In PYA’s ongoing Medicare Payment Primer Series, we have been delving into the fundamentals of cost-based reimbursement, breaking them down into four parts. Part 3 provides an overview of the types of facilities and components of hospitals that still receive cost reimbursement.
Critical Access Hospitals
Critical access hospitals (CAHs) are generally small rural hospitals maintaining fewer than 25 acute beds. These hospitals are typically located more than 35 road miles from other CAHs or inpatient acute prospective payment facilities. States can establish necessary hospital designations to extend the benefits of CAH status to hospitals that would not otherwise meet the regulatory requirements (primarily distance) of Conditions of Participation: Critical Access Hospitals. Each state can establish unique necessary provider requirements.
Because of their remote location and other operational factors, CAHs would not likely survive under the inpatient prospective payment system (Inpatient PPS) or outpatient prospective payment system (OPPS) payment methodologies. Therefore, CAHs currently receive cost reimbursement for inpatient, outpatient, and swing bed services. If a CAH operates a skilled nursing, inpatient behavioral health, or inpatient rehabilitation unit, those services are reimbursed based on the applicable prospective payment systems (i.e., Skilled Nursing Facility PPS; Inpatient Psychiatric Facility PPS; Inpatient Rehabilitation Facility PPS). Due to the fixed reimbursement methodology of these PPS systems, it may not be advantageous for CAH facilities to operate these components.
Hospital-Based Rural Health Clinics (RHCs)
Many rural hospitals operate RHCs. In general, RHC reimbursement is moving to a system of all-inclusive rates (AIR), which is effectively another form of prospective payment system. Currently, certain rural hospital-based RHCs are considered “grandfathered” and may be able to defer the reimbursement implications of the AIR payment methodology. The apportionment formula for RHCs is based on the ratio of Medicare visits to total visits, rather than a determination based on charges.
Medicare-Certified Organ Transplant Hospitals
Certain large, urban academic medical centers (AMCs) can seek certification from the Centers for Medicare & Medicaid Services (CMS) to provide organ acquisition services. Certified AMC facilities receive cost-based reimbursement for relevant pre-acquisition costs (donor) related to the organs for which the facility is certified. Transplant activity for “non-certified” organs is considered non-reimbursable. The AMC receives separate DRG-based reimbursement for the actual transplant (recipient). The cost apportionment methodology is based on the number of Medicare usable organs to total usable organs. Separate cost finding is completed for each certified organ category. The actual cost finding is extremely dependent on accurately identifying the pre-transplant direct expenses, allocated costs, and departmental charges (converted to cost) to determine the appropriate share of Medicare cost.
Resources
Related Insights in our Medicare Payment Primer Series cover:
- The definition of “cost” (Part 3a)
- The mechanics of cost reimbursement (Part 3b)
- Other areas dependent on cost report ratios and processes (Part 3d)
If you have questions about any matter related to reimbursement, strategy and transactions, compliance, or valuation, one of our executive contacts would be happy to assist. You may email them below, or call (800) 270-9629.
