[Federal Register Volume 62, Number 168 (Friday, August 29, 1997)]
[Rules and Regulations]
[Pages 45966-46140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22890]



[[Page 45965]]

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Part IV





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



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42 CFR Parts 400, 409, et al.



Medicare Program; Changes to the Hospital Inpatient Prospective Payment 
Systems and Fiscal Year 1998 Rates; Final Rule

Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Rules 
and Regulations

[[Page 45966]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 400, 409, 410, 411, 412, 413, 424, 440, 485, 488, 489, 
and 498

[BPD-878-FC]
RIN 0938-AH55


Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 1998 Rates

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

ACTION: Final rule with comment period.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems for operating costs and capital-related costs to 
implement necessary changes resulting from the Balanced Budget Act of 
1997, Pub. L. 105-33, and changes arising from our continuing 
experience with the systems. In the addendum to this final rule with 
comment period, we describe changes in the amounts and factors 
necessary to determine prospective payment rates for Medicare hospital 
inpatient services for operating costs and capital-related costs. 
Generally, these changes are applicable to discharges occurring on or 
after October 1, 1997. We also set forth rate-of-increase limits and 
changes for hospitals and hospital units excluded from the prospective 
payment systems.

DATES: Effective Date:  This rule is a major rule as defined in Title 
5, United States Code, section 804(2). Section 4644 of Pub. L. 105-33 
provides that, with respect to this final rule, the reference in Title 
5, United States Code, section 801(a)(3)(A) to a 60-day delay in the 
effective date for major rules is deemed to be a reference to a 30-day 
delay. In accordance with these provisions, the provisions of this 
final rule with comment period are effective on October 1, 1997.
    Comment Period: Comments on the provisions resulting from the 
Balanced Budget Act of 1997 will be considered if received at the 
appropriate address, as provided below, no later than 5 p.m. on October 
28, 1997. We will not consider comments concerning provisions that 
remain unchanged from the June 2, 1997 proposed rule or that were 
revised based on public comment.

ADDRESSES: Mail written comments (one original and three copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-878-FC, P.O. Box 7517, 
Baltimore, MD 21207-0517.
    If you prefer, you may deliver your written comments (one original 
and three copies) to one of the following addresses: Room 309-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 
20201, or Room C5-09-26, Central Building, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-878-FC. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately three weeks after publication of a document, in Room 309-
G of the Department's offices at 200 Independence Avenue, SW, 
Washington, DC, on Monday through Friday of each week from 8:30 a.m. to 
5 p.m. (phone: (202) 690-7890).
    For comments that relate to information collection requirements, 
mail a copy of comments to:

Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Herron Eydt, HCFA Desk Officer; and
Health Care Financing Administration, Office of Information Services, 
Information Technology Investment Management Group, Division of HCFA 
Enterprise Standards, Room C2-26-17, 7500 Security Boulevard, 
Baltimore, MD 21244-1850

    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) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8.00. 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: Nancy Edwards, (410) 786-4531, 
Operating Prospective Payment, DRG, and Wage Index Issues. Tzvi Hefter, 
(410) 786-4487, Capital Prospective Payment, Excluded Hospitals, and 
Graduate Medical Education Issues.

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 care 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.
    As required by section 1886(g) of the Act, effective with cost 
reporting periods beginning on or after October 1, 1991, we also have 
implemented a prospective payment methodology for hospital inpatient 
capital-related costs. Under the capital-related cost methodology, a 
predetermined payment amount per discharge is made for Medicare 
inpatient capital-related costs.

B. Summary of the Provisions of the June 2, 1997 Proposed Rule

    On June 2, 1997, we published a proposed rule in the Federal 
Register (62 FR 29902) setting forth proposed changes to the Medicare 
hospital inpatient prospective payment systems for both operating costs 
and capital-related costs, which would be effective for discharges 
occurring on or after October 1, 1997. Subsequently, on August 5, 1997, 
the Balanced Budget Act of 1997, Public Law 105-33, was enacted. This 
Act made major changes to the Medicare hospital payment systems, rates, 
and policies effective beginning with FY 1998. These legislative 
changes are summarized under section I.D. of this preamble. More 
specific details on individual provisions that we are implementing in 
this final rule with comment period are included under the various 
sections of this preamble.
    Following is a summary of the major changes that we had proposed to 
make in the June 2, 1997 proposed rule:
     We proposed changes for FY 1998 DRG classifications and 
relative weights, as required by section 1886(d)(4)(c) of the Act.
     We proposed to update the hospital wage index for FY 1998. 
We also

[[Page 45967]]

proposed revisions to the wage index based on hospital redesignations 
and a revised process for wage data verification.
     We proposed to use a revised hospital market basket in 
developing the recommended FY 1998 update factor for the operating 
prospective payment rates and the excluded hospital rate-of-increase 
limits.
     We discussed several provisions of the regulations in 42 
CFR Parts 412 and 413 and set forth certain proposed changes concerning 
the following:
    + Elimination of day outlier payments.
    + Rural referral centers.
    + Indirect medical education.
    + Direct graduate medical education programs.
     We discussed several provisions of the regulations in 42 
CFR parts 412, 413, and 489 and set forth certain proposed changes and 
clarifications concerning the following:
    + Possible adjustments to capital minimum payment levels.
    + Special exceptions application process.
     We proposed changes to the application of the criteria for 
``hospitals within hospitals'' seeking exclusion from the prospective 
payment system. We also proposed technical clarifications concerning 
exclusion of rehabilitation units.
     In the addendum to the proposed rule, we set forth 
proposed changes to the amounts and factors for determining the FY 1998 
prospective payment rates for operating costs and capital-related 
costs. We also proposed update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 1998 for 
hospitals and hospital units excluded from the prospective payment 
system.
     In Appendix A of the proposed rule, we set forth an 
analysis of the impact that the proposed changes would have on affected 
entities.
     In Appendix B of the proposed rule, we set forth our 
technical appendix on the proposed FY 1998 capital cost model.
     In Appendix C of the proposed rule, we set forth the data 
sources used to determine the market basket relative weights and choice 
of price proxies.
     In Appendix D of the proposed rule, we included our report 
to Congress on our initial estimate of an update factor for FY 1998 for 
both hospitals included in and hospitals excluded from the prospective 
payment systems, as required by section 1886(e)(3)(B) of the Act.
     As required by sections 1886(e)(4) and (e)(5) of the Act, 
in Appendix E, we provided our recommendation of the appropriate 
percentage change for FY 1998 for the following:
    + Large urban area and other area average standardized amounts (and 
hospital-specific rates applicable to sole community hospitals) for 
hospital inpatient services paid for under the prospective payment 
system for operating costs.
    + Target rate-of-increase limits to the allowable operating costs 
of hospital inpatient services furnished by hospitals and hospital 
units excluded from the prospective payment system.
     In the proposed rule, we discussed in detail the March 1, 
1997 recommendations made by the Prospective Payment Assessment 
Commission (ProPAC). ProPAC is directed by section 1886(e)(2)(A) of the 
Act to make recommendations on the appropriate percentage change factor 
to be used in updating the average standardized amounts. In addition, 
section 1886(e)(2)(B) of the Act directs ProPAC to make recommendations 
regarding changes in each of the Medicare payment policies under which 
payments to an institution are prospectively determined. In particular, 
the recommendations relating to the hospital inpatient prospective 
payment systems are to include recommendations concerning the number of 
DRGs used to classify patients, adjustments to the DRGs to reflect 
severity of illness, and changes in the methods under which hospitals 
are paid for capital-related costs. Under section 1886(e)(3)(A) of the 
Act, the recommendations required of ProPAC under sections 1886(e)(2) 
(A) and (B) of the Act are to be reported to Congress not later than 
March 1 of each year.
    We printed ProPAC's March 1, 1997 report, which included its 
recommendations, as Appendix F to the proposed rule. The 
recommendations, and the actions we proposed to take with regard to 
them (when an action was recommended), were discussed in detail in the 
appropriate sections of the preamble, the addendum, or the appendices 
to the proposed rule.

C. Public Comments Received in Response to the June 2 Proposed Rule

    A total of 341 items of correspondence containing comments on the 
proposed rule were received. The main areas of concern addressed by the 
commenters were the changes in the DRG classifications related to 
coronary stents and stereotactic radiosurgery, and the request for 
comments on future changes for burn cases. Among other areas of concern 
addressed by the commenters were implementation of the FY 1999 wage 
index and the policy change related to hospitals and hospital units 
excluded from the prospective payment system (specifically, hospital-
within-hospital policy).
    Summaries of the public comments received and our responses to 
those comments appear in the individual related sections of the 
preamble.

D. Relevant Provisions of the Balanced Budget Act of 1997

    As noted above, on August 5, 1997, after we had issued the proposed 
rule for the FY 1998 prospective payment system changes, the Balanced 
Budget Act of 1997 was enacted. This Act made major changes that affect 
Medicare payments for hospital inpatient services under the prospective 
payment systems and the cost limits applicable to excluded hospitals, 
as well as the direct graduate medical education payments. Because most 
of these changes are effective October 1, 1997, we have had to make 
some revisions to the June 2 proposals as well as make additional 
changes. The provisions of Public Law 105-33 that we are implementing 
in this final rule with comment period are as follows:
    1. Hospital Operating Payment Update. The applicable percentage 
change in the standardized amounts is 0 percent for FY 1998, the market 
basket percentage increase minus 1.9 percentage points for all 
hospitals in all areas for FY 1999, the market basket percentage 
increase minus 1.8 percentage points for hospitals in all areas for FY 
2000, the market basket percentage increase minus 1.1 percentage points 
for hospitals for all areas for FYs 2001 and 2002, and the market 
basket percentage increase for hospitals in all areas for FY 2003 and 
subsequent fiscal years. (Section 4401(a))
    Hospitals that do not receive disproportionate share (DSH) or 
indirect medical education (IME) payments and are (MDH) for FY 1998 or 
1999 will receive a higher update for that year if--
     The hospital is in a State in which the aggregate 
prospective payment system operating payments to these types of 
hospitals is less than the aggregate prospective payment system 
operating costs (an overall State negative operating margin) for FY 
1995 cost reporting periods; and
     The hospital itself has a negative operating prospective 
payment system margin in the payment year. (Section 4401(b))
    2. Hospital Capital Rate Reduction. The Federal capital rate and 
the hospital-specific rate are reduced by applying the budget 
neutrality factor

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that was in effect in FY 1995, which results in a 15.68 percent 
reduction in the rates. In addition, for FY 1998 through FY 2002, both 
rates will be reduced an additional 2.1 percent. These reductions 
together result in an overall reduction of 17.78 percent in the 
unadjusted rates for the next 5 years. (Section 4402)
    3. Disproportionate Share Payments. The DSH payments to hospitals 
are reduced by 1 percent in FY 1998, 2 percent in FY 1999, 3 percent in 
FY 2000, 4 percent in FY 2001, and 5 percent in FY 2002. (Section 4403)
    4. Outlier Payments. Beginning in FY 1998, IME and DSH payments 
will be made only on the base DRG payment rates and not on outlier 
payments. In determining outlier payments, the fixed loss cost outlier 
threshold will encompass payments for IME and DSH. (Section 4405)
    5. Base Payment Rate to Puerto Rico Hospitals. The national share 
of the Puerto Rico payment rate is increased from 25 to 50 percent. 
Thus, these hospitals will be paid based on 50 percent of a national 
payment amount (based on a discharge-weighted average of the large 
urban and other urban national standardized amounts) and 50 percent of 
the Puerto Rico payment amount. (Section 4406)
    6. Special Reclassification. The Secretary is given discretionary 
authority to deem Stanly County, North Carolina (a rural county) as a 
part of the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina 
MSA (a large urban area) for purposes of the prospective payment 
system. (Section 4408)
    7. New Guidelines for Geographic Reclassification. Public Law 105-
33 includes several provisions concerning geographic reclassification 
under section 1886(d)(10) of the Act. For geographic reclassifications 
for FY 1998 and subsequent years, the Secretary must establish and 
publish alternative guidelines for a hospital that demonstrates that--
     Its average hourly wage is at least 108 percent of the 
average hourly wage of all other hospitals in its Metropolitan 
Statistical Area (MSA) (or New England County Metropolitan Area 
(NECMA));
     It pays at least 40 percent of the adjusted uninflated 
wages in the MSA; and
     It submitted an application and was approved for 
reclassification for the wage index for FYs 1992 through 1997. (Section 
4409)
    For reclassifications for FYs 1999, 2000, and 2001, a hospital may 
seek reclassification to another area for purposes of DSH payment 
whether or not the standardized amount is the same. (Section 4203(a))
    For any hospital that has ever been classified as a rural referral 
center (RRC), the Medicare Geographic Classification Review Board 
(MGCRB) may not reject an application for reclassification for purposes 
of the wage index on the basis of the 108 percent rule. (Section 4202)
    For any hospital that is owned by a municipality and was 
reclassified as an urban hospital for FY 1996, the Secretary must 
exclude the overhead wages and hours associated with a skilled nursing 
facility that is owned by the hospital and that is physically located 
apart from the hospital in determining the hospital's average hourly 
wage for purposes of qualifying for FY 1998 reclassification, if the 
hospital had previously applied for and been denied reclassification 
for FY 1998. (Section 4410(c))
    8. Floor on Area Wage Index. Beginning with FY 1998, the wage index 
for an urban hospital may not be lower than the Statewide area rural 
wage index. (Section 4410 (a) and (b))
    9. Indirect Medical Education. The IME formula is revised to reduce 
the IME adjustment factor from 7.7 percent to 7.0 percent in FY 1998, 
6.5 percent in FY 1999, 6.0 percent in FY 2000, and 5.5 percent in FY 
2001 and subsequent fiscal years. (Section 4621(a))
    For cost reporting periods beginning on or after October 1, 1997, 
the total number of full-time equivalent residents in a hospital's 
approved medical residency training program in the fields of allopathic 
medicine and osteopathic medicine is limited to the hospital's full-
time equivalent count for the most recent cost reporting period ending 
on or before December 31, 1996. For cost reporting periods beginning on 
or after October 1, 1997, a hospital's indirect medical education full-
time equivalent count is based on the average full-time equivalent 
count for the cost reporting period and the preceding two cost 
reporting periods. For the first cost reporting period beginning on or 
after October 1, 1997, the average is based on residents in that period 
and the preceding period. The statute provides for adjustments for 
short periods and a transition rule for FY 1998. Furthermore, the ratio 
of residents-to- beds may not exceed the ratio calculated during the 
prior cost reporting period (after accounting for the cap on the number 
of resident FTEs).
    For portions of cost reporting periods occurring on or after 
January 1, 1998, the Secretary must make payments to teaching hospitals 
for the indirect costs of graduate medical education associated with 
Medicare managed care discharges. Payment is equal to the per discharge 
amount that would have been made for that discharge if the beneficiary 
were not enrolled in managed care, multiplied by an applicable 
percentage. The applicable percentage is 20 percent in 1998, 40 percent 
in 1999, 60 percent in 2000, 80 percent in 2001, and 100 percent in 
2002 and subsequent years.
    10. Rural Referral Centers. Any hospital classified as an RRC for 
FY 1991 will be classified as an RRC for FY 1998 and subsequent fiscal 
years. (Section 4202(b))
    11. Medicare-Dependent, Small Rural Hospitals. The special 
treatment of MDHs is reinstated for FYs 1998, 1999, and 2000. The 
payment methodology is identical to the methodology applicable in FY 
1993; that is, if the hospital's hospital-specific rate based on 1982 
or 1987 costs is higher than the Federal rate, the hospital receives 50 
percent of the difference between the Federal rate and the hospital-
specific rate. (Section 4204)
    12. Reinstatement of the Add-On for Blood Clotting Factor. The add-
on payment for blood clotting factor provided to inpatients with 
hemophilia is permanently reinstated beginning in FY 1998. (Section 
4452)
    13. Counting Residents for Direct Graduate Medical Education. For 
cost reporting periods beginning on or after October 1, 1997, the total 
number of unweighted full-time equivalent residents in a hospital's 
approved medical residency training program in the fields of allopathic 
medicine and osteopathic medicine is limited to the hospital's 
unweighted full-time equivalent count for the most recent cost 
reporting period ending on or before December 31, 1996. For cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
direct medical education full-time equivalent count is based on the 
average full-time equivalent count for the cost reporting period and 
the preceding two cost reporting periods. For the first cost reporting 
period beginning on or after October 1, 1997 the average is based on 
residents in that period and the preceding period. The statute provides 
for adjustments for short periods and a transition rule for FY 1998.
    The Secretary is permitted to prescribe rules that allow 
institutions that are members of the same affiliated group (as defined 
by the Secretary) to elect to apply the FTE cap on an aggregate basis.
    The Secretary must prescribe rules for providing exceptions to the 
cap for

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medical residency training programs beginning on or after January 1, 
1995.
    The statute gives the Secretary authority to collect whatever data 
are necessary to implement these provisions. (Section 4623)
    14. Payments to Managed Care Plans for Graduate Medical Education. 
For portions of cost reporting periods occurring on or after January 1, 
1998, the Secretary must make payments to teaching hospitals for the 
direct costs of graduate medical education associated with Medicare 
managed care discharges. Payment is equal to the product of the per 
resident amount, the total number of FTE residents working all areas of 
the hospital, the fraction of the total number of inpatient bed days 
that are attributable to Medicare managed care enrollees, and an 
applicable percentage. The applicable percentage is 20 percent in 1998, 
40 percent in 1999, 60 percent in 2000, 80 percent in 2001 and 100 
percent in 2002 and subsequent years. (Section 4624)
    15. Payment to Nonhospital Providers. For cost reporting periods 
beginning on or after October 1, 1997, the Secretary may establish 
rules for payment to qualified nonhospital providers for the direct 
costs of medical education incurred in the operation of an approved 
medical residency training program. Qualified nonhospital providers 
include federally qualified health centers, rural health clinics, 
Medicare Choice organizations, and any other nonhospital providers that 
the Secretary determines to be appropriate. The rules established by 
the Secretary must specify the amounts, form, and manner in which 
payments will be made and the portion of the payments that will be made 
from each of the Medicare Trust Funds. The Secretary must reduce the 
aggregate amount paid to hospitals to the extent payment is made to 
nonhospital providers for residents included in the hospital's full-
time equivalent count. (Section 4625)
    16. Payment for Combined Medical Residency Training Programs. The 
initial residency period for combined programs consisting only of 
primary care training is the longest of the composite programs plus one 
additional year. A resident enrolled in a combined medical residency 
training program that includes an obstetrics and gynecology program 
qualifies for this special rule if the other programs combined with the 
obstetrics and gynecology program are for training a resident in 
primary care. This provision is effective for residency training 
programs beginning July 1, 1997. (Section 4627)
    17. Payment Update for Excluded Hospitals and Hospital Units. For 
FY 1998, the rate-of-increase limits for excluded hospitals and units 
will be updated by 0 percent. For FYs 1999 through 2002, the update 
factor is tied to the relationship between the hospital's target amount 
and its operating costs. For hospitals with costs exceeding the target 
amount by 10 percent or more, the update is the market basket 
percentage increase; if costs exceed the target but by less than 10 
percent, the update factor equals the market basket percentage increase 
minus 0.25 percentage points for each percentage point by which costs 
are less than 10 percent over the target (but in no case less than 0); 
if costs are less than or equal to the target but not below \2/3\ of 
the target amount, the update is the greater of 0 percent or the market 
basket percentage increase minus 2.5 percentage points; and if costs do 
not exceed \2/3\ of the target amount, the update factor is 0 percent. 
(Section 4411)
    18. Reductions to Capital Payments. Capital payment amounts for 
certain excluded hospitals and hospital units are reduced by 15 percent 
for FYs 1998 through 2002. (Section 4412)
    19. Rebasing. A hospital that was excluded from the prospective 
payment system before 1991 may apply to rebase its target amount for 
its cost reporting period beginning in FY 1998. The rebased target 
amount is determined by using the five latest settled cost reporting 
periods as of August 5, 1997, updating for inflation, excluding the 
highest and the lowest cost per discharge, and calculating an average 
for the remaining three. Long-term care hospitals with costs exceeding 
115 percent of their target amount and a 70- percent disproportionate 
patient percentage may elect to use the cost reporting period beginning 
during FY 1996 as their base year, updated for inflation. (Section 
4413)
    20. Cap on Target Amounts for Excluded Hospitals and Units. For FYs 
1998 through 2002, the target amount will be capped at the 75th 
percentile of the target amounts for similar facilities for cost 
reporting periods ending during FY 1996, updated by inflation. This cap 
applies to psychiatric hospitals and units, rehabilitation hospitals 
and units, and long-term care hospitals.
    21. Bonus and Relief Payments to Excluded Hospitals and Units. 
Bonus payments to excluded hospitals and units are the lesser of--
     15 percent of the amount by which the ceiling (target 
amount times Medicare discharges) exceeds the amount of operating 
costs; or
     2 percent of the ceiling.
    A continuous improvement bonus payment system is established 
beginning FY 1998 for hospitals with at least 3 full cost reporting 
periods whose operating costs for the payment period are less than the 
least of its target amount, its trended costs (as defined by the 
statute), or its expected costs (as defined by the statute). The bonus 
under this system equals the lesser of--
     50 percent of the amount by which operating costs are less 
than expected costs; or
     1 percent of the ceiling.
    Hospitals with costs over 110 percent of their ceiling receive 
relief payments equal to an additional 50 percent of the amount by 
which costs exceed 110 percent of the ceiling, not to exceed 10 percent 
of the ceiling. (Section 4415)
    22. Change in Payment and Target Amount for New Providers. 
Effective October 1, 1997, the new provider exemptions for excluded 
hospitals are eliminated except for children's hospitals. The amount of 
payment for a new provider will be the lesser of operating costs for 
the period, or 110 percent of the national median of the target amount 
for hospitals in the same class for cost reporting periods ending in FY 
1996, wage adjusted and updated by the market basket percentage 
increase to the fiscal year in which the hospital first received 
payments. (Section 4416 and 4419)
    23. Treatment of Certain Long-Term Care Hospitals. Long-term care 
hospitals located in the same building or on the same campus as another 
hospital and that were in existence on September 30, 1995, are 
grandfathered in as hospitals excluded from the prospective payment 
system. This amendment applies to discharges occurring on or after 
October 1, 1995. (Section 4417(a))
    A hospital that first received payment in 1986, has an average 
inpatient length of stay greater than 20 days, and in its 12-month cost 
reporting period ending in FY 1997, has 80 percent or more of its 
annual Medicare discharges that reflect a finding of neoplastic 
disease, is excluded from the prospective payment system as a long-term 
care hospital.
    This provision applies to cost reporting periods beginning on or 
after August 5, 1997. (Section 4417(b))
    24. Treatment of Certain Cancer Hospitals. A hospital recognized as 
a comprehensive cancer research center by the National Cancer Institute 
of the National Institutes of Health as of April 20, 1983; located in a 
State which, as of December 19, 1989, was not operating a demonstration 
project under section 1814(b); that applied for and was denied 
classification on or before December 31, 1990; is licensed for less 
than 50 acute

[[Page 45970]]

care beds; and demonstrates that at least 50 percent of its total 
discharge reflects a finding of neoplastic disease for the 4-year 
period ending December 31, 1996, is excluded from the hospital 
prospective payment system retroactively to 1991. The legislation 
includes an option to rebase payments. Retroactive payments must be 
made by August 5, 1998. (Section 4418)
    25. Limited-Service Rural Hospital Program
    A ``Medicare Rural Hospital Flexibility Program'' is established. 
This program is a national limited-service hospital program that 
replaces the existing Essential Access Community Hospital/Rural Primary 
Care Hospital (EACH/RPCH) program which operates in seven States. The 
program allows States to designate rural facilities as ``critical 
access hospitals'' if they are located a sufficient distance from other 
hospitals, make available 24-hour emergency care, maintain no more than 
15 inpatient beds, and keep inpatients no longer than 96 hours (except 
where weather or emergency conditions dictate, or a Peer Review 
Organization waives the limit). In addition, critical access hospitals 
do not have to meet all of the staffing requirements that apply to 
hospitals under Medicare. Payment for inpatient and outpatient services 
under this program is on the basis of reasonable cost.
    States may receive grants for program activities, and are 
authorized to provide for the creation of networks, which include at 
least one critical access hospital and at least one acute care 
hospital. Critical access hospitals with swing-bed agreements are 
allowed to have up to 25 inpatient beds and to furnish both acute 
(hospital-level) and SNF-level care, provided that no more than 15 of 
those beds are used at any one time for acute care. Existing RPCHs, 
otherwise eligible as CAHs, and existing medical assistance facilities 
(MAFs) participating under the MAF demonstration project in Montana, 
will be deemed as CAHs. Existing EACHs in rural areas will continue to 
be paid as sole community hospitals but no new EACHs will be 
designated. (Section 4201)
    26. Change in Publication Dates. Beginning with the FY 1999 update, 
the DRG prospective payment rate methodology and the recommended 
hospital prospective payment updates must be published as a proposed 
rule by April 1 and as a final rule by August 1 of each year. (Section 
4644 (a)(1) and (b)(1))
    As a conforming change, the deadline for applications for 
geographic reclassification for years beginning with FY 2000 is moved 
from October 1 to September 1. Because the FY 1999 applications are due 
on October 1, 1997, the Secretary is directed to shorten the deadlines 
for MGCRB decision making, so that a final decision for all 
applications is made by June 15, 1998. (Section 4644(c))
    Each of these provisions and the changes to the regulations 
necessary to implement these provisions are described in greater detail 
in sections III, IV, V, and VI of this preamble.

II. Changes to DRG Classifications and Relative Weights

A. Background

    Under the prospective payment system, we pay for inpatient hospital 
services on the basis of a rate per discharge that varies by the DRG to 
which a beneficiary's stay is assigned. The formula used to calculate 
payment for a specific case takes an individual hospital's payment rate 
per case and multiplies it by the weight of the DRG to which the case 
is assigned. Each DRG weight represents the average resources required 
to care for cases in that particular DRG relative to the average 
resources used to treat cases in all DRGs.
    Congress recognized that it would be necessary to recalculate the 
DRG relative weights periodically to account for changes in resource 
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
that the Secretary adjust the DRG classifications and relative weights 
annually. These adjustments are made to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. The changes to the DRG 
classification system and the recalibration of the DRG weights for 
discharges occurring on or after October 1, 1997 are discussed below.

B. DRG Reclassification

1. General
    Cases are classified into DRGs for payment under the prospective 
payment system based on the principal diagnosis, up to eight additional 
diagnoses, and up to six procedures performed during the stay, as well 
as age, sex, and discharge status of the patient. The diagnosis and 
procedure information is reported by the hospital using codes from the 
International Classification of Diseases, Ninth Edition, Clinical 
Modification (ICD-9-CM). The Medicare fiscal intermediary enters the 
information into its claims system and subjects it to a series of 
automated screens called the Medicare Code Editor (MCE). These screens 
are designed to identify cases that require further review before 
classification into a DRG can be accomplished.
    After screening through the MCE and any further development of the 
claims, cases are classified by the GROUPER software program into the 
appropriate DRG. The GROUPER program was developed as a means of 
classifying each case into a DRG on the basis of the diagnosis and 
procedure codes and demographic information (that is, sex, age, and 
discharge status). It is used both to classify past cases in order to 
measure relative hospital resource consumption to establish the DRG 
weights and to classify current cases for purposes of determining 
payment. The records for all Medicare hospital inpatient discharges are 
maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
The data in this file are used to evaluate possible DRG classification 
changes and to recalibrate the DRG weights.
    Currently, cases are assigned to one of 492 DRGs in 25 major 
diagnostic categories (MDCs). Most MDCs are based on a particular organ 
system of the body (for example, MDC 6, Diseases and Disorders of the 
Digestive System); however, some MDCs are not constructed on this basis 
since they involve multiple organ systems (for example, MDC 22, Burns).
    In general, principal diagnosis determines MDC assignment. However, 
there are five DRGs to which cases are assigned on the basis of 
procedure codes rather than first assigning them to an MDC based on the 
principal diagnosis. These are the DRGs for liver, bone marrow, and 
lung transplant (DRGs 480, 481, and 495, respectively) and the two DRGs 
for tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs 
before classification to an MDC.
    Within most MDCs, cases are then divided into surgical DRGs (based 
on a surgical hierarchy that orders individual procedures or groups of 
procedures by resource intensity) and medical DRGs. Medical DRGs 
generally are differentiated on the basis of diagnosis and age. Some 
surgical and medical DRGs are further differentiated based on the 
presence or absence of complications or comorbidities (hereafter CC).
    Generally, GROUPER does not consider other procedures; that is, 
nonsurgical procedures or minor surgical procedures generally not 
performed in an operating room are not listed as operating room (OR) 
procedures in the GROUPER decision tables. However, there are a few 
non-OR procedures that do affect DRG

[[Page 45971]]

assignment for certain principal diagnoses, such as extracorporeal 
shock wave lithotripsy for patients with a principal diagnosis of 
urinary stones.
    We proposed several changes to the DRG classification system for FY 
1998. The proposed changes, the comments we received concerning them, 
our responses to those comments, and the final DRG changes are set 
forth below.
2. MDC 1 (Diseases and Disorders of the Nervous System)

a. Stereotactic Radiosurgery

    Effective October 1, 1995, procedure code 92.3 (stereotactic 
radiosurgery) was created and classified as a non-OR procedure. 
However, because this procedure had previously been coded to procedure 
codes that are classified as operating room procedures, we assigned 
procedure code 92.3 to the same surgical DRGs as the predecessor codes. 
Therefore, in the following DRGs, stereotactic radiosurgery is 
considered a non-OR procedure that affects DRG assignment: in MDC 1, 
DRG 1 (Craniotomy Age >17 Except for Trauma), DRG 2 (Craniotomy for 
Trauma Age >17), and DRG 3 (Craniotomy Age 0-17) and, in MDC 10 
(Endocrine, Nutritional and Metabolic Diseases and Disorders), DRG 286 
(Adrenal and Pituitary Procedures). In addition, in MDC 17 
(Myeloproliferative Diseases and Disorders and Poorly Differentiated 
Neoplasms), procedure code 92.3 is considered a major OR procedure for 
purposes of assignment to DRG 400 (Lymphoma and Leukemia with Major OR 
Procedure) and DRGs 406 and 407 (Myeloproliferative Disorders or Poorly 
Differentiated Neoplasms with Major OR Procedure).1 We 
stated in the June 2, 1995 proposed rule (60 FR 29207) that we would 
analyze the stereotactic radiosurgery cases as soon as the FY 1996 
cases were available to ensure that these DRG assignments were 
appropriate.
---------------------------------------------------------------------------

    \1\ A single title combined with two DRG numbers is used to 
signify pairs. Generally, the first DRG is for cases with CC and the 
second DRG is for cases without CC. If a third number is included, 
it represents cases of patients who are age 0-17. Occasionally, a 
pair of DRGs is split on age >17 and age 0-17.
---------------------------------------------------------------------------

    In analyzing the FY 1996 MedPAR file, we found that there were 
stereotactic radiosurgery cases assigned to DRGs 1, 286, 400, and 407. 
In DRG 1, the average standardized charges for these cases are 
approximately $16,400 compared to approximately $27,800 for DRG 1 
overall and the lengths of stay are about 3 days and 10 days, 
respectively. In DRG 286, the average charges for procedure code 92.3 
are also much lower than all cases in that DRG, about $11,900 versus 
$19,400. Again the length of stay is also much lower for stereotactic 
radiosurgery, just over 1 day compared to almost 7 days for all DRG 286 
cases.
    Because the cases associated with procedure code 92.3 clearly are 
much less resource-intensive than the other cases in the DRGs to which 
it is assigned, we proposed to reassign procedure code 92.3 to DRGs 7 
and 8 (Peripheral and Cranial Nerve and Other Nervous System 
Procedures) in MDC 1 and DRGs 292 and 293 (Other Endocrine, Nutrition 
and Metabolic OR Procedures) in MDC 10. We also proposed to remove 
procedure code 92.3 from the list of major OR procedures in MDC 17. 
Therefore, these cases would be assigned to DRGs 401 and 402 (Lymphoma 
and Non-Acute Leukemia with Other OR Procedure) and DRG 408 
(Myeloproliferative Disorders or Poorly Differentiated Neoplasms with 
Other OR Procedure).
    We received over 130 comments regarding our proposal to move 
procedure code 92.3, including many from people who underwent 
radiosurgery. Three commenters supported the proposal. One commenter 
concurred that a revision of the DRG assignment and payment level for 
radiosurgery is appropriate, but suggested that any change be delayed 
until further analysis of industry data has been conducted. The 
remaining commenters opposed our proposal and strongly recommended that 
stereotactic radiosurgery cases continue to be assigned to DRG 1, or if 
a change must be made, these cases should be assigned to their own DRG 
with an appropriate relative weight. The specific comments we received 
are discussed below.
    Comment: Many commenters stated that stereotactic radiosurgery is 
cost effective and is less expensive (by approximately \1/3\) than open 
cranial surgery. The commenters were concerned that this proposal would 
result in a 40 percent reduction in payment for these cases.
    Response: Currently, stereotactic radiosurgery is being paid at the 
same level as open cranial surgery, as the commenter noted. We believe 
these comments support our decision to move the radiosurgery cases into 
a DRG with cases of comparable utilization of resources, rather than 
group them with open surgery procedures, which involve much greater 
resource use. Our intent is not to discourage the utilization of this 
advanced technology nor to reduce payment arbitrarily, but to make 
appropriate payment for the procedure by assigning it to a DRG with 
similar resource use.
    Comment: There are several different approaches being used in 
stereotactic radiosurgery. The two most prevalent are the gamma knife 
and the linear accelerator. Some commenters believe that we should be 
analyzing these cases separately and possibly making different DRG 
assignments for them. Other commenters urged us not to distinguish 
between approaches in radiosurgery, and one of these commenters 
submitted data to demonstrate that there is no difference in patient 
outcomes and that the different types of approach are clinically 
similar.
    Response: Effective October 1, 1995, a new ICD-9-CM procedure code 
was created to capture stereotactic radiosurgery. The new code 92.3 
(Stereotactic radiosurgery) encompasses both gamma knife and linear 
accelerator procedures. This topic was addressed at a public meeting of 
the ICD-9-CM Coordination and Maintenance Committee in 1994 at which 
representatives from the radiosurgery industry were in attendance. 
Comments were accepted at the meeting and attendees were also invited 
to submit written comments. At that time, we did not receive any 
negative comments regarding the inclusion of all approaches to 
radiosurgery in one code. Therefore, with only one code, we are unable 
to distinguish the radiosurgery cases based on different approaches.
    We note that one difference between the approaches is the initial 
capital costs of the equipment. However, now that capital payments are 
made to hospitals under a prospective payment system, there is no way 
for us to specifically recognize these different costs.
    Comment: Several commenters stated that because most radiosurgery 
patients do not have complicating conditions, which are necessary to be 
assigned to DRG 7, most cases will be assigned to DRG 8 and receive the 
lower relative weight associated with less complicated cases. In any 
event, the commenters believe that the payment for DRGs 7 and 8 is less 
than the costs of providing the treatment. One commenter stated that 
the average payment for radiosurgery cases assigned to DRG 1 in FY 1996 
was $11,876.28, while payment for DRGs 7 and 8 in the same year 
averaged $9,973.13 and $4,547.64, respectively. Therefore, this 
proposal could reduce hospital payment for the average Medicare 
radiosurgery cases in DRG 1 by as much as 62 percent.
    Response: We have performed an analysis of the full FY 1996 MedPAR 
file, updated through June 1997. Of the 1,275 cases coded with 
procedure 93.2, 966 cases would have been assigned to

[[Page 45972]]

DRGs 7 and 8 under our proposal. Of those 966 cases, 406 classify to 
DRG 7 and 560 cases classify to DRG 8. The average charges of these 
reassigned cases are approximately $16,300 for DRG 7 and $13,700 for 
DRG 8. The average standardized charges for DRG 7 and 8 overall are 
approximately $20,250 and $9,950, respectively. Thus, the average 
charges for radiosurgery cases assigned to DRG 7 (just over 40 percent 
of the total) are approximately $4,000 less than the overall cases 
assigned to that DRG and the average charges for the cases assigned to 
DRG 8 are approximately $4,000 more than the overall cases.
    Therefore, given a similar distribution at any hospital, the 
payments for the DRG 7 and 8 cases should come close to balancing out; 
that is, DRG 7 will result in payments in excess of costs and DRG 8 
will result in approximately equal numbers of cases with costs in 
excess of payments. This is consistent with the design of the 
prospective payment system, which is intended to make an average, 
predetermined payment for each case that encourages hospitals to 
provide care efficiently and economically and treat a mix of patients 
so that cases incurring payments in excess of costs are balanced by 
cases incurring costs in excess of payments.
    The difference between assignment to DRG 7 and DRG 8 is the 
documentation of complications resulting from treatment or 
comorbidities that are present upon admission and may affect treatment. 
Examples of these secondary diagnoses that, in fact, many of the 
patients who commented reported having are postoperative nausea (which 
may prolong the patient's stay), diabetes, congestive heart failure, 
and emphysema. In fact, commenters stated that one of the advantages of 
radiosurgery over open surgery is that it can be performed on patients 
with comorbidities who could not otherwise tolerate surgery for their 
conditions.
    We also note that DRGs 1 and 2 are not split on the basis of CCs; 
rather, they are assigned based on whether the case is or is not a 
trauma case. Therefore, hospitals might not have coded secondary 
diagnoses for radiosurgery cases. Nonetheless, over 40 percent of the 
reassigned cases in our analysis have CCs included on the bill. We 
believe this will remain true in FY 1998 and the percentage may even 
increase now that properly coding CCs will affect the amount of 
payment.
    In response to the commenter concerned about the low payment for 
DRGs 7 and 8, we note that, based on the MedPAR file, the average 
payment for radiosurgery cases assigned to DRG 1 in FY 1996 was 
approximately $16,000. If those cases had been assigned to DRGs 7 and 8 
in that year, we estimate that the average payment would have been 
approximately $14,000 and $8,000, respectively. Thus, on average, 
payment for radiosurgery cases will be reduced by approximately 30 
percent. This is consistent with commenter's assertion that this 
procedure costs approximately one-third less than an open cranial 
procedure.
    Comment: Commenters suggested that instead of continuing to assign 
radiosurgery cases to DRG 1, it would be acceptable to assign these 
cases to their own DRG and assign a weight of approximately 3.0.
    Response: As we have stated in several previous documents, 
including the June 2 proposed rule (in connection with the discussion 
of automatic implantable cardioverter defibrillators (62 FR 29906)), we 
are reluctant to create device-specific DRGs where the cost of the 
device dominates the charges. Creating a separate DRG for radiosurgery, 
where the costs of the device used to perform the procedure dominates 
the charges, would be a similar issue. With such a procedure-specific 
DRG, it would be relatively easy for hospitals and manufacturers of the 
equipment to raise the charges for the cases until they create a 
relative weight that consistently pays them more than their costs. We 
believe that the resource consumption associated with cases in DRGs 7 
and 8 is similar to that required by radiosurgery cases. However, we 
will continue to monitor this technology to ensure that these DRGs 
remain appropriate assignments.
    Comment: Several commenters believe that the relatively low charges 
of the radiosurgery cases result, in part, from incorrect use of 
procedure code 92.3. These commenters requested that we either wait 
until these issues are resolved to make a DRG change or that we adjust 
the cases in the MedPAR file based on industry data.
    Response: It is often the case with a new code, whether diagnosis 
or procedure, that there is a period of time necessary to gain 
experience and correctly use the code. We did notice some coding 
discrepancies when we reviewed the radiosurgery cases. However, these 
discrepancies are not in the cases that are assigned to DRGs 7 and 8, 
but rather the cases that remain assigned to DRG 1. We note that coders 
appear to be including improperly the approach to the radiosurgery 
procedure, such as coding thalamotomy and pallidotomy separately in 
addition to the stereotactic radiosurgery code. In addition, the coding 
of some cases has included codes that represent the result of the 
radiosurgery, that is, the destruction of the lesion of the brain. 
Again this is an improper coding practice. Both of these coding 
practices result in radiosurgery cases being assigned to DRG 1.
    We will continue to monitor these cases to ensure that our decision 
to reassign radiosurgery to DRGs 7 and 8 remains appropriate. We will 
also work with the industry concerning the possibility of assigning 
separate ICD-9-CM codes to the different types of radiosurgery.

b. Sleep Apnea

    In our August 30, 1996 final rule (61 FR 46168), we discussed our 
review of the DRG assignment of cases in which surgery is performed to 
correct obstructive sleep apnea (diagnosis code 780.57). When coded as 
the principal diagnosis, sleep apnea is assigned to DRGs 34 and 35 
(Other Disorders of the Nervous System) in MDC 1.
    The result of our review was to assign several surgical procedures 
used to correct sleep apnea to DRGs 7 and 8 (Peripheral and Cranial 
Nerve and Other Nervous System Procedures). These procedures involved 
repair of the palate or pharynx (procedure codes 27.69, 29.4, and 
29.59). Previously, since none of these surgical procedures had been 
assigned to MDC 1, cases of sleep apnea treated with one of these 
procedures had been assigned to DRG 468 (Extensive OR Procedure 
Unrelated to Principal Diagnosis) or DRG 477 (Nonextensive OR Procedure 
Unrelated to Principal Diagnosis).
    An associated procedure that is also used to treat sleep apnea is 
correction of cleft palate (procedure code 27.62). Currently, 
correction of cleft palate is assigned only to DRG 52 (Cleft Lip and 
Palate Repair) in MDC 3 (Diseases and Disorders of the Ear, Nose, 
Mouth, and Throat). Thus, when this procedure is performed for sleep 
apnea cases, the cases would be assigned to DRG 468. We proposed to add 
this surgical procedure to MDC 1. Like the palate and pharynx repair 
procedures that were addressed last year, these cases are not 
clinically similar to the other surgical DRGs in MDC 1; thus, we 
proposed to include them in DRGs 7 and 8.
    Comment: We received three comments on this proposal. One commenter 
supported the change; another registered no objection but pointed out 
that the proposed rule stated procedure code 27.62 is currently 
assigned to DRG 477 (Nonextensive OR Procedure Unrelated to Principal 
Diagnosis) when the principal diagnosis

[[Page 45973]]

is sleep apnea. The commenter noted that under the current DRG 
groupings, such a case would actually be assigned to DRG 468. The final 
commenter stated that if a patient is admitted for cleft palate repair, 
the principal diagnosis likely would be cleft palate (diagnosis code 
749.xx) even if sleep apnea is also present, presumably resulting in 
assignment to DRG 52. This commenter suggested that if cleft palate 
repair is performed infrequently in conjunction with a principal 
diagnosis of obstructive sleep apnea, it would be unnecessary to 
reassign these cases to DRGs 7 and 8.
    Response: In the proposed rule, we inadvertently stated that sleep 
apnea cases involving the correction of cleft palate currently would be 
assigned to DRG 477. The commenter is correct that such cases are 
currently assigned to DRG 468.
    Although a patient admitted for cleft palate repair would more 
likely have a principal diagnosis of cleft palate than of sleep apnea, 
cases do occur in which obstructive sleep apnea is the documented 
reason for the surgery. Our rationale for the proposed change is based 
not on the frequency of the cases but on whether or not these cases are 
appropriately assigned to DRG 468, which by definition should encompass 
only cases involving unrelated operating room procedures. Because we 
believe that cleft palate repair is related to obstructive sleep apnea, 
it would be inappropriate to continue to assign these cases to DRG 468; 
the better policy is to assign the procedure to DRGs 7 and 8 in MDC 1. 
Therefore, we are adopting this change in this final rule.

c. Geniculate Herpes Zoster

    Geniculate herpes zoster (diagnosis code 053.11) is an acute viral 
disease characterized by inflammation of spinal ganglia and by a 
vesicular eruption along the area of distribution of a sensory nerve. 
In the August 30, 1996 final rule (61 FR 27447), we moved diagnosis 
codes 053.10 and 053.19 (herpes zoster with unspecified nervous system 
complication and other herpes zoster, respectively) from DRG 20 
(Nervous System Infection Except Viral Meningitis) to DRGs 18 and 19 
(Cranial and Peripheral Nerve Disorders). We considered moving 
diagnosis code 053.11 at that time, however, the higher average charges 
associated with geniculate herpes zoster and slightly higher length of 
stay led us to decide instead to leave 053.11 in DRG 20 and to reassess 
this decision in upcoming years.
    For the proposed rule, we conducted an analysis of the cases 
assigned to DRG 20 using the FY 1996 MedPAR file. The average 
standardized charges for these cases were approximately $8,430, 
significantly lower than the average charges for the DRG of 
approximately $21,180. The average length of stay for the geniculate 
herpes zoster cases, approximately 6 days, was also less than the 
average length of stay for DRG 20 of approximately 10 days. Based on 
these data, we proposed to reassign diagnosis code 053.11 to DRGs 18 
and 19, which have average charges of approximately $8,460 and $5,460, 
respectively. The average length of stay for DRGs 18 and 19 was 
approximately 6 days and 4 days, respectively.
    We received two comments supporting this change and we are 
including it in the final DRG changes.
3. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Heart Assist Devices

    In November 1995, we amended our general noncoverage decision 
concerning artificial hearts and related devices. Section 65-15 of the 
Medicare Coverage Issues manual was revised to allow coverage of the 
HeartMate Implantable Pneumatic Left Ventricular Assist System 
(HeartMate IP LVAS) in accordance with its Food and Drug Administration 
(FDA)- approved use as a temporary mechanical circulation support in 
nonreversible left ventricular failure as a bridge to cardiac 
transplant. In order to receive Medicare coverage, all of the following 
conditions must be met:
     The patient is listed as an approved heart transplant 
candidate by a Medicare-approved heart transplant center.
     The implantation of the system is done in a Medicare-
approved heart transplant center. Written permission from the listing 
center is needed if the patient has the implantation done at another 
Medicare-approved center.
     The patient is on inotropes.
     The patient is on an intra-aortic balloon pump (if 
possible).
     The patient has left atrial pressure or pulmonary 
capillary wedge pressure  20mm Hg with either--
    --Systolic blood pressure  80 mm Hg; or
    --Cardiac index of  2.0 1/min/m\2\.
    A procedure code for implant of an implantable, pulsatile heart 
assist system (37.66), which includes the HeartMate IP LVAS, was 
created effective October 1, 1995. At that time, the procedure code was 
assigned to DRGs 110 and 111 (Major Cardiovascular Procedures). In the 
proposed rule, we presented our analysis of a full year of cases coded 
with this procedure (FY 1996 MedPAR file, December update) to determine 
if this DRG assignment remained appropriate.
    In the full (100 percent) FY 1996 MedPAR file, there were 51 cases 
of implant of an internal heart assist system (procedure code 37.66) in 
MDC 5. Of these 51 cases, 18 were assigned to DRG 110 and none to DRG 
111. The other 33 cases were assigned to DRG 103 (Heart Transplant), 
DRG 104 (Cardiac Valve Procedures with Cardiac Cath), DRGs 106 and 107 
(Coronary Bypass), and DRG 108 (Other Cardiothoracic Procedures). Of 
the 18 cases assigned to DRG 110, the average charge was about $96,000 
and the average length of stay was 22.5 days. The average charges for 
all cases assigned to DRG 110 was about $36,500 and the average length 
of stay was 10.1 days.
    Thus, the cases coded with procedure code 37.66 are much more 
resource-intensive than the other cases assigned to DRG 110. In 
reviewing the other surgical DRGs in MDC 5 for possible reassignment of 
this procedure, we identified two DRGs that contained cases clinically 
similar to implant of heart assist device cases: DRG 103 and DRG 108. 
For FY 1996, the average charge of cases in DRG 103 was approximately 
$164,000 and the length of stay was 46 days. For DRG 108, these 
statistics were about $54,000 and 12.1 days. Thus, the average charge 
for DRG 103 was approximately $68,000 higher than the average charge of 
the heart assist device cases and the average charge for DRG 108 was 
approximately $42,000 lower.
    Because our general policy is to assign a procedure code to a DRG 
with clinically similar cases that is the best match in terms of 
resource use, we proposed to assign procedure code 37.66 to DRG 108.
    Comment: We received two comments supporting this proposal. 
However, several other commenters believe that the only solution that 
would be appropriate is to assign procedure code 37.66 either to DRG 
103 or to its own DRG. In support of this comment, they cite the very 
high resource utilization associated with the procedure. In addition, 
one commenter believed that failure to revise our proposal could limit 
Medicare beneficiaries' access to this procedure.
    Response: As noted in the proposed rule, although reassignment of 
these cases to DRG 108 does not place them in a DRG with identical 
resource use, it is the best alternative we have at this time. As we 
discuss above in section II.B.2.a. of this preamble concerning 
radiosurgery, it has not been our

[[Page 45974]]

practice to create device-specific DRGs. Assignment of these cases to 
DRG 103 would be no more appropriate in terms of resource use than 
reassignment to DRG 108. In addition, we believe that only transplant 
cases should be assigned to that DRG. We will continue to monitor these 
cases in future years. We are also contemplating the feasibility of 
conducting a comprehensive review of the current surgical DRGs in MDC 
5. We last did this effective for FY 1991. Because there have been so 
many changes in approach to heart surgery in the past few years as well 
as the development of new devices and techniques, we believe such a 
review could help realign these cases in terms of both clinical and 
resource use homogeneity.
    With regard to the statement that failure to revise our proposal 
could result in denial of heart assist devices to Medicare 
beneficiaries, we note, as we have in many previous documents, that it 
is a violation of a hospitals Medicare provider agreement to place 
restrictions on the number of Medicare beneficiaries it accepts for 
treatment unless it places the same restrictions on all other patients.
    We also note that, effective May 5, 1997, the coverage instructions 
concerning heart assist devices were revised to delete the specific 
product names and the hemodynamic criteria (Transmittal No. 94; April 
1997). As revised, section 65-15 of the Medicare Coverage Issues Manual 
allows coverage of a ventricular assist device used for support of 
blood circulation postcardiotomy if the device has received approval 
from the FDA for that purpose and the device is used according to FDA-
approved labeling instructions or as a bridge to heart transplant if 
all of the following conditions are met:
     The device is used as a temporary mechanical circulatory 
support as a bridge to cardiac transplant.
     The patient is listed as an approved heart transplant 
candidate by a Medicare-approved heart transplant center.
     The implantation of the system is done in a Medicare-
approved heart transplant center. If the patient is listed with another 
center, written permission is needed from that center.

b. Automatic Implantable Cardioverter Defibrillators (AICD)

    For several years, we have received correspondence concerning the 
appropriate DRG assignment of procedures involving automatic 
implantable cardioverter defibrillators (AICDs). These cases are 
currently assigned to DRG 116 (Other Permanent Cardiac Pacemaker 
Implant or AICD Generator or Lead Procedure), and are represented by 
the following procedure codes:
37.95  Implantation of automatic cardioverter/defibrillator lead(s) 
only
37.96  Implantation of automatic cardioverter/defibrillator pulse 
generator only
37.97  Replacement of automatic cardioverter/defibrillator lead(s) only
37.98 Replacement of automatic cardioverter/defibrillator pulse 
generator only
    As explained in detail in the September 1, 1992 final rule (57 FR 
39749), the clinical composition and relative weights of the surgical 
DRGs in MDC 5 do not offer a perfect match with the AICD cases. 
However, review of those DRGs in terms of clinical coherence and 
similar resource consumption led to the determination that DRG 116 was 
the best possible fit. In that document, we stated that we would 
continue to monitor these cases.
    We last discussed this issue in the September 1, 1995 final rule 
(60 FR 45780). At that time, we concluded that, although the average 
charge for AICD cases was much higher than the average charge for DRG 
116 overall, the AICD cases were clinically similar to the DRG 116 
cases and should not be moved. In addition, a slight decrease in the 
average charge for the cases between the FY 1993 and FY 1994 MedPAR 
files led us to believe further reductions might be forthcoming since 
there were new AICD devices entering the market that might lead to 
increased price competition.
    For the proposed rule, we reviewed the most current AICD cases as 
contained in the FY 1996 MedPAR file and found that the average 
standardized charge for AICD cases assigned to DRG 116 was $28,777 
compared to an average charge of $21,330 for all cases in DRG 116. 
Because the average charge for AICD cases continued to be much higher 
than the average charge for all other DRG 116 cases, we proposed to 
move them to DRG 115 (Permanent Cardiac Pacemaker Implantation with 
AMI, Heart Failure or Shock). We also proposed to revise the title of 
DRG 115 to ``Permanent Cardiac Pacemaker Implant with AMI, Heart 
Failure or Shock or AICD Lead or Generator Procedure.''
    We received several comments commending us on this decision and we 
are adopting it as final.

c. Coronary Artery Stent

    Effective October 1, 1995, procedure code 36.06 (Insertion of 
coronary artery stent(s)) was introduced. As dictated by our 
longstanding practice, we assigned this code to the same DRG category 
as its predecessor codes. Therefore, procedure code 36.06 was assigned 
to DRG 112 (Percutaneous Cardiovascular Procedures), as insertion of a 
stent is usually performed in conjunction with percutaneous 
transluminal coronary angioplasty (PTCA).
    We discussed this assignment and public comments we received in 
both the September 1, 1995 final rule (60 FR 45785) and the August 30, 
1996 final rule (61 FR 46171). We stated that we would review the stent 
cases as soon as the FY 1996 MedPAR file was available, as these would 
be the first Medicare data available for these cases.
    As discussed in the proposed rule, our analysis of the FY 1996 
MedPAR data on coronary stent implantation in Medicare beneficiaries 
revealed the following:
     The difference between the average length of stay for the 
stent cases and the nonstent cases was 0.19 days (4.39 days versus 4.20 
days).
     Charges for patients receiving a stent were approximately 
$23,650, while charges for patients without stent implant were 
approximately $17,480, for a difference of $6,170.
     Of those beneficiaries who had a PTCA procedure in FY 
1996, approximately 34 percent received a stent.
    Based on the significant variation in hospital charges between 
stent and nonstent cases in DRG 112, we proposed to move these cases 
out of that DRG. Although the coronary artery stent cases are not 
clinically similar to the pacemaker cases in DRG 116, the resource 
consumption of those cases is very similar. Therefore, absent any other 
appropriate DRG, we proposed to add to DRG 116 those cases including 
procedure codes for PTCA in combination with insertion of coronary 
stent. Specifically, we proposed to move into DRG 116 the following 
procedure codes when performed in conjunction with procedure code 
36.06:
35.96  Percutaneous valvuloplasty
36.01 Single vessel percutaneous transluminal coronary angioplasty 
[PTCA] or coronary atherectomy without mention of thrombolytic agent
36.02  Single vessel percutaneous transluminal coronary angioplasty 
[PTCA] or coronary atherectomy with mention of thrombolytic agent
36.05  Multiple vessel percutaneous transluminal coronary angioplasty 
[PTCA] or coronary atherectomy performed during the same operation, 
with or without mention of thrombolytic agent

[[Page 45975]]

36.09  Other removal of coronary artery obstruction
37.34  Catheter ablation of lesion or tissues of the heart

    We also proposed to change the title of DRG 116 to ``Other 
Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent 
Implant.''
    Comment: We received many comments in support of this move. 
Commenters cited increased payment for use of coronary stenting in 
appropriate patients as a rational response to an economic dilemma. One 
commenter requested that consideration be given to increased payment 
for the cost of the stents themselves within DRG 116 for those cases in 
which multiple stents are implanted in the same operative episode.
    Response: We appreciate the positive responses generated by this 
proposal. With regard to the request for modification of DRG 116 to 
take into account the use of more than one stent per patient, we would 
remind the commenter that one of the parameters of the prospective 
payment system is predetermined, identical payments for each discharge 
in a DRG. To arbitrarily begin to increase payment based on the number 
of stents used in a procedure would undermine the system. We will 
continue to monitor the stent cases and the assignment to DRG 116. If 
PTCA cases with stent become a higher percentage of the PTCA cases or 
the average charge for stent cases falls, we may reconsider this 
assignment.
    Comment: There were several commenters who, while supporting the 
proposal to increase increasing stent payment, also chided us for our 
lack of foresight in neglecting to consider new drug therapies in 
conjunction with PTCA. The pharmaceutical referenced in these comments 
is a category of drugs called glycoprotein (GP) IIb/IIIa inhibitors, 
which act to reduce platelet aggregation, thereby reducing death rate, 
recurrent heart attack, and further surgery.
    Commenters suggested that HCFA take immediate steps to establish a 
procedure code describing infusion of GPIIb/IIIa therapy. They further 
suggested that if the agency's required lead time for revising an 
existing ICD-9-CM code, or creating a new code for platelet inhibitor 
therapy, precluded a new code from being effective this October 1, then 
HCFA should create a temporary code that hospitals could use until a 
new ICD-9-CM code could become effective. It was suggested that such a 
temporary code would allow the reclassification of angioplasty with 
GPIIb/IIIa usage into DRG 116 to be effective October 1, 1997.
    Response: We appreciate the suggestion that the category of GPIIb/
IIIa platelet inhibitor drugs be uniquely identified in the ICD-9-CM 
coding system, but would also note that a write-in campaign during a 
proposed rule comment period does not permit us to respond to this 
request in a responsible manner. To quickly produce a temporary code 
would be the equivalent of producing a permanent code, but would not 
include due process in order to make it a meaningful addition to the 
ICD-9-CM coding system.
    We would point out that, effective October 1, 1986, code 36.04 
(intracoronary artery thrombolytic infusion) was added to the procedure 
coding system based on a proposal made by a major pharmaceutical 
company. As we rely heavily on information from the public to make the 
ICD-9-CM coding system responsive to the coding needs of the hospital 
industry, we anticipated that the guidance, language, and suggestions 
received from this pharmaceutical company were current and timely. In 
the interim, there has been no public protest or demand for an ICD-9-CM 
platelet inhibitor therapy code that would better meet the needs of the 
industry.
    In retrospect, we regret that we integrated this code as it does 
not appear to have been an appropriate addition to the coding system. 
We will work with the drug and hospital industry representatives to 
provide us with more insight and better language as we bring the topic 
of platelet inhibitors before the ICD-9-CM Coordination and Maintenance 
Committee on December 4, 1997. We would anticipate, therefore, having 
an appropriate code describing GPIIb/IIIa drug therapy early next year. 
This code would be effective for discharges on or after October 1, 
1998.

d. Circulatory Disorders (DRGs 121 and 122)

    In response to a comment on the May 31, 1996 proposed rule, we 
stated in the August 30, 1996 final rule (61 FR 46172) that we would 
conduct a comprehensive review of cases currently assigned to DRG 121 
(Circulatory Disorders with Acute Myocardial Infarction (AMI) and 
Cardiovascular Complications, Discharged Alive) and DRG 122 
(Circulatory Disorders with AMI without Cardiovascular Complications, 
Discharged Alive) to determine whether changes were needed to the list 
of complicating conditions that can result in assignment to DRG 121. 
Accordingly, for the FY 1998 proposed rule, we analyzed the cases in 
the FY 1996 MedPAR file that were assigned to either DRG 121 or 122. 
Through a variety of statistical analyses of length of stay and 
standardized charge data, we assessed the impact on resource use of all 
coded secondary diagnoses.
    Our analysis of these secondary diagnosis codes revealed many cases 
now assigned to DRG 122 in which certain secondary diagnoses are 
associated with resource use comparable to cases assigned to DRG 121. 
Although many of these cases involve secondary diagnoses that are not 
strictly cardiovascular in nature, such as diagnosis code category 482 
(other bacterial pneumonia), we now believe that it is appropriate to 
expand DRG 121 to include such major complications when they are 
represented in significant volume among the cases in the DRG. 
Continuing to limit DRG 121 only to cases involving the existing list 
of cardiovascular complications would contribute to large variations in 
the charges and lengths of stay for cases in DRG 122.
    Therefore, we proposed to change the title of DRG 121 to 
``Circulatory Disorders with AMI and Major Complications, Discharged 
Alive,'' and to add the following diagnosis codes to the list of 
complications that would produce assignment to DRG 121 when present in 
conjunction with the existing list of AMI diagnoses:

398.91  Rheumatic heart failure
416.0  Primary pulmonary hypertension
430  Subarachnoid hemorrhage
431  Intracerebral hemorrhage
432.0  Nontraumatic extradural hemorrhage
432.1  Subdural hemorrhage
432.9  Unspecified intracranial hemorrhage
433.01  Occluded basilar artery with cerebral infarction
433.11  Occluded carotid artery with cerebral infarction
433.21  Occluded vertebral artery with cerebral infarction
433.31  Occluded multiple and bilateral artery with cerebral infarction
433.81  Occluded specified precerebral artery with cerebral infarction
433.91  Occluded precerebral artery NOS with cerebral infarction
434.00  Cerebral thrombosis
434.01  Cerebral thrombosis with cerebral infarction
434.10  Cerebral embolism
434.11  Cerebral embolism with cerebral infarction
434.90  Cerebral artery occlusion
434.91  Cerebral artery occlusion with cerebral infarction
436  Acute, but ill-defined, cerebrovascular disease

[[Page 45976]]

481  Pneumococcal pneumonia
482.xx  Other bacterial pneumonia (all 4th and 5th digits)
483.x  Pneumonia due to other specified organism (all 4th digits)
484.x  Pneumonia in infectious diseases classified elsewhere (all 4th 
digits)
485  Bronchopneumonia, organism unspecified
486  Pneumonia, organism unspecified
487.0  Influenza with pneumonia
507.x  Pneumonitis due to solids and liquids (all 4th digits)
518.0  Pulmonary collapse
518.5  Pulmonary insufficiency following trauma and surgery
518.81  Respiratory failure
707.0  Decubitus ulcer
996.62  Infection and inflammatory reaction due to other vascular 
device, implant, and graft
996.72  Other complications due to other cardiac device, implant, and 
graft

    We note that, in conjunction with the proposed changes, we also 
proposed to revise the title of DRG 122 to read ``Circulatory Disorders 
with AMI without Major Complications, Discharged Alive.''
    We received four comments fully supporting these proposed changes 
and are including them in the final DRG changes.
4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue)

a. Introduction

    As discussed in detail below, we proposed to create several new 
DRGs in MDC 8 effective for discharges on or after October 1, 1997. 
Specifically, we proposed to replace current DRGs 214 and 215 (Back and 
Neck Procedures) with the following new DRGs:

DRG 496  Combined Anterior/Posterior Spinal Fusion
DRG 497  Spinal Fusion with CC
DRG 498  Spinal Fusion without CC
DRG 499  Back and Neck Procedures Except Spinal Fusion with CC
DRG 500  Back and Neck Procedures Except Spinal Fusion without CC

    In addition, we proposed to replace existing DRGs 221 and 222 (Knee 
Procedures) with new DRGs 501 and 502 (Knee Procedures with Principal 
Diagnosis of Infection) and DRG 503 (Knee Procedures without Principal 
Diagnosis of Infection).

b. Back and Neck Procedures

    Currently, hospital inpatient cases involving back and neck 
procedures generally are assigned to DRGs 214 and 215 (assuming a 
principal diagnosis that groups the case to MDC 8). We have received 
correspondence indicating that within these DRGs, cases involving 
spinal fusion procedures represent a distinctly more complex and 
resource-intensive subset, and that payment under DRGs 214 and 215 is 
inadequate to cover the costs of treating patients that require spinal 
fusion. Therefore, for the proposed rule we conducted an analysis of 
the cases assigned to DRGs 214 and 215 using the FY 1996 MedPAR file.
    Within our sample, cases involving fusion procedures (procedure 
codes 81.00-81.09) constituted approximately 35 percent of cases in DRG 
214 (Back and Neck Procedures with CC) and 23 percent of those in DRG 
215 (Back and Neck Procedures without CC). In DRG 214, the average 
standardized charges for the fusion cases were nearly double the 
charges of the nonfusion cases (approximately $25,300 versus $12,900). 
There were also significant differences in charges in DRG 215--$14,400 
for fusion cases and $8,500 for nonfusion cases. Lengths of stay for 
fusion cases were also longer, although not dramatically so--7.1 days 
for fusion cases versus 5.4 days for other cases in DRG 214, and 3.8 
days versus 3.1 days in DRG 215. In view of the volume of cases 
involved and the clear differences in resource use, we concluded that 
it would be appropriate to create additional DRGs to separate spinal 
fusion cases from the other back and neck procedures.
    Next, we expanded our analysis to determine whether it would be 
appropriate to subdivide the spinal fusion cases according to whether 
both anterior and posterior spinal fusion were performed. This 
combination of procedures, which involves fusing both the front and 
rear of the vertebrae, typically is performed on patients who have had 
previous fusions that have not bonded effectively or who have several 
vertebrae that need extensive fusion on both sides of the spine. As the 
table below illustrates, the average charges and lengths of stay for 
the cases involving both anterior and posterior spinal fusion were 
markedly greater than for the other spinal fusion cases in either DRG 
214 or 215.

------------------------------------------------------------------------
                                                                 Average
                                                                 length 
                    Type of case                        Avg.     of stay
                                                       charges     (in  
                                                                  days) 
------------------------------------------------------------------------
Anterior and posterior spinal fusion................   $51,200      12.3
DRG 214--Other spinal fusion........................    24,300       6.9
DRG 215--Other spinal fusion........................    14,300       3.8
------------------------------------------------------------------------

    Even though the cases in which both anterior and posterior spinal 
fusions were performed represented only about 3 percent of all spinal 
fusion cases in our sample, we concluded that the magnitude of the 
differences in both average charges and lengths of stay warranted a 
further subdivision of the spinal fusion cases.
    Based on this analysis, we proposed to replace the two existing 
DRGs for back and neck procedures with five new DRGs. For ease of 
reference and classification, current DRGs 214 and 215 would be made 
invalid and we would establish new DRGs 496 through 500 to contain all 
the cases that are currently grouped in DRGs 214 and 215. We believe 
that the division of these cases into the new DRGs would improve 
clinical coherence and provide for more appropriate payment for both 
spinal fusion cases and cases involving other back and neck procedures.
    Discharges would be assigned to each of the five proposed DRGs as 
follows:

DRG 496  Combined Anterior/Posterior Spinal Fusion

    DRG 496 would include any combination of procedure codes as 
follows:
    One or more of the following procedure codes--

81.02  Other cervical fusion anterior
81.04  Dorsal/dorsulum fusion anterior
81.06  Lumbar/lumbosac fusion anterior
    and
    One or more of the following procedure codes--

81.03  Other cervical fusion posterior
81.05  Dorsal/dorsulum fusion posterior
81.08  Lumbar/lumbosac fusion posterior
DRGs 497 and 498  Spinal Fusion with and without CC

    DRGs 497 and 498 would include any of the following procedure 
codes, as long as any combination of procedure codes would not 
otherwise result in assignment to proposed DRG 496--

81.00  Spinal  fusion NOS
81.01  Atlas-axis fusion
81.02  Other cervical fusion anterior
81.03  Other cervical fusion posterior
81.04  Dorsal/dorsulum fusion anterior
81.05  Dorsal/dorsulum fusion posterior
81.06  Lumbar/lumbosac fusion anterior

[[Page 45977]]

81.07  Lumbar/lumbosac fusion lateral
81.08  Lumbar/lumbosac fusion posterior
81.09  Refusion of spine
DRGs 499 and 500  Back and Neck Procedures Except Spinal Fusion with 
and without CC.

    All procedure codes in current DRGs 214 and 215 other than 
procedure codes 81.00 through 81.09 would be assigned to DRGs 499 and 
500.
    We received five comments in support of this proposal. We are 
adopting the proposed changes as final.

c. Knee Procedures

    On several occasions, most recently in our September 1, 1993 final 
rule (58 FR 46286), we have examined cases in DRG 209 (Major Joint and 
Limb Reattachment of the Lower Extremity) to see whether hip 
replacement cases that involve infections or other complications should 
be classified separately from the less complicated cases in DRG 209. We 
have found that the average charges and lengths of stay for cases with 
principal diagnoses of infection or complications were only slightly 
higher than for all cases in DRG 209. When we limited our analysis to 
cases with a principal diagnosis of infection, we found that the cases 
had significantly higher charges than for DRG 209 overall, but in view 
of the small volume of cases (less than 0.5 percent of the total DRG 
209 cases), we decided that changes in the classification of cases in 
DRG 209 were not warranted.
    In the proposed rule, at the request of several correspondents, we 
revisited the issue of whether DRG refinements are needed to address 
differences in resource use associated with orthopedic procedures where 
deep infections are present. To evaluate this issue, we analyzed 
various classifications of cases in MDC 8. We began by identifying all 
cases with a principal diagnosis indicating deep orthopedic infection 
of the lower extremities or spine. The diagnosis codes used were as 
follows:

711.05  Pyogenic arthritis pelvic region and thigh
711.06  Pyogenic arthritis lower leg
711.07  Pyogenic arthritis ankle and foot
711.08  Pyogenic arthritis other specified sites
730.05  Acute osteomyelitis pelvic region and thigh
730.06  Acute osteomyelitis lower leg
730.07  Acute osteomyelitis ankle and foot
730.08  Acute osteomyelitis other specified sites
730.15  Chronic osteomyelitis pelvic region and thigh
730.16  Chronic osteomyelitis lower leg
730.17  Chronic osteomyelitis ankle and foot
730.18  Chronic osteomyelitis other specified sites
730.25  Unspecified osteomyelitis pelvic region and thigh
730.26  Unspecified osteomyelitis lower leg
730.27  Unspecified osteomyelitis ankle and foot
730.28  Unspecified osteomyelitis other specified sites
996.66  Infection and inflammatory reaction due to internal joint 
prosthesis
996.67  Infection and inflammatory reaction due to other internal 
orthopedic device

    For each of the DRGs into which these cases are grouped, we then 
compared the average standardized charges and average length of stay 
for cases with any of the infection diagnoses listed above with other 
cases in the DRGs. Unlike in the past, we did not limit our analysis to 
DRG 209 but examined all DRGs within MDC 8 that focus on surgical 
procedures of the lower extremities or spine, including DRGs 209; 210, 
211, and 212 (Hip and Femur Procedures Except Major Joint); 214 and 215 
(Back and Neck Procedures); and 221 and 222 (Knee Procedures).
    For the most part, we again found that these cases represented only 
a very small proportion of the total cases in the DRGs in question. In 
DRG 209, for example, cases with one of the above diagnosis codes as 
the principal diagnosis continued to constitute less than 1 percent of 
all cases in the DRG. Moreover, although the average standardized 
charges for the deep infection cases ($24,834) were approximately 21 
percent higher than the charges for the remaining cases in the DRG 
($19,297), the differences are well within one standard deviation of 
the average charge. Given the small volume of cases, we again conclude 
that changes in DRG 209 are not justified.
    The only DRGs that we examined in which cases with a principal 
diagnosis of deep infection represented more than 1 percent of total 
cases in our sample were DRGs 221 and 222. As illustrated in the chart 
below, there are significant differences in both average charges and 
average length of stay between infection cases in these DRGs and other 
cases in the DRGs.

------------------------------------------------------------------------
                                                                 Average
                                             Number    Average   length 
               Type of case                 of cases   charges   of stay
                                               \1\       (in       (in  
                                                      dollars)    days) 
------------------------------------------------------------------------
DRG 221 (all cases).......................       451    16,529       7.2
DRG 221 with infection....................       152    23,174      11.4
DRG 221 w/out infection...................       299    13,151       5.1
DRG 222 (all cases).......................       340     9,149       3.9
DRG 222 with infection....................        37    14,452       7.0
DRG 222 w/out infection...................       303     8,502      3.5 
------------------------------------------------------------------------
\1\ Based on the 10-percent random sample of the FY 1996 MedPAR file.   

    Thus, more than one-third of cases in DRG 221 had a principal 
diagnosis of deep infection, the average length of stay for these cases 
was more than twice as long as for the remaining cases, and average 
charges were approximately 76 percent higher. Similarly, for the 12 
percent of total DRG 222 cases with infection as the principal 
diagnosis, the average length of stay was double that for other cases, 
with average charges approximately 70 percent higher. Given the 
proportional volume of cases involved, and the significant differences 
in both average charges and length of stay for infection cases in these 
DRGs, we concluded that DRG refinements are appropriate.
    Based on this analysis, we proposed to replace the two existing 
DRGs for knee procedures with three new DRGs. Again, for ease of 
reference and classification, current DRGs 221 and 222 would be made 
invalid and we would establish new DRGs 501 through 503 to contain all 
the cases that are currently grouped in DRGs 221 and 222. Discharges 
would be assigned to each of the three proposed DRGs as follows:

DRG 501  Knee Procedures with Principal Diagnosis of Infection with CC

[[Page 45978]]

DRG 502  Knee Procedures with Principal Diagnosis of Infection without 
CC
    DRG 501 and 502 would include any of the operating room procedures 
now assigned to DRGs 221 and 222, when the principal diagnosis is any 
of the following:

711.06  Pyogenic arthritis lower leg
730.06  Acute osteomyelitis lower leg
730.16  Chronic osteomyelitis lower leg
730.26  Unspecified osteomyelitis lower leg
996.66  Infection and inflammatory reaction due to internal joint 
prosthesis
996.67  Infection and inflammatory reaction due to other internal 
orthopedic device
DRG 503  Knee Procedures without Principal Diagnosis of Infection

    DRG 503 would include any of the operating room procedures now 
assigned to DRGs 221 and 222 when the principal diagnosis is not listed 
above under DRGs 501 and 502.
    Comment: We received four comments in support of this proposed 
change. One of the commenters suggested that we also consider splitting 
proposed DRG 503 into two DRGs to distinguish between cases with and 
without CCs.
    Response: As shown in the table above, based on the FY 1996 MedPAR 
10 percent sample, the average charges associated with cases in new DRG 
503 are $13,151 for cases with CC and $8,502 for cases without CC. The 
average lengths of stay for DRG 503 cases with and without CC are 5.1 
and 3.5 days, respectively. We note that the mean standardized charges 
for this DRG are approximately $10,100. Given the similar lengths of 
stay for these two sets of cases and the relatively small magnitude of 
difference in average charges (much less than one standard deviation), 
we do not believe that further division of the new DRG is warranted. 
Thus, we are adopting the new proposed DRGs for Knee Procedures as 
final.
5. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract)
    Among the ICD-9-CM coding changes that took effect October 1, 1995 
was the addition of new procedure code 59.72 (injection of implant into 
urethra or bladder neck). Although this procedure is not routinely 
performed in an operating room, the code was previously included within 
codes classified as operating room procedures. Thus, as is our 
practice, we assigned this procedure code to the surgical DRGs to which 
the procedure had formerly been assigned as a non-OR procedure that 
affects DRG assignment. Therefore, procedure code 59.72 was assigned to 
DRGs 308 and 309 (Minor Bladder Procedures) and DRG 356 (Female 
Reproductive System Reconstructive Procedures).
    In the June 2, 1995 proposed rule (60 FR 29209), we stated that we 
would reevaluate the DRG classification of this code when data on its 
use became available for analysis in 2 years, that is, in preparation 
for the FY 1998 rulemaking process. We indicated that possible changes 
would include moving the procedure code to a different surgical DRG or 
classifying the code as a non-OR procedure that did not affect DRG 
assignment.
    In the FY 1996 MedPAR file, there were several cases with procedure 
code 59.72 assigned to DRGs 308 and 309. The chart below compares 
average charges and length of stay for cases in these DRGs with and 
without the injection procedure.

------------------------------------------------------------------------
                                                                 Average
                                                       Average   length 
               Type of case                  Number    charge    of stay
                                            of cases     (in       (in  
                                                      dollars)    days) 
------------------------------------------------------------------------
DRG 308 with procedure 59.72..............         5     6,978       4.2
DRG 308 w/out procedure 59.72.............       910    13,254       6.5
DRG 309 with procedure 59.72..............         7     5,879       1.4
DRG 309 w/out procedure 59.72.............       311     7,888       2.7
------------------------------------------------------------------------

    As the table illustrates, cases in which injection of implant into 
the urethra or bladder neck is the only relevant procedure for DRG 
assignment purposes constitute a very small minority of the cases in 
DRGs 308 and 309. However, these cases have lower average charges and 
length of stay than other cases in the DRGs. Thus, we proposed to 
reclassify the procedure code as a non-OR procedure that does not 
affect DRG assignment.
    Under this proposal, cases currently assigned to DRGs 308 and 309 
because of the performance of an implant injection would be reassigned 
to medical DRGs in MDC 11, primarily either DRGs 320, 321, and 322 
(Kidney and Urinary Tract Infections) or DRGs 331 and 332 (Other Kidney 
and Urinary Tract Diagnoses). Both of these sets of DRGs have average 
charges closely in line with the charges for cases in which procedure 
59.72 now determines DRG assignment.
    This change would also affect DRG 356 in MDC 13 (Diseases and 
Disorders of the Female Reproductive System). Within the 10 percent 
sample used for this analysis, only 2 of the 2,689 cases in DRG 356 
were assigned based on the presence of procedure code 59.72, and as in 
DRGS 308 and 309, both the average charges and length of stay were 
lower than for other cases.
    We received two comments in support of this proposal and are 
including it in the final DRG changes.
6. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different DRG within the MDC to which the principal diagnosis is 
assigned. It is, therefore, necessary to have a decision rule by which 
these cases are assigned to a single DRG. The surgical hierarchy, an 
ordering of surgical classes from most to least resource intensive, 
performs that function. Its application ensures that cases involving 
multiple surgical procedures are assigned to the DRG associated with 
the most resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of DRG reclassification and recalibration, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications, to determine if the ordering of classes coincided 
with the intensity of resource utilization, as measured by the same 
billing data used to compute the DRG relative weights.
    A surgical class can be composed of one or more DRGs. For example, 
in MDC 5, the surgical class ``heart transplant'' consists of a single 
DRG (DRG 103) and the class ``coronary bypass'' consists of two DRGs 
(DRGs 106 and 107). Consequently, in many cases, the surgical hierarchy 
has an impact on more than one DRG. The methodology for determining the 
most resource-intensive surgical class, therefore, involves weighting 
each DRG for frequency to determine the average resources for each 
surgical class. For example, assume surgical class A includes DRGs 1 
and 2 and surgical class B includes DRGs 3, 4, and 5, and that the 
average charge of DRG 1 is higher than that of DRG 3, but the average 
charges of DRGs 4 and 5 are higher than the average charge of DRG 2. To 
determine whether surgical class A should be higher or lower than 
surgical class B in the surgical hierarchy, we would weight the average 
charge of each DRG by frequency (that is, by the number of cases in the 
DRG) to determine average resource consumption for the surgical class. 
The surgical classes would then be ordered

[[Page 45979]]

from the class with the highest average resource utilization to that 
with the lowest, with the exception of ``other OR procedures'' as 
discussed below.
    This methodology may occasionally result in a case involving 
multiple procedures being assigned to the lower- weighted DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER searches for the procedure in the 
most resource-intensive surgical class, this result is unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average relative 
weight is ordered above a surgical class with a higher average relative 
weight. For example, the ``other OR procedures'' surgical class is 
uniformly ordered last in the surgical hierarchy of each MDC in which 
it occurs, regardless of the fact that the relative weight for the DRG 
or DRGs in that surgical class may be higher than that for other 
surgical classes in the MDC. The ``other OR procedures'' class is a 
group of procedures that are least likely to be related to the 
diagnoses in the MDC but are occasionally performed on patients with 
these diagnoses. Therefore, these procedures should only be considered 
if no other procedure more closely related to the diagnoses in the MDC 
has been performed.
    A second example occurs when the difference between the average 
weights for two surgical classes is very small. We have found that 
small differences generally do not warrant reordering of the hierarchy 
since, by virtue of the hierarchy change, the relative weights are 
likely to shift such that the higher-ordered surgical class has a lower 
average weight than the class ordered below it.
    Based on the preliminary recalibration of the DRGs, we proposed to 
modify the surgical hierarchy as set forth below. As we stated in the 
September 1, 1989 final rule (54 FR 36457), we are unable to test the 
effects of the proposed revisions to the surgical hierarchy and to 
reflect these changes in the proposed relative weights due to the 
unavailability of revised GROUPER software at the time this proposed 
rule is prepared. Rather, we simulate most major classification changes 
to approximate the placement of cases under the proposed 
reclassification and then determine the average charge for each DRG. 
These average charges then serve as our best estimate of relative 
resource use for each surgical class. We test the proposed surgical 
hierarchy changes after the revised GROUPER is received and reflect the 
final changes in the DRG relative weights in the final rule.
    We proposed to revise the surgical hierarchy for the Pre-MDC DRGs, 
MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue and 
Breast), MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders), and MDC 12 (Diseases and Disorders of the Male Reproductive 
System) as follows:
     In the Pre-MDC DRGs, we would reorder Bone Marrow 
Transplant (DRG 481) above Liver Transplant (DRG 480).
     In MDC 9, we would reorder Perianal and Pilonidal 
Procedures (DRG 267) above Breast Procedures (DRGs 257-262).
     In MDC 10, we would reorder OR Procedures for Obesity (DRG 
288) above Skin Graft and Wound Debridement (DRG 287).
     In MDC 12, we would reorder Circumcision (DRGs 342 and 
343) above Transurethral Prostatectomy (DRGs 336 and 337).
    Based on a test of the proposed changes using the most recent 
MedPAR file and the revised GROUPER software, we found that the 
proposed change to the Pre-MDC DRGs, Bone Marrow Transplant (DRG 481) 
above Liver Transplant (DRG 480) is not supported and this change will 
not be incorporated in this final rule. The Pre-MDC DRGs hierarchy will 
remain the same as in FY 1997.
    We received one comment in support of our surgical hierarchy 
proposals. We also received one comment that disagreed, as discussed 
below.
    Comment: One commenter was opposed to reordering Circumcision (DRGs 
342 and 343) above Transurethral Prostatectomy (DRGs 336 and 337). The 
commenter stated that circumcision (procedure code 64.0) is the only 
procedure in DRGs 342 and 343, and the commenter believes that this 
procedure is not as resource intensive or complex as the procedures 
assigned to DRGs 336 and 337. The commenter suggested the more 
appropriate assignment for a case involving both a transurethral 
prostatectomy and a circumcision would be DRGs 336 and 337.
    Response: Based on the Medicare cases, the average standardized 
charges for cases assigned to DRGs 342 and 343 is almost $7,000, which 
is higher than the average standardized charges of cases assigned to 
DRGs 336 and 337, approximately $6,500. Thus, if a case involves both a 
circumcision and a prostatectomy, we believe it should be assigned to 
the higher-weighted DRG category. Although circumcision can be a 
relatively simple surgery for infants, when it is performed for 
Medicare beneficiaries, it appears to be a more complicated procedure 
and might involve the use of significant resources.
    The other proposed changes to the surgical hierarchy are still 
supported by the data and no additional changes are indicated. 
Therefore, we are incorporating these changes in this final rule.
7. Refinement of Complications and Comorbidities List
    There is a standard list of diagnoses that are considered 
complications or comorbidities (CCs). We developed this list using 
physician panels to include those diagnoses that, when present as a 
secondary condition, would be considered a substantial complication or 
comorbidity. In previous years, we have made changes to the standard 
list of CCs, either by adding new CCs or deleting CCs already on the 
list.
    In the September 1, 1987 final notice concerning changes to the DRG 
classification system (52 FR 33143), we modified the GROUPER logic so 
that certain diagnoses included on the standard list of CCs would not 
be considered a valid CC in combination with a particular principal 
diagnosis. Thus, we created the CC Exclusions List. We made these 
changes to preclude coding of CCs for closely related conditions, to 
preclude duplicative coding or inconsistent coding from being treated 
as CCs, and to ensure that cases are appropriately classified between 
the complicated and uncomplicated DRGs in a pair.
    In the May 19, 1987 proposed notice concerning changes to the DRG 
classification system (52 FR 18877), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another (as subsequently corrected 
in the September 1, 1987 final notice (52 FR 33154)).
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for a condition should not be considered CCs for 
one another.
     Conditions that may not co-exist, such as partial/total, 
unilateral/bilateral, obstructed/unobstructed, and benign/malignant, 
should not be considered CCs for one another.
     The same condition in anatomically proximal sites should 
not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds

[[Page 45980]]

of codes. The FY 1988 revisions were intended to be only a first step 
toward refinement of the CC list in that the criteria used for 
eliminating certain diagnoses from consideration as CCs were intended 
to identify only the most obvious diagnoses that should not be 
considered complications or comorbidities of another diagnosis. For 
that reason, and in light of comments and questions on the CC list, we 
have continued to review the remaining CCs to identify additional 
exclusions and to remove diagnoses from the master list that have been 
shown not to meet the definition of a CC. (See the September 30, 1988 
final rule for the revision made for the discharges occurring in FY 
1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990 
revision (54 FR 36552); the September 4, 1990 final rule for the FY 
1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY 
1992 revision (56 FR 43209); the September 1, 1992 final rule for the 
FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for 
the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule 
for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final 
rule for the FY 1996 revisions (60 FR 45782); and the August 30, 1996 
final rule for the FY 1997 revisions (61 FR 46171)).
    We proposed a limited revision of the CC Exclusions List to take 
into account the changes that will be made in the ICD-9-CM diagnosis 
coding system effective October 1, 1997, as well as the proposed CC 
changes described above. (See section II.B.9, below, for a discussion 
of ICD-9-CM changes.) These changes were proposed in accordance with 
the principles established when we created the CC Exclusions List in 
1987. We received one comment, which supported our changes to the CC 
lists.
    The changes discussed above have been added to Table 6E, Additions 
to the CC Exclusions List, in section V of the Addendum to this final 
rule.
    Tables 6E and 6F in section V of the Addendum to this final rule 
contain the revisions to the CC Exclusions List that will be effective 
for discharges occurring on or after October 1, 1997. Each table shows 
the principal diagnoses with final changes to the excluded CCs. Each of 
these principal diagnoses is shown with an asterisk and the additions 
or deletions to the CC Exclusions List are provided in an indented 
column immediately following the affected principal diagnosis.
    CCs that are added to the list are in Table 6E--Additions to the CC 
Exclusions List. Beginning with discharges on or after October 1, 1997, 
the indented diagnoses will not be recognized by the GROUPER as valid 
CCs for the asterisked principal diagnosis.
    CCs that are deleted from the list are in Table 6F--Deletions from 
the CC Exclusions List. Beginning with discharges on or after October 
1, 1997 the indented diagnoses will be recognized by the GROUPER as 
valid CCs for the asterisked principal diagnosis.
    Copies of the original CC Exclusions List applicable to FY 1988 can 
be obtained from the National Technical Information Service (NTIS) of 
the Department of Commerce. It is available in hard copy for $92.00 
plus $6.00 shipping and handling and on microfiche for $20.50, plus 
$4.00 for shipping and handling. A request for the FY 1988 CC 
Exclusions List (which should include the identification accession 
number, (PB) 88-133970) should be made to the following address: 
National Technical Information Service; United States Department of 
Commerce; 5285 Port Royal Road; Springfield, Virginia 22161; or by 
calling (703) 487-4650.
    Users should be aware of the fact that all revisions to the CC 
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 
and 1997) and those in Tables 6E and 6F of this document must be 
incorporated into the list purchased from NTIS in order to obtain the 
CC Exclusions List applicable for discharges occurring on or after 
October 1, 1997.
    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with HCFA, is 
responsible for updating and maintaining the GROUPER program. The 
current DRG Definitions Manual, Version 14.0, is available for $195.00, 
which includes $15.00 for shipping and handling. Version 15.0 of this 
manual, which will include the final FY 1998 DRG changes, will be 
available in October 1997 for $195.00. These manuals may be obtained by 
writing 3M/HIS at the following address: 100 Barnes Road; Wallingford, 
Connecticut 06492; or by calling (203) 949-0303. Please specify the 
revision or revisions requested.
8. Review of Procedure Codes in DRGs 468, 476, and 477
    Each year, we review cases assigned to DRG 468 (Extensive OR 
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR 
Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive 
OR Procedure Unrelated to Principal Diagnosis) in order to determine 
whether it would be appropriate to change the procedures assigned among 
these DRGs.
    DRGs 468, 476, and 477 are reserved for those cases in which none 
of the OR procedures performed is related to the principal diagnosis. 
These DRGs are intended to capture atypical cases, that is, those cases 
not occurring with sufficient frequency to represent a distinct, 
recognizable clinical group. DRG 476 is assigned to those discharges in 
which one or more of the following prostatic procedures are performed 
and are unrelated to the principal diagnosis:

60.0  Incision of prostate
60.12  Open biopsy of prostate
60.15  Biopsy of periprostatic tissue
60.18  Other diagnostic procedures on prostate and periprostatic tissue
60.21  Transurethral prostatectomy
60.29  Other transurethral prostatectomy
60.61  Local excision of lesion of prostate
60.69  Prostatectomy NEC
60.81  Incision of periprostatic tissue
60.82  Excision of periprostatic tissue
60.93  Repair of prostate
60.94  Control of (postoperative) hemorrhage of prostate
60.95  Transurethral balloon dilation of the prostatic urethra
60.99  Other operations on prostate

    All remaining OR procedures are assigned to DRGs 468 and 477, with 
DRG 477 assigned to those discharges in which the only procedures 
performed are nonextensive procedures that are unrelated to the 
principal diagnosis. The original list of the ICD-9-CM procedure codes 
for the procedures we consider nonextensive procedures if performed 
with an unrelated principal diagnosis was published in Table 6C in 
section IV of the Addendum to the September 30, 1988 final rule (53 FR 
38591). As part of the final rules published on September 4, 1990, 
August 30, 1991, September 1, 1992, September 1, 1993, September 1, 
1994, September 1, 1995, and August 30, 1996, we moved several other 
procedures from DRG 468 to 477. (See 55 FR 36135, 56 FR 43212, 57 FR 
23625, 58 FR 46279, 59 FR 45336, 60 FR 45783, and 61 FR 46173, 
respectively.)

a. Adding Procedure Codes to MDCs

    We annually conduct a review of procedures producing DRG 468 or 477 
assignments on the basis of volume of cases in these DRGs with each 
procedure. Our medical consultants then identify those procedures 
occurring in conjunction with certain

[[Page 45981]]

principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical DRGs for the MDC in which the diagnosis falls. 
Based on this year's review, we proposed to move procedure code 54.92 
(Removal of foreign body from peritoneal cavity) to MDC 11 and assign 
it to DRG 315 (Other Kidney and Urinary Tract OR Procedures). We note 
that, under the current DRGs, when procedure code 54.92 is coded in 
addition to a principal diagnosis code of 868.14 (injury with open 
wound into retroperitoneum), the case is assigned to DRG 468.
    Comment: We received two comments on this proposed change. One 
commenter fully supported the proposal. The other commenter noted that 
moving procedure code 54.92 from DRG 468 to DRG 315 in MDC 11 would 
result in a 43 percent reduction in the DRG relative weight associated 
with the case. Although the change makes sense clinically, the 
commenter questioned the financial impact involved.
    Response: The purpose of DRG 468 is to accommodate cases in which 
an OR procedure that is unrelated to the principal diagnosis is 
performed. As the commenter acknowledges, the clinical relationship 
between procedure code 54.92 (Removal of foreign body from peritoneal 
cavity) and a principal diagnosis code of 868.14 (injury with open 
wound into retroperitoneum) is clear. We note that this change would 
have resulted in the reassignment of only one case in FY 1996; 
therefore, the financial impact involved is minimal. We are adopting 
this change as proposed.

b. Reassignment of Procedures Among DRGs 468, 476, and 477

    We also reviewed the list of procedures that produce assignments to 
DRGs 468, 476, and 477 to ascertain if any of those procedures should 
be moved from one of these DRGs to another based on average charges and 
length of stay. Generally, we move only those procedures for which we 
have an adequate number of discharges to analyze the data.
    In reviewing the list of OR procedures that produce DRG 468 
assignments, we analyzed the average charge and length of stay data for 
cases assigned to that DRG to identify those procedures that are more 
similar to the discharges that currently group to either DRG 476 or 
477. We identified two procedures--other surgical occlusion of 
abdominal arteries (procedure code 38.86) and other arthrotomy of knee 
(procedure code 80.16)--that are significantly less resource intensive 
than the other procedures assigned to DRG 468. Therefore, we proposed 
to move procedure codes 38.86 and 80.16 to the list of procedures that 
result in assignment to DRG 477.
    In reviewing the list of procedures assigned to DRG 477, we did not 
identify any procedures that should be assigned to either DRG 468 or 
476.
    Comment: We received two comments on this proposal. Both commenters 
supported moving procedure code 80.16, but one of the commenters 
believes that procedure code 38.86 represents cases that are very 
complicated and require a high level of resources.
    Response: Our review of the average resource use associated with 
DRG 468 cases with procedure code 38.86 support this change. The 
average charge associated with this case is approximately $13,150. The 
average charges for cases in DRG 468 and 477 are approximately $30,000 
and $14,300, respectively. Thus, moving procedure code 38.86 to DRG 477 
appears appropriate in terms of resource use. We will review the cases 
in the FY 1997 MedPAR file when it becomes available to ensure that 
this remains true for those cases.
9. Changes to the ICD-9-CM Coding System
    As discussed above in section II.B.1 of this preamble, the ICD-9-CM 
is a coding system that is used for the reporting of diagnoses and 
procedures performed on a patient. In September 1985, the ICD-9-CM 
Coordination and Maintenance Committee was formed. This is a Federal 
interdepartmental committee charged with the mission of maintaining and 
updating the ICD-9-CM. That mission includes approving coding changes, 
and developing errata, addenda, and other modifications to the ICD-9-CM 
to reflect newly developed procedures and technologies and newly 
identified diseases. The Committee is also responsible for promoting 
the use of Federal and non-Federal educational programs and other 
communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Committee is co-chaired by the National Center for Health 
Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the 
ICD-9-CM diagnosis codes included in Volume 1--Diseases: Tabular List 
and Volume 2--Diseases: Alphabetic Index, while HCFA has lead 
responsibility for the ICD-9-CM procedure codes included in Volume 3--
Procedures: Tabular List and Alphabetic Index.
    The Committee encourages participation in the above process by 
health-related organizations. In this regard, the Committee holds 
public meetings for discussion of educational issues and proposed 
coding changes. These meetings provide an opportunity for 
representatives of recognized organizations in the coding fields, such 
as the American Health Information Management Association (AHIMA) 
(formerly American Medical Record Association (AMRA)), the American 
Hospital Association (AHA), and various physician specialty groups as 
well as physicians, medical record administrators, health information 
management professionals, and other members of the public to contribute 
ideas on coding matters. After considering the opinions expressed at 
the public meetings and in writing, the Committee formulates 
recommendations, which then must be approved by the agencies.
    The Committee presented proposals for coding changes at public 
meetings held on June 6 and December 5 and 6, 1996, and finalized the 
coding changes after consideration of comments received at the meetings 
and in writing within 60 days following the December 1996 meeting. The 
initial meeting for consideration of coding issues for implementation 
in FY 1999 was held on June 6, 1997. The minutes of the meeting can be 
obtained from the HCFA Home Page @ http://www.hcfa.gov.pubaffr.htm. 
Paper copies of these minutes will no longer be available and the 
mailing list will be discontinued. We encourage commenters to address 
suggestions on coding issues involving diagnosis codes to: Donna 
Pickett, Co-Chairperson; ICD-9-CM Coordination and Maintenance 
Committee; NCHS; Room 1100; 6525 Belcrest Road; Hyattsville, Maryland 
20782. Comments may be sent by E-mail to: [email protected].
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination 
and Maintenance Committee; HCFA, Office of Hospital Policy; Division of 
Prospective Payment System; C5-06-27; 7500 Security Boulevard; 
Baltimore, Maryland 21244-1850. Comments may be sent by E-mail to: 
[email protected].
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 1997. The new ICD-9-CM codes are listed, along 
with their DRG classifications, in Tables 6A and 6B (New Diagnosis 
Codes and New Procedure Codes, respectively) in section V of the 
Addendum to this final rule. As we stated above, the code

[[Page 45982]]

numbers and their titles were presented for public comment in the ICD-
9-CM Coordination and Maintenance Committee meetings. Both oral and 
written comments were considered before the codes were approved.
    Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment. 
Diagnosis codes that have been replaced by expanded codes, other codes, 
or have been deleted are in Table 6C (Invalid Diagnosis Codes). These 
invalid diagnosis codes will not be recognized by the GROUPER beginning 
with discharges occurring on or after October 1, 1997. The 
corresponding new or expanded diagnosis codes are included in Table 6A. 
Revisions to diagnosis code titles are in Table 6D (Revised Diagnosis 
Code Titles), which also includes the DRG assignments for these revised 
codes. For FY 1998, there are no procedure codes that have been 
replaced or deleted nor are there any revisions to procedure code 
titles. We received three comments concerning our assignment of new 
ICD-9-CM codes.
    Comment: One commenter wrote in support of the creation of a new 
diagnosis code for pyoderma gangrenosum (code 686.01) in order to 
distinguish this condition from infectious pyoderma. The commenter 
stated that pyoderma gangrenosum is not infectious, but instead is a 
manifestation of other disease such as ulcerative colitis or Crohn's 
disease. Pyoderma gangrenosum is characterized by ulcers with extensive 
necrosis around the edges and are generally found on the lower 
extremities. Therefore, the commenter believes that this code should be 
assigned to DRG 271 (Skin Ulcers) rather than DRGs 277, 278, and 279 
(Cellulitis).
    Response: When a new code is introduced, our longstanding practice 
is to assign it to the same DRG category as its predecessor code or 
codes. Therefore, we proposed to assign diagnosis code 686.01 to DRGs 
277, 278, and 279, the DRGs to which its predecessor code, 686.0 
(pyoderma), had been assigned. The resource use and other data 
associated with this diagnosis code will be available in the FY 1998 
MedPAR file, which will be used for analysis as part of the FY 2000 DRG 
changes. We will evaluate the DRG assignment of code 686.01 at that 
time.
    Comment: In the proposed rule, we announced a new diagnosis code 
(031.2) for disease due to disseminated mycobacterium avium-
intracellulare complex (DMAC). We proposed that this code be classified 
to DRG 423 (Other Infectious and Parasitic Disease Diagnoses) in MDC 18 
(Infectious and Parasitic Diseases, Systemic or Unspecified Sites) as 
well as be designated as an HIV major related condition in DRG 489 (HIV 
with Major Related Condition). A commenter disagreed with our decision 
to classify this code as a non-CC; that is, diagnosis code 031.2 would 
not be included on the CC list. The commenter believes that when DMAC 
is present as a secondary diagnosis, it would be considered a 
substantial complication or comorbidity.
    Response: DMAC is the most common disseminated bacterial infection 
in patients with advanced acquired immunodeficiency syndrome (AIDS). As 
such, cases coded with 031.2 will also be coded with a principal or 
secondary diagnosis of 042, Human immunodeficiency virus (HIV) disease 
and will be assigned to DRG 489. DRG 489 is not divided based on the 
presence or absence of CCs. We believe that the vast majority of 
patients with DMAC, if not all, will be assigned to this DRG, thus 
negating the need to add this disease to the CC list. As noted above, 
it is our practice to assign new codes to the same category as their 
predecessor code was assigned. We note that cases coded 031.2 would 
have been coded to 031.8 (other specified mycobacterial diseases), 
which is not a CC. We will review the assignment of cases in which DMAC 
is coded as a secondary condition when the FY 1998 MedPAR file becomes 
available and re-evaluate our decision.
    Comment: Commenters noted what they believed to be a typographical 
error concerning new code V42.83 (organ or tissue replaced by 
transplant, pancreas). In Table 6A, New Diagnosis Codes, this code was 
recorded as being assigned to MDC 7, DRG 467 (Other Factors Influencing 
Health Status). Since DRG 467 is assigned to MDC 23, the commenters 
assumed this was a typographical error.
    Response: The commenters are correct; diagnosis code V42.83 is 
assigned to DRG 204 (Disorders of Pancreas Except Malignancy) in MDC 7.
10. Other Issues

a. MDC 22 (Burns)

    Under the current DRG system, burn cases generally are assigned to 
one of six DRGs in MDC 22 (Burns). These DRGs-- DRGs 456 through 460 
and 472--have been in place without change since 1986. Recently, we 
have received several letters from representatives of facilities that 
specialize in treating burn cases asserting that the existing DRGs do 
not adequately capture the variation in resource use associated with 
different types of burn cases. In the proposed rule (62 FR 29912), we 
discussed the concerns of these correspondents and solicited public 
comments on whether changes in these DRGs can increase their ability to 
explain the variation in resource use among burn cases.
    We received approximately 15 public comments on this issue, all of 
which supported our efforts to identify DRG groupings that would 
reflect more homogeneous resource use. These comments included a 
proposal for restructuring the DRG classifications in MDC 22 that has 
been endorsed by the American Burn Association. Several commenters also 
suggested the need for a special facility category to make possible 
payment differences for designated burn care facilities. As noted in 
the proposed rule, however, any suggestions involving payment 
adjustments for hospitals designated as burn centers would require 
legislative action. We intend to conduct a full review of the comments 
and proposals we have received as part of the FY 1999 DRG analysis 
agenda. We will discuss our findings and, if appropriate, propose 
modifications to MDC 22 in the FY 1999 proposed rule.

b. Marfan Syndrome (DRG 390)

    We are making a minor DRG classification change for FY 1998 that we 
inadvertently did not include in the June 2 proposed rule. Based on 
correspondence we have received, we reviewed the assignment of 
diagnosis code 759.82 (Marfan syndrome) to DRG 390 (Neonate with Other 
Significant Problems) in MDC 15 (Newborns and Other Neonates with 
Conditions Originating in the Perinatal Period). While Marfan syndrome 
is a congenital disorder, cardiovascular abnormalities associated with 
the disorder are most likely to manifest in adults. Because the current 
classification system often results in adult patients being classified 
to the MDC for newborns, we agree that, from a clinical coherence 
standpoint, it is appropriate that these cases be reclassified. 
Therefore, we are reassigning code 759.82 from DRG 390 into MDC 5, DRGs 
135, 136, and 137 (Cardiac Congenital & Valvular Disorders). There were 
no cases with a principal diagnosis code of 759.82 in the FY 1996 
MedPAR file.

