[Federal Register Volume 63, Number 91 (Tuesday, May 12, 1998)]
[Rules and Regulations]
[Pages 26318-26360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12231]
[[Page 26317]]
_______________________________________________________________________
Part III
Department of Health and Human Services
_______________________________________________________________________
Health Care Financing Administration
_______________________________________________________________________
42 CFR Parts 410 et al.
Medicare Program: Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 1998 Rates; Final Rule
Federal Register / Vol. 63, No. 91 / Tuesday, May 12, 1998 / Rules
and Regulations
[[Page 26318]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Parts 410, 412, 413, 415, and 485
[HCFA-1878-F, formerly BPD-878]
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.
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SUMMARY: This final rule responds to public comments received on those
portions of a final rule with comment period published in the Federal
Register on August 29, 1997, that revised the Medicare hospital
inpatient prospective payment systems for operating costs and capital-
related costs to implement necessary changes resulting from the
Balanced Budget Act (BBA) of 1997, Public Law 105-33. This rule also
addresses public comments on other BBA changes relating to cost limits
for hospitals and hospital units excluded from the prospective payment
systems as well as direct graduate medical education payments that were
included in the August 29, 1997 document. Generally, these BBA changes
were applicable to hospital discharges occurring on or after October 1,
1997.
EFFECTIVE DATE: This final rule is effective on June 11, 1998.
FOR FURTHER INFORMATION CONTACT:
Nancy Edwards, (410) 786-4531, Operating Prospective Payment and Wage
Index Issues
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals Critical Access Hospitals, and Graduate Medical Education
Issues
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SUPPLEMENTARY INFORMATION:
I. Background
A. Summary
Under section 1886(d) of the Social Security Act (the Act), payment
for the operating costs of acute care hospital inpatient stays under
Medicare Part A (Hospital Insurance) is based on prospectively-set
rates. Under this system, which was established effective with hospital
cost reporting periods beginning on or after October 1, 1983, 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 use 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.
The prospectively set rates and methodologies are updated annually
as required by law or as new legislation is enacted.
B. Summary of the Provisions of the August 29, 1997 Final Rule with
Comment Period Resulting from the Balanced Budget Act of 1997
On August 29, 1997, we published a final rule with comment period
in the Federal Register (62 FR 45966) setting forth statutorily
required changes to the Medicare hospital inpatient prospective payment
systems for both operating costs and capital-related costs, which were
effective for discharges occurring on or after October 1, 1997. This
final rule with comment period followed a proposed rule published in
the Federal Register on June 2, 1997 (62 FR 29902) that set forth
proposed updates and changes. Following issuance of the June 2, 1997
proposed rule, the Balanced Budget Act (BBA) of 1997, Public Law 105-
33, was enacted on August 5, 1997. This new law made major changes to
the hospital prospective payment systems, effective October 1, 1997.
Therefore, a major part of the August 29, 1997 final rule with comment
period incorporated changes made by the BBA. Because the BBA was
enacted after we had issued the June 2 proposed rule and because most
of the BBA changes were effective October 1, 1997, we issued the August
29, 1997 document as a final rule with comment period.
The BBA made major changes that affected Medicare payments for
inpatient hospital services under the prospective payment systems, and
the cost limits applicable to excluded hospitals and hospital units as
well as payment for the direct costs of graduate medical education. The
provisions of the BBA that we implemented in the August 29, 1997 final
rule with comment period related to the following:
The hospital operating payment update factor. (Sections
4401(a) and (b))
The hospital capital rate reduction. (Section 4402)
Reductions in payments to disproportionate share
hospitals. (Section 4403)
Elimination of payment of indirect medical education (IME)
and disproportionate share adjustment on outlier payments. (Section
4405)
Base payment rate to Puerto Rico hospitals. (Section 4406)
Special reclassification of Stanly County, North Carolina
for purposes of the prospective payment system. (Section 4408)
New guidelines for geographic reclassification of certain
hospitals for Federal fiscal year 1998 and subsequent fiscal years.
(Sections 4409 and 4410(c))
Floor on area wage index. (Sections 4410(a) and (b))
Revision of the IME formula, limitations on full-time
equivalent residents, and payment to teaching hospitals for IME costs
associated with Medicare managed care discharges. (Sections 4621(a),
4621(b), and 4622)
Classification of rural referral centers (RRC) for FY 1998
and
[[Page 26319]]
subsequent fiscal years. (Section 4202(b))
Special treatment of Medicare-dependent, small rural
hospitals (MDHs). (Section 4204)
Reinstatement of the add-on payment for blood clotting
factor for inpatient beneficiaries with hemophilia. (Section 4452)
Counting residents for direct graduate medical education.
(Section 4623)
Payments to managed care plans for graduate medical
education. (Section 4624)
Payment to nonhospital providers for the direct costs of
medical education incurred in the operation of an approved medical
residency training program. (Section 4625)
Payment for combined medical residency training programs.
(Section 4627)
Payment update for excluded hospitals and hospital units.
(Section 4411)
Reductions in capital payment amounts for certain excluded
hospitals and hospital units. (Section 4412)
Rebasing target amounts for excluded hospitals. (Section
4413)
Cap on target amounts for excluded hospitals and hospital
units (psychiatric hospitals and units, rehabilitation hospitals and
units, and long-term care hospitals) for FYs 1998 through 2002.
(Section 4414)
Bonus and relief payments to excluded hospitals and
hospital units. (Section 4415)
Change in payment and target amount for new providers.
(Sections 4416 and 4419)
Treatment of certain long-term care hospitals. (Sections
4417(a) and 4417(b))
Exclusion of certain cancer hospitals from the prospective
payment system. (Section 4418)
Establishment of a new ``Medicare Rural Hospital
Flexibility Program'' to replace the existing Essential Access
Community Hospital/Rural Primary Care Hospital (EACH/RPCH) program that
operates in seven States. (Section 4201)
Beginning with the FY 1999 update, a change in the
publication dates for the DRG prospective payment rate methodology and
the recommended hospital prospective payment updates 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 was moved
from October 1 to September 1. Because the FY 1999 applications were
due on October 1, 1997, we shortened the deadlines for decisionmaking
by the Medicare Geographic Classification Review Board (MGCRB), so that
a final decision for all applications is made by June 15, 1998.
(Section 4644(c))
II. Summary of the BBA Provisions and Discussion of Public Comments
A. General
We received a total of 180 pieces of correspondence containing
public comments on the BBA changes addressed in the August 29, 1997
final rule with comment period. Below we discuss the BBA provisions,
the changes we made to implement these provisions, the public comments
received on each provision, and our response to the public comments.
B. Hospital Operating Payment Update Factor
1. General Provision
The BBA made several revisions to the applicable percentage change
(the update factor) to the Federal rates for prospective payment
hospitals. Section 4401(a)(1) of the BBA 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 was set at 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. 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.
In the August 29 final rule with comment period, we made necessary
changes to Sec. 412.63 of our regulations.
