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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Analysis of Hospital Capital Costs," (A-09-91-00070)

April 21, 1992

Complete Text of Report is available in PDF format (636 KB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This final audit report analyzes hospital capital costs during the first 5 years of Medicare's prospective payment system (PPS). We found that capital costs increased much faster than other leading economic indexes, even though the hospital industry had significant excess capacity. We recommend that HCFA propose legislation to continue mandated reductions in capital payments beyond FY 1995 to recognize that the historical costs used in setting PPS rates are inflated because of excess hospital capacity and the inclusion of inappropriate elements (waivers of interest income offsets and depreciation of federally funded assets). The HCFA generally concurred with our position on excess capacity but did not agree on the issue of interest income waivers and depreciation on federally funded assets.