I
105TH CONGRESS
2D SESSION
H. R. 3780
To amend title XVIII of the Social Security Act to provide for a prospective
payment system for services furnished by psychiatric hospitals under
the Medicare Program.
IN THE HOUSE OF REPRESENTATIVES
APRIL 30, 1998
Mr. MCCRERY (for himself and Mr. CARDIN) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend title XVIII of the Social Security Act to provide
for a prospective payment system for services furnished
by psychiatric hospitals under the Medicare Program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Medicare Psychiatric
Hospital Prospective Payment System Act of 1998’’.
SEC. 2. MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR
PSYCHIATRIC FACILITIES.
(a) ESTABLISHMENT
OF PROSPECTIVE PAYMENT
SYSTEM.—Section 1886 of the Social Security Act (42
U.S.C. 1395ww) is amended by adding at the end the fol-
lowing:
‘‘(l) PROSPECTIVE PAYMENT SYSTEM
FOR INPA-
TIENT PSYCHIATRIC SERVICES.—
‘‘(1) AMOUNT OF PAYMENT.—
‘‘(A) DURING TRANSITION PERIOD.—Not-
withstanding section 1814(b), but subject to the
provisions of section 1813, the amount of pay-
ment with respect to the operating and capital-
related costs of inpatient hospital services of a
psychiatric facility (as defined in paragraph
(7)(C)) for each day of services furnished in a
cost reporting period beginning on or after Oc-
tober 1, 2000, and before October 1, 2003, is
equal to the sum of—
‘‘(i) the TEFRA percentage (as de-
fined in paragraph (7)(D)) of the facility-
specific per diem rate (determined under
paragraph (2)); and
‘‘(ii) the PPS percentage (as defined
in paragraph (7)(B)) of the applicable
Federal per diem rate (determined under
paragraph (3)).
‘‘(B) UNDER FULLY IMPLEMENTED SYS-
TEM.—Notwithstanding section 1814(b), but
subject to the provisions of section 1813, the
amount of payment with respect to the operat-
ing and capital-related costs of inpatient hos-
pital services of a psychiatric facility for each
day of services furnished in a cost reporting pe-
riod beginning on or after October 1, 2003, is
equal to the applicable Federal per diem rate
determined under paragraph (3) for the facility
for the fiscal year in which the day of services
occurs.
‘‘(C) NEW FACILITIES.—In the case of a
psychiatric facility that does not have a base
fiscal year (as defined in paragraph (7)(A)),
payment for the operating and capital-related
costs of inpatient hospital services shall be
made under this subsection using the applicable
Federal per diem rate.
‘‘(2) DETERMINATION
OF
FACILITY-SPECIFIC
PER DIEM RATES.—
‘‘(A) BASE YEAR.—The Secretary shall de-
termine, on a per diem basis, the allowable op-
erating and capital-related costs of inpatient
hospital services for each psychiatric facility for
its cost reporting period (if any) beginning in
the base fiscal year (as defined in paragraph
(7)(A)), such costs determined as if subsection
(b)(8) did not apply.
‘‘(B) UPDATING.—The Secretary shall up-
date the amount determined under subpara-
graph (A) for each cost reporting period after
the cost reporting period beginning in the base
fiscal year and before October 1, 2003, by a
factor equal to the market basket percentage
increase.
‘‘(3) DETERMINATION OF THE FEDERAL PER
DIEM RATE.—
‘‘(A) BASE YEAR.—The Secretary shall de-
termine, on a per diem basis, the allowable op-
erating and capital-related costs of inpatient
hospital services for each psychiatric facility for
its cost reporting period (if any) beginning in
the base fiscal year (as defined in paragraph
(7)(A)), such costs determined as if subsection
(b)(8) did not apply.
‘‘(B) UPDATING TO FIRST FISCAL YEAR.—
The Secretary shall update the amount deter-
mined under subparagraph (A) for each cost re-
porting period up to the first cost reporting pe-
riod to which this subsection applies by a factor
equal to the market basket percentage increase.
‘‘(C) COMPUTATION
OF
STANDARDIZED
PER DIEM RATE.—The Secretary shall stand-
ardize the amount determined under subpara-
graph (B) for each facility by—
‘‘(i) adjusting for variations among
facilities by area in the average facility
wage level per diem; and
‘‘(ii) adjusting for variations in case
mix per diem among facilities (based on
the patient classification system estab-
lished by the Secretary under paragraph
(4)).
