What is TEFRA?

TEFRA stands for the Tax Equity and Fiscal Responsibility Act of 1982, a federal law that introduced major changes to how Medicare reimburses hospitals and other healthcare providers. One of TEFRA's key healthcare provisions established cost-based reimbursement limits and payment methodologies for certain provider types that were not included in Medicare's Prospective Payment System (PPS).

Under TEFRA, Medicare establishes a facility-specific target amount based on historical costs. Reimbursement is then compared to this target, encouraging providers to manage costs while maintaining quality patient care. Today, TEFRA payment principles continue to apply to certain specialized facilities and hospital types that are exempt from standard PPS reimbursement methodologies.

For organizations involved in Medicare reimbursement auditing, understanding TEFRA is essential because it influences how allowable costs, reimbursement settlements, and compliance requirements are calculated and reviewed for applicable providers.

Why we do TEFRA Exceptions

Hospitals and healthcare facilities operating under the TEFRA (Tax Equity and Fiscal Responsibility Act) reimbursement methodology may experience significant changes in patient populations, service intensity, operating costs, or other circumstances that are beyond their control. When these events cause a facility's costs to increase, Medicare regulations may allow the provider to request a TEFRA Exception Adjustment to its reimbursement target.

Our TEFRA Exception reviews help ensure that eligible providers receive the Medicare reimbursement to which they are entitled. Through a comprehensive analysis of cost reports, patient utilization data, regulatory requirements, and supporting documentation, we identify circumstances that may qualify for an exception adjustment and evaluate whether reimbursement limits accurately reflect the facility's operational realities.

By conducting thorough TEFRA Exception reviews, we help providers:

• Identify potential opportunities for increased Medicare reimbursement.
• Ensure compliance with Medicare regulations and documentation requirements.
• Support exception requests with accurate financial and operational data.
• Recover reimbursement that may otherwise be lost due to outdated or unrepresentative payment limits.
• Reduce financial risk associated with audits, appeals, and reimbursement settlements.

Our goal is to help providers maximize appropriate reimbursement while maintaining full compliance with Medicare guidelines.

Requirements for the TEFRA Exception Request

A provider seeking a TEFRA Exception Adjustment must demonstrate that factors beyond its control caused increases in costs or significant changes in operations that are not adequately reflected in its current TEFRA target amount. Medicare requires the provider to submit a timely request supported by sufficient financial, statistical, and operational documentation.

A complete TEFRA Exception Request generally includes:

• A written request explaining the circumstances that support the exception.
• Documentation of the specific events or operational changes that resulted in increased costs or affected patient care.
• Supporting financial data, including Medicare cost report information and analyses of the impacted costs.
• Patient and utilization statistics that demonstrate changes in case mix, service intensity, or other relevant factors.
• Evidence that the increased costs were reasonable and necessary for the delivery of patient care.
• Required supporting schedules and worksheets requested by the Medicare Administrative Contractor (MAC).
• Submission within Medicare's applicable filing deadlines and according to regulatory requirements.

Requests should be submitted by email to: tefraexceptionrequest@noridian.com. TEFRA Exception requests submitted to any other email address will not be considered.