Generally the amount which a third party using cost-related reimbursement will actually reimburse. Under Medicare reasonable costs are costs actually incurred in delivering health services excluding any part of such incurred costs found to be unnecessary for the efficient delivery of needed health services. The law stipulates that, except for certain deductible and coinsurance amounts that must be paid by beneficiaries, payments to hospitals shall be made on the basis of the reasonable cost of providing the covered services. The Secretary of HEW has prescribed rules setting forth the method or methods to be used and the items to be included in determining the reasonable cost of covered care. The regulations require that costs be apportioned between Medicare beneficiaries and other hospital patients so that neither group subsidizes the costs of the other. The items or elements of cost, both direct and Indirect, which the regulations specify as reimbursal3le are known as allowable costs. Such costs are reimbursable on the basis of a hospital’s actual costs to the extent that they are reasonable and are related to patient care. Under certain conditions the following items may be included as allowable costs: capital depreciation; interest expenses; educational activities; research costs related to patient care; unrestricted grants, gifts and income from endowments; value of services of non-paid workers, compensation of owners; payments to related organizations; return on equity capital of proprietary providers; and the inpatient routine nursing differential. Bad debts may only be included to the extent institutions fail in good faith efforts to collect the debts.
The amount a third party (usually the medical insurer) will actually reimburse for health care. This amount is based on the cost to the provider for delivering that service.