Capital PPS Exception Payments

A3-3611.7, 42 CFR 412.348

Exception payments are provided for hospitals with inordinately high levels of capital obligations. Payment is made to a hospital paid under either the fully prospective payment methodology, or the hold-harmless payment methodology. Exception payments will expire at the end of the 10-year transition period. Exception payments ensure that:

• Sole community hospitals receive 90 percent of their 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.

Pricer adds interim exception payments to the basic capital payment, using the rate entered in positions 189-194 of the provider-specific file. The A/B MAC (A) adjusts these interim payments, as needed, at cost report settlement.

A hospital is entitled to an additional payment if its capital payments for the cost reporting period would otherwise be less than the applicable minimum payment level. The additional payment equals the difference between the applicable minimum payment level and the capital payments that the hospital would otherwise receive minus any offset amount.

A limited exception is also provided during the 10-year transition period for hospitals that experience unanticipated extraordinary circumstances that require an unanticipated major capital expenditure. Events such as a tornado, earthquake, catastrophic fire, or a hurricane are examples of extraordinary circumstances. The capital project must cost at least $5 million (net of proceeds from other payment sources such as insurance, litigation decisions and other State, local or Federal government funding programs) to qualify for this exception. An eligible hospital's minimum payment level under this exception is 85 percent of costs associated with the unanticipated capital expenditure and the applicable minimum payment level for its other Medicare inpatient capital costs.

Total estimated payments under the exception process may not exceed 10 percent of the total estimated capital prospective payments (exclusive of hold-harmless payments for old capital) for the same fiscal year.

These limited exceptions must be approved by CMS prior to payment. If approved, the A/B MAC (A) includes the limited exception payment amount per discharge in the exception field of the provider specific file.

Capital Outliers

A3-3611.8 

Total Federal PPS payments are reduced by an amount equal to anticipated outlier payments for the year to fund capital and operating outlier payments. Outlier payments apply only to the Federal portions of capital payments. Pricer calculates outlier payments. 

Pricer used a combined methodology to determine the day outlier payment rate for capital and operating day outliers (Day outliers were eliminated after FY 1997). A second combined methodology is used to determine the cost outlier payment rate for capital and operating costs. A capital or operating cost outlier is paid only if both capital and operating costs related to an admission exceed the combined outlier threshold. Pricer pays the higher of the combined total cost outlier payment or the total day outlier payment. An exception applies to a transferring hospital. A transferring hospital may be paid a cost outlier, but may not be paid a day outlier unless DRG 385 or 456 applies. The outlier computation methodology is contained in the A/B MAC (A) Pricer installation guide