- New hospitals were paid $283 million more for capital costs thanks to an exemption reserved for new facilities during their first two years of operation. Without the exemption, these hospitals would have been reimbursed for capital costs under the Inpatient Prospective Payment System.
- An audit conducted by HHS Office of Inspector General shows the exemption cost the Medicare program $423.2 million between fiscal years 2012 and 2018.
- The watchdog said the exemption led 112 hospitals to be paid about three times more, on average, than hospitals that were paid for such costs under IPPS. HHS OIG recommended nixing the exemption.
The audit pokes holes in CMS' rationale for using, and extending, the IPPS exemption.
The reason behind paying new hospitals more, or giving them an exemption from IPPS, stems from the assumption that new hospitals have higher startup costs and that utilization may be lower initially.
HHS OIG tested these assumptions in the audit and found that capital costs were only slightly higher (3%) in the first two years of operation compared to the subsequent two years. Though utilization was lower, by about 15%, in the first two years than the subsequent two.
The report found that 59% of the 112 hospitals were part of larger chains they could lean on for capital reserves, another reason CMS has cited for the exemption.
" ... these differences are not so significant as to justify capital payments that are triple what they would have been paid through the IPPS."
In a response letter attached to the audit, CMS said it concurs with the recommendation to get rid of the exemption.
The attached letter, written by CMS Administrator Chiquita Brooks-LaSure, said, "CMS will further review the OIG's findings and determine whether any modifications to the capital payment methodology for new hospitals should be proposed in future notice-and-comment rulemaking."