CMS Pub. 100-04, ch. 3, § 20.7.1

A3-3610.4, HO-415.7

When the admission is before the hospital's PPS effective date and the discharge is later than

that date (transition claims), the Medicare payment for the period before PPS is on a

reasonable cost basis and the payment for the period after PPS is on a DRG basis.

The hospital must submit two bills. The first bill is for the period before the PPS effective

date and is processed and paid in accordance with requirements in effect before the hospital's

PPS effective date. The second bill is processed under PPS but the amount of payment on

the first bill is subtracted from it. A/B MACs (A) make the adjustment by subtracting the

interim payment from the prospective payment (before any deduction for deductible or

coinsurance) for the inpatient operating costs applicable to the days in the prior period. The

interim payment applicable to the prior period is adjusted to exclude estimated costs related

to capital and direct medical education, kidney acquisition costs, and for bad debts for

uncollectible deductible and coinsurance. A/B MACs (A) will make an estimate if

necessary.

For hospitals previously receiving interim payment on the basis of an average cost per diem

or under PIP, the A/B MAC (A) determines and removes a per diem amount for the excluded

costs for that period from the interim payments before reducing the prospective payment

amount applicable to the discharge in the subsequent period under PPS. Similarly, for

hospitals that received a percentage of billed charges, the portion of the percentage

applicable to the excluded cost items is removed. The net percentage to the charges billed in

the prior period (cut-off bill) is applied. The resulting amount is subtracted from the PPS

payment applicable to the discharge in the subsequent period.

For transition claims, payment must not exceed the higher of what would have been paid

under PPS including the outlier adjustment or any earlier cost payment. The final amount is

not reduced to less than zero. No further adjustments are appropriate.

The interim payments used to reduce the prospective payment amounts are considered to

represent fairly the inpatient operating costs incurred and fair payment for the portion of the

stay occurring in the prior period. Therefore, the adjustment is final and not subject to

further modification.

On bills covering two cost reporting periods:

• Each bill includes charges and covered days that apply to the period covered.

• The cut-off bill for the cost period is completed per Chapter 25.

• The PPS bill contains principal diagnosis and surgical procedures for the entire stay.

• The PPS bill shows the admission date, but the period covered begins with the first

day of the new accounting year.

• Where discharge is on the first day of the new accounting year, a PPS bill is still due.

Some payment may be due the provider, and the open admission must be closed on

CMS' records. There are no accommodation charges on the day of discharge; the

hospital will report ancillary charges for the day of discharge on the prior bill.

• Coinsurance days and related amounts are applied separately to each bill, i.e., the

proper deduction for coinsurance days reported on the second bill is taken from that

bill.