[Federal Register Volume 59, Number 120 (Thursday, June 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15297]


[[Page Unknown]]

[Federal Register: June 23, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 412

[BPD-771-F]
RIN 0938-AG23

 

Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 1994 Rates

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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SUMMARY: On September 1, 1993, we published a final rule with comment 
period that implemented certain changes in the hospital inpatient 
prospective payment systems resulting from the enactment of the Omnibus 
Budget Reconciliation Act of 1993 on August 10, 1993. This final rule 
responds to public comments on that publication.

EFFECTIVE DATE: These regulations are effective on July 25, 1994.

ADDRESSES: Copies: To order copies of the Federal Register containing 
this document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 783-3238 or by faxing to (202) 275-
6802. The cost for each copy is $4.50. As an alternative, you can view 
and photocopy the Federal Register document at most libraries 
designated as Federal Depository Libraries and at many other public and 
academic libraries throughout the country that receive the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Lana Price, (410) 966-4529.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

    Under section 1886(d) of the Social Security Act (the Act), a 
system of payment for the operating costs of acute hospital inpatient 
stays under Medicare Part A (Hospital Insurance) based on 
prospectively-set rates was established effective with hospital cost 
reporting periods beginning on or after October 1, 1983. Under this 
system, Medicare payment for hospital inpatient operating costs is made 
at a predetermined, specific rate for each hospital discharge. All 
discharges are classified according to a list of diagnosis-related 
groups (DRGs). The regulations governing the hospital inpatient 
prospective payment system are located in 42 CFR part 412.
    For cost reporting periods beginning before October 1, 1991, 
hospital inpatient operating costs were the only costs covered under 
the prospective payment system. Payment for capital-related costs had 
been made on a reasonable cost basis because, under sections 1886(a)(4) 
and (d)(1)(A) of the Act, those costs had been specifically excluded 
from the definition of inpatient operating costs. However, section 
4006(b) of the Omnibus Budget Reconciliation Act of 1987 (Public Law 
100-203) revised section 1886(g)(1) of the Act to require that, for 
hospitals paid under the prospective payment system for operating 
costs, capital-related costs would also be paid under a prospective 
payment system effective with cost reporting periods beginning on or 
after October 1, 1991. As required by section 1886(g) of the Act, we 
replaced the reasonable cost-based payment methodology with a 
prospective payment methodology for hospital inpatient capital-related 
costs. Under the new methodology, effective for cost reporting periods 
beginning on or after October 1, 1991, a predetermined payment amount 
per discharge is made for Medicare inpatient capital-related costs.

