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1 by the total number of days of routine care provided by the 2 hospitals in the category to determine the average per diem

3 routine operating cost for each category.

4 " (ii) In making the calculations required by clause 5 (i), the Secretary shall cxclude any hospital which has sig6 nificant understaffing problems or which otherwise experi7 ences significant cost differentials resulting from failure of 8 the hospital to fully meet the standards and conditions of 9 participation as a provider of services as determined by the

10 Secretary.

11 “(E) There shall be determined for each hospital in 12 cach category a per diem payment rate for routine operating 13 costs. That payment rate shall equal the average per diem 14 routine operating cost amount for the category in which 15 the hospital is expected to be classified during the subsequent 16 fiscal year, except that the personnel component shall be 17 adjusted using a wage index based upon general wage levels 18 (including fringe benefit costs) in the areas in which the 19 hospitals are located. If the Secretary finds that, in an area 20 where one or more liospitals in any category are located, 21 for the fiscal year ending June 30, 1977, the wage level 22 (including fringe benefit costs) for hospitals is significantly 23 Jigher than the general wage level (including fringe bene24 fit costs) in that area (relative to the relationship between 25 hospital wages and general wages in other areas), then


1 the general wage level in the area shall be deemed equal 2 to the wage level for hospitals in that area, but only during 3 fiscal year 1979.

4 “ (4) (A) (i) The term 'adjusted per diem payment rate 5 for routine operating costs', means the per diem payment rate 6 for routine operating costs plus the average percentage 7 increase in prices determined under succeeding provisions 8 of this subparagraph. 9 “(ii) In making payments for services, the Secretary 10 shall add a semiannual average percentage increase in the

11 cost of the mis of goods and services (including personnel

12 and nonpersonel costs) comprising routine operating costs,

13 equal to the lesser of: (1) the average percentage increase 14 estimated by the hospital, or (II) the average percentage

15 increase in the area estimated by the Secretary.


“ (iii) At the end of the fiscal year, the amounts paid

17 under clause (ii) shall be adjusted to reflect the lesser of

18 (1) the actual cost increase experienced by the hospital


or (II) the actual increase in costs which occurred in the

20 mix of goods and services in the area. Adjustments shall also 21 be made to take account of unexpected changes in the hos22 pital's classification. 23

“(B) For purposes of payment the amount of routine 24 operating cost incurred by a hospital shall be deemed to 25 equal

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“ (i) for a hospital which has actual routine operating costs equal to or greater than that hospitals adjusted per diem payment rate for routine operating costs, an amount equal to the greater of:

“(1) The hospital's actual routine operating costs, but not exceeding 120 percent of the hospital's adjusted per diem payment rate for routine





operating costs, or


“(II) the amounts deterniined for the hospital


under clause (1) if it had been classified in the


bed-size category nearest to the category in which



the hospital was classified, but not exceeding the

hospitals actual routine operating costs; and " (ii) for a hospital which has actual routine operating



costs less than that hospital's adjusted per diem pay

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ment rate for routine operating costs, an amount equal to (I) the amount of the hospital's actual routine operating costs, plus (II) whichever is smaller: (a) 5 percent of the hospital's adjusted per diem payment




rate for routine operating costs, or (1) 50 percent of the amount by which the hospital's adjusted per diem

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“(C) Any hospital excluded by the Secretary under


paragraph (3) (D) (ii), shall be reimbursed for routine

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1 operating costs the lesser of (i) actual costs or (i) the

2 reimbursement determined under this subsection.


“(D) April 1 of the year in which the Secretary deter4 mines the amount of the average per diem operating cost for 5 each hospital category and the adjusted per diem payment 6 rate for each hospital, the determinations shall be published 7 by the Secretary; and the Secretary shall notify the hospital 8 administrator and the administrative governing body of each 9 hospital with respect to all aspects of the determination 10 which affect the hospital.

“(E) If a hospital is determined by the Secretary to


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“(i) located in an underserved area where hospital

14 services are not otherwise available, 15

“(ü) certified as being currently necessary by an 16 appropriate planning agency, and 17

“ (ü) underutilized, 18 the adjusted per diem payment rate shall not apply to 19 that portion of the hospital's routine operating costs attrib20 utable to the underutilized capacity.

21 “(F) If a hospital satisfactorily demonstrates to the 22 Secretary that, in the aggregate, its patients require a sub23 stantially greater intensity of care than is generally provided 24 by the other hospitals in the same category, resulting in


1 unusually greater routine operating costs, then the adjusted 2 per diem payment rate shall not apply to that portion of 3 the hospital's routine operating costs attributable to the

4 greater intensity of care required.


" (G) The Secretary may further increase the adjusted

6 per diem payment rate to reflect the higher prices prevailing

7 in Alaska or Hawaii.



“ (H) Where the Secretary finds that a hospital has 9 manipulated its patient mix, or patient flow, or provides less 10 than the normal range and extent of patient service, or where

an unusually large proportion of routine nursing service is 12 provided by private-duty nurses, the routine operating costs 13 of that hospital shall be deemed equal to whichever is less: 14 the amount determined without regard to this subsection, 15 or the amount determined under subparagraph (B). 16 “(5) Where any provisions of this subsection are in17 consistent withi section 1861 (v), this subsection supersedes 18 section 1861 (v)." 19 (c) (1) The Secretary shall, at the earliest practical 20 date, develop additional methods for reimbursing hospitals 21 for all other costs, and for reimbursing all other entities

22 which are reimbursed on the basis of reasonable cost. Those

23 methods shall provide appropriate classification and reim24 bursement systems designed to ordinarily permit comparisons 25 of the cost centers of one entity, either individually or in

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