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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.

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"(G) The Secretary may further increase the adjusted 6 per diem payment rate to reflect the higher prices prevailing

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"(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 11 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, or the amount determined under subparagraph (B).

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"(5) Where any provisions of this subsection are in17 consistent with 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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1 the aggregate, with cost centers similar in terms of size 2 and scale of operation, prevailing wage levels, nature, ex3 tent, and appropriate volume of the services furnished, and 4 other factors which have a substantial impact on hospital 5 costs. The Secretary shall provide procedures for appropriate 6 exceptions.

7 (2) The systems of reimbursement shall not permit 8 payment for costs which exceed 120 percent of the average 9 cost incurred by other institutions or agencies in the same 10 class, unless an exception has been allowed.

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(3) The Secretary shall, as classification and reimburse12 ment systems methods are developed, but not later than two 13 years from enactment, submit appropriate legislative recom14 mendations to the Congress.

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(d) The provisions of section 1861 (aa) (2), (3), 16 and (4) of the Social Security Act—

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(1) shall apply for informational purposes for services furnished by a hospital before October 1, 1979, and

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(2) shall be effective for fiscal years beginning with fiscal year 1981.

22 (e) Notwithstanding any other provision of this Act,

23 where the Secretary has entered into a contract with a State, as authorized under section 222 of Public Law 92-603 or 25 section 1533 (d) of the Public Health Service Act, to estab

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1 lish a reimbursement system for hospitals, hospital reim2 bursement in that State under titles XVIII and XIX shall 3 be based on that State system, if the Secretary finds that(1) the State has mandated the reimbursement system and it applies to all hospitals in the State which have provider agreements under title XVIII or title XIX;

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(2) the system applies to all revenue sources for hospital services in the State;

(3) all hospitals in the State with which there is a provider agreement conform to the accounting and uniform reporting requirements of section 1861 (aa) (1) (A), and furnishes any appropriate reports that the Secretary may require; and,

(4) (A) based upon an annual evaluation of the system, aggregate payments to hospitals in the State under title XVIII and title XIX for those components of hospitals costs determined under section 1861 (aa) for the fiscal year following an annual evaluation are estimated to be less than payments would be under section 1861 (aa) or, (B) where a State that is unable to satisfy requirements of subparagraph (A) demonstrates to the satisfaction of the Secretary that total reimbursable inpatient hospital costs in the

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State are lower than would otherwise be payable under

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title XVIII and title XIX.

3 If the Secretary finds that any of the above conditions. 4 in a State which previously met them have not been met 5 for a year the Secretary shall, after due notice, reimburse 6 hospitals in that State according to the provisions of this 7 Act unless he finds that unusual, justifiable and non

8 recurring circumstances led to the failure to comply.

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9 (f) (1) Section 1866 (a) (1) of the Social Security 10 Act is amended by inserting ", and" in place of the period at the end of subparagraph (C), and by adding a subpara12 graph: "(D) not to increase amounts due from any indi13 vidual, organization, or agency in order to offset reductions 14 made under section 1861 (aa) in the amount paid, or ex15 pected to be paid, under title XVIII.".

16 (2) Section 1902 (a) (27) of the Social Security Act is 17 amended by deleting "and" at the end of subparagraph 18 (A), by inserting ", and" in place of the semicolon at the 19 end of subparagraph (B) and by adding a new subpara20 graph:

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"(C) not to increase amounts due from any individual

22 organization, or agency in order to offset reductions made 23 under section 1902 (a) (13) (D) in the amount paid, or ex24 pected to be paid under title XIX;"

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(h) Section 1902 (a) (13) (D) is amended to read as 2 follows:

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"(D) for payment of the reasonable cost of inpatient hospital services provided under the plan, applying the methods specified in section 1861 (v) and section 1861 (aa), which are consistent with section 1122;

· and".

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8 PAYMENTS TO PROMOTE CLOSING AND CONVERSION OF

UNDERUTILIZED FACILITIES

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SEC. 3. (a) Part A of title XI of the Social Security 11 Act is amended by adding at the end the following new 12 section:

13 "PAYMENTS TO PROMOTE CLOSING AND CONVERSION OF

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UNDERUTILIZED FACILITIES

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"SEC. 1132. (a) (1) (A) Before the end of the third 16 full month following the month in which this section is en17 acted, the Secretary shall establish a Hospital Transitional 18 Allowance Board (referred to in this section as the 'Board'). 19 The Board shall have five members, appointed by the Sec20 retary without regard to the provisions of title 5, United 21 States Code, governing appointments in the competitive 22 service, who are knowledgeable about hospital planning and 23 hospital operations.

24 "(B) Members of the Board shall be appointed for 25 three-year terms, except some initial members shall be ap

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