Comment: One commenter asserted that while the 0 percent update of
the prospective payment rates for FY 1998 is consistent with the
requirements of section 4401(a)(2) of the BBA, it is inappropriate
given circumstances in the real world.
Response: As the commenter noted, HCFA is required by statute to
implement the 0 percent update to the prospective payment rates for FY
1998. We believe that the 0 percent update is appropriate for the
reasons discussed in both our update recommendation in the June 2
proposed rule (62 FR 30035) and our responses to comments on that
recommendation in the August 29 final rule with comment period (62 FR
46139).
2. Special Update for Certain Nonteaching, Nondisproportionate Share
Hospitals that do not Qualify as MDHs
Section 4401(b) of the BBA provided 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 an 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 was increased by 0.5 percentage points and, for FY 1999,
the applicable percentage increase will be increased by 0.3 percentage
points. Based on current statutory provisions, 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.
In accordance with section 4401(b)(2) of the BBA, in determining
whether a hospital qualifies for the special payment for a given cost
reporting period, we looked 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 to 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. Using the latest cost reporting data, we
identified 17 States that met the criteria
[[Page 26320]]
set forth in section 4401(b)(2): Alaska, Connecticut, Delaware, Hawaii,
Illinois, Indiana, Iowa, Louisiana, Maine, Missouri, New Hampshire, New
Jersey, Ohio, Puerto Rica, Rhode Island, Vermont, and Wisconsin. The
fiscal intermediaries will make interim payment to hospitals in these
17 designated States, beginning with discharges occurring on or after
October 1, 1997, based on the higher standardized amount during the
fiscal year. However, as noted above, the final decision as to a
hospital's qualification for the additional payment is determined based
on whether the hospital has a negative operating prospective payment
margin during its FY 1998 or FY 1999 cost reporting period. Therefore,
the final determination will be made at cost report settlement.
In the August 29 final rule with comment period, we added a new
Sec. 412.107 to the regulations and revised Sec. 412.90 to implement
this provision.
Comment: Two hospital associations commented that any hospital
identified by its fiscal intermediary as likely to qualify for an
update of 0.5 percentage points under the temporary special payment
provision of section 4401(b) of the BBA should be given the option of
declining the higher interim payments. The commenters were concerned
that some hospitals that receive the additional money on an interim
basis might have difficulty paying back the funds should the
intermediary determine at cost report settlement that the hospital does
not qualify for the update.
Response: If a hospital that has been identified as eligible for
the higher interim payment believes that ultimately it may not qualify
for the higher update and wishes to decline the higher interim
payments, it should notify its intermediary.
C. Hospital Capital Rate Reduction
Section 4402 of the BBA 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 0.8432 (59 FR 45416), which is equivalent to a 15.68 percent
((1.0-0.8432) * 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). In accordance with the broad
authority conferred in section 1886(g) of the Act, to implement a
capital prospective payment system, we extended the reduction to the
capital rates to the Puerto Rico capital rates and incorporated it in
Sec. 412.374(a).
Under the statute, the additional 2.1 percent reduction applies to
discharges occurring ``before September 30, 2002''. This provision
would have required us to calculate special rates that would be in
effect for only one day. Because we believed that the Congress intended
to apply the reduction to discharges occurring through September 30,
2002, we indicated in the August 29 final rule with comment period that
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 assumed this technical error would be corrected, we used
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 (0.1568 and 0.021) from 1
(1-0.1568-0.021 =0.8222). We then applied 0.8222 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 (0.8432)
divided by the adjustment with the 2.1 percent cut (0.8222). (0.8432/
0.8222=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 the August 29 final rule with comment period, we revised two
sections of the capital prospective payment system regulations to
implement these statutory requirements. Specifically, we revised
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.
Comment: One commenter noted that as a result of the high capital
rate paid in FY 1997, many hold-harmless hospitals switched from being
paid based on a blend of their old and new capital to being paid based
on 100 percent of the Federal rate, because the Federal rate was higher
than their old and new capital payment would have been. The commenter
also stated that when Congress reduced the capital rate as part of the
provisions of the BBA, many hospitals' payments would have been higher
had they been allowed to return to their previous old capital and new
capital payment methodology. The commenter suggested deleting the
requirement at Sec. 412.344(b) that once a hospital is paid based on
100 percent of the Federal rate, it cannot return to payments based on
a blend of its old and new capital costs. The commenter also noted that
when the Federal capital rate was reduced under the provisions of OBRA
1993, fiscal intermediaries were given specific authority to
redetermine each hospital's payment methodology.
[[Page 26321]]
Response: In section 13501(a)(3) of the Omnibus Budget
Reconciliation Act of 1993 (Public Law 103-66), Congress reduced the
Federal capital rate and not the hospital-specific rate. Hospital
payment methodology redeterminations were expressly provided for in
that section of the statute. However, in 1997, when Congress reduced
both the hospital-specific rate and the Federal capital rate as part of
the BBA, hospital payment methodology redeterminations were not
provided for by the legislation and we do not believe that it would be
appropriate to provide for redeterminations by regulation. In addition,
we do not believe it would be appropriate to allow hospitals to return
to payment based on their ratio of old and new capital once they have
been paid based on 100 percent of the Federal rate. We are in the
seventh year of the 10 year transition to a fully prospective capital
payment system. By October 1, 2002, all hospitals will be paid based on
100 percent of the Federal rate. It would not be appropriate to allow
hospitals to return to cost-based payment this point in the transition.
D. Disproportionate Share Hospital (DSH) Payments
Section 4403(a) of the BBA reduced the payment for hospitals that
treat a disproportionately large number of low-income patients. The
payment a hospital would otherwise receive under the disproportionate
share formula is reduced 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. In the
August 29 final rule with comment period, we added a new paragraph (e)
to Sec. 412.106 to implement this provision.
Comment: One commenter asked that we clarify the applicability of
the provisions of section 4403(a) of the BBA, which relate to
disproportionate share operating payments, to the prospective payment
system for capital related costs. Specifically, the commenter requested
that we verify that the phased-in 5 percent reduction of operating DSH
payments does not apply to capital DSH payments. The commenter also
asked us to codify our decision as to the applicability of this
provision in the appropriate section of the capital regulations
governing DSH.
Response: The commenter is correct. Section 4403 amended section
1886(d)(5)(F) of the Act to reduce the amount otherwise payable for
operating DSH. The capital DSH adjustment set forth at Sec. 412.320
references the operating DSH definition of low income patients at
Sec. 412.106(b) and uses the definition of the disproportionate patient
percentage at Sec. 412.106(c)(2), but section 4403 does not affect
capital DSH payments. In response to the commenter's request that we
codify in the regulations the applicability of the BBA operating
provisions to capital payments, we do not believe that it is necessary
to do so. The capital regulations that are affected will be
automatically included by their reference to the appropriate section of
the operating regulations. The capital regulations that are not
affected (regarding the reduction to DSH payments need not be revised.