C. Recalibration of DRG Weights

    We proposed to use the same basic methodology for the FY 1998 
recalibration as we did for FY 1997. (See the August 30, 1996 final 
rule (61 FR 46176).) That is, we would recalibrate the weights based on 
charge data for

[[Page 45983]]

Medicare discharges. However, we would use the most current charge 
information available, the FY 1996 MedPAR file, rather than the FY 1995 
MedPAR file. The MedPAR file is based on fully-coded diagnostic and 
surgical procedure data for all Medicare inpatient hospital bills.
    The final recalibrated DRG relative weights are constructed from FY 
1996 MedPAR data, based on bills received by HCFA through June 1997, 
from all hospitals subject to the prospective payment system and short-
term acute care hospitals in waiver States. The FY 1996 MedPAR file 
includes data for approximately 11.2 million Medicare discharges.
    The methodology used to calculate the DRG relative weights from the 
FY 1996 MedPAR file is as follows:
     All the claims were regrouped using the DRG classification 
revisions discussed above in section II.B of this preamble.
     Charges were standardized to remove the effects of 
differences in area wage levels, indirect medical education costs, 
disproportionate share payments, and, for hospitals in Alaska and 
Hawaii, the applicable cost-of-living adjustment.
     The average standardized charge per DRG was calculated by 
summing the standardized charges for all cases in the DRG and dividing 
that amount by the number of cases classified in the DRG.
     We then eliminated statistical outliers, using the same 
criteria as was used in computing the current weights. That is, all 
cases that are outside of 3.0 standard deviations from the mean of the 
log distribution of both the charges per case and the charges per day 
for each DRG.
     The average charge for each DRG was then recomputed 
(excluding the statistical outliers) and divided by the national 
average standardized charge per case to determine the relative weight. 
A transfer case is counted as a fraction of a case based on the ratio 
of its length of stay to the geometric mean length of stay of the cases 
assigned to the DRG. That is, a 5-day length of stay transfer case 
assigned to a DRG with a geometric mean length of stay of 10 days is 
counted as 0.5 of a total case.
     We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner 
consistent with the methodology for all other DRGs except that the 
transplant cases that were used to establish the weights were limited 
to those Medicare-approved heart, heart-lung, liver, and lung 
transplant centers that have cases in the FY 1995 MedPAR file. 
(Medicare coverage for heart, heart-lung, liver, and lung transplants 
is limited to those facilities that have received approval from HCFA as 
transplant centers.)
     Acquisition costs for kidney, heart, heart-lung, liver, 
and lung transplants continue to be paid on a reasonable cost basis. 
Unlike other excluded costs, the acquisition costs are concentrated in 
specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant 
for heart and heart-lung transplants); DRG 480 (Liver Transplant); and 
DRG 495 (Lung Transplant)). Because these costs are paid separately 
from the prospective payment rate, it is necessary to make an 
adjustment to prevent the relative weights for these DRGs from 
including the effect of the acquisition costs. Therefore, we subtracted 
the acquisition charges from the total charges on each transplant bill 
that showed acquisition charges before computing the average charge for 
the DRG and before eliminating statistical outliers.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. We proposed to use that same case 
threshold in recalibrating the DRG weights for FY 1998. For this final 
rule, using the FY 1996 MedPAR data set, there are 34 DRGs that contain 
fewer than 10 cases. We computed the weights for the 34 low-volume DRGs 
by adjusting the FY 1997 weights of these DRGs by the percentage change 
in the average weight of the cases in the other DRGs.
    The weights developed according to the methodology described above, 
using the proposed DRG classification changes, result in an average 
case weight that is different from the average case weight before 
recalibration. Therefore, the new weights are normalized by an 
adjustment factor, so that the average case weight after recalibration 
is equal to the average case weight before recalibration. This 
adjustment is intended to ensure that recalibration by itself neither 
increases nor decreases total payments under the prospective payment 
system.
    Section 1886(d)(4)(C)(iii) of the Act requires that beginning with 
FY 1991, reclassification and recalibration changes be made in a manner 
that assures that the aggregate payments are neither greater than nor 
less than the aggregate payments that would have been made without the 
changes. Although normalization is intended to achieve this effect, 
equating the average case weight after recalibration to the average 
case weight before recalibration does not necessarily achieve budget 
neutrality with respect to aggregate payments to hospitals because 
payment to hospitals is affected by factors other than average case 
weight. Therefore, as we have done in past years and as discussed in 
section II.A.4.a of the Addendum to this final rule, we are making a 
budget neutrality adjustment to assure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met.
    Although we received no comments on the recalibration of the DRG 
weights, we did receive one comment that relates to that process.
    Comment: One commenter was concerned about the reduction in the 
proposed FY 1998 relative weight for DRG 480 (Liver Transplant), 
compared to the FY 1997 weight. The commenter noted that Table 5 of the 
proposed rule (62 FR 29990) indicated approximately an 8-day reduction 
in length of stay from FY 1995 to FY 1996 and asked that we review the 
MedPAR data for this DRG to verify the accuracy of the data and the 
consequent change in the relative weight.
    Response: Every year when the relative weights are recalibrated, we 
use charge information from the most recent Medicare data available. 
That is, we use the charges reported by hospitals for the cases under 
each DRG to establish the relative weights. As the commenter requested, 
we have re-examined the FY 1996 MedPAR data that are used in 
establishing the DRG relative weights for FY 1998. We have not 
identified any problems or anomalies related to the cases in DRG 480 
and are confident that the relative weight and length of stay data set 
forth in Table 5 of this final rule are accurate. We note that the 
final FY 1996 MedPAR data result in a slightly higher relative weight 
and average length of stay for DRG 480 than shown in the proposed rule, 
although the data still indicate close to a 7-day reduction in average 
length of stay for these cases. (Data for the final rule are taken from 
the June 1997 update of the FY 1996 MedPAR data, rather than the 
December 1996 file used for the proposed rule.)
    Both the relative weight and the length of stay for liver 
transplant cases have exhibited continuing declines since the early 
1990's. Although the decline between FY 1995 and FY 1996 was more 
pronounced than in some other years, this change is not unusual for a 
relatively low volume DRG (fewer than 400 cases) with a large range of 
reported charges and lengths of stay. A few very low or very high 
charge cases can make a dramatic difference in the DRG weight.

[[Page 45984]]

III. Changes to the Hospital Wage Index and Medicare Geographic 
Reclassification Guidelines

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the definitions 
of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New 
England County Metropolitan Areas (NECMAs) issued by the Office of 
Management and Budget (OMB). OMB also designates Consolidated MSAs 
(CMSAs). A CMSA is a metropolitan area with a population of one million 
or more, comprised of two or more PMSAs (identified by their separate 
economic and social character). For purposes of the hospital wage 
index, we use the PMSAs rather than CMSAs since they allow a more 
precise breakdown of labor costs. If a metropolitan area is not 
designated as part of a PMSA, we use the applicable MSA. Rural areas 
are areas outside a designated MSA, PMSA, or NECMA.
    In the proposed rule, we noted that, effective April 1, 1990, the 
term Metropolitan Area (MA) replaced the term Metropolitan Statistical 
Area (MSA) (which had been used since June 30, 1983) to describe the 
set of metropolitan areas comprised of MSAs, PMSAs, and CMSAs. The 
terminology was changed by OMB in the March 30, 1990 Federal Register 
to distinguish between the individual metropolitan areas known as MSAs 
and the set of all metropolitan areas (MSAs, PMSAs, and CMSAs) (55 FR 
12154). For purposes of the prospective payment system, we will 
continue to refer to these areas as MSAs.
    Section 1886(d)(3)(E) of the Act also requires that the wage index 
be updated annually beginning October 1, 1993. Furthermore, this 
section provides that the Secretary base the update on a survey of 
wages and wage-related costs of short-term, acute care hospitals. The 
survey should measure, to the extent feasible, the earnings and paid 
hours of employment by occupational category, and must exclude the 
wages and wage-related costs incurred in furnishing skilled nursing 
services. We also adjust the wage index, as discussed below in section 
III.B.3, to take into account the geographic reclassification of 
hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of 
the Act.

B. FY 1998 Wage Index Update

    The final FY 1998 wage index in section V. of the Addendum 
(effective for hospital discharges occurring on or after October 1, 
1997 and before October 1, 1998) is based on the data collected from 
the Medicare cost reports submitted by hospitals for cost reporting 
periods beginning in FY 1994 (the FY 1997 wage index was based on FY 
1993 wage data). We used the same categories of data that were used in 
the FY 1997 wage index. Therefore, the FY 1998 wage index reflects the 
following:
     Total salaries and hours from short-term, acute care 
hospitals.
     Home office costs and hours.
     Fringe benefits associated with hospital and home office 
salaries.
     Direct patient care contract labor costs and hours.
     The exclusion of salaries and hours for nonhospital type 
services such as skilled nursing facility services, home health 
services, or other subprovider components that are not subject to the 
prospective payment system.
    We proposed to calculate a separate Puerto Rico-specific wage index 
to be applied to the Puerto Rico standardized amount. We stated that 
this wage index would be calculated in the same manner as the national 
wage index described below, but will be based solely on Puerto Rico's 
data. We received several comments supporting the new Puerto Rico-
specific wage index. We are implementing that change and revising 
Sec. 412.210(e) accordingly.
    We did not propose any changes in the reporting of hospital wage 
index data, but we received numerous comments regarding the FY 1995 
wage data, which will not be used until we develop the FY 1999 wage 
index. The Medicare cost report for reporting periods beginning during 
FY 1995 included several changes to the Worksheet S-3 that will allow 
us to analyze further refinements to the wage index. Among those 
changes are the separate reporting of all salary costs for physicians 
(including teaching physicians), residents, and certified registered 
nurse anesthetists (CRNAs). In addition, we collected overhead cost 
data by cost center in order to analyze the possibility of excluding 
overhead costs attributable to skilled nursing facilities and other 
excluded areas from the wage index. These comments are discussed in 
detail below.
    Comment: Two commenters stated that we should exclude physician 
salaries (as recommended by the Medicare Technical Advisory Group); one 
suggested that we should immediately exclude these costs using 
information from the Worksheet A-8-2 of the Medicare cost report. 
Alternatively, a few commenters suggested that we should include 
contracted Part A physician salaries for those States in which 
hospitals are prohibited from employing physicians. Several commenters 
are concerned that the removal of teaching physician and resident 
salaries would redistribute revenues from large metropolitan areas with 
large teaching programs to areas that support medical education to a 
lesser extent. The commenters noted that recent legislation revising 
the payments for disproportionate share and the indirect medical 
education adjustments (sections 4403 and 4621 of Public Law 105-33) 
will further reduce payment for hospitals in major metropolitan areas.
    Other commenters suggested that we analyze the impact of excluding 
the data before making a final decision. Some commenters specifically 
recommended that we determine whether hospitals that are prohibited 
from employing physicians are disadvantaged by our current policy, and, 
if so, that we develop a policy that minimizes the redistribution of 
revenue and the concentration of losses in particular geographic areas.
    Response: These comments relate to the FY 1995 wage data, which we 
are not using in developing the FY 1998 wage index. We will consider 
these comments in developing the FY 1999 wage index. Although the 
deadline for fiscal intermediaries to submit all of the reviewed FY 
1995 wage data to HCFA is mid-November 1997, we intend to begin our 
analysis of these data prior to that time, based on the data that have 
already been submitted to the Health Care Provider Cost Report 
Information System (HCRIS). We note that our fundamental objective in 
administering the wage index is to ensure that it is accurate and fair, 
and we will evaluate the use of the FY 1995 wage data with that 
objective in mind.
    Regarding the suggestion that we use Worksheet A-8-2 to exclude 
Part A physician salaries, we noted in the proposed rule (62 FR 29914) 
that, because the intermediaries had already begun reviewing the FY 
1994 cost report and finalizing the Worksheet S-3 data, we did not 
believe it would be appropriate to revise their instructions and 
require them to make a change to their procedure. Therefore, we will 
review and evaluate for the FY 1995 data, which provides for the 
separate

[[Page 45985]]

reporting of physician salaries when considering appropriate changes in 
the FY 1999 wage index.
    Comment: One hospital association commented that it had analyzed 
unedited preliminary FY 1995 HCRIS data and concluded that revising our 
policy to include contracted Part A physician salaries would 
redistribute current payments by only half of what would result if we 
changed our policy to exclude all Part A physician and resident 
salaries. (Currently, we exclude contracted Part A physician salaries, 
but include similar salaries if the physician is employed by the 
hospital.) Other commenters noted other data issues that arise using 
the preliminary FY 1995 HCRIS wage data.
    Response: In response to these comments, we would emphasize that 
the cost report data analyzed by these commenters are very preliminary, 
and in many cases, have not yet been reviewed by the intermediaries. 
The data were extracted from the HCRIS Minimum Data Set, which is 
updated quarterly and becomes more accurate and complete after the 
deadline for completion of the wage data desk reviews by the 
intermediaries. We are aware of the need to carefully review these data 
due to the changes discussed above, and we will work with those in the 
hospital industry that have taken the initiative to begin to examine 
the data in order to draw upon their findings while proceeding with our 
analysis.
    Comment: Two commenters stated that wages and wage-related costs 
for physicians, residents, and CRNAs are not reported separately for FY 
1995, but are reported separately for FY 1996. They requested that HCFA 
postpone its evaluation of the exclusion of these data until the FY 
1996 data are available, and that HCFA announce this 1-year delay in 
the FY 1998 final rule.
    Response:  We are aware that for the FY 1995 cost reports some 
hospitals may have reported teaching physicians' salaries with 
residents' wages, and also did not separately report wage-related costs 
for physicians, residents, and CRNAs. To address this situation we 
revised the FY 1996 cost reporting instructions. We will consider the 
impact of this problem in our FY 1995 data analysis.
    Comment: Four commenters disputed the rationale that Part A 
physician and resident salaries should be excluded from the wage index 
because these costs are largely paid through Medicare direct graduate 
medical education payments. They stated that other costs, such as 
outpatient and general service costs that are allocated to excluded 
cost centers, are similarly paid outside the prospective payment 
system, but are included in the wage index calculation.
    Response: The FY 1995 revised Worksheet S-3 allows for the separate 
reporting of direct salaries and hours by general service cost centers 
as well as physician salaries. We plan to analyze these data to 
determine the feasibility of allocating general service costs and 
removing those costs that are associated with excluded areas. Regarding 
outpatient costs, hospital staff frequently provide services in both 
the outpatient and inpatient departments, and we believe that the 
inclusion of outpatient salaries causes little or no distortion to the 
wage index.
1. Verification of Wage Data From the Medicare Cost Report
    The data for the FY 1998 wage index were obtained from Worksheet S-
3, Part II of the Medicare cost report. The data file used to construct 
the final wage index includes FY 1994 data submitted to HCRIS. As in 
past years, we performed an intensive review of the wage data, mostly 
through the use of edits designed to identify aberrant data.
    In the proposed rule, we discussed in detail our review of the wage 
data as well as the process that hospitals could use to verify their 
wage data and submit requests for corrections if necessary (62 FR 
29914). To be reflected in the final wage index, wage data corrections 
had to be reviewed, verified, and transmitted to HCFA through HCRIS by 
June 16, 1997. (Any changes after this date are limited to errors 
related to handling the data, as described below in section III.C of 
this preamble.) All data elements that failed edits have been resolved 
and are reflected in the final wage index.
2. Computation of the Wage Index
    The method used to compute the final wage index is as follows:
    Step 1--As noted above, we based the FY 1998 wage index on wage 
data reported on the FY 1994 Medicare cost reports. We gathered data 
from each of the non-Federal, short-term, acute care hospitals for 
which data were reported on the Worksheet S-3, Part II of the Medicare 
cost report for the hospital's cost reporting period beginning on or 
after October 1, 1993 and before October 1, 1994. In addition, we 
included data from a few hospitals that had cost reporting periods 
beginning in September 1993 and reported a cost reporting period 
exceeding 52 weeks. These data were included because no other data from 
these hospitals would be available for the cost reporting period 
described above, and particular labor market areas might be affected 
due to the omission of these hospitals. However, we generally describe 
these wage data as FY 1994 data.
    Step 2--For each hospital, we subtracted the excluded salaries 
(that is, direct salaries attributable to skilled nursing facility 
services, home health services, and other subprovider components not 
subject to the prospective payment system) from gross hospital salaries 
to determine net hospital salaries. To determine total salaries plus 
fringe benefits, we added direct patient care contract labor costs, 
hospital fringe benefits, and any home office salaries and fringe 
benefits reported by the hospital, to the net hospital salaries.
    Step 3--For each hospital, we adjusted the total salaries plus 
fringe benefits resulting from Step 2 to a common period to determine 
total adjusted salaries. To make the wage inflation adjustment, we used 
the percentage change in average hourly earnings estimated for each 30-
day increment from October 14, 1993 through April 15, 1995, for 
hospital industry workers from Standard Industry Classification 806, 
Bureau of Labor Statistics Employment and Earnings Bulletin. The annual 
inflation rates used were 3.6 percent for FY 1993, 2.7 percent for FY 
1994, and 3.3 percent for FY 1995. The inflation factors used to 
inflate the hospital's data were based on the midpoint of the cost 
reporting period as indicated below.

                    Midpoint of Cost Reporting Period                   
------------------------------------------------------------------------
                                                              Adjustment
               After                         Before             factor  
------------------------------------------------------------------------
10/14/93...........................  11/15/93..............     1.038679
11/14/93...........................  12/15/93..............     1.036376
12/14/93...........................  01/15/94..............     1.034077
01/14/94...........................  02/15/94..............     1.031784
02/14/94...........................  03/15/94..............     1.029496
03/14/94...........................  04/15/94..............     1.027213
04/14/94...........................  05/15/94..............     1.024935
05/14/94...........................  06/15/94..............     1.022662
06/14/94...........................  07/15/94..............     1.020394
07/14/94...........................  08/15/94..............     1.018131
08/14/94...........................  09/15/94..............     1.015873
09/14/94...........................  10/15/94..............     1.013620
10/14/94...........................  11/15/94..............     1.010881
11/14/94...........................  12/15/94..............     1.008150
12/14/94...........................  01/15/95..............     1.005426
01/14/95...........................  02/15/95..............     1.002709
02/14/95...........................  03/15/95..............     1.000000
03/14/95...........................  04/15/95..............     0.997298
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 1994 and ending December 31, 1994 is June 30, 1994. An 
inflation adjustment factor of 1.020394 would be applied to the wages 
of a hospital with such a cost reporting period. In addition, for the 
data for any cost reporting period that

[[Page 45986]]

began in FY 1994 and covers a period of less than 360 days or greater 
than 370 days, we annualized the data to reflect a 1-year cost report. 
Annualization is accomplished by dividing the data by the number of 
days in the cost report and then multiplying the results by 365.
    Step 4--For each hospital, we subtracted the reported excluded 
hours from the gross hospital hours to determine net hospital hours. We 
increased the net hours by the addition of any direct patient care 
contract labor hours and home office hours to determine total hours.
    Step 5--As part of our editing process, we deleted data for 18 
hospitals for which we lacked sufficient documentation to verify data 
that failed edits because the hospitals are no longer participating in 
the Medicare program or are in bankruptcy status. We retained the data 
for other hospitals that are no longer participating in the Medicare 
program because these hospitals reflected the relative wage levels in 
their labor market areas during their FY 1994 cost reporting period.
    Step 6--Each hospital was assigned to its appropriate urban or 
rural labor market area prior to any reclassifications under sections 
1886(d)(8)(B) or 1886(d)(10) of the Act. Within each urban or rural 
labor market area, we added the total adjusted salaries plus fringe 
benefits obtained in Step 3 for all hospitals in that area to determine 
the total adjusted salaries plus fringe benefits for the labor market 
area.
    Step 7--We divided the total adjusted salaries plus fringe benefits 
obtained in Step 6 by the sum of the total hours (from Step 4) for all 
hospitals in each labor market area to determine an average hourly wage 
for the area.
    Step 8--We added the total adjusted salaries plus fringe benefits 
obtained in Step 3 for all hospitals in the nation and then divided the 
sum by the national sum of total hours from Step 4 to arrive at a 
national average hourly wage. Using the data as described above, the 
national average hourly wage is $20.0950.
    Step 9--For each urban or rural labor market area, we calculated 
the hospital wage index value by dividing the area average hourly wage 
obtained in Step 7 by the national average hourly wage computed in Step 
8.
    Step 10--Following the process set forth above, we developed a 
separate Puerto Rico-specific wage index for purposes of adjusting the 
Puerto Rico standardized amounts. We added the total adjusted salaries 
plus fringe benefits (as calculated in Step 3) for all hospitals in 
Puerto Rico and divided the sum by the total hours for Puerto Rico (as 
calculated in Step 4) to arrive at an overall average hourly wage of 
$9.1364 for Puerto Rico. For each labor market area in Puerto Rico, we 
calculated the hospital wage index value by dividing the area average 
hourly wage (as calculated in Step 7) by the overall Puerto Rico 
average hourly wage.
    Step 11--Section 4410(a) Public Law 105-33 provides that, for 
discharges on or after October 1, 1997, the area wage index applicable 
to any hospital that is not located in a rural area may not be less 
than the area wage index applicable to hospitals located in rural areas 
in the State in which the hospital is located. For FY 1998, this change 
affects 128 hospitals in 32 MSAs. The MSAs affected by this provision 
are identified in Table 4A by a footnote. Furthermore, this wage index 
floor is to be implemented in such a manner as to assure that aggregate 
prospective payment system payments are not greater or less than those 
which would have been made in the year if this section did not apply. 
We note that the Secretary has exercised the authority granted to her 
by section 4408 of Public Law 105- 33 to include Stanly County in the 
Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA. This 
change is reflected in the final wage index.
3. Revisions to the Wage Index Based on Hospital Redesignation
    Under section 1886(d)(8)(B) of the Act, hospitals in certain rural 
counties adjacent to one or more MSAs are considered to be located in 
one of the adjacent MSAs if certain standards are met. Under section 
1886(d)(10) of the Act, the Medicare Geographic Classification Review 
Board (MGCRB) considers applications by hospitals for geographic 
reclassification for purposes of payment under the prospective payment 
system.
    The methodology for determining the wage index values for 
redesignated hospitals is applied jointly to the hospitals located in 
those rural counties that were deemed urban under section 1886(d)(8)(B) 
of the Act and those hospitals that were reclassified as a result of 
the MGCRB decisions under section 1886(d)(10) of the Act. Section 
1886(d)(8)(C) of the Act provides that the application of the wage 
index to redesignated hospitals is dependent on the hypothetical impact 
that the wage data from these hospitals would have on the wage index 
value for the area to which they have been redesignated. Therefore, as 
provided in section 1886(d)(8)(C) of the Act, the wage index values 
were determined by considering the following:
     If including the wage data for the redesignated hospitals 
would reduce the wage index value for the area to which the hospitals 
are redesignated by 1 percentage point or less, the area wage index 
value determined exclusive of the wage data for the redesignated 
hospitals applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the hospitals that are 
redesignated are subject to that combined wage index value.
     If including the wage data for the redesignated hospitals 
increases the wage index value for the area to which the hospitals are 
redesignated, both the area and the redesignated hospitals receive the 
combined wage index value.
     The wage index value for a redesignated urban or rural 
hospital cannot be reduced below the wage index value for the rural 
areas of the State in which the hospital is located.
     Rural areas whose wage index values would be reduced by 
excluding the wage data for hospitals that have been redesignated to 
another area continue to have their wage index values calculated as if 
no redesignation had occurred.
     Rural areas whose wage index values increase as a result 
of excluding the wage data for the hospitals that have been 
redesignated to another area have their wage index values calculated 
exclusive of the wage data of the redesignated hospitals.
     The wage index value for an urban area is calculated 
exclusive of the wage data for hospitals that have been reclassified to 
another area. However, geographic reclassification may not reduce the 
wage index value for an urban area below the statewide rural wage index 
value.
    We note that, except for those rural areas where redesignation 
would reduce the rural wage index value, the wage index value for each 
area is computed exclusive of the wage data for hospitals that have 
been redesignated from the area for purposes of their wage index. As a 
result, several urban areas listed in Table 4a have no hospitals 
remaining in the area. This is because all the hospitals originally in 
these urban areas have been reclassified to another area by the MGCRB. 
These areas with no remaining hospitals receive the prereclassified 
wage index value. The prereclassified wage index value will apply as 
long as the area remains empty.
    The final wage index values for FY 1998 are shown in Tables 4A, 4B, 
4C, and 4F in the Addendum to this final rule. Subject to the 
provisions of Public

[[Page 45987]]

Law 105-33, the FY 1998 wage index values incorporate all hospital 
redesignations for FY 1998, withdrawals of requests for 
reclassification, wage index corrections, appeals, and the 
Administrator's review process. For FY 1998, 357 hospitals are 
redesignated for purposes of the wage index (hospitals redesignated 
under section 1886(d)(8)(B) or 1886(d)(10) of the Act). Hospitals that 
are redesignated should use the wage index values shown in Table 4C. 
Areas in Table 4C may have more than one wage index value because the 
wage index value for a redesignated rural hospital cannot be reduced 
below the wage index value for the rural areas of the State in which 
the hospital is located. When the wage index value of the area to which 
a rural hospital is redesignated is lower than the wage index value for 
the rural areas of the State in which the rural hospital is located, 
the redesignated rural hospital receives the higher wage index value, 
that is, the wage index value for the rural areas of the State in which 
it is located, rather than the wage index value otherwise applicable to 
the redesignated hospitals.
    Tables 4D and 4E list the average hourly wage for each labor market 
area, prior to the redesignation of hospitals, based on the FY 1994 
wage data. In addition, Table 3C in the Addendum to this final rule 
includes the adjusted (inflated) average hourly wage for each hospital 
based on the FY 1994 data. The MGCRB will use the average hourly wage 
published in the final rule to evaluate a hospital's application for 
reclassification, unless that average hourly wage is later revised in 
accordance with the wage data correction policy described in 
Sec. 412.63(s)(2). In such cases, the MGCRB will use the most recent 
revised data used for purposes of the hospital wage index.

C. Changes to the Medicare Geographic Classification Review Board 
(MGCRB) Guidelines and Timeframes

    Various provisions of Public Law 105-33 address the guidelines the 
MGCRB uses to reclassify hospitals to other geographic areas as well as 
the timetable under which hospitals must submit applications for 
reclassification and the MGCRB and the Secretary must make decisions on 
those applications.
1. Revised Application and MGCRB Timeframes
    Currently, a hospital must submit an application to the MGCRB for 
geographic reclassification for a fiscal year by the first day of the 
preceding fiscal year (that is, October 1, 1997 for reclassification 
effective in FY 1999). The MGCRB has 180 days to make a decision on 
that application (no later than March 31 of the fiscal year), the 
hospital has 15 days to request a review of that decision by the 
Administrator of HCFA (by April 15), and the Administrator has up to 90 
days to issue a final decision (July 15). Under our current publication 
schedule, the July 15 deadline allows the final geographic 
reclassification decisions to be incorporated in the wage index and 
payment rates that are published in the final rule on or about 
September 1.
    Sections 4644 (a)(1) and (b)(1) of Public Law 105-33 amend section 
1886 (d)(6) and (e) of the Act to provide that the final rule setting 
the payment rates for years beginning with FY 1999 must be published by 
August 1. Because this change in publication dates would conflict with 
the timetable for geographic reclassification decisions, section 
4644(c) of Public Law 105-33 amended section 1886(d)(10)(C)(ii) of the 
Act to require a hospital to submit an application for reclassification 
no later than the first day of the month preceding the beginning of the 
Federal fiscal year (that is, by September 1) beginning with 
applications filed for reclassification for FY 2000. Under this 
timetable, the amount of time the MGCRB and the Administrator have to 
make decisions will not change from the current schedule.
    In addition, because applications filed for reclassification 
effective in FY 1999 are not due until October 1, 1997, section 
4644(c)(2) requires us to shorten the deadlines under section 
1886(d)(10)(C) of the Act so that all final decisions on MGCRB 
applications will be completed by June 15, 1998. We have consulted with 
the staff of the MGCRB and the reclassification decisions will be made 
by the MGCRB by February 28, 1998. This will allow final decisions of 
the Secretary to be completed by June 15, 1998.
    We are revising Secs. 412.256 and 412.274 to implement the change 
in the application deadline.
2. Alternative Wage Index Reclassification Guidelines for Individual 
Hospitals
    a. In the September 1, 1992 final rule, we revised the wage index 
guidelines at Sec. 412.230(e) to add the requirement that a hospital 
cannot be reclassified unless its average hourly wage is at least 108 
percent of the average hourly wage of the area in which it is located. 
For FY 1998 reclassification, section 4409 of Public Law 105-33 
requires the Secretary to establish alternative wage index guidelines 
for geographic reclassification. As provided in the statute, a hospital 
may reclassify for wage index purposes if it demonstrates that:
     Its average hourly wage is at least 108 percent of the 
average hourly wage of all other hospitals in its MSA, that is, not 
including its own wage data.
     It pays at least 40 percent of the adjusted uninflated 
wages in the MSA.
     It reclassified for the wage index for each of the fiscal 
years 1992 through 1997.
    The hospital must also meet all other applicable guidelines (for 
example, proximity).
    As noted above, this provision is effective for FY 1998 
reclassifications. Because the application and decision making process 
for FY 1998 reclassification is already completed, we must provide 
special guidelines for hospitals to apply for reclassification under 
this provision for FY 1998.
    A hospital seeking reclassification for FY 1998 under this 
provision must submit its application to the MGCRB by September 15, 
1997. In addition, the hospital must submit 7 copies of a completed 
application to the MGCRB. The MGCRB will dismiss a hospital's request 
for reclassification if the completed application is not received by 
September 15, 1997. If the MGCRB renders a favorable decision on a 
hospital's application, the hospital will be reclassified for purposes 
of the wage index for FY 1998 as if that decision had been made under 
the usual guidelines and timetable.
    Ordinarily, a hospital seeking MGCRB reclassification for a fiscal 
year must submit its application by October 1 of the preceding fiscal 
year, and all reclassification decisions with respect to a fiscal year 
must be finalized before the beginning of the fiscal year (this 
includes decisions of the MGCRB as well as decisions of the HCFA 
Administrator when the Administrator undertakes review). However, 
sections 4409 and 4410 of Public Law 105-33, enacted on August 5, 1997, 
set forth special reclassification provisions under which certain 
hospitals may be reclassified for FY 1998 (beginning on October 1, 
1997). The MGCRB will make decisions on applications for 
reclassification based on these provisions before the beginning of the 
fiscal year, but it will not be feasible to complete the process for 
appeals or other review before October 1. Nevertheless, we believe it 
is appropriate to permit appeals of decisions on requests for 
reclassification under sections 4409 and 4410. Therefore, for such 
appeals, we are incorporating the current appeals and

[[Page 45988]]

review process (including the timetables for a hospital to request 
review and for the Administrator to complete review) even though that 
process will not be finalized until after the beginning of the fiscal 
year. Our general position has been, and continues to be, that changes 
to the prospective payment rates should be made prospectively only. 
Nevertheless, given the extraordinary circumstances presented by the 
recent enactment of the legislation, if a decision on a request for 
reclassification under section 4409 or section 4410 becomes final under 
this process after the beginning of the fiscal year, the decision will 
be effective as of the beginning of the fiscal year. We are revising 
the regulations at Sec. 412.230(e) to implement this provision.
    b. In the case of a hospital that is owned by a municipality and 
that was reclassified as an urban hospital for FY 1996, in calculating 
the hospital's average hourly wage for the purposes of geographic 
reclassification for FY 1998 only, section 4410(c) of Public Law 105-33 
requires the exclusion of general service wages and hours of personnel 
associated with a skilled nursing facility that is owned by the 
hospital of the same municipality and that is physically separated from 
the hospital to the extent that such wages and hours of such personnel 
are not shared with the hospital and are separately documented. A 
hospital seeking reclassification under this provision must submit 7 
copies of a completed application to the MGCRB by September 15, 1997. 
The MGCRB will dismiss a hospital's request for reclassification if the 
completed application is not received by September 15, 1997. If the 
MGCRB renders a favorable decision on a hospital's application, the 
hospital will be reclassified for purposes of the wage index for FY 
1998 as if that decision had been made under the usual guidelines and 
timetable. The special appeals procedures discussed earlier apply to 
this context as well.
3. Alternative Guidelines for Rural Referral Centers
    Currently, under section 1886(d)(10)(D) of the Act, rural referral 
centers (RRCs) are allowed to apply to the MGCRB to be reclassified for 
purposes of the wage index adjustment. To be reclassified, RRCs must 
meet the following criteria:
     The hospital's average hourly wage must be at least 108 
percent of the Statewide rural hourly wage.
     The hospital's average hourly wage must be at least 84 
percent of the average hourly wage of the target urban area to which 
the RRC is applying.
    As provided in section 4202 of Public Law 105-33, the MGCRB is 
prohibited from rejecting a hospital's request for reclassification on 
the basis of any comparison between the average hourly wage and the 
average hourly wage of hospitals in the area in which the hospital is 
located if the hospital was ever classified as an RRC. However, RRCs 
will continue to be required to have an average hourly wage that is at 
least 84 percent of the average hourly wage of the target urban area to 
which the RRC is applying. In addition, while RRCs do not have to meet 
the proximity requirements for reclassification, they continue to be 
required to seek reclassification to the nearest urban area. We are 
revising Sec. 412.230(a)(3) to implement this provision.
4. Reclassification for the Disproportionate Share Adjustment
    Section 4203 of Public Law 105-33 provides that for a limited time 
a rural hospital may apply and qualify for reclassification to another 
area for purposes of disproportionate share adjustment payments whether 
or not the standardized amount is the same for both areas. For 30 
months after the date of enactment of Public Law 105-33, the MGCRB will 
consider the application under section 1886(d)(10)(C)(i) of a hospital 
requesting a change in the hospital's geographic classification for 
purposes of determining for a fiscal year eligibility for and 
additional payment amounts under section 1886(d)(5)(F) of the Act. 
Under Public Law 105-33, the MGCRB will apply the guidelines for 
standardized amount reclassification (Sec. 412.230(d)) until the 
Secretary establishes separate guidelines. Therefore, hospitals seeking 
such reclassification for FY 1998 must submit a reclassification 
application to the MGCRB by October 1, 1997. Decisions based on these 
applications will be effective for FY 1999 (beginning on October 1, 
1998). Section 4203 of Public Law 105-33 is effective for the 30 month 
period beginning on the date of enactment. Accordingly, hospitals may 
seek reclassification for purposes of DSH for FY 2000 and FY 2001. We 
are revising Sec. 412.230(a)(5)(ii) of the regulations to implement 
this provision.
5. Occupational Mix Adjustment
    Section 412.230(e) describes the criteria for hospital 
reclassification for purposes of the wage index. One of the criteria 
relates to the relationship between the hospital's wages and those of 
the area to which it seeks reclassification. Specifically, 
Sec. 412.230(e)(1)(iv) provides that the hospital must demonstrate that 
its wages are at least 84 percent of the average hourly wage of 
hospitals in the area to which it seeks reclassification, or that the 
hospital's average hourly wage weighted for occupational mix is at 
least 90 percent of the average hourly wage of hospitals in the area to 
which it seeks reclassification. Under Secs. 412.232(c) and 412.234(b), 
a group of hospitals seeking to reclassify must demonstrate that its 
aggregate average hourly wage is at least 85 percent of the average 
hourly wage of the hospitals in the area to which it seeks 
reclassification. These sections also provide that the threshold for 
the occupational-mix adjusted hourly wage for hospital groups is the 
same as that for a single hospital, that is, 90 percent.
    In the August 30, 1996 final rule, we stated that, because the 
American Hospital Association (AHA) was terminating its collection of 
information on the Hospital Personnel by Occupation Category as of 
1994, there would be no suitable source of occupational mix data for 
hospitals to use for geographic reclassification under 
Secs. 412.230(e)(1)(iv), 412.232(c) and 412.234(b) beginning with 
reclassifications effective for FY 1999 (61 FR 46185). In that rule, we 
stated that we would not make a final decision on this issue until the 
next year in case another suitable source of occupational mix data were 
found. Although we did not include any alternative data source in the 
proposed rule, we received some comments suggesting another way to 
obtain occupational mix data.
    Comment: One commenter proposed a methodology for collecting 
occupational mix data for those hospitals that seek to be reclassified 
through the MGCRB process using occupational mix data as part of their 
wage index calculations. The commenter proposed the following process:
     Any hospital that wants to use the 90 percent occupational 
mix adjustment criteria should be allowed to use the 1993 AHA data for 
FY 1999 reclassifications, which must be filed by October 1, 1997.
     For any hospital that successfully reclassifies for FY 
1999 using the 1993 AHA data, HCFA would contact the State or local 
hospital associations in the State in which the reclassified hospital 
is located to obtain more current occupational mix data for the 
affected MSAs that could be used by the individual hospital for future 
years' occupational mix data. In some cases, there may be costs 
incurred in collecting these data. The commenter suggested that the 
individual reclassified hospitals would bear any costs of data 
collection incurred by the State or local hospital

[[Page 45989]]

associations or, alternatively, the costs could be distributed by the 
associations to the individual hospitals in the MSA asked to provide 
these data.
     The applicable hospital associations would provide the 
data to HCFA for any data review deemed necessary by HCFA. The 
individual hospitals would obtain the occupational mix data directly 
from HCFA after HCFA had completed any data edits or performed any 
other procedures that HCFA believes necessary to determine the validity 
and usability of the data. The data would be collected in a single 
survey for FY 1995, FY 1996, and FY 1997 to correspond with the next 3 
years of wage survey data. Thus, current data would be available for 
the next 3 years for the individual MSA to which a hospital was 
successfully reclassified using the 90 percent occupational mix data.
     For future years, individual hospitals seeking to qualify 
using the occupational mix criterion for a wage index reclassification 
to an MSA where the data are not already being collected could use the 
1993 AHA data for the first year. This would then trigger a data 
accumulation request for that area. It is the opinion of the commenter 
that this would allow all prospective payment hospitals to use the 90 
percent criterion if needed.
    Three State hospital associations also wrote to indicate support 
for this proposal. The AHA supports the use of its 1993 occupational 
mix data on an interim basis. In addition, although the AHA does not 
wish to be the future vehicle of data collection, it supports the 
concept of hospitals designing a method to collect occupational mix 
data for use in future years.
    Response: As we stated in the June 4, 1991 final rule with comment 
period (56 FR 25458), the reclassification process requires the use of 
occupational mix data that are comparable across areas and that can be 
consistently applied. We are unaware of any sources other than the AHA 
data that meet these criteria. (Originally, these data were also 
available from the Department of Labor Statistics, which has since 
discontinued its hospital wage survey.) We responded to comments on 
this issue in the August 30, 1996 final rule (61 FR 46186). In that 
document, we reiterated that we were interested only in occupational 
mix data that are available on a national basis. We also noted that we 
were not interested in collecting the data ourselves.
    The commenter's proposal fails to meet the ``national basis'' 
criterion that we set. The commenter proposes that only hospitals in 
certain areas would have to report occupational mix data. This does not 
provide a national database for those other hospitals that might want 
to use the data at some future time, nor does it allow verification of 
the data through edit checks performed on a national basis, such as 
those that we perform on the wage data. The commenter also proposes 
that HCFA ensure that the data are collected and that HCFA edit and 
validate the data and provide them to those who request the data. We do 
not want to be either the requestor or the repository of these data, 
nor do we have the resources to edit or validate these data.
    In addition, this proposal contemplates the use of the 1993 AHA 
data for several years. For example, if a hospital first attempts to 
qualify using occupational mix data for FY 2002 in an area not already 
collecting these data, it would have to use the 1993 AHA occupational 
mix categories to adjust 1997 wage data. We believe that this would not 
be an accurate measure of the hospital's weighted average hourly wage 
for purposes of reclassification.
    Finally, the commenter suggests that those hospitals that benefit 
from the use of occupational mix data should fund the data collection 
effort. This could lead to some inconsistency in availability of the 
data. If some hospitals that could benefit are unable to fund the 
collection effort, they would be at a disadvantage. Moreover, we are 
uncomfortable with the concept of allowing hospitals that will benefit 
from certain data to pay others for those data. We are unsure about how 
the payment incentive might influence the data.
    Since we have discovered no other suitable source of occupational 
mix data during the past year, we have no updated occupational mix data 
to correspond with the FY 1994 wage data that will be used for FY 1999 
reclassifications. Therefore, this option will no longer be available 
to hospitals. We have amended the regulations at Secs. 412.230(e), 
412.232(c), and 412.234(b) to reflect this decision. We remain 
interested in any occupational mix data proposals that meet our 
criteria.

D. Requests for Wage Data Corrections

    In the proposed rule, we stated that, as in past years, we would 
make a data file available in mid-August containing the wage data used 
to construct the wage index values in the final rule. (Please note that 
this data file is also available through the Internet at HCFA's home 
page (http://www.hcfa.gov).) As with the file made available in March 
1997, HCFA makes the August wage data file available to hospital 
associations and the public. This August file is being made available 
only for the limited purpose of identifying any potential errors made 
by HCFA or the intermediary in the entry of the final wage data that 
result from the process described above, not for the initiation of new 
wage data correction requests.
    If, after reviewing the August data file or the information in this 
final rule, a hospital believes that its wage data are incorrect due to 
a fiscal intermediary or HCFA error in the entry or tabulation of the 
final wage data, it should send a letter to both its fiscal 
intermediary and HCFA. The letters should outline why the hospital 
believes an error exists and provide all supporting information, 
including dates. These requests must be received by HCFA and the 
intermediaries no later than September 15, 1997. Requests mailed to 
HCFA should be sent to: Health Care Financing Administration; Center 
for Health Plans and Providers; Attention: Stephen Phillips, Technical 
Advisor; Division of Acute Care; C5-06-27; 7500 Security Boulevard; 
Baltimore, MD 21244-1850. Each request also must be sent to the 
hospital's fiscal intermediary. The intermediary will review requests 
upon receipt and contact HCFA immediately to discuss its findings.
    As noted in the proposed rule, after mid-August, we will make 
changes to the hospital wage data only in those very limited situations 
involving an error by the intermediary or HCFA that the hospital could 
not have known about before its review of the August wage data file. 
Specifically, after that point, neither the intermediary nor HCFA will 
accept the following types of requests in conjunction with this 
process:
     Requests for wage data corrections that were submitted too 
late to be included in the data transmitted to HCRIS on or before June 
16, 1997.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the March 1997 
data.
     Requests to revisit factual determinations or policy 
interpretations made by the intermediary or HCFA during the wage data 
correction process.
    Verified corrections to the wage index received timely (that is, by 
September 15, 1997) will be effective October 1, 1997.
    We believe the wage data correction process described above 
provides hospitals with sufficient opportunity to bring errors in their 
wage data to the intermediary's attention. Moreover, because hospitals 
had access to the wage data in mid-August, they will have

[[Page 45990]]

had the opportunity to detect any data entry or tabulation errors made 
by the intermediary or HCFA before the implementation of the FY 1998 
wage index on October 1, 1997. If hospitals avail themselves of this 
opportunity, the wage index implemented on October 1 should be free of 
such errors. Nevertheless, in the unlikely event that such errors 
should occur, we retain the right to make midyear changes to the wage 
index under very limited circumstances.
    Specifically, in accordance with Sec. 412.63(s)(2), we may make 
midyear corrections to the wage index only in those limited 
circumstances where a hospital can show: (1) that the intermediary or 
HCFA made an error in tabulating its data; and (2) that the hospital 
could not have known about the error, or did not have an opportunity to 
correct the error, before the beginning of FY 1998 (that is, by the 
September 15, 1997 deadline). As indicated earlier, since a hospital 
will have had the opportunity to verify its data, and the intermediary 
will notify the hospital of any changes, we do not foresee any specific 
circumstances under which midyear corrections would be made. However, 
should a midyear correction be necessary, the wage index change for the 
affected area will be effective prospectively from the date the 
correction is made.

E. Modification of the Process and Timetable for Updating the Wage 
Index

    Although the wage data correction process described above has 
proven successful for ensuring that the wage data used each year to 
calculate the wage indexes are generally reliable and accurate, we 
expressed concern in the proposed rule that there have been an 
excessive number of revisions being requested after the release of the 
wage data in mid-March. Last year, in developing the FY 1997 wage 
index, the wage data were revised between the proposed and the final 
rules for more than 13 percent of the hospitals (approximately 700 of 
5,200). The number of revisions this year was similar. Since hospitals 
are expected to submit complete and accurate data, and the data are 
reviewed and edited by the intermediaries and HCFA, we believe that we 
should be making few revisions after the release of the March wage data 
file. According to information received from the intermediaries, these 
late revisions are partly due to the lack of responsiveness of 
hospitals in providing sufficient information to the intermediaries 
during the desk reviews (that is, during the intermediary's review of 
the hospital's cost report).
    Our analysis of last year's wage data also showed that, although 
the volume of revisions was high, the effect of the changes on the wage 
index was minimal. Of the 370 labor market areas, only 4 (1.1 percent) 
experienced a change of 5 percent or more in their wage index value and 
only 39 (10.6 percent) experienced a change of 1 percent or more. Thus, 
the intensity of work that must be performed in order to incorporate 
these revisions in the 1 month available between the mid-June date for 
revision requests and the mid-July date by which we must begin 
calculation of the final wage index is not warranted in light of the 
minimal changes to the actual wage index values.
    Another feature of the current process is that it results in 
corrections to the final wage index after the September 1 final rule 
publication and before the October 1 effective date of the wage index. 
Immediately following the development of the final wage index, a second 
wage data file is made available in mid-August so that hospitals may 
again verify the accuracy of their wage data. If a hospital detects an 
error made by the intermediary or HCFA in the handling (entry or 
transmission) of the wage data, the hospital may request a correction 
(this year, by September 15). The corrections are published in the 
Federal Register after the October 1 implementation date in a 
correction notice to the final rule. We would prefer to minimize the 
need to republish certain wage index values after the final rule is in 
effect.
    Finally, hospitals base their geographic reclassification decisions 
(whether or not to withdraw their applications) on the wage index 
published in the proposed rule. Although the FY 1997 proposed and final 
wage indexes were quite similar, we cannot ensure this will happen each 
year if increasing numbers of hospitals delay the submittal to their 
intermediaries of wage data supporting documentation until the May 15 
deadline. We believe that hospitals could make more informed decisions 
regarding reclassification if the proposed wage index more closely 
resembles the final wage index. Therefore, in the proposed rule, we 
discussed possible revisions to the wage data verification process.
1. Process and Timetable
    The major change we proposed to the current process was the 
requirement that wage data revisions be requested (and resolved) 
earlier, before publication of the proposed rule. Subsequent 
corrections would be allowed only for errors in handling the data (our 
current timetable allows for such corrections after the final rule is 
published). For example, the FY 1999 wage index will use FY 1995 cost 
report data (that is, cost reports beginning in FY 1995) and become 
effective October 1, 1998. Under the proposed timetable, hospitals 
would be required to submit all requests for wage data revisions to 
their intermediary by mid-December 1997. We indicated this would 
provide ample opportunity for hospitals to evaluate the results of 
intermediaries' desk reviews and prepare any requests for corrections. 
We noted that the desk reviews are to be performed on an ongoing basis 
as cost reports are received from hospitals and, for the FY 1995 wage 
data, must be completed prior to the mid-November 1997 deadline for 
submitting all FY 1995 wage data to HCRIS.
    As under the current process, after reviewing requests for wage 
data revisions submitted by hospitals, fiscal intermediaries would 
transmit any revised cost report to HCRIS and forward a copy of the 
revised wage index Worksheet S-3 to the hospital. If requested 
revisions are not accepted, the fiscal intermediaries would notify the 
hospital in writing of reasons why the changes were not accepted. We 
believe that fiscal intermediaries are generally in the best position 
to make evaluations regarding the appropriateness of a particular cost 
and whether it should be included in the wage index data. However, if a 
hospital disagrees with the intermediary's policy interpretation, the 
hospital may contact HCFA in an effort to resolve the dispute. All 
policy issues would be resolved by mid-January.
    The proposed timetable for developing the annual update to the wage 
index was as follows (an asterisk indicates no change from prior 
years):

Mid-November*  All desk reviews for hospital wage data are completed 
and revised data transmitted by intermediaries to HCRIS.
Mid-December  Deadline for hospitals to request wage data revisions and 
provide adequate documentation to support the request.
Mid-January  Deadline for intermediaries to submit to HCRIS all 
revisions resulting from hospitals' requests for adjustments (as of 
mid-December) (and verification of data submitted to HCRIS (as of mid-
November)).
Early April  Edited wage data are available for release to the public.
May 1*  Proposed rule published with 60-day comment period and 45-day 
withdrawal deadline for geographic reclassification.

[[Page 45991]]

Early May (2 weeks after publication of proposed rule)  Deadline for 
hospitals to notify HCFA and intermediary that wage data are incorrect 
due to mishandling of data (that is, error in data entry or 
transmission) by intermediary or HCFA.
Late May (2 weeks after previous deadline)  Deadline for intermediaries 
to transmit all revisions to HCRIS.
September 1*  Publication of the final rule.
October 1*  Effective date of updated wage index.

    The most significant change reflected in the proposed timetable is 
that we would no longer make available a preliminary wage data file 
prior to hospitals' final opportunity to request corrections.
    As noted in section V of this preamble, section 4644(b) of Public 
Law 105-33 requires that, beginning with FY 1999, we publish a proposed 
rule on changes to the prospective payment system by April 1 prior to 
the fiscal year when such changes are to become effective, and a final 
rule by August 1. In light of this and for other reasons discussed 
below, we are revising this proposed timetable for preparing the FY 
1999 wage index to allow for release of a public use file containing 
the edited preliminary FY 1995 wage data.
2. Cost Reporting Timetable
    In the proposed rule, we stated that the proposed timetable would 
not significantly alter the time hospitals have to ensure the accuracy 
of their data. In developing the wage index for a given fiscal year, we 
use the most recent, reviewed wage data, that is, wage data from cost 
reports that began in the fiscal year 4 years earlier. For example, for 
the FY 1999 wage index, we will use data from cost reporting periods 
beginning in FY 1995. Hospitals must submit cost reports to their 
intermediaries within 150 days of the end of their cost reporting 
periods. Once the cost report is received, the intermediary has 12 
months to review and settle it.
    As part of the settlement process, we require intermediaries to 
conduct a desk review of the wage data. The desk review program for 
hospital wage data targets potentially aberrant data and checks the 
completeness and accuracy of the data, including verifying that 
reported costs are in conformance with our policy, before they are used 
in calculating the wage index. The intermediary checks the wage data 
and supporting documentation submitted by the hospital and contacts the 
hospital if additional information is needed to verify the accuracy of 
the data. When it is necessary for the intermediary to adjust a 
hospital's wage data, the intermediary notifies the hospital in writing 
of the change to the cost report and hospitals then have the 
opportunity to request adjustments. This would continue to be the case.
    Since intermediaries must settle cost reports within 12 months of 
their receipt, most of the cost reports are settled by the time we 
compile the data to calculate the wage index. We note, however, that 
the annual update of the wage index is not tied directly to the cost 
report settlement process since extensions or reopenings of settled 
cost reports may be granted.
    The following is an illustration of the process for settling a 
typical cost report beginning in FY 1995. Of course, hospitals' cost 
reporting periods may begin at any time during the year.

January 1, 1995  Cost reporting period begins.
December 31, 1995  Cost reporting period ends.
May 31, 1996  Cost report must be submitted by the hospital to the 
intermediary.
July 31, 1996  Cost report must be transmitted by the intermediary to 
HCRIS.
May 31, 1997  Cost report must be settled by the intermediary. (Desk 
review of hospital wage data is performed on an ongoing basis by the 
intermediary before the cost report is settled.)
July 31, 1997  Settled cost report must be transmitted by the 
intermediary to HCRIS.

    Comment: One association representing fiscal intermediaries 
objected to our statement that the intermediaries must settle cost 
reports within 12 months of their receipt. The commenter stated that 
this is not consistent with our current audit and reimbursement 
performance standards.
    Response: The regulations at Sec. 405.1835(c) provide that the 
intermediary has up to 12 months from receipt of a cost report in which 
to settle it. For purposes of the contractor performance evaluation 
program (CPEP) for FY 1997, the standard is that the intermediary has 
at least 21 months from receipt of a hospital's cost report in which to 
settle it. While we are not changing the CPEP instructions or standards 
for FY 1997, the instructions are subject to change from year to year. 
Therefore, in the discussion of the wage index timetable, we used the 
cost report settlement information from the regulations, which are 
relatively constant, not the performance evaluation standard, which is 
subject to change from year to year. Since we are required by statute 
to update the wage index on an annual basis, the wage index update is 
not tied directly to the cost report settlement process as the 
settlement may be delayed for several reasons, including allowances by 
the CPEP, extensions, and reopenings.
    Comment: The same commenter was also concerned that the proposed 
modification to the timetable for developing the FY 1999 wage index 
would require intermediaries to complete desk reviews for two cost 
reporting periods within the same budget year and that this substantial 
increase in work would require additional funding.
    Response: Regarding the commenter's concern that additional funding 
would be needed to handle the increased desk review workload (which 
would result from revising the timetable as proposed), in the 
instructions for the wage index desk review the intermediaries are 
instructed to perform the desk reviews as the cost reports are 
received. We do not agree with the commenter's assertion that 
shortening the timeframe for developing the wage index will result in a 
substantial increase in the intermediaries' workload. In fact, as we 
pointed out in the preamble to the proposed rule, under the current 
process, intermediaries are required to verify the inclusion and 
accuracy of all hospitals' wage data twice during the wage index 
development. Our proposed timetable would have eliminated the need for 
the second verification by the intermediaries.
    Comment: One hospital association suggested that the number of late 
revisions could be reduced if intermediaries completed the wage data 
desk reviews within 60 days from receipt of hospitals' cost reports and 
if HCFA and the intermediaries would use the same edits. Others 
commented that HCFA's edits are unrealistic and that improved edits 
would reduce the need for a preliminary wage data file.
    Response: We agree with the commenter's suggestion that the number 
of late revisions could be reduced if intermediaries completed the wage 
data desk reviews soon after receipt of the hospitals' cost reports. 
There is a desk review being developed to perform an automated review 
of the entire cost report, including the hospital wage index 
information, as the cost reports are received by the intermediary. The 
expectation is that desk review would integrate the editing of the wage 
data and the other cost report data, as well

[[Page 45992]]

as eliminate the need for a separate desk review of the wage data by 
the intermediary and editing of the wage data by HCFA. Until that desk 
review is in place, the wage data desk review is a necessary part of 
the annual update to the wage index.
    Regarding the edits, the same types of edits are used by HCFA and 
the intermediaries. The initial edits, performed by the intermediary in 
the desk review, are broad in order to identify problem areas. We then 
perform a more focused review, using the same types of edits as in the 
desk review, once the data are received and aggregated. Also, 
additional edits on the aggregated data are performed. We update the 
wage data edits each year and will reevaluate and revise the types and 
thresholds of the edits to better identify incomplete or inaccurate 
data.
3. The Final Revised Timetable for Finalizing Wage Data
    We received approximately 40 comments regarding our proposal to 
reduce the amount of time for developing the wage index.
    Comment: Most of the commenters were opposed to our proposal, 
stating that it would reduce the number of days that the hospital 
industry has for reviewing the wage data. Another commenter believes 
that the fact that the preliminary wage data file is released only 2 
months prior to the mid-May deadline for revisions is the main cause of 
late submissions. One hospital added that the expedited timeframe would 
be disadvantageous for rural hospitals, especially in an environment in 
which their wage index values are decreasing while the urban values are 
increasing.
    Response: We continue to believe that expediting the resolution of 
all wage data issues earlier in the process will improve the accuracy 
of the wage index. Hospitals are ultimately responsible for the 
accuracy of their cost report information. Because intermediaries are 
required to notify hospitals of changes to their cost reports, 
including those affecting the wage data, we do not agree that the 
timing of the release of the preliminary data file is the cause for the 
volume of last minute revisions. Hospitals should know what is included 
in their wage data well before the release of this file. In fact, our 
intent in releasing the preliminary data file is primarily to allow 
hospitals to verify that the data on file at HCFA matches their latest 
wage data information. We remain concerned that the release of the 
preliminary file itself and the final opportunity for revisions it 
provides actually encourages hospitals to wait to request revisions 
until after its release.
    With regard to the comment that the proposed timetable would 
adversely impact rural hospitals, it is not clear to us from the 
comment how this proposal would have that effect. By placing greater 
emphasis on individual hospitals to ensure the accuracy of their data 
earlier in the process, we believe the result would be a more accurate 
wage index overall.
    Comment: Two commenters stated that they agreed that the schedule 
for developing the wage data should be shortened, but that HCFA should 
continue to make available the preliminary wage data file. A few 
commenters suggested that the preliminary file could be released to the 
public earlier, for example, in mid-December (about 30 days after the 
deadline for the intermediaries to transmit the data to HCRIS) to 
reduce the amount of late changes.
    Response: Due to the requirement that the changes to the inpatient 
prospective payment system be published one month earlier (beginning 
with FY 1999), we have no choice but to expedite this process. Although 
commenters suggested that a preliminary file could be released in mid-
December, that date would not provide sufficient time for the fiscal 
intermediaries to verify hospitals' data that are included on the file. 
We believe it would be counterproductive to ask the industry to review 
the data file prior to the fiscal intermediaries' verification. 
However, in light of the concerns about eliminating the preliminary 
file, we plan to make available an edited, preliminary FY 1995 wage 
data file in February 1998.
    Comment: Several commenters stated that since the wage data 
requirements in the FY 1995 cost report have changed significantly from 
previous years, it would be inappropriate to implement an expedited 
process for the FY 1999 wage index. Two hospital associations commented 
that they evaluated preliminary FY 1995 wage data from the HCRIS 
Minimum Data Set and concluded that the data showed serious reporting 
problems.
    Many of the commenters stated that the hospital industry uses the 
preliminary file to evaluate the quality of the wage data and to ensure 
that Medicare payment is properly allocated among hospitals. Some of 
the commenters said that the wage data would likely be less accurate 
without the industry's review of the preliminary wage data file. One 
association added that, without the edited preliminary file, those 
evaluating hospital wage data would have to rely on the HCRIS file, 
which is less accurate and less complete.
    Response: Effective with cost reporting periods beginning on or 
after October 1, 1994, we revised the Medicare cost report to provide 
for the separate reporting of all salary costs for physicians 
(including teaching physicians), residents, and CRNAs. In addition, in 
order to analyze the feasibility of excluding overhead costs 
attributable to skilled nursing facilities and other excluded areas, 
overhead cost data is collected by cost center. After evaluating these 
data, we will consider appropriate changes in developing the FY 1999 
and future wage index updates.
    Thus, we have decided to release a preliminary wage data file for 
the FY 1999 wage index prior to hospitals' final opportunity to request 
corrections. The combination of the changes to the FY 1995 wage data, 
the earlier publication schedule, and the comments we received 
regarding the timing of intermediaries' audits caused us to reverse our 
intention to eliminate the preliminary data file during the processing 
of the FY 1999 wage index and to make other adjustments. Therefore, we 
are making several changes to the current timetable as well as the 
timetable we proposed. The most significant of these changes is that 
the preliminary public use file will now be made available in February 
(we will contact the hospital industry regarding the precise release 
date), and that hospitals will then have 30 days (rather than the 
current 60 days) to request revisions to their data. This shortened 
review period is necessitated by the earlier publication date and our 
intent to eliminate the need for an annual correction notice reflecting 
changes due to data handling errors.
    We believe that this will enable us to utilize the hospital 
industry's analyses to help ensure the accuracy of the data. However, 
due to the earlier publication schedule, hospitals will have only 30 
days to review their data and request adjustments. We believe the 
trade-off between making preliminary data available earlier and 
shortening the time for review is fair. Intermediaries will have 30 
days to review the requests, make their determinations, and transmit 
the revised data to HCRIS.
    We plan to release a final wage data file in May for the limited 
purpose of allowing hospitals the opportunity to identify errors made 
by HCFA or the intermediary in the transmission of the final wage data. 
We anticipate that this revised timetable will meet our objective of 
enabling us to correct any data errors contained in the final wage data 
file prior to publication of the final rule on August 1.

[[Page 45993]]

    Thus, the final revised timetable is as follows:
    Mid-November--All desk reviews for hospital wage data are completed 
and revised data transmitted by fiscal intermediaries to HCRIS.
    Early February--Edited wage data are available for release to the 
public.
    Early March--Deadline for hospitals to request wage data revisions 
and provide adequate documentation to support the request.
    Early April--Deadline for intermediaries to transmit appropriate 
revised wage data to HCRIS.
    April 1--Proposed rule published with 60-day comment period and 45-
day withdrawal deadline for geographic reclassification.
    Early May--Final wage data are available for release to the public.
    Early June--Deadline for hospitals to notify HCFA and their fiscal 
intermediary that wage data are incorrect due to mishandling of data 
(that is, an error in data entry or transmission) by intermediary or 
HCFA.
    August 1--Publication of the final rule.
    October 1--Effective date of updated wage index.
    We believe this timetable, like the timetable reflected in the 
proposed rule, is a logical step in the evolution of the process for 
compiling the wage data used to calculate the hospital wage index. For 
a number of years, the hospital wage index was based on a wage survey 
that was not updated every year. Applicable policies permitted 
hospitals to request and receive midyear corrections to the data on the 
wage survey. Beginning with FY 1994 (beginning on October 1, 1993), we 
used wage data submitted by hospitals on Worksheet S-3, Part II of the 
hospital cost report, and we update the wage data every year. We 
revised our wage data process accordingly--we stopped making midyear 
corrections to the wage data (except under very limited circumstances, 
as noted below), and instead attempted to finalize the wage data by the 
final rule.
    The new timetable would shorten the time for revisions somewhat 
further. Because we have used cost report data for 5 years now, 
hospitals should be well aware of the importance of submitting accurate 
wage data on the Worksheet S-3, Part II. Also, as intermediaries and 
hospitals have become increasingly familiar with the data collection 
and verification process, handling the data has become more routine and 
streamlined. For example, over the past year, we have greatly improved 
the overall efficiency of our communications with the intermediaries 
through greater reliance on electronic transmission of wage data. In 
short, then, there should be less need for revising wage data after 
desk reviews, and we believe it is reasonable and appropriate to revise 
the timetable for requesting and resolving wage data revisions.
    We would continue to make midyear corrections to the wage index in 
accordance with Sec. 412.63(s)(2), in those limited circumstances where 
a hospital can show: (1) that the intermediary or HCFA made an error in 
tabulating its data; and (2) that the hospital could not have known 
about the error, or did not have an opportunity to correct the error, 
before the beginning of the fiscal year. Although we do not anticipate 
that such situations would arise, this regulation would remain 
unchanged.

F. Wage Index Workgroup

    As stated in the proposed rule, we are concerned that the rapid and 
dramatic changes occurring in hospitals' operating environments, 
combined with the current time lag in the data used to construct the 
wage index, is leading to a situation where the wage index may be 
becoming less representative of hospitals' current labor costs. 
Hospitals' increasing reliance on contract labor for a broadening array 
of functions, hospital mergers and the development of integrated 
delivery systems, and the expansion of the prospective payment system 
to other sites of care are factors that indicate a need for a concerted 
effort to ensure that the data required for calculating the wage index 
are available and reliable. Furthermore, despite the improvements that 
resulted from the work of the special Medicare Technical Advisory Group 
(MTAG) several years ago, technical questions about the treatment of 
certain types of labor costs continue to arise.
    For these reasons, we believe there is a need for an ongoing 
workgroup to address wage index related issues periodically. We 
solicited input from representatives of the hospital industry (and 
other provider types interested in the collection of wage data) 
regarding the need for such a workgroup and their willingness to 
participate. We also sought public input regarding the structure and 
scope of such a workgroup.
    Comment: The response to the proposed wage index workgroup was 
favorable. Some commenters believe the group should be formally 
established and meet on a regular basis to ensure the attention and 
resources needed to accomplish its objectives. Several commenters 
recommended that the wage index workgroup be formed under the auspices 
of the MTAG. Another commenter suggested that a workgroup formed on an 
ad hoc basis, with one or more specific issues to address, might be the 
best way to structure the group. Several commenters stated that the 
group's agenda should be broadly defined to encompass input price 
adjustment issues related to hospitals, skilled nursing facilities, 
home health agencies, rehabilitation facilities, and managed care 
plans. Some commenters expressed interest in participating in such a 
workgroup.
    Response: We will proceed with the development of the wage index 
workgroup. We will be in contact with interested parties to arrange a 
meeting to discuss issues related to its structure and focus. We 
appreciate the enthusiastic responses, and believe that utilization of 
a workgroup will expedite many procedural improvements in the wage 
index process.

IV. Revising the Hospital Operating Market Baskets

A. General Discussion

    We used a hospital input price index (that is, the hospital 
``market basket'') to develop the inflation component update factors 
for operating costs. Although ``market basket'' technically describes 
the mix of goods and services used to produce hospital care, this term 
is also commonly used to denote the input price index (that is, cost 
category weights and price proxies combined) derived from that market 
basket. Accordingly, the term ``market basket'' as used in this 
document refers to the hospital input price index.
    The terms rebasing and revising, although often used 
interchangeably, actually denote different activities. Rebasing moves 
the base year for the structure of costs of an input price index (for 
example, moving the base year cost structure from FY 1987 to FY 1992). 
Revising means changing data sources, cost categories, or price proxies 
used in the input price index for a given base year. In the August 30, 
1996 final rule, effective for FY 1997, we both rebased and revised the 
hospital operating market baskets (61 FR 46186).

B. Revising the Hospital Market Basket

    We used a revised hospital market basket for the FY 1998 update 
framework for the operating prospective payment rates. In the August 
30, 1996 final rule, we discussed the possibility of revising the 
market basket when additional data became available (61 FR 46187). 
Consistent with that discussion, we used a revised market basket that 
still has a base year of FY 1992, but

[[Page 45994]]

incorporates additional data, specifically the Asset and Expenditure 
Survey, 1992 Census of Service Industries, by the Bureau of the Census, 
Economics and Statistics Administration, U.S. Department of Commerce, 
which did not become available until after the FY 1997 final rule was 
published. (For further discussion of the differences between the 
revised market basket for FY 1998 and the current market basket, see 
Appendix C of this final rule with comment period.)
    In the current market basket, data for four major expense 
categories (wages and salaries, employee benefits, pharmaceuticals, and 
a residual category) are from Medicare hospital cost reports for 
periods beginning in FY 1992 (that is, periods beginning on or after 
October 1, 1991 and before October 1, 1992). These cost reports, which 
we refer to as PPS-9 cost reports (the 9th year of the prospective 
payment system), are reported in the Health Care Provider Cost Report 
Information System (HCRIS). In the revised hospital market basket, we 
still use the cost report data, and categories and weights are 
unchanged from the current market basket. Within the residual category, 
the categories and weights for nonmedical professional fees and 
professional liability insurance are also unchanged. (For a detailed 
discussion of the determination of weights, see the August 30, 1996 
final rule (61 FR 46187)).
    Table 1 shows a comparison of the current and the revised operating 
market basket cost categories, weights, and price proxies. For the 
revised market basket, weights for the ``Utilities'' and ``All Other'' 
cost categories, as well as most subcategories, were derived using the 
Asset and Expenditure Survey, published by the Bureau of the Census, 
Economics and Statistics Administration, U.S. Department of Commerce, 
in conjunction with the latest available (1987) Input-Output Table, 
produced by the Bureau of Economic Analysis (BEA), U.S. Department of 
Commerce. The 1987 input-output cost shares, aged to 1992 using 
historical price changes between 1987 and 1992 for each category, were 
allocated to be consistent with the newly available 1992 asset and 
expenditure data.
    The resulting combined data were allocated to be consistent with 
the 1992 hospital cost report data. Revised relative weights for the 
base year were then calculated for various expenditure categories. This 
work resulted in the identification of 22 separate cost categories in 
the revised market basket. Four categories previously separate were 
combined with existing categories. Specifically, Business Services, and 
Computer and Data Processing Services were combined with All Other 
Labor-Intensive Services. Transportation Services was combined with All 
Other Nonlabor-Intensive Services, and the Fuel, Oil, Coal etc. 
category was split between Fuels (nonhighway) and Miscellaneous 
Products. We combined these categories so that the market basket would 
conform more closely with the 1992 Asset and Expenditure Survey. 
Detailed descriptions of each of the four categories and their 
respective price proxies can be found in the August 30, 1996 final rule 
(61 FR 46323). Changing the structure of the market basket using the 
1992 Asset and Expenditure Survey allows for a more accurate reflection 
of the cost structures faced by hospitals. When the Bureau of the 
Census or the BEA improves methodologies for the collection and 
categorization of data, it is likely the weights will also change.

 Table 1.--Comparison of Current 1992-Based Prospective Payment Hospital
   Market Basket with Revised 1992-Based Prospective Payment Hospital   
                              Market Basket                             
------------------------------------------------------------------------
                                                     Current    Revised 
                                                      1992-      1992-  
     Expense categories            Price proxy      based PPS  based PPS
                                                      market     market 
                                                      basket     basket 
-------------------------------------------------------\1\--------------
1. Compensation:............  ....................     61.390     61.390
    A. Wages and salaries...  HCFA occupational        50.244     50.244
                               wage index.                              
    B. Employee benefits....  HCFA occupational        11.146     11.146
                               benefits index.                          
2. Nonmedical professional    ECI-compensation for      2.127      2.127
 fees.                         professional,                            
                               specialty, and                           
                               technical.                               
3. Utilities:...............  ....................      2.470      1.542
    A. Electricity..........  PPI commercial            1.349      0.927
                               electric power.                          
    B. Fuels (nonhighway)...  PPI commercial            1.015      0.369
                               natural gas.                             
    C. Water and sewerage...  CPI-U water and           0.106      0.246
                               sewerage                                 
                               maintenance.                             
4. Professional liability     HCFA professional         1.189      1.189
 insurance.                    liability insurance                      
                               premium index.                           
5. All other expenses:......  ....................     32.825     33.752
    A. All other products:..  ....................     24.033     24.825
      (1) Pharmaceuticals...  PPI ethical               4.162      4.162
                               (prescription)                           
                               drugs.                                   
      (2) Food..............  ....................      3.459      3.386
      (a) Direct purchase...  PPI processed foods       2.363      2.314
                               and feeds.                               
      (b) Contract service..  CPI food away from        1.096      1.072
                               home.                                    
      (3) Chemicals.........  PPI industrial            3.795      3.666
                               chemicals.                               
      (4) Medical             PPI medical               3.128      3.080
       instruments.            instruments and                          
                               equipment.                               
      (5) Photographic        PPI photographic          0.399      0.391
       supplies.               supplies.                                
      (6) Rubber and          PPI rubber and            4.868      4.750
       plastics.               plastic products.                        
      (7) Paper products....  PPI converted paper       2.062      2.078
                               and paperboard                           
                               products.                                
      (8) Apparel...........  PPI apparel.........      0.875      0.869
      (9) Machinery and       PPI machinery and         0.211      0.207
       equipment.              equipment.                               
      (10) Miscellaneous      PPI finished goods..      1.074      2.236
       products.                                                        
    B. All other services:..  ....................      8.792      8.927
      (1) Postage...........  CPI-U postage.......      0.272      0.272
      (2) Telephone services  CPI-U telephone           0.531      0.581
                               services.                                
      (3) All other: labor    ECI compensation for      7.457      7.277
       intensive.              private service                          
                               occupations.                             
      (4) All other:          CPI-U all items.....      0.532      0.796
       nonlabor intensive.                                              

[[Page 45995]]

                                                                        
        Total...............  ....................    100.000   100.000 
------------------------------------------------------------------------
Note: Due to rounding, weights may not sum to total.                    
\1\ Expense categories based on revised 1992-based hospital market      
  basket for comparison purposes.                                       

    In calculating payments to hospitals, the labor-related portion of 
the standardized amounts is adjusted by the hospital wage index. As 
discussed in the August 30, 1996 final rule (61 FR 46189), for purposes 
of determining the labor-related portion of the standardized amounts, 
we sum the percentages of the labor-related items (that is, wages and 
salaries, employee benefits, professional fees, business services, 
computer and data processing services, postage, and all other labor-
intensive services) in the operating hospital market basket. Effective 
for FY 1997, this summation resulted in a labor-related portion of the 
hospital market basket of 71.246 percent, and a nonlabor-related 
portion of 28.754 percent. Thus, since October 1, 1996, we have 
considered 71.2 percent of operating costs to be labor-related for 
purposes of the prospective payment system (we rounded to the nearest 
tenth).
    In connection with the revisions to the hospital market basket, we 
have reestimated the labor-related share of the standardized amounts. 
Based on the relative weights described in Table 2, the labor-related 
portion (wages and salaries, employee benefits, professional fees, 
postage, and all other labor-intensive services) is 71.066 percent, and 
the nonlabor-related portion is 28.934 percent. Accordingly, effective 
with discharges occurring on or after October 1, 1997, we are revising 
the labor-related and nonlabor-related shares of the large urban and 
other areas' standardized amounts used to establish the prospective 
payment rates to 71.1 and 28.9, respectively. The amounts in Table 2 
reflect the revised labor-related and nonlabor-related portions. We 
note that the labor-related portions of the rates published in Table 2 
have remained approximately the same. The labor-related portion has 
decreased from 71.2 percent to 71.1 percent.

 Table 2.--Labor-Related Share of Revised 1992-Based Prospective Payment
                         Hospital Market Basket                         
------------------------------------------------------------------------
                         Cost category                           Weight 
------------------------------------------------------------------------
Wages and salaries............................................    50.244
Employee benefits.............................................    11.146
Professional fees.............................................     2.127
Postal services...............................................     0.272
All other labor intensive.....................................     7.277
                                                               ---------
    Total labor-related.......................................    71.066
    Total nonlabor-related....................................    28.934
------------------------------------------------------------------------

    Comment: We received comments encouraging us to revisit the market 
basket framework annually to adjust for changes such as additional 
administrative costs for hospitals that revise their Medicare billing 
procedures to screen claims in response to current policies such as the 
3-day payment window and pending legislation such as the change in 
definition of a transfer.
    Response: When slight adjustments are made to individual weights 
within the hospital market baskets, there is typically little or no 
change in the historical or forecasted market baskets. A shift in 
weights from one cost category to another results in a zero sum. Cost 
categories rising in relative importance are offset by cost categories 
falling in relative importance. The total weight is 100 before and 
after the shift. There is an impact on the weighted average of price 
changes only when the price changes (not levels) of the cost categories 
shifted are substantially different. This is not typically the case.
    Regarding administrative costs, we note that rebasing the market 
basket is done at 5-year intervals. In the interim, additional costs 
for administration are appropriately handled in the update framework, 
which includes factors such as hospital productivity and intensity of 
services.
    Comment: We received a comment requesting that the market baskets 
be revised again when more recent Input- Output Tables become available 
from the Bureau of Economic Analysis. The commenter also questioned 
changes to the market baskets that (1) reduce weights within the 
utilities cost category by moving some of the weight to the 
miscellaneous products category and (2) combine business and computer 
services into all other labor-intensive services.
    Response: The changes in weights in the revised market baskets are 
the result of using data from the Asset and Expenditure Survey. We did 
a sensitivity analysis in which we developed a test index identical to 
the revised prospective payments market basket except that the weights 
and proxies for the current version of ``All Other Services'' were 
substituted for those in the revised market basket's ``All Other 
Services'' category. For the historical and forecast period of 1992-
2002, half of the years showed no difference and half showed a 0.1 
percentage point difference in the percent change upon which updates 
are based. We feel that the revised market baskets represent an 
improvement in cost categories and price proxies, and therefore are 
better measures of composite price changes. When the Input-Output 
Tables for 1992 become available we will review these data carefully. 
Revised Input-Output data are automatically included in rebasing on a 
regular schedule (approximately every 5 years).

C. Selection of Price Proxies

    Only four categories that are part of the current hospital market 
basket do not appear in the revised hospital market basket. Of the 22 
categories that are part of both the current and the revised market 
baskets, only the weights might differ. The wage and price proxies 
selected for these cost categories are the same as those selected last 
year. A description and discussion of each price proxy are set forth in 
the August 30, 1996 final rule (61 FR 46324). The price proxies are 
shown in Table 1, above. The makeup of the HCFA Blended Occupational 
Wage Index and the HCFA Blended Occupational Benefits Index used as 
proxies for Wages and Salaries

[[Page 45996]]

and Employee Benefits, respectively, remain the same as last year. (See 
61 FR 27463.)
    To examine the impact of the changes to the weights and the 
reduction of the number of cost categories, we developed a comparison 
for the period FY 1994 through FY 1999. Using historical data for FY 
1994 through FY 1996, and forecasts for FY 1997 through FY 1999 for the 
prospective payment market basket, we compared the percentage changes 
for the current and the revised market baskets.

 Table 3.--Comparison of the Current Prospective Payment Hospital Market
    Basket and the Revised Prospective Payment Hospital Market Basket   
                      Percent Change, FY 1994-1999                      
------------------------------------------------------------------------
                                           Current   Revised            
                                          hospital  hospital            
           Federal fiscal year             market    market   Difference
                                           basket    basket             
------------------------------------------------------------------------
Historical:                                                             
    1994................................       2.6       2.6        0.0 
    1995................................       3.2       3.2        0.0 
    1996................................       2.5       2.4       -0.1 
Forecasted:                                                             
    1997................................       2.3       2.1       -0.2 
    1998................................       2.7       2.7        0.0 
    1999................................       3.0       2.9       -0.1 
 Historical average: 1994-1996..........       2.8       2.7       -0.1 
Forecasted average: 1997-1999...........       2.7       2.6       -0.1 
------------------------------------------------------------------------

    Note that the historical average rate of growth for 1994 through 
1996 for the improved revised prospective payment hospital market 
basket is almost equal to that of the current market basket. The 0.1 
percentage point difference is less than the +/- 0.25 percent threshold 
for corrections for forecast error. The forecasted average rate of 
growth for 1997 through 1999 for the revised market basket is 0.1 
percentage points less than that of the current market basket.

D. Separate Market Basket for Hospitals and Hospital Units Excluded 
From the Prospective Payment System

    As in the prospective payment hospital market basket, weights for 
the six main cost categories contained in the excluded hospital market 
basket (that is, weights for wages and salaries, employee benefits, 
professional fees, malpractice insurance, pharmaceuticals, and the 
residual category) remain the same. Only the weights for ``Utilities'' 
and the categories within ``All Other'' have been revised. Table 4 
below shows weights for the current and revised 1992-based excluded 
hospital market basket.

   Table 4.--Comparison of Current 1992-Based Excluded Hospital Market  
     Basket with Revised 1992-Based Excluded Hospital Market Basket     
------------------------------------------------------------------------
                                                     Current    Revised 
                                                      1992-      1992-  
                                                      based      based  
     Expense categories            Price proxy       excluded   excluded
                                                      market     market 
                                                      basket     basket 
-------------------------------------------------------\1\--------------
1. Compensation:............  ....................     63.721     63.721
    A. Wages and salaries...  HCFA occupational        52.152     52.152
                               wage index.                              
    B. Employee benefits....  HCFA occupational        11.569     11.569
                               benefits index.                          
2. Nonmedical professional    ECI-compensation for      2.098      2.098
 fees.                         professional,                            
                               specialty, and                           
                               technical.                               
3. Utilities................  ....................      2.557      1.675
    A. Electricity..........  WPI commercial            1.396      1.007
                               electric power.                          
    B. Fuels (nonhighway)...  WPI commercial            1.051      0.401
                               natural gas.                             
    C. Water and sewerage...  CPI-U water and           0.110      0.267
                               sewerage                                 
                               maintenance.                             
4. Professional liability     HCFA professional         1.081      1.081
 insurance.                    liability insurance                      
                               premium index.                           
5. All other expenses.......  ....................     30.541     31.425
    A. All other products...  ....................     23.640     24.227
      (1) Pharmaceuticals...  PPI ethical               3.070      3.070
                               (prescription)                           
                               drugs.                                   
      (2) Food..............  ....................      3.581      3.468
      (a) Direct purchase...  PPI processed foods       2.446      2.370
                               and feeds.                               
      (b) Contract service..  CPI food away from        1.135      1.098
                               home.                                    
      (3) Chemicals.........  PPI industrial            3.929      3.754
                               chemicals.                               
      (4) Medical             PPI medical               3.238      3.154
       instruments.            instruments and                          
                               equipment.                               
      (5) Photographic        PPI photographic          0.413      0.400
       supplies.               supplies.                                
      (6) Rubber and          PPI rubber and            5.039      4.865
       plastics.               plastic products.                        
      (7) Paper products....  PPI converted paper       2.134      2.182
                               and paperboard                           
                               products.                                
      (8) Apparel...........  PPI apparel.........      0.906      0.890
      (9) Machinery and       PPI machinery and         0.218      0.212
       equipment.              equipment.                               
      (10) Miscellaneous      PPI finished goods..      1.112      2.232
       products.                                                        
    B. All other services...  ....................      6.901      7.198
      (1) Postage...........  CPI-U postage.......      0.282      0.295
      (2) Telephone services  CPI-U telephone           0.549      0.631
                               services.                                

[[Page 45997]]

                                                                        
      (3) All other: labor    ECI compensation for      5.519      5.439
       intensive.              private service                          
                               occupations.                             
      (4) All other:          CPI-U all items.....      0.551      0.833
       nonlabor intensive.                                              
                                                   ---------------------
      Total.................  ....................    100.000    100.000
------------------------------------------------------------------------
Note: Due to rounding, weights may not sum to total.                    
\1\ Expense categories based on revised 1992-based hospital market      
  basket for comparison purposes.                                       

V. Other Decisions and Changes to the Prospective Payment System for 
Inpatient Operating Costs

A. Outlier Payments (Secs. 412.80, 412.82, 412.84, and 412.86)

1. Elimination of Day Outlier Payments
    Section 1886(d)(5)(A) of the Act provides for payments in addition 
to the basic prospective payments for ``outlier'' cases, that is, cases 
involving extraordinarily high costs (cost outliers) or long lengths of 
stay (day outliers). That section also provides that, beginning with FY 
1995, payments for day outliers will be phased out over 3 years. We 
have discussed this phase out and its implementation in detail in the 
September 1, 1994, September 1, 1995, and August 30, 1996 final rules 
(59 FR 45366, 60 FR 45854, and 61 FR 46228, respectively). Since 
payment for day outliers will be eliminated effective with discharges 
occurring in FY 1998, we proposed conforming revisions to the 
regulations at Secs. 412.80, 412.82, 412.84, and 412.86. At the same 
time, we proposed to make a technical change to the provision 
concerning outlier payments for transfer cases to conform the 
regulations to policies that we have stated in previous prospective 
payment system rules but did not codify. See the final rules published 
September 1, 1995 (60 FR 45804) and September 1, 1993 (58 FR 46306-07).
    We received no comments on these conforming changes and are 
incorporating them in this final rule with comment period as proposed.
2. Changes to Outlier Payments in Pub. L. 105-33
    Section 4405 of Public Law 105-33 amended sections 1886 
(d)(5)(B)(i)(I) and (d)(5)(F)(ii)(I) of the Act to provide that, in 
determining the additional payment for indirect medical education (IME) 
and/or disproportionate share hospitals (DSH), the IME and DSH 
adjustment factors are applied only to the base DRG payment, not the 
sum of the base DRG payment and any cost outlier payments, effective 
with discharges occurring on or after October 1, 1997. The same section 
of Pub. L. 105-33 also amended section 1886(d)(5)(A)(ii) of the Act to 
require that the fixed loss cost outlier threshold is based on the sum 
of DRG payments and IME and DSH payments for purposes of comparing 
costs to payments. Therefore, we are revising our regulations at 
Sec. 412.84(g) to remove the provision that costs be reduced by the IME 
and DSH adjustment factors for purposes of comparing costs to payments 
to determine if costs exceed the fixed loss cost outlier threshold, as 
well as deleting current Sec. 412.80(c). Conforming changes are made at 
current Sec. 412.105(a) (IME) and Sec. 412.106(a)(2) (DSH). We are also 
making a corresponding change to the capital cost outlier methodology. 
We received two public comments urging us to implement this provision 
in the final rule.
    As indicated above, one change resulting from Pub. L. 105-33 is 
that, in determining whether a case meets the cost outlier threshold, 
we will not standardize the costs of the case to account for IME and 
DSH payments. The following examples show the effect on two hospitals 
of this change in methodology. In the example, we use DRG 286, which 
has a relative weight of 2.2671. Each hospital has a wage index of 1. 
The labor-related national large urban standardized amount is 
$2,776.21; the nonlabor-related large urban standardized amount is 
$1,128.44.

Before the Change

Standard Cost = (Billed Charges  x  Cost to Charge Ratio)  (1 + 
IME + DSH)
Outlier Payments = (80 percent of (Standard Cost--Threshold)) * (1 + 
IME + DSH)
Total Payments = Outlier Payments + (Federal Rate  x  (1 + IME + DSH))

------------------------------------------------------------------------
                                                               Non-IME, 
                                                IME and DSH    Non-DSH  
                                                  hospital     hospital 
------------------------------------------------------------------------
Billed charges................................     $100,000     $100,000
IME adjustment factor.........................       0.0744          0.0
DSH adjustment factor.........................       0.1413          0.0
Cost to charge ratio..........................         0.72         0.72
Standard cost.................................   $59,225.14      $72,000
Outlier threshold.............................   $17,806.30   $17,806.30
Outlier payments..............................   $40,282.30   $43,354.96
Total payments................................   $51,043.96   $52,207.19
------------------------------------------------------------------------

    Even with high IME and DSH adjustments, the IME and DSH hospital 
receives a lower payment for an identical outlier case. This case uses 
the fixed loss outlier threshold of $7,600 from the proposed rule.
    In the following example, the IME and DSH hospital's costs are not 
adjusted for IME and DSH. The outlier threshold amount includes IME and 
DSH payments. There are no IME and DSH payments for outliers. The 
outlier threshold increases under this method for all hospitals.

After the Change

Standard Cost = (Billed Charges  x  Cost to Charge Ratio)
Outlier Payments = 80 percent of (Standard Cost--Threshold)
Total Payments = Outlier Payments + (Federal Rate  x  (1 + IME + DSH))

------------------------------------------------------------------------
                                                               Non-IME, 
                                                 ME and DSH    non-DSH  
                                                  hospital     hospital 
------------------------------------------------------------------------
Billed charges................................     $100,000     $100,000
IME adjustment factor.........................       0.0744          0.0
DSH adjustment factor.........................       0.1413          0.0
Cost to charge ratio..........................         0.72         0.72
Standard cost.................................      $72,000      $72,000
Outlier threshold.............................   $20,961.91   $19,052.49
Outlier payments..............................   $40,830.47   $42,358.01
Total payments................................   $51,592.13   $51,210.24
------------------------------------------------------------------------


[[Page 45998]]

    This case uses the final fixed loss threshold of $11,050 for FY 
1998. The fixed loss threshold increase from the proposed rule is due 
to the higher standard costs of IME and DSH hospitals.

B. Rural Referral Centers (Sec. 412.96)

    Under section 1886(d) of the Act, hospitals generally are paid by 
the Medicare program for inpatient hospital services covered by 
Medicare in accordance with the prospective payment system. Certain 
hospitals, however, receive special treatment under that system. 
Section 1886(d)(5)(C)(i) of the Act specifically provides for 
exceptions and adjustments to prospective payment amounts, as the 
Secretary deems appropriate, to take into account the special needs of 
rural referral centers.
    Section 412.96(d) of the regulations provides that, for discharges 
occurring before October 1, 1994, rural referral centers received the 
benefit of payment for inpatient operating costs per discharge based on 
the other urban payment amount rather than the rural standardized 
amount. As of October 1, 1994, the other urban and rural standardized 
amounts are the same. However, rural referral centers continue to 
receive special treatment under both the disproportionate share 
hospital payment adjustment and the criteria for geographic 
reclassification. One of the ways that a rural hospital may qualify as 
a rural referral center is to meet two mandatory criteria (specifying a 
minimum case-mix index and a minimum number of discharges) and at least 
one of three optional criteria (relating to specialty composition of 
medical staff, source of inpatients, or volume of referrals). These 
criteria are described in detail in Sec. 412.96(c).
1. Case-Mix Index Criteria
    Section 412.96(c)(1) sets forth the case-mix index criteria and 
provides that, for cost reporting periods beginning on or after October 
1, 1986, a hospital's case-mix index for discharges ``during the 
Federal fiscal year that ended 1 year prior to the beginning of the 
cost reporting period for which the hospital is seeking referral center 
status'' must be at least equal to the national case-mix index value as 
established by HCFA or the median case-mix value for urban hospitals in 
the region in which the hospital is located (excluding hospitals 
receiving indirect medical education payments), whichever is lower. As 
discussed in the proposed rule, we feel that the language in 
Sec. 412.96(c)(1) does not clearly address situations in which the 
Federal fiscal year does not end exactly 1 year prior to the beginning 
of the cost reporting period for which the hospitals are seeking 
referral center status. Therefore, we clarified which case-mix index 
values are used to determine referral center status. We emphasized that 
this clarification represents no substantive change in policy.
    Our policy, which we have applied consistently since 1986, is that 
the case-mix index used for an individual hospital in the determination 
of whether it meets the case-mix index criterion is the case-mix index 
for discharges during the most recent Federal fiscal year that ended at 
least 1 year prior to the beginning of the cost reporting period for 
which the hospital is seeking referral center status.
    We received no comments on our proposal to revise Sec. 412.96(c)(1) 
to clarify the time period used to calculate the case-mix index, and we 
are adopting it as proposed.
2. Updated Case-Mix and Discharge Criteria
    As noted above, a rural hospital can qualify as a rural referral 
center if the hospital meets two mandatory criteria (case-mix index and 
number of discharges) and at least one of three optional criteria 
(medical staff, source of inpatients, or volume of referrals). With 
respect to the two mandatory criteria, a hospital may be classified as 
a rural referral center if its--
     Case-mix index is at least equal to the lower of the 
median case-mix index for urban hospitals in its census region, 
excluding hospitals with approved teaching programs, or the median 
case-mix index for all urban hospitals nationally; and
     Number of discharges is at least 5,000 discharges per year 
or, if fewer, the median number of discharges for urban hospitals in 
the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year.)
a. Case-Mix Index
    Section 412.96(c)(1) provides that HCFA will establish updated 
national and regional case-mix index values in each year's annual 
notice of prospective payment rates for purposes of determining rural 
referral center status. In determining the proposed national and 
regional case-mix index values, we follow the same methodology we used 
in the November 24, 1986 final rule, as set forth in regulations at 
Sec. 412.96(c)(1)(ii). Therefore, the proposed national case-mix index 
value includes all urban hospitals nationwide, and the proposed 
regional values are the median values of urban hospitals within each 
census region, excluding those with approved teaching programs (that 
is, those hospitals receiving indirect medical education payments as 
provided in Sec. 412.105).
    These values are based on discharges occurring during FY 1996 
(October 1, 1995 through September 30, 1996) and include bills posted 
to HCFA's records through December 1996. Therefore, in addition to 
meeting other criteria, we proposed that to qualify for initial rural 
referral center status, a hospital's case-mix index value for FY 1996 
would have to be at least--
     1.3525; or
     Equal to the median case-mix index value for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec. 412.105) calculated by HCFA for the census region in 
which the hospital is located (see the table set forth in the June 2, 
1997 proposed rule at 62 FR 29923).
    Based on the latest data available (FY 1996 bills received through 
June 1997), the final national case-mix value is 1.3529 and the median 
case-mix values by region are set forth in the table below:

------------------------------------------------------------------------
                                                                Case-mix
                            Region                               index  
                                                                 value  
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)......................     1.2322
2. Middle Atlantic (PA, NJ, NY)..............................     1.2455
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).......     1.3701
4. East North Central (IL, IN, MI, OH, WI)...................     1.2610
5. East South Central (AL, KY, MS, TN).......................     1.3023
6. West North Central (IA, KS, MN, MO, NE, ND, SD)...........     1.2088
7. West South Central (AR, LA, OK, TX).......................     1.3265
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).................     1.3476
9. Pacific (AK, CA, HI, OR, WA)..............................     1.3450
------------------------------------------------------------------------

    For the benefit of hospitals seeking to qualify as referral centers 
or those wishing to know how their case-mix index value compares to the 
criteria, we are publishing each hospital's FY 1996 case-mix index 
value in Table 3C in section IV of the Addendum to this final rule with 
comment period. In keeping with our policy on discharges, these case-
mix index values are computed based on all Medicare patient discharges 
subject to DRG-based payment.
b. Discharges
    Section 412.96(c)(2)(i) provides that HCFA will set forth the 
national and regional numbers of discharges in each

[[Page 45999]]

year's annual notice of prospective payment rates for purposes of 
determining referral center status. As specified in section 
1886(d)(5)(C)(ii) of the Act, the national standard is set at 5,000 
discharges. However, we proposed to update the regional standards. The 
proposed regional standards are based on discharges for urban 
hospitals' cost reporting periods that began during FY 1995 (that is, 
October 1, 1994 through September 30, 1995). That is the latest year 
for which we have complete discharge data available.
    Therefore, in addition to meeting other criteria, we proposed that 
to qualify for initial rural referral center status or to meet the 
triennial review standards for cost reporting periods beginning on or 
after October 1, 1997, the number of discharges a hospital must have 
for its cost reporting period that began during FY 1996 would have to 
be at least--
     5,000; or
     Equal to the median number of discharges for urban 
hospitals in the census region in which the hospital is located. (See 
the table set forth in the June 2, 1997 proposed rule at 62 FR 29924.)
    Based on the latest discharge data available, the final median 
numbers of discharges for urban hospitals by census regions are as 
follows:

------------------------------------------------------------------------
                                                               Number of
                           Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).....................        6658
2. Middle Atlantic (PA, NJ, NY).............................        8367
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)......        7515
4. East North Central (IL, IN, MI, OH, WI)..................        7290
5. East South Central (AL, KY, MS, TN)......................        6650
6. West North Central (IA, KS, MN, MO, NE, ND, SD)..........        5189
7. West South Central (AR, LA, OK, TX)......................        5133
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................        7982
9. Pacific (AK, CA, HI, OR, WA).............................        5919
------------------------------------------------------------------------

    We reiterate that, to qualify for rural referral center status for 
cost reporting periods beginning on or after October 1, 1997, an 
osteopathic hospital's number of discharges for its cost reporting 
period that began during FY 1996 would have to be at least 3,000.
    We received no comments on the rural referral center criteria.
3. Retention of Referral Center Status
    Section 1886(d)(5)(C)(i) of the Act states that ``the Secretary 
shall provide for such exceptions and adjustments to the payment 
amounts * * * as the Secretary deems appropriate to take into account 
the special needs of regional and national referral centers * * *'' The 
Conference Committee Report accompanying Public Law 98-21 (the original 
legislation implementing the prospective payment system) contained 
little additional language concerning the definition of ``regional and 
national referral centers.'' The Report did indicate, however, that 
they should include very large acute care hospitals located in rural 
areas. Thus, we established qualifying criteria for referral center 
status to identify those rural hospitals that, because of bed size, a 
large number of complicated cases, a high number of discharges, or a 
large number of referrals from other hospitals or from physicians 
outside the hospital's service area, were likely to have operating 
costs more similar to urban hospitals than to the average smaller 
community hospitals. The regulations implementing the referral center 
provision are codified at Sec. 412.96.
    In 1984, after a year's experience with the referral center 
criteria, we determined that once approved for the referral center 
adjustment, a hospital would retain its status for a 3-year period. At 
the end of the 3-year period, we would review the hospital's 
performance to determine whether it should be requalified for an 
additional 3-year period. The requirement for triennial review was 
added to the regulations in 1984 (Sec. 412.96(f)) to be effective for 
cost reporting periods beginning on or after October 1, 1987 (the end 
of the first 3 years of the referral center adjustment). However, since 
then, three statutory moratoria on the performance of the triennial 
reviews were enacted by Congress. When the third of these moratoria 
expired at the end of cost reporting periods that began during FY 1994, 
we implemented the triennial review requirements and some hospitals 
lost their referral center status. (See the September 1, 1993 final 
rule (58 FR 46310) for a detailed explanation of the moratoria and the 
implementation of the triennial reviews.)
    Hospitals could lose rural referral center status in other ways. 
With the creation of the Medicare Geographic Classification Review 
Board (MGCRB) and a hospital's ability, beginning in FY 1992, to 
request that it be reclassified from one geographic location to 
another, we stated that if a referral center was reclassified to an 
urban area for purposes of the standardized amount, it would, in most 
instances, be voluntarily terminating its referral center status. (See 
the June 4, 1991 final rule with comment period (56 FR 25482).) This 
was true because, in most instances, a hospital's ability to qualify as 
a ``rural referral center'' was contingent upon (among other criteria) 
its status as a rural hospital.
    In addition, rural referral centers located in areas that were 
redesignated as urban by the Office of Management and Budget lost their 
referral center status. These hospitals had qualified for referral 
center status under criteria applicable only to hospitals located in 
rural areas. OMB's designation of the areas to urban status meant that 
such hospitals were urban for all purposes and thus could no longer 
qualify as rural referral centers.
    Section 4202(b)(1) of Public Law 105-33 states that, ``Any hospital 
classified as a rural referral center by the Secretary * * * for fiscal 
year 1991 shall be classified as such a rural referral center for 
fiscal year 1998 and each subsequent fiscal year.'' Thus, many of the 
hospitals that lost their referral center status for the reasons listed 
above must be reinstated. For the purpose of implementing this 
provision, we consider that a hospital that was classified as a 
referral center for any day during FY 1991 (October 1, 1990 through 
September 30, 1991) meets the reinstatement criterion.
    We have identified 136 hospitals that were classified as rural 
referral centers in 1991 and are no longer classified as referral 
centers at this time. Of these, approximately 70 lost their referral 
center status for failure to meet the triennial review requirements; 
approximately 40 lost their status due to MGCRB reclassification; 
approximately 20 were in areas redesignated as urban by OMB, and 6 
hospitals voluntarily requested withdrawal of their referral center 
status.
    We are reinstating rural referral center status for all hospitals 
that lost the status due to triennial review or MGCRB reclassification. 
The HCFA regional offices will notify each hospital (and the hospital's 
fiscal intermediary) of their reinstatement as referral centers 
effective October 1, 1997. If a hospital believes it should be 
reinstated but does not receive notification, it should contact the 
appropriate regional office.
    We are not reinstating rural referral center status to hospitals in 
areas redesignated as urban by OMB or hospitals that requested 
withdrawal of such status. The language of section 4202(b)(1) states 
that any hospital classified as a rural referral center for FY 1991, 
``* * * shall be classified as such a rural referral center for fiscal 
year 1998 and each subsequent fiscal year.'' (Emphasis added.) 
Hospitals located in

[[Page 46000]]

areas redesignated as urban by OMB, since FY 1991, are no longer 
physically located in a rural area and they can no longer be classified 
as ``rural'' referral centers. We also do not believe the law intended 
that referral center classification be forced on hospitals that do not 
want it and we are, therefore, not reinstating the status of the six 
hospitals that requested withdrawal. If, however, any of these 
hospitals wish to be requalified as a referral center, they should 
contact their HCFA regional office.
    We note that section 4202(b)(1) provides reinstatement to only 
those hospitals that were classified as rural referral centers during 
FY 1991. That is, any hospital approved as a referral center after FY 
1991 would not be protected by this provision. We do not believe that 
it is equitable or administratively practical to maintain two lists of 
referral centers, that is, a list of those hospitals approved for 
referral center status in 1991 and thus protected by the reinstatement 
provision and a list of those hospitals approved after FY 1991 and not 
protected by the provision. Therefore, we are terminating the 
requirement for triennial reviews of referral center status and 
reinstating all hospitals that lost referral center status due to those 
reviews. Thus, Secs. 412.96 (f) and (g) (1) and (2) are deleted. If we 
later discover some hospital or class of hospitals that we believe 
should not be allowed to retain referral center status because they 
fail to meet some basic requirement we believe is essential to 
receiving this special designation, we will consider reinstating some 
type of annual or periodic qualifying criteria.
    In addition, we recognize that there are hospitals that qualified 
for referral center status after 1991 and that may have lost that 
status in a subsequent year due to reclassification by the MGCRB. 
Again, we do not believe it is equitable or administratively practical 
to treat such hospitals differently than those protected by the 
provision of Public Law 105-33. Thus, we believe that any hospital that 
lost its referral center status due to reclassification by the MGCRB, 
regardless of whether it was classified as a referral center during FY 
1991, should be reinstated effective October 1, 1997. The regional 
offices will make every effort to identify and notify all affected 
hospitals. However, hospitals that believe they meet the criteria for 
reinstatement but do not receive notification from the regional office 
or their fiscal intermediary, should contact the appropriate regional 
office.
    We are also eliminating the policy that a hospital loses RRC status 
if it is reclassified as urban by the MGCRB. We note that for 
reclassified hospitals, RRC status would have no payment effect.
    Every effort will be made to process all reinstatements as quickly 
as possible.