B. Relevant Provisions of the Omnibus Budget Reconciliation Act of 1993

    On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 
(Pub. L. 103-66) was enacted. The provisions of sections 13501, 13502, 
13505, 13506, and 13563 of Public Law 103-66 made the following changes 
that affect Medicare payments for hospital inpatient services under the 
prospective payment system during Federal fiscal year (FY) 1994:
     The update factor for the standardized amounts for FY 1994 
is the market basket rate of increase minus 2.5 percentage points for 
hospitals located in urban areas and the market basket rate of increase 
minus 1.0 percentage point for hospitals located in rural areas. The 
applicable increases in the update factors for FYs 1995 through FY 1998 
(and each subsequent fiscal year) are also established.
     Beginning in FY 1994, updates to the hospital-specific 
rates for sole community hospitals (SCHs) and Medicare-dependent, small 
rural hospitals (MDHs) are to be made on a Federal fiscal year basis, 
rather than on a cost reporting period basis. The FY 1994 update is 
computed taking into account the portion of the 12-month cost reporting 
period beginning during FY 1993 that occurred during FY 1994. In 
addition, the update for SCHs and MDHs is the market basket rate of 
increase minus 2.3 percentage points for FY 1994. The applicable 
percentage increase for FY 1995 and the methodology for computing the 
increase in FY 1996 and subsequent fiscal years also are established.
     The unadjusted standard Federal rate for capital payments 
to prospective payment hospitals is reduced by 7.4 percent for FY 1994. 
We note that this provision does not supersede the provision of section 
1886(g) of the Act that requires that aggregate payments equal 10 
percent less than the amount that would have been paid to hospitals 
under reasonable cost reimbursement.
     Hospitals in urban areas with wage indexes below the wage 
index for rural areas in the State and hospitals in a State comprised 
of a single urban area are not subject to further decreases in their 
wage indexes as a result of reclassification of other hospitals. Under 
the statute, this provision is effective retroactive to October 1, 
1991.
     Hospitals classified as regional referral centers on 
September 30, 1992, will maintain that classification for cost 
reporting periods beginning in FYs 1993 and 1994, unless the area in 
which the hospitals are located are redesignated as Metropolitan 
Statistical Areas by the Office of Management and Budget for such a 
fiscal year.
     The special payment provisions for Medicare-dependent, 
small rural hospitals (MDHs) are extended through discharges occurring 
before October 1, 1994. However, after a hospital's first three 12-
month cost reporting periods as an MDH, there is a revision in the 
payment methodology.
     Hospitals that lost their classifications as regional 
referral centers for cost reporting periods beginning during FY 1993 
are entitled to receive a lump-sum payment equal to the difference 
between the hospital's actual aggregate payment during that period and 
the aggregate payment that the hospital would have received if the 
hospital had been classified as a regional referral center. Hospitals 
that lost their classification as MDHs for cost reporting periods 
beginning during FYs 1992 or 1993 are entitled to receive a similar 
lump-sum payment.
     Hospitals that fail to qualify as regional referral 
centers or MDHs as a result of a decision by the Medicare Geographic 
Classification Review Board to reclassify the hospitals as being 
located in an urban area for either FY 1993 or FY 1994 may decline such 
reclassification.
     The regional floor provision, which allows hospitals in 
census regions for which regional standardized amounts exceed the 
national standardized amount to be paid based on 15 percent of the 
regional amount and 85 percent of the national amount, is extended 
through FY 1996.
     For FYs 1994 through 1997, the applicable rate-of-increase 
percentages (the market basket percentage increase) for hospitals that 
are excluded from the prospective payment system are reduced by the 
lesser of one percentage point or the percentage point difference 
between 10 percent and the percentage by which the hospitals' allowable 
operating costs of inpatient hospital services for cost reporting 
periods beginning in FY 1990 exceed the hospitals' target amounts. 
Hospitals or distinct part hospital units with FY 1990 operating costs 
exceeding target amounts by 10 percent or more receive the market 
basket percentage increase.
     Payments to hospitals for the cost of administering blood 
clotting factor to Medicare beneficiaries who have hemophilia are 
reinstated retroactively to discharges occurring on or after December 
19, 1991, and extended through discharges occurring before October 1, 
1994.
     Effective with discharges occurring on or after August 10, 
1993, the time spent by graduate medical residents providing services 
at a community health center under the ownership and control of a 
hospital are included in the hospital's resident count for purposes of 
computing indirect medical education payments.
     For cost reporting periods beginning in FYs 1994 and 1995, 
direct graduate medical education payments are not updated, except for 
payments for residents in primary care, and obstetrics and gynecology.
     Effective August 10, 1993, a resident in an approved 
preventive medicine training program may be counted as a full-time 
resident for up to 2 additional years beyond the initial residency 
period.
    On September 1, 1993, we published a final rule with comment period 
(58 FR 46270) to implement changes to the prospective payment systems 
for hospital operating costs and capital-related costs for FY 1994.

II. Analysis of and Responses to Public Comments

    In the final rule with comment period of September 1, 1993, we 
announced that comments on changes to the May 26, 1993 proposed rule 
resulting from provisions of Public Law 103-66 would be considered if 
we received them no later than November 1, 1993. A total of 18 items of 
correspondence containing comments were received timely. Most of the 
comments addressed the requirement that hospital-specific rates be 
updated on a Federal fiscal year basis. Two commenters expressed 
concern about the issue of payment for direct costs of graduate medical 
education (GME), and one commenter discussed the pricing of hemophilia 
products. These comments and our responses to them are set forth below.

