(a) Applicability.

(1) This section applies to a hospital that has been designated as a sole community hospital, as described in §412.92. If the 2006 hospital-specific rate exceeds the rate that would otherwise apply, that is, either the Federal rate under §412.64 or the hospital-specific rates for either FY 1982 under §412.73, FY 1987 under §412.75 or FY 1996 under §412.77, this 2006 rate will be used in the payment formula set forth in §412.92(d)(1).

(2) This section applies only to cost reporting periods beginning on or after January 1, 2009.

(3) The formula for determining the hospital-specific costs for hospitals described under paragraph (a)(1) of this section is set forth in paragraph (f) of this section.

(b) Based costs for hospitals subject to fiscal year 2006 rebasing—(1) General rule. Except as provided in paragraph (b)(2) of this section, for each hospital eligible under paragraph (a) of this section, the intermediary determines the hospital's Medicare Part A allowable inpatient operating costs, as described in §412.2(c), for the 12-month or longer cost reporting period ending on or after September 30, 2006, and before September 30, 2007, and computes the hospital-specific rate for purposes of determining prospective payment rates for inpatient operating costs as determined under §412.92(d).

(2) Exceptions.

(i) If the hospital's last cost reporting period ending before September 30, 2007 is for less than 12 months, the base period is the hospital's most recent 12-month or longer cost reporting period ending before the short period report.

(ii) If the hospital does not have a cost reporting period ending on or after September 30, 2006 and before September 30, 2007, and does have a cost reporting period beginning on or after October 1, 2005 and before October 1, 2006, that cost reporting period is the base period unless the cost reporting period is for less than 12 months. If that cost reporting period is for less than 12 months, the base period is the hospital's most recent 12-month or longer cost reporting period ending before the short cost reporting period. If a hospital has no cost reporting period beginning in fiscal year 2006, the hospital will not have a hospital-specific rate based on fiscal year 2006.

(c) Costs on a per discharge basis. The intermediary determines the hospital's average base-period operating cost per discharge by dividing the total operating costs by the number of discharges in the base period. For purposes of this section, a transfer as defined in §412.4(b) is considered to be a discharge.

(d) Case-mix adjustment. The intermediary divides the average base-period cost per discharge by the hospital's case-mix index for the base period.

(e) Updating base-period costs. For purposes of determining the updated base-period costs for cost reporting periods beginning in Federal fiscal year 2006, the update factor is determined using the methodology set forth in§§412.73(c)(15) and 412.73(c)(16).

(f) DRG adjustment. The applicable hospital-specific cost per discharge is multiplied by the appropriate DRG weighting factor to determine the hospital-specific base payment amount (target amount) for a particular covered discharge.

(g) Notice of hospital-specific rates. The intermediary furnishes a hospital eligible for rebasing a notice of the hospital-specific rate as computed in accordance with this section. The notice will contain a statement of the hospital's Medicare Part A allowable inpatient operating costs, the number of Medicare discharges, and the case-mix index adjustment factor used to determine the hospital's cost per discharge for the Federal fiscal year 2006 base period.

(h) Right to administrative and judicial review. An intermediary's determination under this section of the hospital-specific rate for a hospital is subject to administrative and judicial review in accordance with §412.77(h).

(i) Modification of hospital-specific rate. The intermediary recalculates the hospital-specific rate determined under this section in the manner set forth in §412.77(i).

(j) Maintaining budget neutrality. CMS makes an adjustment to the hospital-specific rate determined under this section in the manner set forth in §412.77(j).

[73 FR 48754, Aug. 19, 2008, as amended at 75 FR 50414, Aug. 16, 2010]