 
 
  It is located in an urban area and has 100 or more beds; and 
 
  It demonstrates that, during its cost reporting period, more than 30 percent of its total inpatient care 
revenues were derived from State and local government payments for indigent care furnished to 
patients not covered by Medicare or Medicaid. 
 
It is incumbent upon the hospital to demonstrate that more than 30 percent of its total inpatient care revenues 
are from State and local government sources and that they are specifically earmarked for the care of indigents 
(that is, none of the money may be used for any purpose other than indigent care).  The following are the types 
of care that are not included as indigent care:   
  Free care furnished to satisfy a hospitals Hill-Burton obligation. 
 
  Free care or care a hospital furnished at reduced rates to its employees or by a government hospital to 
any category of public employee. 
 
  Funds furnished to a hospital to cover general operating deficits. 
 
  The adjustment is not automatic from year to year but must be applied for on an annual basis. 
 
Documentation to support the application includes the hospital's complete audited financial statements and 
their accompanying notes.  The hospital must provide detailed schedules related to State and local revenue 
appropriations and outline their purpose. 
 
Unless the appropriations are specifically earmarked for indigent patient care, the A/B MAC (A) shall assume 
that a portion of the funds was intended to cover the costs of other uncompensated care, such as bad debts for 
non-indigent patients, free care to employees, etc., as well as to cover general operating deficits.  The A/B 
MAC (A) shall calculate the percentage of charity care included in all uncompensated care and apply the 
percentage to the appropriate funds to determine the amount appropriated for charity care. 
 
Hospitals must submit documentation to support amounts claimed as indigent patient care.  This includes a 
copy of their procedures for determining indigence, steps used to verify a patient's financial information, and 
methods used to distinguish bad debts from indigence. 
 
The A/B MAC (A) shall review the documentation submitted in support of the provider's request for a 
disproportionate share adjustment under 42 CFR 412.106(c)(2) of the regulations.  Beginning with Federal 
Fiscal Year (FY) 2011 A/B MACs (A) shall submit to CMS annually by February 28 documentation for the 
hospitals they determine meet the qualifying standards for receiving disproportionate share hospital (DSH) 
payments under section 42 CFR 412.106(c)(2).  This review can be accomplished in conjunction with the 
audit/settlement of the cost report for the period subject to the adjustment.  At a minimum, the A/B MAC (A) 
shall: 
 
  Verify total inpatient revenues; 
 
  Verify that State and local government appropriations on the financial statements are consistent with 
amounts contained in governmental appropriations bills; 
 
  Review, on the basis of a sample of cases, the provider's implementation of procedures for identifying 
indigent patients.  Ensure that amounts for "indigent" patients do not include charges associated with: 
 
  Titles XIX and XVIII patient care; 
 
  Hill-Burton care; 
 
  Free care to employees; and 
 
  Bad debts for patients who are not indigent. 
 
E. - Reporting for PS&R and CWF 
  The A/B MAC (A) 's PPS Pricer identifies the amount of the DSH adjustment on each bill.  The A/B MAC 
(A) reports this amount with value code 18 to its PS&R, and to CWF. 
 
20.3.1 - Clarification of Allowable Medicaid Days in the Medicare Disproportionate 
Share Hospital (DSH) Adjustment Calculation 
(Rev. 1, 10-01-03) 
 
20.3.1.1 - Clarification for Cost Reporting Periods Beginning On or After January 1, 
2000 
(Rev. 1, 10-01-03) 
 
PM A-01-03 
 
Under 1886(d)(5)(F) of the Social Security Act (the Act), the Medicare disproportionate share patient 
percentage is made up of two computations.  The first computation includes patient days that were furnished 
to patients who, during a given month, were entitled to both Medicare Part A and Supplemental Security 
Income (SSI) (excluding State supplementation).  This number is divided by the number of covered patient 
days utilized by patients under Medicare Part A for that same period.  The second computation includes 
patient days associated with beneficiaries who were eligible for medical assistance (Medicaid) under a State 
plan approved under Title XIX but who were not entitled to Medicare Part A.  (See 42 CFR 412.106(b)(4).)  
This number is divided by the total number of patient days for that same period. 
 
Included Days 
 
In calculating the number of Medicaid days, the hospital must determine whether the patient was eligible for 
Medicaid under a State plan approved under Title XIX on the day of service.  If the patient was so eligible, the 
day counts in the Medicare disproportionate share adjustment calculation.  The statutory formula for 
"Medicaid days" reflects several key concepts.  First, the focus is on the patient's eligibility for Medicaid 
benefits as determined by the State, not the hospital's "eligibility" for some form of Medicaid payment.  
Second, the focus is on the patient's eligibility for medical assistance under an approved Title XIX State plan, 
not the patient's eligibility for general assistance under a State-only program.  Third, the focus is on eligibility 
for medical assistance under an approved Title XIX State plan, not medical assistance under a State-only 
program or other program.  Thus, for a day to be counted, the patient must be eligible on that day for medical 
assistance benefits under the Federal-State cooperative program known as Medicaid (under an approved Title 
XIX State plan).  In other words, for purposes of the Medicare disproportionate share adjustment calculation, 
the term "Medicaid days" refers to days on which the patient is eligible for medical assistance benefits under 
an approved Title XIX State plan.  The term "Medicaid days" does not refer to all days that have some relation 
to the Medicaid program, through a matching payment or otherwise; if a patient is not eligible for medical 
assistance benefits under an approved Title XIX State plan, the patient day cannot become a "Medicaid day" 
simply by virtue of some other association with the Medicaid program. 
 
Medicaid days, for purposes of the Medicare disproportionate share adjustment calculation, include all days 
during which a patient is eligible, under a State plan approved under Title XIX, for Medicaid benefits, even if 
Medicaid did not make payment for any services.  Thus, Medicaid days include, but are not limited to, days 
that are determined to be medically necessary but for which payment is denied by Medicaid because the 
provider did not bill timely, days that are beyond the number of days for which a State will pay, days that are 
utilized by a Medicaid beneficiary prior to an admission approval but for which a valid enrollment is 
determined within the prescribed period, and days for which payment is made by a third party.  In addition, we 
recognize in the calculation days that are utilized by a Medicaid beneficiary who is eligible for Medicaid 
under a State plan approved under Title XIX through a managed care organization (MCO) or health  maintenance organization (HMO).  However, in accordance with 42 CFR 412.106(b)(4), a day does not count 
in the Medicare disproportionate share adjustment calculation if the patient was entitled to both Medicare Part 
A and Medicaid on that day.  Therefore, once the eligibility of the patient for Medicaid under a State plan 
approved under Title XIX has been verified, the A/B MAC (A) must determine whether any of the days are 
dual entitlement days and, to the extent that they are, subtract them from the other days in the calculation. 
 
Excluded Days 
 
Many States operate programs that include both State-only and Federal-State eligibility groups in an 
integrated program.  For example, some States provide medical assistance to beneficiaries of State-funded 
income support programs.  These beneficiaries, however, are not eligible for Medicaid under a State plan 
approved under Title XIX, and, therefore, days utilized by these beneficiaries do not count in the Medicare 
disproportionate share adjustment calculation.  If a hospital is unable to distinguish between Medicaid 
beneficiaries and other medical assistance beneficiaries, then it must contact the State for assistance in doing 
so. 
 
In addition, if a given patient day affects the level of Medicaid DSH payments to the hospital but the patient is 
not eligible for Medicaid under a State plan approved under Title XIX on that day, the day is not included in 
the Medicare DSH calculation. 
 
It should be noted that the types of days discussed above are not necessarily the only types of excluded days.  
Please see the chart in 140.2.4.1, which summarizes some, but not necessarily all, of the types of days to be 
excluded from (or included in) the Medicare DSH adjustment calculation. 
 
To provide consistency in both components of the calculation, any days that are added to the Medicaid day 
count must also be added to the total day count, to the extent that they have not been previously so added. 
 
Regardless of the type of allowable Medicaid day, the hospital bears the burden of proof and must verify with 
the State that the patient was eligible under one of the allowable categories during each day of the patient's 
stay.  The hospital is responsible for and must provide adequate documentation to substantiate the number of 
Medicaid days claimed.  Days for patients that cannot be verified by State records to have fallen within a 
period wherein the patient was eligible for Medicaid as described in this memorandum cannot be counted. 
 
20.3.1.2 - Hold Harmless for Cost Reporting Periods Beginning Before January 1, 2000 
(Rev. 1, 10-01-03) 
 
In accordance with the hold harmless position communicated by CMS on October 15, 1999, for cost reporting 
periods beginning before January 1, 2000, hospitals are not to disallow, within the parameters discussed 
below, the portion of Medicare DSH adjustment payments previously made to hospitals attributable to the 
erroneous inclusion of general assistance or other State-only health program, charity care, Medicaid DSH, 
and/or ineligible waiver or demonstration population days in the Medicaid days factor used in the Medicare 
DSH formula.  This is consistent with CMS' determination that hospitals and A/B MACs (A) relied, for the 
most part, on Medicaid days data obtained from State Medicaid agencies to compute Medicare DSH payments 
and that some of those agencies commingled the types of otherwise ineligible days listed above with Medicaid 
Title XIX days in the data transmitted to hospitals and/or A/B MACs (A).  Although CMS has decided to 
allow the hospitals to be held harmless for receiving additional payments resulting from the erroneous 
inclusion of these types of otherwise ineligible days, this decision is not intended to hold hospitals harmless 
for any other aspect of the calculation of Medicare DSH payments or any other Medicare payments. 
 
Hospitals That Received Payments Reflecting the Erroneous Inclusion of Days at Issue 
  In practical terms this means that the A/B MAC (A) is not to reopen any cost reports for cost reporting periods 
beginning before January 1, 2000, to disallow the portions of Medicare DSH payments attributable to the 
erroneous inclusion of general assistance or other State-only health program charity care, Medicaid DSH, 
and/or ineligible waiver or demonstration population days if the hospital received payments for those days 
based on those cost reports.  If, prior to the issuance of this Program Memorandum, a hospital reopened a 
settled cost report to disallow the portion of Medicare DSH payment attributable to the inclusion of these 
types of days, reopen that cost report again and refund the amounts (including interest) collected.  Do not, 
however, pay the hospitals interest on the amounts previously recouped as result of the disallowance.  
Furthermore, on or after October 15, 1999, the A/B MAC (A) is not to accept reopening requests for 
previously settled cost reports or amendments to previously submitted cost reports pertaining to the inclusion 
of these types of days in the Medicare DSH formula. 
 
For cost reporting periods beginning before January 1, 2000, hospitals are to continue to allow these types of 
days in the Medicare DSH calculation for all open cost reports only in accordance with the practice followed 
for the hospital at issue before October 15, 1999, (i.e., for open cost reports, the A/B MAC (A) allows only 
those types of otherwise ineligible days that the hospital received payment for in previous cost reporting 
periods settled before October 15, 1999).  For example, if, for a given hospital, a portion of Medicare DSH 
payment was attributable to the erroneous inclusion of general assistance days for only the out-of-State or 
HMO population in cost reports settled before October 15, 1999, the A/B MAC (A) is to include the ineligible 
waiver days for only that population when settling open cost reports for cost reporting periods beginning 
before January 1, 2000.  However, the actual number of general assistance and other State-only health 
program, charity care, Medicaid DSH, and/or ineligible waiver or demonstration days, as well as Medicaid 
Title XIX days that the A/B MAC (A) allows for the open cost reports must be supported by auditable 
documentation provided by the hospital. 
 
Hospitals That Did Not Receive Payments Reflecting the Erroneous Inclusion of Days at Issue 
 
If a hospital did not receive any payment based on the erroneous inclusion of general assistance or other State-
only health program, charity care, Medicaid DSH, and/or waiver or demonstration population days for cost 
reports that were settled before October 15, 1999, and the hospital never filed a jurisdictionally proper appeal 
to the Provider Reimbursement Review Board (PRRB) on this issue, the A/B MAC (A) is not to pay the 
hospital based on the inclusion of these types of days for any open cost reports for cost reporting periods 
beginning before January 1, 2000.  Furthermore, on or after October 15, 1999, the A/B MAC (A) is not to 
accept reopening requests for previously settled cost reports or amendments to previously submitted cost 
reports pertaining to the inclusion of these types of days in the Medicare DSH formula. 
 
If, for cost reporting periods beginning before January 1, 2000, a hospital that did not receive payments 
reflecting the erroneous inclusion of otherwise ineligible days filed a jurisdictionally proper appeal to the 
PRRB on the issue of the exclusion of these types of days from the Medicare DSH formula before October 15, 
1999, the A/B MAC (A) will reopen the cost report at issue and revise the Medicare DSH payment to reflect 
the inclusion of these types of days as Medicaid days.  If there are any questions or concerns regarding the 
qualifications for a "jurisdictionally proper appeal," the A/B MAC (A) submits them in writing before 
rendering a decision in a specific case to: 
 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard 
Office of Financial Management 
Financial Services Group 
Location C3-14-16 
Baltimore, Maryland 21244-1850. 
  Where, for cost reporting periods beginning before January 1, 2000, a hospital filed a jurisdictionally proper 
appeal to the PRRB on the issue of the exclusion of these types of days from the Medicare DSH formula on or 
after October 15, 1999, reopen the settled cost report at issue and revise the Medicare DSH payment to reflect 
the inclusion of these types of days as Medicaid days, but only if the hospital appealed, before October 15, 
1999, the denial of payment for the days in question in previous cost reporting periods.  The actual number of 
these types of days that are used in this revision must be properly supported by adequate documentation 
provided by the hospital.  Do not reopen a cost report and revise the Medicare DSH payment to reflect the 
inclusion of these types of days as Medicaid days if, on or after October 15, 1999, a hospital added the issue of 
the exclusion of these types of days to a jurisdictionally proper appeal already pending before PRRB on other 
Medicare DSH issues or other unrelated issues. 
 
Continue to pay the Medicare DSH adjustment reflecting the inclusion of general assistance or other State-
only health program, charity care, Medicaid DSH, and/or waiver or demonstration population days for all 
open cost reports for cost reporting periods beginning before January 1, 2000, to any hospital that, before 
October 15, 1999, filed a jurisdictionally proper appeal to the PRRB specifically for this issue on previously 
settled cost reports. 
 
Finally, if a hospital has filed a jurisdictionally proper appeal with respect to the CMS 97-2 ruling and the 
hospital has otherwise received payment for the portion of Medicare DSH adjustment attributable to the 
inclusion of general assistance or other State-only health programs, charity care, Medicaid DSH, and/or 
ineligible waiver or demonstration population days based on its paid Medicaid days, include these types of  
unpaid days in the Medicare DSH formula when revising the cost reports affected by the CMS 97-2 appeal. 
 
TYPE OF DAY  DESCRIPTION  ELIGIBLE 
TITLE XIX 
DAY 
General Assistance  Days for patients covered under a State-only (or county- No. 
Patient Days  only) general assistance program (whether or not any 
payment is available for health care services under the 
program).  These patients are not Medicaid-eligible 
under the State plan. 
Other State-Only Health  Days for patients covered under a State-only health  No. 
Program Patient Days  program.  These patients are not Medicaid-eligible 
under the State plan. 
Charity Care Patient  Days for patients not eligible for Medicaid or any other  No. 
Days  third-party payer, and claimed as uncompensated care 
by a hospital.  These patients are not Medicaid-eligible 
under the State plan. 
Actual 1902(r)(2) and  Days for patients eligible under a State plan based on a  Yes. 
1931(b) Days  1902(r)(2) or 1931(b) election.  These patients are 
Medicaid-eligible under the Title XIX State plan under 
the authority of these provisions, which is exercised by 
the State in the context of the approved State plan.   
Medicaid Optional  Days for patients who are Title XIX-eligible and who  Yes. 
Targeted Low-Income  meet the definition of "optional targeted low-income 
Children (CHIP-related)  children" under 1905(u)(2).  The difference between 
Days  these children and other Title XIX children is the 
enhanced FMAP rate available to the State.  These 
children are fully Medicaid-eligible under the State 
plan.  TYPE OF DAY  DESCRIPTION  ELIGIBLE 
TITLE XIX 
DAY 
Separate CHIP Days  Days for patients who are eligible for benefits under a  No. 
non-Medicaid State program furnishing child health 
assistance to targeted low-income children.  These 
children are, by definition, not Medicaid-eligible under 
a State plan. 
1915(c) Eligible Patient  Days for patients in the eligibility group under the State  Yes. 
(the "217" group) Days  plan for individuals under a Home and Community 
Based Services waiver.  This group includes individuals 
who would be Medicaid-eligible if they were in a 
medical institution.  Under this special eligibility group, 
they are Medicaid-eligible under the State plan. 
Retroactive Eligible Days  Days for patients not enrolled in the Medicaid program  Yes. 
at the time of service, but found retroactively eligible 
for Medicaid benefits for the days at issue.  These 
patients are Medicaid-eligible under the State plan. 
Medicaid Managed Care  Days for patients who are eligible for Medicaid under a  Yes. 
Organization Days  State plan when the payment to the hospital is made by 
an MCO for the service.  An MCO is the financing 
mechanism for Medicaid benefits, and payment for the 
service through the MCO does not affect eligibility. 
Medicaid DSH Days  Days for patients who are not eligible for Medicaid  No. 
benefits, but are considered in the calculation of 
Medicaid DSH payments by the State.  These patients 
are not Medicaid-eligible. 
Sometimes Medicaid State plans specify that Medicaid 
DSH payments are based upon a hospital's amount of 
charity care or general assistance days.  This, however, 
is not "payment" for those days, and does not mean that 
the patient is eligible for Medicaid benefits or can be 
counted as such in the Medicare formula. 
 
20.3.1.3  Disproportionate Share Hospital (DSH) Policy Changes Effective for Cost 
Reporting Periods beginning on or after October 1, 2009 
(Rev. 2627, Issued 01-04-13, Effective 10-01-12, Implementation 10-01-12) 
 
Observation Days 
 
For cost reporting periods beginning on or after October 1, 2009, observation days for patients later admitted as an 
inpatient will no longer be included in the Medicare disproportionate patient percentage (DPP). In addition, 
observation bed days for patients later admitted as an inpatient will no longer be counted towards a hospitals 
available bed day count for DSH and IME. Between October 1, 2003, and October 1, 2009, hospitals had reported 
on their cost report the Medicaid observation patient days for admitted patients and total observation patient days 
for admitted patients for inclusion in the Medicaid fraction of the Medicare DPP, and for the determination of the 
available bed day count for DSH and IME. However, effective for cost reporting periods beginning on or after 
October 1, 2009, observation patient days are no longer included in the DPP, and observation bed days will no 
longer be counted towards the available bed day count for DSH or IME. 
 
Labor and Delivery Patient Days   
For cost reporting periods beginning on or after October 1, 2009, we will include in the Medicare disproportionate 
patient percentage (DPP) patient days associated with maternity patients who were admitted as inpatients and were 
receiving ancillary labor and delivery services at the time the inpatient routine census is taken, regardless of 
whether the patient occupied a routine bed prior to occupying an ancillary labor and delivery bed and regardless of 
whether the patient occupies a maternity suite in which labor, delivery, recovery and postpartum care all take 
place in the same room. Prior to October 1, 2009, patient days associated with beds used for ancillary labor and 
deliver were not counted in the DPP. However, for cost reporting periods beginning on or after October 1, 2009, 
but before cost reporting periods beginning on or after October 1, 2012, if a patient, admitted to the hospital as 
an inpatient, occupies an ancillary bed for labor and delivery, the patient days associated with the ancillary 
labor/delivery services will be counted in the DPP. For cost reporting periods beginning on or after October 1, 
2009 but before cost reporting periods beginning on or after October 1, 2012, this policy applies only to 
counting patient days, and does not change the policy of determining the number of available beds in 42 CFR 
412.106(a). Beds associated with ancillary labor/delivery services are not included in the available bed day count. 
 
Reporting Inpatient Days in the Numerator of the Medicaid Fraction 
 
Hospitals can report days in the numerator of the Medicaid fraction by one of three methodologies. For cost 
reporting periods beginning on or after October 1, 2009, hospitals can report Medicaid-eligible days based on date 
of discharge, date of admission, or dates of service. A hospital is required to notify CMS (through the fiscal 
intermediary or MAC) in writing if the hospital chooses to change its methodology of counting days in the 
numerator of the Medicaid fraction. The written notification should be submitted at least 30 days prior to the 
beginning of the cost reporting period to which the change would apply. The written notification must specify the 
changed methodology the hospital wishes to use and the cost reporting period for which the methodology would 
apply. The change in methodology would be effective on the first day of the specified cost reporting period for the 
entire cost reporting period. The change would be effective for all future cost reporting periods unless the hospital 
submits a subsequent written notification to change its methodology. 
 
20.3.1.4  Disproportionate Share Hospital (DSH) Policy Changes Effective for Cost 
Reporting Periods beginning on or after October 1, 2012 
(Rev. 2627, Issued 01-04-13, Effective 10-01-12, Implementation 10-01-12) 
 
Labor and Delivery Bed Days 
 
Effective for cost reporting periods beginning on or after October 1, 2012, we will include bed days associated 
with ancillary labor/delivery services to determine the number of beds in 42CFR412.105(b), which is cross-
referenced in 42 CFR412.106(a)(1)(i) for the purposes of determining the DSH payment adjustment. Bed days 
associated with ancillary labor/delivery services will be included to determine the number of beds for DSH 
and IME.  For cost reporting periods beginning before October 1, 2012, bed days associated with ancillary 
labor and delivery services were not counted in the available bed day count for DSH and IME. 
 
20.3.2 - Updates to the Federal Fiscal Year (FY) 2001 
(Rev. 1, 10-01-03) 
PM A-01-47 
 
20.3.2.1 - Inpatient Hospital Payments and Disproportionate Share Hospital (DSH) 
Thresholds and Adjustments 
(Rev. 1, 10-01-03) 
 
The new FY 2001 operating standardized amounts are effective April 1, 2001, as required by 301 of BIPA 
2000 (P.L. 106-554), and the new DSH thresholds and adjustments are required by 211 of BIPA 2000.  In  conjunction with the new standardized amount, the new capital rates and outlier adjustment factor thresholds 
are effective April 1, 2001. 
 
The following standardized amounts effective for discharges occurring on or after April 1, 2001, and before 
October 1, 2001, are: 
 
Final FY 2001 Operating Rates 
 
Designation  Large Urban  Large Urban  Other Areas  Other Areas 
Areas  Areas 
  Labor-  Nonlabor- Labor-  Nonlabor-
Related  Related  Related  Related 
+National   $2,925.82    $1,189.26    $2,879.51    $1,170.43  
National PR   $2,900.64    $1,179.02    $2,900.64    $1,179.02  
Puerto Rico   $1,402.79    $564.66    $1,380.58    $555.72  
SCHs   $2,895.02    $1,176.74    $2,849.20    $ 1,158.11  
 
Final FY 2001 Capital Rates 
 
National  $380.85 
Puerto Rico  $184.61 
 
Due to the changes to the standardized amounts, CMS recalculated the fixed loss cost outlier threshold 
applicable for discharges on or after April 1, 2001, and before October 1, 2001.  The new thresholds are equal 
to the prospective payment rate for the DRG plus the IME and DSH payments plus $16,350 ($14,940 for 
hospitals that have not yet entered the prospective payment system for capital-related costs). 
 
In addition, 211 of BIPA 2000 revised the thresholds by which certain classes of hospitals qualify for the 
disproportionate share adjustment, effective for discharges occurring on or after April 1, 2001.  Section 211 
also revised the adjustment computations for these hospitals. 
 
The specific changes are identified below. 
    Hospital Type  Qualifying DSH  Adjustment Computation 
Percent 
Urban Hospitals     
0-99 Beds  15%, <19.3%  2.5% + [.65 x (DSH pct.-15)] 
19.3%  5.25% 
100+ Beds (No Change in Law)  15%,<20.2%  2.5% + [.65 x (DSH pct.-15%)] 
20.2%  5.88% + [.825 x (DSH pct.-20.2%)] 
Rural Hospitals      
Sole Community Hospitals (SCH)  15%, <19.3%   2.5% + [.65 x (DSH pct.-15%)] 
19.3%,<30%  5.25% 
30%  10% 
Rural Referral Centers (RRC)  15%,<19.3%  2.5% + [.65 x (DSH pct.-15%)] 
19.3%,<30%  5.25% 
30%  5.25% + [.6 x (DSH pct.-30%)] 
Both SCH and RRC  15%  higher of SCH or RRC adjustment 
Other Rural Hospitals     
0-499Beds  15%,<19.3%  2.5% + [.65 x (DSH pct.-15%)] 
19.3%  5.25% 
500+ Beds (No Change in Law)  15%,<20.2%  2.5% + [.65 x (DSH pct.-15%)] 
20.2%  5.88% + [.825 x (DSH pct.  -20.2%)] 
 
These new rates as well as changes to the DSH adjustments are incorporated into Pricer 01.2.  The formulas 
are spelled out in the statute. 
 
20.3.3  Prospective Payment Changes for Fiscal Year (FY) 2003 
(Rev. 1, 10-01-03) 
A-02-084 
 
The PPS changes for FY2003 were published in the Federal Register on August 1, 2002.  All changes are 
effective for hospital discharges occurring on or after October 1, 2002, unless otherwise noted. 
 
ICD-9-CM coding changes are effective October 1, 2002. The new ICD-9-CM codes are listed, along with 
their diagnosis-related group (DRG) classifications in Tables 6a and 6b in the final rule for PPS changes for 
FY 2003. The ICD-9-CM codes that have been replaced by expanded codes or other codes, or have been 
deleted are included in Tables 6c and 6d. The revised code titles are in Tables 6e and 6f of the same final rule. 
GROUPER 20.0 assigns each case into a DRG on the basis of the diagnosis and procedure codes and 
demographic information (that is age, sex, and discharge status) and is effective with discharges occurring on 
or after October 1, 2002. Medicare Code Editor (MCE) 19.0 and Outpatient Code Editor (OCE) versions 18.0 
and 3.20 use the new ICD-9-CM codes to validate coding for discharges and outpatient services effective 
October 1, 2002. 
 
Additional changes for FY 2003 are: 
 
  The standardized amount update factor is 2.95 percent for all hospitals. 
 
  The hospital specific update factor is 2.95 percent for all hospitals. 
 
  The common fixed loss cost outlier threshold in FY 2003 is equal to the PPS rate for the DRG, Indirect 
Medical Education (IME), and Disproportionate Share Hospital (DSH) plus $33,560.   
  The marginal cost factor for cost outliers remains 80 percent. 
 
  The 2003 Federal capital rate is $407.01 and the Puerto Rico capital rate is $198.29. 
 
  The FY 2003 outlier adjustment factor is 0.948999 for the operating standardized amount. 
 
  The FY 2003 outlier adjustment factor for Puerto Rico is 0.981651 for the operating standardized 
amount. Also new for FY 03, there is an outlier adjustment factor of 0.965325 for operating 
national/Puerto Rican blend. 
 
  Payments under the DSH provision are not reduced in FY 2003. 
 
  The IME formula is 1.35*[(1+ resident-to-bed ratio)**. 405-1] for FY 2003. 
 
  The revised hospital wage indexes and geographic adjustment factors are contained in Tables 4a 
(urban areas), 4b (rural areas) and 4c (redesignated hospitals) of section VI of the addendum to the 
PPS final rule. 
 
  Grouper 20.0 and MCE 19.0 for discharges occurring on or after October 1, 2002 replace earlier 
versions of the software. 
 
See Addendum: Hospital Reclassifications and Redesignations by Individual Hospital - FY2003. 
 
20.3.4  Prospective Payment Changes for Fiscal Year (FY) 2004 and Beyond 
(Rev. 3431, Issued: 12-29-15, Effective: 10-01-15, Implementation: 10-05-15) 
 
The IPPS changes for FY 2004 were published in the Federal Register on August 1, 2003.  All changes are 
effective for hospital discharges occurring on or after October 1, 2003.  Additional changes were listed in a 
Correction Notice to the Federal Register on October 6, 2003, and a One Time Notification (Pub. 100-20, 
Transmittal 16, published on October 31, 2003). 
 
Fiscal year changes to the inpatient prospective payment system occur every October.  Specific instructions 
will be published shortly after the publication of the IPPS Final Rule each year.  In addition, other changes to 
the inpatient prospective payment system may occur in January, April or July as necessary. 
 
20.4 - Hospital Capital Payments Under PPS 
(Rev. 1, 10-01-03) 
 
A3-3611 
 
The Omnibus Budget Reconciliation Act of 1987 established an effective date of October 1, 1991, for capital 
PPS.  Capital PPS will pay hospitals a fixed amount for each Medicare admission upon completion of a 10-
year transition period. 
 
Hospitals and hospital distinct part units that are excluded from PPS for operating costs are also excluded 
from PPS for capital costs.  They continue to be paid for capital-related costs on a reasonable cost basis. 
 
Capital payments are based on the same DRG designations and weights, outlier guidelines, geographic 
classifications, wage indexes, and disproportionate share percentages that apply to PPS for operating costs.   The indirect teaching adjustment is based on the ratio of residents to average daily census.  The hospital split 
bill, adjustment bill, waiver of liability and remaining guidelines in 40, also apply to capital PPS payments.  
Outlier thresholds and computation methods have been combined effective with FY 1993 for operating and 
capital costs. 
 
Capital transfer cases are paid on a per diem basis analogous to the manner in which operating PPS payments 
are made for transfer cases. 
 
Beneficiary deductible and coinsurance obligations do not apply to capital costs.  Ancillary costs paid under 
Part B do not impact capital PPS payments.  The 10-year transition period was established to protect hospitals 
that had incurred capital obligations in excess of the standardized national rate from major disruption.  These 
high capital cost hospitals are known as "hold harmless" hospitals.  The transition period also provides for 
phase-in of the national rate for those hospitals with capital obligations that are less than the national rate. 
 
A combined payment is made for both operating costs and capital costs under PPS, but the value of the 
payment for each must be separately identified in the remittance advice for accounting purposes. 
 
20.4.1 - Federal Rate 
(Rev. 1, 10-01-03) 
 
A3-3611.1 
 
The standard Federal capital payment for FY 1992 and later years is based on the projected national average 
Medicare capital costs per discharge for each of the fiscal years.  The Federal rate is adjusted for each 
hospital's case mix, day and cost outliers and wage index location.  A hospital qualifies for a capital DSH 
adjustment if it is located in a large urban or other urban area, has at least 100 beds, and has a disproportionate 
share (DSH) percentage greater than 0. 
 
The Federal rate is adjusted annually to reflect changes in these factors. 
 
An adjustment is also provided to the Federal rate for indirect costs of medical education of interns and 
residents.  The A/B MAC (A) calculates the adjustment by dividing the hospital's full-time equivalent total of 
interns and residents by the hospital's total patient days (line 8, column 6 of worksheet S3 of the CMS Form 
2552-89, minus the total of the lines 1B, 1C, 1D, and 7, divided by the number of days in the cost reporting 
period.)  It reviews the hospital's records and makes any needed changes in the count at the end of the cost 
reporting period.  It enters the indirect medical education adjustment ratio in positions 184-188 of the 
provider-specific file for use by Pricer. 
 
20.4.2 - Hold Harmless Payments 
(Rev. 1, 10-01-03) 
 
A3-3611.2 
 
In FY 1992, hospitals with a hospital-specific rate for capital that is above the Federal PPS rate for the cost 
reporting period that ended in FY 1990 can receive the higher of: 
 
  The hold harmless-old capital rate, which is 100 percent of the reasonable costs of old capital for sole 
community hospitals, or 85 percent of the reasonable costs associated with old capital for all other 
hospitals, plus a payment for new capital (see 20.4.5 for the definitions of old and new capital); or 
 
  The hold harmless - 100 percent Federal rate.   
The A/B MAC (A) adjusts the hospital-specific rate in the cost report for the period ending in FY 1990 for 
case mix.  It updates the rate to FY 1992 levels using the projected increase in national average capital costs 
per discharge to initially determine whether a hospital should be paid under the hold harmless or the fully 
prospective methodology.  The type of methodology is entered in the provider-specific file.  (See 20.2.3.) 
 
Hospitals paid under the fully prospective methodology may change to the hold harmless methodology if 
justified by the addition of obligated capital and other changes in remaining old capital costs subsequent to the 
base period.  This option is available through the later of a hospital's cost reporting period beginning in FY 94 
or after obligated capital has been put in use.  Hospitals must request an extension from the A/B MAC (A) by 
the later of January 1, 1993, or within 180 days of the event causing the delay, if they will be unable to put an 
asset in use for inpatient care by October 1, 1996.  The new hospital-specific rate reflects the disposal of old 
assets and the addition of obligated capital costs, but not new capital acquisitions.  If the recalculated hospital-
specific rate exceeds the Federal rate, the hospital will be paid under the hold harmless methodology.  The 
payment methodology in effect for FY 94 (or after the obligated capital has been put in use, if later) 
determines the payment methodology applicable for the remainder of the transition period under either 
transition payment methodology. 
 
The A/B MAC (A) does not hold harmless a hospital for increased costs resulting from a lease arrangement 
entered into after December 31, 1990. 
 
If a hospital has such low Medicare utilization in its original capital base period that it is not required to file a 
cost report, its hospital-specific rate will be based on its old capital costs per discharge in the first 12-month 
cost reporting period for which a cost report is filed. 
 
The A/B MAC (A) converts a reasonable cost/hold harmless hospital to the 100 percent Federal payment rate 
when: 
 
  Advantageous due to reductions in depreciation and/or the allowable percentage of old capital; 
 
  A hospital elects to be paid at 100 percent of the Federal rate; or 
 
  A hospital does not maintain adequate records to identify its old capital related costs. 
 
The A/B MAC (A) enters the payment methodology change in the provider-specific file. 
 
An adjustment is also provided to the Federal rate for indirect costs of medical education of interns and 
residents.  The A/B MAC (A) calculates the adjustment by dividing the hospital's full-time equivalent total of 
interns and residents by the hospital's total patient days (line 8, column 6 of worksheet S3 of the CMS Form 
2552-89, minus the total of the lines 1B, 1C, 1D, and 7, divided by the number of days in the cost reporting 
period).  It reviews the hospital's records and makes any needed changes in the count at the end of the cost 
reporting period.  It enters the indirect medical education adjustment ratio in positions 184-188 of the 
provider-specific file for use by Pricer. 
 
20.4.3 - Blended Payments 
(Rev. 1, 10-01-03) 
 
A3-3611.3 
 
Hospitals with a FY 1990 hospital-specific rate for capital below the Federal rate are paid a fully prospective 
capital rate based on a blend of their hospital-specific rate and the Federal rate.  The payment for discharges  occurring during a cost-reporting period that began in FY 1992 is based on a blend of 90 percent of the 
hospital-specific rate and 10 percent of the Federal rate.  The payment for discharges occurring during a cost-
reporting period that began in FY 1993 is based on a blend of 80 percent of the hospital-specific rate and 20 
percent of the Federal rate.  The Federal portion of the payment increases by 10 percent each year and the 
hospital-specific portions decreases by 10 percent each year, culminating in payment at 100 percent of the 
Federal rate in the tenth year. 
 
20.4.4 - Capital Payments in Puerto Rico 
(Rev. 1, 10-01-03) 
 
A3-3611.4 
 
A special standard rate applies to Puerto Rico.  It is a combination of 50 percent of the Federal capital amount 
and 50 percent of the Puerto Rican capital amount.  It is used in lieu of the Federal rate to compute hold 
harmless and fully prospective payments for PPS hospitals in Puerto Rico. 
 
20.4.5 - Old and New Capital 
(Rev. 1, 10-01-03) 
 
A3-3611.5 
 
Old capital is a hospital asset that: 
 
  Has been put in use for patient care on or before December 31, 1990; or 
 
  Has been legally committed to by an enforceable contract entered into on or before December 31, 
1990, and put in patient use before October 1, 1994. 
 
All other assets are considered new for Medicare purposes. 
 
20.4.6 - New Hospitals 
(Rev. 1, 10-01-03) 
 
A3-3611.6 
 
New hospitals that open during the national 10-year transition are exempt from capital PPS payment for their 
first two years of operation.  A new hospital is one that does not have a 12-month cost reporting period that 
ended on or before September 30, 1990.  The new hospital exemption does not apply to: 
 
  A new acute care hospital that operated as a PPS excluded hospital for 2 or more years before its 
transition to PPS; 
 
  A hospital which has been open more than 2 years, but has participated in Medicare fewer than 2 
years; 
 
  A hospital that closes and reopens within 2 years under the same or different ownership; or  
 
  A hospital that builds a new or replacement facility at the same or a new location, even if a change of 
ownership or new leasing arrangements are involved. 
  A new hospital is paid 85 percent of its reasonable costs for capital during the exemption period.  The 
hospital's second year of operation is the base period for determination of the hospital-specific rate and old 
capital assets.  Effective with its third year of operation, the hospital is paid: 
 
  The fully prospective methodology if the hospital-specific rate is less than the Federal rate.  The A/B 
MAC (A) uses the blend rate applicable to the Federal FY in which the base period begins.  For 
example, a new hospital with a hospital-specific rate less than the Federal rate and a base year 
beginning in FY 1995 is paid 70 percent of its hospital-specific rate and 30 percent of the Federal rate; 
or 
 
  The hold harmless methodology if the hospital-specific rate is greater than the Federal rate.  Hold 
harmless payments may continue for up to 8 years.  They may continue beyond the first cost reporting 
period that begins on or after October 1, 2000. 
 
20.4.7 - Capital PPS Exception Payments 
(Rev. 1, 10-01-03) 
 
A3-3611.7, 42 CFR 412.348 
 
Exception payments are provided for hospitals with inordinately high levels of capital obligations.  Payment is 
made to a hospital paid under either the fully prospective payment methodology, or the hold-harmless 
payment methodology.  Exception payments will expire at the end of the 10-year transition period.  Exception 
payments ensure that: 
 
  Sole community hospitals receive 90 percent of their Medicare inpatient capital costs; 
 
  Urban hospitals with 100 or more beds and a disproportionate share patient percentage of at least 20.2 
percent receive 80 percent of their Medicare inpatient capital costs; and 
 
  All other hospitals receive 70 percent of their Medicare inpatient capital costs. 
 
Pricer adds interim exception payments to the basic capital payment, using the rate entered in positions 189-
194 of the provider-specific file.  The A/B MAC (A) adjusts these interim payments, as needed, at cost report 
settlement. 
 
A hospital is entitled to an additional payment if its capital payments for the cost reporting period would 
otherwise be less than the applicable minimum payment level.  The additional payment equals the difference 
between the applicable minimum payment level and the capital payments that the hospital would otherwise 
receive minus any offset amount. 
 
A limited exception is also provided during the 10-year transition period for hospitals that experience 
unanticipated extraordinary circumstances that require an unanticipated major capital expenditure.  Events 
such as a tornado, earthquake, catastrophic fire, or a hurricane are examples of extraordinary circumstances.  
The capital project must cost at least $5 million (net of proceeds from other payment sources such as 
insurance, litigation decisions and other State, local or Federal government funding programs) to qualify for 
this exception.  An eligible hospital's minimum payment level under this exception is 85 percent of costs 
associated with the unanticipated capital expenditure and the applicable minimum payment level for its other 
Medicare inpatient capital costs. 
 
Total estimated payments under the exception process may not exceed 10 percent of the total estimated capital 
prospective payments (exclusive of hold-harmless payments for old capital) for the same fiscal year.   
These limited exceptions must be approved by CMS prior to payment.  If approved, the A/B MAC (A) 
includes the limited exception payment amount per discharge in the exception field of the provider specific 
file. 
 
20.4.8 - Capital Outliers 
(Rev. 1, 10-01-03) 
 
A3-3611.8 
 
Total Federal PPS payments are reduced by an amount equal to anticipated outlier payments for the year to 
fund capital and operating outlier payments.  Outlier payments apply only to the Federal portions of capital 
payments.  Pricer calculates outlier payments. 
 
Pricer used a combined methodology to determine the day outlier payment rate for capital and operating day 
outliers (Day outliers were eliminated after FY 1997).  A second combined methodology is used to 
determine the cost outlier payment rate for capital and operating costs.  A capital or operating cost outlier is 
paid only if both capital and operating costs related to an admission exceed the combined outlier threshold.  
Pricer pays the higher of the combined total cost outlier payment or the total day outlier payment.  An 
exception applies to a transferring hospital.  A transferring hospital may be paid a cost outlier, but may not be 
paid a day outlier unless DRG 385 or 456 applies.  The outlier computation methodology is contained in the 
A/B MAC (A) Pricer installation guide.  (See 20.7 for the common thresholds that apply to both operating 
and capital outliers.) 
 
20.4.9 - Admission Prior to and Discharge After Capital PPS Implementation Date 
(Rev. 1, 10-01-03) 
 
A3-3611.9 
 
The capital payment issued for an inpatient hospital stay that begins prior to and ends after the onset of capital 
PPS is the amount determined by Pricer for that DRG.  No reasonable cost capital pass through payment is 
payable for the portion of the stay that pre-dates capital PPS.  The A/B MAC (A) may not split a bill for the 
periods before and after the onset of capital PPS that fall into the same billing period. 
 
It bases any outlier payment due on the entire stay, not only that portion of the stay that began after the start of 
capital PPS. 
 
20.4.10 - Market Basket Update 
(Rev. 1, 10-01-03) 
 
A3-3611.10 
 
For FY 1992 through FY 1995, the update to the Federal and the hospital-specific rates is based on actual 
increases in capital-related costs per discharge adjusted for case mix change.  For example, FY 1993 rate 
updates are based on a comparison of inpatient capital costs per case in Medicare cost reports beginning in FY 
1990 and the costs per case in the cost reports beginning in FY 1988.  The update computation will be 
modified after FY 1995 to reflect the capital market basket index, changes in capital requirements and new 
technology.  Annual updates for periods after FY 1992 will be effective October 1 for all PPS hospitals, rather 
than the start of cost report periods that begin during that FY. 
  20.5 - Rural Referral Centers (RRCs) 
(Rev. 1, 10-01-03) 
 
A3-3610.16, HO-415.17 
 
Section 1886(d)(5)(C) of the Act provides for exceptions and adjustments to the standardized prospective 
payment amounts to take into account the special needs of RRCs.  The adjustment allowed for approved RRCs 
is that they are paid based upon the urban, rather than rural, prospective payment rates as adjusted by the 
applicable DRG weighting factor and the rural area index.  In addition, OBRA 89 (P.L. 101-239) extended 
RRC status through cost reporting periods beginning before October 1992 to any hospital classified as an RRC 
as of September 30, 1989. 
 
To retain status as an RRC effective with the cost reporting period beginning on or after October 1, 1992, a 
hospital must have met the criteria for classification as an RRC in at least two of the prior three years, or 
qualify on the basis of the requirements for initial RRC certification for the current year.  The A/B MAC (A) 
will not review the RRC status of a hospital before the end of its third full cost reporting year as an RRC.  It 
will limit review of RRCs in operation more than three years at the beginning of FY 1993 to a hospital's most 
recent three years.  RRCs that pass review as meeting RRC status for at least two of the last three years 
receive a 3-year extension of their RRC status. 
 
The rates in Pricer include a reduction in the adjusted standardized amounts for all hospitals to ensure that 
total PPS payment neither increase nor decrease as a result of the increase in payments to RRCs. 
 
To qualify for initial RRC status for cost reporting periods beginning on or after October 1, 1992, a rural 
hospital must have had at least 275 beds, or the hospital must have met one of three criteria in 42 CFR 
412.96(c) (3), (4) and (5), and both of the following requirements: 
 
  The hospital's case-mix index value for FY 91 must have been at least 1.2760, or equal to the median 
case-mix index value for urban hospitals (excluding hospitals with approved teaching programs) 
calculated by CMS for the census region in which the hospital is located, if fewer. 
 
  For its cost reporting period that began during FY 1991, the hospital must have had at least 5000 
discharges, or equal to the median number of discharges for urban hospitals in that census region, if 
fewer, or if an osteopathic hospital, must have had at least 3000 discharges. 
 
The CMS publishes the median case-mix index value and the median number of discharges annually in the 
PPS update in the "Federal Register." 
 
20.6 - Criteria and Payment for Sole Community Hospitals and for Medicare Dependent 
Hospitals 
(Rev. 1816; Issued:  09-17-09; Effective Date:  Discharges on or after October 1, 2009; Implementation 
Date:  10-05-09) 
 
A. - Criteria for Sole Community Hospitals (SCHs) 
 
A sole community hospital (SCH) is a hospital that is paid under the Medicare hospital inpatient prospective 
payment system (IPPS) and is either located more than 35 miles from other like hospitals or is located in a 
rural area, and meets the criteria for SCH status as specified at 42 CFR 412.92 (Title 42 of the Code of Federal 
Regulations, Section 412.92, Special treatment:  Sole community hospitals).  A hospital may be designated as 
an SCH effective with cost reporting periods beginning on or after October 1, 1990.   
B. - Criteria for Medicare Dependent Hospitals (MDHs) 
 
A Medicare-dependent, small rural hospital (MDH) is a hospital that is paid under the Medicare hospital 
inpatient prospective payment system (IPPS) and meets the criteria for MDH status as specified at 42 CFR 
412.108 (Title 42 of the Code of Federal Regulations, Section 412.108  Special treatment:  Medicare-
dependent, small rural hospitals).  A hospital may be designated as an MDH effective with cost reporting 
periods beginning on or after April 1, 1990, and ending on or before March 31, 1993, and for discharges 
occurring on or after October 1, 1997, and before October 1, 2011. 
 
C. - Payment to SCHs and MDHs 
 
SCHs and MDHs are paid based on either the Federal rate or their hospital-specific (HSP) rate, whichever will 
result in the greatest payment.  The HSP rate is the hospitals rate based on their updated costs per discharge 
for a particular fiscal year (FY) as specified in statute.  Like all IPPS hospitals paid, SCHs and MDHs are paid 
for their discharges based on the diagnosis-related DRG classification and weights regardless of whether 
payment based on the Federal rate or the hospitals HSP rate results in the greatest payment. 
 
SCHs will be paid based on their HSP rate for either FY 1982, 1987, 1996 (for cost reporting periods 
beginning on or after October 1, 2000) or 2006 (for cost reporting periods beginning on or after January 1, 
2009) if this results in a greater payment than the Federal rate.  For more detail, see 42 CFR 412.92(d) and 42 
CFR 412.73, 412.75, 412.77, and 412.78, respectively, for determining the HSP rates for FYs 1982, 1987, 
1996 and 2006. 
 
MDHs will be paid based on their HSP rate for either FY 1982, 1987, or 2002 (for cost reporting periods 
beginning on or after October 1, 2006) if this results in a greater payment than the Federal rate.  For more 
detail, see 42 CFR 412.108(c) and 42 CFR 412.73, 412.75, and 412.79, respectively, for determining the HSP 
rates for FYs 1982, 1987, and 2002. 
 
In addition, qualifying SCHs and MDHs that experience a significant decrease in its number of discharges 
may receive an additional payment as specified at 42 CFR 412.92(e) and 42 CFR 412.108(d), respectively. 
 
In general, the HSP rates for both SCHs and MDHs are updated annually.  The HSP rates are updated for 
inflation by the applicable market basket increase for each FY after the base period year, and are also adjusted 
by a budget neutrality factor to account for the annual DRG reclassification and recalibration for each year 
from FY 1993 forward, regardless of the year of the base period.  (For reference purposes, the budget 
neutrality adjustment factors are listed below at the end of this section.)  For the inflation update, beginning 
FY 2005, if the hospital did not submit quality data, the market basket update is reduced by a percentage 
specified in statute for the applicable FY consistent with section 1886(b)(3)(B)(viii) of the Act. 
 
 
Applicable Fiscal Year  Budget Neutrality Adjustment Factors 
1993   0.999851 
1994   0.999003 
1995  0.998050  
1996   0.999306  
1997  0.998703  
1998  0.997731  
1999  0.998978  
2000  0.997808  
2001  0.997174   Applicable Fiscal Year  Budget Neutrality Adjustment Factors 
2002  0.995821  
2003  0.993111  
2004  1.002608  
2005  0.999876  
2006  0.998993  
2007  0.997395  
2008  0.995743 
2009  0.998795 
2010  0.997941 
 
D. - Claims Processing 
 
The Qualifying DSH Percent uses the following provider type codes to enable Pricer to calculate the 
appropriate rates for these facilities: 
 
  14 for a MDH that is not an RRC; 
 
  15 for a MDH that is also an RRC; 
 
  16 for a rebased SCH that is not an RRC; and 
 
  17 for a rebased SCH that is also an RRC. 
 
The A/B MAC (A) calculates the HSP rate and determines the greatest HSP rate (for SCHs, FY 1982, 1987, 
1996 or 2006; for MDHs, FY 1982, 1987 or 2002).  Then the A/B MAC (A) updates the HSP rate to the 
applicable FY and enters that amount in the PPS Facility Specific Rate of the Provider-Specific File (PSF), for 
the applicable effective date.  The HSP rate is to be entered even if the Federal rate is expected to result in 
higher payments than the applicable HSP rate.  Preloading the applicable HSP rate before the effective date is 
acceptable as long as the correct effective date is used for the PSF record.  The A/B MAC (A) leaves the field 
blank if the hospital was not in operation during any of the applicable HSP base years. 
 
Pricer will calculate the payment based on the higher of the Federal rate or the HSP rate.  Where the HSP rate 
is higher, Pricer reports the amount of the difference in the hospital-specific field.  The A/B MAC (A) carries 
this amount forward in the hospital-specific payment field to its PS&R record for use at cost settlement. 
 
20.7 - Billing Applicable to PPS 
(Rev. 1, 10-01-03) 
 
20.7.1- Stays Prior to and Discharge After IPPS Implementation Date 
(Rev. 1, 10-01-03) 
 
A3-3610.4, HO-415.7 
 
When the admission is before the hospital's PPS effective date and the discharge is later than that date 
(transition claims), the Medicare payment for the period before PPS is on a reasonable cost basis and the 
payment for the period after PPS is on a DRG basis. 
 
The hospital must submit two bills.  The first bill is for the period before the PPS effective date and is 
processed and paid in accordance with requirements in effect before the hospital's PPS effective date.  The  second bill is processed under PPS but the amount of payment on the first bill is subtracted from it.  A/B 
MACs (A) make the adjustment by subtracting the interim payment from the prospective payment (before any 
deduction for deductible or coinsurance) for the inpatient operating costs applicable to the days in the prior 
period.  The interim payment applicable to the prior period is adjusted to exclude estimated costs related to 
capital and direct medical education, kidney acquisition costs, and for bad debts for uncollectible deductible 
and coinsurance.  A/B MACs (A) will make an estimate if necessary. 
 
For hospitals previously receiving interim payment on the basis of an average cost per diem or under PIP, the 
A/B MAC (A) determines and removes a per diem amount for the excluded costs for that period from the 
interim payments before reducing the prospective payment amount applicable to the discharge in the 
subsequent period under PPS.  Similarly, for hospitals that received a percentage of billed charges, the portion 
of the percentage applicable to the excluded cost items is removed.  The net percentage to the charges billed in 
the prior period (cut-off bill) is applied.  The resulting amount is subtracted from the PPS payment applicable 
to the discharge in the subsequent period. 
 
For transition claims, payment must not exceed the higher of what would have been paid under PPS including 
the outlier adjustment or any earlier cost payment.  The final amount is not reduced to less than zero.  No 
further adjustments are appropriate. 
 
The interim payments used to reduce the prospective payment amounts are considered to represent fairly the 
inpatient operating costs incurred and fair payment for the portion of the stay occurring in the prior period.  
Therefore, the adjustment is final and not subject to further modification. 
 
On bills covering two cost reporting periods: 
 
  Each bill includes charges and covered days that apply to the period covered. 
  The cut-off bill for the cost period is completed per Chapter 25. 
 
  The PPS bill contains principal diagnosis and surgical procedures for the entire stay. 
 
  The PPS bill shows the admission date, but the period covered begins with the first day of the new 
accounting year. 
 
  Where discharge is on the first day of the new accounting year, a PPS bill is still due.  Some payment 
may be due the provider, and the open admission must be closed on CMS' records.  There are no 
accommodation charges on the day of discharge; the hospital will report ancillary charges for the day 
of discharge on the prior bill. 
 
  Coinsurance days and related amounts are applied separately to each bill, i.e., the proper deduction for 
coinsurance days reported on the second bill is taken from that bill. 
 
20.7.2 - Split Bills 
(Rev. 1, 10-01-03) 
 
A3-3610.6, HO-415.9 
 
Under PPS, split billing is not needed for cost reporting purposes; however, it is necessary to show on the bill 
the coinsurance days in each calendar year for proper application of the coinsurance amount. 
  For admissions prior to the cost reporting year under IPPS with a discharge after the beginning of the 
prospective payment year, the DRG payment for the discharge is reduced by the cost of services furnished in 
the prior period. 
 
The hospital uses the day or charge statistics on the bill representing the portion of the stay in the prior period 
to determine the cost of the services furnished.  Split bills are not needed at the end of the government's fiscal 
year or the calendar year as changes in DRG prices are determined by the date of discharge.  This is shown in 
value codes 09 (first year coinsurance) and 11 (second year coinsurance).  (See Chapter 25.) 
 
PPS days on the cost report are allocated to the year of the discharge.  Hospitals not on IPPS, LTCHPPS, or 
IRFPPS continue to submit split bills at the end of their fiscal years and allocate the days to the hospital year 
in which they occurred. 
 
When split billing applies, DRG payments are made only on bills that show a discharge date and status.  No 
DRG payment is made on PPS bills that show "still patient" status. 
 
The hospital may not split a bill for the periods before and after the onset of capital PPS that fall into the same 
billing period.  Capital payment issued for an inpatient hospital stay that begins prior to and ends after the 
onset of capital PPS is the amount determined by Pricer for that DRG.  No reasonable cost capital pass 
through payment is payable for the portion of the stay that pre-dates capital PPS. 
 
20.7.3 - Payment for Blood Clotting Factor Administered to Hemophilia Inpatients 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16) 
 
Section 6011 of Public Law (P.L.) 101-239 amended 1886(a)(4) of the Social Security Act (the Act) to 
provide that prospective payment system (PPS) hospitals receive an additional payment for the costs of 
administering blood clotting factor to Medicare hemophiliacs who are hospital inpatients.  Section 6011(b) of 
P.L. 101.239 specified that the payment be based on a predetermined price per unit of clotting factor 
multiplied by the number of units provided.  This add-on payment originally was effective for blood clotting 
factors furnished on or after June 19, 1990, and before December 19, 1991.  Section 13505 of P. L. 103-66 
amended 6011 (d) of P.L. 101-239 to extend the period covered by the add-on payment for blood clotting 
factors administered to Medicare inpatients with hemophilia through September 30, 1994.  Section 4452 of 
P.L. 105-33 amended 6011(d) of P.L. 101-239 to reinstate the add-on payment for the costs of administering 
blood-clotting factor to Medicare beneficiaries who have hemophilia and who are hospital inpatients for 
discharges occurring on or after October 1, 1998. 
 
A/B MACs (B) shall process non-institutional blood clotting factor claims. 
 
The A/B MACs (A) shall process institutional blood clotting factor claims payable under either Part A or Part 
B. 
 
A. - Inpatient Bills 
 
Under the Inpatient Prospective Payment System (IPPS), hospitals receive a special add-on payment for the 
costs of furnishing blood clotting factors to Medicare beneficiaries with hemophilia, admitted as inpatients of 
PPS hospitals. The clotting factor add-on payment is calculated using the number of units (as defined in the 
HCPCS code long descriptor) billed by the provider under special instructions for units of service. 
 
The PPS Pricer software does not calculate the payment amount. The Fiscal Intermediary Shared System 
(FISS) calculates the payment amount and subtracts the charges from those submitted to Pricer so that the 
clotting factor charges are not included in cost outlier computations.   
Blood clotting factors not paid on a cost or PPS basis are priced as a drug/biological under the Medicare Part 
B Drug Pricing File effective for the specific date of service.  As of January 1, 2005, the average sales price 
(ASP) plus 6 percent shall be used. 
 
If a beneficiary is in a covered Part A stay in a PPS hospital, the clotting factors are paid in addition to the 
DRG/HIPPS payment (For FY 2004, this payment is based on 95 percent of average wholesale price.) For a 
SNF subject to SNF/PPS, the payment is bundled into the SNF/PPS rate. 
 
For SNF inpatient Part A, there is no add-on payment for blood clotting factors. 
 
The codes for blood-clotting factors are found on the Medicare Part B Drug Pricing File.  This file is 
distributed on a quarterly basis. 
 
For discharges occurring on or after October 1, 2000, and before December 31, 2005, report HCPCS Q0187 
based on 1 billing unit per 1.2 mg.  Effective January 1, 2006, HCPCS code J7189 replaces Q0187 and is 
defined as 1 billing unit per 1 microgram (mcg). 
 
The examples below include the HCPCS code and indicate the dosage amount specified in the descriptor of 
that code. Facilities use the units field as a multiplier to arrive at the dosage amount. 
 
EXAMPLE 1 
 
HCPCS  Drug  Dosage 
J7189  Factor VIIa  1 mcg 
 
Actual dosage: 13,365 mcg 
 
On the bill, the facility shows J7189 and 13,365 in the units field (13,365 mcg divided by 1 mcg = 13,365 
units). 
 
NOTE:  The process for dealing with one international unit (IU) is the same as the process of dealing with 
one microgram. 
 
EXAMPLE 2 
 
HCPCS  Drug  Dosage 
J9355  Trastuzumab  10 mg 
 
Actual dosage: 140 mg 
 
On the bill, the facility shows J9355 and 14 in the units field (140 mg divided by 10mg = 14 units). 
 
When the dosage amount is greater than the amount indicated for the HCPCS code, the facility rounds up to 
determine units. When the dosage amount is less than the amount indicated for the HCPCS code, use 1 as the 
unit of measure. 
 
EXAMPLE 3 
 
HCPCS  Drug  Dosage 
J3100  Tenecteplase  50 mg   
Actual Dosage: 40 mg 
 
The provider would bill for 1 unit, even though less than 1 full unit was furnished. 
 
At times, the facility provides less than the amount provided in a single use vial and there is waste, i.e.; some 
drugs may be available only in packaged amounts that exceed the needs of an individual patient. Once the 
drug is reconstituted in the hospitals pharmacy, it may have a limited shelf life. Since an individual patient 
may receive less than the fully reconstituted amount, we encourage hospitals to schedule patients in such a 
way that the hospital can use the drug most efficiently. However, if the hospital must discard the remainder of 
a vial after administering part of it to a Medicare patient, the provider may bill for the amount of drug 
discarded plus the amount administered. 
 
Example 1: 
 
Drug X is available only in a 100-unit size. A hospital schedules three Medicare patients to receive drug X on 
the same day within the designated shelf life of the product. An appropriate hospital staff member administers 
30 units to each patient.  The remaining 10 units are billed to Medicare on the account of the last patient.  
Therefore, 30 units are billed on behalf of the first patient seen and 30 units are billed on behalf of the second 
patient seen. Forty units are billed on behalf of the last patient seen because the hospital had to discard 10 
units at that point. 
 
Example 2: 
 
An appropriate hospital staff member must administer 30 units of drug X to a Medicare patient, and it is not 
practical to schedule another patient who requires the same drug. For example, the hospital has only one 
patient who requires drug X, or the hospital sees the patient for the first time and did not know the patients 
condition. The hospital bills for 100 units on behalf of the patient, and Medicare pays for 100 units. 
 
When the number of units of blood clotting factor administered to hemophiliac inpatients exceeds 99,999, the 
hospital reports the excess as a second line for revenue code 0636 and repeats the HCPCS code.  One hundred 
thousand fifty (100,050) units are reported on one line as 99,999, and another line shows 1,051. 
 
Revenue Code 0636 is used.  It requires HCPCS.  Some other inpatient drugs continue to be billed without 
HCPCS codes under pharmacy. 
 
No changes in beneficiary notices are required.  Coverage is applicable to hospital Part A claims only.  
Coverage is also applicable to inpatient Part B services in SNFs and all types of hospitals, including CAHs.  
Separate payment is not made to SNFs for beneficiaries in an inpatient Part A stay. 
 
B. - A/B MAC (A) Action 
 
The contractor is responsible for the following: 
 
  It accepts HCPCS codes for inpatient services; 
 
  It edits to require HCPCS codes with Revenue Code 0636.  Multiple iterations of the revenue code are 
possible with the same or different HCPCS codes.  It does not edit units except to ensure a numeric 
value; 
    It reduces charges forwarded to Pricer by the charges for hemophilia clotting factors in revenue code 
0636.  It retains the charges and revenue and HCPCS codes for CWF; and 
 
  It modifies data entry screens to accept HCPCS codes for hospital (including CAH) swing bed, and 
SNF inpatient claims (bill types 11X, 12X, 18x, 21x and, 22x). 
 
The September 1, 1993, IPPS final rule (58 FR 46304) states that payment will be made for the blood clotting 
factor only if diagnosis code for hemophilia is included on the bill. 
 
Inpatient blood-clotting factors are covered only for beneficiaries with hemophilia. One of the following 
hemophilia diagnosis codes must be reported on the claim for payment to be made for blood clotting factors. 
 
Table 1 - Effective for discharges September 1 1993 through the implementation of ICD-10 
 
ICD-9- Description 
CM 
code  
286.0  Congenital factor VIII disorder 
286.1  Congenital factor IX disorder 
286.2  Congenital factor XI deficiency 
286.3  Congenital deficiency of other clotting factors 
286.4  von Willebrands' disease 
 
Table 2 - Effective for discharges August 1, 2001 through the implementation of ICD-10, payment may 
be made if a diagnosis codes from either Table 1 or Table 2 is reported is reported: 
 
ICD-9- Description 
CM code 
286.5  Hemorrhagic disorder due to intrinsic circulating anticoagulants (terminate 
effective September 30, 2011) 
286.7  Acquired coagulation factor deficiency 
 
Table 3 - Effective for discharges on October 1, 2011, through the implementation of ICD-10 payment 
may be made if a diagnosis code from any of Table 1, Table 2 or Table 3 is reported: 
 
ICD-9- Description 
CM 
code  
286.52  Acquired hemophilia 
286.53  Antiphospholipid antibody with hemorrhagic disorder 
286.59  Other hemorrhagic disorder due to intrinsic circulating anticoagulants, 
antibodies, or inhibitors 
  Effective for discharges on or after the implementation of ICD-10-CM, the following codes are applicable, 
and payment may be made for blood clotting factors only if a hemophilia code from the range D66 - D68.4 is 
reported  
 
A crosswalk of ICD 9 to ICD10 hemophilia diagnosis codes follows: 
 
ICD-9- Description  ICD-10- Description 
CM Code  CM 
Code 
286.0  Congenital factor VIII  D66  Hereditary factor VIII 
disorder  deficiency 
286.1  Congenital factor IX disorder  D67  Hereditary factor IX 
deficiency  
286.2  Congenital factor XI  D68.1  Hereditary factor XI 
deficiency  deficiency 
286.3  Congenital deficiency of  D68.2  Hereditary deficiency of other 
other clotting factors  clotting factors 
286.4  von Willebrands' disease  D68.0  Von Willebrand's disease 
286.5  Hemorrhagic disorder due to  N/A   
intrinsic circulating 
anticoagulants (terminate 
effective September 30, 
2011) 
286.52  Acquired hemophilia  D68.311  Acquired hemophilia 
286.53  Antiphospholipid antibody  D68.312  Antiphospholipid antibody 
with hemorrhagic disorder  with hemorrhagic disorder 
286.59  Other hemorrhagic disorder  D68.318  Other hemorrhagic disorder 
due to intrinsic circulating  due to intrinsic circulating 
anticoagulants, antibodies, or  anticoagulants, antibodies, or 
inhibitors  inhibitors 
286.7  Acquired coagulation factor  D68.32  Antiphospholipid antibody 
deficiency  with hemorrhagic disorder 
286.7  Acquired coagulation factor  D68.4  Acquired coagulation factor 
deficiency   deficiency 
 
C. - Part A Remittance Advice 
 
For remittance reporting PIP and/or non-PIP payments, the Hemophilia Add On is included in the overall 
claim payment (Provider Reimbursement, CLP04).   
 
If an inpatient claim has a Hemophilia Add On payment, the payment to the provider is increased in the PLB 
segment with a PLB adjustment HM.  The Hemophilia Add On amount will always be included in the CLP04 
Claim Payment Amount. 
  For remittance reporting PIP payments, the Hemophilia Add On will also be reported in the provider level 
adjustment (element identifier PLB) segment with the provider level adjustment reason code HM.  For 
remittances reporting PIP payments, the sum of inpatient claims, CLP04, is backed out at PLB with PI/PA.  If 
an inpatient claim has a Hemophilia Add On payment, the payment to the provider is increased in the PLB 
segment with a PLB adjustment HM. 
 
D. - Standard Hard Copy Remittance Advice 
 
For paper remittances reporting non-PIP payments involving Hemophilia Add On, add a "Hemophilia Add 
On" category to the end of the "Pass Thru Amounts" listings in the "Summary" section of the paper 
remittance.  Enter the total of the Hemophilia Add On amounts due for the claims covered by this remittance 
next to the Hemophilia Add On heading. 
 
The following reflects the remittance advice messages and associated codes that will appear when processing 
claims under this policy.  The CARC below is not included in the CAQH CORE Business Scenarios. 
 
Group Code: OA 
CARC: 94 
RARC: MA103 
MSN: N/A 
 
This will be the full extent of Hemophilia Add On reporting on paper remittance notices; providers wishing 
more detailed information must subscribe to the Medicare Part A specifications for the ASC X12 835 
remittance advice, where additional information is available. 
 
See chapter 22, for detailed instructions and definitions. 
 
20.7.4 - Cost Outlier Bills With Benefits Exhausted 
(Rev. 1, 10-01-03) 
 
PM - A-99-17 (CR-749) 
 
Providers under IPPS, LTCH PPS, and IRF PPS follow this scenario when benefits are exhausted. 
 
The methodology for using benefit days and reimbursing cost outliers is based on the beneficiary having a 
lifetime reserve (LTR) benefit day which the beneficiary elects to use or a regular benefit (regular or 
coinsurance) day beginning the day after the day covered charges are incurred in an amount that results in a 
cost outlier payment for the provider.  Additional charges are considered covered for every day thereafter for 
which a beneficiary has, and elects to use, an available benefit day. 
 
DRG claims with cost outlier payments with discharge dates on or after October 1, 1997, must have an 
Occurrence Code (OC) 47 on the claim unless there are enough full and/or coinsurance days to cover all the 
medically necessary days or the only available benefits are LTR days and there are enough LTR days to cover 
all the medically necessary days.  DRG claims without cost outlier payments can never have regular benefit 
days combined with LTR benefit days. 
 
Once the cost outlier threshold is known, providers must add the daily covered charges for the claim until they 
determine the day that covered charges reach the cost outlier threshold.  Providers must exclude days and 
covered charges during noncovered spans, e.g., during Occurrence Span Code (OSC) 74, 76, or 79 dates.  
Providers must then submit the date of the first full day of cost outlier status (the day after the day that 
covered charges reach the cost outlier threshold) on the bill using OC 47.  The OC 47 date cannot be equal to  or during OSC 74, 76, or 79 dates.  Providers must determine the amount of regular, coinsurance, and LTR 
days the beneficiary has available per CWF inquiry or their FI. 
 
Any nonutilization days after the beneficiary exhausts coinsurance or LTR days before the OC 47 date will be 
identified using OSC 70.  LTR days should be used as necessary and as elected by the beneficiary.  If 
coinsurance days are exhausted during the inlier portion of the stay and there is a period of nonutilization 
indicated by the presence of OSC 70 and the beneficiary elects not to use LTR days, covered charges are 
limited to the exact amount of the cost outlier threshold and both OC A3, which shows the last covered day, 
and OC 47, which shows the following day which is the first full day of cost outlier status, must be shown.  
When coinsurance and/or LTR days are exhausted during the cost outlier portion of the stay, OC A3 should be 
used as appropriate to report the date benefits are exhausted.  Covered charges should be accrued to reflect the 
entire period of the bill if the bill is fully covered or the entire period up to and including the date benefits 
were exhausted, if benefits were exhausted. 
 
Assumptions for all of the following examples: 
 
1.  Cost outlier threshold amount is $50,000. 
 
2.  Threshold amount is reached on the 25th day. 
 
3.  Billed charges are $1,000 each day thereafter. 
 
4.  Beneficiary elects to use any available LTR days. 
 
EXAMPLE 1: LTR Days Cover Cost Outlier 
 
Date of Service:  1/1 - 1/31 discharge 
Medically necessary days  30 
Covered charges  $55,000 
Benefits available  30 LTR 
Covered days  30 
Noncovered days  0 
Cost report days  30 
All charges for Medicare approved revenue codes billed as covered 
No OC 47 needed   
Reimbursement:  Full DRG plus cost outlier based on $55,000 covered 
charges 
 
EXAMPLE 2:  LTR Days Exhaust in the Cost Outlier 
 
Dates of service:  1/1 - 2/10 discharge 
Medically necessary days:  40 
Covered charges:  $65,000 
Benefits available:  30 LTR 
Covered days:  30 
Noncovered days:  10 
Cost report days:  30 
30 days covered charges for Medicare approved revenue codes and 10 days noncovered 
charges. 
OC 47:  1/26 
OC A3:  1/30  Reimbursement:  Full DRG plus cost outlier based on $55,000 covered 
charges ($50,000 inlier and $5,000 outlier 
 
EXAMPLE 3:  LTR Days Exhaust Prior to Cost Outlier 
 
Dates of service:  1/1 - 1/31 discharge 
Medically necessary days:  30 
Covered charges:  $55,000 
Benefits available:  20 LTR 
Covered days:  20 
Noncovered days:  10 
Cost report days:  25 
25 days covered charges for Medicare approved revenue codes and 5 days noncovered 
charges 
OC 47:  1/26 
OC A3  1/25 
OSC 70:  1/21 -1/25 
Reimbursement:  Full DRG payment, no cost outlier 
 
EXAMPLE 4:  Coinsurance Days Exhaust Prior to Cost Outlier and No LTR Days Are Available 
 
Date of Service:  1/1 - 1/31 discharge 
Medically necessary days  30 
Covered charges  $55,000 
Benefits available:  20 coinsurance 
Covered days:  20 
Noncovered days:  10 
Cost report days:  25 
25 days covered charges for Medicare approved revenue codes and 5 days noncovered 
charges 
OC 47:  1/26 
OC A3:  1/25 
OSC 70:  1/21 - 1/25  
Reimbursement:  Full DRG payment, no cost outlier 
 
EXAMPLE 5: Coinsurance Days Exhaust Prior to Cost Outlier.  LTR Days Exhausts in the Cost 
Outlier 
 
Date of Service:  1/1 - 2/10 discharge 
Medically necessary days  40 
Covered charges  $65,000 
Benefits available:  20 coinsurance and 10 LTR 
Covered days:  30 
Noncovered days:  10 
Cost report days:  35 
35 days covered charges for Medicare approved revenue codes and 5 days noncovered 
charges 
OC 47:  1/26 
OC A3:  2/4 
OSC 70:  1/21 - 1/25   Reimbursement:  Full DRG payment, plus cost outlier based on $60,000 
covered charges ($50,000 inlier, $10,000 outlier, $5,000 
noncovered) 
 
EXAMPLE 6: Full and Coinsurance Days Cover Cost Outlier 
 
Date of Service:  1/1 - 1/31 discharge 
Medically necessary days  30 
Covered charges  $55,000 
Benefits available:  10 full and 20 coinsurance 
Covered days:  30 
Noncovered days:  0 
Cost report days:  30 
All charges for Medicare approved revenue codes billed as covered. 
OC 47:  Not needed 
Reimbursement:  Full DRG payment plus cost outlier based on $55,000 
covered charges. 
 
EXAMPLE 7: Coinsurance Days and LTR Days Exhaust in the Cost Outlier 
 
Date of Service:  1/1 - 2/28 discharge 
Medically necessary days  58 
Covered charges  $83,000 
Benefits available:  10 full, 30 coinsurance and 10 LTR 
Covered days:  50 
Noncovered days:  8 
Cost report days:  50 
50 days covered charges for Medicare approved revenue codes and 8 days noncovered 
charges 
OC 47:  1/26 
OC A3:  2/19 
Reimbursement:  Full DRG payment, plus cost outlier based on $75,000 
covered charges ($50,000 inlier, $25,000 outlier, $8,000 
noncovered) 
 
EXAMPLE: 8: LTR Days Exhaust Prior to Cost Outlier and Noncovered Span(s) Present 
 
Dates of service:  1/1 - 1/31 discharge 
Medically necessary days:  28 
OSC 76  1/10 - 1/11 
Covered charges:  $55,000 
Benefits available:  20 LTR 
Covered days:  20 
Noncovered days:  10 
Cost report days:  25 
25 days covered charges for Medicare approved revenue codes and 5 days noncovered 
charges 
OC 47:  1/28 
OC A3  1/27 
OSC 70:  1/23 -1/27 
Reimbursement:  Full DRG payment, no cost outlier   
20.8 - Payment to Hospitals and Units Excluded from IPPS for Direct Graduate Medical 
Education (DGME) and Nursing and Allied Health (N&AH) Education for Medicare 
Advantage (MA) Enrollees 
(Rev. 1472, Issued: 03-06-08, Effective: 05-23-07, Implementation: 04-07-08) 
 
During the period January 1, 1998 through December 31, 1998, hospitals received 20 percent of the fee-for-
service DGME and operating IME payment. This amount increased by 20 percentage points each consecutive 
year until it reached 100 percent in calendar year (CY) 2002. 
 
Non-IPPS hospitals and units may submit their MA claims to their respective A/B MACs (A) to be processed 
as no-pay bills so that the MA inpatient days can be accumulated on the Provider Statistics & Reimbursement 
Report (PS&R) (report type 118) for DGME payment purposes through the cost report. 
 
This applies to the following hospitals and units excluded from the IPPS: 
 
  Rehabilitation units 
 
  Psychiatric units 
 
  Rehabilitation hospitals 
 
  Psychiatric hospitals 
 
  Long-term Care hospitals 
 
  Childrens hospitals 
 
  Cancer hospitals 
 
In addition, this applies to all hospitals that operate a nursing or an allied health (N&AH) program and qualify 
for additional payments related to their MA enrollees under 42 CFR 413.87(e).  These providers may 
similarly submit their MA claims to their respective A/B MACs (A) to be processed as no-pay bills so that the 
MA inpatient days can be accumulated on the PS&R (report type 118) for purposes of calculating the MA 
N&AH payment through the cost report. 
 
Non-IPPS hospitals, hospitals with rehabilitation and psychiatric units, and hospitals that operate an approved 
N&AH program must submit claims to their regular A/B MAC (A) with condition codes 04 and 69.  The 
provider uses Condition code 69 to indicate that the claim is being submitted as a no-pay bill to the PS&R 
report type 118 for MA enrollees in non-IPPS hospitals and non-IPPS units to capture MA inpatient days for 
purposes of calculating the DGME and/or N&AH payment through the cost report. 
 
The A/B MAC (A) submits the claim to the Common Working File (CWF).  The CWF determines if the 
beneficiary is a MA enrollee and what his/her plan number and effective dates are.  The plan must be a MA 
plan, per 42 CFR 422.4.  Upon verification from CWF that the beneficiary is a MA enrollee, the A/B MAC 
(A) adds the MA plan number and an MA Pay Code of 0 to the claim.  For fee-for-service claims that were 
previously paid and posted to history for the same period (due to late posting of MA enrollment data), an L-
1002 Automatic Cancellation Adjustment Report will be sent to the A/B MAC (A) when a DGME-only or a 
N&AH-only claim from a non-IPPS hospital or unit is accepted for payment by CWF. No deductible or 
coinsurance is to be applied against this claim nor is the beneficiary's utilization updated by CWF for this stay.   If CWF enrollment records do not indicate that the beneficiary is a MA enrollee, CWF rejects the claim and 
the A/B MAC (A) notifies the hospital of this reason.  The hospital may resubmit the claim after 30 days to 
see if the enrollment data has been updated. No interim bills should be submitted for DGME-only or N&AH-
only claims and no Medicare Summary Notices should be prepared for these claims. 
 
The DGME payments are made using the same interim payment calculation A/B MACs (A) currently employ.  
Specifically, A/B MACs (A) must calculate the additional DGME payments using the inpatient days 
attributable to MA enrollees.  As with DGME and N&AH education payments made under fee-for-service, the 
sum of these interim payment amounts is subject to adjustment upon settlement of the cost report.  Note that 
these DGME and/or N&AH payments apply both to IPPS and non-IPPS hospitals and units. 
 
Teaching hospitals that operate GME programs (see 42 CFR 413.86) and/or hospitals that operate approved 
N&AH education programs (see 42 CFR 413.87) must submit separate bills for payment for MA enrollees.  
The MA inpatient days are recorded on PS&R report type 118. For services provided to MA enrollees by 
hospitals that do not have a contract with the enrollees plan, non-IPPS hospitals and units are entitled to any 
applicable DGME and/or N&AH payments under these provisions.  Therefore, such hospitals and units should 
submit bills to their A/B MAC (A) for these cases in accordance with this sections instructions.  In addition to 
submitting the claims to the PS&R report type 118, hospitals must properly report MA inpatient days on the 
Medicare cost report, Form 2552-96, on worksheet S-3, Part I, line 2 column 4, and worksheet E-3, Part IV, 
lines 6.02 and 6.06. 
 
30 - Medicare Rural Hospital Flexibility Program and Critical Access Hospitals (CAHs) 
(Rev. 68, 10-16-04) 
 
A3-3610.19, HO-415.19, A3-3610.20, HO-415.20 
 
The Medicare law allows establishment of a Medicare rural hospital flexibility program by any State that has 
submitted the necessary assurances and complies with the statutory requirements for designation of hospitals 
as critical access hospitals (CAHs). 
 
To be eligible as a CAH, a facility must be a currently participating Medicare hospital, a hospital that ceased 
operations on or after November 29, 1989, or a health clinic or health center that previously operated as a 
hospital before being downsized to a health clinic or health center.  The facility must be located in a rural area 
of a State that has established a Medicare rural hospital flexibility program, or must be located in a 
Metropolitan Statistical Area (MSA) of such a State and be treated as being located in a rural area based on a 
law or regulation of the State, as described in 42 CFR 412.103.  It also must be located more than a 35-mile 
drive from any other hospital or critical access hospital unless it is designated by the State, prior to January 1, 
2006, to be a "necessary provider".  In mountainous terrain or in areas with only secondary roads available, 
the mileage criterion is 15 miles.  In addition, the facility must make available 24-hour emergency care 
services, provide not more than 25 beds for acute (hospital-level) inpatient care or in the case of a CAH with a 
swing bed agreement, 60used for SNF-level care.  The CAH maintains a length of stay, as determined on an 
annual average basis, of no longer than 96 hours. 
 
The facility is also required to meet the conditions of participation for CAHs  
(42 CFR Part 485, Subpart F).  Designation by the State is not sufficient for CAH status.  To participate and 
be paid as a CAH, a facility must be certified as a CAH by CMS. 
 
A. - Grandfathering Existing Facilities 
 
As of October 1, 1997, no new Essential Access Community Hospital (EACH) designations can be made.  
The EACHs designated by CMS before October 1, 1997, will continue to be paid as sole community hospitals  for as long as they comply with the terms, conditions, and limitations under which they were designated as 
EACHs. 
 
30.1 - Requirements for CAH Services, CAH Skilled Nursing Care Services and Distinct 
Part Units 
(Rev. 771, Issued: 12-02-05, Effective: 01-03-06, Implementation: 01-03-06) 
 
A CAH may provide acute inpatient care for a period that does not exceed, as determined on an annual 
average basis, 96 hours per patient.  The CAH's length of stay will be calculated by their A/B MAC (A) based 
on patient census data and reported to the CMS regional office (RO).  If a CAH exceeds the length of stay 
limit, it will be required to develop and implement a corrective action plan acceptable to the CMS RO, or face 
termination of its Medicare provider agreement. 
 
Items and services that a CAH provides to its inpatients are covered if they are items and services of a type 
that would be covered if furnished by an acute care hospital to its inpatients.  A CAH may use its inpatient 
facilities to provide post-hospital SNF care and be paid for SNF-level services if it meets the following 
requirements: 
 
  1. The facility has been certified as a CAH by CMS; 
 
  2. The facility operates up to 25 beds for either acute (CAH) care or SNF swing bed care (any bed of a 
unit of the facility that is licensed as a distinct-part SNF is not counted under paragraph (1) of this section); 
and 
 
  3. The facility has been granted swing-bed approval by CMS. 
 
A CAH that participated in Medicare as a rural primary care hospital (RPCH) on September 30, 1997, and on 
that date had in effect an approval from CMS to use its inpatient facilities to provide post-hospital SNF care, 
may continue in that status under the same terms, conditions, and limitations that were applicable at the time 
those approvals were granted. 
 
A CAH may establish psychiatric and rehabilitation distinct part units effective for cost reporting periods 
beginning on or after October 1, 2004.  The CAH distinct part units must meet the following requirements: 
 
  1. The facility distinct part unit has been certified as a CAH by CMS; 
 
  2. The distinct part unit meets the conditions of participation requirements for hospitals; 
 
  3. The distinct part unit must also meet the requirements, other than conditions of participation 
requirements, that would apply if the unit were established in an acute care hospital; 
 
  4. Services provided in these distinct part units will be paid under the payment methodology that 
would apply if the unit was established in an acute care (non-CAH) hospital paid under the hospital inpatient 
PPS; Inpatient Rehabilitation Facilities in CAHs are paid under the Inpatient Rehabilitation Facility PPS (see 
Pub 100-04, Chapter 3, Section 140 for billing requirements) and the Inpatient Psychiatric Units in CAHs are 
paid on a reasonable cost basis until a prospective payment system is created (expected in 2005); 
 
  5. Beds in these distinct part units are excluded from the 25 bed count limit for CAHs; 
 
  6. The bed limitations for each distinct part unit is 10; and 
  If a distinct part unit does not meet applicable requirements with respect to a cost reporting period, no 
payment may be made to the CAH for services furnished in the unit during that period.  Payment may resume 
only after the CAH has demonstrated that the unit meets applicable requirements. 
 
30.1.1 - Payment for Inpatient Services Furnished by a CAH 
(Rev. 530, Issued:  04-22-05; Effective: 01-05-04 - HPSA Bonus; 01-03-05 - Physician Scarcity; 07-01-01; 
Implementation:  07-05-05) 
 
For cost reporting periods beginning after October 1, 1997, payment for inpatient services of a CAH is the 
reasonable cost of providing the services. Effective for cost reporting periods beginning after January 1, 2004, 
payment for inpatient services of a CAH is 101 percent of the reasonable cost of providing the services, as 
determined under applicable Medicare principles of reimbursement, except the following principles do not 
apply: 
 
  The lesser of costs or charges (LCC) rule; 
 
  Ceilings on hospital operating costs; 
 
  The reasonable compensation equivalent (RCE) limits for physician services to hospitals; and 
 
  The payment window provisions for preadmission services treated as inpatient services under 40.3.  
(Because CAHs are exempt from the 1- and 3-day window provisions, services rendered by a CAH to 
a beneficiary who is an outpatient prior to that beneficiarys admission to the CAH as an inpatient, are 
not bundled on the inpatient bill.  Outpatient CAH services must be billed as such and on a separate 
bill (85x TOB) from inpatient services.  CWF and the shared system shall bypass the CAH provider 
numbers when applying the edits that compare hospital outpatient and inpatient bills to apply the 
window provisions.  Outpatient services rendered on the date of admission to an inpatient setting are 
still billed and paid separately as outpatient services in a CAH.) 
 
Low Osmolar Contrast Material (LOCM) furnished as part of medically necessary imaging procedures for 
inpatients is paid for based on bill type 11X (for LOCM furnished during an inpatient stay covered under Part 
A), or 12X(for LOCM furnished to an inpatient where payment is under Part B because the stay is not covered 
under Part A). Bills must include revenue code 636 along with one of the following HCPCS codes as 
appropriate: 
 
A4644  Supply of low osmolar contrast material (100 - 199 mgs of iodine); 
 
A4645  Supply of low osmolar contrast material (200 - 299 mgs of iodine); or 
 
A4646  Supply of low osmolar contrast material (300 - 399 mgs of iodine). 
 
Payment for inpatient CAH services is subject to Part A deductible and coinsurance requirements.  Inpatient 
services should be billed on an 11X type of bill. 
 
30.1.1.1 - Payment for Inpatient Services Furnished by an Indian Health Service (IHS) or 
Tribal CAH 
(Rev. 231, Issued 07-23-04, Effective: 01-01-04, Implementation: 01-03-05) 
 
Reimbursement to IHS or Tribal CAHs for covered inpatient services is based on a facility specific per diem 
rate that is established on a yearly basis from the most recently filed cost report information.   
Payment for inpatient IHS or Tribal CAH services is at 100% of the facility specific per diem rate less 
applicable deductible and coinsurance.  Inpatient services should be billed on an 11X type of bill. 
 
Beginning January 1, 2004, IHS or Tribal CAHs are paid 101% of the facility specific per diem rate. 
 
30.1.2 - Payment for Post-Hospital SNF Care Furnished by a CAH 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
The SNF-level services provided by a CAH, are paid at 101% of reasonable cost.  Since this is consistent with 
the reasonable cost principles, A/B MACs (A) will now pay for those services at 101% reasonable cost.  
Hospitals must follow the rules for payment in 60 for swing-bed services. 
 
Coinsurance and deductible are applicable for inpatient CAH payment. 
 
All items on the ASC X12 837 institutional claim format are completed in accord with the implementation 
guide applicable to the dates of the stay.  All items on Form CMS-1450 are completed in accordance with 
Chapter 25. 
 
30.1.3 - Costs of Emergency Room On-Call Providers 
(Rev. 803, Issued: 01-03-06, Effective: 04-03-06, Implementation: 04-03-06) 
 
For dates of service on or after January 1, 2005, the reasonable costs of outpatient CAH services may include 
the reasonable compensation and related costs for an emergency room provider who is on call but not present 
at the premises of the CAH, if the provider is not otherwise furnishing provider services and is not on call at 
any other provider or facility.  The costs are allowable only if they are incurred under a written contract that 
requires the provider to come to the CAH when the providers presence is medically required.  An emergency 
room provider must be a doctor of medicine or osteopathy, physician assistant, nurse practitioner, or clinical 
nurse specialist who is immediately available by telephone or radio contact, and available on site, on a 24-
hour a day basis, within 30 minutes, or within 60 minutes in areas described in 42 CFR 1395(g)(5). 
 
For dates of service from October 1, 2001, through December 31, 2004, this provision covers only emergency 
room physicians.  An emergency room physician must be a doctor of medicine or osteopathy. 
 
30.1.4 - Costs of Ambulance Services 
(Rev. 1, 10-01-03) 
 
Effective for services furnished on or after December 21, 2000, payment for ambulance services furnished by 
a CAH or by an entity that is owned and operated by a CAH is, under certain circumstances, the reasonable 
cost of the CAH or the entity in furnishing those services.  Payment is made on this basis only if the CAH or 
the entity is the only provider or supplier of ambulance services located within a 35-mile drive of the CAH or 
the entity.  Reasonable cost will be determined without regard to any per-trip limits or fee schedule that would 
otherwise apply. 
 
The distance between the CAH or entity and the other provider or supplier of ambulance services will be 
determined as the shortest distance in miles measured over improved roads between the CAH or the entity and 
the site at which the vehicles of the nearest provider or supplier of ambulance services are garaged.  An 
improved road is any road that is maintained by a local, State, or Federal government entity and is available  for use by the general public.  An improved road includes the paved surface up to the front entrance of the 
CAH and the front entrance of the garage. 
 
40 - Billing Coverage and Utilization Rules for PPS and Non-PPS Hospitals 
(Rev. 2388, Issued: 01-20-12, Effective: 04-22-12, Implementation: 04-22-12) 
 
A. - General 
 
Days of utilization are charged based upon actual days of coverage including grace and waiver days.  The 
number of covered days used are maintained by CMS to track the beneficiary's eligible days in a benefit 
period.  The hospital collects the coinsurance, if applicable, for only the number of days charged against the 
beneficiary's utilization record maintained by CMS.  For example, if the mean length of stay for a DRG is 10 
days and the beneficiary is discharged after 3, only 3 days of utilization is charged.  In a like situation, if the 
DRG mean length of stay is 10 days and the beneficiary is discharged after 15, the 15 days are charged against 
the utilization record. 
 
NOTE:  There are some exceptions to this rule under LTCH PPS.  See 150.4. 
 
Coinsurance, if applicable, is payable by the beneficiary for the number of days used.  The hospital subtracts 
the coinsurance amount from the DRG payment.  Days after benefits are exhausted are not charged against the 
beneficiary's utilization even though the hospital may receive the full DRG payment. 
 
The basic prospective payment amount will be paid if: 
 
  There is at least l day of utilization left at the time of admission and that day is also a day of 
entitlement (e.g., a day before the beneficiary discontinued voluntary Part A entitlement by not paying 
the premium). 
 
  There is at least l day for which payment may be made under the guarantee of payment.  (If benefits 
are exhausted prior to admission and no payment may be made under guarantee of payment, only Part 
B benefits are available.) 
 
  The beneficiary becomes entitled after admission.  The hospital may not bill the beneficiary or other 
persons for days of care preceding entitlement except for days in excess of the outlier threshold. 
 
Utilization is not counted for any days treated as noncovered, except as described below: 
 
  Utilization is not counted for any nonentitlement days, or days after benefits are exhausted (including 
guarantee of payment days), even if those days are treated as covered for outlier calculation or treated 
as Medicare patient days for the cost report. 
 
  The length of stay exceeds the day/cost outlier threshold (Day outliers were discontinued at the end of 
FY 1997), utilization is counted for medically unnecessary days which are noncovered but for which 
the hospital may not charge the beneficiary because the requirements of 40.2 were not met.  See 
40.2.2 for identification of these days. 
 
  If the adjusted cost of the stay exceeds the cost outlier threshold, utilization is counted for any 
medically unnecessary days on which all Part A services are treated as noncovered under 40.2.B and 
for which the hospital may not charge the beneficiary.  (Where only ancillary services are denied, all 
days are counted as covered.) 
  Lifetime reserve days (LTR) for an inpatient hospital stay for which prospective payment may be made is 
subject to the following: 
 
If the beneficiary had one or more regular benefit days (full or coinsurance days) remaining in the spell of 
illness when admitted, there is no advantage in using lifetime reserve days.  The beneficiary is deemed to have 
elected not to use lifetime reserve days for the nonoutlier (Day outliers were discontinued at the end of FY 
1997) portion of the stay.  IPPS uses Occurrence Span code 70 for the covered non-utilization period after 
regular benefit days are exhausted or when only LTR days are exhausted.  For example: 
 
EXAMPLE 1: No Cost Outlier, only LTR Days available and Exhaust prior to discharge 
Dates of Service  01/05 - 01/16 
Medically necessary days  11 
Benefit days available VC 83  1 LTR 
Covered days VC 80  1 
Noncovered days VC 81  10 
Cost report days  11 
OC A3  01/15(includes covered non-utilization 
period) 
OSC 70  01/06 - 01/15 
Room & Board revenue code   11 Total & Covered units 
Medicare approved revenue codes  Charges in covered 
Reimbursement  Full DRG payment, no cost outlier 
Beneficiary Liability:  LTR copayment amount 
 
EXAMPLE 2: No Cost Outlier, Coinsurance Days available and Exhaust prior to discharge 
Dates of Service  01/05 - 01/16 
Medically necessary days  11 
Benefit days available VC 82   3 Coinsurance 
Covered days VC 80  3 
Noncovered days VC 81  8 
Cost report days  11 
OSC 70  01/08 - 01/15 
Room & Board revenue code  11 Total & Covered units 
Medicare approved revenue codes  Charges in covered 
Reimbursement  Full DRG payment, no cost outlier 
Beneficiary Liability  Coinsurance copayment amount 
 
After regular benefits have been exhausted, lifetime reserve days will be used automatically for outlier days 
unless the beneficiary elects not to use them, or the average daily charges for outlier days to be reimbursed as 
lifetime reserve days do not exceed the lifetime reserve day coinsurance amount.  (In the latter case the 
beneficiary is deemed to have elected not to use lifetime reserve days for outlier days.) An election not to use 
lifetime reserve for outlier days applies to all outlier days in an admission. 
 