E. Outlier Payments
Section 4405 of the BBA amended sections 1886(d)(5)(B)(i)(I) and
(d)(5)(F)(ii)(I) of the Act to provide that, in determining the payment
for hospitals that receive indirect medical education or
disproportionate share payments, 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 the BBA 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, in the August 29 final rule with comment period, we revised
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 to delete Sec. 412.80(c). Conforming
changes were made to Sec. 412.105(a) (IME adjustment) and
Sec. 412.106(a)(2) (DSH adjustment). We also made a corresponding
change to the capital cost outlier methodology. We received two
comments on this provision, both of which concurred with HCFA's
interpretation of section 4405 of the BBA.
F. Payment Rate for Puerto Rico Hospitals
1. Operating Payment Rate
Section 4406 of the BBA 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 (compared to a blend of 75 and 25 percent,
respectively, prior to enactment of the BBA). In the August 29 final
rule with comment period, we revised Sec. 412.204 of the regulations to
conform with this amendment.
2. Capital Payment Rate
Under the broad authority of section 1886(g) of the Act, in the
August 29 final rule with comment period, we revised the calculation of
capital payments to Puerto Rico to parallel the change that was 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.
We did not receive any public comments on either of these
provisions.
G. Special County Designation
In the August 29 final rule with comment period, the Secretary
exercised the authority granted to her by section 4408 of the BBA to
include Stanly County in the Charlotte-Gastonia-Rock Hill, North
Carolina-South Carolina MSA for purposes of the prospective payment
system. This change was reflected in the final wage index included in
that document.
We did not receive any public comments on this provision.
H. Changes to the Medicare Geographic Classification Review Board
(MGCRB) Guidelines and Timeframes
Various provisions of the BBA addressed 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 when the MGCRB and the Secretary must make
decisions on those applications.
1. Revised Application and MGCRB Timeframes
Prior to the enactment of the BBA, a hospital had to 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 had 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
[[Page 26322]]
Administrator had up to 90 days to issue a final decision (July 15).
The July 15 deadline allowed the final geographic reclassification
decisions to be incorporated in the wage index and payment rates that
were published in the final rule (on or about September 1).
Sections 4644(a)(1) and (b)(1) of the BBA amended section
1886(d)(6) and (e) of the Act to provide that the prospective payment
system final rule setting the payment rates for years beginning with FY
1999 must be published by August 1. Because this change in publication
date would conflict with the timetable for geographic reclassification
decisions, section 4644(c) of the BBA amended section
1886(d)(10)(C)(ii) of the Act to require a hospital, beginning with
applications filed for reclassification for FY 2000, to submit its
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). Under this timetable, the amount of time the MGCRB and
the Administrator have to make decisions will not change from the
existing schedule.
In addition, because applications filed for reclassification
effective in FY 1999 were not due until October 1, 1997, section
4644(c)(2) required 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.
In the August 29 final rule with comment period, we revised
Secs. 412.256 and 412.274 to implement the change in the application
deadline.
2. Alternative Wage Index Reclassification Guidelines for Individual
Hospitals
Effective for FY 1998 reclassification, sections 4409 and 4410 of
the BBA required the Secretary to establish alternative wage index
guidelines for geographic reclassification for certain
disproportionately large hospitals. 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 the BBA required 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. Because the application and decisionmaking processes for FY
1998 reclassification were already completed, we had to provide special
guidelines for hospitals to apply for reclassification under these
provisions for FY 1998.
A hospital seeking reclassification for FY 1998 under either
section 4409 or 4410(c) had to submit its application to the MGCRB (7
copies) by September 15, 1997. If the MGCRB rendered a favorable
decision on a hospital's application, the hospital was reclassified for
purposes of the wage index for FY 1998 as if that decision had been
made under the usual guidelines and timetable.
We also extended the existing appeal rights for decisions on
requests for reclassification to decisions made under sections 4409 and
4410. Therefore, for such appeals, in the August 29 final rule with
comment period, we incorporated the existing appeals and review process
(including the timetables for a hospital to request review and for the
Administrator to complete review) even though that process was not
finalized until after the beginning of the fiscal year. We revised the
regulations at Sec. 412.230(e) to implement section 4409. However,
because the provision of section 4410(c) applied for only one year, we
did not revise the codified regulations text to reflect that provision.
3. Reclassification for Rural Referral Centers and the Disproportionate
Share Adjustment
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.
Section 4202 of the BBA prohibits the MGCRB from rejecting a
hospital's request for reclassification on the basis of any comparison
between the hospital's own 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. In the August 29 final rule
with comment period, we revised Sec. 412.230(a)(3) to implement this
provision.
Section 4203 of the BBA provided 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 the BBA, the MGCRB will consider the
application under section 1886(d)(10)(C)(i) of the Act from 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. 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 1999 must have submitted 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
the BBA is effective for the 30-month period beginning on the date of
enactment. Accordingly, hospitals may seek reclassification for
purposes of DSH for FY 1999, FY 2000, and FY 2001. In the August 29
final rule with comment period, we revised Sec. 412.230(a)(5)(ii) of
the regulations to implement this provision.
Comment: One commenter questioned the effective date of sections
4202 and 4203 of the BBA, which exempt RRCs from the 108 percent
criterion in applying for wage index reclassification and allow a
hospital to reclassify to another area for purposes of the
disproportionate share adjustment even if the standardized amount of
both areas is the same, respectively. The commenter asserted that the
conference report accompanying the statute clearly states that the
effective date of these provisions is ``enactment'' of the BBA, that
is, August 5, 1997. Therefore, the commenter believes that hospitals
should have been allowed to apply to the MGCRB and reclassify under
these provisions for FY 1998 reclassifications, which were effective
beginning October 1, 1997. The August 29 final rule with comment period
limited the effect of these provisions to reclassifications beginning
in FY 1999.
Response: We agree that the provisions of sections 4202 and 4203 of
the BBA are effective August 5, 1997. However, the statutory language
contains no
[[Page 26323]]
directive to apply these provisions to hospital reclassifications
effective for FY 1998 (compare sections 4409 and 4410(c) of the BBA,
both of which specifically stated that their provisions were effective
for FY 1998 reclassifications). Section 4202 amends section
1886(d)(10)(D) of the Act to provide that the MGCRB ``may not reject
the application'' of a hospital on the basis of a comparison specified
in the statute. Accordingly, if the MGCRB considers an application on
or after August 5, 1997, it will not reject the application on the
basis specified in the statute. Section 4202 does not require the MGCRB
to re-evaluate applications that the MGCRB rejected before August 5,
1997.
Similarly, section 4203 provides that, for the 30-month period
beginning on August 5, 1997, the MGCRB ``shall consider'' a hospital's
application for reclassification for purposes of DSH payments.