A. Payment for Blood Clotting Factor for Hemophilia Inpatients 
(Secs. 412.2 and 412.115)

    Hemophilia is a blood disorder characterized by prolonged 
coagulation time, caused by an inherited deficiency of a factor in 
plasma necessary for blood to clot. Hemophilia encompasses three 
conditions: Factor VIII deficiency (classical hemophilia); Factor IX 
deficiency (plasma thromboplastin component); and Von Willebrand's 
disease. The most common factors required by hemophiliacs to increase 
coagulation are Factor VIII and Factor IX; a small number of 
hemophiliacs have developed inhibitors to these factors and require 
special treatment.
    Under section 6011 of Public Law 101-239, Congress amended section 
1886(a)(4) of the Act to provide that prospective payment hospitals 
receive an additional payment for the costs of administering blood 
clotting factor to Medicare hemophiliacs who are hospital inpatients. 
This add-on payment was effective for blood clotting factor furnished 
on or after June 19, 1990, and before December 19, 1991. We addressed 
the issue of payment for Medicare inpatients with hemophilia who 
require blood clotting factors in detail in the April 20, 1990 final 
rule with comment period (55 FR 15157), the September 4, 1990, final 
rule (55 FR 36000), and the final rule published August 30, 1991 (56 FR 
43223). Section 13505 of Public Law 103-66 amended section 6011(d) of 
Public Law 101-239 to extend the period covered by the add-on payment 
for blood clotting factors administered to Medicare inpatients with 
hemophilia through September 30, 1994. Thus, section 6011 of Public Law 
101-239 as amended provides for additional payment to be made to 
hospitals under the prospective payment system for the administration 
of blood clotting factor to Medicare hospital inpatients who have 
hemophilia for discharges occurring on or after June 19, 1990, and 
before October 1, 1994.
    In our September 1, 1993 final rule with comment period (58 FR 
46304), we calculated the add-on payment for the extended period of 
applicability using the same methodology we used in FYs 1990, 1991, and 
1992. The payment for blood clotting factor was based on a 
predetermined price per unit of clotting factor multiplied by the 
number of units provided. We established a price per unit of clotting 
factor based on the most current price listing available from the Drug 
Topics Red Book, the publication of pharmaceutical average wholesale 
prices (AWP). We set three separate add-on amounts, one for each of the 
three basic types of clotting factor. The add-on payment amount for 
each of the three factor types was based on the median AWP of the 
several products available in that category of factor, discounted by 15 
percent.
    To account for new products, the discontinuation of existing 
products, and other changes affecting the price of these factors, we 
reevaluated the price per unit for blood clotting factors for each 
Federal fiscal year based on the most current Drug Topics Red Book. In 
the August 30, 1991 final rule, we calculated updated prices for FY 
1992 effective with discharges occurring on or after October 1, 1991, 
as follows:

Factor VIII; $.72 per unit
Factor IX; $.26 per unit
Other Hemophilia Blood Clotting Factor; $1.11 per unit

    Given the extension of coverage under section 13505 of Public Law 
103-66 for the add-on payment, the above prices remained in effect for 
discharges occurring in FY 1992; that is, from October 1, 1991 through 
September 30, 1992.
    As stated in the September 1, 1993 final rule (58 FR 46305), due to 
the retroactive application of section 13505 of Public Law 103-66, we 
had to calculate add-on payment prices for both FYs 1993 and 1994. We 
followed our past practice and set separate prices for each of those 
Federal fiscal years using the most recent Drug Topics Red Book. Thus, 
for discharges occurring in FY 1993, we calculated the price per unit 
of blood clotting factor based on the 1992 Drug Topics Red Book. 
Following the same methodology, that is, identifying the median price 
in the range of a specific factor type discounted by 15 percent, we 
established the following prices per unit effective for discharges 
occurring in FY 1993 (October 1, 1992, through September 30, 1993):

Factor VIII; $.76 per unit
Factor IX; $.30 per unit
Other Hemophilia Blood Clotting Factor; $1.02 per unit

    For discharges occurring during FY 1994, following the AWP 
guidelines in the 1993 Drug Topics Red Book, the updated prices per 
unit of factor are as follows:

Factor VIII; $.76 per unit
Factor IX; $.33 per unit
Other Hemophilia Blood Clotting Factor; $1.02 per unit