‘‘(D) COMPUTATION OF WEIGHTED AVER-
AGE PER DIEM RATES.—
‘‘(i) SEPARATE
RATES
FOR
URBAN
AND RURAL AREAS.—Based on the stand-
ardized amounts determined under sub-
paragraph (C) for each facility, the Sec-
retary shall compute a separate weighted
average per diem rate—
‘‘(I) for all psychiatric facilities
located in an urban area (as defined
in subsection (d)(2)(D)); and
‘‘(II) for all psychiatric facilities
located in a rural area (as defined in
subsection (d)(2)(D)).
‘‘(ii) FOR HOSPITALS AND UNITS.—
Subject to paragraph (7)(C), in the areas
referred to in clause (i) the Secretary may
compute a separate weighted average per
diem rate for—
‘‘(I) psychiatric hospitals; and
‘‘(II) psychiatric units described
in the matter following clause (v) of
subsection (d)(1)(B).
If the Secretary establishes separate aver-
age weighted per diem rates under this
clause, the Secretary shall also establish
separate average per diem rates for facili-
ties in such categories that are owned and
operated by an agency or instrumentality
of Federal, State, or local government and
for facilities other than such facilities.
‘‘(iii) WEIGHTED AVERAGE.—In com-
puting the weighted averages under clauses
(i) and (ii), the standardized per diem
amount for each facility shall be weighted
for each facility by the number of days of
inpatient hospital services furnished during
its cost reporting period beginning in the
base fiscal year.
‘‘(E) UPDATING.—The weighted average
per diem rates determined under subparagraph
(D) shall be updated for each fiscal year after
the first fiscal year to which this subsection ap-
plies by a factor equal to the market basket
percentage increase.
‘‘(F) DETERMINATION
OF
FEDERAL
PER
DIEM RATE.—
‘‘(i) IN
GENERAL.—The Secretary
shall compute for each psychiatric facility
for each fiscal year (beginning with fiscal
year 2001) a Federal per diem rate equal
to the applicable weighted average per
diem rate determined under subparagraph
(E), adjusted for—
‘‘(I) variations among facilities
by area in the average facility wage
level per diem;
‘‘(II) variations in case mix per
diem among facilities (based on the
patient classification system estab-
lished by the Secretary under para-
graph (4)); and
‘‘(III) variations among facilities
in the proportion of low-income pa-
tients served by the facility.
‘‘(ii) OTHER ADJUSTMENTS.—In com-
puting the Federal per diem rates under
this subparagraph, the Secretary may ad-
just for outlier cases, the indirect costs of
medical education, and such other factors
as the Secretary determines to be appro-
priate.
‘‘(iii) BUDGET NEUTRALITY.—The ad-
justments 
specified 
in 
clauses 
(i)(I),
(i)(III), and (ii) shall be implemented in a
manner that does not result in aggregate
payments under this subsection that are
greater or less than those aggregate pay-
ments that otherwise would have been
made if such adjustments did not apply.
‘‘(4) ESTABLISHMENT OF PATIENT CLASSIFICA-
TION SYSTEM.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish—
‘‘(i) classes of patients of psychiatric
facilities (in this paragraph referred to as
‘case mix groups’), based on such factors
as the Secretary determines to be appro-
priate; and
‘‘(ii) a method of classifying specific
patients in psychiatric facilities within
these groups.
‘‘(B) WEIGHTING
FACTORS.—For each
case mix group, the Secretary shall assign an
appropriate weighting factor that reflects the
relative facility resources used with respect to
patients classified within that group compared
to patients classified within other such groups.
‘‘(5) DATA
COLLECTION; UTILIZATION
MON-
ITORING.—
‘‘(A) DATA COLLECTION.—The Secretary
may require psychiatric facilities to submit such
data as is necessary to implement the system
established under this subsection.
‘‘(B) 
UTILIZATION
MONITORING.—The
Secretary shall monitor changes in the utiliza-
tion of inpatient hospital services furnished by
psychiatric facilities under the system estab-
lished under this subsection and report to the
appropriate committees of Congress on such
changes, together with recommendations for
legislation (if any) that is needed to address un-
warranted changes in such utilization.