Accordingly, if a hospital submits an application to be reclassified
for purposes of DSH on or after August 5, 1997, the MGCRB will consider
the application. Generally, the deadline for FY 1998 reclassifications
was October 1, 1996. Section 4203, unlike other provisions of the BBA,
does not require the MGCRB to grant reclassifications for FY 1998
notwithstanding this deadline.
Thus, hospitals may apply for reclassification under the provisions
of sections 4202 and 4203 after August 5, 1997. The first such
applications would be those for FY 1999 reclassification beginning on
October 1, 1998, which were due by October 1, 1997. We note that,
although the provisions of section 4202 are permanent, section 4203 is
effective for 30 months and applies only to those reclassifications
effective for FY 1999, 2000, and 2001.
I. Floor on Area Wage Index
As provided by section 4410(a) of the BBA, 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 affected 128
hospitals in 32 MSAs. 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 did not receive any public comments on this provision.
J. Indirect Medical Education (IME) Adjustment
1. Operating IME Adjustment
In the August 29 final rule with comment period, we revised our
regulations to incorporate the provisions of section 4621 of the BBA,
which amended section 1886(d)(5)(B) of the Act in several ways. First,
it gradually reduces the current level of the IME adjustment
(approximately a 7.7 percent increase for every 10 percent increase in
the resident-to-bed ratio) over the next several years according to the
following schedule: 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 require 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 counted by the
hospital during its most recent cost reporting period ending on or
before December 31, 1996. Furthermore, section 1886(d)(5)(B)(vi)(I)
provides that 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).
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), section 1886(d)(5)(B)(vi)(II) provides
that ``the total number of full-time equivalent residents for payment
purposes shall equal the average of the actual full-time equivalent
resident 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, this provision ``shall be applied using the
average for such period and the preceding cost reporting period.'' For
purposes of this provision, section 1886(d)(5)(B)(vii) requires the
Secretary to make appropriate modifications in the event of a cost
reporting period other than 12 months.
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 such 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). Finally, ``(t)he Secretary may require any entity that
operates a medical residency training program . . . to submit to the
Secretary such additional information as the Secretary considers
necessary to carry out such (limits).'' We revised the regulations at
Sec. 413.86(g)(6) to comply with these directions for both the indirect
and direct GME FTE counts.
Finally, section 4621(b)(2) amended section 1886(d)(5)(B)(iv) of
the Act 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 setting. Therefore,
in the August 29 final rule with comment period, we revised
Sec. 412.105(g)(1)(ii)(C), which allowed hospitals to include the time
residents spent in patient care activities in nonhospital settings, for
purposes of IME. The eligibility criteria for this 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). For IME purposes, we intend to rely upon the same
criteria as are applied for the direct GME to identify eligible
situations under this new provision.
In the August 29 final rule with comment period, we revised
Sec. 412.105 to reflect these changes, and issued instructions to
fiscal intermediaries to implement these changes prior to October 1,
1997. In response to our discussion of the changes enacted by the BBA,
we received numerous comments seeking clarification on many of these
issues.
Comment: Several commenters noted a discrepancy in the preamble of
the August 29 document concerning the effective date of the cap on
allopathic and osteopathic FTEs: In the preamble summary of the BBA
changes at 62 FR 45968, the effective date of the provision is stated
as ``cost reporting periods beginning on or after October 1, 1997.'' In
the full discussion of the provision in the preamble at 62 FR 46003,
the provision is made effective for ``discharges on or after October 1,
1997.''
Response: The effective date for applying the cap on allopathic and
osteopathic FTEs, as set forth in section
[[Page 26324]]
1886(d)(5)(B)(v) of the Act, is for ``discharges on or after October 1,
1997.'' This effective date citation in the preamble summary at 62 FR
45968 was a typographic error.
Comment: Commenters noted that the requirements set forth in
section 1886(h)(4)(H) of the Act concerning special rules for applying
the FTE limits for direct graduate medical education for new programs
and affiliated groups also apply to IME payments. The commenters
requested that they be added to the regulations at Sec. 412.105.
Response: The commenters are correct. Under section
1886(d)(5)(B)(viii) of the Act, as added by section 4621(b)(1) of the
BBA, rules similar to the rules set forth at section 1886(h)(4)(H) of
the Act apply for purposes of implementing: the cap on resident FTEs;
the cap on the resident-to-bed ratio; and the 3-year rolling average
resident count. We are revising Sec. 412.105(f)(1)(vi) and (vii)
accordingly.
The count of residents in accordance with the rules for special
circumstances (new programs and affiliated groups) under section
1886(d)(5)(B)(viii) of the Act is described in sections II.N.3 and 4 of
this final rule. We note that this section of the Act applies only to
the limits set forth in sections 1886(d)(5)(B)(v) and (vi) of the Act.
Comment: Several commenters objected to our interpretation of the
language of section 1886(d)(5)(B)(vi) of the Act, which describes the
cap on the resident-to-bed ratio. In the August 29 final rule with
comment period, we stated that this is a cap on the total resident FTE
count including dental and podiatry residents. The commenters believe
the Congress intended that dental and podiatry residents should be
exempt from this cap in addition to their exemption from the cap
established for resident FTEs. In support of their interpretation, the
commenters noted the reference to the FTE cap in establishing the cap
on the ratio (section 1886(d)(5)(B)(vi) of the Act). One commenter
stated that including dental and podiatry residents in the FTE
calculation before applying the ratio cap leads to a nonsensical result
since the Congress established a cap on allopathic and osteopathic
residents but explicitly did not include dental and podiatry residents
under this cap.
Another commenter supported applying the cap to total FTEs,
including dentists and podiatrists. This commenter noted that the ratio
could increase after a one-year lag to reflect additional dental or
podiatry residents.
Response: Section 1886(d)(5)(B)(vi) of the Act, as amended by the
BBA, establishes a cap on the value of ``r,'' which is defined in
section 1886(d)(5)(B)(ii) of the Act as ``the ratio of the hospital's
full-time equivalent interns and residents to beds.'' The IME formula
defined in this section of the Act explicitly includes the value `r' in
the IME calculation. Therefore, `r' has a very precise and significant
value.
Section 1886(d)(5)(B)(v) of the Act (as amended) states that ``the
total number of full-time equivalent interns and residents in the
fields of allopathic and osteopathic medicine'' may not exceed the
number of such residents in either a hospital or nonhospital setting
with respect to the hospital's most recent cost reporting period ending
on or before December 31, 1996. This section sets a cap on a subset
(allopathic and osteopathic medical residents) of the total number of
residents. The numerator of the ratio is the total number of residents
including the effect of the cap; the Congress did not provide that `r'
would be computed using only a subset of residents. In fact, one could
argue that under such an interpretation, there would be no explicit
methodology in the Act for including dental and podiatry residents in
the IME calculation. The reference in section 1886(d)(5)(B)(vi)(I) of
the Act to ``the limit under clause (v)'' means that the numerator
includes the effect of the cap on allopathic and osteopathic residents,
not that the numerator is limited to those residents. Thus, the
statutory language requires that we apply the cap on the ratio after
including all residents, dental and podiatry as well as allopathic and
osteopathic, in the calculation of the numerator.
