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1992.09.01 :  Medicare Hospital Update

Contact: Bob Hardy (202) 690-6145
September 1, 1992

       Medicare payments for inpatient hospital care will be
increased 3.55 percent for rural hospitals and 2.55 percent for
urban hospitals in the 1993 fiscal year, HHS Secretary Louis W.
Sullivan, M.D., announced today.
       A regulation updating payment rates for the fiscal year
beginning Oct. 1, 1992, and making other changes in the Medicare
Prospective Payment System is published in today's Federal
Register.
       Total Medicare payments to hospitals for inpatient care
are  projected to increase 8.5 percent in FY 1993, rising to
$72.6 billion from a FY 1992 level of $66.9 billion.  This growth
of expenditures includes the annual update of PPS payment rates,
change in the types of cases hospitals are treating, and an
increase in Medicare hospital admissions because of growing
enrollment in the program. 
       William Toby Jr., acting administrator of the Health Care
Financing Administration, said, "The new payment rates continue a
policy of moving Medicare prospective payments for rural
hospitals toward equivalence with those for urban hospitals."
       The Omnibus Budget Reconciliation Act of 1990 requires
that prospective payments for rural hospitals in FY 1993 be
increased by the hospital market basket index minus .55 percent. 
The 

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legislation provided that the increase in payments to urban
hospitals be set at market basket minus 1.55 percent.
       The increases will apply to Medicare prospective payments
to 5,400 acute care hospitals, including 2,500 rural facilities
and 2,900 urban institutions.  The payment updates are based on
the costs of goods and services used by hospitals, but with
adjustments mandated by Congress. 
       The regulation also provides a 4.2 percent increase in
Medicare rates for hospitals outside the Prospective Payment
System -- psychiatric, rehabilitation and children's hospitals.
       The Medicare prospective payment system is a set of fixed
payment rates for hospital services provided to Medicare
beneficiaries.  These payment rates are modified to reflect
geographic differences in hospital wages. 
       The regulation published today also establishes more
restrictive criteria for hospital reclassifications to
neighboring labor market areas where payments for inpatient care
are greater because of higher wage rates. 
       The regulation specifies that a hospital cannot be
reclassified unless its average hourly wage is at least 108
percent of the average hourly wage of the area in which it is
located.  The new standard will be effective for the 1994 fiscal
year, which begins Oct. 1, 1993.
       Toby said the change "is consistent with congressional
intent that geographical reclassification be available only when 

hospitals are disadvantaged by their current classifications."

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       A hospital can be placed at a competitive disadvantage
when Medicare payments for its area do not reflect the higher
wage rates it must pay because it is located next to a costlier
labor market.
       "A hospital should not be reclassified unless its average
hourly wage is significantly higher than the average for its
area," Toby said.  "Many of the hospitals that have been
reclassified did not meet that test and could not accurately be
described as competitively disadvantaged in their areas."

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EDITOR'S NOTE: The Health Care Financing Administration, an
agency of the U.S. Department of Health and Human Services,
directs the Medicare program for the elderly and disabled and the
federal portion of the Medicaid program for the poor.  HCFA's
budget of $204 billion, the 12th largest government budget of any
kind in the world, helps pay the medical bills of more than 60
million Americans.