C. Payment for Medicare-Dependent, Small Rural Hospitals (Sec. 412.108)

    Section 4204 of Public Law 105-33 amended section 1886(d)(5)(G) of 
the Act to reinstate the classification of Medicare-dependent, small 
rural hospitals (MDHs) for cost reporting periods beginning on or after 
October 1, 1997 and before October 1, 2001. This category of hospitals 
was originally created by section 6003(f) of the Omnibus Budget 
Reconciliation Act of 1989 (Public Law 101-239), enacted on December 
19, 1989, which added a new section 1886(d)(5)(G) of the Act. As 
provided by that law, the special payment for MDHs was to be available 
for cost reporting periods beginning on or after April 1, 1990 and 
ending on or before March 31, 1993. Hospitals classified as MDHs were 
paid using the same methodology applicable to sole community hospitals; 
that is, based on whichever of the following rates yielded the greatest 
aggregate payment for the cost reporting period:
     The national Federal rate applicable to the hospital.
     The updated hospital-specific rate using FY 1982 cost per 
discharge.
     The updated hospital-specific rate using FY 1987 cost per 
discharge.
    Section 13501(e)(1) of the Omnibus Budget Reconciliation Act of 
1993 (Pub. L. 103-66), enacted on August 10, 1993, extended the MDH 
provision through discharges occurring before October 1, 1994. Under 
this revised provision, after the hospital's first three 12-month cost 
reporting periods beginning on or after April 1, 1990, the additional 
payment to an MDH whose applicable hospital-specific rate exceeded the 
Federal rate was limited to 50 percent of the amount by which that 
hospital-specific rate exceeded the Federal rate.
    In reinstating the MDH special payment for discharges occurring on 
or after October 1, 1997 and before October 1, 2001, section 4204 of 
Public Law 105-33 did not revise either the qualifying criteria for 
these hospitals nor the most recent payment methodology. Therefore, the 
criteria a hospital must meet in order to be classified as an MDH are 
the same as before. Section 1886(d)(5)(G)(iv) of the Act defines an MDH 
as any hospital that meets all of the following criteria:
     The hospital is located in a rural area.
     The hospital has 100 or fewer beds.
     The hospital is not classified as an SCH (as defined at 
Sec. 412.92) at the same time that it is receiving payment under this 
provision.
     In the hospital's cost reporting period that began during 
FY 1987, not less than 60 percent of its inpatient days or discharges 
were attributable to inpatients entitled to Medicare Part A benefits.
    For the purpose of implementing section 4204 of Pub. L. 105-33, we 
consider that a hospital that meets the criteria above and that was 
classified as an MDH on September 30, 1994 is reinstated as an MDH. We 
have identified 414 hospitals that were classified as MDHs on September 
30, 1994. Of these, 20 hospitals no longer participate in the Medicare 
program, 15 hospitals are now classified as SCHs, 6 hospitals are now 
located in urban areas, and 5 have more than 100 beds. We will provide 
fiscal intermediaries with a list of the hospitals we have identified; 
therefore, hospitals that meet the criteria for classification as an 
MDH and that were classified as an MDH on September 30, 1994 do not 
need to take any action in order to be reinstated as an MDH. At the 
time the year-end settlement is made, the fiscal intermediary will 
determine for each cost reporting period which hospitals meet the 
criteria to qualify as MDHs. In addition, the intermediary will 
determine for each cost reporting period which of the payment options 
yields the highest rate of payment to a hospital that qualifies as an 
MDH.
    We note that classification as an MDH is not optional. Therefore, 
hospitals that meet the criteria in Sec. 412.108(a) are not eligible 
for the temporary special payment provided for in section 4401(b) of 
Public Law 105-33 (discussed below in section IV-D). However, if a 
hospital that receives notification that it is being reinstated as an 
MDH believes it no longer meets the criteria because, for example, it 
has had an increase in its bed size to more than 100 beds, it should 
contact its fiscal intermediary.
    For purposes of determining a hospital's bed size, we will continue 
to use the same definition (which is defined for indirect medical 
education purposes at Sec. 412.105(b)). That is, the number of beds in 
a hospital is determined by counting the number of available bed days 
during the hospital's cost reporting period, not including beds or 
bassinets in the healthy newborn nursery, custodial care, and excluded 
distinct part units, and dividing that number by the number of days in 
the cost reporting period.

[[Page 46001]]

    We are revising Secs. 412.90 and 412.108 to reflect the 
reinstatement of the MDH special payment.
    Section 4204(a)(3) of Public Law 105-33 permits those hospitals 
that applied and were approved for reclassification to a large urban 
area for purposes of receiving the large urban rates through the MGCRB 
to decline that reclassification for FY 1998. Normally, hospitals 
approved for reclassification have only 45 days from the date of the 
proposed rule to withdraw their request for reclassification. However, 
the statute provides that, in this situation, hospitals may withdraw 
their request for FY 1998 reclassification to a large urban area for 
purposes of the standardized amount. Any hospital that does not 
requalify for MDH reinstatement for FY 1998 because of a 
reclassification to an urban area by the MGCRB for FY 1998 will be 
notified and given the opportunity to decline that reclassification.

D. Special Payment for Certain Nonteaching, Nondisproportionate Share 
Hospitals That Do Not Qualify as Medicare-Dependent, Small Rural 
Hospitals (Sec. 412.107)

    Section 4401(b) of Public Law 105-33 provides a temporary special 
payment for FYs 1998 and 1999 for certain hospitals that do not receive 
any additional payment through the IME or DSH adjustment and do not 
meet the criteria to be classified as a Medicare-dependent, small rural 
hospital (MDH). As set forth in section 4401(b)(2), in order to qualify 
for the special payment, a hospital must be located in a State in which 
the aggregate operating prospective payment for hospitals that meet the 
special payment criteria (that is, non-IME, non-DSH, non-MDH hospitals) 
is less than the aggregate allowable operating costs of inpatient 
hospital services (referred to hereafter as a negative operating 
prospective payment margin) for those hospitals for their cost 
reporting periods that began during FY 1995. In addition, a hospital 
must have a negative operating prospective payment margin during the 
cost reporting period at issue (beginning in FY 1998 or 1999).
    Under the provisions of section 4401(b)(1), for these hospitals, 
the percentage increase otherwise applicable to the standardized amount 
for FY 1998 will be increased by 0.5 percentage points and, for FY 
1999, the applicable percentage increase will be increased by 0.3 
percentage points. Based on the current law, this means that these 
hospitals will receive an update of 0.5 percent for FY 1998 (the update 
for all other hospitals is 0) and, for FY 1999, an update of the market 
basket increase minus 1.6 percentage points (1.9 for all other 
hospitals). Under section 4401(b)(1), in applying these updates, the 
increase provided in FY 1998 will not apply in computing the update for 
FY 1999 and neither update will affect the updates provided for 
discharges in fiscal years after FY 1999.
    Under section 4401(b)(2) of Public Law 105-33, in determining 
whether a hospital qualifies for the special payment for a given cost 
reporting period, we must look first at statewide aggregate data for 
non-IME, non-DSH, non-MDH hospitals for cost reporting periods 
beginning during FY 1995, and second at hospital-specific 
characteristics for the cost reporting period at issue. With respect to 
the first criterion, we used the best data currently available. We used 
the latest update to the provider-specific file to identify those 
hospitals that do not receive IME or DSH payments. We also identified 
those hospitals that meet the criteria to be designated as an MDH. 
Using the latest update to the Health Care Provider Cost Report 
Information System (HCRIS), we examined the FY 1995 cost report data 
for the non-IME, non-DSH, and non-MDH hospitals identified above and 
found that the following States meet the criteria set forth in section 
4401(b)(2)(B):
    Alaska, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, 
Louisiana, Maine, Missouri, New Hampshire, New Jersey, Ohio, Puerto 
Rico, Rhode Island, Vermont, Wisconsin,
    For purposes of determining qualification for special payment under 
section 4401(b), this is the final list of qualifying States. We 
recognize that cost reports for cost reporting periods beginning during 
FY 1995 might be subject to further adjustments, and we considered the 
option of waiting until all FY 1995 cost reports are finally settled 
before determining the qualifying States. We rejected this approach 
because under the prospective payment system, we believe that, to the 
extent possible, we must set the payment parameters that will be 
applied to hospitals before the start of the fiscal year. If we waited 
several years for all FY 1995 cost reports to be settled before making 
this additional payment to the qualifying hospitals, hospitals would 
have less certainty about the amount of payments they would receive. 
Moreover, the intent of Congress to provide relief to hospitals in FYs 
1998 and 1999 would be compromised. In addition, for purposes of 
computing the FY 1998 and 1999 standardized amounts and performing the 
necessary related calculations (for example, the budget neutrality 
adjustments), we need to make a prospective determination about which 
hospitals are likely to be affected. In short, then, for purposes of 
determining the qualifying States under section 4401(b)(2)(B), we have 
decided to use the best data available now.
    With respect to hospital-specific characteristics, however, the 
statute requires that we look at data for the cost reporting period at 
issue (beginning in FY 1998 or 1999). That is, we must look at the cost 
reporting period at issue and determine whether the hospital has a 
negative operating prospective payment margin for that period, and 
whether the hospital received IME or DSH payments or qualified as an 
MDH for that period. Thus, the final determination as to whether a 
hospital is eligible for the add-on cannot be made until cost report 
settlement. We intend to make interim payment to these hospitals 
beginning with discharges occurring on or after October 1, 1997, based 
on the latest information available to the fiscal intermediaries. That 
is, if a hospital is in one of the 17 designated States, is not 
receiving IME or DSH payments in FY 1998 or 1999, is not an MDH, and, 
based on the latest cost report information available to the 
intermediary, has a negative operating prospective payment margin, the 
intermediary will pay the hospital based on the higher standardized 
amount during the fiscal year. As noted above, the final decision as to 
a hospital's qualification for the additional payment will be made at 
cost report settlement.
    We have added a new Sec. 412.107 to the regulations and revised 
Sec. 412.90 to implement this provision. We note that in the Addendum 
and Appendix A to this final rule with comment period, we refer to the 
hospitals that qualify for the higher standardized amount as 
``temporary relief'' hospitals.

E. Payments to Disproportionate Share Hospitals (Sec. 412.106)

    Effective for discharges beginning on or after May 1, 1986, 
hospitals that treat a disproportionately large number of low-income 
patients receive additional payments through the DSH adjustment. 
Section 4403(a) of Public Law 105-33 reduces the payment a hospital 
would otherwise receive under the current disproportionate share 
formula by 1 percent for FY 1998, 2 percent for FY 1999, 3 percent for 
FY 2000, 4 percent for FY 2001, 5 percent for FY 2002, and 0 percent 
for FY 2003 and each subsequent fiscal year. Therefore, the actual 
payment a hospital receives under DSH will be reduced by 1 percent for 
FY 1998. We are adding a new

[[Page 46002]]

paragraph (e) to Sec. 412.106 to implement this provision.
    In addition, section 4403(b) of Public Law 105-33 requires the 
Secretary to submit to Congress, no later than 1 year after enactment 
(that is, by August 5, 1998), a report that contains a formula for 
determining the amount of additional payments to disproportionate share 
hospitals. In determining the formula, the Secretary is required to 
establish a single threshold for costs incurred by hospitals in serving 
low-income patients, and consider the following costs:
    (1) the costs incurred for furnishing hospital services to 
individuals entitled to Medicare Part A and SSI; and
    (2) the costs incurred for furnishing services to individuals 
receiving Medicaid who are not entitled to benefits under Part A of 
Medicare, including individuals enrolled in a managed care organization 
or any other managed care plan under Medicaid and individuals who 
receive medical assistance in a State with an 1115 waiver under 
Medicaid. In developing the formula, the Secretary is given the 
authority to require hospitals receiving DSH payments to submit any 
information the Secretary finds necessary in order to develop the 
formula.

F. 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. For purposes of this final rule 
with comment period, hemophilia is considered to encompass the 
following three conditions: Factor VIII deficiency (classical 
hemophilia); Factor IX deficiency (plasma thromboplastin component); 
and Von Willebrand's disease.
    Section 6011 of Public Law 101-239 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. Section 6011(b) 
specified that the payment is to be based on a predetermined price per 
unit of clotting factor multiplied by the number of units provided. 
This add-on payment originally was effective for blood clotting factor 
furnished on or after June 19, 1990, and before December 19, 1991. 
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. Most recently, section 4452 of 
Public Law 105-33 amended section 6011(d) of Public Law 101-239 to 
reinstate the add-on payment for the costs of administering blood 
clotting factor to Medicare beneficiaries who have hemophilia and who 
are hospital inpatients for discharges occurring on or after October 1, 
1997.
    We are calculating the add-on payment for FY 1998 using the same 
methodology we used in the past. That is, we are establishing a price 
per unit of clotting factor based on the current price listing 
available from the 1997 Drug Topics Red Book, the publication of 
pharmaceutical average wholesale prices (AWP). We are setting separate 
add-on amounts, for the following clotting factors, as described by 
HCFA's Common Procedure Coding System (HCPCS). The add-on payment 
amount for each HCPCS code is based on the median AWP of the several 
products available in that category of factor, discounted by 15 
percent.
    Based on this methodology, the prices per unit of factor are as 
follows:

                                                                        
                                                                        
                                                                        
Per unit                                                                
J7190 Factor VIII (antihemophilic factor-human).................   $0.76
J7192 Factor VIII (antihemophilic factor-recombinant)...........    1.00
J7194 Factor IX (complex).......................................    0.32
J7196 Other hemophilia clotting factors (e.g., anti-inhibitors).    1.10
                                                                        

    These prices will be effective for add-on payment for blood 
clotting factors administered to inpatients who have hemophilia for 
discharges beginning on or after October 1, 1997 through September 30, 
1998.
    As noted above, we are following the same methodology as we have in 
previous years in calculating the FY 1998 add-on payment for the cost 
of administering blood clotting factors to hospital inpatients with 
hemophilia. In view of the brief period of time between the enactment 
of Public Law 105-33 and the need to reinstitute the add-on payment for 
blood clotting factors, we believe that using this methodology is the 
only viable alternative. However, we understand that hospitals may be 
able to obtain blood clotting factors at prices substantially below the 
median AWP. Thus, we believe it is possible that the methodology for 
determining add-on payment amounts could be revised to better reflect 
the actual costs of administering the blood clotting factors. We intend 
to examine our methodology before establishing the add-on payment 
amount for FY 1999 and are soliciting comments on the appropriateness 
of the add-on payment amount and suggestions for the best methodology 
to calculate this amount.
    We have revised Secs. 412.2(f)(8) and 412.115(b) to indicate that 
for discharges occurring on or after October 1, 1997, we will make an 
add-on payment for the costs of administering blood clotting factor to 
Medicare hospital inpatients who have hemophilia. We will reissue 
instructions to Medicare hospitals and fiscal intermediaries concerning 
the codes to use for clotting factor and how to use them. We note that 
payment will be made for blood clotting factor only if there is an ICD-
9-CM diagnosis code for hemophilia and the appropriate HCPCS code 
included on the bill.

G. Payments to Hospitals in Puerto Rico (Sec. 412.204)

    Currently, the Puerto Rico payment rate for operating costs is 
based on 75 percent of the Puerto Rico-specific standardized amount and 
25 percent of a national standardized amount. Section 4406 of Public 
Law 105-33 amended section 1886(d)(9)(A) of the Act to revise the 
Puerto Rico and national shares of the Puerto Rico payment rate. 
Beginning with discharges occurring on or after October 1, 1997, the 
Puerto Rico payment rate will be a blend of 50 percent of the Puerto 
Rico standardized amount and 50 percent of a national standardized 
amount. We are revising Sec. 412.204 of the regulations to conform with 
this amendment.

H. Changes to the Indirect Medical Education Adjustment (Sec. 412.105)

1. Changes in the June 2, 1997 Proposed Rule
    Section 1886(d)(5)(B) of the Act provides that prospective payment 
hospitals that have residents in an approved graduate medical education 
program receive an additional payment to reflect the higher indirect 
operating costs associated with graduate medical education. The 
regulations regarding the calculation of this additional payment, known 
as the IME adjustment, are at Sec. 412.105. The additional payment is 
based in part on the applicable IME adjustment factor. The adjustment 
factor is calculated by using a hospital's ratio of residents-to-beds 
in the formula set forth at section 1886(d)(5)(B)(ii) of the Act.
    The criteria governing whether a program is considered approved are 
currently at Sec. 412.105(g)(1)(i). These criteria are the same as 
those used to identify approved programs for the direct graduate 
medical education

[[Page 46003]]

payment under Sec. 413.86(b). In the August 30, 1991 final rule (56 FR 
43237), we added a criterion to Sec. 413.86(b), but inadvertently did 
not add it to Sec. 412.105(g)(1)(i). This criterion added the Annual 
Report and Reference Handbook of the American Board of Medical 
Specialties (ABMS) as another publication to be used to identify 
approved programs.
    Historically, we have used the same criteria to determine whether a 
residency training program is approved for payments under both the 
indirect and the direct graduate medical education payments. This has 
in fact been our policy with regard to whether programs listed in the 
ABMS' Annual Report and Reference Handbook are considered approved for 
IME adjustment payments, even though Sec. 412.105(g)(1)(i) was not 
changed. To avoid any future confusion, we proposed to revise this 
section to parallel the changes made at Sec. 413.86(b). We received no 
public comments on this proposal and are adopting this change in the 
final rule with comment period.
    In addition, we proposed to delete current Sec. 412.105(g)(1)(iv), 
which excludes from the IME resident count any anesthesiology residents 
employed to replace anesthetists. This exclusion was originally 
intended to prevent hospitals from hiring residents in lieu of 
nonphysician anesthetists. Given that certain rural hospitals continue 
to receive pass-through cost-based payment for their anesthetist costs, 
we no longer believe this provision is warranted. Nor are we aware of 
any specific instances where it has been applied. We received one 
public comment in support of this proposed revision and no opposing 
comments. Therefore, we are implementing this change in the final rule 
with comment period.
2. Changes to IME in Public Law 105-33
    In addition to making the changes set forth above, we are revising 
the regulations to incorporate the provisions of section 4621 of Public 
Law 105-33, which revised section 1886(d)(5)(B) of the Act in several 
ways. First, it gradually reduces the current level of IME adjustment 
(approximately a 7.7 percent increase for every 10 percent increase in 
the resident-to-bed ratio) over the next several years. The schedule 
for the IME adjustment is as follows: 7.0 percent for discharges during 
FY 1998; 6.5 percent during FY 1999; 6.0 percent during FY 2000; and 
5.5 percent during FY 2001 and thereafter.
    Second, section 4621 established certain limits both on the full-
time equivalent (FTE) number of residents counted by each hospital and 
on the resident-to-bed ratio. Effective for discharges on or after 
October 1, 1997, section 4621(b)(1) added a new section 
1886(d)(5)(B)(v) to the Act to provide that a hospital's total number 
of resident FTEs in the fields of allopathic and osteopathic medicine 
may not exceed the total number of such resident FTEs in the hospital 
during its most recent cost reporting period ending on or before 
December 31, 1996. Furthermore, section 1886(d)(5)(B)(vi)(I), as added 
by section 4621(b)(1) of Public Law 105-33, provides that the ratio of 
residents-to-beds may not exceed the ratio of residents-to-beds during 
the prior cost reporting period (after accounting for the cap on the 
number of resident FTEs).
    Third, for cost reporting periods beginning on or after October 1, 
1997, and subject to the new limit on counting residents described 
above (as well as the expansion of allowable settings to off-site 
services, as described below), new section 1886(d)(5)(B)(vi)(II) 
provides that residents will be counted based on a 3-year rolling 
average. This policy will decrease the financial impact of downsizing 
residency programs. Resident counts for cost reporting periods 
beginning during FY 1998 will be based on an average of the number of 
residents from the past 2 years, and for subsequent periods, resident 
counts will be based on an average of the past 3 years.
    With respect to medical residency training programs established on 
or after January 1, 1995, section 1886(d)(5)(B)(viii) provides that the 
Secretary must develop rules to apply these limits to new programs, 
giving special consideration to ``facilities that meet the needs of 
underserved areas,'' and to facilitate the application of aggregate 
limits in the case of affiliated groups (as defined by the Secretary). 
The Secretary may require any entity that operates a medical residency 
training program to submit additional information necessary to carry 
out the limits. We have revised the regulations at Sec. 413.86(g)(6) to 
comply with these directions. For a more detailed explanation of this 
provision, see section V.I of the preamble concerning the direct 
graduate medical education payments.
    Finally, section 4621(b)(2) amended section 1886(d)(5)(B)(iv) to 
allow all the time spent by a resident in patient care activities under 
an approved medical residency training program at an entity in a 
nonhospital setting to be counted towards the determination of full-
time equivalency if the hospital incurs all, or substantially all, of 
the costs for the training program in the nonhospital setting. 
Therefore, we are revising current Sec. 412.105(g)(1)(ii)(C), which 
allowed hospitals to include the time residents spent in certain 
community health centers, to also include nonhospital settings where 
residents' time may be counted for purposes of IME. The eligibility 
criteria for this new provision is similar to a provision regarding 
direct graduate medical education payments at section 1886(h)(4)(E) of 
the Act, and implemented at Sec. 413.86(f)(iii). We will rely upon the 
same criteria for direct graduate medical education to identify 
eligible situations under this new IME provision.
    In addition to the regulatory changes, we intend to issue 
instructions to fiscal intermediaries to implement these changes 
effective October 1, 1997.
    We are also revising Sec. 412.105(d) to reinsert instructions for 
determining the education adjustment factors that were incorrectly 
deleted in a correction notice published on January 29, 1996 (61 FR 
2725), and deleting current paragraph (f), which describes the 
determination of full-time resident counts for cost reporting periods 
beginning prior to July 1, 1991.
    Section 4622 of Public Law 105-33 added a new section 1886(d)(11) 
to the Act to provide for IME payments to teaching hospitals for 
discharges associated with Medicare managed care beneficiaries for 
portions of cost reporting periods occurring on or after January 1, 
1998. The additional payment is equal to an ``applicable percentage'' 
of the estimated average per discharge amount that would have been made 
for that discharge if the beneficiary were not enrolled in managed 
care. The applicable percentage is set forth in section 
1886(h)(3)(D)(ii) of the Act and is equal to 20 percent in 1998, 40 
percent in 1999, 60 percent in 2000, 80 percent in 2001, and 100 
percent in 2002 and subsequent years. We are adding a new paragraph (g) 
to Sec. 412.105 to implement this provision.

I. Direct Graduate Medical Education (GME)

1. Newly Participating Hospitals (Sec. 413.86(e))
    Under section 1886(h) of the Act and implementing regulations, 
Medicare pays hospitals for the direct costs of graduate medical 
education on the basis of per resident costs in a 1984 base year. Under 
existing regulations at

[[Page 46004]]

 Sec. 413.86(e)(4), if a hospital did not have residents in the 1984 
base period but later participates in teaching activities, the fiscal 
intermediaries calculate a per resident amount based on a weighted 
average of all the hospitals in the same geographic wage area. There 
must be at least three hospitals for this calculation. If there are 
fewer than three hospitals, the regulations require the fiscal 
intermediary to contact the HCFA Central Office for a determination of 
the appropriate amount to use.
    We proposed to revise the regulations for determining base year per 
resident amounts for hospitals that participated in residency training 
after the 1984 base period. Under the proposed changes to 
Sec. 413.86(e)(4)(i)(B), we sequentially follow the criteria listed 
below until we would base the weighted average calculation on a minimum 
of 3 per resident amounts:
     If there are fewer than three hospitals in the hospital's 
geographic wage area, we would determine a weighted average based on 
the per resident amounts for all hospitals in the hospital's own wage 
area, plus hospitals in geographically contiguous wage areas.
     If there are still fewer than three hospitals in the 
hospital's own wage area, plus hospitals in contiguous wage areas, the 
weighted average would be based on the per resident amounts for all 
hospitals in the State.
     If there are fewer than three hospitals in the entire 
State, the weighted average would be based on the per resident amounts 
for all hospitals in that State plus hospitals in contiguous States.
     If there are fewer than three hospitals in that State and 
contiguous States, the weighted average per resident amount would be 
based on the national average per resident amount.
    Comment: One commenter stated that our proposed policy appears 
reasonable but we have not indicated how the policy would affect the 
per resident amounts for hospitals that previously had their payment 
amounts determined by HCFA Central Office.
    Response: The proposed policy simply reflects the methodology in 
effect prior to this final rule with comment period. As discussed 
below, we are revising the methodology in this final rule with comment 
period. However hospitals that previously had a per resident amount 
determined by HCFA Central Office will be unaffected since policy 
changes can only be effective prospectively.
    Comment: Two commenters suggested that the proposed methodology may 
negatively affect the expansion of training sites, particularly in 
rural areas where there might not be three hospitals with established 
per resident amounts. One of these commenters suggested that the 
hospital with the new training program be given the option of 
establishing a per resident amount based on its ``cost, not to exceed 
the higher of the contiguous area average, or the national average cost 
per resident, perhaps adjusted by the appropriate wage index.'' The 
other commenter suggested that if there are fewer than three hospitals, 
that we use the lower of the new hospital's cost per resident or the 
national average cost per resident adjusted by the hospital wage index. 
The commenter suggested that this approach would be consistent with 
HCFA initiatives to move from historical local or regional cost based 
payments to national averages. Another benefit of this approach 
according to this commenter is that it is simple and would 
overwhelmingly benefit rural hospitals.
    Response: The per resident amounts vary widely among hospitals 
nationwide. Given this wide variation, we believe it is difficult to 
know whether a hospital establishing a new program in any given 
geographic area will receive a high or low per resident amount using 
our proposed methodology. Although the first commenter's suggested 
alternative is similar to the proposed policy, it guarantees a per 
resident amount for the new hospital that is either equal to or higher 
than the per resident amount under the proposed methodology if the 
hospital's own costs exceed the contiguous area average or the national 
average per resident amount. We find merit in the latter commenter's 
suggested alternative of using the lower of the hospital's own costs or 
a national average per resident amount. It has the advantage of being 
simple and equally as likely to produce an equitable rate as our 
proposed methodology. We support using the commenter's proposed 
methodology with a modification.
    Thus, effective October 1, 1997 the per resident amount for new 
teaching hospitals is based on the lower of the hospital's actual per 
resident costs or:
     The weighted average of the per resident amounts for 
hospitals located in the same geographic area as that term is used in 
the prospective payment system under 42 CFR part 412.
     Where there are fewer than three hospitals in a geographic 
wage area, we will use regional weighted average per resident amounts 
determined for each of the nine census regions established by the 
Bureau of Census for statistical and reporting purposes.
2. New Legislative Changes to Direct Graduate Medical Education (Direct 
GME)
a. Limit on the Count of Residents (Sec. 413.86(g))
    Section 4623 of Public Law 105-33 adds section 1886(h)(4)(F) of the 
Act to establish a limit on the number of allopathic and osteopathic 
residents that a hospital can include in its full time equivalent (FTE) 
count for Direct GME payment. Residents in dentistry and podiatry are 
exempt from the cap. For cost reporting periods beginning on or after 
October 1, 1997, a hospital's unweighted direct medical education FTE 
count may not exceed the hospital's unweighted FTE count for its most 
recent cost reporting period ending on or before December 31, 1996.
    Currently, hospitals report their weighted but not their unweighted 
FTE count on their Medicare cost report. New section 1886(h)(4)(H)(iii) 
of the Act gives the Secretary authority to collect whatever data are 
necessary to implement this provision. Hospitals have been required to 
report resident-specific information to their fiscal intermediaries 
under longstanding requirements of Sec. 413.86, and we believe it is 
possible to implement section 1886(h)(4)(F) without mandating 
significant additional reporting. Since the unweighted direct GME FTE 
count will be used in calculating direct GME payments, we expect to 
amend the Medicare cost report to require hospitals to report the 
unweighted FTE direct GME count for future cost reporting periods. A 
separate data collection effort will be required to obtain the 
information for the most recent cost reporting periods ending on or 
before December 31, 1996.
    We believe the hospital's unweighted FTE limit for its most recent 
cost reporting period ending on or before December 31, 1996 should be 
based on a 12 month cost reporting period. If the hospital's most 
recent cost reporting period ending on or before December 31, 1996, is 
a short period report, the fiscal intermediaries shall make adjustments 
so that the hospital's unweighted FTE limit corresponds to the 
equivalent of a 12 month cost reporting period. We are revising 
Sec. 413.86(g)(4) accordingly.
(1) Counting Residents Based on a 3-Year Average (Sec. 413.86(g)(5))
    Section 1886(h)(4)(G)(iii) of the Act, as added by section 4623 of 
Public Law 105-33, provides that for the hospital's first cost 
reporting period beginning on or after October 1, 1997, the hospital's 
weighted FTE count for payment

[[Page 46005]]

purposes equals the average of the weighted FTE count for that cost 
reporting period and the preceding cost reporting period. For cost 
reporting periods beginning on or after October 1, 1998, section 
1886(h)(4)(G) of the Act requires that hospitals' direct medical 
education weighted FTE count for payment purposes equal the average of 
the actual weighted FTE count for the payment year cost reporting 
period and the preceding 2 cost reporting periods. This provision 
provides incentives for hospitals to reduce the number of residents in 
training by phasing in the associated reduction in payment over a 3-
year period. We are revising Sec. 413.86(g)(5) accordingly.
    For cost reporting periods beginning on or after October 1, 1997, 
we will determine the hospital's direct GME payment as follows:
    Step one. Determine the average of the weighted FTE counts for the 
payment year cost reporting period and the prior two immediately 
preceding cost reporting periods (with exception of the hospital's 
first cost reporting period beginning on or after October 1, 1997, 
which will be based on the average of the weighted average for that 
cost reporting period and the immediately preceding cost reporting 
period).
    Step two. Determine the hospital's allowable direct GME costs 
without regard to the FTE cap (before determining Medicare's share). 
That is, take the sum of (a) the product of the primary care per 
resident amount and the primary care weighted FTE count, and (b) the 
product of the non-primary care per resident amount and the non-primary 
care weighted FTE count.
    Step three. Divide the hospital's allowable direct GME costs by the 
total number of FTE residents (including the effect of weighting 
factors) for the cost reporting period to determine the average per 
resident payment amount (this amount reflects the FTE weighted average 
of the primary and non-primary care per resident amounts) for the cost 
reporting period.
    Step four. Multiply the average per resident payment amount for the 
cost reporting period by the 3 year average weighted count to determine 
the hospital's allowable direct GME costs. This product is then 
multiplied by the hospital's Medicare patient load for the cost 
reporting period to determine Medicare's direct GME payment to the 
hospital.
    The following example illustrates determination of direct GME 
payment under the rolling average methodology:
    Assume a hospital with a cost reporting period ending December 31, 
1996 (beginning January 1, 1996) had 100 unweighted FTE residents and 
90 weighted FTE residents. The hospital's FTE cap is 100 unweighted 
residents.
    Step one. In its cost reporting period beginning January 1, 1997, 
it had 100 unweighted residents and 90 weighted residents.
     The hospital had 90 unweighted residents and 85 weighted 
residents for its cost reporting period beginning January 1, 1998.
     In its cost reporting period beginning on January 1, 1999, 
the hospital had 80 unweighted residents and 80 weighted residents.
     The 3 year weighted average for the hospital's cost 
reporting period beginning January 1, 1999 is 85 (90+85+80)/3).
    Step two. Payment for the cost reporting period is determined by 
multiplying hypothetical per resident amounts for primary care and non-
primary care residents as follows:
     Primary Care--$50,000 x 70 weighted FTEs=$3,500,000
     Other--$47,000 x 10 weighted FTEs=$470,000
     Total direct GME payments before using the 3-year average 
FTE counts and applying the Medicare patient load would be $3,970,000 
($3,500,000 + $470,000).
    Step three. Divide $3,970,000 by 80 total FTEs (70+10) to determine 
an average per resident FTE payment of $49,625.
    Step four. Multiply this figure by 85 FTEs (from step 1 above) to 
determine a total payment $4,218,125. Apply the hospital's Medicare 
patient load to determine Medicare's direct GME payment.
    To address situations in which a hospital increases the number of 
FTE residents over the cap, notwithstanding the limit established under 
section 1886(h)(4)(F), we are establishing the following policy for 
determining the hospital's weighted direct GME FTE count for cost 
reporting periods beginning on or after October 1, 1997.
     Determine the ratio of the hospital's unweighted FTE count 
for residents in those specialties for the most recent cost reporting 
period ending on or before December 31, 1996, to the hospital's number 
of FTE residents without application of the cap for the cost reporting 
period at issue.
     Multiply the ratio determined above by the weighted FTE 
count for those residents for the cost reporting period. Add the 
weighted count of residents in dentistry and podiatry to determine the 
weighted FTEs for the cost reporting period. This methodology should be 
used for purposes of determining payment for cost reporting periods 
beginning on or after October 1, 1997. The hospital's unweighted count 
of interns and residents for a cost reporting period beginning before 
October 1, 1997 will not be subject to the FTE limit.
    For example, if the hospital's FTE count of residents in its cost 
reporting period ending December 31, 1996 is 100 residents before 
application of the initial residency weighting factors and the 
hospital's number of residents for its December 31, 1990 cost reporting 
period is 110 FTE residents, the ratio of residents in the two cost 
reporting periods equals 100/110. If the hospital's weighted FTE count 
is 100 FTE residents in the December 31, 1998 cost reporting period 
(that is, of the 110 unweighted residents, 20 are beyond the initial 
residency period and are weighted as 0.5 FTE), the hospital's weighted 
FTE count for determining direct GME payment is equal to (100/110) * 
100, or 90.9 FTE residents.
    If a hospital's unweighted count of residents in specialties other 
than dentistry and podiatry does not exceed the limit, the weighted FTE 
count equals the actual weighted FTE count for the cost reporting 
period. The weighted FTE count in either instance will be used to 
determine a hospital's payment under the 3 year rolling average payment 
rules. We believe this proportional reduction in the hospital's 
unweighted FTE count is an equitable mechanism for implementing the 
statutory provision.
    Section 1886(h)(4)(G)(ii) of the Act provides that the Secretary 
makes appropriate modifications to ensure that the average FTE resident 
counts are based on the equivalent of full 12 month cost reporting 
periods. We are revising Sec. 413.86(g)(5) to allow the fiscal 
intermediaries to make the appropriate adjustments to ensure that 3 
year and 2 year average FTE counts are based on the equivalent of 12 
month periods.
(2) Exceptions to the Direct GME FTE Limit (Sec. 413.86(g)(6))
    Under new section 1886(h)(4)(H)(i) of the Act, the Secretary is 
required, consistent with the principles of establishing a limitation 
on the number of residents paid for by Medicare and the 3-year rolling 
average, to establish rules with respect to the counting of residents 
medical residency training programs established on or after January 1, 
1995. Such rules must give special consideration to facilities that 
meet the needs of underserved rural areas. Language in the Conference 
Report indicates concern that there be proper flexibility to respond to 
changing needs given the sizeable number of hospitals

[[Page 46006]]

that elect to initiate new (or terminate existing) training programs.
    Pursuant to the statute, we are establishing the following rules 
for applying the FTE limit and determining the FTE count for hospitals 
that established new medical residency training programs on or after 
January 1, 1995. For purposes of this provision, a ``program'' will be 
considered newly established if it is accredited for the first time, 
including provisional accreditation on or after January 1, 1995, by the 
appropriate accrediting body. Although the Secretary has broad 
authority to prescribe rules for counting residents in new programs, 
the Conference Report for Public Law 105-33 indicates concern that 
aggregate number of FTE residents should not increase over current 
levels. Accordingly, we will continue to monitor growth in the 
aggregate number of residency positions and may consider changes to the 
policies described below if there continues to be growth in the number 
of residency positions. We are providing for adjustments in the 
following situations:
    (i) Hospitals with no Residents prior to January 1, 1995.
    If a hospital had no residents before January 1, 1995 and it 
establishes one or more new medical residency training programs on or 
after that date, the hospital's FTE cap will be based on the number of 
first year residents participating in its accredited graduate medical 
education training programs in the third year of receiving payments for 
direct GME. The hospital's unweighted FTE resident cap will equal the 
product of the number of first year residents in that year and the 
number of years in which residents are expected to complete that 
program based on the minimum accredited length for the type of program 
as published in the Graduate Medical Education Directory.
    For example, assume a hospital that did not receive any direct GME 
payment in its cost reporting period ending December 31, 1994 (the 
hospital's most recent cost reporting period ending before January 1, 
1995) established an internal medicine program and receives direct GME 
payment for residents beginning a training program on July 1, 1998. The 
hospital's cap would be adjusted to reflect the resident cap for 
residents in the internal medicine program for its cost reporting 
periods ending in 1998 and 1999. In the hospital's cost reporting 
period ending December 31, 2000 (the third cost reporting period in 
which the hospital has residents), there are five first-year FTE 
residents participating in the hospital's internal medicine program. 
Since the minimum length listed for internal medicine programs in the 
Graduate Medical Education Directory is 3 years, this hospital's 
unweighted FTE cap can subsequently be adjusted by up to 15 FTEs.
    (ii) Hospitals with Residents prior to January 1, 1995, not Located 
in Rural Areas
    If a hospital is not located in a rural area and had residents in 
its most recent cost reporting period ending before January 1, 1995, 
the hospital's unweighted FTE cap may be adjusted for new medical 
residency training programs established on or after January 1, 1995 but 
before August 5, 1997. An adjustment under this policy allows programs 
which began between January 1, 1995 and enactment of the statute to 
grow to full capacity. No adjustments to the FTE cap will be allowed 
for new medical residency training programs established on or after 
August 5, 1997.
    An adjustment in the hospital's FTE limit for a new program will be 
based on the product of the number of first year residents in the third 
year of the newly established program and the minimum accredited length 
for the type of program published in the Graduate Medical Education 
Directory. The hospital's revised unweighted FTE limit reflects the 
number of residents in its most recent cost reporting period ending on 
or before December 31, 1996 adjusted for the incremental increase in 
its FTE count for newly established programs.
    We are providing the following example to illustrate how to make 
adjustments to the FTE cap for newly established medical residency 
training programs in hospitals that received direct GME payments prior 
to January 1, 1995. Assume a hospital had an unweighted direct GME 
count of 100 FTE residents for its cost reporting period ending June 
30, 1996 and the hospital, although it had 6 first year positions, 
began an internal medicine program on July 1, 1995 with only 4 first 
year residents. On July 1, 1996, the program expands to 10 residents 
(six first-year residents and four second-year residents). On July 1, 
1997, the program has 16 residents (six first-year residents, six 
second-year residents and four third-year residents). Since the minimum 
accredited length for allopathic internal medicine programs listed in 
the Graduate Medical Education Directory is 3 years, the hospital's 
unweighted FTE cap can subsequently be adjusted to reflect 18 residents 
in the internal medicine program (six first-year residents  x  3 
years). In the hospital's cost reporting period ending June 30, 1996 
(the initial cap year), the hospital had a total of 100 FTE residents 
including 4 in internal medicine. Thus, the hospital's adjusted cap 
equals 100 residents plus 14 (18-4) or 114 residents.
    (iii) Hospitals Located in Rural Areas that had Residents before 
January 1, 1995 and Other Rural Hospitals that Added Residents Under 
(i) of this Section.
    We would treat these rural hospitals the same as all other 
hospitals which had residents before January 1, 1995 with the exception 
that the unweighted FTE limit for these hospitals could be adjusted to 
reflect residents in new medical residency training programs 
established on or after August 5, 1997. That is, if these hospitals 
added new programs on or after August 5, 1997 the cap would be adjusted 
but not without limit. A hospital's unweighted limit would be adjusted 
for each new program based on the methodology described above based on 
the product of the number of first year residents in the third year of 
the newly established program and the minimum number of years of the 
accredited program. For these hospitals, the limit will only be 
adjusted for additional new programs but not for expansions of existing 
or previously existing programs.
    A hospital seeking an adjustment to the unweighted direct GME FTE 
resident count limit under this exception policy must provide 
documentation to its fiscal intermediary justifying the adjustment.
(3) Aggregate Direct GME FTE Limit for Affiliated Institutions 
(Sec. 413.86(g)(4))
    Section 1886(h)(4)(H)(ii) of the Act permits but does not require 
the Secretary to prescribe rules that allow institutions that are 
members of the same affiliated group (as defined by the Secretary) to 
elect to apply the FTE resident limit on an aggregate basis. This 
provision would permit hospitals flexibility in structuring rotations 
within a combined cap when they share residents.
    Pursuant to the broad authority conferred by the statute, we are 
establishing the following criteria to define ``affiliated group''.
     Hospitals in the same geographic wage area. For purposes 
of this provision, ``affiliated group'' includes two or more hospitals 
located in the same geographic wage area (as that term is used for 
purposes of the inpatient operating prospective payment system), if the 
hospital rotate residents to the other hospitals of the group during 
the course of the approved program.
     Hospitals that are not located in the same geographic wage 
area. If the hospitals are not located in the same

[[Page 46007]]

geographic wage area, we will consider them part of the same affiliated 
group if the hospitals are jointly listed in common as a major 
participating institution (as that term is used in the Graduate Medical 
Education Directory, 1997-1998) for one or more programs.
    We are defining an affiliated group on an institution-wide basis. 
Hospitals may participate in many different specialty programs and may 
share residents for one specialty program with one hospital but share 
residents for a different program with another hospital. We recognize 
that hospitals may affiliate for the purpose of specific specialty 
programs, but for purposes of applying an aggregate cap, it is not 
administratively feasible to apply the cap on a program by program 
basis.
    We are implementing all of the above provisions of section 
1886(h)(4) of the Act effective with cost reporting periods beginning 
on or after October 1, 1997. The statute does not provide a specific 
effective date for the rules related to affiliated groups aggregating 
resident FTE counts. Because each of the special rules is operative in 
conjunction with FTE limit, we believe it is appropriate to implement 
these provisions on October 1, 1997. We welcome public comments on 
implementation of the provisions of Public Law 105-33 relating to 
direct GME payments.
b. Payments to Hospitals for Direct Costs of Graduate Medical Education 
of Medicare Managed Care Beneficiaries (Sec. 413.86(d)(2))
    Section 4624 of Public Law 105-33 amended section 1886(h)(3) of the 
Act to provide a 5-year phase-in of payments to teaching hospitals for 
graduate medical education associated with services to Medicare managed 
care discharges for portions of cost reporting periods occurring on or 
after January 1, 1998. The amount of payment is equal to the product of 
the per resident amount, the total weighted number of FTE residents 
working all areas of the hospital (and nonhospital setting in certain 
circumstances) subject to the limit on number of FTE residents under 
section 1886(h)(4)(F) and the averaging rules under section 
1886(h)(4)(G) of the Act described above, the ratio of the total number 
of inpatient bed days that are attributable to Medicare managed care 
enrollees to total inpatient days and the applicable percentage. The 
applicable percentages are 20 percent in 1998, 40 percent in 1999, 60 
percent in 2000, 80 percent in 2001, and 100 percent in 2002 and 
subsequent years.
    We are revising Sec. 413.86(d)(2) to establish a 5-year phase-in 
payment methodology to hospitals for direct GME payments based on 
Medicare managed care enrollees for portions of cost reporting periods 
beginning on or after January 1, 1998. We will modify the Medicare cost 
report to determine direct GME payments associated with services to 
Medicare managed care enrollees.
    Section 4001 of Public Law 105-33 adds section 1853(a)(3)(C) of the 
Act. New section 1853(a)(3)(C) requires the Secretary to implement a 
risk adjustment methodology that accounts for variations in per capita 
costs based on health status and other demographic factors in Medicare 
payments to managed care organizations by no later than January 1, 
2000. Public Law 105-33 also adds section 1853(a)(3)(B) of the Act to 
require the Secretary to collect data necessary from managed care 
organizations to implement this provision. We are currently considering 
the data requirements necessary to implement both the direct and 
indirect medical education and risk adjustment provisions. We plan to 
consult with organizations representing hospitals and managed care 
plans to develop an administrative mechanism for implementing both of 
these provisions.
c. Permitting Payment to Nonhospital Providers
    Under section 4625 of Public Law 105-33, for cost reporting periods 
beginning on or after October 1, 1997, the Secretary is authorized but 
not required to establish rules for payment to ``qualified nonhospital 
providers'' for the direct costs of medical education incurred in the 
operation of an approved medical residency training program. Under the 
statute, qualified nonhospital providers include Federally Qualified 
Health Centers, Rural Health Clinics, Medicare + Choice organizations 
and such other nonhospital providers the Secretary determines to be 
appropriate. We expect to establish rules that specify the amounts, 
form, and manner in which payments will be made and the portion of such 
payments that will be made from each of the Medicare trust funds. The 
Secretary must reduce the aggregate amount paid to nonhospital 
providers to the extent payment is made for residents included in the 
hospital's FTE count. Since we have not previously made payments for 
direct graduate medical education to nonhospital providers, we are 
interested in receiving comment on how to implement this provision. We 
are particularly concerned that any methodology assure that Medicare 
does not pay two entities for the same training time.
    In particular, we are interested in receiving public comments on 
how to determine appropriate payment for ambulatory sites. Under 42 CFR 
part 405 subpart E, federally qualified health centers and rural health 
clinics are paid on the basis of an all inclusive rate for each 
beneficiary visit for the covered services. We are interested in 
receiving public comments on whether we should pay these entities for 
GME on a cost basis, a per resident amount, or some other basis and how 
to determine Medicare's share of their costs. Similarly, since we have 
not previously made explicit payments to managed care plans for direct 
GME we are interested in how we should pay them.
    Section 413.86(f)(1) allows hospitals to include resident time in 
nonhospital sites when the hospital incurs all or substantially all of 
the costs. Under Sec. 413.86(f)(1)(iii)(B) we have defined ``all or 
substantially all'' to mean that the hospital has a written agreement 
with the nonhospital site that it will continue to pay the resident's 
salary for training time in that setting. We are interested in 
receiving comments on whether this is an appropriate standard for 
determining which institution should be paid for the resident's 
training time or whether there are other financial arrangements we 
should consider in determining which entity incurs ``all or 
substantially all'' of the costs.
d. Medicare Special Reimbursement Rule for Primary Care Combined 
Residency Programs (Sec. 413.86(g)(1))
    Section 413.86(g)(2) requires full payment for residents within an 
initial residency period. Section 413.86(g)(3) requires residents 
beyond the initial residency period to be weighted as 0.5 FTE for 
purposes of determining GME payment. The initial residency period is 
defined as the minimum number of years required to become board 
eligible in specialty and is determined at the time a resident enters a 
medical residency training program. In the August 30, 1996 final rule 
(61 FR 46211), we clarified that the initial residency period for 
residents in combined medical residency training programs is limited to 
the time required to complete the longer of the composite programs.
    Effective for residents in or beginning training on or after July 
1, 1997, section 4627 of Public Law 105-33 amends section 1886(h)(5)(G) 
of the Act to require that the initial residency period for combined 
programs consisting only of primary care training, equals the longer of 
the composite programs plus one year. A primary care resident is a 
resident enrolled in an approved medical residency training program in

[[Page 46008]]

family medicine, general internal medicine, general pediatrics, 
preventive medicine, geriatric medicine, or osteopathic general 
practice. This provision also adds one year to the initial residency 
period for combined primary care and obstetrics and gynecology 
programs. We are amending Sec. 413.86(g)(1) to implement the provisions 
of section 1886(h)(5)(G) for residents in or beginning training on or 
after July 1, 1997.

J. Medicare Rural Hospital Flexibility Program

1. Previous Law--EACH/RPCH Program
    Section 1820 of the Act, before the enactment of the Public Law 
105-33 of 1997, established the Essential Access Community Hospital 
(EACH) program. Under that program, seven States received grants to 
develop rural health networks consisting of Rural Primary Care 
Hospitals (RPCHs) and EACHs. RPCHs are limited-service rural hospitals 
that provide outpatient and short-term inpatient hospital care on an 
urgent or emergency basis. They then release patients or transfer them 
to an EACH or other acute care hospital. To be designated as RPCHs, 
hospitals had to meet certain criteria, including requirements that 
they not have more than 6 inpatient beds for acute (hospital-level) 
care and maintain an average inpatient length of stay of no more than 
72 hours.
    Montana also has a separate, limited-service hospital program 
called the Medical Assistance Facility (MAF) program, which has been in 
operation since 1988. This program operates under a demonstration 
waiver from HCFA that allows these limited service hospitals to be 
reimbursed for providing treatment to Medicare beneficiaries even 
though they are not required to meet all requirements applicable to 
hospitals. In addition, HCFA supplies grant funding to the Montana 
Hospital Research and Education Foundation to provide technical 
assistance, liaison, public education, and other services to the MAFs. 
The first MAF was licensed and began participating in the demonstration 
in 1990. At this point a total of 12 MAFs have been licensed and 
certified. Additional facilities are in the process of considering a 
conversion to MAF status.
2. Changes Made by Balanced Budget Act of 1997
    The new legislation replaces the current 7-State EACH/RPCH program 
with a new Medicare Rural Hospital Flexibility Program that will be 
available in any State that chooses to set up such a program and 
provide HCFA with the necessary assurances that it has developed, or is 
in the process of developing, a State rural health care plan meeting 
certain requirements, and that it has designated, or is in the process 
of designating, rural nonprofit hospitals or facilities as critical 
access hospitals (CAH).
    To be eligible as a CAH, a facility must be a rural public or 
nonprofit hospital located in a State that has established a Medicare 
rural hospital flexibility program, and must be located more than a 35-
mile drive from any other hospital or critical access hospital. In 
mountainous terrain or in areas with only secondary roads available, 
the mileage criterion is 15 miles. In addition, the facility must make 
available 24-hour emergency care services, provide not more than 15 
beds for acute (hospital-level) inpatient care, and keep each inpatient 
for no longer than 96 hours, unless a longer period is required because 
of inclement weather or other emergency conditions, or a PRO or other 
equivalent entity, on request, waives the 96-hour restriction. An 
exception to the 15-bed requirement is made for swing-bed facilities, 
which are allowed to have up to 25 inpatient beds that can be used 
interchangeably for acute or SNF-level care, provided that not more 
than 15 beds are used at any one time for acute care. The facility is 
also required to meet certain staffing and other requirements that 
closely parallel the requirements for RPCHs.
    The new legislation also defines a rural health network as an 
organization consisting of at least one CAH and at least one acute care 
hospital, the members of which have entered into agreements regarding 
patient referral and transfer, the development and use of 
communications systems, and the provision of emergency and nonemergency 
transportation. In addition, each CAH in a network must have an 
agreement for credentialing and quality assurance with at least one 
hospital that is a member of the network, or with a PRO or equivalent 
entity, or with another appropriate and qualified entity identified in 
the rural health care plan for the State.
3. Grandfathering of Existing Facilities
    Under the new legislation, no new EACH designations would be made, 
but rural hospitals designated as EACHs under previous law would 
continue to be paid as sole community hospitals. The previous payment 
provisions applicable to RPCHs are repealed, and the law instead 
provides that CAHs will be paid on a reasonable cost basis for their 
inpatient and outpatient services. The law specifically provides that 
existing RPCHs and MAFs will be deemed as CAHs if these facilities or 
hospitals are otherwise eligible to be designated by the State as CAHs. 
Under a special provision applicable to the MAF program, the MAF 
demonstration project is extended until at least October 1, 1998, to 
allow for an appropriate transition between the MAF and CAH programs.
4. Provision of SNF-Level Care in RPCHs
    Previous law provided specific rules relating to the number of beds 
that an RPCH could use to provide SNF-level care. As noted above, the 
new legislation provides considerable flexibility to a CAH with a 
swing-bed agreement to use inpatient beds for either SNF or acute care, 
as long as the total number of inpatient beds does not exceed 25 and 
the number of beds used at any one time for acute care does not exceed 
15.
5. Implementing Regulations
    To allow the changes made by the enactment of Public Law 105-33 to 
be implemented by the statutory effective date of October 1, 1997, we 
are publishing the interim rules set forth below. In developing these 
rules, our general approach has been to retain the provisions of 
existing RPCH regulations, except where the new legislation clearly 
requires us to make a change. We believe this approach will allow the 
new amendments to be implemented with a minimum of inconvenience for 
existing facilities and will serve as the basis for a smooth transition 
between the RPCH and CAH programs.
    To implement the section 4201 amendments, we are revising existing 
regulations as follows:
     Part 409 (Hospital Insurance Benefits), Sec. 409.30(a) is 
revised to specify that to qualify for posthospital SNF care in a 
hospital or CAH, a beneficiary must have received inpatient CAH care 
for at least 3 consecutive calendar days (rather than the 72 hours 
required previously for RPCHs). This change ensures that care in CAHs 
and in acute care hospitals is counted uniformly toward the prior stay 
requirement.
     Part 410 (Supplementary Insurance Benefits), Sec. 410.2 is 
revised to add a ``CAH'' in the definitions of both ``Participating'' 
providers and ``nonparticipating'' providers. Also, Sec. 410.152(k) is 
revised to delete the description of payment methods for RPCH 
outpatient services that were mandated under previous law and to 
reflect the new statutory provision. As

[[Page 46009]]

explained more fully below, the statute now provides that payment for 
these services is to be made on a reasonable cost basis. We are 
specifying that ``reasonable cost'' is to be determined under section 
1861(v)(1)(A) of the Act and existing regulations in Parts 413 and 415. 
Then, Sec. 410.155(a) is revised to add a critical access hospital 
(CAH) that meets the requirements of part 485 in the definition of 
``Hospital''. Furthermore, paragraph (b) is revised to add a CAH as a 
provider in which inpatient mental health services that are identified 
in paragraphs (b) (1) through (4) are not subject to mental health 
services limitations described in paragraph (b).
     Part 412 (Prospective Payment Systems for Inpatient 
Hospital Services) Sec. 412.109 is revised to reflect the elimination 
of the EACH designation. However, we are retaining the provisions in 
current regulations that are needed to allow rural hospitals designated 
as EACHs under previous law to continue to be paid as sole community 
hospitals and, where appropriate, to obtain adjustments to their 
hospital-specific rates. We are revising the regulations to clarify 
that HCFA will terminate the EACH designation of a hospital that no 
longer complies with the terms, conditions, and limitations that were 
applicable when it was designated as an EACH.
     Part 413 (Principles of Reasonable Cost Reimbursement; 
Payment for End-Stage Renal Disease Services; Optional Prospectively 
Determined Payment Rates for Skilled Nursing Facilities), 
Secs. 413.1(a)(1)(G), 413.13(c)(2)(iv), and 413.70 are revised to 
reflect the elimination of the previously applicable payment methods 
for RPCHs. As noted above, the provisions of the Medicare law 
applicable to payment for both inpatient and outpatient RPCH services 
(sections 1814(l) and section 1834(g) of the Act, respectively) were 
amended by sections 4201 (c)(3)(B) and (c)(5) of Public Law 105-33 to 
remove the previous payment provisions, including the provisions of 
section 1834(g)(1)(B), and require that payment to CAHs for these 
services be made on a reasonable cost basis. Reasonable cost is defined 
at section 1861(v)(1)(A) of the Act and in regulations. We have 
specified that ``reasonable cost'' is to be determined under section 
1861(v)(1)(A) of the Act and existing Medicare reimbursement 
regulations at 42 CFR parts 413 and 415 and in the statute.
     Part 485, Subpart F (previously Conditions of 
Participation for Rural Primary Care Hospitals) is revised to reflect 
the new CAH statutory requirements regarding the definition of a rural 
health network, status and location requirements, designation 
requirements for CAHs, the requirements regarding the content of 
network agreements, number of beds and length of stay permitted, and 
the special requirements for CAHs that provide SNF-level services.
    We recognize that some facilities which received approval from HCFA 
under previous law to provide SNF-level services, may wish to continue 
operating under the terms of that approval. To authorize this, the 
regulations will allow a CAH that participated in the Medicare program 
as a rural primary care hospital (RPCH) on September 30, 1997 and, on 
that date, had in effect an approval from HCFA to use its inpatient 
facilities to provide posthospital SNF care, to continue in that status 
under the same terms, conditions, and limitations that were applicable 
at the time those approvals were granted.
    However, a CAH that was granted swing-bed approval under previous 
law may request by January 1, 1998 that HCFA evaluate its application 
to be a CAH and a swing-bed provider under the current law and the 
regulations set forth below. If this request is approved, the approval 
is effective not earlier than October 1997. As of the date of approval, 
the CAH no longer has any status based on its previous approval and may 
not request reinstatement under previously effective provisions.
    We are also making nomenclature changes in various sections of 
Parts 400, 409, 410, 411, 413, 414, 424, 440, 485, 488, 489, and 498 to 
reflect the statutory change from RPCHs to CAHs.
6. Other Implementation Issues
a. Process for Review and Acceptance of State Assurances
    States interested in establishing a Medicare rural hospital 
flexibility program will submit to the Regional Administrator of the 
HCFA Regional Office responsible for oversight of Medicare and Medicaid 
in the State, an application signed by an official of the State. The 
application will express the State's interest in establishing a 
Medicare rural hospital flexibility program and will contain, at a 
minimum, the following assurances and other information:
    The State must provide assurances that--
    (1) The State has developed, or is in the process of developing, a 
State rural health care plan that provides for the creation of one or 
more rural health networks as defined in Sec. 485.603(a), promotes 
regionalization of rural health services in the State, and improves 
access to hospitals and other health services for rural residents of 
the State;
    (2) The State has developed a rural health care plan in 
consultation with the hospital association of the State, rural 
hospitals located in the State, and the State Office of Rural Health 
(or, in the case of a State in the process of developing such a plan, 
that assures the Secretary that the State will consult with these 
organizations); and
    (3) The State has designated or is in the process of designating 
(consistent with the rural health plan), rural nonprofit or public 
hospitals or facilities located in the State as critical access 
hospitals; and
    The State must also provide other information to support its 
assurances, as follows:
    (1) A copy of the State rural health care plan. If the State is in 
the process of developing the plan, the State should submit a copy of 
the current draft of the plan along with an anticipated completion 
date;
    (2) An explanation of how the State rural health plan will provide 
for the creation of one or more rural health networks, promote 
regionalization of rural health services, and improve access to 
hospitals and other health services for rural residents of the State; 
and
    (3) a listing of the facilities which the State has designated, or 
plans to designate, as critical access hospitals.
    Section 1820(b)(3) of the Act authorizes HCFA to require other 
information and assurances in support of a State rural health plan. 
Therefore, HCFA will send the State a written request for any other 
information it may need to complete review of the application to 
establish a Medicare Rural Hospital Flexibility Program. HCFA will 
review the application from the State for the assurances listed above 
and will notify the State in writing of its decision on the State's 
application. Facilities designated under an approved plan will be 
eligible for certification by the HCFA Regional Office as CAHs, in 
accordance with the regulations in 42 CFR Part 485, Subpart F.
    We welcome comments on whether the information and assurances set 
forth above are sufficient, or whether other information or assurances 
are needed. We will consider this issue carefully and notify States in 
writing of any changes in the information or assurances required.
b. Designation of Facilities in Border States
    Section 1820(k), as in effect prior to the enactment of the Public 
Law 105-

[[Page 46010]]

33, explicitly authorized States with EACH programs to designate 
facilities in adjacent States as EACHs or RPCHs if certain conditions 
were met. Section 4201 of Public Law 105-33 deleted that authority. 
Therefore, a facility can be designated as a CAH only by a State in 
which it is located. The regulations as revised at Sec. 485.606 have 
deleted any reference to this authority.
c. Designation of Closed Facilities
    Section 1820(f)(1)(B), as in effect prior to the enactment of 
Public Law 105-33, explicitly allowed, under certain circumstances, 
States with EACH programs to designate facilities as RPCHs even though 
the facilities had closed and were not longer functioning as hospitals 
at the time they applied for RPCH status. The new legislation removed 
that authority so there is now no basis on which a closed facility can 
be designated as a CAH. We have revised Sec. 485.612 to reflect this 
change.

K. Changes to the Update Factors for Federal Rates for Inpatient 
Operating Costs (Sec. 412.63)

    Public Law 105-33 made several revisions to the applicable 
percentage change (the update factor) to the Federal rates for 
prospective payment hospitals. Section 4401(a)(1) of Public Law 105-33 
amended section 1886(b)(3)(B)(i) of the Act to revise the update 
factors for the Federal rates for inpatient operating costs for FYs 
1998 through 2002. The update factor for FY 1998 is now 0 percent for 
hospitals in all areas. For FY 1999, the update for hospitals in all 
areas is the market basket rate of increase minus 1.9 percentage 
points. (As discussed in detail in section V.D. of this final rule with 
comment period, section 4401(b) provides for a higher update in FY 1998 
and FY 1999 for certain hospitals that do not receive disproportionate 
share or indirect medical education payments and are not designated as 
Medicare-dependent, small rural hospitals.) For FY 2000, the update for 
all areas is the market basket rate of increase minus 1.8 percentage 
points. For FY 2001 and FY 2002, the update for all areas is the market 
basket rate of increase minus 1.1 percentage points. For FY 2003 and 
subsequent years, the update for all areas is the market basket rate of 
increase. The specific updates to be applied for FY 1998 are discussed 
in the addendum and Appendix D to this document.
    In this final rule with comment period, we are making the necessary 
changes to Sec. 412.63 to implement these provisions.

L. Change in the Publication Date of the Proposed and Final Rules for 
the Hospital Inpatient Prospective Payment System (Sec. 412.8)

    Section 4644(b) of Public Law 105-33 amends section 1886(e) of the 
Act to require the Secretary to publish the proposed and final rules 
that contain her proposed and final recommendations on the annual 
update factor applicable to the hospital payment rates by the April 1 
and August 1 prior to the start of the fiscal year to which the rates 
apply beginning with the FY 1999 rates. The current schedule calls for 
publication on May 1 and September 1. We are revising Sec. 412.8(b) and 
(c) of the regulations to implement this change. In that section, we 
are also deleting the current paragraph (a) since it is redundant.

M. Technical Change: Correction of Statutory Citation

    The August 30, 1996 final rule (61 FR 46165) included an amendment 
to Sec. 489.27 that reprinted the statutory reference governing the 
distribution of an ``Important Message from Medicare.'' This reference, 
``section 1886(a)(1)(M)'', was incorrect. We are correcting this 
reference to read ``section 1866(a)(1)(M)''.

VI. Changes to the Prospective Payment System for Capital-Related 
Costs

A. Possible Adjustment to Capital Prospective Payment System Minimum 
Payment Levels

    Section 412.348(b) of the regulations provides that, during the 
capital prospective payment system transition period, any hospital may 
receive an additional payment under an exceptions process if its total 
inpatient capital-related payments under its payment methodology (that 
is, fully prospective or hold-harmless) are less than a minimum 
percentage of its allowable Medicare inpatient capital-related costs. 
The minimum payment levels are established by class of hospitals under 
Sec. 412.348(c). The minimum payment levels for portions of cost 
reporting periods occurring in FY 1997 are:
     Sole community hospitals (located in either an urban or 
rural area), 90 percent;
     Urban hospitals with at least 100 beds and a 
disproportionate share patient percentage of at least 20.2 percent and 
urban hospitals with at least 100 beds that qualify for 
disproportionate share payments under Sec. 412.106(c)(2), 80 percent; 
and
     All other hospitals, 70 percent.
    Under Sec. 412.348(d), the amount of the exceptions payment is 
determined by comparing the cumulative payments made to the hospital 
under the capital prospective payment system to the cumulative minimum 
payment levels applicable to the hospital, for each cost reporting 
period subject to that system. Any amount by which the hospital's 
cumulative payments for previous cost reporting periods exceeds its 
cumulative minimum payment levels for those cost reporting periods is 
deducted from the additional payment that would otherwise be payable 
for a cost reporting period.
    Section 412.348(g) also provides for a separate special exceptions 
process for hospitals undertaking major renovations or replacement of 
aging facilities during the decade of the transition. For as long as 10 
years beyond the end of the transition period, certain hospitals may be 
eligible to receive special exceptions payments at a 70 percent minimum 
payment level. For hospitals that qualify for the special exceptions 
provision before the end of the transition, the general and special 
exceptions provisions will run concurrently during the later years of 
the transition. However, since the minimum payment level for the 
special exceptions provision is at the same level that applies to all 
hospitals under the general provision (currently 70 percent), the 
special exceptions provision will generate no additional payment to 
hospitals until the end of the transition period.
    Section 412.348(h) further provides that total aggregate estimated 
exceptions payments under both the regular exceptions process and the 
special exceptions process may not exceed 10 percent of the total 
estimated capital prospective payments (exclusive of hold-harmless 
payments for old capital) for the same fiscal year. In the FY 1997 
final rule implementing the prospective payment system for capital-
related costs, we stated that the minimum payment levels in subsequent 
transition years would be revised, if necessary, to keep the projected 
percentage of payments under the exceptions process at no more than 10 
percent of capital prospective payments.
    In section III of the Addendum to the June 2, 1997, proposed rule 
(62 FR 29951), we discussed the factors and adjustments used to develop 
the FY 1998 Federal and hospital-specific rates. In particular, we 
discussed the FY 1998 exceptions payment reduction factor. This factor 
adjusts the annual payment rates for the estimated level of additional 
payments for exceptions in FY 1998. In the proposed rule, we estimated 
that exceptions payments would equal 7.24 percent of aggregate

[[Page 46011]]

payments based on the Federal rate and the hospital-specific rate. We 
indicated that in the final rule we would develop a new estimate of the 
level of exceptions payments, and revise the exceptions payment 
adjustment factor accordingly, on the basis of the data that became 
available to us prior to publication of the final rule for FY 1998. We 
model exceptions payments based on the best information available on 
hospitals' actual payment methodology. We also indicated that while it 
was not necessary at that time to propose reductions in the minimum 
payment levels, we might find it necessary to implement adjustments to 
the minimum payment levels in the final rule. We, therefore, provided 
public notification that adjustments to the minimum payment levels were 
possible in the FY 1998 final rule.
    As explained in Appendix B, since publication of the proposed rule, 
we have made a change to our model with regard to admissions. This 
change has caused the number and dollar value of exceptions to drop 
significantly. We are now estimating that exceptions payments will 
equal 3.41 percent of aggregate payments based on the Federal rate and 
hospital-specific rate in FY 1998, instead of the 7.24 percent we 
estimated in the proposed rule. This also means the exceptions payment 
reduction factor, which accounts for expected exceptions payments, will 
reflect a 3.41 percent reduction to the rates for FY 1998, rather than 
a 7.24 percent reduction. Because of this change in our estimate of 
exceptions payments, we will not have to adjust minimum payment levels 
for FY 1998 to keep exceptions within 10 percent of total payments.
    In the proposed rule we indicated that when it did become necessary 
to adjust the minimum payment levels in accordance with 
Sec. 412.348(h), we would contemplate adjusting each of the existing 
levels (that is, 90 percent for sole community hospitals, 80 percent 
for large urban DSH hospitals, and 70 percent for all other hospitals 
and special exceptions) by 5 percentage point increments until 
estimated exceptions payments were within the 10 percent limit. For 
example, we would set minimum payment levels at 85 percent for sole 
community hospitals, 75 percent for large urban DSH hospitals, and 65 
percent for all other hospitals and special exceptions, provided that 
aggregate exceptions payments at those minimum payment levels were 
projected to be no more than 10 percent of total rate-based payments. 
We indicated our belief that this policy appropriately provided for all 
classes of hospitals to share in the reduction in exceptions payments, 
while simultaneously preserving the special protections provided by 
higher minimum payment levels for sole community hospitals and large 
urban DSH hospitals relative to all other hospitals. If aggregate 
exceptions payments at those minimum payment levels still exceeded 10 
percent of total rate-based payments, we proposed to continue reducing 
the minimum payment levels by 5 percentage point increments each until 
the requirement of Sec. 412.348(h) was satisfied. We provided 
notification of our thinking on this issue in order to solicit public 
comment on the appropriate method for adjusting the minimum payment 
levels.
    Comment: We received several comments expressing concern about our 
proposal to cut minimum payment levels in five percentage point 
increments, if necessary, to stay within the ten percent limit on 
overall exceptions payments. The commenters expressed concern that 
cutting the minimum payment levels by five percentage increments might 
reduce exception payments more than necessary to stay within the ten 
percent cap. Some commenters stated that using five percent incremental 
adjustments instead of something more exact was not consistent with the 
level of specificity that HCFA uses to make other types of adjustments, 
and recommended that we use the same level of specificity in making 
adjustments to the minimum payment levels that we use in making other 
types of adjustments. Some commenters recommended that we adjust 
minimum payment levels by tenths of a percent. One commenter noted that 
because the minimum payment levels vary by type of hospital--90 percent 
for sole community hospitals, 80 percent for urban DSH hospitals, and 
70 percent for all other hospitals and special exceptions, cutting all 
hospitals by the same percentages would affect some hospitals more than 
others.
    Response: After considering the commenters' concerns, we have 
decided it would be appropriate to adjust each of the minimum payment 
levels by one percentage point increments in order to meet the ten 
percent limit. We are changing the regulations at Sec. 412.348 to 
reflect this change in our policy. We will make an adjustment to the 
minimum payment levels when necessary by applying this policy.
    We decided not to implement the suggestion made by some commenters 
that we adjust the minimum payment levels to the tenth of a percent 
level. We believe such precise adjustments are inappropriate in this 
context because our calculations reflect estimates, not exact figures. 
We have also decided not to adjust groups with higher minimum payment 
levels, such as sole community hospitals and urban DSH hospitals, more 
than groups with lower minimum payment levels, such as all other 
hospitals and special exceptions. At the time we established the 
minimum payments, at the inception of capital PPS, we decided that some 
groups warranted higher exception payments because of the type of care 
they provided or their location in a particular community. We believe 
it is still appropriate to maintain those higher levels of exception 
payments for sole community hospitals and urban DSH hospitals.
    Comment: One commenter suggested that we use excess funds not paid 
out for outliers to fund the shortfall in capital exceptions.
    Response: The commenter misunderstands the prospective nature of 
outlier and capital exceptions policies and projections. We set payment 
parameters such as outlier thresholds and capital minimum payment 
levels before a fiscal year based on estimates. We also make 
prospective adjustments to the applicable rates (operating standardized 
amounts or capital Federal rates) to account for the projected level of 
outlier payments or capital exceptions payments. Thus, for example, we 
set outlier thresholds so that the outlier payments for operating costs 
are projected to equal 5.1 percent of total DRG operating payments, and 
we adjust the operating standardized amounts correspondingly. We do not 
set aside a pool of money to fund outlier cases. Moreover, once the 
payment parameters and adjustments are established for a fiscal year, 
we do not make retroactive adjustments based on differences between 
estimated and actual payments, whether actual payments are higher or 
lower than estimated payments.

B. Special Exceptions Application Process

    As discussed in section VI.A above, a separate special exceptions 
provision extends protection to certain hospitals undertaking major 
renovation or replacement of aging facilities during the decade of the 
transition. The regulation establishing eligibility for this special 
exceptions provision, and describing the criteria by which eligible 
hospitals qualify for special exceptions payments (Sec. 412.348(g)), 
was finalized on September 1, 1994 (59 FR 45385). In the proposed rule, 
we did not propose to make any policy changes to the

[[Page 46012]]

special exceptions provision. However, we had received questions from 
hospitals and intermediaries about the special exceptions process, and 
we discussed a few aspects of that process particularly with regard to 
the age of assets test and the excess capacity test. We reviewed the 
application process, the project need requirement, the project size 
requirement, and the excess capacity test. We specified that based on 
the latest data available, we had decided to set the 75th percentile 
for the age of assets test at 15.4 years rather than the 16.4 years we 
had originally contemplated.
    We received no comments on these clarifications to the special 
exceptions process.

C. Reduction to the Standard Federal Capital Payment Rate and the 
Unadjusted Hospital-Specific Rate

    Section 4402 of Public Law 105-33 amended section 1886(g)(1)(A) of 
the Act to require that, for discharges occurring on or after October 
1, 1997, the Secretary must apply the budget neutrality adjustment 
factor used to determine the Federal capital payment rate in effect on 
September 30, 1995 (as described in Sec. 412.352) to the unadjusted 
standard Federal capital payment rate (as described in Sec. 412.308(c)) 
effective September 30, 1997, and the unadjusted hospital-specific rate 
(as described in Sec. 412.328(e)(1)) effective September 30, 1997. For 
discharges occurring on or after October 1, 1997, and before September 
30, 2002, the Secretary must reduce the same rates an additional 2.1 
percent.
    The budget neutrality adjustment factor effective September 30, 
1995 was .8432 (59 FR 45416) which is equivalent to a 15.68 percent 
((1.0-.8432) * 100) reduction in the unadjusted standard Federal 
capital payment rate and the unadjusted hospital-specific rate in 
effect on September 30, 1997. The additional 2.1 percent reduction to 
the rates reduces the rates in effect on September 30, 1997 by a total 
of 17.78 percent. The unadjusted standard Federal rate must be 
distinguished from the annual Federal rate actually used in making 
payment under the capital PPS system. The unadjusted standard Federal 
rate is the underlying or base rate used to determine the Federal rate 
for each Federal fiscal year by applying the formula described in 
Sec. 412.308(c). The annual Federal rate is the result of that 
determination process in Sec. 412.308(c).
    Under the statute, the additional 2.1 percent reduction applies for 
a limited time. The language at section 4402 indicates the 2.1 percent 
reduction applies to discharges occurring ``before September 30, 
2002''. This would require that we calculate special rates that would 
be in effect for only one day. We believe that Congress intended to 
apply the reduction to discharges occurring through September 30, 2002. 
Accordingly, we plan to seek a technical correction to change the date 
that the 2.1 percent reduction expires from September 29, 2002, to 
September 30, 2002. Since we assume this technical error will be 
corrected, we are using the September 30, 2002 expiration date in our 
regulations.
    When we restore the 2.1 percent reduction to the Federal rate after 
September 30, 2002, we plan to restore the rate to the level that it 
would have been without the reduction. We determined the adjustment 
factor for FY 1998 by deducting both cuts (.1568 and .021) from 1 
(1-.1568-.021-.8222). We then applied .8222 to the unadjusted standard 
Federal rate. The adjustment factor to restore the 2.1 percent cut 
would be the adjustment without the 2.1 percent cut (.8432) divided by 
the adjustment with the 2.1 percent cut (.8222) (.8432/.8222=1.02554). 
To restore the 2.1 percent reduction, we will apply 1.02554 to the 
unadjusted standard Federal capital payment rate in setting rates for 
discharges after September 30, 2002.
    Section 412.328(e) of the regulations provides that the hospital-
specific rate for each fiscal year is determined by adjusting the 
previous fiscal year's hospital specific rate by the hospital specific 
rate update factor and the exceptions payment adjustment factor. After 
these two adjustments are applied, a net adjustment to the rate is 
determined. The previous year's hospital specific rate is analogous to 
the standard Federal rate, which is updated each year to become the 
annual Federal rate.
    When the 2.1 percent reduction is restored, most hospitals will 
have completed the transition to a fully prospective payment system for 
capital related costs. However, new hospitals might be eligible for 
hold harmless payments beyond the transition, so we may need to 
continue to compute a hospital specific rate. If we need to restore the 
2.1 percent reduction to the hospital specific rates, we will do so in 
a manner similar to that described above with respect to the unadjusted 
standard Federal capital payment rate.
    In this final rule with comment period, we are revising two 
sections of the capital prospective payment system regulations to 
implement these statutory requirements. Specifically, we are revising 
the regulations at Secs. 412.308(c) and 412.328(e) to provide for the 
required 15.68 and 2.1 percent reduction to the rates. The 2.1 percent 
reduction will be restored after September 30, 2002.
    We discuss the effect of this reduction to the standard Federal 
rate and other changes in the adjustment factors to the FY 1998 Federal 
rate in section III of the Addendum to this final rule with comment 
period.

D. Revision to the Calculation of the Puerto Rico Rate

    Currently, operating and capital payments to hospitals in Puerto 
Rico are paid on a blend of 75 percent of the Puerto Rico rate based on 
data from Puerto Rico hospitals only, and 25 percent of the national 
rate based on data from all hospitals nationwide. As described in 
section V.I of this preamble, the Balanced Budget Act of 1997 increases 
the national share of the operating payment from 25 percent to 50 
percent, and decreases the Puerto Rico share of the operating payment 
from 75 percent to 50 percent. Under the broad authority of section 
1886(g) of the Act, we are revising the calculation of capital payments 
to Puerto Rico as well, to parallel the change that is being made in 
the calculation of operating payments to Puerto Rico. Effective October 
1, 1997, we will base capital payments to hospitals in Puerto Rico on a 
blend of 50 percent of the national rate and 50 percent of the Puerto 
Rico specific rate. This change will increase payments to Puerto Rico 
hospitals since the national rate is higher than the Puerto Rico rate.
    In this final rule with comment period, as required by Public Law 
105-33, we are reducing the unadjusted standard Federal rate and 
hospital-specific rate by 17.78 percent for discharges occurring on or 
after October 1, 1997, and before October 1, 2002. Section 1886(g) of 
the Act confers broad authority on the Secretary to implement a capital 
prospective payment system. In accordance with this authority, we are 
extending the reduction to the capital rates to the Puerto Rico capital 
rates as described in Sec. 412.374(a).

VII. Changes for Hospitals and Units Excluded From the Prospective 
Payment System

A. New Requirements for Certain Hospitals Excluded From the Prospective 
Payment System (Sec. 412.22(e))

    In the September 1, 1994 final rule (59 FR 45330), we established 
several additional criteria for excluding from

[[Page 46013]]

the prospective payment system long-term care hospitals that occupy 
space in the same building or on the same campus as another hospital 
(Sec. 412.23(e)). Under these criteria, such facilities (sometimes 
called ``hospitals within hospitals'') could qualify for exclusion only 
if the two entities have separate governing bodies, chief executive 
officers, medical staffs, and chief medical officers. In addition, they 
were required to be capable of performing certain basic hospital 
functions without assistance from the hospitals with which they are co-
located, or they had to receive at least 75 percent of their inpatients 
from sources other than the co-located hospital. We further revised 
these regulations on September 1, 1995 (60 FR 45778), by adding a third 
option under which hospitals that did not meet the criteria specified 
above could establish separate operation by showing that no more than 
15 percent of their inpatient operating costs were attributable to the 
hospital with which they share space.
    The regulations were necessary to prevent inappropriate Medicare 
payments to entities that are in effect, long-stay units of other 
hospitals. At the same time, the regulations set forth criteria to 
ensure that entities may qualify for exclusion from the prospective 
payment system if an exclusion is warranted. Exclusion of long-term 
care hospitals from the prospective payment system is appropriate when 
hospitals have few short-stay or low-cost cases and might be 
systematically underpaid if the prospective payment system were applied 
to them. These reasons for exclusion do not apply if the entity that 
provides the long-term care is part of a larger hospital, which does 
have short-stay and low-cost cases and can be paid appropriately under 
the prospective payment system.
    ProPAC has recommended that HCFA monitor the growth in the number 
of long-term care hospitals within hospitals and evaluate whether the 
current Medicare certification rules that apply to these facilities 
should be changed (Recommendation 31). ProPAC noted that there is 
concern that the hospital-within-a-hospital model was devised as a way 
for acute care hospitals to receive higher payments for their long-stay 
cases. At the same time, the model may be an appropriate and efficient 
alternative to acute inpatient care for cases that require additional 
services, but at a more intense level than those provided in other 
post-acute settings. ProPAC recommended that HCFA conduct a 
comprehensive study of the characteristics, patient mix, treatment 
patterns, costs, and financial performance of hospitals within 
hospitals.
    We have been monitoring the development of the hospital-within-a-
hospital model. We agree with ProPAC that our policy should 
simultaneously strive to prevent inappropriate exclusions of units as 
separate hospitals, while allowing an appropriate degree of flexibility 
for facilities to respond to changing patient care needs. As a result 
of our monitoring efforts, in the June 2, 1997 proposed rule, we 
proposed two changes to the hospital-within-a-hospital regulations (62 
FR 29928). We proposed to add a new Sec. 412.22(f) to address hospitals 
that are unable to meet certain exclusion criteria solely because of 
State law. In addition, we proposed to extend the application of these 
rules to other classes of facilities that might seek exclusion from the 
prospective payment system as hospitals-within-hospitals.
    As discussed in detail in the proposed rule, the first proposed 
change concerned the relationship between the exclusion criteria and 
State laws. Specifically, we proposed to add Sec. 412.22(f) to address 
hospitals that, as a matter of State law, would be unable to make the 
necessary organizational changes to meet the hospital-within-a-hospital 
criteria. Under our proposal, if a hospital could not meet the criteria 
in Secs. 412.23(e)(3) (i) or (iii) (proposed to be redesignated as 
Secs. 412.22(e) (1) and (3)) solely because its governing body or 
medical staff is under the control of a third entity that also controls 
the hospital with which it shares a building or a campus or cannot meet 
the criteria in Secs. 412.23(e)(3) (ii) or (iv) (proposed to be 
redesignated as Secs. 412.22 (e)(2) and (e)(4)) solely because its 
chief medical officer or chief executive officer is employed by or 
under contract with such a third entity, the hospital could 
nevertheless qualify for an exclusion if that hospital meets the other 
applicable criteria and:
     Is owned and operated by a State university;
     Has been continuously owned and operated by that 
university since October 1, 1994;
     Is required by State law to be subject to the ultimate 
authority of the university's governing body; and
     Was excluded from the prospective payment system as a 
long-term care hospital for any cost reporting period beginning on or 
after October 1, 1993, but before October 1, 1994.
    We solicited comments and suggestions on this issue as well as on 
whether the language of the proposed rule effectively addressed the 
situation of hospitals disadvantaged by State law.
    We also proposed to redesignate Sec. 412.23 (e)(3) through (e)(5) 
which specifies the criteria for hospitals-within-hospitals as 
Sec. 412.22(e), (g), and (h). This change would have extended the 
application of the hospital-within-a-hospital rules to all types of 
facilities that can be excluded from the prospective payment system. As 
we stated in the proposed rule, we believe it is important to exclude, 
as hospitals only bona fide separate hospitals, not units of larger 
hospitals. We also proposed to incorporate, within this extended 
hospital-within-a-hospital rule, the above provisions that we proposed 
for facilities owned and operated by a State university.
    At the same time, we were considering whether it was appropriate 
for new hospitals-within-hospitals to receive the exemption from the 
TEFRA rate-of-increase ceiling during the first 2 years of operation. 
We stated that the purpose of the new hospital exemption was to 
recognize that a hospital might face a period of cost distortions as it 
began operations and tried to establish its presence in its market. We 
did not believe that newly established hospitals-within-hospitals would 
necessarily face the same degree of cost distortion during their 
initial periods of operation since they operate within existing, 
identifiable hospitals. While we did not formally propose elimination 
of the new hospital exemption for hospitals-within-hospitals at this 
time, we proposed considering adoption of such a provision in this 
year's final rule. We invited comment on whether elimination of the new 
hospital exemption for hospitals-within-hospitals would be advisable.
    As discussed in detail below, Public Law 105-33 made changes in the 
treatment of certain long-term care hospitals. As a result of this new 
legislation, we are withdrawing our proposal regarding State owned 
hospitals-within-hospitals and implementing our proposal concerning the 
extension of the hospital-within-hospital rules with some changes. The 
discussion that follows details the provisions of section 4417 of 
Public Law 105-33, explains how these provisions will be implemented, 
and responds to comments on the proposed rule.
    Section 4417 of Public Law 105-33 specifies that a hospital that 
was classified by the Secretary on or before September 30, 1995, as an 
excluded long-term care hospital shall continue to be so classified 
notwithstanding that it is located in the same building as, or on the 
same campus as, another hospital.

[[Page 46014]]

 This statutory provision supersedes certain aspects of the current 
regulatory requirements for long-term care hospitals-within-hospitals, 
and affects our proposal to extend the hospital-within-a-hospital 
criteria to excluded hospitals other than long-term care hospitals. 
While the amendment made by section 4417 of Public Law 105-33 is 
specific to long term care hospitals, we believe the considerations 
underlying the legislation also apply to other types of hospitals-
within-hospitals.
    In view of this statutory change and to provide for consistent 
treatment of all excluded hospitals-within-hospitals, we have decided 
to withdraw our proposal to include a specific provision for State-
owned hospitals-within-hospitals. Instead, we are revising 
Sec. 412.22(e) of the regulations to provide that for cost reporting 
periods beginning on or after October 1, 1997, if a hospital occupies 
space in a building also used by another hospital, or in one or more 
entire buildings located on the same campus as buildings used by 
another hospital, the hospital must meet the hospital-within-a-hospital 
criteria unless the hospital was excluded from the prospective payment 
system on or before September 30, 1995, in which case the hospital-
within-a-hospital criteria do not apply. This provision would apply to 
all types of excluded hospitals, not just long-term care hospitals. The 
extension of the hospital-within-a-hospital criteria to hospitals not 
exempt from the criteria based on their status before October 1995 
would be prospective only for cost reporting periods beginning on or 
after October 1, 1997. We wish to emphasize that the grandfathering 
provision based on a hospital's pre-October 1995 status would not be 
made available to any hospital which may have been excluded at one time 
but lost its exclusion for reasons unrelated to hospital-within-a-
hospital status.
    Comment: One commenter argued that many hospitals sharing space 
with others will need additional time to comply with the hospital-
within-a-hospital rules, since they may need to recruit added staff, 
make arrangements with new vendors, and reorganize their administrative 
staff and governing bodies. The commenter suggested that, to allow 
these changes to be made, the effective date should be changed so that 
these hospitals would first have to meet the requirements for cost 
reporting periods beginning on or after October 1, 1998 or October 1, 
1999. Another commenter suggested that the proposed effective dates 
would result in impermissible retroactive rulemaking, and recommended 
that each hospital potentially subject to the new rules be 
grandfathered for at least one cost reporting period to allow for an 
orderly transition. Another commenter suggested that the proposal 
regarding State-owned hospitals may be moot as a result of section 4417 
of Public Law 105-33, which specifically requires grandfathering of all 
long-term care hospitals-within-hospitals that were excluded on 
September 30, 1995.
    Response: We agree that, in view of section 4417 of Public Law 105-
33, it would not be appropriate to adopt our proposals regarding 
hospitals-within-hospitals as stated in the proposed rule. We have 
considered the commenter's concerns; however, we believe use of a 
single effective date of October 1, 1997 will result in the most simple 
and consistent implementation of the rule.
    Comment: One commenter objected to the parts of the proposal under 
which a hospital would have been required to have been continuously 
owned and operated by a State university since October 1, 1994, and 
would have been required to have been excluded for a cost reporting 
period beginning after September 30, 1993 but before October 1, 1994. 
The commenter asserted that these provisions would exclude otherwise 
qualified facilities from the grandfathering provision.
    Response: As noted above, we are not adopting the proposal 
regarding State-owned hospitals, but have extended the grandfathering 
provision to all types of excluded hospitals which were excluded on or 
before September 30, 1995.
    Comment: A commenter suggested that the provisions of the proposed 
rule not be applied to hospitals co-located with long-term care 
hospitals or to any excluded hospitals that share space. The commenter 
reasoned that this would be unnecessary because in such cases where 
both hospitals are excluded and serve discrete patient types, there is 
no incentive for inappropriate transfers, referrals, or other abusive 
practices. The commenter also recommended that the organizational 
separateness requirements not be applied where 75 percent or more of a 
hospital's referrals come from outside sources.
    Response: We believe the rule should be applied to situations in 
which the hospitals that share space are all excluded. Even in the 
absence of a new provider exemption to the TEFRA limit, a hospital may 
have incentives to inappropriately establish a hospital-within-a-
hospital. For example, the two facilities may have different target 
rates and this may lead to the diversion of some patients to one of the 
hospitals for reasons of payment rather than for the benefit of the 
patient. Moreover, the types of populations treated by different types 
of excluded facilities are not mutually exclusive: rehabilitation 
patients can be treated in a long-term care hospital, and 
rehabilitation hospitals are not precluded from accepting and treating 
long-stay patients. Thus, permitting exclusion of such ``hospitals'' 
within other hospitals may create incentives for abuse that would be 
diluted or absent if the facilities were freestanding. Regarding the 75 
percent referral requirement, we note that it is intended to measure 
functional separateness and thus complements, but cannot replace, the 
structural separateness tests.
    Comment: One commenter stated that although some hospitals have 
been co-located with others for many years they have not gained an 
unfair advantage. The commenter also believed that the hospital-within-
a-hospital criteria relating to control over two co-located hospitals 
by a third entity are too stringent and do not recognize that such 
arrangements are common among nonprofit hospitals and are used by 
organizations to carry out their fiduciary responsibilities with 
respect to subordinate corporations. The commenter suggested that the 
proposed rules be withdrawn or, if they are not withdrawn, applied only 
to requests for exclusion received on or after October 1, 1997, applied 
only where the rate of referral between hospitals is over 25 percent, 
or both.
    Response: As explained above, we agree that our proposals to extend 
the application of the hospital-within-a-hospital rules should be 
applied only prospectively, starting with cost reporting periods 
beginning on or after October 1, 1997. Further, the rules will not 
apply to all excluded hospitals which were excluded on or before 
September 30, 1995. However, we do not agree that our criteria 
regarding control by a third entity are too stringent or that they 
unfairly disadvantage nonprofit hospitals. While it may be common for 
corporations to exercise significant control over their subordinate 
components, we continue to believe this control indicates that the 
components are part of a larger organization, not bona fide separate 
hospitals. We also do not agree that a low rate of referrals between 
co-located hospitals is sufficient to avoid the need to determine that 
an entity is a bona fide separate hospital. Even in the absence of a 
significant level of referrals, a hospital unit may be misrepresented 
as a separate hospital in order to obtain a more favorable 
reimbursement. Thus,

[[Page 46015]]

avoiding referrals does not eliminate all incentives for abuse.
    Comment: ProPAC recommended that the Secretary conduct an extensive 
review of hospitals-within-hospitals, to determine if the existence of 
this model undermines the incentives of the prospective payment system.
    Response: We share this concern and are monitoring the status of 
these facilities. We will continue to review the status of these 
facilities and evaluate the implications of the changes in Public Law 
105-33 affecting newly excluded hospitals and the hospital-within-a-
hospital issue.
    In addition to the changes discussed above, in Sec. 412.22(e)(5) 
(ii) and (iii), we are adding a reference to ``the six-month period 
immediately preceding the first cost reporting period for which 
exclusion is sought.'' This language clarifies that the criteria in 
these paragraphs also apply to excluded hospitals other than long term 
care or children's hospitals, since excluded hospitals other than long-
term care or children's hospitals do not always have a prior cost 
reporting period of at least 6 months that is used to establish length 
of stay or treatment of an inpatient population which is predominantly 
individuals under age 18.

B. Exclusion of New Rehabilitation Units and Expansion of Existing 
Rehabilitation Units (Sec. 412.30(b)(4))

    In the September 1, 1995 final rule (60 FR 45839), we made certain 
changes to clarify the regulations applicable to the exclusion of new 
rehabilitation units and the expansion of units already excluded. These 
changes were intended only to clarify existing policy, not to change 
it. However, in making these changes we inadvertently omitted a 
paragraph that explicitly allowed newly participating hospitals to open 
new rehabilitation units and also to allow the new rehabilitation units 
to be excluded immediately from the prospective payment system. In 
omitting this paragraph, we had no intention of rescinding the policy. 
In the June 2, 1997 proposed rule, we indicated that we would restore 
this paragraph to the regulations, which the proposed rule would have 
redesignated at (Sec. 412.30(b)(4)), to correct this omission and to 
reaffirm current policy. (For further information on this policy, see 
the Federal Register published September 1, 1992 (57 FR 39746)). We 
received no comments on this proposal and are implementing the change 
in this final rule with comment period.

C. Delicensing and Relicensing of Beds (Sec. 412.30)

    We have received a number of questions about cases in which 
hospitals remove some bed capacity from their State license and 
Medicare certifications, then later increase the number of their 
licensed and certified beds and seek to have the bed capacity ``added'' 
and considered part of a new, or newly expanded, prospective payment 
system-exempt rehabilitation unit. Assuming that simultaneous 
delicensure and relicensure of beds would not be accepted as the 
addition of new bed capacity, we also have been asked how long bed 
capacity would have to be excluded from a hospital's licensure and 
certification to be considered ``new'' for purposes of the prospective 
payment system exclusion rules at Sec. 412.30.
    Section 412.30 establishes separate ways for new and converted 
units to meet the exclusion criterion related to the type of patient 
population treated. New units are allowed to qualify for initial 
exclusion based in part on a certification regarding their intent to 
treat a patient population of the kind described in Sec. 412.23(b)(2), 
rather than on a showing that they have actually treated such a 
population during the hospital's most recent cost reporting period. 
Converted units may not be excluded based on a certification, but must 
show that they actually met the Sec. 412.23(b) requirement during the 
hospital's most recent 12-month cost reporting period. New units are 
defined as those that are part of a hospital that has not previously 
sought exclusion for any rehabilitation unit and that comprise greater 
than 50 percent of the newly licensed and certified bed capacity, while 
converted units are those that do not qualify as new. Section 412.30 
also provides for separate treatment of new and converted bed capacity 
that is used to expand existing units.
    Different rules apply to the addition of new (as opposed to 
converted) bed capacity, and it would not be appropriate to recognize 
an ``increase'' in the bed capacity that coincides with a decrease in 
bed capacity in another area, resulting in no net increase in the 
hospital's total licensed and certified bed capacity. Similarly, it 
would not be appropriate to allow a hospital to circumvent those rules 
simply by removing some bed capacity from its licensure and 
certification on a temporary basis, and then increasing its bed size a 
few days, weeks, or months later. Thus, when a hospital seeks to add a 
new excluded rehabilitation unit, or to increase the size of an 
existing unit by adding new bed capacity, the bed size of the hospital 
in the past must be taken into account.
    The current regulations do not specify how long a decrease in a 
hospital's bed capacity must be effective before a subsequent increase 
in the hospital's licensure and certification can be considered as 
``new'' capacity. However, to ensure consistent and equitable treatment 
of all hospitals with excluded rehabilitation units, in the June 2, 
1997 proposed rule, we proposed to provide in the regulations (proposed 
Sec. 412.30(a)) that a decrease in capacity must remain effective for 
at least a full 12-month cost reporting period before an equal or 
lesser number of beds can be added to the hospital's licensure and 
certification and considered ``new''. This means that when a hospital 
seeks to establish a new unit, or to enlarge an existing unit, under 
the criteria in Sec. 412.30, the HCFA Regional Office will review its 
records on the facility to determine whether any beds have been 
delicensed and decertified during the 12-month cost reporting period 
before the period for which the new beds are to be added. To the extent 
that bed capacity was removed from the hospital's licensure and 
certification during that period, that amount of bed capacity cannot be 
considered ``new'' under Sec. 412.30. For example, if a hospital with a 
calendar year cost reporting period had removed 15 beds from its 
licensure and certification in calendar year 1997 and, for calendar 
year 1998, sought to set up a new rehabilitation unit that would 
include 20 beds that would be added to its licensure and certification 
as of January 1, 1998, only 5 of those beds could be considered ``new'' 
under Sec. 412.30. The remaining beds would be considered converted 
beds.
    This guideline applies to changes in a hospital's total licensed 
and certified bed capacity, regardless of whether specific beds or 
physical areas within a hospital have previously been operational and 
available to rehabilitation patients. Thus, if a hospital delicenses 25 
beds on one floor in the third month of a cost reporting period and, 2 
months later, increases its licensure and certification by adding a 25-
bed unit in a previously unoccupied area on another floor, that unit 
could not be considered ``new'' under Sec. 412.30 even though it 
occupies different space from the beds that represented the delicensed 
capacity. This guideline applies only for purposes of exclusion from 
the prospective payment system and is not intended to limit a 
hospital's ability to add to its licensed and certified bed capacity 
for the provision

[[Page 46016]]

of services paid for under the prospective payment system.
    We are also revising Sec. 412.30(c)(1)(ii) to state that beds that 
a hospital wishes to add to an excluded rehabilitation unit can be 
considered ``new,'' and thus subject to earlier exclusion than existing 
beds, only if the hospital's total inpatient bed capacity has increased 
by an amount that is more than 50 percent of the number of beds the 
hospital seeks to add to the unit, so that the added beds represent 
primarily newly licensed and certified capacity.
    Comment: One commenter suggested that the proposal is too 
stringent, in that it does not take into account that hospitals may be 
pursuing separate CON activities--construction of a new facility to 
replace an older, larger facility, and creation of a new rehabilitation 
unit. The commenter suggested that the coincidence of these events 
could result in an inadvertent appearance of shifting of bed capacity 
and recommended that we not impose the delicensing rule but instead 
rely solely on CON approval to determine the appropriateness of 
expansions in rehabilitation units. Another commenter suggested that 
the proposal is unnecessarily restrictive.
    Response: We understand that there may be situations in which it is 
appropriate for a hospital, acting in response to community needs and 
changes in demand for specific types of services, to separately pursue 
changes in bed size as described by this commenter. While such changes 
would not be undertaken with any intent to evade exclusion 
requirements, it nevertheless is clear that they would constitute a 
shift of the hospital's existing net bed capacity from acute to 
rehabilitation use, rather than an increase in bed capacity. Thus, we 
believe such shifts would appropriately be treated under the rules for 
conversion of bed capacity, and thus have not adopted this comment.

D. Special Excluded Hospital Criteria Added by Public Law 105-33 
(Sec. 412.23)

    Public Law 105-33 added special criteria for certain hospitals to 
be excluded from the prospective payment system. Section 
1886(d)(1)(B)(iv) of the Act as amended by section 4417(b) of Public 
Law 105-33 allows certain hospitals with an average length of stay of 
less than 25 days to be excluded from the prospective payment system as 
a long-term care hospital. In order to be excluded under this 
provision, a hospital must have first been excluded as a long-term care 
hospital in calendar year 1986, have an average inpatient length of 
stay of greater than 20 days, and demonstrate that 80 percent or more 
of its annual Medicare inpatient discharges in the 12-month cost 
reporting period ending in Federal fiscal year 1997 have a principal 
diagnosis that reflects a finding of neoplastic disease. The exclusion 
under this provision is effective for cost reporting periods beginning 
on or after August 5, 1997 (the date of enactment of Pub. L. 105-33). 
We are revising Sec. 412.23(e) to implement this provision.
    Section 4418 of Public Law 105-33 provides an additional category 
of hospitals that can qualify as cancer hospitals for purposes of 
exclusion from the prospective payment system. As amended, section 
1886(d)(1)(B)(v) of the Act includes a hospital that meets the 
following criteria:
     The hospital was recognized as a comprehensive cancer 
center or clinical cancer research center by the National Cancer 
Institute of the National Institutes of Health as of April 20, 1983.
     The hospital must have applied for and been denied, on or 
before December 31, 1990, classification as a cancer hospital.
     The hospital was licensed for fewer than 50 acute care 
beds as of the date of enactment of this subclause (that is, August 5, 
1997).
     The hospital is located in a State that, as of December 
19, 1989, was not operating a demonstration project under section 
1814(b) of the Act.
     The hospital demonstrates that, for the 4-year period 
ending on December 31, 1996, at least 50 percent of the hospital's 
total discharges have a principal finding of neoplastic disease; that 
is, the discharge has a principal diagnosis code of 140-239, V58.0, 
V58.1, V66.1, V66.2, or 990.
    A hospital that meets these criteria is classified as an excluded 
cancer hospital for cost reporting periods beginning on or after 
January 1, 1991. In addition, for purposes of payment, the base period 
applicable to such a hospital is the hospital's cost reporting period 
beginning during FY 1990 or the period under new section 1886(b)(3)(F) 
of the Act (discussed below). We are revising the regulations at 
Sec. 412.23(f) to incorporate this provision.