Comment: Other commenters believe that it is inappropriate not to
allow exceptions to the ratio cap when hospitals are voluntarily
closing inpatient beds. In addition, commenters requested that the cap
be adjusted to include the residents' time spent in nonprovider
settings.
Response: Section 4621 of the BBA addresses the application of the
cap, specific situations where special rules are appropriate, and the
allowance of residents' time spent in nonprovider settings. In
addition, we note that the ratio could increase after a one-year delay
for legitimate changes in either the numerator or the denominator. That
is, the ratio is capped based on its value during the prior cost
reporting period. An increase in the ratio thereby establishes a higher
cap for the following cost reporting period.
Comment: One commenter requested clarification of the term ``the
prior cost reporting period'' as used in the preamble of the final rule
with comment period when describing the application of the cap on the
ratio of residents-to-beds (62 FR 46003).
Response: The phrase ``prior cost reporting period'' refers to the
immediately preceding period. A hospital's cost reporting period
beginning July 1, 1998 would have its ratio capped at the value of its
ratio for its cost reporting period ending June 30, 1998. In
determining a hospital's resident-to-bed ratio for a cost reporting
period that begins before October 1, 1997 (the effective date of the
cap on allopathic and osteopathic FTEs) and ends after that date, the
ratio for that period will reflect a prorated resident FTE count. That
is, the numerator is determined through averaging the uncapped and
capped FTE amounts based on the number of months in the cost reporting
period before and after October 1, 1997. This FTE count will also be
used to determine the rolling average amount for subsequent years.
Comment: Commenters requested an explanation of how the ratio cap
would be determined under the special rules implemented pursuant to
section 1886(d)(5)(B)(viii) of the Act (that is, the new program and
affiliated group provisions).
Response: The ratio is first determined by calculating the resident
FTE count taking into account all of the relevant limitations and
applicable rolling averages, and the denominator in the ratio is the
hospital's available bed count during the current cost reporting
period. If this results in a ratio in excess of the previous cost
reporting period's ratio, the hospital's IME adjustment is based on the
ratio from the previous cost reporting period.
Special rules apply for the special circumstances at section
1886(d)(5)(B)(viii) of the Act. In the event that the application of
section 1886(d)(5)(B)(viii) results in a higher resident-to-bed ratio
for a hospital compared to its most recently completed cost reporting
period, the special rule will be applicable only for the portion of the
higher ratio due to the increase in residents. In such instances, the
ratio during the prior cost reporting period is similarly applicable,
but it is adjusted for the additional residents allowed by the special
circumstances rule. In practice, this is accomplished by adding the
additional residents to the resident FTE count used in the prior cost
reporting period's resident-to-bed ratio. It should be noted that this
adjustment is the result of a special rule for applying the cap on `r'
for new programs and affiliated groups as set forth in section
1886(d)(5)(B)(viii) of the Act. Therefore, no adjustment to the ratio
is made for an increase in dental
[[Page 26325]]
or podiatry residents during the cost reporting period in which an
increase occurs.
In the case of recognized affiliation arrangements, each hospital
will be paid on the basis of its individual resident-to-bed ratio.
Under such an arrangement, the ratio is the number of residents counted
by the hospital in accordance with the special FTE counting rules for
these arrangements, over the hospital's bed count during the current
cost reporting period. As described above, the ratio may increase
during a particular cost reporting period due to an increase in the
number of residents allowed under the special affiliation arrangement.
Any such exemption from the ratio cap will be limited to the increase
in residents and will not reflect changes in hospital bed size.
Comment: Commenters were concerned about the language establishing
the resident FTE cap (section 1886(d)(5)(B)(v) of the Act) that the
number of allopathic and osteopathic residents may not exceed ``the
number of such full-time equivalent interns and residents in the
hospital'' during the most recent cost reporting period ending on or
before December 31, 1996. The commenters believed that this
disadvantages the programs that have already been training residents in
nonprovider settings. Commenters suggested that we support the effort
to delete the phrase ``in the hospital'' from this section.
Response: As is indicated by the comments, residents in nonhospital
settings during the most recent cost reporting period ending on or
before December 31, 1996, are excluded by the Act from the
determination of the allopathic and osteopathic cap. Furthermore,
although we recognize that many of these arrangements that were in
existence during 1996 reflected the demand for more primary care
physicians, we would note that the purpose of allowing hospitals to
count this time in the future is to create an incentive for even more
primary care training. In that regard, hospitals that had previously
established residency training in nonhospital settings did so in
response to the existing incentives at that time.
Comment: Several commenters suggested that the reduction in the IME
adjustment factor (from approximately a 7.7 percent increase for every
10 percent increase in the ratio of residents to beds to 7.0 percent
for discharges during FY 1998, and gradually reducing further for 3
years beyond that) places a disproportionate share of the cost-cutting
burden on teaching hospitals, especially academic medical centers.
Response: The reduction to the IME adjustment factor is set forth
in the statute. However, given the gradual reduction in the factor and
the recent very high Medicare operating margins for teaching hospitals
(especially major teaching hospitals), we disagree that the reductions
to the IME adjustment unfairly burden these hospitals. We note that
HCFA and the Prospective Payment Assessment Commission (ProPAC) have
both supported a reduction in the IME adjustment for several years
based on our analysis of the indirect effect of graduate medical
education programs on total hospital costs.
2. Capital IME Adjustment
Comment: One commenter asked us to clarify whether the following
conclusions are correct in applying the IME provisions of the BBA to
the capital prospective payment system:
(1) The cap on the number of residents training in the fields of
allopathic and osteopathic medicine for purposes of computing the
operating IME adjustment does pertain to the capital IME adjustment;
(2) The rolling average resident count for purposes of computing
the operating IME adjustment does pertain to the capital IME
adjustment; and
(3) The cap on the ratio of interns and residents to beds for
purposes of computing the operating IME adjustment does not pertain to
the ratio of interns and residents to the average daily census for
purposes of computing the capital IME adjustment.
As with the DSH provisions, the commenter also asked us to codify
our policy on the applicability of these operating provisions in the
appropriate sections of the capital regulations governing the IME
adjustment.
Response: Cap on Number of Residents in Allopathic and Osteopathic
Medicine--The regulations at Sec. 412.322 describe the capital IME
adjustment. Section 412.322(a)(1) provides that the hospital's number
of full-time equivalent (FTE) residents is determined in accordance
with Sec. 412.105(f) of the operating regulation. Since the BBA
provisions affected Sec. 412.105(f)(iv) by capping the number of
allopathic and osteopathic interns and residents at the number of
interns and residents reported on a hospital's cost report for the
period ending December 31, 1996, the capital IME intern and resident
count for allopathic and osteopathic residents is also capped
automatically.
