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“(i) for a hospital which has actual routine oper

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ating costs equal to or greater than that hospital's adjusted per diem payment rate for routine operating costs, an amount equal to the greater of:

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

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operating costs, or

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“ (II) the amounts determined for the hospital

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

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bed-size category nearest to the category in which

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the hospital was classified, but not exceeding the

hospital's actual routine operating costs; and “ (ii) for a hospital which has actual routine operating costs less than that hospital's adjusted per diem payment 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 (b) 50 percent of the amount by which the hospital's adjusted per diem

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21 “(C) Any hospital excluded by the Secretary under 25 paragraph (3) (D) (ii), shall be reimbursed for routine

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1 operating costs the lesser of (i) actual costs or (ü) the 2 reimbursement determined under this subsection.

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

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“(i) located in an underserved area where hospital

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“(ü) certified as being currently necessary by an

appropriate planning agency, and 17

“(ii) 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

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

7 in Alaska or Hawaii.

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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

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 in

17 consistent with section 1861 (v), this subsection supersedes

18 section 1861 (v).”

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(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. 11 (3) The Secretary shall, as classification and reimburse

12 ment systems methods are developed, but not later than two

13 years from enactment, submit appropriate legislative recom

14 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, 17

(1) shall apply for informational purposes for 18

services furnished by a hospital before October 1, 1979,

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(2) shall be effective for fiscal years beginning

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(e) Notwithstanding any other provision of this Act,

23 where the Secretary has entered into a contract with a State,

24 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 reim

2 bursement in that State under titles XVIII and XIX shall

3 be based on that State system, if the Secretary finds that

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system and it applies to all hospitals in the State which have provider agreements under title XVIII or title

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XIX;

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

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(3) all hospitals in the State with which there is a provider agreement conform to the accounting and uni

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form 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

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system, aggregate payments to hospitals in the State

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under title XVIII and title XIX for those com

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ponents of hospitals costs determined under section

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1861 (aa) for the fiscal year following an annual

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evaluation are estimated to be less than payments would

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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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