E. Changes Based on New Legislation for the Payment of Hospitals and 
Units Excluded from the Prospective Payment System (Sec. 413.40)

    Public Law 105-33 significantly altered the payment provisions for 
excluded hospitals and units. Prior to the passage of Public Law 105-
33, the payment provisions for excluded hospitals and units applied 
consistently to all categories of excluded providers (that is, 
psychiatric, rehabilitation, long-term care, children's, and cancer). 
However, effective for cost reporting periods beginning on or after 
October 1, 1997, there are specific payment provisions for psychiatric, 
rehabilitation, and long-term care providers and modifications to 
payment provisions for all excluded providers. Following is a complete 
discussion of the new provisions and the revised regulations.
    1. Rate-of-Increase Percentages for Excluded Hospitals and Units 
(Sec. 413.40 (c) and (g))
    Hospitals and units excluded from the prospective payments system 
receive payment for inpatient hospital services they furnish on the 
basis of reasonable costs, subject to a rate-of-increase ceiling. An 
annual per discharge limit (the target amount as defined in 
Sec. 413.40(a)) is set for each hospital or hospital unit based on the 
hospital's own cost experience in its base year. The target amount is 
multiplied by the Medicare discharges and applied as an aggregate upper 
limit (the ceiling as defined in Sec. 413.40(a)) on total inpatient 
operating costs for a hospital's cost reporting period.
    Section 4411 of Public Law 105-33 amended sections 1886(b)(3)(B) of 
the Act regarding the rate-of-increase percentages to be applied to 
each target amount as set forth below.
    The applicable rate-of-increase percentage for the cost reporting 
period beginning during FY 1998 is 0 percent.
    For cost reporting periods beginning in FY 1999 through FY 2002, 
the applicable rate-of-increase percentage is the market basket rate of 
increase percentage minus a factor based on the percentage by which the 
hospital's operating costs exceed the hospital's ceiling for the most 
recent cost reporting period for which information is available.
     If the hospital's operating costs are equal to or exceed 
110 percent of the ceiling amount, the rate-of- increase percentage 
increase is equal to the market basket percentage.
     If the hospital's costs exceed the ceiling but are less 
than 110 percent of the ceiling, the rate-of-increase percentage is the 
market basket rate of increase minus .25 percentage points for each 
percentage point by which costs are less than 10 percent over the 
ceiling. The rate-of- increase percentage is in no case less than 0 
percent.
     If the hospital's costs are equal to or less than ceiling 
but greater than 66.7 percent of the ceiling, the rate-of-increase 
percentage is the greater of the market basket minus 2.5 percentage 
points or 0 percent.

[[Page 46017]]

     If the hospital's costs do not exceed 66.7 percent of the 
ceiling, the rate-of-increase percentage is 0 percent.
     If the hospital first receives payments as an excluded 
provider on or after October 1, 1997, the new statutory payment 
methodology for new hospitals applies.
    Examples of how the rate-of-increase percentage provision applies 
in determining the applicable rate-of- increase percentages are as 
follows:


                                Example 1                               
Cost reporting period beginning in FY 1999:                             
  FY 1997 target amount....................................       $8,000
  Medicare discharges......................................        x 100
                                                            ------------
  FY 1997 ceiling..........................................     $800,000
  FY 1997 allowable inpatient operating costs..............   $1,000,000
  FY 1997 costs over (under) of the ceiling................     $200,000
  FY 1997 costs as percentage of the ceiling...............          125
  FY 1998 rate-of-increase percentage......................            0
  FY 1999 rate-of-increase percentage: market basket.......         2.60
  FY 1999 target amount (FY 1998 target amount of $8,000 x              
   1.026)..................................................       $8,208
                                                                        


                                Example 2                               
Cost reporting period beginning in FY 1999:                             
  FY 1997 target amount....................................       $9,800
  Medicare discharges......................................        x 100
                                                            ------------
  FY 1997 ceiling..........................................     $980,000
  FY 1997 allowable inpatient operating costs..............   $1,000,000
  FY 1997 costs over (under) the ceiling...................      $20,000
  FY 1997 percent by which costs exceed (do not exceed) the             
   ceiling.................................................         2.04
  FY 1998 rate-of-increase percentage......................            0
FY 1999 rate-of-increase percentage:                                    
  Market basket............................................         2.60
  Percentage point reduction (.25 x (10-2.04)).............       (1.99)
                                                            ------------
  Update (percent).........................................          .61
FY 1999 target amount (FY 1998 target amount $9,800 x                   
 1.0061)...................................................    $9,859.78
                                                                        


                                Example 3                               
Cost reporting period beginning in FY 1999:                             
  FY 1997 target amount....................................      $10,500
  Medicare discharges......................................        x 100
                                                            ------------
  FY 1997 ceiling..........................................   $1,050,000
  FY 1997 allowable inpatient operating costs..............   $1,000,000
  FY 1997 costs over (under) the ceiling...................    $(50,000)
  FY 1997 costs as percentage of the ceiling...............         95.2
  FY 1998 rate-of-increase percentage......................            0
FY 1999 percentage increase:                                            
  Market basket............................................         2.60
  Percentage point reduction...............................       (2.50)
                                                            ------------
  Update (percent).........................................          .10
  FY 1999 target amount (FY 1998 target amount $10,500 x                
   1.001)..................................................   $10,510.50
                                                                        


                                Example 4                               
Cost reporting period beginning in FY 1999:                             
  FY 1997 target amount....................................      $16,000
  Medicare discharges......................................        x 100
                                                            ------------
  FY 1997 ceiling..........................................   $1,600,000
  FY 1997 allowable inpatient operating costs..............   $1,000,000
  FY 1997 costs over (under) the ceiling...................   $(600,000)
  FY 1997 costs as percentage of the ceiling...............         62.5
  FY 1998 rate-of-increase percentage:.....................            0
  FY 1999 rate-of-increase percentage......................            0
  FY 1999 target amount (FY 1998 target amount of $16,000 x             
   1.0)....................................................      $16,000
                                                                        

    We are revising Sec. 413.40(c)(3)(vi) and adding new paragraphs 
(c)(3)(vii) and (c)(3)(viii) and (g)(5) to set forth the new rate-of-
increase percentage provisions.
2. Request for a new base period (Sec. 413.40(b))
    Sections 4413(a) and 4413(b) of Public Law 105-33 amended sections 
1886(b)(3) of the Act in order to permit excluded hospitals and units 
to elect (``in a form and manner determined by the Secretary'') a 
rebasing of the target amount for the 12-month cost reporting period 
beginning during FY 1998 (October 1, 1997 through September 30, 1998). 
Except for a qualified long-term care hospital, as discussed below, 
each excluded hospital or unit under present or previous ownership that 
received Medicare payments during cost reporting periods beginning 
before October 1, 1990 may submit to its fiscal intermediary a request 
for rebasing its target amount. The new section 1886(b)(3)(F) of the 
Act instructs the Secretary to determine the rebased target amount as 
follows:
    (1) The Secretary shall determine the hospital's allowable 
inpatient operating costs ``for each of the 5 cost reporting periods 
for which the Secretary has the most recent settled cost reports as of 
the date of enactment (August 5, 1997)''.
    (2) For each of the 5 cost reporting periods, the Secretary shall 
update the inpatient operating cost per case to FY 1998 using the 
update factors cited at section 1886(b)(3)(B) of the Act 
(Sec. 413.40(c)).
    (3) The Secretary shall exclude the highest and lowest of the five 
updated amounts for inpatient operating cost per case.
    (4) The Secretary shall compute the average for the remaining three 
updated inpatient operating cost per case.
    Under the statute the methodology for determining a rebased target 
amount uses the updated inpatient operating costs per case from the 
five most recent cost reports that have been settled as of the date of 
the enactment of the statute (August 5, 1997). For purposes of this 
provision, we will not recalculate the target amount to reflect cost 
report reopenings, changes, or other adjustments made after August 5, 
1997. Reopenings (or even multiple reopenings) of any of the five 
settled cost reports at later dates could create a uncertainty of the 
applicable FY 1998 target amount until well after the end of FY 1998 
and uncertainty about target amounts for subsequent years. Accordingly, 
the hospital must carefully consider the inpatient operating costs per 
case of its five most recent settled cost reports as of August 5, 1997 
in deciding whether to apply for rebasing under this provision.
    Similarly, if a hospital that received payments during cost 
reporting periods beginning before October 1, 1990 has reorganized or 
acquired another similar excluded provider so that its five most recent 
settled cost reports reflect substantial differences in the size and 
expenses of the excluded hospital or unit, the same considerations 
apply. It is not permissible to use fewer than (or more than) the five 
most recent settled cost reports in an attempt to reflect an 
operational reorganization. Also, if the hospital elects rebasing under 
this provision, the revised target amount for FY 1998 continues to be 
subject to the 75th percentile cap established on the target amount by 
Section 4414 of Public Law 105-33 (discussed below). Exception payments 
as governed by Secs. 413.40(g) and (i) will be evaluated based on a 
comparison of the hospital's operating costs and its costs during the 
three years used to calculate the rebased target amount.
    In order to implement the statutory provision, we are adding 
Sec. 413.40(b)(1)(iv) to describe the manner in which a hospital must 
request a rebased target amount. The hospital submits the request to 
its fiscal intermediary. Due to the extremely short timeframe between 
enactment of Public Law 105-33 on August 5, 1997 and the

[[Page 46018]]

beginning of FY 1998 (on October 1), we believe it is necessary and 
appropriate to establish special rules to address those hospitals whose 
cost reporting periods begin early in FY 1998, in order to treat all 
hospitals equitably. Therefore, the hospital must submit its request 
for rebasing by the later of November 1, 1997 or 60 days prior to the 
beginning of its cost reporting period beginning during FY 1998. We 
emphasize that the intermediary must receive the request by the 
deadline. Also, we note that this is a one time request that must be 
received by the deadline for the FY 1998 cost reporting period.
    Upon receipt of a request for a rebased FY 1998 target amount, the 
fiscal intermediary should verify the submitted request and notify the 
hospital of its FY 1998 target amount.
    The request for a new base period must include the following:
     Cover letter, which must include the items listed below.

--The name of the excluded hospital or unit;
--The Medicare provider number;
--The beginning and ending dates for the FY 1998 cost reporting period;
--The fiscal year of the existing base period and FY 1998 updated 
target amount;
--A statement requesting a rebased FY 1998 target amount under 
Sec. 413.40(b)(1)(iv);
--A statement of the rebased FY 1998 target amount per discharge with 
supporting documentation in attachment work papers;
--A list of attachments; and
--A contact person: name, phone number, and address

     Attachments

--Copies of the Notices of Program Reimbursement for the five most 
recent settled cost reporting periods
--Copies of Worksheet D-1 for the five most recent settled cost 
reporting periods
--A list and/or calculation of the following for each of the five most 
recent settled cost reporting periods:

    + Total Medicare inpatient operating costs (excluding pass through 
costs);
    + Total Medicare discharges;
    + Medicare inpatient operating costs per case; and
    + Medicare inpatient operating costs per case updated to FY 1998

--A list the highest and lowest of the five updated inpatient operating 
cost per case; and
--A calculation of the average for the remaining three updated 
inpatient operating cost per case

    Section 4413(b) of Public Law 105-33 also specified a separate 
rebasing election for a qualified long-term care hospital. The statute 
defines a qualified long-term care hospital as a long-term care 
hospital that meets the following two conditions for its two most 
recent settled cost reports as of August 5, 1997:
    (1) The hospital's Medicare inpatient operating costs exceed 115 
percent of the ceiling; and
    (2) The hospital would have had a disproportionate patient 
percentage (as defined in Sec. 412.106) equal to or greater than 70 
percent if it were a prospective payment system hospital. A qualified 
long-term care hospital must submit a request to its fiscal 
intermediary to have a rebased target amount in the same manner as 
discussed above for other excluded hospitals. The request must be 
received by the fiscal intermediary by the later of November 1, 1997 or 
60 days prior to the beginning of its cost reporting period during FY 
1998. For a qualified long-term care hospital, the methodology for 
rebasing the target amount differs. The FY 1998 rebased target amount 
is the hospital's FY 1996 inpatient operating costs updated by the 
market basket percentage to FY 1997 only, not to FY 1998, subject to 
the 75th percentile cap.
    To assist with the application of the updating of the cost per case 
to the subject fiscal period, the increase in the market basket and the 
applicable update factors for excluded hospitals and units since FY 
1990 are:

------------------------------------------------------------------------
                                                   Market               
                  Fiscal year                      basket       Update  
                                                 (percent)      factor  
------------------------------------------------------------------------
1990..........................................          5.5        1.055
1991..........................................          5.3        1.053
1992..........................................          4.7        1.047
1993..........................................          4.2        1.042
1994..........................................          4.3    \1\ 1.043
1995..........................................          3.7    \1\ 1.037
1996..........................................          3.4    \1\ 1.034
1997..........................................          2.5    \1\ 1.025
1998..........................................          2.7       1.000 
------------------------------------------------------------------------
\1\ See Sec.  413.40(b)(3)(v) for method of determining applicable      
  reduction.                                                            

    We are adding Secs. 413.40(b) (iv) and (v) to set forth the new 
provisions regarding request for new base periods.
3. Limitation on the Target Amount for Excluded Hospitals and Units 
(Sec. 413.40(c))
    Section 4414 of Public Law 105-33 amended section 1886(b)(3) of the 
Act, to establish caps on the target amounts for excluded hospitals or 
units for cost reporting periods beginning on or after October 1, 1997, 
through September 30, 2002. The caps on the target amounts apply to the 
following three categories of excluded hospitals: psychiatric hospitals 
and units, rehabilitation hospitals and units, and long-term care 
hospitals. For purposes of calculating the caps, the statute requires 
the Secretary to first ``estimate the 75th percentile of the target 
amounts for such hospitals within [each] class for cost reporting 
periods ending during fiscal year 1996''. For cost reporting periods 
beginning in FY 1998, the Secretary shall update the amount so 
determined by the market basket percentage increase to FY 1998. For 
cost reporting periods beginning during FY 1999 through 2002, the 
Secretary shall update the resulting amount by the market basket 
percentage.
    The estimates of the 75th percentile of the target amounts were 
developed from the best available data on the hospital specific target 
amounts for cost reporting periods ending during fiscal year 1996 and 
then updated by the market basket percentage to FY 1998. Given the 
extraordinarily short time frame between the enactment of Public Law 
105-33 (August 5, 1997) and the required publication date of this final 
rule, we used the best available data that has been reported to HCFA by 
the fiscal intermediaries for over 3,000 hospitals and units within the 
classes specified by the statute.
    When an exact target amount was not available for a particular 
hospital, we used the best available information to estimate the 
hospital's target amount. For example, if the hospital's target amount 
for its cost reporting period ending during FY 1996 was not available 
but the target amount for FY 1995 was available, we updated the FY 1995 
target amount by the applicable percentage increase to determine an 
estimate of the hospital's target amount for its cost reporting ending 
during FY 1996. We note that, with respect to long-term care hospitals, 
we were able to obtain exact target amount figures for virtually all 
hospitals within the class.
    A hospital that has a target amount that is capped at the 75th 
percentile would not be granted an exception payment as governed by 
Secs. 413.40 (a) and (i) based solely on a comparison of its costs or 
patient mix in its base year to its costs or patient mix in the payment 
year. Since the hospital's target amount would not be determined based 
on its own experience in a base year, any comparison of costs or 
patient mix in its base year to costs or patient mix in the payment 
year would be irrelevant. However, exception payments would still be 
available for hospitals that have target amounts that are determined by 
the hospital's costs in a base year unaffected by the 75th percentile 
cap.

[[Page 46019]]

    The 75th percentile of the target amounts for cost reporting 
periods ending during fiscal year 1996, and updated by the market 
basket up to FY 1998 are as follows:
    (1) Psychiatric hospitals and units: $10,188
    (2) Rehabilitation hospitals and units: $18,476
    (3) Long-term care hospitals: $36,449
    We are revising Sec. 413.40(c)(4) (i) and (ii) to set forth the 
limitation on the ceiling provisions.
4. Bonus and Relief Payments (Sec. 413.40(d))
a. Bonus Payments
    For cost reporting periods beginning before October 1, 1997, a 
hospital that had inpatient operating costs less than its ceiling is 
paid costs plus the lower of 50 percent of the difference between the 
inpatient operating costs and the ceiling; or 5 percent of the ceiling. 
Section 4415 of Public Law 105-33 amended section 1886(b)(1)(A) of the 
Act to provide that for cost reporting periods beginning on or after 
October 1, 1997, the amount of bonus payment is the lower of the 
following:
    (1) 15 percent of the difference between the inpatient operating 
costs and the ceiling, or
    (2) 2 percent of the ceiling.
    In addition, section 4415 of Public Law 105-33 amended Section 
1886(b)(2) of the Act to provide for ``continuous improvement bonus 
payments''. Under this new provision, for cost reporting periods 
beginning on or after October 1, 1997, an ``eligible hospital'' will 
receive payments in addition to the bonus payment discussed above. An 
``eligible hospital'' is a hospital that been an excluded provider for 
at least three full cost reporting periods prior to the subject period 
and whose operating costs per discharge for the subject period are 
below the lower of its target amount, trended costs (as defined by the 
statute), or expected costs (as defined by the statute) for the subject 
period. The amount of the continuous improvement bonus payment will be 
equal to the lesser of--
    (1) 50 percent of the amount by which operating costs were less 
than the expected costs for the period; or
    (2) 1 percent of the ceiling.
    Under the statute, for a hospital with its third or subsequent cost 
reporting period ending in FY 1996, trended costs are the lesser of 
allowable inpatient costs per discharge or the target amount in FY 
1996, increased (in a compounded manner) for each succeeding fiscal 
year by the percentage increase in the market basket. For all other 
hospitals, trended costs are the allowable inpatient operating costs 
per discharge for its third full cost reporting period increased (in a 
compounded manner) for each succeeding fiscal year by the percentage 
increase in the market basket.
    Expected costs are the lesser of operating costs per discharge or 
the target amount for the previous cost reporting period, updated by 
the percentage increase in the market basket for the fiscal year.
b. Relief Payments
    For cost reporting periods beginning on or after October 1, 1984 
and before October 1, 1991, hospitals that had inpatient operating 
costs in excess of their ceiling are to be paid no more than the 
ceiling. Section 4005(a) of Public Law 101-508 (OBRA 1990, enacted 
November 5, 1990) amended section 1886(b)(1)(B) of the Act to provide 
that for cost reporting periods beginning on or after October 1, 1991, 
a hospital could receive relief payments equal to 50 percent of the 
costs in excess of the ceiling not to exceed 10 percent of the ceiling 
(after any exceptions or adjustments).
    Section 4415 of Public Law 105-33 amended section 1886(b)(1) of the 
Act to provide that for cost reporting periods beginning on or after 
October 1, 1997, if a hospital's operating costs are greater than the 
ceiling but less than 110 percent of the ceiling, payment will be the 
ceiling. If a hospital's costs are greater than 110 percent of the 
ceiling, payment will be the ceiling plus 50 percent of the costs in 
excess of 110 percent of the ceiling. Total payment may not exceed 110 
percent of the ceiling.
    Because section 4415 of Public Law 105-33 does not provide relief 
for costs that are within 110 percent of the ceiling, we are making a 
corresponding change to the exception payment provision at 
Sec. 413.40(g)(1) so that qualification for the amount of an exception 
payment does not encompass costs within 110 percent of the ceiling.
    We have revised Secs. 413.40(d)(3) and added (d)(4) and (d)(5) to 
implement these provisions.
5. New Excluded Hospitals and Units (Sec. 413.40(f))
    Under Sec. 413.40(f), a new excluded hospital is exempted from the 
rate-of-increase ceiling until the end of the first cost reporting 
period ending at least two years after the hospital accepts its first 
patient (through the second 12-month cost reporting period). As we 
discussed in the June 2, 1997 proposed rule (62 FR 29937), the growth 
of new excluded hospitals increasingly includes a large number of 
hospitals that are merely reconfigurations of existing facilities. 
These new providers do not require the same length of time to establish 
a presence in the marketplace and increase patient load. As a result, 
there is evidence that the new hospital exemption does not always serve 
its original purpose to recognize certain cost distortions that may be 
present as a hospital begins operations. In addition, the new hospital 
exemption period could create incentives to increase costs in the 
exempt years. In its March 1, 1997 report, ProPAC recommended that the 
new hospital exemption period should be eliminated and that Medicare 
payments for new providers should be based on an average target amount 
for facilities serving comparable types of patients.
    With the enactment of sections 4416 and 4419 of Public Law 105-33, 
which amend section 1886(b)(4) of the Act and add section 1886(b)(7) of 
the Act, Congress has established a new framework for payments for new 
excluded providers. First, section 4419(a) amends section 
1886(b)(4)(A)(i) of the Act, to eliminate ``exemptions'' for all 
classes of excluded entities except children's hospitals. This 
provision applies to entities that first qualify for exclusion for cost 
reporting periods beginning on or after October 1, 1997. Thus, 
effective October 1, 1997, we will no longer grant new provider 
exemptions under section 1886(b)(4) of the Act except with respect to 
children's hospitals.
    Second, section 4416 adds a new section 1886(b)(7) of the Act to 
establish a new statutory payment methodology for certain new 
hospitals. For purposes of this provision, the statute specifies three 
classes of hospitals: psychiatric hospitals and units, rehabilitation 
hospitals and units, and long-term care hospitals. Under the statutory 
methodology, for a hospital that is within a class of hospitals 
specified in the statute and which first receives payments on or after 
October 1, 1997, the amount of payment shall be determined as follows.
    For each of the first two cost reporting periods, the amount of 
payment is the lesser of (1) the operating costs per case, or (2) 110 
percent of the national median of target amounts for the same class of 
hospitals for cost reporting periods ending during FY 1996, updated and 
adjusted for differences in area wage levels. For purposes of computing 
the target amount for the subsequent cost reporting period, the target 
amount for the preceding cost reporting period

[[Page 46020]]

is equal to the amount determined under the methodology above for the 
preceding period.
    To determine payments for a new hospital's first two cost reporting 
periods, the statute requires a calculation of a national median of the 
target amounts for hospitals in the same class, updated and adjusted. 
For each class of hospitals, using the best available data we 
determined the national median of the target amounts for hospitals 
within the class for cost reporting periods ending during fiscal year 
1996. In determining the national median, the Secretary makes 
adjustments to account for area differences in wage-related costs. 
Pursuant to the broad authority conferred on the Secretary to determine 
an appropriate wage adjustment, we are making an adjustment on the 
basis of the data used to calculate the FY 1998 hospital wage index 
under the hospital inpatient prospective payment system (see 
Sec. 412.63), without taking into account reclassifications under 
section 1886(d)(10) and (d)(8)(B) of the Act. We recognize that wages 
may differ for prospective payment hospitals and excluded hospitals, 
but we believe the wage data do reflect area differences in wage-
related costs; moreover, in light of the extraordinarily short 
timeframe for implementing this provision, this is the only feasible 
data source.
    We note that, under the statute, the special payment methodology 
for new hospitals applies for each of the hospital's first 2 cost 
reporting periods. However, a new hospital might begin operations on a 
date other than the first day of its ``usual'' cost reporting period, 
so that its first cost reporting period is a short period. In order to 
treat these hospitals equitably, we believe the special payment 
methodology should be applied to the hospital's first two full cost 
reporting periods.
    We also note that, under the calculation prescribed in new section 
1886(b)(7)(A)(i)(II), the limit on payment for each of the hospital's 
first two cost reporting periods is based on the national median target 
amount for cost reporting periods ending during FY 1996, updated by the 
hospital market basket ``to the fiscal year in which the hospital first 
received payments''. That is, the limit on payment is not updated by 
the market basket for the second cost reporting period. For example, if 
a new rehabilitation hospital commences operation on January 1, 1999 
(during FY 1999), it receives the lower of the hospital's operating 
costs or 110 percent of the applicable national median of target 
amounts for cost reporting periods ending during FY 1996 updated to FY 
1999. For its second 12-month cost reporting period (FY 2000), the 
limit on payment is the same (110 percent of the applicable national 
median updated to FY 1999). The statute appears to provide that the 
target amount for succeeding cost reporting periods will be based on 
the payment amount in the second 12-month cost reporting period 
increased by the applicable update factors. Although we are codifying 
the policies for subsequent cost reporting periods in this final rule 
with comment period, a technical amendment may be needed to clarify 
statutory intent.
    The updating process also raises an issue with respect to hospitals 
with short cost reporting periods. The statute requires that the 
national median is updated ``to the fiscal year in which the hospital 
first received payments.'' Thus, for hospitals with short cost 
reporting periods, we would calculate the limit based on the beginning 
of its short cost reporting period, even though the limit would not be 
applied until its first full cost reporting period (as discussed 
earlier). We believe these policies treat such hospitals equitably, so 
that they are neither benefitted nor disadvantaged by the short cost 
reporting period.
    We are revising Secs. 413.40(f) (1) and (2) to incorporate these 
changes for new excluded providers.
    The table below lists 110 percent of the national median target 
amounts for each class of excluded hospitals for cost reporting periods 
ending during FY 1996, adjusted for area wages updated by the market 
basket to FY 1998.

(1) Psychiatric hospitals and units...........................    $8,203
(2) Rehabilitation hospitals and units........................    16,129
(3) Long-term care hospitals..................................    18,324
                                                                        

6. Capital Payments for Excluded Hospitals and Units (Sec. 413.40(j))
    Section 4412 of Public Law 105-33 amended section 1886(g) of the 
Act to establish a 15 percent reduction on capital payments for certain 
hospitals and hospital distinct part units excluded from the 
prospective payment system for portions of cost reporting periods 
beginning on or after October 1, 1997, through September 30, 2002. The 
capital reduction applies to psychiatric hospitals and units, 
rehabilitation hospitals and units, and long-term care hospitals.
    We are adding Sec. 413.40(j) to set forth the capital reduction 
provision.
7. Report on Adjustment Payments to the Ceiling (Sec. 413.40(g))
    Section 1886(b)(4) of the Act provides for an adjustment 
(exception) payment to the ceiling if a hospital submits a request to 
its fiscal intermediary within 180 days of the date of the Notice of 
Program Reimbursement. Changes in the types of patients served or in-
patient care services that distort the comparability of a cost 
reporting period to the base year are grounds for requesting an 
adjustment request. The reasons and process for requesting an 
adjustment request are implemented at Sec. 413.40(g). Section 4419(b) 
of Public Law 105-33 amended section 1886(b)(4) of the Act. This 
section requires the Secretary to publish annually, in the Federal 
Register, a report describing the total adjustment payments made to 
excluded hospitals and units for cost reporting periods ending during 
the previous fiscal year. Effective with the FY 1999 notice of changes 
to the hospital inpatient payment systems, we will publish the total 
adjustment payments made to excluded hospitals and units by category of 
hospital (psychiatric, rehabilitation, long-term care, cancer, and 
children's) during the previous fiscal year.

VIII. ProPAC Recommendations

    As required by law, we reviewed the March 1, 1997 report submitted 
by ProPAC to Congress and gave its recommendations careful 
consideration in conjunction with the proposals set forth in the 
proposed rule. We also responded to the individual recommendations in 
the proposed rule. The comments we received on the treatment of the 
ProPAC recommendations are set forth below, along with our responses to 
those comments. However, if we received no comments from the public 
concerning a ProPAC recommendation or our response to that 
recommendation, we have not repeated the recommendation and response in 
the discussion below. Recommendation 2, concerning the update for the 
prospective payment system operating payment rates, is discussed in 
Appendix D of this final rule with comment period. Recommendations 3 
and 4, concerning the prospective payment system capital payment rates, 
are discussed in section III. of the Addendum of this final rule with 
comment period. Recommendation 13, concerning updating the target 
amounts for excluded hospitals and distinct part units, is discussed in 
Appendix D of this final rule with comment period. Recommendation 31, 
concerning long-term care hospitals within hospitals, is discussed in 
section VII. of this final rule with comment period. The remaining 
recommendations on which we received comments are discussed below.

[[Page 46021]]

A. Improving Medicare's Disproportionate Share Hospital (DSH) Payments 
and Distribution of those Payments (Recommendation 9, 10, and 11)

    Recommendation: DSH payments should be concentrated among hospitals 
with the highest shares of poor patients. Therefore, a minimum 
threshold should be established for the low-income patient cost share. 
Hospitals falling just above the threshold should receive only a 
minimal per case payment, with the amount then increasing as low-income 
share rises. The same general approach for distributing payments should 
apply to all PPS hospitals.
    Response in the Proposed Rule: Congress set the current threshold 
payments for Medicare disproportionate share hospitals in section 
6003(c) of the Omnibus Budget Reconciliation Act of 1989. This 
provision expanded both the number of hospitals that could qualify for 
disproportionate share payments as well as the level of those payments 
for some categories. We note that large urban hospitals already receive 
payments based on this graduated payment structure. ProPAC notes that 
95 percent of the hospitals receiving disproportionate share payments 
are designated as large urban hospitals. A May 1990 Congressional 
Budget Office (CBO) report to Congress, found that only large urban 
hospitals were overburdened by the cost of caring for the indigent 
population.
    We agree with ProPAC that the disproportionate share payments 
should be concentrated on the hospitals in greatest need of assistance.
    Comment: ProPAC indicated that the goal of DSH payments should be 
to protect access to hospital care for Medicare beneficiaries, not 
merely to compensate a hospital for the added costs of treating 
Medicare patients due to the hospital's indigent patient load. To that 
end, ProPAC recommended that the same distribution formula be applied 
to all hospitals, regardless of their size or location. A ProPAC 
simulation of a payment system based on its recommendations showed that 
some payments would be redistributed to rural hospitals (largely 
because the current system imposes a stricter standard for those 
hospitals to qualify for a DSH payment) and to hospitals with large 
shares of uncompensated care costs (because the current system does not 
recognize this important component of the hospital industry's 
commitment to treating indigent patients). This redistribution would be 
appropriate, in ProPAC's view, because it would result in DSH payments 
more closely reflecting the burden borne by hospitals that treat a 
large share of poor patients.
    ProPAC's approach to distributing DSH payments is aimed at ensuring 
that available funds are used to help those hospitals most in need of 
assistance. Accordingly, it is important to reflect all low-income 
hospital care in the variable upon which payments will be based, and 
ProPAC's low-income share measure would capture the costs associated 
with all Medicaid patient days. However, a system based on ProPAC's 
recommendations could be designed to distribute any level of DSH 
funding, and so the inclusion of all Medicaid costs need not have any 
implications for HCFA's overall expenditures. The number of hospitals 
receiving payments can also be determined through the choice of the 
threshold (minimum low-income cost share needed to qualify for a DSH 
payment).
    ProPAC firmly agreed with the Secretary's goal of targeting 
payments to hospitals with the largest shares of low-income patients. 
But this goal can only be achieved through the development of a 
comprehensive and consistently measured low-income share indicator. 
ProPAC's recommended measure reflects all relevant groups of low-income 
patients (low-income Medicare, Medicaid, local indigent care program, 
and uncompensated care patients), measured in a consistent fashion that 
automatically weights each group according to its contribution to the 
hospital's overall patient care costs.
    The Commission believes that including bad debts in its recommended 
measure of low-income costs would not materially weaken the incentive 
to attempt collection on unpaid accounts. For the majority of 
hospitals, the amount of additional DSH payment that might be received 
by foregoing collection efforts would be dwarfed by the amount they 
stand to gain from the patient. These institutions, therefore, can be 
expected to continue their collection efforts. On the other hand, those 
few hospitals with very large low-income shares, rarely serve the type 
of patients among whom aggressive collection would be worthwhile.
    ProPAC believes that the data needed to implement the low-income 
cost share measure it recommends could be obtained by straightforward 
means. Each hospital's low-income patient cost share could be estimated 
by dividing the sum of charges for all low-income patient groups by 
total patient charges. In its simplest form, only five variables would 
need to be collected from each hospital--aggregate charges for: (1) 
patients sponsored by Medicaid, (2) patients sponsored by indigent care 
programs other than Medicaid, (3) Medicare patients, (4) uncompensated 
care, and (5) all patients. Because hospitals currently must use the 
same price schedule for all patients, a measure of low-income charges 
as a percent of total charges would yield reasonable, accurate, and 
comparable estimates of the proportion of costs devoted to treating 
low-income patients across all hospitals.
    Another commenter supported ProPAC's approach to calculating DSH 
payments, and urged HCFA to include both bad debt and uncompensated 
care. This commenter supported HCFA's intention to move away from the 
current DSH formula, which is based on Medicaid and Supplemental 
Security Income eligibility.
    Response: We continue to believe that there are inconsistencies in 
the current Medicare disproportionate share adjustment calculation, 
because Medicaid data varies from State to State. Therefore, we 
continue to be interested in ways to improve the data and the 
calculation to better target those hospitals that treat a 
disproportionate share of indigent patients.
    We are reluctant to include bad debts in the calculation because we 
continue to believe that it provides an incentive for hospitals to 
discontinue their collection efforts. In addition, examination of bad 
debt data has shown no correlation between bad debts and hospitals that 
currently receive some level of a Medicare disproportionate share 
adjustment. In other words, our examination of the data has shown that 
a hospital that currently receives a large Medicare disproportionate 
share adjustment does not necessarily have a correspondingly large 
amount of bad debt.
    We also continue to believe that collection of uncompensated care 
data would be burdensome to both the hospital industry and HCFA and its 
fiscal intermediaries. In addition, as noted in the proposed rule, HCFA 
has no means to verify such data. As we have consistently stated on 
many previous occasions, in order for a data source to be considered 
usable, it must be nationally available and auditable.
    Hospitals should also be aware that a change in the formula will 
almost certainly produce a change in the universe of qualifying 
hospitals and the levels of the adjustments that these hospitals 
receive. We note that section 4403(b) of Public Law 105-33 requires us 
to submit a report to Congress by August 5, 1998 that contains a 
revised DSH formula. In determining this formula, we must do the 
following:

[[Page 46022]]

     Establish a single threshold for costs incurred by 
hospitals in serving low-income patients.
     Consider the costs incurred by the hospital in serving 
both Medicare Part A beneficiaries who receive SSI and Medicaid 
beneficiaries (including those enrolled in managed care organizations) 
who are not entitled to Medicare Part A benefits.

B. Modifying the Tax Equity and Fiscal Responsibility Act (TEFRA) 
Payment System (Recommendation 14)

    Recommendation: Congress should consider modifying the TEFRA 
payment system to correct for the payment disparity between new and old 
providers.
    Response in the Proposed Rule: HCFA has developed legislative 
proposals to modify the TEFRA payment system. Our proposals include 
rebasing the target rates for excluded hospitals and units using an 
average of each facility's two most recent cost reporting periods. This 
measure would realign payment rates with costs for both old and new 
providers. In conjunction with rebasing, the new target rates would be 
capped at 150 percent of a national mean rate for each type of facility 
in order to prevent newer high cost hospitals from receiving excessive 
target rates. Lower cost hospitals would be protected by establishing a 
floor of 70 percent of the national mean rate for each type of 
facility. Incentive payments would be modified by providing that no 
such payment would be made where a provider incurs costs that are less 
than or equal to 110 percent of the target amount. Finally, the 
President's FY 1998 budget proposal would revise the payment of capital 
costs to excluded hospitals and units by reducing reimbursement for 
capital to 85 percent of reasonable costs. TEFRA providers are the only 
hospitals that continue to be reimbursed for capital on a dollar-for-
dollar basis; consequently, they have no incentive to control their 
capital expenditures. This policy would make capital reimbursement 
policy more consistent among all hospitals and provide a needed 
incentive for cost control, particularly for newer excluded hospitals 
and units that may have more resources for capital expenditures because 
they are not as limited by the target rates on inpatient operating 
costs.
    Comment: Based on its analytic framework, ProPAC supported an 
average update of 2.0 percent for prospective payment system-excluded 
facilities. ProPAC believes that imposing the prospective payment 
system update on prospective payment system-excluded facilities is not 
appropriate. Medicare payment policies for specialty hospitals and 
units excluded from the prospective payment system differ from those 
for general acute care hospitals because these provider types 
historically have treated different patient populations. Likewise, the 
financial performance of prospective payment system-excluded providers 
is dissimilar from their prospective payment system counterparts, 
largely because of the underlying payment policy differences. 
Consequently, ProPAC maintains that separate methodologies should be 
used to arrive at appropriate updates.
    Both the Secretary and ProPAC agree that the payment system for 
prospective payment system-excluded providers should be modified to 
correct for the payment disparity between new and old providers. ProPAC 
will continue to monitor the financial performance of providers paid 
under this system.
    Response: We believe that ProPAC's concerns are addressed by 
Section 4411 of Pub. L. 105-33, which amended sections 1886(b)(3) of 
the Act regarding the rate-of-increase percentages. We have discussed 
the statutory changes in section VII of this preamble.

C. Prospective Payment System for Skilled Nursing Facilities (SNFs) 
(Recommendation 19)

    Recommendation: A case-mix adjusted prospective payment system for 
skilled nursing facilities should be implemented as soon as possible.
    Response in the Proposed Rule: We concur with the recommendation to 
implement a prospective payment system for SNFs as soon as possible. 
The President's FY 1998 budget includes a provision for a prospective 
payment system for SNFs to be implemented on July 1, 1998. This system 
will include payment for all costs (routine, ancillary, and capital) 
related to the services furnished to beneficiaries under Medicare Part 
A. By including all costs of services in the payment rates, spending 
growth per day of care can be contained. In addition, the provision 
includes authority to adjust payments to providers where inappropriate 
utilization (that is, excessive lengths of stay) of SNF services is 
found. Finally, the proposed prospective payment system would include 
case-mix adjustments using a resident classification system based on 
resource utilization groups. These resource utilization groups are tied 
to elements contained on the Minimum Data Set (MDS) 2.0 resident 
assessment instrument for nursing homes.
    Comment: ProPAC commended the Secretary's efforts to create a 
prospective payment system for SNF services, and looks forward to 
reviewing HCFA's analyses of resource utilization groups and their 
ability to describe the services provided by SNFs. ProPAC is concerned 
about the incentive created under a per diem payment system for 
facilities to increase length of stay, and believes, therefore, that 
the Secretary should continue efforts to develop a case-mix 
classification system for use with an admission-based payment system. 
In addition, ProPAC believes that the Secretary's efforts to discourage 
inappropriate utilization are particularly important.
    Response: While the significant copayment associated with the 
Medicare SNF benefit ($95.00 per day) acts as a powerful force limiting 
the growth of overall length of stay in SNFs, HCFA is concerned about 
increases in utilization under the new prospective payment system and 
plans to study this issue. In addition, HCFA will continue its efforts 
towards the development of a per diem integrated payment and delivery 
system that applies to all Medicare post-acute services. This type of 
system has the greatest potential for providing system-wide financial 
integrity, while assuring high quality care.

D. Home Health Visit Coding (Recommendation 26)

    Recommendation: Medicare should require consistent home health 
visit coding. Such information is essential for monitoring and 
evaluating the home health benefit and developing an effective case-mix 
adjustment system.
    Response in the Proposed Rule: Currently, there is no standard 
definition of what comprises a visit and there is variation in the type 
of service and length of time for providing those services. We agree 
such information is critical to developing an effective case-mix 
measure for a home health prospective payment system. In the case-mix 
research we are beginning, we will collect information on the length of 
time and procedures performed during a visit. This information will 
feed into the development of a prospective payment system and related 
coding system. We cannot proceed with specific coding refinements until 
the findings are available and a prospective payment system is 
designed. We are researching aspects of that approach rather than 
imposing reporting burdens on all home health agencies.
    Comment: ProPAC indicated that although the Secretary agrees that 
information about home health visit length and content is critical to 
developing an effective case-mix

[[Page 46023]]

measure, she does not want to proceed with specific coding refinements 
until the findings from the case-mix demonstration project are 
available and a prospective payment system is designed.
    ProPAC is concerned that without uniform coding requirements, the 
implementation of a prospective payment system would be further 
delayed. ProPAC notes that there is little information about the types 
of services that are provided during a visit and that the case-mix 
demonstration project should guide coding requirements. Concurrent with 
the research on a prospective payment system, the Commission believes 
it is important to begin gathering basic data about the content of home 
health visits, which would be critical in any efforts to improve the 
payment method. The Medicare Home Health Agency Manual contains a 
series of aggregate code definitions that would capture some detail 
about the services that are provided during a visit. HCFA's Common 
Procedure Coding System (HCPCS) describe some skilled nursing services 
and a range of therapy services. Time increments also could be useful 
in understanding visit duration.
    Response: Section 1895(c) of the Act, as added by section 4603 of 
Public Law 105-33, requires payment information on all claims for home 
health services furnished on or after October 1, 1998. All claims for 
home health services must include a unique physician identifier and a 
code (or codes) specified by the Secretary that identifies the length 
of time of the home health visit as measured in 15 minute increments. 
Since there is no standard definition of what comprises a visit and 
there is variation in the length of time for providing those services, 
the new payment information requirements will provide needed 
information on the length of time required for the provision of home 
health services. Additionally, as discussed in our previous response in 
the August 30, 1996 final rule, a contract was awarded to develop a 
case-mix measurement for a home health prospective payment system. 
Under the terms of this contract, extensive information about the 
characteristics of patients and resource utilization will be collected. 
Information also will be collected about visit lengths and procedures 
performed during all home health visits during an episode of care.

E. Home Health Copayments (Recommendation 27)

    Recommendation: Modest beneficiary copayments, subject to an annual 
limit, should be introduced for home health care services.
    Response in the Proposed Rule: We are concerned about the impact 
that higher beneficiary out-of-pocket expenses would have on poorer 
Medicare beneficiaries who are not covered by Medicaid and cannot 
afford supplemental insurance. Poorer beneficiaries spend a greater 
proportion of their income on out-of-pocket costs. Our proposed interim 
system of limits should help control the growth in service use.
    Comment: The Commission continued to maintain its position that 
copayments for home health services are appropriate. ProPAC believes 
that Medicare beneficiaries who receive home health services should 
participate financially in the payment for those services. Such a 
policy would be consistent with Medicare cost-sharing requirements for 
other services and could result in increased involvement by 
beneficiaries in treatment decisions. Copayments also might limit 
fraudulent billing practices, since beneficiaries could identify 
services for which Medicare was billed but that were never delivered. 
ProPAC recognizes that a copayment policy would have a more direct 
financial impact on beneficiaries who lack Medicaid or supplemental 
coverage. Accordingly, ProPAC believes that the copayment amount should 
be minimal and subject to an annual limit.
    Response: The issue of copayments was thoroughly considered in the 
deliberations over Public Law 105-33 and ultimately not adopted in the 
legislation. We remain concerned about the impact that higher 
beneficiary out-of-pocket costs would have on poorer Medicare 
beneficiaries who are not covered by Medicaid and cannot afford 
supplemental insurance. Our interim system of limits should help 
control the growth in service use.

F. Prospective Payment System for Rehabilitation Hospitals and 
Distinct-Part Units (Recommendation 29)

    Recommendation: A case-mix adjusted prospective payment system for 
rehabilitation hospitals and distinct-part units should be implemented 
as soon as possible.
    Response in the Proposed Rule: We have sponsored research on 
possible patient classification systems for rehabilitation care. In 
particular, a study by the RAND Corporation evaluated the prospects for 
a prospective payment system based on the rehabilitation coding system 
known as Functional Independence Measure (FIM) and the patient 
classification system known as Function-Related Groups (FRGs). The 
final report on this research will soon be complete. However, the 
preliminary results indicate much work would be necessary before a 
prospective payment system based on FRGs could be implemented. There 
are at least two important implementation issues: the reliability of 
the patient status measures and the recognition of patient 
complications and comorbidities. In addition, implementation of a case-
mix payment system for rehabilitation hospitals and units would require 
significant program resources and impose data reporting and collection 
requirements on providers. As a result, fewer resources would be 
available for research into developing an integrated payment approach 
for payment of rehabilitation care across all settings (excluded 
hospitals, SNFs, HHAs, comprehensive outpatient rehabilitation 
facilities, etc.) Thus, we prefer to focus our efforts on developing a 
coordinated payment system for post-acute care that relies on a core 
assessment tool.
    Comment: ProPAC strongly supported coordinating payment methods 
across postacute sites. The Commission believes that a separate 
prospective payment system for rehabilitation hospitals and units could 
be implemented in the near term, however, as an incremental step toward 
a more comprehensive system for all post-acute care services. ProPAC's 
understanding is that most Medicare-certified inpatient rehabilitation 
facilities already collect and use the types of data necessary for the 
FIM or other standardized patient assessment instruments. Therefore, 
reporting these data to HCFA would not be an undue burden on providers.
    Response: Section 4421 of Public Law 105-33 amended section 1886 of 
the Act by adding a new subsection (j), which provides for 
implementation of a prospective case-mix payment system for excluded 
rehabilitation hospitals and units, and begins to phase-in payments 
under that system for cost reporting periods beginning on or after 
October 1, 2000. The case-mix payment system is to be fully implemented 
for cost reporting periods beginning on or after October 1, 2002. We 
will continue to work on developing a prospective payment system for 
rehabilitation hospitals and units consistent with this statutory 
requirement.

G. Prospective Payment System for Long-Term Care Hospitals 
(Recommendation 30)

    Recommendation: A case-mix adjusted prospective payment system for 
long-term care hospitals should be developed and implemented as soon as 
possible.

[[Page 46024]]

    Response in the Proposed Rule: We continually examine data and 
analyze proposals to simplify payment mechanisms and ensure that 
Medicare payments reflect efficient and high quality health care. We 
will be interested in evaluating the results of independent studies on 
case-mix measurement for long-stay hospital patients. At the same time, 
it is evident that many long-term care hospitals furnish extensive 
rehabilitation care that overlaps with care furnished in rehabilitation 
hospitals. Thus, a prospective payment system for postacute care 
providers which includes SNFs and rehabilitation hospitals and units 
could conceivably be used for patients in long-term care hospitals. As 
a result, we have concerns that the development and implementation of a 
separate prospective payment system for fewer than 200 Medicare-
certified, long-term care hospitals may not be an efficient use of 
program resources and may result in overlapping complexity and 
manipulation of payment.
    Comment: ProPAC asserted that a better understanding of long-term 
care hospitals with respect to the types of patients they treat, 
patterns of care, and facility costs would be necessary before these 
providers could be folded into an integrated payment system. ProPAC, 
therefore, believes that the Secretary should begin researching patient 
classification systems and resource use for long-term care hospitals 
soon.
    Response: We will continue to examine data and analyze proposals 
consistent with the requirements of section 4422 of Public Law 105-33. 
This section requires the Secretary to submit a report to Congress not 
later than October 1, 1999, regarding different payment methodologies 
which may be feasible for paying long-term care hospitals under the 
Medicare program.

IX. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have set up a process under which 
commenters can gain access to the raw data on an expedited basis. 
Generally, the data are available in computer tape format or 
cartridges; however, some files are available on diskette, and on the 
Internet at HTTP://WWW.HCFA.GOV/STATS/PUBFILES.HTML. In our June 2 
proposed rule, we published a list of data files that are available for 
purchase (62 FR 29939).

B. Waiver of Notice of Proposed Rulemaking and 30-Day Delay in the 
Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of the rule take effect. However, section 1871(b) of the Act 
provides that publication of a notice of proposed rulemaking is not 
required before a rule takes effect where ``a statute establishes a 
specific deadline for the implementation of the provision and the 
deadline is less than 150 days after the date of the enactment of the 
statute in which the deadline is contained.'' In addition, we may waive 
a notice of proposed rulemaking if we find good cause that notice and 
comment are impracticable, unnecessary, or contrary to the public 
interest.
    On June 2, 1997, we published a proposed rule addressing FY 1998 
payment rates and policies for prospective payment system hospitals and 
excluded hospitals (62 FR 29902). Subsequently, on August 5, 1997, 
Public Law 105-33 was enacted. Public Law 105-33 contains a number of 
provisions relating to issues addressed in the proposed rule, as well 
as issues that were not specifically addressed in the proposed rule. 
These statutory provisions are generally effective October 1, 1997.
    In accordance with section 1871(b) of the Act, publication of a 
notice of proposed rulemaking is not required before implementing the 
statutory provisions of Public Law 105-33 that take effect on October 
1, 1997. In addition, given the extremely short timeframe for 
implementing these statutory provisions, we find good cause to waive 
notice and comment procedures with respect to the provisions of this 
final rule with comment period that implement Public Law 105-33, 
because it would be impracticable to undertake such procedures before 
those provisions take effect. We are, however, providing a 60-day 
period for public comment on those provisions.

C. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on FR documents published for comment, we are not able to 
acknowledge or respond to them individually. Comments on the provisions 
of this final rule that implement provisions of the Balanced Budget Act 
of 1997 will be considered if we receive them by the date specified in 
the DATES section of this preamble. We will not consider comments 
concerning provisions that remain unchanged from the June 2, 1997 
proposed rule or that were changed based on public comments.

List of Subjects

42 CFR Part 400

    Grant programs-health, Health facilities, Health maintenance 
organizations (HMO), Medicaid, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 409

    Health facilities, Medicare.

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Reporting and recordkeeping requirements, Rural 
areas, X-rays.

42 CFR Part 411

    Kidney diseases, Medicare, Recovery against third parties, 
Reporting and recordkeeping requirements, Secondary payments.

42 CFR Part 412

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

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

42 CFR Part 440

    Grant programs--health, Medicaid.

42 CFR Part 485

    Grant programs-health, Health facilities, Medicaid, Medicare, 
Reporting and recordkeeping requirements.

42 CFR Part 488

    Administrative practice and procedure, Forms and guidelines, Health 
facilities, Survey and certification.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 498

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

    42 CFR chapter IV is amended as set forth below:

[[Page 46025]]

PART 400--INTRODUCTION; DEFINITIONS

    A. Part 400 is amended as follows:
    1. The authority citation for Part 400 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh) and 44 U.S.C. Chapter 35.

    2. In Sec. 400.202, the introductory text is republished, the 
definitions of ``Essential access community hospital (EACH)'', 
``Provider'', and ``Services'' are revised, the definition of ``Rural 
primary care hospital (RPCH)'' is removed, and a new definition of 
``Critical access hospital (CAH)'' is added in alphabetical order, to 
read as follows:


Sec. 400.202  Definitions specific to Medicare.

    As used in connection with the Medicare program, unless the context 
indicates otherwise--
* * * * *
    Critical access hospital (CAH) means a facility designated by HFCA 
as meeting the applicable requirements of section 1820 of the Act and 
of subpart F of part 485 of this chapter.
* * * * *
    Essential access community hospital (EACH) means a hospital 
designated by HCFA as meeting the applicable requirements of section 
1820 of the Act and of subpart G of part 412 of this chapter, as in 
effect on September 30, 1997.
* * * * *
    Provider means a hospital, a CAH, a skilled nursing facility, a 
comprehensive outpatient rehabilitation facility, a home health agency, 
or a hospice that has in effect an agreement to participate in 
Medicare, or a clinic, a rehabilitation agency, or a public health 
agency that has in effect a similar agreement but only to furnish 
outpatient physical therapy or speech pathology services, or a 
community mental health center that has in effect a similar agreement 
but only to furnish partial hospitalization services.
* * * * *
    Services means medical care or services and items, such as medical 
diagnosis and treatment, drugs and biologicals, supplies, appliances, 
and equipment, medical social services, and use of hospital, CAH, or 
SNF facilities.
* * * * *

PART 409--HOSPITAL INSURANCE BENEFITS

    B. Part 409 is amended as follows:
    1. The authority citation for Part 409 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart D--Requirements for Coverage of Posthospital SNF Care

    2. In Sec. 409.30, the introductory text of paragraph (a) is 
republished and paragraph (a)(1) is revised to read as follows:


Sec. 409.30  Basic requirements.

* * * * *
    (a) Preadmission requirements. The beneficiary must--
    (1) Have been hospitalized in a participating or qualified hospital 
or participating CAH, for medically necessary inpatient hospital or 
inpatient CAH care, for at least 3 consecutive calendar days, not 
counting the date of discharge; and
* * * * *

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

    C. Part 410 is amended as follows:
    1. The authority citation for Part 410 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh)), unless otherwise noted.

    2. Section 410.2 is amended by revising the definition of 
``Participating'' to read as follows:


Sec. 410.2  Definitions.

* * * * *
    Participating refers to a hospital, CAH, SNF, HHA, CORF, or hospice 
that has in effect an agreement to participate in Medicare; or a 
clinic, rehabilitation agency, or public health agency that has a 
provider agreement to participate in Medicare but only for purposes of 
providing outpatient physical therapy, occupational therapy, or speech 
pathology services; or a CMHC that has in effect a similar agreement 
but only for purposes of providing partial hospitalization services, 
and nonparticipating refers to a hospital, CAH, SNF, HHA, CORF, 
hospice, clinic, rehabilitation agency, public health agency, or CMHC 
that does not have in effect a provider agreement to participate in 
Medicare.
    3. Section 410.152 is amended by revising paragraph (k) to read as 
follows:


Sec. 410.152  Amounts of payment.

* * * * *
    (k) Amount of payment: Outpatient CAH services. Payment for 
critical access hospital outpatient services is the reasonable cost of 
the CAH in providing these services, as determined in accordance with 
section 1861(v)(1)(A) of the Act and with the applicable principles of 
cost reimbursement in part 413 and in part 415 of this chapter. Payment 
for CAH outpatient services is subject to the applicable Medicare Part 
B deductible and coinsurance amounts, as described in Sec. 413.70(b)(3) 
of this chapter.


Sec. 410.155  [Amended]

    4. Section 410.155 is amended by adding the phrase ``; or a 
critical access hospital (CAH) meeting the requirements of Part 485, 
subpart F of this chapter'' at the end of the last sentence of 
paragraph (a); and adding the phrase ``or CAH'' at the end of the last 
sentence of the introductory text of paragraph (b).
    D. 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 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart A--General Provisions

    2. In Sec. 412.2, the introductory text of paragraph (f) is 
republished and paragraph (f)(8) is revised to read as follows:


Sec. 412.2  Basis of payment.

* * * * *
    (f) Additional payments to hospitals. In addition to payments based 
on the prospective payment rates for inpatient operating costs and 
inpatient capital-related costs, hospitals receive payments for the 
following:
* * * * *
    (8) For discharges on or after June 19, 1990, and before October 1, 
1994, and for discharges on or after October 1, 1997, a payment amount 
per unit for blood clotting factor provided to Medicare inpatients who 
have hemophilia.
    3. Section 412.8 is amended by revising paragraph (b) to read as 
follows:


Sec. 412.8  Publication of schedules for determining prospective 
payment rates.

* * * * *
    (b) Annual publication of schedule for determining prospective 
payment rates. (1) HCFA proposes changes in the methods, amounts, and 
factors used to determine inpatient prospective payment rates in a 
Federal Register document published for public comment not later than 
the April 1 before the beginning of the Federal

[[Page 46026]]

fiscal year in which the proposed changes would apply.
    (2) HCFA publishes a Federal Register document setting forth final 
methods, amounts, and factors for determining inpatient prospective 
payment rates not later than the August 1 before the Federal fiscal 
year in which the rates would apply.

Subpart B--Hospital Services Subject to and Excluded From the 
Prospective Payment Systems for Inpatient Operating Costs and 
Inpatient Capital-Related Costs

    4. Section 412.22 is amended by revising paragraph (a) and adding 
new paragraphs (e), (f), and (g), to read as follows:


Sec. 412.22  Excluded hospitals and hospital units: General rules.

    (a) Criteria. Subject to the criteria set forth in paragraph (e) of 
this section, a hospital is excluded from the prospective payment 
systems if it meets the criteria for one or more of the excluded 
classifications described in Sec. 412.23.
* * * * *
    (e) Hospitals within hospitals. Except as provided in paragraph (f) 
of this section, for cost reporting periods beginning on or after 
October 1, 1997, a hospital that occupies space in a building also used 
by another hospital, or in one or more entire buildings located on the 
same campus as buildings used by another hospital, must meet the 
following criteria in order to be excluded from the prospective payment 
system:
    (1) Separate governing body. The hospital has a governing body that 
is separate from the governing body of the hospital occupying space in 
the same building or on the same campus. The hospital's governing body 
is not under the control of the hospital occupying space in the same 
building or on the same campus, or of any third entity that controls 
both hospitals.
    (2) Separate chief medical officer. The hospital has a single chief 
medical officer who reports directly to the governing body and who is 
responsible for all medical staff activities of the hospital. The chief 
medical officer of the hospital is not employed by or under contract 
with either the hospital occupying space in the same building or on the 
same campus or any third entity that controls both hospitals.
    (3) Separate medical staff. The hospital has a medical staff that 
is separate from the medical staff of the hospital occupying space in 
the same building or on the same campus. The hospital's medical staff 
is directly accountable to the governing body for the quality of 
medical care provided in the hospital, and adopts and enforces bylaws 
governing medical staff activities, including criteria and procedures 
for recommending to the governing body the privileges to be granted to 
individual practitioners.
    (4) Chief executive officer. The hospital has a single chief 
executive officer through whom all administrative authority flows, and 
who exercises control and surveillance over all administrative 
activities of the hospital. The chief executive officer is not employed 
by, or under contract with, either the hospital occupying space in the 
same building or on the same campus or any third entity that controls 
both hospitals.
    (5) Performance of basic hospital functions. The hospital meets one 
of the following criteria:
    (i) The hospital performs the basic functions specified in 
Secs. 482.21 through 482.27, 482.30, and 482.42 of this chapter through 
the use of employees or under contracts or other agreements with 
entities other than the hospital occupying space in the same building 
or on the same campus, or a third entity that controls both hospitals. 
Food and dietetic services and housekeeping, maintenance, and other 
services necessary to maintain a clean and safe physical environment 
could be obtained under contracts or other agreements with the hospital 
occupying space in the same building or on the same campus, or with a 
third entity that controls both hospitals.
    (ii) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of patients in 
Sec. 412.23(d)(2) or the length-of-stay criterion in Sec. 412.23(e)(2), 
or for hospitals other than children's or long-term care hospitals, for 
a period of at least 6 months immediately preceding the first cost 
reporting period for which exclusion is sought, the cost of the 
services that the hospital obtained under contracts or other agreements 
with the hospital occupying space in the same building or on the same 
campus, or with a third entity that controls both hospitals, is no more 
than 15 percent of the hospital's total inpatient operating costs, as 
defined in Sec. 412.2(c). For purposes of this paragraph (e)(5)(ii), 
however, the costs of preadmission services are those specified under 
Sec. 413.40(c)(2) rather than those specified under Sec. 412.2(c)(5).
    (iii) For the same period of at least 6 months used to determine 
compliance with the criterion regarding the age of inpatients in 
Sec. 412.23(d)(2) or the length-of-stay criterion in Sec. 412.23(e)(2), 
or for hospitals other than children's or long-term care hospitals, for 
the period of at least 6 months immediately preceding the first cost 
reporting period for which exclusion is sought, the hospital has an 
inpatient population of whom at least 75 percent were referred to the 
hospital from a source other than another hospital occupying space in 
the same building or on the same campus.
    (f) Application for certain hospitals. If a hospital has been 
excluded from the prospective payment systems under this section on or 
before September 30, 1995, the criteria in paragraph (e) of this 
section do not apply to the hospital.
    (g) Definition of control. For purposes of this section, control 
exists if an individual or an organization has the power, directly or 
indirectly, significantly to influence or direct the actions or 
policies of an organization or institution.
    5. Section 412.23 is amended by revising paragraphs (e) and (f) to 
read as follows:


Sec. 412.23  Excluded hospitals: Classifications.

* * * * *
    (e) Long-term care hospitals. A long-term care hospital must meet 
the requirements of paragraphs (e)(1) or (e)(2) of this section, and, 
where applicable, the additional requirements Sec. 412.22(e).
    (1) The hospital must have a provider agreement under part 489 of 
this chapter to participate as a hospital and an average inpatient 
length of stay greater than 25 days as calculated under paragraph 
(e)(3) of this section.
    (2) For cost reporting periods beginning on or after August 5, 
1997, a hospital that was first excluded from the prospective payment 
system under this section in 1986 must have an average inpatient length 
of stay of greater than 20 days, as calculated under paragraph (e)(3) 
of this section, and must demonstrate that at least 80 percent of its 
annual Medicare inpatient discharges in the 12-month cost reporting 
period ending in fiscal year 1997 have a principal diagnosis that 
reflects a finding of neoplastic disease as defined in paragraph 
(f)(1)(iv) of this section.
    (3) The average inpatient length of stay is calculated--
    (i) By dividing the number of total inpatient days (less leave or 
pass days) by the number of total discharges for the hospital's most 
recent complete cost reporting period;
    (ii) If a change in the hospital's average length-of-stay is 
indicated, by the same method for the immediately preceding 6-month 
period; or

[[Page 46027]]

    (iii) If a hospital has undergone a change of ownership (as 
described in Sec. 489.18 of this chapter) at the start of a cost 
reporting period or at any time within the preceding 6 months, the 
hospital may be excluded from the prospective payment system as a long-
term care hospital for a cost reporting period if, for the 6 months 
immediately preceding the start of the period (including time before 
the change of ownership), the hospital has the required average length 
of stay, continuously operated as a hospital, and continuously 
participated as a hospital in Medicare.
    (f) Cancer hospitals--(1) General rule. Except as provided in 
paragraph (f)(2) of this section, if a hospital meets the following 
criteria, it is classified as a cancer hospital and is excluded from 
the prospective payment systems beginning with its first cost reporting 
period beginning on or after October 1, 1989. A hospital classified 
after December 19, 1989, is excluded beginning with its first cost 
reporting period beginning after the date of its classification.
    (i) It was recognized as a comprehensive cancer center or clinical 
cancer research center by the National Cancer Institute of the National 
Institutes of Health as of April 20, 1983.
    (ii) It is classified on or before December 31, 1990, or, if on 
December 19, 1989, the hospital was located in a State operating a 
demonstration project under section 1814(b) of the Act, the 
classification is made on or before December 31, 1991.
    (iii) It demonstrates that the entire facility is organized 
primarily for treatment of and research on cancer (that is, the 
facility is not a subunit of an acute general hospital or university-
based medical center).
    (iv) It shows that at least 50 percent of its total discharges have 
a principal diagnosis that reflects a finding of neoplastic disease. 
(The principal diagnosis for this purpose is defined as the condition 
established after study to be chiefly responsible for occasioning the 
admission of the patient to the hospital. For the purposes of meeting 
this definition, only discharges with ICD-9-CM principal diagnosis 
codes of 140 through 239, V58.0, V58.1, V66.1, V66.2, or 990 will be 
considered to reflect neoplastic disease.)
    (2) Alternative. A hospital that applied for and was denied, on or 
before December 31, 1990, classification as a cancer hospital under the 
criteria set forth in paragraph (f)(1) of this section is classified as 
a cancer hospital and is excluded from the prospective payment systems 
beginning with its first cost reporting period beginning on or after 
January 1, 1991, if it meets the criterion set forth in paragraph 
(f)(1)(i) of this section and the hospital is--
    (i) Licensed for fewer than 50 acute care beds as of August 5, 
1997;
    (ii) Is located in a State that as of December 19, 1989, was not 
operating a demonstration project under section 1814(b) of the Act; and
    (iii) Demonstrates that, for the 4-year period ending on December 
31, 1996, at least 50 percent of its total discharges have a principal 
diagnosis that reflects a finding of neoplastic disease as defined in 
paragraph (f)(1)(iv) of this section.
* * * * *
    6. Section 412.30 is amended by redesignating paragraphs (a) 
through (d) as paragraphs (b) through (e), respectively, and adding a 
new paragraph (a). Redesignated paragraph (b) is further amended by 
redesignating paragraph (b)(4) as paragraph (b)(5), and adding a new 
paragraph (b)(4). The introductory text of redesignated paragraph 
(d)(1) is republished and redesignated paragraph (d)(1)(ii) is revised 
to read as follows:


Sec. 412.30  Exclusion of new rehabilitation units and expansion of 
units already excluded.

    (a) Bed capacity in units. A decrease in bed capacity must remain 
in effect for at least a full 12-month cost reporting period before an 
equal or lesser number of beds can be added to the hospital's licensure 
and certification and considered ``new'' under paragraph (b) of this 
section. Thus, when a hospital seeks to establish a new unit under the 
criteria under paragraph (b) of this section, or to enlarge an existing 
unit under the criteria under paragraph (d) of this section, the 
regional office will review its records on the facility to determine 
whether any beds have been delicensed and decertified during the 12-
month cost reporting period before the period for which the hospital 
seeks to add the beds. To the extent bed capacity was removed from the 
hospital's licensure and certification during that period, that amount 
of bed capacity may not be considered ``new'' under paragraph (b) of 
this section.
    (b) New units.
* * * * *
    (4) If a hospital that has not previously participated in the 
Medicare program seeks exclusion of a rehabilitation unit, it may 
designate certain beds as a new rehabilitation unit for the first full 
12-month cost reporting period that occurs after it becomes a Medicare-
participating hospital. The written certification described in 
paragraph (b)(2) of this section also is effective for any cost 
reporting period of not less than 1 month and not more than 11 months 
occurring between the date the hospital began participating in Medicare 
and the start of the hospital's regular 12-month cost reporting period.
* * * * *
    (d) Expansion of excluded rehabilitation units.
    (1) New bed capacity. The beds that a hospital seeks to add to its 
excluded rehabilitation unit are considered new beds only if--
* * * * *
    (ii) The hospital has obtained approval, under State licensure and 
Medicare certification, for an increase in its hospital bed capacity 
that is greater than 50 percent of the number of beds it seeks to add 
to the unit.
* * * * *

Subpart D--Basic Methodology for Determining Prospective Payment 
Federal Rates for Inpatient Operating Costs

    7. In Sec. 412.63, paragraph (p) is revised, paragraphs (q) through 
(s) are redesignated as paragraphs (u) through (w), respectively, and 
new paragraphs (q) through (t) are added to read as follows:


Sec. 412.63   Federal rates for inpatient operating costs for fiscal 
years after Federal fiscal year 1984.

* * * * *
    (p) Applicable percentage change for fiscal year 1998. The 
applicable percentage change for fiscal year 1998 is 0 percent for 
hospitals in all areas.
    (q) Applicable percentage change for fiscal year 1999. The 
applicable percentage change for fiscal year 1999 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this subchapter) minus 1.9 percentage 
points for hospitals in all areas.
    (r) Applicable percentage change for fiscal year 2000. The 
applicable percentage change for fiscal year 2000 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this chapter) minus 1.8 percentage 
points for hospitals in all areas.
    (s) Applicable percentage change for fiscal years 2001 and 2002. 
The applicable percentage change for fiscal years 2001 and 2002 is the 
percentage increase in the market basket index for prospective payment 
hospitals (as defined in Sec. 413.40(a) of this subchapter) minus 1.1 
percentage points for hospitals in all areas.

[[Page 46028]]

    (t) Applicable percentage change for fiscal year 2003 and for 
subsequent years. The applicable percentage change for fiscal year 2003 
and for subsequent years is the percentage increase in the market 
basket index for prospective payment hospitals (as defined in 
Sec. 413.40(a)) for hospitals in all areas.
* * * * *

Subpart F--Payment for Outlier Cases

    8. Section 412.80 is revised to read as follows:


Sec. 412.80   General provisions.

    (a) Basic rule--(1) Discharges occurring on or after October 1, 
1994 and before October 1, 1997. For discharges occurring on or after 
October 1, 1994, and before October 1, 1997, except as provided in 
paragraph (b) of this section concerning transferring hospitals, HCFA 
provides for additional payment, beyond standard DRG payments, to a 
hospital for covered inpatient hospital services furnished to a 
Medicare beneficiary if either of the following conditions is met:
    (i) The beneficiary's length-of-stay (including days at the SNF 
level of care if a SNF bed is not available in the area) exceeds the 
mean length-of-stay for the applicable DRG by the lesser of the 
following:
    (A) A fixed number of days, as specified by HCFA; or
    (B) A fixed number of standard deviations, as specified by HCFA.
    (ii) The beneficiary's length-of-stay does not exceed criteria 
established under paragraph (a)(1)(i) of this section, but the 
hospital's charges for covered services furnished to the beneficiary, 
adjusted to operating costs and capital costs by applying cost-to-
charge ratios as described in Sec. 412.84(h), exceed the DRG payment 
for the case plus a fixed dollar amount (adjusted for geographic 
variation in costs) as specified by HCFA.
    (2) Discharges occurring on or after October 1, 1997. For 
discharges occurring on or after October 1, 1997, except as provided in 
paragraph (b) of this section concerning transfers, HCFA provides for 
additional payment, beyond standard DRG payments, to a hospital for 
covered inpatient hospital services furnished to a Medicare beneficiary 
if the hospital's charges for covered services, adjusted to operating 
costs and capital costs by applying cost-to-charge ratios as described 
in Sec. 412.84(h), exceed the DRG payment for the case plus a fixed 
dollar amount (adjusted for geographic variation in costs) as specified 
by HCFA.
    (b) Outlier cases in transferring hospitals. HCFA provides cost 
outlier payments to a transferring hospital that does not receive 
payment under Sec. 412.2(b) for discharges specified in 
Sec. 412.4(d)(2), if the hospital's charges for covered services 
furnished to the beneficiary, adjusted to cost by applying a national 
cost/charge ratio, exceed the DRG payment for the case plus a fixed 
dollar amount (adjusted for geographic variation in costs) as specified 
by HCFA, divided by the geometric mean length of stay for the DRG and 
multiplied by the beneficiary's length of stay plus 1 day.
    (c) Publication and revision of outlier criteria. HCFA will issue 
threshold criteria for determining outlier payment in the annual notice 
of the prospective payment rates published in accordance with 
Sec. 412.8(b).


Sec. 412.82   [Amended]

    9. In Sec. 412.82(a), in the first sentence, the word ``If'' is 
removed and the phrase ``For discharges occurring before October 1, 
1997, if'' is added in its place.


Sec. 412.84   [Amended]

    10. In Sec. 412.84, in the first sentence of paragraph (a), the 
reference ``Sec. 412.80(a)(1)(ii)'' is revised to read 
``Sec. 412.80(a)'', and the last sentence of paragraph (g) is removed.


Sec. 412.86   [Amended]

    11. In the introductory text to Sec. 412.86, the word ``If'' is 
removed and the phrase ``For discharges occurring before October 1, 
1997, if'' is added in its place.

Subpart G--Special Treatment of Certain Facilities Under the 
Prospective Payment System for Inpatient Operating Costs

    12. Section 412.90 is amended by redesignating paragraphs (i) and 
(j) as paragraphs (j) and (k), respectively, adding a new paragraph 
(i), and revising newly designated paragraphs (j) and (k), to read as 
follows:


Sec. 412.90   General rules.

* * * * *
    (i) Hospitals that receive an additional update for FYs 1998 and 
1999. For FYs 1998 and 1999, HCFA makes an upward adjustment to the 
standardized amounts for certain hospitals that do not receive indirect 
medical education or disproportionate share payments and are not 
Medicare- dependent, small rural hospitals. The criteria for 
identifying these hospitals are set forth in Sec. 412.107.
    (j) Medicare-dependent, small rural hospitals. For cost reporting 
periods beginning on or after April 1, 1990 and ending before October 
1, 1994, or beginning on or after October 1, 1997 and ending before 
October 1, 2001, HCFA adjusts the prospective payment rates for 
inpatient operating costs determined under subparts D and E of this 
part if a hospital is classified as a Medicare-dependent, small rural 
hospital. Criteria for identifying these hospitals are set forth in 
Sec. 412.108.
    (k) Essential access community hospitals (EACHs). If a hospital was 
designated as an EACH by HCFA as described in Sec. 412.109(a) and is 
located in a rural area as defined in Sec. 412.109(b), HCFA determines 
the prospective payment rate for that hospital, as it does for sole 
community hospitals, under Sec. 412.92(d).
    13. In Sec. 412.96, the introductory text of paragraph (c)(1) is 
revised, paragraph (f) is removed and reserved, and paragraph (g) is 
revised, to read as follows:


Sec. 412.96   Special treatment: Referral centers.

* * * * *
    (c) * * *
    (1) Case-mix index. HCFA sets forth national and regional case-mix 
index values in each year's annual notice of prospective payment rates 
published under Sec. 412.8(b). The methodology HCFA uses to calculate 
these criteria is described in paragraph (g) of this section. The case-
mix index value to be used for an individual hospital in the 
determination of whether it meets the case-mix index criteria is that 
calculated by HCFA from the hospital's own billing records for Medicare 
discharges as processed by the fiscal intermediary and submitted to 
HCFA. The hospital's case-mix index for discharges (not including 
discharges from units excluded from the prospective payment system 
under subpart B of this part) during the most recent Federal fiscal 
year that ended at least one year prior to the beginning of the cost 
reporting period for which the hospital is seeking referral center 
status must be at least equal to--
* * * * *
    (e)-(f) [Reserved]
    (g) Hospital cancellation of referral center status. (1) A hospital 
may at any time request cancellation of its status as a referral center 
and be paid prospective payments per discharge based on the applicable 
rural rate as determined in accordance with Sec. 412.63, as adjusted by 
the hospital's area wage index value.
    (2) The cancellation becomes effective no later than 30 days after 
the date the hospital submits its request.
    (3) If a hospital requests that its referral center status be 
canceled, it may not be reclassified as a referral center unless it 
meets the qualifying criteria set

[[Page 46029]]

forth in paragraph (a) of this section in effect at the time it 
reapplies.
* * * * *
    14. In Sec. 412.105, paragraphs (a) and (d) are revised, paragraph 
(f) is removed, paragraph (g) is redesignated as paragraph (f), and a 
new paragraph (g) is added. In redesignated paragraph (f), paragraph 
(f)(1)(i) introductory text is republished, paragraph (f)(1)(i)(B) is 
revised, paragraph (f)(1)(ii) introductory text is republished and 
paragraph (f)(1)(ii)(C) is revised, paragraph (f)(1)(iv) is revised, 
and a new paragraph (f)(1)(v) is added, to read as follows:


Sec. 412.105   Special treatment: Hospitals that incur indirect costs 
for graduate medical education programs.

* * * * *
    (a) Basic data. HCFA determines the following for each hospital:
    (1) The hospital's ratio of full-time equivalent residents, except 
as limited under paragraph (f) of this section, to the number of beds 
(as determined in paragraph (b) of this section). For a hospital's cost 
reporting periods beginning on or after October 1, 1997, this ratio may 
not exceed the ratio for the hospital's most recent prior cost 
reporting period.
    (2) The hospital's DRG revenue for inpatient operating costs based 
on DRG-adjusted prospective payment rates for inpatient operating 
costs, excluding outlier payments for inpatient operating costs 
determined under subpart F of this part and additional payments made 
under the provisions of Sec. 412.106 .
* * * * *
    (d) Determination of education adjustment factor. Each hospital's 
education adjustment factor is calculated as follows:
    (1) Step one. A factor representing the sum of 1.00 plus the 
hospital's ratio of full-time equivalent residents to beds, as 
determined under paragraph (a)(1) of this section, is raised to an 
exponential power equal to the factor set forth in paragraph (c) of 
this section.
    (2) Step two. The factor derived from step one is reduced by 1.00.
    (3) Step three. The factor derived from completing steps one and 
two is multiplied by `c', and where `c' is equal to the following:
    (i) For discharges occurring on or after October 1, 1988, and 
before October 1, 1997, 1.89.
    (ii) For discharges occurring during fiscal year 1998, 1.72.
    (iii) For discharges occurring during fiscal year 1999, 1.6.
    (iv) For discharges occurring during fiscal year 2000, 1.47.
    (v) For discharges occurring on or after October 1, 2000, 1.35.
* * * * *
    (f) Determining the total number of full-time equivalent residents 
for cost reporting periods beginning on or after July 1, 1991. (1) For 
cost reporting periods beginning on or after July 1, 1991, the count of 
full-time equivalent residents for the purpose of determining the 
indirect medical education adjustment is determined as follows:
    (i) The residents must be enrolled in an approved teaching program. 
An approved teaching program is one that meets one of the following 
requirements:
 * * * * *
    (B) May count towards certification of the participant in a 
specialty or subspecialty listed in the current edition of either of 
the following publications:
    (1) The Directory of Graduate Medical Education Programs published 
by the American Medical Association.
    (2) The Annual Report and Reference Handbook published by the 
American Board of Medical Specialties.
 * * * * *
    (ii) In order to be counted, the resident must be assigned to one 
of the following areas:
 * * * * *
    (C) Effective for discharges occurring on or after October 1, 1997, 
the time spent by a resident in a nonhospital setting in patient care 
activities under an approved medical residency training program is 
counted towards the determination of full-time equivalency if the 
criteria set forth at Sec. 413.86(f)(1)(iii) are met.
 * * * * *
    (iv) Effective for discharges occurring on or after October 1, 
1997, the total number of full-time equivalent residents in the fields 
of allopathic and osteopathic medicine in either a hospital or 
nonhospital setting that meets the criteria listed in paragraph 
(f)(1)(ii) of this section may not exceed the number of such full-time 
equivalent residents in the hospital with respect to the hospital's 
most recent cost reporting period ending on or before December 31, 
1996.
    (v) For a hospital's cost reporting periods beginning on or after 
October 1, 1997, and before October 1, 1998, the total number of full-
time equivalent residents for payment purposes is equal to the average 
of the actual full-time equivalent resident counts (subject to the 
requirements listed in paragraphs (f)(1)(ii)(C) and (f)(1)(iv) of this 
section) for that cost reporting period and the preceding cost 
reporting period. For a hospital's cost reporting periods beginning on 
or after October 1, 1998, the total number of full-time equivalent 
residents for payment purposes is equal to the average of the actual 
full-time equivalent resident count (subject to the requirements listed 
in paragraphs (f)(10)(ii)(C) and (f)(1)(iv) of this section) for that 
cost reporting period and the preceding two cost reporting periods.
 * * * * *
    (g) Indirect medical education payment for managed care enrollees. 
For portions of cost reporting periods beginning on or after January 1, 
1998, a payment is made to a hospital for indirect medical education 
costs, as determined under paragraph (e) of this section, for 
discharges associated with individuals who are enrolled under a risk-
sharing contract with an eligible organization under section 1876 of 
the Act or with a Medicare+Choice organization under title XVIII, Part 
C of the Act during the period.
    15. Section 412.106 is amended by revising paragraphs (a)(2) and 
(d)(1) and adding a new paragraph (e) to read as follows:


Sec. 412.106  Special treatment: Hospitals that serve a 
disproportionate share of low-income patients.

    (a) General considerations. * * *
 * * * * *
    (2) The payment adjustment is applied to the hospital's DRG revenue 
for inpatient operating costs based on DRG-adjusted prospective payment 
rates for inpatient operating costs, excluding outlier payments for 
inpatient operating costs under subpart F of this part and additional 
payments made under the provisions of Sec. 412.105.
 * * * * *
    (d) Payment adjustment.
    (1) Method of adjustment. Subject to the reduction factor set forth 
in paragraph (e) of this section, if a hospital serves a 
disproportionate number of low-income patients, its DRG revenues for 
inpatient operating costs are increased by an adjustment factor as 
specified in paragraph (d)(2) of this section.
 * * * * *
    (e) Reduction in payments for FYs 1998 through 2002. The amounts 
otherwise payable to a hospital under paragraph (d) of this section are 
reduced by the following:
    (1) For FY 1998, 1 percent.
    (2) For FY 1999, 2 percent.
    (3) For FY 2000, 3 percent.
    (4) For FY 2001, 4 percent.
    (5) For FY 2002, 5 percent.
    (6) For FYs 2003 and thereafter, 0 percent.
    16. A new Sec. 412.107 is added to read as follows:

[[Page 46030]]

Sec. 412.107  Special treatment: Hospitals that receive an additional 
update for FYs 1998 and 1999.

    (a) Additional payment update. A hospital that meets the criteria 
set forth in paragraph (b) of this section receives the following 
increase to its applicable percentage amount set forth in Sec. 412.63 
(p) and (q):
    (1) For FY 1998, 0.5 percent.
    (2) For FY 1999, 0.3 percent.
    (b) Criteria for classification. A hospital is eligible for the 
additional payment update set forth in paragraph (a) of this section if 
it meets all of the following criteria:
    (1) Definition. The hospital is not a Medicare-dependent, small 
rural hospital as defined in Sec. 412.108(a) and does not receive any 
additional payment under the following provisions:
    (i) The indirect medical education adjustment made under 
Sec. 412.105.
    (ii) The disproportionate share adjustment made under Sec. 412.106.
    (2) State criteria. The hospital is located in a State in which the 
aggregate payment made under Sec. 412.112 (a) and (c) for hospitals 
described in paragraph (b)(1) of this section for their cost reporting 
periods beginning in FY 1995 is less than the allowable operating costs 
described in Sec. 412.2(c) for those hospitals.
    (3) Hospital criteria. The aggregate payment made to the hospital 
under Sec. 412.112 (a) and (c) for the hospital's cost reporting period 
beginning in the fiscal year in which the additional payment update 
described in paragraph (a) of this section is made is less than the 
allowable operating cost described in Sec. 412.2(c) for that hospital.
    17. In Sec. 412.108 paragraph (a)(1) is revised, the introductory 
text of paragraphs (c) and (c)(2) are republished, and the introductory 
text of paragraph (c)(2)(ii) is revised to read as follows:


Sec. 412.108  Special treatment: Medicare-dependent, small rural 
hospitals.

    (a) Criteria for classification as a Medicare-dependent, small 
rural hospital.
    (1) General considerations. For cost reporting periods beginning on 
or after April 1, 1990 and ending before October 1, 1994, or beginning 
on or after October 1, 1997 and ending before October 1, 2001, a 
hospital is classified as a Medicare-dependent, small rural hospital if 
it is located in a rural area (as defined in Sec. 412.63(b)) and meets 
all of the following conditions:
 * * * * *
    (c) Payment methodology. A hospital that meets the criteria in 
paragraph (a) of this section is paid for its inpatient operating costs 
the sum of paragraphs (c)(1) and (c)(2) of this section.
 * * * * *
    (2) The amount, if any, determined as follows:
 * * * * *
    (ii) For discharges occurring during any subsequent cost reporting 
period (or portion thereof) and before October 1, 1994, and for 
discharges occurring on or after October 1, 1997 and before October 1, 
2001, 50 percent of the amount that the Federal rate determined under 
paragraph (c)(1) of this section is exceeded by the higher of the 
following:
 * * * * *
    18. In Sec. 412.109, paragraph (a) is revised, paragraphs (c) and 
(d) are removed, paragraphs (e), (f), and (g) are redesignated as 
paragraphs (c), (d), and (e), respectively, and redesignated paragraphs 
(c)(3)(ii), (d), and (e) are revised to read as follows:


Sec. 412.109   Special treatment: Essential access community hospitals 
(EACHs).

    (a) General rule. For payment purposes, HCFA treats as a sole 
community hospital any hospital that is located in a rural area as 
described in paragraph (b) of this section and that HCFA designated as 
an EACH under section 1820(i)(1) of the Act as in effect on September 
30, 1997, for as long as the hospital continues to comply with the 
terms, conditions, and limitations that were applicable at the time 
HCFA designated the hospital as an EACH. The payment methodology for 
sole community hospitals is set forth at Sec. 412.92(d).
 * * * * *
    (c) Adjustment to the hospital-specific rate for rural EACHs 
experiencing increased costs.
 * * * * *
    (3) Intermediary recommendation. * * *
    (ii) The intermediary's analysis and recommendation of the request.
 * * * * *
    (d) Termination of EACH designation. If HCFA determines that a 
hospital no longer complies with the terms, conditions, and limitations 
that were applicable at the time HCFA designated the hospital as an 
EACH, HCFA will terminate the EACH designation of the hospital, 
effective with discharges occurring on or after 30 days after the date 
of the determination.
    (e) Review of HCFA determination. A determination by HCFA that a 
hospital's EACH designation should be terminated, is subject to review 
under part 405, subpart R of this chapter, including the time limits 
for filing requests for hearings as specified in Secs. 405.1811(a) and 
405.1841(a)(1) and (b) of this chapter.

Subpart H--Payment to Hospitals Under the Prospective Payment 
Systems

    19. Section 412.115 is amended by revising paragraph (b) to read as 
follows:


Sec. 412.115  Additional payments.

* * * * *
    (b) Administration of blood clotting factor. For discharges 
occurring on or after June 19, 1990, and before October 1, 1994, and 
for discharges occurring on or after October 1, 1997, an additional 
payment is made to a hospital for each unit of blood clotting factor 
furnished to a Medicare inpatient who is a hemophiliac.
* * * * *

Subpart K--Prospective Payment System for Inpatient Operating Costs 
for Hospitals Located in Puerto Rico

    20. Section 412.204 is revised to read as follows:


Sec. 412.204   Payment to hospitals located in Puerto Rico.

    (a) FY 1988 through FY 1997. For discharges occurring on or after 
October 1, 1997, payments for inpatient operating costs to hospitals 
located in Puerto Rico that are paid under the prospective payment 
system are equal to the sum of--
    (1) 75 percent of the Puerto Rico prospective payment rate for 
inpatient operating costs, as determined under Sec. 412.208 or 
Sec. 412.210; and
    (2) 25 percent of a national prospective payment rate for inpatient 
operating costs, as determined under Sec. 412.212.
    (b) FY 1998 and thereafter. For discharges occurring on or after 
October 1, 1997, payments for inpatient operating costs to hospitals 
located in Puerto Rico that are paid under the prospective payment 
system are equal to the sum of--
    (1) 50 percent of the Puerto Rico prospective payment rate for 
inpatient operating costs, as determined under Sec. 412.208 or 
Sec. 412.210; and
    (2) 50 percent of a national prospective payment rate for inpatient 
operating costs, as determined under Sec. 412.212.


Sec. 412.210   [Amended]

    21. In Sec. 412.210(e), the phrase ``the national average hospital 
wage level'' is revised to read ``the Puerto Rico average hospital wage 
level''.

[[Page 46031]]

Subpart L--The Medicare Geographic Classification Review Board

    22. Section 412.230 is amended by revising paragraphs (a)(5)(ii), 
(e)(1) introductory text, and (e)(1)(iv)(B) and adding new paragraphs 
(e)(3) and (e)(4), to read as follows:


Sec. 412.230  Criteria for an individual hospital seeking redesignation 
to another rural area or an urban area.

    (a) * * *
    (5) * * *
    (ii) For redesignations effective in fiscal years 1997 and 1998 and 
2002 and thereafter, a hospital may not be redesignated for purposes of 
the standardized amount if the area to which the hospital seeks 
redesignation does not have a higher standardized amount than the 
standardized amount the hospital currently receives.
 * * * * *
    (e) Use of urban or other rural area's wage index.--(1) Criteria 
for use of area's wage index. Except as provided in paragraphs (e)(3) 
and (e)(4) of this section, to use an area's wage index, a hospital 
must demonstrate the following:
* * * * *
    (iv) One of the following conditions apply:
* * * * *
    (B) For redesignations effective before fiscal year 1999, the 
hospital's average hourly wage weighted for occupational categories is 
at least 90 percent of the average hourly wages of hospitals in the 
area to which it seeks redesignation.
* * * * *
    (3) Rural referral center exception. If a hospital is a rural 
referral center, it does not have to demonstrate that it meets the 
criterion set forth in paragraph (e)(1)(iii) of this section concerning 
its average hourly wage.
    (4) Special dominating hospital exception. The requirements of 
paragraph (e)(1)(i) and (e)(1)(iii) of this section do not apply if a 
hospital meets the following criteria:
    (i) Its average hourly wage is at least 108 percent of the average 
hourly wage of all other hospitals in the area in which the hospital is 
located.
    (ii) It pays at least 40 percent of the adjusted uninflated wages 
in the MSA.
    (iii) It was approved for redesignation under this paragraph (e) 
for each year from fiscal year 1992 through fiscal year 1997.
    23. Section 412.232 is amended by revising paragraph (c)(2) to read 
as follows:


Sec. 412.232  Criteria for all hospitals in a rural county seeking 
urban redesignation.

* * * * *
    (c) Wage criteria. * * *
    (2) Aggregate hourly wage weighted for occupational mix. For 
redesignations effective before fiscal year 1999, the aggregate hourly 
wage for all hospitals in the rural county, weighted for occupational 
categories, is at least 90 percent of the average hourly wage in the 
adjacent urban area.
* * * * *
    24. Section 412.234 is amended by revising paragraph (b)(2) to read 
as follows:


Sec. 412.234  Criteria for all hospitals in an urban county seeking 
redesignation to another urban area.

* * * * *
    (b) Wage criteria. * * *
    (2) Aggregate hourly wage weighted for occupational mix. For 
redesignations effective before fiscal year 1999, the aggregate average 
hourly wage for all hospitals in the county, weighted for occupational 
categories, is at least 90 percent of the average hourly wage in the 
adjacent urban area.
* * * * *
    25. In Sec. 412.256, paragraphs (a)(2) and (c)(1) are revised to 
read as follows:


Sec. 412.256  Application requirements.

    (a) * * *
    (2) A complete application must be received not later than the 
first day of the month preceding the Federal fiscal year for which 
reclassification is requested.
* * * * *
    (c) Opportunity to complete a submitted application. (1) The MGCRB 
will review an application within 15 days of receipt to determine if 
the application is complete. If the MGCRB determines that an 
application is incomplete, the MGCRB will notify the hospital, with a 
copy to HCFA, within the 15 day period, that it has determined that the 
application is incomplete and may dismiss the application if a complete 
application is not filed by September 1 .
* * * * *
    26. Section 412.274 is amended by revising paragraph (b) to read as 
follows:


Sec. 412.274  Scope and effect of an MGCRB decision.

* * * * *
    (b) Effective date and term of the decision. Any classification 
change is effective for one year beginning with discharges occurring on 
the first day (October 1) of the second Federal fiscal year following 
the Federal fiscal year in which the complete application is filed and 
ending effective at the end of that Federal fiscal year (the end of the 
next September 30).
* * * * *

Subpart M--Prospective Payment System for Inpatient Hospital 
Capital Costs

    27. Section 412.308 is amended by adding new paragraphs (b)(4) and 
(b)(5) to read as follows:


Sec. 412.308  Determining and updating the Federal rate.

* * * * *
    (b) Standard Federal rate. * * *
    (4) Effective FY 1998, the unadjusted standard Federal capital 
payment rate in effect on September 30, 1997, used to determine the 
Federal rate each year under paragraph (c) of this section is reduced 
by 15.68 percent.
    (5) For discharges occurring on or after October 1, 1997 through 
September 30, 2002, the unadjusted standard Federal capital payment 
rate as in effect on September 30, 1997, used to determine the Federal 
rate each year under paragraph (c) of this section is further reduced 
by 2.1 percent.
* * * * *
    28. Section 412.328 is amended by revising paragraph (e)(4) and 
adding new paragraphs (e)(5) and (e)(6) to read as follows:


Sec. 412.328  Determining and updating the hospital-specific rate.

* * * * *
    (e) Hospital-specific rate. * * *
    (4) Payment for transfer cases. Effective FY 1996, the intermediary 
reduces the updated amount determined in paragraph (d) of this section 
by 0.28 percent to account for the effect of the revised policy for 
payment of transfers under Sec. 412.4(d).
    (5) Reduction of rate: FY 1998. Effective FY 1998, the unadjusted 
hospital-specific rate as in effect on September 30, 1997 described in 
paragraph (e)(1) of this section is reduced by 15.68 percent.
    (6) Reduction of rate: FY 1998 through FY 2002. For discharges 
occurring on or after October 1, 1997 through September 30, 2002, the 
unadjusted hospital-specific rate in effect on September 30, 1997, 
described in paragraph (e)(1) of this section is further reduced by 2.1 
percent.
* * * * *
    29. Section 412.348 is amended by revising paragraph (c)(2) to read 
as follows:


Sec. 412.348  Exception payments.

* * * * *

[[Page 46032]]

    (c) Minimum payment level by class of hospital.
* * * * *
    (2) When it is necessary to adjust the minimum payment levels set 
by class of hospitals specified in paragraphs (c)(1)(i) and (g)(6) of 
this section, HCFA will adjust those levels for each class of hospitals 
in one percentage point increments as necessary to satisfy the 
requirement specified in paragraph (h) of this section that total 
estimated payments under the exception process not exceed 10 percent of 
the total estimated capital prospective payments (exclusive of hold-
harmless payments for old capital) for the same fiscal year.
* * * * *
    30. Section 412.374 is revised to read as follows:


Sec. 412.374  Payments to hospitals located in Puerto Rico.

    (a) Payments for capital-related costs to hospitals located in 
Puerto Rico that are paid under the prospective payment system are 
equal to the sum of the following:
    (1) 50 percent of a Puerto Rico capital rate based on data from 
Puerto Rico hospitals only, which is determined in accordance with 
procedures for developing the Federal rate; and
    (2) 50 percent of the Federal rate, as determined under 
Sec. 412.308.
    (b) Effective for fiscal year 1998, the Puerto Rico capital rate 
described in paragraph (a) of this section in effect on September 30, 
1997, is reduced by 15.68 percent.
    (c) For discharges occurring on or after October 1, 1997 through 
September 30, 2002, the Puerto Rico capital rate described in paragraph 
(a) of this section in effect on September 30, 1997 is further reduced 
by 2.1 percent.
    E. Part 413 is amended as set forth below:

PART 416--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

    1. The authority citation for Part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social 
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).

    2. Section 413.1 is amended by revising paragraph (a)(1)(ii)(G) to 
read as follows:


Sec. 413.1  Introduction.

    (a) * * *
    (ii) * * *
    (G) Section 1834(g) of the Act provides that payment for critical 
access hospital (CAH) outpatient services is the reasonable costs of 
the CAH in providing these services, as determined in accordance with 
section 1861(v)(1)(A) of the Act and the applicable principles of cost 
reimbursement in this part and in part 415 of this chapter.
* * * * *


Sec. 413.13  [Amended]

    3. In Sec. 413.13, paragraph (c)(2)(iv) is removed.
    4. Section 413.40 is amended by adding new paragraphs (b)(1)(iv) 
and (b)(1)(v); revising paragraph (c)(3)(vi) and adding new paragraphs 
(c)(3)(vii) and (c)(3)(viii); revising paragraph (c)(4); revising 
paragraphs (d)(2) and (d)(3) and adding new paragraphs (d)(4)and 
(d)(5); revising paragraphs (f)(1), (f)(2), (g)(1), and (g)(5); and 
adding a new paragraph (j), to read as follows:


Sec. 413.40  Ceiling on the rate of increase in hospital inpatient 
costs.

* * * * *
    (b) Cost reporting periods subject to the rate-of-increase ceiling. 
(1) * * *
    (iv) Request for rebased target amount for the cost reporting 
period beginning on or after October 1, 1997 and on or before September 
30, 1998. Except for qualified long-term care hospitals as defined in 
paragraph (b)(1)(v) of this section, each hospital or unit under 
present or previous ownership that received payment under section 
1886(b) of the Act during cost reporting periods beginning before 
October 1, 1990, may submit a request to its fiscal intermediary to 
rebase its target amount. The request must be received by the fiscal 
intermediary by the later of November 1, 1997 or 60 days before the 
beginning of its cost reporting period beginning during fiscal year 
1998. The rebased target amount for the cost reporting period beginning 
during fiscal year 1998 is determined as follows:
    (A) Determine the hospital's inpatient operating costs per case for 
each of the five most recent settled cost reports as of August 5, 1997.
    (B) For each of the five cost reports, update the operating costs 
per case by the applicable update factors up to the hospital's cost 
reporting period beginning during FY 1998.
    (C) Exclude the highest and lowest of the five updated amounts 
determined under paragraph (b)(1)(iv)(B) of this section.
    (D) Compute the average for the remaining three updated amounts for 
operating cost per case.
    (v) Request by qualified long-term care hospital. A qualified long-
term care hospital may file a request to its fiscal intermediary for a 
rebased FY 1998 target amount. The request must be received by the 
fiscal intermediary by the later of November 1, 1997 or 60 days before 
the beginning of its cost reporting period beginning during fiscal year 
1998. The rebased FY 1998 target amount is the hospital's FY 1996 
inpatient operating costs updated to FY 1997. A qualified long-term 
care hospital means a long-term care hospital that meets the following 
two conditions for its two most recent settled cost reports as of 
August 5, 1997:
    (A) Its Medicare inpatient operating costs exceed 115 percent of 
the ceiling.
    (B) The hospital would have had a disproportionate patient 
percentage (as defined in Sec. 412.106) equal to or greater than 70 
percent if it were a prospective payment hospital.
* * * * *
    (c) Costs subject to the ceiling.
* * * * *
    (3) Rate-of-increase percentages and update factors. * * *
    (vi) Federal fiscal year 1998. The applicable rate-of-increase 
percentage for cost reporting periods beginning on or after October 1, 
1997 is 0 percent.
    (vii) Federal fiscal year 1999 through Federal fiscal year 2002. 
The applicable rate-of-increase percentage for cost reporting periods 
beginning on or after October 1, 1998, and before October 1, 2002, 
based on data from the most recent available cost report, is:
    (A) The percentage increase in the market basket, if inpatient 
operating costs are equal to or exceed the ceiling amount by 10 percent 
or more of the ceiling.
    (B) The percentage increase in the market basket minus .25 
percentage points for each percentage point by which inpatient 
operating costs are less than 10 percent over the ceiling (but not less 
than 0), if inpatient operating costs exceed the ceiling by less than 
10 percent of the ceiling.
    (C) The greater of the percentage increase in the market basket 
minus 2.5 percentage points or 0 percent, if inpatient operating costs 
are equal to or less than the ceiling but greater than 66.7 percent of 
the ceiling.
    (D) 0 percent, if inpatient operating costs do not exceed 66.7 
percent of the ceiling.
    (viii) Federal fiscal year 2003 and following. The applicable rate-
of-increase percentage for cost reporting periods beginning on or after 
October 1, 2002, is the percentage increase projected by the hospital 
market basket index.