Rolling Average Resident Count--The BBA provision implementing a
rolling average resident count (section 4623) is also included in
Sec. 412.105(f) of the operating IME regulations. Since the capital IME
regulations reference the operating IME regulation at Sec. 412.105(f),
the capital IME FTE count is affected by the rolling average resident
count as well.
Cap on Ratio of Interns to Beds--The cap on the number of interns
and residents to beds (section 4621) does not have an impact on the
capital IME payments because we use the ratio of hospital FTEs to
average daily census to determine the capital IME adjustment factor.
In response to the commenter's request that we codify in the
regulations the applicability of these BBA operating IME provisions to
capital payments, we do not believe that it is necessary to do so. The
capital regulations that are affected (regarding the cap on the number
of residents in allopathic and osteopathic medicine, and the rolling
average resident count) will be automatically included by their
reference to the appropriate section of the operating regulations. The
capital regulations that are not affected (regarding the cap on the
ratio of interns to beds) need not be revised.
It has come to our attention that there has also been some question
raised about the applicability of sections 4001 and 4622 of the BBA--
Payment to Hospitals of Indirect Medical Education Costs for
Medicare+Choice Enrollees to capital IME payments. Section 4001 of the
BBA instructs the Secretary to exclude from the Medicare+Choice
capitation rate payment adjustments for the indirect costs of medical
education under section 1886(d)(5)(B) of the Act. Section 4622 of the
BBA provides for payments to teaching hospitals for discharges
associated with Medicare managed care beneficiaries for portions of
cost reporting periods beginning on or after January 1, 1998.
Section 4001 of the BBA refers only to the indirect costs of
medical education as defined in section 1886(d)(5)(B) of the Act. This
section refers to operating IME payments and not capital IME payments,
which were established by regulation. Thus, section 4001 affects only
operating IME payments.
K. Rural Referral Centers
Based on section 1886(d)(5)(C)(i) of the Act and the Conference
Committee Report accompanying Public Law 98-21 (the original
legislation implementing the prospective payment system), we
established qualifying criteria for referral center status to identify
those rural hospitals that, because of bed size,
[[Page 26326]]
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 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 (OMB) 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 the BBA 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.
In the August 29 final rule with comment period, we reinstated
rural referral center status for all hospitals that lost the status due
to triennial review or MGCRB reclassification regardless of whether it
was classified as an RRC during FY 1991. We did not reinstate rural
referral center status to hospitals in areas redesignated as urban by
OMB because they are no longer rural hospitals. We also did not
reinstate the status of the six hospitals that voluntarily requested
termination of their RRC status. However, we would allow any of these
six hospitals to requalify if they so desire.
In addition, we terminated the requirement for triennial reviews of
referral center status. Thus, Secs. 412.96(f) and (g) (1) and (2) were
deleted in the August 29 final rule with comment period. 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.
Finally, we eliminated our policy that terminated RRC status for
any hospital that is reclassified as urban by the MGCRB.
Comment: One commenter expressed agreement with our decision to
reinstate hospitals that lost their RRC status as a result of failure
to meet triennial review requirements or due to MGCRB reclassification
to an urban area for purposes of the standardized amount. The commenter
further commended HCFA for terminating triennial reviews and
eliminating the policy that a hospital loses its RRC status if it is
reclassified as urban by the MGCRB. However, the commenter disagreed
with our decision to not restore the RRC status of hospitals that are
in areas redesignated as urban by OMB. The commenter believes that this
policy unfairly disadvantages those hospitals when applying for
reclassification for the wage index. That is, they will be unable to
reclassify under the special provisions of section 1886(d)(10)(D)(iii)
of the Act as amended by section 4202(a) of the BBA if they meet all
requirements except the 108 percent rule.
Response: 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 year.'' (Emphasis added.) Hospitals located in
areas redesignated as urban by OMB are no longer physically located in
a rural area. Designation by OMB of an area to urban status means that
any hospital located in that area becomes urban for all purposes and
thus could no longer qualify as rural referral centers. In reinstating
referral center status, section 4202(b) of the BBA did not revise the
qualifying criteria for these hospitals. Thus, we believe that our
decision to not reinstate hospitals located in urban areas as rural
referral centers is appropriate.
We note, however, that these hospitals are not precluded from
taking advantage of the provisions of section 1886(d)(10)(D)(iii) of
the Act, which state that the MGCRB is prohibited from rejecting a
hospital's application for reclassification on the basis of any
comparison between its hourly wage and the average hourly wage of the
hospitals in the area in which the hospital is located if the hospital
``has ever been classified by the Secretary as a rural referral
center.'' (Emphasis added.) This means that the hospital need not
currently be classified as an RRC in order to take advantage of this
provision.
L. Medicare-Dependent Small, Rural Hospitals
Section 4204 of the BBA 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. The
statute provides that 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.
[[Page 26327]]
Section 13501(e)(1) of the Omnibus Budget Reconciliation Act of
1993 (Public Law 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
the BBA 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. Since classification as an MDH is not optional, we
reinstated all qualifying hospitals as of October 1, 1997.
In the August 29 final rule with comment period, we revised
Secs. 412.90 and 412.108 to reflect the reinstatement of the MDH
special payment.
Section 4204(a)(3) of the BBA permits those hospitals that qualify
as an MDH and 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.
Comment: Three commenters support the reinstatement of the special
payment for MDHs. However, the commenters recommended that HCFA
establish a process for identifying those hospitals that did not
qualify previously but now meet the criteria for classification as an
MDH.
Response: Since section 4204 of the BBA did not revise the criteria
for classification as an MDH, it is unlikely that there will be new
hospitals that qualify except for those hospitals that met all of the
original criteria except bed size.
We have instructed our fiscal intermediaries to review their
records to determine if there are any hospitals that did not meet the
criteria in 1994 and that do now; for example, a hospital that had more
than 100 beds in 1994 and now has 100 or fewer beds. In addition, as
discussed in the August 29, 1997 final rule (62 FR 46000), at the time
of a hospital's year-end cost report settlement, the fiscal
intermediary will determine if the hospital met the criteria to qualify
as an MDH.
Although the fiscal intermediaries are making every effort to
identify and notify all affected hospitals, any hospital that believes
it meets the criteria for MDH status but has not received notification
should contact its fiscal intermediary.
M. Reinstatement of the Add-On Payment for Blood Clotting Factor for
Hemophilia Inpatients
Section 4452 of the BBA 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
(which was previously in effect from June 19, 1990 through September
30, 1994) and who are hospital inpatients for discharges occurring on
or after October 1, 1997. The payment is based on a predetermined price
per unit of clotting factor multiplied by the number of units provided.
In our August 29, 1997 final rule with comment period, we stated
that we would calculate the add-on payment for FY 1998 using the same
methodology we have used in the past (62 FR 46002). Thus, we
established 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 set
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, we established the following prices per
unit of factor for discharges occurring on or after October 1, 1997:
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
In the August 29 final rule with comment period, we solicited
comments on the appropriateness of the add-on payment amount and
suggestions for the best methodology to calculate this amount.