  If the beneficiary had no regular benefit days remaining when admitted, available lifetime reserve days 
are used automatically for each day of the stay.  Exceptions exist if the beneficiary elects not to use 
lifetime reserve days, or the charges for which the beneficiary is liable, if electing not use lifetime 
reserve days, do not exceed the charges for which the beneficiary would be liable if the lifetime 
reserve days were used.  Using lifetime reserve days, the beneficiary would be responsible for the sum 
of the coinsurance amounts for the lifetime reserve days that would be used plus the total charges for  outlier days, if any, for which no lifetime reserve days are available.  (In the latter case the beneficiary 
will be deemed to have elected not to use any lifetime reserve days.) 
 
An election by the beneficiary not to use lifetime reserve days applies to the entire stay and precludes any 
payment for the stay.  A deemed election not to use lifetime reserve days applies to the entire stay and 
precludes any payment for the stay unless payment may be made under the guarantee of payment. 
 
The number of days for which utilization is charged may be different from the number used in Pricer to 
compute outlier status or the number of Medicare patient days shown on the cost report. 
 
40.1 - "Day Count" Rules for All Providers 
(Rev. 1, 10-01-03) 
 
A3-3620 
 
See 40.2.A for general rules on counting days. 
 
A. - Day of Admission 
 
For all hospitals, the A/B MAC (A) counts the day of admission for the cost report and for utilization.  For 
PPS hospitals, it counts the day of admission for Pricer purposes unless the rules for same day transfer apply. 
 
B. - Day of Discharge, Death, or Beginning a Leave of Absence 
 
The A/B MAC (A) does not count the day of discharge or death for cost report, utilization or Pricer purposes 
unless the admission and discharge day are the same day.  Where admission and discharge occur on the same 
day, it counts one day for cost report, utilization and Pricer purposes.  If the patient is admitted with the 
expectation that the patient will remain overnight, but is discharged or dies before midnight, it counts the day 
for the cost report, utilization and Pricer.  It does not count any days in a leave of absence (occurrence span 
code 74), for cost report, utilization or Pricer purposes. 
 
C. - Same Day Transfer From Participating Hospital to Nonparticipating Hospital or Nonparticipating 
Distinct Part of Hospital 
 
If the beneficiary is admitted to a PPS hospital with the expectation that the beneficiary will remain overnight, 
but is transferred to a nonparticipating provider or a nonparticipating distinct part of the same provider before 
midnight, the A/B MAC (A) counts the day for the cost report, utilization and Pricer.  If the beneficiary is 
admitted to a non-PPS hospital with the expectation that the beneficiary will remain overnight, but is 
transferred to a nonparticipating hospital or a nonparticipating distinct part of a hospital before midnight, the 
A/B MAC (A) counts the day for cost report and utilization purposes. 
 
D. - Same Day Transfer From Participating Hospital to Participating Hospital 
 
If the beneficiary is transferred to a participating hospital or distinct part of a participating hospital, the A/B 
MAC (A) counts the day, if it is determined to be covered, for the cost report and for Pricer at both hospitals.  
However, it charges utilization on the bill only for the later admission to avoid charging the beneficiary twice 
for the same day.  The earlier admission, for which the A/B MAC (A) does not charge utilization, can be 
recognized by condition code 40 (same day transfer), and the same date entered in the "From" and "Through" 
dates in CWF. 
 
E. - Guarantee of Payment Days   
There can be up to fourteen guarantee of payment days (8 days plus weekends and Federal holidays) 
beginning with the date in occurrence code 20.  The A/B MAC (A) does not charge utilization, as the 
beneficiary has no days remaining, but counts guarantee of payment days for the cost report and Pricer. 
 
F. - Provider Liability Issue 
 
When the A/B MAC (A) or the QIO finds the provider liable, the A/B MAC (A) or the QIO determines the 
cause for provider liability prior to making any decision regarding utilization.  If the provider is technically 
liable, i.e., liable for reasons other than custodial care or medical necessity of the services, the A/B MAC (A) 
shows the dates of provider liability in occurrence span code 77, and counts the days for utilization, but not for 
cost report or Pricer purposes.  If the provider is liable because services were not medically necessary or were 
custodial care, the A/B MAC (A) shows the dates of provider liability in occurrence span code 79 and does 
not count the days for cost report, utilization or Pricer purposes. 
 
G. - Special Rules Which Differ for PPS and Other Providers 
 
If Part A payment may be made for a hospital stay under PPS (i.e., there is at least one Medicare patient day, 
guarantee of payment day, or day for which the program is liable to the hospital under the limitation of 
liability provision), the A/B MAC (A) treats all days as covered for cost report purposes, except as provided 
below.  It applies this same rule when per diem payments are made to a transferring PPS hospital, whether for 
all or part of a stay, or when a PPS hospital requests outlier payment, whether or not such payment is made. 
 
For non-PPS hospitals, PPS exempt units and SNFs, it counts the number of days available to the beneficiary 
for all purposes. 
 
Where outlier status is involved and there are either pre-entitlement days or days after benefits were 
exhausted, the A/B MAC (A) reduces cost report days by the lesser of the number of pre-entitlement/post-
benefits exhausted days or the number of days in the stay in excess of the outlier threshold. 
 
1. Length of Stay Does Not Exceed the Day Outlier Threshold (Day outliers discontinued after FY 97) 
 
The A/B MAC (A) counts all days (including day of admission, but not the day of discharge or death, unless it 
is also the day of admission) as covered for cost report and Pricer purposes.  It does not count those medically 
unnecessary days for which the provider meets notice requirements and other conditions for charging the 
beneficiary.  (See 40.2.2 C and D.)  It does not count those medically unnecessary days for cost report or 
Pricer purposes.  It counts the actual number of days available to the beneficiary for utilization. 
 
2. Length of Stay Exceeds the Day Outlier Threshold (Day outliers discontinued after FY 97) 
 
The A/B MAC (A) counts all days (including the day of admission, but not the day of discharge or death 
unless it is also the day of admission) in the stay for cost report and Pricer purposes except as follows: 
 
a.  Pre-entitlement Days 
 
The A/B MAC (A) does not count pre-entitlement days for the cost report or for utilization in non-PPS 
hospitals, exempt units or SNFs.  For PPS hospitals, it does not count pre-entitlement days for utilization or 
for Pricer.  The number of days counted as noncovered for the cost report is limited to the number of days in 
the stay in excess of the day outlier threshold.  To determine which preentitlement days are counted as 
noncovered, the A/B MAC (A) begins at the end of the stay (the day before the day of discharge, death, etc.) 
and working backward, counts off days identified as pre-entitlement days until it has counted all  preentitlement days or, until the number of days counted equals the total number of days in excess of the 
outlier threshold. 
 
b.  Post-Exhaustion of Benefit Days 
 
The A/B MAC (A) treats post-exhaustion of benefit days exactly like pre-entitlement days. 
 
To resolve any Medicare Secondary Payor (MSP) issues, see the Medicare Secondary Payer Manual. 
 
40.2 - Determining Covered/Noncovered Days and Charges 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
 
The CMS must record a day or charge as either covered or noncovered because of the following: 
 
Beneficiary utilization is recorded based upon days during which the patient received hospital or SNF 
accommodations, including days paid by Medicare and days for which the provider was held liable for reasons 
other than medical necessity or custodial care.  Days denied as not medically necessary or as custodial care are 
not charged against a beneficiary's utilization record when the provider is determined to be liable. 
 
The provider may claim credit on its cost report only for covered accommodations, days and charges for 
which actual payment is made, i.e., provider liable days and charges are not included.  Data from the bill 
payment process are used in preparing the cost report. 
 
The number of days and charges provided to the Pricer program affects the day and cost outlier determinations 
and the DRG payment amount.  Non-PPS provider days are excluded from Pricer consideration. 
 
It is possible to use a different number of days on a single bill for each of the above purposes, although the 
same number of days will generally apply in actual practice.  For example, if the beneficiary had at least 1 day 
of eligibility remaining at admission, days that occur after benefits are exhausted up through the day outlier 
threshold for the applicable DRG are counted for cost reporting purposes under IPPS (see section190.12.1 for 
IPF and section 150.17 for LTCH benefits exhaust claims processing). 
 
A. - General Rule on Counting of Days 
 
These following are general rules for counting days.  However, these rules are also subject to special rules for 
determining day of admission, discharge, death, beginning a leave of absence, same day transfer, guarantee of 
payment days, provider liability issues and outlier days for PPS outliers.  See 40.1 and 40.1.G for an 
explanation of these special rules. 
 
The provider calculates and enters on the bill the number of claimable Medicare patient days on the cost 
report.  (Medicare patient days always refer to cost report days.)  For PPS facilities the A/B MAC (A) counts, 
for the cost report, utilization and Pricer purposes, all days for which Part A payment may be made to the 
hospital.  This includes days for which the provider is not liable under the limitation of liability provision.  It 
does not count days for which no Part A payment may be made for cost report, utilization or Pricer purposes. 
 
For non-PPS providers, the A/B MAC (A) does not count the days for Pricer purposes, because DRG payment 
or outlier calculations are not made. 
 
B. - Medically Unnecessary Days for Which the Provider May Charge the Beneficiary 
  Days on which the hospital furnished no covered Part A services are not charged to utilization and are not 
counted as Medicare patient days. 
 
If the hospital or SNF stay includes any medically unnecessary days for which the provider has met the 
requirements of 40.2.2 C or D for charging the beneficiary, the A/B MAC (A) counts those days as 
noncovered under Part A for cost report, utilization and Pricer purposes. 
 
Since the provider may not be aware of the date benefits are exhausted or when the outlier threshold is 
reached, the A/B MAC (A) verifies the provider's counts.  If, for any reason, the A/B MAC (A) or the QIO 
determines fewer days are claimable (e.g., if the A/B MAC (A) or the QIO indicates that benefits are 
exhausted), the A/B MAC (A) will adjust cost report days for its PS&R system.  If the A/B MAC (A) or the 
QIO determines fewer days are claimable for the cost report, it determines the proper number of days of 
utilization to charge the beneficiary and the proper number of days for the length of stay used by Pricer.  It 
uses the factors in 40.1 and 40.1G to make these calculations. 
 
C. - Medically Unnecessary Outlier Costs for Which the Hospital May Not Charge 
 
If the hospital requests payment for cost outlier, and the Medicare covered charges converted to cost exceed 
the cost outlier threshold, the services which are not reasonable and necessary (or constitute custodial care) 
which are noncovered, but for which the hospital may not charge the beneficiary are determined as follows: 
 
  The hospital determines the lesser of the following: 
 
  The cost of the medically unnecessary services (converting the charges for the medically 
unnecessary services to cost); or 
 
  The amount by which the adjusted cost of the stay exceeds the cost outlier threshold. 
 
Ancillary services, which are not required to be furnished on an inpatient basis, are treated as medically 
unnecessary, but nevertheless may be covered under Part B. 
 
  If the costs in excess of the outlier threshold exceed the cost of the medically unnecessary services, the 
cost of all of the medically unnecessary services are treated as noncovered costs.  If these costs exceed 
the costs in excess of the cost outlier threshold, beginning with the cost of the last medically 
unnecessary service in the stay, the hospital must identify, and add on, in reverse order, the cost of 
other medically unnecessary services until the total cost of medically unnecessary services reaches the 
costs in excess of the cost outlier threshold.  If the cost of the last service to be added on in this manner 
brings the cost of medically unnecessary services over the amount of costs in excess of the cost outlier 
threshold, only the portion of the cost of that last medically unnecessary service (in the order of the 
addition) needed to bring the total of the medically unnecessary costs up to the costs in excess of the 
cost outlier threshold is added on.  In this case, the costs in excess of the cost outlier threshold are 
treated as the noncovered costs. 
 
  Once the costs of medically unnecessary services to be treated as noncovered are determined, convert 
them to charges for each applicable service/revenue category, e.g., accommodations, radiology, 
pharmacy, by dividing the costs treated as not medically necessary in each category by 72 percent.  
The medically unnecessary charges determined are treated as noncovered charges.  Days for which all 
costs are found to be noncovered are treated as noncovered days. 
 
  The hospital determines which medically unnecessary services and days treated as noncovered are 
services and days for which the beneficiary can be charged under 40.2.2C or E.  The remainder of the  services and days are the medically unnecessary services and days treated as noncovered even though 
the hospital may not charge the beneficiary.  However, the distinction between medically unnecessary 
services and days for which the hospital may charge, and those for which it may not, will not be 
reflected in the charges shown on the inpatient hospital billing.  Both are combined and shown as 
noncovered services and days. 
 
The determination of medically unnecessary cost outliers is not affected by non-entitlement days or days after 
benefits are exhausted.  If the stay is covered or treated as covered, the beneficiary is treated as entitled to Part 
A, and as having benefits available throughout the stay. 
 
40.2.1 - Noncovered Admission Followed by Covered Level of Care 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
Where a beneficiary receives noncovered care at admission, and is notified as such, but subsequently is 
furnished covered level of care during the same hospital stay, the admission is deemed to have occurred when 
covered services became medically needed and rendered.  This is applicable to PPS and non-PPS billings. 
 
The following billing entries identify this situation: 
 
  Admission date (not the deemed date). 
 
  Occurrence code "31" and the date the hospital provided notice to the beneficiary. 
 
  Occurrence span code 76 indicates the noncovered span from admission date through the day before 
covered care started. 
 
  Value code 31 is used to indicate the amount which was charged the beneficiary for noncovered 
services. 
 
  Noncovered charges related to the noncovered services. 
 
  The principal diagnosis is shown as the diagnosis that caused the covered level of care. 
 
  Only procedures performed during the covered level of care are shown on the bill. 
 
If a no payment bill for the noncovered level of care has been processed, the hospital prepares and forwards a 
new initial bill. 
 
40.2.2 - Charges to Beneficiaries for Part A Services 
(Rev. 1495; Issued:  05-02-08; Effective Date:  10-01-08; Implementation Date:  10-06-08) 
 
The hospital submits a bill even where the patient is responsible for a deductible which covers the entire 
amount of the charges for non-PPS hospitals, or in PPS hospitals, where the DRG payment amount will be 
less than the deductible. 
 
A hospital receiving payment for a covered hospital stay (or PPS hospital that includes at least one covered 
day, or one treated as covered under guarantee of payment or limitation on liability) may charge the 
beneficiary, or other person, for items and services furnished during the stay only as described in subsections 
A through H.  If limitation of liability applies, a beneficiary's liability for payment is governed by the  limitation on liability notification rules in Chapter 30 of this manual.  For related notices for inpatient 
hospitals, see CMS Transmittal 594, Change Request3903, dated June 24, 2005. 
 
A. - Deductible and Coinsurance 
 
The hospital may charge the beneficiary or other person for applicable deductible and coinsurance amounts.  
The deductible is satisfied only by charges for covered services.  The A/B MAC (A) deducts the deductible 
and coinsurance first from the PPS payment.  Where the deductible exceeds the PPS amount, the excess will 
be applied to a subsequent payment to the hospital.  (See Chapter 3 of the Medicare General Information, 
Eligibility, and Entitlement Manual for specific policies.) 
 
B. - Blood Deductible 
 
The Part A blood deductible provision applies to whole blood and red blood cells, and reporting of the number 
of pints is applicable to both PPS and non-PPS hospitals. (See Chapter 3 of the Medicare General Information, 
Eligibility, and Entitlement Manual for specific policies.)  Hospitals shall report charges for red blood cells 
using revenue code 381, and charges for whole blood using revenue code 382. 
 
C. - Inpatient Care No Longer Required 
 
The hospital may charge for services that are not reasonable and necessary or that constitute custodial care.  
Notification may be required under limitation of liability.  See CMS Transmittal 594, Change Request3903, 
dated June 24, 2005, section V. of the attachment, for specific notification requirements.  Note this transmittal 
will be placed in Chapter 30 of this manual at a future point.  Chapter 1, section 150 of this manual also 
contains related billing information in addition to that provided below. 
 
In general, after proper notification has occurred, and assuming an expedited decision is received from a 
Quality Improvement Organization (QIO), the following entries are required on the bill the hospital prepares: 
 
  Occurrence code 3l (and date) to indicate the date the hospital notified the patient in accordance with 
the first bullet above; 
 
  Occurrence span code 76 (and dates) to indicate the period of noncovered care for which it is charging 
the beneficiary; 
 
  Occurrence span code 77 (and dates) to indicate the period of noncovered care for which the provider 
is liable, when it is aware of this prior to billing; and 
 
  Value code 3l (and amount) to indicate the amount of charges it may bill the beneficiary for days for 
which inpatient care was no longer required.  They are included as noncovered charges on the bill. 
 
D. - Change in the Beneficiary's Condition 
 
If the beneficiary remains in the hospital after receiving notice as described in subsection C, and the hospital, 
the physician who concurred in the hospital's determination, or the QIO, subsequently determines that the 
beneficiary again requires inpatient hospital care, the hospital may not charge the beneficiary or other person 
for services furnished after the beneficiary again required inpatient hospital care until proper notification 
occurs (see subsection C). 
  If a patient who needs only a SNF level of care remains in the hospital after the SNF bed becomes available, 
and the bed ceases to be available, the hospital may continue to charge the beneficiary.  It need not provide the 
beneficiary with another notice when the patient chose not to be discharged to the SNF bed. 
 
E. - Admission Denied 
 
If the entire hospital admission is determined to be not reasonable or necessary, limitation of liability may 
apply. See 2005 CMS transmittal 594, section V. of the attachment, for specific notification requirements. 
 
NOTE:  This transmittal will be placed in Chapter 30 of this manual at a future point. 
 
In such cases the following entries are required on the bill: 
 
  Occurrence code 3l (and date) to indicate the date the hospital notified the beneficiary. 
 
  Occurrence span code 76 (and dates) to indicate the period of noncovered care for which the 
hospital is charging the beneficiary. 
 
  Occurrence span code 77 (and dates) to indicate any period of noncovered care for which the 
provider is liable (e.g., the period between issuing the notice and the time it may charge the 
beneficiary) when the provider is aware of this prior to billing. 
 
  Value code 3l (and amount) to indicate the amount of charges the hospital may bill the beneficiary 
for hospitalization that was not necessary or reasonable.  They are included as noncovered charges 
on the bill. 
 
F. - Procedures, Studies and Courses of Treatment That Are Not Reasonable or Necessary 
 
If diagnostic procedures, studies, therapeutic studies and courses of treatment are excluded from coverage as 
not reasonable and necessary (even though the beneficiary requires inpatient hospital care) the hospital may 
charge the beneficiary or other person for the services or care according the procedures given in CMS 
Transmittal 594, Change Request3903, dated June 24, 2005. 
 
The following bill entries apply to these circumstances: 
 
  Occurrence code 32 (and date) to indicate the date the hospital provided the notice to the beneficiary. 
 
  Value code 3l (and amount) to indicate the amount of such charges to be billed to the beneficiary.  
They are included as noncovered charges on the bill. 
 
G. - Nonentitlement Days and Days after Benefits Exhausted 
 
If a hospital stay exceeds the day outlier threshold, the hospital may charge for some, or all, of the days on 
which the patient is not entitled to Medicare Part A, or after the Part A benefits are exhausted (i.e., the hospital 
may charge its customary charges for services furnished on those days).  It may charge the beneficiary for the 
lesser of: 
 
  The number of days on which the patient was not entitled to benefits or after the benefits were 
exhausted; or 
 
  The number of outlier days.  (Day outliers were discontinued at the end of FY 1997.)   
If the number of outlier days exceeds the number of days on which the patient was not entitled to benefits, or 
after benefits were exhausted, the hospital may charge for all days on which the patient was not entitled to 
benefits or after benefits were exhausted.  If the number of days on which the beneficiary was not entitled to 
benefits, or after benefits were exhausted, exceeds the number of outlier days, the hospital determines the days 
for which it may charge by starting with the last day of the stay (i.e., the day before the day of discharge) and 
identifying and counting off in reverse order, days on which the patient was not entitled to benefits or after the 
benefits were exhausted, until the number of days counted off equals the number of outlier days.  The days 
counted off are the days for which the hospital may charge. 
 
H. - Contractual Exclusions 
 
In addition to receiving the basic prospective payment, the hospital may charge the beneficiary for any 
services that are excluded from coverage for reasons other than, or in addition to, absence of medical 
necessity, provision of custodial care, non-entitlement to Part A, or exhaustion of benefits.  For example, it 
may charge for most cosmetic and dental surgery. 
 
I. - Private Room Care 
 
Payment for medically necessary private room care is included in the prospective payment.  Where the 
beneficiary requests private room accommodations, the hospital must inform the beneficiary of the additional 
charge.  (See the Medicare Benefit Policy Manual, Chapter 1.) When the beneficiary accepts the liability, the 
hospital will supply the service, and bill the beneficiary directly.  If the beneficiary believes the private room 
was medically necessary, the beneficiary has a right to a determination and may initiate a Part A appeal. 
 
J. - Deluxe Item or Service 
 
Where a beneficiary requests a deluxe item or service, i.e., an item or service which is more expensive than is 
medically required for the beneficiary's condition, the hospital may collect the additional charge if it informs 
the beneficiary of the additional charge.  That charge is the difference between the customary charge for the 
item or service most commonly furnished by the hospital to private pay patients with the beneficiary's 
condition, and the charge for the more expensive item or service requested.  If the beneficiary believes that the 
more expensive item or service was medically necessary, the beneficiary has a right to a determination and 
may initiate a Part A appeal. 
 
K - Inpatient Acute Care Hospital Admission Followed By a Death or Discharge Prior To Room 
Assignment 
 
A patient of an acute care hospital is considered an inpatient upon issuance of written doctors orders to that 
effect.  If a patient either dies or is discharged prior to being assigned and/or occupying a room, a hospital may 
enter an appropriate room and board charge on the claim.  If a patient leaves of their own volition prior to 
being assigned and/or occupying a room, a hospital may enter an appropriate room and board charge on the 
claim as well as a patient status code 07 which indicates they left against medical advice.  A hospital is not 
required to enter a room and board charge, but failure to do so may have a minimal impact on future DRG 
weight calculations. 
 
40.2.3 - Determining Covered and Noncovered Charges - Pricer and PS&R 
(Rev. 1, 10-01-03) 
 
Accommodation charges for days covered by Medicare are covered charges.  Ancillary charges incurred on 
these days are also covered charges as long as these services are covered under Medicare.  The A/B MAC (A)  enters them into its PS&R unless it or the QIO denies them as exclusions from coverage or as medically 
unnecessary.  For PPS hospitals, the A/B MAC (A) counts these charges for Pricer unless the charges are 
included as pass-through costs. 
 
The A/B MAC (A) does not count for Pricer or the PS&R: 
 
  Charges the provider has shown as noncovered.  (If the provider has complied with the notice 
requirements in Chapter 30, it may bill the beneficiary.); 
 
  Services on noncovered days; 
 
  Charges for personal comfort and/or convenience items; 
 
  Accommodations and routine charges for the day of discharge, death, or beginning of a leave of 
absence, unless it is also the day of admission; and 
 
  Charges for ancillary services on the day of discharge, death, or beginning of a leave of absence if the 
preceding day is noncovered under 40.2.B. 
 
MSP Issues 
 
The A/B MAC (A) resolves any MSP issues not handled by 40.1.G using the instructions in the Medicare 
Secondary Payer Manual specific for reasonable cost providers and the instructions in specifically for PPS 
providers. 
 
Determining Covered and Noncovered Charges - Part B 
 
The A/B MAC (A) counts as covered under Part B, for cost report and deductible purposes, the charges for 
which Part B payment may be made, except as follows: 
 
  It counts as covered for deductible, but not cost report purposes, those charges for which the provider 
is liable for technical reasons; and 
 
  It does not count charges for which the provider is liable because services are not medically necessary 
for either deductible or cost report purposes. 
 
40.2.4 - IPPS Transfers Between Hospitals 
(Rev.10952, Issued:08-19-2021, Effective: 09-20-2021, Implementation:09-20-2021)                                                                                       
 
A discharge of a hospital inpatient is considered to be a transfer if the patient is admitted the same day to 
another hospital.  A transfer between acute inpatient hospitals occurs when a patient is admitted to a hospital 
and is subsequently transferred from the hospital where the patient was admitted to another hospital for 
additional treatment once the patient's condition has stabilized or a diagnosis established.  The following 
procedures apply.  See 20.2.3 for proper Pricer coding to ensure that these requirements are met. 
 
Note:  CMS established Common Working File Edits (CWF) edits in January 2004 to ensure accurate coding 
and payment for discharges and/or transfers. 
 
A. - Transfers Between IPPS Prospective Payment Acute Care Hospitals 
  For discharges occurring on or after October 1, 1983, when a hospital inpatient is discharged to another acute 
care hospital, as described in 42 CFR 412.4(b), payment to the transferring hospital is based upon a graduated 
per diem rate (i.e., the prospective payment rate divided by the geometric mean length of stay for the specific 
MS-DRG into which the case falls; hospitals receive twice the per diem rate for the first day of the stay and 
the per diem rate for every following day up to the full MS-DRG amount). If the stay is less than l day, l day is 
paid.  A day is counted if the patient was admitted with the expectation of staying overnight.  However, this 
day does not count against the patient's Medicare days (utilization days), since this Medicare day is applied at 
the receiving hospital.  Deductible or coinsurance, where applicable, is also charged against days at the 
receiving hospital (see 40.1.D).  If the patient is treated in the emergency room without being admitted and 
then transferred, only Part B billing is appropriate.  Payment is made to the final discharging hospital at the 
full prospective payment rate. 
 
The prospective payment rate paid is the hospital's specific rate.  Similarly, the wage index values and any 
other adjustments are those that are appropriate for each hospital.  Where a transfer case results in treatment in 
the second hospital under a MS-DRG different than the MS-DRG in the transferring hospital, payment to each 
is based upon the MS-DRG under which the patient was treated.  For transfers on or after October 1, 1984, the 
transferring hospital may be paid an outlier payment.  For further information on outlier payments for transfer 
cases, see section 20.1.2.4 of this manual. 
 
An exception to the transfer policy applies to MS-DRG 789.  The weighting factor for this MS-DRG assumes 
that the patient will be transferred, since a transfer is part of the definition.  Therefore, a hospital that transfers 
a patient classified into this MS-DRG is paid the full amount of the prospective payment rate associated with 
the DRG rather than the per diem rate, plus any outlier payment, if applicable. 
 
Effective for discharges on or after October 1, 2003, patients who leave against medical advice (LAMA), but 
are admitted to another inpatient PPS hospital on the same day as they left, will be treated as transfers and the 
transfer payment policy will apply. 
 
An acute care transfer occurs when a Medicare patient in an IPPS Hospital (with any MS-DRG) is:  
 
  Transferred to another acute care IPPS hospital or unit for related care (Patient Discharge Status Code 
02 or Planned Acute Care Hospital Inpatient Readmission Patient Discharge Status Code 02). 
 
  Admitted to another IPPS on the same day after leaving their designated IPPS hospital against medical 
advice (Patient Discharge Status Code 07). 
 
  Discharged but then readmitted on the same day to another IPPS hospital (unless the readmission is 
unrelated to the initial discharge).   
 
 
B. - Transfers from an IPPS Acute Care Hospital to Hospitals or Hospital Units Excluded from the 
IPPS 
 
When patients are transferred to hospitals or units excluded from IPPS, the full inpatient prospective payment 
is made to the transferring hospital.  The receiving hospital is paid on the basis of reasonable costs or is made 
at the rate of its respective payment system (see exceptions in paragraph C of this section). 
 
A transfer payment is made to the transferring hospital when patients are transferred to a hospital that would 
ordinarily be paid under prospective payment, but that is excluded because of participation in a state or area 
wide cost control program.  Also, a transfer payment is made where a patient is transferred to a hospital or  hospital unit that has not been officially determined as being excluded from PPS and certain hospitals that are 
excluded from IPPS.  These include: 
 
  An acute care hospital that would otherwise be eligible to be paid under the IPPS, but does not have an 
agreement to participate in the Medicare program (Patient Discharge Status Code 02 or Planned Acute 
Care Hospital Inpatient Readmission Patient Discharge Status Code 82). 
 
  A critical access hospital (Patient Discharge Status Code 66 or Planned Acute Care Hospital 
Readmission Patient Discharge Status Code 94). 
 
 
C. - Postacute Care Transfers 
(Previously Special 10 DRG Rule) 
 
For discharges occurring on or after October 1, 1998, a discharge of a hospital inpatient is considered to be a 
transfer for purposes of this part when the patient's discharge is assigned, as described in 42 CFR 412.4(c), to 
one of the qualifying Postacute MS-DRGs referenced in paragraph (D) of this section and the discharge is 
made under any of the following circumstances: 
 
  To a hospital or distinct part hospital unit excluded from the inpatient prospective payment system 
(under subpart B of 42 CRF 412).  Facilities excluded from IPPS are inpatient rehabilitation facilities 
and units (Patient Discharge Status Code 62 or Planned Acute Care Hospital Inpatient Readmission 
Patient Discharge Status Code 90), long term care hospitals (Patient Discharge Status Code 63 or 
Planned Acute Care Hospital Inpatient Readmission Patient Discharge Status Code 91), psychiatric 
hospitals and units (Patient Discharge Status Code 65 or Planned Acute Care Hospital Inpatient 
Readmission Patient Discharge Status Code 93), childrens hospitals, and cancer hospitals (Patient 
Discharge Status Code 05 or Planned Acute Care Hospital Inpatient Readmission Patient Discharge 
Status Code 85). 
 
  To a skilled nursing facility (Patient Discharge Status Code 03 or Planned Acute Care Hospital 
Inpatient Readmission Patient Discharge Status Code 83). 
 
  To Hospice care at home (Patient Discharge Status Code 50) or Hospice Medical Facility (Certified) 
Providing Hospice Level of Care (Patient Discharge Status Code 51). 
 
  To home under a written plan of care for the provision of home health services from a home health 
agency and those services begin within 3 days after the date of discharge (Patient Discharge Status 
Code 06 or Planned Acute Care Hospital Inpatient Readmission Patient Discharge Status Code 86).   
 
Specific transfer cases under this paragraph qualify for payment under an alternative methodology.  These 
include transfer cases in which the patients discharge is assigned, as described in 42 CFR 412.4(f)(2), (f)(5) 
and (f)(6), to one of the qualifying Special Pay MS-DRGs referenced in paragraph (D) of this section.  For 
these cases, the transferring hospital is paid 50 percent of the appropriate inpatient prospective payment rate 
and 50 percent of the appropriate transfer payment. 
 
Medicares IPPS Postacute care transfer policy requires hospitals to apply the correct Patient Discharge Status 
Code to claims where patients receive Home Health (HH) services within 3 days of discharge. This includes 
the resumption of HH services in place prior to the inpatient stay.  
Medicares claims processing system reviews all line item dates of service on HH claims to determine if the 
Postacute care transfer payment policy should apply when any HH service dates are within 3 days after the  IPPS discharge date. 
 
In addition to the correct Patient Discharge Status Code, the IPPS hospital may add one of the following 
condition codes to the claim, as appropriate, to receive the full MS-DRG payment:  
 
  Condition Code 42 - used if a patient is discharged to home with HH services, but the continuing 
care is not related to the condition or diagnosis for which the individual received inpatient hospital 
services.  
 
  Condition Code 43  used if the continuing care is related, but no HH services are furnished 
within 3 days of hospital discharge.  
 
If an acute care hospital submits a bill based on its belief that it is discharging a patient to home or another 
setting not included in the Postacute care transfer policy but subsequently learns that Postacute care was 
provided, the hospital should submit an adjusted bill. 
 
 
D. - Qualifying MS-DRGs 
 
Refer to Table 5 of the applicable Fiscal Year IPPS Federal Register for the list of qualifying Postacute MS-
DRGs and Special Pay Postacute MS-DRGs. 
 
40.2.5 - Repeat Admissions 
(Rev. 2627, Issued 01-04-13, Effective 10-01-12, Implementation 10-01-12) 
 
A patient who requires follow-up care or elective surgery may be discharged and readmitted or may be placed 
on a leave of absence. 
 
Hospitals may place a patient on a leave of absence when readmission is expected and the patient does not 
require a hospital level of care during the interim period.  Examples could include, but are not limited to, 
situations where surgery could not be scheduled immediately, a specific surgical team was not available, 
bilateral surgery was planned, or when further treatment is indicated following diagnostic tests but cannot 
begin immediately.  Institutional providers must not use the leave of absence billing procedure when the 
second admission is unexpected. 
 
The A/B MACs (A) may choose to review claims if data analysis deems it a priority.  AB/MACs (A) will 
review the claim selected, based on the medical record associated with that claim and make a payment 
determination on that claim.  They will then refer the claim to the QIO, in accordance with IOM 100-08, 
chapter 6, 6.5.7. 
 
The QIOs may review acute care hospital admissions occurring within 30 days of discharge from an acute 
care hospital if both hospitals are in the QIOs jurisdiction and if it appears that the two confinements could be 
related.  Two separate payments would be made for these cases unless the readmission or preceding admission 
is denied. 
 
NOTE:  The QIOs authority to review and to deny readmissions when appropriate is not limited to 
readmissions within 30 days.  The QIO has the authority to deny the second admission to the same or another 
acute PPS hospital, no matter how many days elapsed since the patient's discharge. 
  Placing a patient on a leave of absence will not generate two payments.  Only one bill and one DRG payment 
is made.  The A/B MACs (A) do not consider leave of absence bills as two admissions.  It may select such 
bills for review for other reasons. 
 
When a patient is discharged/transferred from an acute care Prospective Payment System (PPS) hospital, and 
is readmitted to the same acute care PPS hospital on the same day for symptoms related to, or for evaluation 
and management of, the prior stays medical condition, hospitals shall adjust the original claim generated by 
the original stay by combining the original and subsequent stay onto a single claim. 
 
Services rendered by other entities during a combined stay must be paid by the acute care PPS hospital.  The 
acute care PPS hospital is responsible for the other entitys services per common Medicare practice. 
 
NOTE:  Medicare does not reimburse other entities for services performed during two inpatient acute care 
PPS stays that are combined onto a single claim.  However, the other entitys services may be considered and 
billed as covered services, when appropriate, by the acute care PPS hospital. 
 
When a patient is discharged/transferred from an acute care PPS hospital and is readmitted to the same acute 
care PPS hospital on the same day for symptoms unrelated to, and/or not for evaluation and management of, 
the prior stays medical condition, hospitals shall place condition code (CC) B4 on the claim that contains an 
admission date equal to the prior admissions discharge date. 
 
Upon the request of A/B MACs (A), hospitals must submit medical records pertaining to the readmission. 
 
For Non-PPS acute care hospitals, such as Maryland waiver hospitals, the readmission bill (if related to 
original admission) does not have to be combined with the original bill if the stay spans a month.  However, 
the original bill would have to be adjusted to change the patient status code to a 30 (still a patient).  
Subsequent monthly bills for this admission would be billed as interim bills, 112, 113 or 114. 
 
40.2.6 - Leave of Absence 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
Providers submit one bill for covered days and days of leave when the patient is ultimately discharged. 
 
The provider bills for covered days with days of leave included in Noncovered Days.  Noncovered charges for 
leave of absence days (holding a bed) may be omitted from the bill or may be shown under revenue code 
018x.  Providers will be instructed by their A/B MAC (A) on which billing method to use.  Occurrence span 
code 74 is used to report the dates the leave began and ended.  Although the Medicare program may not be 
billed for days of leave, the provider is not permitted to charge a beneficiary for them. 
 
Where a patient on leave of absence from a non-PPS hospital who was shown as "Still Patient" (patient status 
code 30) on an interim bill: 
 
  Has not returned within 60 days, including the day leave began, or  
 
  Has been admitted to another institution at any time during the leave of absence, submit an adjusted 
bill. 
 
The hospital shows the day the patient left the hospital as the date of discharge.  (A beneficiary cannot be an 
inpatient of two institutions at the same time.) 
  NOTE: Home health or outpatient services provided during a leave of absence do not affect the leave and no 
discharge bill is required unless the above events occur. 
 
40.3 - Outpatient Services Treated as Inpatient Services 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
A. - Outpatient Services Followed by Admission Before Midnight of the Following Day (Effective For 
Services Furnished Before October 1, 1991) 
 
When a beneficiary receives outpatient hospital services during the day immediately preceding the hospital 
admission, the outpatient hospital services are treated as inpatient services if the beneficiary has Part A 
coverage.  Hospitals and A/B MACs (A) apply this provision only when the beneficiary is admitted to the 
hospital before midnight of the day following receipt of outpatient services.  The day on which the patient is 
formally admitted as an inpatient is counted as the first inpatient day. 
 
When this provision applies, services are included in the applicable PPS payment and not billed separately.  
When this provision applies to hospitals and units excluded from the hospital PPS, services are shown on the 
bill and included in the Part A payment.  See Chapter 1 for A/B MAC (A) requirements for detecting duplicate 
claims in such cases. 
 
B. - Preadmission Diagnostic Services (Effective for Services Furnished On or After January 1, 1991) 
 
Diagnostic services (including clinical diagnostic laboratory tests) provided to a beneficiary by the admitting 
hospital, or by an entity wholly owned or wholly operated by the admitting hospital (or by another entity 
under arrangements with the admitting hospital), within 3 days prior to and including the date of the 
beneficiary's admission are deemed to be inpatient services and included in the inpatient payment, unless there 
is no Part A coverage.  For example, if a patient is admitted on a Wednesday, outpatient services provided by 
the hospital on Sunday, Monday, Tuesday, or Wednesday are included in the inpatient Part A payment. 
 
This provision does not apply to ambulance services and maintenance renal dialysis services (see the 
Medicare Benefit Policy Manual, Chapters 10 and 11, respectively).  Additionally, Part A services furnished 
by skilled nursing facilities, home health agencies, and hospices are excluded from the payment window 
provisions. 
 
For services provided before October 31, 1994, this provision applies to both hospitals subject to the hospital 
inpatient prospective payment system (IPPS) as well as those hospitals and units excluded from IPPS. 
 
For services provided on or after October 31, 1994, for hospitals and units excluded from IPPS, this provision 
applies only to services furnished within one day prior to and including the date of the beneficiary's 
admission.  The hospitals and units that are excluded from IPPS are: psychiatric hospitals and units; inpatient 
rehabilitation facilities (IRF) and units; long-term care hospitals (LTCH); childrens hospitals; and cancer 
hospitals. 
 
The 3-day (or 1-day) payment window policy does not apply when the admitting hospital is a critical access 
hospital (CAH).  Therefore outpatient diagnostic services rendered to a beneficiary by a CAH, or by an entity 
that is wholly owned or operated by a CAH, during the payment window, must not be bundled on the claim 
for the beneficiarys inpatient admission at the CAH.  However, outpatient diagnostic services rendered to a 
beneficiary at a CAH that is wholly owned or operated by a non-CAH hospital, during the payment window, 
are subject to the 3-day (or 1-day) payment window policy. 
  The technical portion of any outpatient diagnostic service rendered to a beneficiary at a hospital-owned or 
hospital-operated physician clinic or practice during the payment window is subject to the 3-day (or 1-day) 
payment window policy (see MCPM, chapter 12, sections 90.7 and 90.7.1). 
 
The 3-day (or 1-day) payment window policy does not apply to outpatient diagnostic services included in the 
rural health clinic (RHC) or Federally qualified health center (FQHC) all-inclusive rate (see MCPM, chapter 
19, section 20.1). 
 
Outpatient diagnostic services furnished to a beneficiary more than 3 days (for a non-subsection (d) hospital, 
more than 1 day) preceding the date of the beneficiarys admission to the hospital, by law, are not part of the 
payment window and must not be bundled on the inpatient bill with other outpatient services that were 
furnished during the span of the 3-day (or 1-day) payment window, even when all of the outpatient services 
were furnished during a single, continuous outpatient encounter.  Instead, the outpatient diagnostic services 
that were furnished prior to the span of the payment window may be separately billed to Part B. 
 
An entity is considered to be "wholly owned or operated" by the hospital if the hospital is the sole owner or 
operator.  A hospital need not exercise administrative control over a facility in order to operate it.  A hospital 
is considered the sole operator of the facility if the hospital has exclusive responsibility for implementing 
facility policies (i.e., conducting or overseeing the facility's routine operations), regardless of whether it also 
has the authority to make the policies. 
 
For purposes of the 3-day (or 1-day) payment window policy, a sponsorship is treated the same as an 
ownership, and a non-profit or not-for-profit entity is treated the same as a for-profit entity.  Thus, 
outpatient diagnostic services provided by the admitting not-for-profit hospital, or by an entity that is wholly 
sponsored or operated by the admitting not-for-profit hospital, to a beneficiary during the 3 days (or 1 day) 
immediately preceding and including the date of the beneficiarys inpatient admission are deemed to be 
inpatient services and must be bundled on the claim for the beneficiarys inpatient stay at the not-for-profit 
hospital. 
 
For this provision, diagnostic services are defined by the presence on the bill of the following revenue and/or 
CPT codes: 
 
Code  Description 
0254  Drugs incident to other diagnostic services 
0255  Drugs incident to radiology 
030X  Laboratory 
031X  Laboratory pathological 
032X  Radiology diagnostic 
0341, 0343  Nuclear medicine, diagnostic/Diagnostic 
Radiopharmaceuticals 
035X   CT scan 
0371  Anesthesia incident to Radiology 
0372  Anesthesia incident to other diagnostic services 
040X  Other imaging services  Code  Description 
046X  Pulmonary function 
0471  Audiology diagnostic 
0481, 0489  Cardiology, Cardiac Catheter Lab/Other 
Cardiology with CPT codes 93451-93464, 93503, 
93505, 93530-93533, 93561-93568, 93571-93572, 
G0275, and G0278  diagnostic 
0482  Cardiology, Stress Test 
0483  Cardiology, Echocardiology  
053X  Osteopathic services 
061X  MRT 
062X  Medical/surgical supplies, incident to radiology or 
other diagnostic services 
073X  EKG/ECG 
074X  EEG 
0918-  Testing- Behavioral Health 
092X   Other diagnostic services 
 
The CWF rejects services furnished January 1, 1991, or later when outpatient bills for diagnostic services with 
through dates or last date of service (occurrence span code 72) fall on the day of admission or any of the 3 
days immediately prior to admission to an IPPS or IPPS-excluded hospital.  This reject applies to the bill in 
process, regardless of whether the outpatient or inpatient bill is processed first.  Hospitals must analyze the 
two bills and report appropriate corrections.  For services on or after October 31, 1994, for hospitals and units 
excluded from IPPS, CWF will reject outpatient diagnostic bills that occur on the day of or one day before 
admission.  For IPPS hospitals, CWF will continue to reject outpatient diagnostic bills for services that occur 
on the day of or any of the 3 days prior to admission.  Effective for dates of service on or after July 1, 2008, 
CWF will reject diagnostic services when the line item date of service (LIDOS) falls on the day of admission 
or any of the 3 days immediately prior to an admission to an IPPS hospital or on the day of admission or one 
day prior to admission for hospitals excluded from IPPS. 
 
Hospitals in Maryland that are under the jurisdiction of the Health Services Cost Review Commission are 
subject to the 3-day payment window. 
 
C. - Other Preadmission Services (Effective for Services Furnished On or After October 1, 1991 and Before 
June 25, 2010) 
 
Nondiagnostic outpatient services that are related to a beneficiarys hospital admission and that are provided 
by the admitting hospital, or by an entity that is wholly owned or wholly operated by the admitting hospital (or 
by another entity under arrangements with the admitting hospital), to the patient during the 3 days 
immediately preceding and including the date of the beneficiarys admission are deemed to be inpatient 
services and are included in the inpatient payment.  Effective March 13, 1998, we defined nondiagnostic 
preadmission services as being related to the admission only when there is an exact match (for all digits) 
between the principal diagnosis code assigned for both the preadmission services and the inpatient stay.  Thus,  whenever Part A covers an admission, the hospital may bill nondiagnostic preadmission services to Part B as 
outpatient services only if they are not related to the admission.  The A/B MAC (A) shall assume, in the 
absence of evidence to the contrary, that such bills are not admission related and, therefore, are not deemed to 
be inpatient (Part A) services.  If there are both diagnostic and nondiagnostic preadmission services and the 
nondiagnostic services are unrelated to the admission, the hospital may separately bill the nondiagnostic 
preadmission services to Part B.  This provision applies only when the beneficiary has Part A coverage.  This 
provision does not apply to ambulance services and maintenance renal dialysis.  Additionally, Part A services 
furnished by skilled nursing facilities, home health agencies, and hospices are excluded from the payment 
window provisions. 
 
For services provided before October 31, 1994, this provision applies to both hospitals subject to IPPS as well 
as those hospitals and units excluded from IPPS (see section B above). 
 
For services provided on or after October 31, 1994, for hospitals and units excluded from IPPS, this provision 
applies only to services furnished within one day prior to and including the date of the beneficiary's 
admission. 
 
Hospitals must not include on a claim for an inpatient admission any outpatient nondiagnostic services that are 
not payable under Part B.  For example, oral medications that are considered self-administered drugs under 
Part B are not payable under the outpatient prospective payment system (OPPS) and must not be bundled on 
an inpatient claim for purposes of the 3-day (or 1-day) payment window policy. 
 
The 3-day (or 1-day) payment window policy does not apply when the admitting hospital is a critical access 
hospital (CAH).  Therefore, outpatient nondiagnostic services rendered to a beneficiary by a CAH, or by an 
entity that is wholly owned or operated by a CAH, during the payment window, must not be bundled on the 
claim for the beneficiarys inpatient admission at the CAH.  However, admission-related outpatient 
nondiagnostic services rendered to a beneficiary at a CAH that is wholly owned or operated by a non-CAH 
hospital, during the payment window, are subject to the 3-day (or 1-day) payment window policy. 
 
The technical portion of any admission-related outpatient nondiagnostic service rendered to a beneficiary at a 
hospital-owned or hospital-operated physician clinic or practice during the payment window is subject to the 
3-day (or 1-day) payment window policy (see MCPM, chapter 12, sections 90.7 and 90.7.1). 
 
The 3-day (or 1-day) payment window policy does not apply to outpatient nondiagnostic services that are 
included in the rural health clinic (RHC) or Federally qualified health center (FQHC) all-inclusive rate (see 
MCPM, chapter 19, section 20.1). 
 
Outpatient nondiagnostic services furnished to a beneficiary more than 3 days (for a non-subsection (d) 
hospital, more than 1 day) preceding the date of the beneficiarys admission to the hospital, by law, are not 
part of the payment window and must not be bundled on the inpatient bill with other outpatient services that 
were furnished during the span of the 3-day (or 1-day) payment window, even when all of the outpatient 
services were furnished during a single, continuous outpatient encounter.  Instead, the outpatient 
nondiagnostic services that were furnished prior to the span of the payment window may be separately billed 
to Part B. 
 
An entity is considered to be "wholly owned or operated" by the hospital if the hospital is the sole owner or 
operator.  A hospital need not exercise administrative control over a facility in order to operate it.  A hospital 
is considered the sole operator of the facility if the hospital has exclusive responsibility for implementing 
facility policies (i.e., conducting or overseeing the facility's routine operations), regardless of whether it also 
has the authority to make the policies. 
  For purposes of the 3-day (or 1-day) payment window policy, a sponsorship is treated the same as an 
ownership, and a non-profit or not-for-profit entity is treated the same as a for-profit entity.  Thus, 
admission-related outpatient nondiagnostic services provided by the admitting not-for-profit hospital, or by an 
entity that is wholly sponsored or operated by the admitting not-for-profit hospital, to a beneficiary during the 
3 days (or 1 day) immediately preceding and including the date of the beneficiarys inpatient admission are 
deemed to be inpatient services and must be bundled on the claim for the beneficiarys inpatient stay at the 
not-for-profit hospital. 
 
Hospitals in Maryland that are under the jurisdiction of the Health Services Cost Review Commission are 
subject to the 3-day payment window. 
 
Effective for dates of service on or after July 1, 2008 and before June 25, 2010, CWF will reject claims for 
nondiagnostic services when the following is met: 
 
1) There is an exact match (for all digits) between the principal diagnosis code assigned for both the 
preadmission services and the inpatient stay, and  
 
2) The line item date of service (LIDOS) falls on the day of admission or any of the 3 days 
immediately prior to an admission to an IPPS hospital (or on the day of admission or one day prior to 
admission for hospitals excluded from IPPS). 
 
D. - Other Preadmission Services (Effective for Services Furnished On or After June 25, 2010) 
 
Beginning on or after June 25, 2010, the definition of other services related to the admission (i.e., 
admission-related outpatient nondiagnostic services) is revised for purposes of the 3-day (or 1-day) payment 
window policy.  Except for the following changes, the other requirements in section 40.3.C continue to be 
applicable.  
 
For outpatient nondiagnostic services furnished on or after June 25, 2010, all outpatient nondiagnostic 
services, other than ambulance and maintenance renal dialysis services, provided by the hospital (or an entity 
wholly owned or wholly operated by the hospital) on the date of a beneficiarys inpatient admission are 
deemed related to the admission, and thus, must be billed with the inpatient stay.  Also, outpatient 
nondiagnostic services, other than ambulance and maintenance renal dialysis services, provided by the 
hospital (or an entity wholly owned or wholly operated by the hospital) on the first, second, and third calendar 
days for a subsection (d) hospital paid under the IPPS (first calendar day for non-subsection (d) hospitals) 
preceding the date of a beneficiarys inpatient admission are deemed related to the admission, and thus, must 
be billed with the inpatient stay, unless the hospital attests to specific nondiagnostic services as being 
unrelated to the hospital claim (that is, the preadmission nondiagnostic services are clinically distinct or 
independent from the reason for the beneficiarys admission) by adding a condition code 51 (definition 51 - 
Attestation of Unrelated Outpatient Non-diagnostic Services) to the separately billed outpatient non-diagnostic 
services claim.  Beginning on or after April 1, 2011, providers may submit outpatient claims with condition code 
51 for outpatient claims that have a date of service on or after June 25, 2010. 
 
Hospitals must include on a Medicare claim for a beneficiarys inpatient stay the diagnoses, procedures, and 
charges for all preadmission outpatient diagnostic services and all preadmission outpatient nondiagnostic 
services that meet the above requirements.  For purposes of the Present on Admission Indicator (POA), even if 
the outpatient services are bundled with the inpatient claim, hospitals shall code any conditions the patient has 
at the time of the order to admit as an inpatient as POA irrespective of whether or not the patient had the 
condition at the time of being registered as a hospital outpatient.  In combining on the inpatient bill the 
diagnoses, procedures, and charges for the outpatient services, a hospital must convert CPT codes to ICD  procedure codes and must only include outpatient diagnostic and admission-related nondiagnostic services 
that span the period of the payment window. 
 
Outpatient nondiagnostic services provided during the payment window that are unrelated to the admission 
and are covered by Part B may be separately billed to Part B.  Hospitals must maintain documentation in the 
beneficiarys medical record to support their claim that the preadmission outpatient nondiagnostic services are 
unrelated to the beneficiarys inpatient admission. 
 
Effective for dates of service on or after June 25, 2010, CWF will reject outpatient claims for nondiagnostic 
services when the following occurs: 
 
1) Condition code 51 (definition 51 - Attestation of Unrelated Outpatient Non-diagnostic Services) is not 
included on the outpatient claim, and 
 
2) The line item date of service (LIDOS) falls on the day of admission or any of the 3 days 
immediately prior to an admission to an IPPS hospital (or on the day of admission or one day prior to 
admission for hospitals excluded from IPPS). 
 
40.3.1 - Billing Procedures to Avoid Duplicate Payments 
(Rev. 1, 10-01-03) 
 
HO-400H 
 
The hospital must install adequate billing procedures to avoid submission of duplicate claims.  This includes 
duplicate claims for the same service and outpatient bills for nonphysician services considered included in the 
DRG for a related inpatient admission in the facility or in another hospital. 
 
Where the hospital bills separately for nonphysician services provided to a patient either on the day before 
admission to a PPS hospital or during a patient's inpatient stay, the claim will be rejected by the A/B MAC (A) 
as a duplicate and the hospital may be subject to sanction penalties per 1128A of the Act. 
 
50 - Adjustment Bills 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD -10, Implementation: ICD -10: Upon Implementation of ICD -10, ASC X12: September, 23 2014) 
 
Adjustment bills are the most common mechanism for changing a previously accepted bill.  They are required 
to reflect the results of A/B MAC (A)s medical review.  Adjustments may also be requested by CMS via 
CWF if it discovers that bills have been accepted and posted in error other than the omission of a charge.  
Adjustments may be initiated as a result of OIG and MSP requests.  The A/B MAC (A) will ask the provider 
to submit an adjustment request for certain situations. 
 
For hard copy Form CMS-1450 adjustment requests, the provider places the ICN/DCN of the original bill for 
Payer A, B, or C. 
 
Where payment is handled through the cost reporting and settlement processes, the provider accumulates a log 
for those items not requiring an adjustment bill.  For cost settlement, the A/B MAC (A) pays on the basis of 
the log.  This log must include: 
 
  Patient name; 
 
  HICN;   
  Dates of admission and discharge, or from and thru dates; 
 
  Adjustment in charges (broken out by ancillary or routine service); and 
 
 Any unique numbering or filing code necessary for the hospital to associate the adjustment charge with 
the original billing. 
 
Providers in Maryland, which are not paid under PPS or cost reports, submit an adjustment bill for inpatient 
care of $500 or more, and keep a log as described above for lesser amounts.  Because there are no adjustment 
bills, the A/B MAC (A) enters the payment amounts from the summary log into the PPS waiver simulation 
and annually pays the items on the log after the cost report is filed. 
 
NOTE:  Information regarding the claim form locators that correspond with these fields on the Form CMS-
1450 is found in chapter 25. 
 
An original bill does not have to be accepted by CMS prior to making related adjustments to the provider.  
However, for all adjustments other than QIO adjustments (e.g., provider submitted and/or those the A/B MAC 
(A) initiates), the A/B MAC (A) submits an adjustment bill to CWF following its acceptance of the initial bill.  
To verify CMS' acceptance, it takes one or both of the following actions: 
 
A. - General Rules for Submitting Adjustment Requests 
 
Adjustment requests that only recoup or cancel a prior payment are "credits" and must match the original in 
the following fields: 
 
  A/B MAC (A) control number (ICN/DCN); 
 
  Surname; 
 
  HICN; 
 
When a definite match cannot be made on the 3 fields above, the provider's A/B MAC (A) will use the fields 
below as needed.  Note that for older claims, ICN/DCN probably will not match. 
 
  Date of birth; 
 
  Admission date (Start of Care Date for Home Health), unless changed by this adjustment requests; 
and 
 
  From/thru dates (Date of First Visit/Date of Last Visit for Home Health), unless changed by this 
adjustment request. 
 
Cancel-only adjustment requests must be submitted only in cases of incorrect provider identification numbers 
and incorrect HICNs.  After the cancel-only request for the incorrect bill is resolved, the provider must submit 
correct information as a new bill. 
 
The provider must submit all other adjustment requests as debits only.  It shows the ICN/DCN of the bill to be 
adjusted as described above, with the bill type shown as XX7.  It submits adjustment requests to its A/B MAC 
(A) either electronically or on hard copy.  Electronic submission is preferred. 
  The A/B MAC (A) must enter the following bill types that relate to the entity generating the adjustment 
request: 
 
Bill  Description 
Type 
XX7  Provider (debit) 
XX8  Provider (cancel) 
XXF  Beneficiary 
XXG  CWF 
XXH  CMS 
XXI  A/B MAC (A) 
XXM  MSP 
XXP  QIO/QIO 
XXJ  Other 
XXK  OIG 
 
The provider submits adjustment requests as bill type XX7 or XX8.  Since several different sources can 
initiate an adjustment for MSP purposes, the A/B MAC (A) will change the bill type to XXM, which takes 
priority over any other source of an adjustment except OIG.  These priorities refer only to the designation of 
the source of the adjustment.  The difference between CWF generating the adjustment request and CMS 
generating the request is: 
 
An adjustment is CWF-generated if the A/B MAC (A) receives a CWF alert or a CMS-L1002. 
 
The A/B MAC (A) prepares an adjustment if instructed by CO or RO to make a change.  Typically, the A/B 
MAC (A) receives such direction from CMS when it decides to retroactively change payment for a class or 
other group of bills.  Occasionally, CMS will discover an error in the processing of a single bill and direct the 
A/B MAC (A) to correct it. 
 
If the A/B MAC (A) furnished the A/B MAC (B) a copy of the original bill which is being adjusted, it must 
furnish them a copy of the adjusted bill. 
 
If adjustment bills are rejected by CWF for additional corrections, they need to be corrected and resubmitted.  
Even if the adjustment action is requested by letter from CMS, the A/B MAC (A) must submit the adjustment 
bill in its CWF record.  If a rejected adjustment bill is determined to be unnecessary, the A/B MAC (A) stops 
the adjustment action upon receipt of correction. 
 
Where an adjustment bill changes subsequent utilization, the A/B MAC (A) notes this and processes 
adjustments to subsequent bills if it services the provider. 
 
If the A/B MAC (A) does not service the provider, CMS will contact the A/B MACs (A), which submitted 
bills with subsequent billing dates that are affected by the adjustments via an SSA-L389 or SSA-L1001 upon 
receipt of the adjusted bills in CWF.  (An indicator is set by CMS on its records upon advising an A/B MAC 
(A) of the appropriate adjustment actions.) 
 
B. - Adjustment Bills Involving Time Limitation for Filing Claims 
 
If a provider fails to include a particular item or service on its initial bill, an adjustment bill(s) to include such 
an item(s) or service(s) is not permitted after the expiration of the time limitation for filing a claim.  However, 
to the extent that an adjustment bill otherwise corrects or supplements information previously submitted on a  timely claim about specified services or items furnished to a specified individual, it is subject to the rules 
governing administrative finality, rather than the time limitation for filing. 
 
Under prospective payment, adjustment requests are required from the hospital where errors occur in 
diagnoses and procedure coding that change the DRG, or where the deductible or utilization is affected.  A 
hospital is allowed 60 days from the date of the A/B MAC (A) payment notice for adjustment bills where 
diagnostic or procedure coding was in error.  Adjustments reported by the QIO have no corresponding time 
limit and are adjusted automatically by the A/B MAC (A) without requiring the hospital to submit an 
adjustment bill.  However, if diagnostic and procedure coding errors have no effect on the DRG, adjustment 
bills are not required. 
 
Under PPS, for long-stay cases, hospitals may bill 60 days after an admission and every 60 days thereafter if 
they choose.  The A/B MAC (A) processes the initial bill through Grouper and Pricer.  The provider must 
submit an adjustment to cancel the original interim bill(s) and rebill the stay from the admission date through 
the discharge date.  When the adjustment bill is received, it processes it as an adjustment.  In this case, the 60-
day requirement for correction does not apply. 
 
Where payment is handled through cost reporting and settlement processes, the provider accumulates a log for 
those items not requiring an adjustment bill.  Maryland inpatient hospital providers also keep a log of late 
charges when the amount is under $500.  They submit the log with their cost reports.  After cost reports are 
filed, the A/B MAC (A) makes a lump sum payment to cover these charges as shown on the summary log.  
The provider uses the summary log for late charges only under cost settlement (outpatient hospital), except in 
Maryland. 
 
Maryland and cost providers are required to meet the 27-month timeframe for timely filing of claims, 
including late charges. 
 
NOTE:  Providers in Maryland which are not paid under PPS or cost reports, submit an adjustment bill for 
inpatient care of $500 or more, and submit a log for the lesser amounts. 
 
50.1 - Tolerance Guidelines for Submitting Adjustment Requests 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
When a bill is submitted and the hospital or the A/B MAC (A) discovers an error, the hospital submits an 
adjustment request using the ASC X12 837 institutional claim format or the Form CMS-1450, if the error is a 
change in the: 
 
  Number of inpatient days (including a change in the length of stay, or a different allocation of 
covered/non-covered days; 
 
  Blood deductible; 
 
  Inpatient cash deductible of more than $1; 
 
  Servicing provider; 
 
  Discharge status in a PPS hospital; 
 
  Diagnosis or Procedures that impact the assigned DRG code; or 
    Outlier payment amount. 
 
The provider submits most adjustment requests as debits, using bill type XX7. 
 
Also, it submits a debit-only adjustment request to the A/B MAC (A) if the hospital previously submitted an 
interim bill for a PPS hospital stay or wishes to change the number of days in any inpatient stay. 
 
The A/B MAC (A) then submits the adjustment to CWF.  An adjustment from the QIO for any of the above 
also requires a submission to CMS via CWF. 
 
If PPS is involved and the DRG has been changed as a result of medical review after an original bill has been 
forwarded to CMS, adjustment debit/credit bills are required.  The corrected bill must be an exact duplicate of 
the original, except for any changed fields including diagnostic and procedure codes. 
 
50.2 - Claim Change Reasons 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
A. - Claim Change Reason Codes 
 
The provider submits one of the following claim change reason codes to its A/B MAC (A) with each debit-
only or cancel-only adjustment request: 
 
Bill  Reason  Explanation 
Type  Code 
XX7  D0 (zero)  Change to service dates 
XX7  D1  Change in charges 
XX7  D2  Change in revenue codes/HCPCS 
XX7  D3  Second or subsequent interim PPS bill - inpatient only 
XX7  D4  Change in GROUPER input (diagnoses or procedures) - 
inpatient only 
XX8  D5  Cancel-only to correct a HICN or provider identification 
number 
XX8  D6  Cancel-only to repay a duplicate payment or OIG overpayment 
(includes cancellation of an outpatient bill containing services 
required to be included on the inpatient bill.) 
XX7  D7  Change to make Medicare the secondary payer 
XX7  D8  Change to make Medicare the primary payer 
XX7  D9  Any other change 
XX7  E0 (zero)  Change in patient status 
 
The provider may not submit more than one claim change reason code per adjustment request.  It must choose 
the single reason that best describes the adjustment it is requesting.  It should use claim change reason code 
D1 only when the charges are the only change on the claim.  Other claim change reasons frequently change 
charges, but the provider may not "add" reason code D1 when this occurs.   
The claim change reason code is entered as a condition code on the ASC X12 837 institutional claim format or 
on the hard copy Form CMS-1450  For reason codes D0-D4 and D7-D9, submit a debit-only adjustment 
request, bill type XX7.  For reason codes D5 and D6, submit a cancel-only adjustment request, bill type XX8. 
 
B. - Edits on Claim Change Reason Codes 
 
The following edits are based on the claim change reason code.  The A/B MAC (A) must apply them to each 
incoming adjustment request. 
 
  If the type of bill is equal to XX7 and the claim change reason code is not equal to D0-D4, D7-D9, or 
E0, the A/B MAC (A) rejects the request back to the provider with the following error message, 
"Claim change reason code must be present and equal to D0-D4, D7-D9, or E0 for a debit-only 
adjustment request." 
 
  If the type of bill is equal to XX8 and the claim change reason code is not equal to D5-D6, the A/B 
MAC (A) rejects the request back to the provider with the following error message, "Claim change 
reason code must be present and equal to D5-D6 for a cancel-only adjustment request." 
 
  If the type of bill is equal to XX7 or XX8 and the ICN/DCN of the claim being adjusted is not present, 
the A/B MAC (A) rejects the request back to the provider with the following message, "ICN/DCN of 
the claim being adjusted is required for an adjustment request." 
 
  If more than one claim change reason code is present on the provider's request, the A/B MAC (A) 
rejects the request back to the provider with the following message, "only one claim change reason 
code may apply to a single adjustment request from a provider.  Choose the single claim change reason 
code that best describes the reason for the provider's request and resubmit." 
 
  If the provider submits an adjustment request as type of bill not equal to XX7 or XX8, the A/B MAC 
(A) rejects the request back to the provider with the message, "Provider submitted adjustment request 
must use type of bill equal to XX7 or XX8." 
 
  If the claim change reason code is equal to D0, the A/B MAC (A) compares the beginning and ending 
dates on the provider's request to those on the claim to be adjusted on its history.  If these dates are the 
same, it rejects the request back to the provider with the message, "Dates of service must change for 
claim change reason code D0." 
 
  If the claim change reason code is equal to D1, the A/B MAC (A) compares the total and line item 
charges on the provider's request to those on the claim to be adjusted on its history.  If these changes 
are the same, the A/B MAC (A) rejects the request back to the provider with the message, "Charges 
must be changed for claim change reason code D1." 
 
  If the claim change reason code is equal to D2, the A/B MAC (A) compares revenue codes/HCPCS on 
the provider's request to those on the claim to be adjusted on its history.  If these codes are the same, it 
rejects the request back to the provider with the message, "Revenue codes/HCPCS must change for 
claim change reason code D2." 
 
  If the claim change reason code is equal to D3, the A/B MAC (A) compares the ending date on the 
provider's request to that on the claim to be adjusted on its history.  If these dates are the same, it 
rejects the request back to the provider with the message, "Thru dates must change for the claim 
change reason code D3."   
  If the claim change reason code is equal to D4, the A/B MAC (A) compares diagnosis and procedure 
codes on the provider's request to those on the claim to be adjusted on its history.  If these codes are 
the same and are in the same sequence, it rejects the request back to the provider with the message, 
"Diagnoses and/or procedures must change for claim change reason code D4." 
 
  If the claim change reason code is equal to D5 or D6, type of bill must be equal to XX8 on the 
provider's request.  If type of bill is not equal to XX8, the A/B MAC (A) rejects the request back to the 
provider with the message, "Type of bill must be equal to XX8 for claim change reason codes D5 or 
D6." 
 
  If the claim change reason code is equal to D7, an MSP value code (12-16, 41-43, or 47) must be 
present, if a value code, 12-16, 41-43, or 47, is not present, the A/B MAC (A) rejects the request back 
to the provider with the message, "An MSP value code (12-16, 41-43, or 47) must be present for claim 
change reason code D7." 
 
  If the claim change reason code is equal to D7, and one or more of value codes 12-16, 41-43, and/or 47 
is present but each value amount is equal to 0 (zero) or spaces, the A/B MAC (A) rejects the request 
back to the provider with the message, "invalid value amount for claim change reason code D7." 
 
  If the claim change reason code is equal to D8, and a value code 12-16, 41-43, or 47 is present, the 
A/B MAC (A) rejects the claim back to the provider with the message, "Invalid value code for claim 
change reason D8." 
 
  If the claim change reason code is equal to E0, the A/B MAC (A) compares patient status on the 
provider's request to that on the claim to be adjusted.  If patient status is the same, the A/B MAC (A) 
rejects the request back to the provider with the message, "Patient status must change for claim change 
reason E0." 
 
If an adjustment the provider initiates results in a change to a higher weighted DRG, the A/B MAC (A) edits 
the adjustment request to insure it was submitted within 60 days of the date of the remittance for the claim to 
be adjusted.  If it is, the A/B MAC (A) processes the claim for payment.  If the remittance date is more than 60 
days prior to the receipt date of the adjustment request and results in a change to a lower weighted DRG, the 
A/B MAC (A) processes the claim for payment and forwards it to CWF. 
 
The A/B MAC (A) must suspend for investigation all adjustment requests with claim change reason codes D4, 
D8, and D9.  Providers that consistently use D9 will be investigated and, if a pattern of abuse is evident, may 
be reported to the OIG. 
 
C. - Additional edits 
 
The A/B MAC (A) must perform the following additional edits and investigate adjustment requests the 
provider submits: 
 
  A full denial once the bill is paid, except to accomplish retraction of a duplicate payment; 
 
  A change in DRG based on a change in age or sex; 
 
  A change in deductible; 
 
  An adjustment request that changes a previously submitted QIO adjustment request;   
  An adjustment of a bill due to a change in utilization or spell data on another bill; 
 
  A reopening to change a no-payment bill to a payment bill; 
 
  A reopening to pay a previously denied line item; 
 
  An adjustment request the provider initiates with a claim change reason code equal to D7, with the 
Medicare payment amount equal to or greater that the previously paid amount; or 
 
  An adjustment request with a claim change reason code equal to E0, and the claim is for a PPS 
provider.  The A/B MAC (A) must investigate if the change is from patient status 02, transferred to 
another acute care facility. 
 
50.3 - Late Charges 
(Rev. 1, 10-01-03) 
 
HO-411.3, HO-IM411.3 
 
Providers billing under Inpatient Hospital PPS, Outpatient PPS, SNF PPS, or HHA PPS may not bill late 
charges, nor will the contractor accept such bills, for any type of PPS service, inpatient or outpatient.  Charges 
omitted from the original bill must be submitted on an adjustment bill that contains all pertinent charges 
including those billed earlier.  When the provider submits late charges on bills to the A/B MAC (A) as bill 
type XX5, these bills contain only additional charges.  Adjustment requests and not late charge bills should be 
submitted for  
 
  Services on the same day as outpatient surgery subject to the ASC limit, 
 
  ESRD services paid under the composite rate, 
 
  All inpatient accommodation charges, and 
 
  All inpatient PPS ancillaries as adjustment requests. 
 
The provider may submit the following charges omitted from the original paid bill to the A/B MAC (A) as late 
charges: 
 
  Any outpatient services other than the exceptions stated in this paragraph.  This includes late charges 
for HHA services under either Part A or Part B, hospice services, hospital outpatient services except 
those on the day of ambulatory surgery subject to the ASC payment limitation, RHC services, OPT 
services, SNF outpatient services, CORF services, FQHC services, CHMC services, and ESRD 
services not included in the composite rate; and 
 
  Any inpatient SNF ancillaries or inpatient hospital ancillaries other than from PPS hospitals.  The 
hospital may not submit late charges (XX5) for inpatient accommodations.  The hospital must submit 
these as adjustments (bill type XX7). 
 
The A/B MAC (A) has the capability to accept XX5 bill types electronically and process them as initial bills 
except as described in the following paragraph. 
 
The A/B MAC (A) also performs the following edit routines on any XX5 type bills received:   
  Pass all initial bill edits, including duplicate checks. 
 
  Must not be for any of: Inpatient PPS ancillaries, inpatient accommodations in any facility, services on 
the same day as outpatient surgery subject to the ASC payment limitation, or ESRD services included 
in the composite rate.  These are rejected back to the hospital with the message, This change requires 
an XX7 debit-only or XX8 cancel-only request from you.  Late charges are not acceptable for inpatient 
PPS ancillaries, inpatient accommodations in any facility, services on the same day as outpatient 
surgery subject to the ASC payment limitation, or ESRD services included in the composite rate. 
 
  When an XX5 suspends as a duplicate, (dates of service equal or overlapping, provider ID equal, 
HICNs equal, and patient surname equal), the A/B MAC (A) must determine the status of the original 
paid bill.  If it is denied, the A/B MAC (A) must deny the late charge bill. 
 
  If an xx5 does not suspend as a potential duplicate, the A/B MAC (A) rejects it back to the provider 
with the message, No original bill paid.  Please combine and submit a single original bill (XX1). 
 
  If the original bill was approved and paid, the A/B MAC (A) compares the revenue codes on the 
original paid bill with the associated late charge bill: 
 
  For all providers (any bill type), if any are the same, and are revenue codes 041x, 042x, 043x, 
044x, 063x, 076x, or 091x, the A/B MAC (A) or (HHH) rejects the bill back to the provider 
with the message,  You must submit an adjustment (7) to the original paid bill.  Revenue 
codes subject to utilization review are duplicated on the late charge bill. 
 
  For HHAs (bill type 32X, 33X, or 34X), the A/B MAC (HHH) must apply the same logic for 
the following additional revenue codes.  If any are the same and are revenue codes 0291, 0293, 
055x, 056x, 057x, 058x, 059x, 060x, 066x, the A/B MAC (HHH) rejects the bill back to the 
provider with the message,  "You must submit an adjustment (xx7) to the original paid bill.  
Revenue codes subject to utilization review are duplicated on the late charge bill." 
 
  For hospital outpatient services (bill type 13X only), the A/B MAC (A) must apply the same 
logic for the following additional revenue codes.  If any are the same and are revenue codes 
0255, 032x, 033x, 034x, 035x, 040x, 062x, 073x, 074x, 092x, or 0943, the A/B MAC (A) 
rejects the bill back to the hospital with the message,  "You must submit an adjustment (xx7) to 
the original paid bill.  Revenue codes subject to utilization review are duplicated on the late 
charge bill." 
 
  For RDFs (bill type 72X or 73X), the A/B MAC (A) must apply the same logic for the 
following additional revenue codes; if any are the same and are revenue codes 0634, 0635, 
082x, 083x, 084x, 085x, or 088x, the A/B MAC (A) rejects the bill back to the provider with 
the message, You must submit an adjustment (XX7) to the original paid bill.  Revenue codes 
subject to utilization review are duplicated on the late charge bill. 
 
  If the late charges bill relates to two or more "original" paid bills, and one of these is denied, the A/B 
MAC (A) must suspend and investigate the late charge bill. 
 
  The A/B MAC (A) must compare total charges on the original paid bill with those on the associated 
late charge bill, and suspend and investigate any XX5 bill type with total charges in excess of those on 
the original paid bill.  This edit suggests the provider may have rebilled the already paid services. 
  The A/B MAC (A) may decide to perform additional edits on late charge bills. 
 
60 - Swing-Bed Services 
(Rev. 11396, Issued:05-04-22, Effective:10-01-22, Implementation:10-03-22) 
 
Swing-bed services must be billed separately from inpatient hospital services. Swing-bed hospitals use one 
provider number when billing for hospital services to identify hospital swing-bed SNF bills. The following 
alpha letters identify hospital swing-bed SNF bills (for CMS use only, effective May 23, 2007, providers are 
required to submit only their NPI. NOTE: The swing-bed NPI will be mapped to the 6-digit alpha-numeric 
CMS Certification Number (CCN.) 
 
"U" = short-term/acute care hospital swing-bed; 
"W" = long-term hospital swing-bed;  
"Y" = rehabilitation hospital swing-bed; and 
Z=CAH swing-bed. 
 
Note that CAHs are exempt from the SNF PPS and instead are paid based on 101 percent of reasonable cost 
for swing-bed services. CAHs are subject to the hospital bundling requirements at section 1862(a)(14) of the 
Social Security Act and 42 CFR  411.15(m), and therefore, all services provided to a CAH swing-bed patient 
must be included on the CAH swing-bed bill (subject to the exceptions at 42 CFR  411.15(m)(3)).  Certified 
registered nurse anesthetist services paid on a pass-through basis are also to be included on the CAH swing-
bed bill. 
 
A. - Inpatient Hospital Services in a Swing-Bed 
 
The patient status code of 03 is inserted on the claim when the beneficiary swings from acute to SNF level of 
care.  (This constitutes a discharge for purposes of Medicare payment for inpatient hospital services under 
PPS.) The A/B MAC (A) indicates in the Statement Covers Through Date  the last day of care at the hospital 
level. 
 
If the beneficiary is discharged from a Medicare swing-bed and remains in the hospital, there is no need for a 
no-pay bill.  However, if a beneficiary continues to receive care after completing their stay in a SNF swing-
bed, in a NF swing-bed, the hospital must submit covered claims to Medicare. 
 
B. - SNF Services in a Swing-Bed 
 
Services are billed, in accordance with Chapter 25 with the following exceptions: 
 
  The date of admission on the swing-bed SNF bill is the date the patient began to receive SNF level of 
care services; 
 
  State level agreements may call for varying types of bill coding Type of Bill.  The CMS does not 
perform edits on type of bill coding on bills with 8 in the 2nd digit (bill classification), in FL 18 of the 
CWF inpatient record if the record is identified in FL 1 as hospital or SNF. Therefore, the A/B MAC 
(A) accepts, with subsequent conversion, any bill type agreed to at the State level to identify swing-bed 
billing, i.e., 18X or 21X. It must be sure the record identification of CWF FL 1 is consistent with the 
provider number shown. 
 
 
70 - All-Inclusive Rate Providers 
(Rev. 1, 10-01-03)  A3-3660.4 
 
70.1 - Providers Using All-Inclusive Rates for Inpatient Part A Charges 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
Some providers have been approved to bill a flat fee charge for inpatient services based on either a daily basis 
or total stay basis for services furnished.  This is an "All-Inclusive Rate."  These charges may cover room and 
board, including ancillary services, or room and board only.  These instructions explain the essential data 
entries that must be made using the ASC X12 837 institutional claim format or on the Form CMS-1450 by 
providers that use all-inclusive rates as charges.  All-inclusive rate providers are identified by one of the 
following charge structures: 
 
  One total all-inclusive charge rate for both accommodations and ancillary services, including the cost 
of blood in the rate; 
 
  One total all-inclusive charge rate for both accommodations and ancillary services, not including the 
cost of blood in the rate; 
 
  One all-inclusive charge rate for accommodations and another for ancillary services, including the cost 
of blood in the all-inclusive rate; or 
 
  One all-inclusive charge rate for accommodations and another for ancillary services, not including the 
cost of blood in the all-inclusive rate. 
 
Providers follow these special instructions for completing of the billing format or form. 
 
A. - Accommodations 
 
Revenue Codes - Codes that identify the accommodations furnished, ancillary services provided or billing 
calculation are entered in this field.  The code indicates whether the rate includes charges for ancillary services 
or only room and board. 
 
If the patient was furnished more than one type of accommodation, the loops or lines for each type of 
accommodation are completed.  This is necessary whether or not the provider charges an all-inclusive rate 
according to accommodations. 
 
Where the all-inclusive rate varies with the type of accommodation, the Remarks field is annotated for a five-
or-more bed accommodation showing the reason for the accommodation. 
 
Unit of Service - A quantitative measure for services furnished, by revenue category, to or for the patient 
which includes items such as the number of accommodation days, pints of blood, or renal dialysis treatments, 
is entered. 
 
Total Charges - The total charges pertaining to the related revenue code for the current billing period is 
entered. 
 
Noncovered Charges - The total non-covered charges pertaining to the related revenue code for the current 
billing period is entered. 
 
B. - Ancillary Services   
One All-Inclusive Charge Rate - Hospitals with one all-inclusive charge rate, including ancillary services, 
are reflected in the revenue code.  The total charge reflects the charge for both accommodations and ancillary 
services. 
 
Separate Ancillary All-Inclusive Rate - Some providers segregate charges for ancillary services for billing 
purposes.  Where a separate flat rate charge for ancillary services is incurred either on a daily or total stay 
basis, the provider enters separate codes for the services.  These codes indicate whether the total charge 
includes only ancillary cost or includes other costs (i.e., blood). 
 
If applicable, the following additional billing instructions are applied: 
 
  Blood 
 
Whenever whole blood is furnished the patient, value codes and amounts are completed.  If the all-
inclusive rate does not include the charge for whole blood or packed cells, revenue codes, rates, 
service dates, units, and total charges are completed in the same way a provider not using all-inclusive 
rates would complete them.  When the provider discounts its customary charges for unreplaced blood 
to which the deductible is applicable, it shows the charges before the discount. 
 
If the all-inclusive rate covers the cost of providing blood whenever a patient needs it, the number of 
pints furnished, replaced, not replaced, and the estimated cost per pint is entered in value codes and 
amounts.  No amount can be shown in the Total Charges column since the rate includes the cost of 
blood.  It is not necessary to show the cost for any replaced blood. 
 
  All-Inclusive Charges According to Disease, Injury, or Type of Treatment 
 
Providers that have a charge system based on the patient's illness or injury or type of treatment 
complete the applicable loops or line(s) for type of accommodation furnished showing number of days, 
rate, and total charges.  The rate amount and total amounts must be the same.  Blood entries are 
indicated as above. 
 
  Physician's Component 
 
As with providers having a schedule of charges for individual services, the amount of any physician's 
component included in the all-inclusive charge is removed from the total covered charges before 
applying the inpatient deductible or coinsurance. 
 
  Combined Billing 
 
CMS does not encourage the all-inclusive rate provider to combine bill.  However, if it does, it must 
develop the capability and indicate in the Remarks field, the number and type of each service it is 
combined billing.  To identify such cases, the remark "Combined Billing" must be written in the 
Remarks field. 
NOTE: Combined billing was eliminated with Outpatient PPS. 
 
80 - Hospitals That Do Not Charge 
(Rev. 1, 10-01-03) 
 
A3-3660.5 
  Participating hospitals that do not charge individuals and also meet the exceptions to the law that normally 
exclude payment for expenses paid for directly or indirectly by a governmental entity, may be reimbursed the 
reasonable cost of furnishing covered services to Medicare beneficiaries.  The following special procedures 
apply to their bills. 
 
  Part A Services 
 
Computing Medicare Billing Rate 
 
The Medicare billing rate per day is determined by the following equation: 
 
Total allowable inpatient cost = cost per day per patient 
 
Total inpatient days 
 
Thus, the billing rate that appears is the average inpatient cost per day per inpatient as calculated from entries 
on the latest cost settlement report approved by Medicare.  Where this is the provider's first year in the 
program, the A/B MAC (A) determines this rate based on the provider's books and records the appropriate 
billing rate for services rendered to Medicare beneficiaries. 
 
Computing Medicare Billing Rate (Inpatient) 
 
The Medicare billing rate is determined in the following manner: 
 
Total available inpatient cost = Cost per day per patient 
 
Total inpatient days 
 
The A/B MAC (A) multiplies the cost per day per patient by 93 percent for short-term hospitals and by 98 
percent for long-term hospitals.  (See 2208.lE of the Provider Reimbursement Manual, Part I, for definitions 
of "short-term" and "long-term" hospitals.)  Then it applies the following fixed percentages.  The result is the 
Medicare billing rate. 
 
Computing Medicare Billing Rate (Outpatient) 
 
The Medicare billing rate is determined by the following equation: 
 
Total allowable outpatient cost = average cost per visit 
 
Total visits (occasions of service) 
 
Thus, the billing rate is the average cost per outpatient visit as calculated from entries on the latest cost 
settlement report approved by Medicare.  Where this is the provider's first year in the program, the A/B MAC 
(A) determines this rate based on the provider's books and records the appropriate billing rate for services 
rendered to Medicare beneficiaries. 
 
80.1 - Medicare Summary Notice (MSN) for Services in Hospitals That Do Not Charge 
(Rev. 1, 10-01-03) 
 
A3-3660.5.A 
  Where the hospital does not charge for outpatient services, the A/B MAC (A) does not send the individual an 
MSN.  This avoids confusion and the appearance that the beneficiary is liable for services received. 
 
90 - Billing Transplant Services 
(Rev. 1571; Issued:  08-07-08; Effective Date:  08-01-08; Implementation Date:  08-15-08) 
 
Medicare covers the following organ transplants:  kidney, heart, lung, heart/lung, liver, pancreas, 
pancreas/kidney, and intestinal/multi-visceral.  Medicare also covers stem cell transplants for certain 
conditions. 
 
On March 30, 2007, the Department of Health and Human Services (DHHS) established a regulation 
authorizing the survey and certification of organ transplant programs. The Centers for Medicare & Medicaid 
Services (CMS) is the Federal agency responsible for monitoring compliance with the Medicare conditions of 
participation. All hospital transplant programs covered by the regulation (does not include stem cell 
transplants), whether currently approved by CMS or seeking initial approval, must submit a request for 
approval under the new regulations to CMS by December 26, 2007 (180 days from the effective date of the 
regulation.) 
 
http://www.cms.hhs.gov/CertificationandComplianc/20_Transplant.asp#TopOfPage 
 
Transplant hospitals should review the above Web site and send applications to the following address: 
 
Centers for Medicare and Medicaid Services 
Survey and Certification Group 
7500 Security Blvd. 
Mailstop: S2-12-25 
Baltimore, MD 21244 
 
The A/B MACs (A) may choose to review claims if data analysis deems it a priority. 
 
90.1 - Kidney Transplant - General 
(Rev. 1341, Issued: 09-21-07, Effective: 06-28-07, Implementation: 10-22-07) 
 
A3-3612, HO-E414 
 
A major treatment for patients with ESRD is kidney transplantation.  This involves removing a kidney, usually 
from a living relative of the patient or from an unrelated person who has died, and surgically placing the 
kidney into the patient.  After the beneficiary receives a kidney transplant, Medicare pays the transplant 
hospital for the transplant and appropriate standard acquisition charges.  Special provisions apply to payment.  
For the list of approved Medicare certified transplant facilities, refer to the following Web site:  
http://www.cms.hhs.gov/CertificationandComplianc/20_Transplant.asp#TopOfPage 
 
A transplant hospital may acquire cadaver kidneys by: 
 
  Excising kidneys from cadavers in its own hospital; and 
 
  Arrangements with a freestanding organ procurement organization (OPO) that provides cadaver 
kidneys to any transplant hospital or by a hospital based OPO. 
 
A transplant hospital that is also a certified organ procurement organization may acquire cadaver kidneys by: 
    Having its organ procurement team excise kidneys from cadavers in other hospitals; 
 
  Arrangements with participating community hospitals, whether they excise kidneys on a regular or 
irregular basis; and 
 
  Arrangements with an organ procurement organization that services the transplant hospital as a 
member of a network. 
 
When the transplant hospital also excises the cadaver kidney, the cost of the procedure is included in its 
kidney acquisition costs and is considered in arriving at its standard cadaver kidney acquisition charge.  When 
the transplant hospital excises a kidney to provide another hospital, it may use its standard cadaver kidney 
acquisition charge or its standard detailed departmental charges to bill that hospital. 
 
When the excising hospital is not a transplant hospital, it bills its customary charges for services used in 
excising the cadaver kidney to the transplant hospital or organ procurement agency. 
 
If the transplanting hospital's organ procurement team excises the cadaver kidney at another hospital, the cost 
of operating such a team is included in the transplanting hospital's kidney acquisition costs, along with the 
reasonable charges billed by the other hospital of its services. 
 
90.1.1 - The Standard Kidney Acquisition Charge 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
There are two basic standard charges that must be developed by transplant hospitals from costs expected to be 
incurred in the acquisition of kidneys: 
 
  The standard charge for acquiring a live donor kidney; and 
 
  The standard charge for acquiring a cadaver kidney. 
 
The standard charge is not a charge representing the acquisition cost of a specific kidney; rather, it is a charge 
that reflects the average cost associated with each type of kidney acquisition. 
 
When the transplant hospital bills the program for the transplant, it shows its standard kidney acquisition 
charge on revenue code 081X. Kidney acquisition charges are not considered for the IPPS outlier calculation. 
 
Acquisition services are billed from the excising hospital to the transplant hospital.  A billing form is not 
submitted from the excising hospital to the FI.  The transplant hospital keeps an itemized statement that 
identifies the services furnished, the charges, the person receiving the service (donor/recipient), and whether 
this is a potential transplant donor or recipient.  These charges are reflected in the transplant hospital's kidney 
acquisition cost center and are used in determining the hospital's standard charge for acquiring a live donor's 
kidney or a cadaver's kidney.  The standard charge is not a charge representing the acquisition cost of a 
specific kidney.  Rather, it is a charge that reflects the average cost associated with each type of kidney 
acquisition.  Also, it is an all-inclusive charge for all services required in acquisition of a kidney, i.e., tissue 
typing, post-operative evaluation. 
 
A. - Billing For Blood And Tissue Typing of the Transplant Recipient Whether or Not Medicare 
Entitlement Is Established 
  Tissue typing and pre-transplant evaluation can be reflected only through the kidney acquisition charge of the 
hospital where the transplant will take place.  The transplant hospital includes in its kidney acquisition cost 
center the reasonable charges it pays to the independent laboratory or other hospital which typed the potential 
transplant recipient, either before or after his entitlement.  It also includes reasonable charges paid for 
physician tissue typing services, applicable to live donors and recipients (during the pre-entitlement period 
and after entitlement, but prior to hospital admission for transplantation). 
 
B. - Billing for Blood and Tissue Typing and Other Pre-Transplant Evaluation of Live Donors 
 
The entitlement date of the beneficiary who will receive the transplant is not a consideration in reimbursing 
for the services to donors, since no bill is submitted directly to Medicare.  All charges for services to donors 
prior to admission into the hospital for excision are "billed" indirectly to Medicare through the live donor 
acquisition charge of transplanting hospitals. 
 
C. - Billing Donor And Recipient Pre-Transplant Services (Performed by Transplant Hospitals or 
Other Providers) to the Kidney Acquisition Cost Center 
 
The transplant hospital prepares an itemized statement of the services rendered for submittal to its cost 
accounting department.  Regular Medicare billing forms are not necessary for this purpose, since no bills are 
submitted to the A/B MAC (A) at this point. 
 
The itemized statement should contain information that identifies the person receiving the service 
(donor/recipient), the health care insurance number, the service rendered and the charge for the service, as 
well as a statement as to whether this is a potential transplant donor or recipient.  If it is a potential donor, the 
provider must identify the prospective recipient. 
 
EXAMPLE: 
 
Mary Jones 
Health care insurance number 
200 Adams St. 
Anywhere, MS 
 
Transplant donor evaluation services for recipient: 
 
John Jones 
Health care insurance number 
200 Adams St. 
Anywhere, MS 
 
Services performed in a hospital other than the potential transplant hospital or by an independent laboratory 
are billed by that facility to the potential transplant hospital.  This holds true regardless of where in the United 
States the service is performed.  For example, if the donor services are performed in a Florida hospital and the 
transplant is to take place in a California hospital, the Florida hospital bills the California hospital (as 
described in above).  The Florida hospital is paid by the California hospital, which recoups the monies through 
the kidney acquisition cost center. 
 
D. - Billing for Cadaveric Donor Services 
 
Normally, various tests are performed to determine the type and suitability of a cadaver kidney.  Such tests 
may be performed by the excising hospital (which may also be a transplant hospital) or an independent  laboratory.  When the excising-only hospital performs the tests, it includes the related charges on its bill to the 
transplant hospital or to the organ procurement agency. 
 
When the tests are performed by the transplant hospital, it uses the related costs in establishing the standard 
charge for acquiring the cadaver kidney.  The transplant hospital includes the costs and charges in the 
appropriate departments for final cost settlement purposes. 
 
When the tests are performed by an independent laboratory for the excising-only hospital or the transplant 
hospital, the laboratory bills the hospital that engages its services or the organ procurement agency.  The 
excising-only hospital includes such charges in its charges to the transplant hospital, which then includes the 
charges in developing its standard charge for acquiring the cadaver kidney.  It is the transplant hospitals' 
responsibility to assure that the independent laboratory does not bill both hospitals. 
 
The cost of these services cannot be billed directly to the program, since such tests and other procedures 
performed on a cadaver are not identifiable to a specific patient. 
 
E. - Billing For Physicians' Services Prior to Transplantation 
 
Physicians' services applicable to kidney excisions involving live donors and recipients (during the pre-
entitlement period and after entitlement, but prior to entrance into the hospital for transplantation) as well as 
all physicians' services applicable to cadavers are considered Part A hospital services (kidney acquisition 
costs). 
 
F. - Billing for Physicians' Services After Transplantation 
 
All physicians' services rendered to the living donor and all physicians' services rendered to the transplant 
recipient are billed to the Medicare program in the same manner as all Medicare Part B services are billed.  
All donor physicians' services must be billed to the account of the recipient (i.e., the recipient's Medicare 
number).  Modifier Q3 (Live Kidney Donor and Related Services) appears on the claim.  For services 
performed on or after January 1, 2011 CWF shall allow Edit 5211 to be overridden at the contractor level.  
Also, contractors shall override Edit 5211 when this modifier appears on claims for donor services it receives 
when the recipient is deceased (See Publication 100-02, Chapter 11, Section 80.4). 
 
NOTE:  For institutional claims, contractors may manually override the CWF edit as necessary. 
 
G. - Billing For Physicians' Renal Transplantation Services 
 
To ensure proper payment when submitting a Part B bill for the renal surgeon's services to the recipient, the 
appropriate HCPCS codes must be submitted, including HCPCS codes for concurrent surgery, as applicable. 
 
The bill must include all living donor physicians' services, e.g., Revenue Center code 081X. 
 
