CMS Pub. 100-04, ch. 3, § 20.4.6

A3-3611.6

New hospitals that open during the national 10-year transition are exempt from capital PPS

payment for their first two years of operation. A new hospital is one that does not have a 12-month cost reporting period that ended on or before September 30, 1990. The new hospital

exemption does not apply to:

• A new acute care hospital that operated as a PPS excluded hospital for 2 or more

years before its transition to PPS;

• A hospital which has been open more than 2 years, but has participated in Medicare

fewer than 2 years;

• A hospital that closes and reopens within 2 years under the same or different

ownership; or

• A hospital that builds a new or replacement facility at the same or a new location,

even if a change of ownership or new leasing arrangements are involved.

A new hospital is paid 85 percent of its reasonable costs for capital during the exemption

period. The hospital's second year of operation is the base period for determination of the

hospital-specific rate and old capital assets. Effective with its third year of operation, the

hospital is paid:

• The fully prospective methodology if the hospital-specific rate is less than the Federal

rate. The A/B MAC (A) uses the blend rate applicable to the Federal FY in which the

base period begins. For example, a new hospital with a hospital-specific rate less

than the Federal rate and a base year beginning in FY 1995 is paid 70 percent of its

hospital-specific rate and 30 percent of the Federal rate; or

• The hold harmless methodology if the hospital-specific rate is greater than the

Federal rate. Hold harmless payments may continue for up to 8 years. They may

continue beyond the first cost reporting period that begins on or after October 1,

2000.