Comment: We received five comments on this issue. The commenters
indicated that the payment add-ons for blood clotting factors were
appropriate with the exception of the payment amount under HCPCS code
J7194, Factor IX (complex). The commenters asserted that ``purified''
Factor IX products (that is, products that contained Factor IX only)
constituted a distinctly different and much more costly group of
products than Factor IX (complex); thus, it was inappropriate to group
all ``Factor IX'' products together under one HCPCS code. They
recommended that HCFA either allow the purified Factor IX products to
be billed under HCPCS code J7196 (Other hemophilia clotting factors) or
establish a separate HCPCS code (or codes) for the purified Factor IX
products.
Response: We agree that there is a need for further distinctions
among the Factor IX products. Therefore, as suggested by the
commenters, we are establishing the following two new HCPCS billing
codes for purified Factor IX products:
Q0160 Factor IX (antihemophilic factor, purified,
nonrecombinant)................................................ $0.93
Q0161 Factor IX (antihemophilic factor, purified, recombinant).. 1.00
(Note that ``Q-codes'' are national temporary HCPCS codes that HCFA
establishes unilaterally. We will request approval for permanent
HCPCS codes at the next session of the national HCPCS panel.)
We will issue instructions to Medicare hospitals and fiscal
intermediaries stating that payment should be made under these codes
for all applicable discharges occurring on or after the effective date
of this rule (that is, June 11, 1998). As discussed in the August 29
document, payment will be made for blood clotting factor only if there
is an ICD-9-CM diagnosis code for hemophilia included on the bill.
N. Counting Residents for Direct Graduate Medical Education
1. Limit on the Count of Residents
Section 4623 of the BBA added 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
[[Page 26328]]
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.
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. We
expect to amend the Medicare cost report in light of all of the
provisions of the BBA addressing indirect and direct GME payments. We
believe that the data, for the most recent cost reporting periods
ending on or before December 31, 1996, necessary to implement the
indirect and direct GME provisions is already available to fiscal
intermediaries through the intern and resident information system.
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. In the August 29 final
rule with comment period, we revised Sec. 413.86(g)(4) accordingly.
Comment: We received comments that many hospitals received approval
from the Accreditation Council on Graduate Medical Education (ACGME) to
expand existing medical residency training programs prior to enactment
of the BBA. The additional residents associated with these program
expansions may not have been included in the hospital's most recent
cost reporting period ending on or before December 31, 1996. Some
commenters felt that it was not the intent of the Congress to ``unduly
burden residency programs and hospitals by putting into effect
regulations which retroactively punish programs attempting to expand.''
These commenters stated that even if it was Congressional intent to
halt program expansion, programs serving rural and rural underserved
areas should be exempt. Some commenters urged that the cap be adjusted
to allow for situations where documented expansion plans were approved
by national credentialing bodies or state regulatory agencies prior to
August 5, 1997, or where hospitals made commitments to residents for
the 1997/1998 academic year. Other commenters stated that HCFA should
allow all residents training before August 5, 1997, to be included in
hospital FTE caps. One commenter suggested that HCFA consider the
number of approved slots rather than the actual number of residents on
December 31, 1996, for purposes of calculating the FTE cap. This
commenter did not believe that Congress intended to punish well-
established programs that happened to have an open slot on a particular
date, nor to force programs with significant activity in the training
of rural physicians to reduce their number of residency slots. Some
commenters recognized that the statute requires the Secretary to
establish hospital specific FTE caps from the hospitals' most recent
cost reporting period ending on or before December 31, 1996, even in
situations where hospitals made commitments to training additional
residents after their cost reporting period ending during 1996 and
before the enactment of the BBA. The commenters urged HCFA to recommend
a statutory change to the 1996 cost report year provision to ameliorate
the retrospective nature of this provision.
Response: Under sections 1886(d)(5)(B)(v) and 1886(h)(4)(F), as
amended by the BBA, the number of a hospital's residents in allopathic
medicine and osteopathic medicine may not exceed the number of such
residents for the hospital's most recent cost reporting period ending
on or before December 31, 1996. The limit applies to discharges
occurring on or after October 1, 1997, for indirect medical education
and to cost reporting periods beginning on or after October 1, 1997,
for direct GME. Thus, for an individual hospital, the amount of
Medicare payment for direct and indirect GME is limited by the number
of residents in a base year specified by the statute.
Many of the comments we received indicated that hospitals made
commitments to expand existing residency programs between their most
recent cost reporting periods ending on or before December 31, 1996,
and their first cost reporting period in which the caps apply. As a
result, the hospital may have more residents in its current cost
reporting period than its FTE cap. If we adjusted the caps for these
hospitals we would effectively give them a base year contrary to the
one specified by the statute.
Similarly, establishing FTE caps based on the number of residents
training on August 5, 1997 or in the 1997-1998 program year would be
inconsistent with the statutory base year. In response to the comment
that we establish FTE caps based on approved slots rather than the
actual number of residents in training, the statute specifically
establishes that the cap equals the number of allopathic and
osteopathic FTE residents (before the application of the initial
residency period weighting factors) in the hospital's most recent cost
reporting period ending on or before December 31, 1996. The Conference
Report for the BBA states that ``the conference agreement provides for
a `cap' or limit on the number of residents that may be reimbursed by
the Secretary, on a national and a facility level.''
Section 1886(h)(5)(H) states that the Secretary shall give special
consideration to facilities that meet the needs of underserved areas
but only in the context of prescribing rules for medical residency
training programs created on or after January 1, 1995. Thus, we
disagree with these commenters that hospitals that meet the needs of
rural underserved areas should be exempt from the FTE caps.
Comment: We received several comments on the need for flexibility
in the FTE caps. These comments stated that an institution-specific cap
does not allow training to move from one hospital to another even if
those sites become undesirable. One commenter suggested that a
hospital's FTE resident count should be allowed to increase if the
residents are moved from another teaching hospital because that
hospital no longer provides a desirable training site. Another
commenter stated that program sponsors are responsible for ensuring
that residency program sites meet accreditation requirements, and that
a program sponsor is required to move residency slots if an affiliated
hospital cannot or does not want to continue to support residency
program changes. These commenters noted that if the sponsor of a
residency program moves residents from one hospital to another, the
receiving hospital will not be paid for those residents above its cap
even though there is no net growth in the number of residents. These
commenters requested that the regulations be modified to allow a
hospital's FTE cap to increase if the residents are moved from one
teaching hospital to another by the program sponsor if there is no net
growth in residency slots. One comment proposed setting the cap at the
number of residents included in an institution's sponsored programs as
an alternative to the unweighted cap based on the time a resident works
at a facility. Rotating residents would be counted outside the
[[Page 26329]]
cap since the increase in FTEs at one institution due to rotations is
balanced by a decrease in the FTEs at the originating institution. One
commenter stated that since hospitals now ``own'' residency slots,
program sponsors are put at a disadvantage in negotiating with
affiliated hospitals for reimbursement of resident salaries and faculty
supervision costs, and an affiliated hospital may choose to ``sell its
residency slots to the highest bidder.''
