CMS Pub. 100-04, ch. 3, § 160.1

Section 533(b) of the Medicare, Medicaid, and State Children's Health Insurance Program

(SCHIP) Benefits Improvement and Protection Act of 2000 (BIPA) amended section

1886(d)(5) of the Act to add subparagraphs (K) and (L) and establish a process of

identifying and ensuring adequate payment for new medical services and technologies

under Medicare. In the September 7, 200l, final rule (66 FR 46902), CMS established that

cases using approved new technology would be appropriate candidates for an additional

payment when: the technology represents an advance in medical technology that

substantially improves, relative to technologies previously available, the diagnosis or

treatment of Medicare beneficiaries; the payment for such cases can be demonstrated to be

inadequately paid otherwise under the diagnosis-related group (DRG) system; and data

reflecting the costs of the technology would be unavailable to use to recalibrate the DRG

weights.

Under 42 CFR 412.88 of the regulations, an add-on payment is made for discharges

involving approved new technologies, if the total covered costs of the discharge exceed

the DRG payment for the case (including adjustments for indirect medical education

(IME) and disproportionate share hospitals (DSH) but excluding outlier payments).

PRICER calculates the total covered costs for this purpose by applying the cost-to-charge

ratio (that is used for inpatient outlier purposes) to the total covered costs of the discharge.

Payment for eligible cases is equal to:

• The full DRG payment (see example 1 that follows); plus

• The lesser of

1. 50 percent of the costs of the new medical service or technology (see example

2); or

2. 50 percent of the amount by which the total covered costs (as determined above)

of the case exceed the DRG payment (see example 3); plus

• Any applicable outlier payments if the costs of the case exceed the DRG, plus

adjustments for IME and DSH, and any approved new technology payment for the

case plus the fixed loss outlier threshold. The costs of the new technology are

included in the determination of whether a case qualifies for outliers.

This instruction implements the above payment mechanism into the claims processing

systems.

Below are three illustrative examples of this policy for cases involving an eligible

technology estimated to cost $3,000 in a DRG that pays $20,000.

Example One

Applying the hospital’s cost-to-charge ratio to the total covered charges for the case, it is

determined the total cost for the case is $19,000. Medicare would pay $20,000, the full

DRG payment. Even though the case involved a new technology eligible for add-on

payments, the total covered costs of the case did not exceed the DRG payment, therefore,

no additional payment is made.

Example Two:

Applying the hospital’s cost-to-charge ratio to the total covered charges for the case, it is

determined the total cost for the case is $25,000. Because, in this case, 50 percent of the

costs of the new medical service or technology is less than 50 percent of the amount by

which the total covered costs (as determined above) of the case exceed the DRG payment,

Medicare would pay 50 percent of the costs of the new technology (in addition to the

DRG payment). Therefore, for this case, Medicare would pay $21,500 (the DRG payment

of $20,000 plus one-half of $3,000, the estimated cost of the new technology).

Example Three:

Applying the hospital’s cost-to-charge ratio to the total covered charges for the case, it is

determined the total cost for the case is $22,000. Medicare would pay one-half of the

amount by which the costs of the case exceed the DRG payment, up to the estimated cost

of the new technology. Therefore, for this case, Medicare would pay $21,000 (the DRG

payment of $20,000 plus one-half of the costs above that amount).