90.1.2 - Billing for Kidney Transplant and Acquisition Services 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, ASC X12: September, 23 2014) 
 
Applicable standard kidney acquisition charges are identified separately by revenue code 0811 (Living Donor 
Kidney Acquisition) or 0812 (Cadaver Donor Kidney Acquisition).  Where interim bills are submitted, the 
standard acquisition charge appears on the billing form for the period during which the transplant took place.  
This charge is in addition to the hospital's charges for services rendered directly to the Medicare recipient. 
  The contractor deducts kidney acquisition charges for PPS hospitals for processing through Pricer.  These 
costs, incurred by approved kidney transplant hospitals, are not included in the kidney transplant prospective 
payment.  They are paid on a reasonable cost basis.  Interim payment is paid as a "pass through" item.  (See 
the Provider Reimbursement Manual, Part 1, 2802 B.8.)  The contractor includes kidney acquisition charges 
under the appropriate revenue code in CWF. 
 
Bill Review Procedures 
 
The Medicare Code Editor (MCE) creates a Limited Coverage edit for kidney transplant procedure codes.  
Where these procedure codes are identified by MCE, the contractor checks the provider number to determine 
if the provider is an approved transplant center, and checks the effective approval date.  The contractor shall 
also determine if the facility is certified for adults and/or pediatric transplants dependent upon the patients 
age.  If payment is appropriate (i.e., the center is approved and the service is on or after the approval date) it 
overrides the limited coverage edit. 
 
90.1.3 - Billing for Donor Post-Kidney Transplant Complication Services 
(Rev. 2334, Issued: 10-28-11; Effective: Policy Effective date: November 28, 2011; Claims Processing 
Effective date: April 1, 2012; Implementation: April 2, 2012) 
 
Expenses incurred for complications that arise with respect to the donor are covered and separately billable 
only if they are directly attributable to the donation surgery. 
 
All covered services (both institutional and professional) for complications from a Medicare covered 
transplant that arise after the date of the donors transplant discharge will be billed under the recipients health 
insurance claim number and are billed to the Medicare program in the same manner as all Medicare Part B 
services are billed. 
 
  All covered donor post-kidney transplant complication services must be billed to the account of the 
recipient (i.e., the recipient's Medicare number) 
 
  Modifier Q3 (Live Kidney Donor and Related Services) appears on each covered line of the claim that 
contains a HCPCS code. 
 
Institutional claims will be required to also include: 
 
  Occurrence Code 36 (Date of Inpatient Hospital Discharge for covered transplant patients) 
 
  Patient Relationship Code 39 (Organ Donor) 
 
Contractors shall override Edit 5211 when modifier Q3 appears on claims for donor services it receives when 
the recipient is deceased (See Pub. 100-02, chapter 11, section 80.4). 
 
NOTE:  For institutional claims which do not require modifiers, contractors may manually override the CWF 
edit as necessary. 
 
90.2 - Heart Transplants 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon Implementation of 
ICD -10, Implementation: ICD -10: Upon Implementation of ICD -10, ASC X12: September, 23 2014) 
  Cardiac transplantation is covered under Medicare when performed in a facility which is approved by 
Medicare as meeting institutional coverage criteria.  On April 6, 1987, CMS Ruling 87-1, "Criteria for 
Medicare Coverage of Heart Transplants" was published in the "Federal Register."  For Medicare coverage 
purposes, heart transplants are medically reasonable and necessary when performed in facilities that meet 
these criteria.  If a hospital wishes to bill Medicare for heart transplants, it must submit an application and 
documentation, showing its ongoing compliance with each criterion. 
 
If a contractor has any questions concerning the effective or approval dates of its hospitals, it should contact 
its RO. 
 
For a complete list of approved transplant centers, visit: 
https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/CertificationandComplianc/downloads/ApprovedTransplantPrograms.pdf  
 
A. - Effective Dates 
 
The effective date of coverage for heart transplants performed at facilities applying after July 6, 1987, is the 
date the facility receives approval as a heart transplant facility.  Coverage is effective for discharges October 
17, 1986 for facilities that would have qualified and that applied by July 6, 1987.  All transplant hospitals will 
be recertified under the final rule, Federal Register / Vol. 72, No. 61 / Friday, March 30, 2007, / Rules and 
Regulations. 
 
The CMS informs each hospital of its effective date in an approval letter. 
 
B. - Drugs 
 
Medicare Part B covers immunosuppressive drugs following a covered transplant in an approved facility. 
 
C. - Noncovered Transplants 
 
Medicare will not cover transplants or re-transplants in facilities that have not been approved as meeting the 
facility criteria.  If a beneficiary is admitted for and receives a heart transplant from a hospital that is not 
approved, physicians' services, and inpatient services associated with the transplantation procedure are not 
covered. 
 
If a beneficiary received a heart transplant from a hospital while it was not an approved facility and later 
requires services as a result of the noncovered transplant, the services are covered when they are reasonable 
and necessary in all other respects. 
 
D. - Charges for Heart Acquisition Services 
 
The excising hospital bills the OPO, who in turn bills the transplant (implant) hospital for applicable services.  
It should not submit a bill to its contractor.  The transplant hospital must keep an itemized statement that 
identifies the services rendered, the charges, the person receiving the service (donor/recipient), and whether 
this person is a potential transplant donor or recipient.  These charges are reflected in the transplant hospital's 
heart acquisition cost center and are used in determining its standard charge for acquiring a donor's heart.  The 
standard charge is not a charge representing the acquisition cost of a specific heart; rather, it reflects the 
average cost associated with each type of heart acquisition.  Also, it is an all inclusive charge for all services 
required in acquisition of a heart, i.e., tissue typing, post-operative evaluation, etc. 
  Acquisition charges shall be billed on a 081X revenue code.  Such charges are not considered for the IPPS 
outlier calculation when billed for a heart transplant. 
 
E. - Bill Review Procedures 
 
The contractor takes the following actions to process heart transplant bills.  It may accomplish them manually 
or modify its MCE and Grouper interface programs to handle the processing. 
 
1. MCE Interface 
 
The MCE creates a Limited Coverage edit for heart transplant procedure codes.  Where these procedure codes 
are identified by MCE, the contractor checks the provider number to determine if the provider is an approved 
transplant center, and checks the effective approval date.  The contractor shall also determine if the facility is 
certified for adults and/or pediatric transplants dependent upon the patients age.  If payment is appropriate 
(i.e., the center is approved and the service is on or after the approval date) it overrides the limited coverage 
edit. 
 
2. Handling Heart Transplant Billings From Nonapproved Hospitals 
 
Where a heart transplant and covered services are provided by a nonapproved hospital, the bill data processed 
through Grouper and Pricer must exclude transplant procedure codes and related charges. 
 
90.3 - Stem Cell Transplantation 
(Rev.11348; Issued: 04-07-22; Effective: 05-09-22; Implementation: 05-09-22) 
 
A. General 
 
Stem cell transplantation is a process in which stem cells are harvested from either a patients (autologous) 
or donors (allogeneic) bone marrow or peripheral blood for intravenous infusion. Autologous stem cell 
transplantation (AuSCT) is a technique for restoring stem cells using the patient's own previously stored 
cells. AuSCT must be used to effect hematopoietic reconstitution following severely myelotoxic doses of 
chemotherapy (HDCT) and/or radiotherapy used to treat various malignancies. Allogeneic hematopoietic 
stem cell transplantation (HSCT) is a procedure in which a portion of a healthy donor's stem cell or bone 
marrow is obtained and prepared for intravenous infusion. Allogeneic HSCT may be used to restore 
function in recipients having an inherited or acquired deficiency or defect. 
Hematopoietic stem cells are multi-potent stem cells that give rise to all the blood cell types; these stem 
cells form blood and immune cells. A hematopoietic stem cell is a cell isolated from blood or bone 
marrow that can renew itself, differentiate to a variety of specialized cells, can mobilize out of the bone 
marrow into circulating blood, and can undergo programmed cell death, called apoptosis - a process by 
which cells that are unneeded or detrimental will self-destruct. 
 
The Centers for Medicare & Medicaid Services (CMS) is clarifying that bone marrow and peripheral 
blood stem cell transplantation is a process which includes mobilization, harvesting, and transplant of 
bone marrow or peripheral blood stem cells and the administration of high dose chemotherapy or 
radiotherapy prior to the actual transplant. 
When bone marrow or peripheral blood stem cell transplantation is covered, all necessary steps are 
included in coverage. When bone marrow or peripheral blood stem cell transplantation is non-covered, 
none of the steps are covered. 
  Allogeneic and autologous stem cell transplants are covered under Medicare for specific diagnoses. 
Effective October 1, 1990, these cases were assigned to MS-DRG 009, Bone Marrow Transplant. 
 
The A/B MAC (A)'s Medicare Code Editor (MCE) will edit stem cell transplant procedure codes against 
diagnosis codes to determine which cases meet specified coverage criteria. Cases with a diagnosis code for 
a covered condition will pass (as covered) the MCE noncovered procedure edit. When a stem cell 
transplant case is selected for review based on the random selection of beneficiaries, the QIO will review 
the case on a post-payment basis to assure proper coverage decisions. 
 
Bone marrow transplant codes that are reported with an ICD-9-CM that is not otherwise specified are 
returned to the hospital for a more specific procedure code. ICD-10-PCS codes are more precise and 
clearly identify autologous and nonautologous stem cells. 
 
The A/B MAC (A) may choose to review if data analysis deems it a priority. 
 
B.  Nationally Covered Indications 
 
I.  Allogeneic Hematopoietic Stem Cell Transplantation (HSCT) 
 
a.  General 
 
  Allogeneic stem cell transplantation ( ICD-10-PCS codes 30230G2,30230G3, 30230Y2, 
30230Y3, 30233G2, 30233G3, 30233Y2, 30233Y3, 30240G2, 30240G3, 30240Y2, 30240Y3, 
30243G2, 30243G3, 30243Y2, and 30243Y3) is a procedure in which a portion of a healthy 
donor's stem cells are obtained and prepared for intravenous infusion to restore normal 
hematopoietic function in recipients having an inherited or acquired hematopoietic deficiency or 
defect. See Pub. 100-03, National Coverage Determinations (NCD) Manual, chapter 1, section 
110.23, for further information about this policy, and Pub. 100-04, chapter 32, section 90, for 
information on coding. 
 
Expenses incurred by a donor are a covered benefit to the recipient/beneficiary but, except for 
physician services, are not paid separately. Services to the donor include physician services, 
hospital care in connection with screening the stem cell, and ordinary follow-up care. 
 
NOTE: Please note that effective September 30, 2021 PCS codes for Allogeneic SCT 30230G2, 
30230G3, 30230Y2, 30230Y3, 30240G2, 30240G3, 30240Y2, 30240Y3 and PCS codes for 
Autologous SCT 30230C0, 30230G0, 30230Y0, 30240C0, 30240G0, 30240Y0 are end-dated. 
 
 
b.  Covered Conditions 
 
i.  Effective for services performed on or after August 1, 1978: 
 
For the treatment of leukemia, leukemia in remission, or aplastic anemia when it is 
reasonable and necessary; 
 
ii.  Effective for services performed on or after June 3, 1985: 
 
For the treatment of severe combined immunodeficiency disease (SCID), and for the 
treatment of Wiskott-Aldrich syndrome; 
  iii.  Effective for services performed on or after August 4, 2010: 
 
For the treatment of Myelodysplastic Syndromes (MDS) pursuant to Coverage with 
Evidence Development (CED) in the context of a Medicare- approved, prospective clinical 
study. 
 
iv.  Effective for claims with dates of service on or after January 27, 2016: 
 
1.  Allogeneic HSCT for multiple myeloma is covered by Medicare only for beneficiaries 
with Durie-Salmon Stage II or III multiple myeloma, or International Staging System 
(ISS) Stage II or Stage III multiple myeloma, and participating in an approved 
prospective clinical study. 
 
2.  Allogeneic HSCT for myelofibrosis (MF) is covered by Medicare only for beneficiaries 
with Dynamic International Prognostic Scoring System (DIPSSplus) intermediate-2 or 
High primary or secondary MF and participating in an approved prospective clinical 
study. 
 
3.  Allogeneic HSCT for sickle cell disease (SCD) is covered by Medicare only for 
beneficiaries with severe, symptomatic SCD who participate in an approved prospective 
clinical study. 
 
II.   
III. Autologous Stem Cell Transplantation (AuSCT) 
 
a.  General 
  Autologous stem cell transplantation (ICD-10-PCS codes 30230C0, 30230G0, 30230Y0, 30233G0, 
30233C0, 30233Y0, 30240C0, 30240G0, 30240Y0, 30243C0, 30243G0, and 30243Y0) is a technique 
for restoring stem cells using the patient's own previously stored cells. AuSCT must be used to effect 
hematopoietic reconstitution following severely myelotoxic doses of chemotherapy (high dose 
chemotherapy (HDCT)) and/or radiotherapy used to treat various malignancies. Refer to Pub. 100-03, 
NCD Manual, chapter 1, section 110.23, for further information about this policy, and Pub. 100-04, 
chapter 32, section 90, for information on coding. 
 
NOTE: Please note that effective September 30, 2021 PCS codes for Allogeneic SCT 30230G2, 30230G3, 
30230Y2, 30230Y3, 30240G2, 30240G3, 30240Y2, 30240Y3 and PCS codes for Autologous SCT 
30230C0, 30230G0, 30230Y0, 30240C0, 30240G0, 30240Y0 are end-dated. 
 
b.  Covered Conditions 
 
1.  Effective for services performed on or after April 28, 1989: 
 
Acute leukemia in remission who have a high probability of relapse and who have no human 
leucocyte antigens (HLA)-matched; 
 
Resistant non-Hodgkin's lymphomas or those presenting with poor prognostic features following 
an initial response; 
 
Recurrent or refractory neuroblastoma; or, 
  Advanced Hodgkin's disease who have failed conventional therapy and have no HLA-matched 
donor. 
 
2.  Effective for services performed on or after October 1, 2000: 
 
Single AuSCT is only covered for Durie-Salmon Stage II or III patients that fit the following 
requirements: 
  Newly diagnosed or responsive multiple myeloma. This includes those patients with previously 
untreated disease, those with at least a partial response to prior chemotherapy (defined as a 50% 
decrease either in measurable paraprotein [serum and/or urine] or in bone marrow infiltration, 
sustained for at least 1 month), and those in responsive relapse; and 
 
  Adequate cardiac, renal, pulmonary, and hepatic function. 
 
3.  Effective for services performed on or after March 15, 2005: 
 
When recognized clinical risk factors are employed to select patients for transplantation, high dose 
melphalan (HDM) together with AuSCT is reasonable and necessary for Medicare beneficiaries of 
any age group with primary amyloid light chain (AL) amyloidosis who meet the following criteria: 
 
  Amyloid deposition in 2 or fewer organs; and, 
  Cardiac left ventricular ejection fraction (EF) greater than 45%. 
 
C.  Nationally Non-Covered Indications 
 
I. Allogeneic Hematopoietic Stem Cell Transplantation (HSCT) 
 
Effective for claims with dates of service on or after May 24, 1996, through January 26, 2016, 
allogeneic HSCT is not covered as treatment for multiple myeloma. Refer to Pub. 100-03, NCD 
Manual, chapter 1, section 110.23, for further information about this policy, and Pub. 100-04, chapter 
32, section 90, for information on coding. 
 
II. Autologous Stem Cell Transplantation (AuSCT) 
 
Insufficient data exist to establish definite conclusions regarding the efficacy of AuSCT for the 
following conditions: 
 
a)  Acute leukemia not in remission; 
b)  Chronic granulocytic leukemia; 
c)  Solid tumors (other than neuroblastoma); 
d)  Up to October 1, 2000, multiple myeloma; 
e)  Tandem transplantation (multiple rounds of AuSCT) for patients with multiple myeloma; 
f)  Effective October 1, 2000, non primary AL amyloidosis; and, 
g)  Effective October 1, 2000, through March 14, 2005, primary AL amyloidosis for Medicare 
beneficiaries age 64 or older. 
 
In these cases, AuSCT is not considered reasonable and necessary within the meaning of 
l862(a)(1)(A) of the Act and is not covered under Medicare. Refer to Pub. 100-03, NCD Manual, 
chapter 1, section 110.23, for further information about this policy, and Pub. 100-04, chapter 32, 
section 90, for information on coding.   
D.  Other 
 
All other indications for stem cell transplantation not otherwise noted above as covered or non-covered 
remain at local Medicare Administrative Contractor discretion. 
 
 
90.3.1 - Allogeneic for Stem Cell Transplantation 
(Rev. 11113; Issued: 11-16-21; Effective: 12-17-21; Implementation: 12-17-21) 
 
 
A.  Definition of Acquisition Charges for Allogeneic Stem Cell Transplants  
 
1.  Effective for Cost Reporting Periods Beginning Prior to October 1, 2020 
 
Acquisition charges for allogeneic stem cell transplants include, but are not limited to, charges for the  
costs of the following services:  
 
  National Marrow Donor Program fees, if applicable, for stem cells from an unrelated donor;  
 
  Tissue typing of donor and recipient;  
 
  Donor evaluation;  
 
  Physician pre-admission/pre-procedure donor evaluation services;  
 
  Costs associated with harvesting procedure (e.g., general routine and special care services, 
procedure/operating room and other ancillary services, apheresis services, etc.);  
 
  Post-operative/post-procedure evaluation of donor; and  
 
  Preparation and processing of stem cells.  
 
Payment for these acquisition services is included in the MS-DRG payment for the allogeneic stem cell 
transplant when the transplant occurs in the inpatient setting, and in the OPPS APC payment for the 
allogeneic stem cell transplant when the transplant occurs in the outpatient setting.   
 
The Medicare contractor does not make separate payment for these acquisition services, because hospitals 
may bill and receive payment only for services provided to the Medicare beneficiary who is the recipient of 
the stem cell transplant and whose illness is being treated with the stem cell transplant.  Unlike the acquisition 
costs of solid organs for transplant (e.g., hearts and kidneys), which are paid on a reasonable cost basis, 
acquisition costs for allogeneic stem cells are included in prospective payment. 
 
Acquisition charges for stem cell transplants apply only to allogeneic transplants, for which stem cells are 
obtained from a donor (other than the recipient himself or herself).  Acquisition charges do not apply to 
autologous transplants (transplanted stem cells are obtained from the recipient himself or herself), because 
autologous transplants involve services provided to the beneficiary only (and not to a donor), for which the 
hospital may bill and receive payment (see Pub. 100-04, chapter 4, 231.10 and paragraph B of this section  
for information regarding billing for autologous stem cell transplants).  
 
2. Effective for Cost Reporting Periods Beginning On or After October 1, 2020   
Allogeneic hematopoietic stem cell acquisition costs are as follows: 
 
  Registry fees from a national donor registry described in 42 U.S.C. 274k, if applicable, for stem cells 
from an unrelated donor. 
 
  Tissue typing of donor and recipient. 
 
  Donor evaluation. 
 
  Physician pre-admission/pre-procedure donor evaluation services. 
 
  Costs associated with the collection procedure (for example, general routine and 
special care services, procedure/operating room and other ancillary services, apheresis services), and 
transportation costs of stem cells if the recipient hospital incurred or paid such costs. 
 
  Post-operative/post-procedure evaluation of donor. 
 
  Preparation and processing of stem cells derived from bone marrow, peripheral blood stem cells, or 
cord blood (but not including embryonic stem cells). 
 
Effective for cost reporting periods beginning on or after October 1, 2020, a subsection (d) hospital that 
furnishes an allogeneic hematopoietic stem cell transplant to an individual during such a period, payment to 
such hospital for hematopoietic stem cell acquisition shall be made on a reasonable cost basis.  
 
Payment for allogeneic hematopoietic stem cell acquisition services continues to be included in the OPPS 
APC payment when the transplant occurs in the outpatient setting.   
 
Acquisition charges for stem cell transplants apply only to allogeneic transplants, for which stem cells are 
obtained from a donor (other than the recipient himself or herself). Acquisition charges do not apply to 
autologous transplants (transplanted stem cells are obtained from the recipient himself or herself), because 
autologous transplants involve services provided to the beneficiary only (and not to a donor), for which the 
hospital may bill and receive payment (see Pub. 100-04, chapter 4, 231.10 and paragraph B of this section  
for information regarding billing for autologous stem cell transplants). 
 
 
B.  Billing for Acquisition Services 
 
The hospital bills and shows acquisition charges for allogeneic stem cell transplants based on the status  
of the patient (i.e., inpatient or outpatient) when the transplant is furnished.  See Pub. 100-04, chapter 4, 
231.11 for instructions regarding billing for acquisition services for allogeneic stem cell transplants that  
are performed in the outpatient setting. 
 
When the allogeneic stem cell transplant occurs in the inpatient setting, allogeneic bone marrow/stem cell 
acquisition charges shall be billed using revenue code 0815.  Revenue code 0815 (Allogeneic Stem Cell 
Acquisition/Donor Services) charges should include all services required to acquire stem cells from a donor, 
as defined above.  Effective for discharges occurring on or after October 1, 2021, such charges are not 
considered for the IPPS outlier calculation when billed for an allogeneic stem cell transplant. 
 
  On the recipients transplant bill, the hospital reports the acquisition charges, cost report days, and utilization 
days for the donors hospital stay (if applicable) and/or charges for other encounters in which the stem cells 
were obtained from the donor.  The donor is covered for medically necessary inpatient hospital days of  
care or outpatient care provided in connection with the allogeneic stem cell transplant under Part A.   
Expenses incurred for complications are paid only if they are directly and immediately attributable to  
the stem cell donation procedure.  The hospital reports the acquisition charges on the billing form for the 
recipient, as described in the first paragraph of this section.  It does not charge the donor's days of care  
against the recipient's utilization record.  For cost reporting purposes, it includes the covered donor days and 
charges as Medicare days and charges. 
 
The transplant hospital keeps an itemized statement that identifies the services furnished in collecting 
allogeneic hematopoietic stem cells including all invoices or statements for purchased services for all donors 
and their service charges.  Records must be for the person receiving the service (donor or recipient).  
Beginning October 1, 2020, for all donor sources, the hospital must identify the prospective recipient and 
include the recipients Medicare beneficiary identification number. These charges will be reflected in the 
transplant hospital's stem cell/bone marrow acquisition cost center.  For allogeneic stem cell acquisition 
services in cases that do not result in transplant, due to death of the intended recipient or other causes, 
hospitals include the costs associated with the acquisition services on the Medicare cost report. 
 
The hospital shows charges for the transplant itself in revenue center code 0362 or another appropriate cost 
center.  The hospital shows charges for acquiring allogeneic hematopoietic stem cells for transplant 
 in revenue code 0815. 
 
90.3.2 - Autologous Stem Cell Transplantation (AuSCT) 
(Rev.11348; Issued: 04-07-22; Effective: 05-09-22; Implementation: 05-09-22) 
 
A. - General 
 
Autologous stem cell transplantation (AuSCT) is a technique for restoring stem cells using the patient's 
own previously stored cells. AuSCT must be used to effect hematopoietic reconstitution following 
severely myelotoxic doses of chemotherapy (high dose chemotherapy (HDCT)) and/or radiotherapy used 
to treat various malignancies. 
 
If ICD-10-PCS is applicable, use the following Procedure Codes and Descriptions - 
  
30230C0  Transfusion of Autologous Hematopoietic Stem/Progenitor Cells, 
Genetically Modified into Peripheral Vein, Open Approach 
30230G0  Transfusion of Autologous Bone Marrow into Peripheral Vein, Open 
Approach 
30230Y0  Transfusion of Autologous Hematopoietic Stem Cells into Peripheral 
Vein, Open Approach 
30233G0  Transfusion of Autologous Bone Marrow into Peripheral Vein, 
Percutaneous Approach 
30233C0  Transfusion of Autologous Hematopoietic Stem/Progenitor Cells, 
Genetically Modified into Peripheral Vein, Percutaneous Approach 
30233Y0  Transfusion of Autologous Hematopoietic Stem Cells into Peripheral 
Vein, Percutaneous Approach 
30240C0  Transfusion of Autologous Hematopoietic Stem/Progenitor Cells, 
Genetically Modified into Central Vein, Open Approach  30240G0  Transfusion of Autologous Bone Marrow into Central Vein, Open 
Approach 
30240Y0  Transfusion of Autologous Hematopoietic Stem Cells into Central Vein, 
Open Approach 
30243C0  Transfusion of Autologous Hematopoietic Stem/Progenitor Cells, 
Genetically Modified into Central Vein, Percutaneous Approach 
30243G0  Transfusion of Autologous Bone Marrow into Central Vein, Percutaneous 
Approach 
30243Y0  Transfusion of Autologous Hematopoietic Stem Cells into Central Vein, 
Percutaneous Approach 
 
 NOTE: Please note that effective September 30, 2021 PCS codes for Allogeneic SCT 30230G2,  30230G3, 
30230Y2, 30230Y3, 30240G2, 30240G3, 30240Y2, 30240Y3 and PCS codes for Autologous SCT 30230C0, 
30230G0, 30230Y0, 30240C0, 30240G0, 30240Y0 are end-dated. 
 
 
B. - Covered Conditions 
 
1. Effective for services performed on or after April 28, 1989: 
 
For acute leukemia in remission for patients who have a high probability of relapse and who have no 
human leucocyte antigens (HLA)-matched, the following diagnosis codes are reported: 
 
 
If ICD-10-CM is applicable, use the following Diagnosis Codes and Descriptions - 
 
Diagnosis  Description 
Code 
C91.01  Acute lymphoblastic leukemia, in remission 
C92.01  Acute myeloblastic leukemia, in remission 
C92.41  Acute promyelocytic leukemia, in remission 
C92.51  Acute myelomonocytic leukemia, in remission 
C92.61  Acute myeloid leukemia with 11q23-abnormality in remission 
C92.A1  Acute myeloid leukemia with multilineage dysplasia, in remission 
C93.01  Acute monoblastic/monocytic leukemia, in remission 
C94.01  Acute erythroid leukemia, in remission 
C94.21  Acute megakaryoblastic leukemia, in remission 
C95.01  Acute leukemia of unspecified cell type, in remission 
 
 
For resistant non-Hodgkin's lymphomas or those presenting with poor prognostic features following an 
initial response the following diagnosis codes are reported: 
  If ICD-10-CM is applicable use the following, code ranges C82.01 - C85.29, C85.81 - C86.6, C96.4, and 
C96.Z - C96.9. 
 
Recurrent or refractory neuroblastoma (see ICD-10-CM codes Neoplasm by site, malignant 
for the appropriate diagnosis code) 
 
following ranges are reported: C00 - C96, and D00 - D09 Resistant non- Hodgkins 
lymphomas); or, 
 
Advanced Hodgkin's disease who have failed conventional therapy and have no HLA-matched 
donor (ICD-10-CM codes C81.01 - C81.99). 
 
2. Effective for services performed on or after October 1, 2000: 
 
Durie-Salmon Stage II or III that fit the following requirement are covered: Newly diagnosed or 
responsive multiple myeloma (if ICD-10-CM is applicable, diagnosis codes C90.00, C90.01, C90.02, 
and D47.Z9). This includes those patients with previously untreated disease, those with at least a 
partial response to prior chemotherapy (defined as a 50% decrease either in measurable paraprotein 
[serum and/or urine] or in bone marrow infiltration, sustained for at least 1 month), and those in 
responsive relapse, and adequate cardiac, renal, pulmonary, and hepatic function. 
 
3. Effective for Services On or After March 15, 2005 
 
Effective for services performed on or after March 15, 2005, when recognized clinical risk factors are 
employed to select patients for transplantation, high-dose melphalan (HDM), together with AuSCT, in 
treating Medicare beneficiaries of any age group with primary amyloid light-chain (AL) amyloidosis who 
meet the following criteria: 
 
  Amyloid deposition in 2 or fewer organs ; and, 
 
  Cardiac left ventricular ejection fraction (EF) of 45% or greater. 
 
NOTE: Please note that effective April 01, 2022 unspecified ICD-10-DX codes C47.9, C72.50, C72.9, 
C81.91, C81.92, C81.93, C81.94, C81.95, C81.96, C81.97, C81.98, C81.99, C85.91, C85.92, C85.93, C85.94, 
C85.96, C85.97, C85.98, C85.99, C91.91, C92.91, C93.91, C95.91, C96.20, C96.9  are end-dated. 
 
C.  Non-covered Conditions 
 
Insufficient data exist to establish definite conclusions regarding the efficacy of autologous stem cell 
transplantation for the following conditions: 
 
a)   Acute leukemia not in remission prior to October 1, 2000 ( if ICD-10-CM is applicable, ICD-10-CM 
codes C91.00, C92.00, C93.00, C94.00, and C95.00) 
 
b)  Chronic granulocytic leukemia prior to October 1, 2000 (if ICD-10-CM is applicable, ICD-10-CM 
code C92.10); 
 
c)  Solid tumors prior to October 1, 2000 (other than neuroblastoma) (if ICD-10-CM is applicable, ICD-
10-CM codes C00.0  C80.2 and D00.0  D09.9); 
  d)  Multiple myeloma prior to October 1, 2000 (if ICD-10-CM is applicable, ICD-10-CM codes C90.00, 
C90.01, C90.02 and D47.Z9); 
 
e)  Tandem transplantation, on or after October 1, 2000 (if ICD-10-CM is applicable, ICD-10-CM codes 
C90.00, C90.01, C90.02, and  D47.Z9) ; 
 
f)  Non- primary amyloidosis on or after 10/01/00, for all Medicare beneficiaries 
 
g)  Primary AL amyloidosis effective October 1, 2000, through March 14, 2005 for Medicare 
beneficiaries age 64. (if ICD-10-CM is applicable, ICD-10-CM codes E85.4, E85.81, E85.9, and E85.89); 
 
                 
 
NOTE: Coverage for conditions other than these specifically designated as covered or non- covered is left 
to the discretion of the A/B MAC (A). 
 
 
D. Billing for Autologous Stem Cell Transplantation (AuSCT) 
 
The hospital bills and shows all charges for autologous stem cell harvesting, processing, and transplant 
procedures based on the status of the patient (i.e., inpatient or outpatient) when the services are furnished. 
It shows charges for the actual transplant, in revenue center code 0362 or another appropriate cost center. 
ICD-10-PCS codes are used to identify inpatient procedures. 
 
The HCPCS codes describing autologous stem cell harvesting procedures may be billed and are separately 
payable under the OPPS when provided in the hospital outpatient setting of care. Autologous harvesting 
procedures are distinct from the acquisition services described in Pub. 100-04, chapter 4, 231.11 and 
section 90.3.1-A above for allogeneic stem cell transplants, which include services provided when stem 
cells are obtained from a donor and not from the patient undergoing the stem cell transplant. The HCPCS 
codes describing autologous stem cell processing procedures also may be billed and are separately payable 
under the OPPS when provided to hospital outpatients. Payment for autologous stem cell harvesting 
procedures performed in the hospital inpatient setting of care, with transplant also occurring in the 
inpatient setting of care, is included in the MS-DRG payment for the autologous stem cell transplant. 
 
90.4 - Liver Transplants 
(Rev. 2513, Issued: 08-03-12, Effective: 06-21-12, Implementation: 09-04-12) 
 
A.  Background 
 
For Medicare coverage purposes, liver transplants are considered medically reasonable and necessary for 
specified conditions when performed in facilities that meet specific criteria.  Coverage guidelines may be 
found in Publication 100-03, Section 260.1. 
 
Effective for claims with dates of service June 21, 2012 and later, contractors may, at their discretion cover 
adult liver transplantation for patients with extrahepatic unresectable cholangiocarcinoma (CCA), (2) liver 
metastases due to a neuroendocrine tumor (NET) or (3) hemangioendothelimo (HAE) when furnished in an 
approved Liver Transplant Center (below).  All other nationally non-covered malignancies continue to remain 
nationally non-covered. 
 
To review the current list of approved Liver Transplant Centers, see http://www.cms.gov/Medicare/Provider-
Enrollment-and-Certification/CertificationandComplianc/Transplant.html   
90.4.1 - Standard Liver Acquisition Charge 
(Rev. 1, 10-01-03) 
 
A3-3615.1, A3-3615.3 
 
Each transplant facility must develop a standard charge for acquiring a cadaver liver from costs it expects to 
incur in the acquisition of livers. 
 
This standard charge is not a charge that represents the acquisition cost of a specific liver.  Rather, it is a 
charge that reflects the average cost associated with a liver acquisition. 
 
Services associated with liver acquisition are billed from the organ procurement organization or, in some 
cases, the excising hospital to the transplant hospital.  The excising hospital does not submit a billing form to 
the A/B MAC (A).  The transplant hospital keeps an itemized statement that identifies the services furnished, 
the charges, the person receiving the service (donor/recipient), and the potential transplant donor.  These 
charges are reflected in the transplant hospital's liver acquisition cost center and are used in determining the 
hospital's standard charge for acquiring a cadaver's liver.  The standard charge is not a charge representing the 
acquisition cost of a specific liver.  Rather, it is a charge that reflects the average cost associated with liver 
acquisition.  Also, it is an all-inclusive charge for all services required in acquisition of a liver, e.g., tissue 
typing, transportation of organ, and surgeons' retrieval fees. 
 
 
 
90.4.2 - Billing for Liver Transplant and Acquisition Services 
(Rev.11035, Issued:10-13-21, Effective: 11-17-21; Implementation: 11-17-21) 
 
The inpatient claim is completed in accordance with instructions in chapter 25 for the beneficiary who 
receives a covered liver transplant. Applicable standard liver acquisition charges are identified separately by 
revenue code 081X. Where interim bills are submitted, the standard acquisition charge appears on the billing 
form for the period during which the transplant took place. This charge is in addition to the hospital's charge 
for services furnished directly to the Medicare recipient. 
 
The contractor deducts liver acquisition charges for IPPS hospitals prior to processing through Pricer. Costs of 
liver acquisition incurred by approved liver transplant facilities are not included in the liver transplant 
prospective payment. They are paid on a reasonable cost basis. This item is a "pass-through" cost for which 
interim payments are made. (See the Provider Reimbursement Manual, Part 1, 2802 B.8.) The contractor 
includes liver acquisition charges under revenue code 081X in the HUIP record that it sends to CWF and the 
QIO. 
 
MCE Interface 
 
The MCE contains a limited coverage edit for liver transplant procedures using below ICD-10-CM codes if 
ICD-10-CM is applicable. 
 
 
Nationally Covered Diagnosis Codes 
 
Diagnosis   
Code  Description 
B16.0  Acute hepatitis B with delta-agent with hepatic coma  B16.1  Acute hepatitis B with delta-agent without hepatic coma 
B16.2  Acute hepatitis B without delta-agent with hepatic coma 
B16.9  Acute hepatitis B without delta-agent and without hepatic coma 
   
    B17.0  Acute delta-(super) infection of hepatitis B carrier 
B17.10  Acute hepatitis C without hepatic coma 
B17.11  Acute hepatitis C with hepatic coma 
B17.2  Acute hepatitis E 
B17.8  Other specified acute viral hepatitis 
B17.9  Acute viral hepatitis, unspecified 
B18.0  Chronic viral hepatitis B with delta-agent 
B18.1  Chronic viral hepatitis B without delta-agent 
B18.2  Chronic viral hepatitis C 
B18.8  Other chronic viral hepatitis 
B18.9  Chronic viral hepatitis, unspecified 
B19.0  Unspecified viral hepatitis with hepatic coma 
B19.10  Unspecified viral hepatitis B without hepatic coma 
B19.11  Unspecified viral hepatitis B with hepatic coma 
B19.20  Unspecified viral hepatitis C without hepatic coma 
B19.21  Unspecified viral hepatitis C with hepatic coma 
B19.9  Unspecified viral hepatitis without hepatic coma 
C22.0  Liver cell carcinoma 
E70.1  Other hyperphenylalaninemias 
E70.20  Disorder of tyrosine metabolism, unspecified 
E70.21  Tyrosinemia 
E70.29  Other disorders of tyrosine metabolism 
E70.30  Albinism, unspecified 
E70.310  X-linked ocular albinism 
E70.311  Autosomal recessive ocular albinism 
E70.318  Other ocular albinism 
E70.319  Ocular albinism, unspecified 
E70.320  Tyrosinase negative oculocutaneous albinism 
E70.321  Tyrosinase positive oculocutaneous albinism 
E70.328  Other oculocutaneous albinism 
E70.329  Oculocutaneous albinism, unspecified 
E70.330  Chediak-Higashi syndrome 
E70.331  Hermansky-Pudlak syndrome 
E70.338  Other albinism with hematologic abnormality 
E70.339  Albinism with hematologic abnormality, unspecified 
E70.39  Other specified albinism 
E70.40  Disorders of histidine metabolism, unspecified 
E70.41  Histidinemia 
E70.49  Other disorders of histidine metabolism 
E70.5  Disorders of tryptophan metabolism 
E70.81  Aromatic L-amino acid decarboxylase deficiency 
E70.89  Other disorders of aromatic amino-acid metabolism 
E70.9  Disorder of aromatic amino-acid metabolism, unspecified 
E71.0  Maple-syrup-urine disease 
E71.110  Isovaleric acidemia 
E71.111  3-methylglutaconic aciduria  E71.118  Other branched-chain organic acidurias 
E71.120  Methylmalonic acidemia 
E71.121  Propionic acidemia 
E71.128  Other disorders of propionate metabolism 
E71.19  Other disorders of branched-chain amino-acid metabolism 
E71.2  Disorder of branched-chain amino-acid metabolism, unspecified 
E71.30  Disorder of fatty-acid metabolism, unspecified 
E71.310  Long chain/very long chain acyl CoA dehydrogenase deficiency 
E71.311  Medium chain acyl CoA dehydrogenase deficiency 
E71.312  Short chain acyl CoA dehydrogenase deficiency 
E71.313  Glutaric aciduria type II 
E71.314  Muscle carnitine palmitoyltransferase deficiency 
E71.318  Other disorders of fatty-acid oxidation 
E71.32  Disorders of ketone metabolism 
E71.39  Other disorders of fatty-acid metabolism 
E71.40  Disorder of carnitine metabolism, unspecified 
E71.41  Primary carnitine deficiency 
E71.42  Carnitine deficiency due to inborn errors of metabolism 
E71.43  Iatrogenic carnitine deficiency 
E71.440  Ruvalcaba-Myhre-Smith syndrome 
E71.448  Other secondary carnitine deficiency 
E71.50  Peroxisomal disorder, unspecified 
E71.510  Zellweger syndrome 
E71.511  Neonatal adrenoleukodystrophy 
E71.518  Other disorders of peroxisome biogenesis 
E71.520  Childhood cerebral X-linked adrenoleukodystrophy 
E71.521  Adolescent X-linked adrenoleukodystrophy 
E71.522  Adrenomyeloneuropathy 
E71.528  Other X-linked adrenoleukodystrophy 
E71.529  X-linked adrenoleukodystrophy, unspecified type 
E71.53  Other group 2 peroxisomal disorders 
E71.540  Rhizomelic chondrodysplasia punctata 
E71.541  Zellweger-like syndrome 
E71.542  Other group 3 peroxisomal disorders 
E71.548  Other peroxisomal disorders 
E72.00  Disorders of amino-acid transport, unspecified 
E72.01  Cystinuria 
E72.02  Hartnup's disease 
E72.03  Lowe's syndrome 
E72.04  Cystinosis 
E72.09  Other disorders of amino-acid transport 
E72.10  Disorders of sulfur-bearing amino-acid metabolism, unspecified 
E72.11  Homocystinuria 
E72.12  Methylenetetrahydrofolate reductase deficiency 
E72.19  Other disorders of sulfur-bearing amino-acid metabolism 
E72.20  Disorder of urea cycle metabolism, unspecified  E72.21  Argininemia 
E72.22  Arginosuccinic aciduria 
E72.23  Citrullinemia 
E72.29  Other disorders of urea cycle metabolism 
E72.3  Disorders of lysine and hydroxylysine metabolism 
E72.4  Disorders of ornithine metabolism 
E72.50  Disorder of glycine metabolism, unspecified 
E72.51  Non-ketotic hyperglycinemia 
E72.52  Trimethylaminuria 
E72.53  Primary hyperoxaluria 
E72.59  Other disorders of glycine metabolism 
E72.81  Disorders of gamma aminobutyric acid 
E72.89  Other specified disorders of amino-acid metabolism 
E72.9  Disorder of amino-acid metabolism, unspecified 
E80.0  Hereditary erythropoietic porphyria 
E80.29  Other porphyria 
E83.00  Disorder of copper metabolism, unspecified 
E83.01  Wilson's disease 
E83.09  Other disorders of copper metabolism 
E83.110  Hereditary hemochromatosis 
E83.111  Hemochromatosis due to repeated red blood cell transfusions 
E83.118  Other hemochromatosis 
E83.119  Hemochromatosis, unspecified 
E85.0  Non-neuropathic heredofamilial amyloidosis 
E85.1  Neuropathic heredofamilial amyloidosis 
E85.2  Heredofamilial amyloidosis, unspecified 
E85.3  Secondary systemic amyloidosis 
E85.4  Organ-limited amyloidosis 
E85.89  Other amyloidosis 
E88.01  Alpha-1-antitrypsin deficiency 
E88.02  Plasminogen deficiency 
I82.0  Budd-Chiari syndrome 
K70.0  Alcoholic fatty liver 
K70.10  Alcoholic hepatitis without ascites 
K70.11  Alcoholic hepatitis with ascites 
K70.2  Alcoholic fibrosis and sclerosis of liver 
K70.30  Alcoholic cirrhosis of liver without ascites 
K70.31  Alcoholic cirrhosis of liver with ascites 
K70.40  Alcoholic hepatic failure without coma 
K70.41  Alcoholic hepatic failure with coma 
K70.9  Alcoholic liver disease, unspecified 
K71.0  Toxic liver disease with cholestasis 
K71.10  Toxic liver disease with hepatic necrosis, without coma 
K71.11  Toxic liver disease with hepatic necrosis, with coma 
K71.2  Toxic liver disease with acute hepatitis 
K71.3  Toxic liver disease with chronic persistent hepatitis  K71.4  Toxic liver disease with chronic lobular hepatitis 
K71.50  Toxic liver disease with chronic active hepatitis without ascites 
K71.51  Toxic liver disease with chronic active hepatitis with ascites 
K71.6  Toxic liver disease with hepatitis, not elsewhere classified 
K71.7  Toxic liver disease with fibrosis and cirrhosis of liver 
K71.8  Toxic liver disease with other disorders of liver 
K72.00  Acute and subacute hepatic failure without coma 
K72.01  Acute and subacute hepatic failure with coma 
K72.10  Chronic hepatic failure without coma 
K72.11  Chronic hepatic failure with coma 
K72.90  Hepatic failure, unspecified without coma 
K72.91  Hepatic failure, unspecified with coma 
K73.1  Chronic lobular hepatitis, not elsewhere classified 
K73.2  Chronic active hepatitis, not elsewhere classified 
K73.8  Other chronic hepatitis, not elsewhere classified 
K73.9  Chronic hepatitis, unspecified 
K74.01  Hepatic fibrosis, early fibrosis 
K74.02  Hepatic fibrosis, advanced fibrosis 
K74.1  Hepatic sclerosis 
K74.2  Hepatic fibrosis with hepatic sclerosis 
K74.3  Primary biliary cirrhosis 
K74.4  Secondary biliary cirrhosis 
K74.5  Biliary cirrhosis, unspecified 
K74.60  Unspecified cirrhosis of liver 
K74.69  Other cirrhosis of liver 
K75.0  Abscess of liver 
K75.1  Phlebitis of portal vein 
K75.2  Nonspecific reactive hepatitis 
K75.3  Granulomatous hepatitis, not elsewhere classified 
K75.4  Autoimmune hepatitis 
K75.81  Nonalcoholic steatohepatitis (NASH) 
K75.89  Other specified inflammatory liver diseases 
K75.9  Inflammatory liver disease, unspecified 
K76.0  Fatty (change of) liver, not elsewhere classified 
K76.1  Chronic passive congestion of liver 
K76.2  Central hemorrhagic necrosis of liver 
K76.3  Infarction of liver 
K76.4  Peliosis hepatis 
K76.5  Hepatic veno-occlusive disease 
K76.6  Portal hypertension 
K76.7  Hepatorenal syndrome 
K76.81  Hepatopulmonary syndrome 
K76.89  Other specified diseases of liver 
K77  Liver disorders in diseases classified elsewhere 
K83.01  Primary sclerosing cholangitis 
K83.09  Other cholangitis  K83.1  Obstruction of bile duct 
K83.5  Biliary cyst 
K83.8  Other specified diseases of biliary tract 
K83.9  Disease of biliary tract, unspecified 
K91.82  Postprocedural hepatic failure 
Q44.1  Other congenital malformations of gallbladder 
Q44.2  Atresia of bile ducts 
Q44.3  Congenital stenosis and stricture of bile ducts 
Q44.4  Choledochal cyst 
Q44.6  Cystic disease of liver 
T86.40  Unspecified complication of liver transplant 
T86.41  Liver transplant rejection 
T86.42  Liver transplant failure 
T86.43  Liver transplant infection 
T86.49  Other complications of liver transplant 
 
Local Discretion Covered Diagnosis Codes 
 
C24.0  Malignant neoplasm of extrahepatic bile duct 
C7B.02  Secondary carcinoid tumors of liver 
D37.6  Neoplasm of uncertain behavior of liver, gallbladder and bile ducts 
 
Nationally NON-Covered Diagnosis Codes 
 
C22.1  Intrahepatic bile duct carcinoma 
C22.3  Angiosarcoma of liver 
C22.7  Other specified carcinomas of liver 
C78.7  Secondary malignant neoplasm of liver and intrahepatic bile duct 
C7A.1  Malignant poorly differentiated neuroendocrine tumors 
C7A.8  Other malignant neuroendocrine tumors 
C7B.8  Other secondary neuroendocrine tumors 
D01.5  Carcinoma in situ of liver, gallbladder and bile ducts 
D18.00  Hemangioma unspecified site 
D18.01  Hemangioma of skin and subcutaneous tissue 
D18.02  Hemangioma of intracranial structures 
D18.03  Hemangioma of intra-abdominal structures 
D18.09  Hemangioma of other sites 
D3A.8  Other benign neuroendocrine tumors   
 
The MCE contains a limited coverage edit for liver transplant procedures using ICD- 10-PCS codes, if ICD-
10-PCS code is applicable. 
 
0FY00Z0- Transplantation of Liver, Allogeneic, Open Approach 0FY00Z1-Transplantation of Liver, 
Syngeneic, Open Approach 
 
 
Where a liver transplant procedure code is identified by the MCE, the contractor shall check the provider 
number and effective date to determine if the provider is an approved liver transplant facility at the time of the 
transplant. Contractors shall use claims data to determine that the coverage criteria specified in Publication 
100-03, Section 260.1 have been met. If payment is appropriate (i.e., the facility is approved, the service is 
furnished on or after the approval date, and the beneficiary has a covered condition), the contractor sends the 
claim to Grouper and Pricer. 
 
If none of the diagnosiss codes are for a covered condition, or if the provider is not an approved liver 
transplant facility, the contractor denies the claim. 
 
NOTE: Some noncovered conditions are included in the covered diagnostic codes. (The diagnostic codes are 
broader than the covered conditions. Do not pay for noncovered conditions. 
 
 
Grouper 
 
If the bill shows a discharge date before March 8, 1990, the liver transplant procedure is not covered. If the 
discharge date is March 8, 1990 or later, the contractor processes the bill through Grouper and Pricer. If the 
discharge date is after March 7, 1990, and before October 1, 1990, Grouper assigned CMS DRG 191 or 192. 
The contractor sent the bill to Pricer with review code 08. Pricer would then overlay CMS DRG 191 or 192 
with CMS DRG 480 and the weights and thresholds for CMS DRG 480 to price the bill. If the discharge date 
is after September 30, 1990, Grouper assigns CMS DRG 480 and Pricer is able to price without using review 
code 08. If the discharge date is after September 30, 2007, Grouper assigns MS-DRG 005 or 006 (Liver 
transplant with MCC or Intestinal Transplant or Liver transplant without MCC, respectively) and Pricer is able 
to price without using review code 08. 
 
Liver Transplant Billing From Non-approved Hospitals 
 
Where a liver transplant and covered services are provided by a non-approved hospital, the bill data processed 
through Grouper and Pricer must exclude transplant procedure codes and related charges. 
 
When CMS approves a hospital to furnish liver transplant services, it informs the hospital of  the effective date in the approval letter. The contractor will receive a copy of the letter  
 
90.5 - Pancreas Transplants Kidney Transplants 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16) 
 
A. - Background 
 
Effective July 1, 1999, Medicare covered pancreas transplantation when performed 
simultaneously with or following a kidney transplant if ICD-9 is applicable, ICD-9-CM 
procedure code 55.69.  If ICD-10 is applicable, the following ICD-10-PCS codes will be 
used: 
0TY00Z0,  
0TY00Z1,  
0TY00Z2,  
0TY10Z0.  
0TY10Z1, and  
0TY10Z2.   
 
Pancreas transplantation is performed to induce an insulin independent, euglycemic state in 
diabetic patients.  The procedure is generally limited to those patients with severe secondary 
complications of diabetes including kidney failure.  However, pancreas transplantation is 
sometimes performed on patients with labile diabetes and hypoglycemic unawareness. 
 
Medicare has had a policy of not covering pancreas transplantation.  The Office of Health 
Technology Assessment performed an assessment on pancreas-kidney transplantation in 
1994.  They found reasonable graft survival outcomes for patients receiving either 
simultaneous pancreas-kidney (SPK) transplantation or pancreas after kidney (PAK) 
transplantation.  For a list of facilities approved to perform SPK or PAK, refer to the 
following Web site:  https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/CertificationandComplianc/downloads/ApprovedTransplantPrograms.pdf  
 
B. - Billing for Pancreas Transplants 
 
There are no special provisions related to managed care participants.  Managed care plans are 
required to provide all Medicare covered services.  Medicare does not restrict which 
hospitals or physicians may perform pancreas transplantation. 
 
The transplant procedure and revenue code 0360 for the operating room are paid under these 
codes.  Procedures must be reported using the current ICD procedure codes for pancreas and 
kidney transplants.  Providers must place at least one of the following transplant procedure 
codes on the claim: 
 
If ICD-9 Is Applicable 
 
52.80  Transplant of pancreas 
52.82  Homotransplant of pancreas 
 
The Medicare Code Editor (MCE) has been updated to include 52.80 and 52.82 as limited 
coverage procedures.  The contractor must determine if the facility is approved for the 
transplant and certified for either pediatric or adult transplants dependent upon the age of the 
patient.   
Effective October 1, 2000, ICD-9-CM code 52.83 was moved in the MCE to non-covered.  
The contractor must override any deny edit on claims that came in with 52.82 prior to 
October 1, 2000 and adjust, as 52.82 is the correct code. 
 
If the discharge date is July 1, 1999, or later: the contractor processes the bill through 
Grouper and Pricer. 
 
If ICD-10 is applicable, the following procedure codes (ICD-10-PCS) are: 
 
  0FYG0Z0 Transplantation of Pancreas, Allogeneic, Open Approach  
  0FYG0Z1 Transplantation of Pancreas, Syngeneic, Open Approach 
 
Pancreas transplantation is reasonable and necessary for the following diagnosis codes.  
However, since this is not an all-inclusive list, the contractor is permitted to determine if any 
additional diagnosis codes will be covered for this procedure. 
 
If ICD-9-CM is applicable, Diabetes Diagnosis Codes and Descriptions 
 
ICD-9- Description 
CM 
Code 
250.00  Diabetes mellitus without mention of complication, type II (non-insulin 
dependent) (NIDDM) (adult onset) or unspecified type, not stated as 
uncontrolled. 
250.01  Diabetes mellitus without mention of complication, type I (insulin 
dependent) (IDDM) (juvenile), not stated as uncontrolled. 
250.02  Diabetes mellitus without mention of complication, type II (non-insulin 
dependent) (NIDDM) (adult onset) or unspecified type, uncontrolled. 
250.03  Diabetes mellitus without mention of complication, type I (insulin 
dependent) (IDDM) (juvenile), uncontrolled. 
250.1X  Diabetes with ketoacidosis 
250.2X  Diabetes with hyperosmolarity 
250.3X  Diabetes with coma 
250.4X  Diabetes with renal manifestations 
250.5X  Diabetes with ophthalmic manifestations 
250.6X  Diabetes with neurological manifestations 
250.7X  Diabetes with peripheral circulatory disorders 
250.8X  Diabetes with other specified manifestations 
250.9X  Diabetes with unspecified complication 
 
NOTE: X=0-3 
 
If ICD-10-CM is applicable, the diagnosis codes are:  E10.10 - E10.9 
  Hypertensive Renal Diagnosis Codes and Descriptions if ICD-9-CM is applicable : 
 
ICD-9-CM  Description 
Code 
403.01  Malignant hypertensive renal disease, with renal failure 
403.11  Benign hypertensive renal disease, with renal failure 
403.91  Unspecified hypertensive renal disease, with renal failure 
404.02  Malignant hypertensive heart and renal disease, with renal failure 
404.03  Malignant hypertensive heart and renal disease, with congestive heart 
failure or renal failure 
404.12  Benign hypertensive heart and renal disease, with renal failure 
404.13  Benign hypertensive heart and renal disease, with congestive heart 
failure or renal failure 
404.92  Unspecified hypertensive heart and renal disease, with renal failure 
404.93  Unspecified hypertensive heart and renal disease, with congestive heart 
failure or renal failure 
585.1 - 585.6,  Chronic Renal Failure Code 
585.9 
 
If ICD-10-CM is applicable, diagnosis codes and descriptions are: 
 
ICD-10-CM  Description 
code 
I12.0  Hypertensive chronic kidney disease with stage 5 chronic kidney 
disease or end stage renal disease 
I13.11  Hypertensive heart and chronic kidney disease without heart failure, 
with stage 5 chronic kidney disease, or end stage renal disease 
I13.2  Hypertensive heart and chronic kidney disease with heart failure and 
with stage 5 chronic kidney disease, or end stage renal disease 
N18.1  Chronic kidney disease, stage 1 
N18.2  Chronic kidney disease, stage 2 (mild) 
N18.3  Chronic kidney disease, stage 3 (moderate) 
N18.4  Chronic kidney disease, stage 4 (severe) 
N18.5  Chronic kidney disease, stage 5 
N18.6  End stage renal disease 
N18.9  Chronic kidney disease, unspecified 
 
NOTE:  If a patient had a kidney transplant that was successful, the patient no longer has 
chronic kidney failure, therefore it would be inappropriate for the provider to bill ICD-9-CM 
codes 585.1 - 585.6, 585.9 or, if ICD-10-CM is applicable, the diagnosis codes N18.1 -  N18.9 on such a patient.  In these cases one of the following codes should be present on the 
claim or in the beneficiary's history. 
 
The provider uses the following ICD-9-CM status codes only when a kidney transplant was 
performed before the pancreas transplant and ICD-9 is applicable: 
 
ICD-9- Description 
CM code 
V42.0  Organ or tissue replaced by transplant kidney 
V43.89  Organ tissue replaced by other means, kidney or pancreas 
 
If ICD-10-CM is applicable, the following ICD-10-CM status codes will be used: 
 
ICD-10- Description 
CM code 
Z48.22   Encounter for aftercare following kidney transplant  
Z94.0   Kidney transplant status 
 
NOTE: If a kidney and pancreas transplants are performed simultaneously, the claim should 
contain a diabetes diagnosis code and a renal failure code or one of the hypertensive renal 
failure diagnosis codes.  The claim should also contain two transplant procedure codes.  If 
the claim is for a pancreas transplant only, the claim should contain a diabetes diagnosis code 
and a status code to indicate a previous kidney transplant.  If the status code is not on the 
claim for the pancreas transplant, the contractor will search the beneficiary's claim history for 
a status code indicating a prior kidney transplant.    
 
C. - Drugs 
If the pancreas transplant occurs after the kidney transplant, immunosuppressive therapy will 
begin with the date of discharge from the inpatient stay for the pancreas transplant. 
 
D. - Charges for Pancreas Acquisition Services 
 
A separate organ acquisition cost center has been established for pancreas transplantation.  
The Medicare cost report will include a separate line to account for pancreas transplantation 
costs.  The 42 CFR 412.2(e)(4) was changed to include pancreas in the list of organ 
acquisition costs that are paid on a reasonable cost basis. 
 
Acquisition costs for pancreas transplantation as well as kidney transplants will occur in 
Revenue Center 081X.  The contractor overrides any claims that suspend due to repetition of 
revenue code 081X on the same claim if the patient had a simultaneous kidney/pancreas 
transplant.  It pays for acquisition costs for both kidney and pancreas organs if transplants are 
performed simultaneously.  It will not pay for more than two organ acquisitions on the same 
claim.  In addition, the contractor remove acquisition charges prior to sending the claims to 
Pricer so such charges are not included in the outlier calculation. 
 
E. - Medicare Summary Notices (MSN) and Remittance Advice Messages 
  If the provider submits a claim for simultaneous pancreas kidney transplantation or pancreas 
transplantation following a kidney transplant, and omits one of the appropriate 
diagnosis/procedure codes, the contractor shall reject the claim. 
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: B15 
RARC: N/A 
MSN: 16.32 
 
If no evidence of a prior kidney transplant is presented, then the contractor shall deny the 
claim.  
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: 50 
RARC: MA126 
MSN: 15.4 
 
90.5.1 - Pancreas Transplants Alone (PA) 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16) 
 
A. - General 
 
Pancreas transplantation is performed to induce an insulin-independent, euglycemic state in 
diabetic patients. The procedure is generally limited to those patients with severe secondary 
complications of diabetes, including kidney failure. However, pancreas transplantation is 
sometimes performed on patients with labile diabetes and hypoglycemic unawareness. 
Medicare has had a long-standing policy of not covering pancreas transplantation, as the 
safety and effectiveness of the procedure had not been demonstrated. The Office of Health 
Technology Assessment performed an assessment of pancreas-kidney transplantation in 
1994. It found reasonable graft survival outcomes for patients receiving either simultaneous 
pancreas-kidney transplantation or pancreas-after-kidney transplantation. 
 
B. - Nationally Covered Indications 
 
CMS determines that whole organ pancreas transplantation will be nationally covered by 
Medicare when performed simultaneous with or after a kidney transplant. If the pancreas 
transplant occurs after the kidney transplant, immunosuppressive therapy will begin with the 
date of discharge from the inpatient stay for the pancreas transplant. 
 
C. - Billing and Claims Processing 
 
Contractors shall pay for Pancreas Transplantation Alone (PA) effective for services on or 
after April 26, 2006 when performed in those facilities that are Medicare-approved for  kidney transplantation.  Approved facilities are located at the following address:  
https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/CertificationandComplianc/downloads/ApprovedTransplantPrograms.pdf  
 
Contractors who receive claims for PA services that were performed in an unapproved 
facility, should reject such claims.   
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: 58 
RARC: N/A 
MSN: 16.2  
 
Payment will be made for a PA service performed in an approved facility, and which meets 
the coverage guidelines mentioned above for beneficiaries with type I diabetes. 
 
All-Inclusive List of Covered Diagnosis Codes for PA if ICD-9-CM is applicable 
 
(NOTE: X = 1 and 3 only) 
 
ICD-9-CM  Description 
code 
250.0X  Diabetes mellitus without mention of complication, type I (insulin 
dependent) (IDDM) (juvenile), not stated as uncontrolled. 
250.1X  Diabetes with ketoacidosis 
250.2X  Diabetes with hyperosmolarity 
250.3X  Diabetes with coma 
250.4X  Diabetes with renal manifestations 
250.5X  Diabetes with ophthalmic manifestations 
250.6X  Diabetes with neurological manifestations 
250.7X  Diabetes with peripheral circulatory disorders 
250.8X  Diabetes with other specified manifestations 
250.9X  Diabetes with unspecified complication 
 
If ICD-10-CM is applicable, , the provider uses the following range of ICD-10-CM 
codes: 
 
E10.10  E10.9. 
 
Procedure Codes 
 
If ICD-9 CM is applicable 
  52.80 - Transplant of pancreas 
52.82 - Homotransplant of pancreas 
 
If ICD-10 is applicable, the provider uses the following ICD-10-PCS codes:  
 
0FYG0Z0 Transplantation of Pancreas, Allogeneic, Open Approach  
0FYG0Z1 Transplantation of Pancreas, Syngeneic, Open Approach 
 
Contractors who receive claims for PA that are not billed using the covered diagnosis/procedure 
codes listed above shall reject such claims. The MCE edits to ensure that the transplant is 
covered based on the diagnosis. The MCE also considers ICD-9-CM codes 52.80 and 52.82 and 
ICD-10-PCS codes 0FYG0Z0 and 0FYG0Z1 as limited coverage dependent upon whether the 
facility is approved to perform the transplant and is certified for the age of the patient. 
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: 50 
RARC: N/A 
MSN: 15.4 
  
Contractors shall hold the provider liable for denied\rejected claims unless the hospital issues 
a Hospital Issued Notice of Non-coverage (HINN) or a physician issues an Advanced 
Beneficiary Notice (ABN) for Part-B for physician services. 
 
D. - Charges for Pancreas Alone Acquisition Services 
 
A separate organ acquisition cost center has been established for pancreas transplantation.  
The Medicare cost report will include a separate line to account for pancreas transplantation 
costs.  The 42 CFR 412.2(e)(4) was changed to include PA in the list of organ acquisition 
costs that are paid on a reasonable cost basis. 
 
Acquisition costs for PA transplantation are billed in Revenue Code 081X.  The contractor 
removes acquisition charges prior to sending the claims to Pricer so such charges are not 
included in the outlier calculation. 
 
90.6 - Intestinal and Multi-Visceral Transplants 
(Rev. 10210, Issued: 07-10-2020, Effective: 08-10-2020, Implementation: 08-10-2020) 
 
A. - Background 
 
Effective for services on or after April 1, 2001, Medicare covers intestinal and multi-visceral 
transplantation for the purpose of restoring intestinal function in patients with irreversible 
intestinal failure. Intestinal failure is defined as the loss of absorptive capacity of the small 
bowel secondary to severe primary gastrointestinal disease or surgically induced short bowel 
syndrome. Intestinal failure prevents oral nutrition and may be associated with both mortality 
and profound morbidity. Multi-Visceral transplantation includes organs in the digestive 
system (stomach, duodenum, liver, and intestine). See 260.5 of the National Coverage 
Determinations Manual for further information.   
B. - Approved Transplant Facilities 
 
Medicare will cover intestinal transplantation if performed in an approved facility. The 
approved facilities are located at:  https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/CertificationandComplianc/downloads/ApprovedTransplantPrograms.pdf  
 
C. - Billing 
 
If ICD-9-CM is applicable, ICD-9-CM procedure code 46.97 is effective for discharges on or 
after April 1, 2001.  If ICD-10 is applicable, the ICD-10-PCS procedure codes are 0DY80Z0, 
0DY80Z1, 0DYE0Z0, and 0DYE0Z1.  The Medicare Code Editor (MCE) lists these codes as 
limited coverage procedures.  The contractor shall override the MCE when this procedure 
code is listed and the coverage criteria are met in an approved transplant facility, and also 
determine if the facility is certified for adults and/or pediatric transplants dependent upon the 
patients age. 
 
For these procedures where the provider is approved as a transplant facility and certified for 
the adult and/or pediatric population, and the service is performed on or after the transplant 
approval date dependent on patients age, contractors shall use claims data to determine that 
the coverage criteria specified in Publication 100-03, Section 260.5 have been met.   
 
If payment is appropriate (i.e., the facility is approved, the service is furnished on or after the 
approval date, and the beneficiary has a covered condition), the contractor sends the claim to 
Grouper and Pricer. 
 
If ICD-9-CM is applicable, charges for ICD-9-CM procedure code 46.97, and, if ICD-10 is 
applicable, the ICD-10-PCS procedure codes 0DY80Z0, 0DY80Z1, 0DYE0Z0, or 0DYE0Z1 
should be billed under revenue code 0360, Operating Room Services. 
 
For discharge dates on or after October 1, 2001, acquisition charges are billed under revenue 
code 081X, Organ Acquisition. For discharge dates between April 1, 2001, and September 
30, 2001, hospitals were to report the acquisition charges on the claim, but there was no 
interim pass-through payment made for these costs. 
 
Bill the procedure used to obtain the donor's organ on the same claim, using appropriate ICD 
procedure codes. 
 
The 11X bill type should be used when billing for intestinal transplants. 
 
Immunosuppressive therapy for intestinal transplantation is covered and should be billed 
consistent with other organ transplants under the current rules. 
 
If ICD-9-CM is applicable, there is no specific ICD-9-CM diagnosis code for intestinal 
failure. Diagnosis codes exist to capture the causes of intestinal failure. Some examples of 
intestinal failure include but are not limited to the following conditions and their associated 
ICD-9-CM codes: 
 
  Volvulus 560.2, 
    Volvulus gastroschisis 756.79, other [congenital] anomalies of abdominal 
wall, 
 
  Volvulus gastroschisis 569.89, other specified disorders of intestine, 
 
  Necrotizing enterocolitis 777.5, necrotizing enterocolitis in fetus or newborn, 
 
  Necrotizing enterocolitis 014.8, other tuberculosis of intestines, peritoneum, 
and mesenteric, 
 
  Necrotizing enterocolitis and splanchnic vascular thrombosis 557.0, acute 
vascular insufficiency of intestine, 
 
  Inflammatory bowel disease 569.9, unspecified disorder of intestine, 
 
  Radiation enteritis 777.5, necrotizing enterocolitis in fetus or newborn, and  
 
  Radiation enteritis 558.1. 
 
If ICD-10-CM is applicable, some diagnosis codes that may be used for intestinal failure are: 
 
  Volvulus K56.2, 
 
  Enteroptosis K63.4, 
 
  Other specified diseases of intestine K63.89, 
 
  Other specified diseases of the digestive system K92.89, 
 
  Postsurgical malabsorption, not elsewhere classified K91.2, 
 
  Other congenital malformations of abdominal wall Q79.59, 
 
  Necrotizing enterocolitis in newborn, unspecified P77.9, 
 
  Stage 1 necrotizing enterocolitis in newborn P77.1, 
 
  Stage 2 necrotizing enterocolitis in newborn P77.2, and 
 
  Stage 3 necrotizing enterocolitis in newborn P77.3. 
 
D. - Acquisition Costs 
 
A separate organ acquisition cost center was established for acquisition costs incurred on or 
after October 1, 2001.  Therefore, acquisition charges billed on revenue code 081x are 
removed from the claims total covered charges so as to not be included in the IPPS outlier 
calculation.  The Medicare Cost Report will include a separate line to account for these 
transplantation costs. 
  For intestinal and multi-visceral transplants performed between April 1, 2001, and October 1, 
2001, the DRG payment was payment in full for all hospital services related to this 
procedure. 
 
E. - Medicare Summary Notices (MSN), Remittance Advice Messages, and Notice of 
Utilization Notices (NOU) 
 
If an intestinal transplant is billed by an unapproved facility after April 1, 2001, the 
contractor shall deny the claim.  
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: 171 
RARC: N/A 
MSN: 21.6 or 21.18 or 16.2 
 
100 - Billing Instructions for Specific Situations 
(Rev. 1, 10-01-03) 
 
100.1 - Billing for Abortion Services 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16) 
 
Effective October 1, 1998, abortions are not covered under the Medicare program except for 
instances where the pregnancy is a result of an act of rape or incest; or the woman suffers 
from a physical disorder, physical injury, or physical illness, including a life endangering 
physical condition caused by the pregnancy itself that would, as certified by a physician, 
place the woman in danger of death unless an abortion is performed. 
 
A. - "G" Modifier 
 
The "G7" modifier is defined as "the pregnancy resulted from rape or incest, or pregnancy 
certified by physician as life threatening." 
 
Beginning July 1, 1999, providers should bill for abortion services using the new Modifier 
G7.  This modifier can be used on claims with dates of services October 1, 1998, and after.  
CWF will be able to recognize the modifier beginning July 1, 1999. 
 
B. - A/B MAC (A) Billing Instructions 
 
1.  Hospital Inpatient Billing  
 
Hospitals use bill type 11X.  Medicare will pay only when one of the following condition 
codes is reported: 
 
Condition  Description 
Code 
AA  Abortion Performed due to Rape   Condition  Description 
Code 
AB  Abortion Performed due to Incest 
AD  Abortion Performed due to life endangering physical condition 
 
With one of the following: 
 
If ICD-9-CM Is Applicable: 
  an appropriate ICD principal diagnosis code that will group to DRG 770 (Abortion W 
D&C, Aspiration Curettage Or Hysterotomy) or  
  an appropriate ICD principal diagnosis code and one of the following ICD-9-CM 
operating room procedure that will group to DRG 779 (Abortion W/O D&C):69.01, 
69.02, 69.51, 74.91. 
 
If ICD-10-CM is applicable, one of the following ICD-10-PCS codes are used: 
 
ICD-10- Description 
PCS code 
10A07ZZ   Abortion of Products of Conception, Via Natural or Artificial Opening 
10A08ZZ   Abortion of Products of Conception, Via Natural or Artificial Opening 
Endoscopic 
10D17ZZ   Extraction of Products of Conception, Retained, Via Natural or Artificial 
Opening 
10D18ZZ   Extraction of Products of Conception, Retained, Via Natural or Artificial 
Opening Endoscopic 
10A07ZZ   Abortion of Products of Conception, Via Natural or Artificial Opening 
10A08ZZ   Abortion of Products of Conception, Via Natural or Artificial Opening 
Endoscopic 
10A00ZZ   Abortion of Products of Conception, Open Approach 
10A03ZZ   Abortion of Products of Conception, Percutaneous Approach 
10A04ZZ   Abortion of Products of Conception, Percutaneous Endoscopic Approach 
 
Providers must use ICD-9-CM codes 69.01 and 69.02 if ICD-9-CM is applicable, or, if ICD-
10-CM is applicable,  the related 1CD-10-PCS codes to describe exactly the procedure or 
service performed. 
 
The A/B MAC (A) must manually review claims with the above ICD-9-CM/ICD-10-PCS 
procedure codes to verify that all of the above conditions are met. 
 
2.  Outpatient Billing 
 
Hospitals will use bill type 13X and 85X.  Medicare will pay only if one of the following 
CPT codes is used with the "G7" modifier. 
 
59840  59851  59856  59841  59852  59857 
59850  59855  59866 
 
C. - Common Working File (CWF) Edits 
 
For hospital outpatient claims, CWF will bypass its edits for a managed care beneficiary who 
is having an abortion outside their plan and the claim is submitted with the "G7" modifier 
and one of the above CPT codes. 
 
For hospital inpatient claims, CWF will bypass its edits for a managed care beneficiary who 
is having an abortion outside their plan and the claim is submitted with one of the above 
inpatient procedure codes. 
 
D. - Medicare Summary Notices (MSN)/Explanation of Your Medicare Benefits 
Remittance Advice Message 
 
If a claim is submitted with one of the above CPT procedure codes but no "G7" modifier, the 
claim is denied.   
 
The following reflects the remittance advice messages and associated codes that will appear 
when rejecting/denying claims under this policy.  This CARC/RARC combination is 
compliant with CAQH CORE Business Scenario 3. 
 
Group Code: CO 
CARC: 272 
RARC: N/A 
MSN: 21.21 
 
100.2 - Payment for CRNA or AA Services 
(Rev. 4157, Issued: 11-02-18, Effective: 04-01-19, Implementation: 04-01-19) 
 
This section discusses reasonable cost-based payment for CRNA services (42 CFR  
412.113(c)).  Note that effective January 1, 2013, qualifying rural hospitals and CAHs are 
eligible to receive CRNA pass-through payments for services that the CRNA is legally 
authorized to perform in the state in which the services are furnished. 
 
Anesthesia services furnished on or after January 1, 1989, and before January 1, 1990, at a 
rural hospital or CAH by a qualified hospital employed or contracted CRNA or AA can be 
paid on a reasonable cost basis.  The A/B MAC (A) determines the hospital's qualification 
using the following criteria:  
 
  The hospital or CAH must be located in a rural area (as defined for PPS 
purposes) to be considered. 
 
  As of January 1, 1988, the hospital or CAH employed or contracted with a 
CRNA or AA.  The hospital or CAH may employ or contract with more than 
one CRNA or AA; however, the total number of hours of service furnished by 
the anesthetists may not exceed 2,080 hours per year. 
    The hospital or CAH must demonstrate that during the 1987 calendar year, its 
volume of surgical procedures (inpatient and outpatient) requiring anesthesia 
services did not exceed 250 procedures. 
 
  Each qualified CRNA or AA  employed or under contract with the hospital or 
CAH must agree in writing not to bill on a reasonable charge basis for his or 
her patient care to Medicare beneficiaries in that hospital or CAH. 
 
In addition to the criteria described above, to maintain eligibility for reasonable cost-based 
payment for services furnished on or after January 1, 1990, a hospital or CAH must   provide 
data for its entire patient population to demonstrate that during calendar year 1987 and the 
year immediately preceding its election of reasonable cost payments, its volume of surgical 
procedures requiring anesthesia services did not exceed 500 procedures.  Effective October 
1, 2002, the hospital or CAH must provide data for its entire patient population to 
demonstrate that during calendar year 1987 and the year immediately preceding its election 
of reasonable cost payments, its volume of surgical procedures requiring anesthesia services 
did not exceed 800 procedures.  
 
If a hospital or CAH did not qualify for reasonable cost-based payment for CRNA or AA 
services in calendar year 1989, it can qualify in subsequent years if it demonstrates to the 
Medicare Contractor prior to the start of the calendar year that it met these criteria noted 
below: 
 
  The hospital or CAH must be located in a rural area (as defined for PPS 
purposes) to be considered. 
 
  As of January 1, 1988, the hospital or CAH employed or contracted with a 
CRNA or AA.  The hospital or CAH may employ or contract with more than 
one CRNA or AA; however, the total number of hours of service furnished by 
the anesthetists may not exceed 2,080 hours per year. 
 
  Each qualified CRNA or AA  employed or under contract with the hospital or 
CAH has agreed in writing not to bill on a reasonable charge basis for his or 
her patient care to Medicare beneficiaries in that hospital or CAH. 
 
  The hospital or CAH must provide data for its entire patient population to 
demonstrate that during calendar year 1987 and the year immediately preceding its 
election of reasonable cost payments, its volume of surgical procedures (inpatient and 
outpatient) requiring anesthesia services did not exceed 500 procedures.  Effective 
October 1, 2002, the hospital or CAH must provide data for its entire patient 
population to demonstrate that during calendar year 1987 and the year immediately 
preceding its election of reasonable cost payments, its volume of surgical procedures 
(inpatient and outpatient) requiring anesthesia services did not exceed 800 
procedures. 
 
Effective for calendar years beginning January 1, 1991, the A/B MAC (A) determines the 
number of surgical procedures for the immediately preceding year by summing the number 
of surgical procedures for the 9-month period ending September 30, annualized for a 12-
month period. 
  Effective December 2, 2010, in addition to a hospital or CAH that is located in a rural area 
(as defined for PPS purposes), a hospital or CAH may be eligible to be paid based on 
reasonable cost for CRNA or AA services, if the hospital or CAH has reclassified as rural 
under 42 Code of Federal Regulations 412.103. 
 
To prevent duplicate payments, the A/B MAC (A) informs A/B MACs (B) of the names of 
CRNAs or AAs, the hospitals and/or CAHs with which they have agreements, and the 
effective dates of the agreements.  If the CRNA or AA bills Part B for anesthesia services 
furnished after the hospital's and/or CAHs election of reasonable cost payments, the A/B 
MAC (B) must recover the overpayment from the CRNA or AA. 
 
Since a swing-bed is a bed that is available for use to provide acute inpatient care or SNF-
level care and the CRNA/AA pass-through provision applies to hospital inpatients, CRNA 
and AA services provided to hospital and CAH swing-bed patients under the pass-through 
provision must be included on the hospital or CAH swing-bed bill. 
 
100.3 - Resident and Interns Not Under Approved Teaching Programs 
(Rev. 1, 10-01-03) 
 
A3-3669 
 
A. - General 
 
A provider's cost for the services furnished by residents and interns not under approved 
teaching programs (including physicians employed by the provider who are authorized to 
practice only in a provider setting) are covered under Part B.  (Part A covers only the costs of 
services performed for inpatients by residents and interns who are under approved teaching 
programs.) See the Medicare Benefit Policy Manual, Chapter 6 for further information on the 
coverage of these services. 
 
The provider determines that part of the inpatient charges which represents the cost of the 
services of residents and interns who are not under approved teaching programs and bills 
these separately under Part B, using type of bill code 121 and revenue code 096X, 097X, or 
098X as applicable. 
 
B. - Provider Procedures 
 
The cost of Part B residents' and interns' services to inpatients is calculated on a per diem 
basis by the hospital in consultation with its A/B MAC (A).  The A/B MAC (A) apportions 
the total cost of such services (including fringe benefits, etc.) between inpatient and 
outpatient services on the basis of the time spent on each.  It obtains the inpatient per diem 
figure by dividing the total annual inpatient cost for these services by the estimated annual 
number of inpatient days for all patients. 
 
For the patients who are enrolled under Part B, regardless of whether Part A benefits are 
payable, the provider is reimbursed for 80 percent of the cost of providing these services.  
The provider collects or bills the complementary insurer for 20 percent of the per diem rate 
for the services of residents and interns covered under Part B times the number of inpatient 
days provided.  The administrative cost of determining Part B deductible status involving the 
cost of query, response, recording, and accounting on an individual basis in the aggregate, 
exceeds the potential patient deductible obligation.  Therefore, as long as the patient is  entitled to Part A benefits no determination of the patient's deductible liability need to be 
made for inpatient Part B interns' and residents' services. 
 
Patients not enrolled under Part B are liable for the entire cost of intern and resident services.  
The provider maintains a record of the inpatient days of these individuals so that this cost 
may be excluded from the amount of program obligation at the time of final cost settlement. 
 
C. - A/B MAC (A) Procedures 
 
Its A/B MAC (A) assists the provider in arriving at the inpatient per diem rate for the cost of 
services covered under Part B provided by residents and interns.  (See the Provider 
Reimbursement Manual, Part I, 2120 for apportioning costs between inpatient and 
outpatient per diem and 2406 for establishing interim rates.) The normal interim 
reimbursement rate applied to other provider services applies to Part B residents' and interns' 
services. 
 
100.4 - Billing for Services After Termination of Provider Agreement 
(Rev. 1, 10-01-03) 
 
HO-404, HH-433 
 
An agreement with a hospital is not time-limited and has no fixed expiration date. 
 
A. - Part A Billing 
 
A hospital whose provider agreement terminates (voluntarily or involuntarily), may be 
reimbursed for covered Part A inpatient services for up to 30 days for services furnished on 
or after the effective date of termination for beneficiaries who were admitted prior to the 
termination date. 
 
EXAMPLE: 
 
Termination date:  6/30/01 
 
Beneficiary admitted on or before 6/29/01 
 
Payment can be made:  6/30/01, up to and including 7/29/01 
 
B. - Assuring That Hospitals Continue to Bill for Covered Services 
 
Upon cessation of a hospital's participation in the program, it supplies the Regional Office 
the names and HICNs of Medicare beneficiaries entitled to have payment made on their 
behalf, and continues to bill for covered services in accordance with subsection A.  It 
continues to submit "no-payment" death or discharge bills for Medicare beneficiaries 
admitted prior to the termination of the provider's agreement. 
 
C. - Part B Billing 
 
Following termination of its agreement, a hospital is considered to be a "nonparticipating 
hospital."  An inpatient of such a hospital who has Part B coverage, but for whom Part A 
benefits have been exhausted, or are otherwise not available, is entitled to reimbursement for  those services that are covered in a nonparticipating institution.  Services, if rendered, must 
be billed on Form CMS-1500 and sent to the A/B MAC (B).  If a hospital has been billing on 
the CMS-1554 for physician services, it continues to do so. 
 
If a terminated hospital meets the necessary criteria, it may be certified to provide emergency 
services, and will be assigned an emergency provider number (E suffix).  This procedure is 
not automatic, however, and hospitals which are terminated for Life Safety Code violations 
may never be able to qualify as emergency providers.  Should a terminated hospital later 
qualify as an emergency provider, billings are handled by the designated emergency FI. 
 
100.4.1 - Billing Procedures for a Provider Assigned Multiple Provider 
Numbers or a Change in Provider Number 
(Rev. 267, Issued 07-30-04, Effective: 10-01-04, Implementation: 01-03-05) 
 
Where a multiple-facility provider is assigned separate provider numbers for each component 
facility or where a provider is assigned a different number, it is required to use the new 
number for all notices of admission, start of care notices, bills, etc., beginning with the date 
the new number is effective. 
 
A. - Inpatient 
 
The component provider to which the new number is assigned must apportion costs for all 
patients who are inpatients in that component as of the first day of the next fiscal period 
when the new provider number goes in effect.  The hospital must submit a discharge bill with 
the old provider number and an admission notice with the new.  The date of discharge and 
the date of admission are the same date, which is the first day of the new fiscal period.  All 
subsequent billings are submitted under the new provider number.  If a no-payment situation 
where the entire billing period represents charges for which no Part A payment can be made, 
it is not necessary to submit a discharge bill and admission notice.  In this situation, only a 
final no-payment bill with a discharge date is submitted under the old provider number.  
Services furnished during the "no-payment" period may subsequently be determined to be 
covered.  Where such covered services were furnished before the date of change in provider 
number, the hospital submits one corrected bill covering the entire period showing the old 
provider number.  However, where services subsequently determined to be covered were 
furnished after the date of change, the hospital submits a corrected discharge bill with the 
old provider number and a new admission notice and billing with the new provider number. 
 
Effective October 1, 2004, there are new rules pertaining to long term care hospitals.  (See 
section 150.14.1). 
 
B. - Outpatient Services, Part B Ancillary Services and Home Health Agency Services 
 
For outpatient services and Part B ancillary services, and home health agency services, the 
provider uses the old provider number for services provided up through the day before the 
effective date of the new provider number.  Thereafter, it uses the new number when 
submitting bills. 
 
100.5 - Review of Hospital Admissions of Patients Who Have Elected 
Hospice Care 
(Rev. 1, 10-01-03)   
HO-418 
 
Review of admissions to inpatient general hospitals of beneficiaries who have elected 
hospice care assures that: 
 
  Nonhospice Medicare coverage is provided to those beneficiaries only when the 
hospitalization was for a condition not related to the terminal illness, and 
 
  When inpatient hospital services were provided as a hospice benefit, the services 
rendered were stipulated in the individual's plan of care as established by the 
hospice's interdisciplinary group. 
 
A. - Review for Nonrelated Hospital Admissions 
 
To assure that nonhospice Medicare coverage is provided to beneficiaries who have elected 
hospice care only when hospitalization was for a condition not related to the terminal illness, 
the medical review agent reviews all inpatient hospital claims for these beneficiaries.  
Appropriate medical records will be requested and a determination made as to whether or not 
services were related to the individual's terminal illness. 
 
Many illnesses may occur when an individual is terminally ill which are brought on by the 
patient's underlying condition.  For example, it is not unusual for a terminally ill patient to 
develop pneumonia or some other illness as a result of a weakened condition.  Similarly, the 
setting of bones after fractures which occur in a bone cancer patient would be treatment of a 
related condition. 
 
If the review reveals hospitalization to be unrelated to the individual's terminal illness, a 
determination as to the medical necessity and appropriateness of the admission is made.  
Payment will be totally denied or totally approved based on the finding.  If, after review, the 
admission should have been totally denied, consideration under the limitation of liability 
provision (1879 of the Act) applies. 
 
If the review of medical records reveals hospitalization to be related to the individual's 
terminal illness, the claim is denied as services waived through the hospice election.  
Limitation on liability provision does not apply. 
 
B. - Review for Related Hospital Admissions 
 
To assure that beneficiaries who have elected hospice care are receiving services as provided 
in the plans of care established by the hospice's interdisciplinary groups, the medical review 
agent reviews all inpatient hospital claims submitted by the hospice for these beneficiaries.  
Appropriate medical records (including the plans of care) are requested and a determination 
made as to whether or not services provided were related to the individual's terminal illness 
and stipulated in the plan of care. 
 
If the review reveals that services provided were medically necessary and appropriate for the 
control of pain or acute or chronic symptom management as outlined in the individual's plan 
of care, the claim is approved. 
  If the review reveals that services provided to the hospice beneficiary were not stipulated in 
the plan of care as established by the hospice's interdisciplinary group, the claim is denied.  
Limitation on liability does not apply. 
 
100.6 - Inpatient Renal Services 
(Rev. 1, 10-01-03) 
 
HO-E400 
 
Section 405.103l of Subpart J of Regulation 5 stipulates that only approved hospitals may 
bill for ESRD services.  Hence, to allow hospitals to bill and be reimbursed for inpatient 
dialysis services furnished under arrangements, both facilities participating in the 
arrangement must meet the conditions of 405.2120 and 405.2160 of Subpart U of Regulation 
5.  In order for renal dialysis facilities to have a written arrangement with each other to 
provide inpatient dialysis care both facilities must meet the minimum utilization rate 
requirement, i.e., two dialysis stations with a performance capacity of at least four dialysis 
treatments per week. 
 
Dialysis may be billed by an SNF as a service if: (a) it is provided by a hospital with which 
the facility has a transfer agreement in effect, and that hospital is approved to provide staff-
assisted dialysis for the Medicare program; or (b) it is furnished directly by an SNF meeting 
all nonhospital maintenance dialysis facility requirements, including minimum utilization 
requirements.  (See 1861(h)(6), 1861(h)(7), title XVIII.) 
 
100.7 - Lung Volume Reduction Surgery 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-10, 
ASC X12: September, 23 2014)  
 
Lung Volume Reduction Surgery (LVRS) (also known as reduction pneumoplasty, lung 
shaving, or lung contouring) is an invasive surgical procedure to reduce the volume of a 
hyperinflated lung in order to allow the underlying compressed lung to expand, and thus, 
establish improved respiratory function. 
 
Effective for discharges on or after January 1, 2004, Medicare will cover LVRS under 
certain conditions as described in 240 of Pub. 100-03, National Coverage Determinations. 
 
The Medicare Code Editor (MCE) creates a Limited Coverage edit for ICD-9-CM procedure 
code 32.22.  This procedure code has limited coverage due to the stringent conditions that 
must be met by hospitals.  Where this procedure code is identified by MCE, the A/B MAC 
(A) shall determine if coverage criteria is met and override the MCE if appropriate. 
 
Effective with the implementation of ICD-10 there will not be an MCE edit for lung volume 
reduction surgery. 
 
The LVRS can only be performed in the facilities listed on the following Web site: 
http://www.cms.gov/Medicare/Medicare-General-
Information/MedicareApprovedFacilitie/Lung-Volume-Reduction-Surgery-
LVRS.htmlMedicare previously only covered LVRS as part of the National Emphysema 
Treatment Trial (NETT).  The study was limited to 18 hospitals, and patients were 
randomized into two arms, either medical management and LVRS or medical management.   The study was conducted by The National Heart, Lung, and Blood Institute of the National 
Institutes of Health and coordinated by Johns Hopkins University (JHU).  Hospital claims for 
patients in the NETT were identified by the presence of Condition Code EY.  The JHU 
instructed hospitals of the correct billing procedures for billing claims under the NETT. 
 
100.8  Replaced Devices Offered Without Cost or With a Credit   
(Rev. 2627, Issued 01-04-13, Effective 10-01-12, Implementation 10-01-12) 
 
Background 
 
To identify and track claims billed for replacement devices, CMS issued CR 4058 on 
November 4, 2005.  This CR provided instructions for billing and processing claims with the 
following condition codes: 
 
  49 Product Replacement within Product LifecycleReplacement of a product 
earlier than the anticipated lifecycle due to an indication that the product is not 
functioning properly. 
 
  50 Product Replacement for Known Recall of a ProductManufacturer or FDA 
has identified the product for recall and therefore replacement. 
 
Policy 
 
Beginning with discharges on or after October 1, 2008, CMS reduces Medicare payment 
when a replacement device is received by the hospital at a reduced cost or with a credit that 
is 50 percent or greater than the cost of the device, and when the assigned MS-DRG for the 
claim is one of the MS-DRGs applied to this policy. 
 
For a list of MS-DRGs for which this policy applies to, please see the IPPS Final Rule. 
 
This adjustment is consistent with section 1862(a)(2) of the Act, which excludes from 
Medicare coverage an item or service for which neither the beneficiary, nor anyone on his or 
her behalf, has an obligation to pay. 
 
Billing Procedures (Discharges on or after October 1, 2008) 
 
To correctly bill for a replacement device that was provided with a credit or no cost, 
hospitals must use the combination of condition code 49 or 50, along with value code 
FD.  The condition code 49 or 50 will identify a replacement device while value code FD 
will communicate to Medicare the amount of the credit, or cost reduction, received by the 
hospital for the replaced device. 
 
Payment (Discharges on or after October 1, 2008) 
 
Medicare deducts the partial/full credit amount, reported in the amount for value code FD, 
from the final IPPS reimbursement when the assigned MS-DRG is one of the MS-DRGs 
applied to this policy. 
 
Reminder about Charging for Recalled Devices 
  As a reminder, section 2202.4 of the Provider Reimbursement Manual, Part I states, charges 
should be related consistently to the cost of the services and uniformly applied to all patients 
whether inpatient or outpatient.  Accordingly, hospital charges with respect to medical 
devices must be reasonably related to the cost of the medical device.  If a hospital receives a 
credit for a replacement medical device, the charges to Medicare should also be 
appropriately reduced. 
 
100.9  Requirements for Processing Non Veterans Administration (VA) 
Authorized Inpatient Claims 
(Rev. 3779, Issued: 05-24-17, Effective: 10-01-13, Implementation: 04-03-17) 
 
Medicare is precluded from making payment for services or items that are paid for directly or 
indirectly by another government entity.  For inpatient claims where the VA is the Payer, the 
covered VA services are exclusions to the Medicare program per Section 1862 of the Social 
Security Act. If the VA doesnt approve all the services, any Medicare covered services not 
considered by the VA may be billed to the Medicare program.  
 
When a VA- eligible beneficiary chooses to receive services in a Medicare Certified Facility 
for which the VA has not authorized, the facility shall use Condition Code 26 to indicate the 
patient is a VA eligible patient and chooses to receive services in a Medicare Certified 
provider instead of a VA facility and value code 42 with the amount of the VA payment for 
the authorized days. 
 
100.10  Requirements for Processing Programs of All-Inclusive Care for the 
Elderly (PACE) Disenrollments during an Inpatient Stays 
(Rev. 12239; Issued: 09-06-23; Effective: 01-01-24; Implementation: 01-02-24) 
Medicare is precluded from making payment for services or items that are paid for 
directly or indirectly by another government entity. For inpatient claims where the 
PACE is the Payer, the covered PACE services are exclusions to the Medicare 
program per Section 1862 of the Social Security Act. If the PACE doesnt approve all 
the services due to disenrollment from the program, any Medicare covered services 
not considered by the PACE program may be billed to the Medicare program. The 
provider should identify PACE in the group name and or the PACE taxonomy code 
251T00000X in the group number. 
 
When a PACE beneficiary is inpatient and has been disenrolled in PACE, the facility 
shall use Condition Code 35 to indicate the patient is a PACE eligible patient that has 
disenrolled during an inpatient stay and value code 42 with the amount of the PACE 
payment for the authorized days during enrollment in the PACE program. 
 
130 - Coordination With the Quality Improvement Organization (QIO) 
(Rev. 632, Issued: 07-29-05, Effective: 01-03-06, Implementation: 01-03-06) 
 
Instructions regarding hospital interactions with QIOs have been relocated as follows: 
 
  Instructions regarding HINNs are found in CMS Transmittal 594, which precedes the 
placement of full instructions in Chapter 30. 
    Instructions regarding hospital billing for cases involving QIO review can be found in 
Chapter 1, section 150.2. 
 
  Related instructions for QIOs can be found in the Medicare Quality Improvement 
Organization Manual, Publication 100-10, Chapter 7. 
 
140 - Inpatient Rehabilitation Facility Prospective Payment System (IRF 
PPS) 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Section 1886(j) of the Social Security Act (the Act) authorizes the implementation of a per 
discharge prospective payment system (PPS) for inpatient rehabilitation hospitals and 
inpatient rehabilitation units of a hospital now jointly referred to as inpatient rehabilitation 
facilities (IRFs). 
 