We stated that these prices are effective for add-on payment for blood 
clotting factor administered to inpatients who have hemophilia for 
discharges beginning on or after October 1, 1993, through September 30, 
1994.
    As determined in prior years, we included in the category ``Other'' 
those new products that were most similar in terms of cost and 
effectiveness.
    When the add-on payment for blood clotting factors was first 
implemented, specific codes were developed to identify these factors. 
(See the April 20, 1990, final rule with comment period (55 FR 15159).) 
We stated that we intend to use these same codes for both the 
retroactive and prospective periods covered by section 6011 of Public 
Law 101-239, as amended.
    We also stated that because these codes were not required to be 
included on hospital inpatient claims for discharges occurring on or 
after December 19, 1991, hospitals that wish to receive payment for 
blood clotting factor provided to hemophiliacs will have to submit 
amended bills for discharges occurring on or after that date.
    We further stated that we will re-issue instructions to Medicare 
hospitals and fiscal intermediaries concerning the codes to use for 
clotting factor and how to use them. We noted that payment will be made 
for blood clotting factor only if there is an ICD-9-CM diagnosis code 
for hemophilia included on the bill.
    In the final rule with comment period of September 1, 1993 (58 FR 
46335), we revised Secs. 412.2(f)(8) and 412.115(b) to reflect the new 
effective date.
    Comment: We received one comment concerning payment for blood 
clotting factors for hemophilia inpatients. The commenter stated that a 
new Factor IX product (Bebulin) has been introduced that is, according 
to the commenter, the only Factor IX concentrate that has been shown to 
be virally safe. Because Bebulin is rated differently from other Factor 
IX products, the commenter believes its price should not be included in 
the regular price category of Factor IX; rather, its pricing structure 
should be separate and be set at $0.56 per unit, minus the 15 percent 
discount.
    Response: The Factor IX product identified by the commenter 
(Bebulin) was included with the other Factor IX clotting factor 
products in establishing the median price for Factor IX for FY 1994. We 
note that, although Bebulin was at the upper price range of the Factor 
IX products, its price did not differ sufficiently to warrant separate 
consideration.

B. Changes to the Update Factor Applied to Hospital-Specific Rates 
(Sec. 412.73)

    Under section 1886(b)(3)(C) and (D) of the Act, certain hospitals 
that qualify as SCHs and MDHs are paid using the higher of their FY 
1982 or FY 1987 hospital-specific rate, updated through the current 
year. Section 13501(a)(2) of Public Law 103-66 amended section 
1886(b)(3)(B) of the Act by adding a new paragraph (iv) to provide 
that, starting in FY 1994, updates to the hospital-specific rates be 
made on a Federal fiscal year basis rather than on a cost reporting 
period basis. That section further states that the FY 1994 update 
factor will be computed taking into account the portion of the 12-month 
cost reporting period beginning during FY 1993 that occurred during FY 
1994. To implement this provision, we established a ``deemed FY 1993 
update'' that was used to determine the FY 1994 hospital-specific 
rates. That is, we prorated the FY 1993 update according to the number 
of months in the cost reporting period that were included in FY 1993. 
This deemed update was used to determine the FY 1993 hospital-specific 
payment rates to which the FY 1994 update would be applied, but it did 
not affect payments to MDHs and SCHs in FY 1993.
    The deemed update factors were as follows: 

------------------------------------------------------------------------
                                                              Deemed FY 
                                                             1993 update
      FY 1993 cost reporting period beginning between           factor  
                                                              (percent) 
------------------------------------------------------------------------
10/1/92-10/31/92...........................................       4.1000
11/1/92-11/30/92...........................................       3.7520
12/1/92-12/31/92...........................................       3.4052
1/1/93-1/31/93.............................................       3.0595
2/1/93-2/28/93.............................................       2.7150
3/1/93-3/31/93.............................................       2.3716
4/1/93-4/30/93.............................................       2.0294
5/1/93-5/31/93.............................................       1.6883
6/1/93-6/30/93.............................................       1.3484
7/1/93-7/31/93.............................................       1.0096
8/1/93-8/31/93.............................................       0.6719
9/1/93-9/30/93.............................................      0.3354 
------------------------------------------------------------------------

