Opinion ID: 767907
Heading Depth: 5
Heading Rank: 1

Heading: The Provision

Text: 22 In July 1994, HCFA established a new methodology for handling exception requests--the methodology which St. Francischallenges in this case 6 . The methodology is set forth in Transmittal No. 378, PRM § 2534.5 (Determination of Reasonable Costs in Excess of Cost Limit or 112 percent of Mean Cost) and pertains to cost reporting periods after July 1, 1984: 23 In determining reasonable cost, the provider's per diem costs in excess of the cost limit are subject to a test for low occupancy and are compared to per diem costs of a peer group 7 of similarly classified providers. 24 ... With cost reporting periods beginning prior to July 1, 1984, for each free-standing group and each hospital-based group, each cost center's ratio is applied to the cost limit [i.e., the RCL] applicable to the cost reporting period for which the exception is requested. For each hospital-based group with cost reporting periods beginning on or after July 1, 1984, the ratio is applied to 112% of the group's mean per diem cost (not the cost limit), adjusted by the wage index and cost reporting year adjustment factor applicable to the cost reporting period for which the exception is requested. 25 The SNF's actual per diem cost... is compared to the appropriate component of the disaggregated cost limit or 112 percent of the hospital-based mean per diem cost. If the SNF's per diem cost exceeds the peer group per diem cost for any cost center, the higher cost must be explained. Excess per diem costs which are not attributable to the circumstances upon which the exception is requested and cannot be justified may result in either a reduction in the amount of the exception or a denial of the exception. 26 PRM § 2534.5 (emphasis added). In short, for HB-SNF costs above the RCL, the methodology permits reimbursement for only those costs in excess of 112% of the mean per diem cost which are attributable to the HB-SNF's atypical services. The approach creates a gap between the HB-SNF RCL and the 112% level within which HB-SNFs cannot recover any of their costs above the RCL. It is the propriety of this gap, as well as the consequences it has on facilities like St. Francis which happen to fall within it, which is at issue in this case. 27