The IRF PPS is effective for cost reporting periods beginning on or after January 1, 2002. 
IRF PPS payment rates include all costs of furnishing covered IRF services (routine, 
ancillary, and capital-related costs) other than costs associated with operating approved 
educational activities as defined in 
http://www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR, select the 
applicable year.  Then select Title 42, Chapter IV.  Select the TOC for Section 413 and 
choose 413.75 and 413.85 for educational activities.  You may also search the TOC for 
bad debts, and other costs not covered under the PPS. 
 
Effective for cost reporting periods beginning on or after October 1, 2004, the Medicare 
Modernization Act of 2003, Public Law 108-173, section 405(g) established that CAHs may 
open rehabilitation distinct part units.  These IRFs will also be paid under the IRF PPS. 
 
140.1 - Medicare IRF Classification Requirements 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Section 1886(j) of the Social Security Act (the Act) provides for the implementation of a 
prospective payment system (PPS) under Medicare for inpatient hospital services furnished 
by a rehabilitation hospital or a rehabilitation unit of a hospital (referred to as an inpatient 
rehabilitation facility (IRF)).  Section 1886(d)(1)(B)(ii) of the Act gives the Secretary the 
discretion to define an IRF.  The regulations at 42 CFR  412.25 and 412.29 specify the 
criteria for a provider to be excluded from the inpatient prospective payment system (IPPS) 
specified in 42 CFR 412.1(a)(1) and instead be paid under the IRF PPS. 
 
A facility paid under the IRF PPS is always subject to verification that it continues to meet the 
criteria for exclusion from the IPPS.  The fiscal intermediary (FI) or the Part A/B Medicare 
Administrative Contractor (MAC) provides the Regional Office (RO) with data for 
determining the classification status of each facility and the RO reviews the IRFs 
classification status each year. A determination that a facility either is or is not classified as an 
IRF takes effect only at the start of a facilitys cost reporting period and applies to that entire 
cost reporting period.  If a facility fails to meet the criteria necessary to be paid under the IRF 
PPS, but meets the criteria to be paid under the IPPS, it may be paid under the IPPS.  
 
If a patient is admitted to a facility that is being paid under the IRF PPS, but is discharged 
from the facility when it is no longer being paid under the IRF PPS, then payment to the  facility will be made from the applicable payment system that is in effect for the facility at the 
time the patient is discharged. 
 
IRFs that are being paid under the IRF PPS need not reapply to be classified for payment 
under the IRF PPS each year.  However,  under CMSs new attestation process, an IRF must 
self-attest to meeting all of the criteria, except for the criteria specified below in 140.1.1B-D, 
for being excluded from the IPPS and paid under the IRF PPS every 3 years.  The A/B MACs 
(A) are responsible for verifying annually that each IRF meets the criteria specified below in 
140.1.1B-D.  IRFs are notified in writing by the ROs of the required self-attestation 
procedures and the time-frames for submitting the required self-attestation forms.  The ROs 
will also notify the IRFs in writing of any other procedures and requirements that apply to 
them. However, the A/B MACs (A) are not responsible for monitoring or enforcing the IRF 
self-attestation procedures, which are the responsibility of the State agencies. 
 
All IRFs must notify their A/B MACs (A) and ROs in writing before making any changes to 
their operations (i.e. increasing their bed size or square footage, moving to a new location, 
changing ownership, merging, or other similar changes to the ownership or operations of the 
facility). 
 
140.1.1 - Criteria That Must Be Met By Inpatient Rehabilitation Facilities 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
An inpatient rehabilitation hospital or an inpatient rehabilitation unit of a hospital (otherwise 
referred to as an IRF) is excluded from the IPPS and is eligible for payment under the IRF 
PPS if it meets all of the criteria listed below.  Note that in order for an individual IRF claim 
to receive Medicare payment under the IRF PPS, it must meet all of the IRF coverage 
requirements in 42 CFR 412.622(a)(3), (4), and (5), as further clarified in Chapter 1, Section 
110 of the Medicare Benefit Policy Manual (Pub. 100-02. 
 
A. - The IRF must have (or be part of a hospital that has) a provider agreement under 42 CFR 
Part 489 to participate in Medicare as a hospital. 
 
B. - During the most recent, consecutive, and appropriate 12-month time period (as 
defined by CMS or the A/B MAC (A)) the IRF must have treated an inpatient population 
that met or exceeded the following percentages: 
 
1.  For cost reporting periods beginning on or after July 1, 2004, and before July 1, 2005, 
the hospital must have served an inpatient population of whom at least 50 percent 
required intensive rehabilitative services for treatment of one or more of the medical 
conditions specified below at  140.1.1C. 
 
2. For cost reporting periods beginning on or after July 1, 2005, the IRF must have served 
an inpatient population of whom at least 60 percent required intensive rehabilitative 
services for treatment of one or more of the medical conditions specified below at  
140.1.1C. 
 
C. - List of Medical Conditions: 
 
1. Stroke. 
 
2. Spinal cord injury.   
3. Congenital deformity. 
 
4. Amputation. 
 
5. Major multiple trauma. 
 
6. Fracture of femur (hip fracture). 
 
7. Brain injury. 
 
8. Neurological disorders, including multiple sclerosis, motor neuron diseases, 
polyneuropathy, muscular dystrophy, and Parkinsons disease. 
 
9. Burns. 
 
10. Active, polyarticular rheumatoid arthritis, psoriatic arthritis, and seronegative 
arthropathies resulting in significant functional impairment of ambulation and other 
activities of daily living that have not improved after an appropriate, aggressive, and 
sustained course (as defined below) of outpatient therapy services or services in other 
less intensive rehabilitation settings, but have the potential to improve with more 
intensive rehabilitation. 
 
11. Systemic vasculidites with joint inflammation, resulting in significant functional 
impairment of ambulation and other activities of daily living that have not improved 
after an appropriate, aggressive, and sustained course (as defined below) of outpatient 
therapy services or services in other less intensive rehabilitation settings, but would have 
the potential to improve with more intensive rehabilitation. 
 
12. Severe or advanced osteoarthritis (osteoarthrosis or degenerative joint disease) 
involving two or more major weight bearing joints (elbow, shoulders, hips, or knees, but 
not counting a joint with a prosthesis) with joint deformity and substantial loss of range 
of motion, atrophy of muscles surrounding the joint, significant functional impairment 
of ambulation and other activities of daily living that have not improved after the patient 
has participated in an appropriate, aggressive, and sustained course (as defined below) of 
outpatient therapy services or services in other less intensive rehabilitation settings, but 
would have the potential to improve with more intensive rehabilitation.  (A joint 
replaced by a prosthesis no longer is considered to have osteoarthritis, or other arthritis, 
even though this condition was the reason for the joint replacement.) 
 
13. Knee or hip joint replacement, or both, during a hospitalization immediately 
preceding the IRF stay and also meets one or more of the following specific criteria: 
 
a. The patient underwent bilateral knee or bilateral hip joint replacement surgery 
during the hospital admission immediately preceding the IRF admission. 
 
b. The patient is extremely obese with a Body Mass Index of at least 50 at the time 
of admission to the IRF. 
 
c. The patient is age 85 or older at the time of admission to the IRF. 
  Definition of an appropriate, aggressive, and sustained course of outpatient therapy services 
or services in other less intensive rehabilitation settings 
 
For the medical conditions specified above in subsections 10, 11, and 12, an appropriate, 
aggressive, and sustained course of outpatient therapy services or services in other less 
intensive rehabilitation settings must consist of a course of rehabilitation therapy of at least 3 
weeks minimum duration with at least two individual (non-group) therapy sessions per week 
targeting all clinically impaired joints supported by documentation in the medical record of all 
such services with periodic assessments for clinical functional improvement, within 20 
calendar days of an acute hospitalization preceding immediately an IRF stay, or 20 calendar 
days immediately preceding an IRF admission.  However, there may be cases when, in the 
A/B MAC (A)s judgment, the preceding interpretation of what is considered an appropriate, 
aggressive, and sustained course of outpatient therapy services or services in other less 
intensive rehabilitation settings should not be used.  In these cases, the A/B MAC (A) has the 
discretion to develop, document, and use another interpretation, which is based upon local 
practices and more current clinical information, that interprets or defines what the A/B MAC 
(A) considers is an appropriate, aggressive, and sustained course of outpatient therapy 
services or services in other less intensive rehabilitation settings. Regardless of which 
interpretation or definition is used by the A/B MAC (A) with respect to what is considered an 
appropriate, aggressive, and sustained course of outpatient therapy services or services in 
other less intensive rehabilitation settings, the course of therapy itself should have the goal of 
completing the rehabilitation, not preparing a patient for surgery.  The outpatient therapy 
services (or services in other less intensive settings) must immediately precede the IRF 
admission or result from a systemic disease activation immediately before admission. 
 
The A/B MAC (A) has the discretion to review documentation to assure that the patient has 
completed an appropriate, aggressive, and sustained course of therapy or services in less 
intensive rehabilitation settings.  CMS expects that the IRF will obtain copies of the therapy 
notes from the outpatient therapy or from the therapy services provided in another less 
intensive setting and include these in the patients medical record at the IRF (in a section 
for prior records).  CMS believes that these prior records will be used by therapists and 
others caring for the patient in the IRF, and will also be available to the A/B MAC (A) staff 
who review the medical records for compliance with the requirements specified above in 
140.1.1B-D. 
 
D. - Comorbidities.A comorbidity is a specific patient condition that is secondary to the 
patients principal diagnosis. A patient with a comorbidity may be counted as part of the 
inpatient population that counts towards the required applicable percentage specified above in 
140.1.1B-D if: 
 
1. The patient is admitted for inpatient rehabilitation for a medical condition that is not 
one of the conditions specified above in sub-section 140.1.1C. 
 
2. The patient has a comorbidity that falls in one of the medical conditions specified above 
in sub-section 140.1.1C; and  
 
3. The comorbidity has caused significant decline in functional ability in the individual 
such that, even in the absence of the admitting condition, the individual would require the 
intensive rehabilitation treatment that is unique to inpatient rehabilitation facilities paid 
under the IRF PPS. 
  E. - For the first cost reporting period during which a facility first begins being paid under the 
IRF PPS as a new IRF, a facility seeking to be paid under the IRF PPS must provide a 
written certification to the A/B MAC (A) that the inpatient population it intends to serve 
meets the requirements specified above in 140.1.1B-D.  However, if CMS discovers that the 
facility did not actually meet the requirements specified above in 140.1.1B-D during any 
cost reporting period for which the facility provided such written certification of its intent to 
meet the requirements in 140.1.1B-D, then  CMS will adjust the payments associated with 
that cost reporting period as described below in 140.1.9. 
 
F. - The IRF has in effect a preadmission screening procedure under which each 
prospective patient's condition and medical history are reviewed to determine whether the 
patient is likely to benefit significantly from an intensive inpatient hospital rehabilitation 
program.  This procedure must ensure that the preadmission screening is reviewed and 
approved by a rehabilitation physician prior to the patients admission to the IRF. 
 
G. - The IRF has in effect a procedure to ensure that patients receive close medical 
supervision, as evidenced by at least 3 face-to-face visits per week by a licensed physician 
with specialized training and experience in inpatient rehabilitation to assess the patient both 
medically and functionally, as well as to modify the course of treatment as needed to 
maximize the patients capacity to benefit from the rehabilitation process. 
 
H. - The IRF furnishes, through the use of qualified personnel, rehabilitation nursing, 
physical therapy, and occupational therapy, plus, as needed, speech-language pathology, 
social services, psychological services (including neuropsychological services), and 
orthotic and prosthetic services. 
 
I. - The IRF has one physician who serves as director of rehabilitation and who 
 
(1) Provides services to the IRF hospital or its inpatients on a full-time basis or, in the case 
of a rehabilitation unit, at least 20 hours per week; 
 
(2) Is a doctor of medicine or osteopathy; 
 
(3) Is licensed under State law to practice medicine or surgery; and 
 
(4) Has had, after completing a one-year hospital internship, at least 2 years of training or 
experience in the medical management of inpatients requiring rehabilitation services. 
 
If an IRF serves both inpatients and outpatients, the time spent by the director in performing 
administrative duties for the entire facility counts toward the direction requirement since it is 
not feasible to prorate this administrative time between inpatients and outpatients. However, 
any time spent in furnishing direct patient care can count toward the direction requirement 
only if the care is furnished to inpatients. 
 
J. - The IRF has a plan of treatment for each inpatient that is established, reviewed, and 
revised, as needed, by a physician in consultation with other professional personnel who 
provide services to the patient. 
 
K. - The IRF uses a coordinated interdisciplinary team approach in the rehabilitation of each 
inpatient, as documented by periodic clinical entries made in the patient's medical record to 
note the patient's status in relationship to goal attainment and discharge plans.  The IRF must  also ensure that team conferences are held at least once per week to determine the 
appropriateness of treatment. 
 
140.1.2 - Additional Criteria That Must Be Met By Inpatient Rehabilitation 
Units 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
In addition to the requirements specified above in 140.1.1, an inpatient rehabilitation unit 
must meet the additional criteria in paragraphs A through M below in order to be excluded 
from the IPPS and be paid instead under the IRF PPS. 
 
A. - The inpatient rehabilitation unit must be a part of an institution that has in effect an 
agreement to participate as a hospital that is not excluded in its entirety from the IPPS. 
 
B. - The inpatient rehabilitation unit must have written admission criteria that are applied 
uniformly to both Medicare and non-Medicare patients.  
 
C. - The inpatient rehabilitation unit must have admission and discharge records that are 
separately identified from those of the hospital in which it is located and are readily 
retrievable. The record must indicate the dates of the admission and discharge for patients of 
the unit. The IRF must also have a process in place to ensure that each patients medical 
record at the IRF meets the hospital conditions of participation in 42 CFR Part 482 and  all of 
the documentation requirements specified in 42 CFR 412.622 (a)(3), (4), and (5).  Further 
guidance on the IRF documentation requirements is available in chapter 1, section 110 of the 
Medicare Benefit Policy Manual (Pub. 100-02).  The inpatient rehabilitation unit's policies 
must provide that necessary clinical information is transferred to the unit when a patient of the 
hospital is admitted to the inpatient rehabilitation unit, as described further in chapter 1, 
section 110.1.1 of the Medicare Benefit Policy Manual (Pub. 100-02).  
 
D. - If state law provides special licensing requirements for rehabilitation units, the inpatient 
rehabilitation unit must be licensed in accordance with the applicable requirements. 
 
E. - The hospital's utilization review plan must include separate standards for the type of care 
offered by the inpatient rehabilitation unit. 
 
F. - The beds assigned to the inpatient rehabilitation unit must be physically separate from 
(i.e., not co-mingled with) beds not included in the unit.  This means that patients from other 
parts of the hospital may not be treated in the beds assigned to the inpatient rehabilitation unit. 
 
G. - The hospital must have enough beds not excluded from the IPPS to permit the provision 
of adequate cost information. The A/B MAC (A) has discretion as to how to apply generally 
accepted accounting principles when making this analysis. 
 
H. - The inpatient rehabilitation unit and the hospital in which it is located must be serviced 
by the same A/B MAC (A). 
 
I. - The inpatient rehabilitation unit must be treated as a separate cost center for cost finding 
and apportionment purposes. 
  J. - The accounting system of the hospital in which the inpatient rehabilitation unit is located 
must provide for the proper allocation of costs and maintain statistical data that are adequate 
to support the basis of allocation. 
 
Compliance with the criteria in items H, I, and J above may be determined based on the 
hospital's most recently filed cost report or, if necessary, by the hospital's presentation of 
evidence that shows, to the satisfaction of the A/B MAC (A), that the hospital has the 
accounting capability to meet these criteria for the cost reporting period for which the 
exclusion from the IPPS, if approved, applies. 
 
K. - The cost report for the hospital must include the costs of the inpatient rehabilitation unit, 
covering the same fiscal period as the hospital, and use the same method of cost 
apportionment as the hospital. 
 
L. - As of the first day of the first cost reporting period for which all other exclusion 
requirements are met, the inpatient rehabilitation unit must be fully equipped, staffed, and 
must be capable of providing hospital inpatient rehabilitation care regardless of whether there 
are any inpatients in the unit on that date. 
 
M. - Each hospital may have only one unit of each type (psychiatric and rehabilitation) 
excluded from the IPPS. 
 
The criteria specified in paragraphs A through M above are used to determine whether a part 
of a hospital qualifies for exclusion from the IPPS. An excluded unit must be established as a 
separate cost entity for cost reporting purposes. 
 
If a hospital wishes to have a unit excluded from the IPPS for a cost reporting period, it must 
notify its A/B MAC (A), no later than 5 months prior to the start of that cost reporting period, 
of the following:  (1) the particular areas that it has designated as the unit, and (2) the square 
footage and number of beds in the unit.  The A/B MAC (A) or RO will inform the IRF of the 
proper procedures. The hospitals notification of its intent to have a unit excluded from the 
IPPS must be sent to the A/B MAC (A) at the same time that it is sent to the RO, and it must 
identify the designated space for the excluded unit through the use of room numbers and/or 
bed numbers.  The RO will then determine, based on information obtained from the State 
Survey Agency and the hospitals A/B MAC (A), whether the unit qualifies for exclusion 
from the IPPS. If the RO rejects the hospitals request to have the unit excluded from the 
IPPS, it will notify the A/B MAC (A), CMS, and the hospital prior to the start of the 
hospitals next cost reporting period. If the RO approves the hospitals request to have the unit 
excluded from the IPPS, it will notify the hospital prior to the start of the hospitals next cost 
reporting period, and will also notify the A/B MAC (A)  
 of the units exclusion from the IPPS and of the units new provider identification number. 
 
The hospital must self-attest that it meets all of the applicable criteria for having a unit that is 
excluded from the IPPS.  This self-attestation is subject to verification by the RO, the State 
Agency, and the A/B MAC (A). 
 
After the initial classification as an IRF, changes in the amount of space occupied by the unit, 
or in the number of beds in the unit, are allowed to be made one time during a cost reporting 
period if the hospital notifies its Medicare contractor and the RO in writing of the planned 
change at least 30 days before the date of the change.  A change in bed size or a change in  square footage may occur at any time during a cost reporting period and must remain in effect 
for the remainder of that cost reporting period. 
 
140.1.3 - Verification Process Used To Determine If The Inpatient 
Rehabilitation Facility Met The Classification Criteria 
(Rev. 4038, Issued: 04-27-18, Effective: 04-23-18, Implementation: 04- 23-18) 
 
A. - Determination of the Compliance Review Time Period. 
 
1.  General Guideline To Determine The Compliance Review Period. In general, the RO 
and A/B MAC (A) will use data from the most recent, consecutive, and appropriate 
12-month time period (as defined by CMS) that starts on or after July 1, 2004, to 
determine if a facility is in compliance with all of the criteria used to classify a facility 
as an IRF. The RO and A/B MAC (A) will notify the facility of the time period that 
will be used. The RO and A/B MAC (A) will begin reviewing data 4 months prior to 
the start of the facilitys next cost reporting period. 
The compliance review periods are determined based on the following: 
1.  Guidelines for Determining Compliance Review Periods For IRFs With Cost 
Reporting Periods That Start Between July 1, 2004 and October 31, 2004. 
Data prior to July 1, 2004 will not be used to determine an IRFs compliance with the 
requirements in 140.1.1B-D. Thus, for IRFs with cost reporting periods beginning on 
or after July 1, 2004 and before November 1, 2004, less than 12 months of data will be 
used in their first compliance review period after July 1, 2004. Refer to the first 5 rows 
of the Table of Compliance Review Periods (below) for an illustration of this. 
 
2.  Guidelines for Determining an IRFs Compliance Percentage When the Required 
Compliance Percentage Threshold Differs Across Two Cost Reporting Periods 
 
When a cost reporting period starts on or after July 1, 2005, but not later than June 30, 
2006, and the compliance review period spans two cost reporting periods, the 
compliance percentage is calculated using either of the following two methods. The 
IRF must have a patient population in each of the two portions of time in order to use 
either of the two methods described below. 
(A) The IRF must meet the applicable compliance percentage threshold in each of 
the two portions of the compliance review period separately, as illustrated in the 
example below.  The following is an example of how this first method would be applied: 
The compliance review period for an IRF that has a cost reporting period from July 
1, 2005 through June 30, 2006 is March 1, 2005 to February 28, 2006. 
The IRF must meet a compliance threshold of 50 percent for the cost reporting 
period of July 1, 2004 to June 30, 2005. 
The IRF must meet a compliance threshold of 60 percent for the cost reporting 
period of July 1, 2005 to June 30, 2006. 
 
In this example, the first portion of the compliance review period (from March 1, 
2005 to June 30, 2005) is part of the IRFs cost reporting period that started on 
July 1, 2004 and ends on June 30, 2005. The second portion of the compliance 
review period (from July 1, 2005 to February 28, 2006) is part of the IRFs cost 
reporting period that starts on July 1, 2005 and ends on June 30, 2006. 
Therefore, 
For the portion of the compliance review period from March 1, 2005 to June 30, 
2005, the compliance percentage threshold that the IRF must meet is 50 percent. 
For the portion of the compliance review period from July 1, 2005 to February 28, 
2006, the compliance percentage threshold that the IRF must meet is 60 percent. 
If the IRF does not meet the compliance percentage threshold of 50 percent for the 
March 1, 2005 to June 30, 2005 portion of the compliance review time period, or 
the compliance percentage threshold of 60 percent for the July 1, 2005 to February 
28, 2006 portion of the compliance review time period, it will be determined that 
the IRF failed to meet the compliance percentage threshold for the entire 
compliance review period consisting of March 1, 2005 to February 28, 2006. 
 
(B) The A/B MAC (A) computes one weighted average compliance percentage for 
the entire 12-month compliance review period. The resulting weighted average 
compliance percentage will be used to determine if the facility met the compliance 
threshold requirements in 140.1.1B-D.  The following is an example of how this second method would be applied: The 
compliance review period for an IRF that has a cost reporting period from 
August 1, 2005 to July 31, 2006 is April 1, 2005 to March 31, 2006. However, the 
compliance review period is divided into two portions: April 1, 2005 to July 31, 
2005 and August 1, 2005 to March 31, 2006. 
In the following hypothetical example, 45 percent of the cases met at least one of 
the medical conditions listed above in 140.1.1C from April 1, 2005 to July 31, 
2005, and 80 percent of the cases met at least one of the medical conditions listed in 
140.1.1C from August 1, 2005 to March 31, 2006. The weighted average 
compliance percentage from the two portions of time must be calculated as follows 
for compliance review periods beginning on or after January 1, 2013. 
4/12 = 0.333 which is rounded to 0.33 
8/12 = 0.666 which is rounded to 0.67 
0.33 X 45% = 0.1485 
0.67 X 80% = 0.5360 
 
0.1485 + 0.5360 = 0.6845 which is rounded to 68% 
Based on this result of 68 percent from the weighted average calculation, it will be 
determined that the IRF met the compliance percentage threshold for the 
compliance review period starting on April 1, 2005. 
 
3.  Guidelines for Determining an IRFs Compliance Percentage When the Required 
Compliance Percentage Threshold Is the Same for the Entire Compliance Review 
Period 
To minimize the level of effort required by Medicare contractors and IRFs, contractors 
must review one continuous 12-month period if the compliance percentage threshold is 
the same throughout the entire compliance review period for all compliance review 
periods beginning on or after January 1, 2013. 
 
4.  Guidelines for Determining the Compliance Review Period of a Facility Classified 
as a New IRF. According to the regulations in 412.25(c), a new IRF can only 
begin being paid under the IRF PPS at the start of a cost reporting period. If the 
IRF begins treating patients prior to the start of a cost reporting period, it may 
receive payment under the IPPS until the start of the next cost reporting period, at 
which point it can begin receiving payment under the IRF PPS if it meets all of the 
applicable requirements in 412.25 and 412.29. A new IRF will have a 
compliance review period that starts immediately when its cost reporting period 
starts, and ends four months before the start of its next cost reporting period. For 
example, if a facility has a cost reporting period that starts on July 1, 2012 and is a 
new IRF, its compliance review period would start on July 1, 2012 and end on 
February 28, 2013. Thus, a facility classified as a new IRF will have an initial  compliance review period that is 8 months in length, in order to allow the RO and 
A/B MAC (A) a 4-month time period to make and administer a compliance 
determination. 
 
5.  Guidelines for Determining an IRFs Compliance When the IRF Expands its Bed 
Capacity. Effective October 1, 2011, as long as an IRF meets all of the applicable 
requirements in 412.25(b) and 412.29(c)(2), it may add new beds one time, at 
any time, during a cost reporting period. The IRF must provide written 
certification that the inpatient population it intends to serve (including the patients 
served in the new beds) meets the requirements in 412.29(b).  In addition, the 
new IRF beds will be included in the compliance review calculations 
under412.29(b) from the time that they are added to the IRF. 
 
6.  Guidelines for Determining the Compliance Review Period of a Facility That 
Changes Its Cost Reporting Period. A facility that changes its cost reporting period 
will have a new compliance review period that is based on its new cost reporting 
period. For example, if an IRF changes the start of its cost reporting period from 
July 1, 2011 to October 1, 2011, then the start date of its compliance review period 
will also change from March 1, 2011 to June 1, 2011. Excessive changes to cost 
reporting periods are not permitted. 
The table below entitled Examples of Compliance Review Periods provides 
examples of compliance review periods associated with various cost reporting periods. 
Examples of Compliance Review Periods. For a facility that has been classified as an 
IRF, but is not a new IRF as defined below in 140.1.4, the following table provides 
examples of the compliance review periods associated with different cost reporting 
periods. 
 
Examples of Compliance Review Periods 
 
Start Date of the Cost  Compliance  # of  Compliance Percentage 
Reporting Period for  Review  Months  Threshold 
Which a Facility Will  Period:  in 
(or Will Not) be  (Admissions  Review 
Classified (or Retain  or Discharges  Period 
Classification) as an  During) 
IRF 
07/01/2005  07/01/2004 -  8  50% 
02/28/2005 
08/01/2005  07/01/2004 -  9  50% 
03/31/2005 
09/01/2005  07/01/2004 -  10  50% 
04/30/2005 
10/01/2005  07/01/2004 -  11  50% 
05/31/2005  11/01/2005  07/01/2004 -  12  50% 
06/30/2005 
07/01/2006  03/01/2005 -  12  03/01/2005 to 06/30/2005:  50 % 
02/28/2006  07/01/2005 to 02/28/2006:  60 % 
08/01/2006  04/01/2005-  12  04/01/2005 to 07/31/2005:  50 % 
03/31/2006  08/01/2005 to 03/31/2006:  60 % 
09/01/2006  05/01/2005-  12  05/01/2005 to 08/31/2005:  50 % 
04/30/2006  09/01/2005 to 04/30/2006:  60 % 
10/01/2006  06/01/2005-  12  06/01/2005 to 09/30/2005:  50 % 
05/31/2006  10/01/2005 to 05/31/2006:  60 % 
11/01/2006  07/01/2005-  12  07/01/2005 to 10/31/2005:  50 % 
06/30/2006  11/01/2005 to 06/30/2006:  60 % 
12/01/2006  08/01/2005-  12  08/01/2005 to 11/30/2005: 50% 
07/31/2006  12/01/2005 to 07/31/2006: 60%  For cost reporting periods beginning on or after July 1, 2005, the compliance threshold 
that must be met is 60 percent. Thus, for all compliance review periods beginning on or 
after January 1, 2013 (except in the case of new IRFs, as described in section 140.3.4 
above), the compliance review period will be one continuous 12-month time period 
beginning 4 months before the start of a cost reporting period and ending 4 months 
before the beginning of the next cost reporting period. 
 
B. - Types of Data Used to Determine Compliance with the 
Classification Criteria 
 
1. Starting on July 1, 2004, the A/B MAC (A) will use the verification procedures 
specified below in subsection C which is entitled Verification of the Medical 
Condition Criterion Using the Inpatient Rehabilitation Facility-Patient Assessment 
Instrument (IRF-PAI) Data Records or subsection D which is entitled Verification 
of the Medical Condition Criterion Using the Inpatient Rehabilitation Facilitys 
Total Inpatient Population to verify that an IRF has complied with the requirements 
specified above in 140.1.1B-D. 
 
2. The verification procedure specified below in subsection C (that is, verification 
using the IRF-PAI data) will only be used if the A/B MAC (A) has verified that the 
IRFs Medicare Part A fee-for-service inpatient population is at least 50 percent of 
the IRFs total inpatient population.  Effective for compliance review periods 
beginning on or after October 1, 2009, A/B MACs (A) must include the IRFs 
Medicare Part C (Medicare Advantage) inpatient population, along with the IRFs 
Medicare Part A fee- for-service inpatient population, in determining whether at 
least 50 percent of the IRFs total inpatient population is made up of Medicare 
patients. 
 
3. General Guideline Regarding Submission of a List of the Inpatients in Each IRF: 
In order to verify that an IRFs Medicare Part A fee-for-service and Medicare Part C 
(Medicare Advantage) inpatient populations (combined) reflect the IRFs total 
inpatient population, the A/B MAC (A) in writing will instruct the IRF to send the 
A/B MAC (A), by a specific date, a list showing the hospital patient number of each 
inpatient IRF admission during the IRFs 12-month compliance review period. Note 
that the term hospital patient number used throughout this section refers to a 
unique patient identifier used internally within the hospital for patient identification 
and record-keeping purposes.  For each inpatient on the list, the IRF must include 
the payer the IRF can bill, or has billed, for treatment and services furnished to the 
inpatient. If an inpatient on the list has multiple payers that the IRF can bill, or has 
billed, the IRF must include and specify each type of payer. In addition, for each 
inpatient on the list, the IRF must include the IRF admission and discharge dates.   
Exception to the General Guideline: The Secretary of Health and Human Services 
can declare a Public Health Emergency under section 319 of the Public Health 
Service Act or another appropriate statute, and the President can declare either a 
National Emergency under the National Emergencies Act or a Major Disaster under 
the RobertT. Stafford Disaster Relief and Emergency Assistance Act, or other 
appropriate law. In accordance with such declarations, certain regulations or 
operational policies may bewaived in specific geographic areas for limited and 
defined periods of time. If applicable, in accordance with the waiver provisions, the 
IRF may be permitted to admit patients (referred to in this section as national 
emergency or disaster inpatients) who otherwise would be admitted to another 
inpatient setting. The national emergency or disaster inpatients will not be included 
as part of the IRFs total inpatient population when the IRFs compliance with the 
requirements specified in140.1.1B-D is determined by the A/B MAC (A) reading a 
sample of medical records. Therefore, when the IRF submits the list of hospital 
patient numbers stipulated above in section 140.1.3B3, the IRF will identify each 
national emergency or disaster inpatient by placing either the capital letter E or 
D after the patients unique internal hospital identification number. The A/B MAC 
(A) will verify the information and, if appropriate, exclude these patients from the 
list of inpatients used to select a sample of medical records. The IRF should 
appropriately document in the medical record sufficient information to identify an 
inpatient as a national emergency or disaster inpatient. 
 
4. The A/B MAC (A) will use the list of hospital patient numbers to determine the 
IRFs total inpatient population during the IRFs compliance review period. The 
A/B MAC (A) will then determine whether the compliance percentage threshold 
differs or is the same throughout the IRFs compliance review period.If the 
compliance percentage threshold differs during the compliance review period (i.e., 
if it is 50 percent for one portion of the period and 60 percent for the other portion), 
then the A/B MAC (A) must determine that at least 50 percent of the IRFs total 
inpatient population consisted of Medicare Part A fee-for-service patients for both 
time periods. For example, the A/B MAC (A) will consider the portion of the 
period in which the compliance percentage threshold is 50 percent and the portion 
of the period in which the compliance percentage threshold is 60 percent 
independently and determine if the IRFs total inpatient population consists of at 
least 50 percent Medicare Part A fee-for-service patients in each of the two time 
periods.   
If, however, the compliance percentage threshold is the same throughout the IRFs 
compliance review period (i.e., 60 percent throughout the period), then the A/B 
MAC 
(A) must determine that at least 50 percent of the IRFs total inpatient population 
consisted of Medicare Part A fee-for-service or Medicare Part C (Medicare 
Advantage) patients (beginning on or after October 1, 2009) for the entire 12-
month period. 
In addition to the above processes, the A/B MAC (A) has the discretion to sample 
and compare other parameters (that is, diagnoses, procedures, length-of-stay, or any 
other relevant parameter) to determine that the Medicare Part A fee-for-service and 
Medicare Part C (Medicare Advantage) population (beginning on or after October 1, 
2009) is representative of the IRFs total inpatient population. 
 
A determination by the A/B MAC (A), in accordance with the preceding 
methodologies, that the IRFs inpatient population for the compliance review 
period consisted of at least 50 percent Medicare Part A fee-for-service and 
Medicare Part C (Medicare Advantage) patients (beginning on or after October 1, 
2009) means that the A/B MAC (A) can use the procedure stipulated below in 
subsection C to presumptively determine if the IRF met the compliance threshold 
as specified above in 140.1.1B-D. 
 
5. The A/B MAC (A) will inform the RO if an IRF fails to send the list showing the 
hospital patient number associated with each inpatient IRF admission during the 
most recent, consecutive, and appropriate 12-month period, as defined by CMS.  
Further, the A/B MAC (A) will inform the RO if the list of hospital patient numbers 
does not show the payer or payers or the admission and discharge dates for each 
hospital patient number on the list. The RO will notify the IRF that failure to send 
the A/B MAC (A) the list within an additional 10 calendar days will result in a 
determination by the RO that the IRF has not met the requirements specified above 
in 140.1.1B-D and the facility will no longer be eligible for payment under the IRF 
PPS. 
 
C. - Verification of the Medical Condition Criteria Using the 
Inpatient Rehabilitation Facility-Patient Assessment Instrument 
(IRF-PAI) Data Records (The Presumptive Methodology) 
 
1. To determine if a facility has presumptively complied with the criteria specified 
above in 140.1.1B-D, the CMS will enable the A/B MAC (A) to access the CMS' 
IRF-PAI data records. Specifically, each A/B MAC (A) will be allowed to access  only the IRF-PAI information submitted by IRFs that submit claims to that A/B 
MAC (A). 
In order to ensure that the software that matches each IRF to a particular A/B MAC 
(A) is constantly updated, the A/B MAC (A) must electronically send the RO a table 
that has at least the following title and column headings: 
 
A/B MAC (A) List Of IRF Provider Numbers (Specify The A/B MAC (A)s Name) 
 
     
The Name of  IRF Provider  IRF Cost 
Each IRF  Number  Reporting 
That Submits  Period 
Claims To 
This A/B 
MAC (A) 
 
 
After checking the A/B MAC (A)s list of IRFs for completeness and, as necessary, 
communicating with the A/B MAC (A) to ensure the accuracy of the information, 
the RO will forward the A/B MAC (A)s list of IRFs to the CMS designated mailbox 
IRFACTIVEPROVIDER@cms.hhs.gov.  The CMS contractor that maintains the 
IRF-PAI database will then, if necessary, update the IRF-PAI database software 
used to presumptively verify compliance with the requirements specified in 
140.1.1B-D. The A/B MAC (A) must coordinate with their CMS RO to obtain 
access to the software system. 
 
The A/B MAC (A) will provide the RO with user information from all A/B MAC (A) 
staff that are required to access the IRF-PAI data records. 
 
2. When the A/B MAC (A) accesses the IRF-PAI data records, the A/B MAC (A) will 
be able to generate an IRF compliance review report using the IRF-PAI information 
from the IRFs on the A/B MAC (A)s list. The CASPER software used to generate 
the IRF compliance review report will automatically use the specific diagnosis codes 
from the appropriate files listed in Presumptive Methodology Files  Implementation 
of Changes that is attached to the IRF Compliance Rule Specification Files, which 
are available for download from the IRF PPS website at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service- 
Payment/InpatientRehabFacPPS/Criteria.html, to determine if a particular IRF is 
presumptively in compliance with the requirements specified in 140.1.1B-D. Prior to 
generating the IRF compliance review report, the A/B MAC (A) must allow the IRF  to decide whether the IRF compliance review report will be generated using the IRF-
PAI data records of patients who were admitted during the IRFs compliance review 
period (even if they were discharged outside of the compliance review period), or the 
IRF-PAI data records of patients who were discharged during the IRFs compliance 
review period (even if they were admitted outside of the compliance review period). 
 
Below are the sections of the IRF compliance review report with example 
data: IRF Compliance Review Report 
 
State  Provider  Provider  Cost Report  Compliance Review 
Number  Name  Start Date  Period 
Any  IRF  Best  08/01/2008  04/01/2007 To 
State  Number  Rehab  03/31/2008 
 
Submitted Assessments  Eligible Assessments  Percent 
100  60  60% 
 
The submitted assessments section identifies all of the IRF-PAI data records that 
the IRF submitted to the IRF-PAI database during the compliance review period. 
The eligible assessments are the assessments submitted during the compliance 
review period that match one of the codes in the appropriate files listed in 
Presumptive Methodology Files  Implementation of Changes that is attached to 
the IRF Compliance Rule Specification Files, which can be downloaded from the 
IRF PPS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/InpatientRehabFacPPS/Criteria.html. The cost report start date shown is 
the start of the facilitys next cost reporting period. 
 
3. If an IRFs inpatient Medicare Part A fee-for-service and Medicare Part C 
(Medicare Advantage) populations (combined) (beginning on or after October 1, 
2009) are at least 50 percent of its total inpatient population and the presumptive 
methodology (described above) indicates that the IRF met or exceeded the 
requirements specified in 140.1.1B-D, then the IRF is presumed to have met the 
requirements specified above in 140.1.1B-D. However, even when an IRF is 
presumed to have met the requirements specified above in 140.1.1B-D, the RO and 
A/B MAC (A) still have the discretion to instruct the IRF to send to the RO or A/B 
MAC (A) specific sections of the medical records of a random sample of inpatients,  or specific sections of the medical records of inpatients identified by other means by 
the CMS or the A/B MAC (A). 
 
4. Each A/B MAC (A) must submit a report to the appropriate CMS RO (with a 
copy to the CMS Central Office) on at least a quarterly basis that shows each IRFs 
status with respect to compliance with the requirements specified above in 
140.1.1B-D. 
 
The files listed in Presumptive Methodology Files  Implementation of Changes 
that is attached to the IRF Compliance Rule Specification Files, which can be 
downloaded from the IRF PPS website at http://www.cms.gov/Medicare/Medicare-
Fee-for- Service- Payment/InpatientRehabFacPPS/Criteria.html, will be used to 
determine presumptive compliance with the requirements specified above in 
140.1.1B-D. 
 
D.  Additional Verification of Arthritis Condition Criteria 
 
Compliance with the regulatory requirements for the arthritis conditions specified above 
in 
140.1.1 B-D cannot be determined by the presence of an impairment group code or 
diagnosis code alone, but can only be verified through review of the IRF medical record. 
For this reason, we removed arthritis impairment group codes and diagnosis codes from 
the list of codes used to determine presumptive compliance for compliance review 
periods beginning on or after October 1, 2015. However, beginning on or after October 1, 
2015, we also provided for an additional item on the IRF-PAI (item #24A) to enable 
IRFs to indicate whether the patients arthritis condition(s) meets all of the relevant 
regulatory requirements specified in 140.1.1 B-D. Using the process described below, 
the A/B MAC (A) must verify through medical review whether the IRF cases that would 
not otherwise meet the compliance criteria, and that have a 1  Yes marked in item 
#24A, meet the severity and prior treatment requirements in 140.1.1B-D. If so, then the 
A/B MAC (A) must add the appropriate number of these cases to the cases that meet the 
presumptive compliance criteria. 
The A/B MAC (A) shall use the following process for compliance review periods 
beginning on or after October 1, 2015: 
1. If the A/B MAC (A) has determined, using the process outlined in subsection C 
above, that the IRF does not presumptively meet the requirements specified above in 
140.1.1B-D, then the A/B MAC (A) must access an IRF-PAI data report called the IRF 
Arthritis Verification Report through the CASPER system.  Below are the sections of the IRF Arthritis Verification Report with example 
data: 
 
IRF Arthritis Verification Report 
 
Provider  Provider  Patient  Patient ID  IRF-PAI ID  Admission  Discharge 
Number  Name  Name  Date  Date 
  Best  A. Smith  12345678A  987654321  10/1/15  10/15/15 
Rehab  B. Jones  22345678A  987654322  10/2/15  10/14/15 
Z. Honey  32345678A  987654323  10/3/15  10/13/15 
 
2.  The A/B MAC (A) must determine whether or not adding all of the cases listed 
on the IRF Arthritis Verification Report for that IRF would be enough to increase 
the IRFs compliance percentage to equal or exceed 60 percent. 
 
3.  If adding all of the cases listed on the IRF Arthritis Verification Report for that 
IRF would be enough to increase the IRFs compliance percentage to equal or 
exceed 60 percent, then the A/B MAC (A) must use generally accepted 
statistical sampling techniques to obtain a statistically valid random sample of 
those patients listed for the IRF on the IRF Arthritis Verification Report. If the 
total number of patients listed for the IRF on the IRF Arthritis Verification 
Report is less than 10, then the A/B MAC (A) will review all patients listed for 
the IRF on the IRF Arthritis Verification Report. (Note that if adding all the 
cases listed in the IRF Arthritis Verification Report for that IRF would not be 
enough to increase the IRFs compliance percentage to equal or exceed 60 
percent, then the A/B MAC 
(A) will not proceed further with the IRF arthritis verification process and will 
use the presumptive compliance percentage generated from section C above.) 
 
4.  The A/B MAC (A) will obtain and examine the medical record sections and 
any other pertinent information submitted by the IRF to determine if the 
patients from the random sample obtained in step 2 meet all of the severity and 
prior treatment requirements specified in 140.1.1B-D. 
 
5.  The percentage of patients from the list that the A/B MAC (A) determines to 
have met the severity and prior treatment requirements specified in 140.1.1B-D 
will be extrapolated to the complete list of patients for the IRF on the IRF 
Arthritis Verification Report.   
6.  The A/B MAC (A) shall then add the appropriate number of cases (based on 
the percentage in step 4) from the IRF Arthritis Verification Report to the 
cases that 
meet the presumptive compliance criteria, and re-calculate the IRFs presumptive 
compliance percentage. 
For example: 
  IRF A submitted 545 IRF-PAIs in the compliance review period. 
 
  IRF As presumptive compliance percentage (determined by the A/B 
MAC 
(A) using the steps outlined in subsection C above) was less than 
60 percent. 
 
  In this case, the A/B MAC (A) must access the IRF Arthritis 
Verification Report. 
 
  The IRF Arthritis Verification Report shows 100 patients listed for IRF A. 
 
  The A/B MAC (A) determines that inclusion of all 100 patients listed for 
IRF A would increase IRF As presumptive compliance percentage 
enough to meet or exceed the 60 percent threshold. 
 
  The A/B MAC (A) uses generally accepted statistical sampling 
techniques to randomly select 10 patients from that list for medical 
review, and based on the medical review determines that 7 of the 10 
patients meet all of the requirements specified in 140.1.1B-D. 
 
  The A/B MAC (A) will then extrapolate this percentage (7/10 = 70 percent) 
to the full list of patients shown on the IRF Eligibility Arthritis Verification 
Report for IRF A. Thus, the A/B MAC (A) will add 70 patients (70 percent 
of 100) listed for IRF A on the IRF Arthritis Verification Report to the total 
number of IRF As patients that meet the presumptive compliance criteria. 
 
  The A/B MAC (A) will then recalculate IRF As presumptive 
compliance percentage with the addition of the 70 cases. 
 
  The A/B MAC (A) will base the determination of the IRFs presumptive 
compliance with the requirements specified in 140.1.1B-D on the 
updated calculation of the IRFs presumptive compliance percentage.   
  The A/B/ MAC (A) will report this updated presumptive compliance 
percentage, instead of the presumptive compliance percentage from 
subsection C above, on the quarterly report that the A/B MAC (A) sends 
to the appropriate CMS RO (with a copy to the CMS Central Office). 
 
NOTE: Even when an IRF is presumed to have met the requirements specified above 
in140.1.1B-D using the updated presumptive methodology calculation, the RO and 
A/BMAC (A) still have the discretion to use the medical review methodology described 
in subsection E below to verify the IRFs compliance with the requirements in 
140.1.1B-D. 
 
E. - Verification of the Medical Condition Criteria Using the Inpatient 
Rehabilitation Facilitys Total Inpatient Population (Medical Review 
Methodology) 
 
1.  The A/B MAC (A) must use the IRFs total inpatient population to verify that 
the IRF has met the requirements specified above in 140.1.1B-D if: 
 
(i) the IRFs Medicare population (including Medicare Part A fee-for-service 
and Medicare Part C (Medicare Advantage) patients, effective October 1, 2009) 
is not at least 50 percent of its total inpatient population; or 
 
(ii) the A/B MAC (A) is unable to generate a valid IRF compliance 
review report using the IRF-PAI database methodology specified 
previously; or 
(iii) the A/B MAC (A) generates an IRF compliance review report, based on the 
use of the presumptive methodology, which demonstrates that the IRF has not 
met the requirements specified above in 140.1.1B-D.   
If the IRFs Medicare Part A fee-for-service and Medicare Part C (Medicare 
Advantage) populations (combined, effective October 1, 2009) comprise less than 
50 percent of the IRFs total inpatient population, or the A/B MAC (A) otherwise 
determines that the Medicare Part A fee-for-service and Medicare Part C 
(Medicare Advantage) populations (combined, effective October 1, 2009) are not 
representative of the overall IRF inpatient population, or the A/B MAC (A) is 
unable to generate a valid report using the presumptive methodology, the 
presumptive determination is that the IRF did not meet the requirements specified 
above in 140.1.1B-D. 
 
2.  As previously stated above, the A/B MAC (A) will instruct the IRF to send the 
A/B MAC (A) a list showing the hospital patient number of each inpatient that the 
IRF admitted during the most recent, consecutive, and appropriate 12-month 
period, as defined by CMS.  The list of hospital patient numbers must include the 
payer(s) and admission and discharge dates that correspond with the inpatients 
whose hospital patient numbers are shown on the list. The A/B MAC (A) will then 
use generally accepted statistical sampling techniques to obtain a random sample 
of inpatients from the list. The random sample of inpatients drawn from the list 
must be sufficiently large to ensure that the A/B MAC (A) can determine, with at 
least 95 percent confidence, whether the IRFs compliance percentage is below the 
required compliance threshold (i.e., not in compliance) or at or above the required 
compliance threshold (i.e., in compliance). 
 
For example, suppose that the required compliance threshold for an IRF to be in 
compliance with the requirements specified above in 140.1.1B-D is 60 percent. 
The A/B MAC (A) reviews a random sample of claims from IRF A and estimates 
that IRF As compliance percentage is 58 percent.  Suppose that the standard 
deviation that the A/B MAC (A) calculates for IRF As random sample of IRF 
claims is plus or minus 4 percentage points, so that the 95 percent confidence 
interval in this particular example is between 54 percent and 62 percent (with 58 
percent as the midpoint). In this case, the IRF is considered to be in compliance 
with the 60 percent rule, since 60 percent is within the 95 percent confidence 
interval. To verify whether the IRF is in fact in compliance with the requirements 
specified above in 140.1.1B-D, the A/B MAC (A) may need to draw a larger 
random sample of the IRFs inpatients. For example, a larger random sample of 
IRF As inpatients might have reduced the standard deviation to plus or minus 1 
percentage point, which would have led the 95 percent confidence interval to be 
between 57 percent and 59 percent. This would have demonstrated with 95 percent 
confidence that the IRF was not in compliance with the requirements specified 
above in 140.1.1B-D (because the entire 95 percent confidence interval was 
below the required compliance threshold of 60 percent).   
If the compliance percentage threshold differs within the compliance review 
period (i.e., is 50 percent for a portion of the compliance review period and 60 
percent for the other portion of the period), then a random sample of inpatients 
will be drawn from each of the two time periods separately. 
The use of generally recognized statistical sampling principles may result in a 
determination that it would be inappropriate to use a sample to determine the 
facilitys compliance percentage. If a random sample is not appropriate in a 
particular case, then the A/B MAC (A) will use the IRFs entire inpatient 
population to determine the IRFs compliance percentage. In addition, if the IRF 
had 100 or fewer inpatients during the compliance review period, then the A/B 
MAC (A) must use the IRFs total inpatient population (consisting of both 
Medicare and non- Medicare inpatients) to determine the IRFs compliance 
percentage. 
Prior to selecting the random sample of inpatients, the A/B MAC (A) must allow 
the IRF to decide if the IRF wants the sample to contain either the patients who 
were admitted during the IRFs compliance review period (even if some of those 
patients were discharged outside of the compliance review period) or the patients 
discharged during the IRFs compliance review period (even if some of those 
patients were admitted outside of the compliance review period). 
If the A/B MAC (A) uses a random sample of the IRFs inpatient population (rather 
than the IRFs total inpatient population) to determine the IRFs compliance 
percentage, then the A/B MAC (A) must ensure that an adequate sample size is used 
to determine (with at least a 95 percent statistical level of confidence) whether or 
not the IRF has met the requirements in 140.1.1B-D. In some cases, this will 
require the A/B MAC (A) to expand the size of the random sample of inpatients 
selected from a particular IRF. 
The A/B MAC (A) will instruct the IRF to send it copies of specific sections of the 
medical records for all of the inpatients to be used in the compliance review. The 
A/B MAC (A) has the discretion to decide which specific sections of the medical 
recordsto obtain, provided that the requested medical record sections contain enough 
information to allow the A/B MAC (A)s reviewers to determine the medical 
condition(s) for which each inpatient received treatment in the IRF. In addition to 
submitting the requested sections of the medical records, the IRF has the discretion 
to send the A/B MAC (A) other clinical information regarding these same inpatients. 
 
3.  The A/B MAC (A) will examine the medical record sections and any other 
information submitted by the IRF to determine if the IRF meets the requirements 
specified above in 140.1.1B-D.  To determine if a specific inpatient matches one 
of the medical conditions specified in 140.1.1C, the A/B MAC (A) may use the 
diagnosis and impairment group codes specified in the appropriate files listed in  Presumptive Methodology Files  Implementation of Changes that is attached 
to the IRF Compliance Rule Specification Files, which can be downloaded from 
the IRF PPS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service- 
Payment/InpatientRehabFacPPS/Criteria.html, for general guidance.  The A/B 
MAC (A) is not permitted to use these codes to make a final determination as to 
whether or not the specific inpatient required intensive rehabilitation services for 
treatment of one or more of the medical conditions specified in 140.1.1C. The 
determination of whether a specific inpatient required intensive rehabilitation 
services for treatment of a condition can only be determined through careful 
review of that inpatients unique clinical characteristics and circumstances, as 
reflected in the inpatients medical record. 
 
4.  In general, when the A/B MAC (A) is using a sample of medical records to 
determine compliance with the requirements in 140.1.1B-D, the A/B MAC (A) 
always has the discretion to determine if a patient meets or does not meet any of the 
medical conditions listed in 140.1.1C based upon a review of the clinical record, 
regardless of the results of the presumptive methodology described previously. In 
other words, the compliance percentage that is determined using the medical review 
methodology described in this section will supersede the compliance percentage that 
was determined for the same compliance review period using the presumptive 
methodology. To ensure that the compliance review process is similar for all IRFs, 
the A/B MAC (A) must have written policies that describe the reasons for using a 
random sample of medical records to determine an IRFs compliance percentage 
when the presumptive methodology has shown that the IRF met the compliance 
threshold. 
 
5.  The A/B MAC (A) will inform the RO if an IRF fails to provide information 
in accordance with the requirements specified above in subsection D2. The RO 
will notify the IRF that failure to provide the A/B MAC (A) with the information 
in accordance with the requirements specified above in subsection D2 will result 
in a determination by the RO that the IRF has not met the requirements specified 
above in 140.1.1B-D. 
 
F. - By the 15th day of each month, the A/B MAC (A) responsible for 
determining the compliance percentage for each IRF using either of the methods 
specified above in 140.1.3C or 140.1.3D will submit a report to CMS via e-
mail. Instructions 
regarding the format of the report, how to complete the report, and where to 
send it are specified on the IRF PPS website at: 
http://www.cms.gov/Medicare/Medicare- Fee-for-Service- 
Payment/InpatientRehabFacPPS/Criteria.html . 
 
G. - The A/B MAC (A) must verify that the requirements specified above in  140.1.1B-E and 140.1.2 G-K were met. 
 
H. - The State Agency will determine whether the criteria specified above in 
140.1.1F-K and 140.1.2 Q were met. 
 
140.1.4 - New IRFs 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
An IRF hospital or IRF unit is considered new if it has not been paid under the IRF PPS 
for at least 5 calendar years.  A new IRF will be considered new from the point that it first 
participates in Medicare as an IRF until the end of its first full 12-month cost reporting 
period. 
 
A new IRF must provide written certification that the inpatient population it intends to 
serve will meet the requirements in 140.1.1B-D above. The written certification is 
effective for the first full 12-month cost reporting period that occurs after the IRF begins 
being paid under the IRF PPS, and for any cost reporting period of not less than 1 month 
and not more than 11 months occurring between the date the IRF begins being paid under 
the IRF PPS and the start of the IRFs first full 12-month cost reporting period.  
 
As described in section 140.1.9 below, retroactive adjustments may be made for any 
period during which the hospital has self-attested to meeting the requirements specified in 
140.1.1B-D, but is shown not to have actually met these requirements during that period. 
 
140.1.5 - Changes in the Status of an IRF Unit 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
For purposes of payment under the IRF PPS, the status of an IRF unit may be changed 
from not excluded from the IPPS to excluded from the IPPS only at the start of a cost 
reporting period. If an IRF unit is added to a hospital after the start of a cost reporting 
period, it cannot be excluded from the IPPS before the start of the hospital's next cost 
reporting period. 
 
The status of an IRF unit may be changed from excluded from the IPPS to not excluded 
from the IPPS at any time during a cost reporting period, but only if the hospital notifies 
the A/B MAC (A) and the RO in writing of the change at least 30 days before the date of 
the change.  In addition, the hospital must maintain the information needed to accurately 
determine which costs are and are not attributable to the IRF unit. A change in the status 
of a unit from excluded to not excluded that is made during a cost reporting period must 
remain in effect for the remainder of that cost reporting period. 
 
140.1.6 - New IRF Beds 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
  Any IRF beds that are added to an existing IRF must meet all applicable State Certificate 
of Need and State licensure laws.  New IRF beds may be added one time at any time 
during a cost reporting period and will be considered new for the rest of that cost reporting 
period.  A full 12-month cost reporting period must elapse between the delicensing or 
decertification of IRF beds in an IRF hospital or IRF unit and the addition of new IRF 
beds to that IRF hospital or IRF unit.  Before an IRF can add new beds, it must receive 
written approval from the appropriate CMS RO, so that the CMS RO can verify that a full 
12-month cost reporting period has elapsed since the IRF has had beds delicensed or 
decertified. 
 
New IRF beds are included in the compliance review calculations for determining 
compliance with 140.1.1B-D above from the time that they are added to the IRF. 
 
 
140.1.7 - Change of Ownership or Leasing 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
If an IRF hospital (or a hospital that has an IRF unit) undergoes a change of ownership or 
leasing, as defined in 42 CFR 489.18, the IRF hospital (or IRF unit of a hospital) retains 
its excluded status and will continue to be paid under the IRF PPS before and after the 
change of ownership or leasing if the new owner(s) of the IRF hospital (or the hospital 
with an IRF unit) accept assignment of the previous owners Medicare provider agreement 
and the IRF continues to meet all of the requirements for payment under the IRF PPS.  
Note that an IRFs payment status under the IRF PPS is a Medicare classification status, 
which cannot be separated from its host hospital and therefore cannot be purchased 
outside of the purchase of its host hospital. 
 
If the new owner(s) do not accept assignment of the previous owners Medicare provider 
agreement, the IRF is considered to be voluntarily terminated and the new owner(s) may 
re-apply to the Medicare program to operate a new IRF, under the requirements for new 
IRFs in 140.1.4 above. 
 
If, after the change of ownership or leasing, the IRF does not continue to meet all of the 
requirements for payment under the IRF PPS, then the IRF loses its excluded status and 
will be paid instead under the IPPS. 
 
140.1.8 - Mergers 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
If an IRF hospital (or a hospital with an IRF unit) merges with another hospital and the 
owner(s) of the merged hospital accept assignment of the IRF hospitals provider 
agreement (or the provider agreement of the hospital with the IRF unit), then the IRF 
hospital or IRF unit retains its excluded status and will continue to be paid under the IRF 
PPS before and after the merger, as long as the IRF hospital or IRF unit continues to meet 
all of the requirements for payment under the IRF PPS. Note that an IRFs payment status 
under the IRF PPS is a Medicare classification status, which cannot be separated from its  host hospital and therefore cannot be merged with another entity outside of the merger 
with its host hospital. 
 
If the owner(s) of the merged hospital do not accept assignment of the IRF hospitals 
provider agreement (or the provider agreement of the hospital with the IRF unit), then the 
IRF hospital or IRF unit is considered voluntarily terminated and the owner(s) of the 
merged hospital may re-apply to the Medicare program to operate a new IRF under the 
requirements for new IRFs in 140.1.4 above. 
 
140.1.9 - Retroactive Adjustments for Provisionally Excluded IRFs or 
IRF Beds 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
For cost reporting periods beginning on or after October 1, 1991, if a new IRF (or new 
beds that are added to an existing IRF) are paid under the IRF PPS for an initial cost 
reporting period during which the hospital has self-attested to meeting the requirements 
specified above in 140.1.1B-D, but the inpatient population actually treated in the new 
unit or the beds added to the existing unit during that cost reporting period do not meet the 
requirements specified above in 140.1.1B-D, CMS adjusts payments to the hospital 
retroactively in accordance with the procedure specified below. 
 
A. - If an IRF hospital, IRF unit, or group of new IRF beds is paid under the IRF PPS for a 
cost reporting period based on a written certification that it will meet the requirements 
specified above in 140.1.1B-D, but does not actually meet the requirement for that cost 
reporting period, CMS adjusts Medicare payments to the hospital retroactively in 
accordance with paragraph C below. 
 
B. - In the case of a unit to which new beds have been added, the requirement in 
140.1.1B-D above is applied to the entire unit, including both new and existing beds. If 
the entire unit is able to meet the requirement, the previously existing unit and the added 
beds are presumed to meet the requirement separately and no payment adjustment as 
specified below in paragraph C is made. If the unit as a whole does not meet the 
requirement specified above in 140.1.1B-D, the hospital must furnish the A/B MAC (A) 
or the State Agency, as specified by the RO, the information needed to determine whether 
the requirement specified in 140.1.1B-D above was met by the established portion of the 
unit (that is, the previously existing unit) and by the newly added beds, considered 
separately. If the hospital is not able to demonstrate that the established portion of the unit 
met the requirement, then that portion of the facility will not be classified as an IRF for the 
following cost reporting period.  Retroactive adjustments may apply. 
 
If the added beds are shown to have met the requirement specified above in 140.1.1B-D, 
then those beds are eligible to be included as part of the units classification as an IRF for 
the following cost reporting period. If the added beds did not meet the requirement, the 
A/B MAC (A) adjusts its payment to the unit retroactively in accordance with paragraph C 
below and the added beds will not be included as part of the unit classified as an IRF for 
the following cost reporting period.    
If the hospital does not have the records needed to discriminate between the performance 
of the previously existing unit and that of the added beds, or for other reasons does not 
furnish the information requested by the A/B MAC (A) or State Agency, neither the 
previously existing unit nor the added beds will be classified as an IRF for the following 
cost reporting period. In that case, the A/B MAC (A) adjusts its payment to the entire unit 
retroactively in accordance with paragraph C below.  
 
C. - The A/B MAC (A) adjusts payment to the hospital by calculating the difference 
between the amount actually paid for services to Medicare patients in the IRF hospital, 
IRF unit, or new IRF beds during the period of provisional exclusion, and the amount that 
would have been paid if the IRF hospital, IRF unit, or new IRF beds had not been 
excluded from the IPPS. The A/B MAC (A) then takes action to recover the resulting 
overpayment, or corrects the underpayment to the hospital. 
 
140.2 - Payment Provisions Under IRF PPS 
(Rev. 11504, Issued 08-05-22; Effective:10-01-22; Implementation: 10-03-22) 
 
Section 1886 of the BBA provides the basis for establishing the Federal payment rates 
applied under PPS to IRFs. The PPS incorporates per discharge federal rates based on 
average IRF costs in a base year updated for inflation to the first effective period of the 
system. 
IRF PPS providers are not subject to the 3-day payment window for pre-admission services, 
but are subject to the 1-day payment window for pre-admission services. 
 
Beneficiary liability will operate the same as under the current Tax Equity and Fiscal 
Responsibility Act of 1982 (TEFRA) payment system. Even if Medicare payments are 
below cost of care for a patient under prospective payment, the patient cannot be billed for 
the difference in any case. 
Below are the annual rate update Change Requests (CRs) for Fiscal Years 
2003-2022: 
 
FY 2022  CR 12364 
FY 2021  CR 11858 
FY 2020  CR 11345 
FY 2019  CR 10826 
FY 2018  CR 10125 
FY 2017  CR 9669 
FY 2016  CR 9236 
FY 2015  CR 8788 
FY 2014  CR 8326 
FY 2013  CR 7901 
FY 2012  CR 7510 
FY 2011  CR 7076 
FY 2010  CR 7029  FY 2010  CR 6607 
FY 2009  CR 6166 
FY 2008  CR 5694 
FY 2007  CR 5273 
FY 2006  CR 4037 
FY 2005  CR 3378 
FY 2004  CR 2894 
FY 2003  CR 2250 
 
Change Requests can be accessed through the following CMS Transmittals Website: 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html 
 
Rate and weight information used by the IRF Pricer is updated periodically, usually 
annually, and is published in the Federal Register. Updates occur each October, to 
reflect the fact that IRF PPS rates are effective for a Federal fiscal year. Updates may 
also occur at other points in the year when required by legislation.  
Whenever these update items change, Medicare also publishes a Recurring Update 
Notification to inform providers and A/B MACs (A) about the changes. These 
Recurring Update Notifications also describe how the changes will be implemented 
through the IRF Pricer. 
 
140.2.1 - Phase-In Implementation 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Under the BBA, the Federal fiscal year in which a facility's cost reporting period begins 
determines which transition period percentages apply. The first transition period 
percentages are applicable for cost reporting periods beginning during Federal fiscal year 
2001. The second transition period percentages are applicable to cost reporting periods 
beginning during Federal fiscal year 2002, that is, periods beginning on or after October 1, 
2001, and before October 1, 2002. For cost reporting periods beginning during Federal 
fiscal year 2003 and after, payment is based on 100 percent of the adjusted Federal 
prospective payment. 
  
Since CMS is implementing the IRF PPS for discharges that occur during the IRF's cost 
reporting period that begins on or after January 1, 2002, IRFs are phased directly into the 
second transition period, where payment will be based on 66 2/3 percent of the PPS 
payment and 33 1/3 percent of the TEFRA payment. A facility will continue to be paid 
under the TEFRA (reasonable cost-based) system for its entire cost reporting period 
beginning prior to January 1, 2002.  
 
In addition, 305 of the BIPA 2000 states facilities may elect to be paid 100 percent PPS 
payment, rather than payment based on the transition method. If a facility chooses not to 
be paid under the transition method, they must notify their A/B MAC (A) no later than 30 
days prior to its first cost reporting period for which the IRF PPS applies to the facility. 
The request to make the election must be made in writing to the Medicare A/B MAC (A) 
for the facility.  The A/B MAC (A) must receive the request on or before the 30th day 
before the applicable cost reporting period begins, regardless of any postmarks or  anticipated delivery dates. Requests received, postmarked, or delivered by other means 
after the 30th day before the cost reporting period begins will not be approved. If the 30th 
day before the cost reporting period falls on a day that the postal service or other delivery 
sources are not open for business, the facility is responsible for allowing sufficient time 
for delivery of the request before the deadline. If a facility's request is not received or not 
approved, payment will be based on the transition method. 
 
140.2.2 - Payment Adjustment Factors and Rates 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Section 1886(j) of the Act sets forth the methodology for establishing the payment rates 
as well as the data on which they are based.  In addition, this section prescribes 
adjustments to such rates based on geographic variation and case-mix and other factors 
the Secretary deems necessary to ensure that payment most accurately reflects cost. 
 
For the initial period of the IRF PPS, beginning on or after January 1, 2002, all payment 
rates and associated rules were published in the "Federal Register" on August 7, 2001.  
For each succeeding fiscal year, the rates will be published in the "Federal Register" on or 
before August 1 of the year preceding the affected fiscal year. 
 
140.2.3 - Case-Mix Groups 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
In general, a case will be grouped into a Case-Mix Group (CMG) based on the clinical 
characteristics of the Medicare beneficiary.  Rehabilitation Impairment Categories (RICs), 
functional measurements, age, and comorbidities were used to develop the CMGs. 
Specifically, RICs are used to group cases that are similar in clinical characteristics and 
resource use.  The RICs are codes that indicate the primary cause of the rehabilitation 
hospitalization and are clinically homogeneous.  In addition to the first two digits of the 
CMG indicating the RIC, the CMGs are further partitioned using functional measures of 
motor and cognitive scores.  Age improves the explanatory power of the CMGs if some 
groups are split based on this variable.  Lastly, comorbidites were found to substantially 
increase the average cost of a case in specific CMGs.  The comorbidities are arrayed in 
three categories (or tiers) based on whether the costs are considered high, medium, or low.  
If a case has more than one comorbidity, the CMG payment rate will be based on the 
comorbidity that results in the highest payment. 
 
140.2.4 - Case-Level Adjustments 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Payment is based on the CMGs described above, as well as possible adjustments specific 
to the case and the facility characteristics.  For case level adjustments, more than one case 
level adjustment may apply to the same case.  For ease of understanding, the case level 
discussion is presented below in the same order that is used to assess whether or not they 
apply.  For example, a case may be classified as a transfer, but may also receive 
additional payments because it meets the definition of an outlier case.   
Interrupted stays are defined as those cases in which a Medicare beneficiary is 
discharged from the inpatient rehabilitation facility and returns to the same inpatient 
rehabilitation facility within 3 consecutive calendar days.  The 3 consecutive calendar 
days begin with the day of the discharge from the IRF and ends on midnight of the third 
day.  The length of stay for these cases will be determined by the total length of the IRF 
stay including the days prior to the interruption and the days after the interruption.  One 
CMG payment will be made for interrupted stay cases and the payment will be based on 
the initial assessment. For example, if a Medicare beneficiary is discharged on February 
1, 2001, and is readmitted on February 3, the case would be considered an interrupted 
stay and only one CMG payment will be made based on the initial assessment.  
However, if the Medicare beneficiary was readmitted on February 4, then it would not be 
considered an interrupted stay.  A separate DRG payment will not be made to the acute 
care hospital when the beneficiary is discharged and returns to the same IRF on the same 
day.  However, a DRG payment can be made if the beneficiary does not return to the 
same IRF on the same day as they were discharged.  If a case is determined to be an 
interrupted stay, other adjustments may apply to this payment amount.  For example, the 
case still may meet the definition of a transfer case described below. 
 
For the IRF PPS, transfer cases are defined as those in which a Medicare beneficiary is 
transferred to either another rehabilitation facility, a long term care hospital, an inpatient 
hospital, or a nursing home that accepts payment under either the Medicare program 
and/or the Medicaid program AND the length of stay of the case is less than the average 
length of stay for a given CMG.  The transfer policy consists of a per diem payment 
amount calculated by dividing the per discharge CMG payment rate by the average 
length of stay for the CMG.  Medicare will pay transfer cases a per diem amount and 
include an additional half day payment for the first day.  Transfer payments will be 
calculated by first adding the length of stay of the case to 0.5 (to account for the addition 
of the half day payment for the first day) and then multiplying the result by the CMG per 
diem amount. 
 
The IRF PPS also includes a payment adjustment for certain cases, such as short-stay 
cases (for cases that do not meet the definition of a transfer case).  A separate CMG 
payment (5001) will be made for cases with a length of stay of 3 days or less, without 
consideration of the clinical characteristics of the patient.  Cases that expire with a length 
of stay of 3 days or less, will also be classified to CMG 5001. 
 
Separate CMGs will also be made for cases that expire with a length of stay greater than 
3 days.  To improve the explanatory power of the groups, four additional CMGs were 
created to account for cases that expire.  CMG 5101 is used for short-stay, orthopedic, 
expired cases.  This CMG includes those cases that would otherwise be grouped to RICs 
07, 08, and 09 and the length of the stay is greater than 3 days, but less than or equal to 
13 days.  CMG 5102 will be used for orthopedic expired cases where the length of stay is 
greater than or equal to 14 days.  CMG 5103 will be used for short-stay, non-orthopedic, 
expired cases.  This CMG includes those cases that would not be grouped to the 
orthopedic RICs and the length of the stay is greater than 3 days, but less than or equal to  15 days.  CMG 5104 will be used for non-orthopedic expired cases where the length of 
stay is greater than or equal to16 days. 
 
140.2.5 - Facility-Level Adjustments 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Facility-level adjustments apply to all cases and are based on the individual IRF 
characteristics.  The facility-level adjustments include an area wage adjustment, an 
adjustment for facilities located in rural areas, an adjustment for treating low-income 
patients and an adjustment for teaching facilities.  Outlier payments will also be discussed 
in this section.  Although outlier payments are considered to be a case-level adjustment, a 
case can be determined to qualify for these additional payments only after all other 
facility-level adjustments are computed.  Thus, for ease of understanding, the discussion of 
these facility-level and outlier adjustments are presented in the same order that is used to 
assess their applicability. 
 
140.2.5.1 - Area Wage Adjustments 
(Rev. 11504, Issued 08-05-22; Effective:10-01-22; Implementation: 10-03-22) 
 
To adjust payments for area wage differences, CMS first identifies the labor-related 
portion of the prospective payment rates which is published annually in the Federal 
Register. The labor-related unadjusted Federal payment is multiplied by a wage index 
value to account for area wage differences. CMS uses the inpatient acute care hospital 
wage data to compute the wage indices on the basis of the labor market area in which 
the acute care hospital is located, but without taking into account geographic 
reclassification under 1886(d)(8) or (d)(10) of the Act and without applying the 
rural floor under 4410 of the BBA. The wage data excludes the wages for services 
provided by teaching physicians, interns and residents, and nonphysician anesthetists 
under Medicare part B, because these services are not covered under the IRF PPS. For 
IRF PPS discharges occurring before October 1, 2005, IRFs are divided into labor 
market areas where urban areas are defined as a Metropolitan Statistical Area (MSA) 
or New England County Metropolitan Area, as defined by the Executive Office of 
Management and Budget. For IRF PPS discharges occurring on or after October 1, 
2005, the IRF PPS adopts new labor market area definitions based upon the new 
statistical area definitions issued by the Office of Management and Budget (OMB) in 
OMB Bulletin No. 03-04, June 6, 2003. OMB Bulletin No. 03-04 includes new 
definitions of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and 
Combined Statistical Areas, more commonly referred to as Core-Based Statistical 
Areas (CBSAs). CBSA-based designations reflect the most recent available 
geographic classifications and more accurately reflect current labor markets. The 
OMB also established New England City and Town Areas, which are similar to the 
previous New England MSAs. CMS uses the county-based areas for all MSAs in the 
Nation, including those in New England. Adopting county-based labor market areas 
for the entire country creates consistency and stability in the Medicare payment 
program because all of the labor market areas, including New England, are defined 
using the same system (that is, counties), rather than different systems in different  areas of the country, and minimizes program complexity. CMS uses the Metropolitan 
Divisions where applicable under the new CBSA-based labor market area definitions 
to determine urban areas. Micropolitan Areas are treated as rural labor market areas 
under the IRF PPS. To calculate the statewide rural wage index for each State, CMS 
combines all of the counties in a State outside of designated urban areas along with all 
Micropolitan Areas.  
 
Beginning in FY 2023 a five percent cap will be applied on any decrease to a 
providers wage index from that providers final wage index in the prior fiscal year. 
For subsequent years, a provider's wage index would not be less than 95 percent of its 
wage index calculated in the prior FY. A new IRF will be paid the wage index for the 
area in which it is geographically located for its first full or partial FY with no cap 
applied, because a new IRF will not have a wage index in the prior FY. 
 
140.2.5.2 - Rural Adjustment 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Payments are adjusted for facilities located in rural areas.  A facility is considered to be 
a rural IRF if they are located in a non-urban area. 
 
For FY 2006 and FY 2007, a hold harmless policy applies to IRFs that meet the 
definition of rural in FY 2005 in 412.602 and become urban under the FY 2006 CBSA-
based designations.  The IRFs that meet the criteria described in the previous sentence 
will qualify for an adjustment to their payments in FY 2006 and FY 2007 equal to some 
portion of the 19.14 percent rural adjustment effective in FY 2005.  This adjustment is in 
addition to the one-year blended wage index described above for discharges occurring on 
or after October 1, 2005 and on or before September 30, 2006. 
 
140.2.5.3 - Low-Income Patient (LIP) Adjustment: The Supplemental 
Security Income (SSI)/Medicare Beneficiary Data for Inpatient 
Rehabilitation Facilities (IRFs) Paid Under the Prospective Payment 
System (PPS) 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
The LIP adjustment accounts for differences in costs among IRFs associated with 
differences in the proportion of low-income patients treated.  The LIP adjustment is 
calculated as (1 + disproportionate share hospital (DSH) patient percentage) raised to a 
power specified in the most recent IRF PPS final rule published in the Federal 
Register. To compute the DSH patient percentage the following formula is used: 
 
DSH  =  Medicare SSI Days  +  Medicaid, Non-Medicare Days 
    Total Medicare Days    Total Days 
 
This instruction provides the data for determining additional payment amounts for IRFs 
with low-income patients. An SSI data file below shows the latest available IRF-specific 
data to compute an IRF's SSI ratio for the associated specified fiscal year (FY). An IRF  may use this ratio as part of the formula to estimate their LIP adjustment for a cost 
reporting period that begins subsequent to the FY specified by the data file. As 
appropriate, a file will be updated annually (usually each October/November). 
 
Patients who are enrolled in Medicare Advantage (administered through Medicare Part 
C) should also be included in the Medicare fraction. These days will be included in the 
Medicare/SSI fraction, but in order for them to be counted, the hospital must submit an 
informational only bill (TOB 111), which includes both Condition Code 04 and the CMG 
code from the IRF PAI, to their Medicare contractor.  This will ensure that these days are 
included in the IRFs SSI ratio for Fiscal Year 2007 and beyond.  Teaching IRFs do not 
have to submit an additional bill with Condition Code 04.  They already submit bills with 
Condition Codes 04 and 69 for Indirect Medical Education payments and CMS will use 
the information from these bills for the SSI ratio. 
 
IRFs that received LIP payments during FY 2006 are also required to 
submit informational only bills for their Medicare Advantage patients. 
 
Informational Only Claim Elements: 
 
  Covered 111 TOB 
  Condition Code 04 
  Medicare Fee-for-Service is the primary payer 
  There is no MSP 
  Beneficiarys Medicare HICN 
  For claims prior to October 1, 2011, report the Revenue Code 0024 line 
containing CMG A9999 and, instead of inputting the transmission date of the 
IRF-PAI in the service date field (as is required for FFS claims), input the 
discharge date as a default for these informational only claims. The discharge date 
is required on informational only claims to reduce reporting burden for IRFs who 
may be submitting old informational only claims. 
 
NOTE: Effective January 1, 2011, do not report the service date for the revenue code 0024 
line.  Instead, use occurrence code 50 in place of the service date to report the default 
discharge date for informational only claims. 
 
  Effective October 1, 2011, report the Revenue Code 0024 line containing the CMG 
from the IRF-PAI and the transmission date of the IRF-PAI in the occurrence code 
50 and date field (as is required for FFS claims). 
 
  All other required claim elements 
 
The SSI/Medicare beneficiary data for IRF PPS is available to A/B MACs (A) 
electronically and contains the name of the facility, provider number, SSI days, covered 
Medicare days, and the ratio of Medicare Part A patient days attributable to SSI 
recipients.  A/B MACs (A) will use this information to update their provider specific file.  
The files are located at the following CMS Web site address:  http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/ProspMedicareFeeSvcPmtGen/index.html.  Select Inpatient Rehabilitation 
Facility PPS, then select, from the list at the left, SSI Data.  
A/B MACs (A) use this data to determine an initial PPS payment amount, and if 
applicable, to determine a final outlier payment amount for IRFs whose discharges are 
during a specific cost reporting period.  A/B MACs (A) make a determination of the 
amount of this percentage to compute the final LIP adjustment which allows the year-end 
settlement of a facilitys cost report.  When the A/B MAC (A)  settles a cost report for a 
specific fiscal year, that settled cost report will determine the final SSI ratio that is 
associated with that cost report.  The A/B MAC (A)  uses the most recently settled SSI 
ratio to settle the current cost report.  Once the final SSI ratio is determined for the actual 
fiscal year the cost report corresponds to, a retrospective adjustment may be made to 
account for the difference between the actual lip adjustment amount and the initial PPS 
lip adjustment payment amount. 
 
A - Clarification of Allowable Medicaid Days in Calculating the Disproportionate 
Share Variable 
 
Background 
 
Under the IRF PPS, facilities receive additional payment amounts to account for the cost 
of furnishing care to low-income patients. This is done by making adjustments to the 
prospective payment rate. Under 1886(d)(5)(F) of the Act, the Medicare DSH 
percentage is made up of two computations. The results of these two computations are 
added together to determine the DSH percentage. First, the patient days of patients who, 
during a given month, were entitled to both Medicare Part A and SSI (excluding those 
patients who received only State supplementation) is divided by the number of covered 
patient days utilized by patients under Medicare Part A for that same period. Second, a 
determination is made regarding the patient days associated with beneficiaries who were 
eligible for medical assistance (Medicaid) under a State plan approved under Title XIX 
but who were not entitled to Medicare Part A (See 42 CFR 412.106(b)(4)) is determined. 
This number is divided by the total number of patient days for that same period. The SSI 
data is updated on an annual basis and these data are one of the components used to 
determine the DSH variable that is part of the appropriate LIP adjustment for each IRF. 
 
Included Days 
 
In calculating the number of Medicaid days, the hospital must determine whether the 
patient was eligible for Medicaid under a State plan approved under Title XIX on the day 
of service.  If the patient was so eligible, the day counts in the Medicare disproportionate 
share adjustment calculation.  The statutory formula for "Medicaid days" reflects several 
key concepts.  First, the focus is on the patient's eligibility for Medicaid benefits as 
determined by the State, not the hospital's "eligibility" for some form of Medicaid 
payment.  Second, the focus is on the patient's eligibility for medical assistance under an 
approved Title XIX State plan, not the patient's eligibility for general assistance under a 
State-only program.  Third, the focus is on eligibility for medical assistance under an 
approved Title XIX State plan, not medical assistance under a State-only program or other  program.  Thus, for a day to be counted, the patient must be eligible on that day for 
medical assistance benefits under the Federal-State cooperative program known as 
Medicaid (under an approved Title XIX State plan).  In other words, for purposes of the 
Medicare disproportionate share adjustment calculation, the term "Medicaid days" refers 
to days on which the patient is eligible for medical assistance benefits under an approved 
Title XIX State plan.  The term "Medicaid days" does not refer to all days that have some 
relation to the Medicaid program, through a matching payment or otherwise; if a patient is 
not eligible for medical assistance benefits under an approved Title XIX State plan, the 
patient day cannot become a "Medicaid day" simply by virtue of some other association 
with the Medicaid program. 
 
Medicaid days, for purposes of the Medicare disproportionate share adjustment 
calculation, include all days during which a patient is eligible, under a State plan approved 
under Title XIX, for Medicaid benefits, even if Medicaid did not make payment for any 
services.  Thus, Medicaid days include, but are not limited to, days that are determined to 
be medically necessary but for which payment is denied by Medicaid because the provider 
did not bill timely, days that are beyond the number of days for which a State will pay, 
days that are utilized by a Medicaid beneficiary prior to an admission approval but for 
which a valid enrollment is determined within the prescribed period, and days for which 
payment is made by a third party.  In addition, CMS recognizes the calculation days that 
are utilized by a Medicaid beneficiary who is eligible for Medicaid under a State plan 
approved under Title XIX through a managed care organization (MCO) or health 
maintenance organization (HMO).  However, in accordance with 42 CFR 412.106(b)(4), a 
day does not count in the Medicare disproportionate share adjustment calculation if the 
patient was entitled to both Medicare Part A and Medicaid on that day.  Therefore, once 
the eligibility of the patient for Medicaid under a State plan approved under Title XIX has 
been verified, the A/B MAC (A) must determine whether any of the days are dual 
entitlement days and, to the extent that they are, subtract them from the other days in the 
calculation. 
 
Excluded Days 
 
Many States operate programs that include both State-only and Federal-State eligibility 
groups in an integrated program.  For example, some States provide medical assistance to 
beneficiaries of State-funded income support programs.  These beneficiaries, however, are 
not eligible for Medicaid under a State plan approved under Title XIX, and, therefore, 
days utilized by these beneficiaries do not count in the Medicare disproportionate share 
adjustment calculation.  If a hospital is unable to distinguish between Medicaid 
beneficiaries and other medical assistance beneficiaries, then it must contact the State for 
assistance in doing so. 
 
In addition, if a given patient day affects the level of Medicaid DSH payments to 
the hospital but the patient is not eligible for Medicaid under a State plan approved 
under Title XIX on that day, the day is not included in the Medicare DSH 
calculation. 
  It should be noted that the types of days discussed above are not necessarily the 
only types of excluded days.  See the chart below, which summarizes some, but 
not necessarily all, of the types of days to be excluded from (or included in) the 
Medicare DSH adjustment calculation. 
 
To provide consistency in both components of the calculation, any days that are 
added to the Medicaid day count must also be added to the total day count, to the 
extent that they have not been previously so added. 
 
Regardless of the type of allowable Medicaid day, the hospital bears the burden 
of proof and must verify with the State that the patient was eligible under one of 
the allowable categories during each day of the patient's stay.  The hospital is 
responsible for and must provide adequate documentation to substantiate the 
number of Medicaid days claimed. Days for patients that cannot be verified by 
State records to have fallen within a period wherein the patient was eligible for 
Medicaid cannot be counted. 
  Types of Days Included/Excluded in the Medicare DSH Adjustment Calculation 
 
Type of Day  Description  Eligible 
Title XIX 
Day 
General  Days for patients covered under a State-only (or county-only) general  No 
Assistance  assistance program (whether or not any payment is available for health 
Patient Days  care services under the program).  These patients are not Medicaid-
eligible under the State plan 
Other State- Days for patients covered under a State-only health program.  These  No 
Only Health  patients are not Medicaid-eligible under the State plan 
Program Patient 
Days 
Charity Care  Days for patients not eligible for Medicaid or any other third-party payer,  No 
Patient Days  and claimed as uncompensated care by a hospital.  These patients are not 
Medicaid-eligible under the State plan. 
Actual 1902(r)(2) Days for patients eligible under a State plan based on a 1902(r)(2) or  Yes 
and 1931(b)  1931(b) election.  These patients are Medicaid-eligible under the Title 
Days  XIX State plan under the authority of these provisions, which is exercised 
by the State in the context of the approved State plan. 
Type of Day  Description  Eligible 
Title XIX 
Day 
Medicaid  Days for patients who are Title XIX-eligible and who meet the definition  Yes 
Optional  of "optional targeted low-income children" under 1905(u)(2).  The 
Targeted Low-  difference between these children and other Title XIX children is the 
Income  enhanced FMAP rate available to the State.  These children are fully 
Children  Medicaid-eligible under the State plan. 
(CHIP-related) 
Days 
Separate CHIP  Days for patients who are eligible for benefits under a non-Medicaid  No. 
Days  State program furnishing child health assistance to targeted low-income 
children. These children are, by definition, not Medicaid-eligible under 
       
140.2.5.4 - Teaching Status Adjustment 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
The teaching status adjustment is a facility level adjustment made to the Federal 
per discharge base rate to account for the higher indirect operating costs 
experienced by facilities that participate in graduate medical education.  The 
adjustment is made on a claim basis as an interim payment, with final payment in 
full for the cost reporting period made through the cost report.  Any difference 
between the interim payments and the actual teaching status adjustment amount 
computed in the cost report are adjusted through lump sum 
payments/recoupments when the cost report is filed and later settled.  The 
adjustment is based on the IRFs teaching variable, which is the ratio of the  number of FTE residents training in the IRF (subject to the FTE resident cap 
described below) to the IRFs average daily census (ADC). 
 
140.2.5.4.1 - FTE Resident Cap 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
There is a cap on the number of FTE residents that may be counted for purposes of 
calculating the teaching adjustment, not the number of residents teaching institutions can 
hire or train. The FTE resident cap is identical in freestanding teaching rehabilitation 
hospitals and in distinct part rehabilitation units with GME programs. The cap is the 
number of FTE residents that trained in the IRF during a base year. 
 
An IRFs FTE resident cap is determined based on the final settlement of the IRFs most 
recent cost reporting period ending on or before November 15, 2004. IRFs that first began 
training residents after November 15, 2004 will initially receive an FTE cap of zero. The 
FTE caps for new IRFs (as well as existing IRFs) that start training residents in a new 
GME program (as defined in 413.79(1)) may be subsequently adjusted in accordance 
with the policies that are being applied in the IPF PPS (as described in 
412.424(d)(1)(iii)(B)(2)), which in turn are made in accordance with the policies 
described in 42 CFR 413.79(e). 
 
For other types of Medicare providers (including long-term care hospitals) that have been 
training residents and are currently converting to IRFs, the fiscal intermediary will 
determine an FTE resident cap for purposes of the IRF teaching status adjustment, 
applicable beginning with the new IRFs payments under the IRF PPS based on the FTE 
count of residents during the predecessor facilitys most recent cost reporting period 
ending on or before November 15, 2004.  If the predecessor facility did not begin training 
residents until after November 15, 2004, the facility would initially receive an FTE cap of 
zero.  The FTE caps for new IRFs (as well as existing IRFs) that start training residents 
in a new GME program (as defined in 413.79(1)), may be subsequently adjusted in 
accordance with the policies that are being applied in the IPF PPS (as described in 
412.424(d)(1)(iii)(B)(2)), which in turn are made in accordance with the policies 
described in 42 CFR 413.79(e). 
 
Once established, the FTE resident cap for the teaching status adjustment for the new IRF 
will be subject to the same rules and adjustments as any IRFs FTE resident cap.  CMS 
will monitor this policy closely to ensure that it is not being inappropriately manipulated. 
 
IRFs are not permitted to aggregate the FTE resident caps used to compute the IRF PPS 
teaching status adjustment through affiliation agreements. Residents with less than full- 
time status and residents floating through the rehabilitation hospital or unit for less than a 
full year are counted in proportion to the time they spend in their assignment with the IRF 
(for example, a resident on a full-time, 3-month rotation to the IRF would be counted as 
0.25 FTEs for purposes of counting residents to calculate the ratio). No FTE resident time 
counted for purposes of the IPPS IME adjustment is allowed to be counted for purposes 
of the teaching status adjustment for the IRF PPS.   
The denominator used to calculate the teaching status adjustment under the IRF PPS is 
the IRFs average daily census (ADC) from the current cost reporting period. If a 
rehabilitation hospital or unit has more FTE residents in a given year than in the base year 
(the base year being used to establish the cap) payments are based on the lower number 
(the cap amount) in that year. If a rehabilitation hospital or unit were to have fewer FTE 
residents in a given year than in the base year (that is, fewer residents than its FTE 
resident cap) an adjustment in payments in that year is based on the lower number (the 
actual number of FTE residents the facility hires and trains). 
 
Effective for cost reporting periods beginning on or after October 1, 2011, the IRF FTE 
resident caps may be temporarily adjusted to reflect interns and residents added because of 
another IRFs closure or the closure of another IRFs residency training program.  An IRF 
is only eligible for the temporary cap adjustment if training the additional interns and 
residents would cause the IRF to exceed its FTE resident cap.  In addition, an IRF that 
closes a medical residency training program must agree to temporarily reduce its FTE cap 
before other IRFs can receive temporary adjustments to their caps for training the IRFs 
interns and residents.  IRFs may qualify for the temporary cap adjustment for cost 
reporting periods beginning on or after October 1, 2011 if they are already training interns 
and residents displaced by IRF closures or residency training program closures that 
occurred prior to October 1, 2011. 
 
140.2.5.5 - Outliers 
(Rev. 2673, Issued: 03-14-13, Effective: 04-22-13, Implementation: 04-22-13) 
 
Section 1886(j)(4) of the Act provides the Secretary with the authority to make payments 
in addition to the basic IRF prospective payments for cases incurring extraordinarily high 
cost.  A case qualifies for outlier payment if the estimated cost of the case exceeds the 
adjusted outlier threshold.  CMS calculates the adjusted outlier threshold by adding the 
IRF PPS payment for the case (that is, the CMG payment adjusted by all of the relevant 
facility-level adjustments) and the adjusted threshold amount (also adjusted by all of the 
relevant facility-level adjustments).  Then, CMS calculates the estimated cost of the case 
by multiplying the IRFs overall cost-to-charge ratio (CCR) by the Medicare allowable 
covered charge. If the estimated cost of the case is higher than the adjusted outlier 
threshold, CMS makes an outlier payment for the case equal to 80 percent of the 
difference between the estimated cost of the case and the outlier threshold. 
 
The adjusted threshold amount and upper threshold CCR are set forth annually in the IRF 
PPS notices published in the Federal Register. 
 
140.2.6 - Cost-to-Charge Ratios 
(Rev. 2323, Issued: 10-26-11, Effective: 11-28-11, Implementation: 11-28-11) 
 
For discharges beginning on and after January 1, 2002 thru September 30, 2003, the 
Medicare contractor shall use the instructions for calculating the CCR for purposes of 
determining outlier payments under the IRF PPS set forth in Transmittal A-01-131.    
For discharges beginning on or after October 1, 2003, the Medicare contractor shall use a 
CCR from the most recent tentative settled cost report or the most recent settled cost 
report (whichever is the later period), specific to freestanding IRFs or for IRFs that are 
distinct part units of acute care hospitals in accordance with the formulas set forth below.  
 
Effective October 1, 2003, if an IRFs CCR is above the applicable ceiling set forth 
annually in the IRF PPS notices published in the Federal Register it is considered to be 
statistically inaccurate. As a result, CMS will assign the IRF an appropriate national 
average CCR. CMS does not use a lower threshold; an IRF will receive their actual CCR, 
no matter how low their ratio falls.  
 
The IRF PPS covers operating and capital-related costs and excludes medical education 
and nurse anesthetist costs paid for on a reasonable cost basis. Therefore, total Medicare 
charges for IRFs will consist of the sum of the inpatient routine charges and the sum of 
inpatient ancillary charges (including capital). Total Medicare costs will consist of the sum 
of inpatient routine costs (net of private room differential and swingbed) plus the sum of 
ancillary costs plus capital-related pass-through costs only. 
 
The provider specific file (PSF) contains a field for the operating CCR (Field 25; file 
position 102-105) and for the capital CCR (Field 42; file position 203-206). Because the 
CCR computed for the IRF PPS includes routine, ancillary, and capital costs, the CCR for 
freestanding IRFs, units, and new providers described below will be entered on the 
provider specific file only in field 25; file position 102-105. Field 42; file position 203-206 
of the provider specific file must be zero-filled. 
 
The Medicare contractor shall continue to update the IRFs CCR each time a more recent 
cost report is settled (either final or tentative). Revised CCRs shall be entered into the PSF 
not later than 30 days after the date of the latest settlement used in calculating the CCR. 
 
A. - Calculating Medicare CCRs for Freestanding IRFs 
 
1)  Identify total Medicare costs from Worksheet D-1, Part II, line 49 minus 
(Worksheet D, Part III, col. 8, lines 25 through 30 plus Worksheet D, Part IV, col. 
7, line 101).  
 
2)  Identify total Medicare charges (the sum of routine and ancillary charges), from 
Worksheet D-4, Column 2, the sum of lines 25 through 30 and line 103 from the 
cost report; where possible, these charges should be confirmed with the PS&R 
data.  
 
3)  Divide the Medicare costs by the Medicare charges to compute the CCR. 
 