    We calculated the deemed update factor by compounding the FY 1993 
update factor, using the number of months of the cost reporting period 
occurring in FY 1993. We raised 1.041 (the amount applied to the 
hospital-specific rates for cost reporting periods that began in FY 
1993) to a power equal to the number of months in the cost reporting 
period that occurred during FY 1993 divided by 12, and determined the 
relevant percentage increase. For instance, for the update factor 
calculated for cost reporting periods beginning in June 1993, we raised 
1.041 to the \4/12\ power, which equals 1.013484. The percentage 
increase is therefore 1.3484 percent (1.013484-1, converted to 
percentage terms).
    Comment: Some commenters objected to our interpretation of section 
13501(a)(2) of Public Law 103-66, believing that Congress intended for 
the Secretary to prorate the FY 1994 update of 2.0 percent rather than 
the FY 1993 update of 4.1 percent. The commenters pointed out that the 
methodology of calculating a deemed update by prorating the FY 1993 4.1 
percent update, and applying the full FY 1994 update of 2.0 percent, 
resulted in a decrease in hospital-specific rates for hospitals with 
cost reporting periods beginning between April 1, 1993 and September 
30, 1993. These commenters requested that we recompute the hospital-
specific rates for FY 1994 by prorating the FY 1994 update of 2.0 
percent according to the number of months in a hospital's cost 
reporting period included in FY 1994. These updates would be applied to 
FY 1993 hospital-specific rates that reflect the full FY 1993 update 
amount of 4.1 percent rather than a prorated share.
    Response: The commenters are correct in stating that under the 
policy announced in our September 1, 1993 final rule, the hospital-
specific rate for SCHs and MDHs with cost reporting periods beginning 
between April 1, 1993 and September 30, 1993 will be lower in FY 1994 
than FY 1993. We agree with commenters that Congress probably did not 
intend that the FY 1994 hospital-specific rates for these hospitals be 
reduced below the FY 1993 rates. Based on these comments, we have 
revisited this issue and agree that the better interpretation of 
section 13501(a)(2) of Public Law 103-66 is to prorate the FY 1994 
update and incorporate the full amount of the FY 1993 update.
    Therefore, we are revising the FY 1994 hospital-specific rates by 
applying a prorated share of the 2.0 percent update for FY 1994 to FY 
1993 hospital-specific rates that reflect the full 4.1 percent update. 
This revision affects only the calculation of the hospital-specific 
rates for SCHs and MDHs. The prorated share of the FY 1994 update will 
be based on the number of months in the hospital's cost reporting 
period included in FY 1994. The updates to be applied for FY 1994 are 
as follows: 

------------------------------------------------------------------------
                                                               FY 1994  
      FY 1994 cost reporting period beginning between           update  
                                                              (percent) 
------------------------------------------------------------------------
10/1/93-10/31/93...........................................       2.0000
11/1/93-11/30/93...........................................       1.8318
12/1/93-12/31/93...........................................       1.6639
01/1/94-01/31/94...........................................       1.4963
02/1/94-02/28/94...........................................       1.3289
03/1/94-03/31/94...........................................       1.1619
04/1/94-04/30/94...........................................       0.9950
05/1/94-05/31/94...........................................       0.8285
06/1/94-06/30/94...........................................       0.6623
07/1/94-07/31/94...........................................       0.4963
08/1/94-08/31/94...........................................       0.3306
09/1/94-09/30/94...........................................      0.1652 
------------------------------------------------------------------------

    To calculate the FY 1994 hospital-specific rate, we applied the 
appropriate FY 1994 update to the FY 1993 hospital-specific rate, which 
incorporates the full FY 1993 update. The updates in the table above 
are based on the number of months in the cost reporting period 
occurring in FY 1994. We raised 1.02 (the amount applied to the 
hospital-specific rates for cost reporting periods that began in FY 
1994) to a power equal to the number of months in the cost reporting 
period that occurred during FY 1994, divided by 12, and determined the 
relevant percentage increase. For instance, for the update factor 
calculated for cost reporting periods beginning in June, 1994, we 
raised 1.020 to the \4/12\ power, which equals 1.006623 or 0.6623 
percent when converted to percentage terms.