‘‘(6) SPECIAL
ADJUSTMENTS.—Notwithstand-
ing the preceding provisions of this subsection, the
Secretary shall reduce aggregate payment amounts
that would otherwise be payable under this sub-
section for inpatient hospital services furnished by a
psychiatric facility during cost reporting periods be-
ginning in fiscal years 2001 and 2002 by such uni-
form percentage as is necessary to assure that pay-
ments under this subsection for such cost reporting
periods are reduced by an amount that is equal to
the sum of—
‘‘(A) the aggregate increase in payments
under this title during fiscal years 1998, 1999,
and 2000, that is attributable to the operation
of subsection (b)(8); and
‘‘(B) the aggregate increase in payments
under this title during fiscal years 2001 and
2002 that is attributable to the application of
the market basket percentage increase under
paragraphs (2)(B) and (3)(E) of this subsection
in lieu of the provisions of subclauses (VI) and
(VII) of subsection (b)(3)(B)(ii).
Reductions under this paragraph shall not affect
computation of the amounts payable under this sub-
section for cost reporting periods beginning in fiscal
years after fiscal year 2002.
‘‘(7) DEFINITIONS.—For purposes of this sub-
section:
‘‘(A) The term ‘base fiscal year’ means,
with respect to a hospital, the most recent fiscal
year ending before the date of the enactment of
this subsection for which audited cost report
data are available.
‘‘(B) The term ‘PPS percentage’ means—
‘‘(i) with respect to cost reporting pe-
riods beginning on or after October 1,
2000, and before October 1, 2001, 25 per-
cent;
‘‘(ii) with respect to cost reporting pe-
riods beginning on or after October 1,
2001, and before October 1, 2002, 50 per-
cent; and
‘‘(iii) with respect to cost reporting
periods beginning on or after October 1,
2002, and before October 1, 2003, 75 per-
cent.
‘‘(C) 
The 
term 
‘psychiatric 
facility’
means—
‘‘(i) a psychiatric hospital; and
‘‘(ii) a psychiatric unit described in
the matter following clause (v) of sub-
section (d)(1)(B).
‘‘(D) The term ‘TEFRA percentage’
means—
‘‘(i) with respect to cost reporting pe-
riods beginning on or after October 1,
2000, and before October 1, 2001, 75 per-
cent;
‘‘(ii) with respect to cost reporting pe-
riods beginning on or after October 1,
2001, and before October 1, 2002, 50 per-
cent; and
‘‘(iii) with respect to cost reporting
periods beginning on or after October 1,
2002, and before October 1, 2003, 25 per-
cent.’’.
(b) LIMIT
ON
REDUCTIONS
UNDER
BALANCED
BUDGET ACT.—Section 1886(b) of the Social Security Act
(42 U.S.C. 1395ww(b)) is amended by adding at the end
the following:
‘‘(8)(A) Notwithstanding the amendments made by
sections 4411, 4414, 4415, and 4416 of the Balanced
Budget Act of 1997, in the case of a psychiatric facility
(as defined in subparagraph (B)(ii)), the amount of pay-
ment for the operating costs of inpatient hospital services
for cost reporting periods beginning on or after October
1, 1997, and before October 1, 2000, shall not be less than
the applicable percentage (as defined in subparagraph
(B)(i)) of the amount that would have been paid for such
costs if such amendments did not apply.
‘‘(B) For purposes of this paragraph:
‘‘(i) The term ‘applicable percentage’ means—
‘‘(I) 95 percent for cost reporting periods
beginning on or after October 1, 1997, and be-
fore October 1, 1998;
‘‘(II) 92.5 percent for cost reporting peri-
ods beginning on or after October 1, 1998, and
before October 1, 1999; and
‘‘(III) 90 percent for cost reporting periods
beginning on or after October 1, 1999, and be-
fore October 1, 2000.
‘‘(ii) The term ‘psychiatric facility’ means—
‘‘(I) a psychiatric hospital; and
‘‘(II) a psychiatric unit described in the
matter following clause (v) of subsection
(d)(1)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by
subsections (a) and (b) shall apply as if included in the
enactment of the Balanced Budget Act of 1997.
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