B. - Calculating Medicare CCRs for IRF Distinct Part Units 
  1)  Identify total Medicare costs from Worksheet D-1, Part II, line 49 minus 
(Worksheet D, Part III, col. 8, line 31 plus Worksheet D, Part IV, col. 7, line 101). 
 
2)  Identify total Medicare charges (the sum of routine and ancillary charges) from 
Worksheet D-4, Column 2, line 31 plus line 103 from the cost report; where 
possible, these charges should be confirmed with the PS&R data. 
 
3)  Divide the Medicare costs by the Medicare charges to compute the CCR.  
 
All references to Worksheets and specific line numbers shall correspond with the sub-
provider identified as the IRF unit that has the letter "T" or R in the third position of the 
Medicare provider number.  
 
C. - Calculating Medicare CCRs for New IRFs  
 
In the case of a New IRF unit (defined in 42 C.F.R. 412.30) or a New Inpatient 
Rehabilitation Hospital (defined as a hospital that has never entered into a provider 
agreement with the Secretary), the Medicare contractor shall use a national average CCR 
based on the facility location of either urban or rural. The national average CCRs 
applicable to IRFs shall be found in each years annual notice of prospective payment 
rates published in the Federal Register.  
 
The national average CCR will be used until the IRFs actual CCR can be computed using 
the first tentative settled or final settled cost report data, which will then be used for the 
subsequent cost report periods.  
 
We NOTE, the policies in  E and F below can be applied as an alternative to the 
national average CCR. 
 
For those IRFs assigned the national average CCR, the CCR must be updated every 
October 1 based on the latest national average CCRs published in each years IRF PPS 
annual notice of prospective payment rates until the IRF is assigned a CCR based on the 
latest tentative or final settled cost report or a CCR based on the policies of part E and F of 
this section.  
 
D. - Mergers, Conversion and Errors with CCRs 
 
Effective April 1, 2011, in the case of a merger, the Medicare contractor shall use the CCR 
from the IRF with the surviving provider number. If a new provider number is issued (i.e., 
a new provider agreement is signed because the new owner refused assignment of the 
existing provider agreement), the Medicare contractor shall use the national CCR based on 
the facility location of either urban or rural.  
 
When errors related to CCRs and/or outlier payments are discovered, Medicare 
contractors shall contact the CMS Central Office to seek guidance. Likewise, when a cost 
report is reopened after final settlement and as a result of this reopening there is a change  to the CCR; Medicare contractors should contact the CMS Central Office for further 
instructions.  
 
E. - Alternative CCRs 
 
The CMS may direct the Medicare contractor to use an alternative CCR to the CCR from 
the later of the latest settled cost report or latest tentative settled cost report, if it believes 
this will result in a more accurate CCR. In addition, if the Medicare contractor finds 
evidence that using data from the latest settled or tentatively settled cost report would not 
result in the most accurate CCR, the Medicare contractor should contact the CMS 
Regional Office and CMS Central Office to seek approval to use a CCR based on 
alternative data. For example, CCRs may be revised more often if a change in an IRFs 
operations occurs which materially affects the IRFs costs and/or charges. Notification to 
the CMS Central Office shall be sent to the mailing address or email address provided in 
Part (f) below. The CMS Regional Office, in conjunction with CMS Central Office, will 
approve or deny any request by the Medicare contractor for use of an alternative CCR. 
Revised CCRs will be applied prospectively to all IRF PPS claims processed after the 
update. 
 
F. - Request for Use of a Different CCR by the IRF 
 
Also, an IRF will have the opportunity to request that a different CCR be applied in the 
event it believes the CCR being applied is inaccurate. The IRF is required to present 
substantial evidence supporting its request. Such evidence should include documentation 
regarding its costs and charges that demonstrate its claim that an alternative ratio is more 
accurate. After the Medicare contractor has evaluated the evidence presented by the IRF, 
the Medicare contractor notifies the CMS Regional Office and CMS Central Office of 
such a request. The CMS Regional Office, in conjunction with CMS Central Office, will 
approve or deny any request by the IRF for use of a different CCR. Medicare contractors 
shall send requests to the CMS Central Office at the following address or email address:  
 
CMS  
C/O Division of Institutional Post Acute Care  
7500 Security Blvd  
Mail Stop C5-06-27  
Baltimore, MD 21244  
 
irf_outlier_reconciliation@cms.hhs.gov  
 
Revised CCRs will be applied prospectively to all IRF PPS claims processed after the 
update.  
 
G. - Notification to Facilities Under the IRF PPS 
 
The Medicare contractor shall notify an IRF whenever they make a change to its CCR. 
When a CCR is changed as a result of a tentative settlement or a final settlement, the  change to the CCR should be included in the notice that is issued to each provider after a 
tentative or final settlement is completed.  
 
H. - Maintaining a History of CCRs and Other Fields in the Provider Specific File 
 
When recalculating claims due to outlier reconciliation, Medicare contractors shall 
maintain an accurate history of certain fields in the PSF. This history is necessary to 
ensure that claims already processed (from prior cost reporting periods that have already 
been settled) will not be subject to a duplicate systems adjustment in the event that claims 
need to be reprocessed. As a result, the following fields in the PSF can only be altered on 
a prospective basis: 21 -Case Mix Adjusted Cost Per Discharge, 24 -Bed Size, 25 -
Operating Cost to Charge Ratio, 27 -SSI Ratio, -28 -Medicaid Ratio and 49 -Capital IME. 
A separate history outside of the PSF is not necessary. The only instances a Medicare 
contractor retroactively changes a field in the PSF is to update the CCR when using the 
FISS Lump Sum Utility for outlier reconciliation or otherwise specified by the CMS 
Regional Office or Central Office. 
 
140.2.7 - Use of a National Average Cost-to-Charge Ratio 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
A national average CCR based on the facility location of either rural or urban is applied in 
the following situations:  
 
  New IRFs that have not yet submitted their first Medicare cost report.  
 
  IRFs whose overall CCR is in excess of the national CCR ceiling, as set forth 
annually in the IRF PPS notices published in the Federal Register.  
 
  Other IRFs for which accurate data to calculate an overall CCR are not available. 
 
However, the policies of 140.2.6 part E and F can be applied as an alternative to the 
national average CCR. 
 
The national urban and rural CCRs for IRFs are set forth annually in the Federal 
Register. 
 
140.2.8 - Reconciling Outlier Payments for IRFs 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
A. - General 
 
For discharges occurring in cost reporting periods beginning on or after October 1, 2003, 
Medicare contractors are to reconcile IRF PPS outlier payments at the time of cost report 
final settlement if:  
  1) Actual CCR is found to be plus or minus 10 percentage points from the CCR used 
during that time period to make outlier payments, and  
 
2) Outlier payments exceed $500,000 in that cost reporting period.  
 
The return codes from the PRICER software may be used to identify the cases for which 
outlier payments were made in a cost reporting period.  
 
In the event that these criteria do not identify facilities that are being overpaid (or 
underpaid) significantly for outliers, then, based on an analysis of the facilitys most 
recent cost and charge data that indicates that the CCR for those facilities are significantly 
inaccurate, Medicare contractors and the CMS Central Office also have the administrative 
discretion to reconcile cost reports of those IRFs. However, Medicare contractors must 
seek approval from the CMS Regional Office and CMS Central Office in the event they 
intend to reconcile outlier payments for an IRF that does not meet the above-specified 
criteria.  
 
To determine if an IRF meets the criteria for outlier reconciliation, the Medicare 
contractor shall perform the following steps: (1) incorporate all the adjustments from the 
cost report, (2) run the cost report, (3) calculate the revised CCR and (4) compute the 
actual CCR prior to issuing a Notice of Program Reimbursement (NPR). If the criteria are 
not met, the cost report can be finalized. If the criteria are met, Medicare contractors shall 
follow the instructions in 140.2.10. The NPR cannot be issued nor can the cost report be 
finalized until outlier reconciliation is complete. 
 
If a cost report is reopened after final settlement and as a result of this reopening there is a 
change to the CCR (which could trigger or affect IRF PPS outlier reconciliation and 
outlier payments), Medicare contractors shall notify the CMS Central and Regional 
Offices for further instructions. Notification to the CMS Central Office shall be sent to the 
mailing address or email address provided in 140.2.6(F) above. 
 
The following examples demonstrate how to apply the criteria for reconciliation: 
 
EXAMPLE A: 
 
Cost Reporting Period: 01/01/2010-12/31/2010 
 
CCR used to pay original claims submitted during cost reporting period: 0.40 
 
(In this example, this CCR is from the tentatively or final settled 2007 cost report) 
 
Final settled CCR from 01/01/2010-12/31/2010 cost report: 0.50 
 
Total IRF PPS outlier payout in 01/01/2010-12/31/2010 cost reporting period: $600,000 
  Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 at 
the time of final settlement, and the provider received greater than $500,000 in IRF PPS 
outlier payments during that cost reporting period, the criteria are met for reconciliation, 
and therefore, the Medicare contractor notifies the CMS Central Office and the Regional 
Office. The providers IRF PPS outlier payments for this cost reporting period are 
reconciled using the correct CCR of 0.50. 
 
In the event that multiple CCRs are used in a given cost reporting period to calculate 
outlier payments, Medicare contractors should calculate a weighted average of the CCRs 
in that cost reporting period. Example B below shows how to weight the CCRs. The 
Medicare contractor shall then compare the weighted CCR to the CCR determined at the 
time of final settlement of the cost reporting period to determine if IRF PPS outlier 
reconciliation is required. Total IRF PPS outlier payments for the entire cost reporting 
period must exceed $500,000 in order to trigger reconciliation. 
 
EXAMPLE B:  
 
Cost reporting period: 01/01/2010-12/31/2010  
 
CCR used to pay original claims submitted during cost reporting period:  
 0.40 from 01/01/2010 to 03/31/2010 (This CCR could be from the tentatively settled 2006 
cost report.)  
 
0.50 from 04/01/2010 to 12/31/2010 (This CCR could be from the tentatively settled 2007 
cost report.)  
 
Final settled CCR from 01/01/2010 - 12/31/2010 cost report: 0.35  
 
Total IRF outlier payout in 01/01/2010 -12/31/2010 cost reporting period: $600,000 
 
Weighted average CCR: 0.476 
 
CCR  DAYS  Weight  Weighted CCR 
0.40  90  0.247 (90 Days / 365  (a) 0.099 = (0.40 * 
Days)  0.247) 
0.50  275  0.753 (275 Days /  (b) 0.377 = (0.50 * 
365 Days)  0.753) 
TOTAL  365  365  (a)+(b) = 0.476 
 
The IRF meets the criteria for IRF PPS outlier reconciliation in this cost reporting period 
because the variance from the weighted average CCR at the time the claim was originally 
paid compared to the CCR from the cost report at the time of settlement is greater than 10 
percentage points (from 0.476 to 0.35) and the provider received total IRF outlier 
payments greater than $500,000 for the entire cost reporting period.  
 
B. - Providers Already Flagged for Outlier Reconciliation   
Medicare contractors shall have until April 25, 2011 to submit via email to 
irf_outlier_reconciliation@cms.hhs.gov a list of providers that were flagged for outlier 
reconciliation prior to April 1, 2011  (NOTE: Do not send this list prior to April 1, 2011 
as this list shall include all providers flagged for outlier reconciliation prior to April 1, 
2011). In this list, Medicare contractors shall include the provider number, provider name, 
cost reporting begin date, cost reporting end date, status of cost report (was the Notice of 
Program Reimbursement (NPR) issued), date of NPR, total outlier payments in the cost 
reporting period, the CCR or weighted CCR from the time the claims were paid during the 
cost reporting period being reconciled and the final settled CCR. The CMS Central Office 
will then review this list and grant formal approval via email for Medicare contractors to 
reprice and reconcile the claims of those hospitals that have been flagged for outlier 
reconciliation. Upon approval from the CMS Central Office, Medicare contractors shall 
follow the procedures in 140.2.10 and complete the reconciliation process by October 1, 
2011. If a Medicare contractor cannot complete the reconciliation process by October 1, 
2011, the Medicare contractor shall contact the CMS Central Office for further guidance. 
NOTE: Those Medicare contractors that do not have any providers flagged for outlier 
reconciliation prior to April 1, 2011, shall also send an email to the address above 
indicating that they have no providers flagged for outlier reconciliation prior to April 1, 
2011. 
 
140.2.9 - Time Value of Money 
(Rev. 2242, Issued: 06-17-11, Effective: 07-01-11, Implementation: 07-01-11) 
 
Effective for discharges occurring on or after September 30, 2003, at the time of any 
reconciliation under 140.2.9.10, outlier payment may be adjusted to account for the time 
value of money of any adjustments to outlier payments as a result of reconciliation. The 
time value of money is applied from the midpoint of the IRFs cost reporting period being 
settled to the date on which the CMS Central Office receives notification from the 
Medicare contractor that reconciliation should be performed.  
 
If the IRFs outlier payments have met the criteria for reconciliation, the Medicare 
contractor shall follow the process in 140.2.10. The index that will be used to calculate 
the time value of money is the monthly rate of return that the Medicare trust fund earns. 
This index can be found at http://www.ssa.gov/OACT/ProgData/newIssueRates.html. 
 
The following formula will be used to calculate the rate of the time value of money.  
 
(Rate from Web site as of the midpoint of the cost report being settled / 365) * # of days 
from that midpoint until date of reconciliation. NOTE: The time value of money can be a 
positive or negative amount depending if the provider is owed money by CMS or if the 
provider owes money to CMS. 
 
For purposes of calculating the time value of money, the date of reconciliation is the day 
on which the CMS Central Office receives notification. This date is either the postmark 
from the written notification sent to the CMS Central Office via mail by the Medicare  contractor, or the date an email was received from the Medicare contractor by the CMS 
Central Office, whichever is first. 
 
The following is an example of the procedures for reconciliation and computation of the 
adjustment to account for the time value of money: 
 
EXAMPLE C: 
 
Cost Reporting Period: 01/01/2004-12/31/2004 
Midpoint of Cost Reporting Period: 07/01/2004 
Date of Reconciliation: 12/31/2005 
 
Number of days from Midpoint until date of Reconciliation: 549 
 
Rate from Social Security Web site: 4.625% 
 
CCR used to pay actual original claims in cost reporting period: 0.40 (This CCR could be 
from the tentatively settled 2002 or 2003 cost report) 
 
Final settled CCR from 01/01/2004-12/31/2004 cost report: 0.50 
 
Total outlier payout in 01/01/2004-12/31/2004 cost reporting period: $600,000. 
 
Because the CCR fluctuated from .40 at the time the claims were originally paid to 0.50 at 
the time of final settlement and the provider has an outlier payout greater than $500,000, 
the criteria have been met to trigger reconciliation.  The Medicare contractor notifies the 
CMS Regional and Central Office. 
 
The Medicare contractor reprocesses and reconciles the claims. The reprocessing indicates 
the revised outlier payments are $700,000. 
 
Using the values above, determine the rate that will be used for the time value of money: 
(4.625 / 365) * 549 = 6.9565% 
 
Based on the claims reconciled, the provider is owed $100,000 ($700,000-$600,000) for 
the reconciled amount and $6,956.50 ($100,000 * 6.9565 %) for the time value of money. 
 
140.2.10 - Procedure for Medicare Contractors to Perform and Record 
Outlier Reconciliation Adjustments for IRFs 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
The following is a step-by-step explanation of the procedures that Medicare contractors 
are to follow if an IRF is eligible for outlier reconciliation:  
 
1)  The Medicare contractor shall send notification to the CMS Central Office (not the 
IRF), via the street address or email address provided in 140.2.6 (F), and to the  Regional Office that an IRF has met the criteria for reconciliation. Medicare 
contractors shall include in their notification the provider number, provider name, 
cost reporting begin date, cost reporting end date, total outlier payments in the cost 
reporting period, the CCR or weighted average CCR from the time the claims were 
paid during the cost reporting period eligible for reconciliation and the final settled 
CCR. 
 
2)  If the Medicare contractor receives approval from the CMS Central Office that 
reconciliation is appropriate, the Medicare contractor shall follow steps 3-14 
below. NOTE: Hospital cost reports will remain open until their claims have been 
processed for outlier reconciliation. 
 
3)  The Medicare contractor shall notify the IRF and copy the CMS Regional Office 
and Central Office in writing or via email (through the addresses provided in 
140.2.6 (F)) that the IRFs outlier claims are to be reconciled. 
 
4)  Prior to running claims in the *Lump Sum Utility, Medicare contractors shall 
update the applicable provider record in the Provider Specific File (PSF) by 
entering the final settled CCR from the cost report in the -25 -Operating Cost to 
Charge Ratio field. No other elements in the PSF shall be updated for the 
applicable provider records in the PSF that span the cost reporting period being 
reconciled aside from the CCR.  
 
a.  *NOTE: The FISS Lump Sum Utility is a Medicare contractor tool that, 
depending on the elements that are input, will produce an extract that will 
calculate the difference between the original PPS payment amounts and 
revised PPS payment amounts into a Microsoft Access generated report. 
The Lump Sum Utility calculates the original and revised payments offline 
and will not affect the original claim payment amounts as displayed in 
various CMS systems (such as NCH). 
 
5)  Medicare contractors shall ensure that, prior to running claims through the FISS 
Lump Sum Utility, all pending claims (e.g., appeal adjustments) are finalized for 
the applicable provider. 
 
6)  Medicare contractors shall only run claims in the Lump Sum Utility that meet the 
following criteria: 
 
7)  Type of Bill (TOB) equals 11X 
8)  Previous claim is in a paid status (P location) within FISS 
9)  Cancel date is blank 
 
10) The Medicare contractor reconciles the claims through the IRF Pricer software and 
not through any editing or grouping software.  
  11) Upon completing steps 3 through 7 above, the Medicare contractor shall run the 
claims through the Lump Sum Utility. The Lump Sum Utility will produce an 
extract, according to the elements in Table 1 below. NOTE:  The extract must be 
importable by Microsoft Access or a similar software program (Microsoft Excel). 
 
12) Medicare contractors shall upload the extract into Microsoft Access or a similar 
software program to generate a report that contains elements in Table 1. Medicare 
contractors shall ensure this report is retained with the cost report settlement work 
papers. 
 
13) For facilities paid under the IRF PPS, the Lump Sum Utility will calculate the 
difference between the original outlier amount (value code 17) and the revised 
outlier amount (value code 17). If the difference between the original and revised 
outlier amount is positive, then a credit amount (addition) shall be issued to the 
provider. If the difference between the original and revised outlier amount is 
negative, then a debit amount (deduction) shall be issued to the provider. 
 
14) Medicare contractors shall determine the applicable time value of money amount 
by using the calculation methodology in 140.2.8. If the difference between the 
original and revised outlier amount (calculated by the Lump Sum Utility) is a negative 
amount, then the time value of money is also a negative amount. If the difference 
between the original and revised outlier amount (calculated by the Lump Sum Utility) 
is a positive amount, then the time value of money is also a positive amount. Similar 
to step 10, if the time value of money is positive, then a credit amount (addition) 
shall be issued to the provider. If the time value of money is negative, then a debit 
amount (deduction) shall be issued to the provider. NOTE: The time value of 
money is applied to the difference between the original outlier amount (value code 
17) and the revised outlier amount (value code 17). 
 
15) For cost reporting periods beginning before May 1, 2010, under cost report 2552-
96, the Medicare contractor shall record the original outlier amount from 
Worksheet E-3, Part 1 line 1.05, the outlier reconciliation adjustment amount (the 
difference between the original outlier amount (value code 17) and the revised 
outlier amount (value code 17) calculated by the Lump Sum Utility), the total time 
value of money and the rate used to calculate the time value of money on lines 50-
53, of Worksheet E-3, Part 1 of the cost report (NOTE: the amounts recorded on 
lines 50, 51 and 53 can be positive or negative amounts per the instructions above). 
The total outlier reconciliation amount (the difference between the original outlier 
amount (value code 17) and the revised outlier amount (value code 17) calculated 
by the Lump Sum Utility plus the time value of money) shall be recorded on line 
15.99 of Worksheet E-3, Part 1. For complete instructions on how to fill out these 
lines, see 3633.1 of the Provider Reimbursement Manual, Part II. 
 
a.  For cost reporting periods beginning on or after May 1, 2010, under cost 
report 2552-10, the Medicare contractor shall record the original outlier 
amount from Worksheet E-3, Part III, line 4, the outlier reconciliation 
adjustment amount (the difference between the original outlier amount  (value code 17)  and the revised outlier amount (value code 17) calculated 
by the Lump Sum Utility), the total time value of money and the rate used 
to calculate the time value of money on lines 50-53, of Worksheet E-3, Part 
III of the cost report (NOTE: the amounts recorded on lines 50, 51 and 53 
can be positive or negative amounts per the instructions above). The total 
outlier reconciliation amount (the difference between the original outlier 
amount (value code 17) and the revised outlier amount (value code 17) 
calculated by the Lump Sum Utility plus the time value of money) shall be 
recorded on line 30 of Worksheet E-3, Part 3.  
 
16) The Medicare contractor shall finalize the cost report, issue a NPR and make the 
necessary adjustment from or to the provider. 
 
17) After determining the total outlier reconciliation amount and issuing a NPR, 
Medicare contractors shall restore the CCR(s) to their original values (that is, the 
CCR(s) used to pay the claims) in the applicable provider records in the PSF to 
ensure an accurate history is maintained. Specifically, for hospitals paid under the 
IRF PPS, Medicare contractors shall enter the original CCR(s) in PSF field 25 -
Operating Cost to Charge Ratio. 
 
Medicare contractors shall contact the CMS Central Office via the mailing address or 
email address provided in 140.2.6 (F) with any questions regarding this process. 
 
Table 1: Data Elements for FISS Extract 
 
List of Data Elements for FISS Extract 
Provider #  
Health Insurance Claim (HIC) Number  
Document Control Number (DCN) 
Type of Bill  
Original Paid Date 
Statement From Date  
Statement To Date  
Original Reimbursement Amount (claims page 10)  
Revised Reimbursement Amount (claim page 10) 
Difference between these amounts  
Original Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Revised Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Difference between these amounts 
Original Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Revised Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Difference between these amounts 
Original Outlier Amount (Value Code 17) 
Revised Outlier Amount (Value Code 17) 
Difference between these amounts 
Original DSH Amount (Value Code 18)  List of Data Elements for FISS Extract 
Revised DSH Amount (Value Code 18) 
Difference between these amounts 
Original IME Amount (Value Code 19) 
Revised IME Amount (Value Code 19) 
Difference between these amounts 
Original New Tech Add-on (Value Code 77) 
Revised New Tech Add-on (Value Code 77) 
Difference between these amounts 
Original Device Reductions (Value Code D4) 
Revised Device Reductions (Value Code D4) 
Difference between these amounts 
Original Hospital Portion (claim page 14) 
Revised Hospital Portion (claim page 14) 
Difference between these amounts 
Original Federal Portion  (claim page 14) 
Revised Federal Portion  (claim page 14) 
Difference between these amounts 
Original C TOT PAY (claim page 14) 
Revised C TOT PAY (claim page 14) 
Difference between these amounts 
Original C FSP (claim page 14) 
Revised C FSP (claim page 14) 
Difference between these amounts 
Original C OUTLIER (claim page 14) 
Revised C OUTLIER (claim page 14) 
Difference between these amounts 
Original C DSH ADJ (claim page 14) 
Revised C DSH ADJ (claim page 14) 
Difference between these amounts 
Original C IME ADJ (claim page 14) 
Revised C IME ADJ (claim page 14) 
Difference between these amounts 
Original Pricer Amount  
Revised Pricer Amount 
Difference between these amounts 
Original PPS Payment (claim page 14) 
Revised PPS Payment (claim page 14) 
Difference between these amounts 
Original PPS Return Code (claim page 14) 
Revised PPS Return Code (claim page 14) 
DRG 
MSP Indicator (Value Codes 12-16 & 41-43 - indicator indicating the claim is MSP; 
Y = MSP, blank = no MSP 
Reason Code  List of Data Elements for FISS Extract 
HMO-IME Indicator 
Filler 
 
140.2.11 - Quality Reporting Program 
(Rev. 3039, Issued: 08-22-14, Effective: 10-01-14, Implementation: 10-06-14) 
 
Section 1886 (j)(7)(A)(i) of the Act requires application of a 2% reduction of the 
applicable market basket increase factor for IRFs that fail to comply with the quality data 
submission requirements.  FY 2014 is to be the first year that the mandated reduction will 
be applied for IRFs that failed to comply with the data submission requirements during the 
data collection period October 1, 2012 through December 31, 2012.  Thus, in compliance 
with 1886(j)(7)(A)(i) of the Act, we will apply a 2 percentage point reduction to the 
applicable FY 2014 market basket increase factor in calculating an adjusted FY 2014 
standard payment conversion factor to apply to payments for only those IRFs that failed to 
comply with the data submission requirements. 
 
Application of the 2% reduction may result in an update that is less than 0.0 for a fiscal 
year and in payment rates for a fiscal year being less than such payment rates for the 
preceding fiscal year.  Also, reporting-based reductions to the market basket increase 
factor will not be cumulative; they will only apply for the FY involved.  
 
The adjusted FY 2014 standard payment conversion factor that will be used to compute 
IRF PPS payment rates for any IRF that failed to meet the quality reporting requirements 
for the period from October 1, 2012 through December 2012 will be $14,555. 
 
After the reconsideration process has occurred and prior to October 1 of each FY, CMS 
will provide the Medicare contractors with a final list of IRFs that failed to comply with 
the data submission requirements.  The Medicare contractors will then be responsible for 
notifying each IRF that failed to comply with the quality data submission requirements 
that it will receive a 2% reduction in payment.  Additionally, the Medicare contractors 
shall include information regarding the IRFs right to further appeal the 2% reduction via 
the Provider Reimbursement Review Board (PRRB) appeals process.  Contractors shall 
send this second letter only to IRFs that requested a reconsideration.  Medicare contractors 
shall include the model language at the end of this section in their notification letter to the 
IRFs. 
 
The Medicare contractor shall update (or not update) the IRFs provider file based on the 
appropriate scenario listed below: 
 
  If the IRF was notified that it was potentially subject to the 2% reduction, and did 
not request a reconsideration, then the Medicare contractor shall set a quality 
reporting indicator in the provider file that triggers Medicare systems to calculate 
the 2% reduction on all of the IRFs claims for the upcoming fiscal year. 
    If the IRF was notified that it was potentially subject to the 2% reduction, and 
requested a reconsideration, but on reconsideration CMS upheld the decision to 
apply the 2% reduction, then the Medicare contractor shall set a quality reporting 
indicator in the provider file that triggers Medicare systems to calculate the 2% 
reduction on all of the IRFs claims for the upcoming fiscal year. 
 
  If the IRF was notified that it was potentially subject to the 2% reduction, and 
requested a reconsideration, and on reconsideration CMS determined that the IRF 
should not be subject to the 2% reduction (i.e., reversed its decision), then the 
Medicare contractor shall not update the quality reporting indicator in the IRFs 
provider file and shall notify the IRF that they will receive their full IRF PPS 
payment update for the upcoming fiscal year. 
 
  If the IRF submitted the necessary IRF Quality Reporting data and was never 
notified that it might potentially be subject to the 2% reduction, then the Medicare 
contractor shall take no action regarding the quality reporting indicator in the 
IRFs provider file. 
 
Below are the Quality Annual Rate Updates for the applicable Fiscal Years (FYs): 
 
FY  data collection  data collection  adjusted standard 
from  through  payment conversion 
factor 
FY 2014  10/01/2012  12/31/2012  $14,555 
FY 2015  01/01/2013  12/31/2013  $14,901 
 
140.3 - Billing Requirements Under IRF PPS 
(Rev. 11140, Issued:12-02-21, Effective:01-04-22, Implementation: 01-04-22) 
 
IRF PPS payment is contingent on the requirement that IRFs complete a patient 
assessment upon admission and discharge for Medicare patients.  The August 7, 2001, 
Final Rule, and subsequent final rules contain detailed information regarding the 
assessment schedule for the patient assessment instrument (PAI) with respect to 
transmission requirements, encoding dates, and other pertinent information.  Further, there 
is an item-by-item guide, which specifies detailed instructions regarding the manner in 
which each item on the assessment instrument needs to be completed. 
 
Effective with cost reporting periods beginning on or after January 1, 2002, IRFs are 
required to report billing data with a new revenue code and a Health Insurance PPS 
(HIPPS) Rate Code on the ASC X12 837 institutional claim or, in rare cases, on the Form 
CMS-1450 for all Part A inpatient claims (Type of Bill 11X) to their A/B MACs (A).  The 
new revenue code, 0024, is used in conjunction with the HIPPS Rate Code to identify the 
CMG payment classification for the beneficiary.  In addition to all entries previously 
required on a Part A claim, the following additional instructions must be followed to 
accurately price and pay a claim under the IRF PPS.  These claims must be submitted on 
Type of Bill 11X.  The last four digits of the provider number for rehabilitation hospitals  is from 3025 to 3099, and for rehabilitation distinct part units the third digit will be a T if 
the unit is located in an acute care hospital or an R if the unit is located in a CAH. 
 
  The Revenue code must contain revenue code 0024.  This code indicates that this 
claim is being paid under the PPS.  This revenue code can appear on a claim only 
once. 
 
  The following Patient Discharge Status codes are applicable under the transfer 
policy for IRF PPS: 02, 03, 61, 62, 63, and 64. 
 
NOTE:  IRFs that transfer a beneficiary to a nursing home that accepts payment under 
Medicare and/or Medicaid should use PS 03, discharged/transferred to a SNF.  IRFs that 
transfer a beneficiary to a nursing facility that does not accept Medicare or Medicaid, 
should code PS 04, discharged/transferred to an ICF, until such time that a new PS code is 
established to differentiate between nursing facilities that do not accept Medicare and/or 
Medicaid and those that do.  PS 04 does not constitute a transfer under the IRF PPS 
policy. 
 
  For typical cases, the HCPCS/Rates must contain a five digit HIPPS Rate/CMG 
Code (AXXYY-DXXYY).  The first position of the code is an A, B, C, or D.  The 
HIPPS rate code beginning with A in front of the CMG is defined as without 
comorbidity.  The HIPPS rate code containing a B in front of the CMG is defined 
as with comorbidity for Tier 1.  The HIPPS rate code containing a C in front of the 
CMG is defined as with comorbidity for Tier 2.  The HIPPS rate code containing a 
D in front of the CMG is defined as with comorbidity for Tier 3.  The (XX) in the 
HIPPS rate code is the Rehabilitation Impairment Category (RIC).  The (YY) in 
the HIPPS rate code is the sequential numbering system within the RIC. 
 
  For atypical cases effective January 1, 2010, the HCPCS/Rates must contain a five 
digit HIPPS Rate/CMG Code A5001.  An atypical case occurs under the new IRF 
coverage requirements that became effective January 1, 2010, where an IRF is 
eligible to receive the IRF short stay payment for 3 days or less (HIPPS Rate/CMG 
A5001) if a patients thorough preadmission screening shows that the patient is an 
appropriate candidate for IRF care but then something unexpected happens 
between the preadmission screening and the IRF admission such that the patient is 
no longer an appropriate candidate for IRF care on admission and the day count is 
greater than 3.  In this scenario only, if the patient is discharged/transferred on or 
after day 4, we are instructing IRFs to bill HIPPS Rate/CMG A5001.  Thus, 
whether or not the IRF is able to discharge the patient to another setting of care 
within 3 days, the IRF will only be eligible for and receive the IRF short stay 
payment for 3 days or less (HIPPS Rate/CMG A5001). 
 
Covered Charges should contain zero covered charges when the revenue code is 0024.  
For accommodation revenue codes (010x-021x), covered charges must equal the rate 
times the units.  The IRF Pricer will calculate and return the payment amount for the line  item with revenue code 0024.  Non-outlier payments will not be made based on the total 
charges shown in Revenue Code 0001. 
 
  IRF providers will submit one admit through discharge claim for the stay.  Final 
PPS payment is based upon the discharge bill. 
 
  Should the patient's stay overlap the time in which the PPS applies to the facility, 
PPS payment will still be based on discharge.  If the facility submitted an interim 
bill, a debit/credit adjustment must be made prior to PPS payment.  If the facility 
submits multiple interim bills, the provider will need to submit cancels and then 
rebill once the cancels are accepted. 
 
  IRFs can submit adjustment bills (even to correct the CMG), but late charge bills 
will not be allowed (Type of bill 115). 
 
  If a beneficiary has 1 day of Medicare coverage during their IRF stay, an entire 
CMG payment will be made. 
 
  IRFs will be paid under the IRF PPS beginning on the first day of their cost 
reporting period that begins on or after January 1, 2002.  Units established in a 
CAH will be paid under the IRF PPS beginning with CAH cost reporting periods 
on or after October 1, 2004. 
 
For interim bills, if the stay is greater than 60 days, the interim bill should include the 
lowest level of the HIPPS code from the admission assessment.  The final claim will be 
adjusted to reflect data from the discharge assessment. 
 
When coding PPS bills for ancillary services associated with a Part A inpatient stay, the 
traditional revenue codes will continue to be shown, e.g., 0250 - Pharmacy, 042x - 
Physical Therapy, in conjunction with the appropriate entries in Service Units and Total 
Charges. 
 
  IRFs are required to report the number of units based on the procedure or service. 
 
  IRFs are required to report the actual charge for each line item, in Total Charges. 
 
If a beneficiary's Part A benefits exhaust during the stay, code an occurrence code A3-C3.  
If benefits are exhausted prior to the stay, submit a no pay claim, which will be coded by 
the A/B MAC (A) with no pay code B.  Report any services that can be billed under the 
Part B benefit using 12X TOB. 
 
NOTE:  For more information on outlier payments when benefits are exhausted, please 
see 20.7.4.  Although this references an expired instruction specific to inpatient hospital 
PPS billing, the information presented provides important general information.   
 
  140.3.1 - Shared Systems and CWF Edits 
(Rev. 11075; Issued: 10-28-21; Effective: 12-01-21; Implementation: 12-01-21) 
            
To ensure that revenue code 0024 is not reported more than once on bill type 11X; 
 
  To ensure the claim can be matched to the corresponding Inpatient Rehabilitation 
Facility  Patient Assessment Instrument (IRF-PAI) assessment in the internet 
Quality Improvement Evaluation System (iQIES) 
 
  To compare applicable inpatient claims with post-acute claims that will allow 
erroneous claims to be reviewed and appropriate adjustments to be made on an 
ongoing basis to the discharging hospitals inpatient claim. 
 
  To check the incoming claims admission date to the history discharge date for the 
same provider except when patient status code is 30 (CWF); 
 
  To check the incoming claims discharge date to the history admission date for the 
same provider (CWF); 
 
  To reject subsequent claims with the same PPS provider on the same day (CWF); 
 
  Ensure accurate coding of patient status codes by checking the incoming claims 
admission date to the history discharge date; 
 
  CWF accepts the incoming claim and sends an informational 
o
unsolicited response to the A/B MAC (A) on the history claim if the 
patient status code does not match the incoming provider number 
 
  The A/B MAC (A) cancels the history claim to the provider 
o
 
  To check incoming claims discharge date to the history admission date to ensure 
the appropriate use of the patient status code on the incoming claim; 
 
  CWF rejects the incoming claim if the patient status code does not match the 
provider number; 
 
  A/B MAC (A) returns the incoming claim to the provider for correction of the 
patient status code. 
 
  To insure that revenue code 0024 is only on claims submitted by IRF providers.  
Bills submitted incorrectly will be returned to the provider. 
 
  To insure that a valid HIPPS/CMG rate code is always present with revenue code 
0024; 
 
  Units entered on the 0024 must be accepted, but are not required.   
  To insure that revenue code total charges line 0001 must equal the sum of the 
individual total charges lines; 
 
  To insure that the length of stay in the statement covers period, from and through 
dates equals the total days for accommodations revenue codes 010x-021x, 
including revenue code 018x (leave of absence)/interrupted stay, 
 
  To insure that Occurrence Span Code 74 is present on the claim if there is an 
interrupted stay < 3 days.  If the interruption is greater than 3 days, the bill should 
be considered a discharge.  If the patient returns to the IRF by midnight of the 3rd 
day, the bill continues under the same CMG.  CWF will need to edit to ensure that 
if another IRF bill comes in during the interrupted stay, it is rejected, as it should 
be associated with the original CMG; and 
 
  If HIPPS rate code is 5101, 5102, 5103, or 5104 patient status must be 20 
(Expired)/ 
 
  The accommodation revenue code 018x (leave of absence) will continue to be used 
in the current manner including the appropriate occurrence span code 74 and date 
range. 
 
140.3.1.1 - Actions When a Claim Does Not Match the Inpatient 
Rehabilitation Facility-Patient Assessment Instrument (IRF-PAI)  
(Rev. 11075; Issued: 10-28-21; Effective: 12-01-21; Implementation: 12-01-21) 
 
 
     The following outcomes are possible when a claim does not match the IRF-PAI 
HIPPS: 
 
 
  A matching assessment is found. The claim HIPPS code does not match the 
o
IRF-PAI HIPPS code, but    the transmission date matches causing the 
claims processing system to use the assessment HIPPS code documented in 
iQIES for claims processing purposes; 
 
  A matching assessment is found. The claim HIPPS code does not match 
o
IRF-PAI HIPPS code, and the 
transmission date is different causing the claims processing system to use 
the assessment HIPPS code and date documented in iQIES for claims 
processing purposes; 
 
  A matching assessment is not found. This causes the claim to Return to 
o
Provider (RTP) with Reason Code 37096. 
 
  IRFs should be sure to have an IRF-PAI that has completed processing at iQIES 
before submitting an IRF claim to the Medicare Administrative Contractor. The 
IRF can verify this by reviewing their IRF-PAI validation report. 
 
If an IRF has inadvertently submitted their claim prior to the corresponding IRF-
PAI being accepted in iQIES and the claim has RTPd with Reason Code 37096, 
simply resubmit the claim once the IRF-PAI has completed processing. This will 
require communication between the providers billing office and their clinical staff 
that submits their IRF-PAI.  
 
If a claim is returned because Medicare systems do not find the matching 
assessment, there is no need to call the QIES Technical Support Office (QTSO) 
help desk for such billing issues. 
 
If a provider has submitted an IRF-PAI prior to submission of the claim with 
information that is different from the claim submission for any of the following 
information: 
 
  Medicare Beneficiary Identifier (IRF-PAI item 2); 
o
 
  Beneficiary date of birth (IRF-PAI item 6); 
o
 
  Provider CCN (IRF-PAI item 1B); 
o
 
  Claim statement covers through dates (IRF-PAI item 40); and 
o
 
  Claim admission date (IRF-PAI item 12). 
o
 
The claim or the IRF-PAI should be corrected (depending on which item had the 
error) and then the claim resubmitted. If the claim is resubmitted without 
correcting the appropriate information, the claim will be returned to the provider 
again. 
 
In most cases the claim is being submitted one (1) day prior to the finalization of 
the IRF-PAI. IRFs may want to add an additional claim hold day(s) on their claim 
submission to allow IRF-PAI completing processing and to avoid claims being 
RTPd with Reason Code 37096. 
 
 
 
 
 
140.3.2 - IRF PPS Pricer Software 
(Rev. 693, Issued: 09-30-05, Effective: 10-01-05, Implementation: 10-31-05) 
  The CMS has developed an IRF Pricer Program that calculates the Medicare payment rate.  
Pricer will use a variety of inputs listed below to calculate the payment rate. 
 
A.  Inputs to Pricer 
 
  Provider Specific File data (see section 20.2.3.1 and Addendum of this chapter for 
required elements) 
 
  Bill Data includes: 
  
  Patient Status: 
 
  Payment Modification Flag (if condition code is 66, set flag "Y" otherwise use 
"N."); 
 
  Covered Charges; 
 
  Discharge Date; 
 
  HIPPS/CMG Rate Code; 
 
  Length of Stay (LOS); 
 
  Covered Days; 
 
  Lifetime Reserve Days (LTR) 
 
B.  Data Returned From Pricer  
 
Pricer returns the following information: 
 
  PPS Return Code 
 
  MSA /CBSA (effective October 1, 2005) 
 
  Wage Index 
 
  Average LOS 
 
  Relative Weight 
 
  Total Payment Amount 
 
  PPS Federal Payment Amount 
 
  Facility Specific Payment Amount   
  Outlier Payment Amount 
 
  Low-Income Payment (LIP) Amount 
 
  Teaching Amount (effective October 1, 2005) 
 
  LOS 
 
  Regular Days Used 
 
  LTR Days Used 
 
  Transfer Percentage 
 
  Facility Specific Rate pre-blend 
 
  Standard Payment Amount 
 
  PPS federal amount pre-blend 
 
  Facility costs 
 
  Outlier threshold 
 
  Submitted HIPPS/CMG code 
 
  PPS Pricer CMG code 
 
  Calculation version code 
 
The Pricer is available electronically to the Shared Systems. 
 
140.3.3 - Remittance Advices 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16)  
 
A remittance advice remark code is used to notify an IRF when the CMG code was 
changed.  
 
The following reflects the remittance advice messages and associated codes that will 
appear when communicating claims under this policy.  The CARC below is not included 
in the CAQH CORE Business Scenarios. 
 
Group Code: N/A 
CARC: N/A 
RARC: Alert N69  MSN: N/A 
 
150 - Long Term Care Hospitals (LTCHs) PPS 
(Rev. 1, 10-01-03) 
PM A-02-093 
 
150.1 - Background 
(Rev. 1, 10-01-03) 
 
LTCHs are certified under Medicare as short-term acutecare hospitals that have been 
excluded from the acute care hospital inpatient prospective payment system (PPS) under 
1886(d)(1)(B)(iv) of the Act and, for   Medicare payment purposes, are generally defined 
as having an average inpatient length of stay of greater than 25 days.  This PPS replaced 
the previous reasonable cost-based payment system for LTCHs. 
 
150.2 - Statutory Requirements 
(Rev. 1, 10-01-03) 
 
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), 
as amended by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000 (BIPA), required that a budget neutral, per discharge PPS for LTCHs based 
on diagnosis-related groups (DRGs) be implemented for cost reporting periods beginning 
on or after October 1, 2002. 
 
The CMS satisfied the statutory implementation requirement by establishing October 1, 
2002 as the effective date of the LTCH PPS with systems changes to follow.  Payments 
for LTCH services furnished for cost reporting periods beginning on or after October 1, 
2002 are based on the policies set forth in the August 30, 2002 final rule (67 FR 55954). 
 
150.3 - Affected Medicare Providers 
(Rev. 11396, Issued:05-04-22, Effective:10-01-22, Implementation:10-03-22) 
 
LTCHs are certified under Medicare as short-term acute care hospitals and, for Medicare 
payment purposes, are generally defined as having an average inpatient length of stay of 
greater than 25 days. 
 
Veterans Administration Hospitals, hospitals that are reimbursed under state cost control 
systems approved under 42 CFR Part 403, and hospitals that are reimbursed in accordance 
with demonstration projects authorized under 402(a) of Public Law 90-248 (42 U.S.C.  
1395b-1) or 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1) are not included in the 
LTCH PPS.  (See 42 CFR 412.22(c).)  Payment to foreign hospitals will be made in 
accordance with the provisions set forth in 42 CFR 413.74.  Currently, two of the four 
Maryland LTCHs included on CMS Certification Number (CCN) database are presently 
paid in accordance with demonstration projects (i.e., the Maryland "Waiver") and 
therefore not subject to payments under the LTCH PPS:  Levindale Hebrew Geriatric  Center and Deaton Hospital and Medical Center (now known as University Specialty 
Hospital). 
 
150.4 - Revision of the Qualification Criterion for LTCHs 
(Rev. 208, 06-18-04) 
 
Under the LTCH PPS, the greater than 25-day average length of stay (ALOS) calculation 
is based only on a hospital's Medicare inpatients, counting total medically necessary days, 
not only covered days.  For cost reporting periods beginning on or after October 1, 2002, 
LTCHs are required to meet this revised criteria in order to qualify as LTCHs for 
Medicare payment purposes. 
 
The average Medicare length of stay is calculated by dividing the total number of covered 
and noncovered days of care provided to Medicare patients, by the Medicare discharges 
occurring during that period.  If the days of a stay involve days of care furnished during 
two or more separate cost reporting periods, that is, an admission during one cost 
reporting period and a discharge during a future cost reporting period, the total number of 
days of the stay are considered to have occurred during the cost reporting period during 
which the patient was discharged.  For cost reporting periods beginning on or after July 1, 
2004, if a hospital fails to meet the ALOS requirement under this provision, the A/B MAC 
(A) will determine the ALOS for cost reporting periods beginning on or after July 1, 2004 
but before July 1, 2005 by dividing the applicable total days for Medicare inpatients 
during the cost reporting period when they occur, by the number of discharges occurring 
during the same cost reporting period. 
 
If the A/B MAC (A) determines that the LTCH does not qualify, A/B MACs (A) are to 
follow the procedures already established in the Medicare General Information, 
Eligibility, and Entitlement Manual (CMS Pub. 100-01).  The new manual can be found at 
http://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/index.html?redirect=/manuals/cmsindex.asp.  Select 
Internet-Only Manuals (IOM) from the left side of the page, then select 100-01.  
The CMS requires on-going monitoring of LTCH compliance with the above requirements 
as well as notification by A/B MACs (A) regarding this compliance. 
 
150.5 - Payment Provisions Under LTCH PPS 
(Rev. 1, 10-01-03) 
 
Section 123 of Public Law 106-113(BBRA), as amended by 307 of Public Law 106-
554(BIPA), authorizes the establishment of Federal payment rates under PPS for LTCHs.  
The BIPA confers broad authority on the Secretary to determine what payment system 
adjustments should be included in the LTCH PPS, both on a facility level and on a case-
level, to ensure that payment most accurately reflects cost. 
 
The CMS has established a transition to full payments under the LTCH PPS:  a 5-year 
phase-in during which a decreasing percentage of payments will based upon what 
payments would have been under the reasonable cost-based system.  LTCHs may also  elect to receive payment based on 100 percent of the "Federal payment rate."  New 
LTCHs are to be paid based fully on 100 percent of the Federal rate (i.e. hospitals for 
which the first cost reporting period as an LTCH began on or after October 1, 2002). (See 
150.10.1.) 
 
150.5.1 - Budget Neutrality 
(Rev. 1, 10-01-03) 
 
The BBRA requires that total payments under the PPS must equal the amount that would 
have been paid if the PPS had not been implemented. 
 
150.5.2 - Budget Neutrality Offset 
(Rev. 3445, Issued: 01-29-16, Effective: 01-01-16, Implementation: 04-04-16) 
 
A reduction factor to all Medicare payments during the transition to account for the 
monetary effect of the 5-year transition from the present cost-based payment system and 
the LTCH PPS, and the policy to permit LTCHs to elect payment solely under the PPS 
rather than based on the blend during the transition.  (See 150.10.1.) 
 
If a LTCH is paid under the transition blend methodology, the budget neutrality offset will 
be applied to both the TEFRA Rate Percentage and the Federal Rate percentage. 
 
The budget neutrality offset equals 1 minus the ratio of the estimated TEFRA reasonable 
cost-based payments that would have been made had the LTCH PPS not been 
implemented to the projected total Medicare program payments that would be made under 
the transition methodology and the option to elect payment based on the 100 percent of the 
Federal rate. 
 
The per discharge Federal rates under the PPS are based on average LTCH costs in a base 
year updated for inflation to the first effective period of the system. 
 
Fiscal year changes to the LTCH PPS system occur annually in October.  Specific 
instructions will be published shortly after the publication of the LTCH Final Rule each 
year.  In addition, other changes to the inpatient prospective payment system may occur in 
January, April or July as necessary. 
 
150.6 - Beneficiary Liability 
(Rev. 1, 10-01-03) 
 
Beneficiary liability will operate the same as under the former TEFRA cost-based 
payment system, i.e., if Medicare payments are below the cost of care for a patient under 
prospective payment, the patient cannot be billed for the difference. 
 
As under the former TEFRA cost-based payment system, beneficiaries (or their Medigap 
insurers or other private insurers, such as an employer-sponsored plan, as applicable) are  responsible for all noncovered days, where Medicare has not made a full LTC-DRG 
payment. 
 
For more detailed information regarding lifetime reserve days, refer to the Medicare 
Benefit Policy Manual, chapter 5. 
 
150.7 - Patient Classification System 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014)  
 
The BBRA required the use of diagnostic-related groups (DRGs) for patient classification 
purposes in the PPS for LTCHs.  In general, a case is grouped based on the clinical 
characteristics of the Medicare beneficiary. 
 
The patient classification system groupings are called LTC-DRGs, which are based on the 
existing CMS DRGs used under the acute care hospital inpatient PPS.  Patient discharges 
are grouped using ICD diagnosis codes reported on the claim for the principal diagnosis, 
up to twenty four additional diagnoses, and up to twenty five procedures performed during 
the stay, as well as age, sex, and discharge status of the patient. 
 
The same GROUPER software developed by 3M for the acute care hospital inpatient PPS, 
is used but with LTCH-specific relative weights reflecting the resources used to treat the 
medically complex LTCH patients). 
 
150.8 - Relative Weights 
(Rev. 1, 10-01-03) 
 
Payment weights assigning a specific value representing the relative resource use of each 
LTC DRG are determined by the hospital-specific relative value method.  This 
methodology normalizes charges within each hospital and then compares them across 
hospitals.  Relative weights are updated annually October 1 using the most recent 
available claims data.  Relative weights and the geometric average length of stay are in the 
Pricer program. 
 
150.9 - Payment Rate 
(Rev. 1547, Issued:  07-03-08; Effective:  07-01-08; Implementation:  07-07-08) 
 
Payments to LTCHs under the LTCH PPS are based on a single standard Federal rate for 
both the inpatient operating and capital-related costs (including routine and ancillary 
services), but not certain pass through costs (i.e., bad debts, direct medical education, new 
technologies, and blood clotting factors).  This single standard Federal rate is updated 
annually by the excluded hospital with capital market basket index.  The formula for an 
unadjusted LTCH PPS prospective payment is as follows: 
    Federal Prospective Payment = LTC-DRG Relative Weight * Standard Federal 
Rate Case-Level Adjustments 
 
Effective July 1, 2003, the annual update to the standard Federal rate is based on the 
LTCH PPS rate year of July 1 through June 30, rather than the Federal fiscal year 
(October 1 through September 30).  July 1, 2008, is the final rate year; LTCH PPS is 
moving back to a Federal Fiscal Year effective October 1, 2009. 
 
150.9.1 - Case-Level Adjustments 
(Rev. 1, 10-01-03) 
 
Payments are based on the LTC-DRG described as well as possible adjustments specific to 
the case.  Because LTCHs are distinguished from other inpatient hospital settings by an 
average length of stay of greater than 25 days, it was necessary to establish payment 
categories for certain cases that have stays of considerably less than the average length of 
stay.  The following case-level adjustments are applied to cases that, based on length of 
stay at the LTCH, receive significantly less than the full course of treatment for a specific 
LTC-DRG. 
 
150.9.1.1 - Short-Stay Outliers 
(Rev. 2060, Issued: 10-01-10, Effective: 10-01-10, Implementation: 10-04-10) 
 
  Generally, a short-stay outlier (SSO) is a case that has a covered length of stay 
between 1 day and up to and including 5/6 of the average length of stay for the LTC-
DRG to which the case is grouped.  Effective for LTCH PPS discharges occurring on 
or before June 30, 2006, the adjusted payment for an SSO case is the least of: 
 
  120 percent of the cost of the case (determined using the facility-specific cost to 
charge ratio (CCR) and covered charges from the bill); 
 
  120 percent of the LTC-DRG specific per diem payment (determined using the 
LTC-DRG relative weight, the average length of stay of the LTC-DRG, and the 
length of stay of the case); or 
 
  The full LTC-DRG payment. 
 
To compute 120% of cost: 
 
  Charges x CCR = Cost ($13,870.33) x (0.8114) = $11,254.39 
 
  120% of cost = $11,254.39 x 1.2 = $13,505.27 
 
To compute 120% of the specific LTC-DRG per diem: 
 
  Full LTC-DRG payment / ALOS LTC-DRG x LOS of the case x 1.2 
  Full LTC-DRG payment: 
 
$34,956.15 (FY 2003 standard Federal rate) 
 
x 0.72885 (labor %) 
 
$25,477.79 (labor share) 
 
x 1.0301 (1/5th wage index value for FY 2003) 
 
$26,244.67 (wage adjusted labor share) 
 
+ 9,478.36 (non-labor share=$34,956 x 0.27115) 
 
$35,723.03 (adjusted standard Federal rate) 
 
x 1.4103 (LTC-DRG 113 relative weight) 
 
$50,380.19 (full LTC-DRG payment 
 
Per Diem = $50,380.19 / 36.9 (ALOS LTC-DRG 113) = $1365.32 per day 
 
If LOS of case is 10 days, then 120% of per diem = $1365.32 per day x 10 days x 
1.2 = $16,383.80. 
 
In this example, the case is paid 120% of cost ($13,505.27) since it is less than $120% of 
the specific LTC-DRG per diem ($16,383.80) and the full LTC-DRG payment 
($50,380.19). 
 
For discharges occurring on or after August 8, 2003, short-stay outlier payments are to be 
reconciled upon cost report settlement to account for differences between the estimated 
cost-to-charge-ratio and the actual cost-to-charge ratio for the period during which the 
discharge occurs.  For further information, refer to the June 9, 2003 High Cost Outlier 
final rule (68 FR 34506 - 34513). 
 
For RY 2007, the SSO policy was revised as follows: 
 
  Effective for LTCH PPS discharges occurring on or after July 1, 2006, the adjusted 
payment for a SSO case is equal the least of: 
 
  100 percent of estimated cost of the case, 
o
 
  120 percent of the LTC-DRG per diem amount, 
o
 
  the full LTC-DRG payment, or 
o
    a blend of an amount comparable to what would otherwise be paid under the IPPS, 
o
computed as a per diem and capped at the full IPPS DRG comparable amount, and 
the 120 percent LTC-DRG per diem amount. 
 
Under the blend alternative, the percentage of the 120 percent LTC-DRG per diem amount 
is based on the ratio of the (covered) length of stay of the case to the lesser of the SSO 
threshold for the LTC-DRG (i.e., 5/6ths of the geometric ALOS of the LTC-DRG) or 25 
days.  As the length of stay reaches the lower of the five-sixths SSO threshold or 25 days, 
the adjusted SSO payment is no longer be limited by this fourth option.  This is because 
for SSO cases with a LOS of 25 days or more, the amount determined under the blend 
alternative is equal to 100 percent of the 120 percent of the LTC- DRG specific per diem 
amount and 0 percent of the IPPS comparable per diem amount. In addition, the LOS in 
the numerator cannot exceed the number of days in the denominator (i.e., the percentage 
may not exceed 100 percent).  The remaining percent of the blend alternative (that is, 100 
percent minus the percentage applied to the 120 percent of the LTC-DRG per diem 
amount) is applied to the IPPS comparable per diem amount (capped at the full IPPS 
comparable amount). 
 
The following examples illustrate how the blend alternative is calculated when the LTCH 
patient is grouped to hypothetical DRG XYZ.  For purposes of this example, for DRG 
XYZ, the full LTC DRG payment is $38,597.41, the LTCH PPS geometric ALOS is 33.6 
days, the LTCH PPS SSO threshold (i.e., 5/6ths of the geometric ALOS) is 28.0 days, the 
full IPPS comparable amount is $8,019.82, and the IPPS geometric ALOS is 4.5 days. 
 
SSO Example #1 - LOS equals 11 Days: 
 
Step  Description of  Description of 
Example of Calculation  Result 
Number  Step  Calculation 
Divide the full LTC-
DRG payment by 
the geometric 
Determine 120 
ALOS of LTC-DRG  $38,597.41 x11 days x 
percent of the 
1a  XYZ and multiply  1.2  $15,163.27 
LTC-DRG per 
that per diem  33.6 days 
diem amount 
amount by both the 
covered LOS and 
1.2  
Calculate the  Divide the covered 
percentage of the  LOS by the lesser of 
1b*  120 percent of  the 5/6th ALOS of  11 days  25 days  0.44 
the LTC-DRG  LTC-DRG XYZ or 
per diem amount   25 days  Step  Description of  Description of 
Example of Calculation  Result 
Number  Step  Calculation 
Multiply the 
Determine the 
percentage 
LTC-DRG per 
determined in step 
1c  diem portion of  0.44 x $15,163.28  $6,671.84 
(1-b) by the LTC-
the blend 
DRG per diem 
alternative 
amount in step (1-a) 
Divide the full IPPS 
comparable amount 
Calculate the 
by the geometric  $8,019.82 x 11 days 
2a  IPPS comparable  $19,604.00 
ALOS of DRG  4.5 days 
per diem amount  
XYZ and multiply 
by the covered LOS  
Compare the full 
The full IPPS 
Determine the  IPPS comparable 
comparable amount 
IPPS comparable  amount to the IPPS 
($8,019.82) is lower than 
2b  per diem amount  comparable per  $8,019.82 
the IPPS comparable per 
to be used in the  diem amount to 
diem amount 
blend alternative   determine which is 
($19,604.00) 
the least amount 
Subtract the 
percentage 
determined in step 
Calculate the 
(1-b) from 1 (i.e., 1 
percentage of the 
2c  minus the covered  1 - 0.44  0.56 
IPPS comparable 
LOS divided by the 
per diem amount 
lesser of the 5/6th 
ALOS of LTC-DRG 
XYZ or 25 days) 
Multiply the 
Determine the  percentage 
IPPS comparable  determined in step 
2d  per diem portion  (2-c) by the IPPS  0.56 x $8,019.82  $4,491.10 
of the blend  comparable amount 
alternative   determined in step 
(2-b) 
Add the LTC-DRG 
per diem portion 
determined in step 
Compute the  (1-c) and the IPPS 
3  $6,671.84 + $4,491.10  $11,162.94 
blend alternative  comparable per 
diem portion 
determined in 
step (2-d) 
  * In this example, 25 days was used in the denominator since the 5/6th ALOS of LTC 
DRG XYZ (28.0 days) is greater than 25 days.  If the 5/6th ALOS of LTC-DRG XYZ was 
less than 25 days, that value would have been used in the denominator of this calculation.  
In addition, the LOS in the numerator may not exceed the number of days in the 
denominator (i.e., the percentage may not exceed 100 percent). 
 
SSO Example #2 - LOS equals 27 Days: 
 
Step  Description of  Description of  Example of 
Result 
Number  Step  Calculation  Calculation 
Divide the full LTC-
DRG payment by the 
Determine 120  $38,597.41 x 27 days 
geometric ALOS of 
percent of the  33.6 days  $37,218.
1a  LTC-DRG XYZ and 
LTC-DRG per    93 
multiply that per diem 
diem amount  x 1.2 
amount by both the 
covered LOS and 1.2  
Divide the covered 
LOS by the lesser of 
the 5/6th ALOS of 
Calculate the 
LTC-DRG XYZ or 
percentage of 
25 days; however,  27 days  25 days is > 
the 120 percent 
1b*  since the LOS in the  1; therefore percent is  1.00 
of the LTC-
numerator exceeds the  1.00 
DRG per diem 
number of days in the 
amount  
denominator, the 
percentage equals 100 
percent 
Multiply the 
Determine the 
percentage 
120 percent of 
determined in step (1-
the LTC-DRG  $37,218.
1c  b) by the 120 percent  1.0 x $37,218.93 
per diem portion  93 
of the LTC-DRG per 
of the blend 
diem amount in step 
alternative 
(1-a) 
Divide the full IPPS 
Calculate the  comparable amount 
IPPS  by the geometric  $8,019.82 x 11 days  $48,118.
2a 
comparable per  ALOS of DRG XYZ  4.5 days  92 
diem amount  and multiply by the 
covered LOS   Step  Description of  Description of  Example of 
Result 
Number  Step  Calculation  Calculation 
Compare the full 
Determine the  The full IPPS 
IPPS comparable 
IPPS  comparable amount 
amount to the IPPS 
comparable per  ($8,019.82) is lower  $8,019.8
2b  comparable per diem 
diem amount to  than the IPPS  2 
amount to determine 
be used in the  comparable per diem 
which is the least 
blend alternative   amount ($48,118.92) 
amount 
Subtract the 
percentage 
Calculate the  determined in step (1-
percentage of  b) from 1 (i.e., 
2c  the IPPS  1 minus the covered  1 - 1.00  0.00 
comparable per  LOS divided by the 
diem amount  lesser of the 5/6th 
ALOS of LTC-DRG 
XYZ or 25 days) 
Multiply the 
Determine the 
percentage 
IPPS 
determined in step (2-
comparable per 
2d  c) by the IPPS  0.00 x $8,019.82  $0.00 
diem amount 
comparable per diem 
portion of the 
amount determined in 
blend alternative  
step (2-b) 
Add the 120 percent 
of the LTC-DRG per 
diem portion 
Compute the  determined in step (1- $37,218.
3  $37,218.93 + $0.00 
blend alternative  c) and the IPPS  93** 
comparable per diem 
portion determined in 
step (2-d) 
 
* In this example, 25 days was used in the denominator since the 5/6th ALOS of LTC 
DRG XYZ (28.0 days) is greater than 25 days.  If the 5/6th ALOS of LTC-DRG XYZ was 
less than 25 days, that value would have been used in the denominator of this calculation.  
In addition, the LOS in the numerator may not exceed the number of days in the 
denominator (i.e., the percentage may not exceed 100 percent). 
 
** Note that, since in this example the LOS of the SSO case exceeds 25 days, the blend 
percentage applicable to the 120 percent of the LTC-DRG specific per diem amount is 100 
percent and the percentage applicable to the IPPS comparable per diem amount is 0 
percent, therefore the amount computed under the blend option is equal to 120 percent of 
the LTC-DRG specific per diem amount. 
  Under the blend alternative of the SSO payment formula, an amount comparable to what 
would otherwise be paid under the IPPS (i.e., full IPPS comparable amount) includes 
payment for the costs of inpatient operating services based on the standardized amount 
determined under 412.64(c), adjusted by the applicable DRG weighting factors 
determined under 412.60 as specified at 412.64(g). This amount is further adjusted to 
account for different area wage levels by geographic area using the applicable IPPS labor-
related share, based on the CBSA where the LTCH is physically located as set forth at 
412.525(c) and using the IPPS wage index for non-reclassified hospitals published in the 
annual IPPS final rule. (In the RY 2006 LTCH PPS final rule (70 FR 24200), we discuss 
the inapplicability of geographic reclassification procedures for LTCHs.) For LTCHs 
located in Alaska and Hawaii, this amount is also adjusted by the applicable proposed 
COLA factor used under the IPPS published annually in the IPPS final rule. (Currently, 
the same COLA factors are used under both the IPPS and the LTCH PPS.) 
 
Additionally, an amount comparable to what would be paid under the IPPS for the case 
includes a disproportionate share (DSH) adjustment (see 412.106), if applicable, and 
includes an indirect medical education (IME) adjustment (see 412.105), if applicable.  
For the comparable IPPS DSH adjustment, provider specific file elements 24 (Bed Size), 
27 (Supplemental Security Income Ratio (SSI)), and 28 (Medicaid Ratio) are required, as 
discussed below.  In determining a LTCHs SSI ratio and Medicaid ratio used in the 
calculation of the comparable IPPS DSH adjustment, refer to sections 20.3.1.1 and 
20.3.1.2 of this manual. 
 
For the comparable IPPS IME adjustment, provider specific file elements 23 (Intern/Beds 
Ratio) and 49 (Capital Indirect Medical Education Ratio) are required, as discussed below.  
Furthermore, the IPPS comparable IME adjustment for a LTCH is determined by imputing 
a limit on the number of full-time equivalent (FTE) residents that may be counted for IME 
(IME cap) based on the LTCHs direct GME cap as set forth at 413.79(c)(2) (which will 
already be established for a LTCH which had residency programs). In determining the 
IPPS comparable IME adjustment for a LTCH, if applicable, the use of a proxy for the 
IME cap is necessary because it would not be appropriate to apply the IPPS IME rules 
literally in the context of this LTCH PPS payment adjustment. The full IPPS comparable 
amount used under the blend alternative in the SSO payment adjustment, also includes 
payment for inpatient capital-related costs, based on the capital Federal rate at 
412.308(c), which is adjusted by the applicable IPPS DRG weighting factors. This 
amount is further adjusted by the applicable geographic adjustment factors set forth at 
412.316, including wage index (based on the CBSA where a LTCH is physically located 
and derived from the IPPS wage index for non-reclassified hospitals as published in the 
annual IPPS final rule), and large urban location, if applicable.  A LTCH PPS payment 
amount comparable to what would be paid under the IPPS does not include additional 
payments for extraordinarily high cost cases under the IPPS outlier policy (412.80(a)).  
Under existing LTCH PPS policy, a SSO case that meets the criteria for a LTCH PPS high 
cost outlier payment at 412.525(a)(1) (i.e., if the estimated costs of the case exceeds the 
adjusted LTCH PPS SSO payment plus the fixed-loss amount) will receive an additional 
payment under the LTCH PPS HCO high cost outlier at 412.525(a) (67 FR 56026; 
August 30, 2002).  Under the revised SSO payment formula, we will continue to use the  fixed-loss amount calculated under 412.525(a), and not a fixed-loss amount based on 
412.80(a), to determine whether a SSO case receives an additional payment as a high 
cost outlier case. 
 
For RY 2008, the SSO policy was revised as follows: 
 
Effective for LTCH PPS discharges occurring on or after July 1, 2007, and on or before 
December 28, 2007*, the payment adjustment formula for SSO cases was revised for those 
cases where the patients LTCH covered LOS is less than, or equal to an IPPS-
comparable threshold.  For cases falling within this IPPS-comparable threshold, 
Medicare payment under the SSO policy is subject to an additional adjustment. 
 
The IPPS-comparable threshold is defined as the geometric average length of stay for the 
same DRG under the IPPS plus one standard deviation (refer to Table 3 in the LTCH PPS 
RY 2008 final rule (72 FR 26870 at 27019- 27029)). 
 
If the covered LOS at the LTCH is less than or equal to the IPPS-comparable threshold for 
the LTC-DRG, Medicare payment is based on the IPPS comparable per diem amount, 
capped at the full IPPS comparable amount.  This option replaces the blend amount in 
the adjusted LTCH PPS SSO payment formula. 
 
Effective for discharges occurring on or after July 1, 2007 and on or before December 28, 
2007*, therefore, the adjusted Medicare payment for an SSO case where the covered LOS 
at the LTCH is within the IPPS-comparable threshold, is equal the least of: 
 
  100 percent of estimated cost of the case, 
o
 
  120 percent of the LTC-DRG per diem amount, 
o
 
  the full LTC-DRG payment, or 
o
 
  the IPPS comparable per diem amount , capped at the full IPPS comparable 
o
amount 
 
The IPPS comparable amount is determined by the same methodology as the IPPS 
comparable portion of the blend alternative, specified above in the above examples at 2a. 
 
For SSO cases where the covered length of stay exceeds the IPPS threshold, payment is 
made under the SSO payment formula that became effective beginning in RY 2007, as 
specified above. 
 
*NOTE:  On December 29, 2007, the Medicare, Medicaid, and SCHIP Extension Act of 
2007 (MMSEA) was enacted that mandated a modification to the SSO payment 
adjustment formula for a 3-year period beginning on the date of enactment of the Act.  
Specifically, section 114(c)(3) of the MMSEA specifies that the revision to the SSO 
policy implemented in RY 2008 shall not apply for a 3-year period beginning with  discharges occurring on or after December 29, 2007.  Consequently, the fourth option in 
the SSO payment adjustment formula at 412.529(c)(3)(i) will not apply during this 3-
year period, and therefore, there will be no comparison of the covered LOS of the SSO 
case to the IPPS threshold in determining the payment adjustment for SSO cases.  
Therefore, for SSO discharges occurring on or after December 29, 2007, and before 
December 29, 2012, the adjusted payment for a SSO case is equal to the least of: 
 
  100 percent of estimated cost of the case, 
o
 
  120 percent of the LTC-DRG per diem amount, 
o
 
  the full LTC-DRG payment, or 
o
 
  a blend of an amount comparable to what would otherwise be paid under the IPPS, 
o
computed as a per diem and capped at the full IPPS DRG comparable amount, and 
the 120 percent LTC-DRG per diem amount. 
 
As noted above, during this 3-year period specified by the MMSEA, all SSO cases 
(including those where the covered LOS exceeds the IPPS threshold) are paid under the 
SSO payment formula that became effective beginning in RY 2007, as described above. 
 
Short Stay Outlier Policy for LTCHs qualifying under 1886(d)(1)(B)(II) 
 
A subsection (II) hospital: 
 
  Was excluded as a LTCH in 1986 
 
  Has an average inpatient LOS of greater than 20 days, and 
 
  Demonstrates that 80 percent of its annual Medicare inpatient discharges in the 12-
month reporting period ending FFY 1997 have a principal finding of neoplastic 
disease. 
 
For a subsection (II) hospital there is a special short-stay outlier policy effective for the 
remainder of the transition period (i.e., discharges occurring on or after July 1, 2003 
through December 31, 2006), where the lesser of 120 percent of cost or120 percent of the 
per diem LTC-DRG in the existing short-stay outlier policy is replaced with the follow 
percentages: 
 
  Effective for discharges occurring on or after July 1, 2003 through the first year 
of transition 195%; 
 
  Effective for discharges during the second year of the transition, 193%; 
 
  Effective for discharges during the third year of the transition, 165%; 
    Effective for discharges during the fourth year of the transition, 136%; and 
 
  Effective for discharges for the last year and thereafter, the percentage returns to 
120%. 
 
150.9.1.2 - Interrupted Stays 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
 
Beginning on July 1, 2004, there are two interruption of stay policies in effect under the 
LTCH PPS. 
 
A 3-day or less interruption of stay is a stay at an LTCH during which the beneficiary is 
discharged from the LTCH to an acute care hospital, IRF, SNF, or home and readmitted to 
the same LTCH within 3-days of the discharge.  The 3-day or less period begins with the 
date of discharge from the LTCH and ends not later than midnight of the third day. 
 
Medicare payment for any test, procedure, or care provided on an outpatient basis or for 
any inpatient treatment during the interruption" would be the responsibility of the LTCH 
under arrangements with one limited exception:  for RY 2005 and RY 2006, if treatment 
at an inpatient acute care hospital would be grouped to a surgical DRG, a separate 
Medicare payment would be made under the IPPS for that care.  Effective for dates of 
service on or after July 1, 2006 (RY 2007), this limited exception for surgical DRGs is no 
longer applicable.  No further separate payment to an acute care hospital will be made.  
Any tests or procedures, that were administered to the patient during that period of time of 
interruption will be considered to be part of that single episode of LTCH care and bundled 
into the payment to the LTCH.  The LTCH will be required to pay any other providers 
without additional Medicare program payment liability. 
 
If no additional Medicare services are delivered during the3-day or less interruption (e.g., 
the patient is home and doesnt receive any outpatient or inpatient services at an acute care 
hospital or IRF or care at a SNF) prior to readmission to the LTCH, the number of days 
away from the LTCH will not be included in the total length of stay for that beneficiary 
stay.  If care is delivered on any day during the interruption, however, that the LTCH pays 
for under arrangements, all the days of the interruption are included in the total length of 
stay for that beneficiary stay.  Therefore, if a patient receives services on only one of the 
days of the interruption but is away from the LTCH for 3 days, all 3 days will be deemed a 
part of the total episode of care and counted towards the length of stay for that patient 
stay.  If an interruption of stay exceeds 3-days, the original interrupted stay policy, below, 
governs payment. 
 
  The original interrupted stay policy is now defined as a greater than 3-day 
interruption of stay and is a stay in which a LTCH patient that is admitted upon 
discharge to an inpatient acute care hospital, an inpatient rehabilitation facility 
(IRF), a skilled nursing facility (SNF), or swing bed and returns to the same LTCH 
within a specified period of time.  The day count begins on the day of discharge  from the LTCH, which is also the admission day to the other provider, and ends on 
the day of readmission to the LTCH. 
 
  For an acute care hospital: between 4 and 9 consecutive days; 
o
 
  For an IRF: between 4 and 27 consecutive days; 
o
 
  For a SNF: between 4 and 45 consecutive days; and 
o
 
  For a Swing Bed: between 4 and 45 consecutive days or less. 
o
 
Note that although the greater than 3-day interruption of stay policy only governs when a 
patient is away from the LTCH for between 4 days and the applicable provider threshold, 
the day count for determining whether the threshold is met begins when the patient is 
discharged.  So if a patient is discharged on 9/2/04, the 3-day or less interrupted stay 
policy will govern payment if the patient is readmitted to the LTCH on 9/2, 9/3, or 9/4.  If 
the patient is readmitted to the LTCH on 9/5, payment will be paid to, for example, the 
acute care hospital which provided treatment, but the day count for determining whether 
or not the stay is one interrupted stay or a whether the return to the LTCH is a separate 
admission starts on 9/2.  For example, if the LTCH discharges a patient to an acute care 
hospital on 9/2/04, if they are readmitted to the LTCH by 9/10/04, this is an interrupted 
stay.  If they are readmitted on 9/11/04, it counts as a separate admission.  An interrupted 
stay case is treated as one discharge for the purposes of payment; only one LTCH PPS 
payment is made.  (The bill generated by the original stay in the LTCH should be 
cancelled by the provider or they may do a debit/credit adjustment.) 
 
Multiple interrupted stays should be entered as one claim but each interrupted stay should 
be evaluated individually for the rule regarding the appropriate number of days at the 
intervening facility. 
 
If the length of stay at the "receiving" site of care exceeds the above- specified period of 
time, the return to the LTCH is a new admission.  This means that the original discharge to 
that site is treated as a discharge for payment purposes. 
 
For the percentage of payments that are to be made under the TEFRA system during the 5-
year transition, the A/B MAC (A) treats each segment of the interrupted stay as a separate 
discharge.  (A/B MACs (A) are to follow the same procedure as provided under the IRF 
PPS in determining the amount of the payment under the blend that TEFRA would have 
paid.) 
 
150.9.1.3 - Payments for Special Cases 
(Rev. 1816; Issued:  09-17-09; Effective Date:  Discharges on or after October 1, 
2009; Implementation Date:  10-05-09) 
  Payments for short-stay outliers are determined in the Pricer logic.  Payments for 
interrupted stays are based on properly submitted bills by the LTCHs, which are described 
in billing instructions. 
 
More than one case-level adjustment may apply to the same case.  For example, a case 
may be a short-stay outlier and also be governed by either the 3-day or less or greater than 
3-day interruption of stay policy and therefore only generate 1 LTC-DRG payment to the 
LTCH. 
 
150.9.1.4 - Payment Policy for Co-Located Providers 
(Rev. 2060, Issued: 10-01-10, Effective: 10-01-10, Implementation: 10-04-10) 
 
Hospitals within hospitals (HwH), satellite facilities, and onsite SNFs: 
 
The LTCHs that are co-located with other Medicare providers (acute care hospitals, IRFs, 
SNFs) are subject to the interrupted stay policy (150.9.1.2) but in addition, if such 
discharges and readmissions exceed 5 percent of the LTCHs total discharges during a 
cost reporting period, all such readmissions during that cost reporting period are to be paid 
as one discharge, regardless of the time spent at the intervening facility. 
 
  One 5 percent calculation is applied to discharges to and readmissions from onsite 
acute care hospitals and a separate 5 percent calculation is made for the combined 
discharges to, and readmissions to, the LTCH from onsite IRFs, SNFs, and 
psychiatric facilities.) 
 
  Prior to triggering either of the 5 percent thresholds, such cases are to be evaluated 
and paid under the interrupted stay policy. (Presently, there is no interrupted stay 
policy for psychiatric facilities, so in the case of a LTCH patient who is directly 
readmitted from a psychiatric facility, there will be two LTC-DRG payments 
unless, and until, the number of such readmissions (counted along with 
readmissions from an onsite IRF or SNF) reach the 5 percent threshold.) 
 
The LTCHs were required to notify their A/B MACs (A) about the providers with which 
they are co-located within 60 days of their first cost reporting period that began on or after 
October 1, 2002.  A change in co-located status must be reported to the A/B MACs (A) 
within 60days of such a change.  The implementation of the onsite policy is based on 
information maintained by A/B MACs (A) on other Medicare providers co-located with 
LTCHs. A/B MACs (A) notify the CMS RO of such arrangements. 
 
Payments under this policy are determined at cost report settlement. 
 
Beginning FY 2005, an additional payment adjustment was established for LTCH HwHs 
and satellites of HwHs relating to the percentage of patients discharged during a specific 
cost reporting period that were admitted from their host hospital.  Effective for cost 
reporting periods beginning on or after July 1, 2007, the payment adjustment that governs 
LTCH HwHs and satellites of HwHs discharging patients from their host hospital was  extended to govern discharges from all LTCHs (not already addressed by the existing 
policy) that are admitted from any referring hospital.  This policy adjustment includes 
discharges from grandfathered LTCH HwHs and LTCH satellites that were admitted 
from their host hospitals; LTCH and LTCH satellite discharges from referring hospitals 
that are not co-located with the discharging facility; and discharges from free-standing 
LTCHs that were admitted from any referring hospital. 
 
Basic Payment Formula under the 25 Percent Threshold Payment Adjustment for 
Medicare Discharges from Referring Hospitals 
 
NOTE:  On December 29, 2007, the Medicare, Medicaid, and SCHIP Extension Act of 
2007 (MMSEA) was enacted with mandated several modifications to this policy for a 3-
year period beginning on the date of enactment of the Act.  For clarity, each modification 
to the policy is specified in a bullet point immediately below the explanation of the 
particular aspect of the policy as it was effective on July 1, 2007.  The bullet points below 
also include additional amendments made by the enactment of the American Recovery 
and Reinvestment Act (ARRA) of 2009 on February 17, 2009, to the 25 percent threshold 
payment adjustment.  It is important to note that for those policies that operate on an 
October 1 cycle (i.e. pre-MMSEA regulations at 42 CFR 412.534), the ARRA has 
amended the MMSEA so that the MMSEA relief is effective for cost reporting periods 
beginning on or after October 1, 2009, and before October 1, 2010.  For policies that 
operate on a July 1 cycle, (e.g., pre-MMSEA regulations at 42 CFR 412.534(h) and 412. 
536) the ARRA amendments to the MMSEA relief are effective for cost reporting periods 
beginning on or after July 1, 2007 and before July 1, 2010. 
 
With the passage of the Affordable Care Act of 2010, all provisions of MMSEA as 
amended by the ARRA affecting the LTCH PPS were extended an additional 2-years.  
Therefore, provisions due to sunset on July 1, 2010, and October 1, 2010, have been 
extended until July 1 2012, and October 1, 2012, respectively.  The revisions to this 
section (below), indicate these new dates. 
 
  Admitted to co-located LTCHs and LTCH satellites from their host hospitals 
 
  This policy was finalized for FY 2005 
o
 
  If a LTCH HwH or satellite admits from its host hospital in excess of 25 
o
percent or the applicable percentage) of its discharges for the LTCHs cost 
reporting period, an adjusted payment will be made of the lesser of the 
otherwise full payment under the LTCH PPS and an amount that would be 
equivalent to what Medicare would otherwise be paid under the IPPS.  For 
LTCHs and LTCH satellites subject to the transition period described 
below, there is a 3-year transition to the full 25 percent threshold payment 
adjustment. 
 
As amended by the MMSEA of 2007 and further amended by the ARRA and the 
ACA:   
  The percentage threshold for applicable LTCHs and LTCH satellites 
(i.e., subject to the transition described below) is raised from 25 percent to 
50 percent for LTCH cost reporting periods beginning on or after October1, 
2007, and before October 1, 2012.  Grandfathered LTCH satellites are 
also applicable for this increase, under the ARRA but on a July 1 cycle, 
as noted above. 
 
  For LTCHs with special circumstances, specified below, the 50 percent 
threshold is raised to 75 percent for the same 3-year period. 
 
  In determining whether a hospital meets the 25 percent criterion, patients 
o
transferred from the host hospital that have already qualified for outlier 
payments at the acute host would not count as part of the hosts allowable 
percentage and therefore the payment would not be subject to the 
adjustment. Those patients would be eligible for full payment under the 
LTCH PPS. (Cases admitted from the host before the LTCH crosses the 25 
percent or applicable threshold would be paid under the LTCH PPS.) 
 
  Admitted to Grandfathered LTCH HwHs and LTCH Satellites from their 
Host Hospitals 
 
Prior to the enactment of the MMSEA and the ARRA, this policy was effective for 
cost reporting periods beginning on or after July 1, 2007. 
 
  Subject to the 3-year transition described below, if a grandfathered LTCH 
o
HwH or a grandfathered satellite of a LTCH has admitted from its host 
hospital in excess of 25 percent or the applicable percentage) of its 
discharges for the LTCHs cost reporting period, an adjusted payment will 
be made of the lesser of the otherwise full payment under the LTCH PPS 
and an amount that would be equivalent to what Medicare would otherwise 
be paid under the IPPS. 
 
  In determining whether a hospital meets the 25 percent criterion, patients 
o
transferred from the host hospital that have already qualified for outlier 
payments at the acute host would not count as part of the hosts allowable 
percentage and therefore the payment would not be subject to the 
adjustment. Those patients would be eligible for full payment under the 
LTCH PPS. (Cases admitted from the host before the LTCH crosses the 25 
percent or applicable threshold would be paid under the LTCH PPS.) 
 
  Admitted to all LTCHs and LTCH Satellites from Referring Hospitals other 
than those with which they are Co-located: 
 
  This policy is effective for cost reporting periods beginning on or after July 
1, 2007.   
  Subject to the 3-year transition specified below, if a LTCH or LTCH 
satellite admits from its host hospital in excess of 25 percent or the 
applicable percentage) of its discharges for the HwHs cost reporting 
period, an adjusted payment will be made of the lesser of the otherwise full 
payment under the LTCH PPS and an amount that would be equivalent to 
what Medicare would otherwise be paid under the IPPS.  (See details of 
this payment adjustment below the discussion of the MMSEA and the 
ARRA changes.) 
 
  In determining whether a hospital meets the 25 percent criterion, patients 
transferred from the host hospital that have already qualified for outlier 
payments at the acute host would not count as part of the hosts allowable 
percentage and therefore the payment would not be subject to the 
adjustment. Those patients would be eligible for full payment under the 
LTCH PPS. (Cases admitted from the host before the LTCH crosses the 25 
percent or applicable threshold would be paid under the LTCH PPS.) 
 
As amended by the MMSEA of 2007 and further amended by the ARRA and the 
ACA: 
 
  For cost reporting periods beginning on or after July 1, 2007, and before 
July 1, 2012, grandfathered LTCH HwHs are exempted from the 25 percent 
threshold for admissions from co-located hospitals or referring hospitals 
with which they are not co-located. 
 
  Freestanding LTCHs, i.e., LTCHs not co-located with another hospital as 
a HwH or as a satellite are exempted from the 25 percent threshold for 
admissions from any referring hospital. 
 
As amended by the ARRA of 2009: 
 
  The ARRA amended the MMSEA changes to the 25 percent threshold 
policy by adding another category of LTCHs that would be subject to the 3-
year delay in application of the 25 percent payment provision, i.e., LTCHs 
or LTCH satellites that were co-located with provider-based locations of an 
IPPS hospital that did not deliver services payable under the IPPS at those 
campuses where the LTCHs or LTCH satellites were located. 
 
The 5-year delay in the application of the percentage threshold payment adjustment for 
each of the above categories is effective for cost reporting periods beginning on or after 
July 1, 2007 and before July 1, 2012. 
 
NOTE:  For cost reporting periods beginning on or after July 1, 2007 and before July 1, 
2012 or on or after October 1, 2007, and before October 1, 2012, as applicable (see  explanation above), this payment adjustment continues to be applicable under the specific 
circumstances set forth in the MMSEA and the ARRA as amended by the ACA. 
 
Payment adjustment under the 25 percent threshold payment policy 
 
Under the LTCH PPS, payments for LTCH or LTCH discharges in excess of the specified 
threshold percentages are based on the lesser of an amount otherwise payable under the 
LTCH PPS or an amount that is equivalent to what would otherwise be paid under the 
IPPS for the costs of inpatient operating services would be based on the standardized 
amount adjusted by the applicable IPPS DRG weighting factors.  This amount would be 
further adjusted for area wage levels using the applicable IPPS labor-related share based 
on the CBSA where the LTCH is physically located and the IPPS wage index for non-
reclassified hospitals published in the annual IPPS final rule.  For LTCHs located in 
Alaska and Hawaii, this amount would also be adjusted by the applicable COLA factors 
used under the IPPS. Furthermore, an amount equivalent to what would otherwise be paid 
under the IPPS for the costs of inpatient operating services would also include, where 
applicable, a DSH adjustment and where applicable, an IME adjustment. 
 
Additionally, to arrive at the payment amount equivalent to what would otherwise be 
payable under the IPPS, a LTCH would also be paid under the LTCH PPS for the costs of 
inpatient capital-related costs, using the capital Federal rate determined under adjusted by 
the applicable IPPS DRG weighting factors.  This amount would be further adjusted by 
the applicable geographic adjustment factors set forth, including local cost variation 
(based on the IPPS wage index for non-reclassified hospitals published in the annual IPPS 
final rule), large urban location, and COLA, if applicable. 
 
For discharges governed by this payment, an amount that is equivalent to an amount that 
would otherwise be paid under the IPPS for the inpatient capital-related costs would also 
include a DSH adjustment if applicable, and an equivalent IME adjustment), if applicable. 
 
An amount equivalent to what would be paid under the IPPS would be determined based 
on the sum of the amount equivalent to what would be paid under the IPPS inpatient 
operating services and the amount equivalent to what would be paid under the IPPS for 
inpatient capital-related costs.  This is necessary since, under the IPPS, there are separate 
Medicare rates for operating and capital costs to acute care hospitals, while under the 
LTCH PPS, there is a single payment rate for the operating and capital costs of the 
inpatient hospitals services provided to LTCH Medicare patients. 
 
Note that there is a difference between the policy that we have codified for adjusted 
payments to LTCH HwHs and satellites of LTCHs, which is based on an amount 
equivalent under the existing payment, and the additional component to the SSO 
payment adjustment that is based on an amount comparable to what would otherwise be 
paid under the IPPS adjustment. The distinction is that if a SSO case also qualifies as a 
high cost outlier (HCO) case after the SSO payment amount is determined, the SSO 
payment formula uses the LTCH PPS fixed loss amount. In contrast, under the payment 
adjustment for LTCH HwHs and LTCH satellites if the amount payable by Medicare for a  specific case is equivalent to what would be otherwise payable under the IPPS and the 
case also qualified as a HCO, the outlier payment for this case would be based on the IPPS 
HCO policy because the resulting payment would then be more equivalent to what would 
have been payable under the IPPS. Similarly, if under this payment adjustment the lesser 
amount resulted in an otherwise payable amount under the LTCH PPS, and the stay 
qualified as a HCO, Medicare would generate a HCO payment governed by the LTCH 
PPS fixed loss amount calculated under the LTCH PPS and if the estimated cost of the 
case exceeds the adjusted LTC-DRG plus a fixed loss amount under 412.525(a), the 
LTCH would receive an additional payment based on the LTCH PPS HCO policy. 
 
Specific Circumstances (applicable to all of the above scenarios) 
 
NOTE:  MMSEA changes described above, as amended by the ARRA and 
further amended by the ACA, are  applicable for cost reporting periods 
beginning on or after October 1, 2007, and before October 1, 2012, or on or 
after July 1 2007, and before July 1, 2012.. 
 
  For LTCHs and LTCH satellites located in rural areas, instead of the 25 
percent threshold, we provide for a 50 percent threshold for patients from 
any individual referral hospital.  In addition, in determining the percentage 
of patients admitted from that referring hospital, any patient that had been 
Medicare outliers at the host and then transferred to the HwH would be 
considered as if they were admitted from a non-host hospital.  Under 
MMSEA, the 25 percentage threshold is increased to 50 percent for 
applicable LTCH HwHs, satellites, and grandfathered satellites. 
 
  For urban single or MSA dominant referring hospitals, we would allow the 
LTCH or LTCH satellite to admit from the host up to the referring 
hospitals percentage of total Medicare discharges in the MSA. A floor of 
25 percent and a ceiling of 51 percent applied to this variation.  Under 
MMSEA, the 50 percentage threshold is increased to 75 percent. 
 
Transition Periods 
 
For Medicare discharges from referring hospitals: 
 
  Admitted to co-located LTCHs and LTCH satellites from their host hospitals 
 
  This policy was finalized for FY 2005. 
o
 
This payment adjustment will be phased-in over 4 years for existing LTCH HwHs and 
also for LTCHs-under-formation that satisfy the following two-prong requirement:  
 
o  On or before October 1, 2004 they have certification as acute care hospitals, 
under Part 489; and  
  o  Before October 1, 2005 designation as a LTCH. 
 
For purposes of full payment under the LTCH PPS during the transition period, the 
percentage of discharges from the LTCH HwH originating from the host hospital 
for each applicable cost reporting period, may not exceed the percentage of 
discharges during the hospitals cost reporting period during FY 2004 that were 
admitted from the host hospital. 
 
Year 1 -- (cost reporting periods beginning on or after October 1, 2004 through September 
30, 2005) a hold harmless 
 
o  Payments will be made under the LTCH PPS but the percentage of LTCH 
HwH discharges originating from the host may not exceed the percentage for 
such patients established for cost reporting periods during FY 2004. 
 
Year 2 -- (cost reporting periods beginning on or after October 1, 2005 through September 
30, 2006) 
 
o  LTCH HwHs will be paid under the otherwise unadjusted LTCH PPS for the 
percentage of discharges originating from their host hospital that do not exceed 
the lesser of the percentage of those patients for their FY 2004 cost reporting 
period or 75 percent. 
 
o  For discharges in excess of that threshold, the payments will be determined 
under the basic payment formula specified above. 
 
Year 3 -- (cost reporting periods beginning on or after October 1, 2006 through September 
30, 2007) 
 
o  LTCH HwHs will be paid under the otherwise unadjusted LTCH PPS for the 
percentage of discharges originating from their host hospital that do not exceed 
the lesser of the percentage of those patients for their FY 2004 cost reporting 
period or 50 percent. 
 
o  For discharges in excess of that threshold, the payments will be determined 
under the basic payment formula specified above. 
 
Year 4 -- (cost reporting periods beginning on or after October 1, 2007 through September 
30, 2008) 
 
o  LTCH HwHs will be paid under the otherwise unadjusted LTCH PPS for the 
percentage of discharges originating from their host hospital that do not exceed 
the 25 percent or the applicable percentage described for specific 
circumstances above. 
  o  For discharges in excess of that threshold, the payments will be determined 
under the basic payment formula specified above. 
 
Transition Period for all LTCHs affected by the Above Described Regulations for 
cost reporting periods beginning on or after July 1, 2008. 
 
NOTE:  MMSEA as amended by the ARRA and further amended by the ACA 
changes described above applicable for cost reporting periods beginning on or 
after July 1, 2007, and before July 1, 2012 for grandfathered LTCH HwHs 
and freestanding LTCHs. 
 
The full payment threshold adjustment will be phased in over 3-years as follows:  
 
Year 1 - (for cost reporting periods beginning on or after July 1, 2007 through June 30, 
2008) 
 
  LTCHs and LTCH satellites will be paid under the otherwise unadjusted 
o
LTCH PPS for the percentage of discharges originating from a referring 
hospital that do not exceed the lesser of the percentage of those patients for 
their RY 2005 cost reporting period or 75 percent. 
 
  For discharges in excess of that threshold, the payments will be determined 
o
under the basic payment formula specified above. 
 
Year 2 - (for cost reporting periods on or after July 1, 2008 through June 30, 2009), 
 
  LTCHs and LTCH satellites will be paid under the otherwise unadjusted 
o
LTCH PPS for the percentage of discharges originating from a referring 
hospital that do not exceed the lesser of the percentage of those patients for 
their RY 2005 cost reporting period or 50 percent. 
 
  For discharges in excess of that threshold, the payments will be determined 
o
under the basic payment formula specified above. 
 
Year 3 - (for cost reporting periods on or after July 1, 2009) 
 
  All LTCHs and LTCH satellites subject to the payment threshold policy 
o
effective for RY 2008, will be subject to the 25 percent (or applicable 
percentage) threshold. 
 
