(Medicare Claims Processing Manual)

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 region al 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 acqui sition 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 ar e 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 t he 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 unde r 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, cata strophic 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 waive r 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 determi ne 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 ass ignment 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 perce ntage 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 statut e, 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 S ecretary) 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 publi shes the wage data, and allows hospitals an opportunity to review and request corrections to the data, before the wage index is finalized.