CMS Pub. 100-04, ch. 3, § 20.6

Medicare Dependent Hospitals

(Rev. 1816; Issued: 09-17-09; Effective Date: Discharges on or after October 1, 2009; Implementation Date: 10-05-09)

A. - Criteria for Sole Community Hospitals (SCHs)

A sole community hospital (SCH) is a hospital that is paid under the Medicare hospital

inpatient prospective payment system (IPPS) and is either located more than 35 miles from

other like hospitals or is located in a rural area, and meets the criteria for SCH status as

specified at 42 CFR 412.92 (Title 42 of the Code of Federal Regulations, Section 412.92,

Special treatment: Sole community hospitals). A hospital may be designated as an SCH

effective with cost reporting periods beginning on or after October 1, 1990.

B. - Criteria for Medicare Dependent Hospitals (MDHs)

A Medicare-dependent, small rural hospital (MDH) is a hospital that is paid under the

Medicare hospital inpatient prospective payment system (IPPS) and meets the criteria for

MDH status as specified at 42 CFR 412.108 (Title 42 of the Code of Federal Regulations,

Section 412.108 Special treatment: Medicare-dependent, small rural hospitals). A hospital

may be designated as an MDH effective with cost reporting periods beginning on or after

April 1, 1990, and ending on or before March 31, 1993, and for discharges occurring on or

after October 1, 1997, and before October 1, 2011.

C. - Payment to SCHs and MDHs

SCHs and MDHs are paid based on either the Federal rate or their hospital-specific (HSP)

rate, whichever will result in the greatest payment. The HSP rate is the hospital’s rate based

on their updated costs per discharge for a particular fiscal year (FY) as specified in statute.

Like all IPPS hospitals paid, SCHs and MDHs are paid for their discharges based on the

diagnosis-related DRG classification and weights regardless of whether payment based on

the Federal rate or the hospital’s HSP rate results in the greatest payment.

SCHs will be paid based on their HSP rate for either FY 1982, 1987, 1996 (for cost reporting

periods beginning on or after October 1, 2000) or 2006 (for cost reporting periods beginning

on or after January 1, 2009) if this results in a greater payment than the Federal rate. For

more detail, see 42 CFR 412.92(d) and 42 CFR 412.73, 412.75, 412.77, and 412.78,

respectively, for determining the HSP rates for FYs 1982, 1987, 1996 and 2006.

MDHs will be paid based on their HSP rate for either FY 1982, 1987, or 2002 (for cost

reporting periods beginning on or after October 1, 2006) if this results in a greater payment

than the Federal rate. For more detail, see 42 CFR 412.108(c) and 42 CFR 412.73, 412.75,

and 412.79, respectively, for determining the HSP rates for FYs 1982, 1987, and 2002.

In addition, qualifying SCHs and MDHs that experience a significant decrease in its number

of discharges may receive an additional payment as specified at 42 CFR 412.92(e) and 42

CFR 412.108(d), respectively.

In general, the HSP rates for both SCHs and MDHs are updated annually. The HSP rates are

updated for inflation by the applicable market basket increase for each FY after the base

period year, and are also adjusted by a budget neutrality factor to account for the annual

DRG reclassification and recalibration for each year from FY 1993 forward, regardless of the

year of the base period. (For reference purposes, the budget neutrality adjustment factors are

listed below at the end of this section.) For the inflation update, beginning FY 2005, if the

hospital did not submit quality data, the market basket update is reduced by a percentage

specified in statute for the applicable FY consistent with section 1886(b)(3)(B)(viii) of the

Act.

Applicable Fiscal Year Budget Neutrality Adjustment Factors

1993 0.999851

1994 0.999003

1995 0.998050

1996 0.999306

1997 0.998703

1998 0.997731

1999 0.998978

2000 0.997808

2001 0.997174

2002 0.995821

2003 0.993111

Applicable Fiscal Year Budget Neutrality Adjustment Factors

2004 1.002608

2005 0.999876

2006 0.998993

2007 0.997395

2008 0.995743

2009 0.998795

2010 0.997941

D. - Claims Processing

The Qualifying DSH Percent uses the following provider type codes to enable Pricer to

calculate the appropriate rates for these facilities:

• 14 for a MDH that is not an RRC;

• 15 for a MDH that is also an RRC;

• 16 for a rebased SCH that is not an RRC; and

• 17 for a rebased SCH that is also an RRC.

The A/B MAC (A) calculates the HSP rate and determines the greatest HSP rate (for SCHs,

FY 1982, 1987, 1996 or 2006; for MDHs, FY 1982, 1987 or 2002). Then the A/B MAC (A)

updates the HSP rate to the applicable FY and enters that amount in the PPS Facility Specific

Rate of the Provider-Specific File (PSF), for the applicable effective date. The HSP rate is to

be entered even if the Federal rate is expected to result in higher payments than the

applicable HSP rate. Preloading the applicable HSP rate before the effective date is

acceptable as long as the correct effective date is used for the PSF record. The A/B MAC

(A) leaves the field blank if the hospital was not in operation during any of the applicable

HSP base years.

Pricer will calculate the payment based on the higher of the Federal rate or the HSP rate.

Where the HSP rate is higher, Pricer reports the amount of the difference in the hospital-specific field. The A/B MAC (A) carries this amount forward in the hospital-specific

payment field to its PS&R record for use at cost settlement.