  For discharges in excess of that threshold, the payments will be determined 
o
under the basic payment formula specified above. 
 
Implementation: 
    The payment threshold policy for discharges from co-located LTCH HwHs 
and LTCH satellites admitted from their hosts (including grandfathered 
LTCH HwHs and satellites) is determined based on a location-specific 
basis. 
 
  The payment threshold policy for discharges from LTCHs and LTCH 
satellites admitted from referring hospitals with which they are not co-
located is determined based upon provider numbers for both the LTCH and 
the referring hospital. 
 
For LTCHs and LTCH satellites subject to both the FY 2005 and the RY 2008 
threshold payment adjustment policies 
 
  If a co-located LTCH or a co-located referring hospital (host) shares a 
provider number with a hospital or satellite at another location, threshold 
determinations will continue to be location-specific for the co-located 
LTCH and host.  The threshold percentage determinations will be applied 
to all other location or campus of either a LTCH or referring hospital in the 
aggregate.  For example, when the policy finalized for RY 2008 is fully 
phased in, a co-located LTCH (LTCH A) and host (referring hospital A) 
will have a 25 percent threshold under the policy finalized for FY 2005.  If 
referring hospital A shares a provider number with a remote location (RH 
A), then another 25 percent threshold will be applied to patients 
discharged from LTCH A that were admitted RH A. 
 
  We note that for cost reporting periods beginning on or after October 1, 
2007, non-grandfathered co-located LTCHs, are fully phased-in to the full 
25 percent (or applicable percentage threshold) for discharges admitted 
from their co-located hosts (under the initial 25 percent payment threshold 
established for FY 2005)s. 
 
  However, for discharges admitted from non-co-located referring hospitals, 
these LTCH HwHs and satellites are governed by the policy finalized for 
RY 2008.  Therefore, for cost reporting periods beginning on or after July 
1, 2007 through June 30, 2008, the 75 percent threshold will apply, and the 
50 percent threshold will apply for cost reporting periods beginning on or 
after July 1, 2008 through June 30, 2009 as described above in this 
response.) 
 
  Furthermore, under our finalized policy for RY 2008, grandfathered LTCH 
HwHs and satellites will be subject to the 3-year transition that we are 
finalizing under this new policy for all their discharges, both admitted from 
their co-located host and from other non-co-located referring hospitals. 
 
When both policies apply: 
  If a patient discharged from a LTCH HwH or satellite was originally admitted from the 
host hospital and immediately prior to that admission to the host, the patient was being 
treated at the same LTCH HwH or LTCH satellite, both of the policies described in this 
section, the 5 percent on-site policy as well as the 25 percent policy are applicable. In such 
a case, the following procedures should be followed keeping in mind that the 5 percent 
rule affects number of discharges and the 25 percent rule affects payment. 
 
  The on-site 5 percent computation is first in order to determine the real number of 
discharges. 
 
  Focusing on the relationship between an acute host and a LTCH HwH/satellite, if the 
number of revolving door discharges between these two facilities exceeds 5 percent 
during a CR period, this policy will collapse the number of discharges within that CR 
period, halving the # of revolving door LTCH stays where the intervening stay 
exceeded the threshold and eliminating from consideration those host stays that were 
bracketed by two LTCH stays. All such stays for the entire cost reporting period will 
be paid as one LTCH PPS stay. 
 
  The next issue is to determine which of these stays will be paid an unadjusted LTCH 
PPS rate and which will be paid an amount equivalent to what would otherwise be 
paid under the IPPS. Cases prior to tripping the 25 percent threshold will be paid the 
otherwise unadjusted LTCH PPS rate and those after the threshold that had not 
achieved outlier status at the host it will be paid based on the adjustment. 
 
  Because of the 5 percent policy that collapsed the discharges from the LTCH, for 
purposes of the 25 percent policy, we are focusing on fewer discharges in total from 
the LTCH and we need to determine what percent of these discharges originated in the 
host so that we can apply the payment adjustment. 
 
BUT, in the event that the 5 percent is not tripped during that cost reporting period, each 
acute-->LTCH-->acute--> LTCH cycle, which will count as two LTCH discharges 
originating in the host for purposes of the 25 percent policy, since both the first and 
second LTCH admission were from the host. 
 
150.9.1.5 - High Cost Outlier Cases 
(Rev. 1547, Issued:  07-03-08; Effective:  07-01-08; Implementation:  07-07-08) 
 
Additional payments are made for those cases that are considered high cost outliers.  A 
case falls into this category if the estimated cost of the case exceeds the outlier threshold 
(the LTC-DRG payment plus a fixed loss amount).  (Short-stay outliers, described above, 
are also eligible for outlier payments if their costs exceed the outlier threshold.  The 
applicable short-stay outlier payment is used to determine the outlier threshold for short-
stay outlier cases.) 
  The fixed loss amount is determined annually on July 1 such that projected outlier 
payments are equal to 8 percent of total LTCH PPS payments.  July 1, 2008, is the final 
rate year; LTCH PPS is moving back to a Federal Fiscal Year effective October 1, 2009. 
 
If the estimated cost of the case is greater than the outlier threshold an additional payment 
is added to the LTC-DRG payment amount. 
 
The outlier payment is 80 percent of the difference between the estimated cost of the case 
and the outlier threshold (the LTC-DRG payment plus a fixed loss amount). 
 
The estimated cost of the case is calculated by multiplying the Medicare allowable charge 
on the claim by the LTCH's overall cost-to-charge ratio obtained from the latest settled 
cost report. 
 
For discharges occurring on or after August 8, 2003, (high cost outlier payments may be 
reconciled upon cost report settlement to account for differences between the estimated 
cost-to-charge-ratio and the actual cost-to-charge ratio for the period during which the 
discharge occurs.  For further information, refer to the June 9, 2003 High Cost Outlier 
final rule (68 FR 34506 - 34513). 
 
150.10 - Facility-Level Adjustments 
(Rev. 1547, Issued:  07-03-08; Effective:  07-01-08; Implementation:  07-07-08) 
 
Facility-level adjustments are based on individual LTCH characteristics.  The BIPA 
confers broad authority on the Secretary to include "appropriate adjustments to the long-
term hospital payment system." 
 
Variables examined include an area wage adjustment, adjustment for geographic 
reclassification, disproportionate share patient (DSH) percentage, and an adjustment for 
indirect medical education (IME). 
 
  The system includes an area wage adjustment that is being phased in over 5 years. 
  The wage adjustment is made by multiplying the labor-related share of the 
standard Federal rate by the applicable wage index value. 
 
  A LTCH's wage index is based on the Metropolitan Statistical Area (MSA) or rural 
area in which the hospital is physically located, without regard to geographic 
reclassification under http://www.ssa.gov/OP_Home/ssact/title18/1886.htm 
1886(d)(8) - (10) of the Act.  Effective July 1, 2005, an LTCH wage index is 
based on the Core-Based Statistical Area (CBSA). 
 
  The phase-in of the wage index adjustment is as follows: 
  Cost Reporting  Applicable Wage Index Value 
Periods Beginning 
During 
FY 2003  1/5th of the value of the 
applicable pre-reclassification, 
no floor hospital inpatient wage 
index 
FY 2004  2/5ths of the value of the 
applicable pre-reclassification, 
no floor hospital inpatient wage 
index 
FY 2005  3/5ths of the value of the 
applicable pre-reclassification, 
no floor hospital inpatient wage 
index 
FY 2006  4/5ths of the value of the 
applicable pre-reclassification, 
no floor hospital inpatient wage 
index 
FY 2007  Full value (5/5ths) of the value 
of the applicable pre-
reclassification, no floor 
hospital inpatient wage index 
 
Based on analyses of patient charge data from FYs 2000 and 2001 MedPAR data and cost 
report data from FY 1998 and 1999 HCRIS data, there is no empirical evidence to support 
other adjustments.  Therefore, for the present, there are no adjustments for DSH, IME, or 
geographic reclassification. 
 
There is a cost-of-living adjustment (COLA) for LTCHs located in Alaska and Hawaii. 
 
  The adjustment is made by multiplying the nonlabor-related portion of the 
unadjusted standard Federal rate by the applicable COLA factor from OPM based 
on the county that the LTCH is located (similar to the COLA under the acute care 
hospital inpatient PPS). 
 
  Annual updates for the LTCH PPS appear in Federal Register publications:  for 
payment rates and associated adjustments, see the LTCH PPS final rule with an 
effective date of July 1.  Annual updates of the LTC-DRGs are published in the 
IPPS final rule with an effective date of October 1. 
 
  The COLA factors effective July 1, 2004 are the same as under the acute care 
hospital inpatient PPS and are as follows: 
  Area  COLA 
Alaska:   
    All Areas  1.25 
Hawaii:   
    Honolulu  1.25 
    Hawaii County  1.165 
    Kauai County  1.2325 
    Maui County  1.2375 
    Kalawao County  1.2375 
 
Cost-of-Living Adjustment Factors: Alaska and Hawaii Hospitals Area Cost of 
Living Adjustment Factor effective for discharges on and after October 1, 2008. 
 
Alaska: 
City of Anchorage and 80-kilometer (50-mile) radius by road 1.24 
City of Fairbanks and 80-kilometer (50-mile) radius by road 1.24 
City of Juneau and 80-kilometer (50-mile) radius by road 1.24 
Rest of Alaska 1.25 
 
Hawaii: 
City and County of Honolulu 1.25 
County of Hawaii 1.17 
County of Kauai 1.25 
County of Maui and County of Kalawao 1.25 
 
150.10.1 - Phase-in Implementation 
(Rev. 1, 10-01-03) 
 
The PPS for LTCHs is to be phased-in over a five- year period from cost-based 
reimbursement to Federal prospective payment.  During this transition period, payment is 
based on an increasing percentage of the LTCH prospective payment and a decreasing 
percentage of each LTCH's cost-based reimbursement rate for each discharge as follows: 
 
Cost Reporting Periods Beginning   LTCH PPS  TEFRA 
On or After  Federal Rate  Rate 
Percentage  Percentage 
October 1, 2002, through September 30, 2003  20  80 
October 1, 2003, through September 30, 2004  40  60 
October 1, 2004, through September 30, 2005  60  40 
October 1, 2005, through September 30, 2006  80  20 
October 1, 2006  100  0 
  The LTCHs can exercise a one-time irrevocable option to elect payment based on 100 
percent of the Federal rate rather than transition from cost-based reimbursement to 
prospective payment.  To exercise this option, for cost reporting periods beginning on or 
after October 1, 2002, and before December 1, 2002, the LTCH was to notify its A/B 
MAC (A) of this election in writing, and it was to be received by the A/B MAC (A) no 
later than November 1, 2002.  To exercise this option, for cost reporting periods beginning 
on or after December 1, 2002, the LTCH must notify its A/B MAC (A) in writing 30 days 
prior to the start of the LTCH's next cost reporting period. 
 
Payments to new LTCHs, i.e., a hospital that has its first cost reporting period as a LTCH 
beginning on or after October 1, 2002, are made based on 100 percent of the standard 
Federal rate. 
 
NOTE: under the BIPA, during cost reporting periods beginning during FY 2001, target 
amounts under TEFRA were increased by 25 percent.  This increase will continue to be in 
effect for the TEFRA portion of transitions payments. 
 
150.11 - Requirements for Provider Education and Training 
(Rev. 1, 10-01-03) 
 
Training resources are available for A/B MAC (A) staff to use in training providers about 
the Long Term Care Hospital Prospective Payment System (LTCH PPS).  The train-the-
trainer process for LTCH PPS does not include in- person instruction for A/B MACs (A).  
Instead, CMS provides various educational resources for A/B MACs (A) to learn about 
LTCH PPS. 
 
The CMS provides the following LTCH PPS education resources for A/B MACs (A): 
 
  A training guide is available on; http://www.cms.gov/Medicare/Medicare-Fee-for-
Service-Payment/LongTermCareHospitalPPS/ltch_train.html, the actual Training 
Guide can then be downloaded; 
  
  A training video was mailed to A/B MACs (A); 
 
  A PowerPoint presentation for training providers is available on 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/LongTermCareHospitalPPS/ltch_train.html, the actual Power Point 
presentation can then be downloaded; and 
 
  An e-mail mailbox was established to address questions.  Send questions to: 
LTCHPPS@cms.gov . 
 
150.12 - Claims Processing and Billing 
(Rev. 1, 10-01-03) 
  150.12.1 - Processing Bills Between October 1, 2002, and the 
Implementation Date 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
Claims submitted prior to implementation were processed under the current methodology.  
On or after January 1, 2003, submit mass adjust claims under the PPS payment 
methodology by April 30, 2003.  The shared systems is creating a mass adjustment 
program. 
 
Beginning October 16, 2003, all LTCHs are required to comply with the HIPAA 
Administrative Simplification Standards, unless they have obtained an extension in 
compliance with the Administrative Compliance Act to submit claims in compliance with 
the standards at 42 CFR 162.1002 and 45 CFR 162.1192 using the ICD.  All ICD coding 
must be used for LTCH providers with cost reporting period beginning on or after October 
1, 2002. 
 
150.13 - Billing Requirements Under LTCH PPS 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014)  
 
Billing LTCH PPS Services 
 
Effective with cost reporting periods beginning on or after October 1, 2002, LTCHs are to 
incorporate the following so that A/B MACs (A) accurately price and pay a claim under 
the LTCH PPS.  These claims must be submitted on Type of Bill 11X. 
 
This is a DRG- based payment system; therefore the LTCH DRG is determined by the 
grouping of diagnosis codes reported on the claim for the  principal diagnosis, up to 
twenty four additional diagnoses, and up to twenty five  procedures performed during the 
stay, as well as age, sex, and discharge status of the patient on the claim.  Grouper 
software will determine DRG assignment. 
 
Each bill from an LTCH must contain the complete diagnosis and procedure coding for 
purposes of the GROUPER software.  Normal adjustments will be allowed.  LTCH 
providers submit one admit through discharge claim for the stay.  Final PPS payment is 
based upon the discharge bill (note that the day in which benefits exhaust is considered a 
discharge for payment purposes). 
 
Effective December 3, 2007, once a patients Medicare benefits exhaust, the LTCH is 
allowed to submit no-pay bills until physical discharge or death. 
 
150.14 - Stays Prior to and Discharge After PPS Implementation Date 
(Rev. 1, 10-01-03)   
If the patient's stay begins prior to and ends on or after the provider's first fiscal year begin 
date under LTCH PPS, payment to the facility is based on LTCH PPS rates and rules.  
There is no split billing.  If the facility submitted an interim bill, a debit/credit adjustment 
must be made prior to PPS payment.  If the facility submits multiple interim bills, the 
provider needs to submit cancels for all bills and then rebill once the cancels are accepted. 
 
150.14.1 - Crossover Patients in New LTCHs 
(Rev. 267, Issued 07-30-04, Effective: 10-01-04, Implementation: 01-03-05) 
 
When a hospital undergoes a change in ownership or a change in classification from an 
acute care hospital to a LTCH, payment issues arise for cross-over patients who were 
admitted prior to the change in classification who are still hospitalized under the new 
provider number.  Since all LTCHs are required to be certified as hospitals and generally 
be paid under the IPPS, for 6 months prior to designation as a LTCH, in 42 CFR 
412.23(e), there are cross-over patients, at the creation of every LTCH, who were 
admitted to the facility when it was an acute care hospital.  The policy was to discharge 
the patient under the acute provider number and readmit the patient under the new LTCH 
provider number (see section 100.4.1 of this chapter).  Medicare paid twice for what was 
really one episode of care since separate payment would be made to both the acute 
hospital and the LTCH.  Effective October 1, 2004, Medicare will issue one discharge-
based payment to the LTCH that discharges the patient, under the applicable payment 
system. 
 
In the regulations at 42 CFR 412.521(e) we provide a payment methodology for such 
cases in which Medicare will consider all the days of the patient stay in the facility (both 
prior to and following the date of LTCH designation) to be a single episode of LTCH care. 
Payment for this single episode of care will include the day and cost data for that patient at 
both the acute care hospital and the LTCH in determining the payment to the LTCH under 
the LTCH PPS.  Furthermore, the days of the patients stay both prior to and following 
designation as a LTCH are counted in determining the patients total length of stay at the 
LTCH both for payment purposes as well as for the LTCHs average length of stay 
(ALOS) calculation under 42 CFR 412.23(e)(2) and (3). 
 
Bills paid to the facility for crossover patients when the facility was paid under IPPS must 
be canceled, so that the entire stay can be billed under the LTCH provider number and 
paid for under LTCH PPS. 
 
150.15 - System Edits 
(Rev. 1472, Issued: 03-06-08, Effective: 05-23-07, Implementation: 04-07-08) 
 
The Shared systems and/or Common Working File (CWF) must ensure: 
 
  That revenue code total charges line 0001 must equal the sum of the individual 
total charges lines; 
    That the length of stay in the statement covers period, from and through dates 
equals the total days for accommodations revenue codes 010x-021x, including 
revenue code 018x (leave of absence)/interrupted stay; 
 
  That Occurrence Span Code 74 is present on the claim when there is an interrupted 
stay (the beneficiary has returned to the LTCH in a specified amount of time).  See 
section 150.9.1.2. 
 
If the interruption is greater than the specified number of days applicable to the specific 
provider, the bill is considered a discharge and two bills would exist if the beneficiary 
returns to the same LTCH, otherwise it is considered an interruption with one DRG 
payment associated.  CWF will edit for both of these situations. 
 
Payments under the onsite discharge and readmittance policy are to be reconciled at cost 
report settlement, at which time it is possible to determine the total number of such cases 
that have occurred during that cost reporting period. 
 
The accommodation revenue code 018X, (leave of absence) continues to be used in the 
current manner in terms of Occurrence Span code 74 and date range. 
 
150.16 - Billing Ancillary Services Under LTCH PPS 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014)  
 
When coding PPS bills for ancillary services associated with a Part A inpatient stay, the 
traditional revenue codes are shown, in conjunction with the appropriate entries in Service 
Units and Total Charges. 
 
  LTCHs are required to report the number of units based on the procedure or 
service. 
 
  LTCHs are required to report the actual charge for each line item, in Total 
Charges. 
 
  In general the current policy applies for billing ancillary services and nothing 
changes with the implementation of this PPS. 
 
150.17 - Benefits Exhausted 
(Rev. 1472, Issued: 03-06-08, Effective: 05-23-07, Implementation: 04-07-08) 
 
The day benefits exhaust is considered a discharge for payment purposes under LTCH 
PPS. 
  If a beneficiary's Part A benefits exhaust during the stay, providers code an Occurrence 
Code A3-C3.  If benefits are exhausted prior to the stay, hospitals submit a no-pay claim 
that is to be coded by the A/B MAC (A) with no pay code B. 
 
LTCH PPS uses Occurrence Code 47 to indicate the first full day of cost outlier status and 
also uses Occurrence Span Code 70 for covered non-utilization periods beyond the short-
stay outlier threshold.  There is an exception if there are not enough regular days to reach 
the short-stay outlier threshold point.  For the beneficiary to continue coverage, LTR days 
must be utilized for the remainder of the entire stay, as available.  Similarly, for the 
beneficiary to continue coverage, if only LTR days are available, they must be used on a 
continuous basis throughout the entire stay, as available. 
 
150.17.1 - Assumptions for Use in Examples Below 
(Rev. 1, 10-01-03) 
 
1.  Cost outlier threshold amount is $50,000 
 
2.  Threshold amount is reached on the 25th day 
 
3.  The DRG ALOS equals 12 days, therefore, the Short Stay Threshold equals 10 
days 
 
4.  Billed charges are $3,000 per day for the first 12 days, $2,000 on the 13th day and 
$1,000 each day thereafter 
 
5.  Beneficiary elects to use any available LTR days 
 
150.17.1.1 - Example 1: Coinsurance Days < Short Stay Outlier 
Threshold (30 Day Stay)  
(Rev. 1, 10-01-03) 
 
1a. 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $55,000 
 
Benefits available: 9 coinsurance and 60 LTR 
 
Covered days: 30 
 
Noncovered days: 0 
 
Coinsurance days used: 9 
  LTR days used: 21 
 
Cost report days: 30 
 
Reimbursement: Full DRG payment plus cost outlier based on $55,000 covered 
charges 
 
1b. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $27,000 
 
Benefits available: 9 coinsurance and 0 LTR 
 
Covered days: 9 
 
Noncovered days: 21 
 
Coinsurance days used: 9 
 
 
LTR days used: 0 
 
Cost report days: 9 
 
OC A3: 1/09/03 
 
Reimbursement: Short stay outlier 
 
1c. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $50,000 
 
Benefits available: 9 coinsurance and 10 LTR 
 
Covered days: 19 
 
Noncovered days: 11 
  Coinsurance days used: 9 
 
LTR days used: 10 
 
Cost report days: 25 
 
OC 47: 1/26/03 
 
OC A3: 1/25/03 
 
OSC 70: 1/20/03 - 1/25/03 
 
Reimbursement: Full DRG payment 
 
150.17.1.2 - Example 2: Coinsurance Days Greater Than or Equal to 
Short Stay Outlier Threshold (30 day stay) 
(Rev. 1, 10-01-03) 
 
2a. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $55,000 
 
Benefits available: 15 coinsurance and 60 LTR 
 
Covered days: 20 
 
Noncovered days: 10 
 
Coinsurance days used: 15 
 
LTR days used: 5 
 
Cost report days: 30 
 
OC 47: 1/26/03 
 
OSC 70: 1/16/03 - 1/25/03 
 
Reimbursement: Full DRG payment plus cost outlier based on $55,000 covered 
charges 
 
2b.   
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $53,000 
 
Benefits available: 15 coinsurance and 3 LTR 
 
Covered days: 18 
 
Noncovered days: 12 
 
Coinsurance days used: 15 
 
LTR days used: 3 
 
Cost report days: 28 
 
OC 47: 1/26/03 
 
OC A3: 1/28/03 
 
OSC 70: 1/16/03 - 1/25/03 
 
Reimbursement: Full DRG payment plus cost outlier based on $53,000 covered 
charges 
 
2c. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $50,000 
 
Benefits available: 15 coinsurance and 0 LTR 
 
Covered days: 15 
 
Noncovered days: 15 
 
Coinsurance days used: 15 
 
LTR days used:0 
  Cost report days: 25 
 
OC 47: 1/26/03 
 
OC A3: 1/25/03 
 
OSC 70: 1/16/03 - 1/25/03 
 
Reimbursement: Full DRG payment 
 
150.17.1.3 - Example 3: Coinsurance Days Greater Than or Equal to 
Short Stay Outlier Threshold (20 day stay) 
(Rev. 1, 10-01-03) 
 
Date of service: 1/1/03 - 1/21/03 
 
Medically necessary days: 20 
 
Covered charges: $45,000 
 
Benefits available: 15 coinsurance and 0 LTR 
 
Covered days: 15 
 
Noncovered days: 5 
 
Coinsurance days used: 15 
 
LTR days used: 0 
 
Cost report days: 20 
 
OSC 70: 1/16/03 - 1/20/03 
 
Reimbursement: Full DRG payment 
 
150.17.1.4 - Example 4: Only LTR Days < Short Stay Outlier Threshold 
(30 day stay) 
(Rev. 1, 10-01-03) 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $27,000 
  Benefits available: 9 LTR 
 
Covered days: 9 
 
Noncovered days: 21 
 
Coinsurance days used: 0 
 
LTR days used: 9 
 
Cost report days: 9 
 
OC A3: 1/09/03 
Reimbursement: Short stay outlier payment 
 
150.17.1.4 - Example 4: Only LTR Days < Short Stay Outlier Threshold 
(30 day stay) 
(Rev. 1, 10-01-03) 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $27,000 
 
Benefits available: 9 LTR 
 
Covered days: 9 
 
Noncovered days: 21 
 
Coinsurance days used: 0 
 
LTR days used: 9 
 
Cost report days: 9 
 
OC A3: 1/09/03 
Reimbursement: Short stay outlier payment 
 
150.17.1.5 - Example 5: Only LTR Greater Than or Equal to Short Stay 
Outlier Threshold (30 day stay) 
 
5a. 
 
Date of service: 1/1/03 - 1/31/03   
Medically necessary days: 30 
 
Covered charges: $50,000 
 
Benefits available: 12 LTR 
 
Covered days: 12 
 
Noncovered days: 18 
 
Coinsurance days used: 0 
 
LTR days used: 12 
 
Cost report days: 25 
 
OC 47: 1/26/03 
 
OC A3: 1/25/03 
 
OSC 70: 1/13/03 - 1/25/03 
 
Reimbursement: Full DRG payment 
 
5b. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $55,000 
 
Benefits available: 60 LTR 
 
Covered days: 30 
 
Noncovered days: 0 
 
Coinsurance days used: 0 
 
LTR days used: 30 
 
Cost report days: 30 
  Reimbursement: Full DRG payment plus cost outlier based on $55,000 covered 
charges 
 
5c. 
 
Date of service: 1/1/03 - 1/31/03 
 
Medically necessary days: 30 
 
Covered charges: $53,000 
 
Benefits available: 28 LTR 
 
Covered days: 28 
 
Noncovered days: 2 
 
Coinsurance days used: 0 
 
LTR days used: 28 
 
Cost report days: 28 
 
OC 47: 1/26/03 
 
OC A3: 1/28/03 
 
Reimbursement: Full DRG payment plus cost outlier based on $53,000 covered 
charges 
 
150.18 - Provider Interim Payment (PIP) 
(Rev. 1, 10-01-03) 
 
PIP applies to LTCH PPS.  Outlier payments in regards to PIP are handled the way they 
currently are under other inpatient PPS systems. 
 
150.19 - Interim Billing 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
 
Interim bills are allowed every 60 days.  Refer to Chapter 1, section 50.2 for specifics on 
interim billing under PPS. 
 
Effective December 3, 2007, LTCHs are allowed to submit no-pay bills (TOB 110) once 
benefits exhaust, every 60 days.  They do not have to continually adjust bills until 
physical discharge or death once benefits exhaust.  The last bill shall contain a discharge 
patient status code.   
150.20  Intermediary Benefit Payment Report (IBPR) 
(Rev. 1, 10-01-03) 
 
The IBPR report changes to reflect the payments for LTCHs going to PPS free-standing 
hospitals. 
 
150.21 - Remittance Advices (RAs) 
(Rev. 1, 10-01-03) 
 
Reason and remark codes already in existence for inpatient hospital PPS apply under this 
PPS. 
 
150.22 - Medicare Summary Notices (MSNs) 
(Rev. 1, 10-01-03) 
 
Use existing notices for inpatient hospital PPS for LTCH PPS. 
 
150.23 - LTCH Pricer Software 
(Rev. 1, 10-01-03) 
 
The CMS developed a LTCH Pricer program that calculates the Medicare payment rate. 
 
Pricer software is electronically supplied to the Shared systems.  Pricer pays a short-stay 
outlier if the stay is between 1 day and up to and including 5/6 of the average length of 
stay for the LTC-DRG. 
 
  Pricer incorporates the five-year phase-in period for those providers that 
choose to be paid on the blended rate. 
 
150.23.1 - Inputs/Outputs to Pricer 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
 
Inputs 
 
  Provider Specific File Data; Fields-1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 14, 18, 
19, 21, 22, and 25 (although this field refers to the operating cost/charge ratio, 
for LTCH, entered here will be a combined operating and capital cost/charge 
ratio).  Effective July 1, 2005, A/B MACs (A) shall no longer populate fields 
12, 13, or 14.  Field 35 must be populated for all LTCHs.  Fields 33 and 38 
shall be populated if applicable.  Effective July 1, 2006, data elements 23, 24, 
27, 28, and 49 are required.  See the section "Determining the Cost-to-Charge 
Ratio" below for determining the cost/charge ratio. 
    The facility-specific rate (Field 21) will be determined using the same 
methodology that would be used to determine the interim payment per 
discharge under the TEFRA system if the LTCH PPS were not being 
implemented. 
 
  Bill Data 
 
  Provider # 
o
 
  Patient Status 
o
 
  Covered Charges 
o
 
  Discharge Date (or benefits exhaust date if present (Occurrence Code 
o
A3, B3, or C3)) 
 
  Length of Stay (LOS) 
o
 
  Covered Days 
o
 
  Lifetime Reserve Days (LTR) 
o
 
  DRG (from Grouper) 
o
 
Outputs 
 
  PPS Return Code 
 
  MSA/CBSA (CBSAs will be returned for discharges on or after July 1, 2005). 
 
  Wage Index 
 
  Average LOS 
 
  Relative Weight 
 
  Final Payment Amount 
 
  DRG Adjusted Payment Amount 
 
  Federal Payment Amount 
 
  Outlier Payment Amount 
 
  Payment Amount 
    Facility Costs 
 
  LOS 
 
  Regular Days Used 
 
  LTR Days Used 
 
  Blend Year, 1-5 
 
  Outlier Threshold 
 
  DRG 
 
  COLA 
 
  Calculation Version Code 
 
  National Labor Percent 
 
  National Non-Labor Percent 
 
  Standard Federal Rate 
 
  Budget Neutral Rate 
 
  New Facility-specific Rate 
 
150.24 - Determining the Cost-to-Charge Ratio 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
For all LTCHs, effective October 1, 2003, Medicare contractors are to use a CCR from the 
latest final settled cost report or from the latest tentative settled cost report (whichever is 
from the later period) to determine a LTCHs CCR.  
 
A. - Calculating an overall LTCH Medicare Cost-to-Charge Ratio 
 
For the LTCH PPS outlier calculations (short stay and high cost), Medicares portion of 
hospital costs are determined by using a hospitals overall Medicare cost-to-charge ratio 
(CCR).  At the end of the cost reporting period, the hospital prepares and submits a cost 
report to its Medicare contractor, which includes Medicare allowable costs and charges.  
The Medicare contractor completes a preliminary review of the as-submitted cost report 
and issues a tentative settlement.  The cost report is later final settled, which may be based 
on a subsequent review, and a Notice of Program Reimbursement (NPR) is issued. 
  The Medicare contractor shall update the PSF using the CCR calculated from the final 
settled cost report or from the latest tentative settled cost report (whichever is from the 
later period). 
 
Under the LTCH PPS, the following methodology shall be used to calculate a hospitals 
overall Medicare cost-to-charge ratio: 
 
1) Identify total Medicare inpatient costs from Worksheet D-1, Part II, line 49 minus 
(Worksheet D, Part III, col. 8, lines 25 through 30 plus Worksheet D, Part IV, col. 
7, line 101) 
 
2) Identify total Medicare inpatient charges obtained from Worksheet D-4, Column 2, 
lines 25 through 30 plus line 103 from the cost report (where possible, these 
charges should be confirmed with the PS&R data). 
 
3) Determine the LTCHs overall Medicare CCR by dividing the amount in step 1 by 
the amount in step 2.  
 
B. - Use of Alternative Data in Determining CCRs For LTCHs  
 
Effective August 8, 2003, the CMS Central Office may direct Medicare contractors to use 
an alternative CCR if CMS believes this will result in a more accurate CCR.  Also, if the 
Medicare contractor finds evidence that indicates that using data from the latest settled or 
tentatively settled cost report would not result in the most accurate CCR, then the 
Medicare contractor shall notify the CMS Regional Office and CMS Central Office to 
seek approval to use a CCR based on alternative data.  For example, a CCR may be 
revised more often if a change in a LTCHs operations occurs which materially affects a 
LTCHs costs and/or charges. The CMS Regional Office, in conjunction with the CMS 
Central Office, must approve the Medicare contractors request before the Medicare 
contractor may use a CCR based on alternative data.  Revised CCRs will be applied 
prospectively to all LTCH claims processed after the update.  Medicare contractors shall 
send notification to the CMS Central Office via email to outliersIPPS@cms.gov. 
 
C. - Ongoing CCR Updates Using CCRs From Tentative Settlements For Hospitals 
Subject to the LTCH PPS 
 
Medicare contractors shall continue to update a LTCHs CCR (in the Provider Specific 
File) each time a more recent cost report is settled (either final or tentative). A revised 
CCR shall be entered into the Provider Specific File not later than 30 days after the date of 
the latest settlement used in calculating the CCR. 
 
D. - Request for use of a Different CCR by CMS, the Medicare Contractor or the 
LTCH 
 
Effective August 8, 2003, CMS (or the Medicare contractor) may specify an alternative 
CCR if it believes that the CCR being applied is inaccurate.  In addition, a LTCH will  have the opportunity to request that a different CCR be applied in the event it believes the 
CCR being applied is inaccurate.  The LTCH is required to present substantial evidence 
supporting its request. Such evidence should include documentation regarding its costs 
and charges that demonstrate its claim that an alternative ratio is more accurate.  After the 
Medicare contractor has evaluated the evidence presented by the LTCH, the Medicare 
contractor notifies the CMS Regional Office and CMS Central Office of any such request.  
The CMS Regional Office, in conjunction with the CMS Central Office, will approve or 
deny any request by the LTCH or Medicare contractor for use of a different CCR. 
Medicare contractors shall send requests via email to the CMS Central at 
outliersIPPS@cms.hhs.gov.  
 
E. - Notification to Hospitals Under the LTCH PPS of a Change in the CCR 
 
The Medicare contractor shall notify a LTCH whenever it makes a change to its CCR.  
When a CCR is changed as a result of a tentative settlement or a final settlement, the 
change to the CCR can be included in the notice that is issued to each provider after a 
tentative or final settlement is completed.  Medicare contractors can also issue separate 
notification to a LTCH about a change to their CCR. 
 
F. - Mergers, Conversions and Errors with CCRs 
 
Effective April 1, 2011, for LTCHs that merge, Medicare contractors shall continue to use 
the CCR from the LTCH with the surviving provider number.  If a new provider number is 
issued, as explained in 150.25 below, Medicare contractors should use the Statewide 
average CCR because a new provider number indicates the creation of a new hospital (as 
stated in 42 CFR  412.525(a)(4)(iv)(C)(1) and 412.529(c)(3)(iv)(C)(1), a new hospital is 
defined as an entity that has not accepted assignment of an existing hospitals provider 
agreement).  However, the policy of 150.24 part B and C can be applied to determine an 
alternative to the Statewide average CCR. 
 
For newly classified LTCHs, that is those hospitals (e.g., short term acute, psychiatric, or 
rehabilitation hospitals) that meet the requirements set forth in 42 CFR 412.23(e), or 
LTCHs that receive a new LTCH provider number, the Statewide average CCR should be 
used until a CCR can be computed from the LTCHs cost report data, as described in part 
A of this section. However, as noted in part C above, the Medicare contractor or the 
LTCH may request use of a different CCR, such as a CCR based on the cost and charge 
data from the hospitals cost report immediately preceding its classification as a LTCH or 
receiving a new LTCH provider number. The Medicare contractor must verify the cost 
and charge data from that cost report. Use of the alternative CCR is subject to the approval 
of the CMS Central and Regional Offices. NOTE: A newly classified LTCH must 
request an alternative CCR and receive approval from the CMS Central Office prior 
to the effective date of the hospitals classification as a LTCH  in order for that 
alternative CCR to be effective beginning on the date of classification (as a LTCH).  
If the request and approval for an alternative CCR occurs after the effective date of 
the LTCH classification, then the use of the alternative CCR will be effective 
prospectively beginning with the date of the approval of the alternative CCR request.   
In instances where errors related to CCRs and/or outlier payments are discovered, 
Medicare contractors shall contact the CMS Central Office to seek further guidance.  
Medicare contractors may contact the CMS Central Office via email at 
outliersIPPS@cms.hhs.gov. 
  
If a cost report is reopened after final settlement and as a result of this reopening there is a 
change to the CCR, Medicare contractors shall contact the CMS regional and Central 
Office for further instructions. Medicare contractors may contact the CMS Central Office 
via email at outliersIPPS@cms.hhs.gov. 
 
G. - Maintaining a History of CCRs and Other Fields in the Provider Specific File 
 
When reprocessing claims due to outlier reconciliation, Medicare contractors shall 
maintain an accurate history of certain fields in the provider specific file (PSF).  This 
history is necessary to ensure that claims already processed (from prior cost reporting 
periods that have already been settled) will not be subject to a duplicate systems 
adjustment in the event that claims need to be reprocessed.  As a result, the following 
fields in the PSF can only be altered on a prospective basis: 21 -Case Mix Adjusted Cost 
Per Discharge, 23 -Intern to Bed Ratio, 24 -Bed Size, 25 -Operating Cost to Charge Ratio, 
27 -SSI Ratio and 28 -Medicaid Ratio. A separate history outside of the PSF is not 
necessary. (NOTE: PSF elements 23, 24, 27, 28 and 49 are only required for LTCHs 
effective 7/11/06.). The only instances a Medicare contractor retroactively changes a field 
in the PSF is to update the CCR when using the FISS Lump Sum Utility for outlier 
reconciliation or otherwise specified by the CMS Regional Office or Central Office. 
 
 
150.25 - Statewide Average Cost-to-Charge Ratios 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
For discharges prior to August 8, 2003, the Statewide average CCR is used in those 
instances in which a LTCHs CCR falls above or below reasonable parameters.  CMS sets 
forth these parameters and the Statewide average CCRs in each years IPPS annual notice 
of prospective payment rates. 
 
For discharges occurring on or after August 8, 2003, the Medicare contractor should use a 
Statewide average CCR if it is unable to determine an accurate CCR for a LTCH in one of 
the following circumstances:  
1. New hospitals that have not yet submitted their first Medicare cost report.  (For this 
purpose, a new hospital is defined as an entity that has not accepted assignment of 
an existing hospitals provider agreement in accordance with 42 CFR 489.18.)  
2. LTCHs whose overall CCR is in excess of 3 standard deviations above the 
corresponding national geometric mean.  Effective 10/1/2006, this mean is 
recalculated annually by CMS and published in the annual notice of prospective 
payment rates issued in accordance with 412.525(a)(4)(iv)(c)(2) and  412.529(c)(3)(iv)(c)(2) of the CFR.  
3. Other LTCHs for whom accurate data with which to calculate an overall CCR are 
not available.  
 
However, the policies of 150.24 part B and C can be applied as an alternative to the 
Statewide average CCR. 
 
For those LTCHs assigned the Statewide average CCR, the CCR must be updated every 
October 1 based on the latest Statewide average CCRs published in each years IPPS 
annual notice of prospective payment rates (Table 8C for LTCHs) until the hospital is 
assigned a CCR based on the latest tentative or final settled cost report or a CCR based on 
the policies of 150.24 part B and C of this manual.  A hospital is not assigned the 
Statewide average CCR if its CCR falls below 3 standard deviations from the national 
mean CCR.  In such a case, the LTCH CCR is used. 
 
150.26 - Reconciliation 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
A. - General 
 
For all LTCHs, reconciliation is effective beginning with discharges occurring in a 
hospitals first cost reporting period beginning on or after October 1, 2003.  
 
Subject to the approval of the CMS Central Office, Medicare contractors shall reconcile a 
LTCHs outlier claims at the time of cost report final settlement if they meet the following 
criteria:  
 
1.  The actual CCR is found to be plus or minus 10 percentage points from the CCR 
used during that cost reporting period to make outlier payments, and 
 
2.  Applicable outlier payments exceed $500,000 in that cost reporting period. 
 
For the purposes of determining whether outlier payments meet the $500,000 threshold, 
MACs shall combine the following applicable payments depending on the cost reporting 
period: 
a.  For cost reporting periods beginning before October 1, 2015, high cost outlier 
payments made under 42 CFR 412.525 and short-stay outlier payments made 
under 42 CFR 412.529 (OUTLIER and SHORT STAY OUTLIER 
PAYMENTS on PS&R Report 11S);  
b.  For cost reporting periods beginning on or after October 1, 2015 and ending before 
October 1, 2017, high cost outlier payments made under 42 CFR 412.525 (that is, 
both high cost outlier payments made to site neutral payment rate discharges 
described under 42 CFR 412.522(a)(1) and to standard payment rate discharges 
described under 42 CFR 412.522(a)(2)), and short-stay outlier payments made  under 42 CFR 412.529 (OUTLIER and SSO STANDARD PAYMENTS on 
PS&R Report 11S); 
c.  For cost reporting periods beginning on or after October 1, 2015 and ending after 
October 1, 2017 
i.  For discharges before October 1, 2017, high cost outlier payments 
made under 42 CFR 412.525 (that is, both high cost outlier payments 
made to site neutral payment rate discharges described under 42 CFR 
412.522(a)(1) and to standard payment rate discharges described 
under 42 CFR 412.522(a)(2)), and short-stay outlier payments made 
under 42 CFR 412.529 (OUTLIER and SSO STANDARD 
PAYMENTS on PS&R Report 11S); 
ii.  For discharges after October 1, 2017, high cost outlier payments made 
under 42 CFR 412.525 (that is, both high cost outlier payments made 
to site neutral payment rate discharges described under 42 CFR 
412.522(a)(1) and to standard payment rate discharges described 
under 42 CFR 412.522(a)(2)) (OUTLIER on PS&R Report 11S); or 
d.  For cost reporting periods beginning on or after October 1, 2017, high cost outlier 
payments made under 42 CFR 412.525 (that is, both high cost outlier payments 
made to site neutral payment rate discharges described under 42 CFR 
412.522(a)(1) and to standard payment rate discharges described under 42 CFR 
412.522(a)(2)) (OUTLIER on PS&R Report 11S). 
 
To determine if a LTCH meets the criteria above, the Medicare contractor shall 
incorporate all the adjustments from the cost report, run the cost report, calculate the 
revised CCR and compute the actual CCR prior to issuing a Notice of Program 
Reimbursement (NPR).  If the criteria for reconciliation are not met, the cost report shall 
be finalized.  If the criteria for reconciliation are met, Medicare contractors shall follow 
the instructions below in 150.28.  The NPR cannot be issued nor can the cost report be 
finalized until outlier reconciliation is complete. The criteria above replaces the criteria 
published in III of PM A-03-058. 
 
As stated above, if a cost report is reopened after final settlement and as a result of this 
reopening there is a change to the CCR (which could trigger or affect outlier reconciliation 
and outlier payments), Medicare contractors shall notify the CMS Regional and Central 
Office for further instructions.  Notification to the CMS Central Office shall be sent via 
email to outliersIPPS@cms.hhs.gov.  
 
Even if a LTCH does not meet the criteria for reconciliation, subject to approval of the 
CMS Regional and Central Office, the Medicare contractor has the discretion to request 
that a LTCHs outlier payments in a cost reporting period be reconciled if the LTCHs 
most recent cost and charge data indicate that the outlier payments to the hospital were 
significantly inaccurate.  The Medicare contractor sends notification to the CMS Central 
Office via email to outliersIPPS@cms.hhs.gov.  Upon approval of the CMS regional and  Central Office that a LTCHs high cost and short stay outlier claims need to be reconciled, 
Medicare contractors shall follow the instructions in 150.27 and 150.28. 
 
B. Reconciling Outlier Payments 
 
Beginning with the first cost reporting period starting on or after October 1, 2003, all 
LTCHs are subject to the reconciliation policies set forth in this section.  If a LTCH meets 
the criteria in part A of this section, the Medicare contractor shall follow the instructions 
below in 150.28.  Further instructions for Medicare contractors on reconciliation and the 
time value of money are provided below in 150.27 and 150.28.  The following 
examples demonstrate how to apply the criteria for reconciliation:  
 
Example A  
 
Cost Reporting Period: 01/01/2004-12/31/2004 
  
CCR used to pay original claims submitted during cost reporting period:  0.40 (In this 
example, this CCR is from the tentatively settled 2002 cost report). 
 
Final settled CCR from 01/01/2004-12/31/2004 cost report:  0.50. 
  
Total outlier payments (short-stay and high cost outliers combined) in 01/01/2004-
12/31/2004 cost reporting period: $600,000. 
  
Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 
(by more than 10 percentage points) at the time of final settlement, and the provider 
received greater than $500,000 in (short-stay and high cost) outlier payments during that 
cost reporting period, the criteria has been met to trigger reconciliation, and therefore, the 
Medicare contractor notifies the CMS Regional Office and CMS Central Office.  The 
providers outlier payments for this cost reporting period will be reconciled using the 
actual CCR of 0.50. 
 
In the event that multiple CCRs are used in a given cost reporting period, Medicare 
contractor shall calculate a weighted average of the CCRs in that cost reporting period.  
(See Example B below for instructions on how to weight the CCRs).  The Medicare 
contractor shall then compare the weighted average CCR to the CCR determined at the 
time of final settlement of the cost reporting period to determine if reconciliation is 
required.  Again, total (combined short- stay and high cost) outlier payments for the entire 
cost reporting period must exceed $500,000 in order to trigger reconciliation. 
 
Example B  
 
Cost Reporting Period: 01/01/2004-12/31/2004  
 
CCR used to pay original claims submitted during cost reporting period:   
  - 0.40 from 01/01/2004-03/31/2004 (This CCR is from the tentatively settled 2001 cost 
report)  
- 0.50 from 04/01/2004-12/31/2004 (This CCR is from the tentatively settled 2002 cost 
report)  
 
Final settled CCR from 01/01/2004-12/31/2004 cost report: 0.35  
 
Total (short-stay and high cost) outlier payout in 01/01/2004-12/31/2004 cost reporting 
period: $600,000  
 
Weighted Average CCR: 0.474, completed as follows: 
 
CCR   Days   Weight   Weighted CCR  
0.40   91   0.248 (91 Days / 366 Days)   (a) 0.099=  
 (0.40 * 0.248)  
0.50   275   0.751 (275 Days / 366 Days )   (b) 0.375=   
(0.50 * 0.751)  
TOTAL   *366      (a)+(b) =0.4742  
 
*NOTE: There are 366 days in the year because 2004 was a leap year. 
 
The LTCH meets the criteria for reconciliation in this cost reporting period because the 
weighted average CCR at the time the claim was originally paid changed (by more than 
ten percentage points) from 0.474 to 0.35 at the time of final settlement, and the provider 
received (combined) outlier payments greater than $500,000 for the entire cost reporting 
period. 
 
 
150.27 - Time Value of Money 
(Rev. 2242, Issued: 06-17-11, Effective: 07-01-11, Implementation: 07-01-11) 
 
At the time of any reconciliation under 150.26, outlier payments may be adjusted to 
account for the time value of money of any adjustments to outlier payments as a result of 
reconciliation.  The time value of money is applied from the midpoint of the LTCHs cost 
reporting period being settled to the date on which the CMS Central Office receives 
notification from the Medicare contractor that reconciliation should be performed. 
 
If a LTCHs outlier payments have met the criteria for reconciliation, the Medicare 
contractor shall follow the process in 150.28.  The index that will be used to calculate the 
time value of money is the monthly rate of return that the Medicare trust fund earns.  This 
index can be found at 
http://www.ssa.gov/OACT/ProgData/newIssueRates.html 
 
The following formula will be used to calculate the rate of the time value of money. 
  (Rate from Web site as of the midpoint of the cost report being settled / 365) * # of days 
from that midpoint until date of reconciliation. 
 
NOTE: The time value of money can be a positive or negative amount depending if the 
provider is owed money by CMS or if the provider owes money to CMS. 
 
For purposes of calculating the time value of money, the date of reconciliation is the day 
on which the CMS Central Office receives notification.  This date is either the postmark 
from the written notification sent to the CMS Central Office via mail by the Medicare 
contractor, or the date an email was received from the Medicare contractor by the CMS 
Central Office, whichever is first. 
 
The following is an example of the procedures for reconciliation and computation of the 
adjustment to account for the time value of money: 
 
Example C 
 
Cost Reporting Period: 01/01/2004-12/31/2004 
 
Midpoint of Cost Reporting Period: 07/01/2004 
 
Date of Reconciliation: 12/31/2005 
 
Number of days from Midpoint until date of Reconciliation: 549 
 
Rate from Social Security Web site: 4.625% 
 
CCR used to pay actual original claims in cost reporting period: 0.40 (This CCR could be 
from the tentatively settled 2002 or 2003 cost report) 
 
Final settled CCR from 01/01/2004-12/31/2004 cost report: 0.50 
 
Total outlier payout in 01/01/2004-12/31/2004 cost reporting period: $600,000. 
 
Because the CCR fluctuated from 0.40 at the time the claims were originally paid to 0.50 
at the time of final settlement and the provider has total outlier payments greater than 
$500,000, the criteria have been met to trigger reconciliation.  The Medicare contractor 
notifies the CMS Regional Office and CMS Central Office. 
 
The Medicare contractor reprices the claims in accordance with the process in 150.28 
below.  The repricing indicates the revised outlier payments are $700,000. 
 
Using the values above, determine the rate that will be used for the time value of money: 
(4.625 / 365) * 549 = 6.9565% 
 
Based on the claims reconciled, the provider is owed $100,000 ($700,000-$600,000) for  the reconciled amount and $6,956.50 ($100,000 * 6.9565 %) for the time value of money. 
 
150.28 - Procedure for Medicare Contractors to Perform and Record 
Outlier Reconciliation Adjustments 
(Rev. 4390, Issued: 09-06-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
The following is a step-by-step explanation of the procedures that Medicare contractors 
are to follow if a LTCH is eligible for outlier reconciliation:  
 
1)  The Medicare contractor shall send notification to the CMS Central Office (not the 
hospital), via email to outliersIPPS@cms.hhs.gov and CMS Regional Office that a 
hospital has met the criteria for reconciliation. Medicare contractors shall include 
in their notification the provider number, provider name, cost reporting begin date, 
cost reporting end date, total short stay and high cost outlier payments in the cost 
reporting period, the CCR or weighted average CCR from the time the claims were 
paid during the cost reporting period eligible for reconciliation and the final settled 
CCR. 
 
2)  If the Medicare contractor receives approval from the CMS Central Office that 
reconciliation is appropriate, the Medicare contractor shall follow steps 3-14 
below. NOTE: Hospital cost reports will remain open until their claims have been 
processed for outlier reconciliation. 
 
3)  The Medicare contractor shall notify the hospital and copy the CMS Regional 
Office and Central Office via email at outliersIPPS@cms.hhs.gov that the 
hospitals outlier claims are to be reconciled.  
 
4)  Prior to running claims in the *Lump Sum Utility, Medicare contractors shall 
update the applicable provider record in the Provider Specific File (PSF) by 
entering the final settled CCR from the cost report in the -25 -Operating Cost to 
Charge Ratio field. No other elements in the PSF shall be updated for the 
applicable provider records in the PSF that span the cost reporting period being 
reconciled aside from the CCR. 
 
*NOTE: The FISS Lump Sum Utility is a Medicare contractor tool that, 
depending on the elements that are input, will produce an extract that will 
calculate the difference between the original PPS payment amounts and 
revised PPS payment amounts into a Microsoft Access generated report. The 
Lump Sum Utility calculates the original and revised payments offline and 
will not affect the original claim payment amounts as displayed in various 
CMS systems (such as NCH). 
 
5)  Medicare contractors shall ensure that, prior to running claims through the FISS 
Lump Sum Utility, all pending claims (e.g., appeal adjustments) are finalized for 
the applicable provider. 
  6)  Medicare contractors shall only run claims in the Lump Sum Utility that meet the 
following criteria: 
 
7)  Type of Bill (TOB) equals 11X 
8)  Previous claim is in a paid status (P location) within FISS 
9)  Cancel date is blank 
 
10) The Medicare contractor reconciles the claims through the applicable LTCH Pricer 
software and not through any editing or grouping software.  
 
11) Upon completing steps 3 through 7 above, the Medicare contractor shall run the 
claims through the Lump Sum Utility. The Lump Sum Utility will produce an 
extract, according to the elements in Table 1 below. NOTE:  The extract must be 
importable by Microsoft Access or a similar software program (Microsoft Excel). 
 
12) Medicare contractors shall upload the extract into Microsoft Access or a similar 
software program to generate a report that contains elements in Table 1. Medicare 
contractors shall ensure this report is retained with the cost report settlement work 
papers. 
 
13) For hospitals paid under the LTCH PPS, the difference between the Original PPS 
Payment Amount and Revised PPS Payment Amount from the Lump Sum Utility 
will reflect the difference between the total original short-stay and high cost outlier 
payment amount and the revised short-stay and high cost outlier payment amount. 
If the difference between the original and revised PPS Payment Amount is 
positive, then a credit amount (addition) shall be issued to the provider. If the 
difference between the original and revised PPS Payment is negative, then a debit 
amount (deduction) shall be issued to the provider. 
 
14) Medicare contractors shall determine the applicable time value of money amount 
by using the calculation methodology in 150.27. If the difference between the 
Original PPS Payment Amount and Revised PPS Payment Amount from the Lump 
Sum Utility is a negative amount then the time value of money is also a negative 
amount. If the difference between the Original PPS Payment Amount and Revised 
PPS Payment Amount from the Lump Sum Utility is a positive amount then the 
time value of money is also a positive amount. Similar to step 10, if the time value 
of money is positive, then a credit amount (addition) shall be issued to the 
provider. If the time value of money is negative, then a debit amount (deduction) 
shall be issued to the provider. NOTE: The time value of money is applied to the 
difference between the original PPS Payment Amount and Revised PPS Payment 
Amount. 
 
15) For cost reporting periods beginning before May 1, 2010, under cost report 2552-
96, the Medicare contractor shall record the original PPS  amount by summing 
lines 1.02 and 1.05 from Worksheet E-3, Part I, the outlier reconciliation 
adjustment amount (the difference between the Original PPS Payment Amount and  Revised PPS Payment Amount from the Lump Sum Utility), the total time value of 
money and the rate used to calculate the time value of money on lines 50-53, of 
Worksheet E-3, Part I of the cost report (NOTE: the amounts recorded on lines 50, 
51 and 53 can be positive or negative amounts per the instructions above). The 
total outlier reconciliation amount (the difference between the original PPS 
Payment Amount and Revised PPS Payment Amount (from the Lump Sum Utility) 
plus the time value of money) shall be recorded on line 15.99 of Worksheet E-3, 
Part I. For complete instructions on how to fill out these lines please see 3633.1 
of the Provider Reimbursement Manual, Part II. 
 
16) For cost reporting periods beginning on or after May 1, 2010, under cost report 
2552-10, the Medicare contractor shall record the original PPS amount from 
Worksheet E-3, Part IV line 3, the outlier reconciliation adjustment amount (the 
difference between the Original PPS Payment Amount and Revised PPS Payment 
Amount from the Lump Sum Utility), the total time value of money and the rate 
used to calculate the time value of money on lines 50-53, of Worksheet E-3, Part 
IV of the cost report (NOTE: the amounts recorded on lines 50, 51 and 53 can be 
positive or negative amounts per the instructions above). The total outlier 
reconciliation amount (the difference between the original PPS Payment Amount 
and Revised PPS Payment Amount (from the Lump Sum Utility) plus the time 
value of money) shall be recorded on line 20 of Worksheet E-3, Part IV.  
 
17) The Medicare contractor shall finalize the cost report, issue a NPR and make the 
necessary adjustment from or to the provider. 
 
18) After determining the total outlier reconciliation amount and issuing a NPR, 
Medicare contractors shall restore the CCR(s) to their original values (that is, the 
CCRs used to pay the claims) in the applicable provider records in the PSF to 
ensure an accurate history is maintained. Specifically, for hospitals paid under the 
LTCH PPS, Medicare contractors shall enter the original CCR(s) in PSF field 25 -
Operating Cost to Charge Ratio. 
 
If the Medicare contractor has any questions regarding this process it should contact the 
Central Office, via email at outliersIPPS@cms.hhs.gov.  
 
Table 1: Data Elements for FISS Extract 
 
List of Data Elements for FISS Extract 
Provider #  
Health Insurance Claim (HIC) Number 
Document Control Number (DCN)  
Type of Bill  
Original Paid Date 
Statement From Date  
Statement To Date  
Original Reimbursement Amount (claims page 10)   List of Data Elements for FISS Extract 
Revised Reimbursement Amount (claim page 10)  
Difference between these amounts  
Original Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Revised Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Difference between these amounts 
Original Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Revised Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Difference between these amounts 
Original Outlier Amount (Value Code 17) 
Revised Outlier Amount (Value Code 17) 
Difference between these amounts 
Original DSH Amount (Value Code 18) 
Revised DSH Amount (Value Code 18) 
Difference between these amounts 
Original IME Amount (Value Code 19) 
Revised IME Amount (Value Code 19) 
Difference between these amounts 
Original New Tech Add-on (Value Code 77) 
Revised New Tech Add-on (Value Code 77) 
Difference between these amounts 
Original Device Reductions (Value Code D4) 
Revised Device Reductions (Value Code D4) 
Difference between these amounts 
Original Hospital Portion (claim page 14) 
Revised Hospital Portion (claim page 14) 
Difference between these amounts 
Original Federal Portion  (claim page 14) 
Revised Federal Portion  (claim page 14) 
Difference between these amounts 
Original C TOT PAY (claim page 14) 
Revised C TOT PAY (claim page 14) 
Difference between these amounts 
Original C FSP (claim page 14) 
Revised C FSP (claim page 14) 
Difference between these amounts 
Original C OUTLIER (claim page 14) 
Revised C OUTLIER (claim page 14) 
Difference between these amounts 
Original C DSH ADJ (claim page 14) 
Revised C DSH ADJ (claim page 14) 
Difference between these amounts 
Original C IME ADJ (claim page 14) 
Revised C IME ADJ (claim page 14) 
Difference between these amounts  List of Data Elements for FISS Extract 
Original Pricer Amount  
Revised Pricer Amount 
Difference between these amounts 
Original PPS Payment (claim page 14) 
Revised PPS Payment (claim page 14) 
Difference between these amounts 
Original PPS Return Code (claim page 14) 
Revised PPS Return Code (claim page 14) 
DRG 
MSP Indicator (Value Codes 12-16 & 41-43 - indicator indicating the claim is MSP; 
Y = MSP, blank = no MSP 
Reason Code 
HMO-IME Indicator 
Filler 
 
160 - Necessary Changes to Implement Special Add-On Payments for 
New Technologies 
(Rev. 1, 10-01-03) 
A-02-124 
 
160.1 - Special Add-On Payments For New Technologies 
(Rev. 1, 10-01-03) 
 
Section 533(b) of the Medicare, Medicaid, and State Children's Health Insurance Program 
(SCHIP) Benefits Improvement and Protection Act of 2000 (BIPA) amended section 
1886(d)(5) of the Act to add subparagraphs (K) and (L) and establish a process of 
identifying and ensuring adequate payment for new medical services and technologies 
under Medicare. In the September 7, 200l, final rule (66 FR 46902), CMS established that 
cases using approved new technology would be appropriate candidates for an additional 
payment when: the technology represents an advance in medical technology that 
substantially improves, relative to technologies previously available, the diagnosis or 
treatment of Medicare beneficiaries; the payment for such cases can be demonstrated to be 
inadequately paid otherwise under the diagnosis-related group (DRG) system; and data 
reflecting the costs of the technology would be unavailable to use to recalibrate the DRG 
weights. 
 
Under 42 CFR 412.88 of the regulations, an add-on payment is made for discharges 
involving approved new technologies, if the total covered costs of the discharge exceed 
the DRG payment for the case (including adjustments for indirect medical education 
(IME) and disproportionate share hospitals (DSH) but excluding outlier payments). 
PRICER calculates the total covered costs for this purpose by applying the cost-to-charge 
ratio (that is used for inpatient outlier purposes) to the total covered costs of the discharge. 
Payment for eligible cases is equal to: 
    The full DRG payment (see example 1 that follows); plus 
 
  The lesser of 
 
1. 50 percent of the costs of the new medical service or technology (see example 
2); or 
 
2. 50 percent of the amount by which the total covered costs (as determined above) 
of the case exceed the DRG payment (see example 3); plus 
 
  Any applicable outlier payments if the costs of the case exceed the DRG, plus 
adjustments for IME and DSH, and any approved new technology payment for the 
case plus the fixed loss outlier threshold. The costs of the new technology are 
included in the determination of whether a case qualifies for outliers. 
 
This instruction implements the above payment mechanism into the claims processing 
systems. 
 
Below are three illustrative examples of this policy for cases involving an eligible 
technology estimated to cost $3,000 in a DRG that pays $20,000. 
 
Example One 
 
Applying the hospitals cost-to-charge ratio to the total covered charges for the case, it is 
determined the total cost for the case is $19,000. Medicare would pay $20,000, the full 
DRG payment. Even though the case involved a new technology eligible for add-on 
payments, the total covered costs of the case did not exceed the DRG payment, therefore, 
no additional payment is made. 
 
Example Two:  
 
Applying the hospitals cost-to-charge ratio to the total covered charges for the case, it is 
determined the total cost for the case is $25,000. Because, in this case, 50 percent of the 
costs of the new medical service or technology is less than 50 percent of the amount by 
which the total covered costs (as determined above) of the case exceed the DRG payment, 
Medicare would pay 50 percent of the costs of the new technology (in addition to the 
DRG payment). Therefore, for this case, Medicare would pay $21,500 (the DRG payment 
of $20,000 plus one-half of $3,000, the estimated cost of the new technology). 
 
Example Three:  
 
Applying the hospitals cost-to-charge ratio to the total covered charges for the case, it is 
determined the total cost for the case is $22,000. Medicare would pay one-half of the 
amount by which the costs of the case exceed the DRG payment, up to the estimated cost 
of the new technology. Therefore, for this case, Medicare would pay $21,000 (the DRG 
payment of $20,000 plus one-half of the costs above that amount).   
160.1.1 - Identifying Claims Eligible for the Add-On Payment for New 
Technology 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
Technologies eligible for add-on payments are identified based on the applicable codes 
from the International Classification of Diseases, Clinical Modification.  Claims submitted 
with an ICD code indicating that a new technology was involved in the treatment of the 
patient is then eligible for add-on payments as described above. 
 
The system maintainers pass (if present) the "principal" and up to twenty four "other 
procedure" codes to PRICER. If an eligible code is present, PRICER calculates an add-on 
payment if appropriate. 
 
Additionally, the National Uniform Billing Committee has approved value code 77 for use 
on the ASC X12 837 institutional claim or Form CMS-1450 for A/B MAC (A) use only, 
defined as New Technology Add-On Payment.  This value code must be passed to CWF 
and the PS&R. The amount shown in this value code must be paid to PIP providers on a 
claim-by-claim basis the same as outlier payments are paid to PIP providers. 
 
160.1.2 - Remittance Advice Impact 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16)  
 
In order to process this special add-on payment for new technologies, and report in the 
Remittance Advice (electronic and paper), contractors shall submit code ZL in the AMT 
segment of the Loop 2110 AMT01 of the ASC X12 835 Transaction. Contractors shall 
also submit code CS in the composite data element of the PLB segment in the 835 ASC 
X12 Transaction. 
 
For PIP payment, the contractor includes only the add-on payment on a claim-by-claim 
basis. 
 
The following reflects the remittance advice messages and associated codes that will 
appear when processing claims under this policy.  The CARC below is not included in the 
CAQH CORE Business Scenarios. 
 
Group Code: OA 
CARC: 94 
RARC: N/A 
MSN: N/A 
 
170 - Billing and Processing Instructions for Religious Nonmedical 
Health Care Institution (RNHCI) Claims 
(Rev. 851, Issued:  02-10-06; Effective/Implementation Dates:  05-11-06)   
170.1 - RNHCI Election Process 
(Rev. 851, Issued:  02-10-06; Effective/Implementation Dates:  05-11-06) 
 
See Chapter 5, Section 40 of Pub. 100-01, Medicare General Information, Eligibility, and 
Entitlement Manual for a definition of RNHCI providers.  See Chapter 1, Section 130 of 
Pub. 100-02, Medicare Benefit Policy Manual for more information about the RNHCI 
benefit and coverage. 
 
170.1.1 - Requirement for RNHCI Election 
(Rev. 2930, Issued: 04-11-14, Effective: 07-14-14, Implementation: 07-14-14) 
 
The RNHCI benefit provides only for Part A inpatient services.  For an RNHCI to receive 
payment under the Medicare program, the beneficiary must make a written election to 
receive benefits under 1821 of the Act.  To elect religious nonmedical health care 
services, the beneficiary or the beneficiarys legal representative must attest that the 
individual is conscientiously opposed to acceptance of nonexcepted medical treatment, 
and the individuals acceptance of such treatment would be inconsistent with the 
individuals sincere religious beliefs. 
 
All submissions regarding RNHCI services are processed by a single Medicare contractor 
as a specialty workload.  Currently, this specialty workload is part of Medicare 
Administrative Contractor Jurisdiction 10.  The completed election form must be filed 
with the contractor and a copy retained by the RNHCI provider.  See section 170.1.3 
below for instructions on the submission of the election to the contractor. 
 
The RNHCI provider should question each beneficiary prior to executing the election 
statement to determine if the beneficiary has Medicare Part B coverage in effect via a 
health plan or has recently received care (services or items, including physician-ordered 
durable medical equipment) for which Medicare payment was sought.  An affirmative 
answer will alert the RNHCI provider that subsequent claims under the election may be 
denied. 
 
Occasionally, a Medicare beneficiary may seek services at a RNHCI that do not qualify 
for Medicare coverage and for which the beneficiary may seek payment from another 
insurer.  The beneficiary is not required to make an election of RNHCI benefits in this 
case. 
 
If the other insurer requires a denial from Medicare before making payment for these 
services, a denial notice cannot be processed by Medicare claims processing systems. 
Medicare systems require submission of a Notice of Election (NOE) before any RNHCI 
claims, including claims for denial, can be processed. 
 
The RNHCI may request in writing a denial notice from the Medicare contractor.  The 
written request must describe the reason the beneficiary does not qualify for Medicare 
coverage.  It must also describe the specific services that will be provided to the  beneficiary.  In response, the contractor will provide the RNHCI with a manual denial 
letter.  This letter may then be submitted to a secondary insurer as evidence of a prior 
Medicare denial. 
 
170.1.2 - Revocation of RNHCI Election 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
Under 1821(b)(3), a beneficiary may revoke an election in writing or by receiving 
nonexcepted medical care.  Once an election has been revoked, Medicare payment cannot 
be made to an RNHCI unless a new valid election is filed.  The RNHCI revocation does 
not interfere with the beneficiarys ability to seek other Medicare services within the limits 
of his/her Medicare coverage.  Multiple revocations may affect the beneficiarys ability to 
access the RNHCI benefit in the future (see Pub. 100-02, Medicare Benefit Policy 
Manual, Chapter 1, Section 130.2.2). 
 
Written revocations received from a beneficiary must be filed by the RHNCI with their 
Medicare contractor and a copy retained by the RNHCI provider.  Revocations may be 
filed using the same format as elections, indicating a revocation in the type of bill code.  
See section 170.1.3 below for details. 
 
170.1.3 - Completion of the Notice of Election for RNHCI 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
Elections, revocations and cancellations of elections may be submitted to the contractor 
via the paper Form CMS-1450 or via the contractors Direct Data Entry (DDE) system.  
Election transactions are not covered transaction under the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) and therefore the HIPAA standard claim 
transaction is not required.  Additionally, the HIPAA standard claim transaction (ASC 
X12 837 institutional claim format) does not support the data requirements of these 
transactions. 
 
This section gives detailed information only for items required for the notice of election 
and related transactions.  The RHNCI does not need to complete items not listed. 
 
Provider Name, Address, and Telephone Number 
 
Required - The minimum entry is the RNHCIs name, city, State, and ZIP code.  The post 
office box number or street name and number may be included.  The State may be 
abbreviated using standard post office abbreviations.  Five- or 9-digit ZIP codes are 
acceptable.  The RNHCI uses the information to reconcile provider number discrepancies.  
Phone and/or FAX numbers are desirable. 
 
Type of Bill 
  Required - The RNHCI enters the 3-digit numeric type of bill code.  The first digit 
identifies the type of facility.  The second digit classifies the type of care.  The third digit 
(commonly referred to as a frequency code) indicates in this instance the nature of the 
election related transaction.  
 
The RNHCI enters type of bill 41A, 41B, or 41D as appropriate. 
 
Valid codes for RNHCI elections: 
 
    1st Digit - Type of Facility 
 
4- Religious Nonmedical Health Care Institution 
 
    2nd Digit - Classification (Special Facility) 
 
1- Inpatient (Part A) 
 
    3rd Digit - Frequency 
 
A - RNHCI election notice 
 
B - RNHCI revocation notice 
 
D - Cancellation 
 
The RNHCI submits type of bill 41D to the specialty contractor as a cancellation of a 
previously submitted notice of election or notice of revocation, when it was submitted in 
error.  In situations where the RNHCI is correcting a previously submitted date, they 
submit a new type of bill 41A to the contractor for processing. 
 
Patients Name 
 
Required - The RNHCI enters the patients name with the surname first, first name, and 
middle initial, if any. 
 
Patients Address 
 
Required - The RNHCI enters the patients full mailing address including street name and 
number, post office box number or RFD, city, State, and ZIP code. 
 
Patients Birth Date 
 
Required - (If available) The RNHCI enters the month, day, and year of birth.  If the date 
of birth cannot be obtained after a reasonable effort, the field will be zero-filled. 
 
Patients Sex   
Required - The RNHCI enters an M for male or an F for female. 
 
Admission Date 
 
Required - The RNHCI enters the date of the election, revocation or cancellation.  In no 
instance should the date be prior to July 1, 2000. 
 
National Provider Identifier 
 
Required - The RNHCI enters their National Provider Identifier (NPI).  During Medicare 
processing, the NPI is matched to the RHNCIs CMS Certification Number (CCN).  
RNHCI CCNs are composed of a 2-digit state code and a 4-digit provider identifier in the 
range 1990-99. 
 
Insureds Name 
 
Required - The RNHCI enters the beneficiarys name on line A if Medicare is the primary 
payer.  The RNHCI enters the name as on the beneficiarys Medicare card.  If Medicare is 
the secondary payer, the RNHCI enters the beneficiarys name on line B or C, as 
applicable, and enters the insureds name on line A. 
 
Insureds Unique Identification 
 
Required - On the same lettered line (A, B, or C) that corresponds to the line on which 
Medicare payer information is, the RNHCI enters the patients HICN.  The RNHCI enters 
the number as it appears on the patients Medicare Card, Social Security Award 
Certificate, Utilization Notice, Medicare Summary Notice, Temporary Eligibility Notice, 
etc., or as reported by the Social Security Office. 
 
170.1.4 - Common Working File (CWF) Processing of Elections, 
Revocations and Cancelled Elections 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
The Medicare contractor with RNHCI specialty workload submits all RNHCI election, 
revocations and cancelled elections to CWF for approval.  The CWF will notify the 
contractor that these transactions were received and accepted.  The CWF uses these 
records to maintain a beneficiary file of all RNHCI beneficiary elections and revocations.  
This file is used in processing claims for RNHCI services (see section 170.3 below) and 
for other Medicare services (see section 180). 
 
CWF rejects any notices of revocations or cancellations when: 
 
  CWF history shows no RNHCI elections are on file; 
 
  The submitted dates do not match the elections on file;   
  The revocation date is prior to the date of the election; 
 
  The election in question has already been revoked or cancelled; or 
 
  CWF history indicates an RNHCI claim has been processed during the 
election period to which the revocation or cancellation applies.  If these 
claims were submitted in error, the RNHCI must cancel the claims prior to 
resubmitting the revocation or cancellation. 
 
170.2 - Billing Process for RNHCI Services 
(Rev. 851, Issued:  02-10-06; Effective/Implementation Dates:  05-11-06) 
 
170.2.1 - When to Bill for RNHCI Services 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
RNHCIs submit claims to their Medicare contractor in the following situations: 
 
  At the time of beneficiary's discharge, or death. 
 
  At the time the beneficiary's benefits are exhausted 
 
  On an interim basis monthly. 
 
RNHCIs submit a claim even where the charges do not exceed the beneficiary's 
deductible.  See section 40 for instructions regarding reporting of utilization days. 
 
170.2.2 - Required Data Elements on Claims for RNHCI Services 
(Rev. 3075, Issued; 09-24-14, Effective: 11-12-14, ICD-10: Upon Implementation of 
ICD-10, Implementation: 11-12-14, ICD-10: Upon Implementation of ICD-10) 
 
The Social Security Act at 1862 (a)(22) requires that all claims for Medicare payment 
must be submitted in an electronic form specified by the Secretary of Health and Human 
Services, unless an exception described at 1862 (h) applies.  The electronic form required 
for billing RNHCI claims is the ASC X12 837 institutional claim transaction.  Since the 
data structure of the ASC X12 837 institutional claim transaction is difficult to express in 
narrative form and to provide assistance to small providers excepted from the electronic 
claim requirement, the instructions below are given relative to the Form CMS-1450 paper 
claim. 
 
Both the electronic claim transaction and the paper claim form are suitable for use in 
billing multiple third party payers.  This section details only those data elements required 
for Medicare billing.  When RNHCIs are billing multiple third parties, they complete all 
items required by each payer who is to receive a claim for the services. 
 
Provider Name, Address, and Telephone Number 
  Required - The RNHCI must enter their name, city, State, and ZIP Code.  The post office 
box number or street name and number may be included.  The State may be abbreviated 
using standard post office abbreviations.  Five or 9-digit ZIP Codes are acceptable.  This 
information is used in connection with the Medicare provider number to verify provider 
identity.  Phone/Fax numbers are desirable. 
 
Patient Control Number/Medicare Record Number 
 
Optional - The RNHCI may report a beneficiary's control number if they assign one and 
need it for association and reference purposes. 
 
Type of Bill 
 
Required - This 3-digit alphanumeric code gives three specific pieces of information.  The 
first digit identifies the type of facility.  The second classifies the type of care.  The third 
indicates the sequence of this claim in this particular episode of care.  It is a "frequency" 
code. 
 
Valid codes for RNHCI claims: 
 
    1st Digit-Type of Facility 
 
4 - Religious Nonmedical Health Care Institution 
 
    2nd Digit Classification (Except Clinics and Special Facilities) 
 
1 - Inpatient (Part A) 
 
    3rd Digit-Frequency        Definition 
 
    0-Nonpayment/zero claims   Use when you do not anticipate payment 
from the payer for the bill but are merely 
informing the payer about a period of 
nonpayable confinement or termination 
of care.  The "Through" date of this bill 
is the discharge date for this 
confinement.  Nonpayment bills are 
required only to extend the "spell of 
illness."  See code 71 below. 
 
    l-Admit Through Discharge Claims  Use for a bill encompassing an entire 
inpatient confinement for which you 
expect payment from the payer or for 
which Medicare utilization is chargeable. 
      2-Interim-First Claim    Use for the first of an expected series of 
payment bills for the same confinement 
or course of treatment for which 
Medicare utilization is chargeable. 
 
    3-Interim-Continuing Claim  Use when a payment bill for the same 
confinement or course of treatment has 
been submitted, further bills are expected 
to be submitted and Medicare utilization 
is chargeable. 
 
    4-Interim-Last Claim    Use for a payment bill which is the last 
of a series for this confinement or course 
of treatment when Medicare utilization is 
chargeable.  The "Through" date of this 
bill is the discharge date for this 
confinement. 
 
    7-Replacement of Prior Claim  Use to correct (other than late charges) a 
previously submitted bill. This is the 
code applied to the corrected or "new" 
bill. 
 
    8-Void/Cancel of a Prior Claim  This code indicates the bill is an exact 
duplicate of an incorrect bill previously 
submitted. Enter a code "7" 
(Replacement of Prior Claim) showing 
the correct information. 
 
Statement Covers Period (From - Through) 
 
Required - The RNHCI must enter the beginning and ending dates of the period covered 
by this bill.  Enter the date of discharge or the date of death in the space provided under 
"Through."  The statement covers period may not span 2 accounting years. 
 
Patient's Name 
 
Required - The RNHCI must enter the beneficiary's last name, first name, and middle 
initial, if any. 
 
Patient's Address 
 
Required - The RNHCI must enter the beneficiary's full mailing address, including street 
number and name, post office box number or RFD, City, State, and ZIP Code. 
 
Patient Birth Date   
Required - The RNHCI must enter the month, day, and year of birth (MM-DD-YYYY) of 
the beneficiary. 
 
Sex 
 
Required - The RNHCI must enter an M for male or an F for female. 
 
Admission Date 
 
Required - The RNHCI must enter the date the beneficiary was admitted for inpatient care. 
 
(MM-DD-YY). 
 
Type of Admission 
 
Required - The RNHCI must enter the code indicating the priority of this admission. 
 
Valid codes for RNHCI claims: 
 
3  Elective    The beneficiary's condition permitted adequate 
time to schedule the availability of a suitable 
accommodation. 
 
9  Information     Self-explanatory 
  Not Available 
 
Point of Origin for Admission 
 
Required - The RNHCI must enter the code indicating the beneficiarys point of origin.  
The RNHCI may use any valid point of origin code that applies to the particular 
admission. 
 
Patient Discharge Status 
 
Required - The RNHCI must enter the code indicating the patient's status as of the 
"Through" date of the billing period. The RNHCI may use any valid patient status code 
that applies to the discharge. 
 
Condition Codes 
 
Conditional - The RNHCI may enter any number of condition codes to describe conditions 
that apply to the billing period.  If the RNHCI is submitting an adjustment or a 
cancellation claim, an applicable condition code from the claim change reason series (D0 
through D9 or E0) must be used. 
  If non-covered days are reported because the beneficiarys inpatient benefits were 
exhausted, the RHNCI must indicate whether the beneficiary elects to use lifetime reserve 
days.  The RNHCI must indicate lifetime reserve days are used on the claim by reporting 
condition code 68.  If the beneficiary elects not to use lifetime reserve days, the RNHCI 
must report condition code 67.  
 
Occurrence Codes and Dates 
 
Conditional - The RNHCI may enter any number of occurrence codes and their associated 
dates to define specific event(s) relating to this billing period.  Occurrence codes are 2 
alphanumeric digits, and are reported with a corresponding date. 
 
If non-covered days are reported due to days not falling under the guarantee of payment 
provision, the RNHCI reports occurrence code 20.  
 
If non-covered days are reported because the beneficiarys inpatient benefits were 
exhausted, the RNHCI reports occurrence code A3. 
 
Occurrence Span Code and Dates 
 
Conditional - The RNHCI may enter any number of occurrence span codes and their 
associated dates to define specific event(s) relating to this billing period.  Occurrence span 
codes are 2 alphanumeric digits, and are accompanied by from and through dates for the 
period described by the code.  
 
If non-covered days are reported because the beneficiary was on a leave of absence and 
was not in the RNHCI, the RNHCI reports occurrence span code 74. 
 
Document Control Number (DCN) 
 
Conditional - The RNHCI must complete this field on adjustment requests (Bill Type, FL 
4 = 417).  An RNHCI requesting an adjustment to a previously processed claim must 
insert the ICN/DCN of the claim to be adjusted. 
 
Value Codes and Amounts 
 
Required - The RNHCI must report utilization days using the value codes described 
below.  
 
Covered Days - The RNHCI must use value code 80 to enter the total number of covered 
days during the billing period, including lifetime reserve days elected for which Medicare 
payment is requested.  Covered days exclude any days classified as non-covered, the day 
of discharge, and the day of death. 
 
Covered days are always in terms of whole days rather than fractional days.  As a result, 
the covered days do not include the day of discharge, even where the discharge was late.   
The RNHCI does not deduct any days for payment made under workers' compensation, 
automobile medical, no-fault, liability insurance, or an EGHP for an ESRD beneficiary or 
employed beneficiaries and spouses age 65 or over.  The specialty contractor will calculate 
utilization based upon the amount Medicare will pay and will make the necessary 
utilization adjustment. 
 
Non-covered Days - The RNHCI must use value code 81 to enter the total number of non-
covered days in the billing period for which the beneficiary will not be charged utilization 
for Part A services.  Non-covered days include: 
 
  Days not falling under the guarantee of payment provision.  See section 40.1. E.  
 
  Days not approved by the utilization review committee when the beneficiary does 
not meet the need for Part A services; 
 
  Days for which no Part A payment can be made because benefits are exhausted.  
This means that either lifetime reserve days were exhausted or the beneficiary 
elected not to use them. 
 
  Days for which no Part A payment can be made because the services were 
furnished without cost or will be paid for by the VA.  (Pub. 100-02, Medicare 
Benefit Policy Manual, Chapter 16, section 50); 
 
  Days after the date covered services ended, such as non-covered level of care; 
 
  Days for which no Part A payment can be made because the beneficiary was on a 
leave of absence and was not in the RNHCI.  See section 40.2.6; 
 
  Days for which no Part A payment can be made because an RNHCI whose 
provider agreement has terminated may only be paid for covered inpatient services 
during the limited period following such termination.  All days after the expiration 
of this period are non-covered.  See Pub. 100-01, Medicare General Information, 
Eligibility and Entitlement Manual, Chapter 5, section 10.6.4; 
 
The RNHCI enters in "Remarks" a brief explanation of any non-covered days not 
described in the occurrence codes.  Show the number of days for each category of non-
covered days (e.g., "5 leave days"). 
 
Day of discharge or death is not counted as a non-covered day.  All hospital inpatient rules 
for billing non-covered days apply to RNHCI claims. 
 
Coinsurance Days - The RNHCI must use value code 82 to enter the number of covered 
inpatient days occurring after the 60th day and before the 9lst day for this billing period. 
  Lifetime Reserve Days - The RNHCI must use value code 83 to enter the number of 
lifetime reserve days the beneficiary elected to use during this billing period. 
 
Lifetime reserve days are not charged where the average daily charge is less than the 
lifetime reserve coinsurance amount.  The average daily charge consists of charges for all 
covered services furnished after the 90th day in the benefit period and through the end of 
the billing period. 
 
The RNHCI must notify the beneficiary of their right to elect not to use lifetime reserve 
days before billing Medicare for services furnished after the 90th day in the spell of 
illness.  The determination to elect or withhold use of lifetime reserve days should be 
documented and kept on file at the provider. 
 
Conditional - The RNHCI may at their option enter any number of other value codes and 
related dollar amount(s) to identify data necessary for the processing of this claim.  Value 
codes are 2 alphanumeric digits, and a corresponding value amount.  Negative amounts 
are never shown.  If more than one value code is shown for a billing period, the RNHCI 
must show codes in ascending numeric sequence. 
 
Revenue Code 
 
Required - The RNHCI must enter the appropriate revenue codes to identify specific 
accommodation and/or ancillary charges.  This code takes the place of fixed line item 
descriptions.  The 4-digit numeric revenue code on the adjacent line explains each charge.  
The following revenue codes and associated descriptions are used where there are charges 
billed as covered by Medicare: 
 
Code  Description 
 
0001  Total Charges 
 
0120  Semi-Private Room 
 
0270    Supplies (non-religious, as covered by Medicare) 
 
Any other revenue codes may be submitted with non-covered charges only. 
 
Additionally, there is no fixed "Total" line in the charge area.  On paper claims, the 
RNHCI must enter revenue code "000l" to report a total of the charges on the claim. 
 
The RNHCI should list revenue codes other than revenue code 0001 in ascending 
numeric sequence and should not repeat revenue codes on the same claim to the extent 
possible. 
 
Units of Service 
  Required - The RNHCI must enter the number of days for accommodations revenue 
codes. 
 
Accommodation days are always in terms of whole days rather than fractional days.  The 
accommodation days do not include the day of discharge, even where the discharge was 
late.  Where a charge was made because the beneficiary remained in the RNHCI after 
checkout time for his own convenience, it is a non-covered charge and you can bill the 
beneficiary if that is your usual practice and if the beneficiary is given proper notice of 
their liability.  In this instance, the RNHCI will enter the additional charge in non-covered 
charges. 
 
Total Charges 
 
Required - The RHNCI must sum the total charges (covered and non-covered) for the 
billing period by revenue code and enter them on the adjacent line.  On paper claims, the 
last revenue code entered in revenue code "000l" represents the grand total of all charges 
billed.  For all lines, the total charges minus any associated non-covered charges represent 
the covered charges. 
 
Each line allows up to 9 numeric digits (0000000.00). 
 
When submitting charges (covered/non-covered): 
 
  Medicare is restricted by law and court order from paying for the religious portion 
of care or the training of personnel that provide that care.  Additionally Medicare 
does not pay either based on charges or costs for training of nonmedical personnel.  
RNHCIs do not receive full Medicare payment for a beneficiarys stay since the 
beneficiary is fiscally responsible for the religious aspects of care.  Therefore, the 
original Medicare or Medicare health plan rate may be significantly lower than the 
RNHCI private pay rate that includes religious charges. 
 
  As medical procedures are not performed in a RNHCI, the use of high cost medical 
supplies are not separately payable.  Supplies that require a physician order (e.g., 
specialty dressings, compression stockings, alternating pressure mattress pads) are 
not separately payable in a RNHCI.  The use of diapers, incontinence pads, 
chux/underpads, feminine hygiene products, tissues, and the materials for simple 
dressings (cleansing and bandaging) are included in the daily room and board 
portion of the charges and should not be reported separately as supplies. 
 
  Medical equipment (e.g., wheelchair, walker, crutches) are institution inventory 
items for beneficiary use in the RNHCI.  The use of these items during the 
beneficiary stay is part of the daily interim payment to the RNHCI.  To receive 
Medicare payment for durable medical equipment (DME) following a RNHCI 
stay, a beneficiary would need to meet all of the criteria, including medical 
necessity, and obtain a physician order or prescription.  A RNHCI is not authorized  as a Medicare supplier and, therefore, may not offer DME items for purchase to 
beneficiaries. 
 
  Nonmedical nursing personnel, for Medicare payment purposes, perform services 
(e.g., serving meals, assisting with activities of daily living) that are strictly 
nonmedical/non-religious.  The statute and court order mandates only the coverage 
and payment under Part A for reasonable and necessary nonmedical/non-religious 
care. 
 
  Medicare payment for religious/nonmedical nursing personnel in a RNHCI, as 
other inpatient facilities, is a component of the per diem rate and is not separately 
payable. 
 
Non-Covered Charges 
 
Required - The RHNCI must enter the total non-covered charges pertaining to the related 
revenue code, if any (e.g., religious items/services or religious activities performed by 
nurses or other staff, or convenience items that are not part of the Medicare daily interim 
payment rate.) 
 
Examples of non-covered charges: 
 
  Non-covered religious items include but are not limited to religious publications, 
religious recordings, any equipment for the use of those recordings, any 
reproduction costs for these materials, and attendance at religious meetings. 
 
  Religious sessions with RNHCI staff or outside associates. 
 
  Expenses related to student programs/subsistence, staff education/training, travel, 
or relocation to be factored into the development of charges for covered patient 
care services. 
 
  Stays, items, and services that are not substantiated by appropriate documentation 
in the beneficiarys utilization review file or care record. 
 
  Convenience items (e.g., telephone, computer, beautician/barber). 
 
Payer Identification 
 
Required - If Medicare is the primary payer, the RNHCI must enter "Medicare" on line A.  
If Medicare is entered, this indicates that the RNHCI has developed for other insurance 
and has determined that Medicare is the primary payer. 
 
All additional entries across line A supply information needed by the payer named.  If 
Medicare is the secondary or tertiary payer, the RNHCI may identify the primary payer on 
line A and enter Medicare information on line B or C as appropriate.   
National Provider Identifier 
 
Required - The RNHCI enters their National Provider Identifier (NPI).   During Medicare 
processing, the NPI is matched to the RHNCIs CMS Certification Number (CCN).  
RNHCI CCNs are composed of a 2-digit state code and a 4-digit provider identifier in the 
range 1990-99. 
 
Insureds Unique Identification 
 
Required - On the same lettered line (A, B, or C) that corresponds to the line on which 
Medicare payer information is shown, the RNHCI must enter the beneficiary's Medicare 
Health Insurance Claim Number.  The RNHCI must show the number as it appears on the 
beneficiary's Medicare Card, Certificate of Award, Utilization Notice, Medicare Summary 
Notice, Temporary Eligibility Notice, or as reported by the Social Security Office. 
 
Principal Diagnosis Code 
 
Required - While coding of a principal diagnosis is not consistent with the nonmedical 
nature of RNHCI services, the presence of diagnosis codes is a requirement for claims 
transactions under HIPAA.  To satisfy this requirement on claims with Statement Covers 
Through dates before implementation of ICD-10, the RNHCI may report ICD-9 code 
799.9 (defined other unknown and unspecified cause).  To satisfy this requirement on 
claims with Statement Covers Through dates on or after the implementation of ICD-10, 
the RNHCI may report ICD-10 code R69 (defined illness, unspecified). 
 
Other Diagnosis Codes 
 
Required - While coding of diagnoses is not consistent with the nonmedical nature of 
RNHCI services, the presence of diagnosis codes is a requirement for claims transactions 
under HIPAA.  To satisfy this requirement on claims with Statement Covers Through 
dates before the implementation of ICD-10, the RNHCI may report ICD-9 code V62.6 
(defined refusal of treatment for reasons of religion or conscience).  To satisfy this 
requirement on claims with Statement Covers Through dates on or after the 
implementation of ICD-10, the RNHCI may report ICD-10 code Z53.1 (defined 
procedure and treatment not carried out because of patient's decision for reasons of 
belief). 
 
The RNHCI reports no additional diagnosis codes in the remaining fields.  Similarly, 
RNHCIs do not use other fields relating to medical diagnoses and medical procedures. 
 
 
The RNHCI reports no additional diagnosis codes in the remaining fields.  Similarly, 
RNHCIs do not use other fields relating to medical diagnoses and medical procedures. 
 
Attending Provider   
Required - While the participation of an attending provider is not consistent with the 
nonmedical nature of RNHCI services, reporting an attending provider is a requirement 
for claims transactions under HIPAA.  To satisfy this requirement, the RNHCI must report 
the name and NPI of their director of nursing. 
 
Remarks 
 
Conditional - The RNHCI may enter any remarks needed to provide information that is 
not shown elsewhere on the bill but which is necessary for proper payment. 
 
Provider Representative Signature and Date 
 
Required - If using the hard copy claim, an RNHCI representative makes sure the claim 
record is complete and accurate before signing Form CMS-1450.  A stamped signature is 
acceptable on Form CMS-1450. 
 
170.3 - RNHCI Claims Processing By the Medicare Contractor with 
RNCHI Specialty Workload 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
Upon submission of a claim for RNHCI services, the contractor ensures that the 
submission contains the complete set of required data elements according to the 
instructions in 170.2.  The specialty contractor ensures that the submission does not 
contain data that is invalid, internally inconsistent or is not otherwise submitted in error.  
If the submission is not found to be consistent with CMS instructions, it is returned to the 
RNHCI for correction. 
 
Once the claim is found to satisfy CMS instructions, the contractor ensures the claim is 
not a duplicate of previously paid RNHCI services or does not demonstrate grounds for 
Medicare denial for any other reason.  If the claim appears appropriate for payment based 
on the specialty contractors initial processing, the claim is submitted to the CMS Common 
Working File (CWF) for approval. 
 
The CWF system compares the claim submitted by the contractor to the eligibility and 
utilization data for the beneficiary that received the services.  The CWF ensures the 
beneficiary is eligible for Part A for the dates of service (since RNHCI services are 
exclusively a Part A benefit) and the beneficiary has utilization days remaining in their 
current inpatient spell of illness.  The CWF also compares the RNHCI claim to the 
beneficiarys file of RNHCI elections and claims.  If CWF does not identify any error 
conditions on the RNHCI claim, an approval message is returned to the specialty 
contractor. 
 
An RNHCI claim may be rejected by CWF if: 
 
  No RNHCI election period is present for the dates of service of the claim;   
  The RNHCI election period to which the claim would apply has been revoked (see 
section 180 for procedures that lead to revocation of the election); 
 
  The RNHCI election period to which the claim would apply has been cancelled; or 
 
  The service dates on the claim overlap previously paid claims for RNCHI services 
or other inpatient services that were processed by a Medicare contractor other than 
the specialty contractor. 
 
Claims rejected for these reasons may not be corrected and returned by the RNHCI.  If the 
error condition can be resolved (for instance, by the resubmission of an election period 
cancelled in error), the RNHCI may submit a new original claim for the services. 
 
Upon receipt of payment approval or rejection from CWF, the contractor may then 
process the claim to completion.  RNHCI claims are paid a daily interim rate as 
established for each RNHCI provider under TEFRA payment rules (see Pub. 15-2, 
Provider Reimbursement Manual, chapter 30).  The contractor makes RNHCI payments 
subject to the inpatient hospital cash deductible when applicable and, if services are for the 
61st through 90th day of a benefit period or are for lifetime reserve days, subject to 
coinsurance (see Pub. 100-01, Medicare General Information, Eligibility and Entitlement 
Manual, Chapter 3, Sections 10.1 and 10.2). 
 
