Retroactive reimbursement under HCFA's PPS for capital - Health Care Financing Administration's Prospective Payment System for capital reimbursement; reimbursement opportunities for hospitals

Healthcare Financial Management, Oct, 1993 by S. Ray Coffey

Regulations provide that upon request by a hospital paid under the PPS method, the intermediary may redetermine the hospital-specific rate to reflect an increase in old capital cost. There are a few basic principles concerning redeterminations. First, only those hospitals reimbursed under the PPS method can benefit from such a request. Hospitals reimbursed under the hold-harmless method are already being cost reimbursed for old capital cost.

Second, old capital cost must increase in comparison to the base year before a redetermination will be granted. For example, in the change of ownership scenario given earlier, the old capital cost increased in the aggregate from $250,000 in the capital base year to $400,000 in a subsequent year.

If a subsequent year's old capital cost exceeds the base-year capital cost, the hospital's reimbursement will be based on the subsequent year's old capital cost regardless of the effect per discharge created by a change in census.

Third, a hospital reimbursed under the PPS method can benefit from a redetermination by obtaining an increase in the hospital-specific portion of the hospital-specific/Federal blended rate. If the redetermination indicates an old capital cost per discharge in excess of the Federal rate, the hospital can qualify to be reimbursed under the hold-harmless method. However, these low-cost hospitals can obtain the benefit of an increase in the hospital-specific portion of their blended rate when the redetermination does not result in a hospital-specific rate exceeding the Federal rate.

Fourth, a redetermination may be requested based on any cost reporting period after the base year period through fiscal 1994 or the first year obligated capital qualifying as old capital has been placed into patient care. For many hospitals the request will be based on the period following the base year period prior to becoming subject to PPS for capital. For example, assume a hospital with a March year-end had a base year of March 31, 1990. This hospital's capital acquisitions through December 31, 1990, qualified as old capital cost. For the year that ended March 31, 1991, the hospital may not have taken a full year of depreciation on all old capital assets. The year ended March 31, 1992, includes a full year depreciation and interest on all old capital assets, thus being the year qualifying for a redetermination. Obviously, this would not be true if additional assets were not acquired during the months between the end of the base year and December 31, 1990, or if substantial assets were fully depreciated in the base year.

Finally, a hospital submitting a redetermination request must submit, along with the cost report for the period it is requesting as its new base year, an estimate indicating that its new hospital-specific rate would be higher than its current rate. HCFA's final 1993 rule requires intermediaries to deny a hospital's request if the redetermined rate results in a lower rate.

Indications are that intermediaries are slow to approve these redetermination requests and accordingly slow to adjust interim rates.