[[Page 46033]]

    (4) Target amount. The intermediary will establish a target amount 
for each hospital. The target amount for a cost reporting period is 
determined as follows:
    (i) Except as provided in paragraph (c)(4)(iv) of this section, and 
subject to the provisions of paragraph (c)(4)(iii) of this section, for 
the first cost reporting period to which this ceiling applies, the 
target amount equals the hospital's allowable net inpatient operating 
costs per case for the hospital's base period increased by the update 
factor for the subject period.
    (ii) Subject to the provisions of paragraph (c)(4)(iii) of this 
section, for subsequent cost reporting periods, the target amount 
equals the hospital's target amount for the previous cost reporting 
period increased by the update factor for the subject cost reporting 
period, unless the provisions of paragraph (c)(5)(ii) of this section 
apply.
    (iii) In the case of a psychiatric hospital or unit, rehabilitation 
hospital or unit, or long term care hospital, the target amount may not 
exceed--
    (A) For cost reporting periods beginning during fiscal year 1998, 
the 75th percentile of target amounts for hospitals in the same class 
(psychiatric hospital or unit, rehabilitation hospital or unit, or long 
term care hospital) for cost reporting periods ending during FY 1996, 
increased by the applicable market basket percentage up to the first 
cost reporting period beginning on or after October 1, 1997.
    (B) For cost reporting periods beginning during FYs 1999 through 
2002, the amount determined under paragraph (c)(4)(iii)(A) increased by 
the market basket percentage increase up through the subject period, 
subject to paragraph (c)(4)(iv) of this section.
    (iv) In the case of a hospital that received payments under 
paragraph (f)(2)(ii) of this section, for purposes of determining the 
hospital's target amount for the hospital's third 12-month cost 
reporting period, the target amount for the preceding cost reporting 
period is equal to the amount determined under paragraph (f)(2)(ii)(A) 
of this section.
* * * * *
    (d) Application of the target amount in determining the amount of 
payment. * * *
    (2) Net inpatient operating costs are less than or equal to the 
ceiling. For cost reporting periods beginning on or after October 1, 
1997, if a hospital's allowable net inpatient operating costs do not 
exceed the hospital's ceiling, payment to the hospital will be 
determined on the basis of the lower of the--
    (i) Net inpatient operating costs plus 15 percent of the difference 
between inpatient operating costs and the ceiling; or
    (ii) Net inpatient operating costs plus 2 percent of the ceiling.
    (3) Net inpatient operating costs are greater than the ceiling. For 
cost reporting periods beginning on or after October 1, 1997--
    (i) If a hospital's allowable net inpatient operating costs do not 
exceed 110 percent of the ceiling (or the adjusted ceiling, if 
applicable), payment will be the ceiling (or the adjusted ceiling, if 
applicable);
    (ii) If a hospital's allowable net inpatient operating costs are 
greater than 110 percent of the ceiling (or the adjusted ceiling, if 
applicable), payment will be the ceiling (or the adjusted ceiling, if 
applicable) plus the lesser of:
    (A) 50 percent of the allowable net inpatient operating costs in 
excess of 110 percent of the ceiling (or the adjusted ceiling, if 
applicable); or
    (B) 10 percent of the ceiling (or the adjusted ceiling, if 
applicable).
    (4) Continuous improvement bonus payments. For cost reporting 
periods beginning on or after October 1, 1997, eligible hospitals (as 
defined in paragraph (d)(5) of this section) receive payments in 
addition to those in paragraph (d)(2) of this section, as applicable. 
These payments are equal to the lesser of--
    (i) 50 percent of the amount by which the operating costs are less 
than the expected costs for the period; or
    (ii) 1 percent of the ceiling.
    (5) Eligibility requirements for continuous improvement bonus 
payments. To qualify, a hospital must have been paid as a prospective 
payment excluded hospital for at least three full cost reporting 
periods prior to the applicable period, and the hospital's operating 
costs per discharge for the period must be less than the least of the 
following:
    (i) The hospital's target amount.
    (ii) The hospital's trended costs.
    (A) For a hospital for which its cost reporting period ending 
during fiscal year 1996 was its third or subsequent full cost reporting 
period, trended costs are the lesser of the allowable inpatient 
operating costs per discharge or the target amount for the cost 
reporting period ending in fiscal year 1996, increased in a compounded 
manner for each succeeding fiscal year by the market basket percentage 
increase;
    (B) For all other hospitals, trended costs are the allowable 
inpatient operating costs per discharge for its third full cost 
reporting period increased in a compounded manner for each succeeding 
fiscal year by the market basket increase.
    (iii) The hospital's expected costs. The hospital's expected costs 
are the lesser of its allowable inpatient operating costs per discharge 
or the target amount for the previous cost reporting period, updated by 
the market basket percentage increase for the fiscal year.
* * * * *
    (f) Comparison to the target amount for new hospitals and units--
(1) New hospitals and units--(i) New hospitals. For purposes of this 
section, a new hospital is a provider of hospital inpatient services 
that--
    (A) Has operated as the type of hospital for which HCFA granted it 
approval to participate in the Medicare program, under present or 
previous ownership (or both), for less than 2 full years; and
    (B) Has provided the type of hospital inpatient services for which 
HCFA granted it approval to participate in the Medicare program, for 
less than 2 years.
    (ii) New units. A newly established unit that is excluded from the 
prospective payments system under the provisions of Secs. 412.25 
through 412.30 of this chapter does not qualify for the exemption 
afforded to a new hospital under paragraph (f)(2)(i) of this section 
unless the unit is located in an acute care hospital that, if it were 
subject to the provisions of this section, would qualify as a new 
hospital under paragraph (f)(1)(i) of this section.
    (2) Comparison--(i) Exemptions. (A) A new children's hospital is 
exempt from the rate-of-increase ceiling imposed under this section. 
The exemption begins when the hospital accepts its first patient and 
ends at the end of the first cost reporting period ending at least 2 
years after the hospital accepts its first patient. The first cost 
reporting period of at least 12 months beginning at least 1 year after 
the hospital accepts its first patient is the base year, in accordance 
with paragraph (b) of this section.
    (B) Within 180 days of the date a hospital is excluded from the 
prospective payment system, the intermediary determines whether the 
hospital is exempt from the rate-of-increase ceiling. The intermediary 
notifies the hospital of its determination and the hospital's base 
period.
    (C) A decision issued under paragraph (f)(2)(ii)(B) of this section 
is considered final unless the hospital submits additional information 
and requests a review of the decision no later than 180 days after the 
date on the intermediary's notice of the decision. The final

[[Page 46034]]

decision is subject to review under subpart R of part 405 of this 
chapter, provided the hospital has received a notice of program 
reimbursement (NPR) for the cost reporting period in question and the 
NPR does not reflect an exemption (see the definitions in 
Sec. 405.1801(a) of this chapter and the provisions regarding a 
provider's right to a Board hearing in Sec. 405.1835 of this chapter).
    (ii) Median target amount. (A) For cost reporting periods beginning 
on or after October 1, 1997, the amount of payment for a new 
psychiatric hospital or unit, a new rehabilitation hospital or unit, or 
a new long-term care hospital that was not paid as an excluded hospital 
prior to October 1, 1997, is the lower of the hospital's net inpatient 
operating costs per case or 110 percent of the national median of the 
target amounts for the class of excluded hospitals and units 
(psychiatric, rehabilitation, long-term care) as adjusted and updated. 
This methodology applies to the hospital's first two 12-month cost 
reporting periods.
    (B) The national median of the target amounts is the FY 1996 median 
target amount--
    (1) Adjusted to account for differences in area wage levels;
    (2) Updated by the market basket percentage increase to the fiscal 
year in which the hospital first received payments as an excluded 
provider.
 * * * * *
    (g) Adjustments.--(l) General rule. HCFA may adjust the amount of 
the operating costs considered in establishing the rate-of-increase 
ceiling for one or more cost reporting periods, including both periods 
subject to the ceiling and the hospital's base period, under the 
circumstances specified below. When an adjustment is requested by the 
hospital, HCFA makes an adjustment only to the extent that the 
hospital's operating costs are reasonable, attributable to the 
circumstances specified separately identified by the hospital, and 
verified by the intermediary. HCFA may grant an adjustment requested by 
the hospital only if a hospital's operating costs exceed the rate-of-
increase ceiling imposed under this section. The amount of payment made 
to a hospital after an adjustment under paragraph (g) of this section 
is based on the difference between the hospital's operating costs and 
110 percent of the ceiling.
* * * * *
    (5) Adjustment limitations. For cost reporting periods beginning on 
or after October 1, 1993, and before October 1, 2003, the payment 
reductions under paragraph (c)(3)(v) through (c)(3)(vii) of this 
section will not be considered when determining adjustments under this 
paragraph.
* * * * *
    (j) Reduction to capital-related costs. For psychiatric hospitals 
and units, rehabilitation hospitals and units, and long-term hospitals, 
the amount otherwise payable for capital-related costs is reduced by 15 
percent for portions of cost reporting periods occurring on or after 
October 1, 1997, through September 30, 2002.
    5. Section 413.70 is revised to read as follows:


Sec. 413.70  Payment for services of a CAH.

    Payment for inpatient and outpatient services of a CAH is the 
reasonable costs of the CAH in providing such services, as determined 
in accordance with section 1861(v)(1)(A) of the Act and the applicable 
principles of cost reimbursement in this part and in part 415 of this 
chapter.

Subpart F--Specific Categories of Costs

    6. In Sec. 413.86, the introductory text of paragraph (b) is 
republished, paragraph (b) is amended by adding the definition of 
``Affiliated group'' in alphabetical order, paragraph (d)(3) is 
redesignated as paragraph (d)(5) and redesignated paragraph (d)(5) is 
revised, new paragraphs (d)(3) and (d)(4) are added, paragraph 
(e)(4)(i)(B) is revised, the introductory text of paragraph (g)(1) is 
amended by adding a sentence to the end, and new paragraphs (g)(4), 
(g)(5), (g)(6) and (g)(7) are added, to read as follows:


Sec. 413.86  Direct graduate medical education payments.

* * * * *
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    Affiliated group means two or more hospitals located in the same 
geographic wage area (as that term is used under part 412 of this 
subchapter for the prospective payment system) in which individual 
residents work at each of the hospitals seeking to be treated as an 
affiliated group during the course of the approved program; or, if the 
hospitals are not located in the same geographic wage area, the 
hospitals are jointly listed as major participating institutions for 
one or more programs as that term is used in Graduate Medical Education 
Directory, 1997-1998.
* * * * *
    (d) Calculating payment for graduate medical education costs. * * *
    (3) Step three. For portions of cost reporting periods beginning on 
or after January 1, 1998, the product derived in step one is multiplied 
by the proportion of the hospital's inpatient days attributable to 
individuals who are enrolled under a risk-sharing contract with an 
eligible organization under section 1876 of the Act and who are 
entitled to Medicare Part A or with a Medicare+Choice organization 
under Title XVIII, Part C of the Act. This amount is multiplied by an 
applicable payment percentage equal to--
    (i) 20 percent for 1998;
    (ii) 40 percent for 1999;
    (iii) 60 percent in 2000;
    (iv) 80 percent in 2001; and
    (v) 100 percent in 2002 and subsequent years.
    (4) Step four. Add the results of steps 2 and 3.
    (5) Step five. The product derived in step two is apportioned 
between Part A and Part B of Medicare based on the ratio of Medicare's 
share of reasonable costs excluding graduate medical education costs 
attributable to each part as determined through the Medicare cost 
report.
* * * * *
    (e) Determining per resident amounts for the base period. * * *
    (4) Exceptions. (i) Base period for certain hospitals.
* * * * *
    (B) The mean value of per resident amounts of hospitals located in 
the same geographic wage area, as that term is used in the prospective 
payment system under part 412 of this chapter, for cost reporting 
periods beginning in the same fiscal years. If there are fewer than 
three amounts that can be used to calculate the mean value, the 
calculation of the per resident amounts includes all hospitals in the 
hospital's region as that term is used in Sec. 412.62(f)(1)(i).
* * * * *
    (g) Determining the weighted number of FTE residents. * * *
    (1) * * * If the resident is enrolled in a combined medical 
residency training program in which all of the individual programs 
(that are combined) are for training primary care residents (as defined 
in paragraph (b) of this section) or obstetrics and gynecology 
residents, the initial residency period is the time required for 
individual certification in the longer of the programs plus one year.
* * * * *
    (4) For purposes of determining direct graduate medical education 
payment, for cost reporting periods beginning on or after October 1, 
1997, a hospital's

[[Page 46035]]

unweighted FTE count for residents in allopathic and osteopathic 
medicine may not exceed the hospital's unweighted FTE count for these 
residents for the most recent cost reporting period ending on or before 
December 31, 1996. If the hospital's number of FTE residents in a cost 
reporting period beginning on or after October 1, 1997, exceeds the 
limit described in this paragraph (g), the hospital's weighted FTE 
count (before application of the limit) will be reduced in the same 
proportion that the number of FTE residents for that cost reporting 
period exceeds the number of FTE residents for the most recent cost 
reporting period ending on or before December 31, 1996. Hospitals that 
are part of the same affiliated group may elect to apply the limit on 
an aggregate basis. The fiscal intermediary may make appropriate 
modifications to apply the provisions of this paragraph (g)(4) based on 
the equivalent of a 12-month cost reporting period.
    (5) For purposes of determining direct graduate medical education 
payment, for the hospital's first cost reporting period beginning on or 
after October 1, 1997, the hospital's weighted FTE count is equal to 
the average of the weighted FTE count for the payment year cost 
reporting period and the preceding cost reporting period. For cost 
reporting periods beginning on or after October 1, 1998, the hospital's 
weighted FTE count is equal to the average of the weighted FTE count 
for the payment year cost reporting period and the preceding two cost 
reporting periods. The fiscal intermediary may make appropriate 
modifications to apply the provisions of this paragraph based on the 
equivalent of 12-month cost reporting periods.
    (6) If a hospital established a new medical residency training 
program as defined in this paragraph (g) after January 1, 1995, the 
hospital's FTE cap described under paragraph (g)(4) of this section may 
be adjusted as follows:
    (i) If a hospital had no residents before January 1, 1995, and it 
establishes a new medical residency training program on or after that 
date, the hospital's unweighted FTE resident cap under paragraph (g)(4) 
of this section may be adjusted based on the product of the number of 
first year residents in the program in the third year of the program's 
existence and the number of years in which residents are expected to 
complete that program based on the minimum accredited length for the 
type of program. For these hospitals, the cap will only be adjusted 
based on the first program (or programs, if established simultaneously) 
beginning on or after January 1, 1995. The cap will not be revised for 
programs subsequently established.
    (ii) If a hospital had residents in its most recent cost reporting 
period ending before January 1, 1995, the hospital's unweighted FTE cap 
may be adjusted for new medical residency training programs established 
on or after January 1, 1995 and August 5, 1997. Increases in the 
hospital's FTE resident limit are permitted for the new program based 
on the product of the number of first-year residents in the third year 
of the newly established program and the number of years in which 
residents are expected to complete each program based on the minimum 
accredited length for the type of program. The hospital's unweighted 
FTE limit for a cost reporting period may be adjusted to reflect the 
number of residents in its most recent cost reporting period ending on 
or before December 31, 1996 and up to the incremental increase in its 
FTE count only for the newly established programs.
    (iii) If a hospital with residents in its most recent cost 
reporting period ending on or before January 1, 1995, is located in a 
rural area (or other hospitals located in rural areas which added 
residents under paragraph (g)(6)(i) of this section), the hospital's 
unweighted FTE limit may be adjusted in the same manner described in 
paragraph (g)(6)(ii) of this section to reflect the increase for 
residents in the new medical residency training programs established 
after August 5, 1997. For these hospitals, the limit will be adjusted 
for additional new programs but not for expansions of existing or 
previously existing programs.
    (iv) A hospital seeking an adjustment to the limit on its 
unweighted resident count policy must provide documentation to its 
fiscal intermediary justifying the adjustment.
    (7) For purposes of paragraph (g) of this section, new medical 
residency training program means a medical residency training program 
that receives initial accreditation by the appropriate accrediting body 
on or after July 1, 1995.
* * * * *
    F. Part 424 is amended as set forth below:

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    1. The authority citation for Part 424 continues to read as 
follows:

    Authority: Section 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. In Sec. 424.1(a)(1), the introductory text is republished and a 
new statutory citation is added in numerical order, to read as follows:


Sec. 424.1  Basis and scope.

    (a) Statutory basis. (1) This part is based on the indicated 
provisions of the following sections of the Act:
* * * * *
    1820--Conditions for designating certain hospitals as critical 
assess hospitals.
 * * * * *
    3. In Sec. 424.15, the section heading and paragraph (a) are 
revised to read as follows:


Sec. 424.15  Requirements for inpatient CAH services.

    (a) Content of certification. Medicare Part A pays for inpatient 
CAH services only if a physician certifies that the individual may 
reasonably be expected to be discharged or transferred to a hospital 
within 96 hours after admission to the CAH.
 * * * * *
    H. Part 485 is amended as set forth below:

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

    1. The authority citation for Part 485 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. The heading for Subpart F is revised to read as follows:

Subpart F--Conditions of Participation: Critical Access Hospitals 
(CAHs)

    3. In Sec. 485.603, the introductory text is republished, 
paragraphs (a)(1) and (a)(2) are revised, and a new paragraph (c) is 
added to read as follows:


Sec. 485.603  Rural health network.

    A rural health network is an organization that meets the following 
specifications:
    (a) It includes--
    (1) At least one hospital that the State has designated or plans to 
designate as a CAH; and
    (2) At least one hospital that furnishes acute care services.
* * * * *
    (c) Each CAH that is a member of the rural health network has an 
agreement with respect to credentialing and quality assurance with at 
least--
    (1) One hospital that is a member of the network
    (2) One PRO or equivalent entity; or
    (3) One other appropriate and qualified entity identified in the 
State rural health care plan.

[[Page 46036]]

    4. Section 485.606 is revised to read as follows:


Sec. 485.606  Designation of CAHs.

    (a) Criteria for State designation. (1) A State that has 
established a Medicare rural hospital flexibility program described in 
section 1820(c) of the Act may designate one or more facilities as CAHs 
if each facility meets the CAH conditions of participation in this 
subpart F.
    (2) The State must not deny any hospital that is otherwise eligible 
for designation as a CAH under this paragraph (a) solely because the 
hospital has entered into an agreement under which the hospital may 
provide posthospital SNF care as described in Sec. 482.66 of this 
chapter.
    (b) Criteria for HCFA designation. HCFA designates a facility as a 
CAH if--
    (1) The facility is designated as a CAH by the State in which it is 
located; or
    (2) The facility is a medical assistance facility operating in 
Montana or a rural primary care hospital designated by HCFA before 
August 5, 1997, and is otherwise eligible to be designated as a CAH by 
the State under the rules in this subpart.
    5. Section 485.610 is revised to read as follows:


Sec. 485.610  Condition of participation: Status and location.

    (a) Standard: Status. The facility is a public or nonprofit 
hospital.
    (b) Standard: Location. The CAH meets the following requirements:
    (1) The CAH is located outside any area that is a Metropolitan 
Statistical Area, as defined by the Office of Management and Budget, or 
that has been recognized as urban under the regulations in 
Sec. 412.62(f) of this chapter.
    (2) The CAH is not deemed to be located in an urban area under 
Sec. 412.63(b) of this chapter.
    (3) The CAH has not been classified as an urban hospital for 
purposes of the standardized payment amount by HCFA or the Medicare 
Geographic Classification Review Board under Sec. 412.230(e) of this 
chapter, and is not among a group of hospitals that have been 
redesignated to an adjacent urban area under Sec. 412.232 of this 
chapter.
    (4) The CAH is located more than a 35-mile drive (or, in the case 
of mountainous terrain or in areas with only secondary roads available, 
a 15-mile drive) from a hospital or another CAH, or the CAH is 
certified by the State as being a necessary provider of health care 
services to residents in the area.
    6. Section 485.612 is revised to read as follows:


Sec. 485.612  Condition of participation: Compliance with hospital 
requirements at time of application.

    The hospital has a provider agreement to participate in the 
Medicare program as a hospital at the time the hospital applies for 
designation as a CAH.
    7. Section 485.614 is removed.
    8. Section 485.616 is revised to read as follows:


Sec. 485.616  Condition of participation: Agreements.

    (a) Standard: Agreements with network hospitals. In the case of a 
CAH that is a member of a rural health network as defined in 
Sec. 485.603 of this chapter, the CAH has in effect an agreement with 
at least one hospital that is a member of the network for--
    (1) Patient referral and transfer;
    (2) The development and use of communications systems of the 
network, including the network's system for the electronic sharing of 
patient data, and telemetry and medical records, if the network has in 
operation such a system; and
    (3) The provision of emergency and nonemergency transportation 
between the facility and the hospital.
    (b) Standard: Agreements for credentialing and quality assurance. 
Each CAH that is a member of a rural health network shall have an 
agreement with respect to credentialing and quality assurance with at 
least--
    (1) One hospital that is a member of the network;
    (2) One PRO or equivalent entity; or
    (3) One other appropriate and qualified entity identified in the 
State rural health care plan.
    9. Section 485.620 is revised to read as follows:


Sec. 485.620  Condition of participation: Number of beds and length of 
stay.

    (a) Standard: Number of beds. Except as permitted for CAHs having 
swing-bed agreements under Sec. 485.645 of this chapter, the CAH 
maintains no more than 15 inpatient beds.
    (b) Standard: Length of stay. The CAH discharges or transfers each 
inpatient within 96 hours after admission, unless a longer period is 
required because transfer to a hospital is precluded because of 
inclement weather or other emergency conditions. A PRO or equivalent 
entity may also, on request, waive the 96-hour restriction on a case-
by-case basis.
    10. In Sec. 485.623, the address under paragraphs (d)(1) and (d)(2) 
``HCFA Information Resource Center, 6325 Security Boulevard, Room G-10-
A East High Rise Building, Baltimore, MD 21207'' is revised to read 
``HCFA Information Resource Center, 7500 Security Boulevard, Room C2-
07-13, Central Building, Baltimore, MD 21244-1850''.
    11. In Sec. 485.645, the section heading, the introductory text, 
paragraphs (a) and the first sentence of the introductory text of 
paragraph (b) are revised to read as follows:


Sec. 485.645  Special requirements for CAH providers of long-term care 
services (``swing-beds'').

    A CAH must meet the following requirements in order to be granted 
an approval from HCFA to provide post-hospital SNF care, as specified 
in Sec. 409.30 of this chapter, and to be paid for SNF-level services, 
in accordance with paragraph (b) of this section.
    (a) Eligibility. A CAH must meet the following eligibility 
requirements:
    (1) Effective October 1, 1997, a facility that, at the time it 
applied to the State for designation as a CAH, had an agreement in 
effect under Sec. 482.66 of this chapter may continue to use its 
inpatient facilities for the provision of post-hospital SNF care, so 
long as the total number of beds that are used at any time for the 
furnishing of either such services or acute care inpatient services 
does not exceed 25 beds and the number of beds used at any time for 
acute care inpatient services does not exceed 15 beds.
    (2) Notwithstanding paragraph (a)(1) of this section, a CAH that 
participated in Medicare as a rural primary care hospital (RPCH) on 
September 30, 1997 and on that date had in effect an approval from HCFA 
to use its inpatient facilities to provide post-hospital SNF care may 
continue in that status under the same terms, conditions, and 
limitations that were applicable at the time those approvals were 
granted.
    (3) A CAH that was granted swing-bed approval under paragraph 
(a)(2) of this section may request that its application to be a CAH and 
a swing-bed provider be reevaluated under paragraph (a)(1) of this 
section. If this request is approved, the approval is effective not 
earlier than October 1, 1997. As of the date of approval, the CAH no 
longer has any status under paragraph (a)(2) of this section, and may 
not request reinstatement under paragraph (a)(2) of this section.
    (4) Any bed of a unit of the facility that is licensed as a 
distinct-part SNF at the time the facility applies to the State for 
designation as a CAH is not counted under paragraph (a)(1) of this 
section.
    (b) Payment. Payment for inpatient CAH services to a CAH that has 
qualified as a CAH under the provisions in paragraph (a) of this 
section is made

[[Page 46037]]

in accordance with Sec. 413.70 of this chapter. * * *
* * * * *
    H. Part 489 is amended as set forth below:

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    1. The authority citation for Part 489 continues to read as 
follows:

    Authority: Secs. 1102, 1819, 1861, 1864(m), 1866, and 1871 of 
the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 
1395cc, and 1395hh).


Sec. 489.27  [Amended]

    2. In Sec. 489.27, the reference ``section 1886(a)(1)(M) of the 
Act'' is revised to read ``section 1866(a)(1)(M) of the Act''.


Sec. 489.53  [Amended]

    3. In Sec. 489.53, paragraph (a)(14) is removed.

Nomenclature Changes

    1. In the following sections, ``rural primary care hospital 
(RPCH)'' is revised to read ``critical access hospital (CAH)'':

Sec. 410.150(b)(12)
Sec. 440.170(g) heading
Sec. 498.2 definition of provider

    2. In the following parts or sections, ``rural primary care 
hospitals (RPCHs)'' is revised to read ``critical access hospital 
(CAHs)'':

Sec. 413.1(a)(2)(i)
Sec. 489.2(b)(7)

    3. In the following sections or section headings, ``an RPCH'' is 
revised to read ``a CAH'', wherever it appears:

Sec. 409.10(b)
Sec. 409.20(c)(3)
Sec. 409.27
Sec. 409.60(b)(1)(ii)
Sec. 409.61(b) paragraph heading
Sec. 409.82(a)(1)
Sec. 410.3(a)(1)
Sec. 410.10(c)
Sec. 410.38(b)
Sec. 410.60(b)
Sec. 411.15(m)(1)
Sec. 440.170 (g)(1) and (g)(2)
Sec. 485.601(b)
Sec. 485.604 introductory text
Sec. 489.20(d)

    4. In the following sections, ``RPCH'' is revised to read ``CAH'' 
wherever it appears:

Sec. 409.5 first sentence
Sec. 409.10(a) introductory text and (a)(3)
Sec. 409.11 (b)(1)(ii), (b)(1)(iii), (b)(3) introductory text, and 
(b)(3)(ii)
Sec. 409.12 section heading, (a), and (b)
Sec. 409.13(a) introductory text, (a)(1), (a)(2), (a)(3), and (b)
Sec. 409.14(a) introductory text, (a)(1), (a)(2), (b) introductory 
text, (b)(1), and (b)(2)
Sec. 409.15 introductory text
Sec. 409.16 introductory text, (a), (b), and (c)
Sec. 409.20(a) introductory text
Sec. 409.30 introductory text,(a)(2), (b)(1), (b)(2), and footnote 1
Sec. 409.31 (b)(2)(i) and (b)(2)(ii)
Sec. 409.60(a)
Sec. 409.61(a) paragraph heading, (a)(1)(i), (a)(2), (a)(3), (b), and 
(c)
Sec. 409.64(a)(2)(ii)
Sec. 409.65 (a)(1), (a)(3), (a)(4), (d)(1), (d)(2), (d)(3), (e)(1), 
(e)(2) introductory text, (e)(2)(i), and (e)(2)(ii)
Sec. 409.66(b) and (c)(2)
Sec. 409.68 heading, (a) introductory text, (a)(1), (a)(2), (a)(3), 
(a)(4), (b)(2), and (c)
Sec. 409.80 (a)(1) and (a)(2)
Sec. 409.82(c)
Sec. 409.83(a)(1) and (c)(1)
Sec. 409.87(a)(3) and (b)(1)
Sec. 410.10(d)
Sec. 410.28 heading, (a) introductory text, (a)(1), (a)(2), and (a)(4)
Sec. 410.32(b)(1)
Sec. 410.40(a) in the definitions of ``Appropriate hospital'', 
``Hospital inpatient'', ``Locality'', and ``Outside supplier'', (b)(3) 
introductory text, (b)(3)(i), (c)(1), (c)(2), (c)(3), (e)(1), (e)(2), 
and (e)(3)
Sec. 410.60 (b) and (d)
Sec. 410.62 (b) and (c)
Sec. 410.150(b)(12)
Sec. 410.161(b)(2)
Sec. 413.114(b), definition of ``Swing-bed hospital''
Sec. 424.15 (a) and (b)
Sec. 424.20 introductory text
Sec. 440.170 (g)(1) and (g)(2)
Sec. 485.602
Sec. 485.608 introductory text, (a), (c), and (d)
Sec. 485.618 introductory text, (b) introductory text, and (e)
Sec. 485.623(a), (b) introductory text, (c) introductory text, (c)(4), 
and (d)(1), (2), (3), and (4)
Sec. 485.627(a), (b) introductory text, (b)(1), and (b)(2)
Sec. 485.631 (a)(1), (a)(3), (a)(4), (a)(5), (b)(1)(i), (b)(1)(ii), 
(b)(1)(iii), (b)(2), (c)(1) introductory text, (c)(1)(i), (c)(2)(i), 
(c)(2)(ii), and (c)(3)
Sec. 485.635 (a)(1), (a)(2), (a)(3)(i), (a)(3)(iii), (a)(3)(vii), 
(a)(4), (b)(1), (b)(2) introductory text, (b)(3), (b)(4), (c)(1) 
introductory text, (c)(1)(iii), (c)(1)(iv), (c)(2), (c)(3), (c)(4) 
introductory text, (c)(4)(i), (c)(4)(ii), (d)(1), and (d)(2)
Sec. 485.638 (a)(1), (a)(4), (b)(1), and (b)(2)
Sec. 485.639 introductory text, (a) introductory text, (b), and (c) 
introductory text
Sec. 485.641(a)(1) introductory text, (a)(1)(i), (a)(1)(iii), (b) 
introductory text, (b)(3), (b)(4), (b)(5)(i), (b)(5)(ii), and 
(b)(5)(iii)
Sec. 485.645(c) introductory text
Sec. 489.20(e)

    5. In the following sections, ``RPCHs'' is revised to read 
``CAHs'', wherever it appears:

Sec. 485.601(a)

    6. In the following parts or sections, ``rural primary care 
hospital'' is revised to read ``critical access hospital'', whenever it 
appears:

Part 409, subpart B heading
Sec. 409.1(c)
Sec. 414.60(b)
Sec. 488.1 in the definition of ``Provider of services''
Sec. 488.10(d)
Sec. 488.18(d)
Sec. 489.24(b) in the definitions of ``Hospital'' and ``Participating 
hospital''
Sec. 489.53(a)(10) and (b) introductory text

    7. In the following sections, ``rural primary care hospitals'' is 
revised to read ``critical access hospitals'', wherever it appears:

Sec. 413.124(a)
Sec. 413.130(j)(1)
Sec. 488.6(a)
Sec. 489.102(a)

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance)

    Dated: August 22, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: August 22, 1997.
Donna E. Shalala,
Secretary.

[Editorial Note: The following addendum and appendixes will not 
appear in the Code of Federal Regulations.]

Addendum--Schedule of Standardized Amounts Effective With Discharges 
Occurring On or After October 1, 1997 and Update Factors and Rate-of-
Increase Percentages Effective With Cost Reporting Periods Beginning On 
or After October 1, 1997

I. Summary and Background

    In this addendum, we set forth the amounts and factors for 
determining prospective payment rates for Medicare inpatient operating 
costs and Medicare inpatient capital-related costs. We also set forth 
rate-of-increase percentages for updating the target amounts for 
hospitals and hospital units excluded from the prospective payment 
system.
    For discharges occurring on or after October 1, 1997, except for 
sole community hospitals, Medicare-dependent, small rural hospitals, 
and

[[Page 46038]]

hospitals located in Puerto Rico, each hospital's payment per discharge 
under the prospective payment system will be based on 100 percent of 
the Federal national rate.
    Sole community hospitals are paid based on whichever of the 
following rates yield the greatest aggregate payment: the Federal 
national rate, the updated hospital-specific rate based on FY 1982 cost 
per discharge, or the updated hospital-specific rate based on FY 1987 
cost per discharge. Medicare-dependent, small rural hospitals are paid 
based on the Federal national rate or, if higher, the Federal national 
rate plus 50 percent of the difference between the Federal national 
rate and the updated hospital-specific rate based on FY 1982 or FY 1987 
cost per discharge, whichever is higher. For hospitals in Puerto Rico, 
the payment per discharge is based on the sum of 50 percent of a Puerto 
Rico rate and 50 percent of a national rate (section 4406 of Pub. L. 
105-33 amended section 1886(d)(9)(A) of the Act to change the basis of 
the payment per discharge for hospitals in Puerto Rico from 75 percent 
of a Puerto Rico rate to 50 percent of a Puerto Rico rate and from 25 
percent of a national rate to 50 percent of a national rate).
    As discussed below in section II, we are making changes in the 
determination of the prospective payment rates for Medicare inpatient 
operating costs. The changes, to be applied prospectively, affect the 
calculation of the Federal rates. In section III, we discuss our 
changes for determining the prospective payment rates for Medicare 
inpatient capital-related costs. Section IV sets forth our changes for 
determining the rate-of-increase limits for hospitals excluded from the 
prospective payment system. The tables to which we refer in the 
preamble to this final rule are presented at the end of this addendum 
in section V.

II. Changes to Prospective Payment Rates for Inpatient Operating Costs 
for FY 1998

    The basic methodology for determining prospective payment rates for 
inpatient operating costs is set forth at Sec. 412.63 for hospitals 
located outside of Puerto Rico. The basic methodology for determining 
the prospective payment rates for inpatient operating costs for 
hospitals located in Puerto Rico is set forth at Secs. 412.210 and 
412.212. (See section V.I of the preamble for a discussion of the 
Puerto Rico payment rate.) Below, we discuss the manner in which we are 
changing some of the factors used for determining the prospective 
payment rates. The Federal and Puerto Rico rate changes will be 
effective with discharges occurring on or after October 1, 1997. As 
required by section 1886(d)(4)(C) of the Act, we must also adjust the 
DRG classifications and weighting factors for discharges in FY 1998.
    In summary, the standardized amounts set forth in Tables 1A and 1C 
of section V of this addendum reflect--
     Updates of 0 percent for all areas;
     An adjustment to ensure budget neutrality as provided for 
in sections 1886 (d)(4)(C)(iii) and (d)(3)(E) of the Act by applying 
new budget neutrality adjustment factors to the large urban and other 
standardized amounts;
     An adjustment to ensure budget neutrality as provided for 
in section 1886(d)(8)(D) of the Act by removing the FY 1997 budget 
neutrality factor and applying a revised factor;
     An adjustment to apply the revised outlier offset by 
removing the FY 1997 outlier offsets and applying a new offset; and
     An adjustment in the Puerto Rico standardized amounts to 
reflect the application of a Puerto Rico-specific wage index.
    The standardized amounts set forth in Tables 1E and 1F of section V 
of this addendum, which apply to ``temporary relief'' hospitals (see 
section V.D of the preamble for a discussion of these hospitals), 
reflect updates of 0.5 percent for all areas but otherwise reflect the 
same adjustments as the national standardized amounts.

A. Calculation of Adjusted Standardized Amounts

1. Standardization of Base-Year Costs or Target Amounts
    Section 1886(d)(2)(A) of the Act required the establishment of 
base-year cost data containing allowable operating costs per discharge 
of inpatient hospital services for each hospital. The preamble to the 
September 1, 1983 interim final rule (48 FR 39763) contains a detailed 
explanation of how base-year cost data were established in the initial 
development of standardized amounts for the prospective payment system 
and how they are used in computing the Federal rates.
    Section 1886(d)(9)(B)(i) of the Act required that Medicare target 
amounts be determined for each hospital located in Puerto Rico for its 
cost reporting period beginning in FY 1987. The September 1, 1987 final 
rule contains a detailed explanation of how the target amounts were 
determined and how they are used in computing the Puerto Rico rates (52 
FR 33043, 33066).
    The standardized amounts are based on per discharge averages of 
adjusted hospital costs from a base period or, for Puerto Rico, 
adjusted target amounts from a base period, updated and otherwise 
adjusted in accordance with the provisions of section 1886(d) of the 
Act. Sections 1886(d)(2) (B) and (C) of the Act required that the base-
year per discharge costs be updated for FY 1984 and then standardized 
in order to remove from the cost data the effects of certain sources of 
variation in cost among hospitals. These include case mix, differences 
in area wage levels, cost of living adjustments for Alaska and Hawaii, 
indirect medical education costs, and payments to hospitals serving a 
disproportionate share of low-income patients.
    Under sections 1886 (d)(2)(H) and (d)(3)(E) of the Act, in making 
payments under the prospective payment system, the Secretary estimates 
from time to time the proportion of costs that are wages and wage-
related costs. Since October 1, 1996, when the market basket was last 
revised and rebased, we have considered 71.2 percent of costs to be 
labor-related for purposes of the prospective payment system. As 
discussed in section IV of the preamble, we are including data not 
available when the market basket was last rebased to adjust the market 
basket effective for FY 1998. Based on the proposed revised market 
basket, we are revising the labor and nonlabor proportions of the 
standardized amounts. Effective with discharges occurring on or after 
October 1, 1997, we are establishing a labor-related proportion of 71.1 
percent and a nonlabor-related proportion of 28.9 percent. (We are 
revising the Puerto Rico standardized amounts by the average labor 
share in Puerto Rico of 71.3 percent. We are revising the discharged-
weighted national standardized amount to reflect the proportion of 
discharges in large urban and other areas from the FY 1996 MedPAR 
file.)
2. Computing Large Urban and Other Area Averages
    Sections 1886(d) (2)(D) and (3) of the Act require the Secretary to 
compute two average standardized amounts for discharges occurring in a 
fiscal year: one for hospitals located in large urban areas and one for 
hospitals located in other areas. In addition, under sections 
1886(d)(9) (B)(iii) and (C)(i) of the Act, the average standardized 
amount per discharge must be determined for hospitals located in urban 
and other areas in Puerto Rico. Hospitals in Puerto Rico are paid a 
blend of 50 percent of the applicable Puerto Rico standardized

[[Page 46039]]

amount and 50 percent of a national standardized payment amount. 
(Section 4406 of Public Law 105-33 amended section 1886(d)(9)(A) of the 
Act to change the payment for hospitals in Puerto Rico from 75 percent 
of the applicable Puerto Rico standardized payment amount and 25 
percent of the applicable national standardized payment amount to 50 
percent of the applicable Puerto Rico standardized payment amount and 
50 percent of the applicable national standardized payment amount.)
    Section 1886(d)(2)(D) of the Act defines ``urban area'' as those 
areas within a Metropolitan Statistical Area (MSA). A ``large urban 
area'' is defined as an urban area with a population of more than 
1,000,000. In addition, section 4009(i) of Public Law 100-203 provides 
that a New England County Metropolitan Area (NECMA) with a population 
of more than 970,000 is classified as a large urban area. As required 
by section 1886(d)(2)(D) of the Act, population size is determined by 
the Secretary based on the latest population data published by the 
Bureau of the Census. Urban areas that do not meet the definition of a 
``large urban area'' are referred to as ``other urban areas.'' Areas 
that are not included in MSAs are considered ``rural areas'' under 
section 1886(d)(2)(D) of the Act. Payment for discharges from hospitals 
located in large urban areas will be based on the large urban 
standardized amount. Payment for discharges from hospitals located in 
other urban and rural areas will be based on the other standardized 
amount.
    Based on 1996 population estimates published by the Bureau of the 
Census, 60 areas meet the criteria to be defined as large urban areas 
for FY 1998. These areas are identified by a footnote in Table 4A. We 
note that the Secretary has chosen to exercise the authority granted by 
section 4408 of Public Law 105-33 to include Stanly County, North 
Carolina in the Charlotte-Gastonia-Rock Hill, North Carolina-South 
Carolina MSA for purposes of payment under the prospective payment 
system.
3. Updating the Average Standardized Amounts
    Under section 1886(d)(3)(A) of the Act, we update the area average 
standardized amounts each year. In accordance with section 
1886(d)(3)(A)(iv) of the Act, we are updating the large urban and the 
other areas average standardized amounts for FY 1998 using the 
applicable percentage increases specified in section 1886(b)(3)(B)(i) 
of the Act. As amended by section 4401 of Public Law 105-33, Section 
1886(b)(3)(B)(i)(XIII) of the Act specifies that, for hospitals in all 
areas, the update factor for the standardized amounts for FY 1998 is 
equal to zero percent. Section 4401 of Public Law 105-33 also provides 
for an update of 0.5 percent for hospitals that are not Medicare-
dependent small rural hospitals, that receive no IME or DSH payments, 
that are located in a State in which aggregate Medicare operating 
payments for such hospitals were less than their aggregate allowable 
Medicare operating costs for their cost reporting periods beginning 
during FY 1995, and whose Medicare operating payments are less than 
their allowable Medicare operating costs in FY 1998.
    As in the past, we are adjusting the FY 1997 standardized amounts 
to remove the effects of the FY 1997 geographic reclassifications and 
outlier payments before applying the FY 1998 updates. That is, we are 
increasing the standardized amounts to restore the reductions that were 
made for the effects of geographic reclassification and outliers in FY 
1997. After including new offsets to the standardized amounts for 
outliers and geographic reclassification for FY 1998, we estimate that 
there will be an overall decrease of 5.6 percent to the large urban and 
other area standardized amounts.
    Although the update factor for FY 1998 is set by law, we are 
required by section 1886(e)(4)(A) of the Act to report to Congress on 
our final recommendation of update factors for FY 1998 for both 
prospective payment hospitals and hospitals excluded from the 
prospective payment system. We have included our final recommendation 
in Appendix D to this final rule.
4. Other Adjustments to the Average Standardized Amounts
    a. Recalibration of DRG Weights and Updated Wage Index--Budget 
Neutrality Adjustment. Section 1886(d)(4)(C)(iii) of the Act specifies 
that beginning in FY 1991, the annual DRG reclassification and 
recalibration of the relative weights must be made in a manner that 
ensures that aggregate payments to hospitals are not affected. As 
discussed in section II of the preamble, we normalized the recalibrated 
DRG weights by an adjustment factor, so that the average case weight 
after recalibration is equal to the average case weight prior to 
recalibration.
    Section 1886(d)(3)(E) of the Act specifies that the hospital wage 
index must be updated on an annual basis beginning October 1, 1993. 
This provision also requires that any updates or adjustments to the 
wage index must be made in a manner that ensures that aggregate 
payments to hospitals are not affected by the change in the wage index.
    To comply with the requirement of section 1886(d)(4)(C)(iii) of the 
Act that DRG reclassification and recalibration of the relative weights 
be budget neutral, and the requirement in section 1886(d)(3)(E) of the 
Act that the updated wage index be budget neutral, we used historical 
discharge data to simulate payments and compared aggregate payments 
using the FY 1997 relative weights and wage index to aggregate payments 
using the FY 1998 relative weights and wage index. The same methodology 
was used for the FY 1997 budget neutrality adjustment. (See the 
discussion in the September 1, 1992 final rule (57 FR 39832).) Based on 
this comparison, we computed a budget neutrality adjustment factor 
equal to 0.997731. We adjust the Puerto Rico- specific standardized 
amounts for the effect of DRG reclassification and recalibration. We 
computed a budget neutrality adjustment factor for Puerto Rico-specific 
standardized amounts equal to 0.999117. These budget neutrality 
adjustment factors are applied to the standardized amounts without 
removing the effects of the FY 1997 budget neutrality adjustments. We 
do not remove the prior budget neutrality adjustment because estimated 
aggregate payments after the changes in the DRG relative weights and 
wage index should equal estimated aggregate payments prior to the 
changes. If we removed the prior year adjustment, we would not satisfy 
this condition.
    In addition, we will continue to apply the same FY 1998 adjustment 
factor to the hospital-specific rates that are effective for cost 
reporting periods beginning on or after October 1, 1997, in order to 
ensure that we meet the statutory requirement that aggregate payments 
neither increase nor decrease as a result of the implementation of the 
FY 1998 DRG weights and updated wage index. (See the discussion in the 
September 4, 1990 final rule (55 FR 36073).)
    b. Reclassified Hospitals--Budget Neutrality Adjustment. Section 
1886(d)(8)(B) of the Act provides that certain rural hospitals are 
deemed urban effective with discharges occurring on or after October 1, 
1988. In addition, section 1886(d)(10) of the Act provides for the 
reclassification of hospitals based on determinations by the Medicare 
Geographic Classification Review Board (MGCRB). Under section 
1886(d)(10) of the Act, a hospital may be

[[Page 46040]]

reclassified for purposes of the standardized amount or the wage index, 
or both.
    Under section 1886(d)(8)(D) of the Act, the Secretary is required 
to adjust the standardized amounts so as to ensure that total aggregate 
payments under the prospective payment system after implementation of 
the provisions of sections 1886(d)(8) (B) and (C) and 1886(d)(10) of 
the Act are equal to the aggregate prospective payments that would have 
been made absent these provisions. To calculate this budget neutrality 
factor, we used historical discharge data to simulate payments, and 
compared total prospective payments (including IME and DSH payments) 
prior to any reclassifications to total prospective payments after 
reclassifications. We are applying an adjustment factor of 0.994720 to 
ensure that the effects of reclassification are budget neutral.
    The adjustment factor is applied to the standardized amounts after 
removing the effects of the FY 1997 budget neutrality adjustment 
factor. We note that the FY 1998 adjustment reflects wage index and 
standardized amount reclassifications approved by the MGCRB or the 
Administrator as of February 27, 1997. The effects of additional 
reclassification changes resulting from appeals and reviews of the 
MGCRB decisions for FY 1998 or from a hospital's request for the 
withdrawal of a reclassification request are reflected in the final 
budget neutrality adjustment required under section 1886(d)(8)(D) of 
the Act and published in the final rule for FY 1998.
    c. Outliers. Section 1886(d)(5)(A) of the Act provides for payments 
in addition to the basic prospective payments for ``outlier'' cases, 
cases involving extraordinarily high costs (cost outliers) or long 
lengths of stay (day outliers). Section 1886(d)(3)(B) of the Act 
requires the Secretary to adjust both the large urban and other area 
national standardized amounts by the same factor to account for the 
estimated proportion of total DRG payments made to outlier cases. 
Similarly, section 1886(d)(9)(B)(iv) of the Act requires the Secretary 
to adjust the large urban and other standardized amounts applicable to 
hospitals in Puerto Rico to account for the estimated proportion of 
total DRG payments made to outlier cases. Furthermore, under section 
1886(d)(5)(A)(iv) of the Act, outlier payments for any year must be 
projected to be not less than 5 percent nor more than 6 percent of 
total payments based on DRG prospective payment rates.
    Beginning with FY 1995, section 1886(d)(5)(A) of the Act requires 
the Secretary to phase out payments for day outliers (correspondingly, 
payments for cost outliers would increase). Under the requirements of 
section 1886(d)(5)(A)(v), the proportion of day outlier payments to 
total outlier payments is reduced from FY 1994 levels as follows: 75 
percent of FY 1994 levels in FY 1995, 50 percent of FY 1994 levels in 
FY 1996, and 25 percent of FY 1994 levels in FY 1997. For discharges 
occurring after September 30, 1997, the Secretary will no longer pay 
for day outliers under the provisions of section 1886(d)(5)(A)(i) of 
the Act.
    i. FY 1998 Outlier Payment Thresholds. For FY 1997, the day outlier 
threshold is the geometric mean length of stay for each DRG plus the 
lesser of 24 days or 3.0 standard deviations. The marginal cost factor 
for day outliers (the percent of Medicare's average per diem payment 
paid for each outlier day) is 33 percent for FY 1997. The fixed loss 
cost outlier threshold is equal to the prospective payment for the DRG 
plus $9,700 ($8,850 for hospitals that have not yet entered the 
prospective payment system for capital-related costs). The marginal 
cost factor for cost outliers (the percent of costs paid after costs 
for the case exceed the threshold) is 80 percent. We applied an outlier 
adjustment to the FY 1997 standardized amounts of 0.948766 for the 
large urban and other areas rates and 0.9481 for the capital Federal 
rate.
    As noted above, section 1886(d)(5)(A)(v) of the Act provides that 
payment will not be made for day outliers beginning with discharges 
occurring in FY 1998.
    In the proposed rule, we proposed to establish a fixed loss cost 
outlier threshold in FY 1998 equal to the prospective payment rate for 
the DRG plus $7,600 ($6,950 for hospitals that have not yet entered the 
prospective payment system for capital-related costs). In addition, we 
proposed to maintain the marginal cost factor for cost outliers at 80 
percent. Section 4405 of Public Law 105-33 amended section 
1886(d)(5)(A)(ii) of the Act to revise the definition of the cost 
outlier threshold. For FY 1997, the statute required the fixed loss 
cost outlier threshold to be based on ``the applicable DRG prospective 
payment rate plus a fixed dollar amount determined by the Secretary''. 
Public Law 105-33 provides that, beginning in FY 1998, the fixed loss 
cost outlier threshold is based on ``the sum of the applicable DRG 
prospective payment rate plus any amounts payable under subparagraphs 
(B) [IME payments] and (F) [DSH payments] plus a fixed dollar amount 
determined by the Secretary''. Consistent with this statutory change, 
the methodology for setting the final FY 1998 cost outlier threshold 
differs from the methodology used for the proposed rule because we no 
longer adjust hospital costs to exclude IME and DSH payments (see 
section V.A. of the preamble). In addition, in setting the final FY 
1998 outlier thresholds, we used updated data and revised cost 
inflation factor (discussed below). Thus, for FY 1998, in order for a 
case to qualify for cost outlier payments, the costs must exceed the 
prospective payment rate for the DRG plus the IME and DSH payments plus 
$11,050 ($10,080 for hospitals that have not yet entered the 
prospective payment system for capital-related costs). We are also 
establishing a marginal cost factor for cost outliers of 80 percent, as 
proposed.
    In accordance with section 1886(d)(5)(A)(iv) of the Act, we 
calculated outlier thresholds so that outlier payments are projected to 
equal 5.1 percent of total payments based on DRG prospective payment 
rates. In accordance with section 1886(d)(3)(E), we reduced the FY 1998 
standardized amounts by the same percentage to account for the 
projected proportion of payments paid to outliers.
    As stated in the September 1, 1993 final rule (58 FR 46348), we 
establish outlier thresholds that are applicable to both inpatient 
operating costs and inpatient capital-related costs. When we modeled 
the combined operating and capital outlier payments, we found that 
using a common set of thresholds resulted in a higher percentage of 
outlier payments for capital-related costs than for operating costs. We 
project that the proposed thresholds for FY 1998 will result in outlier 
payments equal to 5.1 percent of operating DRG payments and 6.2 percent 
of capital payments based on the Federal rate.
    The proposed outlier adjustment factors applied to the standardized 
amounts for FY 1998 were as follows:

------------------------------------------------------------------------
                                                   Operating    Capital 
                                                 standardized   federal 
                                                    amounts       rate  
------------------------------------------------------------------------
National.......................................     0.949117      0.9449
Puerto Rico....................................     0.961448      0.9449
------------------------------------------------------------------------

    The final outlier adjustment factors applied to the standardized 
amounts for FY 1998 are as follows:

------------------------------------------------------------------------
                                                   Operating    Capital 
                                                 standardized   federal 
                                                    amounts       rate  
------------------------------------------------------------------------
National.......................................     0.948840      0.9382

[[Page 46041]]

                                                                        
Puerto Rico....................................     0.971967      0.9598
------------------------------------------------------------------------

    As in the proposed rule, we apply the outlier adjustment factors 
after removing the effects of the FY 1997 outlier adjustment factors on 
the standardized amounts.
    ii. Other Changes Concerning Outliers. Table 8A in section V of 
this addendum contains the updated Statewide average operating cost-to-
charge ratios for urban hospitals and for rural hospitals to be used in 
calculating cost outlier payments for those hospitals for which the 
intermediary is unable to compute a reasonable hospital-specific cost-
to-charge ratio. These Statewide average ratios would replace the 
ratios published in the August 30, 1996 final rule (61 FR 46302), 
effective October 1, 1997. Table 8B contains comparable Statewide 
average capital cost-to-charge ratios. These average ratios would be 
used to calculate cost outlier payments for those hospitals for which 
the intermediary computes operating cost-to-charge ratios lower than 
0.227808 or greater than 1.29731 and capital cost-to-charge ratios 
lower than 0.01270 or greater than 0.18955. This range represents 3.0 
standard deviations (plus or minus) from the mean of the log 
distribution of cost-to-charge ratios for all hospitals. We note that 
the cost-to-charge ratios in Tables 8A and 8B will be used for all cost 
reports settled during FY 1998 (regardless of the actual cost reporting 
period) when hospital-specific cost-to-charge ratios are either not 
available or outside the three standard deviations range.
    iii. FY 1996 and FY 1997 Outlier Payments. In the August 30, 1996 
final rule (61 FR 46229), we stated that, based on available data, we 
estimated that actual FY 1996 outlier payments would be approximately 
4.0 percent of actual total DRG payments. This was computed by 
simulating payments using actual FY 1995 bill data available at the 
time. That is, the estimate of actual FY 1996 outlier payments did not 
reflect actual FY 1996 bills but instead reflected the application of 
FY 1996 rates and policies to available FY 1995 bills. Our current 
estimate, using available FY 1996 bills, is that actual outlier 
payments for FY 1996 were approximately 4.2 percent of actual total DRG 
payments. We note that the MedPAR file for FY 1996 discharges continues 
to be updated.
    We currently estimate that actual outlier payments for FY 1997 will 
be approximately 4.8 percent of actual total DRG payments (slightly 
lower than the 5.1 percent we projected in setting outlier policies for 
FY 1997). This estimate is based on simulations using the June 1997 
update of the provider-specific file and the June 1997 update of the FY 
1996 MedPAR file (discharge data for FY 1996 bills). We used these data 
to calculate an estimate of the actual outlier percentage for FY 1997 
by applying FY 1997 rates and policies to available FY 1996 bills.
    In FY 1994, we began using a cost inflation factor rather than a 
charge inflation factor to update billed charges for purposes of 
estimating outlier payments. This refinement was made to improve our 
estimation methodology. We believe that actual FY 1996 and FY 1997 
outlier payments as a percentage of total DRG payments may be lower 
than expected in part because actual hospital costs may be lower than 
reflected in the methodology used to set outlier thresholds for those 
years. Our most recent data on hospital costs show that rates of 
increase are continuing to decline. Thus, the cost inflation factor of 
0.871 percent used to set FY 1996 outlier policy (based on the best 
data then available) appears to have been overstated. For FY 1997, we 
used a cost inflation factor of minus 1.906 percent (a cost per case 
decrease of 1.906 percent). In the proposed rule, based on data then 
available, we used a cost inflation factor of minus 1.969 percent to 
set outlier thresholds for FY 1998. Based on the most recent data 
available, we are using a cost inflation factor of minus 2.005 percent 
for purposes of setting the final 1998 outlier thresholds.
    Although we estimate that FY 1996 outlier payments will approximate 
4.2 percent of total DRG payments, we note that the estimate of the 
market basket rate of increase used to set the FY 1996 rates was 3.5 
percentage points, while the latest FY 1996 market basket rate of 
increase forecast is 2.7 percent. Thus, the net effect is that 
hospitals received higher FY 1996 payments than would have been 
established based on a more recent forecast of the market basket rate 
of increase.
    Comment: One commenter modeled the outlier payments and was able to 
replicate HCFA's result of 5.1 percent for operating outlier payments, 
but the commenter's analysis yielded only 5.3 percent for capital 
outlier payments as compared with HCFA's result of 5.5 percent.
    Response: Although we are unable to analyze the commenter's 
modeling methodology before publication of this document, we will 
attempt to ascertain the source of the discrepancy between the 
commenter's outlier model and HCFA's outlier model before next year's 
proposed rule.
5. FY 1998 Standardized Amounts
    The adjusted standardized amounts are divided into labor and 
nonlabor portions. Table 1A (and Table 1E for ``temporary relief'' 
hospitals) contain the standardized amounts that are applicable to all 
hospitals, except for hospitals in Puerto Rico. Under section 
1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico 
payment rate is based on the discharge-weighted average of the national 
large urban standardized amount and the national other standardized 
amount (as set forth in Tables 1A and 1E). The labor and nonlabor 
portions of the national average standardized amounts for Puerto Rico 
hospitals are set forth in Table 1C (and Table 1F for ``temporary 
relief'' hospitals). These tables also include the Puerto Rico 
standardized amounts.
    The Puerto Rico standardized amounts reflect application of a 
Puerto Rico-specific wage index for FY 1998. Thus, before application 
of the wage index, the FY 1998 Puerto Rico standardized amounts are 
lower than the FY 1997 standardized amounts. However, after application 
of the wage index, the FY 1998 Puerto Rico rate is higher than the rate 
for FY 1997. This is due to the higher Puerto Rico wage index values 
that will be applied to these standardized amounts in calculating the 
FY 1998 Puerto Rico rate. Below, we use two wage areas to illustrate 
that the FY 1998 Puerto Rico wage-adjusted standardized amounts are 
higher than the FY 1997 Puerto Rico wage-adjusted standardized amounts.

Puerto Rico Standardized Amounts

----------------------------------------------------------------------------------------------------------------
                                                              FY 1997                         FY 1998           
                      Area                       ---------------------------------------------------------------
                                                       Labor         Nonlabor          Labor         Nonlabor   
----------------------------------------------------------------------------------------------------------------
Large Urban.....................................       $2,488.70         $518.65       $1,323.01         $532.55
Other Areas.....................................       $2,449.31         $510.45       $1,302.07         $524.11
----------------------------------------------------------------------------------------------------------------


[[Page 46042]]

Puerto Rico Wage-Adjusted Standardized Amount for the San Juan MSA 
and Rural Puerto Rico

------------------------------------------------------------------------
                                                    FY 1997     FY 1998 
------------------------------------------------------------------------
San Juan Wage Index.............................      0.4506      1.0156
Wage-Adjusted Standardized Amount...............   $1,640.06   $1,877.44
Rural Wage Index................................      0.4026      0.9291
Wage-Adjusted Standardized Amount...............   $1,496.54   $1,735.01
------------------------------------------------------------------------

    Table 1E contains the two national standardized amounts that are 
applicable to the ``temporary relief'' hospitals discussed in section 
V.D of the preamble to this rule, except those located in Puerto Rico. 
The labor and nonlabor portions of the national average standardized 
amounts for hospitals in that group that are located in Puerto Rico are 
set forth in Table 1F. This table also includes the Puerto Rico 
standardized amounts for hospitals in that group.

B. Adjustments for Area Wage Levels and Cost-of-Living

    Tables 1A, 1C, 1E and 1F, as set forth in this addendum, contain 
the labor-related and nonlabor-related shares used to calculate the 
prospective payment rates for hospitals located in the 50 States, the 
District of Columbia, and Puerto Rico. This section addresses two types 
of adjustments to the standardized amounts that are made in determining 
the prospective payment rates as described in this addendum.
1. Adjustment for Area Wage Levels
    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that an adjustment be made to the labor-related portion of the 
prospective payment rates to account for area differences in hospital 
wage levels. This adjustment is made by multiplying the labor-related 
portion of the adjusted standardized amounts by the appropriate wage 
index for the area in which the hospital is located. In section III of 
the preamble, we discuss certain revisions we are making to the wage 
index. These changes include the calculation of a Puerto Rico-specific 
wage index that are being applied to the Puerto Rico standardized 
amounts. The wage index is set forth in Tables 4A through 4F of this 
addendum.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
    Section 1886(d)(5)(H) of the Act authorizes an adjustment to take 
into account the unique circumstances of hospitals in Alaska and 
Hawaii. Higher labor-related costs for these two States are taken into 
account in the adjustment for area wages described above. For FY 1998, 
we adjusted the payments for hospitals in Alaska and Hawaii by 
multiplying the nonlabor portion of the standardized amounts by the 
appropriate adjustment factor contained in the table below.

Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii 
Hospitals

Alaska--All areas...............................................   1.25 
Hawaii:                                                                 
    County of Honolulu..........................................   1.225
    County of Hawaii............................................   1.225
    County of Kauai.............................................   1.225
    County of Maui..............................................   1.225
    County of Kalawao...........................................   1.225 
                                                                        
(The above factors are based on data obtained from the U.S. Office of   
  Personnel Management.)                                                

C. DRG Relative Weights

    As discussed in section II of the preamble, we have developed a 
classification system for all hospital discharges, assigning them into 
DRGs, and have developed relative weights for each DRG that reflect the 
resource utilization of cases in each DRG relative to Medicare cases in 
other DRGs. Table 5 of section V of this addendum contains the relative 
weights that we will use for discharges occurring in FY 1998. These 
factors have been recalibrated as explained in section II of the 
preamble.
    One commenter noted that there was a typographical error in the 
proposed Table 5. The proposed relative weight for DRG 92 was 
incorrectly printed as .1929 rather than 1.1929. The final weight is 
1.1947.

D. Calculation of Prospective Payment Rates for FY 1998

General Formula for Calculation of Prospective Payment Rates for FY 
1998
    Prospective payment rate for all hospitals located outside Puerto 
Rico except sole community hospitals and Medicare-dependent, small 
rural hospitals = Federal rate.
    Prospective payment rate for sole community hospitals = Whichever 
of the following rates yields the greatest aggregate payment: 100 
percent of the Federal rate, 100 percent of the updated FY 1982 
hospital-specific rate, or 100 percent of the updated FY 1987 hospital-
specific rate.
    Prospective payment rate for Medicare-dependent, small rural 
hospitals = 100 percent of the Federal rate plus, if the greater of the 
updated FY 1982 hospital-specific rate or the updated FY 1987 hospital-
specific rate is higher than the Federal rate, 50 percent of the 
difference between the applicable hospital-specific rate and the 
Federal rate.
    Prospective payment rate for Puerto Rico = 50 percent of the Puerto 
Rico rate + 50 percent of a discharge-weighted average of the national 
large urban standardized amount and the national other standardized 
amount.
1. Federal Rate
    For discharges occurring on or after October 1, 1997 and before 
October 1, 1998, except for sole community hospitals, Medicare-
dependent small rural hospitals, and hospitals in Puerto Rico, the 
hospital's payment is based exclusively on the Federal national rate. 
Section 1866(d)(1)(A)(iii) of the Act provides that the Federal rate is 
comprised of 100 percent of the Federal national rate.
    The payment amount is determined as follows:
    Step 1--Select the appropriate national standardized amount 
considering the type of hospital and designation of the hospital as 
large urban or other (see Tables 1A or 1E, section V of this addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located (see Tables 4A, 4B, and 4C of section V of this 
addendum).
    Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the appropriate cost-of-
living adjustment factor.
    Step 4--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount (adjusted if appropriate under Step 3).
    Step 5--Multiply the final amount from Step 4 by the relative 
weight corresponding to the appropriate DRG (see Table 5 of section V 
of this addendum).
2. Hospital-Specific Rate (Applicable Only to Sole Community Hospitals 
and Medicare-Dependent, Small Rural Hospitals)
    Sections 1886(d)(5)(D)(i) and (b)(3)(C) of the Act provide that 
sole community hospitals are paid based on whichever of the following 
rates yields the greatest aggregate payment: The Federal rate, the 
updated hospital-specific rate based on FY 1982 cost per discharge, or 
the updated hospital-specific rate based on FY 1987 cost per discharge.
    Sections 1886(d)(5)(G) and (b)(3)(D) of the Act (as amended by 
section 4204 of Publ. L. 105-33) provide that Medicare-dependent, small 
rural hospitals are

[[Page 46043]]

paid based on whichever of the following rates yields the greatest 
aggregate payment: The Federal rate or the Federal rate plus 50 percent 
of the difference between the Federal rate and the greater of the 
updated hospital-specific rate based on FY 1982 and FY 1987 cost per 
discharge.
    Hospital-specific rates have been determined for each of these 
hospitals based on both the FY 1982 cost per discharge and the FY 1987 
cost per discharge. For a more detailed discussion of the calculation 
of the FY 1982 hospital-specific rate and the FY 1987 hospital-specific 
rate, we refer the reader to the September 1, 1983 interim final rule 
(48 FR 39772); the April 20, 1990 final rule with comment period (55 FR 
15150); and the September 4, 1990 final rule (55 FR 35994).
    a. Updating the FY 1982 and FY 1987 Hospital-Specific Rates for FY 
1998. We are increasing the hospital-specific rates by 0 percent for 
sole community hospitals and Medicare-dependent, small rural hospitals 
located in all areas for FY 1998. Section 1886(b)(3)(C)(iv) of the Act 
provides that the update factor applicable to the hospital-specific 
rates for sole community hospitals equals the update factor provided 
under section 1886(b)(3)(B)(iv) of the Act, which, as amended by 
section 4401 of Pub. L. 105-33, is 0 percent for FY 1998. Section 
1886(b)(3)(D) of the Act (as amended by section 4204 of Publ. L. 105-
33) provides that the update factor applicable to the hospital-specific 
rates for Medicare-dependent, small rural hospitals equals the update 
factor provided under section 1886(b)(3)(B)(iv) of the Act, which, as 
amended by section 4401 of Pub. L. 105-33, is 0 percent for FY 1998.
    b. Calculation of Hospital-Specific Rate. For sole community 
hospitals and Medicare-dependent, small rural hospitals, the applicable 
FY 1998 hospital-specific rate would be calculated by increasing the 
hospital's hospital-specific rate for the preceding fiscal year by the 
applicable update factor (0 percent), which is the same as the update 
for all prospective payment hospitals except temporary relief 
hospitals. In addition, the hospital-specific rate would be adjusted by 
the budget neutrality adjustment factor (that is, 0.997731) as 
discussed in section II.A.4.a of this Addendum. This resulting rate 
would be used in determining under which rate a sole community hospital 
or Medicare-dependent, small rural hospital is paid for its discharges 
beginning on or after October 1, 1997, based on the formulas set forth 
above.
3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning On or After October 1, 1997 
and Before October 1, 1998
    a. Puerto Rico Rate. The Puerto Rico prospective payment rate is 
determined as follows:
    Step 1--Select the appropriate adjusted average standardized amount 
considering the large urban or other designation of the hospital (see 
Table 1C or 1F of section V of the addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the appropriate Puerto Rico-specific wage index (see Table 4F 
of section V of the addendum).
    Step 3--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount.
    Step 4--Multiply the result in Step 3 by 50 percent.
    Step 5--Multiply the amount from Step 4 by the appropriate DRG 
relative weight (see Table 5 of section V of the addendum).
    b. National Rate. The national prospective payment rate is 
determined as follows:
    Step 1--Multiply the labor-related portion of the national average 
standardized amount (see Table 1C or 1F of section V of the addendum) 
by the appropriate national wage index (see Tables 4A and 4B of section 
V of the addendum).
    Step 2--Add the amount from Step 1 and the nonlabor-related portion 
of the national average standardized amount.
    Step 3--Multiply the result in Step 2 by 50 percent.
    Step 4--Multiply the amount from Step 3 by the appropriate DRG 
relative weight (see Table 5 of section V of the addendum).
    The sum of the Puerto Rico rate and the national rate computed 
above equals the prospective payment for a given discharge for a 
hospital located in Puerto Rico.

III. Changes to Payment Rates for Inpatient Capital-Related Costs 
for FY 1998

    The prospective payment system for hospital inpatient capital-
related costs was implemented for cost reporting periods beginning on 
or after October 1, 1991. Effective with that cost reporting period and 
during a 10-year transition period extending through FY 2001, hospital 
inpatient capital-related costs are paid on the basis of an increasing 
proportion of the capital prospective payment system Federal rate and a 
decreasing proportion of a hospital's historical costs for capital.
    The basic methodology for determining Federal capital prospective 
rates is set forth at Secs. 412.308 through 412.352. Below we discuss 
the factors that we used to determine the Federal rate and the 
hospital-specific rates for FY 1998. The rates are effective for 
discharges occurring on or after October 1, 1997.
    For FY 1992, we computed the standard Federal payment rate for 
capital-related costs under the prospective payment system by updating 
the FY 1989 Medicare inpatient capital cost per case by an actuarial 
estimate of the increase in Medicare inpatient capital costs per case. 
Each year after FY 1992 we update the standard Federal rate, as 
provided in Sec. 412.308(c)(1), to account for capital input price 
increases and other factors. Also, Sec. 412.308(c)(2) provides that the 
Federal rate is adjusted annually by a factor equal to the estimated 
proportion of outlier payments under the Federal rate to total capital 
payments under the Federal rate. In addition, Sec. 412.308(c)(3) 
requires that the Federal rate be reduced by an adjustment factor equal 
to the estimated proportion of payments for exceptions under 
Sec. 412.348. Furthermore, Sec. 412.308(c)(4)(ii) requires that the 
Federal rate be adjusted so that the annual DRG reclassification and 
the recalibration of DRG weights and changes in the geographic 
adjustment factor are budget neutral. For FYs 1992 through 1995, 
Sec. 412.352 required that the Federal rate also be adjusted by a 
budget neutrality factor so that aggregate payments for inpatient 
hospital capital costs were projected to equal 90 percent of the 
payments that would have been made for capital-related costs on a 
reasonable cost basis during the fiscal year. That provision expired in 
FY 1996. Finally, Sec. 412.308(b)(2) describes the 7.4 percent 
reduction to the rate which was made in FY 1994, and Sec. 412.308(b)(3) 
describes the 0.28 percent reduction to the rate made in FY 1996 as a 
result of the revised policy of paying for transfers.
    In this final rule with comment period we are implementing section 
4402 of Public Law 105-33, which requires that, effective for 
discharges occurring on or after October 1, 1997, and before October 1, 
2002, the unadjusted standard Federal rate shall be reduced by 17.78 
percent. Part of that reduction will be restored effective October 1, 
2002.
    For each hospital, the hospital-specific rate was calculated by 
dividing the hospital's Medicare inpatient capital-related costs for a 
specified base year by its Medicare discharges (adjusted for 
transfers), and dividing the

[[Page 46044]]

result by the hospital's case mix index (also adjusted for transfers). 
The resulting case-mix adjusted average cost per discharge was then 
updated to FY 1992 based on the national average increase in Medicare's 
inpatient capital cost per discharge and adjusted by the exceptions 
payment adjustment factor and the budget neutrality adjustment factor 
to yield the FY 1992 hospital-specific rate. Since FY 1992, the 
hospital-specific rate has been updated annually for inflation and for 
changes in the exceptions payment adjustment factor. For FYs 1992 
through 1995, the hospital-specific rate was also adjusted by a budget 
neutrality adjustment factor. In this final rule with comment period we 
are implementing section 4402 of Public Law 105-33, which requires 
that, effective for discharges occurring on or after October 1, 1997, 
and before October 1, 2002, the unadjusted hospital specific rate shall 
be reduced by 17.78 percent. Part of that reduction will be restored 
effective October 1, 2002.
    To determine the appropriate budget neutrality adjustment factor 
and the exceptions payment adjustment factor, we developed a dynamic 
model of Medicare inpatient capital-related costs, that is, a model 
that projects changes in Medicare inpatient capital-related costs over 
time. With the expiration of the budget neutrality provision, the model 
is still used to estimate the exceptions payment adjustment and other 
factors. The model and its application are described in greater detail 
in Appendix B.
    In accordance with section 1886(d)(9)(A) of the Act, under the 
prospective payment system for inpatient operating costs, hospitals 
located in Puerto Rico are paid for operating costs under a special 
payment formula. These hospitals are paid a blended rate that comprises 
75 percent of the applicable standardized amount specific to Puerto 
Rico hospitals and 25 percent of the applicable national average 
standardized amount. Under Sec. 412.374, the methodology for payments 
to Puerto Rico hospitals under the prospective payment system for 
inpatient capital-related costs parallels the blended payment 
methodology for operating payments to Puerto Rico hospitals. Effective 
October 1, 1997, as a result of section 4406 of Public Law 105-33, 
operating payments to hospitals in Puerto Rico shall be based on a 
blend of 50 percent of the applicable standardized amount specific to 
Puerto Rico hospitals and 50 percent of the applicable national average 
standardized amount. However, in conjunction with this change to the 
operating blend percentage, effective with discharges on or after 
October 1, 1997, we are computing capital payments to hospitals in 
Puerto Rico based on a blend of 50 percent of the Puerto Rico rate and 
50 percent of the Federal rate.

A. Determination of Federal Inpatient Capital-Related Prospective 
Payment Rate Update

    For FY 1997, the Federal rate was $438.92. In the proposed rule, we 
stated that the proposed FY 1998 Federal rate was $438.43. In this 
final rule with comment period, we are establishing a FY 1998 Federal 
rate of $371.51.
    In the discussion that follows, we explain the factors that were 
used to determine the FY 1998 Federal rate. In particular, we explain 
why the FY 1998 Federal rate has decreased 15.36 percent compared to 
the FY 1997 Federal rate. The major factor contributing to the decrease 
in the FY 1998 rate in comparison to the FY 1997 rate is the 17.78 
percent reduction to the Federal rate required by Public Law 105-33. 
Also, capital payments per case are estimated to decrease 8.92 percent. 
Taking into account the effects of increases in projected discharges, 
we estimate that aggregate capital payments will decrease 6.74 percent.
    Total payments to hospitals under the prospective payment system 
are relatively unaffected by changes in the capital prospective 
payments. Since capital payments constitute about 10 percent of 
hospital payments, a 1 percent change in the capital Federal rate 
yields only about 0.1 percent change in actual payments to hospitals.
1. Reduction to the Standard Federal Rate
    Section 4402 of Pub. L. 105-33 requires that for discharges 
occurring after October 1, 1997 the unadjusted standard Federal rate be 
reduced by 15.68 percent, and by an additional 2.1 percent from October 
1, 1997 through September 30, 2002. Thus, the unadjusted standard 
Federal rate used to set the Federal rate each year is reduced a total 
of 17.78 percent from October 1, 1997 through September 30, 2002. After 
that date the 2.1 percent reduction to the rate will be restored.
    The regulation changes we are making to implement this statutory 
requirement are discussed in section VI.C of the preamble. Here we 
discuss the effects of the required reduction in computing the FY 1998 
Federal capital rate.
    Under Sec. 412.308(b), HCFA determines the standard Federal rate by 
adjusting the FY 1992 updated national average cost per discharge by a 
factor so that estimated payments based on the standard Federal rate, 
adjusted by the payment adjustments described in Sec. 412.312(b), equal 
estimated aggregate payments based solely on the national average cost 
per discharge. Section 412.308(c) provides further that the standard 
Federal rate is updated for inflation each Federal fiscal year and 
adjusted each year by an outlier payment adjustment factor, and an 
exceptions payment adjustment factor, to determine the Federal capital 
payment rate for that year. The standard Federal rate is to be 
distinguished from the annual Federal rate actually used in making 
payment under the capital prospective payment system. The standard 
Federal rate is, in effect, the underlying or base rate used to 
determine the annual Federal rate by means of the formula in 
Sec. 412.308(c).
    Because the 17.78 percent reduction applies to the standard Federal 
rate before the application of the adjustment factors for outliers, 
exceptions, and budget neutrality, the reduction to the standard 
Federal rate does not have the effect of simply lowering the FY 1998 
Federal rate by 17.78 percent compared to FY 1997. Rather, the 17.78 
percent reduction is one factor contributing to the overall 15.36 
percent reduction in the FY 1998 Federal rate compared to FY 1997. The 
FY 1998 exceptions reduction factor increases the rate by 3.22 percent 
relative to the FY 1997 exceptions reduction factor. For a more 
complete description of changes to the Federal rate, see the table that 
compares the FY 1997 rate with the FY 1998 rate later in this addendum.
    As discussed in the proposed rule, ProPAC recommended that the rate 
be adjusted to a more appropriate level (Recommendation 3). They 
indicated that the FY 1997 rate was 15 to 17 percent too high and 
attributed this to the overstatement of the 1992 base payment rates and 
the method used to update the rates prior to implementation of the 
update framework. ProPAC outlined several possible approaches we could 
use for adjusting the rate by regulation. In our response, we agreed 
with ProPAC that the capital rates were too high and noted that the 
President's FY 1998 budget included a provision to reduce the base 
Federal and hospital-specific rates by approximately the magnitude 
suggested by ProPAC. We restated our belief that it was most 
appropriate to make such adjustments to the capital rates in the 
context of a comprehensive package of Medicare program changes. We 
therefore did not propose to implement a revision to the base capital 
rates by regulation for FY 1998.

[[Page 46045]]

    Comment: ProPAC noted that both HCFA and ProPAC had recommended 
that the base capital rate should be cut. They also noted that a 
proposal to cut the rate was included in the President's budget under 
consideration by the Congress. However, ProPAC expressed its belief 
that absent action by the Congress to cut the capital rate, the 
Secretary should cut the rate using her regulatory authority.
    Response: After ProPAC commented, the Congress passed Public Law 
105-33 and the President signed it into law in early August. As 
anticipated, the legislation included a reduction to the unadjusted 
standard Federal rate and the unadjusted hospital specific rate along 
with several other changes to the Medicare program. As discussed 
previously, we are implementing the reduction to the rate as part of 
this final rule with comment period.
    Comment: One State hospital association expressed its opposition to 
a reduction in capital payments. The association stated that reducing 
capital payments to hospitals would likely increase borrowing costs by 
making hospitals less attractive to investors, and inhibit hospital's 
abilities to modernize their physical plants. The commenter was 
especially concerned about the impact of a rate cut on low volume rural 
hospitals.
    Response: As we noted in our response to ProPAC's previous comment, 
we did not propose to cut the capital rate by regulation in the 
proposed rule. We stated our belief that the capital rate should be 
addressed by the Congress in conjunction with other changes to the 
Medicare program. The Congress included a 17.78 percent reduction to 
the capital rate and the hospital specific rate in Public Law 105-33, 
which we are implementing in this final rule with comment period. We 
have stated on several occasions that due to a variety of factors 
capital payments to hospitals are over-stated and should be reduced. 
Based on data we updated for this final rule with comment period, we 
estimate that for FY 1997 Medicare capital payments to hospitals 
exceeded Medicare capital costs by 8.7 percent. Many small rural 
hospitals are also low cost hospitals that have benefitted from the 
introduction of a capital prospective payment system. Many of these 
hospitals are paid on the full prospective payment methodology and 
capital payments are based on an increasing percentage of the Federal 
rate during the transition to fully prospective capital payment system, 
where the Federal rate is higher than the hospital specific rate. 
However, because capital payments are determined on a per discharge 
basis, hospitals with few discharges will necessarily receive payments 
that are consistent with the number of Medicare patients they serve. We 
note however, that sole community hospitals benefit from a higher 
minimum payment threshold for purposes of capital exceptions payments. 
Further, together with this capital rate reduction provision, Congress 
has made other changes that affect small rural hospitals. For example, 
as of October 1, 1997, the Medicare-dependent hospital provisions are 
reinstated and the Critical Access Hospital Program is established 
nationwide.
2. Standard Federal Rate Update
    a. Description of the Update Framework. Section 412.308(c)(1) 
provides that the standard Federal rate is updated on the basis of an 
analytical framework that takes into account changes in a capital input 
price index and other factors. The update framework consists of a 
capital input price index (CIPI) and several policy adjustment factors. 
Specifically, we have adjusted the projected CIPI rate of increase as 
appropriate each year for case-mix index related changes, for 
intensity, and for errors in previous CIPI forecasts. The proposed rule 
reflected an update factor of 1.1 percent, based on data available at 
that time. The final update factor for FY 1998 under that framework is 
0.9 percent. This update factor is based on a projected 1.1 percent 
increase in the CIPI, and on policy adjustment factors of -0.2. We 
explain the basis for the FY 1998 CIPI projection in section D of this 
addendum. Here we describe the policy adjustments that have been 
applied.
    The case-mix index is the measure of the average DRG weight for 
cases paid under the prospective payment system. Because the DRG weight 
determines the prospective payment for each case, any percentage 
increase in the case-mix index corresponds to an equal percentage 
increase in hospital payments.
    The case-mix index can change for any of several reasons:
     The average resource use of Medicare patients changes 
(``real'' case-mix change);
     Changes in hospital coding of patient records result in 
higher weight DRG assignments (``coding effects''); and
     The annual DRG reclassification and recalibration changes 
may not be budget neutral (``reclassification effect'').
    We define real case-mix change as actual changes in the mix (and 
resource requirements) of Medicare patients as opposed to changes in 
coding behavior that result in assignment of cases to higher-weighted 
DRGs, but do not reflect higher resource requirements. In the update 
framework for the prospective payment system for operating costs, we 
adjust the update upwards to allow for real case-mix change, but remove 
the effects of coding changes on the case-mix index. We also remove the 
effect on total payments of prior changes to the DRG classifications 
and relative weights, in order to retain budget neutrality for all 
case-mix index-related changes other than patient severity. (For 
example, we adjusted for the effects of the FY 1992 DRG 
reclassification and recalibration as part of our FY 1994 update 
recommendation.) The operating adjustment consists of a reduction for 
total observed case-mix change, an increase for the portion of case-mix 
change that we determine is due to real case-mix change rather than 
coding modifications, and an adjustment for the effect of prior DRG 
reclassification and recalibration changes. We have adopted this case-
mix index adjustment in the capital update framework as well.
    For FY 1998, we are projecting a 1.0 percent increase in the case-
mix index. We estimate that real case-mix increase will equal 0.8 
percent in FY 1998. Therefore, the net adjustment for case-mix change 
in FY 1998 is -0.2 percentage points.
    We estimate that DRG reclassification and recalibration resulted in 
a 0.0 percent change in the case mix when compared with the case-mix 
index that would have resulted if we had not made the reclassification 
and recalibration changes to the DRGs.
    The current operating update framework contains an adjustment for 
forecast error. The input price index forecast is based on historical 
trends and relationships ascertainable at the time the update factor is 
established for the upcoming year. In any given year, there may be 
unanticipated price fluctuations that may result in differences between 
the actual increase in prices faced by hospitals and the forecast used 
in calculating the update factors. In setting a prospective payment 
rate under this framework, we make an adjustment for forecast error 
only if our estimate of the capital input price index rate of increase 
for any year is off by 0.25 percentage points or more. There is a 2-
year lag between the forecast and the measurement of the forecast 
error. Thus, for example, we would adjust for a forecast error made in 
FY 1996 through an adjustment to the FY 1998 update. Because we only 
introduced this analytical framework in FY 1996, FY

[[Page 46046]]

1998 is the first year in which a forecast error adjustment could be 
required. We estimate that the FY 1996 CIPI was .20 percentage points 
higher than our current data show, which means that we estimate a 
forecast error of .20 percentage points for FY 1996. Therefore no 
adjustment for forecast error will be made in FY 1998.
    Under the capital prospective payment system framework, we also 
make an adjustment for changes in intensity. We calculate this 
adjustment using the same methodology and data as in the framework for 
the operating prospective payment system. The intensity factor for the 
operating update framework reflects how hospital services are utilized 
to produce the final product, that is, the discharge. This component 
accounts for changes in the use of quality-enhancing services, changes 
in within-DRG severity, and expected modification of practice patterns 
to remove cost-ineffective services.
    We calculate case-mix constant intensity as the change in total 
charges per admission, adjusted for price level changes (the CPI 
hospital component), and changes in real case mix. The use of total 
charges in the calculation of the proposed intensity factor makes it a 
total intensity factor, that is, charges for capital services are 
already built into the calculation of the factor. We have, therefore, 
incorporated the intensity adjustment from the operating update 
framework into the capital update framework. Without reliable estimates 
of the proportions of the overall annual intensity increases that are 
due, respectively, to ineffective practice patterns and to the 
combination of quality-enhancing new technologies and within-DRG 
complexity, we assume, as in the revised operating update framework, 
that one-half of the annual increase is due to each of these factors. 
The capital update framework thus provides an add-on to the input price 
index rate of increase of one-half of the estimated annual increase in 
intensity to allow for within-DRG severity increases and the adoption 
of quality-enhancing technology.
    For FY 1998, we have developed a Medicare-specific intensity 
measure based on a 5-year average using FY 1991-1995. In determining 
case-mix constant intensity, we found that observed case-mix increase 
was 2.8 percent in FY 1991, 1.8 percent in FY 1992, 0.9 percent in FY 
1993, 0.8 percent in FY 1994, 1.7 percent in FY 1995, and 1.6 percent 
in FY 1996. For FY 1992, FY 1995, and FY 1996, we estimate that real 
case-mix increase was 1.0 to 1.4 percent each year. The estimate for 
those years is supported by past studies of case-mix change by the RAND 
Corporation. The most recent study was ``Has DRG Creep Crept Up? 
Decomposing the Case Mix Index Change Between 1987 and 1988'' by G. M. 
Carter, J. P. Newhouse, and D. A. Relles, R-4098-HCFA/ProPAC(1991). The 
study suggested that real case-mix change was not dependent on total 
change, but was rather a fairly steady 1.0 to 1.5 percent per year. We 
use 1.4 percent as the upper bound because the RAND study did not take 
into account that hospitals may have induced doctors to document 
medical records more completely in order to improve payment. Following 
that study, we consider up to 1.4 percent of observed case-mix change 
as real for FY 1991 through FY 1995. Based on this analysis, we believe 
that all of the observed case-mix increase for FY 1993 and FY 1994 is 
real.
    We calculate case-mix constant intensity as the change in total 
charges per admission, adjusted for price level changes (the CPI 
hospital component), and changes in real case-mix. Given estimates of 
real case-mix increase of 1.0 percent for FY 1992, 0.9 percent for FY 
1993, 0.8 percent for FY 1994, 1.0 percent for FY 1995, and 1.0 percent 
for FY 1996, we estimate that case-mix constant intensity declined by 
an average 1.4 percent during FYs 1992 through 1996, for a cumulative 
decrease of 7.0 percent. If we assume that real case-mix increase was 
1.4 percent for FY 1992, 0.9 percent for FY 1993, 0.8 percent for FY 
1994, 1.4 percent for FY 1995, and 1.4 percent for FY 1996, we estimate 
that case-mix constant intensity declined by an average 1.6 percent 
during FYs 1992 through 1996, for a cumulative decrease of 7.5 percent. 
Since we estimate that intensity has declined during that period, we 
are recommending a 0.0 percent intensity adjustment for FY 1998.
    b. Comparison of HCFA and ProPAC Update Recommendations. In 
Recommendation 4 of the proposed rule, ProPAC recommended a zero update 
to the standard Federal rate, and we recommended a 1.1 percent update. 
(See the June 2, 2997 proposed rule for a discussion of the differences 
between the ProPAC and HCFA update frameworks (62 FR 29950). In this 
final rule with comment period, as discussed in the previous section, 
we are implementing a 0.9 update to the capital rate. ProPAC 
recommended a zero update to the rate for FY 1998 because it believed 
that a zero update applied to revised base rates would permit hospitals 
to maintain quality of care while meeting Medicare's responsibility to 
act as a prudent purchaser.
    Comment: In response to our statements in the proposed rule about 
why we recommended an update to the capital rate, ProPAC stated that it 
had applied the same reasoning for recommending a zero update to the 
capital rate that it had used in recommending a zero update to the 
operating rate. ProPAC restated its belief that a zero update was 
appropriate for both the operating and capital rates.
    Response: As required by Pub. L. 105-33, we are implementing a 
17.78 percent reduction to the unadjusted standard Federal capital 
payment rate and the unadjusted hospital-specific rate effective 
October 1, 1997. To the extent this statutory reduction to the base 
capital rate addresses the issues of the rates being overstated, we 
believe we should not, at the same time, further address the issue 
through the update framework.
2. Outlier Payment Adjustment Factor
    Section 412.312(c) establishes a unified outlier methodology for 
inpatient operating and inpatient capital-related costs. A single set 
of thresholds is used to identify outlier cases for both inpatient 
operating and inpatient capital-related payments. We note that as 
indicated in section V of the preamble, in conjunction with our policy 
of a unified outlier methodology for operating and capital, we are 
adopting the change required by Pub. L. 105-33 concerning outlier 
payments. The law requires the fixed loss cost outlier threshold to be 
based on the sum of the base DRG payment, indirect medical education 
(IME) payment and the disproportionate share hospital (DSH) payment 
effective with discharges occurring on or after October 1, 1997.
    Outlier payments are made only on the portion of the Federal rate 
that is used to calculate the hospital's inpatient capital-related 
payments (for example, 70 percent for cost reporting periods beginning 
in FY 1998 for hospitals paid under the fully prospective methodology). 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of outlier payments under the Federal 
rate to total inpatient capital-related payments under the Federal 
rate. The outlier thresholds are set so that operating outlier payments 
are projected to be 5.1 percent of total operating DRG payments. The 
inpatient capital-related outlier reduction factor reflects the 
inpatient capital-related outlier

[[Page 46047]]

payments that would be made if all hospitals were paid according to 100 
percent of the Federal rate. For purposes of calculating the outlier 
thresholds and the outlier reduction factor, we model all hospitals as 
if they were paid 100 percent of the Federal rate because, as explained 
above, outlier payments are made only on the portion of the Federal 
rate that is included in the hospital's inpatient capital-related 
payments.
    In the August 30, 1996 final rule, we estimated that outlier 
payments for capital in FY 1997 would equal 5.19 percent of inpatient 
capital-related payments based on the Federal rate. Accordingly, we 
applied an outlier adjustment factor of 0.9481 to the Federal rate. 
Based on the thresholds as set forth in section II.A.4.d of this 
Addendum, we estimate that outlier payments for capital will equal 6.18 
percent of inpatient capital-related payments based on the Federal rate 
in FY 1998. We are, therefore, applying an outlier adjustment factor of 
0.9382 to the Federal rate. Thus, estimated capital outlier payments 
for FY 1998 represent a higher percentage of total capital standard 
payments than for FY 1997.
    The outlier reduction factors are not built permanently into the 
rates; that is, they are not applied cumulatively in determining the 
Federal rate. Therefore, the net change in the outlier adjustment to 
the Federal rate for FY 1998 is 0.9896 (0.9382/0.9481). Thus, the 
outlier adjustment decreases the FY 1998 Federal rate by 1.04 percent 
(1 -0.9896) compared with the FY 1997 outlier adjustment.
3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the Geographic Adjustment Factor
    Section 412.308(c)(4)(ii) requires that the Federal rate be 
adjusted so that aggregate payments for the fiscal year based on the 
Federal rate after any changes resulting from the annual DRG 
reclassification and recalibration, and changes in the geographic 
adjustment factor (GAF) are projected to equal aggregate payments that 
would have been made on the basis of the Federal rate without such 
changes. We use the actuarial model described in Appendix B to estimate 
the aggregate payments that would have been made on the basis of the 
Federal rate without changes in the DRG classifications and weights and 
in the GAF. We also use the model to estimate aggregate payments that 
would be made on the basis of the Federal rate as a result of those 
changes. We then use these figures to compute the adjustment required 
to maintain budget neutrality for changes in DRG weights and in the 
GAF.
    For FY 1997, we calculated a GAF/DRG budget neutrality factor of 
0.9987. In the proposed rule for FY 1998, we proposed a GAF/DRG budget 
neutrality factor of 1.0001. In this final rule with comment period, 
based on calculations using updated data, we are applying a factor of 
0.9989 to meet this requirement. The GAF/DRG budget neutrality factors 
are built permanently into the rates; that is, they are applied 
cumulatively in determining the Federal rate. This follows from the 
requirement that estimated aggregate payments each year be no more or 
less than they would have been in the absence of the annual DRG 
reclassification and recalibration and changes in the GAF. The 
incremental change in the adjustment from FY 1997 to FY 1998 is 0.9989. 
The cumulative change in the rate due to this adjustment is 1.0001 (the 
product of the incremental factors for FY 1993, FY 1994, FY 1995, FY 
1996, FY 1997, and FY 1998: 0.9980  x  1.0053  x  0.9998  x  0.9994  x  
0.9987  x  0.9989=1.0001).
    This factor accounts for DRG reclassifications and recalibration 
and for changes in the GAF. It also incorporates the effects on the GAF 
of FY 1998 geographic reclassification decisions made by the MGCRB 
compared to FY 1997 decisions. However, it does not account for changes 
in payments due to changes in the disproportionate share and indirect 
medical education adjustment factors or in the large urban add-on.
4. Exceptions Payment Adjustment Factor
    Section 412.308(c)(3) requires that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of additional payments for exceptions 
under Sec. 412.348 relative to total payments under the hospital-
specific rate and Federal rate. We use an actuarial model described in 
Appendix B to determine the exceptions payment adjustment factor.
    For FY 1997, we estimated that exceptions payments would equal 6.42 
percent of aggregate payments based on the Federal rate and the 
hospital-specific rate. Therefore, we applied an exceptions reduction 
factor of 0.9358 (1--0.0642) in determining the FY 1997 Federal rate. 
For FY 1998, we estimated in the June 2, 1997 proposed rule that 
exceptions payments would equal 7.24 percent of aggregate payments 
based on the Federal rate and the hospital-specific rate. Therefore we 
proposed to apply an exceptions payment reduction factor of .9276 (1--
0.0724) to determine the FY 1998 Federal rate. For this final rule with 
comment period, we estimate that exceptions payments for FY 1998 will 
equal 3.41 percent of aggregate payments based on the Federal rate and 
the hospital-specific rate. We are, therefore, applying an exceptions 
payment reduction factor of 0.9659 (1--0.0341) to the Federal rate for 
FY 1998.
    The final exceptions reduction factor for FY 1998 is thus 3.22 
percent higher than the factor for FY 1997 and 4.13 percent higher than 
the factor in the FY 1998 proposed rule. This change is due to a 
modeling refinement we have implemented since publication of the 
proposed rule described in Appendix B. The exceptions reduction factors 
are not built permanently into the rates; that is, the factors are not 
applied cumulatively in determining the Federal rate. Therefore, the 
net adjustment for exceptions to the FY 1998 Federal rate over the FY 
1997 Federal rate is 0.9659/0.9358, or 1.0322.
5. Standard Capital Federal Rate for FY 1998
    For FY 1997, the capital Federal rate was $438.92. With the changes 
we proposed to the factors used to establish the Federal rate, we 
proposed that the FY 1998 Federal rate would be $438.43. In this final 
rule with comment period, we are establishing a FY 1998 Federal rate of 
$371.51. The Federal rate for FY 1998 was calculated as follows:
     The FY 1998 update factor is .0090, that is, the update is 
0.9 percent.
     The FY 1998 budget neutrality adjustment factor that is 
applied to the standard Federal payment rate for changes in the DRG 
relative weights and in the GAF is 0.9989.
     The FY 1998 outlier adjustment factor is 0.9382.
     The FY 1998 exceptions payments adjustment factor is 
0.9659.
    Since the Federal rate has already been adjusted for differences in 
case mix, wages, cost of living, indirect medical education costs, and 
payments to hospitals serving a disproportionate share of low-income 
patients, we have made no additional adjustments in the standard 
Federal rate for these factors other than the budget neutrality factor 
for changes in the DRG relative weights and the GAF.
    We are providing a chart that shows how each of the factors and 
adjustments for FY 1998 affected the computation of the FY 1998 Federal 
rate in comparison to the FY 1997 Federal rate. We have added the 
effect of the 17.78 percent reduction to the rate required by Public 
Law 105-33 to the chart. The FY 1998 update factor has the effect of 
increasing the Federal rate by 0.90 percent

[[Page 46048]]

compared to the rate in FY 1997, while the final geographic and DRG 
budget neutrality factor has the effect of decreasing the Federal rate 
by 0.11 percent. The FY 1998 outlier adjustment factor has the effect 
of decreasing the Federal rate by 1.04 percent compared to FY 1997. The 
FY 1998 exceptions reduction factor has the effect of increasing the 
Federal rate by 3.22 percent compared to the exceptions reduction for 
FY 1997. The combined effect of all the changes is to decrease the 
Federal rate by 15.36 percent compared to the Federal rate for FY 1997.

Comparison of Factors and Adjustments: FY 1997 Federal Rate and FY 1998 
Federal Rate

----------------------------------------------------------------------------------------------------------------
                                                       FY 97           FY 98          Change      Percent change
----------------------------------------------------------------------------------------------------------------
Public Law 105-33 Standard Federal Rate                                                                         
 Reduction......................................              NA          0.8222          0.8222          -17.78
Update factor 1.................................          1.0070          1.0090          1.0090            0.90
GAF/DRG Adjustment Factor 1.....................          0.9987          0.9989          0.9989           -0.11
Outlier Adjustment Factor 2.....................          0.9481          0.9382          0.9896           -1.04
Exceptions Adjustment Factor 2..................          0.9358          0.9659          1.0322            3.22
Federal Rate....................................         $438.92         $371.51          0.8464         -15.36 
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the rates. Thus, for 
  example, the incremental change from FY 1997 to FY 1998 resulting from the application of the 0.9989 GAF/DRG  
  budget neutrality factor for FY 1998 is 0.9989.                                                               
\2\ The outlier reduction factor and the exceptions reduction factor are not built permanently into the rates;  
  that is, these factors are not applied cumulatively in determining the rates. Thus, for example, the net      
  change resulting from the application of the FY 1998 outlier reduction factor is 0.9382/0.9481, or 0.9896.    

    We are also providing a chart that shows how the final FY 1998 
Federal rate differs from the proposed FY 1998 Federal rate.

Comparison of Factors and Adjustments: Proposed FY 1998 Federal Rate 
and Final FY 1998 Federal Rate

----------------------------------------------------------------------------------------------------------------
                                                   Proposed  FY                                                 
                                                        98          Final FY 98       Change      Percent change
----------------------------------------------------------------------------------------------------------------
Public Law 105-33 Standard Federal Rate                                                                         
 Reduction......................................              NA          0.8222          0.8222          -17.78
Update factor...................................          1.0110          1.0090          0.9980           -0.20
GAF/DRG Adjustment Factor.......................          1.0001          0.9989          0.9988           -0.12
Outlier Adjustment Factor.......................          0.9449          0.9382          0.9929           -0.71
Exceptions Adjustment Factor....................          0.9276          0.9659          1.0413            4.13
Federal Rate....................................         $438.43         $371.51          0.8474          -15.26
----------------------------------------------------------------------------------------------------------------

6. Special Rate for Puerto Rico Hospitals
    As explained at the beginning of this section, in the past, 
hospitals in Puerto Rico were paid based on 75 percent of the Puerto 
Rico rate and 25 percent of the Federal rate. To parallel the change to 
the Puerto Rico blended payment amount mandated for operating payments 
by Public Law 105-33, effective with discharges on or after October 1, 
1997, capital payments to hospitals in Puerto Rico will be based on 50 
percent of the Puerto Rico capital rate and 50 percent of the Federal 
rate. The Puerto Rico rate is derived from the costs of Puerto Rico 
hospitals only, while the Federal rate is derived from the costs of all 
acute care hospitals participating in the prospective payment system 
(including Puerto Rico). To adjust hospitals' capital payments for 
geographic variations in capital costs, we apply a GAF to both portions 
of the blended rate. The GAF is calculated using the operating PPS wage 
index, and varies depending on the MSA or rural area in which the 
hospital is located. Since the GAF is based on the wage index, we are 
revising the method of accounting for geographical variation in Puerto 
Rico, to parallel the change that is being proposed on the operating 
rate, where a Puerto Rico-specific wage index is being calculated (see 
section III.B. of this preamble). Specifically, we used the new Puerto 
Rico wage index to determine the GAF for the Puerto Rico part of the 
capital blended rate, and retained the use of the national wage index 
to determine the GAF for the national part of the blended rate. As 
noted above, effective October 1, 1997, hospitals in Puerto Rico will 
be paid based on 50 percent of the Puerto Rico rate and 50 percent of 
the Federal rate. This means that, in computing the payment for a 
particular Puerto Rico hospital, the Puerto Rico portion of the rate 
will be multiplied by the Puerto Rico-specific GAF for the MSA in which 
the hospital is located, and the national portion of the rate will be 
multiplied by the national GAF for the MSA in which the hospital is 
located (which is computed from national data for all hospitals in the 
United States and Puerto Rico).
    We have adjusted the Puerto Rico rate to account for the 
application of Puerto Rico-specific GAFs. We did this in order to be 
consistent with the method by which we originally determined the 
national and Puerto Rico rates. This resulting standard Puerto Rico 
rate does not translate into a reduction in payments to Puerto Rico 
hospitals. The Puerto Rico-specific GAFs are higher than the national 
GAFs because they use the Puerto Rico mean only rather than the 
national mean. As a result, application of Puerto Rico-specific GAFs 
means Puerto Rico hospitals receive more money.
    For FY 1997, before application of the GAF, the special rate for 
Puerto Rico hospitals was $337.63. With the changes we proposed to the 
factors used to determine the rate, the proposed FY 1998 special rate 
for Puerto Rico was $204.46. In this final rule with comment period, 
the FY 1998 capital rate for Puerto Rico is $177.57. Since publication 
of the proposed rule, the Puerto Rico rate has declined because of the 
effect of the 17.78 percent reduction to the rate implemented as a 
result of Public Law 105-33.

B. Determination of Hospital-Specific Rate Update

    Section 412.328(e) of the regulations provides that the hospital-
specific rate for FY 1998 be determined by adjusting the FY 1997 
hospital-specific rate by the

[[Page 46049]]

hospital-specific rate update factor and the exceptions payment 
adjustment factor. Before application of these factors the FY 1997 
unadjusted hospital-specific rate was reduced 17.78 percent to comply 
with the provisions of Public Law 105-33. The 17.78 percent reduction 
will be in force from October 1, 1997 through September 30, 2002. A 
15.68 percent reduction to the unadjusted hospital specific rate will 
remain in effect from October 1, 2002 onward.
1. Impact of Public Law 105-33
    Public Law 105-33 reduces the hospital specific rate 17.78 percent 
through September 30, 2002. After that date a 15.68 percent reduction 
to the rate shall remain in effect.
2. Hospital-Specific Rate Update Factor
    The hospital-specific rate is updated in accordance with the update 
factor for the standard Federal rate determined under 
Sec. 412.308(c)(1). For FY 1998, we have updated the hospital-specific 
rate by a factor of 1.0090.
3. Exceptions Payment Adjustment Factor
    For FYs 1992 through 2001, the updated hospital-specific rate is 
multiplied by an adjustment factor to account for estimated exceptions 
payments for capital-related costs under Sec. 412.348, which is 
determined as a proportion of the total amount of payments under the 
hospital-specific rate and the Federal rate. For FY 1998, we estimated 
in the proposed rule that exceptions payments would be 7.24 percent of 
aggregate payments based on the Federal rate and the hospital-specific 
rate. We therefore proposed that the updated hospital-specific rate be 
reduced by a factor of 0.9276. In this final rule with comment period, 
we estimate that exceptions payments will be 3.53 percent of aggregate 
payments based on the Federal rate and the hospital specific rate. We 
are applying an exceptions reduction factor of 0.9659 to the hospital-
specific rate.
    The exceptions reduction factors are not built permanently into the 
rates; that is, the factors are not applied cumulatively in determining 
the hospital-specific rate. Therefore, the net adjustment to the FY 
1998 hospital-specific rate is 0.9659/0.9358, or 1.0322.
4. Net Change to Hospital-Specific Rate
    We are providing a chart to show the net change to the hospital-
specific rate. The chart shows the factors for FY 1997 and FY 1998 and 
the net adjustment for each factor. It also shows that the cumulative 
net adjustment from FY 1997 to FY 1998 is 0.8563, which represents a 
decrease of 13.66 percent to the hospital-specific rate. For each 
hospital, the FY 1998 hospital-specific rate is determined by 
multiplying the FY 1997 hospital-specific rate by the cumulative net 
adjustment of 0.8563.