170.3.1 - RNHCI Claims Not Billed to Original Medicare 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
Health Plans 
 
A beneficiary covered by a Medicare Advantage plan (e.g., Medicare health maintenance 
organization, preferred provider organization, competitive medical plan or other health 
care prepayment plans.) must have prior authorization from their plan before admission to 
a RNHCI to assure payment for a specified time period.  Continued stay reviews must be 
performed, submitted, and approved at designated intervals identified by the plan to assure 
coverage by the Medicare health plan. 
 
In the case of billing a Medicare health plan, the RNHCI charges for inpatient services 
should not exceed the established interim TEFRA per diem payment amount available 
under Medicare Part A.  The Medicare health plan may obtain the current TEFRA per 
diem rate information by calling the specialty contractor responsible for the involved 
RNHCI. 
 
Medicaid 
 
The State agency may obtain the current Medicare rate information by calling the 
Medicare contractor responsible for the RNHCI. 
  170.4 - Informing Beneficiaries of the Results of RNHCI Claims 
Processing 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
Beneficiaries are informed of all Medicare payment determinations, including those for 
RNHCI services, via their monthly Medicare Summary Notice (MSN).  The complete set 
of messages used on the MSN can be found in chapter 21, section 50.42 of this manual.  
The Medicare contractor with RHNCI specialty workload uses special messages on MSNs 
to reflect determinations specific to the RNHCI benefit. 
 
  If an RNHCI claim is denied because CWF did not find record of an RNHCI 
election in the beneficiaries record, the contractor uses MSN message 42.3.  This 
message reads: This service is not covered since you did not elect to receive 
religious nonmedical health care services instead of regular Medicare services. 
 
  If an RNHCI claim is denied because CWF found record of an RNHCI election in 
the beneficiarys record that had been revoked in writing, the contractor uses MSN 
message 42.5.  This message reads: This service is not covered because you 
requested in writing that your election to religious nonmedical health care services 
be revoked. 
 
  If an RNHCI claim is denied because CWF found record of an RNHCI election in 
the beneficiarys record that had been revoked because the beneficiary received 
nonexcepted medical care, the contractor uses MSN message 42.4.  This message 
reads: This service is not covered because you received medical health care 
services which revoked your election to religious nonmedical health care services. 
 
180 - Processing Claims For Beneficiaries With RNHCI Elections by 
Contractors Without RNHCI Specialty Workloads 
(Rev. 11963, Issued:04-20-23, Effective: 10-01-23, Implementation, 10-02-23) 
 
While elections and claims for RNHCI services are processed by the Medicare contractor with 
RNHCI specialty workload, all Medicare contractors (below non-specialty contractors) 
must understand the nature and purpose of the RNHCI election and the definitions of 
excepted and non-excepted care defined in Pub. 100-02, Medicare Benefit Policy Manual, 
Chapter 1, Section 130.  Non-specialty contractors may find it advisable to have an 
identified specialist (or specialists) familiar with excepted and nonexcepted care used in the 
review of beneficiaries with RNHCI elections, since this process is so unlike other Medicare 
claims processes. 
 
Beneficiaries may revoke their RNHCI election by submitting a written revocation request to 
Medicare, but this is rare.  Far more commonly, beneficiaries revoke the election simply by 
receiving nonexcepted medical services and requesting Medicare payment for those services.  
Any non-specialty contractor may receive a claim for services for a beneficiary with an RNHCI 
election currently in place.  This section provides instructions to non-specialty contractors for 
the handling of such claims.   
Upon receipt of a claim for payment, non-specialty contractors will not be aware that the 
beneficiary has an RNHCI election in place and will process the claim normally to the point of 
transmitting the claim to CWF.  The CWF searches beneficiary records for all claims to 
determine whether an RNHCI election is found.  If an election is found, CWF takes one of two 
actions on a claim for non-RNHCI services: 
 
  If the claim is for DME, or prosthetic/orthotic devices, CWF will accept the 
DMEPOS claim and revoke the RNHCI election.  All DMEPOS claims are treated 
as nonexcepted medical care. 
 
  If the claim is for COVID-19 vaccine services and no other covered services, CWF will 
accept the claim and leave the RNCHI election in place.  All COVID-19 vaccines and 
their administrations are treated as excepted medical care.  
 
  If the claim is for any other Medicare covered services, CWF initially rejects it to 
the non-specialty contractor.  The non-specialty contractor must determine whether the 
care was excepted or nonexcepted.  The claim must never be automatically denied.  
The RNHCI election revocation does not interfere with the beneficiarys ability to seek 
other Medicare services within the limits of their Medicare coverage. 
 
The process for non-specialty contractors to follow in responding to this CWF edit is unique 
among Medicare claims processes.  A determination must be made whether the beneficiarys 
RNHCI election should be revoked.  Therefore, unlike other CWF rejects which are processed 
in an automated fashion, claims rejected by CWF due to the presence of an RNHCI election 
must be suspended and developed to determine if the beneficiary received excepted care. 
 
At differing points in time, this review consisted of a request for medical records or a series of 
telephone contacts but these methods were found too workload intensive.  In response to a 
CWF reject due to the presence of an RNHCI election, non-specialty contractors must issue a 
simple development letter asking the provider of services to respond in a yes or no fashion to 
three questions: 
 
  Whether the beneficiary paid for the services out of pocket in lieu of requesting 
payment from Medicare; 
 
  Whether the beneficiary was unable to make his/her beliefs and wishes known before 
receiving the services that have been billed; and 
 
  Whether, for a vaccination service, the vaccination performed was required by a 
government jurisdiction. 
 
Each non-specialty contractor may develop the wording and format of this letter based on their 
experience effectively communicating with their community of providers. 
  The purpose for this development letter is to determine whether the care received is excepted 
(leaving the election intact) or whether it is nonexcepted (causing a revocation of the RNHCI 
election).  Provider responses of No to all questions in the letter will determine that the 
services are found to be non-excepted care.  Provider responses of Yes to the questions 
regarding inability to make beliefs known or regarding required vaccinations will determine 
that the services are found to be excepted care. Unless reasons to deny these claims are found 
during the course of claims processing, these claim will normally be paid.  A provider response 
of Yes to the question regarding the beneficiarys paying out of pocket will determine that the 
services are found to be excepted care, but the claim for payment for medical care must be 
denied.  The claim must be denied because the beneficiary has not made a request for Medicare 
payment.  The beneficiary has accepted liability for these services in order to protect their 
RNHCI election. 
 
Once the non-specialty contractor makes this determination of whether the care is excepted or 
nonexcepted, the claim record is annotated accordingly (see section 180.1 below) and returned 
to CWF.  The claim will be approved for payment and if the care was found to be nonexcepted 
CWF will cause the beneficiarys RNHCI election to be revoked. 
 
In the event that the provider does not reply timely to the development letter, non-specialty 
contractors must make an excepted/nonexcepted determination based on the evidence 
presented by the claim itself.  Non-specialty contractors shall apply the same timeliness 
standard to these responses as to all other documentation requests.  If the claim contains 
durable medical equipment or prosthetic/orthotic devices, the non-specialty contractor 
may make a determination of nonexcepted care on that basis alone.  All such claims are 
treated as nonexcepted care.  For all other claims, non-specialty contractor staff with a 
clinical background must make their best determination based on the diagnoses and 
procedures reported on the claim whether the services were excepted or nonexcepted care.  
In cases where the determination cannot be made with certainty but there is some reason 
to suspect services were nonexcepted care, the non-specialty contractor shall make a 
determination of nonexcepted care and annotate the claim record accordingly.   
Determinations must be made within the earlier of 30 days of receipt of the providers 
response or 30 days of the end of the timely response period. 
 
The importance of the development of these claims lies in its effect on the beneficiary.  If 
the claim for medical care is denied improperly based on the presence of the RNHCI 
election, the beneficiary will incur liability in error and may experience financial hardship.  
Similarly, it is important that the review result in accurate determinations of nonexcepted 
care since repeated revocations of this benefit can have an impact on the beneficiarys right 
to access the RNHCI benefit in the future. 
 
180.1 - Recording Determinations of Excepted/Nonexcepted Care on Claim 
Records 
(Rev. 3481, Issued: 03-18-16. Effective: 06-20-16, Implementation: 06-20-16)  
 
Once the excepted/nonexcepted care determination is made, the non-specialty contractor 
resubmits the claim to CWF using the following indicators to record the determination:   
  Indicator 1 - for excepted care; or 
 
  Indicator 2 - for nonexcepted care. 
 
NOTE: Indicator 0 (zero) presents no entry. 
 
The following are the fields and locations for the excepted and nonexcepted indicators on 
the CWF record types: 
 
Record   Location  Field  Size 
HUIP (IP hospital/SNF Claim)  84  1  823 
HUOP (Outpatient)  64  1  778 
HUHC (Hospice)  64  1  778 
HUHH (Home Health)  64  1  778 
HUBC (A/B MAC (B) Claim)  13  1  57 
 
The screen field corresponding to these CWF fields may vary depending on the Medicare 
shared system in use at a contractors location.  Non-specialty contractors may contact 
their shared system maintainer if necessary to determine the correct screen location to use 
for excepted/nonexcepted care indicators. 
 
If a claim is resubmitted with a 0 excepted care indicator in error, CWF will again reject 
the claim.  Upon receipt of the resubmitted claim with a valid 1 or 2 entry, CWF will 
approve it for payment and revoke the beneficiarys election if the care received was 
nonexcepted.  CWF will not notify either the specialty contractor or the non-specialty 
contractor of any revocations as a result of claims received for nonexcepted care.  Any 
subsequent RNHCI claims processed at the contractor with RNHCI specialty workload 
will be not approved for payment by CWF unless the beneficiary files a new election 
following the prescribed time intervals between elections. 
 
If development to make the excepted/nonexcepted care determination discovered that the 
beneficiary paid out of pocket for the services and the claim for payment for medical care must 
be denied as a result.  
 
The following reflects the remittance advice messages and associated codes that will 
appear when rejecting/denying claims under this policy.  This CARC/RARC combination 
is compliant with CAQH CORE Business Scenario 3. 
 
Group Code: PR 
CARC: 96 
RARC: MA47 
MSN: N/A   
180.2 - Informing Beneficiaries of the Results of Excepted/Nonexcepted 
Care Determinations by the Non-specialty Contractor 
(Rev. 2654, Issued: 02-08-13, Effective: 05-09-13, Implementation, 05-09-13) 
 
Beneficiaries are informed of all Medicare payment determinations, including those for 
RNHCI services, via their monthly Medicare Summary Notice (MSN).  The complete set 
of messages used on the MSN can be found in chapter 21, section 50.42 of this manual.   
Non-specialty contractors use special messages on MSNs to reflect determinations 
specific to excepted or nonexcepted care. 
 
  If a determination of excepted care is made, the non-specialty contractor uses MSN 
message 42.1.  This message reads: You received medical care at a facility other 
than a religious nonmedical health care institution but that care did not revoke your 
election to receive benefits for religious nonmedical health care. 
 
  If a determination of nonexcepted care is made, the non-specialty contractor uses 
MSN message 42.2.  This message reads: Since you received medical care at a 
facility other than a religious nonmedical health care institution, benefits for 
religious nonmedical health care services has been revoked for these services 
unless you file a new election. 
 
If development to make the excepted/nonexcepted care determination discovered that the 
beneficiary did not request Medicare payment, but instead paid for the services out of 
pocket, the non-specialty contractor uses MSN message 16.41.  This message reads: 
Payment is being denied because you refused to request reimbursement under your 
Medicare benefits. 
 
190 - Inpatient Psychiatric Facility Prospective Payment System (IPF 
PPS) 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
190.1 - Background 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
This section and its subsections provide instructions about the IPF PPS. The IPF PPS 
replaces existing reasonable cost-based payments subject to Tax Equity and Fiscal 
Responsibility Act (TEFRA) limits under section 1886 (b) of the Social Security Act (the 
Act) for discharges occurring on and after the first day of the IPF's first cost reporting 
period beginning on or after January 1, 2005. 
 
The IPF PPS, codified at 42 CFR 412, Subpart N, provides payment for inpatient 
psychiatric treatment when provided to an inpatient in psychiatric hospitals and distinct 
part psychiatric units of acute care hospitals and critical access hospitals (CAHs). 
  190.2 - Statutory Requirements 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Section 124 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance 
Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L.106-113), mandated 
that the Secretary:  (1) develop a per diem PPS for inpatient hospital services furnished in 
psychiatric hospitals and psychiatric units; (2) include in the PPS an adequate patient 
classification system that reflects the differences in patient resource use and costs among 
psychiatric hospitals and psychiatric units; (3) maintain budget neutrality; (4) permit the 
Secretary to require psychiatric hospitals and psychiatric units to submit information 
necessary for the development of the PPS; and (5) submit a report to the Congress 
describing the development of the PPS.  Section 124 of the BBRA also required that the 
IPF PPS be implemented for cost reporting periods beginning on or after October 1, 2002. 
 
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P. L. 
108-173), section 405(g) extended the IPF PPS to distinct part psychiatric units of CAHs, 
effective for cost reporting periods beginning on or after October 1, 2004. 
 
190.3 - Affected Medicare Providers 
(Rev. 11396, Issued:05-04-22, Effective:10-01-22, Implementation:10-03-22) 
 
Psychiatric hospitals and distinct part psychiatric units of acute care hospitals and CAHs 
are included in the IPF PPS and are referred to in these instructions as inpatient 
psychiatric facilities or IPFs.  The regulations at 42 CFR 412.402 define an IPF as a 
hospital that meets the requirements specified in 42 CFR 412.22, 42 CFR 412.23(a), 42 
CFR 482.60, 42 CFR 482.61, and 42 CFR 482.62, and units that meet the requirements 
specified in 42 CFR 412.22, 42 CFR 412.25, and 42 CFR 412.27. 
 
IPFs are certified under Medicare as inpatient psychiatric hospitals, which means an 
institution that is primarily engaged in providing, by or under the supervision of a 
physician, psychiatric services for the diagnosis and treatment of mentally ill patients, 
maintains clinical records necessary to determine the degree and intensity of the treatment 
provided to mentally ill patients, and meets staffing requirements sufficient to carry out 
active programs of treatment for individuals who are furnished care in the institution.  A 
distinct part psychiatric unit may also be certified if it meets the clinical record and 
staffing requirements in 42 CFR 412.27 which mirror the requirements for a psychiatric 
hospitals in 42 CFR 482.60, 42 CFR 482.61 and 42 CFR 482.62. 
 
The CMS Certification Number (CCN) ranges for IPFs are from xx-4000 through xx-
4499, xx-Sxxx, and xx-Mxxx.  Note that this will change with the implementation of 
National Provider Identifiers (NPI). 
 
The following hospitals are not paid under the IPF PPS: 
 
  Veterans Administration hospitals; See 42 CFR 412.22 (c). 
    Hospitals that are reimbursed under state cost control systems approved under 42 
CFR Part 403; Psychiatric Hospitals (provider numbers xx-4000 - xx-4499) in the 
State of Maryland are paid under the IPF PPS.  Psychiatric distinct part units 
located in an acute care hospital in Maryland identified by S in the third position 
of the CMS Certification Number (CCN) are waived from the IPF PPS, as is the 
acute hospital in which they are located.  Currently there are no CAHs in 
Maryland. 
 
  Hospitals that are reimbursed in accordance with demonstration projects 
authorized under 402(a) of Pub. L. 90-248 (42 U. S. C. 1395b-1) or 222(a) of 
Pub. L. 92-603 (42 U. S. C. 1395b-1); See 42 CFR 412.22 (c). IPFs in acute care 
hospitals that participate in demonstration projects are paid in accordance with the 
demonstration project; 
 
  Nonparticipating hospitals furnishing emergency services to Medicare 
beneficiaries are paid in accordance with 42 CFR 412. 22 (c). 
 
  Payment to foreign hospitals is made in accordance with the provisions set forth in 
42 CFR 413.74. 
 
190.4 - Federal Per Diem Base Rate 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Payments to IPFs under the IPF PPS are based on a single Federal per diem base rate 
computed from both the inpatient operating and capital-related costs of IPFs (including 
routine and ancillary services), but not certain pass-through costs (i.e., bad debts, direct 
graduate medical education, and nursing and allied health education). 
 
The Federal per diem payment under the IPF PPS is comprised of the Federal per diem 
base rate (which is broken into a labor-related share and a non-labor-related share) and 
applicable patient and facility adjustments that are described in 190.5 and 190.6. 
 
The standardized Federal per diem base rates and adjustment factors are updated July 1 
every year, beginning July 1, 2006.  For the updated standardized Federal per diem base 
rates for subsequent years refer to the Federal Register rules and accompanying 
Recurring Update Notifications.  See  
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/InpatientPsychFacilPPS/IPF-PPS-Regulations-and-Notices.html 
 
190.4.1 - Standardization Factor 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The CMS standardized the IPF PPS Federal per diem base rate in order to account for the 
overall positive effects of the IPF PPS payment adjustment factors.  To standardize the 
IPF PPS payments, CMS compared the IPF PPS payment amounts calculated from the FY 
2002 MedPAR file to the projected TEFRA payments from the FY 2002 cost report file  updated to the midpoint of the IPF PPS implementation period (that is, October 2005).  
The standardization factor was calculated by dividing total estimated payments under the 
TEFRA payment system by estimated payments under the IPF PPS.  CMS then applied 
this factor to the average per diem cost of an IPF stay. 
 
190.4.2 - Budget Neutrality 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The BBRA required that total payments under the PPS must equal the amount that would 
have been paid if the PPS had not been implemented.  Therefore, in the November 2004 
IPF PPS final rule, CMS calculated the budget neutrality factor by setting the total 
estimated IPF PPS payments to be equal to the total estimated payments that would have 
been made under the TEFRA methodology had the IPF PPS not been implemented.  CMS 
calculated the final Federal per diem base rate to be budget neutral during the 
implementation period under the IPF PPS using a July 1 update cycle.  The 
implementation period for the IPF PPS is the 18-month period of January 1, 2005 through 
June 30, 2006. 
 
190.4.2.1 - Budget Neutrality Components 
(Rev. 1543; Issued:  06-27-08; Effective Date:  07-01-08; Implementation Date:  07-
07-08) 
 
The following are the three components of the budget neutrality adjustment: 
 
  (1) Outlier Adjustment: Since the IPF PPS payment amount for each stay includes 
applicable outlier amounts, CMS reduced the standardized Federal per diem base rate to 
account for aggregate IPF PPS payments estimated to be made as outlier payments.  The 
appropriate outlier amount was determined by comparing the adjusted prospective 
payment for the entire stay to the computed cost per case.  If costs were above the 
prospective payment plus the adjusted fixed dollar loss threshold amount, an outlier 
payment was computed using the applicable risk-sharing percentages.  The outlier 
adjustment was calculated to be 2 percent of total IPF PPS.  As a result, the standardized 
Federal per diem base rate was reduced by 2 percent to account for projected outlier 
payments; 
 
  (2) Stop-Loss Adjustment:  CMS  provides a stop-loss payment to ensure that an 
IPF's total PPS payments are no less than a minimum percentage of their TEFRA 
payment, had the IPF PPS not been implemented.  CMS reduced the standardized Federal 
per diem base rate by the percentage of aggregate IPF PPS payments estimated to be made 
for stop-loss payments.  As a result, the standardized Federal per diem base rate was 
reduced by 0.39 percent to account for stop-loss payments.  Since the transition will be 
completed for RY 2009, for cost reporting periods beginning on or after January 1, 2008, 
IPFs will be paid 100 percent PPS and, therefore, the stop loss provision will no longer be 
applicable.  The CMS has previously stated that we would remove this 0.39 percent 
adjustment to the Federal per diem base rate after the transition.  Therefore, for RY 2009, 
the Federal per diem base rate and ECT rates will be increased by 0.39 percent.   
  (3) Behavioral Offset:  The implementation of the IPF PPS may result in certain 
changes in IPF practices especially with respect to coding for comorbid medical 
conditions.  As a result, Medicare may incur higher payments than assumed in the 
calculations.  Accounting for these effects through an adjustment is commonly known as a 
behavioral offset.  The behavioral offset for the IPF PPS was calculated to be 2.66 percent.  
As a result, CMS reduced the standardized Federal per diem base rate by 2.66 percent to 
account for behavioral changes. 
 
190.4.3 - Annual Update 
(Rev. 11543; Issued: 08-04 -2022; Effective: 10-01-22; Implementation: 10-03-22) 
 
Prior to rate year (RY) 2012, the Inpatient Psychiatric Facility Prospective Payment 
System (IPF PPS) was on a July 1st - June 30th annual update cycle. The first update to the 
IPF PPS occurred on July 1, 2006 and every July 1st thereafter. 
Effective with RY 2012, the IPF PPS payment rate update period switched from a rate 
year that began on July 1st ending on June 30th to a period that coincides with a fiscal year 
(FY).  To transition from a RY to a FY, the IPF PPS RY 2012 covered the15 month period 
from July 1st -September 30th.  This change to the payment update period will allow one 
consolidated annual update to both the rates and the ICD-10-CM/PCS coding changes 
(MS-DRG, comorbidities, and code first).  Coding and rate changes will continue to be 
effective October 1st-September 30th of each year thereafter. 
In accordance with 42 CFR 412.428, the annual update includes revisions to the Federal 
per diem base rate, the hospital wage index, ICD-10-CM coding and Diagnosis-Related 
Groups (DRGs) classification changes discussed in the annual update to the hospital IPPS 
regulations, the electroconvulsive therapy (ECT) payment per treatment, the fixed dollar 
loss threshold amount and the national urban and rural cost-to-charge medians and 
ceilings. 
Below are the Change Requests (CRs) for the applicable Rate Years (RYs) and Fiscal 
Years (FYs), which are issued via a Recurring Update Notification. 
RY 2009 - CR 6077 
RY 2010 - CR 6461  
RY 2011 - CR 6986 
RY 2012 - CR 7367 
FY 2013 - CR 8000 
FY 2014 - CR 8395 
FY 2015 - CR 8889 
FY 2016 - CR 9305 
FY 2017 - CR 9732 
FY 2018 - CR 10214 
FY 2019 - CR 10880 
FY 2020 - CR 11420 
FY 2021  CR 11949 
FY 2022- CR 12417 
FY 2023  CR 12859 
  Change Requests can be accessed through the following CMS Transmittals Website: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/InpatientPsychFacilPPS/Inpatient-Psychiatric-Facility-PPS-Transmittals.html 
 
190.4.4 - Calculating the Federal Payment Rate 
(Rev. 11140, Issued:12-02-21, Effective: 01-04-22, Implementation: 01-04-22) 
 
To calculate an IPF PPS payment, follow the steps below: 
 
1 - Multiply the Federal per diem base rate by the labor share. 
 
2 - Multiply the resulting amount by the appropriate wage index factor. 
 
3 - Multiply the Federal per diem base rate by the non-labor share. 
 
4 - Multiply the resulting amount from this by any applicable cost-of-living adjustment 
(COLA) (Alaska or Hawaii). 
 
5 - Add the adjusted labor portion of the Rate to the adjusted non-labor portion of the Rate 
(Add the results of steps 2 and 4).  This is the Federal rate. 
 
You must multiply this sum (step 5) by the all applicable facility and patient level 
adjustment factors described in 190.5 and 190.6, to calculate the final payment. 
 
190.5 - Patient-Level Adjustments 
(Rev. 1543; Issued:  06-27-08; Effective Date:  07-01-08; Implementation Date:  07-
07-08) 
 
Patient-level adjustments include a DRG, or MS-DRG, adjustment, comorbidity 
adjustment, an age adjustment, and a variable per diem adjustment. 
 
190.5.1 - Diagnosis- Related Groups (DRGs) Adjustments 
 (Rev. 4104, Issued: 08-03-18, Effective: 10-01-18, Implementation: 10-01-18) 
 
On claims with discharges before October 1, 2007, the IPF PPS provides adjustments for 
15 designated DRGs.  On claims with discharges on or after October 1, 2007, the IPF PPS 
provides adjustments for 17 designated MS-DRGs.  Payment is made under the IPF PPS 
for claims with a principal diagnosis included in Chapter Five of the International 
Classification of Diseases (ICD-9- or ICD-10 as applicable) or the Diagnostic and 
Statistical Manual of Mental Disorders-Fourth Edition, Text Revision (DSM-IV-TR).  The 
language about the source of the principal diagnosis code is from our regulations at 42 
CFR 412.27, and has been in place since 2006, but there have since been updates to the 
versions of these code sets.   
 
In a final rule published on September 5, 2012 (77 FR 54664), the Secretary of HHS 
adopted the ICD10CM and ICD10PCS, in place of the ICD9CM, as the standard  medical data code sets for HIPAA covered entities.  Because we are required to use the 
HIPAA standards, effective October 1, 2015, IPF claims for eligible patients must have a 
psychiatric principal diagnosis that is listed in the ICD10CM. It should be noted that the 
DSM codes map to ICD-10 codes, but the mapping is not exclusive to chapter 5 of the 
ICD10CM, as it was with ICD9CM.   
 
Nevertheless, only those claims with diagnoses that group to a psychiatric DRG/MS-DRG 
will receive the DRG adjustment in addition to all other applicable adjustments.  Although 
the IPF will not receive a DRG adjustment for a principal diagnosis not found in one of 
the following psychiatric DRGs/MS-DRGs, the IPF will receive the Federal per diem base 
rate and all other applicable adjustments. 
 
IPFs must submit claims providing the principal diagnosis.  To classify the case to the 
appropriate DRG/MS-DRG, the GROUPER software for the hospital IPPS is used and the 
IPF PRICER applies the appropriate adjustment factor to the Federal per diem base rate. 
 
Changes to the ICD coding system are addressed annually in the IPPS proposed and final 
rules published each year.  The updated codes are effective October 1 of each year and 
must be used to report diagnostic or procedure information. 
 
Since the IPF PPS uses the same GROUPER as the IPPS, including the same diagnostic 
code set and DRG classification system, the IPF PPS is adopting IPPS new MS-DRG 
coding system in order to maintain that consistency. The updated codes are effective 
October 1 of each year. Although the code set is being updated, note that these are the 
same adjustment factors in place since implementation. 
 
Based on changes to the IPPS, the following changes are being made to the principal 
diagnosis DRGs under the IPF PPS. Below is the crosswalk of current DRGs to the new 
MS-DRGs which were effective October 1, 2007: 
 
 
(v24) DRG  (v25) MS- MS-DRG Descriptions  Adjustment 
Prior to  DRG From  Factor 
10/01/07  10/01/07 
12  056  Degenerative nervous system disorders w  1.05 
  MCC 
   
057  Degenerative nervous system disorders 
w/o MCC 
023  080  Nontraumatic stupor & coma w MCC  1.07 
   
081  Nontraumatic stupor & coma w/o MCC 
424  876  O.R. procedure w principal diagnoses of  1.22 
mental illness 
425  880  Acute adjustment reaction &  1.05 
psychosocial dysfunction  (v24) DRG  (v25) MS- MS-DRG Descriptions  Adjustment 
Prior to  DRG From  Factor 
10/01/07  10/01/07 
426  881  Depressive neuroses  0.99 
427  882  Neuroses except depressive  1.02 
428  883  Disorders of personality & impulse  1.02 
control 
429  884  Organic disturbances & mental  1.03 
retardation 
430  885  Psychoses  1.00 
431  886  Behavioral & developmental disorders  0.99 
432  887  Other mental disorder diagnoses  0.92 
433  894  Alcohol/drug abuse or dependence, left  0.97 
AMA 
521-522  895  Alcohol/drug abuse or dependence w  1.02 
rehabilitation therapy 
523  896  Alcohol/drug abuse or dependence w/o  0.88 
  rehabilitation therapy w MCC 
   
897  Alcohol/drug abuse or dependence w/o 
rehabilitation therapy w/o MCC 
 
190.5.2 - Application of Code First 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
According to the ICD Official Guidelines for Coding and Reporting, when a principal 
diagnosis code has a Code First notation, the provider follows the applicable coding 
convention, which requires the underlying condition (etiology) to be sequenced first, 
followed by the manifestation due to the underlying condition.  Therefore, CMS considers 
Code First diagnoses to be the principal diagnosis.  The submitted claim goes through the 
IPF PPS claims processing system that identifies the principal diagnosis code as non-
psychiatric and searches only the first secondary code for a psychiatric code to assign 
the DRG/MS-DRG in order to pay Code First claims properly. 
 
For more coding guidance, refer to the ICD-9-CM Official Guidelines for Coding and 
Reporting which can be located on the CDC Web site at:  
 
http://www.cdc.gov/nchs/icd/icd9cm.htm 
 
The ICD-10-CM Official Guidelines are posted on the CDCs website at: 
 
http://www.cdc.gov/nchs/icd/icd10cm.htm  
 
The most current Code First list is posted on the IPF PPS Web site at:    
www.cms.gov/InpatientPsychFacilPPS.  Select Tools and Worksheets from the column at 
the left. 
 
Code First Example - ICD-9-CM 
 
Diagnosis code 294.11 Dementia in Conditions Classified Elsewhere with Behavioral 
Disturbances is designated as NOT ALLOWED AS PRINCIPAL DX code. 
 
Four digit code 294.1 Dementia in Conditions Classified Elsewhere, is designated as a 
Code First diagnosis indicating that all 5 digit diagnosis codes that fall under the 294.1 
category (codes 294.10 and 294.11) must follow the Code First rule.  The 3 digit code 294 
Persistent Mental Disorders Due to Conditions Classified Elsewhere appears in the ICD-
9-CM as follows: 
 
294 - PERSISTENT MENTAL DISORDERS DUE TO CONDITIONS CLASSIFIED 
ELSEWHERE 
 
294.1 - Dementia in Conditions Classified Elsewhere 
 
Code First any underlying physical condition, as: 
 
Dementia in: 
 
Alzheimers disease (331.0) 
Cerebral lipidosis (330.1) 
Dementia with Lewy bodies (331.82) 
Dementia with Parkinsonism (331.81) 
Epilepsy (345.0 - 345.9) 
Frontal dementia (331.19) 
Frontotemporal dementia (331.19) 
General paresis [syphilis] (094.1) 
Hepatolenticular degeneration (275.1) 
Huntingtons chorea (333.4) 
Jacob-Creutzfeldt disease (046.1) 
Multiple sclerosis (340) 
Pick's disease of the brain (331.11) 
Polyarteritis nodosa (446.0) 
Syphilis (094.1) 
  294.10  Dementia in Conditions Classified Elsewhere Without Behavioral Disturbances 
  NOT ALLOWED AS PRINCIPAL DX 
 
294.11  Dementia in Conditions Classified Elsewhere With Behavioral Disturbances  
  NOT ALLOWED AS PRINCIPAL DX 
 
According to Code First requirements, the provider would code the appropriate physical 
condition first, for example, 333.4 Huntingtons Chorea as the principal diagnosis code 
and 294.11 Dementia In Conditions Classified Elsewhere With Behavioral Disturbances 
as a secondary diagnosis or comorbidity code on the patient claim. 
 
The purpose of this example is to demonstrate proper coding for a Code First situation.  
However, in this case, the principal diagnosis groups to one of the 15 DRGs, or 17 MS-
DRGs, for which CMS pays an adjustment.  Had the diagnosis code grouped to a non-
psychiatric DRG/MS-DRG, the PRICER would search the first of the other diagnosis 
codes for a psychiatric code listed in the Code First list in order to assign a DRG 
adjustment. 
 
Code First Example - ICD-10-CM 
 
Diagnosis code F02.81 Dementia in other diseases classified elsewhere with behavioral 
disturbance is designated as NOT ALLOWED AS PRINCIPAL DX code. 
 
The three digit code F02 Dementia in other diseases classified elsewhere, is designated 
as a Code First diagnosis indicating that all diagnosis codes that fall under the F02 
category (codes F02.80 and F02.81) must follow the Code First rule.  The 3 digit code F02 
Dementia in other diseases classified elsewhere appears in the ICD-10-CM as follows: 
 
F02 Dementia in other diseases classified elsewhere 
 
Code first the underlying physiological condition, such as: 
Alzheimer's (G30.0 - G30.9) 
cerebral lipidosis (E75.4) 
Creutzfeldt-Jakob disease (A81.0 - A81.09) 
dementia with Lewy bodies (G31.83) 
epilepsy and recurrent seizures (G40 - G40.919) 
frontotemporal dementia (G31.09) 
hepatolenticular degeneration (E83.0) 
human immunodeficiency virus [HIV] disease (B20) 
hypercalcemia (E83.52) 
hypothyroidism, acquired (E00 - E03.9) 
intoxications (T36 - T65) 
Jakob-Creutzfeldt disease (A81.00 - A81.09) 
multiple sclerosis (G35) 
neurosyphilis (A52.17) 
niacin deficiency [pellagra] (E52) 
Parkinson's disease (G20)  Pick's disease (G31.01) 
polyarteritis nodosa (M30.0) 
systemic lupus erythematosus (M32 - M32.9) 
trypanosomiasis (B56 - B57.39) 
vitamin B deficiency (E53.8) 
 
F02.80 Dementia in other diseases classified elsewhere without behavioral disturbance 
  NOT ALLOWED AS PRINCIPAL DX 
 
F02.81 Dementia in other diseases classified elsewhere with behavioral disturbance 
  NOT ALLOWED AS PRINCIPAL DX 
 
According to Code First requirements, the provider would code the appropriate physical 
condition first, for example, G20 Parkinsons disease as the principal diagnosis code 
and F02.81 Dementia in other diseases classified elsewhere with behavioral disturbance 
as a secondary diagnosis or comorbidity code on the patient claim. 
 
190.5.3 - Comorbidity Adjustments 
 (Rev. 4104, Issued: 08-03-18, Effective: 10-01-18, Implementation: 10-01-18) 
 
Comorbidities are specific patient conditions that are secondary to the patient's principal 
diagnosis and that require treatment during the stay.  Diagnoses that relate to an earlier 
episode of care and have no bearing on the current hospital stay are excluded and not 
reported on IPF claims.  Comorbid conditions must co-exist at the time of admission, 
develop subsequently, affect the treatment received, affect the length of stay or affect both 
treatment and the length of stay.  IPFs enter the full codes for up to twenty four additional 
diagnoses if they co-exist at the time of admission or develop subsequently. 
 
The IPF PPS has 17 comorbidity categories, each containing codes of comorbid 
conditions.  Each comorbidity grouping will receive a grouping-specific adjustment.  
Facilities can receive only one comorbidity adjustment per comorbidity category, but can 
receive an adjustment for more than one comorbidity category on the claim.  The IPF 
PRICER then applies the appropriate adjustment factors to the Federal per diem base rate. 
 
A list of the ICD-10-CM/PCS codes that are associated with each category is on the IPF 
PPS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/InpatientPsychFacilPPS/index.html?redirect=/inpatientpsychfacilpps.  Select 
Tools and Worksheets from the column at the left. 
 
The 17 comorbidity categories and specific adjustments are as follows: 
 
Description of Comorbidity  Adjustment Factor 
Developmental Disabilities  1.04 
Coagulation Factor Deficits  1.13 
Tracheostomy  1.06  Description of Comorbidity  Adjustment Factor 
Renal Failure, Acute  1.11 
Renal Failure, Chronic  1.11 
Oncology Treatment  1.07 
Uncontrolled Diabetes-Mellitus with or  1.05 
without complications 
Severe Protein Calorie Malnutrition  1.13 
Eating and Conduct Disorders  1.12 
Infectious Disease  1.07 
Drug and/or Alcohol Induced Mental  1.03 
Disorders 
Cardiac Conditions  1.11 
Gangrene  1.10 
Chronic Obstructive Pulmonary Disease  1.12 
Artificial Openings - Digestive and Urinary  1.08 
Severe Musculoskeletal and Connective  1.09 
Tissue Diseases 
Poisoning  1.11 
 
190.5.4 - Age Adjustments 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The IPF PPS has an age adjustment with 9 age categories; under 45, over 80, and 
categories in 5 year groupings in between.  IPFs receive this adjustment for each day of 
the stay.  The age adjustment is determined based on the age at admission and does not 
change regardless of the length of stay. 
 
Age  Adjustment 
Factor 
Under 45  1.00 
45 and under 50  1.01 
50 and under 55  1.02 
55 and under 60  1.04 
60 and under 65  1.07 
65 and under 70  1.10 
70 and under 75  1.13 
75 and under 80  1.15  Age  Adjustment 
Factor 
80 and over  1.17 
 
190.5.5 - Variable Per Diem Adjustments 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The variable per diem adjustments account for the ancillary and certain administrative 
costs that occur disproportionately in the first days after admission to an IPF.  The variable 
per diem adjustments decline each day of the patients stay through day 21.  After day 21, 
the adjustments remain the same each day for the remainder of the stay. 
 
Day-of-Stay  Variable Per Diem Payment 
Adjustment* 
Day 1 - Facility Without a Qualifying  1.19 
Emergency Department 
Day 1 - Facility With a Qualifying Emergency  1.31 
Department 
Day 2  1.12 
Day 3  1.08 
Day 4  1.05 
Day 5  1.04 
Day 6  1.02 
Day 7  1.01 
Day 8  1.01 
Day 9  1.00 
Day 10  1.00 
Day 11  0.99 
Day 12  0.99 
Day 13  0.99 
Day 14  0.99 
Day 15  0.98 
Day 16  0.97 
Day 17  0.97 
Day 18  0.96 
Day 19  0.95 
Day 20  0.95 
Day 21  0.95  Day-of-Stay  Variable Per Diem Payment 
Adjustment* 
Over 21  0.92 
 
*The adjustment for day 1 would be 1.31 or 1.19 depending on whether the IPF 
has a qualifying emergency department or is a psychiatric unit in an acute care 
hospital or CAH with a qualifying emergency department (see 190.6.4). 
 
190.6 - Facility-Level Adjustments 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Facility-level adjustments include the hospital wage index, a rural location adjustment, a 
teaching status adjustment, an emergency department adjustment for qualifying EDs, and 
a cost-of-living adjustment for IPFs located in Alaska and Hawaii. 
 
190.6.1 - Wage Index 
(Rev. 11543, Issued: 08-04-22, Effective: 10-01-22, Implementation: 10-03-22)  
 
The wage index accounts for the geographic differences in labor costs. Prior to Fiscal Year 
2020, the IPF PPS used the unadjusted, pre-floor, pre-reclassified hospital wage index 
from the prior year as the basis for the IPF wage index. Beginning with Fiscal Year 2020, 
the IPF PPS uses the concurrent unadjusted, pre-floor, pre-reclassified hospital wage index 
as the basis for the IPF wage index. The wage index is applied to the labor-related share of 
the Federal per diem base rate. 
Core-Based Statistical Area (CBSA) designations are used for assigning a wage index 
value for discharges occurring on or after October 1. Updates to the IPF PPS wage index 
are made in a budget neutral manner. CMS calculates a budget-neutral wage index 
adjustment factor by comparing estimated payments under the previous wage index to 
estimated payments under the updated wage index. This factor is applied in the update to 
the Federal per diem base rate. 
 
Beginning in FY 2023 a five percent cap will be applied on any decrease to a providers 
wage index from that providers final wage index in the prior fiscal year. For subsequent 
years, a provider's wage index would not be less than 95 percent of its wage index 
calculated in the prior FY. A new IPF will be paid the wage index for the area in which it 
is geographically located for its first full or partial FY with no cap applied, because a new 
IPF will not have a wage index in the prior FY. 
 
190.6.2 - Rural Location Adjustment 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
There is a 17 percent adjustment if a facility is located in a rural area.  The IPF PPS 
defines urban and rural areas at 42 CFR 412.402. 
 
190.6.3 - Teaching Status Adjustment  (Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
IPFs that train interns and residents receive a facility-level adjustment to the Federal per 
diem base rate.  The cost of direct graduate medical education (DGME) and nursing and 
allied health education are not paid through the IPF PPS. 
 
PRICER calculates the adjustment by adding 1 to the ratio of interns and residents to the 
average daily census (ADC), and then raising that sum to the 0.5150 power. 
 
The number of interns and residents is capped at the level indicated on the latest cost 
report submitted by the IPF prior to November 15, 2004.  (See 190.6.3.1 for more 
detailed instructions for the FTE Resident Cap). 
 
For beneficiaries enrolled in a Medicare Advantage plan, IPFs may bill for DGME and 
nursing and allied health education costs.  There is no authority to pay teaching status 
adjustment to IPFs for Medicare Advantage beneficiaries, as is done under the IPPS. 
 
190.6.3.1 - Full-Time Equivalent (FTE) Resident Cap 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
There is a cap on the number of FTE residents that may be counted for purposes of 
calculating the teaching adjustment.  There is no limit to the number of residents teaching 
institutions can hire or train.  There is only a limit to the number of residents who may be 
counted in calculation of the IPF PPS teaching adjustment.  The cap is the number of FTE 
residents that trained in the IPF during a base year. 
 
An IPFs FTE resident cap is determined based on the IPFs most recently filed cost 
report, filed prior to November 15, 2004.  IPFs that first began training residents after 
November 15, 2004, will initially receive an FTE cap of zero.  The FTE caps for new IPFs 
(as well as existing IPFs) that start training residents in a new DGME program (as defined 
in 42 CFR 413.79(1)) may be subsequently adjusted in accordance with the policies that 
are being applied in the IPF PPS (as described in 42 CFR 412.424(d)(1)(iii)(B)(2)). 
 
IPFs are not permitted to aggregate the FTE resident caps used to compute the IPF PPS 
teaching status adjustment through affiliation agreements.  Residents with less than full-
time status and residents rotating through the psychiatric hospital or unit for less than a 
full year are counted in proportion to the time they spend in their assignment with the IPF 
(for example, a resident on a full-time, 3-month rotation to the IPF would be counted as 
0.25 FTEs for purposes of counting residents to calculate the ratio).  No FTE resident time 
counted for purposes of the IPPS Indirect Medical Education (IME) adjustment is allowed 
to be counted for purposes of the teaching status adjustment under the IPF PPS. 
 
The denominator used to calculate the teaching status adjustment under the IPF PPS is the 
IPFs ADC from the current cost reporting period.  If IPFs have more FTE residents in a 
given year than in the base year (the base year being used to establish the cap) payments 
are based on the lower number (the cap amount) in that year.  If an IPF were to have fewer  FTE residents in a given year than in the base year (that is, fewer residents than its FTE 
resident cap) an adjustment in payments in that year is based on the lower number (the 
actual number of FTE residents the facility trains). 
 
190.6.3.2 - Reconciliation of Teaching Adjustment on Cost Report 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The teaching status adjustment is made on a claim basis as an interim payment and the 
final payment in full for the claim is made during the final settlement of the cost report.  
The difference between those interim payments and the actual teaching adjustment amount 
based on information from the cost report are adjusted through lump sum 
payments/recoupments when the cost report is settled. 
 
The teaching adjustment is calculated as follows: 
 
1.  Determine the product of the wage-adjusted Federal per diem base rate and the 
applicable teaching, rural, DRG, comorbidity, and age adjustments. 
 
2.  Determine the product of the wage adjusted base rate and the applicable rural, DRG, 
comorbidity, and age adjustments. 
 
3.  Determine the difference of these two products (Step 1 minus Step 2). 
 
4.  Calculate and sum the variable per diem amounts for the product in Step 2 to calculate 
the Federal payment net of the teaching adjustment amount. 
 
5.  Calculate and sum the variable per diem amounts for the difference in Step 3 to 
calculate the portion of the Federal payment attributable to the teaching adjustment. 
 
6.  To obtain the total Federal payment necessary for outlier calculations, etc., add Steps 4 
and 5 together.  Step 5 alone is the teaching adjustment portion of the Federal payment, 
and can be separately identified and reconciled on the cost report. 
 
190.6.4 - Emergency Department (ED) Adjustment 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
An adjustment is provided for IPFs that maintain a qualifying ED.  This is a facility-level 
adjustment that applies to all IPF admissions (with the one exception described below), 
regardless of whether a particular patient receives preadmission services in the hospitals 
ED. 
 
The ED adjustment is incorporated into the variable per diem adjustment for the first day 
of each stay for IPFs with a qualifying ED.  That is, IPFs with a qualifying ED receive a 
31 percent adjustment as the variable per diem adjustment for day 1 of each stay.  If an 
IPF does not have a qualifying ED, it receives a 19 percent adjustment as the variable per 
diem adjustment for day 1 of each patient stay.   
A qualifying ED means an ED of psychiatric units located in a hospital or CAH with EDs 
that are staffed and equipped to furnish a comprehensive array (medical as well as 
psychiatric) of emergency services and meets the definition of provider-based status (42 
CFR 413.65) and meets the definition of a dedicated emergency department (42 CFR 
489.24). 
 
  Provider-based status means the relationship between a main provider and a 
o
provider-based entity or a department of a provider, remote location of a hospital, 
or satellite facility that complies with the provisions of this section. 42 CFR 
413.65 
 
  Dedicated emergency department means any department or facility of the 
o
hospital, regardless of whether it is located on or off the main hospital campus, that 
meets at least one of the following requirements: 
 
(1) It is licensed by the State in which it is located under applicable 
State law as an emergency room or emergency department; 
 
(2) It is held out to the public (by name, posted signs, advertising, or 
other means) as a place that provides care for emergency medical 
conditions on an urgent basis without requiring a previously scheduled 
appointment; or 
 
(3) During the calendar year immediately preceding the calendar year in 
which a determination under this section is being made, based on a 
representative sample of patient visits that occurred during that calendar 
year, it provides at least one-third of all its outpatient visits for the 
treatment of emergency medical conditions on an urgent basis without 
requiring a previously scheduled appointment. See 42 CFR 489.24. 
 
As specified in 42 CFR 412.424(d)(1)(v)(B), the ED adjustment is not made where a 
patient is discharged from an acute care hospital or CAH and admitted to the same 
hospitals or CAHs psychiatric unit.  An ED adjustment is not made in these cases 
because the costs associated with ED services are reflected in the DRG payment to the 
acute care hospital or through the reasonable cost payment made to the CAH. 
 
Therefore, when patients are discharged from an acute care hospital or CAH and admitted 
to the same hospitals or CAHs psychiatric unit, the IPF receives the 1.19 adjustment 
factor as the variable per diem adjustment for the first day of the patients stay in the IPF. 
 
IPFs should notify their Medicare contractors 30 days before the beginning of their cost 
reporting period regarding if they have a qualifying ED.  Medicare contractors have the 
discretion to determine how they wish to be notified and the documentation they require.  
Once the Medicare contractor is satisfied that the IPF has a qualifying ED, the Medicare 
contractor should enter the information in the provider-specific file within a reasonable  timeframe so that the IPF can begin to receive the ED adjustment.  Application of the ED 
adjustment is prospective. 
 
Medicare contractors may also use the date the documentation was received from the IPF 
to implement the ED adjustment.  The provider-specific file can be updated from the date 
of the attestation and claims processed from that date will receive the ED adjustment.  
CMS does not intend that IPFs would have to wait until the beginning of their next cost 
report period to receive the ED adjustment. 
 
However, if an IPF no longer meets the definition of a qualified ED, the IPF must 
promptly notify their Medicare contractor.  The Medicare contractor would immediately 
remove the flag from the provider-specific file and the provider will not receive the ED 
adjustment.  If the provider should once again meet the definition of a qualified ED, they 
should contact their Medicare contractor immediately in order to update their file. 
 
190.6.4.1 - Source of Admission for IPF PPS Claims for Payment of ED 
Adjustment 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
Source of admission code D is reported by IPFs to identify IPF patients who have been 
transferred to the IPF from the same hospital or CAH.  Claims with source of admission 
code "D" do not receive the ED adjustment. 
 
See Pub. 100-04, Medicare Claims Processing Manual chapter 25, 60.1, for additional 
instructions for completing the CMS claim data set. 
 
190.6.5 - Cost-of-Living Adjustment (COLA) for Alaska and Hawaii 
(Rev. 11039; Issued: 10-05-21; Effective: 10-01-21; Implementation: 10-04-21) 
 
The IPF PPS includes a payment adjustment for IPFs located in Alaska and Hawaii based 
upon the area in which the IPF is located.  An adjustment for IPFs located in Alaska and 
Hawaii is made by multiplying the non-labor related share of the Federal per diem base 
rate and ECT rate by the applicable COLA factor. 
The CMS notes that the COLA areas for Alaska are not defined by county as are the 
COLA areas for Hawaii.  In 5 CFR 591.207, the OPM established the following COLA 
areas: 
(a) City of Anchorage, and 80-kilometer (50-mile) radius by road, as measured 
from the Federal courthouse; 
(b) City of Fairbanks, and 80-kilometer (50-mile) radius by road, as measured 
from the Federal courthouse; 
(c) City of Juneau, and 80-kilometer (50-mile) radius by road, as measured from 
the Federal courthouse; 
(d) Rest of the State of Alaska. 
  In FY 2018, CMS updated the IPF COLA amounts; these updated amounts will remain in 
effect for FY 2018 through FY 2021.   
 
In FY 2022, CMS updated the IPF COLA amounts; these updated amounts will remain in 
effect for FY 2022 through FY 2025.  For comparison purposes, CMS is showing the 
COLA factors effective for FY 2018 through FY 2021 in the first column and in the 
second column COLA factors effective for FY22 through FY25. 
 
Comparison of IPF PPS Cost-of-Living Adjustment Factors: IPFs Located in Alaska 
and Hawaii 
 
FY 2018  FY 2022 
Area  through  through 
FY 2021  FY 2025  
Alaska:     
   City of Anchorage and 80-kilometer (50-mile) radius by  1.25  1.22 
road 
   City of Fairbanks and 80-kilometer (50-mile) radius by  1.25  1.22 
road 
   City of Juneau and 80-kilometer (50-mile) radius by road  1.25  1.22 
   Rest of Alaska  1.25  1.24 
Hawaii:     
   City and County of Honolulu  1.25  1.25 
   County of Hawaii  1.21  1.22 
   County of Kauai  1.25  1.25 
   County of Maui and County of Kalawao  1.25  1.25 
 
190.7 - Other Payment Policies 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
190.7.1 - Interrupted Stays 
(Rev. 2083, Issued: 10-29-10, Effective: 01-01-11, Implementation: 01-03-11) 
 
An interrupted stay is a case in which a patient is discharged from an IPF and is 
readmitted to the same or another IPF before midnight on the third consecutive day 
following discharge from the original IPF stay.   
 
For a patient who is discharged and readmitted to the same IPF, interrupted stays are 
considered to be continuous for the purposes of applying the variable per diem adjustment 
and determining if the case qualifies for an outlier payment.  In other words, an interrupted 
stay is treated as one stay and one discharge for the purpose of payment.  Thus, the IPF 
should hold the claim for 3 days to ensure there is not a readmission that soon.  In this 
way, the readmission is included on the original claim. 
  For example, if a patient leaves the IPF on 1/1 and returns to the same IPF on 1/3, this is 
considered an interrupted stay and the Occurrence Span Code 74 will show 1/1  1/2.  
Should the patient return to the IPF on 1/4, two bills are allowed. 
 
For a patient who is discharged and readmitted to another IPF, interrupted stays are 
considered to be continuous for the purposes of applying the variable per diem adjustment. 
 
For example, if a patient is discharged from IPF A and within 3 days is readmitted to 
IPF B, this is considered an interrupted stay under IPF PPS.  There will be no provider 
action.  FISS will process the claim from IPF B with information received from CWF 
on covered days from the claim received from IPF A(this information will be displayed 
in FISS with a value code 75 on claim that is processed for IPF B). 
 
Medicare contractors should monitor trends to ensure IPFs are not consistently admitting, 
discharging, and readmitting patients in order to receive the larger variable per diem 
payments associated with the first days of a patients stay. 
 
190.7.2 - Outlier Policy 
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11) 
 
124 of the Medicare, Medicaid, and SCHIP, Balance Budget Refinement Act of 1999 
(BBRA) (Pub.L.106-113), mandated the development of a per diem prospective payment 
system for inpatient psychiatric services furnished in hospitals and psychiatric distinct part 
units of acute care hospitals. 405 (g)(2) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003(MMA) (Pub. L. 108-173) extended the IPF PPS to distinct 
part psychiatric units of critical access hospitals (CAHs). 124 of the BBRA provides the 
Secretary discretion in establishing the payment methodology including payments for 
cases incurring extraordinarily high costs. This additional payment known as an outlier 
is designed to protect IPFs from large financial losses due to unusually expensive cases.  If 
the estimated cost of the case is greater than the adjusted fixed dollar loss threshold 
amount (the fixed dollar loss threshold amount multiplied by area wage index, rural 
location, teaching and COLA adjustment factors), an additional payment is added to the 
IPF PPS payment amount. 
 
The fixed dollar loss threshold amount is computed so that projected outlier payments 
equal 2 percent of total IPF PPS payments to ensure that IPFs treating unusually costly 
cases do not incur substantial losses and promote access to IPFs for patients who require 
expensive care.  The fixed dollar loss threshold amount is published in the annual IPF PPS 
update notice or final rule.  The specific regulations governing payments for outlier cases 
are located at 42 CFR 412.424(d) (3) (i). 
 
Under 42 CFR 412.424 (d)(3)(i), for discharges in cost reporting periods beginning on or 
after January 1, 2005, high cost outlier payments may be reconciled at cost report 
settlement to account for differences between the cost-to-charge ratio (CCR) used to pay 
the claim at its original submission by the provider, and the CCR determined at final 
settlement of the cost reporting period during which the discharge occurred. Medicare  contractors will use either the most recent settled IPF cost report or the most recent 
tentatively settled IPF cost report, whichever is later, to obtain the applicable IPF CCR.  
 
In addition, under 42 CFR  412.424 (d)(3)(i),effective for discharges in cost reporting 
periods beginning on or after January 1, 2005, at the time of reconciliation, outlier 
payments may be adjusted to account for the time value of any underpayments or 
overpayments based on the regulations in 42 CFR 412.84 (m), except that CMS 
calculates a single overall (combined operating and capital ) CCR for IPFs and national 
average IPF CCRs are used instead of statewide average CCRs.  
 
Once the threshold amount is met, CMS will share a declining percentage of the losses for 
a high cost case.  The risk-sharing percentages would be 80 percent of the difference 
between the cost for the case minus payment and the adjusted threshold amount for days 1 
through 9 of the stay and 60 percent of the difference after the 9th day.  Medicare 
contractors will determine the total outlier amount and divide by the number of days, then 
pay 80 percent for days 1-9 and 60 percent for days beyond that. 
 
Outlier payments are not paid on interim bills, but they are calculated on a final discharge 
bill, a benefits exhaust bill, or if the patient falls below a covered level of care. For a more 
detailed explanation on the calculation of outlier payments, visit our Web site at 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/InpatientPsychFacilPPS/index.html?redirect=/inpatientpsychfacilpps  
 
Medicare contractors may choose to review outliers if data analysis deems it a priority.  
 
The Pricer program makes all outlier determinations except for the medical review 
determinations. 
 
190.7.2.1 - How to Calculate Outlier Payments 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
1 - Calculate the Adjusted Fixed Dollar Loss Threshold Amount 
 
  Multiply the threshold amount by the labor share and the area wage index; 
  Multiply the threshold amount by the non-labor share and any applicable COLA 
(Alaska or Hawaii); 
 
  Add these two products and then multiply by any applicable facility-level 
adjustments (teaching, rural); and  
 
  Add this amount to the sum of the Federal per diem payment and ECT payment to 
obtain the adjusted threshold amount. 
 
2 - Calculate Eligible Outlier Costs 
 
  Multiply reported hospital charges by the cost-to-charge ratio to calculate cost.   
  Subtract the adjusted threshold amount from the cost.  This is the amount subject 
to outlier payments. 
 
  Divide this amount by the length of stay to calculate the per diem outlier amount. 
 
  For days 1 through 9, multiply this per diem outlier amount by 0.80.  For day 10 
and thereafter, multiply the per diem outlier amount by 0.60.  The sum of these 
amounts is the total outlier payment. 
 
190.7.2.2 - Determining the Cost-to-Charge Ratio 
(Rev. 4406, Issued: 10-01-19, Effective: 10-01-19, Implementation: 10-07-19) 
 
For discharges in cost reporting periods beginning on or after January 1, 2005, Medicare 
contractors are to use a CCR from the latest settled cost report or from the latest tentative 
settled cost report (whichever is from the later period) to determine the IPFs CCR. Cost-
to-charge ratios are updated each time a subsequent cost report is settled or tentatively 
settled. Total Medicare charges consist of the sum of inpatient routine charges and the sum 
of inpatient ancillary charges including capital. Total Medicare costs consist of the sum of 
inpatient routine costs (net of private room differential and swing bed cost) plus the sum 
of ancillary costs plus capital-related pass-through costs only. Based on current Medicare 
cost reports and worksheets, specific instructions are described below. 
 
Hospitals 
 
For IPFs that are psychiatric hospitals:  
 
1)  Identify total Medicare costs from worksheet D-1, Part II, line 49, minus 
(Worksheet D, Part III, column 8, lines 25 through 30, plus Worksheet D, Part IV, 
column 7, line 101).  
 
2)  Identify total Medicare charges (the sum of routine and ancillary charges) from 
Worksheet D-4, column 2, the sum of lines 25 through 30 and line 103 from the 
cost report; where possible, these charges should be confirmed with the PS&R 
data.  
 
3)  Divide the Medicare costs by the Medicare charges to compute the CCR.  
 
Distinct Part Units 
 
For IPFs that are distinct part psychiatric units: 
 
1)  Identify total Medicare costs from Worksheet D-1, Part II, line 49 minus 
(Worksheet D, Part III, column 8, line 31 plus Worksheet D, Part IV, column 7, 
line 101).   
  2)  Identify total Medicare charges (the sum of routine and ancillary charges) from 
Worksheet D-4, Column 2, line 31 plus line 103 from the cost report; where 
possible, these charges should be confirmed with the PS&R data. 
 
3)  Divide the Medicare costs by the Medicare charges to compute the CCR.  
 
All references to Worksheets and specific line numbers shall correspond with the sub-
provider identified as the IPF unit that has the letter "S" or M in the third position of the 
Medicare provider number.  
 
A. - Use of Alternative Data in Determining CCRs For IPFs Subject to the IPF PPS 
 
Under 42 CFR 412.424( d)(3)(i,), for discharges in cost reporting periods beginning on or 
after January 1, 2005, CMS may direct Medicare contractors to use an alternative CCR to 
the CCRs from the latest settled cost report or latest tentatively settled cost report, if CMS 
believes this will result in a more accurate CCR. In addition, if the Medicare contractor 
finds evidence that indicates that using data from the latest settled or tentatively settled 
cost report would not result in the most accurate CCR, then the Medicare contractor shall 
contact the CMS Central Office to seek approval to use a CCR based on alternative data.  
 
B. - Request by the IPF for use of a Different CCR  
 
For discharges in cost reporting periods beginning on or after January 1, 2005, an IPF may 
request that an alternative CCR be applied in the event it believes the CCR being applied 
is inaccurate. The IPF is required to present substantial evidence supporting its request. 
Such evidence should include documentation regarding its costs and charges that 
demonstrate its claim that an alternative ratio is more accurate. The CMS Regional Office, 
in conjunction with the CMS Central Office, will approve or deny any request after 
evaluation by the Medicare contractor of the evidence presented by the IPF. Revised 
CCRs are applied prospectively to all IPF claims. Medicare contractors shall send 
notification to the CMS Central Office via the following address and e-mail address: 
 
CMS  
C/O Division of Chronic Care Management-IPF Outlier Team  
7500 Security Blvd.  
Mail Stop C5-05-27  
Baltimore, MD. 21244  
outliersipf@cms.hhs.gov  
 
C. - Application of National Median CCRs for IPFs  
 
For discharges in cost reporting periods occurring on or after January 1, 2005, the Medicare 
contractor may use the national CCRs for an IPF in one of the following circumstances:  
1. New IPFs that have not yet submitted their first Medicare cost report.  
2. IPFs whose CCR is in excess of 3 standard deviations above the corresponding national 
geometric mean (that is, above the ceiling).  3. Other IPFs for whom the Medicare contractor obtains inaccurate or incomplete data with 
which to calculate a CCR.  
 
For new IPFs, we are using the national median CCRs until the facilitys actual CCR can be 
computed using the first tentatively settled or final settled cost report, which will then be used 
for the subsequent cost report period.  
 
NOTE: IPF PPS provides two national ceilings, one for IPFs located in rural areas and one for 
IPFs located in urban areas. We computed the ceilings by calculating the national average and 
the standard deviation of the CCR for both urban and rural IPFs.  
 
The policies in section E below can be applied as an alternative to the national median CCR.  
For those IPFs assigned the national median CCR, the CCR must be updated every October 1st 
based on the latest national median CCRs published in each years IPF PPS notice or final rule 
until the hospital is assigned a CCR based on the latest tentative or final settled cost report or a 
CCR based on the policies of part E and F of this section.  
 
D. - Notification to IPFs Under the IPF PPS of a Change in the CCR  
 
The Medicare contractor shall notify an IPF whenever it makes a change to its CCR. 
When a CCR is changed as a result of a tentative settlement or a final settlement, the 
change to the CCR can be included in the notice that is issued to each provider after a 
tentative or final settlement is completed. Medicare contractors can also issue separate 
notification to an IPF about a change to their CCR(s).  
 
E. - Ongoing CCR Updates Using CCRs From Tentative Settlements For Entities 
Subject to the IPF PPS  
 
For discharges beginning on or after January 1, 2005, Medicare contractors are to use a 
CCR from the latest settled cost report or from the latest tentatively settled cost report 
(whichever is from the later period) to determine the IPFs CCR. Under the IPF PPS, 
Medicare contractors must update the IPFs CCR on the Provider Specific File to reflect 
the IPFs CCR from the most recent tentative settlements or final settled cost reports, 
(whichever is the later period). Revised CCRs shall be entered into the Provider Specific 
File not later than 30 days after the date of the latest settlement used in calculating the 
CCR.  
 
Subject to the approval of CMS, an IPFs CCR may be revised more often if a change in a 
hospitals operations occurs which materially affects a hospitals costs or charges. A 
revised CCR will be applied prospectively to all IPF PPS claims processed after the 
update.  
 
F. - Alternative CCRs  
 
Effective for discharges in cost reporting periods beginning on or after January 1, 2005, 
the CMS Central Office may direct Medicare contractors to use an alternative CCR to the 
CCR from the later of the latest settled cost report or latest tentatively settled cost report, if  CMS believes this will result in a more accurate CCR. In addition, if the Medicare 
contractor finds evidence that indicates that using data from the latest settled or tentatively 
settled cost report would not result in the most accurate CCR, the Medicare contractor 
shall contact the CMS Central Office to seek approval to use a CCR based on alternative 
data. Also, a facility will have the opportunity to request that a different CCR be applied 
in the event it believes the CCR being applied is inaccurate. The IPF is required to present 
substantial evidence supporting its request. Such evidence should include documentation 
regarding its costs and charges that demonstrate its claim that an alternative ratio is more 
accurate. The CMS Regional Office and CMS Central Office must approve any such 
request after evaluation by the Medicare contractor of the evidence presented by the IPF.  
 
G. - IPF Mergers, Ownership Changes, and Errors with CCRs  
 
Effective April 1, 2011, in the case of a merger, the Medicare contractor shall use the CCR 
from the IPF with the surviving provider number. If a new provider number (i.e., a new 
provider agreement is signed because the new owner refused assignment of the existing 
provider agreement) is issued the Medicare contractor shall use the national CCR based on 
the facility location of either urban or rural.  
 
In instances where errors related to CCRs and/or outlier payments are discovered, 
Medicare contractors shall contact CMS Central Office to seek guidance. Medicare 
contractors may contact the CMS Central Office via the address and email address listed 
in part B of this section.  
 
If a cost report is reopened after final settlement and as a result of this reopening there is a 
change to the CCR, Contractors shall contact the CMS regional and Central Office for 
further instructions. Contractors may contact the CMS Central Office via the address and 
email address listed in part B of this section.  
 
H. - Maintaining a History of CCRs and Other Fields in the Provider Specific File  
 
When reprocessing claims due to outlier reconciliation, Medicare contractors shall 
maintain an accurate history of certain fields in the provider specific file (PSF). This 
history is necessary to ensure that claims already processed (from prior cost reporting 
periods that have already been settled) will not be subject to a duplicate systems 
adjustment in the event that claims need to be reprocessed. As a result, the following fields 
in the PSF can only be altered on a prospective basis: -23 -Intern to Bed Ratio -24 --Bed 
Size -25 -Operating Cost to Charge Ratio and 21 -Case Mix Adjusted Cost Per Discharge. 
A separate history outside of the PSF is not necessary. The only instances a Medicare 
contractor retroactively changes a field in the PSF is to update the CCR when using the 
FISS Lump Sum Utility for outlier reconciliation or otherwise specified by the CMS 
Regional Office or Central Office. 
 
190.7.2.3 - Outlier Reconciliation 
(Rev. 2242, Issued: 06-17-11, Effective: 07-01-11, Implementation: 07-01-11) 
  A. - General 
 
Under 412.424 (d) (3) (i), for IPF services furnished during cost reporting periods 
beginning on or after January 1, 2005, IPF outlier payments may be reconciled upon cost 
report settlement to account for differences between the overall ancillary CCR used to pay 
the claim at its original submission by the provider, and the CCR determined at final 
settlement of the cost reporting period during which the service was furnished. IPF PPS 
outlier payments are reconciled if the CMS Central Office and Regional Office confirm 
that reconciliation is appropriate.  
 
Effective for cost reporting periods beginning on or after April 1, 2011, subject to the 
approval of the CMS Central Office and Regional Office, the Medicare contractor shall 
reconcile an IPFs outlier claims at the time of cost report final settlement if they meet the 
following criteria:  
 
1.  The actual CCR is found to be plus or minus 10 percentage points from the CCR 
used during that time period to make outlier payments, and  
 
2.  Total IPF outlier payments in that cost reporting period exceed $500,000.  
 
To determine if an IPF meets the criteria above, the Medicare contractor shall incorporate 
all the adjustments from the cost report, run the cost report, calculate the revised CCR, and 
compute the actual overall ancillary CCR prior to issuing a Notice of Program 
Reimbursement (NPR). If the criteria for IPF outlier reconciliation are not met, the cost 
report shall be finalized. If the criteria for reconciliation are met, Medicare contractors 
shall follow the instructions below in 190.7.2.5 of this chapter. The NPR cannot be 
issued nor can the cost report be finalized until IPF outlier reconciliation is complete. 
These IPF cost reports will remain open until their claims have been processed for IPF 
PPS outlier reconciliation.  
 
As stated above, if a cost report is reopened after final settlement and as a result of this 
reopening there is a change to the CCR (which could trigger or affect IPF PPS outlier 
reconciliation and outlier payments), Medicare contractors shall notify the CMS Central 
and Regional Offices for further instructions. Notification to the CMS Central Office shall 
be sent to the address and email address provided in 190.7.2.2(B) above. 
 
Medicare contractors shall notify the CMS Central Office and Regional Office if a cost 
report was final settled and meets the qualifications for IPF PPS outlier reconciliation. 
Notification to the CMS Central Office shall be sent to the address and email address 
provided in 190.7.2.2 (B). 
 
B. - Reconciling Outlier Payments IPFs 
 
Beginning with the first cost reporting period starting on or after January 1, 2005, IPF 
outlier payments may be reconciled at cost report settlement to account for differences 
between the cost-to-charge ratio (CCR) used to pay the claim at its original submission by  the provider, and the CCR determined at final settlement of the cost reporting period 
during which the discharge occurred.  Effective for cost reporting periods beginning on or 
after April 1, 2011, if an IPF meets the criteria in part A of this section, the Medicare 
contractor shall follow the instructions below in 190.7.2.5. The following examples 
demonstrate how to apply the criteria for reconciliation (as discussed in part A above):  
 
EXAMPLE A: 
 
Cost Reporting Period:  01/01/2010-12/31/2010 
 
Operating CCR used to pay original claims submitted during cost reporting period:  0.40 
 
(In this example, this CCR is from the tentatively or final settled 2007 cost report) 
 
Final settled operating CCR from 01/01/2010-12/31/2010 cost report:  0.50 
 
Total IPF PPS outlier payout in 01/01/2010-12/31/2010 cost reporting period:  $600,000 
 
Because the CCR of 0.40 used at the time the claim was originally paid changed to 0.50 at 
the time of final settlement, and the provider received greater than $500,000 in IPF PPS 
outlier payments during that cost reporting period, the criteria are met for reconciliation, 
and therefore, the Medicare contractor notifies the Central Office and the Regional Office. 
The providers IPF PPS outlier payments for this cost reporting period are reconciled 
using the correct CCR of 0.50. 
 
In the event that multiple CCRs are used in a given cost reporting period to calculate 
outlier payments, Medicare contractors should calculate a weighted average of the CCRs 
in that cost reporting period. Example B below shows how to weight the CCRs. The 
Medicare contractor shall then compare the weighted CCR to the CCR determined at the 
time of final settlement of the cost reporting period to determine if IPF PPS outlier 
reconciliation is required. Total IPF PPS outlier payments for the entire cost reporting 
period must exceed $500,000 in order to trigger reconciliation. 
 
EXAMPLE B:  
 
Cost reporting period:  01/01/2010-12/31/2010  
 
Overall CCR used to pay original claims submitted during cost reporting period: 
 
  0.40 from 01/01/2010 to 03/31/2010 (This CCR could be from the tentatively settled 
2006 cost report.)  
 
 0.50 from 04/01/2010 to 12/31/2010 (This CCR could be from the tentatively settled 2007 
cost report.)  
 
Final settled operating CCR from 01/01/2010 - 12/31/2010 cost report:  0.35    
Total IPF outlier payout in 01/01/2010 -12/31/2010 cost reporting period:  $600,000 
 
Weighted average CCR:  0.476 
 
CCR  DAYS  Weight  Weighted CCR 
0.40  90  0.247 (90 Days / 365  (a) 0.099 = (0.40 * 
Days)  0.247) 
0.50  275  0.753 (275 Days /  (b) 0.377 = (0.50 * 
365 Days)  0.753) 
TOTAL  365  365  (a)+(b) = 0.476 
 
The IPF meets the criteria for IPF PPS outlier reconciliation in this cost reporting period 
because the variance from the weighted average CCR at the time the claim was originally 
paid compared to the CCR from the cost report at the time of settlement is greater than 10 
percentage points (from 0.476 to 0.35) and the provider received total IPF outlier 
payments greater than $500,000 for the entire cost reporting period.  
 
Even if the IPF does not meet the criteria for reconciliation in 190.7.2.3, subject to 
approval of the CMS Central and Regional Offices, the Medicare contractor has the 
discretion to request that IPF PPS outlier payments in a cost reporting period be reconciled 
if the IPFs most recent cost and charge data indicate that the IPF PPS outlier payments to 
the IPF were significantly inaccurate. The Medicare contractor sends notification to the 
CMS Regional Office and Central Office via the address and email address provided in 
190.7.2.2 (B).  Upon approval of the CMS Central and Regional Office that IPFs outlier 
claims need to be reconciled, Medicare contractors should follow the instructions in 
190.7.2.3. 
 
190.7.2.4 - Time Value of Money 
(Rev. 2242, Issued: 06-17-11, Effective: 07-01-11, Implementation: 07-01-11) 
 
Effective for discharges occurring on or after January 1, 2005, at the time of any 
reconciliation under 190.7.2, IPF outlier payment may be adjusted to account for the time 
value of money of any adjustments to IPF outlier payments as a result of reconciliation.  
The time value of money is applied from the midpoint of the IPFs cost reporting period 
being settled to the date on which the CMS Central Office receives notification from the 
Medicare contractor that reconciliation should be performed. 
 
If an IPFs outlier payments have met the criteria for reconciliation, Medicare contractors 
will calculate the aggregate adjustment using the instructions below concerning 
reprocessing claims and determine the additional amount attributable to the time value of 
money of that adjustment.  The index that will be used to calculate the time value of 
money is the monthly rate of return that the Medicare trust fund earns.  This index can be 
found at http://www.ssa.gov/OACT/ProgData/newIssueRates.html. 
 
The following formula shall be used to calculate the rate of the time value of money.   
(Rate from Web site as of the midpoint of the cost report being settled / 365) * # of days 
from that midpoint until date of reconciliation. NOTE: The time value of money can be a 
positive or negative amount depending if the provider is owed money by CMS or if the 
provider owes money to CMS. 
 
For purposes of calculating the time value of money, the date of reconciliation is the day 
on which the CMS Central Office receives notification.  This date is either the postmark 
from the written notification sent to the CMS Central Office via mail by the Medicare 
contractor, or the date an email was received from the Medicare contractor by the CMS 
Central Office, whichever is first. 
 
EXAMPLE C:  
Cost reporting period:  01/01/2010 - 12/31/2010  
Midpoint of cost reporting period:  07/01/2010  
Date of reconciliation:  12/31/2010  
Number of days from midpoint until date of reconciliation:  547 
 
Rate from Social Security Web site:  4.625%  
 
Overall ancillary CCR used to pay actual original claims in cost reporting period:  0.40 
(This CCR could be from the tentatively settled 2006 or 2007 cost report.) 
 
Final settled operating CCR from 01/01/2009 - 12/31/2009 cost report:  0.50 
 
Total IPF outlier payout in 01/01/2009 - 12/31/2009 cost reporting period:  $600,000 
 
Because the CCR fluctuated from 0.40 at the time the claims were originally paid to 0.50 
at the time of final settlement and the provider has an IPF outlier payout greater than 
$500,000, the criteria have been met to trigger reconciliation. The Medicare contractor 
follows the procedures in 190.7.2.4. 
 
The reprocessing of claims indicates the revised IPF hospital outlier payments are 
$700,000. 
 
Using the values above, the rate that is used for the time value of money is determined:  
(4.625 / 365) * 548 = 6.9438%  
 
Based on the claims reconciled, the provider is owed $100,000 ($700,000 - $600,000) for 
the reconciled amount and $6,943.80 for the time value of money. 
 
190.7.2.5 - Procedures for Medicare Contractors to Perform and Record 
Outlier Reconciliation Adjustments  
(Rev. 2111, Issued: 12-03-10, Effective: 04-01-11, Implementation: 04-04-11)  
  The following is a step-by-step explanation of the procedures that Medicare contractors 
are to follow if an IPF is eligible for outlier reconciliation:  
 
1)  The Medicare contractor shall send notification to the CMS Central Office (not the 
hospital), via the street address and email address provided in 190.7.2.2 (B), and 
CMS Regional Office that a hospital has met the criteria for reconciliation. 
Medicare contractors shall include in their notification the provider number, 
provider name, cost reporting begin date, cost reporting end date, total outlier 
payments in the cost reporting period, the CCR or weighted average CCR from the 
time the claims were paid during the cost reporting period eligible for 
reconciliation and the final settled CCR. 
 
2)  If the Medicare contractor receives approval from the CMS Central Office that 
reconciliation is appropriate, the Medicare contractor shall follow steps 3-14 
below. NOTE: Hospital cost reports will remain open until their claims have been 
processed for outlier reconciliation. 
 
3)  The Medicare contractor shall notify the hospital and copy the CMS Regional 
Office and Central Office in writing and via email (through the addresses provided 
in 190.7.2.2 (B)) that the hospitals outlier claims are to be reconciled.  
 
4)  Prior to running claims in the *Lump Sum Utility, Medicare contractors shall 
update the applicable provider record in the Provider Specific File (PSF) by 
entering the final settled CCR from the cost report in the -25 -Operating Cost to 
Charge Ratio field. No other elements in the PSF shall be updated for the 
applicable provider records in the PSF that span the cost reporting period being 
reconciled aside from the CCR. 
 
*NOTE: The FISS Lump Sum Utility is a Medicare contractor tool that, 
depending on the elements that are input, will produce an extract that will calculate 
the difference between the original PPS payment amounts and revised PPS 
payment amounts into a Microsoft Access generated report. The Lump Sum Utility 
calculates the original and revised payments offline and will not affect the original 
claim payment amounts as displayed in various CMS systems (such as NCH). 
 
5)  Medicare contractors shall ensure that, prior to running claims through the FISS 
Lump Sum Utility, all pending claims (e.g., appeal adjustments) are finalized for 
the applicable provider. 
 
6)  Medicare contractors shall only run claims in the Lump Sum Utility that meet the 
following criteria: 
 
  Type of Bill (TOB) equals 11X 
  Previous claim is in a paid status (P location) within FISS 
  Cancel date is blank 
  7)  The Medicare contractor reconciles the claims through the IPF Pricer software and 
not through any editing or grouping software.  
 
8)  Upon completing steps 3 through 7 above, the Medicare contractor shall run the 
claims through the Lump Sum Utility. The Lump Sum Utility will produce an 
extract, according to the elements in Table 1 below. NOTE:  The extract must be 
importable by Microsoft Access or a similar software program (Microsoft Excel). 
 
9)  Medicare contractors shall upload the extract into Microsoft Access or a similar 
software program to generate a report that contains elements in Table 1. Medicare 
contractors shall ensure this report is retained with the cost report settlement work 
papers. 
 
10) For hospitals paid under the IPF PPS, the Lump Sum Utility will calculate the 
difference between the original outlier amount (value code 17) and the revised 
outlier amount (value code 17). If the difference between the original and revised 
outlier amount (calculated by the Lump Sum Utility) is positive, then a credit 
amount (addition) shall be issued to the provider. If the difference between the 
original and revised outlier amount (calculated by the Lump Sum Utility) is negative, 
then a debit amount (deduction) shall be issued to the provider. 
 
11) Medicare contractors shall determine the applicable time value of money amount 
by using the calculation methodology in 190.7.2.4. If the difference between the 
original and revised outlier amount (calculated by the Lump Sum Utility) is a negative 
amount then the time value of money is also a negative amount. If the difference 
between the original and revised outlier amount (calculated by the Lump Sum Utility) 
is a positive amount then the time value of money is also a positive amount. Similar to 
step 10, if the time value of money is positive, then a credit amount (addition) shall 
be issued to the provider. If the time value of money is negative, then a debit 
amount (deduction) shall be issued to the provider. NOTE: The time value of 
money is applied to the difference between the original outlier amount (value code 
17) and the revised outlier amount (value code 17). 
 
12) For cost reporting periods beginning before May 1, 2010, under cost report 2552-
96, the Medicare contractor shall record the original outlier amount from 
Worksheet E-3, Part 1 line 1.09, the outlier reconciliation adjustment amount (the 
difference between the original outlier amount (value code 17) and the revised 
outlier amount (value code 17) calculated by Lump Sum Utility), the total time 
value of money and the rate used to calculate the time value of money on lines 50-
53, of Worksheet E-3, Part 1 of the cost report (NOTE: the amounts recorded on 
lines 50, 51 and 53 can be positive or negative amounts per the instructions above). 
The total outlier reconciliation amount (the difference between the original outlier 
amount (value code 17) and the revised outlier amount (value code 17) calculated 
by the Lump Sum Utility plus the time value of money) shall be recorded on line 
15.99 of Worksheet E-3, Part 1. For complete instructions on how to fill out these 
lines please see  3633.1 of the Provider Reimbursement Manual, Part II. 
  For cost reporting periods beginning on or after May 1, 2010, under cost report 
2552-10, the Medicare contractor shall record the original outlier amount from 
Worksheet E-3, Part II line 2, the outlier reconciliation adjustment amount (the 
difference between the original outlier amount (value code 17) and the revised 
outlier amount (value code 17) calculated by the Lump Sum Utility), the total time 
value of money and the rate used to calculate the time value of money on lines 50-
53, of Worksheet E-3, Part II of the cost report (NOTE: the amounts recorded on 
lines 50, 51 and 53 can be positive or negative amounts per the instructions above). 
The total outlier reconciliation amount (the difference between the original outlier 
amount (value code 17) and the revised outlier amount (value code 17) calculated 
by the Lump Sum Utility plus the time value of money) shall be recorded on line 
29 of Worksheet E-3, Part II.  
 
13) The Medicare contractor shall finalize the cost report, issue a NPR and make the 
necessary adjustment from or to the provider. 
 
14) After determining the total outlier reconciliation amount and issuing a NPR, 
Medicare contractors shall restore the CCR(s) to their original values (that is, the 
CCRs used to pay the claims) in the applicable provider records in the PSF to 
ensure an accurate history is maintained. Specifically, for hospitals paid under the 
IPF PPS, Medicare contractors shall enter the original CCR in PSF field 25 -
Operating Cost to Charge Ratio. 
 
Medicare contractors shall contact the CMS Central Office via the address and email 
address provided in 190.7.2.2 (B) with any questions regarding this process. 
 
Table 1: Data Elements for FISS Extract 
 
List of Data Elements for FISS Extract 
Provider #  
Health Insurance Claim (HIC) Number  
Document Control Number (DCN)  
Type of Bill  
Original Paid Date 
Statement From Date  
Statement To Date  
Original Reimbursement Amount (claims page 10)  
Revised Reimbursement Amount (claim page 10)  
Difference between these amounts 
Original Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Revised Deductible Amount, Payer A, B, C (Value Code A1, B1, C1) 
Difference between these amounts 
Original Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Revised Coinsurance Amount, Payer A, B, C (Value Code A2, B2, C2) 
Difference between these amounts 
Original Outlier Amount (Value Code 17) 
Revised Outlier Amount (Value Code 17)  List of Data Elements for FISS Extract 
Difference between these amounts 
Original DSH Amount (Value Code 18) 
Revised DSH Amount (Value Code 18) 
Difference between these amounts 
Original IME Amount (Value Code 19) 
Revised IME Amount (Value Code 19) 
Difference between these amounts 
Original New Tech Add-on (Value Code 77) 
Revised New Tech Add-on (Value Code 77) 
Difference between these amounts 
Original Device Reductions (Value Code D4) 
Revised Device Reductions (Value Code D4) 
Difference between these amounts 
Original Hospital Portion (claim page 14) 
Revised Hospital Portion (claim page 14) 
Difference between these amounts 
Original Federal Portion  (claim page 14) 
Revised Federal Portion  (claim page 14) 
Difference between these amounts 
Original C TOT PAY (claim page 14) 
Revised C TOT PAY (claim page 14) 
Difference between these amounts 
Original C FSP (claim page 14) 
Revised C FSP (claim page 14) 
Difference between these amounts 
Original C OUTLIER (claim page 14) 
Revised C OUTLIER (claim page 14) 
Difference between these amounts 
Original C DSH ADJ (claim page 14) 
Revised C DSH ADJ (claim page 14) 
Difference between these amounts 
Original C IME ADJ (claim page 14) 
Revised C IME ADJ (claim page 14) 
Difference between these amounts 
Original Pricer Amount  
Revised Pricer Amount 
Difference between these amounts 
Original PPS Payment (claim page 14) 
Revised PPS Payment (claim page 14) 
Difference between these amounts 
Original PPS Return Code (claim page 14) 
Revised PPS Return Code (claim page 14) 
DRG 
MSP Indicator (Value Codes 12-16 & 41-43 - indicator indicating the claim is MSP; Y = 
MSP, blank = no MSP 
Reason Code  List of Data Elements for FISS Extract 
HMO-IME Indicator 
Filler 
 
190.7.3 - Electroconvulsive Therapy (ECT) Payment 
(Rev. 3575, Issued: 08-01-16, Effective: 10-01-16; Implementation: 10-03-16) 
 
IPFs receive an additional payment for each ECT treatment furnished during the IPF stay.  
The ECT base rate is based on the median hospital cost used to calculate the calendar year 
2005 Outpatient Prospective Payment System amount for ECT and is updated annually by 
the market basket and wage budget neutrality factor.  The ECT base rate is adjusted by the 
wage index and any applicable COLA factor. 
 
In order to receive the payment, an IPF must report revenue code 0901 along with the 
number of units of ECT on the claim. The units should reflect the number of ECT 
treatments provided to the patient during the IPF stay.  In addition, IPFs must include the 
ICD-9-CM procedure code for ECT (94.27) in the procedure code field and use the date of 
the last ECT treatment the patient received during their IPF stay.  
 
Effective with the implementation of ICD-10 the following ICD-10-PCS codes apply: 
 
ICD-10-PCS Code and Description 
 
GZB0ZZZ - Electroconvulsive Therapy, Unilateral-Single Seizure 
GZB2ZZZ - Electroconvulsive Therapy, Bilateral-Single Seizure 
GZB4ZZZ  Other Electroconvulsive Therapy 
 
It is important to note that since ECT treatment is a specialized procedure, not all 
providers are equipped to provide the treatment.  Therefore, many patients who need ECT 
treatment during their IPF stay must be referred to other providers to receive the ECT 
treatments, and then return to the IPF.  In accordance with 42 CFR 412.404(d)(3), in these 
cases where the IPF is not able to furnish necessary treatment directly, the IPF would 
furnish ECT under arrangements with another provider.  While a patient is an inpatient of 
the IPF, the IPF is responsible for all services furnished, including those furnished under 
arrangements by another provider.  As a result, the IPF claim for these cases should reflect 
the services furnished under arrangements by other providers. 
 
190.7.4 - Stop Loss Provision (Transition Period Only) 
(Rev. 1543; Issued:  06-27-08; Effective Date:  07-01-08; Implementation Date:  07-
07-08) 
 
The IPF PPS includes a stop-loss provision during the 3-year transition.  The purpose is to 
ensure each facility receives an average payment per case under the IPF PPS that is no less 
than 70 percent of its average payment under the TEFRA.  It is calculated at cost report 
settlement.  New providers are not eligible for stop-loss payments.  See 190.9.1. 
  Example of stop-loss calculation in year 3 of the transition: 
 
1.  Enter Total (100%) TEFRA payments for cases during cost reporting period 
 
2.  Enter Total (100%) PPS payments for cases during cost reporting period 
 
3.  Multiply Step 1 by 0.70. 
 
4.  If Step 3 is greater than Step 2, subtract Step 2 from Step 3.  Otherwise, enter 0. 
 
5.  Add Steps 2 and 4 to calculate total PPS payments. 
 
6.  Multiply Step 1 by 0.25 to calculate the TEFRA portion. 
 
7.  Multiply Step 5 by 0.75 to calculate the PPS portion. 
 
8.  Add Steps 6 and 7 to calculate the IPFs aggregate payments in the third year of the 
IPF PPS.  Determine if this amount is at least 70 percent of what would have been paid 
under TEFRA, then pay the difference. 
 
NOTE: Since the transition will be completed for RY 2009, for cost reporting periods 
beginning on or after January 1, 2008, IPFs will be paid 100 percent PPS and, therefore, 
the stop loss provision will no longer be applicable.  The CMS has previously stated that 
we would remove this 0.39 percent adjustment to the Federal per diem base rate after the 
transition.  Therefore, for RY 2009, the Federal per diem base rate and ECT rates will be 
increased by 0.39 percent. 
 
190.8 - Transition (Phase-In Implementation) 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
190.8.1 - Implementation Date for Provider 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The IPF PPS is phased-in over 3 years from the cost based reimbursement to the Federal 
prospective payment.  All IPF providers must transition over the 3-year transition period. 
There is no election of 100 percent PPS in the first year. 
 
During the transition period, payment is based on an increasing percentage of the IPF 
prospective payment and a decreasing percentage of each IPFs TEFRA-based 
reimbursement rate for each case as follows: 
 
  Transition  Cost Reporting  TEFRA Rate  IPF PPS Federal Rate 
Year  Periods    Percentage  Percentage 
Beginning on or After 
1  January 1, 2005  75  25 
2  January 1, 2006  50  50 
3  January 1, 2007  25  75 
  January 1, 2008  0  100 
 
The 3-year transition period is separate from the annual update cycle of the IPF PPS.  The 
transition is effective according to cost reporting periods, but the updates to the rates take 
effect July 1 of each year.  For more detailed information regarding the annual update 
cycle, refer to 190.4.3-Annual Update. 
 
Although the IPF PPS is effective January 1, 2005, an individual IPF's PPS transition year 
start date is the first day of the first cost reporting period that begins on or after that date.  
An IPF may begin the IPF PPS as early as January 1, 2005, or as late as December 31, 
2005, should a cost reporting period begin on that date. 
 
The IPF PPS applies to claims for discharges occurring in the IPF's first cost reporting 
period beginning on or after January 1, 2005.  Where the IPF has already billed interim 
claims for an inpatient that has benefit days remaining after the PPS implementation date, 
the provider must submit a cancel bill and re-bill under the IPF PPS so that payment for 
the entire stay is made under the IPF PPS. 
 
If the provider ever had a TEFRA limit, the IPF is not a new provider and therefore will 
receive the blended payment.  This includes those providers that previously closed their 
psychiatric units and then re-opened the psychiatric units. If the provider had a TEFRA 
limit established, that TEFRA limit is updated using the rate of increase percentages in 
42 CFR 413.40. 
 
For cost reporting periods beginning in FY 1999 through FY 2002, the applicable rate-of-
increase percentage is the market basket increase percentage minus a factor based on the 
percentage by which the hospitals operating costs exceed the hospitals ceiling for the 
most recently available cost reporting period. 
 
To update the TEFRA limit for IPFs that were closed during FY 1999 through FY 2002 
and then re-opened (including CAHs that were statutorily precluded from having a distinct 
part unit), the rate-of-increase for these years would be the full market basket up to the cap 
on the target amounts. 
 
190.9 - Definition of New IPF Providers Versus TEFRA Providers 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
190.9.1 - New Providers Defined 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06)   
A new IPF provider is one that meets the definition of an IPF in 42 CFR 412.402, and 
under present or previous ownership or both, has not received payment under TEFRA for 
delivery of IPF services prior to the effective date of the IPF PPS, January 1, 2005.  To be 
a new provider, the first cost reporting period as a psychiatric hospital, a distinct part unit 
in an acute care hospital or a CAH must have begun no earlier than January 1, 2005, 
coinciding with the effective date of the IPF PPS. 
 
Change of ownership has no impact on whether an IPF is considered a new IPF provider. 
 
190.10 - Claims Processing Requirements Under IPF PPS 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
190.10.1 - General Rules 
(Rev. 3030, Issued: 08-22-14, Effective: ASC X12: January 1, 2012, ICD-10: Upon 
Implementation of ICD-10, Implementation: ICD-10: Upon Implementation of ICD-
10, ASC X12: September, 23 2014) 
 
Effective with cost reporting periods beginning on or after January 1, 2005, the following 
claim preparation requirements apply to IPFs: 
 
  Type of Bill (TOB) is 11X; 
 
  Medicare provider number ranges for IPFs are from xx-4000 - xx-4499, xx-
Sxxx, and xx-Mxxx; (NOTE:  Implementation of NPI will change this.) 
 
  The IPF must correctly code diagnoses for the principal diagnosis, and up to 
twenty four additional diagnoses, if applicable; 
 
  The IPF must correctly code one principal procedure and up to twenty four 
additional procedures performed during the stay; 
 
  The IPF must also code age, sex, and patient (discharge) status of the patient 
on the claim, using standard inpatient coding rules; and 
 
  An IPF distinct part must code source of admission code "D" on incoming 
transfers from the acute care area of the same hospital to avoid overpayment of 
the emergency department adjustment when the acute area has billed or will be 
billing for covered services for the same inpatient admission. 
 
Other general requirements for processing Medicare Part A inpatient claims described in 
Chapter 25 of this manual apply. 
 
CMS' hospital inpatient GROUPER applicable to the discharge date (or effective 
December 3, 2007, benefits exhaust date, if present) on the claim will determine the 
DRG/MS-DRG assignment.   
190.10.2 - Billing Period 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
When the patient has Medicare benefits, IPF providers will submit one admit through 
discharge claim for the stay upon discharge.  IPFs may interim bill in 60-day intervals 
following the instructions in chapter 1, 50.2 of this manual should the patients stay be 
exceptionally long.  Final PPS payment is based upon the date of physical discharge or 
death, or the date benefits exhausted (effective December 3, 2007). 
 
IPFs can submit adjustment claims, but late charge claims will not be allowed, e.g., the 
adjustment claim must include all charges and services and must replace the earlier 
claim(s) instead of including only the additional charges and services. 
 
