Grandfathering: is it a fair capital payment transition approach?

The concept of grandfathering capital obligations was discussed in last year's Congressional debate over capital payment methods for the Medicare prospective payment system (PPS). Under grandfathering, hospitals would continue to receive cost-based capital payments for expenditures obligated prior to a threshold date, over a predetermined period of time. While grandfathering protects hospitals that recently invested in major capital projects, it is concluded that grandfathering is an inequitable approach for paying for capital under PPS. It provides payments in excess of cash needs to hospitals that recently invested, at the expense of hospitals that need to invest. An alternative capital payment method based on a straight-line transition, all other things being equal, provides greater protection to a larger number of hospitals.