Do new hospitals receive pass through payments for new construction?

New Hospitals

Yes. A new hospital is paid 85 percent of its allowable Medicare inpatient hospital capital-related costs through its cost report ending at least 2 years after the hospital accepts its first patient, unless the new hospital elects to be paid under the capital prospective payment system based on 100 percent of the Federal rate. (42 CFR Sec 412.304)

Capital-related costs include, but are not limited to items such as:

  • Depreciation Expense
  • Lease and rental payments
  • Taxes on land or depreciable assets used for patient care
  • Insurance on depreciable assets

Capital-related cost NOT included are items such as:

  • Repair or maintenance of equipment or facilities
  • Interest expense incurred to borrow working capital
  • Cleaning services, guard services

Detailed instructions on allowable and non-allowable capital-related costs can be found at PRM 15-1 Sec 2806

Interim Rate Setting

Per request, the MAC will calculate interim payments for new capital. Interim payments for the costs of these items will be determined for Periodic Interim Payment (PIP) and non-PIP hospitals by estimating the reimbursable amount for the year using Medicare principles of cost reimbursement and dividing it into 26 equal biweekly payments. These payments follow the same procedures as for PIP payments under the Prospective Payment System (PPS) per §2405.1B, which is based on the total estimated discharges for the reporting period multiplied by the estimated prospective payment amount. Note, the estimated prospective payment amount will be based on the hospital's actual payment experience under PPS adjusted for projected changes during the year. The total estimated annual amount will be divided by 26 and paid biweekly



It's also important to note that new hospitals can claim start-up costs. Start-up costs, are costs incurred during the period of developing a provider's ability to furnish patient care services.

Per CMS Pub 15-1, Sec. 2132.1 Start-up costs include: administrative and nursing salaries; heat, gas, and electricity; taxes; insurance; mortgage and other interest; employee training costs; repairs and maintenance; housekeeping; and any other allowable costs incident to the start-up period. However, any costs that are properly identifiable as organization costs or capitalizable as construction costs must be appropriately classified as such and excluded from start-up costs. 



Was this article helpful?