Entry: Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
Definition: The Federal law that created the current risk and cost contract provisions under which health plans contract with HCFA. Legislation that created the target rate of increase cost based limits on reimbursements for inpatient operating costs. These limits are considered per Medicare discharges total amounts. A facility's target amount is derived from costs in its base year (1st full fiscal year of operation with application to CMS as same) updated to the current fiscal year by the annual allowable rate of increase. Medicare payments for operating costs generally may not exceed the facility's target amount and still be paid by CMS. These provisions apply to hospitals and units excluded from PPS and DRG. When cost reports fall short of the TEFRA limit, certain paybacks are provided. If costs exceed TEFRA, facilities can submit an exception report and may or may not be provided additional payment. Many facilities that established TEFRA limits in the early 1980s are finding they consistently exceed their TEFRA limits. Units normally under the TEFRA rules are psychiatric units, rehab units, free standing specialty hospitals, oncology outpatient clinics and others.
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