CMS pays new hospitals 3x more for capital costs than older facilities: OIG

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CMS pays new hospitals three times more for capital costs than it pays established hospitals, according to an Aug. 16 report from HHS' Office of the Inspector General. 

Under current Medicare regulations, established hospitals are reimbursed for capital costs through the Inpatient Prospective Payment System. However, new hospitals are exempt from the payment methodology for capital costs and are instead paid on a cost reimbursement basis for the first two years of operation. The rationale for the exemption is that new hospitals may not have adequate Medicare utilization in the first two years and may have incurred significant startup costs.

For its analysis, the OIG analyzed the capital costs that were paid to 112 new hospitals from fiscal year 2012-18.

The OIG found that as a result of the exception, CMS pays new hospitals three times more, or an average of almost $1.3 million per hospital, for capital costs than established hospitals. 

Further, the OIG found that 59 percent of the new hospitals reviewed were also part of a chain health system that may have been able to pay for the capital costs to the new hospitals if needed. 

The OIG said that removing the exception would have saved Medicare $283 million over the study period. 

The OIG recommended that CMS review the findings in the report and determine if a separate payment methodology for new hospitals is still warranted. 

CMS concurred with the recommendation and said it is working to determine whether any modifications to the capital payment methodology are needed. 

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