Medicare Managed Care Manual (Pub. 100-16), Ch. 17b § 280
Lower of Costs or Charges
280 - Lower of Costs or Charges
(Rev. 4, 10-01-01)
Payment to providers (including Medicare cost-based HMO/CMP Providers) for services
provided to Medicare beneficiaries will be based upon the lower of the reasonable cost of
providing those services or the customary charges for the same services. However, in the
case of Hospital Part A services, this provision will not apply to cost reporting periods
beginning on or after October 1, 1982, for any hospital that is subject to the rate of
increase ceiling under §1886(b) of the Act. The lower of cost or charges provision also
will not apply with respect to Hospital Part A services furnished by a hospital that is
subject to the PPS pursuant to §1886(d) of the Act for cost reporting periods beginning
on or after October 1, 1983. Providers entitled to recapture previously disallowed costs
will continue to be able to do so during this time.
Payments to providers will be based on the interim rate that approximates reasonable cost
as nearly as practicable, but cannot exceed 100 percent of the customary charges for the
same services.
HMO/CMPs should exercise care in the application of the lower of costs or charges
provisions due to its limited applicability.
The principle will be applicable to services rendered by providers other than those public
providers that render services free of charge or at a nominal charge. When such public
providers render services to beneficiaries, they will be paid full reasonable cost for those
services.
Lower of costs or charges rules apply to services obtained by the cost-based HMO/CMP
from outside providers, and to services furnished to the HMO/CMP’s Medicare enrollees
by providers owned and operated by the HMO/CMP or related to the HMO/CMP by
common ownership and control. Rules applicable to related organizations are discussed
in Chapter 10 of the “Provider Reimbursement Manual” (Pub. 15), Part I.
For a more detailed discussion of the lower of costs or charges provision, see Chapter 26
of the “Provider Reimbursement Manual” (Pub. 15), Part I.