Social Security Act §1861

(i)the drug hasbeen approved by the Food and Drug Administration; and(ii)(I)such useis supported by one or more citations which are included (or approvedfor inclusion) in one or more of the following compendia: the AmericanHospital Formulary Service-Drug Information, the American MedicalAssociation Drug Evaluations, the United States Pharmacopoeia-DrugInformation, and other authoritative compendia as identified by theSecretary, unless the Secretary has determined that the use is notmedically appropriate or the use is identified as not indicated inone or more such compendia, or(II)the carrierinvolved determines, based upon guidance provided by the Secretaryto carriers for determining accepted uses of drugs, that such useis medically accepted based on supportive clinical evidence in peerreviewed m edical literature appearing in publications which havebeen identified for purposes of this subclause by the Secretary.The Secretary may revise the list of compendia in clause (ii)(I)as is appropriate for identifying medically accepted indications fordrugs. On and after January 1, 2010, no compendia may be includedon the list of compendia under this subparagraph unless the compendiahas a publicly transparent process for evaluating therapies and foridentifying potential conflicts of interests.Provider of Services(u)The term provider of services means a hospital, critical access hospital, skilled nursing facility,comprehensive outpatient rehabilitation facility, home health agency,hospice program, or, for purposes of section 1814(g) and section 1835(e), a fund.Reasonable Cost(v)(1)(A)The reasonablecost of any services shall be the cost actually incurred, excludingtherefrom any part of incurred cost found to be unnecessary in theefficient delivery of needed health services, and shall be determinedin accordance with regulations establishing the method or methodsto be used, and the items to be included, in determining such costsfor various types or classes of institutions, agencies, and services;except that in any case to which paragraph (2) or (3) applies, theamount of the payment determined under such paragraph with respectto the services involved shall be considered the reasonable cost ofsuch services. In prescribing the regulations referred to in the precedingsentence, the Secretary shall consider, among other things, the principlesgenerally applied by national organizations or established prepaymentorganizations (which have developed such principles) in computingthe amount of payment, to be made by persons other than the recipientsof services, to providers of services on account of services furnishedto such recipients by such providers. Such regulations may providefor determination of the costs of services on a per diem, per unit,per capita, or other basis, may provide for using different methodsin different circumstances, may provide for the use of estimates ofcosts of particular items or services, may provide for the establishmentof limits on the direct or indirect overall incurred costs or incurredcosts of specific items or services or groups of items or servicesto be recognized as reasonable based on estimates of the costs necessaryin the efficient delivery of needed health services to individualscovered by the insurance programs established under this title, andmay provide for the use of charges or a percentage of charges wherethis method reasonably reflects the costs. Such regulations shall(i) take into account both direct and indirect costs of providersof services (excluding therefrom any such costs, including standbycosts, which are determined in accordance with regulations to be unnecessaryin the efficient delivery of services covered by the insurance programsestablished under this title) in order that, under the methods ofdetermining costs, the necessary costs of efficiently delivering coveredservices to individuals covered by the insurance programs establishedby this title will not be borne by individuals not so covered, andthe costs with respect to individuals not so covered will not be borneby such insurance programs, and (ii) provide for the making of suitableretroactive corrective adjustments where, for a provider of servicesfor any fiscal period, the aggregate reimbursement produced by themethods of determining costs proves to be either inadequate or excessive.(B)In the caseof extended care services, the regulations under subparagraph (A)shall not include provision for specific recognition of a return onequity capital.(C)Where a hospitalhas an arrangement with a medical school under which the faculty ofsuch school provides services at such hospital, an amount not in excessof the reasonable cost of such services to the medical school shallbe included in determining the reasonable cost to the hospital offurnishing services(i)for which paymentmay be made under part A, but only if(I)paymentfor such services as furnished under such arrangement would be madeunder part A to the hospital had such services been furnished by thehospital, and(II)such hospitalpays to the medical school at least the reasonable cost of such servicesto the medical school, or(ii)for which paymentmay be made under part B, but only if such hospital pays to the medicalschool at least the reasonable cost of such services to the medicalschool.(D)Where (i)physicians furnish services which are either inpatient hospital services(including services in conjunction with the teaching programs of suchhospital) by reason of paragraph (7) of subsection (b) or for whichentitlement exists by reason of clause (II) of section 1832(a)(2)(B)(i), and (ii) such hospital (or medical school under arrangement withsuch hospital) incurs no actual cost in the furnishing of such services,the reasonable cost of such services shall (under regulations of theSecretary) be deemed to be the cost such hospital or medical schoolwould have incurred had it paid a salary to such physicians renderingsuch services approximately equivalent to the average salary paidto all physicians employed by such hospital (or if such employmentdoes not exist, or is minimal in such hospital, by similar hospitalsin a geographic area of sufficient size to assure reasonable inclusionof sufficient physicians in development of such average salary).(E)Such regulationsmay, in the case of skilled nursing facilities in any State, providefor the use of rates, developed by the State in which such facilitiesare located, for the payment of the cost of skilled nursing facilityservices furnished under the States plan approved under titleXIX (and such rates may be increased by the Secretary on a class orsize of institution or on a geographical basis by a percentage factornot in excess of 10 percent to take into account determinable itemsor services or other requirements under this title not otherwise includedin the computation of such State rates), if the Secretary finds thatsuch rates are reasonably related to (but not necessarily limitedto) analyses undertaken by such State of costs of care in comparablefacilities in such State. Notwithstanding the previous sentence, suchregulations with respect to skilled nursing facilities shall takeinto account (in a manner consistent with subparagraph (A) and basedon patient-days of services furnished) the costs (including the costsof services required to attain or maintain the highest practicablephysical, mental, and psychosocial well-being of each resident eligiblefor benefits under this title) of such facilities complying with therequirements of subsections (b), (c), and (d) of section 1819 (including thecosts of conducting nurse aide training and competency evaluationprograms and competency evaluation programs).