FY 1998 Update and Adjustments to Hospital-Specific Rates

----------------------------------------------------------------------------------------------------------------
                                                       FY 97           FY 98      Net adjustment  Percent change
----------------------------------------------------------------------------------------------------------------
Public Law 105-33 Hospital-Specific Rate                                                                        
 Reduction......................................           (\1\)          0.8222          0.8222          -17.78
Update Factor...................................          1.0070          1.0090          1.0090            0.90
Exceptions Payment Adjustment Factor............          0.9358          0.9659          1.0322            3.22
Cumulative Adjustments..........................          0.9424          0.8070          0.8563         -14.37 
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.                                                                                             

    Note: The update factor for the hospital-specific rate is 
applied cumulatively in determining the rates. Thus, the incremental 
increase in the update factor from FY 1997 to FY 1998 is 1.0090. In 
contrast, the exceptions payment adjustment factor is not applied 
cumulatively. Thus, for example, the incremental increase in the 
exceptions reduction factor from FY 1997 to FY 1998 is 0.9659/
0.9358, or 1.0322.

C. Calculation of Inpatient Capital-Related Prospective Payments for FY 
1998

    During the capital prospective payment system transition period, a 
hospital is paid for the inpatient capital-related costs under one of 
two alternative payment methodologies; the fully prospective payment 
methodology or the hold-harmless methodology. The payment methodology 
applicable to a particular hospital is determined when a hospital comes 
under the prospective payment system for capital-related costs by 
comparing its hospital-specific rate to the Federal rate applicable to 
the hospital's first cost reporting period under the prospective 
payment system. The applicable Federal rate was determined by making 
adjustments as follows:
     For outliers by dividing the standard Federal rate by the 
outlier reduction factor for that fiscal year; and,
     For the payment adjustment factors applicable to the 
hospital (that is, the hospital's GAF, the disproportionate share 
adjustment factor, and the indirect medical education adjustment 
factor, when appropriate).
    If the hospital-specific rate is above the applicable Federal rate, 
the hospital is paid under the hold-harmless methodology. If the 
hospital-specific rate is below the applicable Federal rate, the 
hospital is paid under the fully prospective methodology.
    For purposes of calculating payments for each discharge under both 
the hold-harmless payment methodology and the fully prospective payment 
methodology, the standard Federal rate is adjusted as follows: 
(Standard Federal Rate)  x  (DRG weight)  x  (GAF)  x  (Large Urban 
Add-on, if applicable)  x  (COLA adjustment for hospitals located in 
Alaska and Hawaii)  x  (1 + Disproportionate Share Adjustment Factor + 
IME Adjustment Factor, if applicable). The result is termed the 
adjusted Federal rate.
    Payments under the hold-harmless methodology are determined under 
one of two formulas. A hold-harmless hospital is paid the higher of:
     100 percent of the adjusted Federal rate for each 
discharge; or
     An old capital payment equal to 85 percent (100 percent 
for sole community hospitals) of the hospital's allowable Medicare 
inpatient old capital costs per discharge for the cost reporting period 
plus a new capital payment based on a percentage of the adjusted 
Federal rate for each discharge. The percentage of the adjusted Federal 
rate equals the ratio of the hospital's allowable Medicare new capital 
costs to its total Medicare inpatient capital-related costs in the cost 
reporting period.
    Once a hospital receives payment based on 100 percent of the 
adjusted Federal rate in a cost reporting period beginning on or after 
October 1, 1994 (or the first cost reporting period after obligated 
capital that is recognized as old capital under Sec. 412.302(c) is put 
in use for patient care, if later), the hospital continues to receive 
capital prospective payment system payments on that basis for the 
remainder of the transition period.
    Payment for each discharge under the fully prospective methodology 
is the sum of:

[[Page 46050]]

     The hospital-specific rate multiplied by the DRG relative 
weight for the discharge and by the applicable hospital-specific 
transition blend percentage for the cost reporting period; and
     The adjusted Federal rate multiplied by the Federal 
transition blend percentage.
    The blend percentages for cost reporting periods beginning in FY 
1998 are 70 percent of the adjusted Federal rate and 30 percent of the 
hospital-specific rate.
    Hospitals may also receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. Section 
412.312(c) provides for a single set of thresholds to identify outlier 
cases for both inpatient operating and inpatient capital-related 
payments. Outlier payments are made only on that portion of the Federal 
rate that is used to calculate the hospital's inpatient capital-related 
payments. For fully prospective hospitals, that portion is 70 percent 
of the Federal rate for discharges occurring in cost reporting periods 
beginning during FY 1998. Thus, a fully prospective hospital will 
receive 70 percent of the capital-related outlier payment calculated 
for the case for discharges occurring in cost reporting periods 
beginning in FY 1998. For hold-harmless hospitals paid 85 percent of 
their reasonable costs for old inpatient capital, the portion of the 
Federal rate that is included in the hospital's outlier payments is 
based on the hospital's ratio of Medicare inpatient costs for new 
capital to total Medicare inpatient capital costs. For hold-harmless 
hospitals that are paid 100 percent of the Federal rate, 100 percent of 
the Federal rate is included in the hospital's outlier payments.
    The outlier thresholds for FY 1998 are published in section 
II.A.4.c of this Addendum. For FY 1998, a case qualifies as a cost 
outlier if the cost for the case is greater than the sum of the 
prospective payment rate for the DRG plus IME and DSH payments plus 
$11,050. During the capital prospective payment system transition 
period, a hospital may also receive an additional payment under an 
exceptions process if its total inpatient capital-related payments are 
less than a minimum percentage of its allowable Medicare inpatient 
capital-related costs. The minimum payment level is established by 
class of hospital under Sec. 412.348. The minimum payment levels for 
portions of cost reporting periods occurring in FY 1998 are:
     Sole community hospitals (located in either an urban or 
rural area), 90 percent;
     Urban hospitals with at least 100 beds and a 
disproportionate share patient percentage of at least 20.2 percent; and
     Urban hospitals with at least 100 beds that qualify for 
disproportionate share payments under Sec. 412.106(c)(2), 80 percent; 
and
     All other hospitals, 70 percent.
    Under Sec. 412.348(d), the amount of the exceptions payment is 
determined by comparing the cumulative payments made to the hospital 
under the capital prospective payment system to the cumulative minimum 
payment levels applicable to the hospital for each cost reporting 
period subject to that system. Any amount by which the hospital's 
cumulative payments exceed its cumulative minimum payment is deducted 
from the additional payment that would otherwise be payable for a cost 
reporting period.
    New hospitals are exempted from the capital prospective payment 
system for their first 2 years of operation and are paid 85 percent of 
their reasonable costs during that period. A new hospital's old capital 
costs are its allowable costs for capital assets that were put in use 
for patient care on or before the later of December 31, 1990 or the 
last day of the hospital's base year cost reporting period, and are 
subject to the rules pertaining to old capital and obligated capital as 
of the applicable date. Effective with the third year of operation, we 
will pay the hospital under either the fully prospective methodology, 
using the appropriate transition blend in that Federal fiscal year, or 
the hold-harmless methodology. If the hold-harmless methodology is 
applicable, the hold-harmless payment for assets in use during the base 
period would extend for 8 years, even if the hold-harmless payments 
extend beyond the normal transition period.

D. Capital Input Price Index

1. Background
    Like the prospective payment hospital operating input price index, 
the Capital Input Price Index (CIPI) is a fixed-weight price index. A 
fixed-weight price index measures how much it would cost at a later 
date to purchase the same mix of goods and services purchased in the 
base period. For the prospective payment hospital operating and capital 
input price indices, the base period is selected and cost category 
weights are determined using available data on hospitals. Next, 
appropriate price proxy indices are chosen for each cost category. Then 
a price proxy index level for each expenditure category is multiplied 
by the comparable cost category weight. The sum of these products (that 
is, weights multiplied by price proxy index levels) for all cost 
categories yields the composite index level of the market basket for a 
given year. Repeating the step for other years produces a time series 
of composite market basket index levels. Dividing an index level by a 
later index level produces a rate of growth in the input price index. 
Since the percent change is computed for the fixed mix of total capital 
inputs with a 1992 base, the index is fixed-weight.
    Like the operating input price index, the CIPI measures the price 
changes associated with costs during a given year. In order to do so, 
the CIPI must differ from the operating input price index in one 
important aspect. The CIPI must reflect the vintage nature of capital, 
which is the acquisition and use of capital over time. Capital expenses 
in any given year are determined by the stock of capital in that year 
(that is, capital that remains on hand from all current and prior 
capital acquisitions). An index measuring capital price changes needs 
to reflect this vintage nature of capital. Therefore, the CIPI was 
developed to capture the vintage nature of capital by using a weighted-
average of past capital purchase prices up to and including the current 
year.
    Using Medicare cost reports, AHA data, and Securities Data 
Corporation data, a vintage-weighted price index was developed to 
measure price increases associated with capital expenses. We 
periodically update the base year for the operating and capital input 
prices to reflect the changing composition of inputs for operating and 
capital expenses. Currently, the CIPI is based to FY 1992 and was last 
rebased in 1997. The most recent explanation of the CIPI was discussed 
in the proposed rule for FY 1998 published in the June 2, 1997 Federal 
Register (62 FR 29953). The following Federal Register documents also 
describe development and revisions of the methodology involved with the 
construction of the CIPI: September 1, 1992 (57 FR 40016), May 26, 1993 
(58 FR 30448), September 1, 1993 (58 FR 46490), May 27, 1994 (59 FR 
27876), September 1, 1994 (59 FR 45517), June 2, 1995 (60 FR 29229), 
and September 1, 1995 (60 FR 45815), May 31, 1996 (61 FR 27466), and 
August 30, 1996 (61 FR 46196).
2. Research on Reweighting the CIPI
    After analyzing various data sources and methodologies for 
determining capital weights for the HCFA PPS CIPI, we will continue to 
use the weights published in the August 30, 1996 Federal Register (61 
FR 46196). We

[[Page 46051]]

explained in the June 2, 1997 proposed rule that we had decided not to 
use the 1992 Department of Commerce Asset and Expenditure data to 
revise the cost category weights in the CIPI. The three reasons why we 
are staying with the current HCFA PPS CIPI cost category weights are: 
(1) HCFA's prefers to continue to use the Medicare Cost Reports for the 
Medicare subset of hospitals (PPS only); (2) the detail needed for 
future rebasing of the index will be available from the Medicare Cost 
Reports; and (3) the CIPI cost shares are similar to those provided by 
the 1992 Asset and Expenditures Survey. We received no comments on this 
issue.
3. Forecast of the CIPI for Federal Fiscal Year 1998
    DRI forecasts a 1.1 percent increase in the CIPI for FY 1998. This 
is the outcome of a projected 2.2 percent increase in vintage-weighted 
depreciation prices (building and fixed equipment, and movable 
equipment) and a 3.2 percent increase in other capital expense prices 
in FY 1998, partially offset by a 2.0 percent decline in vintage-
weighted interest rates in FY 1998. The weighted average of these three 
factors produces the 1.1 percent increase for the CIPI as a whole.

IV. Changes to Payment Rates for Excluded Hospitals and Hospital 
Units: Rate-of-Increase Percentages

A. Rate-of-Increase Percentages for Excluded Hospitals and Hospital 
Units

    The inpatient operating costs of hospitals and hospital units 
excluded from the prospective payment system are subject to rate-of-
increase limits established under the authority of section 1886(b) of 
the Act, which is implemented in Sec. 413.40 of the regulations. Under 
these limits, an annual target amount (expressed in terms of the 
inpatient operating cost per discharge) is set for each hospital, based 
on the hospital's own historical cost experience trended forward by the 
applicable rate-of-increase percentages (update factors). The target 
amount is multiplied by the number of Medicare discharges in a 
hospital's cost reporting period, yielding the ceiling on aggregate 
Medicare inpatient operating costs for the cost reporting period.
    Each hospital's target amount is adjusted annually, at the 
beginning of its cost reporting period, by an applicable rate-of-
increase percentage. Section 1886(b)(3)(B) of the Act provides that for 
cost reporting periods beginning on or after October 1, 1997 and before 
October 1, 1998, the rate- of-increase percentage is 0. In order to 
determine a hospital's target amount for its cost reporting period 
beginning in FY 1998, the hospital's target amount for its cost 
reporting period that began in FY 1997 is increased by 0. In addition, 
as indicated in section VII of the preamble, Public Law 105-33 
significantly altered several aspects of payments for excluded 
hospitals and units, effective for cost reporting periods beginning on 
or after October 1, 1997. Section 4413 of Public Law 105-33 permits 
certain excluded hospitals--hospitals that were excluded for the cost 
reporting period beginning before October 1, 1990 and are within 
certain specified classes, as well as ``qualified long-term care 
hospitals''--to elect a rebasing of the hospital's target amount for 
the 12-month cost reporting period beginning during FY 1998. The 
rebased target amount for a hospital would reflect operating costs in 
recent cost reporting periods. Section 4414 establishes a cap on target 
amounts for certain classes of excluded hospitals, based on target 
amounts for hospitals in the same class, for cost reporting periods 
beginning during FY 1998. Section 4415 revises the formulas for 
determining bonus and relief payments for excluded hospitals and also 
establishes an additional bonus payment for continuous improvement, for 
cost reporting periods beginning during FY 1998. Finally, sections 4416 
and 4419 establish a new statutory payment methodology for new 
hospitals, effective October 1, 1997.

B. Wage Index Exceptions for Excluded Hospitals and Units

    In the August 30, 1991 final rule (56 FR 43232), we set forth our 
policy for target amount adjustments for significant wage increases. 
Effective with cost reporting periods beginning on or after April 1, 
1990, significant increases in wages since the base period are 
recognized as a basis for an adjustment in the target amount under 
Sec. 413.40(g).
    To qualify for an adjustment, the excluded hospital or hospital 
unit must be located in a labor market area for which the average 
hourly wage increased significantly more than the national average 
hourly wage between the hospital's base period and the period subject 
to the ceiling. We use the hospital wage index for prospective payment 
hospitals to determine the rate of increase in the average hourly wage 
in the labor market area. For a hospital to qualify for an adjustment, 
the wage index value for the cost reporting period subject to the 
ceiling must be at least 8 percent higher than the wage index based on 
wage survey data collected for the base year cost reporting period. If 
survey data are not available for one (or both) of the cost reporting 
periods used in the comparison, the wage index based on the latest 
available survey data collected before that cost reporting period will 
be used. For example, to make the comparison between a 1983 base period 
and a hospital's cost reporting period beginning in FY 1995, we would 
use the rate of increase between the wage index based on 1982 wage data 
and the wage index based on the FY 1994 data, since the FY 1994 data 
are the most recent data currently available. Further, the comparison 
is made without regard to geographic reclassifications made by the 
MGCRB under sections 1886(d) (8) and (10) of the Act. Therefore, the 
comparison is made based on the wage index value of the labor market 
area in which the hospital is actually located.
    We determine the amount of the adjustment for wage increases by 
considering three factors for the time between the base period and the 
period for which an adjustment is requested: the rate of increase in 
the hospital's average hourly wage; the rate of increase in the average 
hourly wage in the labor market area in which the hospital is located; 
and, the rate of increase in the national average hourly wage for 
hospital workers. The adjustment is limited to the amount by which the 
lower of the hospital's or the labor market area's rate of increase in 
average hourly wages significantly exceeds the national increase (that 
is, exceeds the national rate of increase by more than 8 percent). For 
purposes of computing the adjustment, the relative rate of increase in 
the average hourly wage for the labor market area is assumed to have 
been the same over each of the intervening years between the wage 
surveys.
    To determine the rate of increase in the national average hourly 
wage, we use the average hourly earnings (AHE) component of the wages 
and salaries portion of the market basket. This measure is derived from 
the 1982-based market basket since the 1987-based market basket uses 
the employment cost index (ECI) for hospital workers as the price proxy 
for this component. Unlike the AHE, the ECI for hospital workers can be 
measured historically only back to 1986. In addition, the ECI does not 
adjust for skill-mix shifts and, therefore, measures only the change in 
wage rates per hour.
    The average hourly earnings for hospital workers show the following 
increases:

1992 = 4.8 percent
1993 = 3.6 percent
1994 = 2.7 percent
1995 = 3.3 percent

[[Page 46052]]

1996 = 3.1 percent
1997 = 2.2 percent
1998 = 3.2 percent

    We note that this section merely provides updated information with 
respect to areas that would qualify for the wage index adjustment under 
Sec. 413.30(g). This information was calculated in accordance with 
established policy and does not reflect any change in that policy. The 
geographic areas in which the percentage difference in wage indexes was 
sufficient to qualify for a wage index adjustment are listed in Table 
10 of section V of the addendum to this final rule with comment period.

V. Tables

    This section contains the tables referred to throughout the 
preamble to this final rule with comment period and in this Addendum. 
For purposes of this final rule with comment period, and to avoid 
confusion, we have retained the designations of Tables 1 through 5 that 
were first used in the September 1, 1983 initial prospective payment 
final rule (48 FR 39844). Tables 1A, 1C, 1D, 1E, 1F, 3C, 4A, 4B, 4C, 
4D, 4E, 4F, 5, 6A, 6B, 6C, 6D, 6E, 6F, 7A, 7B, 8A, 8B, and 10 are 
presented below. The tables presented below are as follows:

Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, 
Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 1E--National Adjusted Operating Standardized Amounts for 
``Temporary Relief'' Hospitals, Labor/Nonlabor
Table 1F--Adjusted Operating Standardized Amounts for ``Temporary 
Relief'' Hospitals in Puerto Rico, Labor/Nonlabor
Table 3C--Hospital Case Mix Indexes for Discharges Occurring in Federal 
Fiscal Year 1996 and Hospital Average Hourly Wage for Federal Fiscal 
Year 1998 Wage Index
Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Urban Areas
Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Rural Areas
Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Hospitals That Are Reclassified
Table 4D--Average Hourly Wage for Urban Areas
Table 4E--Average Hourly Wage for Rural Areas
Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF)
Table 5--List of Diagnosis Related Groups (DRGs), Relative Weighting 
Factors, Geometric Mean Length of Stay, and Arithmetic Mean Length of 
Stay Points Used in the Prospective Payment System
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Revised Diagnosis Code Titles
Table 6E--Additions to the CC Exclusions List
Table 6F--Deletions to the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 96 MEDPAR Update 06/97 GROUPER V14.0
Table 7B--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 96 MEDPAR Update 06/97 GROUPER V15.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios for Urban 
and Rural Hospitals (Case Weighted) August 1997
Table 8B--Statewide Average Capital Cost-to-Charge Ratios (Case 
Weighted) August 1997
Table 10--Percentage Difference in Wage Indexes for Areas that Qualify 
for a Wage Index Exception for Excluded Hospitals and Units

                   Table 1A.--National Adjusted Operating Standardized Amounts, Labor/Nonlabor                  
----------------------------------------------------------------------------------------------------------------
                    Large urban areas                                           Other areas                     
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related     
----------------------------------------------------------------------------------------------------------------
2,776.21...................                   1,128.44                    2,732.26                    1,110.58  
----------------------------------------------------------------------------------------------------------------


               Table 1C.--Adjusted Operating Standardized Amounts For Puerto Rico, Labor/Nonlabor               
----------------------------------------------------------------------------------------------------------------
                                                                  Large urban areas            Other areas      
                                                             ---------------------------------------------------
                                                                 Labor       Nonlabor      Labor       Nonlabor 
----------------------------------------------------------------------------------------------------------------
National....................................................     2,752.36     1,118.74     2,752.36     1,118.74
Puerto Rico.................................................     1,323.01       532.55     1,302.07       524.11
----------------------------------------------------------------------------------------------------------------


            Table 1D.--Capital Standard Federal Payment Rate            
------------------------------------------------------------------------
                                                                 Rate   
------------------------------------------------------------------------
National...................................................       371.51
Puerto Rico................................................       177.57
------------------------------------------------------------------------


 Table 1E.--National Adjusted Operating Standardized Amounts For ``Temporary Relief'' Hospitals, Labor/Nonlabor 
----------------------------------------------------------------------------------------------------------------
                    Large urban areas                                           Other areas                     
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related     
----------------------------------------------------------------------------------------------------------------
2,790.09...................                   1,134.08                    2,745.92                    1,116.13  
----------------------------------------------------------------------------------------------------------------


[[Page 46053]]


  Table 1F.--Adjusted Operating Standardized Amounts For ``Temporary Relief'' Hospitals In Puerto Rico, Labor/  
                                                    Nonlabor                                                    
----------------------------------------------------------------------------------------------------------------
                                                                  Large urban areas            Other areas      
                                                             ---------------------------------------------------
                                                                 Labor       Nonlabor      Labor       Nonlabor 
----------------------------------------------------------------------------------------------------------------
National....................................................     2,766.12     1,124.33     2,766.12     1,124.33
Puerto Rico.................................................     1,329.63       535.21     1,308.58       526.73
----------------------------------------------------------------------------------------------------------------


[[Page 46054]]


                 Table 3C.--Hospital Case Mix Indexes for Discharges Occurring in Federal Fiscal Year 1996; Hospital Average Hourly Wage for Federal Fiscal Year 1998 Wage Index                
                                                                                          Page 1 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
010001.......................   01.4825   15.78   010095..........   00.9801   12.06   030004.........   01.0972   13.75   040002.........   01.1973   12.84   040107.........   01.2002   15.29
010004.......................   00.9676   11.63   010097..........   00.9079   14.47   030006.........   01.5610   18.02   040003.........   01.0165   12.72   040109.........   01.1817   13.56
010005.......................   01.2091   15.74   010098..........   01.2489   11.65   030007.........   01.3193   16.96   040004.........   01.6332   15.84   040114.........   01.8852   17.60
010006.......................   01.4496   15.81   010099..........   01.1682   14.38   030008.........   02.3016   19.75   040005.........   01.0097   12.83   040116.........   01.3704   19.05
010007.......................   01.0711   13.52   010100..........   01.2651   15.26   030009.........   01.3458   16.25   040007.........   01.8429   17.91   040118.........   01.2209   14.54
010008.......................   01.1607   12.11   010101..........   01.0607   14.05   030010.........   01.4373   17.79   040008.........   01.0327   11.22   040119.........   01.1544   14.58
010009.......................   01.1291   15.17   010102..........   01.0052   13.60   030011.........   01.5237   18.32   040010.........   01.3176   15.80   040124.........   01.1341   13.82
010010.......................   01.0737   14.78   010103..........   01.8566   18.70   030012.........   01.2358   16.41   040011.........   00.9916   10.85   040126.........   00.9510   11.98
010011.......................   01.6409   19.62   010104..........   01.7062   18.20   030013.........   01.2716   19.56   040014.........   01.1905   16.40   040132.........   00.5050   11.69
010012.......................   01.3020   16.65   010108..........   01.2341   14.48   030014.........   01.4919   18.50   040015.........   01.2941   13.52   050002.........   01.5829   26.90
010015.......................   01.0958   13.70   010109..........   01.1081   13.36   030016.........   01.2453   17.47   040016.........   01.6692   16.02   050006.........   01.4566   19.54
010016.......................   01.2749   16.88   010110..........   01.0520   14.12   030017.........   01.5067   18.11   040017.........   01.3301   11.89   050007.........   01.6171   27.21
010018.......................   00.9370   16.77   010112..........   01.1867   15.28   030018.........   01.8034   19.31   040018.........   01.2275   18.03   050008.........   01.5161   26.68
010019.......................   01.3226   14.52   010113..........   01.6944   15.80   030019.........   01.2819   19.75   040019.........   01.1380   13.94   050009.........   01.7352   29.57
010021.......................   01.2524   15.75   010114..........   01.3212   16.45   030022.........   01.4840   17.44   040020.........   01.6069   15.06   050013.........   01.8362   22.18
010022.......................   01.0183   17.25   010115..........   00.8516   12.02   030023.........   01.3266   18.26   040021.........   01.2523   14.96   050014.........   01.1738   22.16
010023.......................   01.6476   15.43   010117..........   00.8712   13.59   030024.........   01.7156   20.56   040022.........   01.6750   14.96   050015.........   01.3849   23.94
010024.......................   01.4637   15.95   010118..........   01.3326   18.41   030025.........   01.1285   14.24   040024.........   01.0635   14.26   050016.........   01.1630   17.90
010025.......................   01.4608   13.24   010119..........   00.9630   18.53   030027.........   01.0548   15.39   040025.........   00.9145   12.38   050017.........   02.0535   25.36
010027.......................   00.8284   14.12   010120..........   00.9715   15.39   030030.........   01.7308   18.21   040026.........   01.6072   16.65   050018.........   01.3072   20.37
010029.......................   01.5709   15.54   010121..........   01.3052   15.80   030033.........   01.2274   15.72   040027.........   01.2943   12.96   050021.........   01.5250   25.59
010031.......................   01.2310   15.57   010123..........   01.3119   15.81   030034.........   01.0042   15.05   040028.........   01.0928   11.93   050022.........   01.5018   23.58
010032.......................   00.9628   12.86   010124..........   01.3732   13.53   030035.........   01.2917   18.82   040029.........   01.2903   15.78   050024.........   01.3075   21.10
010033.......................   01.9450   17.81   010125..........   01.0057   15.83   030036.........   01.1928   18.51   040030.........   00.9400   11.36   050025.........   01.6846   21.84
010034.......................   01.0855   12.64   010126..........   01.1881   14.11   030037.........   02.0983   19.86   040032.........   00.9578   10.60   050026.........   01.4621   28.03
010035.......................   01.2533   15.94   010127..........   01.3531   16.36   030038.........   01.6478   18.39   040035.........   00.9687   10.26   050028.........   01.3819   15.43
010036.......................   01.1301   16.08   010128..........   01.0004   12.39   030040.........   01.1504   16.07   040036.........   01.5195   17.87   050029.........   01.4308   22.42
010038.......................   01.3196   17.78   010129..........   01.0814   14.62   030041.........   00.9799   13.77   040037.........   01.1132   11.92   050030.........   01.3244   20.23
010039.......................   01.6833   17.26   010130..........   01.0341   14.47   030043.........   01.2492   17.86   040039.........   01.2296   13.00   050032.........   01.2349   26.01
010040.......................   01.5892   18.14   010131..........   01.3381   18.57   030044.........   01.0792   16.15   040040.........   00.9709   14.02   050033.........   01.4525   26.08
010043.......................   01.1319   10.75   010134..........   00.8561   10.10   030046.........   00.9632   18.53   040041.........   01.3631   15.91   050036.........   01.6825   19.57
010044.......................   01.1616   14.54   010137..........   01.2998   16.93   030047.........   00.9556   20.45   040042.........   01.2352   14.76   050038.........   01.4592   28.87
010045.......................   01.1903   13.53   010138..........   00.9272   10.96   030049.........   00.9882   14.67   040044.........   01.0303   11.22   050039.........   01.6258   21.59
010046.......................   01.5214   16.79   010139..........   01.6887   19.60   030054.........   00.8543   12.51   040045.........   01.0246   15.07   050040.........   01.2705   22.01
010047.......................   00.9795   10.30   010143..........   01.2910   16.04   030055.........   01.2188   16.56   040047.........   01.1375   15.13   050042.........   01.3518   20.78
010049.......................   01.1616   14.77   010144..........   01.3015   16.55   030059.........   01.3958   18.88   040048.........   01.1836   14.02   050043.........   01.6121   30.35
010050.......................   01.1221   13.88   010145..........   01.3023   15.68   030060.........   01.1372   16.21   040050.........   01.1593   12.27   050045.........   01.2807   18.28
010051.......................   00.8513   09.93   010146..........   01.1750   15.81   030061.........   01.6808   17.13   040051.........   01.0998   12.97   050046.........   01.2665   21.20
010052.......................   01.0489   09.88   010148..........   01.0002   12.52   030062.........   01.2672   15.94   040053.........   01.1245   13.04   050047.........   01.5727   31.60
010053.......................   01.0767   13.31   010149..........   01.3649   16.73   030064.........   01.7564   18.53   040054.........   01.0611   12.44   050051.........   01.0491   17.04
010054.......................   01.2094   17.02   010150..........   01.1059   16.28   030065.........   01.7363   19.65   040055.........   01.4707   15.29   050054.........   01.2156   20.60
010055.......................   01.4429   16.99   010152..........   01.4925   17.56   030067.........   01.0534   15.78   040058.........   01.0324   13.64   050055.........   01.4024   27.81
010056.......................   01.4318   18.78   010155..........   01.0502   06.99   030068.........   01.0784   15.77   040060.........   00.9853   10.20   050056.........   01.3688   29.73
010058.......................   01.0898   12.93   020001..........   01.5629   26.31   030069.........   01.3333   20.13   040062.........   01.6840   15.85   050057.........   01.5572   19.64
010059.......................   01.1095   14.92   020002..........   01.2556   23.88   030071.........   00.9698  .......  040064.........   01.0541   11.01   050058.........   01.4522   21.47
010061.......................   01.1895   15.20   020004..........   01.1115   25.46   030072.........   00.8317  .......  040066.........   01.2232   15.86   050060.........   01.5351   20.46
010062.......................   01.0358   14.36   020005..........   00.8208   25.53   030073.........   01.0031  .......  040067.........   01.0943   12.18   050061.........   01.4652   21.87
010064.......................   01.8034   18.52   020006..........   01.2585   25.07   030074.........   00.9004  .......  040069.........   01.1556   14.87   050063.........   01.4029   21.02
010065.......................   01.3457   15.39   020007..........   01.0349   22.76   030075.........   00.8568  .......  040070.........   00.9323   13.68   050065.........   01.6381   22.82
010066.......................   00.9479   10.41   020008..........   01.1380   28.97   030076.........   01.0931  .......  040071.........   01.6768   15.73   050066.........   01.2678   20.99
010068.......................   01.3086   16.70   020009..........   00.9789   21.88   030077.........   00.8398  .......  040072.........   01.1038   13.94   050067.........   01.3721   21.53
010069.......................   01.1938   13.10   020010..........   01.0878   26.44   030078.........   01.1397  .......  040074.........   01.3224   14.39   050068.........   01.0669   18.92
010072.......................   01.2125   13.45   020011..........   00.9374   22.61   030079.........   00.8800  .......  040075.........   01.1151   11.73   050069.........   01.6487   24.14
010073.......................   01.0216   10.41   020012..........   01.2409   24.23   030080.........   01.5987   21.05   040076.........   01.0521   16.33   050070.........   01.2795   33.06
010078.......................   01.2745   16.51   020013..........   01.0509   24.21   030083.........   01.3190   21.06   040077.........   00.9301   11.30   050071.........   01.3314   32.76
010079.......................   01.2576   15.43   020014..........   01.1842   22.13   030084.........   01.0306  .......  040078.........   01.5579   17.77   050072.........   01.3261   32.63
010080.......................   01.0093   11.89   020017..........   01.6662   24.50   030085.........   01.5587   23.63   040080.........   01.1206   14.65   050073.........   01.3306   32.62
010081.......................   01.8574   14.84   020018..........   00.7773  .......  030086.........   01.3371   18.01   040081.........   00.9499   10.75   050074.........   01.3610   38.56
010083.......................   01.0102   15.43   020019..........   00.7868  .......  030087.........   01.6346   18.93   040082.........   01.1559   14.31   050075.........   01.3921   32.75
010084.......................   01.4836   17.66   020020..........   00.7621  .......  030088.........   01.4134   19.07   040084.........   01.1216   14.18   050076.........   01.8221   32.11
010085.......................   01.2703   17.11   020021..........   00.9121  .......  030089.........   01.5854   19.68   040085.........   01.1894   14.81   050077.........   01.5831   22.86
010086.......................   01.0808   13.70   020024..........   01.0845   23.72   030092.........   01.6117   20.36   040088.........   01.4011   14.36   050078.........   01.2955   24.76
010087.......................   01.8483   18.51   020025..........   00.9808   24.32   030093.........   01.4070   17.81   040090.........   00.9226   13.54   050079.........   01.5781   29.34
010089.......................   01.2615   15.60   020026..........   01.3051  .......  030094.........   01.3544   18.46   040091.........   01.2623   19.82   050080.........   01.3947   20.59
010090.......................   01.5853   17.57   020027..........   01.0980  .......  030095.........   01.1437   18.24   040093.........   01.0361   10.11   050081.........   01.7055   22.17
010091.......................   01.0099   14.57   030001..........   01.3356   20.07   030098.........   00.9923  .......  040100.........   01.3209   13.29   050082.........   01.5529   21.60
010092.......................   01.4076   16.61   030002..........   01.8070   21.04   030099.........   00.9435  .......  040105.........   01.0256   13.29   050084.........   01.6782   23.55
010094.......................   01.2351   15.11   030003..........   01.9769   20.37   040001.........   01.1189   12.95   040106.........   01.2151   14.08   050088.........   01.0377   23.02
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                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050089.......................   01.4267   20.50   050188..........   01.3813   26.63   050298.........   01.2567   21.05   050421.........   01.3719   24.84   050546.........   00.7784   22.14
050090.......................   01.2947   23.06   050189..........   01.0628   21.87   050299.........   01.3551   22.62   050423.........   01.0305   19.52   050547.........   00.8743   21.94
050091.......................   01.1912   22.02   050191..........   01.4969   20.99   050300.........   01.3966   22.60   050424.........   01.8245   22.86   050549.........   01.7309   25.79
050092.......................   00.9918   15.98   050192..........   01.1894   18.17   050301.........   01.3386   22.43   050425.........   01.3271   33.00   050550.........   01.5817   23.60
050093.......................   01.5676   23.44   050193..........   01.3103   23.13   050302.........   01.3707   27.57   050426.........   01.3357   22.53   050551.........   01.2992   24.63
050095.......................   00.7794   29.00   050194..........   01.2778   28.00   050305.........   01.5747   30.80   050427.........   00.8258   17.79   050552.........   01.2447   21.99
050096.......................   01.3087   19.75   050195..........   01.6036   32.79   050307.........   01.3606   21.59   050430.........   00.8488   17.06   050557.........   01.5742   21.58
050097.......................   01.4627   18.53   050196..........   01.4084   17.33   050308.........   01.5170   30.55   050431.........   01.0903   19.94   050559.........   01.4058   24.92
050099.......................   01.4724   23.23   050197..........   01.8388   28.44   050309.........   01.3687   24.92   050432.........   01.6738   24.04   050560.........   01.4220  ......
050100.......................   01.7325   28.66   050204..........   01.5056   24.18   050310.........   01.2220   19.66   050433.........   01.1020   17.37   050561.........   01.1895   32.17
050101.......................   01.4330   28.42   050205..........   01.3804   17.74   050312.........   01.9988   24.11   050434.........   01.2082   20.09   050564.........   01.1459   17.84
050102.......................   01.4247   18.79   050207..........   01.2943   19.79   050313.........   01.2235   21.97   050435.........   01.2970   23.02   050565.........   01.1268   21.68
050103.......................   01.6353   26.99   050208..........   00.9009   28.76   050315.........   01.2143   19.97   050436.........   00.9665   14.81   050566.........   00.9128   23.47
050104.......................   01.5264   22.61   050211..........   01.3133   30.44   050317.........   01.3259   18.92   050438.........   01.7470   25.46   050567.........   01.6154   24.19
050107.......................   01.4795   20.75   050213..........   01.5197   21.12   050320.........   01.3153   27.83   050440.........   01.3246   21.46   050568.........   01.3628   19.64
050108.......................   01.7215   21.54   050214..........   01.4983   20.90   050324.........   01.9108   25.52   050441.........   02.0088   28.23   050569.........   01.3434   23.05
050109.......................   02.4142   23.68   050215..........   01.5327   28.12   050325.........   01.2376   21.42   050443.........   00.9266   16.07   050570.........   01.7746   23.41
050110.......................   01.3004   19.33   050217..........   01.3523   20.45   050327.........   01.5961   22.32   050444.........   01.3956   23.98   050571.........   01.4447   22.36
050111.......................   01.3067   19.21   050219..........   01.1281   20.76   050328.........   01.5403   30.01   050446.........   00.9652   21.02   050573.........   01.6566   23.85
050112.......................   01.5376   24.56   050222..........   01.5805   30.02   050329.........   01.3549   22.38   050447.........   01.1512   19.37   050575.........   01.1815  ......
050113.......................   01.3358   28.10   050224..........   01.6094   22.29   050331.........   01.4005   26.07   050448.........   01.2546   20.75   050577.........   01.4076   19.70
050114.......................   01.4946   20.53   050225..........   01.4968   20.67   050333.........   01.1112   19.36   050449.........   01.3307   20.38   050578.........   01.2150   24.65
050115.......................   01.5823   20.21   050226..........   01.3707   23.58   050334.........   01.7852   31.52   050454.........   01.8478   27.56   050579.........   01.5024   27.75
050116.......................   01.4891   23.17   050228..........   01.3742   27.09   050335.........   01.4100   21.78   050455.........   01.8811   21.07   050580.........   01.3773   26.95
050117.......................   01.3288   20.76   050230..........   01.2962   25.94   050336.........   01.4158   20.42   050456.........   01.1970   20.18   050581.........   01.3786   24.80
050118.......................   01.2326   23.37   050231..........   01.6983   24.69   050337.........   01.1495  .......  050457.........   01.9759   28.16   050583.........   01.6338   23.49
050121.......................   01.3924   19.17   050232..........   01.7470   25.52   050342.........   01.3596   18.03   050459.........   01.2153   28.95   050584.........   01.3161   19.70
050122.......................   01.7008   25.77   050233..........   01.2032   27.97   050343.........   01.0652   16.57   050464.........   01.8583   23.28   050585.........   01.3144   25.79
050124.......................   01.2435   19.10   050234..........   01.3174   22.79   050348.........   01.6833   23.57   050468.........   01.4947   16.95   050586.........   01.3705   21.47
050125.......................   01.3780   27.26   050235..........   01.6162   27.60   050349.........   00.9539   14.75   050469.........   01.1172   18.34   050588.........   01.3156   27.41
050126.......................   01.4894   23.86   050236..........   01.4925   23.47   050350.........   01.3637   23.74   050470.........   01.1185   18.14   050589.........   01.3256   24.78
050127.......................   01.3466   23.71   050238..........   01.5330   22.98   050351.........   01.4729   25.97   050471.........   01.8600   22.75   050590.........   01.4116   23.26
050128.......................   01.6460   23.71   050239..........   01.5401   23.40   050352.........   01.3231   23.99   050476.........   01.3719   21.89   050591.........   01.3412   24.97
050129.......................   01.6057   20.66   050240..........   01.4210   25.28   050353.........   01.6090   24.23   050477.........   01.5088   26.49   050592.........   01.3612   10.96
050131.......................   01.2856   30.45   050241..........   01.1957   25.59   050355.........   00.9765   14.97   050478.........   00.9877   20.58   050593.........   01.2930   29.77
050132.......................   01.3951   24.69   050242..........   01.4391   28.77   050357.........   01.6573   22.99   050481.........   01.4382   25.47   050594.........   01.7808   24.64
050133.......................   01.3417   21.73   050243..........   01.5626   20.95   050359.........   01.3024   19.88   050482.........   00.9894   17.87   050597.........   01.2691   22.40
050135.......................   01.4325   26.20   050245..........   01.4680   22.03   050360.........   01.4636   31.81   050483.........   01.2210   22.32   050598.........   01.3740   28.26
050136.......................   01.3721   22.84   050248..........   01.2419   24.55   050366.........   01.4377   20.59   050485.........   01.6259   22.39   050599.........   01.6899   23.22
050137.......................   01.4279   33.54   050251..........   01.0788   18.41   050367.........   01.2687   27.02   050486.........   01.4102   24.19   050601.........   01.5778   29.22
050138.......................   01.8973   33.14   050253..........   00.4249   18.80   050369.........   01.3261   23.77   050488.........   01.3907   29.71   050603.........   01.4323   20.95
050139.......................   01.3177   32.31   050254..........   01.1834   20.57   050373.........   01.4652   23.73   050491.........   01.2715   24.39   050604.........   01.5612   32.65
050140.......................   01.3995   31.70   050256..........   01.7909   19.46   050376.........   01.5358   29.05   050492.........   01.3788   21.96   050607.........   01.1803   21.26
050144.......................   01.6110   25.92   050257..........   01.1487   21.76   050377.........   01.0097   16.14   050494.........   01.3412   24.67   050608.........   01.3296   18.75
050145.......................   01.3651   30.22   050260..........   00.9841   19.43   050378.........   01.1780   21.42   050496.........   01.7003   32.52   050609.........   01.4420   33.78
050146.......................   01.3676  .......  050261..........   01.2252   18.54   050379.........   01.2054   16.93   050497.........   00.7910  .......  050613.........   01.1557   19.90
050147.......................   00.7180   22.54   050262..........   01.9975   26.95   050380.........   01.6598   29.85   050498.........   01.2875   22.93   050615.........   01.6623   25.67
050148.......................   01.0774   19.07   050264..........   01.4160   28.04   050382.........   01.4271   22.15   050502.........   01.6469   21.94   050616.........   01.3571   21.21
050149.......................   01.5033   22.14   050267..........   01.6376   27.72   050385.........   01.3306   23.94   050503.........   01.3565   23.35   050618.........   01.1709   20.05
050150.......................   01.2365   22.69   050270..........   01.3329   22.02   050388.........   00.9186   18.08   050506.........   01.3762   24.67   050623.........   01.1288   23.78
050152.......................   01.4223   25.51   050272..........   01.3322   20.79   050390.........   01.2318   22.09   050510.........   01.3492   32.12   050624.........   01.3769   22.51
050153.......................   01.6645   27.98   050274..........   00.9860   19.47   050391.........   01.3459   23.34   050512.........   01.5448   33.56   050625.........   01.6065   24.95
050155.......................   01.1105   25.69   050276..........   01.1316   26.93   050392.........   00.9991   18.23   050515.........   01.3429   31.82   050630.........   01.4308   21.07
050158.......................   01.3725   25.37   050277..........   01.5097   19.57   050393.........   01.4471   23.72   050516.........   01.5785   24.92   050633.........   01.2932   21.92
050159.......................   01.3833   21.88   050278..........   01.6190   22.89   050394.........   01.6194   20.12   050517.........   01.3047   20.14   050635.........   01.3192   32.09
050167.......................   01.2762   22.00   050279..........   01.2257   21.00   050396.........   01.6165   22.02   050522.........   01.3442   31.46   050636.........   01.4725   22.11
050168.......................   01.5431   23.71   050280..........   01.6873   24.62   050397.........   01.0470   18.22   050523.........   01.3228   28.96   050638.........   01.0334   19.35
050169.......................   01.5183   22.75   050281..........   01.4700   15.36   050401.........   01.1317   19.06   050526.........   01.3231   24.45   050641.........   01.1948   18.27
050170.......................   01.5727   21.33   050282..........   01.3631   23.18   050404.........   01.1069   16.60   050528.........   01.3531   21.06   050643.........   00.7614  ......
050172.......................   01.2438   18.44   050283..........   01.1136   26.91   050406.........   01.0309   15.92   050531.........   01.1935   20.24   050644.........   00.8951   22.79
050173.......................   01.3490   20.24   050286..........   00.9444   17.82   050407.........   01.3244   28.37   050534.........   01.4117   24.32   050660.........   01.3514  ......
050174.......................   01.6348   29.60   050289..........   01.8946   26.67   050410.........   01.0841   16.71   050535.........   01.4595   22.87   050661.........   00.8437   20.15
050175.......................   01.3591   27.08   050290..........   01.6535   20.42   050411.........   01.3692   31.16   050537.........   01.2746   21.53   050662.........   00.8759   22.31
050177.......................   01.2483   20.35   050291..........   01.2360   25.51   050414.........   01.3039   24.60   050539.........   01.2817   22.25   050663.........   01.1244   25.63
050179.......................   01.3109   19.55   050292..........   01.0631   21.76   050417.........   01.3222   20.22   050541.........   01.5423   32.88   050666.........   00.8852   20.95
050180.......................   01.6207   31.19   050293..........   01.1601   20.14   050418.........   01.3206   22.71   050542.........   01.2228   14.92   050667.........   00.9877   25.58
050183.......................   01.1383   20.36   050295..........   01.4631   21.39   050419.........   01.3474   20.46   050543.........   00.9027   21.76   050668.........   01.1152   28.90
050186.......................   01.3308   23.83   050296..........   01.2093   22.43   050420.........   01.5283   23.03   050545.........   00.7751   21.20   050670.........   00.8585  ......
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[[Page 46056]]


                                                                                          Page 3 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
050674.......................   01.2985   30.04   060047..........   01.1034   11.84   080004.........   01.3471   18.69   100071.........   01.3332   16.21   100167.........   01.4606   19.21
050675.......................   01.8407   17.60   060049..........   01.4796   17.34   080005.........   01.3302   18.53   100072.........   01.3115   16.55   100168.........   01.3946   20.23
050676.......................   00.9699   14.37   060050..........   01.2714   14.36   080006.........   01.3735   19.73   100073.........   01.7705   21.99   100169.........   01.8544   16.46
050677.......................   01.4370   34.53   060052..........   01.0914   13.04   080007.........   01.4046   17.29   100075.........   01.5930   18.14   100170.........   01.4624   16.86
050678.......................   01.1143   24.44   060053..........   01.0018   14.81   090001.........   01.5345   21.36   100076.........   01.3531   16.80   100172.........   01.3777   13.93
050680.......................   01.2283   26.19   060054..........   01.3927   17.69   090002.........   01.2858   19.74   100077.........   01.4074   16.10   100173.........   01.6794   16.87
050682.......................   00.9226   15.55   060056..........   00.9237   14.05   090003.........   01.3454   20.56   100078.........   01.1916   16.86   100174.........   01.5820   20.80
050684.......................   01.2016   21.85   060057..........   01.0693   21.47   090004.........   01.8143   23.95   100079.........   01.6005   20.49   100175.........   01.2618   16.65
050685.......................   01.2131   28.69   060058..........   00.9407   13.87   090005.........   01.3518   17.58   100080.........   01.6309   23.98   100176.........   02.1175   22.94
050686.......................   01.3154   32.30   060060..........   00.8480   12.53   090006.........   01.3509   19.77   100081.........   01.0598   17.93   100177.........   01.3710   18.76
050688.......................   01.2787   27.87   060062..........   00.9361   14.11   090007.........   01.2828   20.38   100082.........   01.4572   17.52   100179.........   01.6384   19.38
050689.......................   01.3938   29.96   060063..........   00.9516   11.82   090008.........   01.5419   23.59   100083.........   01.3327   17.98   100180.........   01.3734   19.01
050690.......................   01.5106   32.26   060064..........   01.4668   20.71   090010.........   01.1704   22.39   100084.........   01.4579   18.10   100181.........   01.2699   19.10
050693.......................   01.6216   28.58   060065..........   01.3170   21.03   090011.........   01.9805   25.13   100085.........   01.4188   18.83   100183.........   01.3911   19.62
050694.......................   01.5184   22.78   060066..........   00.9696   12.79   090015.........   01.1274  .......  100086.........   01.3132   22.05   100187.........   01.4032   18.31
050695.......................   01.0993   25.42   060068..........   01.1323   13.46   100001.........   01.5737   18.08   100087.........   01.8737   21.91   100189.........   01.4251   20.96
050696.......................   02.1091   28.17   060070..........   01.0209   16.03   100002.........   01.4879   19.10   100088.........   01.7306   17.43   100191.........   01.3109   18.63
050697.......................   01.2473   18.05   060071..........   01.2383   14.39   100004.........   01.0696   13.13   100090.........   01.4094   16.46   100199.........   01.4361   18.30
050698.......................   00.8012  .......  060073..........   00.9705   15.25   100006.........   01.6454   19.01   100092.........   01.4490   16.27   100200.........   01.3447   22.72
050699.......................   00.6001   23.01   060075..........   01.3327   21.20   100007.........   01.8737   19.63   100093.........   01.5386   15.36   100203.........   01.3411   19.70
050700.......................   01.4904   32.32   060076..........   01.4838   16.86   100008.........   01.7737   20.00   100098.........   01.1592   18.36   100204.........   01.6730   21.27
050701.......................   01.3580   29.00   060085..........   00.9510   10.30   100009.........   01.5015   19.22   100099.........   01.2974   13.12   100206.........   01.4404   19.98
050702.......................   00.9243   19.02   060087..........   01.7036   21.04   100010.........   01.5351   22.50   100102.........   01.0900   17.62   100207.........   01.0774   20.37
050704.......................   01.0845   20.41   060088..........   01.0231   13.86   100012.........   01.6899   16.77   100103.........   01.0706   15.41   100208.........   01.5784   16.92
050707.......................   01.0506   25.90   060090..........   00.8731   14.19   100014.........   01.4574   18.79   100105.........   01.4631   18.87   100209.........   01.6095   18.40
050708.......................   00.9919   27.17   060096..........   01.0859   21.65   100015.........   01.3414   18.06   100106.........   01.1228   16.92   100210.........   01.6357   19.34
050709.......................   01.3400   20.44   060100..........   01.4754   21.75   100017.........   01.5625   16.86   100107.........   01.4044   18.26   100211.........   01.3504   18.47
050710.......................   01.3425  .......  060103..........   01.3627   22.66   100018.........   01.3521   20.31   100108.........   01.0646   13.74   100212.........   01.6492   18.75
050711.......................   02.0900  .......  060104..........   01.2956   21.84   100019.........   01.5370   18.40   100109.........   01.3642   18.44   100213.........   01.5697   18.46
050712.......................   01.5251  .......  060107..........   01.0652  .......  100020.........   01.3432   20.82   100110.........   01.4230   17.14   100217.........   01.2974  ......
050713.......................   00.8063  .......  070001..........   01.7289   26.42   100022.........   01.8823   23.14   100112.........   01.0152   12.61   100220.........   01.9425   18.82
050714.......................   01.3579  .......  070002..........   01.7836   26.03   100023.........   01.3698   16.89   100113.........   02.1189   19.34   100221.........   01.6934   19.65
050715.......................   02.1945  .......  070003..........   01.1170   25.30   100024.........   01.4033   19.26   100114.........   01.4437   19.70   100222.........   01.3988   18.63
060001.......................   01.6077   20.29   070004..........   01.2533   23.33   100025.........   01.8800   16.92   100117.........   01.3112   18.77   100223.........   01.4942   17.42
060003.......................   01.2643   18.34   070005..........   01.4033   25.79   100026.........   01.7115   16.88   100118.........   01.2401   17.18   100224.........   01.4283   21.35
060004.......................   01.3542   20.06   070006..........   01.3414   28.36   100027.........   00.9127   14.31   100121.........   01.3095   15.75   100225.........   01.4063   20.63
060006.......................   01.1533   16.89   070007..........   01.4048   23.69   100028.........   01.2619   17.30   100122.........   01.3639   16.54   100226.........   01.4196   17.73
060007.......................   01.2498   14.98   070008..........   01.2617   23.02   100029.........   01.3384   19.04   100124.........   01.3668   18.33   100228.........   01.3737   20.28
060008.......................   01.0677   14.75   070009..........   01.3499   23.68   100030.........   01.4021   18.54   100125.........   01.2986   16.50   100229.........   01.3312   16.87
060009.......................   01.4393   19.81   070010..........   01.6244   23.63   100032.........   01.9493   18.08   100126.........   01.4869   19.41   100230.........   01.4397   19.70
060010.......................   01.5808   21.74   070011..........   01.3465   25.98   100034.........   01.7164   18.88   100127.........   01.6995   18.39   100231.........   01.6894   16.90
060011.......................   01.2815   20.17   070012..........   01.2220   23.53   100035.........   01.6455   17.26   100128.........   02.1390   21.19   100232.........   01.2868   18.29
060012.......................   01.4711   17.66   070013..........   01.3776   26.05   100038.........   01.5655   21.34   100129.........   01.2599   17.91   100234.........   01.5399   19.22
060013.......................   01.3100   19.42   070015..........   01.4402   24.61   100039.........   01.5702   21.69   100130.........   01.2298   19.48   100235.........   01.4441   18.19
060014.......................   01.7947   22.41   070016..........   01.3413   24.32   100040.........   01.6728   17.79   100131.........   01.3976   19.68   100236.........   01.4010   18.30
060015.......................   01.5818   20.04   070017..........   01.3508   24.82   100043.........   01.4510   15.12   100132.........   01.3755   15.46   100237.........   02.1834   21.32
060016.......................   01.1928   13.66   070018..........   01.4211   27.48   100044.........   01.4336   19.86   100134.........   01.0399   14.63   100238.........   01.5873   17.06
060018.......................   01.2683   16.89   070019..........   01.1945   25.50   100045.........   01.4240   16.32   100135.........   01.6183   16.63   100239.........   01.4590   19.01
060020.......................   01.6399   16.15   070020..........   01.3551   25.82   100046.........   01.4939   18.40   100137.........   01.3818   21.08   100240.........   00.9266   19.10
060022.......................   01.6763   18.46   070021..........   01.2943   25.42   100047.........   01.8198   18.47   100138.........   00.9577   12.12   100241.........   00.9718   13.68
060023.......................   01.6681   18.98   070022..........   01.8465   24.06   100048.........   00.9769   12.80   100139.........   01.0680   14.97   100242.........   01.4999   16.47
060024.......................   01.7950   23.68   070024..........   01.3757   24.79   100049.........   01.3204   18.49   100140.........   01.1672   17.64   100243.........   01.4291   17.93
060027.......................   01.6711   20.38   070025..........   01.8612   25.92   100050.........   01.2284   15.21   100142.........   01.3319   18.12   100244.........   01.4738   18.36
060028.......................   01.5301   20.69   070026..........   01.1913   25.91   100051.........   01.1799   17.96   100144.........   01.2106   15.29   100246.........   01.4064   21.86
060029.......................   00.8982   11.90   070027..........   01.2398   25.65   100052.........   01.3791   15.15   100145.........   01.3341   19.01   100248.........   01.7042   17.76
060030.......................   01.2955   18.79   070028..........   01.5045   24.91   100053.........   01.3588   17.17   100146.........   01.0803   16.01   100249.........   01.3760   19.41
060031.......................   01.6946   18.97   070029..........   01.4122   22.06   100054.........   01.3015   17.75   100147.........   01.0947   13.18   100252.........   01.2387   19.72
060032.......................   01.5169   17.36   070030..........   01.3122   26.51   100055.........   01.4205   17.02   100150.........   01.4309   19.30   100253.........   01.4817   19.73
060033.......................   01.0987   12.53   070031..........   01.2814   22.20   100056.........   01.5137   18.89   100151.........   01.7824   19.37   100254.........   01.6114   17.99
060034.......................   01.4683   22.34   070033..........   01.3695   26.22   100057.........   01.3921   16.01   100154.........   01.6732   19.96   100255.........   01.2325   19.80
060036.......................   01.0990   14.70   070034..........   01.3677   27.52   100060.........   01.8118   15.28   100156.........   01.1559   19.34   100256.........   01.9087   18.78
060037.......................   01.0476   13.16   070035..........   01.4409   23.11   100061.........   01.4753   20.71   100157.........   01.6173   20.46   100258.........   01.6458   21.27
060038.......................   01.0363   12.96   070036..........   01.6080   27.46   100062.........   01.7555   17.75   100159.........   00.9163   12.79   100259.........   01.4904   17.31
060041.......................   00.9054   14.99   070038..........   00.6569  .......  100063.........   01.3311   16.56   100160.........   01.2200   18.48   100260.........   01.4650   20.13
060042.......................   01.1304   16.83   070039..........   00.9101  .......  100067.........   01.4572   16.77   100161.........   01.7317   20.07   100262.........   01.4430   18.60
060043.......................   00.9371   13.31   080001..........   01.6742   24.79   100068.........   01.3780   16.37   100162.........   01.4422   17.78   100263.........   01.4125   17.42
060044.......................   01.2746   16.98   080002..........   01.2519   17.15   100069.........   01.3870   17.95   100165.........   01.1791   17.55   100264.........   01.3958   17.27
060046.......................   01.0985   16.64   080003..........   01.3456   20.79   100070.........   01.4506   18.13   100166.........   01.5356   20.44   100265.........   01.3923   14.58
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[[Page 46057]]


                                                                                          Page 4 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
100266.......................   01.3567   16.53   110066..........   01.5392   18.78   110163.........   01.4700   18.54   130010.........   00.9235   15.97   140043.........   01.2331   17.04
100267.......................   01.3515   15.67   110069..........   01.2619   19.05   110164.........   01.4737   19.49   130011.........   01.3075   17.11   140045.........   01.0692   13.11
100268.......................   01.2095   23.23   110070..........   01.0212   12.19   110165.........   01.3694   18.35   130012.........   01.0283   20.53   140046.........   01.3163   14.79
100269.......................   01.4373   19.39   110071..........   01.1784   10.43   110166.........   01.5345   17.45   130013.........   01.2638   17.73   140047.........   01.1477   14.21
100270.......................   00.8362   14.31   110072..........   01.0009   12.37   110168.........   01.7282   21.92   130014.........   01.3868   16.50   140048.........   01.4278   22.08
100271.......................   01.7347   20.00   110073..........   01.2226   13.04   110169.........   01.1751   21.80   130015.........   00.8545   13.50   140049.........   01.5605   20.48
100275.......................   01.4042   21.30   110074..........   01.4618   18.47   110171.........   01.4770   23.10   130016.........   00.9422   17.37   140051.........   01.5469   19.42
100276.......................   01.2982   22.26   110075..........   01.3606   15.50   110172.........   01.4150   19.98   130017.........   01.1854   12.16   140052.........   01.3706   18.11
100277.......................   01.0751   13.03   110076..........   01.4355   19.08   110174.........   00.9636   13.19   130018.........   01.7030   17.05   140053.........   01.9782   18.04
100279.......................   01.3599   18.73   110078..........   01.7043   20.66   110176.........   01.4585   20.47   130019.........   01.1185   14.30   140054.........   01.3506   24.77
100280.......................   01.3734   16.76   110079..........   01.4037   19.53   110177.........   01.5652   26.92   130021.........   01.0006   11.89   140055.........   01.0313   12.61
100281.......................   01.2594   20.52   110080..........   01.2684   18.15   110178.........   01.4061   17.41   130022.........   01.2169   16.88   140058.........   01.2470   15.74
100282.......................   01.1224   14.86   110082..........   02.0407   20.53   110179.........   01.2257   21.81   130024.........   01.1092   16.52   140059.........   01.1860   13.96
110001.......................   01.3100   17.26   110083..........   01.7837   20.63   110181.........   00.9756   12.32   130025.........   01.0874   14.90   140061.........   01.0964   14.14
110002.......................   01.3087   15.75   110086..........   01.2402   16.50   110183.........   01.4248   19.97   130026.........   01.1228   18.80   140062.........   01.2675   25.30
110003.......................   01.3377   12.66   110087..........   01.3393   19.53   110184.........   01.2670   18.82   130027.........   00.9792   17.34   140063.........   01.4672   24.56
110004.......................   01.3711   14.62   110088..........   00.9425   12.52   110185.........   01.1241   12.44   130028.........   01.2707   18.86   140064.........   01.3583   17.02
110005.......................   01.1453   19.77   110089..........   01.2363   16.07   110186.........   01.3818   16.69   130029.........   01.0342   15.77   140065.........   01.5866   23.89
110006.......................   01.3772   17.90   110091..........   01.3388   20.17   110187.........   01.3395   18.27   130030.........   01.0073   17.62   140066.........   01.3048   14.92
110007.......................   01.5469   15.29   110092..........   01.1788   12.84   110188.........   01.4320   18.16   130031.........   01.0779   12.21   140067.........   01.7828   18.84
110008.......................   01.3463   16.25   110093..........   00.9510   12.42   110189.........   01.1175   18.39   130034.........   00.9862   17.80   140068.........   01.2205   18.58
110009.......................   00.9912   13.65   110094..........   01.0040   11.90   110190.........   01.1014   14.95   130035.........   01.0837   19.75   140069.........   01.0061   14.69
110010.......................   02.1198   21.49   110095..........   01.3281   14.45   110191.........   01.3767   18.34   130036.........   01.3041   13.11   140070.........   01.2445   16.86
110011.......................   01.2429   16.73   110096..........   01.1410   13.95   110192.........   01.4551   18.88   130037.........   01.1847   16.09   140074.........   00.9695   14.23
110013.......................   01.1032   14.97   110097..........   01.0230   13.43   110193.........   01.2501   17.43   130043.........   01.0073   15.45   140075.........   01.4790   20.98
110014.......................   01.0237   14.25   110098..........   01.0524   12.75   110194.........   01.0069   13.81   130044.........   01.1645   12.49   140077.........   01.1879   16.68
110015.......................   01.2373   16.42   110100..........   01.0948   12.76   110195.........   01.0547   11.35   130045.........   01.0068   12.07   140079.........   01.2407   19.72
110016.......................   01.3097   14.79   110101..........   01.1680   11.58   110198.........   01.3714   24.04   130048.........   01.0818   13.31   140080.........   01.6437   21.22
110017.......................   00.8642   13.54   110103..........   00.9614   10.15   110200.........   01.8297   17.05   130049.........   01.2812   18.00   140081.........   01.0873   13.46
110018.......................   01.1504   17.79   110104..........   01.0884   14.01   110201.........   01.5086   17.52   130054.........   00.8937   17.61   140082.........   01.4347   19.59
110020.......................   01.3479   16.21   110105..........   01.1841   14.60   110203.........   00.9967   17.25   130056.........   00.8733   11.05   140083.........   01.2436   17.22
110023.......................   01.3398   18.43   110107..........   01.8230   18.50   110204.........   00.8066   14.34   130058.........   00.7670   14.21   140084.........   01.2282   18.60
110024.......................   01.4870   16.41   110108..........   00.9444   11.26   110205.........   01.1252   17.06   130060.........   01.3323   19.41   140086.........   01.0865   14.36
110025.......................   01.4319   17.54   110109..........   01.0931   13.63   110207.........   01.0857   14.02   130061.........   00.9433  .......  140087.........   01.3968   16.15
110026.......................   01.2107   14.59   110111..........   01.0973   16.55   110208.........   00.9420   16.97   130062.........   00.6589  .......  140088.........   01.6745   24.52
110027.......................   01.0937   13.41   110112..........   01.0839   11.88   110209.........   00.7487   16.39   140001.........   01.2820   14.89   140089.........   01.2535   16.59
110028.......................   01.6530   19.36   110113..........   01.0936   12.40   110211.........   00.8898  .......  140002.........   01.3159   18.78   140090.........   01.5327   27.83
110029.......................   01.4107   18.29   110114..........   01.0737   14.35   110212.........   01.1691  .......  140003.........   01.0178   14.52   140091.........   01.8062   17.60
110030.......................   01.3315   17.58   110115..........   01.6022   18.84   110213.........   00.5284  .......  140004.........   01.1142   16.34   140093.........   01.2077   17.01
110031.......................   01.3091   19.99   110118..........   00.9737   13.49   120001.........   01.8272   25.27   140005.........   00.9615   09.56   140094.........   01.3943   19.46
110032.......................   01.2694   12.68   110120..........   01.0244   12.28   120002.........   01.1994   21.80   140007.........   01.4823   21.10   140095.........   01.4094   20.09
110033.......................   01.4346   19.79   110121..........   01.2007   12.83   120003.........   01.0674   22.69   140008.........   01.5818   19.43   140097.........   00.9670   12.49
110034.......................   01.6452   17.89   110122..........   01.3894   16.17   120004.........   01.2661   21.72   140010.........   01.3786   22.90   140100.........   01.2485   18.78
110035.......................   01.4345   20.02   110124..........   01.0847   15.63   120005.........   01.2518   18.94   140011.........   01.1969   16.24   140101.........   01.2227   18.49
110036.......................   01.6988   18.37   110125..........   01.2361   15.97   120006.........   01.3096   24.62   140012.........   01.2719   18.60   140102.........   01.1121   14.37
110037.......................   01.1697   11.02   110127..........   00.9362   18.26   120007.........   01.6811   20.90   140013.........   01.5844   15.59   140103.........   01.3623   16.25
110038.......................   01.4667   15.98   110128..........   01.1766   19.01   120009.........   01.0424   20.40   140014.........   01.1687   16.19   140105.........   01.3043   20.28
110039.......................   01.3795   18.62   110129..........   01.7851   15.69   120010.........   01.8716   22.71   140015.........   01.2876   14.20   140107.........   01.0708   11.82
110040.......................   01.1215   15.52   110130..........   01.1632   11.11   120011.........   01.2451   31.56   140016.........   00.9556   11.89   140108.........   01.3553   21.81
110041.......................   01.2723   15.82   110132..........   01.1253   12.99   120012.........   00.8969   20.20   140018.........   01.3988   19.38   140109.........   01.1761   13.08
110042.......................   01.2739   14.92   110134..........   00.8917   12.19   120014.........   01.4437   22.59   140019.........   01.1687   12.65   140110.........   01.1910   17.31
110043.......................   01.7887   16.83   110135..........   01.2956   14.04   120015.........   00.9237   22.77   140024.........   01.0067   13.99   140112.........   01.2391   13.42
110044.......................   01.1492   14.51   110136..........   01.1900   17.74   120016.........   00.8833   24.58   140025.........   01.0608   16.65   140113.........   01.5191   17.90
110045.......................   01.3219   21.18   110140..........   01.0284   16.75   120018.........   00.9540   20.92   140026.........   01.2846   15.90   140114.........   01.3524   19.55
110046.......................   01.3460   17.14   110141..........   00.9531   12.29   120019.........   01.2500   19.16   140027.........   01.3405   16.37   140115.........   01.3228   19.66
110048.......................   01.3732   13.59   110142..........   00.9502   11.78   120021.........   00.9273   18.74   140029.........   01.3589   21.43   140116.........   01.3016   20.98
110049.......................   01.1274   14.58   110143..........   01.4557   20.77   120022.........   01.7000   20.74   140030.........   01.8079   21.56   140117.........   01.5393   20.42
110050.......................   01.2024   13.35   110144..........   01.1608   17.41   120026.........   01.2756   24.26   140031.........   01.2719   13.76   140118.........   01.6536   23.74
110051.......................   01.0340   16.68   110146..........   01.1436   15.09   120027.........   01.5804   23.43   140032.........   01.2657   16.71   140119.........   01.7239   23.27
110052.......................   01.1173   10.83   110149..........   01.1587   16.88   120028.........   01.0146  .......  140033.........   01.2783   19.82   140120.........   01.4592   15.45
110054.......................   01.3574   16.85   110150..........   01.3259   17.62   130001.........   01.0126   15.75   140034.........   01.1745   17.31   140121.........   01.5391   11.54
110056.......................   01.1733   14.40   110152..........   01.1022   14.44   130002.........   01.4330   15.30   140035.........   00.9305   11.22   140122.........   01.6581   21.47
110059.......................   01.3155   13.38   110153..........   01.0153   19.87   130003.........   01.3679   19.28   140036.........   01.2088   16.60   140124.........   01.2722   23.81
110061.......................   01.0721   12.61   110154..........   00.8230   13.98   130005.........   01.5281   19.70   140037.........   01.1042   12.49   140125.........   01.3597   15.71
110062.......................   00.8945   10.97   110155..........   01.0562   13.62   130006.........   01.8420   17.59   140038.........   01.1785   16.23   140127.........   01.3922   17.32
110063.......................   01.1481   12.76   110156..........   01.0376   12.34   130007.........   01.6306   18.20   140040.........   01.2942   14.72   140128.........   01.1103   14.92
110064.......................   01.3339   17.46   110161..........   01.3272   21.00   130008.........   01.0035   11.00   140041.........   01.3305   16.02   140129.........   01.2226   14.94
110065.......................   01.0391   13.40   110162..........   00.8006  .......  130009.........   00.9620   10.74   140042.........   01.0137   14.16   140130.........   01.3646   21.74
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                                                                                          Page 5 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
140132.......................   01.4451   19.03   140230..........   00.9258   10.84   150043.........   01.0838   21.96   150127.........   01.0241   13.90   160073.........   00.9761   12.18
140133.......................   01.3392   21.21   140231..........   01.5927   20.80   150044.........   01.2610   18.32   150128.........   01.2162   19.14   160074.........   01.0986   14.36
140135.......................   01.3065   14.91   140233..........   01.7888   18.47   150045.........   01.0998   15.68   150129.........   01.2317   22.47   160075.........   01.1442   13.73
140137.......................   01.0630   14.58   140234..........   01.2898   16.47   150046.........   01.5284   15.90   150130.........   01.3599   16.61   160076.........   01.0731   15.50
140138.......................   00.9835   12.15   140236..........   00.9644   13.24   150047.........   01.5639   22.77   150132.........   01.4214   19.24   160077.........   01.1723   10.60
140139.......................   01.1361   14.70   140239..........   01.6836   18.73   150048.........   01.2057   16.52   150133.........   01.2178   14.12   160079.........   01.4096   16.28
140140.......................   01.1398   13.06   140240..........   01.4851   20.44   150049.........   01.1663   13.29   150134.........   01.1751   17.17   160080.........   01.2022   16.06
140141.......................   01.2514   13.76   140242..........   01.6293   21.68   150050.........   01.2047   14.73   150136.........   01.0683   18.42   160081.........   01.0670   14.77
140143.......................   01.1478   16.64   140245..........   01.1694   14.47   150051.........   01.4788   18.34   150138.........   01.2073   17.33   160082.........   01.8242   17.03
140144.......................   01.0291   17.83   140246..........   01.0832   12.05   150052.........   01.1504   14.14   150139.........   01.4731   14.62   160083.........   01.6850   18.37
140145.......................   01.1791   15.14   140250..........   01.3797   21.98   150053.........   01.0508   18.10   160001.........   01.2891   17.61   160085.........   01.0802   11.50
140146.......................   01.0442   16.38   140251..........   01.3829   19.16   150054.........   01.1554   12.55   160002.........   01.1697   13.74   160086.........   00.9984   13.93
140147.......................   01.2801   16.29   140252..........   01.4473   23.41   150056.........   01.7839   22.38   160003.........   01.0195   12.61   160088.........   01.1633   12.75
140148.......................   01.8518   17.11   140253..........   01.4156   17.49   150057.........   02.3206   18.94   160005.........   01.1311   13.80   160089.........   01.1873   14.80
140150.......................   01.6279   25.55   140258..........   01.5772   20.93   150058.........   01.7195   19.57   160007.........   01.0323   12.37   160090.........   00.9797   15.58
140151.......................   01.1103   16.64   140271..........   01.0850   13.01   150059.........   01.4121   19.81   160008.........   01.1305   14.02   160091.........   01.0810   10.80
140152.......................   01.1184   22.91   140275..........   01.2390   16.50   150060.........   01.1657   14.93   160009.........   01.2378   13.73   160092.........   01.0879   13.23
140155.......................   01.2969   16.96   140276..........   01.9603   21.37   150061.........   01.2378   15.73   160012.........   01.0294   13.15   160093.........   01.2058   13.86
140158.......................   01.3077   21.36   140280..........   01.3142   17.16   150062.........   01.0996   16.55   160013.........   01.2266   15.35   160094.........   01.1302   14.17
140160.......................   01.2232   15.93   140281..........   01.6474   20.89   150063.........   01.0938   17.57   160014.........   01.0125   12.59   160095.........   01.0915   12.79
140161.......................   01.2168   17.76   140285..........   01.2802   15.37   150064.........   01.2141   15.84   160016.........   01.2505   16.32   160097.........   01.1409   13.00
140162.......................   01.7542   17.96   140286..........   01.1253   17.93   150065.........   01.1631   18.49   160018.........   00.9298   13.27   160098.........   00.9679   14.81
140164.......................   01.3924   17.44   140288..........   01.8518   23.17   150066.........   00.9993   15.93   160020.........   01.0718   12.38   160099.........   00.9671   11.69
140165.......................   01.1383   12.90   140289..........   01.3190   15.79   150067.........   01.1295   15.48   160021.........   01.0703   13.57   160101.........   01.1730   18.64
140166.......................   01.3636   17.21   140290..........   01.4617   21.07   150069.........   01.2618   16.90   160023.........   01.0386   12.35   160102.........   01.3886   17.51
140167.......................   01.1286   14.97   140291..........   01.4126   22.95   150070.........   01.0279   14.83   160024.........   01.5221   18.06   160103.........   01.0399   13.57
140168.......................   01.1895   15.57   140292..........   01.1602   20.63   150071.........   01.1162   13.86   160026.........   01.0593   14.43   160104.........   01.3168   17.37
140170.......................   01.1141   12.53   140294..........   01.1859   16.20   150072.........   01.2089   15.48   160027.........   01.1570   13.19   160106.........   01.0620   14.03
140171.......................   00.9150   13.87   140297..........   01.5673   27.06   150073.........   01.0134   19.47   160028.........   01.3255   17.39   160107.........   01.1797   14.12
140172.......................   01.6091   18.71   140300..........   01.4471   18.71   150074.........   01.5964   18.80   160029.........   01.5134   18.14   160108.........   01.2018   14.95
140173.......................   00.9277   13.77   150001..........   01.1125   17.36   150075.........   01.1711   14.49   160030.........   01.3852   17.37   160109.........   01.0406   12.35
140174.......................   01.5683   18.33   150002..........   01.5434   18.35   150076.........   01.2164   20.39   160031.........   01.1197   13.37   160110.........   01.5234   17.97
140176.......................   01.3064   21.33   150003..........   01.7180   19.57   150077.........   01.1796   16.58   160032.........   01.0998   15.56   160111.........   01.0272   11.04
140177.......................   01.1644   16.52   150004..........   01.4342   19.97   150078.........   01.0840   15.66   160033.........   01.7885   16.80   160112.........   01.4213   15.00
140179.......................   01.3195   20.12   150005..........   01.1913   18.43   150079.........   01.1368   13.96   160034.........   01.2092   14.53   160113.........   01.0022   12.03
140180.......................   01.5086   21.03   150006..........   01.2242   17.31   150082.........   01.5181   17.44   160035.........   01.0318   12.57   160114.........   01.0662   14.21
140181.......................   01.3825   19.20   150007..........   01.2036   17.98   150084.........   01.8769   22.28   160036.........   00.9707   14.66   160115.........   01.0262   14.32
140182.......................   01.3711   20.67   150008..........   01.3534   20.70   150086.........   01.3365   16.45   160037.........   01.1614   15.14   160116.........   01.1790   15.68
140184.......................   01.2542   14.26   150009..........   01.3747   17.26   150088.........   01.3466   17.20   160039.........   01.0809   15.84   160117.........   01.4518   15.96
140185.......................   01.4152   16.78   150010..........   01.1825   15.87   150089.........   01.4284   18.43   160040.........   01.3187   16.30   160118.........   01.0205   13.15
140186.......................   01.3530   17.75   150011..........   01.2266   17.83   150090.........   01.2517   18.72   160041.........   01.0854   13.45   160120.........   01.0296   10.62
140187.......................   01.4893   16.54   150012..........   01.6946   21.01   150091.........   01.1381   15.75   160043.........   01.0374   13.44   160122.........   01.1314   16.24
140188.......................   01.0402   10.77   150013..........   01.1254   13.90   150092.........   01.0304   15.04   160044.........   01.3190   13.86   160123.........   01.0588   13.19
140189.......................   01.1952   16.64   150014..........   01.5059   20.39   150094.........   01.0148   16.85   160045.........   01.7651   17.72   160124.........   01.2799   15.87
140190.......................   01.1402   15.99   150015..........   01.2169   18.32   150095.........   01.1048   17.97   160046.........   01.0014   12.75   160126.........   01.0198   13.59
140191.......................   01.4511   21.87   150017..........   01.8651   17.20   150096.........   01.1653   17.34   160047.........   01.3677   15.37   160129.........   01.0290   13.75
140193.......................   01.0432   13.31   150018..........   01.2899   18.23   150097.........   01.1381   17.09   160048.........   01.0373   11.54   160130.........   01.1777   13.02
140197.......................   01.2610   16.96   150019..........   01.1022   15.47   150098.........   01.1494   13.03   160049.........   00.9485   12.21   160131.........   01.0519   13.55
140199.......................   01.1014   15.72   150020..........   01.1488   12.96   150099.........   01.2905   17.79   160050.........   01.0755   14.64   160134.........   01.0482   11.84
140200.......................   01.4765   21.79   150021..........   01.6386   18.34   150100.........   01.7163   17.65   160051.........   00.9646   13.54   160135.........   01.0968   13.67
140202.......................   01.3540   19.71   150022..........   01.0910   16.65   150101.........   01.1111   14.50   160052.........   01.0875   14.79   160138.........   01.1290   14.36
140203.......................   01.1609   19.32   150023..........   01.5116   18.19   150102.........   01.0431   14.93   160054.........   01.0755   12.37   160140.........   01.1716   14.76
140205.......................   00.8789   13.64   150024..........   01.4348   15.82   150103.........   01.0075   15.02   160055.........   00.9798   12.37   160142.........   01.0866   13.98
140206.......................   01.1121   20.81   150025..........   01.3892   17.57   150104.........   01.0990   15.63   160056.........   01.0863   13.11   160143.........   01.0270   14.24
140207.......................   01.3959   20.01   150026..........   01.1868   18.29   150105.........   01.3508   16.20   160057.........   01.3465   16.15   160145.........   01.1210   14.16
140208.......................   01.6948   24.07   150027..........   01.0461   15.55   150106.........   01.0805   16.06   160058.........   01.7461   19.00   160146.........   01.4322   14.59
140209.......................   01.6697   15.99   150029..........   01.3137   20.17   150109.........   01.4613   16.85   160060.........   01.0442   13.44   160147.........   01.3056   16.09
140210.......................   01.1194   14.00   150030..........   01.2098   16.69   150110.........   01.0000   17.16   160061.........   01.0428   14.27   160151.........   01.0503   13.74
140211.......................   01.1916   20.84   150031..........   01.0741   15.56   150111.........   01.1642   14.02   160062.........   00.9492   12.22   160152.........   00.9935   13.78
140212.......................   01.2953   22.47   150032..........   01.8880   19.50   150112.........   01.3074   17.80   160063.........   01.1653   15.88   160153.........   01.7437   17.53
140213.......................   01.2782   22.67   150033..........   01.6073   21.09   150113.........   01.2230   17.88   160064.........   01.7113   17.38   170001.........   01.1849   16.35
140215.......................   01.1308   13.49   150034..........   01.3884   21.18   150114.........   01.0122   14.58   160065.........   01.0284   14.73   170004.........   01.0730   13.57
140217.......................   01.3185   21.67   150035..........   01.5318   18.97   150115.........   01.3808   17.55   160066.........   01.1723   14.74   170006.........   01.1492   15.02
140218.......................   00.9966   13.65   150036..........   01.0412   17.43   150122.........   01.1253   17.11   160067.........   01.4125   17.13   170008.........   01.0265   14.53
140220.......................   01.0925   15.16   150037..........   01.2684   18.20   150123.........   01.2043   12.98   160068.........   01.0660   13.52   170009.........   01.1988   16.31
140223.......................   01.6457   28.66   150038..........   01.4044   17.22   150124.........   01.1085   15.97   160069.........   01.4620   16.42   170010.........   01.2496   15.77
140224.......................   01.3885   22.97   150039..........   00.9657   16.33   150125.........   01.3906   18.69   160070.........   01.0507   14.47   170011.........   01.2378   15.40
140228.......................   01.6939   18.22   150042..........   01.2975   16.00   150126.........   01.5082   20.17   160072.........   01.0756   11.60   170012.........   01.4732   16.08
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[[Page 46059]]


                                                                                          Page 6 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
170013.......................   01.3228   15.33   170098..........   01.0500   17.00   180023.........   00.8812   13.12   180122.........   01.0903   15.01   190088.........   01.3480  ......
170014.......................   01.0365   16.40   170099..........   01.2666   11.34   180024.........   01.3911   17.24   180123.........   01.4774   20.98   190089.........   01.0784   11.47
170015.......................   01.0652   14.36   170100..........   00.9917   14.47   180025.........   01.2141   17.17   180124.........   01.4878   16.52   190090.........   01.1650   16.84
170016.......................   01.6876   19.52   170101..........   00.9485   13.26   180026.........   01.2402   12.39   180125.........   00.9976   16.46   190092.........   01.3982  ......
170017.......................   01.2527   15.34   170102..........   00.9926   13.11   180027.........   01.2873   15.58   180126.........   01.2371   12.22   190095.........   01.0677   14.66
170018.......................   01.1576   13.13   170103..........   01.2089   15.62   180028.........   00.9959   16.39   180127.........   01.4053   17.22   190098.........   01.5464   18.86
170019.......................   01.2248   15.65   170104..........   01.4508   19.81   180029.........   01.2772   15.97   180128.........   01.1761   16.64   190099.........   01.1522   17.98
170020.......................   01.2898   14.98   170105..........   01.0962   15.91   180030.........   01.2383   13.31   180129.........   01.0116   14.45   190102.........   01.5617   17.77
170022.......................   01.1756   14.80   170106..........   00.8948   12.18   180031.........   01.2070   12.60   180130.........   01.4718   17.91   190103.........   00.8823   09.75
170023.......................   01.4656   16.42   170109..........   01.0364   14.50   180032.........   00.9250   15.83   180132.........   01.2950   15.20   190106.........   01.1721   17.69
170024.......................   01.1515   12.84   170110..........   00.9577   13.67   180033.........   01.1365   12.86   180133.........   01.3505   24.67   190109.........   01.2153   13.50
170025.......................   01.2269   15.81   170112..........   00.9853   13.90   180034.........   01.2655   14.14   180134.........   01.0389   13.87   190110.........   00.9437   12.43
170026.......................   01.0417   12.83   170113..........   01.1475   14.95   180035.........   01.5526   18.73   180136.........   01.6029   16.47   190111.........   01.5997   18.33
170027.......................   01.3447   15.50   170114..........   01.0128   13.80   180036.........   01.2050   17.11   180137.........   01.8119   18.38   190112.........   01.5901   19.46
170030.......................   01.0153   13.99   170115..........   01.0238   11.34   180037.........   01.3414   19.79   180138.........   01.2091   17.99   190113.........   01.3584   18.49
170031.......................   00.9092   12.62   170116..........   01.0473   15.74   180038.........   01.4104   15.04   180139.........   01.1543   18.64   190114.........   01.0182   12.20
170032.......................   01.1647   14.89   170117..........   00.9415   13.50   180040.........   02.0226   19.20   180140.........   00.8743  .......  190115.........   01.2236   18.33
170033.......................   01.3701   14.59   170119..........   00.9812   12.09   180041.........   01.1036   13.42   180141.........   01.8022  .......  190116.........   01.1871  ......
170034.......................   00.9962   14.61   170120..........   01.2988   16.06   180042.........   01.1987   13.59   190001.........   00.8702   17.98   190118.........   01.0964   12.38
170035.......................   00.8580   14.82   170122..........   01.7447   19.93   180043.........   01.0028   15.84   190002.........   01.6861   18.15   190120.........   01.0003   13.75
170036.......................   00.9007   13.19   170123..........   01.7667   19.02   180044.........   01.1644   16.29   190003.........   01.3867   17.41   190122.........   01.2265   15.70
170037.......................   01.2485   16.31   170124..........   01.0109   14.25   180045.........   01.2627   16.79   190004.........   01.4153   15.24   190124.........   01.6508   20.23
170038.......................   00.9237   11.46   170126..........   00.9445   11.50   180046.........   01.2348   16.65   190005.........   01.6473   17.60   190125.........   01.5592   17.99
170039.......................   01.1505   13.62   170128..........   00.9794   14.42   180047.........   01.0286   13.80   190006.........   01.2974   14.32   190128.........   01.0852   18.56
170040.......................   01.6026   18.83   170131..........   01.2140   09.38   180048.........   01.2851   16.17   190007.........   01.0081   13.52   190130.........   01.0318   12.09
170041.......................   00.9985   11.29   170133..........   01.1285   14.20   180049.........   01.3320   15.45   190008.........   01.6674   17.72   190131.........   01.2019   16.12
170043.......................   01.0095   13.49   170134..........   00.9462   12.48   180050.........   01.2528   16.12   190009.........   01.1614   13.79   190133.........   00.9749   12.08
170044.......................   01.1045   14.42   170137..........   01.1888   17.30   180051.........   01.4299   14.78   190010.........   01.0337   16.62   190134.........   01.0188   14.79
170045.......................   01.0555   10.72   170139..........   01.0392   11.82   180053.........   01.0895   14.30   190011.........   01.1664   14.41   190135.........   01.4616   22.58
170049.......................   01.2898   18.28   170142..........   01.3501   16.49   180054.........   01.1107   13.76   190013.........   01.3986   15.95   190136.........   01.2005   11.22
170051.......................   00.9202   13.66   170143..........   01.1128   13.82   180055.........   01.1648   14.00   190014.........   01.1133   15.35   190138.........   00.8846   17.51
170052.......................   01.0589   12.60   170144..........   01.6127   14.73   180056.........   01.0761   16.38   190015.........   01.2521   17.78   190140.........   01.0146   12.16
170053.......................   00.9478   15.39   170145..........   01.1395   14.83   180058.........   00.9870   12.63   190017.........   01.4478   16.02   190142.........   00.9041   12.39
170054.......................   01.0865   13.19   170146..........   01.5244   19.54   180059.........   00.9160   12.59   190018.........   01.1910   15.92   190144.........   01.3101   15.22
170055.......................   01.0974   14.55   170147..........   01.2724   20.70   180060.........   01.0317   10.17   190019.........   01.6081   18.39   190145.........   00.9987   13.66
170056.......................   00.9193   13.72   170148..........   01.4120   17.64   180063.........   00.9916   10.79   190020.........   01.1829   15.85   190146.........   01.6349   19.61
170057.......................   01.0283   13.90   170150..........   01.0938   13.41   180064.........   01.3317   14.03   190025.........   01.3560   13.62   190147.........   01.0237   13.69
170058.......................   01.1682   15.80   170151..........   01.0380   11.66   180065.........   01.0472   10.82   190026.........   01.4931   16.17   190148.........   00.9081   12.77
170060.......................   01.0543   13.41   170152..........   00.9840   12.99   180066.........   01.1561   18.09   190027.........   01.5790   16.49   190149.........   01.0591   11.47
170061.......................   01.1320   12.90   170160..........   00.9790   11.17   180067.........   01.8053   16.40   190029.........   01.1538   15.40   190151.........   01.2260   11.73
170063.......................   00.8933   10.92   170164..........   00.9859   14.42   180069.........   01.0138   15.33   190033.........   00.9378   09.66   190152.........   01.5161   21.27
170064.......................   01.0420   12.09   170166..........   01.2016   13.65   180070.........   01.1195   14.66   190034.........   01.2429  .......  190155.........   01.0392   12.29
170066.......................   00.9793   12.58   170168..........   00.9222   09.33   180072.........   01.0649   13.91   190035.........   01.3660  .......  190156.........   00.8732   11.99
170067.......................   01.1302   11.76   170171..........   01.0731   11.22   180075.........   01.0012   14.13   190036.........   01.6990   19.10   190158.........   01.1877   21.59
170068.......................   01.3080   15.24   170175..........   01.3540   17.53   180078.........   01.1591   17.57   190037.........   00.8934   10.84   190160.........   01.3255   17.03
170069.......................   00.8338   14.01   170176..........   01.6200   19.83   180079.........   01.3352   13.03   190039.........   01.4034   17.21   190161.........   01.1212   12.65
170070.......................   01.0108   12.56   170182..........   01.2299   19.43   180080.........   01.0543   15.57   190040.........   01.4397   19.32   190162.........   01.0388   18.47
170073.......................   01.0663   14.67   170183..........   02.0361  .......  180085.........   02.2480   17.70   190041.........   01.5692   19.72   190164.........   01.2269   16.05
170074.......................   01.2456   14.34   170184..........   01.1905  .......  180087.........   01.1722   13.74   190043.........   01.0383   11.79   190166.........   00.9327   14.04
170075.......................   00.9439   10.67   180001..........   01.2323   17.03   180088.........   01.5598   19.99   190044.........   01.1678   17.11   190167.........   01.2338   18.49
170076.......................   01.0546   11.60   180002..........   01.0634   16.78   180092.........   01.2627   15.25   190045.........   01.4070   20.17   190170.........   00.9454   13.08
170077.......................   00.9418   12.07   180004..........   01.1027   14.47   180093.........   01.3756   16.05   190046.........   01.4636   17.58   190173.........   01.4730   20.12
170079.......................   01.0260   12.66   180005..........   01.1767   18.54   180094.........   01.0358   11.51   190048.........   01.2833   13.72   190175.........   01.3200   20.26
170080.......................   00.9806   10.65   180006..........   00.9857   08.51   180095.........   01.2459   12.94   190049.........   00.9962   15.70   190176.........   01.7427   19.11
170081.......................   01.0204   10.44   180007..........   01.5365   16.29   180099.........   01.3192   12.31   190050.........   01.0311   14.58   190177.........   01.6579   22.84
170082.......................   01.0284   10.80   180009..........   01.4058   19.11   180101.........   01.3237   18.01   190053.........   01.0753   12.11   190178.........   00.9581   10.87
170084.......................   00.9539   10.93   180010..........   01.8565   18.19   180102.........   01.4761   16.43   190054.........   01.3375   14.09   190182.........   00.9681   20.02
170085.......................   00.9648   12.69   180011..........   01.2791   15.29   180103.........   02.1571   17.93   190059.........   00.9187   13.44   190183.........   01.1238   14.79
170086.......................   01.7259   18.50   180012..........   01.4064   17.51   180104.........   01.5751   18.07   190060.........   01.4553   15.43   190184.........   01.0796   13.09
170087.......................   16.1090   18.78   180013..........   01.4569   16.63   180105.........   01.0042   12.82   190064.........   01.6010   18.33   190185.........   01.3600   18.53
170088.......................   00.9759   10.80   180014..........   01.7118   19.99   180106.........   00.8943   12.27   190065.........   01.4987   14.71   190186.........   00.9457   13.16
170089.......................   00.9506   15.53   180015..........   01.3127   15.02   180108.........   00.8561   13.54   190071.........   00.8980   12.15   190189.........   01.0752   13.17
170090.......................   01.0397   09.80   180016..........   01.3243   14.50   180115.........   01.0271   15.07   190077.........   00.9526   13.65   190190.........   00.9250   12.66
170092.......................   00.8270   11.80   180017..........   01.3423   13.87   180116.........   01.4484   15.66   190078.........   01.1690   11.60   190191.........   01.3301   17.54
170093.......................   00.9986   11.76   180018..........   01.2533   14.59   180117.........   01.1145   17.03   190079.........   01.2555   16.98   190196.........   00.8663   16.29
170094.......................   00.9536   15.42   180019..........   01.3260   16.70   180118.........   01.0362   12.03   190081.........   00.9078   10.23   190197.........   01.2380   18.98
170095.......................   01.1349   13.69   180020..........   01.0728   15.86   180120.........   01.0568   13.12   190083.........   01.0600   15.02   190199.........   01.1999   16.26
170097.......................   01.0695   13.17   180021..........   01.1131   13.69   180121.........   01.2249   13.68   190086.........   01.4128   15.47   190200.........   01.5575   21.70
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                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
190201.......................   01.2734   18.93   210015..........   01.2807   18.58   220051.........   01.2093   20.56   230019.........   01.5032   22.60   230118.........   01.2187   16.37
190202.......................   01.4760   17.85   210016..........   01.7192   23.30   220052.........   01.3214   23.88   230020.........   01.7231   22.21   230119.........   01.3042   22.31
190203.......................   01.5075   20.83   210017..........   01.2275   14.51   220053.........   01.2594   19.48   230021.........   01.6150   17.90   230120.........   01.1809   17.47
190204.......................   01.5863   20.85   210018..........   01.2493   21.26   220055.........   01.3462   23.52   230022.........   01.3615   18.27   230121.........   01.2510   19.69
190205.......................   01.9236   17.90   210019..........   01.4990   18.17   220057.........   01.4076   21.39   230024.........   01.4369   23.71   230122.........   01.4028   19.20
190206.......................   01.5515   21.53   210022..........   01.4499   20.79   220058.........   01.0836   16.26   230027.........   01.1510   15.73   230124.........   01.1633   16.89
190207.......................   01.2969   16.42   210023..........   01.3678   20.78   220060.........   01.3041   25.32   230029.........   01.5797   20.36   230125.........   01.2952   14.51
190208.......................   00.8122   11.17   210024..........   01.5604   19.73   220062.........   00.5838   18.49   230030.........   01.2204   16.47   230128.........   01.3852   21.24
190218.......................   01.1988   15.33   210025..........   01.4143   18.21   220063.........   01.2285   19.40   230031.........   01.4361   19.72   230129.........   01.7824   19.92
190223.......................   00.4249   16.58   210026..........   01.3749   19.52   220064.........   01.2338   20.51   230032.........   01.7412   19.08   230130.........   01.6730   23.74
190227.......................   00.8255   10.56   210027..........   01.3029   18.58   220065.........   01.2265   19.58   230034.........   01.2288   17.99   230132.........   01.4154   23.25
190231.......................   01.3079   16.00   210028..........   01.2217   17.19   220066.........   01.3350   20.73   230035.........   01.1178   16.17   230133.........   01.2207   15.07
190233.......................   02.1157  .......  210029..........   01.3174   17.99   220067.........   01.2868   22.58   230036.........   01.2775   18.79   230134.........   01.1074   17.91
190234.......................   01.0506  .......  210030..........   01.1539   19.44   220068.........   00.5263   16.67   230037.........   01.1284   17.40   230135.........   01.2642   20.25
190235.......................   01.2869  .......  210031..........   01.5487   16.42   220070.........   01.2498   18.77   230038.........   01.7083   21.21   230137.........   01.1949   18.51
190236.......................   01.2668  .......  210032..........   01.1789   17.90   220071.........   01.9236   21.67   230040.........   01.2243   20.53   230141.........   01.6822   22.44
200001.......................   01.3804   16.92   210033..........   01.2620   18.58   220073.........   01.4101   24.14   230041.........   01.2174   20.75   230142.........   01.2188   18.90
200002.......................   01.0723   17.70   210034..........   01.3689   20.34   220074.........   01.1894   22.82   230042.........   01.2231   19.32   230143.........   01.3145   16.58
200003.......................   01.0974   16.02   210035..........   01.2687   18.11   220075.........   01.2619   19.51   230046.........   01.8844   25.32   230144.........   01.2250   21.19
200006.......................   01.0590   14.97   210037..........   01.2433   17.38   220076.........   01.1859   25.46   230047.........   01.3420   20.37   230145.........   01.1856   15.96
200007.......................   01.1251   17.01   210038..........   01.3320   21.63   220077.........   01.7917   22.92   230053.........   01.6445   24.16   230146.........   01.3105   19.56
200008.......................   01.2258   20.19   210039..........   01.1897   17.55   220079.........   01.1692   21.68   230054.........   01.8208   21.45   230147.........   01.4445   19.70
200009.......................   01.8129   19.95   210040..........   01.3323   21.01   220080.........   01.2719   19.58   230055.........   01.1628   18.26   230149.........   01.1767   15.51
200012.......................   01.1117   16.55   210043..........   01.3063   21.32   220081.........   01.0044   24.81   230056.........   00.9866   14.55   230151.........   01.3931   22.02
200013.......................   01.1261   15.69   210044..........   01.2665   19.38   220082.........   01.3096   23.04   230058.........   01.1539   18.69   230153.........   01.1329   19.70
200015.......................   01.2305   17.41   210045..........   01.0746   11.42   220083.........   01.1972   20.43   230059.........   01.4456   19.01   230154.........   00.9371   12.43
200016.......................   01.0109   15.76   210048..........   01.2050   23.30   220084.........   01.3134   23.23   230060.........   01.3047   17.97   230155.........   00.9383   16.62
200017.......................   01.2501   17.94   210049..........   01.1551   17.77   220086.........   01.6491   26.01   230062.........   01.0249   14.41   230156.........   01.7141   22.91
200018.......................   01.1961   15.20   210051..........   01.4237   20.03   220088.........   01.6090   22.68   230063.........   01.3178   19.15   230157.........   01.2020   20.15
200019.......................   01.2392   18.59   210054..........   01.3311   21.05   220089.........   01.3337   22.69   230065.........   01.3391   19.44   230159.........   01.5106   19.64
200020.......................   01.1405   20.96   210055..........   01.2655   24.26   220090.........   01.2575   20.95   230066.........   01.3879   20.58   230162.........   01.0467   15.60
200021.......................   01.1723   17.78   210056..........   01.3809   17.67   220092.........   01.2336   20.66   230068.........   01.4483   22.15   230165.........   01.8519   21.91
200023.......................   00.9047   16.15   210057..........   01.4140   25.76   220094.........   01.4156   19.82   230069.........   01.1621   21.95   230167.........   01.7996   19.23
200024.......................   01.3279   19.84   210058..........   01.5351   18.09   220095.........   01.2483   19.06   230070.........   01.5713   19.57   230169.........   01.3465   20.88
200025.......................   01.0790   19.51   210059..........   01.2620   21.44   220098.........   01.2576   19.71   230071.........   01.1340   22.00   230171.........   01.0260   14.42
200026.......................   01.0265   15.97   210060..........   01.1836   23.61   220100.........   01.2637   23.69   230072.........   01.2305   19.32   230172.........   01.2797   18.87
200027.......................   01.1183   17.27   210061..........   01.1780   17.65   220101.........   01.4392   23.41   230075.........   01.4720   19.41   230174.........   01.2978   19.50
200028.......................   00.9729   16.24   220001..........   01.2880   21.80   220104.........   01.3000   24.79   230076.........   01.3501   22.67   230175.........   03.1496   11.15
200031.......................   01.2812   15.26   220002..........   01.5420   23.02   220105.........   01.2698   22.16   230077.........   02.0635   18.62   230176.........   01.2352   20.69
200032.......................   01.3456   18.90   220003..........   01.0746   16.71   220106.........   01.2620   22.14   230078.........   01.1336   15.79   230178.........   01.0050   17.92
200033.......................   01.7912   20.16   220004..........   01.1627   18.66   220107.........   01.1929   19.21   230080.........   01.2285   20.74   230180.........   01.1057   15.79
200034.......................   01.2381   18.05   220006..........   01.4307   21.04   220108.........   01.1992   21.13   230081.........   01.2949   16.73   230184.........   01.1534   17.45
200037.......................   01.1963   16.09   220008..........   01.2955   20.45   220110.........   02.0108   31.74   230082.........   01.2055   15.97   230186.........   01.2243   17.37
200038.......................   01.1101   18.23   220010..........   01.3125   21.44   220111.........   01.2703   21.76   230085.........   01.1164   17.76   230188.........   01.1813   16.01
200039.......................   01.2718   19.03   220011..........   01.1494   27.00   220116.........   02.0069   24.40   230086.........   01.0061   14.88   230189.........   00.9246   14.93
200040.......................   01.1080   17.37   220012..........   01.3759   30.46   220118.........   02.0709   27.44   230087.........   01.0463   17.12   230190.........   01.0342   20.21
200041.......................   01.0933   16.19   220015..........   01.2323   20.94   220119.........   01.3231   24.27   230089.........   01.2842   21.86   230191.........   00.9118   16.65
200043.......................   00.5276   16.46   220016..........   01.3819   20.87   220123.........   01.0394   22.86   230092.........   01.3128   18.29   230193.........   01.2127   16.97
200050.......................   01.1870   17.84   220017..........   01.3926   23.16   220126.........   01.3385   20.63   230093.........   01.2211   18.91   230194.........   01.1254   15.94
200051.......................   00.9682   18.29   220019..........   01.1521   17.57   220128.........   01.2038   22.97   230095.........   01.1969   16.51   230195.........   01.3147   21.44
200052.......................   00.9788   14.12   220020..........   01.2411   18.68   220133.........   00.8368   29.15   230096.........   01.1728   20.60   230197.........   01.3474   21.41
200055.......................   01.1748   15.29   220021..........   01.3635   23.88   220135.........   01.2397   24.67   230097.........   01.5928   19.03   230199.........   01.1846   16.61
200062.......................   00.9125   15.03   220023..........   01.1724   19.92   220153.........   00.9842   19.37   230099.........   01.1191   18.90   230201.........   01.1826   14.03
200063.......................   01.2548   18.27   220024..........   01.2011   20.61   220154.........   01.0025   20.72   230100.........   01.2050   14.82   230204.........   01.3955   20.13
200066.......................   01.2157   15.65   220025..........   01.2146   19.07   220162.........   01.1174  .......  230101.........   01.0781   17.28   230205.........   01.0457   13.00
210001.......................   01.4359   19.45   220028..........   01.4903   21.29   220163.........   02.0494   24.21   230103.........   01.0526   17.37   230207.........   01.2669   21.19
210002.......................   02.0301   16.46   220029..........   01.1504   23.54   220171.........   01.6465   21.72   230104.........   01.6096   21.24   230208.........   01.2412   18.18
210003.......................   01.5454   22.78   220030..........   01.1142   17.02   230001.........   01.1916   18.72   230105.........   01.6864   19.47   230211.........   00.9096   14.11
210004.......................   01.3604   21.20   220031..........   02.0045   29.21   230002.........   01.2641   18.80   230106.........   01.3011   18.64   230212.........   01.0720   22.89
210005.......................   01.2337   18.52   220033..........   01.3844   19.62   230003.........   01.1456   18.79   230107.........   00.9245   11.54   230213.........   01.0473   13.19
210006.......................   01.0987   17.09   220035..........   01.3148   19.49   230004.........   01.6847   24.03   230108.........   01.2350   18.02   230216.........   01.6086   19.50
210007.......................   01.6811   20.55   220036..........   01.5951   22.33   230005.........   01.2549   18.69   230110.........   01.3936   17.31   230217.........   01.2395   19.60
210008.......................   01.3385   19.03   220038..........   01.2902   21.60   230006.........   01.1078   15.91   230111.........   00.9900   17.97   230219.........   00.9318   16.58
210009.......................   01.8256   19.93   220041..........   01.2145   21.02   230007.........   01.0590   17.82   230113.........   00.9699   18.07   230221.........   01.1033   17.78
210010.......................   01.1897   16.40   220042..........   01.2037   25.43   230012.........   00.9618   11.92   230114.........   00.6644   25.66   230222.........   01.3910   18.46
210011.......................   01.2790   21.24   220046..........   01.3759   23.55   230013.........   01.3026   20.55   230115.........   01.0034   15.79   230223.........   01.3134   21.86
210012.......................   01.6303   21.50   220049..........   01.3204   21.16   230015.........   01.1338   19.54   230116.........   00.9514   14.84   230227.........   01.4686   22.63
210013.......................   01.2454   18.65   220050..........   01.0930   18.78   230017.........   01.5755   20.51   230117.........   01.9294   25.77   230230.........   01.6739   21.30
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[[Page 46061]]


