## §495.104 Incentive payments to eligible hospitals.

(a) **General rule**. A qualifying hospital (as defined in this subpart) shall receive the special incentive payment as determined under the formulas described in paragraph (c) of this section for the period specified in paragraph (b) of this section.

(b) **Transition periods**. Subject to the payment formula specified in paragraph (e) of this section, qualifying hospitals may receive incentive payments during transition periods which comprise the following fiscal years:

(1) Hospitals whose first payment year is FY 2011 may receive such payments for FYs 2011 through 2014.

(2) Hospitals whose first payment year is FY 2012 may receive such payments for FYs 2012 through 2015.

(3) Hospitals whose first payment year is FY 2013 may receive such payments for FYs 2013 through 2016.

(4) Hospitals whose first payment year is FY 2014 may receive such payments for FY 2014 through 2016.

(5) Hospitals whose first payment year is FY 2015 may receive such payments for FY 2015 through 2017.

(c) **Payment methodology**.

(1) The incentive payment for each payment year is calculated as the product of the following:

(i) The initial amount determined under paragraph (c)(3) of this section;

(ii) The Medicare share fraction determined under paragraph (c)(4) of this section; and

(iii) The transition factor determined under paragraph (c)(5) of this section.

(2) **Interim and final payments**. CMS uses data on hospital discharges (as that term is defined in §412.4(a) of this chapter), Medicare Part A inpatient-bed-days, Medicare Part C inpatient-bed-days, and total inpatient-bed-days, from the hospital cost report for the hospital fiscal year that ends during the Federal fiscal year prior to the fiscal year that serves as the payment year as the basis for making preliminary incentive payments. Final payments are determined at the time of settling the hospital cost report for the hospital fiscal year that ends during the payment year, and settled on the basis of data from that cost reporting period.

(3) **Initial amount**. The initial amount is equal to one of the following:

(i) For each hospital with 1,149 discharges or fewer during the fiscal year prior to the payment year, $2,000,000.

(ii) For each hospital with at least 1,150 but no more 23,000 discharges during the payment year, $2,000,000 + [$200 x (n – 1,149)], where n is the number of discharges for the hospital during the fiscal year prior to the payment year.

(iii) For each hospital with more than 23,000 discharges for the fiscal year prior to the payment year, $6,370,400.

(4) **Medicare share fraction**.

(i) **General**.

(A) CMS determines the Medicare share fraction by using the number of Medicare Part A, Medicare Part C, and total inpatient-bed-days using data from the Medicare cost report as specified by CMS.

(B) CMS computes the denominator of the Medicare share fraction using the charity care charges reported on the hospital's Medicare cost report.

(ii) The Medicare share fraction is the ratio of--

(A) A numerator which is the sum of--

(1) The number of inpatient-bed-days during the period which are attributable to individuals with respect to whom payment may be made under Part A; and

(2) The number of inpatient-bed-days during the period which are attributable to individuals who are enrolled with a Medicare Advantage organization (as defined in §422.2 of this chapter).

(iii) A denominator which is the product of--

(A) The total number of inpatient-bed-days during the period; and

(B) The total amount of the eligible hospital's charges during the period, not including any charges that are attributable to charity care divided by the estimated total amount of the hospitals charges during the period.

(5) **Transition factor**. For purposes of the payment formula, the transition factor is as follows:

(i) For hospitals whose first payment year is FY 2011--

(A) 1 for FY 2011;

(B) ¾ for FY 2012;

(C) ½ for FY 2013; and

(D) ¼ for FY 2014.

(ii) Hospitals whose first payment year is FY 2012--

(A) 1 for FY 2012;

(B) ¾ for FY 2013;

(C) ½ for FY 2014; and

(D) ¼ for FY 2015;

(iii) Hospitals whose first payment year is FY 2013--

(A) 1 for FY 2013;

(B) ¾ for FY 2014;

(C) ½ for FY 2015; and

(D) ¼ for FY 2016.

(iv) Hospitals whose first payment year is FY 2014--

(A) ¾ for FY 2014;

(B) ½ for FY 2015; and

(C) ¼ for FY 2016.

(v) Hospitals whose first payment year is FY 2015--

(A) ½ for FY 2015; and

(B) ¼ for FY 2016.

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