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

Part 2 of the template estimates capital reimbursement under the PPS method. Line 19 represents the blended rate, that is, in year one, 90 percent hospital-specific and 10 percent Federal. Some hospitals may want to incorporate an amount for outlier payments. If an outlier amount is applied, it should be remembered that the outlier payment should be applied to the Federal portion only.

Estimating reimbursement under this method is a rather straightforward process of multiplying the blended rate by the case mix, which in turn is multiplied by the number of discharges. The resulting reimbursement is then compared to the floor and the hospital is reimbursed the greater amount. It is important to remember that if it appears the floor reimbursement is the greater amount, the floor reimbursement is cumulative of all years the hospital is subject to PPS for capital.

The estimate of capital cost reimbursement for hospitals reimbursed under the hold-harmless method (part 3) is not as straightforward. The hospital must begin with the adjusted Federal rate (line 29) which should be provided by the fiscal intermediary. This amount is multiplied by the ratio of new Medicare inpatient capital cost to total Medicare inpatient capital cost (line 32). This amount is multiplied by the Medicare discharges and the Medicare case mix to estimate the total Federal reimbursement (line 39). The applicable hold-harmless percentage (85 percent or 100 percent) is multiplied by the old capital cost (line 40) as taken from part 1, line 16A to arrive at the cost reimbursement (line 42). Total capital reimbursement under the hold-harmless method is the cost reimbursement calculated on line 42 plus the Federal reimbursement calculated on line 39. As in the PPS method (part 2), this total is compared to the floor computed in part 1, line 18C and the hospital is reimbursed the greater amount. Again, if reimbursed at the floor amount, it must be remembered that the floor is cumulative of all years subject to PPS for capital.

Conclusion

During the initial years of Medicare's prospective payment system for capital, hospitals may have the opportunities to enhance their Medicare capital cost reimbursement. These potential opportunities should be evaluated on an ongoing basis by all hospitals subject to PPS for capital.

S. Ray Coffey is national director, health financing resources, for Quorum Health Group, Brentwood, Tenn., and a member of HFMA's Tennessee Chapter.