In situations when a patient falls below a skilled level of care, IPFs should submit a 112 
TOB with both an Occurrence Code 22 (Date active care ended) and patient status code 30 
(Still a patient).  IPFs should then continue to submit subsequent interim 117 TOBs, as 
appropriate, with the patient status code 30 and the correct Occurrence Span Codes that 
identify payment liability (codes 76 or 77). 
 
Effective December 3, 2007, once the patients Medicare benefits exhaust, the IPF is 
allowed to submit no-pay bills (TOB 110), with a Patient Status Code of 30 every 60 days, 
until the patient is physically discharged or dies.  The last bill shall contain a discharge 
patient status code.  IPFs no longer need to continually adjust claims once benefits 
exhaust. 
 
190.10.3 - Patient Status Coding 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
All patient status (i.e., discharge disposition) codes for 11X TOB are valid, but there are 
no special payment policies related to transfer codes; for example, discounted or per diem 
payments in transfer situations.  The same patient status codes applicable under inpatient 
PPS for same day transfers (with Condition Code 40) are applicable under IPF PPS. 
 
190.10.4 - Reporting ECT Treatments 
(Rev. 4104, Issued: 08-03-18, Effective: 10-01-18, Implementation: 10-01-18) 
 
IPFs must report on their claims under Revenue Code 0901: the total number of ECT 
treatments provided to the patient during their IPF stay listed under Service Units.  
Providers will code ICD-9-CM procedure code 94.27 if ICD-9-CM is applicable, or, 
effective with the implementation of ICD-10, providers will code the ICD-10-PCS codes 
listed below in the procedure code field, and for the procedure date will use the date of the 
last ECT treatment the patient received during their IPF stay. 
 
ICD-10-PCS Code and Description 
 
GZB0ZZZ - Electroconvulsive Therapy, Unilateral-Single Seizure  GZB2ZZZ - Electroconvulsive Therapy, Bilateral-Single Seizure 
GZB4ZZZ - Other Electroconvulsive Therapy 
 
190.10.5 - Outpatient Services Treated as Inpatient Services 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
IPFs are subject to the 1-day payment window for outpatient bundling rules.  Refer to 
chapter 3, 40.3 of this manual for more information on bundling rules. 
 
190.10.6 - Patient is a Member of a Medicare Advantage Organization 
for Only a Portion of a Billing Period 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The payer at the time of the patients admission to an IPF is responsible for the cost of the 
entire stay.  This could occur for patients who move from traditional Medicare to a 
Medicare Advantage plan or vice versa. 
 
190.10.7 - Billing for Interrupted Stays 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
IPFs shall bill for the interrupted stay using Occurrence Span Code 74.  The Occurrence 
Span Code FROM date equals the day of discharge for the IPF and the THROUGH date is 
the last day the patient was not present in the IPF at midnight.  For example, the patient 
leaves the IPF on 1/1 and returns to the IPF on 1/3.  This is considered an interrupted stay 
and the Occurrence Span Code 74 will show 1/1 - 1/2.  Should the patient return to the IPF 
on 1/4, two bills will be allowed.  The accommodation Revenue Code 018X (RT 50, field 
5), (SV 201), (leave of absence) will continue to be used in the current manner in terms of 
Occurrence Span Code 74 (RT 40, field 22 - 27) and date range. 
 
190.10.8 - Grace Days 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
There are no grace days allowed under IPF PPS, therefore the date the beneficiary is 
notified of the provider's intent to bill (Occurrence Code 31) is the last covered day for 
that patient. 
 
190.10.9 - Billing Stays Prior to and Discharge After PPS 
Implementation Date 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
If the patients stay begins prior to and ends on or after the providers first fiscal year 
begin date under IPF PPS, payment to the facility is based on IPF PPS rates and rules. 
There is no split billing.  If the facility submitted an interim bill, a debit/credit adjustment 
must be made prior to PPS payment (see chapter 1, 50.2 of this manual).  If the facility  submitted multiple interim bills, the facility will need to submit cancels for all bills and 
then re-bill once the cancels are accepted. 
 
Exceptions: 
 
If the beneficiarys benefits were exhausted or the beneficiary is in a non-covered level of 
care prior to implementation of IPF PPS, then IPF PPS is not applicable and the IPF will 
continue to submit no-pay bills (TOB 110) to Medicare. 
 
190.10.10 - Billing Ancillary Services Under IPF PPS 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
There are no special rules for billing IPF inpatient ancillary services. 
 
190.10.11 - Covered Costs Not Included in IPF PPS Amount 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The following covered services are not included in the IPF PPS discharge payment 
amount: 
 
  Nursing and allied health education costs are pass-through costs paid outside the 
o
IPF PPS. 
 
  DGME and bad debts. 
o
 
190.10.12 - Same Day Transfer Claims 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
A same day transfer occurs when a patient is admitted to an IPF and is subsequently 
transferred for acute care (or another type of inpatient facility care) on the same day.  If 
the patient is admitted to an IPF with the expectation that the patient will remain 
overnight, but is discharged before midnight, the day is counted as a full day for the cost 
report, but is not counted as a Medicare covered day for purposes of charging the 
beneficiary utilization. 
 
IPFs should show the same day for admission and discharge, and report Condition Code 
40 (Same Day Transfer). 
 
If the patient is admitted to an IPF and discharged (not transferred to another inpatient 
setting) the same day before midnight, the day is counted as a full day for the cost report, 
and is counted as a Medicare covered day for purposes of charging the beneficiary 
utilization.  IPFs do not report Condition Code 40 on this case. 
 
The purpose for the variance in coding is to charge the beneficiary only 1 day utilization 
where two facilities are billing.  Payment will be made for 1 day. 
  190.10.13 - Remittance Advice - Reserved 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Not yet available. 
 
190.10.14 - Medicare Summary Notices and Explanation of Medicare 
Benefits 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Existing notices for inpatient hospital PPS are used. 
 
190.11 - Benefit Application and Limits-190 Days 
(Rev. 4104, Issued: 08-03-18, Effective: 10-01-18, Implementation: 10-01-18) 
 
The psychiatric benefit lifetime maximum of 190 days of inpatient care applies to 
Medicare participating psychiatric hospitals per 42 CFR 409.62.  The 190-day lifetime 
limitation does not apply to inpatient psychiatric care provided in certified psychiatric 
units of an acute care hospital or critical access hospital. Section 409.62 states, There is a 
lifetime maximum of 190 days on inpatient psychiatric hospital services available to any 
beneficiary.  Therefore, once an individual receives benefits for 190 days of care in a 
psychiatric hospital, no further benefits of that type are available to that individual. 
 
Payment may not be made for more than a total of 190 days of inpatient psychiatric 
hospital services during the patient's lifetime.  This limitation does not apply to inpatient 
psychiatric   services furnished in a non-psychiatric hospital.  This limitation does not 
apply to inpatient psychiatric services furnished in a hospital, a CAH or distinct part 
psychiatric unit.  The period spent in a psychiatric hospital prior to entitlement does not 
count against the patient's lifetime limitation, even though pre-entitlement days may have 
been counted against the 150 days of eligibility in the first benefit period. 
 
The Benefit Period provisions described in Medicare Publication 100-01, Medicare 
General Information, Eligibility, and Entitlement, chapter 3, 10.4-10.4.4 are applicable 
to inpatients in either a Medicare participating psychiatric hospital or a certified 
psychiatric unit of an acute care hospital or critical access hospital.  
 
The CWF keeps track of days paid for inpatient psychiatric services and informs the 
Medicare contractor on claims where the 190-day limit is reached. 
 
For a more detailed description see Pub. 100-02, Medicare Benefit Policy Manual, chapter 
3, 30.C. and chapter 4, 50 for the 190-day lifetime limitation on payment for inpatient 
psychiatric hospital services.  For details concerning the pre-entitlement inpatient 
psychiatric benefit reduction provision see Pub. 100-02, Medicare Benefit Policy Manual, 
chapter 4, 10 - 50. 
 
190.12 - Beneficiary Liability 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06)   
Beneficiary liability will operate the same as under the former TEFRA cost-based 
payment system.  An IPF may not charge a beneficiary for any services for which 
payment is made by Medicare, even if the facilitys cost of furnishing services to that 
beneficiary are greater than the amount the facility is paid under the prospective payment 
system. 
 
An IPF receiving payment under this subpart for a covered hospital stay (that is, a stay that 
included at least 1 covered day) may charge the Medicare beneficiary or other person only 
the applicable deductible and coinsurance amounts under 42 CFR 409.82, 42 CFR 409.83, 
and 42 CFR 409.87 and for items or services as specified under 42 CFR 489.30. 
 
For more detailed information regarding lifetime reserve days, refer to Pub. 100-02 
Medicare Benefit Policy Manual, chapter 5. 
 
190.12.1 - Benefits Exhaust 
(Rev. 1231; Issued:  04-27-07; Effective:  12-03-07; Implementation:  12-03-07) 
 
Effective December 3, 2007, for payment purposes, an IPF discharge occurs when benefits 
exhaust and the date benefits exhaust (if present) will substitute for the actual discharge 
date.  The claim is paid based on the benefits exhaust date if present rather than the 
discharge date.  The Pricer version used to price claims for the discharge is when the 
services actually were provided (i.e., when the Medicare beneficiary has Medicare 
benefits).  No pay/110 TOBs are allowed instead of continually adjusting the claims (117 
TOB) until actual discharge occurs once benefits exhaust. 
 
Under TEFRA, the PS&R report used the benefits exhaust date as the discharge date (if 
present).  This changed when the IPF PPS was implemented, and the 'actual' discharge 
date was used.  The days stay with the year they occurred, making it easier for the PS&R 
report (especially during the blend period) to settle the cost report.  This means that: 
 
1.  Claims will now be settled on the appropriate cost report; 
 
2.  The appropriate PPS-TEFRA blend percentage will be paid; 
 
3.  Patients with long lengths of stay will be counted on the correct PS&R report; 
 
4.  The PRICER version used will be the one in effect at the time the services 
were provided (i.e., when the Medicare beneficiary actually has Medicare 
benefits). 
 
190.13 - Periodic Interim Payments (PIP) 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
Medicare contractors shall pay PIP for providers who send a request to their Medicare 
contractor and qualify.  Outlier payments, teaching adjustment, and ECT add-on payments  are not included in the PIP payment amount but are paid on the discharge claim for ECT, 
and on a discharge, benefits exhaust, or last day of a Medicare covered level of care claim, 
for the teaching adjustment and outlier payment. 
 
190.14 - Intermediary Benefit Payment Report (IBPR) 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The IBPR report has been changed to reflect the payments for IPFs going to PPS 
psychiatric hospitals and units. 
 
190.15 - Monitoring Implementation of IPF PPS Through Pulse 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
The FISS 620A and 620B reports will be modified to add an additional row for IPF 
monitoring.  The report will be modified to include a separate reporting line titled IPF 
PPS.  This entry will appear immediately below IPF PPS and report the total claim 
count and total reimbursement amount.  IPF PPS totals will include all providers with the 
last four digits of the provider numbers in range 4000 - 4499, xx-Sxxx, and xx-Mxxx. 
 
190.16 - IPF PPS System Edits 
(Rev. 2157, Issued: 02-11-11, Effective: 04-01-11, Implementation: 04-04-11) 
 
FISS shall ensure that: 
 
  Revenue Code total charges line 0001 must equal the sum of the individual total 
charges lines. 
 
  The length of stay in the statement covers period, from and through dates, equals 
the total days for accommodations Revenue Codes 010x-021x, including Revenue 
Code 018x (leave of absence)/interrupted stay. 
 
  Value Code 75 is allowed from contractor entry and not allowed from Provider 
entry. Also, Providers are not allowed to alter this information. 
 
  The ED adjustment is not made where a patient is discharged from an acute care 
hospital or CAH and admitted to the same hospitals or CAHs psychiatric unit 
with the application of the correct Point of Origin code D on the IPF PPS claim. 
 
FISS and CWF shall ensure that multiple Occurrence Span Code 74s are allowed. 
 
CWF shall ensure that: 
 
  Occurrence Span Code 74 is present on the claim when there is an interrupted stay 
(the beneficiary has returned to the same IPF within 3 days). 
    Value Code 75 is present on claims when there is an interrupted stay resulting 
from a discharge at another IPF (the beneficiary has returned to the different IPF 
within 3 days). 
 
190.17 - IPF PPS PRICER Software 
(Rev. 1101, Issued: 11-03-06, Effective: 01-01-05, Implementation: 12-04-06) 
 
CMS has developed an IPF PRICER program that calculates the Medicare payment rate. 
PRICER software will be electronically supplied to the Standard Systems.  A Personal 
Computer (PC) version of this PRICER will be available on the CMS Web site in the 
future at http://www.cms.hhs.gov/PCPricer. 
 
PRICER will incorporate the 3-year phase-in period for all current IPFs.  New IPFs will 
be paid completely under the new IPF PPS (i.e., there is no transition for new IPFs). 
 
190.17.1 - Inputs/Outputs to PRICER 
(Rev. 11396, Issued:05-04-22, Effective:10-01-22, Implementation:10-03-22) 
 
Provider Specific File Data 
 
Data Element  Title 
1  National Provider Identifier (not a 
mandatory entry at this time) 
2  Provider CMS Certification Number 
(CCN) 
3  Effective Date 
4  Fiscal Year Begin Date 
5  Report Date 
6  Termination Date 
7  Waiver Indicator 
9  Provider Type (must be 03 or 06) 
Effective July 1, 2006, 06 is no longer 
valid.  Contractors shall use 49. 
12  Actual Geographic Reclassification-
MSA (no longer applicable effective 
July 1, 2006) 
17  Temporary Relief Indicator (For IPF 
PPS, code Y if there is an Emergency 
Department) 
18  Federal PPS Blend Indicator (must be 1, 
2, 3, or 4)  Data Element  Title 
21  Case Mix Adjusted Cost Per 
Discharge/PPS Facility Specific Rate 
(This is determined using the same 
methodology that would be used to 
determine the interim payment per 
discharge under the TEFRA system if 
the IPF PPS were not being 
implemented.) 
22  Cost of Living Adjustment (COLA) 
23  Intern/Bed Ratio 
25  Combined Capital and Operating Cost to 
Charge Ratio 
33  Special Wage Indicator (should be set to 
1 if there is a change to the wage index.) 
35  Actual Geographic Location 
Core-Based Statistical Area (CBSA) 
(required July 1, 2006) 
38  Special Wage Index 
48  New Hospital 
63  Supplemental Wage Index  
64  Supplemental Wage Index Indicator 
 
Bill Data 
 
National Provider Identifier  Covered Charges 
Provider CMS Certification  Discharge Date (or benefits exhaust date if 
Number (CCN)  present) 
Patient Age  Other Diagnosis Codes 
DRG  Other Procedure Codes 
Length of Stay  Indicator for Occurrence Code 31, A3, B3, or 
C3 to apply outlier to this bill. 
Source of Admission  ECT Units 
Patient Status Code  Claim Number 
  Indicator for Value Code75 to apply variable 
per diem adjustment to this bill. 
 
Outputs 
 
In addition to returning the above bill data inputs, Pricer will return the following: 
 
Final Payment  National Non-Labor Rate 
DRG/MS-DRG Adjusted Payment  Federal Rate 
Federal Adjusted Payment  Budget Neutrality Rate 
Outlier Adjusted Payment  Outlier Threshold 
Comorbidity Adjusted Payment  Federal Per Diem Base Rate  Per Diem Adjusted Payment  Standardized Factor 
Facility Adjusted Payment  Labor Share 
Age Adjusted Payment  Non-Labor Share 
Rural Adjusted Payment  COLA 
Teaching Adjusted Payment  Day of Stay Adjustment 
ED Adjusted Payment  Age Adjustment 
ECT Adjusted Payment  Comorbidity Adjustment 
Return Code  DRG Adjustment 
MSA/CBSA  Rural Adjustment 
Wage Index  ECT Adjustment 
National Labor Rate  Blend Year Calculation Version 
 
 
 
200 - Electronic Health Record (EHR) Incentive Payments 
(Rev. 2066, Issued: 10-15-10, Effective: 10-01-10, Implementation: 01-03-11) 
 
The American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5) provides 
incentive payments for acute care hospitals (subsection (d) hospitals) and critical access 
hospitals (CAHs) who are meaningful users of certified electronic health records (EHR) 
technology. 
 
200.1 - Payment Calculation 
(Rev. 2066, Issued: 10-15-10, Effective: 10-01-10, Implementation: 01-03-11) 
 
A - Incentive Payment Calculation for Subsection (d) Hospitals 
 
[Initial Amount] x [Medicare Share] x [Transition Factor] 
 
  Initial Amount equals $2,000,000 + [$200 per discharge for the 1,150th - 23,000th 
o
discharge] 
 
  Medicare Share equals Medicare/(Total*Charges), whereas: 
o
 
  Medicare equals [number of Inpatient Bed Days for Part A Beneficiaries] 
o
plus [number of Inpatient Bed Days for MA Beneficiaries] 
 
  Total equals [number of Total Inpatient Bed Days] 
o
 
  Charges equals [Total Charges minus Charges for Charity Care*] divided 
o
by [Total Charges] 
 
  Transition Factor 
o
  Fiscal Year  Fiscal Year that Eligible Hospital First Receives 
the Incentive Payment 
 
2011  2012  2013  2014  2015 
2011  1.00         
2012  0.75  1.00       
2013  0.50  0.75  1.00     
2014  0.25  0.50  0.75  0.75   
2015    0.25  0.50  0.50  0.50 
2016      0.25  0.25  0.25 
 
B - Incentive Payment Calculation for Critical Access Hospitals (CAHs) 
 
CAH Reasonable Cost x Medicare Share* 
 
* See Medicare Share computation in sub-section A above. 
 
200.2 - Submission of Informational Only Bills for Maryland Waiver 
Hospitals and Critical Access Hospitals (CAHs) 
(Rev. 2066, Issued: 10-15-10, Effective: 10-01-10, Implementation: 01-03-11) 
 
Acute care hospitals already submit informational only bills for purposes of including Part 
C days in the Disproportionate Share (DSH) calculations, as explained in Section 20.3 
above.  However, Maryland waiver hospitals and CAHs do not currently submit 
informational only bills.  In order for CMS to capture Part C days for purposes of 
calculating EHR payments, Maryland waiver hospitals and CAHs must submit 
informational only claims to Medicare, effective for discharges October 1, 2010.  
Informational only claims are claims billed for patients enrolled in a Medicare Advantage 
(MA) Plan and contain a condition the following elements: 
 
  Covered 11X TOB (not 110) 
  Condition Code 04  
  Medicare is the primary payer  
  There is no MSP  
  Beneficiarys Medicare HICN 
  All other required claim elements 
 
250.18 Incomplete Colonoscopies (Codes 44388, 45378, G0105 and 
G0121)  (Rev. 4153, Issued: 10-26-18, Effective: 04-01-19, Implementation: 04-01-19) 
An incomplete colonoscopy, e.g., the inability to advance the colonoscope to the cecum or 
colon-small intestine anastomosis due to unforeseen circumstances, is billed and paid 
using colonoscopy through stoma code 44388, colonoscopy code 45378, and screening 
colonoscopy codes G0105 and G0121 with modifier -53. (Code 44388 is valid with 
modifier 53 beginning January 1, 2016.) The Medicare physician fee schedule database 
has specific values for codes 44388-53, 45378-53, G0105-53 and G0121-53. An 
incomplete colonoscopy performed prior to January 1, 2016, is paid at the same rate as a 
sigmoidoscopy. Beginning January 1, 2016, Medicare will pay for the interrupted 
colonoscopy at a rate that is calculated using one-half the value of the inputs for the codes. 
As such, instruct CAHs that elect Method II payment to use modifier -53 to identify an 
incomplete screening colonoscopy (physician professional service(s) billed in revenue 
code 096X, 097X, and/or 098X). 
CAH Method II shall be consistent with the guidelines outlined in PUB. 100-04, chapter 
12, section 30.1 and chapter 18, section 60.2. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Addendum A - Provider Specific File 
(Rev. 12234, Issued: 08-31-23, Effective: 10-01-2023, Implementation: 10-02-2023) 
 
Data  File  Format  Title  Description 
Element  Position 
1  1-10  X(10)  National  Alpha-numeric 10 character NPI number. 
Provider 
Identifier (NPI) 
  11-16  X(6)  Provider CMS  Alpha-numeric 6 character provider 
Certification  number.  Cross check to provider type.  
Number (CCN)  Positions 3 and 4 of: 
Provider #  Provider Type 
00-08  Blanks, 00, 07-11, 
13-17, 21-22; 
NOTE: 14 and 15 
no longer valid, 
effective 10/1/12 
12  18 
13  23,37 
20-22  02 
30  04 
33  05 
40-44  03 
50-64  32-34, 38 
15-17  35 
70-84, 90-99  36 
Codes for special units are in the third 
position of the provider CMS Certification 
Number (CCN) and should correspond to 
the appropriate provider type, as shown 
below (NOTE: SB = swing bed): 
Special Unit  Prov. 
Type 
M - Psych unit in CAH  49 
R  - Rehab unit in CAH  50 
S - Psych Unit  49 
T - Rehab Unit  50 
U - SB for short-term hosp.  51 
W - SB for LTCH  52 
Y - SB for Rehab  53 
Z - SB for CAHs  54 
  Data  File  Format  Title  Description 
Element  Position 
3  17-24  9(8)  Effective Date  Must be numeric, CCYYMMDD.  This is 
the effective date of the provider's first PPS 
period, or for subsequent PPS periods, the 
effective date of a change to the PROV 
file.  If a termination date is present for this 
record, the effective date must be equal to 
or less than the termination date. 
Year: Greater than 82, but not greater than 
current year. 
Month: 01-12 
Day: 01-31 
4  25-32  9(8)  Fiscal Year  Must be numeric, CCYYMMDD. 
Beginning Date  Year: Greater than 81, but not greater than 
current year. 
Month: 01-12 
Day: 01-31 
Must be updated annually to show the 
current year for providers receiving a 
blended payment based on their FY begin 
date.  Must be equal to or less than the 
effective date. 
5  33-40  9(8)  Report Date  Must be numeric, CCYYMMDD. 
Date file created/run date of the PROV 
report for submittal to CMS CO. 
6  41-48  9(8)  Termination  Must be numeric, CCYYMMDD.  
  Date  Termination Date in this context is the date 
on which the reporting MAC ceased 
servicing the provider. Must be zeros or 
contain a termination date.  Must be equal 
to or greater than the effective date. 
If the provider is terminated or transferred 
to another MAC, a termination date is 
placed in the file to reflect the last date the 
provider was serviced by the outgoing 
MAC.  Likewise, if the provider 
identification number changes, the MAC 
must place a termination date in the PROV 
file transmitted to CO for the old provider 
identification number. 
7  49  X(1)  Waiver Indicator  Enter a Y or N. 
Y = waived (Provider is not under PPS). 
N = not waived (Provider is under PPS).  Data  File  Format  Title  Description 
Element  Position 
8  50-54  9(5)  Intermediary  Assigned intermediary number. 
Number 
9  55-56  X(2)  Provider Type  This identifies providers that require 
special handling.  Enter one of the 
following codes as appropriate. 
00 or blanks = Short Term Facility 
02 Long Term 
03 Psychiatric 
04 Rehabilitation Facility 
05 Pediatric 
06 Hospital Distinct Parts 
(Provider type 06 is effective until 
July 1, 2006.  At that point, provider 
type 06 will no longer be used.  
Instead, MACs will assign a hospital 
distinct part as one of the following 
provider types: 49, 50, 51, 52, 53, or 54) 
07 Rural Referral Center 
08 Indian Health Service 
13 Cancer Facility 
14 Medicare Dependent Hospital  
(during cost reporting periods that 
began on or after April 1, 1990).  
15 Medicare Dependent Hospital/Referral 
Center  
(during cost reporting periods that 
began on or after April 1, 1990.  Invalid 
October 1, 1994 through September 30, 
1997).   
16 Re-based Sole Community Hospital 
17 Re-based Sole Community Hospital/ 
Referral Center 
18 Medical Assistance Facility 
21 Essential Access Community Hospital 
22 Essential Access Community 
Hospital/Referral Center 
23 Rural Primary Care Hospital 
32 Nursing Home Case Mix Quality Demo 
Project  Phase II 
33 Nursing Home Case Mix Quality Demo 
Project  Phase III  Step 1 
34 Reserved 
35 Hospice 
36 Home Health Agency  Data  File  Format  Title  Description 
Element  Position 
37 Critical Access Hospital 
38 Skilled Nursing Facility (SNF)  For 
non-demo PPS SNFs  effective for 
cost reporting periods beginning on or 
after July 1, 1998 
40 Hospital Based ESRD Facility 
41 Independent ESRD Facility 
42 Federally Qualified Health Centers 
43 Religious Non-Medical Health Care 
Institutions 
44 Rural Health Clinics-Free Standing 
45 Rural Health Clinics-Provider Based 
46 Comprehensive Outpatient Rehab 
Facilities 
47 Community Mental Health Centers 
48 Outpatient Physical Therapy Services 
49 Psychiatric Distinct Part 
50 Rehabilitation Distinct Part 
51 Short-Term Hospital  Swing Bed 
52 Long-Term Care Hospital  Swing Bed 
53 Rehabilitation Facility  Swing Bed 
54 Critical Access Hospital  Swing Bed 
NOTE: Provider Type values 49-54 refer 
to special unit designations that are 
assigned to the third position of the 
provider CMS Certification Number 
(CCN) (See field #2 for a special unit-to-
provider type cross-walk). 
10  57  9(1)  Current Census  Must be numeric (1-9).  Enter the Census 
Division  division to which the facility belongs for 
payment purposes.  When a facility is 
reclassified for the standardized amount, 
MACs must change the census division to 
reflect the new standardized amount 
location.  Valid codes are: 
1  New England 
2  Middle Atlantic 
3  South Atlantic 
4  East North Central 
5  East South Central 
6  West North Central 
7  West South Central 
8  Mountain 
9  Pacific  Data  File  Format  Title  Description 
Element  Position 
NOTE: When a facility is reclassified for 
purposes of the standard amount, the MAC 
changes the census division to reflect the 
new standardized amount location. 
11  58  X(1)  Change Code  Enter "Y" if hospital's wage index location 
Wage Index  has been reclassified for the year. Enter 
Reclassification  "N" if it has not been reclassified for the 
year.  Adjust annually. 
12  59-62  X(4)  Actual  Enter the appropriate code for the MSA 
Geographic  0040-9965, or the rural area, (blank) 
Location - MSA  (blank) 2 digit numeric State code such as 
_ _36 for Ohio, where the facility is 
physically located. 
13  63-66  X(4)  Wage Index  Enter the appropriate code for the MSA, 
Location - MSA  0040-9965, or the rural area, (blank) 
(blank) (2 digit numeric State code) such as 
_ _ 3 6 for Ohio, to which a hospital has 
been reclassified due to its prevailing wage 
rates.  Leave blank or enter the actual 
location MSA (field 13), if not reclassified.  
Pricer will automatically default to the 
actual location MSA if this field is left 
blank. 
14  67-70  X(4)  Standardized  Enter the appropriate code for the MSA, 
Amount MSA  0040-9965, or the rural area, (blank) 
Location  (blank) (2 digit numeric State code) such as 
_ _ 3 6 for Ohio, to which a hospital has 
been reclassified for standardized amount.  
Leave blank or enter the actual location 
MSA (field 13) if not reclassified.  Pricer 
will automatically default to the actual 
location MSA if this field is left blank. 
15  71-72  X(2)  Sole Community  Leave blank if not a sole community 
or Medicare  hospital (SCH) or a Medicare dependent 
Dependent  hospital (MDH) effective with cost 
Hospital  Base  reporting periods that begin on or after 
Year   April 1, 1990.  If an SCH or an MDH, 
show the base year for the operating 
hospital specific rate, the higher of either 
82 or 87.  See 20.6.  Must be completed 
for any SCH or MDH that operated in 82 
or 87, even if the hospital will be paid at 
the Federal rate.    Data  File  Format  Title  Description 
Element  Position 
16  73  X(1)  Change Code for  Enter an "L" if the MSA has been 
  Lugar  reclassified for wage index purposes under 
reclassification  1886(d)(8)(B) of the Act.  These are also 
known as Lugar reclassifications, and 
apply to ASC-approved services provided 
on an outpatient basis when a hospital 
qualifies for payment under an alternate 
wage index MSA. 
Leave blank for hospitals if there has not 
been a Lugar reclassification. 
17  74  X(1)  Temporary  Enter a Y if this provider qualifies for a 
Relief Indicator  payment update under the temporary relief 
provision, otherwise leave blank. 
IPPS: Effective October 1, 2004, code a 
Y if the provider is considered low 
volume. 
IPF PPS: Effective January 1, 2005, code 
a Y if the acute facility where the unit is 
located has an Emergency Department or if 
the freestanding psych facility has an 
Emergency Department. 
IRF PPS: Effective October 1, 2005, code 
a Y for IRFs located in the state and 
county in Table 2 of the Addendum of the 
August 15, 2005 Federal Register (70 FR 
47880).  The table can also be found at the 
following website:  
www.cms.hhs.gov/InpatientRehabFacPPS/
07DataFiles.asp#topOfPage 
LTCH PPS: Effective 04/21/16 through 
12/31/16, code a Y for an LTCH that is a 
grandfathered HwH (hospitals that are 
described in  412.23(e)(2)(i) that currently 
meets the criteria of  412.22(f)); and is 
located in a rural area or is reclassified rural 
by meeting the provisions outlined in 
412.103, as set forth in the regulations at 
412.522(b)(4).  
18  75  X(1)  Federal PPS  HH PPS: For From dates before 
Blend Indicator  1/1/2021:  Enter the value to indicate if 
normal percentage payments should be 
made on RAP and/or whether payment 
should be reduced under the Quality 
Reporting Program.  Valid values: 
0 = Make normal percentage payment  Data  File  Format  Title  Description 
Element  Position 
1 = Pay 0% 
2 = Make final payment reduced by 2% 
3 = Make final payment reduced by 2%, 
pay RAPs at 0% 
NOTE: All new HHAs enrolled after 
January 1, 2019 must have this value set to 
1 or 3 (no RAP payments). 
 
For From dates on or after 1/1/2021: 
Enter the value to indicate whether 
payment should be reduced under the 
Quality Reporting Program.  Valid values: 
0 = Make normal percentage payment 
2 = Make final payment reduced by 2% 
 
IRF PPS: All IRFs are 100% Federal for 
cost reporting periods beginning on or after 
10/01/2002. 
LTCH PPS:  For cost reporting periods 
beginning on or after 10/01/2002, enter the 
appropriate code for the blend ratio 
between federal and facility rates for the 
LTCH provider:   
  Federal %  Facility% 
1  20  80 
2  40  60 
3  60  40 
4  80  20 
5  100  00 
 
For LTCH cost reporting periods beginning 
on or after 10/01/2015 enter the 
appropriate code for the blend year 
representing 50% site neutral payment and 
50 % standard payment.  
 
6 Blend Year 1 (represents 50% site 
neutral payment and 50 % standard 
payment effective for all LTCH providers 
with cost reporting periods beginning on or 
after 10/01/2015 through 09/30/16) 
  
7 - Blend Years 2 through 4 (represents 
50% site neutral payment and 50 %  Data  File  Format  Title  Description 
Element  Position 
standard payment effective for all LTCH 
providers with cost reporting periods 
beginning in FY 2017, FY 2018 or FY 
2019  
 
8 - Blank  Transition Blend no longer 
applies with cost reporting periods 
beginning in on or after 10/01/2019. Full 
Site Neutral payment 
 
IPF PPS: Enter the appropriate code for 
the blend ratio between federal and facility 
rates.  Effective for all IPF providers with 
cost reporting periods beginning on or after 
1/1/2005. 
  Federal %  Facility% 
1  25  75 
2  50  50 
3  75  25 
4  100  00 
 
 
19  76-77  9(2)  State Code  Enter the 2-digit state where the provider is 
  located.  Enter only the first (lowest) code 
for a given state. For example, effective 
October 1, 2005, Florida has the following 
State Codes: 10, 68 and 69.  MACs shall 
enter a 10 for Floridas state code. 
List of valid state codes is located in Pub. 
100-07, Chapter 2, Section 2779A1. 
20  78-80  X(3)  Filler  Blank. 
21  81-87  9(5)V9(2)  Case Mix  For PPS hospitals and waiver state non-
Adjusted Cost  excluded hospitals, enter the base year cost 
Per  per discharge divided by the case mix 
Discharge/PPS  index.  Enter zero for new providers.  See 
Facility Specific  20.1 for sole community and Medicare-
Rate  dependent hospitals on or after 04/01/90. 
  For inpatient PPS hospitals, verify if figure 
is greater than $10,000.  For LTCH, verify 
if figure is greater than $35,000.   
22  88-91  9V9(3)  Cost of Living  Enter the COLA.  All hospitals except 
    Adjustment  Alaska and Hawaii use 1.000. 
(COLA) 
23  92-96  9V9(4)  Intern/Beds  Enter the provider's intern/resident to bed 
Ratio  ratio.  Calculate this by dividing the  Data  File  Format  Title  Description 
Element  Position 
provider's full time equivalent residents by 
the number of available beds (as calculated 
in positions 97-101).  Do not include 
residents in anesthesiology who are 
employed to replace anesthetists or those 
assigned to PPS excluded units.  Base the 
count upon the average number of full-time 
equivalent residents assigned to the 
hospital during the fiscal year.  Correct 
cases where there is reason to believe that 
the count is substantially in error for a 
particular facility.  The MAC is responsible 
for reviewing hospital records and making 
necessary changes in the count at the end 
of the cost reporting period. 
Enter zero for non-teaching hospitals. 
IPF PPS: Enter the ratio of 
residents/interns to the hospitals average 
daily census. 
24  97-101  9(5)  Bed Size  Enter the number of adult hospital beds and 
  pediatric beds available for lodging 
inpatient. Must be greater than zero.  (See 
the Provider Reimbursement Manual, 
2405.3G.)  Data  File  Format  Title  Description 
Element  Position 
25  102-105  9V9(3)  Operating Cost  Derived from the latest settled cost report 
to Charge Ratio  and corresponding charge data from the 
billing file.  Compute this amount by 
dividing the Medicare operating costs by 
Medicare covered charges.  Obtain 
Medicare operating costs from the 
Medicare cost repot form CMS-2552-96, 
Supplemental Worksheet D-1, Part II, Line 
53.  Obtain Medicare covered charges from 
the MAC billing file, i.e., PS&R record.  
For hospitals for which the MAC is unable 
to compute a reasonable cost-to-charge 
ratio, they use the appropriate urban or 
rural statewide average cost-to-charge ratio 
calculated annually by CMS and published 
in the "Federal Register."  These average 
ratios are used to calculate cost outlier 
payments for those hospitals where you 
compute cost-to-charge ratios that are not 
within the limits published in the "Federal 
Register." 
For LTCH and IRF PPS, a combined 
operating and capital cost-to-charge ratio is 
entered here. 
See below for a discussion of the use of 
more recent data for determining CCRs. 
26  106-110  9V9(4)  Case Mix Index  The case mix index is used to compute 
      positions 81-87 (field 21).  Zero-fill for all 
others.  In most cases, this is the case mix 
index that has been calculated and 
published by CMS for each hospital (based 
on 1981 cost and billing data) reflecting the 
relative cost of that hospital's mix of cases 
compared to the national average mix. 
27  111-114  V9(4)  Supplemental  Enter the SSI ratio used to determine if the 
Security Income  hospital qualifies for a disproportionate 
Ratio  share adjustment and to determine the size 
  of the capital and operating DSH 
adjustments. 
28  115-118  V9(4)  Medicaid Ratio  Enter the Medicaid ratio used to determine 
if the hospital qualifies for a 
disproportionate share adjustment and to 
determine the size of the capital and 
operating DSH adjustments.  Data  File  Format  Title  Description 
Element  Position 
29  119  X(1)  Provider PPS  This field is obsolete as of 4/1/91.  Leave 
Period  Blank for periods on or after 4/1/91. 
30  120-125  9V9(5)  Special Provider  Zero-fill for all hospitals after FY91.  This 
    Update Factor  Field is obsolete for hospitals as of FY92. 
Effective 1/1/2018, this field is used for 
HHAs only.  Enter the HH VBP 
adjustment factor provided by CMS for 
each HHA. If no factor is provided, enter 
1.00000. 
31  126-129  V9(4)  Operating DSH  Disproportionate share adjustment 
Percentage.  Pricer calculates the Operating 
DSH effective 10/1/91 and bypasses this 
field.  Zero-fill for all hospitals 10/1/91 and 
later. 
32  130-137  9(8)  Fiscal Year End  This field is no longer used.  If present, 
        must be CCYYMMDD. 
33  138  X(1)  Special Payment  Enter the code that indicates the type of 
  Indicator  special payment provision that applies. 
Blank = not applicable 
Y = reclassified 
1 = special wage index indicator 
2 = both special wage index indicator and 
reclassified 
D = Dual reclassified 
34  139  X(1)  Hospital Quality  Enter code to indicate that hospital meets 
  Indicator  criteria to receive higher payment per 
  MMA quality standards. 
Blank = hospital does not meet criteria 
1 = hospital quality standards have been 
met 
35  140-144  X(5)  Actual  Enter the appropriate code for the CBSA 
Geographic  00001-89999, or the rural area, (blank 
Location  (blank) (blank) 2 digit numeric State code 
Core-Based  such as _ _ _ 36 for Ohio, where the 
Statistical Area  facility is physically located. 
(CBSA) 
36  145-149  X(5)  Wage Index  Enter the appropriate code for the CBSA, 
      Location CBSA  00001-89999, or the rural area, 
    (blank)(blank) (blank) (2 digit numeric 
State code) such as _ _ _ 3 6 for Ohio, to 
which a hospital has been reclassified due 
to its prevailing wage rates.  Leave blank 
or enter the actual location CBSA (field 
35), if not reclassified.  Pricer will  Data  File  Format  Title  Description 
Element  Position 
automatically default to the actual location 
CBSA if this field is left blank. 
37  150-154  X(5)  Payment CBSA  Enter the appropriate code for the CBSA, 
      00001-89999 or the rural area, (blank) 
(blank)(blank) (2 digit numeric State code) 
such as _ _ _ 3 6 for Ohio, to which a 
hospital has been reclassified.  Leave blank 
or enter the actual location CBSA (field 
35) if not reclassified.  Pricer will 
automatically default to the actual location 
CBSA if this field is left blank 
38  155-160  9(2)V9(4)  Special Wage  Enter the special wage index that certain 
Index  providers may be assigned.  Enter zeroes 
unless the Special Payment Indicator field 
equals a 1 or 2. 
39  161-166  9(4)V9(2)  Pass Through  Per diem amount based on the interim 
    Amount for  payments to the hospital.  Must be zero if 
Capital  location 185 = A, B, or C (See the Provider 
  Reimbursement Manual, 2405.2).  Used 
for PPS hospitals prior to their cost 
reporting period beginning in FY 92, new 
hospitals during their first 2 years of 
operation FY 92 or later, and non-PPS 
hospitals or units.  Zero-fill if this does not 
apply. 
40  167-172  9(4)V9(2)  Pass Through  Per diem amount based on the interim 
Amount for  payments to the hospital (See the Provider, 
Direct Medical  Reimbursement Manual, 2405.2.).  Zero-
Education  fill if this does not apply. 
41  173-178  9(4)V9(2)  Pass Through  Per diem amount based on the interim 
    Amount for  payments to the hospital.  Include standard 
Organ  acquisition amounts for kidney, heart, lung, 
Acquisition  pancreas, intestine and liver transplants.  
  Do not include acquisition costs for bone 
marrow transplants.  (See the Provider 
Reimbursement Manual, 2405.2.)  Zero-
fill if this does not apply.  Data  File  Format  Title  Description 
Element  Position 
42  179-184  9(4)V9(2)  Total Pass  Per diem amount based on the interim 
    Through  payments to the hospital (See the Provider 
Amount,  Reimbursement Manual 2405.2.)  Must be 
Including  at least equal to the three pass through 
Miscellaneous  amounts listed above.  Include pass 
  through amount for Domestic N95 
Respirator Procurement. The following are 
included in total pass through amount in 
addition to the above pass through 
amounts.  Certified Registered Nurse 
Anesthetists (CRNAs) are paid as part of 
Miscellaneous Pass Through for rural 
hospitals that perform fewer than 500 
surgeries per year, and Nursing and Allied 
Health Professional Education when 
conducted by a provider in an approved 
program.  Do not include amounts paid for 
Indirect Medical Education, Hemophilia 
Clotting Factors, DSH adjustments, or 
Allogeneic Stem Cell Acquisition.  Zero-
fill if this does not apply. 
43  185  X(1)  Capital PPS  Enter the code to indicate the type of  
Payment Code  capital payment methodology for hospitals: 
A = Hold Harmless  cost payment for old 
capital 
B = Hold Harmless  100% Federal rate 
C = Fully prospective blended rate 
44  186-191  9(4)V9(2)  Hospital Specific  Must be present unless:  
Capital Rate    A "Y" is entered in the Capital 
Indirect Medical Education Ratio 
field; or 
  A08 is entered in the Provider 
Type field; or 
  A termination date is present in 
Termination Date field. 
Enter the hospital's allowable adjusted base 
year inpatient capital costs per discharge.  
This field is not used as of 10/1/02. 
45  192-197  9(4)V9(2)  Old Capital Hold  Enter the hospital's allowable inpatient 
    Harmless Rate  "old" capital costs per discharge incurred 
  for assets acquired before December 31, 
1990, for capital PPS.  Update annually.  Data  File  Format  Title  Description 
Element  Position 
46  198-202  9V9(4)  New Capital- Enter the ratio of the hospital's allowable 
    Hold Harmless  inpatient costs for new capital to the 
Ratio  hospital's total allowable inpatient capital 
  costs.  Update annually. 
47  203-206  9V9(3)  Capital Cost-to- Derived from the latest cost report and 
Charge Ratio  corresponding charge data from the billing 
file.  For hospitals for which the MAC is 
unable to compute a reasonable cost-to-
charge ratio, it uses the appropriate 
statewide average cost-to-charge ratio 
calculated annually by CMS and published 
in the "Federal Register."  A provider may 
submit evidence to justify a capital cost-to-
charge ratio that lies outside a 3 standard 
deviation band. The MAC uses the 
hospital's ratio rather than the statewide 
average if it agrees the hospital's rate is 
justified. 
See below for a detailed description of the 
methodology to be used to determine the 
CCR for Acute Care Hospital Inpatient and 
LTCH Prospective Payment Systems. 
48  207  X(1)  New Hospital  Enter "Y" for the first 2 years that a new 
      hospital is in operation.  Leave blank if 
hospital is not within first 2 years of 
operation. 
49  208-212  9V9(4)  Capital Indirect  This is for IPPS hospitals and IRFs only. 
    Medical  Enter the ratio of residents/interns to the 
Education Ratio  hospital's average daily census.  Calculate 
  by dividing the hospital's full-time 
equivalent total of residents during the 
fiscal year by the hospital's total inpatient 
days.  (See 20.4.1 for inpatient acute 
hospital and 140.2.4.3 and 140.2.4.5.1 
for IRFs.)  Zero-fill for a non-teaching 
hospital. 
50  213-218  9(4)V9(2)  Capital  The per discharge exception payment to 
  Exception  which a hospital is entitled.  (See 20.4.7 
Payment Rate  above.) 
51  219-219  X  VBP Participant  Enter Y if participating in Hospital 
Value Based Purchasing.  Enter N if not 
participating.  Note if Data Element 34 
(Hospital Quality Ind) is blank, then this 
field must = N.  Data  File  Format  Title  Description 
Element  Position 
52  220-231  9V9(11)  VBP Adjustment  Enter VBP Adjustment Factor.  If Data 
Element 51 = N, leave blank. 
53  232-232  X  HRR Indicator  Enter 0 if not participating in Hospital 
Readmissions Reduction program. Enter 
1 if participating in Hospital 
Readmissions Reduction program and 
payment adjustment is not 1.0000.  Enter 
2 if participating in Hospital 
Readmissions Reduction program and 
payment adjustment is equal to 1.0000.  
54  233-237  9V9(4)  HRR Adjustment  Enter HRR Adjustment Factor if 1 is 
entered in Data Element 53.  Leave blank if 
0 or 2 is entered in Data Element 53. 
55  238-240  V999  Bundle Model 1  Enter the discount % for hospitals 
Discount  participating in Bundled Payments for Care 
Improvement Initiative (BPCI), Model 1 
(demo code 61). 
56  241-241  X  HAC Reduction  Enter a Y if the hospital is subject to a 
Indicator  reduction under the HAC Reduction 
Program. Enter a N if the hospital is NOT 
subject to a reduction under the HAC 
Reduction Program. 
57  242-250  9(7)V99  Uncompensated  Enter the estimated per discharge 
Care Amount  uncompensated care payment (UCP) 
amount or enter the total of the estimated 
per discharge UCP amount and estimated 
per discharge supplemental payment 
amount, calculated and published by CMS 
for each hospital. Effective 10/1/2022, the 
estimated per discharge supplemental 
payment is for eligible Indian Health 
Service/Tribal hospitals and hospitals 
located in Puerto Rico. 
58  251-251  X  Electronic  Enter a Y if the hospital is subject to a 
Health Records  reduction due to NOT being an EHR 
(EHR) Program  meaningful user. Leave blank if the 
Reduction  hospital is an Electronic Health Records 
meaningful user. 
59  252-258  9V9(6)  LV Adjustment  Enter the low-volume hospital payment 
      Factor  adjustment factor calculated in accordance 
        with the low-volume hospital payment 
        regulations at  412.101. 
     
60  259-263  9(5)  County Code  Enter the County Code. Must be 5 numbers.  Data  File  Format  Title  Description 
Element  Position 
 
61  264-268  9V9999  Medicare  Enter the MPA percentage calculated and 
Performance  published by the Centers for Medicare & 
Adjustment  Medicaid Services (CMS). 
(MPA)   
62  269-269   X(1)  LTCH DPP  Enter a Y if the LTCH is subject to the 
    Indicator   DPP payment adjustment. Leave blank if the 
  LTCH is not subject to the DPP payment 
adjustment. 
 
63  270-275  9(2) V9(4)  Supplemental  Enter the supplemental wage index that 
Wage Index  certain providers may be assigned.  Enter 
zeroes if it does not apply. 
64  276-276  X(1)  Supplemental  Enter the supplemental wage index flag that 
Wage Index Flag  certain providers may be assigned: 
1=Prior Year Wage Index 
2=Special IPPS-comparable Wage Index* 
3=Future use 
 
Enter blank if it does not apply 
 
*Only for LTCH providers. Pricer will 
override the otherwise determined IPPS-
comparable wage index with this value.  
 
65  277-285  9(7)V99  Pass Through  Enter the per diem amount based on the 
Amount for  interim payments to the hospital. Include 
Allogeneic Stem  acquisition amounts for allogeneic stem 
Cell Acquisition  cell transplants. Zero-fill if this does not 
apply. 
66  286-291  9(4)V9(2)  Pass Through  Per diem amount of direct graduate 
Amount for  medical education to be excluded from MA 
Direct Medical  capitation rates per regulation. Zero-fill if 
Education  this does not apply. 
(Medicare 
Advantage (MA) 
Exclusion) 
67  292-297  9(4)V9(2)  Pass Through  Per diem amount of kidney acquisition 
Amount for  costs to be excluded from MA capitation 
Kidney  rates per regulation.  Zero-fill if this does 
Acquisition (MA  not apply. 
Exclusion) 
68  298-306  9(7)V99  Pass Through  Enter the per diem amount based on the 
Amount for  interim payments to the hospital. Include  Data  File  Format  Title  Description 
Element  Position 
Domestic N95  payment adjustments for the additional cost 
Respirator  for procurement of wholly domestically 
Procurement  made NIOSH-approved surgical N95 
respirators.   
69  307-310  X(4)  Filler   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Transmittals Issued for this Chapter 
 
Rev #  Issue Date  Subject  Impl Date  CR# 
R12239CP 09/06/2023 Instructions To Process Services During  01/02/2024  13248 
  Disenrollment From The Programs Of All-
Inclusive Care For The Elderly (PACE) 
R12234CP 08/31/2023 Fiscal Year (FY) 2024 Inpatient Prospective  10/02/2023  13306 
Payment System (IPPS) and Long-Term Care 
Hospital (LTCH) PPS Changes 
R12148CP 07/21/2023 Instructions To Process Services During  01/02/2024  13248 
Disenrollment From The Programs Of All-
Inclusive Care For The Elderly (PACE)- 
Rescinded and replaced by transmittal 12239 
 
R11963CP 04/20/2023 Religious Nonmedical Health Care Institution  10/02/2023  13108 
Provisions of the Consolidated Appropriations 
Act (CAA) of 2023 
R11639CP 10/07/2022 Provider Specific File (PSF) changes for Direct  04/03/2023  12852 
Medical Education (DME), Direct Graduate 
Medical Education (DGME), Organ Acquisition 
Cost (OAC) and Kidney Acquisition Costs 
(KAC) 
R11543CP 08/05/2022 Inpatient Psychiatric Facilities Prospective  10/03/2022  12859 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2023 
R11540CP 08/05/2022 Inpatient Rehabilitation Facility (IRF) Annual  10/03/2022  12807 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2023 
R11396CP 05/04/2022 Update to Chapters 3, 4, 27 and 37 of  10/03/2022  12715 
Publication (Pub.) 100-04 Medicare Claims 
Processing Manual to Remove Reference to the 
Term "OSCAR" 
R11348CP 04/07/2022 Revisions to Chapters 3, Inpatient Hospital  05/09/2022  12602 
Billing of the Medicare Claims Processing 
Manual (Pub 100-04), 18, Preventive and 
Screening Services of the Medicare Claims 
Processing Manual (Pub 100-04), and 32 
Billing Requirements for Special Services of 
the Medicare Claims Processing Manual (Pub 
100-04) to Update Coding 
 
R11140CP 12/02/2021 Update to the Internet Only Manual (IOM)  01/04/2022  12525 
Publication 100-04, Chapters 3 and 17  Rev #  Issue Date  Subject  Impl Date  CR# 
 
R11059CP 10/21/2021 April 2022 Update to the Java Medicare Code  04/04/2022  12471 
Editor (MCE) for New Edit 20- Unspecified 
Code Edit 
R11075CP 10/28/2021 Revision to Chapter 3 to Update Instructions for 12/01/2021  12500 
Handling Inpatient Rehabilitation Facility (IRF) 
Claims 
R11035CP 10/13/2021 Revisions to Chapters 3, 18, and 32 to Update 11/17/2021  12377 
Coding 
R11039CP 10/05/2021 Inpatient Psychiatric Facilities Prospective  10/04/2021  12417 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2022 
R11019CP 09/27/2021 Inpatient Psychiatric Facilities Prospective  10/04/2021  12417 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2022- Rescinded and replaced by 
transmittal 11039 
R10952CP 08/19/2021 Update to the Internet Only Manual (IOM)  09/20/2021  12360 
Publication (Pub.) 100-04, Chapter 3, Section 
40.2.4 Inpatient Prospective Payment System 
(IPPS) Transfers Between Hospitals 
R10943CP 08/11/2021 Inpatient Psychiatric Facilities Prospective  10/04/2021  12364 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2022 
 
R10944CP 08/12/2021 Inpatient Psychiatric Facilities Prospective  10/04/2021  12417 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2022- Rescinded and replaced by 
transmittal 11019 
R10696CP 03/31/2021 Penalty for Delayed Request for Anticipated  01/04/2021  11855 
  Payment (RAP) Submission  
R10403CP 10/27/2020 Penalty for Delayed Request for Anticipated  01/04/2021  11855 
  Payment (RAP) Submission -- Implementation 
Rescinded and replaced by transmittal 10696 
R10402CP 10/20/2020 Change to the Payment of Allogeneic Stem Cell  10/05/2020  11729 
Acquisition Services 
R10376CP 10/02/2020 Update to the Internet Only Manual (IOM)  11/03/2020  11929 
Publication (Pub.) 100-04, Chapter 3, Section 
90.4.2 for Liver Transplants 
R10369CP 09/24/2020 Penalty for Delayed Request for Anticipated  01/04/2021  11855 
Payment (RAP) Submission -- Implementation 
Rescinded and replaced by transmittal 10403  Rev #  Issue Date  Subject  Impl Date  CR# 
R10371CP 09/24/2020 Change to the Payment of Allogeneic Stem Cell  10/05/2020 
11729 
Acquisition Services- Rescinded and replaced 
by transmittal 10402   
R10321CP 08/28/2020 Inpatient Rehabilitation Facility (IRF) Annual  10/05/2020  11858 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2021 
R10312CP 08/21/2020 Inpatient Psychiatric Facilities Prospective  10/05/2020  11949 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2021 
R10254CP 07/31/2020 Penalty for Delayed Request for Anticipated  01/04/2021  11855 
Payment (RAP) Submission  Implementation - 
Rescinded and replaced by Transmittal 10369 
 
R10222CP 07/14/2020 Updates in the Fiscal Intermediary Shared  10/05/2020  11797 
System (FISS) Inpatient Provider Specific Files 
(PSF) 
R10140CP 05/15/2020 Updates in the Fiscal Intermediary Shared  10/05/2020  11797 
  System (FISS) Inpatient Provider Specific Files 
(PSF)- Rescinded and replaced by Transmittal 
10222 
R10121CP 05/08/2020 Updates in the Fiscal Intermediary Shared  10/05/2020  11707 
System (FISS) Inpatient and Outpatient 
Provider Specific Files (PSF) 
  07/10/2020 Change to the Payment of Allogeneic Stem Cell  10/05/2020  11729 
Acquisition Services - Rescinded and replaced 
by Transmittal 10371 
R10210CP 07/10/2020 Update to the Internet Only Manual (IOM)  08/10/2020  11829 
Publication (Pub.) 100-04, Chapter 3, Section 
20 and 90.6 
 
R10002CP 03/20/2020 Update to the Internet Only Manual (IOM)  04/20/2020  11687 
Publication (Pub.) 100-04, Chapter 3, Section 
90.4.2 
R4406CP  10/01/2019 Inpatient Psychiatric Facilities Prospective  10/07/2019  11420 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2020 
R4390CP   09/06/2019 Fiscal Year (FY) 2020 Inpatient Prospective  10/07/2019  11361 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes 
R4357CP  08/09/2019 Inpatient Psychiatric Facilities Prospective  10/07/2019  11420 
Payment System (IPF PPS) Updates for Fiscal  Rev #  Issue Date  Subject  Impl Date  CR# 
Year (FY) 2020- Rescinded and replaced by 
Transmittal 4406 
R4353CP  08/02/2019 Inpatien1t Rehabilitation Facility (IRF) Annual  10/07/2019  11345 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2020 
R4337CP  07/18/2019 Implementation of the Medicare Performance  07/01/2019  10971 
Adjustment (MPA) for the Maryland Total Cost 
of Care (MD TCOC) Model 
R4308CP  05/16/2019 Implementation of the Medicare Performance  07/01/2019  10971 
Adjustment (MPA) for the Maryland Total Cost 
of Care (MD TCOC) Model - Rescinded and 
replaced by Transmittal 4337 
 
R4257CP  03/14/2019 Implementation of the Medicare Performance  07/01/2019  10971 
Adjustment (MPA) for the Maryland Total Cost 
of Care (MD TCOC) Model- Rescinded and 
replaced by Transmittal 4308 
R4230CP  02/01/2019 Implementation of the Medicare Performance  07/01/2019  10971 
Adjustment (MPA) for the Maryland Total Cost 
of Care (MD TCOC) Model 
R4271CP  03/29/2019 Update to the Internet-Only-Manual (IOM)  04/29/2019  11188 
Publication (Pub.) 100-04, Chapters 1 and 3 
R4157CP  11/02/2018 Hospital and Critical Access Hospital (CAH)  04/01/2019  10962 
  Swing-Bed Manual Revisions and Shared 
Systems Changes 
R4166CP  11/09/2018 Revisions to Medicare Claims Processing  12/11/2018  11020 
Manual Reference to Burn Medicare Severity-
Diagnostic Related Groups (MS-DRGs) for 
Transfer Policy 
R4153CP  10/26/2018 Incomplete Colonoscopies Billed with Modifier  04/01/2019  10937 
53 for Critical Access Hospital (CAH) Method 
II Providers 
 
R4104CP  08/03/2018 Inpatient Psychiatric Facilities Prospective  10/01/2018  10880 
Payment System (IPF PPS) Updates for Fiscal 
Year (FY) 2019 
R4144CP  10/04/2018 Fiscal Year (FY) 2019 Inpatient Prospective  10/01/2018  10869 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes- No Longer 
Sensitive 
  09/07/2018 Fiscal Year (FY) 2019 Inpatient Prospective  10/01/2018  10869  Rev #  Issue Date  Subject  Impl Date  CR# 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes SENSITIVE/ 
CONTROVERSIAL DO NOT POST- 
Rescinded and replaced by Transmittal 4144 
R4101CP  08/03/2018 Inpatient Rehabilitation Facility (IRF) Annual  10/01/2018  10826 
  Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2019 
R4046CP  05/10/2018 Inpatient Prospective Payment System (IPPS)  04/02/2018  10547 
and Long-Term Care Hospital (LTCH) PPS 
Extensions per the Advancing Chronic Care, 
Extenders, and Social Services (ACCESS) Act 
Included in the Bipartisan Budget Act of 2018 
 
R4038CP  04/27/2018 Notification of Change in Instructions for  04/23/2018  10459 
Handling IRF Active Provider List 
 
R4008CP  03/23/2018 Notification of Change in Instructions for  04/23/2018  10459 
Handling IRF Active Provider List  Rescinded 
and replaced by Transmittal 4038 
 
 
R3836CP  08/18/2017 Home Health Value-Based Purchasing  11/21/2017  9939 
Implementation 
R3849CP  08/25/2017 Inpatient Rehabilitation Facility (IRF) Annual  10/02/2017  10125 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2018 
R3826CP  08/04/2017 Inpatient Psychiatric Facilities Prospective  10/02/2017  10214 
Payment System (IPF PPS) Fiscal Year (FY) 
2018 
R3795CP  06/16/2017 Updates in the Fiscal Intermediary Shared  10/02/2017  10165 
System (FISS) Inpatient and Outpatient 
Provider Specific Files (PSF) 
R3779CP  05/24/2017 Instructions to Process Services Not Authorized  04/03/2017  9818 
by the Veterans Administration (VA) in a Non-
VA Facility Reported With Value Code (VC) 42 
R3750CP  04/19/2017 New Fields in the Fiscal Intermediary Shared  07/03/2017  9926 
System (FISS) Inpatient and Outpatient 
Provider Specific Files (PSF) 
R3718CP  02/14/2017 Instructions to Process Services Not Authorized  04/03/2017  9818 
by the Veterans Administration (VA) in a Non-
VA Facility Reported With Value Code (VC)  Rev #  Issue Date  Subject  Impl Date  CR# 
42-- Rescinded and replaced by Transmittal 
3779 
R3712CP  02/03/2017 New Fields in the Fiscal Intermediary Shared  07/03/2017  9926 
System (FISS) Inpatient and Outpatient 
Provider Specific Files (PSF) 
R3635CP  10/28/2016 Instructions to Process Services Not Authorized  04/03/2017  9818 
by the Veterans Administration (VA) in a Non-
VA Facility Reported With Value Code (VC) 42 
 Rescinded and replaced by Transmittal 3718 
R3590CP  08/01/2016 Changes to the Fiscal Intermediary Shared  10/03/2016  9570 
System (FISS) Inpatient Provider Specific File 
(PSF) for Low-Volume Hospital Payment 
Adjustment Factor and New Inpatient 
Prospective Payment System (IPPS) Pricer 
Output Field for Islet Isolation Add-on Payment 
R3576CP  08/05/2016 Inpatient Rehabilitation Facility (IRF) Annual  10/03/2016  9669 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2017 
R3575CP  08/01/2016 Update-Inpatient Psychiatric Facilities  10/03/2016  9732 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2017 
R3571CP  07/29/2016 New Revenue Code 0815 for Allogeneic Stem  01/03/2017  9674 
Cell Acquisition Services 
R3556CP  07/01/2016 Stem Cell Transplantation for Multiple  10/03/2016  9620 
Myeloma, Myelofibrosis, Sickle Cell Disease, 
and Myelodysplastic Syndromes 
R3511CP  04/29/2016 Changes to the Fiscal Intermediary Shared  10/03/2016  9570 
System (FISS) Inpatient Provider Specific File 
(PSF) for Low-Volume Hospital Payment 
Adjustment Factor and New Inpatient 
Prospective Payment System (IPPS) Pricer 
Output Field for Islet Isolation Add-on Payment 
 Rescinded and replaced by Transmittal 3590 
R3509CP  04/29/2016 Stem Cell Transplantation for Multiple  10/03/2016  9620 
Myeloma, Myelofibrosis, Sickle Cell Disease, 
and Myelodysplastic Syndromes - Rescinded 
and replaced by Transmittal 3556 
R3504CP  04/28/2016 Revision of the Method to Calculate the Length  10/03/2016  9559 
of Stay (LOS) Edit for Continuous Invasive 
Mechanical Ventilation for Greater than 96 
Consecutive Hours  Rev #  Issue Date  Subject  Impl Date  CR# 
R3481CP  03/18/2016 Updates to Pub. 100-04, Chapters 3, 6, 7 and 15  06/20/2016  9562 
to Correct Remittance Advice Messages 
R3452CP  02/04/2016 Additional Fields Added to the Outlier  07/05/2016  9472 
Reconciliation Lump Sum Utility 
R3445CP  01/29/2016 Off-Cycle Update to the Long Term Care  04/04/2016  9527 
Hospital (LTCH) Prospective Payment System 
(PPS) Fiscal Year (FY) 2016 Pricer 
R3431CP  12/29/2015 Fiscal Year (FY) 2016 Inpatient Prospective  10/05/2015  9253 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes 
R3388CP  10/30/2015 Manual Updates to Clarify IRF Claims  12/02/2015  9362 
Processing 
R3373CP  10/14/2015 Fiscal Year (FY) 2016 Inpatient Prospective  10/05/2015  9253 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes  Rescinded and 
replaced by Transmittal 3431 
R3360CP  09/24/2015 Fiscal Year (FY) 2016 Inpatient Prospective  10/05/2015  9253 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes  Rescinded and 
replaced by Transmittal 3373 
R3357CP  09/18/2015 Fiscal Year (FY) 2016 Inpatient Prospective  10/05/2015  9253 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes  Rescinded and 
Replaced by Transmittal 3360 
R3332CP  08/21/2015 Update-Inpatient Psychiatric Facilities  10/05/2015  9305 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2016 
R3331CP  08/21/2015 Inpatient Rehabilitation Facility (IRF) Annual  10/05/2015  9236 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2016 
R3199CP  02/20/2015 Revisions to Medicare Claims Processing  04/21/2015  8940 
Manual for Foreign, Emergency and Shipboard 
Claims 
R3082CP  09/30/2014 Update-Inpatient Psychiatric Facilities  10/06/2014  8889 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2015 
R3075CP  09/24/2014 Date Correction to Diagnosis Code Reporting  11/12/2014  8857 
on Religious Nonmedical Health Care 
Institution (RNHCI) Claims  Rev #  Issue Date  Subject  Impl Date  CR# 
R3054CP  08/29/2014 Ventricular Assist Devices for Bridge-to- 09/30/2014  8803 
Transplant and Destination Therapy 
R3039CP  08/22/2014 Inpatient Rehabilitation Facility (IRF) Annual  10/06/2014  8788 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2015 
R3034CP  08/22/2014 Update-Inpatient Psychiatric Facilities  10/06/2014  8889 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2015  Rescinded and replaced by 
Transmittal 3082 
R3030CP  08/22/2014 Update to Pub. 100-04, Chapter 03 to Provide  09/23/2014  8679 
Language-Only Changes for Updating ICD-10 
and ASC X12 
R3017CP  08/08/2014 Date Correction to Diagnosis Code Reporting  11/12/2014  8857 
on Religious Nonmedical Health Care 
Institution (RNHCI) Claims  Rescinded and 
replaced by Transmittal 3075 
R2933CP  04/17/2014 Addition of New Fields and Expansion of  07/07/2014  8546 
Existing Model 1 Discount Percentage Field in 
the Inpatient Hospital Provider Specific File 
(PSF) and Addition of New Fields and 
Renaming Payment Fields in the Inpatient 
Prospective Payment System (IPPS) Pricer 
Output 
R2930CP  04/11/2014 Denial Letters for Religious Nonmedical Health  07/14/2014  8559 
Care Institution Services Not Covered by 
Medicare 
R2870CP  02/05/2014 Addition of New Fields and Expansion of  07/07/2014  8546 
Existing Model 1 Discount Percentage Field in 
the Inpatient Hospital Provider Specific File 
(PSF) and Addition of New Fields and 
Renaming Payment Fields in the Inpatient 
Prospective Payment System (IPPS) Pricer 
Output  Rescinded and replaced by Transmittal 
2933 
R2819CP  11/19/2013 Fiscal Year (FY) 2014 Inpatient Prospective  10/07/2013  8421 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes 
R2778CP  08/30/2013 Fiscal Year (FY) 2014 Inpatient Prospective  10/07/2013  8421 
Payment System (IPPS) and Long Term Care 
Hospital (LTCH) PPS Changes  Rescinded and 
replaced by Transmittal 2819  Rev #  Issue Date  Subject  Impl Date  CR# 
R2769CP  08/16/2013 Inpatient Rehabilitation Facility (IRF) Annual  10/07/2013  8326 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2014 
R2768CP  08/16/2013 Update-Inpatient Psychiatric Facilities  10/07/2013  8395 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2014 
R2765CP  08/16/2013 Diagnosis Code Reporting on Religious  01/06/2014  8350 
Nonmedical Health Care Institution Claims 
R2722CP  06/11/2013 Changes to Contractor Designation in  01/29/2012  8103 
Processing Foreign, Emergency and Shipboard 
Claims 
R2719CP  06/07/2013 Pass-through Payments for Certified Registered  09/09/2013  7896 
Nurse Anesthetist Anesthesia Services and 
Related Care 
R2673CP  03/14/2013 Manual Updates to Clarify IRF Claims  04/22/2013  8127 
Processing 
R2674CP  03/14/2013 Changes to Contractor Designation in  01/29/2013  8103 
Processing Foreign, Emergency and Shipboard 
Claims  Rescinded and replaced by Transmittal 
2722 
R2654CP  02/08/2013 Updates to Claims Processing Instructions  05/09/2013  8186 
Regarding Religious Nonmedical Health Care 
Institutions (RNHCI) 
R2638CP  01/18/2013 Manual Updates to Clarify IRF Claims  04/22/2013  8127 
Processing  Rescinded and replaced by 
Transmittal 2673 
R2627CP  01/04/2013 Fiscal Year (FY) 2012 Inpatient Prospective  10/01/2012  8041 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS Changes 
R2625CP  12/28/2012 Changes to Contractor Designation in  01/29/2012  8103 
Processing Foreign, Emergency and Shipboard 
Claims  Rescinded and replaced by Transmittal 
2674 
R2576CP  11/01/2012 Affordable Care Act (ACA) Section 3025  04/01/2013  8067 
Expansion of a Field in the Inpatient Provider 
Specific File) PSF) 
R2539CP  08/31/2012 Fiscal Year (FY) 2012 Inpatient Prospective  10/01/2012  8041 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS Changes  Rescinded and 
replaced by Transmittal 2627  Rev #  Issue Date  Subject  Impl Date  CR# 
R2520CP  08/17/2012 Update-Inpatient Psychiatric Facilities  10/01/2012  8000 
Prospective Payment System (IPF PPS) Fiscal 
Year (FY) 2013 
R2518CP  08/10/2012 Inpatient Rehabilitation Facility (IRF) Annual  10/01/2012  7901 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2013 
R2513CP  08/03/2012 Liver Transplantation for Patients with  09/04/2012  7908 
Malignancies 
R2489CP  06/22/2012 Attending Provider Identifiers on Religious  09/24/2012  7862 
Nonmedical Health Care Institution Claims 
R2447CP  04/26/2012 Additional Fields Added to the Outlier  10/01/2012  7789 
Reconciliation Lump Sum Utility 
R2397CP  01/26/2012 Update to Abortion Condition Codes Associated 07/02/2012  7687 
With Reason Code 32809 
R2393CP  01/25/2012 Inpatient Rehabilitation Facility (IRF) No-Pay  07/02/2012  7674 
Billing for Medicare Advantage (MA) Patients 
Update 
R2388CP  01/20/2012 Update to Pub. 100-04, Medicare Claims  04/22/2012  7706 
Processing Manual, Chapter 3: Inpatient 
Hospital Billing 
R2367CP  12/09/2011 Verification of Status for all Hospitals  10/05/2009  6564 
Qualifying for Disproportionate Share Hospital 
(DSH) Payments Under 42CFR Section 
412.106(c)(2), also known as the Pickle 
Amendment  Rescinded and replaced by 
Transmittal 2367 
R2334CP  10/28/2011 Billing for Donor Post-Kidney Transplant  04/02/2011  7523 
Complication Services 
R2332CP  10/28/2011 Diagnosis Code Update for Add-on Payments  04/02/2011  7553 
for Blood Clotting Factor Administered to 
Hemophilia Patients 
R2301CP  09/13/2011 Inpatient Rehabilitation Facility (IRF) Annual  10/03/2011  7510 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2012 
R2285CP  08/26/2011 Attending Physician Identifiers on Religious  11/28/2011  7542 
Nonmedical Health Care Institution Claims 
R2275CP  08/12/2011 Inpatient Rehabilitation Facility (IRF) Annual  10/03/2011  7510 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2012  Rescinded and 
replaced by Transmittal 2301  Rev #  Issue Date  Subject  Impl Date  CR# 
R2242CP  6/17/2011  Revision to Formula to Compute the Time  07/01/2011  7464 
Value of Money under the Inpatient Prospective 
Payment System (IPPS), Outpatient Prospective 
Payment System (OPPS), Inpatient 
Rehabilitation Facility (IRF PPS), Inpatient 
Psychiatric Facility (IPF PPS) and Long Term 
Care Hospital (LTCH PPS) 
R2222CP  05/20/2011 Pass-through Payment for Certified Registered  10/03/2011  7379 
Nurse Anesthetist Services 
R2220CP  05/20/2011 Update - Inpatient Psychiatric Facilities  07/05/2011  7367 
Prospective Payment System (IPF PPS) Rate 
Year 2012 
R2193CP  04/22/2011 Updates to Pub. 100-04, Medicare Claims  07/23/2011  7385 
Processing Manual, Chapter 3, Inpatient 
Hospital Billing 
R2157CP  02/11/2011 Implementation of Edits for the Emergency  04/04/2011  7072 
Department (ED) Adjustment Policy Under the 
Inpatient Psychiatric Facility Prospective 
Payment System (IPF PPS) 
R2117CP  12/10/2010 Revisions to the Medicare Code Editor (MCE)  01/12/2011  7246 
and Integrated Outpatient Code Editor(IOCE) 
Reporting Requirements 
R2111CP  12/03/2010 Outlier Reconciliation and other Outlier Manual  04/04/2011  7192 
Updates for the Inpatient Prospective Payment 
System (IPPS), Outpatient Prospective Payment 
System (OPPS), Inpatient Rehabilitation 
Facility (IRF) PPS, Inpatient Psychiatric Facility 
(IPF) PPS and Long Term Care Hospital 
(LTCH) PPS 
R2089CP  11/12/2010 Implementation of Edits for the Emergency  04/04/2011  7072 
Department (ED) Adjustment Policy Under the 
Inpatient Psychiatric Facility Prospective 
Payment System (IPF PPS)  Rescinded and 
replaced by Transmittal 2157 
R2083CP  10/29/2010 Implementation of the Interrupted Stay Policy  01/03/2011  7044 
under the Inpatient Psychiatric Facility 
Prospective Payment System (IPF PPS) 
R2066CP  10/15/2010 Submission of Informational Only Claims by  01/03/2011  7172 
Maryland Waiver Hospitals and Critical Access 
Hospitals (CAHs) for Electronic Health Records 
(EHR) Purposes  Rev #  Issue Date  Subject  Impl Date  CR# 
R2062CP  10/08/2010 Allogeneic Hematopoietic Stem Cell  11/10/2010  7137 
Transplantation (HSCT) for Myelodysplastic 
Syndrome (MDS) 
R2060CP  10/01/2010 Fiscal Year (FY) 2011 Inpatient Prospective  10/04/2010  7134 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS and Inpatient Psychiatric 
Facility (IPF) PPS Changes 
R2057CP  09/17/2010 Fiscal Year (FY) 2011 Inpatient Prospective  10/04/2010  7134 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS and Inpatient Psychiatric 
Facility (IPF) PPS Changes  Rescinded and 
replaced by Transmittal 2060 
R2026CP  08/13/2010 Inpatient Rehabilitation Facility (IRF) Annual  10/04/2010  7076 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2011 
R2028CP  08/13/2010 5010 Implementation--Processing Additional  01/03/2011  7004 
International Classification of Diseases, 9th 
Revision-Clinical Modification (ICD-9-CM) 
Diagnosis and Procedure Codes in Pricer, 
Grouper, and the Medicare Code Editor (MCE) 
R2016CP  07/30/2010 5010 Implementation--Processing Additional  01/03/2011  7004 
International Classification of Diseases, 9th 
Revision-Clinical Modification (ICD-9-CM) 
Diagnosis and Procedure Codes in Pricer, 
Grouper, and the Medicare Code Editor (MCE) 
- Rescinded and replaced by Transmittal 2028 
R2011CP  07/30/2010 Revised Instructions for Reporting Assessment  01/03/2011  7019 
Dates under the Inpatient Rehabilitation Facility 
(IRF), Skilled Nursing Facility (SNF), and 
Swing Bed (SB) Prospective Payment Systems 
(PPS) 
R2009CP  07/29/2010 Implementation of the Interrupted Stay Policy  01/03/2011  7044 
under the Inpatient Psychiatric Facility 
Prospective Payment System (IPF PPS)  
Rescinded and replaced by Transmittal 2083 
R2008CP  07/30/2010 Common Working File (CWF) Override Edit  01/03/2011  6978 
for Kidney Transplant Donor Claims When the 
Kidney Recipient is Deceased 
R1981CP  -6/04/2010  Update-Inpatient Psychiatric Facilities  07/06/2010  6986 
Prospective Payment System (IPF PPS) Rate 
Year 2011  Rev #  Issue Date  Subject  Impl Date  CR# 
R1895CP  01/15/2010 Processing of Non-Covered International  04/05/2010  6547 
Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM) Procedure 
Codes on Inpatient Hospital Claims 
R1890CP  01/08/2010 Processing of Non-Covered International  04/05/2010  6547 
Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM) Procedure 
Codes on Inpatient Hospital Claims  Rescinded 
and replaced by Transmittal 1895 
R1882CP  12/21/2009 January 2010 Update of the Hospital Outpatient  01/04/2010  6751 
Prospective Payment System (OPPS) 
R1871CP  12/11/2009 January 2010 Update of the Hospital Outpatient  01/04/2010  6751 
Prospective Payment System (OPPS) - 
Rescinded and replaced by Transmittal 1882 
R1838CP  10/28/2009 Processing of Non-Covered International  04/05/2010  6547 
Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM) Procedure 
Codes on Inpatient Hospital Claims  Rescinded 
and replaced by Transmittal 1890 
R1828CP  10/09/2009 Verification of Status for all Hospitals  10/05/2009  6564 
Qualifying for Disproportionate Share Hospital 
(DSH) Payments Under 42CFR Section 
412.106(c)(2), also known as the Pickle 
Amendment  Rescinded and replaced by 
Transmittal 2367 
R1816CP  09/17/2009 Fiscal Year (FY) 2010 Inpatient Prospective  10/05/2009  6634 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS, and Inpatient Psychiatric 
Facility (IPF) PPS Changes 
R1815CP  09/09/2009 Fiscal Year (FY) 2010 Inpatient Prospective  10/05/2009  6634 
Payment System (IPPS), Long Term Care 
Hospital (LTCH) PPS, and Inpatient Psychiatric 
Facility (IPF) PPS Changes - Rescinded and 
replaced by Transmittal 1816 
R1811CP  09/04/2009 Verification of Status for all Hospitals  10/05/2009  6564 
Qualifying for Disproportionate Share Hospital 
(DSH) Payments Under 42CFR Section 
412.106(c)(2), also known as the Pickle 
Amendment  Rescinded and replaced by 
Transmittal 1828  Rev #  Issue Date  Subject  Impl Date  CR# 
R1808CP  08/28/2009 Inpatient Rehabilitation Facility (IRF) Annual  10/05/2009  6607 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2010 
R1780CP  07/24/2009 Update-Inpatient Psychiatric Facilities  07/06/2009  6461 
Prospective Payment System (IPF PPS) Rate 
Year 2010 
R1741CP  05/22/2009 Update-Inpatient Psychiatric Facilities  07/06/2009  6461 
Prospective Payment System (IPF PPS) Rate 
Year 2010  Rescinded and replaced by 
Transmittal 1780 
R1702CP  03/13/2009 April 2009 Update of the Hospital Outpatient  04/06/2009  6416 
Prospective Payment System (OPPS) 
R1695CP  03/06/2009 Providers Submitting Information Regarding  07/06/2009  6329 
Medicare Beneficiaries Entitled to Medicare 
Advantage (MA) for Fiscal Year 2006 for the 
Medicare/Supplemental Security Income (SSI) 
Fraction 
R1677CP  02/13/2009 Shipboard Services Billed to the Carrier and  03/13/2009  6327 
Services Not Provided Within the United States.  
Rescinds and fully replaces CR 6217. 
R1649CP  12/18/2009 Procedures for Paying Claims Without Passing  11/25/2008  6252 
Through the Integrated Outpatient Code Editor 
(OCE) or Medicare Code Editor (MCE) 
R1619CP  10/24/2008 Procedures for Paying Claims Without Passing  11/25/2008  6252 
Through the Integrated Outpatient Code Editor 
(OCE) or Medicare Code Editor (MCE) - 
Rescinded and replaced by Transmittal 1649 
R1612CP  10/03/2008 Revision of Interim Payment Methodology for  01/05/2009  5383 
Religious Nonmedical Health Care Institution 
(RNHCI), Clarifying Existing Policy on 
Training of Religious Nonmedical Nursing 
Personnel, Claims Not Billed to the RNHCI 
Specialty Contractor, and Statutory End of 
Coverage for RNHCI Items and Services 
Furnished in the Home 
R1609CP  10/03/2008 Shipboard Services Billed to the Carrier and  01/05/2009  6217 
Services Not Provided Within the United States 
 Rescinded and replaced by CR 6327, 
Transmittal 1677 
R1592CP  09/10/2008 Artificial Hearts  12/01/2008  6185  Rev #  Issue Date  Subject  Impl Date  CR# 
R1585CP  09/05/2008 Inpatient Rehabilitation Facility (IRF) Annual  10/06/2008  6166 
Update: Prospective Payment System (PPS) 
Pricer Changes for FY 2009 
R1583CP  08/29/2008 Artificial Hearts - Replaced by Transmittal 1592 10/06/2008  6185 
R1571CP  08/07/2008 Transition of Responsibility for Medical Review 08/15/2008  5849 
From Quality Improvement Organizations 
(QIOs) 
R1547CP  07/03/2008 Update Long Term Care Hospital (LTCH)  07/07/2008  6114 
Prospective Payment System (PPS) Rate Year 
2009 
R1543CP  06/27/2008 Update-Inpatient Psychiatric Facilities  07/07/2008  6077 
Prospective Payment System (IPF PPS) Rate 
Year 2009 
R1510CP  05/20/2008 Revision to the Inpatient Prospective Payment  10/06/2008  6012 
System (IPPS) Post Acute Transfer Policy for 
Discharges/Transfers to Home Under Care of an 
Organized Home Health Service Organization in 
Anticipation of Covered Skilled Care - 
Rescinded and Not Replaced 
R1509CP  05/16/2008 Adjusting Inpatient Prospective Payment  10/06/2008  5860 
System (IPPS) Reimbursement for Replaced 
Devices Offered Without Cost or With a Credit 
R1498CP  05/02/2008 Adjusting Inpatient Prospective Payment  10/06/2008  5860 
System (IPPS) Reimbursement for Replaced 
Devices Offered Without Cost or With a Credit 
 Replaced by Transmittal 1509 
R1495CP  05/02/2008 Billing Blood and Blood Products  10/06/2008  5867 
R1479CP  03/14/2008 April 2008 Inpatient Rehabilitation Facility  04/07/2008  5965 
(IRF) Prospective Payment System (PPS) Pricer 
Changes 
R1472CP  03/06/2008 Update of Institutional Claims References  04/07/2008  5893 
R1429CP  02/01/2008 Modification of Payment Window Edits in the  07/07/2008  5880 
Common Working File (CWF) to Look at Line 
Item Dates of Service (LIDOS) on Outpatient 
Claims 
R1421CP  01/25/2008 Update of Institutional Claims References -  04/07/2008  5893 
Rescinded and Replaced by Transmittal 1472 
R1341CP  09/21/2007 New Web Site for Approved Transplant Centers  10/22/2007  5724 
R1311CP  07/20/2007 Capturing Medicare Advantage (MA)  01/07/2008  5647 
Beneficiary Days in the Medicare Supplemental  Rev #  Issue Date  Subject  Impl Date  CR# 
Security Income (SSI) Fraction for 
Disproportionate Share Hospital (DSH) Data 
R1268CP  06/15/2007 Update  Long Term Care Hospital Prospective  07/02/2007  5652 
Payment System (LTCH PPS) Rate Year 2008 
R1231CP  04/27/2007 The Use of Benefit's Exhaust (BE) Day as the  12/03/2007  5474 
Day of Discharge for Payment Purposes for the 
Inpatient Psychiatric Facility Prospective 
Payment System (IPF PPS) and Clarification of 
Discharge for Long Term Care Hospitals 
(LTCH) and the Allowance of No-Pay Benefits 
Exhaust Bills (TOB 110) 
R1137CP  12/22/2006 Inpatient Rehabilitation Facility (IRF) Teaching  01/22/2007  5325 
Status Adjustment 
R1135CP  12/22/2006 Correction of Instructions for Calculating IRF  03/22/2007  5303 
Compliance Percentage Threshold 
R1105CP  11/09/2006 Swing Bed Hospital Updates  12/11/2006  5114 
R1101CP  11/03/2006 Inpatient Psychiatric Facility Prospective  12/04/2006  5287 
Payment System (IPF PPS) 
R1072CP  10/06/2006 Inpatient Prospective Payment System (IPPS)  11/06/2006  5286 
Outlier Reconciliation Technical Corrections 
R982CP  06/16/2006 New Use of Hospital Issued Notices of  09/18/2006  5070 
Noncoverage (HINNs) 
R981CP  06/15/2006 Update-Long Term Care Hospital Prospective  07/03/2006  5202 
Payment System (LTCH PPS) Rate Year 2007 
R980CP  06/14/2006 Changes Conforming to CR 3648 Instructions  10/02/2006  4014 
for Therapy Services 
R966CP  05/26/2006 Intestinal and Multi-Visceral Transplantation  06/26/2006  5090 
R957CP  05/19/2006 Pancreas Transplants Alone (PA)  07/03/2006  5093 
R941CP  05/05/2006 Changes Conforming to CR 3648 Instructions  10/02/2006  4014 
for Therapy Services  Rescinded and replaced 
by Transmittal 980 
R938CP  05/05/2006 The Inpatient Rehabilitation Facility Prospective 08/07/2006  5016 
Payment System (IRF PPS) 
R903CP  04/14/2006 Payment for Blood Clotting Factors  07/14/2006  4229 
Administered to Hemophilia Inpatients 
R851CP  02/10/2006 Revisions to Instructions for Contractors Other  05/11/2006  4218 
Than the Religious Nonmedical Health Care 
Institutions Specialty Contractor Regarding 
Claims for Beneficiaries with RNCHI Elections  Rev #  Issue Date  Subject  Impl Date  CR# 
R843CP  02/09/2006 Inpatient Admission Followed by Discharge or  07/03/2006  4202 
Death Prior to Room Assignment 
R836CP  02/03/2006 Inpatient Admission Followed by Discharge or  07/03/2006  4202 
Death Prior to Room Assignment  Rescinded 
and replaced by Transmittal 843 
R817CP  01/20/2006 Update to the Inpatient Provider specific File  04/03/2006  4279 
and the Outpatient Provider Specific File to 
Retain Provider Information 
R803CP  01/03/2006 Administration of Drugs and Biologicals in a  04/03/2006  4234 
Method II Critical Access Hospital (CAH)-
Rescinds and Replaces CR 3911 
R776CP  12/06/2005 Stem Cell Transplantation  01/03/2006  4173 
R771CP  12/02/2005 Revisions to Pub. 100-04, Medicare Claims  01/03/2006  4181 
Processing Manual in Preparation for the 
National Provider Identifier 
R768CP  12/02/2005 Lung Volume Reduction Surgery  03/02/2006  4149 
R766CP  12/02/2005 Stem Cell Transplantation - Rescinded and  01/03/2006  4173 
replaced by Transmittal 776 
R714CP  10/21/2005 Payment Window Edit Corrections within the  04/03/2006  4089 
Common Working File (CWF) 
R707CP  10/12/2005 IPPS Outlier Reconciliation  11/07/2005  3966 
R703CP  10/07/2005 IPPS Outlier Reconciliation  Rescinded and  11/07/2005  3966 
replaced by Transmittal 703 
R698CP  10/07/2005 The Supplemental Security Income (SSI)  11/07/2005  4065 
Medicare Beneficiary Data for Fiscal Year 2006 
for the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS) 
R693CP  09/30/2005 Updates to the IRF and SNF Provider Specific  10/31/2005  4099 
File and Changes in Inpatient Rehabilitation 
Facility Prospective Payment System For FY 
2006 
R668CP  09/02/2005 Enforcement of Hospital Inpatient Bundling:  01/03/2006  3933 
Carrier Denial of Ambulance Claims during an 
Inpatient Stay 
R654CP  08/19/2005 Services Not Provided Within United States  11/17/2005  3781 
R646CP  08/12/2005 Update to the Inpatient Provider Specific File  01/03/2006  3940 
(PSF) and the Outpatient PSF to Retain Provider 
Information  Rescinded and replaced by 
Transmittal 817  Rev #  Issue Date  Subject  Impl Date  CR# 
R632CP  07/29/2005 Billing and Claims Processing Instructions for  01/03/2006  3949 
Claims Subject to Expedited Determinations 
R622CP  07/29/2005 Enforcement of Hospital Inpatient Bundling:  01/03/2006  3933 
Carrier Denial of Ambulance Claims during an 
Inpatient Stay 
R619CP  07/29/2005 Late IRF-PAI Data Submission Penalty Protocol 01/03/2006  3885 
Within the Inpatient Rehabilitation Facility 
Prospective Payment System 
R594CP  06/24/2005 Preliminary Instructions: Expedited  07/01/2005  3903 
Determinations/Reviews for Original Medicare 
R577CP  06/03/2005 Preliminary Instructions: Expedited  07/01/2005  3903 
Determinations/Reviews for Original Medicare 
R530CP  04/22/2005 Billing Requirements for Physician Services  07/05/2005  3800 
Rendered in Method II Critical Access Hospitals 
(CAHs) 
R526CP  04/15/2005 Updated Requirements for Autologous Stem  05/16/2005  3797 
Cell Transplantation (AuSCT) 
R478CP  02/18/2005 Clarification of the Verification Process to be  03/21/2005  3704 
Used to Determine if the Inpatient 
Rehabilitation Facility Meets The IRF 
Classification Criteria 
R465CP  02/04/2005 Billing Requirements for Physician Services in  07/05/2005  3559 
Method II Critical Access Hospitals (CAHs) 
R392CP  12/10/2004 The Supplemental Security Income (SSI)  01/10/2005  3567 
Medicare Beneficiary Data for Fiscal Year 2003 
for Inpatient Rehabilitation Facility Prospective 
Payment System (IRF PPS) 
R384CP  12/01/2004 Inpatient Psychiatric Facility Prospective  04/04/2005  3541 
Payment System (IPF PPS) 
R383CP  11/26/2004 Inpatient Psychiatric Facility Prospective  04/04/2005  3541 
Payment System (IPF PPS) Replaced by 
Transmittal 384. 
R379CP  11/26/2004 Low Osmolar Contrast Material/Laboratory  04/04/2005  3439 
Tests/Payment for Inpatient Services Furnished 
by a Critical Access Hospital (CAH) 
R357CP  11/05/2004 Implementation of Coverage of Religious  04/04/2005  3529 
Nonmedical Health Care Institution Items and 
Services Furnished in the Home, MMA section 
706  Rev #  Issue Date  Subject  Impl Date  CR# 
R347CP  10/29/2004 Inpatient Rehabilitation Facility (IRF)  11/29/2004  3503 
Classification Requirements 
R291CP  08/27/2004 Use of Transmission Date in the Service  01/03/2005  3433 
Date/Assessment Date Field for Inpatient 
Rehabilitation Facility Prospective Payment 
System (IRF PPS) Claims 
R285CP  08/27/2004 Addition of Physician Assistants, Nurse  01/03/2005  3228 
Practitioners and Clinical Nurse Specialists as 
Emergency On-Call Providers for Critical 
Access Hospitals (CAHs) 
R276CP  08/13/2004 Further Information Related to CR 3175,  01/03/2005  3399 
Distinct Part Units of Critical Access Hospitals 
(CAHs) 
R267CP  07/30/2004 Crossover Patients in New Long Term Care  01/03/2005  3391 
Hospitals (LTCH) 
R266CP  07/30/2004 Revision of Common Working File (CWF)  01/03/2005  3389 
Editing for Same-Day, Same- Provider Acute 
Care Readmissions 
R263CP  07/30/2004 Inpatient Rehabilitation Facility (IRF) Annual  10/04/2004  3378 
Update: Prospective Payment System (PPS) 
Pricer for FY 2005 
R231CP  07/23/2004 Indian Health Service or Tribal Critical Access  01/03/2005  3235 
Hospitals Billing for Professional Services 
R221CP  06/25/2004 Medicare IRF Classification Requirements  07/01/2004  3334 
R208CP  06/18/2004 Long Term Care Hospital Prospective Payment  07/06/2004  3335 
System (LTCH PPS) Fiscal Year 2005-Update 
R161CP  04/30/2004 Informing Beneficiaries about which local  10/04/2004  3089 
Medical Review Policy (LMRP) and /or Local 
Coverage Determination (LCD) and o/or 
National Coverage Determination (NCD) is 
associated with their claim denial - rescinded 
and replaced with Pub. 100-08, Transmittal 75. 
R156CP  04/30/2004 Clarification of payments and billing procedures 10/04/2004  3200 
for hospitals subject to the Maryland waiver 
R152CP  04/30/2004 Inclusion of Core-Based Statistical Area  10/04/2004  3272 
(CBSA) Data Elements to the Provider Specific 
Files 
R144CP  04/23/2004 Distinct Part Units for Critical Access Hospitals  10/04/2004  3175 
R087CP  02/06/2004 Expansion of Transfer Policy Under Inpatient  07/06/2004  2934 
Payment Prospective System  Rev #  Issue Date  Subject  Impl Date  CR# 
R077CP  02/06/2004 Change in Methodology for Determining  03/08/2004  2998 
Payment for Outliers 
R073CP  01/23/2004 MCE and IPPS Transfers Between Hospitals  N/A  2716 & 
2891 
R070CP  01/23/2004 Hospital Operating Payments Under PPS  02/23/2004  3038 
R068CP  01/16/2004 New Requirements for Critical Access  04/05/2004  3052 
Hospitals. These changes have been established 
with the "Medicare Prescription Drug, 
Improvement, and Modernization Act" 
(MPDIMA) of 2003, Pub.L. 108-173 
R039CP  12/08/2003 Low-Income Provides Adjustment: The  01/05/2004  2978 
Supplemental Security Income Medicare 
Beneficiary Data for Fiscal Year 2002 for IRFs 
Paid Under the PPS 
R026CP  11/04/2003 Lung Volume Reduction Surgery  01/05/2004  2688 
R010CP  10/17/2003 Heart Transplants  10/01/2003  2958 
R001CP  10/01/2003 Initial Publication of Manual  NA  NA 
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