1. Insert Letterhead
Insert Date
Ms. Donna Kalafut
Noridian Administrative Services, LLC
900 42nd Street S.
Fargo, ND 58108-6720
Re: Provider’s Preliminary Medicare Position Paper
Provider Name: Saint Rose Hospital
Provider Number: 05-0002
Intermediary: Noridian Administrative Services, LLC
Fiscal Year Ended: September 30, 2007
PRRB Case Number: 13-2534
Dear Ms. Kalafut:
Saint Rose Hospital hereby submits its Preliminary Medicare Position Paper for the above
referenced appeal. Please do not hesitate to contact us if you have any questions.
Very truly yours,
cc: Mr. Isaac Blumberg, Chief Operating Officer
Blumberg Ribner, Inc.
315 South Beverly Drive, Suite 505
Beverly Hills, CA 90212
Mr. Roger Krissman, CFO
Saint Rose Hospital
27200 Calaroga Avenue
Hayward, CA 94545

2. BEFORE THE PROVIDER REIMBURSEMENT REVIEW BOARD
For The Fiscal Year Ending September 30, 2007
PRRB Case Number: 13-2534
Provider Name: Saint Rose Hospital
Provider Number: 05-0002
VS
Intermediary: Noridian Administrative Services, LLC
Submitted By:
L.H & Associates, LLC
Post Office Box 0511
Lafayette, CA 94549-0511
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3. TABLE OF CONTENTS
Page
I. BACKGROUND INFORMATION..............................................................................................3
II. STATEMENT OF ISSUES..........................................................................................................4
III. PROVIDER’S POSITION...........................................................................................................5
Issue Number 1 – Rural Floor Budget Neutrality
IV. PRELIMINARY DOCUMENT LIST 6
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4. I. BACKGROUND INFORMATION
Saint Rose Hospital is located in Hayward, CA
Notice of Program Reimbursement Dated: February 20, 2013
Request for Hearing Dated: July 22, 2013
Request to Add Issue Dated: August 27, 2013
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5. II. STATEMENT OF ISSUES
1. Rural Floor Budget Neutrality Issue (Audit Adjustment 7) - Whether the statutorily
mandated budget neutrality adjustment associated with the rural floor wage index was properly
established and/or calculated, in setting the Medicare inpatient prospective payment system
("PPS") standardized amount for the federal fiscal years ("FFY") that overlap with the provider's
appealed cost reporting period ("the rural floor budget neutrality issue").The Provider contends
that if CMS had performed a proper rural floor budget neutrality computation, using a
methodology that was actually budget neutral, the PPS standardized amount would not have been
understated. However, the Provider asserts that CMS has violated the statutory directive for
making application of the rural floor budget neutral. See Balanced Budget Act of 1997, Pub. L.
No.105-33, §4410(b).Estimated Impact: $44,000dget neutral. See Balanced Budget Act of 1997,
Pub. L. No.105-33, §4410(b). Estimated Impact: $351,000
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6. III. PROVIDER’S POSITION
Issue Number 1 - Rural Floor Budget Neutrality
Facts
This issue involves the application of the rural floor budget neutrality adjustment factor used in
developing the PPS Standardized Amount published in the Federal Register, which was effective
October 1, 2001 and October 1, 2002. We contend there was an error in the application of this factor that
results in an understatement of PPS payments.
There are two types of budget neutrality1 approaches under the Medicare Prospective Payment System
("PPS"): (1) reversing, used by CMS to make geographic reclassification and outlier costs budget
neutral, and (2) non-reversing, used by CMS to make DRG average case weights and wage index
adjustments budget neutral.2 CMS has applied a non-reversing budget neutrality adjustment to the
Medicare inpatient PPS each year since 1998 to account for the increase in payments related to the
Medicare wage index rural floor. Therefore, even though the rural floor cost is quite similar in nature to
geographic reclassification cost (e.g., both the rural floor and geographic reclassifications will
consistently increase Medicare payments annually to affected hospitals through an increase to their wage
index, and the affected hospitals may change from year to year), CMS did not reverse the prior year's
budget neutrality adjustment for the rural floor prior to making the current year's budget neutrality
adjustment for the rural floor. The problem with CMS's approach is that the negative impact on the PPS
"standardized amount" resulting from the budget neutrality adjustment has compounded over time so
that the adjusted PPS rates will be lower than they should be to ensure that aggregate PPS payments are
the same as they would have been absent the rural floor adjustment. Therefore, the resulting rates are not
budget neutral as required by law, but result in aggregate PPS payments that are too low.
The Provider contends that the rural floor budget neutrality adjustment as implemented by CMS violates
the law's requirement of budget neutrality. The Provider also contends that the prior year’s rural floor
adjustment should have been removed before implementing the current year’s adjustment so that the
consistently negative adjustments do not compound over time. CMS should have treated the rural floor
budget neutrality adjustment as a reversing adjustment akin to how it handles geographic reclassification
and outlier budget neutrality adjustments. Because it did not, CMS has inappropriately reduced PPS.
Conclusion
The Provider requests that the Intermediary revise the Provider’s PPS payments by reversing the rural
floor budget neutrality adjustment.
1 The concept of budget neutrality is that a particular adjustment to PPS rates, or an additional payment
like outlier payments, be offset by other adjustments to PPS payments so that the estimated overall
impact is no increase or decrease in aggregate Medicare payments.
2 A "reversing" adjustment reverses the prior year's budget neutrality adjustment and starts a fresh
budget neutrality adjustment for the current year. A non-reversing adjustment picks up the budget
neutrality adjustment process where the prior year left off.
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7. IV. Preliminary Documents List
P-1. Notice of Program Reimbursement dated February 20, 2013
P-2. Audit Adjustments, Estimated Impact Calculations and Worksheets
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