(F)Such regulationsshall require each provider of services (other than a fund) to makereports to the Secretary of information described in section 1121(a)in accordancewith the uniform reporting system (established under such section)for that type of provider.(G)(i)In any case inwhich a hospital provides inpatient services to an individual thatwould constitute post-hospital extended care services if providedby a skilled nursing facility and a quality improvement[508]organization (or, in the absence ofsuch a qualified organization, the Secretary or such agent as theSecretary may designate) determines that inpatient hospital servicesfor the individual are not medically necessary but post-hospital extendedcare services for the individual are medically necessary and suchextended care services are not otherwise available to the individual(as determined in accordance with criteria established by the Secretary)at the time of such determination, payment for such services providedto the individual shall continue to be made under this title at thepayment rate described in clause (ii) during the period in which(I)such post-hospitalextended care services for the individual are medically necessaryand not otherwise available to the individual (as so determined),(II)inpatienthospital services for the individual are not medically necessary,and(III)theindividual is entitled to have payment made for post-hospital extendedcare services under this title,except that if the Secretary determines that there is not anexcess of hospital beds in such hospital and (subject to clause (iv))there is not an excess of hospital beds in the area of such hospital,such payment shall be made (during such period) on the basis of theamount otherwise payable under part A with respect to inpatient hospitalservices.(ii)(I)Exceptas provided in subclause (II), the payment rate referred to in clause(i) is a rate equal to the estimated adjusted State-wide average rateper patient-day paid for services provided in skilled nursing facilitiesunder the State plan approved under title XIX for the State in whichsuch hospital is located, or, if the State in which the hospital islocated does not have a State plan approved under title XIX, the estimatedadjusted State-wide average allowable costs per patient-day for extendedcare services under this title in that State.(II)If ahospital has a unit which is a skilled nursing facility, the paymentrate referred to in clause (i) for the hospital is a rate equal tothe lesser of the rate described in subclause (I) or the allowablecosts in effect under this title for extended care services providedto patients of such unit.(iii)Any day onwhich an individual receives inpatient services for which paymentis made under this subparagraph shall, for purposes of this Act (otherthan this subparagraph), be deemed to be a day on which the individualreceived inpatient hospital services.(iv)In determiningunder clause (i), in the case of a public hospital, whether or notthere is an excess of hospital beds in the area of such hospital,such determination shall be made on the basis of only the public hospitals(including the hospital) which are in the area of the hospital andwhich are under common ownership with that hospital.(H)In determiningsuch reasonable cost with respect to home health agencies, the Secretarymay not include(i)any costs incurredin connection with bonding or establishing an escrow account by anysuch agency as a result of the surety bond requirement described insubsection (o)(7) and the financial security requirement describedin subsection (o)(8);(ii)in the caseof home health agencies to which the surety bond requirement describedin subsection (o)(7) and the financial security requirement describedin subsection (o)(8) apply, any costs attributed to interest chargedsuch an agency in connection with amounts borrowed by the agency torepay overpayments made under this title to the agency, except thatsuch costs may be included in reasonable cost if the Secretary determinesthat the agency was acting in good faith in borrowing the amounts;(iii)in the caseof contracts entered into by a home health agency after the date ofthe enactment of this subparagraph[509]for the purposeof having services furnished for or on behalf of such agency, anycost incurred by such agency pursuant to any such contract which isentered into for a period exceeding five years; and(iv)in the caseof contracts entered into by a home health agency before the dateof the enactment of this subparagraph[510]for thepurpose of having services furnished for or on behalf of such agency,any cost incurred by such agency pursuant to any such contract, whichdetermines the amount payable by the home health agency on the basisof a percentage of the agencys reimbursement or claim for reimbursementfor services furnished by the agency, to the extent that such costexceeds the reasonable value of the services furnished on behalf ofsuch agency.(I)In determiningsuch reasonable cost, the Secretary may not include any costs incurredby a provider with respect to any services furnished in connectionwith matters for which payment may be made under this title and furnishedpursuant to a contract between the provider and any of its subcontractorswhich is entered into after the date of the enactment of this subparagraph[511]and the value or cost of which is $10,000 or more overa twelve-month period unless the contract contains a clause to theeffect that(i)until the expirationof four years after the furnishing of such services pursuant to suchcontract, the subcontractor shall make available, upon written requestby the Secretary, or upon request by the Comptroller General, or anyof their duly authorized representatives, the contract, and books,documents and records of such subcontractor that are necessary tocertify the nature and extent of such costs, and(ii)if the subcontractorcarries out any of the duties of the contract through a subcontract,with a value or cost of $10,000 or more over a twelve-month period,with a related organization, such subcontract shall contain a clauseto the effect that until the expiration of four years after the furnishingof such services pursuant to such subcontract, the related organizationshall make available, upon written request by the Secretary, or uponrequest by the Comptroller General, or any of their duly authorizedrepresentatives, the subcontract, and books, documents and recordsof such organization that are necessary to verify the nature and extentof such costs.