                                                                                          Page 8 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
230232.......................   00.9775   18.31   240065..........   01.0639   10.79   240152.........   01.0432   18.30   250057.........   01.2901   14.84   260012.........   01.1120   12.21
230235.......................   01.0780   14.12   240066..........   01.4080   18.87   240153.........   01.0196   15.01   250058.........   01.1584   13.20   260013.........   01.1128   13.85
230236.......................   01.3039   21.82   240069..........   01.2138   18.58   240154.........   01.0483   14.45   250059.........   01.0879   14.15   260014.........   01.7531   18.62
230239.......................   01.1599   16.38   240071..........   01.1332   17.67   240155.........   00.9544   16.25   250060.........   00.7832   10.79   260015.........   01.3476   12.13
230241.......................   01.1124   17.56   240072..........   01.0874   17.53   240157.........   01.1163   11.54   250061.........   00.8589   09.59   260017.........   01.2927   14.90
230244.......................   01.3635   21.20   240073..........   00.9506   15.03   240160.........   00.9811   15.61   250063.........   00.8529   12.96   260018.........   00.9297   10.14
230253.......................   00.9665   18.09   240075..........   01.1877   19.26   240161.........   00.9741   14.77   250065.........   00.9859   11.60   260019.........   01.0453   12.50
230254.......................   01.2864   21.85   240076..........   01.1076   20.82   240162.........   00.9992   15.08   250066.........   00.9305   14.05   260020.........   01.6738   20.95
230257.......................   00.8638   18.77   240077..........   00.9344   12.01   240163.........   00.9475   14.68   250067.........   01.1461   15.22   260021.........   01.5109   18.46
230259.......................   01.1898   19.63   240078..........   01.5036   21.81   240166.........   01.0721   15.70   250068.........   00.8507   09.05   260022.........   01.2923   16.51
230264.......................   01.0486   19.01   240079..........   01.0478   13.53   240169.........   00.9590   15.46   250069.........   01.4098   13.92   260023.........   01.3274   16.81
230269.......................   01.3682   22.82   240080..........   01.4004   21.73   240170.........   01.1711   14.40   250071.........   00.9012   10.90   260024.........   00.9475   12.58
230270.......................   01.2231   20.42   240082..........   01.0933   15.87   240171.........   01.0599   14.30   250072.........   01.3508   16.19   260025.........   01.2408   14.22
230273.......................   01.5791   21.61   240083..........   01.3701   16.80   240172.........   01.0622   14.86   250076.........   01.5698   08.95   260027.........   01.5512   20.66
230275.......................   00.5037   16.62   240084..........   01.3013   17.76   240173.........   00.9750   14.79   250077.........   00.9415   11.54   260029.........   01.1498   16.88
230276.......................   00.6974   17.39   240085..........   00.9624   15.55   240179.........   01.0875   15.05   250078.........   01.4511   14.35   260030.........   01.1773   10.28
230277.......................   01.2458   21.07   240086..........   01.0731   15.22   240184.........   01.0888   11.77   250079.........   00.8988   13.59   260031.........   01.5415   18.47
230278.......................   01.8501   21.54   240087..........   01.1736   15.74   240187.........   01.1716   18.89   250081.........   01.3350   15.13   260032.........   01.6162   18.24
230279.......................   00.6949   15.06   240088..........   01.4370   18.72   240193.........   01.0850   15.54   250082.........   01.2696   12.99   260034.........   01.0286   15.30
230280.......................   01.0876   14.88   240089..........   00.9741   15.79   240196.........   00.6148   22.86   250083.........   01.0209   10.67   260035.........   01.0432   11.67
240001.......................   01.5822   22.07   240090..........   01.0671   13.53   240200.........   00.9038   13.54   250084.........   01.1159   15.95   260036.........   01.0354   18.28
240002.......................   01.7315   20.58   240093..........   01.3382   16.86   240205.........   01.0346  .......  250085.........   00.9834   12.43   260037.........   01.4487   15.56
240004.......................   01.5268   21.05   240094..........   00.9928   17.38   240206.........   00.9570  .......  250088.........   00.9081   14.66   260039.........   01.1663   12.17
240005.......................   01.0266   15.07   240096..........   00.9783   14.74   240207.........   01.2804   22.23   250089.........   01.1680   13.27   260040.........   01.6549   15.94
240006.......................   01.1154   20.02   240097..........   01.1033   18.17   240210.........   01.2460   22.69   250093.........   01.1083   12.75   260042.........   01.2618   16.78
240007.......................   01.0769   15.81   240098..........   00.9425   16.39   240211.........   01.0014   11.52   250094.........   01.2614   14.92   260044.........   01.0934   14.86
240008.......................   01.0662   16.32   240099..........   01.0621   10.76   250001.........   01.4559   16.92   250095.........   01.0168   14.72   260047.........   01.4644   15.90
240009.......................   01.0015   14.35   240100..........   01.2967   18.25   250002.........   00.8370   14.44   250096.........   01.2783   15.77   260048.........   01.2365   19.25
240010.......................   01.9744   21.16   240101..........   01.1792   17.70   250003.........   01.0137   15.14   250097.........   01.3211   13.86   260050.........   01.0968   14.63
240011.......................   01.1601   15.71   240102..........   00.9227   12.87   250004.........   01.4726   16.68   250098.........   00.8662   14.72   260052.........   01.3373   16.89
240013.......................   01.3128   16.96   240103..........   01.0701   13.76   250005.........   01.0613   10.43   250099.........   01.3168   12.67   260053.........   01.1651   10.83
240014.......................   01.0839   19.10   240104..........   01.1850   21.72   250006.........   00.9608   14.73   250100.........   01.2729   14.27   260054.........   01.3178   14.83
240016.......................   01.3772   16.31   240105..........   01.0170   12.35   250007.........   01.2974   18.24   250101.........   00.8766   09.75   260055.........   01.0236   08.93
240017.......................   01.2008   15.66   240106..........   01.3884   23.85   250008.........   00.9270   11.91   250102.........   01.6510   14.56   260057.........   01.1559   14.12
240018.......................   01.3331   17.17   240107..........   00.9699   14.74   250009.........   01.1951   15.81   250104.........   01.4468   16.31   260059.........   01.2358   11.75
240019.......................   01.1997   20.69   240108..........   00.9753   12.35   250010.........   01.0272   11.88   250105.........   00.9242   11.52   260061.........   01.1323   11.91
240020.......................   01.1545   20.05   240109..........   00.9763   12.06   250012.........   00.9493   13.18   250107.........   00.8879   14.99   260062.........   01.2004   17.75
240021.......................   01.0040   13.13   240110..........   00.9880   14.66   250015.........   01.1025   10.43   250109.........   00.9619   12.97   260063.........   01.1235   15.61
240022.......................   01.1171   18.13   240111..........   01.0264   15.65   250017.........   00.9743   14.92   250112.........   00.9503   14.95   260064.........   01.3135   15.06
240023.......................   01.1030   16.17   240112..........   01.0120   14.22   250018.........   01.0885   11.21   250117.........   01.0158   13.39   260065.........   01.7978   16.07
240025.......................   01.1265   14.54   240114..........   00.8971   13.21   250019.........   01.4948   16.51   250119.........   01.1128   11.94   260066.........   01.0288   15.31
240027.......................   01.0280   15.50   240115..........   01.6575   21.53   250020.........   00.9503   11.47   250120.........   01.0898   13.47   260067.........   00.9511   10.89
240028.......................   01.1803   18.14   240116..........   00.9560   12.54   250021.........   00.9206   08.33   250122.........   01.2659  .......  260068.........   01.6925   19.07
240029.......................   01.2190   17.00   240117..........   01.1415   17.40   250023.........   00.8554  .......  250123.........   01.3245   18.31   260070.........   01.0637   12.16
240030.......................   01.2864   17.33   240119..........   00.8838   17.45   250024.........   00.9613   08.37   250124.........   00.9107   11.28   260073.........   01.0411   11.87
240031.......................   00.9918   13.83   240121..........   00.9377   17.85   250025.........   01.1325   15.43   250125.........   01.3265   18.00   260074.........   01.3241   17.22
240036.......................   01.5677   19.89   240122..........   01.0774   16.25   250027.........   01.0193   11.14   250126.........   00.9963   13.81   260077.........   01.7094   16.86
240037.......................   01.0459   17.05   240123..........   01.0887   13.80   250029.........   00.8793   11.91   250127.........   00.7981   10.67   260078.........   01.2180   14.84
240038.......................   01.4768   24.33   240124..........   00.9980   16.84   250030.........   00.9894   11.26   250128.........   01.1054   11.86   260079.........   01.0338   11.96
240040.......................   01.1838   19.00   240125..........   00.9119   12.16   250031.........   01.3401   17.65   250131.........   00.9853   10.41   260080.........   01.0487   10.85
240041.......................   01.2688   15.42   240127..........   01.0956   12.16   250032.........   01.2651   15.27   250134.........   00.9847   15.67   260081.........   01.5242   18.50
240043.......................   01.2180   17.60   240128..........   01.1103   14.99   250033.........   01.1179   12.63   250136.........   00.9293   15.06   260082.........   01.1931   13.85
240044.......................   01.1777   16.75   240129..........   01.0683   13.13   250034.........   01.6275   13.70   250138.........   01.2493   16.52   260085.........   01.5683   18.89
240045.......................   01.1170   18.25   240130..........   01.0694   15.14   250035.........   00.8775   13.38   250141.........   01.2384   16.11   260086.........   00.9991   13.83
240047.......................   01.5112   19.66   240132..........   01.2511   21.26   250036.........   01.0177   10.97   250145.........   00.9805  .......  260089.........   01.0806   12.16
240048.......................   01.2509   21.83   240133..........   01.1407   16.89   250037.........   00.8394   09.52   250146.........   01.0293   12.44   260091.........   01.6447   20.21
240049.......................   01.7860   21.16   240135..........   00.9022   11.98   250038.........   00.9491   12.49   250148.........   01.1361   14.14   260094.........   01.2142   17.53
240050.......................   01.1382   22.26   240137..........   01.2280   15.99   250039.........   01.0330   12.23   250149.........   00.9158   12.56   260095.........   01.4130   15.92
240051.......................   00.9385   14.60   240138..........   00.9613   12.39   250040.........   01.3378   16.36   260001.........   01.6347   16.79   260096.........   01.5959   23.01
240052.......................   01.2651   18.14   240139..........   00.9705   14.07   250042.........   01.2431   13.72   260002.........   01.4563   20.60   260097.........   01.1569   16.79
240053.......................   01.5135   19.37   240141..........   01.1692   18.92   250043.........   01.0021   11.48   260003.........   00.9752   13.10   260100.........   01.0555   13.31
240056.......................   01.2694   21.66   240142..........   01.1055   15.56   250044.........   00.9974   14.17   260004.........   01.0307   12.81   260102.........   01.0467   17.58
240057.......................   01.7845   21.08   240143..........   01.1220   11.76   250045.........   01.1352   17.75   260005.........   01.6959   20.17   260103.........   01.3939   16.96
240058.......................   00.9705   08.83   240144..........   01.0129   13.66   250047.........   00.9859   11.39   260006.........   01.4637   16.81   260104.........   01.7038   18.80
240059.......................   01.1096   19.63   240145..........   00.9274   12.01   250048.........   01.5334   14.39   260007.........   01.6391   14.42   260105.........   01.8450   21.41
240061.......................   01.7813   21.05   240146..........   00.9883   18.68   250049.........   00.9044   11.19   260008.........   01.2715   16.18   260107.........   01.4336   19.39
240063.......................   01.5152   22.26   240148..........   01.0915   08.84   250050.........   01.2911   12.79   260009.........   01.2277   15.64   260108.........   01.8662   18.57
240064.......................   01.2556   20.39   240150..........   00.8854   12.16   250051.........   00.8720   08.88   260011.........   01.6403   17.12   260109.........   00.9885   11.86
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 46062]]


                                                                                          Page 9 of 16                                                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
260110.......................   01.5703   14.92   270035..........   01.0128   16.94   280050.........   00.9679   13.74   290021.........   01.6450   19.51   310041.........   01.3388   21.96
260113.......................   01.0828   14.31   270036..........   00.9373   09.94   280051.........   01.2066   13.85   290022.........   01.6828   20.47   310042.........   01.2149   22.13
260115.......................   01.2400   14.59   270039..........   01.0684   12.96   280052.........   00.9828   12.52   290027.........   00.9732   15.03   310043.........   01.2896   19.99
260116.......................   01.1030   13.89   270040..........   01.0918   19.79   280054.........   01.2703   16.10   290029.........   00.8983  .......  310044.........   01.3360   20.03
260119.......................   01.1917   13.28   270041..........   01.0796   11.52   280055.........   00.9249   12.19   290032.........   01.4471   18.24   310045.........   01.4249   27.62
260120.......................   01.2217   14.60   270044..........   01.1485   14.40   280056.........   01.0135   13.28   290036.........   01.0870   13.90   310047.........   01.3531   24.05
260122.......................   01.1474   13.40   270046..........   00.9270   13.70   280057.........   00.9801   15.61   290038.........   00.9351   17.61   310048.........   01.2560   21.34
260123.......................   01.0221   12.27   270048..........   01.0968   14.13   280058.........   01.3647   14.36   290039.........   01.3412  .......  310049.........   01.3224   23.91
260127.......................   00.9860   13.88   270049..........   01.8343   19.33   280060.........   01.5785   18.24   300001.........   01.3841   21.03   310050.........   01.2281   21.48
260128.......................   01.0214   09.22   270050..........   01.0747   17.43   280061.........   01.4895   15.95   300003.........   01.8856   21.59   310051.........   01.3357   23.27
260129.......................   01.2018   13.53   270051..........   01.3399   19.12   280062.........   01.1451   12.55   300005.........   01.2741   19.13   310052.........   01.2886   21.19
260131.......................   01.4057   15.91   270052..........   01.0912   12.73   280064.........   01.0800   13.94   300006.........   01.1402   17.36   310054.........   01.3056   23.97
260134.......................   01.1561   14.28   270053..........   00.9396   09.78   280065.........   01.2745   17.49   300007.........   01.1618   17.04   310056.........   01.3867   20.63
260137.......................   01.5544   14.25   270057..........   01.2164   18.21   280066.........   01.0357   11.48   300008.........   01.2110   18.30   310057.........   01.2922   23.67
260138.......................   01.8949   21.17   270058..........   00.9476   11.51   280068.........   01.0870   09.89   300009.........   01.1504   18.16   310058.........   01.0906   26.79
260141.......................   01.9549   17.43   270059..........   00.8656   15.65   280070.........   01.0149   11.63   300010.........   01.2297   17.88   310060.........   01.2000   18.73
260142.......................   01.2382   13.99   270060..........   00.9067   13.00   280073.........   01.0115   13.94   300011.........   01.3613   22.07   310061.........   01.2538   20.23
260143.......................   00.9915   11.96   270063..........   00.9363   14.23   280074.........   01.1316   13.76   300012.........   01.3381   21.42   310062.........   01.2965   24.98
260147.......................   01.0190   12.74   270068..........   00.9009   15.59   280075.........   01.2322   13.10   300013.........   01.1476   17.06   310063.........   01.3660   21.28
260148.......................   00.9522   09.30   270072..........   00.7740   11.39   280076.........   01.0519   12.93   300014.........   01.2209   19.36   310064.........   01.2783   22.29
260158.......................   01.1057   11.77   270073..........   01.1623   11.16   280077.........   01.3421   17.26   300015.........   01.1797   18.08   310067.........   01.3279   23.76
260159.......................   01.0850   19.81   270074..........   00.8787  .......  280079.........   01.2143   10.42   300016.........   01.2009   15.73   310069.........   01.2838   20.03
260160.......................   01.0947   11.84   270075..........   00.9757  .......  280080.........   01.0583   12.11   300017.........   01.2344   21.96   310070.........   01.4058   22.98
260162.......................   01.5751   19.55   270076..........   00.7949  .......  280081.........   01.6898   18.79   300018.........   01.2172   19.62   310072.........   01.2874   20.57
260163.......................   01.3342   15.35   270079..........   00.9165   13.66   280082.........   01.0127   13.48   300019.........   01.2814   18.78   310073.........   01.6854   23.77
260164.......................   00.9984   12.17   270080..........   01.2060   15.54   280083.........   01.1020   14.54   300020.........   01.2710   20.72   310074.........   01.4715   22.61
260166.......................   01.2345   21.39   270081..........   01.0741   12.39   280084.........   01.0433   11.01   300021.........   01.1849   15.34   310075.........   01.3895   23.13
260172.......................   00.9976   12.72   270082..........   01.0736   14.48   280088.........   01.7915   17.98   300022.........   01.1134   17.22   310076.........   01.4399   28.74
260173.......................   01.0104   11.78   270083..........   01.0503   16.28   280089.........   01.0285   14.37   300023.........   01.2978   19.78   310077.........   01.5635   23.51
260175.......................   01.1633   14.99   270084..........   00.9318   14.12   280090.........   00.9935   13.49   300024.........   01.1828   16.74   310078.........   01.3027   24.59
260176.......................   01.7313   18.43   280001..........   01.1150   12.98   280091.........   01.2088   14.18   300028.........   01.2388   16.75   310081.........   01.2885   21.29
260177.......................   01.3273   20.42   280003..........   02.0371   19.15   280092.........   00.8942   12.18   300029.........   01.3275   22.39   310083.........   01.2987   22.33
260178.......................   01.4928   18.91   280005..........   01.4351   17.19   280094.........   01.0535   14.07   300033.........   01.1132   13.69   310084.........   01.3541   21.20
260179.......................   01.6451   18.70   280009..........   01.7538   17.25   280097.........   01.0852   12.27   300034.........   02.0364   23.29   310086.........   01.2266   21.30
260180.......................   01.7006   20.07   280011..........   00.8644   11.91   280098.........   00.9677   10.40   310001.........   01.7992   26.40   310087.........   01.2818   19.26
260183.......................   01.5643   16.14   280012..........   01.3040   15.43   280101.........   01.0917   13.18   310002.........   01.7327   26.31   310088.........   01.2278   20.64
260186.......................   01.2995   15.97   280013..........   01.8405   20.57   280102.........   01.1442   12.76   310003.........   01.2627   24.08   310090.........   01.2294   25.46
260188.......................   01.2526   18.64   280014..........   00.9583   13.39   280104.........   00.9763   10.84   310005.........   01.2319   20.54   310091.........   01.3343   20.80
260189.......................   00.8480   11.26   280015..........   01.0124   15.19   280105.........   01.3758   17.28   310006.........   01.2052   19.62   310092.........   01.3108   20.70
260190.......................   01.2528   18.90   280017..........   01.1012   13.94   280106.........   00.9288   13.93   310008.........   01.3806   22.73   310093.........   01.1706   19.79
260191.......................   01.2514   17.92   280018..........   01.0931   13.35   280107.........   01.0876   11.13   310009.........   01.2807   22.80   310096.........   01.8668   23.17
260193.......................   01.2323   18.75   280020..........   01.6154   18.93   280108.........   01.2167   13.96   310010.........   01.2537   20.92   310105.........   01.2442   23.63
260195.......................   01.1679   14.49   280021..........   01.3263   15.49   280109.........   00.9153   09.80   310011.........   01.2873   21.55   310108.........   01.4315   21.85
260197.......................   01.1444   20.98   280022..........   01.0087   12.52   280110.........   01.0169   11.19   310012.........   01.5915   24.33   310110.........   01.2368   20.38
260198.......................   01.3378   15.86   280023..........   01.4093   15.69   280111.........   01.2161   15.63   310013.........   01.2770   21.84   310111.........   01.3068   20.46
260200.......................   01.3613   19.10   280024..........   00.9413   13.05   280114.........   00.9765   12.99   310014.........   01.7131   24.26   310112.........   01.3241   21.02
270002.......................   01.2856   15.06   280025..........   00.9422   12.14   280115.........   00.9474   14.77   310015.........   01.9529   24.97   310113.........   01.2395   20.60
270003.......................   01.2214   19.98   280026..........   01.0265   15.28   280117.........   01.1921   14.47   310016.........   01.2564   22.34   310115.........   01.2923   19.31
270004.......................   01.7045   19.96   280028..........   01.0549   14.53   280118.........   00.9889   15.17   310017.........   01.3661   23.40   310116.........   01.2370   21.96
270006.......................   01.0898   14.78   280029..........   01.2195   14.02   280119.........   00.8659  .......  310018.........   01.1268   20.55   310118.........   01.2551   22.53
270007.......................   00.9224   13.18   280030..........   01.7278   24.40   280123.........   00.9506   15.63   310019.........   01.6124   23.53   310119.........   01.6198   30.37
270009.......................   01.0810   15.34   280031..........   01.0191   13.10   290001.........   01.6662   21.85   310020.........   01.2521   21.55   310120.........   01.0709   17.44
270011.......................   01.0719   15.52   280032..........   01.3303   15.57   290002.........   00.9831   17.79   310021.........   01.3931   22.03   310121.........   01.1650   20.34
270012.......................   01.6741   17.63   280033..........   01.0971   14.24   290003.........   01.6600   20.74   310022.........   01.2806   21.47   320001.........   01.4682   17.14
270013.......................   01.4138   17.77   280034..........   01.3131   13.86   290005.........   01.4915   19.03   310024.........   01.3560   22.85   320002.........   01.3511   20.74
270014.......................   01.7987   16.83   280035..........   00.9238   11.81   290006.........   01.1731   16.15   310025.........   01.2619   22.27   320003.........   01.1841   15.65
270016.......................   00.9321   13.23   280037..........   01.0168   14.28   290007.........   01.9114   27.06   310026.........   01.2312   22.67   320004.........   01.2645   17.19
270017.......................   01.3064   18.66   280038..........   01.0809   14.53   290008.........   01.1790   18.73   310027.........   01.3355   20.94   320005.........   01.3203   18.87
270019.......................   01.0378   14.02   280039..........   01.1314   13.99   290009.........   01.5603   22.25   310028.........   01.1787   21.21   320006.........   01.3638   15.96
270021.......................   01.1545   16.23   280040..........   01.6214   18.67   290010.........   01.1286   11.93   310029.........   01.9766   22.49   320009.........   01.5899   16.52
270023.......................   01.3584   20.28   280041..........   00.9179   11.80   290011.........   01.0396   14.67   310031.........   02.8736   24.35   320011.........   01.0253   17.06
270024.......................   00.9913   13.05   280042..........   01.1032   13.11   290012.........   01.3984   20.71   310032.........   01.3445   21.17   320012.........   00.9834   16.21
270026.......................   00.9309   12.95   280043..........   01.0605   14.76   290013.........   01.0682   15.39   310034.........   01.2696   21.26   320013.........   01.1618   19.19
270027.......................   01.0785   11.91   280045..........   01.2844   13.63   290014.........   01.0288   16.38   310036.........   01.1474   19.86   320014.........   01.1042   13.79
270028.......................   01.0841   15.37   280046..........   01.1494   11.04   290015.........   01.0036   15.04   310037.........   01.3407   26.92   320016.........   01.1839   13.77
270029.......................   00.9507   16.24   280047..........   01.0939   15.54   290016.........   01.2251   19.81   310038.........   02.0204   24.49   320017.........   01.1548   16.85
270032.......................   01.1189   15.80   280048..........   01.1833   12.06   290019.........   01.3517   19.06   310039.........   01.2885   21.42   320018.........   01.5098   17.37
270033.......................   00.8853   12.22   280049..........   01.0480   13.94   290020.........   01.0868   17.08   310040.........   01.2597   24.06   320019.........   01.5443   22.95
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                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
320021.......................   01.7533   17.31   330057..........   01.6977   16.97   330167.........   01.7092   28.82   330265.........   01.3607   16.53   340021.........   01.2689   16.22
320022.......................   01.2423   16.07   330058..........   01.3103   15.76   330169.........   01.4110   32.57   330267.........   01.2246   23.35   340022.........   01.0375   14.98
320023.......................   00.9909   16.72   330059..........   01.5940   29.90   330171.........   01.3203   21.95   330268.........   01.0334   14.44   340023.........   01.4060   17.97
320030.......................   01.0487   18.27   330061..........   01.3131   23.60   330175.........   01.1554   14.35   330270.........   01.9732   32.47   340024.........   01.1772   15.07
320031.......................   00.9027   12.36   330062..........   01.1628   15.58   330177.........   01.0005   13.74   330273.........   01.3707   23.35   340025.........   01.1840   14.99
320032.......................   00.9301   15.10   330064..........   01.4496   29.63   330179.........   00.8725   14.38   330275.........   01.3082   18.58   340027.........   01.1891   15.59
320033.......................   01.1267   20.90   330065..........   01.1872   17.24   330180.........   01.1898   16.40   330276.........   01.1936   17.02   340028.........   01.5458   17.32
320035.......................   00.9731   14.58   330066..........   01.3095   17.55   330181.........   01.3087   30.46   330277.........   01.1398   16.32   340030.........   02.0708   20.58
320037.......................   01.2157   15.59   330067..........   01.3397   20.60   330182.........   02.4691   28.41   330279.........   01.3457   18.52   340031.........   01.0081   11.97
320038.......................   01.2291   13.85   330072..........   01.3517   27.84   330183.........   01.5101   18.74   330285.........   01.7862   22.52   340032.........   01.3860   18.60
320046.......................   01.2573   18.15   330073..........   01.1565   14.87   330184.........   01.3734   26.85   330286.........   01.3224   24.25   340035.........   01.1828   15.73
320048.......................   01.3064   17.40   330074..........   01.2166   18.14   330185.........   01.3291   25.44   330290.........   01.7785   29.90   340036.........   01.2472   17.33
320056.......................   00.9777  .......  330075..........   01.0853   17.25   330186.........   00.8858   19.79   330293.........   01.1588   13.48   340037.........   01.1215   15.85
320057.......................   00.9860  .......  330078..........   01.3888   17.05   330188.........   01.2089   18.28   330304.........   01.2571   27.34   340038.........   01.0707   15.42
320058.......................   00.8563  .......  330079..........   01.2315   17.05   330189.........   01.4328   16.85   330306.........   01.4672   27.44   340039.........   01.2910   19.52
320059.......................   01.1562  .......  330080..........   01.4550   27.21   330191.........   01.3345   17.14   330307.........   01.2474   19.43   340040.........   01.7921   18.22
320060.......................   00.9435  .......  330084..........   01.0610   16.46   330193.........   01.3182   27.97   330308.........   01.2507   29.68   340041.........   01.2364   17.24
320061.......................   01.1137  .......  330085..........   01.3273   18.64   330194.........   01.8320   29.32   330309.........   01.2698   24.10   340042.........   01.1970   14.01
320062.......................   00.9094  .......  330086..........   01.2423   24.99   330195.........   01.6507   29.85   330314.........   01.4593   22.18   340044.........   01.0253   13.44
320063.......................   01.2911   16.46   330088..........   01.0571   24.62   330196.........   01.3114   00.34   330315.........   16.1090   25.23   340045.........   00.9968   09.61
320065.......................   01.3721   17.00   330090..........   01.5514   16.76   330197.........   01.0574   14.99   330316.........   01.2635   21.85   340047.........   01.8734   18.38
320067.......................   00.8637   17.64   330091..........   01.3268   18.50   330198.........   01.4037   22.87   330327.........   00.9920   16.17   340048.........   00.8186   14.02
320068.......................   00.8763   15.36   330092..........   01.1180   14.07   330199.........   01.4010   25.87   330331.........   01.2269   29.77   340049.........   00.6961   13.94
320069.......................   00.9960   10.67   330094..........   01.1768   16.51   330201.........   01.6465   27.62   330332.........   01.2958   26.61   340050.........   01.1941   17.37
320070.......................   00.9059  .......  330095..........   01.2330   17.55   330202.........   01.6534   28.76   330333.........   01.2526   23.81   340051.........   01.3394   16.08
320074.......................   01.0785   17.04   330096..........   01.0917   15.45   330203.........   01.3909   19.06   330336.........   01.3450   28.99   340052.........   01.0093   18.41
320079.......................   01.1533   17.22   330097..........   01.2483   15.36   330204.........   01.4006   30.31   330338.........   01.2358   23.09   340053.........   01.6663   19.08
330001.......................   01.1757   25.49   330100..........   00.7182   26.07   330205.........   01.1539   20.29   330339.........   00.8847   18.73   340054.........   01.1083   13.09
330002.......................   01.4142   25.22   330101..........   01.7684   33.56   330208.........   01.2513   24.55   330340.........   01.1880   21.17   340055.........   01.1907   17.40
330003.......................   01.3152   17.67   330102..........   01.3513   17.47   330209.........   01.2154   23.11   330350.........   01.8015   28.27   340060.........   01.1491   16.69
330004.......................   01.3320   19.08   330103..........   01.2733   16.46   330211.........   01.1993   17.23   330353.........   01.3368   30.33   340061.........   01.7040   19.91
330005.......................   01.7984   20.49   330104..........   01.3905   26.74   330212.........   01.1041   21.12   330354.........   01.5264  .......  340063.........   01.0417   13.08
330006.......................   01.2710   23.92   330106..........   01.5962   34.42   330213.........   01.1771   16.58   330357.........   01.3809   33.49   340064.........   01.2144   17.12
330007.......................   01.3464   17.71   330107..........   01.3262   25.92   330214.........   01.7550   29.72   330359.........   00.9243   19.54   340065.........   01.3430   14.39
330008.......................   01.2061   15.62   330108..........   01.2139   16.28   330215.........   01.2276   15.66   330372.........   01.2018   24.47   340067.........   01.2792   15.88
330009.......................   01.3815   30.32   330111..........   01.0633   14.81   330218.........   01.1335   17.94   330381.........   01.1971   28.03   340068.........   01.2351   14.77
330010.......................   01.2801   15.07   330114..........   00.9802   16.13   330219.........   01.6778   19.13   330385.........   01.1776   -2.89   340069.........   01.7382   19.47
330011.......................   01.3290   17.81   330115..........   01.2248   15.23   330221.........   01.3386   27.53   330386.........   01.2009   22.53   340070.........   01.3823   17.57
330012.......................   01.7038   31.01   330116..........   00.9813   14.21   330222.........   01.2772   17.64   330387.........   01.0268   23.95   340071.........   01.0851   15.08
330013.......................   02.0608   17.36   330118..........   01.6299   18.94   330223.........   01.0642   15.37   330389.........   01.7489   29.43   340072.........   01.0654   15.20
330014.......................   01.3788   30.31   330119..........   01.7640   33.48   330224.........   01.2453   20.32   330390.........   01.2900   30.36   340073.........   01.5496   20.23
330016.......................   01.0547   15.47   330121..........   01.0392   16.10   330225.........   01.1722   24.43   330393.........   01.7141   27.22   340075.........   01.2024   16.26
330019.......................   01.2902   25.33   330122..........   01.0867   21.84   330226.........   01.2740   17.05   330394.........   01.5390   17.96   340080.........   01.0607   12.72
330020.......................   01.0620   15.26   330125..........   01.8729   19.78   330229.........   01.3074   15.73   330395.........   01.3045   30.64   340084.........   01.0587   15.61
330023.......................   01.2479   23.30   330126..........   01.1881   22.34   330230.........   01.4285   28.69   330396.........   01.3520   24.91   340085.........   01.1720   15.65
330024.......................   01.8143   30.17   330127..........   01.3437   24.82   330231.........   01.0938   30.02   330397.........   01.2858   25.47   340087.........   01.1024   16.01
330025.......................   01.1813   18.51   330128..........   01.3917   28.29   330232.........   01.2394   16.42   330398.........   01.2749   26.92   340088.........   01.1388   16.42
330027.......................   01.4780   30.17   330132..........   01.0770   14.60   330233.........   01.5512   29.70   330399.........   01.2737   29.65   340089.........   01.0348   12.85
330028.......................   01.4234   24.95   330133..........   01.3665   30.50   330234.........   02.2563   29.60   340001.........   01.5504   19.47   340090.........   01.1542   17.15
330029.......................   01.0148   19.09   330135..........   01.1572   18.28   330235.........   01.1452   18.33   340002.........   01.8974   18.38   340091.........   01.7238   19.42
330030.......................   01.2083   14.75   330136..........   01.2992   16.54   330236.........   01.4044   27.87   340003.........   01.1484   17.08   340093.........   01.0733   12.10
330033.......................   01.2824   13.81   330140..........   01.7638   17.79   330238.........   01.2306   14.19   340004.........   01.4886   17.16   340094.........   01.4431   17.65
330034.......................   00.7369   32.72   330141..........   01.3548   24.27   330239.........   01.1936   15.39   340005.........   01.1591   13.24   340096.........   01.1673   17.33
330036.......................   01.2231   22.66   330144..........   00.9791   13.70   330240.........   01.3305   28.41   340006.........   01.0881   14.60   340097.........   01.1830   16.61
330037.......................   01.1592   14.92   330148..........   01.0830   14.58   330241.........   01.9102   22.54   340007.........   01.1617   16.20   340098.........   01.7209   19.46
330038.......................   01.2065   14.81   330151..........   01.0751   14.55   330242.........   01.3802   23.99   340008.........   01.1475   16.97   340099.........   01.1578   12.70
330039.......................   00.8432   14.25   330152..........   01.4444   28.88   330245.........   01.3022   17.51   340009.........   01.4763   19.70   340101.........   01.1697   11.80
330041.......................   01.3306   30.19   330153..........   01.7128   17.15   330246.........   01.3541   25.33   340010.........   01.3236   16.97   340104.........   00.8600   12.36
330043.......................   01.3108   26.60   330154..........   01.6429  .......  330247.........   00.7659   29.15   340011.........   01.1355   14.36   340105.........   01.3859   17.94
330044.......................   01.2722   17.63   330157..........   01.3608   19.48   330249.........   01.1711   15.98   340012.........   01.3193   15.92   340106.........   01.2109   18.52
330045.......................   01.4075   26.13   330158..........   01.4129   23.06   330250.........   01.3086   16.89   340013.........   01.2557   15.63   340107.........   01.4165   16.65
330046.......................   01.4956   29.75   330159..........   01.3177   17.67   330252.........   00.8785   15.72   340014.........   01.5864   22.01   340109.........   01.3485   16.84
330047.......................   01.2551   16.37   330160..........   01.4457   29.16   330254.........   01.1651   15.21   340015.........   01.3037   17.05   340111.........   01.1783   13.75
330048.......................   01.2230   16.94   330161..........   00.7222   16.75   330258.........   01.3696   26.99   340016.........   01.2047   15.58   340112.........   01.0683   13.87
330049.......................   01.3252   17.74   330162..........   01.2585   26.51   330259.........   01.5046   22.78   340017.........   01.2671   16.06   340113.........   02.0121   21.03
330053.......................   01.1943   15.15   330163..........   01.2523   18.88   330261.........   01.2906   25.24   340018.........   01.1777   15.29   340114.........   01.5618   19.74
330055.......................   01.4882   31.04   330164..........   01.3928   19.40   330263.........   01.0194   18.52   340019.........   01.0467   13.86   340115.........   01.5417   18.15
330056.......................   01.3144   27.86   330166..........   01.0011   15.11   330264.........   01.2443   23.18   340020.........   01.2083   17.65   340116.........   01.8211   20.54
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[[Page 46064]]


                                                                                          Page 11 of 16                                                                                         
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
340119.......................   01.2911   16.28   350041..........   00.9769   14.99   360062.........   01.5165   19.27   360143.........   01.3986   18.13   370012.........   00.8913   09.07
340120.......................   01.0917   12.31   350042..........   01.0876   11.16   360063.........   01.1515   18.08   360144.........   01.3179   20.90   370013.........   01.7919   19.41
340121.......................   01.1182   15.36   350043..........   01.7067   16.69   360064.........   01.6063   21.61   360145.........   01.6494   17.67   370014.........   01.2905   18.49
340123.......................   01.1194   16.92   350044..........   00.8710   10.29   360065.........   01.2762   17.59   360147.........   01.2388   15.85   370015.........   01.2695   14.88
340124.......................   01.0603   13.70   350047..........   01.1747   16.78   360066.........   01.4343   18.88   360148.........   01.1249   17.65   370016.........   01.4272   15.52
340125.......................   01.4926   18.36   350049..........   01.2578   10.74   360067.........   01.2705   12.77   360149.........   01.2285   17.72   370017.........   01.0956   11.48
340126.......................   01.4258   16.47   350050..........   00.9330   10.74   360068.........   01.7423   22.41   360150.........   01.2490   19.17   370018.........   01.3350   16.66
340127.......................   01.2939   15.72   350051..........   00.9947   15.46   360069.........   01.1370   16.74   360151.........   01.3513   17.46   370019.........   01.2757   13.17
340129.......................   01.2939   17.50   350053..........   01.0948   10.34   360070.........   01.7333   17.18   360152.........   01.4715   17.88   370020.........   01.3047   12.51
340130.......................   01.4419   17.78   350055..........   00.8596   12.12   360071.........   01.3523   16.78   360153.........   01.1796   14.12   370021.........   00.8951   09.76
340131.......................   01.5338   17.10   350056..........   00.9765   12.81   360072.........   01.2124   16.99   360154.........   01.0368   12.79   370022.........   01.2941   16.91
340132.......................   01.4383   13.48   350058..........   00.8563   12.32   360074.........   01.3725   19.42   360155.........   01.3327   19.43   370023.........   01.3248   15.36
340133.......................   01.0956   14.59   350060..........   00.7725   07.81   360075.........   01.4496   20.74   360156.........   01.3468   17.17   370025.........   01.3637   16.03
340137.......................   01.1410   16.93   350061..........   01.0745   14.05   360076.........   01.3490   17.88   360159.........   01.2231   19.63   370026.........   01.4154   16.34
340138.......................   01.0567   14.77   350063..........   00.8461  .......  360077.........   01.5389   19.34   360161.........   01.2521   19.38   370028.........   01.9042   19.01
340141.......................   01.6716   19.46   350064..........   00.9598  .......  360078.........   01.3080   20.54   360162.........   01.2452   18.42   370029.........   01.2199   13.67
340142.......................   01.2340   14.52   350066..........   00.4249  .......  360079.........   01.8681   21.00   360163.........   01.8349   19.83   370030.........   01.2212   15.66
340143.......................   01.4482   17.07   360001..........   01.3384   16.97   360080.........   01.1083   15.47   360164.........   00.9007   14.82   370032.........   01.5792   15.46
340144.......................   01.3645   18.62   360002..........   01.2162   16.93   360081.........   01.3841   19.32   360165.........   01.1742   14.70   370033.........   01.0221   11.30
340145.......................   01.4125   16.83   360003..........   01.7712   21.00   360082.........   01.3414   20.33   360166.........   01.2030   14.95   370034.........   01.2616   13.35
340146.......................   01.0456   12.52   360006..........   01.7607   20.88   360083.........   01.2828   16.28   360170.........   01.3775   17.38   370035.........   01.6378   16.49
340147.......................   01.3150   18.57   360007..........   01.0849   16.02   360084.........   01.6067   19.41   360172.........   01.3901   16.51   370036.........   01.1174   10.48
340148.......................   01.5007   18.58   360008..........   01.2525   17.40   360085.........   01.7980   20.40   360174.........   01.3088   17.57   370037.........   01.7461   17.69
340151.......................   01.2148   15.08   360009..........   01.3939   17.80   360086.........   01.4480   18.21   360175.........   01.2520   18.78   370038.........   00.9834   11.67
340153.......................   01.8980   19.07   360010..........   01.1941   16.42   360087.........   01.4085   17.90   360176.........   01.1680   14.85   370039.........   01.4126   14.24
340155.......................   01.4119   20.03   360011..........   01.3105   18.17   360088.........   01.2530   16.38   360177.........   01.2971   16.97   370040.........   01.0732   12.21
340156.......................   00.8453  .......  360012..........   01.2907   19.29   360089.........   01.1458   17.82   360178.........   01.1892   16.88   370041.........   01.0325   14.17
340158.......................   01.2122   16.64   360013..........   01.1167   17.72   360090.........   01.2435   19.06   360179.........   01.2990   19.34   370042.........   00.8601   12.67
340159.......................   01.1730   17.58   360014..........   01.1749   17.98   360091.........   01.2344   19.17   360180.........   02.1407   22.61   370043.........   00.9385   13.83
340160.......................   01.1167   13.34   360016..........   01.5907   17.92   360092.........   01.1738   18.70   360184.........   00.4826   16.57   370045.........   01.0062   10.45
340162.......................   01.1881   17.44   360017..........   01.8253   20.42   360093.........   01.2307   16.69   360185.........   01.2327   17.09   370046.........   01.0062   11.67
340164.......................   01.5860   18.61   360018..........   01.6307   19.25   360094.........   01.3184   19.51   360186.........   01.1293   14.23   370047.........   01.3674   15.46
340166.......................   01.3553   19.31   360019..........   01.2457   19.11   360095.........   01.2967   17.00   360187.........   01.3884   16.45   370048.........   01.2342   14.10
340168.......................   00.5173   14.86   360020..........   01.4476   19.77   360096.........   01.1102   16.11   360188.........   00.9743   15.83   370049.........   01.3882   15.65
340171.......................   01.1321   20.34   360021..........   01.2174   17.75   360098.........   01.3556   17.96   360189.........   01.0811   16.02   370051.........   00.9683   12.64
340173.......................   01.2798  .......  360024..........   01.4071   18.60   360099.........   01.0454   15.01   360192.........   01.3259   20.42   370054.........   01.4885   15.15
350001.......................   01.0123   11.96   360025..........   01.2808   18.44   360100.........   01.2628   16.54   360193.........   01.3581   16.93   370056.........   01.5839   18.24
350002.......................   01.7471   15.76   360026..........   01.3129   15.99   360101.........   01.5606   19.00   360194.........   01.2097   16.98   370057.........   01.1540   13.78
350003.......................   01.1860   16.16   360027..........   01.5042   19.53   360102.........   01.3166   20.31   360195.........   01.1428   18.15   370059.........   01.1079   17.59
350004.......................   01.9396   17.55   360028..........   01.4059   16.15   360103.........   01.3796   19.64   360197.........   01.2406   18.15   370060.........   01.0892   12.84
350005.......................   01.1759   12.94   360029..........   01.1959   17.00   360106.........   01.0886   14.96   360200.........   01.0117   14.16   370063.........   01.0280   13.43
350006.......................   01.4658   15.92   360030..........   01.3039   16.35   360107.........   01.2908   17.73   360203.........   01.1555   15.13   370064.........   01.0078   10.63
350007.......................   00.9387   11.95   360031..........   01.3375   18.56   360108.........   01.0396   15.34   360204.........   01.1930   17.97   370065.........   00.9975   15.50
350008.......................   00.9673   15.65   360032..........   01.0924   18.26   360109.........   01.0923   17.32   360210.........   01.1623   19.78   370071.........   01.0650   11.99
350009.......................   01.2044   15.95   360034..........   01.2896   13.90   360112.........   01.8045   22.51   360211.........   01.2500   18.78   370072.........   00.9083   12.83
350010.......................   01.1975   12.15   360035..........   01.5988   20.13   360113.........   01.3367   19.20   360212.........   01.3950   19.17   370076.........   01.2782   12.00
350011.......................   01.9030   17.35   360036..........   01.3855   17.71   360114.........   01.0906   17.10   360213.........   01.1504   17.17   370077.........   01.1968   16.27
350012.......................   01.2136   11.99   360037..........   02.0437   20.51   360115.........   01.2874   17.65   360218.........   01.3232   16.46   370078.........   01.6803   14.49
350013.......................   01.0734   15.32   360038..........   01.5766   18.07   360116.........   01.1189   16.64   360230.........   01.5121   19.37   370079.........   00.9507   12.41
350014.......................   01.0049   15.46   360039..........   01.3052   16.07   360118.........   01.3818   18.32   360231.........   01.0866   12.11   370080.........   00.9633   11.68
350015.......................   01.6959   15.63   360040..........   01.4268   17.31   360121.........   01.2342   17.90   360234.........   01.3527   18.54   370082.........   00.8647   13.46
350016.......................   01.0278   10.92   360041..........   01.3556   18.33   360123.........   01.1997   18.37   360236.........   01.2897   17.59   370083.........   00.9410   11.35
350017.......................   01.4347   15.24   360042..........   01.1551   17.62   360125.........   01.0747   17.38   360239.........   01.3234   19.51   370084.........   01.1272   11.02
350018.......................   01.0690   11.21   360044..........   01.1741   15.64   360126.........   01.2090   20.09   360241.........   00.5799   18.86   370085.........   00.8936   14.52
350019.......................   01.6318   18.43   360045..........   01.5348   20.90   360127.........   01.2236   16.48   360242.........   01.6800  .......  370086.........   01.1242   07.79
350020.......................   01.7038   20.24   360046..........   01.1457   17.85   360128.........   01.2053   14.73   360243.........   00.7547   15.52   370089.........   01.2565   13.16
350021.......................   01.0657   11.41   360047..........   01.1558   13.65   360129.........   01.0204   14.59   360244.........   00.6212   15.74   370091.........   01.7693   17.18
350023.......................   00.9056   12.86   360048..........   01.7911   21.55   360130.........   01.1377   15.59   360245.........   00.7563   14.33   370092.........   01.0486   14.38
350024.......................   01.0901   15.40   360049..........   01.2049   18.18   360131.........   01.3624   17.38   360247.........   00.4249  .......  370093.........   01.8714   18.71
350025.......................   01.0197   13.34   360050..........   01.1543   12.37   360132.........   01.3101   18.78   360248.........   01.7716  .......  370094.........   01.4088   17.00
350027.......................   00.9438   12.32   360051..........   01.6080   21.90   360133.........   01.4858   18.44   370001.........   01.7032   18.73   370095.........   00.9450   11.66
350029.......................   00.8818   13.02   360052..........   01.7565   18.41   360134.........   01.7139   19.43   370002.........   01.2588   13.98   370097.........   01.4520   18.02
350030.......................   00.9794   15.93   360054..........   01.2912   15.83   360135.........   01.1809   16.82   370004.........   01.3080   15.35   370099.........   01.1924   12.65
350033.......................   00.9672   14.33   360055..........   01.2726   19.12   360136.........   01.0773   15.96   370005.........   01.0106   13.12   370100.........   00.9622   13.45
350034.......................   00.9622   18.05   360056..........   01.4296   16.47   360137.........   01.6206   18.82   370006.........   01.2229   15.45   370103.........   00.9375   15.07
350035.......................   00.8570   09.95   360057..........   01.1168   13.87   360140.........   01.0258   16.19   370007.........   01.2061   13.82   370105.........   01.9923   16.23
350038.......................   01.0479   14.07   360058..........   01.3461   16.66   360141.........   01.4692   21.06   370008.........   01.4030   16.68   370106.........   01.5356   16.46
350039.......................   01.0484   13.84   360059..........   01.5754   20.39   360142.........   00.9969   15.98   370011.........   01.0547   12.95   370108.........   01.0528   11.73
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 46065]]


                                                                                          Page 12 of 16                                                                                         
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
370112.......................   01.0771   13.21   380029..........   01.1586   18.45   390032.........   01.2762   18.10   390115.........   01.3809   22.31   390205.........   01.4138   20.63
370113.......................   01.2416   16.23   380031..........   01.0219   18.48   390035.........   01.2570   17.79   390116.........   01.2586   21.78   390206.........   01.4057   20.14
370114.......................   01.6787   15.49   380033..........   01.7402   24.13   390036.........   01.4202   18.06   390117.........   01.1972   15.62   390209.........   01.0481   15.09
370121.......................   01.1451   17.38   380035..........   01.3725   19.01   390037.........   01.3360   18.93   390118.........   01.2115   16.26   390211.........   01.2749   16.99
370122.......................   01.1357   07.58   380036..........   01.0566   20.26   390039.........   01.1244   15.66   390119.........   01.3748   17.59   390213.........   01.0016   16.41
370123.......................   01.2119   12.32   380037..........   01.1645   19.53   390040.........   00.9686   13.13   390121.........   01.3448   17.47   390215.........   01.2812   21.06
370125.......................   01.0097   13.37   380038..........   01.3393   22.64   390041.........   01.3187   17.07   390122.........   01.0693   17.57   390217.........   01.2357   18.51
370126.......................   00.9543   15.34   380039..........   01.3779   29.30   390042.........   01.5624   21.73   390123.........   01.3537   20.71   390219.........   01.3287   19.67
370131.......................   01.0012   12.88   380040..........   01.2637   19.96   390043.........   01.1719   14.85   390125.........   01.2284   15.61   390220.........   01.1983   19.08
370133.......................   01.1472   10.09   380042..........   01.1612   20.57   390044.........   01.6556   19.63   390126.........   01.2945   21.03   390222.........   01.3122   20.33
370138.......................   01.1325   15.23   380047..........   01.7067   22.12   390045.........   01.7661   18.05   390127.........   01.2538   20.96   390223.........   01.5528   23.17
370139.......................   01.1354   12.56   380048..........   01.0410   14.68   390046.........   01.6117   19.79   390128.........   01.2119   18.14   390224.........   00.9223   13.35
370140.......................   00.9528   10.99   380050..........   01.3901   17.45   390047.........   01.7852   28.26   390130.........   01.1560   17.20   390225.........   01.2083   17.19
370141.......................   01.3715   17.30   380051..........   01.5648   20.05   390048.........   01.1647   16.60   390131.........   01.2907   16.30   390226.........   01.7768   24.15
370146.......................   01.0085   10.73   380052..........   01.1918   16.61   390049.........   01.6474   20.69   390132.........   01.3448   15.42   390228.........   01.2582   19.38
370148.......................   01.5151   18.46   380055..........   01.1757   24.14   390050.........   02.1314   22.39   390133.........   01.8281   21.71   390231.........   01.3348   25.11
370149.......................   01.2706   15.35   380056..........   01.0666   17.36   390051.........   02.2272   25.28   390135.........   01.3066   21.05   390233.........   01.3161   17.22
370153.......................   01.1557   14.05   380060..........   01.4373   21.98   390052.........   01.2179   19.41   390136.........   01.1980   15.39   390235.........   01.6702   24.38
370154.......................   00.9897   13.05   380061..........   01.5351   22.07   390054.........   01.2347   16.08   390137.........   01.5015   16.35   390236.........   01.2217   15.88
370156.......................   01.0800   12.49   380062..........   01.1543   14.40   390055.........   01.8450   21.81   390138.........   01.3173   17.93   390237.........   01.5935   20.36
370158.......................   00.9865   11.75   380063..........   01.2864   19.01   390056.........   01.1639   16.81   390139.........   01.5607   23.54   390238.........   01.4213   16.51
370159.......................   01.2594   15.59   380064..........   01.3688   21.25   390057.........   01.2716   18.70   390142.........   01.6526   23.18   390242.........   01.2889   18.48
370163.......................   00.8591   12.16   380065..........   01.0800   22.49   390058.........   01.3370   18.67   390145.........   01.3905   19.48   390244.........   00.8920   09.83
370165.......................   01.2006   12.46   380066..........   01.4293   18.58   390060.........   01.1510   16.92   390146.........   01.2882   16.44   390245.........   01.3803   24.05
370166.......................   01.1406   16.32   380068..........   01.0516   19.05   390061.........   01.4893   19.08   390147.........   01.2376   19.08   390246.........   01.2473   17.25
370169.......................   01.1037   11.25   380069..........   01.1438   18.59   390062.........   01.2096   16.01   390150.........   01.1109   18.10   390247.........   01.0371   18.26
370170.......................   01.0855       .   380070..........   01.3961   21.24   390063.........   01.7640   19.24   390151.........   01.2813   18.58   390249.........   00.9800   12.06
370171.......................   01.0678  .......  380071..........   01.3440   20.07   390065.........   01.2780   19.30   390152.........   01.0750   18.81   390256.........   01.8586   23.45
370172.......................   00.9962  .......  380072..........   00.9537   14.66   390066.........   01.3186   17.77   390153.........   01.2419   22.46   390258.........   01.2671   20.08
370173.......................   01.1933  .......  380075..........   01.4047   19.72   390067.........   01.7794   18.91   390154.........   01.2332   16.67   390260.........   01.2216   21.17
370174.......................   01.1211  .......  380078..........   01.1150   17.41   390068.........   01.2742   17.23   390155.........   01.2835   19.44   390262.........   02.1059   17.77
370176.......................   01.1972   15.29   380081..........   01.0847   18.84   390069.........   01.2051   17.75   390156.........   01.4396   21.37   390263.........   01.4786   19.16
370177.......................   01.0146   10.09   380082..........   01.3405   22.96   390070.........   01.2858   20.39   390157.........   01.3451   17.99   390265.........   01.2976   18.82
370178.......................   01.0055   10.96   380083..........   01.2349   20.06   390071.........   01.1351   13.68   390158.........   01.5819   18.96   390266.........   01.1930   16.81
370179.......................   00.8169   17.33   380084..........   01.3216   21.43   390072.........   01.0913   15.91   390160.........   01.2468   18.50   390267.........   01.2771   19.80
370180.......................   00.9740  .......  380087..........   01.0052   15.38   390073.........   01.6266   19.03   390161.........   01.1266   14.43   390268.........   01.3964   20.44
370183.......................   01.0165   12.06   380088..........   01.0315   16.16   390074.........   01.3127   16.05   390162.........   01.4556   19.59   390270.........   01.3202   16.67
370186.......................   01.0206   13.15   380089..........   01.3738   22.25   390075.........   01.3025   16.41   390163.........   01.2420   15.99   390272.........   00.5074  ......
370189.......................   00.9532   07.82   380090..........   01.3211   25.71   390076.........   01.3566   21.07   390164.........   02.1542   20.37   390277.........   00.4880   22.55
370190.......................   01.5794   15.31   380091..........   01.2631   25.13   390078.........   01.0424   16.88   390166.........   01.1022   18.31   390278.........   00.6661   18.42
370192.......................   01.3093   17.57   390001..........   01.3373   18.25   390079.........   01.7564   16.81   390167.........   01.3544   21.30   390279.........   01.0584   15.32
370194.......................   01.8180  .......  390002..........   01.3644   18.62   390080.........   01.3323   19.14   390168.........   01.2625   18.43   390281.........   02.6697  ......
370195.......................   01.7401  .......  390003..........   01.2554   15.88   390081.........   01.3776   22.88   390169.........   01.2856   18.72   390282.........   02.9409  ......
370196.......................   01.1671  .......  390004..........   01.4319   18.12   390083.........   01.1662   22.01   390170.........   01.9087   21.25   400001.........   01.3065   08.65
370197.......................   01.0898  .......  390005..........   01.0806   14.24   390084.........   01.1944   15.57   390173.........   01.1949   16.79   400002.........   01.6129   11.34
380001.......................   01.3616   21.21   390006..........   01.7592   18.17   390086.........   01.2005   15.86   390174.........   01.7675   25.41   400003.........   01.2768   08.61
380002.......................   01.1954   19.35   390007..........   01.1638   21.90   390088.........   01.3124   22.62   390176.........   01.1748   18.14   400004.........   01.1628   08.18
380003.......................   01.2096   20.71   390008..........   01.1579   15.47   390090.........   01.8633   18.97   390178.........   01.2993   18.44   400005.........   01.0828   06.61
380004.......................   01.7682   23.34   390009..........   01.6174   17.81   390091.........   01.1348   17.40   390179.........   01.3019   22.12   400006.........   01.1998   07.59
380005.......................   01.2457   21.15   390010..........   01.1940   17.10   390093.........   01.1530   14.99   390180.........   01.5552   23.40   400007.........   01.2160   07.46
380006.......................   01.3673   19.26   390011..........   01.2706   16.82   390095.........   01.1941   14.46   390181.........   01.0669   18.59   400009.........   01.0124   07.71
380007.......................   01.5837   23.43   390012..........   01.2607   19.75   390096.........   01.3470   17.00   390183.........   01.2194   18.03   400010.........   00.9370   08.53
380008.......................   01.0565   17.83   390013..........   01.2410   16.90   390097.........   01.3270   21.56   390184.........   01.1453   18.07   400011.........   00.9932   08.12
380009.......................   01.8640   23.30   390015..........   01.1668   13.12   390098.........   01.7998   20.75   390185.........   01.2099   16.34   400012.........   01.2679   07.40
380010.......................   01.1177   20.67   390016..........   01.2448   16.40   390100.........   01.6693   20.03   390189.........   01.0930   16.73   400013.........   01.2504   07.44
380011.......................   01.0880   20.97   390017..........   01.1347   15.43   390101.........   01.2430   16.62   390191.........   01.1775   14.33   400014.........   01.3895   08.92
380013.......................   01.2741   17.76   390018..........   01.3507   20.05   390102.........   01.3992   20.51   390192.........   01.1868   16.36   400015.........   01.2239   09.83
380014.......................   01.5560   20.77   390019..........   01.1182   15.59   390103.........   01.1030   18.00   390193.........   01.2146   16.13   400016.........   01.3497   10.89
380017.......................   01.8253   23.17   390022..........   01.3276   21.40   390104.........   01.0899   14.99   390194.........   01.1010   18.91   400017.........   01.2425   07.70
380018.......................   01.7644   21.22   390023..........   01.3010   18.98   390106.........   01.0768   15.15   390195.........   01.8873   22.93   400018.........   01.2993   09.67
380019.......................   01.3170   19.33   390024..........   00.9898   23.26   390107.........   01.2972   19.04   390196.........   01.4406  .......  400019.........   01.8030   09.34
380020.......................   01.4406   21.43   390025..........   00.6308   15.97   390108.........   01.3512   20.08   390197.........   01.3014   18.49   400021.........   01.4988   08.78
380021.......................   01.2983   19.44   390026..........   01.2830   20.94   390109.........   01.1606   14.14   390198.........   01.2247   15.75   400022.........   01.3222   10.01
380022.......................   01.2344   21.01   390027..........   01.8940   25.88   390110.........   01.5989   18.05   390199.........   01.3118   15.40   400024.........   00.9975   07.79
380023.......................   01.2476   17.43   390028..........   01.9133   17.78   390111.........   01.8414   27.88   390200.........   01.0929   14.88   400026.........   00.9746   05.66
380025.......................   01.2534   22.55   390029..........   01.9558   18.83   390112.........   01.1966   12.26   390201.........   01.2589   19.26   400027.........   01.1943   09.06
380026.......................   01.1657   17.54   390030..........   01.2417   17.37   390113.........   01.2118   16.25   390203.........   01.3873   20.96   400028.........   01.0387   07.89
380027.......................   01.3334   23.09   390031..........   01.1640   17.15   390114.........   01.2644   22.27   390204.........   01.2800   18.56   400029.........   01.1383  ......
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                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
400031.......................   01.1913   08.38   420053..........   01.2774   14.99   430056.........   00.8741   09.56   440068.........   01.2254   17.28   440205.........   01.1096   15.47
400032.......................   01.1933   08.21   420054..........   01.2603   17.08   430057.........   00.9229   10.73   440070.........   01.1011   14.28   440206.........   01.0829   13.80
400044.......................   01.2118   09.14   420055..........   01.0222   14.59   430060.........   00.9262   08.64   440071.........   01.3979   16.32   440208.........   01.9916  ......
400048.......................   01.2251  .......  420056..........   01.1518   13.66   430062.........   00.8090   10.50   440072.........   01.4186   14.81   440209.........   01.7802  ......
400061.......................   01.5945   13.14   420057..........   01.1676   15.20   430064.........   01.1664   12.48   440073.........   01.3463   18.39   440211.........   00.7914  ......
400079.......................   01.2989   08.37   420059..........   00.9864   13.80   430065.........   01.0035   10.34   440078.........   01.0317   13.14   450002.........   01.5261   18.75
400087.......................   01.4162   08.10   420061..........   01.1701   16.99   430066.........   00.9891   11.87   440081.........   01.1820   15.86   450004.........   01.2254   12.21
400094.......................   01.1058   09.07   420062..........   01.3804   16.51   430073.........   01.0158   13.25   440082.........   02.0430   21.47   450005.........   01.2221   14.82
400098.......................   01.2338   07.55   420064..........   01.1545   14.32   430076.........   00.9849   10.30   440083.........   01.1480   12.16   450007.........   01.2626   13.51
400102.......................   01.2188   07.59   420065..........   01.3538   17.37   430077.........   01.6495   16.77   440084.........   01.1833   12.89   450008.........   01.3661   14.74
400103.......................   01.4253   09.13   420066..........   00.9250   15.38   430079.........   00.9968   11.63   440090.........   00.8532   11.62   450010.........   01.4024   15.12
400104.......................   01.4137   09.01   420067..........   01.2687   16.48   430081.........   00.9338  .......  440091.........   01.6477   16.91   450011.........   01.5959   17.67
400105.......................   01.3250   09.05   420068..........   01.3430   17.25   430082.........   00.9221  .......  440100.........   01.0678   13.60   450014.........   01.0411   14.53
400106.......................   01.2027   07.87   420069..........   01.0606   14.29   430083.........   00.7736  .......  440102.........   01.0777   12.64   450015.........   01.5299   15.25
400109.......................   01.4914   09.67   420070..........   01.2890   15.76   430084.........   00.9792  .......  440103.........   01.2605   16.57   450016.........   01.6408   17.49
400110.......................   01.1463   08.39   420071..........   01.3340   17.29   430085.........   00.9069  .......  440104.........   01.6987   18.53   450018.........   01.5929   21.98
400111.......................   01.1311   08.52   420072..........   01.0354   11.94   430087.........   00.9333   08.64   440105.........   01.0989   16.52   450020.........   01.0246   16.23
400112.......................   01.2492   08.03   420073..........   01.3185   18.17   430089.........   00.8346  .......  440109.........   01.1123   12.71   450021.........   01.8352   21.68
400113.......................   01.2692   07.41   420074..........   00.9857   11.49   440001.........   01.1456   12.99   440110.........   00.9587   16.41   450023.........   01.4560   16.45
400114.......................   01.0613   07.55   420075..........   00.9638   14.51   440002.........   01.6285   16.75   440111.........   01.4009   18.75   450024.........   01.3308   16.74
400115.......................   01.0254   07.86   420078..........   01.8003   19.92   440003.........   01.1383   15.46   440114.........   01.0824   12.28   450025.........   01.5918   15.72
400117.......................   01.1717   09.01   420079..........   01.5954   18.15   440006.........   01.4804   18.40   440115.........   01.0713   15.34   450028.........   01.5626   18.19
400118.......................   01.2078   09.52   420080..........   01.3386   21.29   440007.........   00.9713   11.94   440120.........   01.5429   18.26   450029.........   01.4570   14.12
400120.......................   01.3175   09.23   420081..........   01.2360   19.59   440008.........   01.0206   12.34   440125.........   01.4791   18.20   450031.........   01.5193   19.54
400121.......................   01.0939   06.53   420082..........   01.4171   19.00   440009.........   01.2679   14.38   440130.........   01.2138   13.33   450032.........   01.2471   12.89
400122.......................   01.0230   06.66   420083..........   01.2856   17.31   440010.........   00.9448   10.15   440131.........   01.1302   13.71   450033.........   01.6126   17.70
400123.......................   01.1446   09.36   420085..........   01.5083   17.52   440011.........   01.3301   16.51   440132.........   01.1419   14.75   450034.........   01.7095   18.08
400124.......................   02.3583   11.31   420086..........   01.3750   16.96   440012.........   01.5155   18.04   440133.........   01.5684   18.67   450035.........   01.5326   19.16
410001.......................   01.3371   22.95   420087..........   01.6990   16.86   440014.........   01.1200   09.84   440135.........   01.2866   17.25   450037.........   01.6270   18.03
410004.......................   01.3139   21.15   420088..........   01.1999   15.27   440015.........   01.7323   18.12   440137.........   01.0171   13.14   450039.........   01.3288   17.37
410005.......................   01.3535   22.61   420089..........   01.2336   20.60   440016.........   00.9970   12.59   440141.........   01.0474   14.12   450040.........   01.5635   17.73
410006.......................   01.3134   20.75   420091..........   01.2895   18.32   440017.........   01.6425   20.72   440142.........   01.0235   11.05   450042.........   01.7513   15.78
410007.......................   01.7033   21.60   420093..........   01.0290  .......  440018.........   01.4087   17.06   440143.........   01.1029   16.45   450044.........   01.6323   19.72
410008.......................   01.2207   21.52   420094..........   01.0142  .......  440019.........   01.7245   17.21   440144.........   01.2377   18.01   450046.........   01.3332   15.81
410009.......................   01.3152   21.03   430004..........   01.1098   15.06   440020.........   01.2198   15.78   440145.........   00.9917   14.42   450047.........   01.1063   13.46
410010.......................   01.0663   25.32   430005..........   01.3635   14.44   440022.........   01.1220   14.01   440147.........   01.5380   23.56   450050.........   01.0051   14.35
410011.......................   01.2322   23.54   430007..........   01.0876   12.77   440023.........   01.0845   13.04   440148.........   01.1478   15.54   450051.........   01.6238   18.53
410012.......................   01.8243   20.26   430008..........   01.1139   13.56   440024.........   01.3163   16.88   440149.........   01.1533   15.28   450052.........   01.0402   13.01
410013.......................   01.3321   27.36   430010..........   01.1619   11.70   440025.........   01.1310   13.54   440150.........   01.2975   19.97   450053.........   01.0950   13.82
420002.......................   01.3781   20.19   430011..........   01.2805   14.49   440029.........   01.2898   16.88   440151.........   01.3044   16.20   450054.........   01.6713   21.71
420004.......................   01.8270   18.16   430012..........   01.2848   15.08   440030.........   01.2286   12.15   440152.........   01.8133   17.68   450055.........   01.1386   13.89
420005.......................   01.2076   14.51   430013..........   01.2924   15.39   440031.........   01.0158   13.14   440153.........   01.2942   15.19   450056.........   01.6924   17.92
420006.......................   01.1694   17.19   430014..........   01.3101   17.03   440032.........   01.0561   14.47   440156.........   01.5826   19.18   450058.........   01.5836   16.46
420007.......................   01.4966   16.92   430015..........   01.2209   15.17   440033.........   01.1140   14.61   440157.........   01.0397   13.83   450059.........   01.2884   13.85
420009.......................   01.2382   16.92   430016..........   01.8665   17.78   440034.........   01.5576   17.68   440159.........   01.3156   14.02   450063.........   00.9369   10.66
420010.......................   01.1211   15.13   430018..........   00.9509   13.13   440035.........   01.3309   16.53   440161.........   01.8754   20.06   450064.........   01.4910   15.57
420011.......................   01.1251   15.28   430022..........   00.9348   11.95   440039.........   01.6969   17.44   440166.........   01.5786   18.25   450065.........   01.1163   14.73
420014.......................   01.0959   14.36   430023..........   00.9495   10.34   440040.........   01.0122   10.81   440168.........   01.0442   12.43   450068.........   01.8865   21.36
420015.......................   01.3676   16.84   430024..........   00.9521   12.07   440041.........   01.0586   12.23   440173.........   01.5485   17.50   450072.........   01.2275   18.67
420016.......................   01.0741   14.21   430026..........   01.0086   11.24   440046.........   01.2850   15.30   440174.........   01.0180   12.74   450073.........   01.1003   12.06
420018.......................   01.8145   20.00   430027..........   01.7854   17.63   440047.........   00.9397   14.52   440175.........   01.1775   18.60   450076.........   01.6678  ......
420019.......................   01.1995   14.70   430028..........   01.1346   13.29   440048.........   01.8500   17.82   440176.........   01.4502   19.17   450078.........   00.9703   11.75
420020.......................   01.3498   16.94   430029..........   00.9654   13.84   440049.........   01.6746   16.37   440178.........   01.2514   17.07   450079.........   01.4563   21.93
420023.......................   01.4485   18.50   430031..........   00.9226   11.58   440050.........   01.3461   16.28   440180.........   01.2307   16.96   450080.........   01.2802   15.99
420026.......................   01.8750   18.16   430033..........   01.0529   13.10   440051.........   00.9678   13.82   440181.........   01.0352   12.37   450081.........   01.0888   14.50
420027.......................   01.3572   16.82   430034..........   01.1129   11.59   440052.........   01.1948   14.76   440182.........   01.0190   12.53   450082.........   01.0035   14.70
420030.......................   01.2764   17.28   430036..........   01.0216   11.83   440053.........   01.3459   16.28   440183.........   01.5114   19.69   450083.........   01.7818   19.58
420031.......................   00.9784   11.88   430037..........   00.9883   13.15   440054.........   01.2016   14.55   440184.........   01.3997   18.96   450085.........   01.0862   17.24
420033.......................   01.1614   18.91   430038..........   01.0476   10.83   440056.........   01.1017   13.57   440185.........   01.2202   17.48   450087.........   01.4647   19.68
420036.......................   01.3499   16.42   430040..........   01.0233   12.64   440057.........   01.0237   12.15   440186.........   01.0746   15.77   450090.........   01.2180   13.26
420037.......................   01.2802   20.66   430041..........   00.9677   12.47   440058.........   01.2495   16.30   440187.........   01.1420   14.58   450092.........   01.2103   14.59
420038.......................   01.2725   14.80   430043..........   01.2163   11.82   440059.........   01.3842   14.85   440189.........   01.5092   19.13   450094.........   01.3336   17.87
420039.......................   01.1654   15.64   430044..........   00.8361   14.07   440060.........   01.3027   14.20   440192.........   01.1999   15.37   450096.........   01.5711   17.19
420042.......................   01.1386   14.05   430047..........   01.0845   11.92   440061.........   01.1956   15.89   440193.........   01.2971   18.60   450097.........   01.4826   18.51
420043.......................   01.2699   19.12   430048..........   01.2958   15.48   440063.........   01.6377   17.90   440194.........   01.2212   17.13   450098.........   01.1761   15.10
420048.......................   01.1477   15.56   430049..........   00.9275   12.70   440064.........   01.1174   14.56   440197.........   01.3749   19.23   450099.........   01.3103   14.66
420049.......................   01.2069   15.89   430051..........   00.9280   13.84   440065.........   01.2888   17.78   440200.........   01.0979   15.64   450101.........   01.4893   15.44
420051.......................   01.6352   18.06   430054..........   01.0393   12.79   440067.........   01.2835   14.99   440203.........   00.9109   13.09   450102.........   01.7046   17.87
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[[Page 46067]]


                                                                                          Page 14 of 16                                                                                         
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
450104.......................   01.2431   14.23   450219..........   01.1560   14.78   450379.........   01.5227   21.62   450591.........   01.1493   18.92   450713.........   01.4979   20.85
450107.......................   01.6232   22.05   450221..........   01.1643   14.40   450381.........   00.9920   12.86   450596.........   01.3891   17.15   450715.........   01.3738   18.59
450108.......................   00.9827   12.48   450222..........   01.6034   18.35   450388.........   01.8109   17.12   450597.........   01.0350   14.53   450716.........   01.2943   19.56
450109.......................   00.9150   14.72   450224..........   01.3620   20.66   450389.........   01.3265   17.71   450603.........   00.7116   16.81   450717.........   01.2538   23.86
450110.......................   01.2792   19.30   450229..........   01.5626   15.41   450393.........   01.3164   19.70   450604.........   01.4372   14.00   450718.........   01.2333   19.03
450111.......................   01.2174   18.93   450231..........   01.6412   18.25   450395.........   01.0473   16.49   450605.........   01.3880   17.67   450723.........   01.3871   18.22
450112.......................   01.3183   14.31   450234..........   00.9989   13.07   450399.........   01.0599   15.59   450609.........   00.9188   11.77   450724.........   01.3696   17.44
450113.......................   01.3022   17.93   450235..........   01.0302   13.46   450400.........   01.1885   11.76   450610.........   01.5475   17.21   450725.........   00.9390   17.49
450118.......................   01.5826   20.36   450236..........   01.2206   15.28   450403.........   01.3015   21.22   450614.........   01.0086   12.53   450727.........   01.1724   10.80
450119.......................   01.3813   17.13   450237..........   01.6258   16.83   450411.........   00.9144   12.20   450615.........   01.0918   12.80   450728.........   00.9311   12.62
450121.......................   01.5556   19.99   450239..........   01.0605   13.70   450417.........   01.0947   19.31   450617.........   01.3521   20.12   450730.........   01.3241   21.46
450123.......................   01.0933   15.98   450241..........   00.9279   12.67   450418.........   01.4996   21.43   450620.........   01.1348   12.16   450733.........   01.3628   16.88
450124.......................   01.7210   19.68   450243..........   00.7767   11.59   450419.........   01.2762   20.34   450623.........   01.1891   16.71   450735.........   01.0637   12.02
450126.......................   01.3625   16.01   450246..........   00.9464   17.09   450422.........   00.8249   24.65   450626.........   01.0634   16.57   450742.........   01.2932   19.47
450128.......................   01.1955   15.37   450249..........   00.9676   09.95   450423.........   01.5850   21.56   450628.........   00.9320   12.34   450743.........   01.4228   17.79
450130.......................   01.4846   16.93   450250..........   00.9480   11.36   450424.........   01.2492   17.77   450630.........   01.6658   23.25   450746.........   01.0195   13.81
450131.......................   01.4057   18.24   450253..........   01.3024   11.92   450429.........   01.1208   12.87   450631.........   01.7515   20.15   450747.........   01.3610   17.04
450132.......................   01.7205   16.46   450258..........   01.1072   10.85   450431.........   01.6315   18.76   450632.........   00.9769   11.39   450749.........   01.0118   14.63
450133.......................   01.6057   17.90   450259..........   01.1636   18.29   450438.........   01.2603   13.51   450633.........   01.6399   20.20   450750.........   01.0231   12.20
450135.......................   01.6757   23.54   450264..........   00.8806   13.08   450446.........   00.6453   12.67   450634.........   01.6147   23.56   450751.........   01.3418   15.58
450137.......................   01.4998   22.19   450269..........   01.0765   13.96   450447.........   01.3882   18.07   450638.........   01.5883   22.00   450754.........   00.9546   13.49
450140.......................   00.9941   17.44   450270..........   01.2477   10.42   450451.........   01.1574   16.96   450639.........   01.4387   22.12   450755.........   01.1688   15.54
450142.......................   01.4544   20.28   450271..........   01.2655   14.84   450457.........   01.7817   17.61   450641.........   01.0408   13.24   450757.........   00.9466   13.62
450143.......................   01.0340   11.10   450272..........   01.3466   15.38   450460.........   01.0539   12.46   450643.........   01.2270   17.43   450758.........   02.0193   21.92
450144.......................   01.0933   15.29   450276..........   01.0101   12.63   450462.........   01.7722   20.49   450644.........   01.5090   19.07   450760.........   01.2573   18.35
450145.......................   00.8163   13.36   450278..........   00.9870   13.64   450464.........   01.0035   15.14   450646.........   01.6539   31.36   450761.........   01.1320   09.57
450146.......................   00.9883   20.32   450280..........   01.5303   23.09   450465.........   01.3391   17.10   450647.........   01.9577   23.27   450763.........   01.0156   16.60
450147.......................   01.4189   17.72   450283..........   01.1089   12.43   450467.........   00.9711   14.01   450648.........   00.9835   09.48   450766.........   02.0719   20.76
450148.......................   01.2604   20.21   450286..........   01.0057   16.36   450469.........   01.3759   17.25   450649.........   01.0406   14.06   450769.........   00.9957   13.40
450149.......................   01.4207   19.76   450288..........   01.2705   13.67   450473.........   00.9937   15.03   450651.........   01.7505   22.80   450770.........   01.0417   14.57
450150.......................   00.9250   13.75   450289..........   01.4339   19.14   450475.........   01.1405   14.96   450652.........   00.8637   13.96   450771.........   01.7803   22.32
450151.......................   01.1248   14.16   450292..........   01.2470   21.03   450484.........   01.4469   18.14   450653.........   01.2233   15.20   450774.........   01.0767   21.24
450152.......................   01.2600   15.74   450293..........   00.9767   12.41   450488.........   01.3234   16.08   450654.........   00.9499   12.28   450775.........   01.2796   17.09
450153.......................   01.6196   18.44   450296..........   01.3759   18.76   450489.........   01.0173   12.72   450656.........   01.5367   17.19   450776.........   00.9194   11.18
450154.......................   01.1960   13.12   450299..........   01.3431   16.01   450497.........   01.1693   12.88   450658.........   00.9719   12.32   450777.........   01.0464   16.60
450155.......................   01.0291   14.09   450303..........   00.9927   11.50   450498.........   01.0512   13.15   450659.........   01.5366   20.23   450779.........   01.2621   21.36
450157.......................   00.9708   13.25   450306..........   01.2219   12.82   450508.........   01.4218   16.12   450661.........   01.2306   18.51   450780.........   01.4049   16.91
450160.......................   00.9428   21.47   450307..........   00.7803   14.25   450514.........   01.1886   18.47   450662.........   01.6164   17.38   450781.........   01.5749   11.01
450162.......................   01.2530   18.76   450309..........   01.0613   14.17   450517.........   00.9025   11.11   450665.........   00.9129   12.95   450785.........   01.0228   16.39
450163.......................   01.1402   16.82   450315..........   01.0420   18.63   450518.........   01.5700   16.38   450666.........   01.3361   19.17   450788.........   01.4500   19.31
450164.......................   01.1323   12.83   450320..........   01.3553   18.45   450523.........   01.5823   19.45   450668.........   01.5988   19.60   450794.........   01.4278   16.20
450165.......................   01.0215   14.19   450321..........   01.0170   13.51   450530.........   01.3726   14.27   450669.........   01.3407   19.26   450795.........   00.8686   20.22
450166.......................   01.0279   13.06   450322..........   00.8184   16.61   450534.........   01.0374   18.02   450670.........   01.3131   17.24   450797.........   00.7374   16.67
450169.......................   01.0085   13.79   450324..........   01.7039   15.66   450535.........   01.2951   21.25   450672.........   01.6229   20.69   450798.........   00.8393   08.88
450170.......................   00.9944   12.46   450325..........   00.9022   11.47   450537.........   01.3071   19.69   450673.........   01.0518   12.14   450801.........   01.4832  ......
450176.......................   01.2956   15.32   450327..........   01.0130   12.60   450538.........   01.2091   20.77   450674.........   00.9801   19.88   450802.........   01.2272  ......
450177.......................   01.2760   13.52   450330..........   01.1514   15.62   450539.........   01.4094   14.67   450675.........   01.5223   20.99   450803.........   00.8612  ......
450178.......................   01.0251   15.84   450334..........   01.0501   12.11   450544.........   01.3519   19.25   450677.........   01.4273   23.91   450804.........   01.5602  ......
450181.......................   01.0644   14.13   450337..........   01.1588   14.10   450545.........   01.2665   20.93   450678.........   01.5041   20.85   450807.........   00.9215  ......
450184.......................   01.5239   17.20   450340..........   01.3279   14.68   450547.........   01.1549   15.13   450683.........   01.3412   20.91   450808.........   01.2870  ......
450185.......................   01.0771   08.69   450341..........   01.0487   15.87   450550.........   01.0679   18.37   450684.........   01.3022   21.41   450809.........   01.6785  ......
450187.......................   01.2404   16.51   450346..........   01.4354   16.05   450551.........   01.2276   13.01   450686.........   01.6066   14.14   450810.........   01.1663  ......
450188.......................   01.0902   12.80   450347..........   01.1515   16.68   450558.........   01.7260   20.85   450688.........   01.3635   19.63   450811.........   02.1655  ......
450190.......................   01.1702  .......  450348..........   00.9841   11.20   450559.........   00.9350   12.26   450690.........   01.4068   21.41   450812.........   01.5923  ......
450191.......................   01.0843   15.87   450351..........   01.1952   17.71   450561.........   01.6864   17.18   450691.........   00.9630  .......  460001.........   01.8027   20.73
450192.......................   01.2918   17.51   450352..........   01.1041   16.53   450563.........   01.2755   23.92   450694.........   01.1412   18.16   460003.........   01.6975   17.86
450193.......................   02.0470   21.80   450353..........   01.2638   16.98   450565.........   01.2685   16.10   450696.........   01.9768   22.02   460004.........   01.7352   21.45
450194.......................   01.2664   17.65   450355..........   01.1492   13.03   450570.........   01.0784   15.39   450697.........   01.4936   13.82   460005.........   01.6823   18.56
450196.......................   01.4866   17.04   450358..........   02.0820   21.20   450571.........   01.4774   15.53   450698.........   00.9737   11.65   460006.........   01.4506   19.40
450200.......................   01.4247   17.40   450362..........   01.1670   13.83   450573.........   01.0633   14.35   450700.........   00.9478   13.15   460007.........   01.3572   20.40
450201.......................   01.0028   15.45   450369..........   01.0555   13.10   450574.........   00.9359   11.73   450702.........   01.5794   19.02   460008.........   01.3920   15.91
450203.......................   01.2237   17.46   450370..........   01.2731   12.87   450575.........   01.0769   16.62   450703.........   01.5445   18.46   460009.........   01.8544   19.39
450209.......................   01.5068   21.78   450371..........   01.1668   12.16   450578.........   00.9338   12.99   450704.........   01.4195   18.02   460010.........   02.0179   20.86
450210.......................   01.1673   12.30   450372..........   01.3120   21.02   450580.........   01.1396   13.29   450705.........   00.9145   18.50   460011.........   01.4594   16.34
450211.......................   01.4145   16.70   450373..........   01.1592   13.38   450583.........   00.9779   13.04   450706.........   01.2505   22.63   460013.........   01.5172   16.74
450213.......................   01.6568   18.26   450374..........   00.9104   11.66   450584.........   01.1828   13.02   450709.........   01.3415   19.78   460014.........   01.1366   15.12
450214.......................   01.4227   19.51   450376..........   01.4817   17.78   450586.........   01.0491   11.16   450711.........   01.5989   18.18   460015.........   01.2168   20.40
450217.......................   01.0015   11.56   450378..........   01.1022   19.87   450587.........   01.2528   16.14   450712.........   00.7871   13.25   460016.........   00.9547   12.50
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[[Page 46068]]


                                                                                          Page 15 of 16                                                                                         
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
460017.......................   01.5589   16.40   490032..........   01.7716   19.42   490127.........   01.0048   14.52   500094.........   00.9101   15.30   510068.........   01.1159   14.34
460018.......................   01.0027   15.45   490033..........   01.2338   16.00   490129.........   01.1961   19.20   500096.........   00.9886   19.50   510070.........   01.3303   15.86
460019.......................   01.1127   14.45   490035..........   01.1321   13.02   490130.........   01.3038   15.07   500097.........   01.2189   17.46   510071.........   01.3254   15.64
460020.......................   01.0418   16.33   490037..........   01.2365   14.06   490131.........   00.9879   14.74   500098.........   01.0355   15.44   510072.........   01.0592   14.37
460021.......................   01.3866   19.46   490038..........   01.2628   13.62   490132.........   01.0313  .......  500101.........   01.0064   15.92   510077.........   01.1916   15.36
460022.......................   00.9383   19.23   490040..........   01.4798   21.72   500001.........   01.3669   21.66   500102.........   01.0209   19.46   510080.........   01.2132   11.53
460023.......................   01.2243   21.08   490041..........   01.2703   16.22   500002.........   01.4343   19.10   500104.........   01.3276   19.88   510081.........   01.1592   12.97
460024.......................   01.0133   14.78   490042..........   01.3532   15.75   500003.........   01.3891   25.32   500106.........   00.9016   20.08   510082.........   01.2166   12.89
460025.......................   00.8149   13.73   490043..........   01.4482   24.19   500005.........   01.8255   21.58   500107.........   01.1533   15.79   510084.........   00.9560   13.24
460026.......................   00.9812   17.03   490044..........   01.3527   17.15   500007.........   01.3881   21.79   500108.........   01.7163   21.74   510085.........   01.3533   17.90
460027.......................   00.9409   19.08   490045..........   01.2333   19.25   500008.........   01.9493   23.18   500110.........   01.2349   19.44   510086.........   01.0754   15.08
460029.......................   01.0389   18.60   490046..........   01.4948   17.80   500011.........   01.4304   22.64   500118.........   01.1761   21.92   520002.........   01.2174   18.84
460030.......................   01.1784   17.32   490047..........   01.0934   16.50   500012.........   01.4822   21.18   500119.........   01.3376   20.39   520003.........   01.1191   15.41
460032.......................   01.0291   21.16   490048..........   01.6100   17.44   500014.........   01.4987   20.92   500122.........   01.2814   21.99   520004.........   01.1859   16.78
460033.......................   00.9787   17.97   490050..........   01.4629   21.02   500015.........   01.3772   21.85   500123.........   00.8526   18.56   520006.........   01.0231   18.17
460035.......................   00.9265   12.17   490052..........   01.6086   15.45   500016.........   01.4764   23.26   500124.........   01.3158   22.83   520007.........   01.2287   14.55
460036.......................   01.0267   20.05   490053..........   01.2701   14.77   500019.........   01.3370   21.38   500125.........   01.0071   11.61   520008.........   01.5786   22.49
460037.......................   00.9886   17.48   490054..........   01.0984   14.36   500021.........   01.5616   21.91   500129.........   01.7389   23.35   520009.........   01.6559   17.31
460039.......................   01.0874   20.37   490057..........   01.5488   17.69   500023.........   01.2117   19.53   500132.........   00.9561   18.51   520010.........   01.1793   19.33
460041.......................   01.2644   20.90   490059..........   01.6184   19.41   500024.........   01.6823   22.23   500134.........   00.6989   15.59   520011.........   01.2164   16.85
460042.......................   01.4809   17.04   490060..........   01.0834   17.79   500025.........   01.8739   23.44   500138.........   04.3602  .......  520013.........   01.3851   18.80
460043.......................   01.2702   21.71   490063..........   01.7059   23.01   500026.........   01.4032   23.85   500139.........   01.5089   21.71   520014.........   01.1387   16.08
460044.......................   01.1922   19.83   490066..........   01.3652   18.00   500027.........   01.5357   25.23   500141.........   01.3249   22.22   520015.........   01.1912   16.72
460046.......................   00.9068   12.27   490067..........   01.2287   15.82   500028.........   01.1235   14.69   500143.........   00.7297   15.20   520016.........   01.1027   13.21
460047.......................   01.7394   19.82   490069..........   01.4526   14.96   500029.........   00.9578   13.71   500146.........   01.2100   26.11   520017.........   01.1523   17.45
460049.......................   01.9737   17.85   490071..........   01.5023   17.40   500030.........   01.5287   22.55   510001.........   01.8263   17.35   520018.........   01.1219   16.17
460050.......................   01.2736   21.99   490073..........   01.4717   17.55   500031.........   01.3434   20.58   510002.........   01.2917   14.18   520019.........   01.3048   16.63
460051.......................   01.2890   32.89   490074..........   01.3704   16.77   500033.........   01.2738   18.41   510004.........   01.1211   13.65   520021.........   01.3120   19.90
470001.......................   01.1596   18.73   490075..........   01.3998   16.37   500036.........   01.3200   19.95   510005.........   00.9588   14.19   520024.........   01.0460   13.11
470003.......................   01.7896   20.83   490077..........   01.2583   17.87   500037.........   01.1678   18.70   510006.........   01.2972   17.42   520025.........   01.1099   18.58
470004.......................   01.1094   15.85   490079..........   01.3234   15.15   500039.........   01.3890   22.10   510007.........   01.4902   17.98   520026.........   01.0837   17.49
470005.......................   01.2726   20.26   490083..........   00.7754   15.02   500041.........   01.2884   23.23   510008.........   01.1461   15.55   520027.........   01.2448   19.27
470006.......................   01.2455   17.83   490084..........   01.3006   15.43   500042.........   01.3514   22.37   510012.........   01.1013   14.37   520028.........   01.3020   17.76
470008.......................   01.1896   16.76   490085..........   01.2407   13.39   500043.........   01.1913   17.16   510013.........   01.1685   15.80   520029.........   00.9692   16.94
470010.......................   01.1226   19.03   490088..........   01.1873   14.44   500044.........   01.9855   20.99   510015.........   00.9465   12.51   520030.........   01.6462   21.19
470011.......................   01.1940   19.82   490089..........   01.1298   16.18   500045.........   01.1331   20.81   510016.........   00.9182   12.66   520031.........   01.1241   15.24
470012.......................   01.2425   17.88   490090..........   01.2038   15.17   500048.........   00.9599   16.46   510018.........   01.1815   15.26   520032.........   01.2406   15.25
470015.......................   01.2207   16.67   490091..........   01.2790   18.78   500049.........   01.5178   19.24   510020.........   01.1178   10.56   520033.........   01.1692   16.22
470018.......................   01.2215   20.53   490092..........   01.2061   15.13   500050.........   01.4336   20.96   510022.........   01.8968   19.16   520034.........   01.1969   17.64
470020.......................   00.9818   15.18   490093..........   01.3619   15.83   500051.........   01.6724   23.18   510023.........   01.2001   16.62   520035.........   01.3383   15.87
470023.......................   01.2839   19.08   490094..........   01.1741   14.52   500052.........   01.3139  .......  510024.........   01.4367   18.43   520037.........   01.6525   19.06
470024.......................   01.1460   18.26   90095...........   01.4744   16.79   500053.........   01.3079   20.42   510026.........   01.0247   12.33   520038.........   01.3145   16.45
490001.......................   01.2421   19.51   490097..........   01.1556   14.52   500054.........   01.8795   21.08   510027.........   00.9512   14.62   520039.........   00.9955   16.33
490002.......................   01.0970   14.56   490098..........   01.2294   11.89   500055.........   01.1303   20.13   510028.........   01.0802   18.99   520040.........   01.4720   19.34
490003.......................   00.5817   17.38   490099..........   00.9524   16.51   500057.........   01.3033   17.22   510029.........   01.2896   16.78   520041.........   01.1755   14.93
490004.......................   01.2321   16.97   490100..........   01.4519   17.21   500058.........   01.5239   20.32   510030.........   01.0520   14.39   520042.........   01.0959   16.42
490005.......................   01.5901   16.31   490101..........   01.2184   23.01   500059.........   01.1465   20.76   510031.........   01.4816   15.97   520044.........   01.4077   16.15
490006.......................   01.1325   13.82   490104..........   00.8468   16.07   500060.........   01.4066   23.27   510033.........   01.3557   15.30   520045.........   01.7375   18.68
490007.......................   02.0908   17.16   490105..........   00.6278   18.83   500061.........   01.0337   18.19   510035.........   01.3544   16.81   520047.........   00.9924   15.41
490009.......................   01.8662   18.25   490106..........   00.8531   16.48   500062.........   01.1280   18.80   510036.........   01.0700   11.64   520048.........   01.4686   18.11
490010.......................   01.1620   17.32   490107..........   01.3316   22.98   500064.........   01.5976   22.08   510038.........   01.1634   13.36   520049.........   02.0343   18.52
490011.......................   01.4246   17.33   490108..........   00.9024   15.63   500065.........   01.2132   18.72   510039.........   01.3333   15.48   520051.........   01.7979   20.21
490012.......................   01.2241   15.30   490109..........   00.9343   17.44   500068.........   01.0323   18.40   510043.........   00.9309   11.52   520053.........   01.1225   15.45
490013.......................   01.2162   16.87   490110..........   01.4172   15.07   500069.........   01.2241   19.76   510046.........   01.2754   15.91   520054.........   01.0821   17.03
490014.......................   01.4751   22.42   490111..........   01.2461   15.83   500071.........   01.2885   19.80   510047.........   01.2479   18.06   520056.........   01.7830   18.87
490015.......................   01.4306   18.76   490112..........   01.6008   18.51   500072.........   01.2068   22.83   510048.........   01.0995   18.22   520057.........   01.1240   16.59
490017.......................   01.3604   16.73   490113..........   01.3485   21.59   500073.........   01.0538   16.74   510050.........   01.5736   16.11   520058.........   01.1053   18.17
490018.......................   01.2979   17.15   490114..........   01.1423   15.47   500074.........   01.1566   15.67   510053.........   01.0292   14.12   520059.........   01.4116   18.74
490019.......................   01.1915   16.46   490115..........   01.2238   15.28   500077.........   01.3828   21.68   510055.........   01.2750   19.68   520060.........   01.4316   15.26
490020.......................   01.2068   15.76   490116..........   01.3302   15.48   500079.........   01.3693   21.40   510058.........   01.1979   17.03   520062.........   01.3513   16.73
490021.......................   01.2417   17.33   490117..........   01.1816   12.41   500080.........   00.8662   11.72   510059.........   01.4663   14.25   520063.........   01.1984   17.63
490022.......................   01.4384   19.33   490118..........   01.7802   21.05   500084.........   01.1803   20.78   510060.........   01.1522   15.55   520064.........   01.7055   20.15
490023.......................   01.2952   18.01   490119..........   01.3722   16.80   500085.........   01.0712   19.55   510061.........   01.0354   13.37   520066.........   01.5293   18.82
490024.......................   01.8236   16.47   490120..........   01.3270   17.49   500086.........   01.3028   20.03   510062.........   01.1776   15.77   520068.........   00.9933   16.85
490027.......................   01.1664   13.62   490122..........   01.4656   21.27   500088.........   01.3456   23.37   510063.........   00.9557   16.84   520069.........   01.1907   17.13
490028.......................   01.3111   20.18   490123..........   01.1882   15.29   500089.........   01.0257   15.05   510065.........   01.0484   11.49   520070.........   01.6330   17.38
490030.......................   01.1733   10.83   490124..........   01.2019   17.12   500090.........   00.9484   13.67   510066.........   01.1361   11.93   520071.........   01.1630   17.53
490031.......................   01.1165   13.00   490126..........   01.4239   14.85   500092.........   01.0566   17.86   510067.........   01.2728   17.97   520074.........   01.0679   15.42
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 46069]]


                                                                                          Page 16 of 16                                                                                         
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Avg.                                 Avg.                                Avg.                                Avg.                               Avg. 
           Provider            Case mix    hour       Provider      Case mix    hour       Provider     Case mix    hour       Provider     Case mix    hour       Provider     Case mix   hour 
                                 index     wage                       index     wage                      index     wage                      index     wage                      index    wage 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
520075.......................   01.4659   18.02   520178..........   01.0937   15.23                                                                                                            
520076.......................   01.1585   15.11   530002..........   01.1955   19.16                                                                                                            
520077.......................   00.8551   14.03   530003..........   01.0202   12.47                                                                                                            
520078.......................   01.6233   18.63   530004..........   00.9991   14.18                                                                                                            
520082.......................   01.2821   16.43   530005..........   01.0060   13.47                                                                                                            
520083.......................   01.6785   21.60   530006..........   01.1364   16.52                                                                                                            
520084.......................   01.0951   16.87   530007..........   01.0868   12.98                                                                                                            
520087.......................   01.6994   18.12   530008..........   01.3367   16.82                                                                                                            
520088.......................   01.3078   17.98   530009..........   01.0070   16.77                                                                                                            
520089.......................   01.5203   19.50   530010..........   01.4089   16.12                                                                                                            
520090.......................   01.2399   16.18   530011..........   01.1090   16.94                                                                                                            
520091.......................   01.3644   18.13   530012..........   01.5439   18.11                                                                                                            
520092.......................   01.1184   15.74   530014..........   01.4219   15.18                                                                                                            
520094.......................   00.7907   16.12   530015..........   01.2693   18.00                                                                                                            
520095.......................   01.3677   17.93   530016..........   01.2968   14.93                                                                                                            
520096.......................   01.4350   18.94   530017..........   00.8748   16.97                                                                                                            
520097.......................   01.3153   18.65   530018..........   01.0355   18.67                                                                                                            
520098.......................   01.8227   20.17   530019..........   01.0131   15.32                                                                                                            
520100.......................   01.2523   16.72   530022..........   01.0905   16.71                                                                                                            
520101.......................   01.1235   16.09   530023..........   00.8558   18.57                                                                                                            
520102.......................   01.2023   19.37   530025..........   01.2400   18.76                                                                                                            
520103.......................   01.3272   17.94   530026..........   01.0951   15.48                                                                                                            
520107.......................   01.3034   17.50   530027..........   00.9181   10.62                                                                                                            
520109.......................   01.0055   17.63   530029..........   01.0278   13.46                                                                                                            
520110.......................   01.1560   17.94   530031..........   00.8952   11.67                                                                                                            
520111.......................   00.9540   16.01   530032..........   01.0887   18.13                                                                                                            
520112.......................   01.1157   16.89                                                                                                                                                 
520113.......................   01.2035   19.18                                                                                                                                                 
520114.......................   01.0837   13.27                                                                                                                                                 
520115.......................   01.2596   16.02                                                                                                                                                 
520116.......................   01.2507   18.13                                                                                                                                                 
520117.......................   01.0605   15.78                                                                                                                                                 
520118.......................   00.9421   10.53                                                                                                                                                 
520120.......................   00.8814   12.70                                                                                                                                                 
520121.......................   00.9486   15.67                                                                                                                                                 
520122.......................   00.9718   14.73                                                                                                                                                 
520123.......................   01.0916   16.93                                                                                                                                                 
520124.......................   01.1417   14.93                                                                                                                                                 
520130.......................   01.0461   13.47                                                                                                                                                 
520131.......................   01.0271   16.78                                                                                                                                                 
520132.......................   01.1689   14.48                                                                                                                                                 
520134.......................   01.0798   15.97                                                                                                                                                 
520135.......................   00.9421   17.28                                                                                                                                                 
520136.......................   01.5062   19.05                                                                                                                                                 
520138.......................   01.8573   19.44                                                                                                                                                 
520139.......................   01.2790   19.89                                                                                                                                                 
520140.......................   01.6111   21.15                                                                                                                                                 
520141.......................   01.0486   15.86                                                                                                                                                 
520142.......................   00.8690   13.20                                                                                                                                                 
520144.......................   01.0297   16.42                                                                                                                                                 
520145.......................   00.9171   16.59                                                                                                                                                 
520146.......................   01.0863   13.94                                                                                                                                                 
520148.......................   01.0827   15.34                                                                                                                                                 
520149.......................   00.9713   13.44                                                                                                                                                 
520151.......................   01.0919   15.42                                                                                                                                                 
520152.......................   01.1594   17.07                                                                                                                                                 
520153.......................   00.9221   13.81                                                                                                                                                 
520154.......................   01.0972   17.71                                                                                                                                                 
520156.......................   01.1062   16.69                                                                                                                                                 
520157.......................   01.0427   13.77                                                                                                                                                 
520159.......................   00.9343   16.85                                                                                                                                                 
520160.......................   01.7979   19.07                                                                                                                                                 
520161.......................   01.0019   15.94                                                                                                                                                 
520170.......................   01.2386   19.95                                                                                                                                                 
520171.......................   00.9327   13.23                                                                                                                                                 
520173.......................   01.1538   18.34                                                                                                                                                 
520174.......................   01.3545   21.51                                                                                                                                                 
520177.......................   01.5931   20.16                                                                                                                                                 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Case mix indexes do not include discharges from PPS-exempt units.                                                                                                                         
Case mix indexes include cases received in HCFA central office through December 1996.                                                                                                           