C. Direct Graduate Medical Education Payment (Sec. 413.86)

    Section 1886(h) of the Act requires the calculation of hospital-
specific approved per resident graduate medical education amounts for 
cost reporting periods beginning on or after July 1, 1985, based on the 
hospital's allowable costs for its cost reporting period beginning 
during FY 1984. Section 1886(h)(2)(D) of the Act generally provides for 
updating the approved per resident amount for subsequent years by the 
estimated percentage change in the Consumer Price Index (CPI-U).
    Section 13563(a)(1) of Public Law 103-66 requires that for cost 
reporting periods beginning in FYs 1994 and 1995 the approved per 
resident amount for a hospital is updated for primary care residents 
and obstetrics and gynecology (OB-GYN) residents only. For all other 
residents, the per resident amount for cost reports beginning in FYs 
1994 and 1995 is not updated for inflation. The effect of this change 
for teaching hospitals with both primary care (or OB-GYN) residents and 
non-primary care residents is to have two different per resident 
amounts.
    In addition, section 13563(a)(2) of Public Law 103-66 amended 
section 1886(h)(5) to specify that the term ``primary care resident'' 
means a resident enrolled in an approved medical residency training 
program in family medicine, general internal medicine, general 
pediatrics, preventive medicine, geriatric medicine or osteopathic 
general practice.
    Section 1886(h)(4) of the Act bases payment for direct GME costs on 
a hospital's number of full-time equivalent (FTE) residents multiplied 
by a hospital-specific per resident amount. The number of FTE residents 
is determined by applying a weighting factor to each resident. A 
resident in an initial residency period is weighted as 1.0. If the 
resident is not in an initial residency period the weighting factor is 
reduced, as specified at Sec. 413.86(g)(3). The initial residency 
period is defined at Sec. 413.86(g)(1), as the minimum number of years 
of formal training necessary to satisfy the requirements for initial 
board eligibility in the particular specialty plus 1 year, not to 
exceed 5 years.
    Section 13563(b) of Public Law 103-66 also added a preventive 
medicine residency provision to the GME payment provisions at section 
1886(h) of the Act. Section 1886(h)(5)(F) of the Act is amended to 
allow a hospital to treat a resident or fellow in an approved 
preventive medicine residency or fellowship program the same as a 
resident in a geriatric program for purposes of determining whether a 
resident is in an initial residency period. That is, a preventive 
medicine resident or fellow would also be allowed to be counted as an 
FTE resident weighted as 1.0, for up to an additional 2 years beyond 
the initial residency period limitations. This change is effective on 
August 10, 1993. Before this effective date, the weighted FTE factor 
for preventive medicine residents beyond their initial residency period 
was reduced as specified at Sec. 413.86(g)(3).
    In the final rule with comment period of September 1, 1993 (58 FR 
46343), we revised the regulations at Sec. 413.86, concerning direct 
graduate medical education payments, to implement these statutory 
requirements. We added to the regulations at Sec. 413.86(b) the 
statutory definition of primary care resident. ``Primary care 
resident'' is a resident enrolled in an approved medical residency 
training program in family medicine, general internal medicine, general 
pediatrics, preventive medicine, geriatric medicine or osteopathic 
general practice.
    We also revised Sec. 413.86(e)(3) to add paragraph (e)(3)(ii), 
which limits to primary care residents and OB-GYN residents only the 
adjustment of each hospital's per resident amount in the previous cost 
reporting period by the projected change in the CPI-U, for cost 
reporting periods beginning in FYs 1994 and 1995.
    Finally, we added a sentence to the end of the first paragraph in 
Sec. 413.86(g)(1) to specify that, effective August 10, 1993, a 
resident or fellow in an approved preventive medicine residency or 
fellowship program may also be counted as a full FTE resident for up to 
2 additional years beyond the initial residency period limitations.
    Comment: Two commenters raised concerns regarding our 
implementation of the provision of Public Law 103-66 dealing with 
Medicare payments for the direct costs of GME. The commenters' concern 
was that the Accreditation Council for Graduate Medical Education 
(ACGME) does not use the terms ``general internal medicine'' or 
``general pediatrics'' for accrediting residency programs. Both 
commenters suggested that HCFA apply the GME inflation update to all 
internal medicine and pediatrics residents in approved programs in 
their first 3 years of training, which is the minimum number of years 
required for board eligibility in those particular specialties.
    Response: Section 1886(h)(5) of the Act, as amended by section 
13563(a)(2) of Public Law 103-66, defines ``primary care resident'' as 
``a resident enrolled in an approved medical residency training program 
in family medicine, general internal medicine, general pediatrics, 
geriatric medicine, preventive medicine, or osteopathic general 
practice.'' We recognize that this definition, and specifically the 
terms ``general internal medicine'' and ``general pediatrics'', is not 
consistent with the ACGME terminology for accrediting medical residency 
training programs in internal medicine and pediatrics. However, after 
considering the public comments, we believe that the use of the word 
``general'' encompasses those residents that are in approved internal 
medicine and pediatrics training programs, that is, those who are in 
the first 3 years of training, the minimum required for board 
eligibility. Residents who continue training beyond their first 3 years 
are considered to be training in a subspecialty, and should not be 
treated as primary care residents. Therefore, we agree with the 
commenters' suggestion that the GME inflation update be applied to all 
internal medicine and pediatrics residents participating in approved 
primary care specialty programs during their first 3 years of training.
    Comment: One commenter objected to the change in the statutory 
definition of ``initial residency period'' that was mandated by Public 
Law 103-66. Specifically, section 13563(b) amended section 
1886(h)(5)(F) of the Act by deleting the phrase ``plus one year'' from 
the definition of initial residency period, effective July 1, 1995.
    Response: As the commenter points out, the change in the statutory 
definition of the initial residency period is not effective until July 
1, 1995. Therefore, we did not address this provision in our September 
1, 1993 final rule with comment period, which set forth prospective 
payment system policies for FY 1994. We intend to address the issue 
raised by the commenter in the FY 1995 prospective payment system 
rulemaking process.

