CMS Pub. 100-04, ch. 3, § 150.5.2

A reduction factor to all Medicare payments during the transition to account for the

monetary effect of the 5-year transition from the present cost-based payment system and

the LTCH PPS, and the policy to permit LTCHs to elect payment solely under the PPS

rather than based on the blend during the transition. (See §150.10.1.)

If a LTCH is paid under the transition blend methodology, the budget neutrality offset will

be applied to both the TEFRA Rate Percentage and the Federal Rate percentage.

The budget neutrality offset equals 1 minus the ratio of the estimated TEFRA reasonable

cost-based payments that would have been made had the LTCH PPS not been

implemented to the projected total Medicare program payments that would be made under

the transition methodology and the option to elect payment based on the 100 percent of the

Federal rate.

The per discharge Federal rates under the PPS are based on average LTCH costs in a base

year updated for inflation to the first effective period of the system.

Fiscal year changes to the LTCH PPS system occur annually in October. Specific

instructions will be published shortly after the publication of the LTCH Final Rule each

year. In addition, other changes to the inpatient prospective payment system may occur in

January, April or July as necessary.