[[Page 46070]]


Table 4a.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Urban Areas                              
------------------------------------------------------------------------
                                                        Wage            
          Urban Area (Constituent Counties)             index      GAF  
------------------------------------------------------------------------
0040  Abilene, TX...................................    0.8287    0.8793
  Taylor, TX                                                            
0060  \2\ Aguadilla, PR.............................    0.4224    0.5542
  Aguada, PR                                                            
  Aguadilla, PR                                                         
  Moca, PR                                                              
0080  Akron, OH.....................................    0.9728    0.9813
  Portage, OH                                                           
  Summit, OH                                                            
0120  Albany, GA....................................    0.7914    0.8520
  Dougherty, GA                                                         
  Lee, GA                                                               
0160  Albany-Schenectady-Troy, NY...................    0.8480    0.8932
  Albany, NY                                                            
  Montgomery, NY                                                        
  Rensselaer, NY                                                        
  Saratoga, NY                                                          
  Schenectady, NY                                                       
  Schoharie, NY                                                         
0200  Albuquerque, NM...............................    0.9329    0.9535
  Bernalillo, NM                                                        
  Sandoval, NM                                                          
  Valencia, NM                                                          
0220  Alexandria, LA................................    0.8269    0.8780
  Rapides, LA                                                           
0240  Allentown-Bethlehem-Easton, PA................    1.0086    1.0059
  Carbon, PA                                                            
  Lehigh, PA                                                            
  Northampton, PA                                                       
0280  Altoona, PA...................................    0.9137    0.9401
  Blair, PA                                                             
0320  Amarillo,.....................................                    
  TX Potter, TX                                         0.9425    0.9603
  Randall, TX                                                           
0380  Anchorage, AK.................................    1.2998    1.1967
  Anchorage, AK                                                         
0440  Ann Arbor, MI.................................    1.1785    1.1190
  Lenawee, MI                                                           
  Livingston, MI                                                        
  Washtenaw, MI                                                         
0450  Anniston, AL..................................    0.8266    0.8777
  Calhoun, AL                                                           
0460  Appleton-Oshkosh-Neenah, WI...................    0.8996    0.9301
  Calumet, WI                                                           
  Outagamie, WI                                                         
  Winnebago, WI                                                         
0470  \2\ Arecibo, PR...............................    0.4224    0.5542
  Arecibo, PR                                                           
  Camuy, PR                                                             
  Hatillo, PR                                                           
0480  Asheville, NC.................................    0.9072    0.9355
  Buncombe, NC                                                          
  Madison, NC                                                           
0500  Athens, GA....................................    0.9087    0.9365
  Clarke, GA                                                            
  Madison, GA                                                           
  Oconee, GA                                                            
0520  \1\ Atlanta, GA...............................    0.9823    0.9878
  Barrow, GA                                                            
  Bartow, GA                                                            
  Carroll, GA                                                           
  Cherokee, GA                                                          
  Clayton, GA                                                           
  Cobb, GA                                                              
  Coweta, GA                                                            
  DeKalb, GA                                                            
  Douglas, GA                                                           
  Fayette, GA                                                           
  Forsyth, GA                                                           
  Fulton, GA                                                            
  Gwinnett, GA                                                          
  Henry, GA                                                             
  Newton, GA                                                            
  Paulding, GA                                                          
  Pickens, GA                                                           
  Rockdale, GA                                                          
  Spalding, GA                                                          
  Walton, GA                                                            
0560  Atlantic-Cape May, NJ.........................    1.0724    1.0490
  Atlantic, NJ                                                          
  Cape May, NJ                                                          
0600  Augusta-Aiken, GA-SC..........................    0.9333    0.9538
  Columbia, GA                                                          
  McDuffie, GA                                                          
  Richmond, GA                                                          
  Aiken, SC                                                             
  Edgefield, SC                                                         
0640  \1\ Austin-San Marcos, TX.....................    0.9133    0.9398
  Bastrop, TX                                                           
  Caldwell, TX                                                          
  Hays, TX                                                              
  Travis, TX                                                            
  Williamson, TX                                                        
0680  Bakersfield, CA...............................    1.0014    1.0010
  Kern, CA                                                              
0720  \1\ Baltimore, MD.............................    0.9689    0.9786
  Anne Arundel, MD                                                      
  Baltimore, MD                                                         
  Baltimore City, MD                                                    
  Carroll, MD                                                           
  Harford, MD                                                           
  Howard, MD                                                            
  Queen Anne's, MD                                                      
0733  Bangor, ME....................................    0.9478    0.9640
  Penobscot, ME                                                         
0743  Barnstable-Yarmouth, MA.......................    1.4291    1.2770
  Barnstable, MA                                                        
0760  Baton Rouge, LA...............................    0.8382    0.8862
  Ascension, LA                                                         
  East Baton Rouge, LA                                                  
  Livingston, LA                                                        
  West Baton Rouge, LA                                                  
0840  Beaumont-Port Arthur, TX......................    0.8593    0.9014
  Hardin, TX                                                            
  Jefferson, TX                                                         
  Orange, TX                                                            
0860  Bellingham, WA................................    1.1221    1.0821
  Whatcom, WA                                                           
0870  \2\ Benton Harbor, MI.........................    0.8923    0.9249
  Berrien, MI                                                           
0875  \1\ Bergen-Passaic, NJ........................    1.1570    1.1050
  Bergen, NJ                                                            
  Passaic, NJ                                                           
0880  Billings, MT..................................    0.9783    0.9851
  Yellowstone, MT                                                       
0920  Biloxi-Gulfport-Pascagoula, MS................    0.8415    0.8885
  Hancock, MS                                                           
  Harrison, MS                                                          
  Jackson, MS                                                           
0960  Binghamton, NY................................    0.8914    0.9243
  Broome, NY                                                            
  Tioga, NY                                                             
1000  Birmingham, AL................................    0.9005    0.9307
  Blount, AL                                                            
  Jefferson, AL                                                         
  St. Clair, AL                                                         
  Shelby, AL                                                            
1010  Bismarck, ND..................................    0.7859    0.8479
  Burleigh, ND                                                          
  Morton, ND                                                            
1020  Bloomington, IN...............................    0.9128    0.9394
  Monroe, IN                                                            
1040  Bloomington-Normal, IL........................    0.8733    0.9114
  McLean, IL                                                            
1080  Boise City, ID................................    0.8887    0.9224
  Ada, ID                                                               
  Canyon, ID                                                            
1123  \1\ Boston-Worcester-Lawrence-Lowell-Brockton,                    
 MA-NH..............................................    1.1436    1.0962
  Bristol, MA                                                           
  Essex, MA                                                             
  Middlesex, MA                                                         
  Norfolk, MA                                                           
  Plymouth, MA                                                          
  Suffolk, MA                                                           
  Worcester, MA                                                         
  Hillsborough, NH                                                      
  Merrimack, NH                                                         
  Rockingham, NH                                                        
  Strafford, NH                                                         
1125  Boulder-Longmont, CO..........................    1.0015    1.0010
  Boulder, CO                                                           
1145  Brazoria, TX..................................    0.9129    0.9395
  Brazoria, TX                                                          
1150  Bremerton, WA.................................    1.0999    1.0674
  Kitsap, WA                                                            
1240  Brownsville-Harlingen-San Benito, TX..........    0.8740    0.9119
  Cameron, TX                                                           
1260  Bryan-College Station, TX.....................    0.8571    0.8998
  Brazos, TX                                                            
1280  \1\ Buffalo-Niagara Falls, NY.................    0.9272    0.9496
  Erie, NY                                                              
  Niagara, NY                                                           
1303  Burlington, VT................................    1.0142    1.0097
  Chittenden, VT                                                        
  Franklin, VT                                                          
  Grand Isle, VT                                                        
1310  Caguas, PR....................................    0.4508    0.5795
  Caguas, PR                                                            
  Cayey, PR                                                             
  Cidra, PR                                                             
  Gurabo, PR                                                            
  San Lorenzo, PR                                                       
1320  Canton-Massillon, OH..........................    0.8961    0.9276

[[Page 46071]]

                                                                        
  Carroll, OH                                                           
  Stark, OH                                                             
1350  Casper, WY....................................    0.9013    0.9313
  Natrona, WY                                                           
1360  Cedar Rapids, IA..............................    0.8529    0.8968
  Linn, IA                                                              
1400  Champaign-Urbana, IL..........................    0.8824    0.9179
  Champaign, IL                                                         
1440  Charleston-North Charleston, SC...............    0.8807    0.9167
  Berkeley, SC                                                          
  Charleston, SC                                                        
  Dorchester, SC                                                        
1480  Charleston, WV................................    0.9142    0.9404
  Kanawha, WV                                                           
  Putnam, WV                                                            
1520  \1\ Charlotte-Gastonia-Rock Hill, NC-SC.......    0.9710    0.9800
  Cabarrus, NC                                                          
  Gaston, NC                                                            
  Lincoln, NC                                                           
  Mecklenburg, NC                                                       
  Rowan, NC                                                             
  Stanly, NC                                                            
  Union, NC                                                             
  York, SC                                                              
1540  Charlottesville, VA...........................    0.9051    0.9340
  Albemarle, VA                                                         
  Charlottesville City, VA                                              
  Fluvanna, VA                                                          
  Greene, VA                                                            
1560  Chattanooga, TN-GA............................    0.8658    0.9060
  Catoosa, GA                                                           
  Dade, GA                                                              
  Walker, GA                                                            
  Hamilton, TN                                                          
  Marion, TN                                                            
1580  \2\ Cheyenne, WY..............................    0.8247    0.8764
  Laramie, WY                                                           
1600\1\ Chicago, IL.................................    1.0860    1.0581
  Cook, IL                                                              
  DeKalb, IL                                                            
  DuPage, IL                                                            
  Grundy, IL                                                            
  Kane, IL                                                              
  Kendall, IL                                                           
  Lake, IL                                                              
  McHenry, IL                                                           
  Will, IL                                                              
1620  Chico-Paradise, CA............................    1.0429    1.0292
  Butte, CA                                                             
1640\1\ Cincinnati, OH-KY-IN........................    0.9521    0.9669
  Dearborn, IN                                                          
  Ohio, IN                                                              
  Boone, KY                                                             
  Campbell, KY                                                          
  Gallatin, KY                                                          
  Grant, KY                                                             
  Kenton, KY                                                            
  Pendleton, KY                                                         
  Brown, OH                                                             
  Clermont, OH                                                          
  Hamilton, OH                                                          
  Warren, OH                                                            
1660  Clarksville-Hopkinsville, TN-KY...............    0.7852    0.8474
  Christian, KY                                                         
  Montgomery, TN                                                        
1680\1\ Cleveland-Lorain-Elyria, OH.................    0.9804    0.9865
  Ashtabula, OH                                                         
  Cuyahoga, OH                                                          
  Geauga, OH                                                            
  Lake, OH                                                              
  Lorain, OH                                                            
  Medina, OH                                                            
1720  Colorado Springs, CO..........................    0.9316    0.9526
  El Paso, CO                                                           
1740  Columbia, MO..................................    0.9001    0.9305
  Boone, MO                                                             
1760  Columbia, SC..................................    0.9192    0.9439
  Lexington, SC                                                         
  Richland, SC                                                          
1800  Columbus, GA-AL...............................    0.8288    0.8793
  Russell, AL                                                           
  Chattahoochee, GA                                                     
  Harris, GA                                                            
  Muscogee, GA                                                          
1840\1\ Columbus, OH................................    0.9793    0.9858
  Delaware, OH                                                          
  Fairfield, OH                                                         
  Franklin, OH                                                          
  Licking, OH                                                           
  Madison, OH                                                           
  Pickaway, OH                                                          
1880  Corpus Christi, TX............................    0.8945    0.9265
  Nueces, TX                                                            
  San Patricio, TX                                                      
1900  Cumberland, MD-WV.............................    0.8822    0.9178
  Allegany, MD                                                          
  Mineral, WV                                                           
1920  \1\ Dallas, TX................................    0.9674    0.9776
  Collin, TX                                                            
  Dallas, TX                                                            
  Denton, TX                                                            
  Ellis, TX                                                             
  Henderson, TX                                                         
  Hunt, TX                                                              
  Kaufman, TX                                                           
  Rockwall, TX                                                          
1950  Danville, VA..................................    0.8146    0.8690
  Danville City, VA                                                     
  Pittsylvania, VA                                                      
1960  Davenport-Moline-Rock Island, IA-IL...........    0.8405    0.8878
  Scott, IA                                                             
  Henry, IL                                                             
  Rock Island, IL                                                       
2000  Dayton-Springfield, OH........................    0.9279    0.9500
  Clark, OH                                                             
  Greene, OH                                                            
  Miami, OH                                                             
  Montgomery, OH                                                        
2020  \2\ Daytona Beach, FL.........................    0.8838    0.9189
  Flagler, FL                                                           
  Volusia, FL                                                           
2030  Decatur, AL...................................    0.8286    0.8792
  Lawrence, AL                                                          
  Morgan, AL                                                            
2040  Decatur, IL...................................    0.7915    0.8520
  Macon, IL                                                             
2080  \1\ Denver, CO................................    1.0386    1.0263
  Adams, CO                                                             
  Arapahoe, CO                                                          
  Denver, CO                                                            
  Douglas, CO                                                           
  Jefferson, CO                                                         
2120  Des Moines, IA................................    0.8837    0.9188
  Dallas, IA                                                            
  Polk, IA                                                              
  Warren, IA                                                            
2160\1\ Detroit, MI.................................    1.0840    1.0568
  Lapeer, MI                                                            
  Macomb, MI                                                            
  Monroe, MI                                                            
  Oakland, MI                                                           
  St. Clair, MI                                                         
  Wayne, MI                                                             
2180  Dothan, AL....................................    0.8070    0.8634
  Dale, AL                                                              
  Houston, AL                                                           
2190  Dover, DE.....................................    0.9303    0.9517
  Kent, DE                                                              
2200  Dubuque, IA...................................    0.8088    0.8647
  Dubuque, IA                                                           
2240  Duluth-Superior, MN-WI........................    0.9779    0.9848
  St. Louis, MN                                                         
  Douglas, WI                                                           
2281  Dutchess County, NY...........................    1.0632    1.0429
  Dutchess, NY                                                          
2290  Eau Claire, WI................................    0.8764    0.9136
  Chippewa, WI                                                          
  Eau Claire, WI                                                        
2320  El Paso, TX...................................    1.0123    1.0084
  El Paso, TX                                                           
2330  Elkhart-Goshen, IN............................    0.9081    0.9361
  Elkhart, IN                                                           
2335  \2\ Elmira, NY................................    0.8401    0.8875
  Chemung, NY                                                           
2340  Enid, OK......................................    0.7962    0.8555
  Garfield, OK                                                          
2360  Erie, PA......................................    0.8862    0.9206
  Erie, PA                                                              
2400  Eugene-Springfield, OR........................    1.1659    1.1108
  Lane, OR                                                              
2440  Evansville-Henderson, IN-KY...................    0.8641    0.9048
  Posey, IN                                                             
  Vanderburgh, IN                                                       
  Warrick, IN                                                           
  Henderson, KY                                                         
2520  Fargo-Moorhead, ND-MN.........................    0.8837    0.9188

[[Page 46072]]

                                                                        
  Clay, MN                                                              
  Cass, ND                                                              
2560  Fayetteville, NC..............................    0.8734    0.9115
  Cumberland, NC                                                        
2580  Fayetteville-Springdale-Rogers, AR............    0.7461    0.8183
  Benton, AR                                                            
  Washington, AR                                                        
2620  Flagstaff, AZ-UT..............................    0.9115    0.9385
  Coconino, AZ                                                          
  Kane, UT                                                              
2640  Flint, MI.....................................    1.1171    1.0788
  Genesee, MI                                                           
2650  Florence, AL..................................    0.7716    0.8373
  Colbert, AL                                                           
  Lauderdale, AL                                                        
2655  Florence, SC..................................    0.8711    0.9098
  Florence, SC                                                          
2670  Fort Collins-Loveland, CO.....................    1.0248    1.0169
  Larimer, CO                                                           
2680  \1\ Ft. Lauderdale, FL........................    1.0487    1.0331
  Broward, FL                                                           
2700  \2\ Fort Myers-Cape Coral, FL.................    0.8838    0.9189
  Lee, FL                                                               
2710  Fort Pierce-Port St. Lucie, FL................    1.0257    1.0175
  Martin, FL                                                            
  St. Lucie, FL                                                         
2720  Fort Smith, AR-OK.............................    0.7769    0.8412
  Crawford, AR                                                          
  Sebastian, AR                                                         
  Sequoyah, OK                                                          
2750  \2\ Fort Walton Beach, FL.....................    0.8838    0.9189
  Okaloosa, FL                                                          
2760  Fort Wayne, IN................................    0.8901    0.9234
  Adams, IN                                                             
  Allen, IN                                                             
  De Kalb, IN                                                           
  Huntington, IN                                                        
  Wells, IN                                                             
  Whitley, IN                                                           
2800  \1\ Forth Worth-Arlington, TX.................    0.9997    0.9998
  Hood, TX                                                              
  Johnson, TX                                                           
  Parker, TX                                                            
  Tarrant, TX                                                           
2840  Fresno, CA....................................    1.0607    1.0412
  Fresno, CA                                                            
  Madera, CA                                                            
2880  Gadsden, AL...................................    0.8815    0.9173
  Etowah, AL                                                            
2900  Gainesville, FL...............................    0.9616    0.9735
  Alachua, FL                                                           
2920  Galveston-Texas City, TX......................    1.0564    1.0383
  Galveston, TX                                                         
2960  Gary, IN......................................    0.9270    0.9494
  Lake, IN                                                              
  Porter, IN                                                            
2975  \2\ Glens Falls, NY...........................    0.8401    0.8875
  Warren, NY                                                            
  Washington, NY                                                        
2980  Goldsboro, NC.................................    0.8443    0.8906
  Wayne, NC                                                             
2985  Grand Forks, ND-MN............................    0.8815    0.9173
  Polk, MN                                                              
  Grand Forks, ND                                                       
2995  Grand Junction, CO............................    0.9491    0.9649
  Mesa, CO                                                              
3000  \1\ Grand Rapids-Muskegon-Holland, MI.........    1.0147    1.0100
  Allegan, MI                                                           
  Kent, MI                                                              
  Muskegon, MI                                                          
  Ottawa, MI                                                            
3040  Great Falls, MT...............................    0.9306    0.9519
  Cascade, MT                                                           
3060  Greeley, CO...................................    1.0097    1.0066
  Weld, CO                                                              
3080  Green Bay, WI.................................    0.9585    0.9714
  Brown, WI                                                             
3120  \1\ Greensboro-Winston-Salem-High Point, NC...    0.9351    0.9551
  Alamance, NC                                                          
  Davidson, NC                                                          
  Davie, NC                                                             
  Forsyth, NCGuilford, NC                                               
  Randolph, NC                                                          
  Stokes, NC                                                            
  Yadkin, NC                                                            
3150  Greenville, NC................................    0.9064    0.9349
  Pitt, NC                                                              
3160  Greenville-Spartanburg-Anderson, SC...........    0.9059    0.9346
  Anderson, SC                                                          
  Cherokee, SC                                                          
  Greenville, SC                                                        
  Pickens, SC                                                           
  Spartanburg, SC                                                       
3180  Hagerstown, MD................................    0.9681    0.9780
  Washington, MD                                                        
3200  Hamilton-Middletown, OH.......................    0.8767    0.9138
  Butler, OH                                                            
3240  Harrisburg-Lebanon-Carlisle, PA...............    1.0187    1.0128
  Cumberland, PA                                                        
  Dauphin, PA                                                           
  Lebanon, PA                                                           
  Perry, PA                                                             
3283  1,2Hartford, CT...............................    1.2617    1.1726
  Hartford, CT                                                          
  Litchfield, CT                                                        
  Middlesex, CT                                                         
  Tolland, CT                                                           
3285  Hattiesburg, MS...............................    0.7192    0.7979
  Forrest, MS                                                           
  Lamar, MS                                                             
3290  Hickory-Morganton-Lenoir, NC..................    0.8285    0.8791
  Alexander, NC                                                         
  Burke, NC                                                             
  Caldwell, NC                                                          
  Catawba, NC                                                           
3320  Honolulu, HI..................................    1.1817    1.1211
  Honolulu, HI                                                          
3350  Houma, LA.....................................    0.7854    0.8475
  Lafourche, LA                                                         
  Terrebonne, LA                                                        
3360  \1\ Houston, TX...............................    0.9855    0.9900
  Chambers, TX                                                          
  Fort Bend, TX                                                         
  Harris, TX                                                            
  Liberty, TX                                                           
  Montgomery, TX                                                        
  Waller, TX                                                            
3400  Huntington-Ashland, WV-KY-OH..................    0.9160    0.9417
  Boyd, KY                                                              
  Carter, KY                                                            
  Greenup, KY                                                           
  Lawrence, OH                                                          
  Cabell, WV                                                            
  Wayne, WV                                                             
3440  Huntsville, AL................................    0.8485    0.8936
  Limestone, AL                                                         
  Madison, AL                                                           
3480  \1\ Indianapolis, IN..........................    0.9848    0.9896
  Boone, IN                                                             
  Hamilton, IN                                                          
  Hancock, IN                                                           
  Hendricks, IN                                                         
  Johnson, IN                                                           
  Madison, IN                                                           
  Marion, IN                                                            
  Morgan, IN                                                            
  Shelby, IN                                                            
3500  Iowa City, IA.................................    0.9401    0.9586
  Johnson, IA                                                           
3520  Jackson, MI...................................    0.9052    0.9341
  Jackson, MI                                                           
3560  Jackson, MS...................................    0.7790    0.8428
  Hinds, MS                                                             
  Madison, MS                                                           
  Rankin, MS                                                            
3580  Jackson, TN...................................    0.8522    0.8963
  Madison, TN                                                           
  Chester, TN                                                           
3600  \1\ Jacksonville, FL..........................    0.8969    0.9282
  Clay, FL                                                              
  Duval, FL                                                             
  Nassau, FL                                                            
  St. Johns, FL                                                         
3605  \2\ Jacksonville, NC..........................    0.7939    0.8538
  Onslow, NC                                                            
3610  \2\ Jamestown, NY.............................    0.8401    0.8875
  Chautauqua, NY                                                        
3620  Janesville-Beloit, WI.........................    0.8824    0.9179
  Rock, WI                                                              
3640  Jersey City, NJ...............................    1.1412    1.0947
  Hudson, NJ                                                            
3660  Johnson City-Kingsport-Bristol, TN-VA.........    0.9114    0.9384
  Carter, TN                                                            
  Hawkins, TN                                                           
  Sullivan, TN                                                          

[[Page 46073]]

                                                                        
  Unicoi, TN                                                            
  Washington, TN                                                        
  Bristol City, VA                                                      
  Scott, VA                                                             
  Washington, VA                                                        
3680  \2\ Johnstown, PA.............................    0.8421    0.8890
  Cambria, PA                                                           
  Somerset, PA                                                          
3700  Jonesboro, AR.................................    0.7443    0.8169
  Craighead, AR                                                         
3710  Joplin, MO....................................    0.7541    0.8243
  Jasper, MO                                                            
  Newton, MO                                                            
3720  Kalamazoo-Battlecreek, MI.....................    1.0668    1.0453
  Calhoun, MI                                                           
  Kalamazoo, MI                                                         
  Van Buren, MI                                                         
3740  Kankakee, IL..................................    0.8653    0.9057
  Kankakee, IL                                                          
3760  \1\ Kansas City, KS-MO........................    0.9564    0.9699
  Johnson, KS                                                           
  Leavenworth, KS                                                       
  Miami, KS                                                             
  Wyandotte, KS                                                         
  Cass, MO                                                              
  Clay, MO                                                              
  Clinton, MO                                                           
  Jackson, MO                                                           
  Lafayette, MO                                                         
  Platte, MO                                                            
  Ray, MO                                                               
3800  Kenosha, WI...................................    0.9196    0.9442
  Kenosha, WI                                                           
3810  Killeen-Temple, TX............................    1.0252    1.0172
  Bell, TX                                                              
  Coryell, TX                                                           
3840  Knoxville, TN.................................    0.8831    0.9184
  Anderson, TN                                                          
  Blount, TN                                                            
  Knox, TN                                                              
  Loudon, TN                                                            
  Sevier, TN                                                            
  Union, TN                                                             
3850  Kokomo, IN....................................    0.8416    0.8886
  Howard, IN                                                            
  Tipton, IN                                                            
3870  La Crosse, WI-MN..............................    0.8749    0.9125
  Houston, MN                                                           
  La Crosse, WI                                                         
3880  Lafayette, LA.................................    0.8227    0.8749
  Acadia, LA                                                            
  Lafayette, LA                                                         
  St. Landry, LA                                                        
  St. Martin, LA                                                        
3920  Lafayette, IN.................................    0.9174    0.9427
  Clinton, IN                                                           
  Tippecanoe, IN                                                        
3960  Lake Charles, LA..............................    0.7776    0.8418
  Calcasieu, LA                                                         
3980  \2\ Lakeland-Winter Haven, FL.................    0.8838    0.9189
  Polk, FL                                                              
4000  Lancaster, PA.................................    0.9481    0.9642
  Lancaster, PA                                                         
4040  Lansing-East Lansing, MI......................    1.0088    1.0060
  Clinton, MI                                                           
  Eaton, MI                                                             
  Ingham, MI                                                            
4080  \2\ Laredo, TX................................    0.7404    0.8140
  Webb, TX                                                              
4100  Las Cruces, NM................................    0.8658    0.9060
  Dona Ana, NM                                                          
4120  \1\ Las Vegas, NV-AZ..........................    1.0592    1.0402
  Mohave, AZ                                                            
  Clark, NV                                                             
  Nye, NV                                                               
4150  Lawrence, KS..................................    0.8608    0.9024
  Douglas, KS                                                           
4200  Lawton, OK....................................    0.9045    0.9336
  Comanche, OK                                                          
4243  Lewiston-Auburn, ME...........................    0.9536    0.9680
  Androscoggin, ME                                                      
4280  Lexington, KY.................................    0.8416    0.8886
  Bourbon, KY                                                           
  Clark, KY                                                             
  Fayette, KY                                                           
  Jessamine, KY                                                         
  Madison, KY                                                           
  Scott, KY                                                             
  Woodford, KY                                                          
4320  Lima, OH......................................    0.9185    0.9434
  Allen, OH                                                             
  Auglaize, OH                                                          
4360  Lincoln, NE...................................    0.9231    0.9467
  Lancaster, NE                                                         
4400  Little Rock-North Little Rock, AR.............    0.8490    0.8940
  Faulkner, AR                                                          
  Lonoke, AR                                                            
  Pulaski, AR                                                           
  Saline, AR                                                            
4420  Longview-Marshall, TX.........................    0.8613    0.9028
  Gregg, TX                                                             
  Harrison, TX                                                          
  Upshur, TX                                                            
4480\1\ Los Angeles-Long Beach, CA..................    1.2268    1.1503
  Los Angeles, CA                                                       
4520  Louisville, KY-IN.............................    0.9507    0.9660
  Clark, IN                                                             
  Floyd, IN                                                             
  Harrison, IN                                                          
  Scott, IN                                                             
  Bullitt, KY                                                           
  Jefferson, KY                                                         
  Oldham, KY                                                            
4600  Lubbock, TX...................................    0.8400    0.8875
  Lubbock, TX                                                           
4640  Lynchburg, VA.................................    0.8228    0.8750
  Amherst, VA                                                           
  Bedford, VA                                                           
  Bedford City, VA                                                      
  Campbell, VA                                                          
  Lynchburg City, VA                                                    
4680  Macon, GA.....................................    0.9227    0.9464
  Bibb, GA                                                              
  Houston, GA                                                           
  Jones, GA                                                             
  Peach, GA                                                             
  Twiggs, GA                                                            
4720  Madison, WI...................................    1.0055    1.0038
  Dane, WI                                                              
4800  Mansfield, OH.................................    0.8639    0.9047
  Crawford, OH                                                          
  Richland, OH                                                          
4840  Mayaguez, PR..................................    0.4475    0.5766
  Anasco, PR                                                            
  Cabo Rojo, PR                                                         
  Hormigueros, PR                                                       
  Mayaguez, PR                                                          
  Sabana Grande, PR                                                     
  San German, PR                                                        
4880  McAllen-Edinburg-Mission, TX..................    0.8371    0.8854
  Hidalgo, TX                                                           
4890  Medford-Ashland, OR...........................    1.0354    1.0241
  Jackson, OR                                                           
4900\2\ Melbourne-Titusville-Palm Bay, FL...........    0.8838    0.9189
  Brevard, FL                                                           
4920  \1\ Memphis, TN-AR-MS.........................    0.8589    0.9011
  Crittenden, AR                                                        
  DeSoto, MS                                                            
  Fayette, TN                                                           
  Shelby, TN                                                            
  Tipton, TN                                                            
4940  Merced, CA....................................    1.0947    1.0639
  Merced, CA                                                            
5000  \1\ Miami, FL.................................    0.9859    0.9903
  Dade, FL                                                              
5015  \1\ Middlesex-Somerset-Hunterdon, NJ..........    1.0875    1.0591
  Hunterdon, NJ                                                         
  Middlesex, NJ                                                         
  Somerset, NJ                                                          
5080  \1\ Milwaukee-Waukesha, WI....................    0.9819    0.9876
  Milwaukee, WI                                                         
  Ozaukee, WI                                                           
  Washington, WI                                                        
  Waukesha, WI                                                          
5120  \1\ Minneapolis-St. Paul, MN-WI...............    1.0733    1.0496
  Anoka, MN                                                             
  Carver, MN                                                            
  Chisago, MN                                                           
  Dakota, MN                                                            
  Hennepin, MN                                                          
  Isanti, MN                                                            
  Ramsey, MN                                                            
  Scott, MN                                                             
  Sherburne, MN                                                         
  Washington, MN                                                        
  Wright, MN                                                            
  Pierce, WI                                                            
  St. Croix, WI                                                         
5160  Mobile, AL....................................    0.8455    0.8914
  Baldwin, AL                                                           
  Mobile, AL                                                            
5170  Modesto, CA...................................    1.0377    1.0257

[[Page 46074]]

                                                                        
  Stanislaus, CA                                                        
5190  \1\ Monmouth-Ocean, NJ........................    1.0934    1.0631
  Monmouth, NJ                                                          
  Ocean, NJ                                                             
5200  Monroe, LA....................................    0.8414    0.8885
  Ouachita, LA                                                          
5240  Montgomery, AL................................    0.7813    0.8445
  Autauga, AL                                                           
  Elmore, AL                                                            
  Montgomery, AL                                                        
5280  Muncie, IN....................................    0.9173    0.9426
  Delaware, IN                                                          
5330  Myrtle Beach, SC..............................    0.8072    0.8636
  Horry, SC                                                             
5345  Naples, FL....................................    1.0109    1.0075
  Collier, FL                                                           
5360  \1\ Nashville, TN.............................    0.9182    0.9432
  Cheatham, TN                                                          
  Davidson, TN                                                          
  Dickson, TN                                                           
  Robertson, TN                                                         
  Rutherford, TN                                                        
  Sumner, TN                                                            
  Williamson, TN                                                        
  Wilson, TN                                                            
5380  \1\ Nassau-Suffolk, NY........................    1.3807    1.2472
  Nassau, NY                                                            
  Suffolk, NY                                                           
5483  \1\ New Haven-Bridgeport-Stamford-Waterbury-..    1.2619    1.1727
  Danbury, CT                                                           
  Fairfield, CT                                                         
  New Haven, CT                                                         
5523  \2\ New London-Norwich, CT....................    1.2617    1.1726
  New London, CT                                                        
5560  \1\ New Orleans, LA...........................    0.9566    0.9701
  Jefferson, LA                                                         
  Orleans, LA                                                           
  Plaquemines, LA                                                       
  St. Bernard, LA                                                       
  St. Charles, LA                                                       
  St. James, LA                                                         
  St. John The Baptist, LA                                              
  St. Tammany, LA                                                       
5600  \1\ New York, NY..............................    1.3982    1.2580
  Bronx, NY                                                             
  Kings, NY                                                             
  New York, NY                                                          
  Putnam, NY                                                            
  Queens, NY                                                            
  Richmond, NY                                                          
  Rockland, NY                                                          
  Westchester, NY                                                       
5640  \1\ Newark, NJ................................    1.1111    1.0748
  Essex, NJ                                                             
  Morris, NJ                                                            
  Sussex, NJ                                                            
  Union, NJ                                                             
  Warren, NJ                                                            
5660  Newburgh, NY-PA...............................    1.1283    1.0862
  Orange, NY                                                            
  Pike, PA                                                              
5720 \1\ Norfolk-Virginia Beach-Newport News, VA-NC.    0.8316    0.8814
  Currituck, NC                                                         
  Chesapeake City, VA                                                   
  Gloucester, VA                                                        
  Hampton City, VA                                                      
  Isle of Wight, VA                                                     
  James City, VA                                                        
  Mathews, VA                                                           
  Newport News City, VA                                                 
  Norfolk City, VA                                                      
  Poquoson City, VA                                                     
  Portsmouth City, VA                                                   
  Suffolk City, VA                                                      
  Virginia Beach City, VA                                               
  Williamsburg City, VA                                                 
  York, VA                                                              
5775  \1\ Oakland, CA...............................    1.5158    1.3295
  Alameda, CA                                                           
  Contra Costa, CA                                                      
5790  Ocala, FL.....................................    0.9032    0.9327
  Marion, FL                                                            
5800  Odessa-Midland, TX............................    0.8660    0.9062
  Ector, TX                                                             
  Midland, TX                                                           
5880  \1\ Oklahoma City, OK.........................    0.8481    0.8933
  Canadian, OK                                                          
  Cleveland, OK                                                         
  Logan, OK                                                             
  McClain, OK                                                           
  Oklahoma, OK                                                          
  Pottawatomie, OK                                                      
5910  Olympia, WA...................................    1.0901    1.0609
  Thurston, WA                                                          
5920  Omaha, NE-IA..................................    0.9421    0.9600
  Pottawattamie, IA                                                     
  Cass, NE                                                              
  Douglas, NE                                                           
  Sarpy, NE                                                             
  Washington, NE                                                        
5945\1\ Orange County, CA...........................    1.1532    1.1025
  Orange, CA                                                            
5960\1\ Orlando, FL.................................    0.9397    0.9583
  Lake, FL                                                              
  Orange, FL                                                            
  Osceola, FL                                                           
  Seminole, FL                                                          
5990\2\ Owensboro, KY...............................    0.7772    0.8415
  Daviess, KY                                                           
6015\2\ Panama City, FL.............................    0.8838    0.9189
  Bay, FL                                                               
6020\2\ Parkersburg-Marietta, WV-OH (West Virginia                      
 Hospitals).........................................    0.8046    0.8617
  Washington, OH                                                        
  Wood, WV                                                              
6020\2\ Parkersburg-Marietta, WV-OH (Ohio Hospitals)    0.8434    0.8899
  Washington, OH                                                        
  Wood, WV                                                              
6080\2\ Pensacola, FL...............................    0.8838    0.9189
  Escambia, FL                                                          
  Santa Rosa, FL                                                        
6120  Peoria-Pekin, IL..............................    0.8586    0.9009
  Peoria, IL                                                            
  Tazewell, IL                                                          
  Woodford, IL                                                          
6160\1\ Philadelphia, PA-NJ.........................    1.1379    1.0925
  Burlington, NJ                                                        
  Camden, NJ                                                            
  Gloucester, NJ                                                        
  Salem, NJ                                                             
  Bucks, PA                                                             
  Chester, PA                                                           
  Delaware, PA                                                          
  Montgomery, PA                                                        
  Philadelphia, PA                                                      
6200\1\ Phoenix-Mesa, AZ............................    0.9606    0.9728
  Maricopa, AZ                                                          
  Pinal, AZ                                                             
6240  Pine Bluff, AR................................    0.7826    0.8455
  Jefferson, AR                                                         
6280\1\ Pittsburgh, PA..............................    0.9725    0.9811
  Allegheny, PA                                                         
  Beaver, PA                                                            
  Butler, PA                                                            
  Fayette, PA                                                           
  Washington, PA                                                        
  Westmoreland, PA                                                      
6323  Pittsfield, MA................................    1.0960    1.0648
  Berkshire, MA                                                         
6340  Pocatello, ID.................................    0.9586    0.9715
  Bannock, ID                                                           
6360  Ponce, PR.....................................    0.4589    0.5866
  Guayanilla, PR                                                        
  Juana Diaz, PR                                                        
  Penuelas, PR                                                          
  Ponce, PR                                                             
  Villalba, PR                                                          
  Yauco, PR                                                             
6403  Portland, ME..................................    0.9627    0.9743
  Cumberland, ME                                                        
  Sagadahoc, ME                                                         
  York, ME                                                              
6440\1\ Portland-Vancouver, OR-WA...................    1.1344    1.0902
  Clackamas, OR                                                         
  Columbia, OR                                                          
  Multnomah, OR                                                         
  Washington, OR                                                        
  Yamhill, OR                                                           
  Clark, WA                                                             
6483\1\ Providence-Warwick-Pawtucket, RI............    1.1049    1.0707
  Bristol, RI                                                           
  Kent, RI                                                              
  Newport, RI                                                           
  Providence, RI                                                        
  Washington, RI                                                        
6520  Provo-Orem, UT................................    1.0073    1.0050
  Utah, UT                                                              
6560  Pueblo, CO....................................    0.8450    0.8911
  Pueblo, CO                                                            

[[Page 46075]]

                                                                        
6580\2\ Punta Gorda, FL.............................    0.8838    0.9189
  Charlotte, FL                                                         
6600  Racine, WI....................................    0.8934    0.9257
  Racine, WI                                                            
6640\1\ Raleigh-Durham-Chapel Hill, NC..............    0.9818    0.9875
  Chatham, NC                                                           
  Durham, NC                                                            
  Franklin, NC                                                          
  Johnston, NC                                                          
  Orange, NC                                                            
  Wake, NC                                                              
6660  Rapid City, SD................................    0.8345    0.8835
  Pennington, SD                                                        
6680  Reading, PA...................................    0.9516    0.9666
  Berks, PA                                                             
6690  Redding, CA...................................    1.1790    1.1194
  Shasta, CA                                                            
6720  Reno, NV......................................    1.0768    1.0520
  Washoe, NV                                                            
6740\2\ Richland-Kennewick-Pasco, WA................    1.0221    1.0151
  Benton, WA                                                            
  Franklin, WA                                                          
6760  Richmond-Petersburg, VA.......................    0.9152    0.9411
  Charles City County, VA                                               
  Chesterfield, VA                                                      
  Colonial Heights City, VA                                             
  Dinwiddie, VA                                                         
  Goochland, VA                                                         
  Hanover, VA                                                           
  Henrico, VA                                                           
  Hopewell City, VA                                                     
  New Kent, VA                                                          
  Petersburg City, VA                                                   
  Powhatan, VA                                                          
  Prince George, VA                                                     
  Richmond City, VA                                                     
6780  \1\ Riverside-San Bernardino, CA..............    1.1145    1.0771
  Riverside, CA                                                         
  San Bernardino, CA                                                    
6800  Roanoke, VA...................................    0.8402    0.8876
  Botetourt, VA                                                         
  Roanoke, VA                                                           
  Roanoke City, VA                                                      
  Salem City, VA                                                        
6820  Rochester, MN.................................    1.0502    1.0341
  Olmsted, MN                                                           
6840  \1\ Rochester, NY.............................    0.9524    0.9672
  Genesee, NY                                                           
  Livingston, NY                                                        
  Monroe, NY                                                            
  Ontario, NY                                                           
  Orleans, NY                                                           
  Wayne, NY                                                             
6880  Rockford, IL..................................    0.9081    0.9361
  Boone, IL                                                             
  Ogle, IL                                                              
  Winnebago, IL                                                         
6895  Rocky Mount, NC...............................    0.9029    0.9324
  Edgecombe, NC                                                         
  Nash, NC                                                              
6920  \1\ Sacramento, CA............................    1.2202    1.1460
  El Dorado, CA                                                         
  Placer, CA                                                            
  Sacramento, CA                                                        
6960  Saginaw-Bay City-Midland, MI..................    0.9564    0.9699
  Bay, MI                                                               
  Midland, MI                                                           
  Saginaw, MI                                                           
6980  St. Cloud, MN.................................    0.9544    0.9685
  Benton, MN                                                            
  Stearns, MN                                                           
7000  St. Joseph, MO................................    0.8366    0.8850
  Andrew, MO                                                            
  Buchanan, MO                                                          
7040  \1\ St. Louis, MO-IL..........................    0.9130    0.9396
  Clinton, IL                                                           
  Jersey, IL                                                            
  Madison, IL                                                           
  Monroe, IL                                                            
  St. Clair, IL                                                         
  Franklin, MO                                                          
  Jefferson, MO                                                         
  Lincoln, MO                                                           
  St. Charles, MO                                                       
  St. Louis, MO                                                         
  St. Louis City, MO                                                    
  Warren, MO                                                            
7080  \2\ Salem, OR.................................    0.9976    0.9984
  Marion, OR                                                            
  Polk, OR                                                              
7120  Salinas, CA...................................    1.4513    1.2905
  Monterey, CA                                                          
7160\1\ Salt Lake City-Ogden, UT....................    0.9862    0.9905
  Davis, UT                                                             
  Salt Lake, UT                                                         
  Weber, UT                                                             
7200  San Angelo, TX................................    0.7780    0.8421
  Tom Green, TX                                                         
7240  \1\ San Antonio, TX...........................    0.8499    0.8946
  Bexar, TX                                                             
  Comal, TX                                                             
  Guadalupe, TX                                                         
  Wilson, TX                                                            
7320  \1\ San Diego, CA.............................    1.2225    1.1475
  San Diego, CA                                                         
7360  \1\ San Francisco, CA.........................    1.4091    1.2647
  Marin, CA                                                             
  San Francisco, CA                                                     
  San Mateo, CA                                                         
7400  \1\ San Jose, CA..............................    1.4332    1.2795
  Santa Clara, CA                                                       
7440  \1\ San Juan-Bayamon, PR......................    0.4618    0.5891
  Aguas Buenas, PR                                                      
  Barceloneta, PR                                                       
  Bayamon, PR                                                           
  Canovanas, PR                                                         
  Carolina, PR                                                          
  Catano, PR                                                            
  Ceiba, PR                                                             
  Comerio, PR                                                           
  Corozal, PR                                                           
  Dorado, PR                                                            
  Fajardo, PR                                                           
  Florida, PR                                                           
  Guaynabo, PR                                                          
  Humacao, PR                                                           
  Juncos, PR                                                            
  Los Piedras, PR                                                       
  Loiza, PR                                                             
  Luguillo, PR                                                          
  Manati, PR                                                            
  Morovis, PR                                                           
  Naguabo, PR                                                           
  Naranjito, PR                                                         
  Rio Grande, PR                                                        
  San Juan, PR                                                          
  Toa Alta, PR                                                          
  Toa Baja, PR                                                          
  Trujillo Alto, PR                                                     
  Vega Alta, PR                                                         
  Vega Baja, PR                                                         
  Yabucoa, PR                                                           
7460  San Luis Obispo-Atascadero-Paso Robles, CA....    1.1374    1.0922
  San Luis Obispo, CA                                                   
7480  Santa Barbara-Santa Maria-Lompoc, CA..........    1.0688    1.0466
  Santa Barbara, CA                                                     
7485  Santa Cruz-Watsonville, CA....................    1.4187    1.2706
  Santa Cruz, CA                                                        
7490  Santa Fe, NM..................................    1.0332    1.0226
  Los Alamos, NM                                                        
  Santa Fe, NM                                                          
7500  Santa Rosa, CA................................    1.2267    1.1502
  Sonoma, CA                                                            
7510  Sarasota-Bradenton, FL........................    0.9757    0.9833
  Manatee, FL                                                           
  Sarasota, FL                                                          
7520  Savannah, GA..................................    0.8638    0.9046
  Bryan, GA                                                             
  Chatham, GA                                                           
  Effingham, GA                                                         
7560  Scranton--Wilkes-Barre--Hazleton, PA..........    0.8539    0.8975
  Columbia, PA                                                          
  Lackawanna, PA                                                        
  Luzerne, PA                                                           
  Wyoming, PA                                                           
7600  \1\ Seattle-Bellevue-Everett, WA..............    1.1375    1.0922
  Island, WA                                                            
  King, WA                                                              
  Snohomish, WA                                                         
7610  Sharon, PA....................................    0.8783    0.9150
  Mercer, PA                                                            
7620  \2\ Sheboygan, WI.............................    0.8471    0.8926
  Sheboygan, WI                                                         
7640  Sherman-Denison, TX...........................    0.8499    0.8946
  Grayson, TX                                                           
7680  Shreveport-Bossier City, LA...................    0.9381    0.9572

[[Page 46076]]

                                                                        
  Bossier, LA                                                           
  Caddo, LA                                                             
  Webster, LA                                                           
7720  Sioux City, IA-NE.............................    0.8031    0.8606
  Woodbury, IA                                                          
  Dakota, NE                                                            
7760  Sioux Falls, SD...............................    0.8712    0.9099
  Lincoln, SD                                                           
  Minnehaha, SD                                                         
7800  South Bend, IN................................    0.9880    0.9918
  St. Joseph, IN                                                        
7840  Spokane, WA...................................    1.0486    1.0330
  Spokane, WA                                                           
7880  Springfield, IL...............................    0.8713    0.9100
  Menard, IL                                                            
  Sangamon, IL                                                          
7920  Springfield, MO...............................    0.8036    0.8609
  Christian, MO                                                         
  Greene, MO                                                            
  Webster, MO                                                           
8003  \2\ Springfield, MA...........................    1.0718    1.0486
  Hampden, MA                                                           
  Hampshire, MA                                                         
8050  State College, PA.............................    0.9635    0.9749
  Centre, PA                                                            
8080  Steubenville-Weirton, OH-WV...................    0.8645    0.9051
  Jefferson, OH                                                         
  Brooke, WV                                                            
  Hancock, WV                                                           
8120  Stockton-Lodi, CA.............................    1.1518    1.1016
  San Joaquin, CA                                                       
8140  \2\ Sumter, SC................................    0.7921    0.8525
  Sumter, SC                                                            
8160  Syracuse, NY..................................    0.9480    0.9641
  Cayuga, NY                                                            
  Madison, NY                                                           
  Onondaga, NY                                                          
  Oswego, NY                                                            
8200  Tacoma, WA....................................    1.1016    1.0685
  Pierce, WA                                                            
8240  \2\ Tallahassee, FL...........................    0.8838    0.9189
  Gadsden, FL                                                           
  Leon, FL                                                              
8280  \1\ Tampa-St. Petersburg-Clearwater, FL.......    0.9196    0.9442
  Hernando, FL                                                          
  Hillsborough, FL                                                      
  Pasco, FL                                                             
  Pinellas, FL                                                          
8320  Terre Haute, IN...............................    0.8614    0.9029
  Clay, IN                                                              
  Vermillion, IN                                                        
  Vigo, IN                                                              
8360  Texarkana, AR-Texarkana, TX...................    0.8699    0.9090
  Miller, AR                                                            
  Bowie, TX                                                             
8400  Toledo, OH....................................    1.0140    1.0096
  Fulton, OH                                                            
  Lucas, OH                                                             
  Wood, OH                                                              
8440  Topeka, KS....................................    0.9438    0.9612
  Shawnee, KS                                                           
8480  Trenton, NJ...................................    1.0380    1.0259
  Mercer, NJ                                                            
8520  Tucson, AZ....................................    0.9180    0.9431
  Pima, AZ                                                              
8560  Tulsa, OK.....................................    0.8074    0.8637
  Creek, OK                                                             
  Osage, OK                                                             
  Rogers, OK                                                            
  Tulsa, OK                                                             
  Wagoner, OK                                                           
8600  Tuscaloosa, AL................................    0.8187    0.8720
  Tuscaloosa, AL                                                        
8640  Tyler, TX.....................................    0.9567    0.9701
  Smith, TX                                                             
8680  \2\ Utica-Rome, NY............................    0.8401    0.8875
  Herkimer, NY                                                          
  Oneida, NY                                                            
8720  Vallejo-Fairfield-Napa, CA....................    1.3528    1.2299
  Napa, CA                                                              
  Solano, CA                                                            
8735  Ventura, CA...................................    1.0544    1.0369
  Ventura, CA                                                           
8750  Victoria, TX..................................    0.8474    0.8928
  Victoria, TX                                                          
8760  Vineland-Millville-Bridgeton, NJ..............    1.0110    1.0075
  Cumberland, NJ                                                        
8780  \2\ Visalia-Tulare-Porterville, CA............    0.9977    0.9984
  Tulare, CA                                                            
8800  Waco, TX......................................    0.7696    0.8358
  McLennan, TX                                                          
8840  \1\ Washington, DC-MD-VA-WV...................    1.0780    1.0528
  District of Columbia, DC                                              
  Calvert, MD                                                           
  Charles, MD                                                           
  Frederick, MD                                                         
  Montgomery, MD                                                        
  Prince Georges, MD                                                    
  Alexandria City, VA                                                   
  Arlington, VA                                                         
  Clarke, VA                                                            
  Culpeper, VA                                                          
  Fairfax, VA                                                           
  Fairfax City, VA                                                      
  Falls Church City, VA                                                 
  Fauquier, VA                                                          
  Fredericksburg City, VA                                               
  King George, VA                                                       
  Loudoun, VA                                                           
  Manassas City, VA                                                     
  Manassas Park City, VA                                                
  Prince William, VA                                                    
  Spotsylvania, VA                                                      
  Stafford, VA                                                          
  Warren, VA                                                            
  Berkeley, WV                                                          
  Jefferson, WV                                                         
8920  Waterloo-Cedar Falls, IA......................    0.8643    0.9050
  Black Hawk, IA                                                        
8940  Wausau, WI....................................    1.0545    1.0370
  Marathon, WI                                                          
8960  West Palm Beach-Boca Raton, FL................    1.0309    1.0211
  Palm Beach, FL                                                        
9000  \2\ Wheeling, OH-WV (West Virginia Hospitals).    0.7966    0.8558
  Belmont, OH                                                           
  Marshall, WV                                                          
  Ohio, WV                                                              
9000  \2\ Wheeling, OH-WV (Ohio Hospitals)..........    0.8434    0.8899
  Belmont, OH                                                           
  Marshall, WV                                                          
  Ohio, WV                                                              
9040  Wichita, KS...................................    0.9403    0.9587
  Butler, KS                                                            
  Harvey, KS                                                            
  Sedgwick, KS                                                          
9080  Wichita Falls, TX.............................    0.7646    0.8321
  Archer, TX                                                            
  Wichita, TX                                                           
9140  Williamsport, PA..............................    0.8548    0.8981
  Lycoming, PA                                                          
9160  Wilmington-Newark, DE-MD......................    1.1538    1.1029
  New Castle, DE                                                        
  Cecil, MD                                                             
9200  Wilmington, NC................................    0.9322    0.9531
  New Hanover, NC                                                       
  Brunswick, NC                                                         
9260  \2\ Yakima, WA................................    1.0221    1.0151
  Yakima, WA                                                            
9270  Yolo, CA......................................    1.1431    1.0959
  Yolo, CA                                                              
9280  York, PA......................................    0.9415    0.9596
  York, PA                                                              
9320  Youngstown-Warren, OH.........................    0.9937    0.9957
  Columbiana, OH                                                        
  Mahoning, OH                                                          
  Trumbull, OH                                                          
9340  Yuba City, CA.................................    1.0324    1.0221
  Sutter, CA                                                            
  Yuba, CA                                                              
9360  Yuma, AZ......................................    0.9732    0.9816
  Yuma, AZ                                                              
------------------------------------------------------------------------
\1\ Large Urban Area                                                    
\2\ Hospitals geographically located in the area are assigned the       
  statewide rural wage index for FY 1998.                               


Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Rural Areas                              
------------------------------------------------------------------------
                                                        Wage            
                    Nonurban area                       index      GAF  
------------------------------------------------------------------------
Alabama.............................................    0.7260    0.8031
Alaska..............................................    1.2302    1.1524
Arizona.............................................    0.7989    0.8575
Arkansas............................................    0.6995    0.7829

[[Page 46077]]

                                                                        
California..........................................    0.9977    0.9984
Colorado............................................    0.8129    0.8677
Connecticut.........................................    1.2617    1.1726
Delaware............................................    0.8925    0.9251
Florida.............................................    0.8838    0.9189
Georgia.............................................    0.7761    0.8407
Hawaii..............................................    1.0229    1.0156
Idaho...............................................    0.8221    0.8745
Illinois............................................    0.7644    0.8320
Indiana.............................................    0.8161    0.8701
Iowa................................................    0.7391    0.8130
Kansas..............................................    0.7203    0.7988
Kentucky............................................    0.7772    0.8415
Louisiana...........................................    0.7383    0.8124
Maine...............................................    0.8468    0.8924
Maryland............................................    0.8617    0.9031
Massachusetts.......................................    1.0718    1.0486
Michigan............................................    0.8923    0.9249
Minnesota...........................................    0.8180    0.8715
Mississippi.........................................    0.6911    0.7765
Missouri............................................    0.7207    0.7991
Montana.............................................    0.8302    0.8804
Nebraska............................................    0.7401    0.8137
Nevada..............................................    0.8914    0.9243
New Hampshire.......................................    0.9724    0.9810
New Jersey \1\......................................  ........  ........
New Mexico..........................................    0.8110    0.8664
New York............................................    0.8401    0.8875
North Carolina......................................    0.7939    0.8538
North Dakota........................................    0.7360    0.8107
Ohio................................................    0.8434    0.8899
Oklahoma............................................    0.7072    0.7888
Oregon..............................................    0.9976    0.9984
Pennsylvania........................................    0.8421    0.8890
Puerto Rico.........................................    0.4224    0.5542
Rhode Island \1\....................................  ........  ........
South Carolina......................................    0.7921    0.8525
South Dakota........................................    0.6983    0.7820
Tennessee...........................................    0.7353    0.8101
Texas...............................................    0.7404    0.8140
Utah................................................    0.8926    0.9251
Vermont.............................................    0.9314    0.9525
Virginia............................................    0.7782    0.8422
Washington..........................................    1.0221    1.0151
West Virginia.......................................    0.7966    0.8558
Wisconsin...........................................    0.8471    0.8926
Wyoming.............................................    0.8247    0.8764
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.              


Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                     Hospitals That Are Reclassified                    
------------------------------------------------------------------------
                                                        Wage            
                     Urban area                         index      GAF  
------------------------------------------------------------------------
Abilene, TX.........................................    0.8287    0.8793
Albuquerque, NM.....................................    0.9329    0.9535
Alexandria, LA......................................    0.8269    0.8780
Amarillo, TX........................................    0.9277    0.9499
Anchorage, AK.......................................    1.2998    1.1967
Asheville, NC.......................................    0.9072    0.9355
Athens, GA..........................................    0.9087    0.9365
Atlanta, GA.........................................    0.9823    0.9878
Austin-San Marcos, TX...............................    0.9133    0.9398
Bangor, ME..........................................    0.9478    0.9640
Barnstable-Yarmouth, MA.............................    1.3827    1.2484
Baton Rouge, LA.....................................    0.8382    0.8862
Benton Harbor, MI...................................    0.8923    0.9249
Bergen-Passaic, NJ..................................    1.1570    1.1050
Billings, MT........................................    0.9609    0.9731
Birmingham, AL......................................    0.9005    0.9307
Bismarck, ND........................................    0.7859    0.8479
Boise City, ID......................................    0.8887    0.9224
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH....    1.1436    1.0962
Caguas, PR..........................................    0.4508    0.5795
Casper, WY..........................................    0.9013    0.9313
Champaign-Urbana, IL................................    0.8706    0.9095
Charlotte-Gastonia-Rock Hill, NC-SC.................    0.9710    0.9800
Charlottesville, VA.................................    0.8885    0.9222
Chattanooga, TN-GA..................................    0.8658    0.9060
Chicago, IL.........................................    1.0759    1.0514
Cincinnati, OH-KY-IN................................    0.9521    0.9669
Cleveland-Lorain-Elyria, OH.........................    0.9804    0.9865
Columbia, MO........................................    0.8759    0.9133
Columbus, OH........................................    0.9793    0.9858
Dallas, TX..........................................    0.9674    0.9776
Davenport-Moline-Rock Island, IA-IL.................    0.8405    0.8878
Denver, CO..........................................    1.0386    1.0263
Des Moines, IA......................................    0.8837    0.9188
Detroit, MI.........................................    1.0840    1.0568
Duluth-Superior, MN-WI..............................    0.9779    0.9848
Dutchess County, NY.................................    1.0364    1.0248
Eugene-Springfield, OR..............................    1.1659    1.1108
Fargo-Moorhead, ND-MN...............................    0.8729    0.9111
Fayetteville, NC....................................    0.8491    0.8940
Flint, MI...........................................    1.1171    1.0788
Florence, AL........................................    0.7716    0.8373
Florence, SC........................................    0.8711    0.9098
Ft. Lauderdale, FL..................................    1.0487    1.0331
Fort Pierce-Port St. Lucie, FL......................    1.0008    1.0005
Fort Walton Beach, FL...............................    0.8653    0.9057
Forth Worth-Arlington, TX...........................    0.9997    0.9998
Gadsden, AL.........................................    0.8815    0.9173
Gainesville, FL.....................................    0.9616    0.9735
Gary, IN............................................    0.9114    0.9384
Grand Forks, ND-MN..................................    0.8815    0.9173
Grand Junction, CO..................................    0.9491    0.9649
Great Falls, MT.....................................    0.9306    0.9519
Greeley, CO.........................................    0.9791    0.9856
Green Bay, WI.......................................    0.9585    0.9714
Greensboro-Winston-Salem-High Point, NC.............    0.9351    0.9551
Harrisburg-Lebanon-Carlisle, PA.....................    1.0076    1.0052
Honolulu, HI........................................    1.1817    1.1211
Houma, LA...........................................    0.7854    0.8475
Houston, TX.........................................    0.9855    0.9900
Huntington-Ashland, WV-KY-OH........................    0.9160    0.9417
Huntsville, AL......................................    0.8485    0.8936
Indianapolis, IN....................................    0.9848    0.9896
Iowa City, IA.......................................    0.9198    0.9444
Jackson, MS.........................................    0.7790    0.8428
Johnson City-Kingsport-Bristol, TN-VA...............    0.9114    0.9384
Jonesboro, AR.......................................    0.7443    0.8169
Joplin, MO..........................................    0.7541    0.8243
Kalamazoo-Battlecreek, MI...........................    1.0668    1.0453
Kansas City, KS-MO..................................    0.9564    0.9699
Knoxville, TN.......................................    0.8831    0.9184
Lafayette, LA.......................................    0.8227    0.8749
Lafayette, IN.......................................    0.9174    0.9427
Lansing-East Lansing, MI............................    1.0088    1.0060
Las Cruces, NM......................................    0.8658    0.9060
Las Vegas, NV-AZ....................................    1.0592    1.0402
Lexington, KY.......................................    0.8416    0.8886
Lima, OH............................................    0.9185    0.9434
Lincoln, NE.........................................    0.9035    0.9329
Little Rock-North Little Rock, AR...................    0.8490    0.8940
Longview-Marshall, TX...............................    0.8509    0.8953
Los Angeles-Long Beach, CA..........................    1.2268    1.1503
Louisville, KY-IN...................................    0.9507    0.9660
Macon, GA...........................................    0.9227    0.9464
Madison, WI.........................................    1.0055    1.0038
Mansfield, OH.......................................    0.8639    0.9047
Medford-Ashland, OR.................................    1.0354    1.0241
Memphis, TN-AR-MS...................................    0.8589    0.9011
Milwaukee-Waukesha, WI..............................    0.9819    0.9876
Minneapolis-St. Paul, MN-WI.........................    1.0733    1.0496
Monroe, LA..........................................    0.8414    0.8885
Montgomery, AL......................................    0.7813    0.8445
Nashville, TN.......................................    0.9182    0.9432
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.    1.2619    1.1727
New London-Norwich, CT..............................    1.2258    1.1496
New Orleans, LA.....................................    0.9566    0.9701
New York, NY........................................    1.3982    1.2580
Newark, NJ..........................................    1.1111    1.0748
Newburgh, NY-PA.....................................    1.1283    1.0862
Oakland, CA.........................................    1.5158    1.3295
Odessa-Midland, TX..................................    0.8516    0.8958
Oklahoma City, OK...................................    0.8481    0.8933
Omaha, NE-IA........................................    0.9421    0.9600
Orange County, CA...................................    1.1532    1.1025
Peoria-Pekin, IL....................................    0.8586    0.9009
Philadelphia, PA-NJ.................................    1.1379    1.0925
Pittsburgh, PA......................................    0.9583    0.9713
Pocatello, ID.......................................    0.9000    0.9304
Portland, ME........................................    0.9627    0.9743
Portland-Vancouver, OR-WA...........................    1.1344    1.0902
Provo-Orem, UT......................................    1.0073    1.0050
Raleigh-Durham-Chapel Hill, NC......................    0.9818    0.9875
Rapid City, SD......................................    0.8345    0.8835
Rochester, MN.......................................    1.0502    1.0341
Rockford, IL........................................    0.9081    0.9361
Sacramento, CA......................................    1.2202    1.1460

[[Page 46078]]

                                                                        
Saginaw-Bay City-Midland, MI........................    0.9564    0.9699
St. Cloud, MN.......................................    0.9544    0.9685
St. Louis, MO-IL....................................    0.9130    0.9396
Salinas, CA.........................................    1.4299    1.2775
Salt Lake City-Ogden, UT............................    0.9862    0.9905
San Diego, CA.......................................    1.2225    1.1475
San Francisco, CA...................................    1.4091    1.2647
Santa Fe, NM........................................    1.0007    1.0005
Santa Rosa, CA......................................    1.2146    1.1424
Seattle-Bellevue-Everett, WA........................    1.1375    1.0922
Sherman-Denison, TX.................................    0.8324    0.8819
Sioux City, IA-NE...................................    0.8031    0.8606
Sioux Falls, SD.....................................    0.8607    0.9024
South Bend, IN......................................    0.9880    0.9918
Spokane, WA.........................................    1.0311    1.0212
Springfield, IL.....................................    0.8610    0.9026
Springfield, MO.....................................    0.8036    0.8609
Stockton-Lodi, CA...................................    1.1518    1.1016
Syracuse, NY........................................    0.9480    0.9641
Tampa-St. Petersburg-Clearwater, FL.................    0.9196    0.9442
Texarkana, AR-Texarkana, TX.........................    0.8699    0.9090
Topeka, KS..........................................    0.9310    0.9522
Tucson, AZ..........................................    0.9180    0.9431
Tulsa, OK...........................................    0.8074    0.8637
Tyler, TX...........................................    0.9421    0.9600
Vallejo-Fairfield-Napa, CA..........................    1.3528    1.2299
Washington, DC-MD-VA-WV.............................    1.0780    1.0528
Waterloo-Cedar Falls, IA............................    0.8643    0.9050
Wausau, WI..........................................    0.9845    0.9894
Wichita, KS.........................................    0.9157    0.9415
Wichita Falls, TX...................................    0.7646    0.8321
Rural Florida.......................................    0.8838    0.9189
Rural Louisiana.....................................    0.7383    0.8124
Rural Minnesota.....................................    0.8180    0.8715
Rural Missouri......................................    0.7207    0.7991
Rural New Hampshire.................................    0.9724    0.9810
Rural New Mexico....................................    0.8110    0.8664
Rural North Carolina................................    0.7939    0.8538
Rural Oregon........................................    0.9976    0.9984
Rural Washington....................................    1.0221    1.0151
Rural West Virginia.................................    0.7966    0.8558
Rural Wyoming.......................................    0.8247    0.8764
------------------------------------------------------------------------


             Table 4D.--Average Hourly Wage for Urban Areas             
------------------------------------------------------------------------
                                                                Average 
                          Urban area                             hourly 
                                                                  wage  
------------------------------------------------------------------------
Abilene, TX..................................................    16.6537
Aguadilla, PR................................................     8.4161
Akron, OH....................................................    19.6368
Albany, GA...................................................    15.9028
Albany-Schenectady-Troy, NY..................................    17.0398
Albuquerque, NM..............................................    18.7069
Alexandria, LA...............................................    16.4017
Allentown-Bethlehem-Easton, PA...............................    20.2671
Altoona, PA..................................................    18.3612
Amarillo, TX.................................................    18.9399
Anchorage, AK................................................    25.8065
Ann Arbor, MI................................................    23.6829
Anniston, AL.................................................    16.6112
Appleton-Oshkosh-Neenah, WI..................................    18.0782
Arecibo, PR..................................................     8.4753
Asheville, NC................................................    18.2293
Athens, GA...................................................    18.2596
Atlanta, GA..................................................    19.7400
Atlantic-Cape May, NJ........................................    22.4152
Augusta-Aiken, GA-SC.........................................    18.7555
Austin-San Marcos, TX........................................    18.3520
Bakersfield, CA..............................................    20.1222
Baltimore, MD................................................    19.4693
Bangor, ME...................................................    19.0461
Barnstable-Yarmouth, MA......................................    28.7181
Baton Rouge, LA..............................................    16.8431
Beaumont-Port Arthur, TX.....................................    17.2676
Bellingham, WA...............................................    22.5492
Benton Harbor, MI............................................    17.3503
Bergen-Passaic, NJ...........................................    24.4277
Billings, MT.................................................    19.6586
Biloxi-Gulfport-Pascagoula, MS...............................    16.9110
Binghamton, NY...............................................    17.9128
Birmingham, AL...............................................    18.0953
Bismarck, ND.................................................    15.4640
Bloomington, IN..............................................    18.3421
Bloomington-Normal, IL.......................................    17.5497
Boise City, ID...............................................    17.7955
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH.............    22.9992
Boulder-Longmont, CO.........................................    20.1260
Brazoria, TX.................................................    18.7704
Bremerton, WA................................................    22.1033
Brownsville-Harlingen-San Benito, TX.........................    17.5624
Bryan-College Station, TX....................................    17.2226
Buffalo-Niagara Falls, NY....................................    18.6331
Burlington, VT...............................................    20.3813
Caguas, PR...................................................     8.9610
Canton-Massillon, OH.........................................    18.0078
Casper, WY...................................................    18.1110
Cedar Rapids, IA.............................................    17.1383
Champaign-Urbana, IL.........................................    17.7326
Charleston-North Charleston, SC..............................    17.6972
Charleston, WV...............................................    18.3703
Charlotte-Gastonia-Rock Hill, NC-SC..........................    19.5119
Charlottesville, VA..........................................    18.1882
Chattanooga, TN-GA...........................................    17.3976
Cheyenne, WY.................................................    15.1808
Chicago, IL..................................................    21.8239
Chico-Paradise, CA...........................................    20.9567
Cincinnati, OH-KY-IN.........................................    19.0379
Clarksville-Hopkinsville, TN-KY..............................    15.7785
Cleveland-Lorain-Elyria, OH..................................    19.7003
Colorado Springs, CO.........................................    18.7205
Columbia, MO.................................................    18.0868
Columbia, SC.................................................    18.4707
Columbus, GA-AL..............................................    16.6542
Columbus, OH.................................................    19.6781
Corpus Christi, TX...........................................    17.9745
Cumberland, MD-WV............................................    17.7280
Dallas, TX...................................................    19.4990
Danville, VA.................................................    16.3692
Davenport-Moline-Rock Island, IA-IL..........................    16.8903
Dayton-Springfield, OH.......................................    19.2596
Daytona Beach, FL............................................    16.8298
Decatur, AL..................................................    16.6503
Decatur, IL..................................................    15.9047
Denver, CO...................................................    20.8698
Des Moines, IA...............................................    17.7579
Detroit, MI..................................................    21.7532
Dothan, AL...................................................    16.2160
Dover, DE....................................................    18.6953
Dubuque, IA..................................................    16.2530
Duluth-Superior, MN-WI.......................................    19.6500
Dutchess County, NY..........................................    21.3657
Eau Claire, WI...............................................    17.6122
El Paso, TX..................................................    20.3430
Elkhart-Goshen, IN...........................................    18.2474
Elmira, NY...................................................    16.5714
Enid, OK.....................................................    16.0002
Erie, PA.....................................................    17.8087
Eugene-Springfield, OR.......................................    22.9777
Evansville, Henderson, IN-KY.................................    17.3648
Fargo-Moorhead, ND-MN........................................    17.7585
Fayetteville, NC.............................................    17.5510
Fayetteville-Springdale-Rogers, AR...........................    14.9924
Flagstaff, AZ-UT.............................................    18.3168
Flint, MI....................................................    22.4472
Florence, AL.................................................    15.1732
Florence, SC.................................................    17.5055
Fort Collins-Loveland, CO....................................    20.5933
Fort Lauderdale, FL..........................................    20.9943
Fort Myers-Cape Coral, FL....................................    17.6604
Fort Pierce-Port St. Lucie, FL...............................    20.6112
Fort Smith, AR-OK............................................    15.6127
Fort Walton Beach, FL........................................    17.6128
Fort Wayne, IN...............................................    17.8865
Fort Worth-Arlington, TX.....................................    20.0524
Fresno, CA...................................................    21.3156
Gadsden, AL..................................................    17.7134
Gainesville, FL..............................................    19.3227
Galveston-Texas City, TX.....................................    21.2286
Gary, IN.....................................................    19.3581
Glens Falls, NY..............................................    16.8524
Goldsboro, NC................................................    16.9659
Grand Forks, ND-MN...........................................    17.5737
Grand Junction, CO...........................................    18.2668
Grand Rapids-Muskegon-Holland, MI............................    20.3894
Great Falls, MT..............................................    17.6888
Greeley, CO..................................................    20.2891
Green Bay, WI................................................    18.2802
Greensboro-Winston-Salem-High Point, NC......................    18.7911
Greenville, NC...............................................    18.2150
Greenville-Spartanburg-Anderson, SC..........................    18.2047
Hagerstown, MD...............................................    19.4546
Hamilton-Middletown, OH......................................    17.6176
Harrisburg-Lebanon-Carlisle, PA..............................    20.4715
Hartford, CT.................................................    25.2442
Hattiesburg, MS..............................................    14.4517
Hickory-Morganton-Lenoir, NC.................................    17.4555
Honolulu, HI.................................................    23.7434
Houma, LA....................................................    15.7820
Houston, TX..................................................    19.8028
Huntington-Ashland, WV-KY-OH.................................    18.4061
Huntsville, AL...............................................    17.0504
Indianapolis, IN.............................................    19.7891
Iowa City, IA................................................    18.8914
Jackson, MI..................................................    18.1893
Jackson, MS..................................................    15.5941

[[Page 46079]]

                                                                        
Jackson, TN..................................................    17.1259
Jacksonville, FL.............................................    18.0231
Jacksonville, NC.............................................    14.0121
Jamestown, NY................................................    15.1763
Janesville-Beloit, WI........................................    17.7327
Jersey City, NJ..............................................    22.9317
Johnson City-Kingsport-Bristol, TN-VA........................    18.3137
Johnstown, PA................................................    16.8349
Jonesboro, AR................................................    14.9575
Joplin, MO...................................................    15.0911
Kalamazoo-Battlecreek, MI....................................    21.4383
Kankakee, IL.................................................    17.3875
Kansas City, KS-MO...........................................    19.2182
Kenosha, WI..................................................    18.4799
Killeen-Temple, TX...........................................    20.6010
Knoxville, TN................................................    17.7457
Kokomo, IN...................................................    16.9123
La Crosse, WI-MN.............................................    17.5812
Lafayette, LA................................................    16.4896
Lafayette, IN................................................    18.4349
Lake Charles, LA.............................................    15.6250
Lakeland-Winter Haven, FL....................................    17.6957
Lancaster, PA................................................    19.0528
Lansing-East Lansing, MI.....................................    20.2720
Laredo, TX...................................................    14.7188
Las Cruces, NM...............................................    17.3739
Las Vegas, NV-AZ.............................................    21.2843
Lawrence, KS.................................................    17.2986
Lawton, OK...................................................    18.1767
Lewiston-Auburn, ME..........................................    19.1630
Lexington, KY................................................    16.8604
Lima, OH.....................................................    18.4571
Lincoln, NE..................................................    18.5501
Little Rock-North Little Rock, AR............................    17.0606
Longview-Marshall, TX........................................    17.3073
Los Angeles-Long Beach, CA...................................    24.5811
Louisville, KY-IN............................................    19.1041
Lubbock, TX..................................................    16.8801
Lynchburg, VA................................................    16.5342
Macon, GA....................................................    18.5414
Madison, WI..................................................    20.2048
Mansfield, OH................................................    17.3603
Mayaguez, PR.................................................     8.9928
McAllen-Edinburg-Mission, TX.................................    16.8206
Medford-Ashland, OR..........................................    20.8059
Melbourne-Titusville-Palm Bay, FL............................    17.7216
Memphis, TN-AR-MS............................................    17.2589
Merced, CA...................................................    21.9978
Miami, FL....................................................    19.8109
Middlesex-Somerset-Hunterdon, NJ.............................    22.2234
Milwaukee-Waukesha, WI.......................................    19.7306
Minneapolis-St. Paul, MN-WI..................................    21.5680
Mobile, AL...................................................    16.9905
Modesto, CA..................................................    21.6914
Monmouth-Ocean, NJ...........................................    21.9716
Monroe, LA...................................................    16.9075
Montgomery, AL...............................................    15.4155
Muncie, IN...................................................    18.4325
Myrtle Beach, SC.............................................    16.2206
Naples, FL...................................................    20.3132
Nashville, TN................................................    18.4503
Nassau-Suffolk, NY...........................................    27.7455
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT..........    25.3561
New London-Norwich, CT.......................................    24.1396
New Orleans, LA..............................................    19.2230
New York, NY.................................................    28.1700
Newark, NJ...................................................    24.0742
Newburgh, NY-PA..............................................    22.6737
Norfolk-Virginia Beach-Newport News, VA-NC...................    16.7115
Oakland, CA..................................................    30.2802
Ocala, FL....................................................    18.1497
Odessa-Midland, TX...........................................    17.4016
Oklahoma City, OK............................................    17.0417
Olympia, WA..................................................    21.9051
Omaha, NE-IA.................................................    18.9312
Orange County, CA............................................    23.3199
Orlando, FL..................................................    18.8833
Owensboro, KY................................................    15.0313
Panama City, FL..............................................    16.7539
Parkersburg-Marietta, WV-OH..................................    16.1677
Pensacola, FL................................................    16.4635
Peoria-Pekin, IL.............................................    17.2543
Philadelphia, PA-NJ..........................................    22.8669
Phoenix-Mesa, AZ.............................................    19.3025
Pine Bluff, AR...............................................    15.7267
Pittsburgh, PA...............................................    19.5430
Pittsfield, MA...............................................    22.0237
Pocatello, ID................................................    19.2628
Ponce, PR....................................................     9.2209
Portland, ME.................................................    19.3456
Portland-Vancouver, OR-WA....................................    22.7959
Providence-Warwick, RI.......................................    22.2031
Provo-Orem, UT...............................................    20.2420
Pueblo, CO...................................................    16.9797
Punta Gorda, FL..............................................    17.5323
Racine, WI...................................................    17.9536
Raleigh-Durham-Chapel Hill, NC...............................    19.7297
Rapid City, SD...............................................    16.7698
Reading, PA..................................................    19.1233
Redding, CA..................................................    23.6924
Reno, NV.....................................................    21.6378
Richland-Kennewick-Pasco, WA.................................    19.9294
Richmond-Petersburg, VA......................................    18.3907
Riverside-San Bernardino, CA.................................    22.7212
Roanoke, VA..................................................    16.8848
Rochester, MN................................................    21.1030
Rochester, NY................................................    19.1384
Rockford, IL.................................................    18.2476
Rocky Mount, NC..............................................    18.1440
Sacramento, CA...............................................    24.5203
Saginaw-Bay City-Midland, MI.................................    19.2180
St. Cloud, MN................................................    19.1778
St. Joseph, MO...............................................    16.8108
St. Louis, MO-IL.............................................    18.3475
Salem, OR....................................................    19.9649
Salinas, CA..................................................    29.1634
Salt Lake City-Ogden, UT.....................................    19.8077
San Angelo, TX...............................................    15.6340
San Antonio, TX..............................................    17.0791
San Diego, CA................................................    24.5018
San Francisco, CA............................................    28.4956
San Jose, CA.................................................    28.8011
San Juan-Bayamon, PR.........................................     9.2790
San Luis Obispo-Atascadero-Paso Robles, CA...................    22.8552
Santa Barbara-Santa Maria-Lompoc, CA.........................    21.4774
Santa Cruz-Watsonville, CA...................................    28.5090
Santa Fe, NM.................................................    20.7615
Santa Rosa, CA...............................................    25.7526
Sarasota-Bradenton, FL.......................................    19.6072
Savannah, GA.................................................    17.3582
Scranton-Wilkes Barre-Hazleton, PA...........................    17.1601
Seattle-Bellevue-Everett, WA.................................    22.7858
Sharon, PA...................................................    17.6500
Sheboygan, WI................................................    15.7984
Sherman-Denison, TX..........................................    17.0784
Shreveport-Bossier City, LA..................................    18.8520
Sioux City, IA-NE............................................    16.1387
Sioux Falls, SD..............................................    17.5067
South Bend, IN...............................................    19.8290
Spokane, WA..................................................    21.0721
Springfield, IL..............................................    17.5080
Springfield, MO..............................................    16.0540
Springfield, MA..............................................    21.4074
State College, PA............................................    19.3613
Steubenville-Weirton, OH-WV..................................    17.3728
Stockton-Lodi, CA............................................    23.1020
Sumter, SC...................................................    15.7585
Syracuse, NY.................................................    19.0186
Tacoma, WA...................................................    22.1357
Tallahassee, FL..............................................    16.7434
Tampa-St. Petersburg-Clearwater, FL..........................    18.2926
Terre Haute, IN..............................................    17.3093
Texarkana, AR-Texarkana, TX..................................    17.4104
Toledo, OH...................................................    20.8792
Topeka, KS...................................................    18.9662
Trenton, NJ..................................................    20.8592
Tucson, AZ...................................................    18.4477
Tulsa, OK....................................................    16.2252
Tuscaloosa, AL...............................................    16.4520
Tyler, TX....................................................    19.2259
Utica-Rome, NY...............................................    16.8763
Vallejo-Fairfield-Napa, CA...................................    27.6380
Ventura, CA..................................................    21.9959
Victoria, TX.................................................    17.0294
Vineland-Millville-Bridgeton, NJ.............................    20.3170
Visalia-Tulare-Porterville, CA...............................    19.9417
Waco, TX.....................................................    15.4645
Washington, DC-MD-VA-WV......................................    21.6632
Waterloo-Cedar Falls, IA.....................................    17.3631
Wausau, WI...................................................    21.1907
West Palm Beach-Boca Raton, FL...............................    20.8423
Wheeling, OH-WV..............................................    15.4868
Wichita, KS..................................................    18.8949
Wichita Falls, TX............................................    15.3642
Williamsport, PA.............................................    17.1768
Wilmington-Newark, DE-MD.....................................    23.1858
Wilmington, NC...............................................    18.7325
Yakima, WA...................................................    20.2994
Yolo, CA.....................................................    22.9704
York, PA.....................................................    18.9189
Youngstown-Warren, OH........................................    19.9688
Yuba City, CA................................................    20.7466
Yuma, AZ.....................................................    19.5572
------------------------------------------------------------------------


             Table 4E.--Average Hourly Wage for Rural Areas             
------------------------------------------------------------------------
                                                                Average 
                        Nonurban area                            hourly 
                                                                  wage  
------------------------------------------------------------------------
Alabama......................................................    14.5882
Alaska.......................................................    24.7201
Arizona......................................................    16.0545
Arkansas.....................................................    14.0570
California...................................................    20.0484
Colorado.....................................................    16.3349
Connecticut..................................................    25.3532

[[Page 46080]]

                                                                        
Delaware.....................................................    17.9354
Florida......................................................    17.7600
Georgia......................................................    15.5949
Hawaii.......................................................    20.5550
Idaho........................................................    16.5193
Illinois.....................................................    15.3604
Indiana......................................................    16.3993
Iowa.........................................................    14.8515
Kansas.......................................................    14.4750
Kentucky.....................................................    15.6180
Louisiana....................................................    14.8369
Maine........................................................    17.0166
Maryland.....................................................    17.3152
Massachusetts................................................    21.5382
Michigan.....................................................    17.9306
Minnesota....................................................    16.4358
Mississippi..................................................    13.8878
Missouri.....................................................    14.4791
Montana......................................................    16.6820
Nebraska.....................................................    14.8733
Nevada.......................................................    17.9119
New Hampshire................................................    19.5257
New Jersey \1\...............................................  .........
New Mexico...................................................    16.2165
New York.....................................................    16.8824
North Carolina...............................................    15.9493
North Dakota.................................................    14.7904
Ohio.........................................................    16.9480
Oklahoma.....................................................    14.2120
Oregon.......................................................    20.0438
Pennsylvania.................................................    16.9213
Puerto Rico..................................................     8.4891
Rhode Island \1\.............................................  .........
South Carolina...............................................    15.9167
South Dakota.................................................    14.0318
Tennessee....................................................    14.7759
Texas........................................................    14.8782
Utah.........................................................    17.9362
Vermont......................................................    18.7155
Virginia.....................................................    15.6378
Washington...................................................    20.5396
West Virginia................................................    15.9511
Wisconsin....................................................    17.0229
Wyoming......................................................    16.5729
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.              


                Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF)                
----------------------------------------------------------------------------------------------------------------
                                                                                    Wage index--                
                         Area                            Wage index      GAF          reclass.     GAF--reclass.
                                                                                     hospitals       hospitals  
----------------------------------------------------------------------------------------------------------------
Aguadilla, PR \1\.....................................       0.9291       0.9509  ...............  .............
Arecibo, PR \1\.......................................       0.9291       0.9509  ...............  .............
Caguas, PR............................................       0.9914       0.9941         0.9914          0.9941 
Mayaguez, PR..........................................       0.9843       0.9892  ...............  .............
Ponce, PR.............................................       1.0093       1.0064  ...............  .............
San Juan-Bayamon, PR..................................       1.0156       1.0107  ...............  .............
Rural Puerto Rico.....................................       0.9291       0.9509  ...............  .............
----------------------------------------------------------------------------------------------------------------
\1\ Hospitals geographically located in the area are assigned the statewide rural wage index for FY 1998.       


  Table 5.--List of Diagnosis Related Groups (DRGs), Relative Weighting Factors, Geometric and Arithmetic Mean  
                                                 Length of Stay                                                 
----------------------------------------------------------------------------------------------------------------
                                                                               Relative    Geometric  Arithmetic
                                                                                weights    mean LOS    mean LOS 
----------------------------------------------------------------------------------------------------------------
1...............       01  SURG                  CRANIOTOMY AGE >17 EXCEPT        3.0907         7.2        10.3
                                                  FOR TRAUMA.                                                   
2...............       01  SURG                  CRANIOTOMY FOR TRAUMA AGE        3.0511         7.9        10.6
                                                  >17.                                                          
3...............       01  SURG                  * CRANIOTOMY AGE 0-17......      1.9484        12.7        12.7
4...............       01  SURG                  SPINAL PROCEDURES..........      2.3858         5.5         8.5
5...............       01  SURG                  EXTRACRANIAL VASCULAR            1.5041         2.9         3.9
                                                  PROCEDURES.                                                   
6...............       01  SURG                  CARPAL TUNNEL RELEASE......       .7582         2.2         3.3
7...............       01  SURG                  PERIPH & CRANIAL NERVE &         2.4717         7.3        11.4
                                                  OTHER NERV SYST PROC W CC.                                    
8...............       01  SURG                  PERIPH & CRANIAL NERVE &         1.2142         2.2         3.2
                                                  OTHER NERV SYST PROC W/O                                      
                                                  CC.                                                           
9...............       01  MED                   SPINAL DISORDERS & INJURIES      1.2646         5.1         7.2
10..............       01  MED                   NERVOUS SYSTEM NEOPLASMS W       1.2184         5.3         7.4
                                                  CC.                                                           
11..............       01  MED                   NERVOUS SYSTEM NEOPLASMS W/       .7879         3.2         4.3
                                                  O CC.                                                         
12..............       01  MED                   DEGENERATIVE NERVOUS SYSTEM       .9370         5.0         6.8
                                                  DISORDERS.                                                    
13..............       01  MED                   MULTIPLE SCLEROSIS &              .7832         4.7         5.8
                                                  CEREBELLAR ATAXIA.                                            
14..............       01  MED                   SPECIFIC CEREBROVASCULAR         1.1889         5.1         6.8
                                                  DISORDERS EXCEPT TIA.                                         
15..............       01  MED                   TRANSIENT ISCHEMIC ATTACK &       .7241         3.2         4.1
                                                  PRECEREBRAL OCCLUSIONS.                                       
16..............       01  MED                   NONSPECIFIC CEREBROVASCULAR      1.0452         4.6         6.1
                                                  DISORDERS W CC.                                               
17..............       01  MED                   NONSPECIFIC CEREBROVASCULAR       .6161         2.8         3.7
                                                  DISORDERS W/O CC.                                             
18..............       01  MED                   CRANIAL & PERIPHERAL NERVE        .9399         4.5         5.9
                                                  DISORDERS W CC.                                               
19..............       01  MED                   CRANIAL & PERIPHERAL NERVE        .6293         3.2         4.1
                                                  DISORDERS W/O CC.                                             
20..............       01  MED                   NERVOUS SYSTEM INFECTION         2.5786         8.0        10.8
                                                  EXCEPT VIRAL MENINGITIS.                                      
21..............       01  MED                   VIRAL MENINGITIS...........      1.4866         5.4         7.1
22..............       01  MED                   HYPERTENSIVE ENCEPHALOPATHY       .8594         3.7         4.8
23..............       01  MED                   NONTRAUMATIC STUPOR & COMA.       .7777         3.3         4.6
24..............       01  MED                   SEIZURE & HEADACHE AGE >17        .9578         3.9         5.3
                                                  W CC.                                                         
25..............       01  MED                   SEIZURE & HEADACHE AGE >17        .5821         2.8         3.6
                                                  W/O CC.                                                       
26..............       01  MED                   SEIZURE & HEADACHE AGE 0-17       .9601         3.6         4.9
27..............       01  MED                   TRAUMATIC STUPOR & COMA,         1.2670         3.4         5.5
                                                  COMA >1 HR.                                                   
28..............       01  MED                   TRAUMATIC STUPOR & COMA,         1.1707         4.4         6.4
                                                  COMA <1 HR AGE >17 W CC.                                      
29..............       01  MED                   TRAUMATIC STUPOR & COMA,          .6383         2.8         3.7
                                                  COMA <1 HR AGE >17 W/O CC.                                    

[[Page 46081]]

                                                                                                                
30..............       01  MED                   * TRAUMATIC STUPOR & COMA,        .3295         2.0         2.0
                                                  COMA <1 HR AGE 0-17.                                          
31..............       01  MED                   CONCUSSION AGE >17 W CC....       .8369         3.4         4.8
32..............       01  MED                   CONCUSSION AGE >17 W/O CC..       .5109         2.2         3.1
33..............       01  MED                   * CONCUSSION AGE 0-17......       .2071         1.6         1.6
34..............       01  MED                   OTHER DISORDERS OF NERVOUS       1.0385         4.2         5.8
                                                  SYSTEM W CC.                                                  
35..............       01  MED                   OTHER DISORDERS OF NERVOUS        .5941         3.0         3.9
                                                  SYSTEM W/O CC.                                                
36..............       02  SURG                  RETINAL PROCEDURES.........       .6265         1.3         1.5
37..............       02  SURG                  ORBITAL PROCEDURES.........       .9725         2.6         3.9
38..............       02  SURG                  PRIMARY IRIS PROCEDURES....       .4826         1.9         2.7
39..............       02  SURG                  LENS PROCEDURES WITH OR           .5406         1.5         2.0
                                                  WITHOUT VITRECTOMY.                                           
40..............       02  SURG                  EXTRAOCULAR PROCEDURES            .7341         2.2         3.3
                                                  EXCEPT ORBIT AGE >17.                                         
41..............       02  SURG                  * EXTRAOCULAR PROCEDURES          .3354         1.6         1.6
                                                  EXCEPT ORBIT AGE 0-17.                                        
42..............       02  SURG                  INTRAOCULAR PROCEDURES            .5676         1.5         2.0
                                                  EXCEPT RETINA, IRIS & LENS.                                   
43..............       02  MED                   HYPHEMA....................       .4119         2.9         4.0
44..............       02  MED                   ACUTE MAJOR EYE INFECTIONS.       .6072         4.3         5.3
45..............       02  MED                   NEUROLOGICAL EYE DISORDERS.       .6730         2.9         3.6
46..............       02  MED                   OTHER DISORDERS OF THE EYE        .7234         3.7         4.9
                                                  AGE >17 W CC.                                                 
47..............       02  MED                   OTHER DISORDERS OF THE EYE        .4623         2.7         3.6
                                                  AGE >17 W/O CC.                                               
48..............       02  MED                   * OTHER DISORDERS OF THE          .2955         2.9         2.9
                                                  EYE AGE 0-17.                                                 
49..............       03  SURG                  MAJOR HEAD & NECK                1.8074         3.9         5.3
                                                  PROCEDURES.                                                   
50..............       03  SURG                  SIALOADENECTOMY............       .8143         1.7         2.1
51..............       03  SURG                  SALIVARY GLAND PROCEDURES         .8367         1.9         2.9
                                                  EXCEPT SIALOADENECTOMY.                                       
52..............       03  SURG                  CLEFT LIP & PALATE REPAIR..      1.2768         2.2         3.2
53..............       03  SURG                  SINUS & MASTOID PROCEDURES       1.0682         2.3         3.6
                                                  AGE >17.                                                      
54..............       03  SURG                  * SINUS & MASTOID                 .4790         3.2         3.2
                                                  PROCEDURES AGE 0-17.                                          
55..............       03  SURG                  MISCELLANEOUS EAR, NOSE,          .8366         2.0         2.9
                                                  MOUTH & THROAT PROCEDURES.                                    
56..............       03  SURG                  RHINOPLASTY................       .8830         2.1         2.8
57..............       03  SURG                  T&A PROC, EXCEPT                 1.0182         2.7         4.0
                                                  TONSILLECTOMY &/OR                                            
                                                  ADENOIDECTOMY ONLY, AGE                                       
                                                  >17.                                                          
58..............       03  SURG                  * T&A PROC, EXCEPT                .2720         1.5         1.5
                                                  TONSILLECTOMY &/OR                                            
                                                  ADENOIDECTOMY ONLY, AGE 0-                                    
                                                  17.                                                           
59..............       03  SURG                  TONSILLECTOMY &/OR                .8238         2.3         3.3
                                                  ADENOIDECTOMY ONLY, AGE                                       
                                                  >17.                                                          
60..............       03  SURG                  * TONSILLECTOMY &/OR              .2072         1.5         1.5
                                                  ADENOIDECTOMY ONLY, AGE 0-                                    
                                                  17.                                                           
61..............       03  SURG                  MYRINGOTOMY W TUBE               1.1181         2.8         4.5
                                                  INSERTION AGE >17.                                            
62..............       03  SURG                  * MYRINGOTOMY W TUBE              .2933         1.3         1.3
                                                  INSERTION AGE 0-17.                                           
63..............       03  SURG                  OTHER EAR, NOSE, MOUTH &         1.2444         3.1         4.6
                                                  THROAT O.R. PROCEDURES.                                       
64..............       03  MED                   EAR, NOSE, MOUTH & THROAT        1.1568         4.4         6.7
                                                  MALIGNANCY.                                                   
65..............       03  MED                   DYSEQUILIBRIUM.............       .5177         2.5         3.2
66..............       03  MED                   EPISTAXIS..................       .5605         2.8         3.5
67..............       03  MED                   EPIGLOTTITIS...............       .7866         3.1         3.8
68..............       03  MED                   OTITIS MEDIA & URI AGE >17        .6831         3.5         4.3
                                                  W CC.                                                         
69..............       03  MED                   OTITIS MEDIA & URI AGE >17        .5160         2.9         3.5
                                                  W/O CC.                                                       
70..............       03  MED                   OTITIS MEDIA & URI AGE 0-17       .3892         2.7         3.3
71..............       03  MED                   LARYNGOTRACHEITIS..........       .6688         3.0         3.9
72..............       03  MED                   NASAL TRAUMA & DEFORMITY...       .6364         2.7         3.5
73..............       03  MED                   OTHER EAR, NOSE, MOUTH &          .7660         3.4         4.7
                                                  THROAT DIAGNOSES AGE >17.                                     
74..............       03  MED                   * OTHER EAR, NOSE, MOUTH &        .3332         2.1         2.1
                                                  THROAT DIAGNOSES AGE 0-17.                                    
75..............       04  SURG                  MAJOR CHEST PROCEDURES.....      3.1958         8.3        10.6
76..............       04  SURG                  OTHER RESP SYSTEM O.R.           2.6427         8.7        11.7
                                                  PROCEDURES W CC.                                              
77..............       04  SURG                  OTHER RESP SYSTEM O.R.           1.1150         3.5         5.1
                                                  PROCEDURES W/O CC.                                            
78..............       04  MED                   PULMONARY EMBOLISM.........      1.4264         6.6         7.7
79..............       04  MED                   RESPIRATORY INFECTIONS &         1.6258         6.8         8.7
                                                  INFLAMMATIONS AGE >17 W CC.                                   
80..............       04  MED                   RESPIRATORY INFECTIONS &          .9121         4.9         6.1
                                                  INFLAMMATIONS AGE >17 W/O                                     
                                                  CC.                                                           
81..............       04  MED                   * RESPIRATORY INFECTIONS &       1.5091         6.1         6.1
                                                  INFLAMMATIONS AGE 0-17.                                       
82..............       04  MED                   RESPIRATORY NEOPLASMS......      1.3329         5.4         7.4
83..............       04  MED                   MAJOR CHEST TRAUMA W CC....       .9716         4.6         5.9
84..............       04  MED                   MAJOR CHEST TRAUMA W/O CC..       .5260         2.8         3.5
85..............       04  MED                   PLEURAL EFFUSION W CC......      1.2212         5.3         6.9
86..............       04  MED                   PLEURAL EFFUSION W/O CC....       .6715         3.1         4.1
87..............       04  MED                   PULMONARY EDEMA &                1.3639         4.9         6.5
                                                  RESPIRATORY FAILURE.                                          
88..............       04  MED                   CHRONIC OBSTRUCTIVE               .9705         4.6         5.7
                                                  PULMONARY DISEASE.                                            

[[Page 46082]]

                                                                                                                
89..............       04  MED                   SIMPLE PNEUMONIA & PLEURISY      1.1006         5.4         6.6
                                                  AGE >17 W CC.                                                 
90..............       04  MED                   SIMPLE PNEUMONIA & PLEURISY       .6773         4.0         4.7
                                                  AGE >17 W/O CC.                                               
91..............       04  MED                   SIMPLE PNEUMONIA & PLEURISY       .7940         3.7         4.4
                                                  AGE 0-17.                                                     
92..............       04  MED                   INTERSTITIAL LUNG DISEASE W      1.1947         5.3         6.7
                                                  CC.                                                           
93..............       04  MED                   INTERSTITIAL LUNG DISEASE W/      .7423         3.7         4.7
                                                  O CC.                                                         
94..............       04  MED                   PNEUMOTHORAX W CC..........      1.1857         5.1         6.7
95..............       04  MED                   PNEUMOTHORAX W/O CC........       .5974         3.2         4.0
96..............       04  MED                   BRONCHITIS & ASTHMA AGE >17       .8005         4.2         5.1
                                                  W CC.                                                         
97..............       04  MED                   BRONCHITIS & ASTHMA AGE >17       .5887         3.3         4.0
                                                  W/O CC.                                                       
98..............       04  MED                   BRONCHITIS & ASTHMA AGE 0-        .6298         2.3         3.8
                                                  17.                                                           
99..............       04  MED                   RESPIRATORY SIGNS &               .6710         2.4         3.2
                                                  SYMPTOMS W CC.                                                
100.............       04  MED                   RESPIRATORY SIGNS &               .5109         1.8         2.2
                                                  SYMPTOMS W/O CC.                                              
101.............       04  MED                   OTHER RESPIRATORY SYSTEM          .8518         3.5         4.7
                                                  DIAGNOSES W CC.                                               
102.............       04  MED                   OTHER RESPIRATORY SYSTEM          .5295         2.3         2.9
                                                  DIAGNOSES W/O CC.                                             
103.............       05  SURG                  HEART TRANSPLANT...........     16.5746        32.1        48.2
104.............       05  SURG                  CARDIAC VALVE PROCEDURES W       7.3563        10.8        13.3
                                                  CARDIAC CATH.                                                 
105.............       05  SURG                  CARDIAC VALVE PROCEDURES W/      5.7109         8.3        10.2
                                                  O CARDIAC CATH.                                               
106.............       05  SURG                  CORONARY BYPASS W CARDIAC        5.5843         9.8        11.1
                                                  CATH.                                                         
107.............       05  SURG                  CORONARY BYPASS W/O CARDIAC      4.0812         7.3         8.3
                                                  CATH.                                                         
108.............       05  SURG                  OTHER CARDIOTHORACIC             6.1282         9.4        12.1
                                                  PROCEDURES.                                                   
109.............  .......                        NO LONGER VALID............       .0000          .0          .0
110.............       05  SURG                  MAJOR CARDIOVASCULAR             4.1964         7.7        10.2
                                                  PROCEDURES W CC.                                              
111.............       05  SURG                  MAJOR CARDIOVASCULAR             2.2409         5.4         6.2
                                                  PROCEDURES W/O CC.                                            
112.............       05  SURG                  PERCUTANEOUS CARDIOVASCULAR      2.0025         3.1         4.2
                                                  PROCEDURES.                                                   
113.............       05  SURG                  AMPUTATION FOR CIRC SYSTEM       2.6579         9.7        13.2
                                                  DISORDERS EXCEPT UPPER                                        
                                                  LIMB & TOE.                                                   
114.............       05  SURG                  UPPER LIMB & TOE AMPUTATION      1.5363         6.4         8.8
                                                  FOR CIRC SYSTEM DISORDERS.                                    
115.............       05  SURG                  PERM PACE IMPLNT W AMI, HRT      3.5476         6.7         9.2
                                                  FAIL OR SHOCK OR AICD LEAD                                    
                                                  OR GEN PROC.                                                  
116.............       05  SURG                  OTH PERM CARDIAC PACEMAKER       2.5321         3.5         4.7
                                                  IMPLANT OR PTCA W CORONARY                                    
                                                  ART STENT.                                                    
117.............       05  SURG                  CARDIAC PACEMAKER REVISION       1.1950         2.7         4.0
                                                  EXCEPT DEVICE REPLACEMENT.                                    
118.............       05  SURG                  CARDIAC PACEMAKER DEVICE         1.5889         2.0         3.0
                                                  REPLACEMENT.                                                  
119.............       05  SURG                  VEIN LIGATION & STRIPPING..      1.1997         3.1         5.1
120.............       05  SURG                  OTHER CIRCULATORY SYSTEM         1.9158         5.0         8.5
                                                  O.R. PROCEDURES.                                              
121.............       05  MED                   CIRCULATORY DISORDERS W AMI      1.6537         6.0         7.3
                                                  & MAJOR COMP DISCH ALIVE.                                     
122.............       05  MED                   CIRCULATORY DISORDERS W AMI      1.1446         3.9         4.7
                                                  W/O MAJOR COMP DISCH ALIVE.                                   
123.............       05  MED                   CIRCULATORY DISORD