III. Provisions of the Final Rule

    This final rule responds to public comments received on the 
provisions of our September 1, 1993 final rule with comment period that 
resulted from the enactment of Public Law 103-66. Based on those 
comments, we are confirming the regulatory provisions adopted in the 
September 1, 1993 final rule, with one exception. We are revising 
Sec. 412.73(c) to specify that for purposes of determining the 
hospital-specific rate for FY 1994, the update factor is adjusted to 
take into account the portion of the 12-month cost reporting period 
beginning during FY 1993 that occurs in FY 1994.

IV. Impact Statement

    Unless the Secretary certifies that a final rule will not have a 
significant economic impact on a substantial number of small entities, 
we generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612). For purposes of the RFA, we consider all hospitals to be 
small entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis for any final rule that may have 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. With the exception of hospitals located in 
certain rural counties adjacent to urban areas, for purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital with 
fewer than 50 beds.
    The only provision that is changed by this final rule is that for 
sole community hospitals and Medicare-dependent, small rural hospitals, 
we are revising the FY 1994 hospital specific rates by applying a 
prorated share of the 2.0 percent update for FY 1994 to FY 1993 
hospital-specific rates that reflect the full 4.1 percent update. The 
prorated share of the 1994 update will be based on the number of months 
in the hospital's cost reporting period included in FY 1994. We do not 
anticipate that the aggregate impact of this change will be 
significant, but some SCHs and MDHs will receive increased FY 1994 
payments as a result of the change.
    We have determined, and the Secretary certifies, that this final 
rule will not have a significant effect on the operations of a 
substantial number of small entities or on small rural hospitals. 
Therefore, we have not prepared a regulatory flexibility analysis or an 
analysis of the effects of this rule on small rural hospitals.
    This regulation has been reviewed by the Office of Management and 
Budget.

V. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

List of Subjects in 42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

    42 CFR chapter IV is amended as follows:
    A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 continues to read as 
follows:

    Authority: Secs. 1102, 1815(e), 1820, 1871, and 1886 of the 
Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh, and 
1395ww).
* * * * *
    2. In Sec. 412.73, paragraphs (c)(9) and (c)(10) are revised to 
read as follows:


Sec. 412.73  Determination of the hospital-specific rate based on a 
Federal fiscal year 1982 base period.

* * * * *
    (c) * * *
    (9) For Federal fiscal years 1992 and 1993. For Federal fiscal 
years 1992 and 1993, the update factor is the percentage increase in 
the market basket index for prospective payment hospitals (as defined 
in Sec. 413.40(a) of this chapter).
    (10) For Federal fiscal year 1994. For Federal fiscal year 1994, 
the update factor is the percentage increase in the market basket index 
for prospective payment hospitals (as defined in Sec. 413.40(a) of the 
chapter) minus 2.3 percentage points. For purposes of determining the 
hospital-specific rate for Federal fiscal year 1994 and subsequent 
years, this update factor is adjusted to take into account the portion 
of the 12-month cost reporting period beginning during Federal fiscal 
year 1993 that occurs in Federal fiscal year 1994.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    Dated: May 5, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: May 10, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-15297 Filed 6-22-94; 8:45 am]
BILLING CODE 4120-01-P