Response: The statute does not prohibit program sponsors from
restructuring a residency training program or resident rotation
schedules. Sections 1886(d)(5)(B)(v) and 1886(h)(4)(F) only provide for
hospital-specific FTE caps for purposes of determining Medicare payment
for indirect and direct GME. We believe the concerns of these
commenters may be addressed by our rules for affiliated groups, which
permit hospitals to elect to apply the caps on an aggregate basis. As
discussed later, if two or more hospitals are members of the same
affiliated group, they can, by mutual agreement, adjust each respective
hospital's FTE cap under an aggregate FTE cap. Absent this mutual
agreement, we do not believe it is appropriate for the Secretary to
establish rules that allow adjustments to hospital-specific FTE caps
based on unilateral decisions by the residency training program
director.
With regard to the comment that the hospital's FTE caps should be
based on the hospital's sponsored programs, sections 1886(d)(5)(B)(v)
and 1886(h)(4)(F) specifically limit the hospital's FTEs for
determining Medicare payment to the number included in the hospital's
most recent cost reporting period ending on or before December 31,
1996. We would further note that medical residency training programs
may also be sponsored by medical schools. If we were to adopt this
commenter's suggestion that the FTE cap be equal to the number of
residents in a hospital's sponsored programs, residents in programs
sponsored by medical schools would not be included in any hospital's
FTE cap.
We recognize the concern of the commenter who stated that the FTE
caps may result in changes in financial relationships between program
sponsors and affiliated training sites to the disadvantage of program
sponsors. If, indeed, program sponsors are at a disadvantage in
negotiating financial arrangements, it is a result of the BBA statutory
requirement that Medicare payment for direct and indirect GME be
limited by hospital specific FTE caps and not a result of any
regulations promulgated by the Secretary.
Comment: One commenter stated that because of osteopathic
medicine's commitment to primary care and work in underserved
communities, HCFA should create an exemption to the residency cap for
osteopathic residency programs. Other commenters stated concerns about
the adequacy of postgraduate medical education training positions for
osteopathic medicine residents. One commenter stated that the
osteopathic medical profession is currently 3,000-3,500 positions in
deficit, based on the postdoctoral needs of all students who are
currently and will register in colleges of osteopathic medicine over
the next 3 years. The commenter argues that, since the allopathic
positions total approximately 143 percent of U.S. allopathic medical
graduates, a similar restriction on U.S. osteopathic positions does not
seem warranted. This commenter stated that a mechanism should be
permitted to allow the osteopathic profession the flexibility to
enhance osteopathic training positions by approximately 3,000-4,000
positions. Another commenter noted that osteopathic physicians serve
disproportionately in rural areas and appear to fulfill physician
workforce objectives, which represents an additional justification for
maintaining osteopathic residency slots. One commenter noted that it is
important that a GME FTE cap not adversely affect training osteopathic
surgical subspecialty physicians. According to this commenter,
osteopathic medical graduates do not have access to allopathic surgical
subspecialty programs.
Response: Section 1886(h)(4)(F) provides for a cap on the total
number of FTE residents in a hospital's ``approved medical residency
training programs in the fields of allopathic and osteopathic
medicine.'' The statutory limit on the number of residents paid for by
Medicare specifically encompasses residents in osteopathic medicine.
Comment: Several commenters asked about application of the cap for
hospitals that merged after December 31, 1996 but before the BBA, where
only one hospital maintains its provider number and participation
agreement. Another commenter stated that the law and regulations do not
address application of the resident cap for hospital mergers and
acquisitions. These commenters do not believe that it was the intent of
the BBA to eliminate funding for residents when hospitals merge.
Another commenter stated that applying the limits based on cost reports
ending on or before December 31, 1996, does not allow for the long-term
plans of providers attempting to reduce medical education costs and
consolidate programs. The commenters recommended that HCFA interpret
the BBA provisions to allow hospitals that merged after the base year
to include the count of both hospitals. Some commenters suggested that
another approach would be to redefine an affiliated group to include
hospitals that merged after the December 31, 1996, cost reporting
period. Another commenter stated that where there is a merger involving
two hospitals, the merged cap should reflect a 12-month cost reporting
period. This commenter suggested we amend the regulations specifically
to ensure that the FTE cap is based on the equivalent of a 12-month
cost report in the context of a merger.
Response: We agree with the commenters that when there is a merger,
the cap for the hospital should reflect the base year FTE counts for
the hospitals that merged. This is consistent with the principle of
limiting payments based on the base year specified in the statute.
Also, in implementing the COBRA 1985 provision establishing a hospital-
specific per resident amount in the situation of a merger, we have
calculated the revised per resident amount for the merged hospital
using an FTE weighted average of each of the respective hospital's per
resident amount which is part of the merger. We believe that it would
be appropriate to address the FTE caps using the same principle. For
purposes of this final rule, where two or more or more hospitals merge
after each hospital's cost reporting period ending during FY 1996, the
merged hospital's FTE cap will be an aggregation of the FTE cap for
each hospital participating in the merger. We are modifying
Sec. 413.86(g)(6) to reflect this change.
With regard to the comment that we modify the regulations to ensure
that the FTE caps are applied on the basis of a 12-month cost reporting
period specifically in the context of mergers and acquisitions, the
existing regulations state that the fiscal intermediary may make
appropriate modifications to apply the FTE cap based on the equivalent
of a 12-month cost reporting period. We do not believe that additional
regulatory revisions are warranted.
Comment: Several commenters argued that we should adjust the caps
when a hospital began training additional residents after its cost
reporting period ending during 1996 because another hospital closed or
discontinued its
[[Page 26330]]
teaching programs during the July 1996-June 1997 residency year. One
commenter stated that there should be a mechanism for allowing FTE
positions from merged or closed osteopathic residency programs to be
used by other programs. One commenter suggested that we allow an
adjustment to the FTE cap if the hospital met the following criteria:
(1) During the July 1996-June 1997 residency year the hospital assumed
additional medical residents from a hospital that was closing or
discontinuing its training programs; (2) The hospital added the
residents with the intent of allowing them to complete their education
program; and (3) The hospital that closed does not seek reimbursement
for the residents. If a hospital meets these three criteria, this
commenter stated that it should have an unweighted FTE count which
equals its unweighted FTE count for its most recent cost reporting
period ending on or before December 31, 1996, adjusted for the
additional residents added from residency programs at the closed
hospital.
Response: Similar to the situation of a merger, we agree that, when
a hospital takes on residents because another hospital closes or
discontinues its program, a temporary adjustment to the cap is
appropriate and consistent with the base year system. In these
situations, residents may have partially completed a medical residency
training program and would be unable to complete their training without
a residency position at another hospital. We believe that it is
appropriate to allow temporary adjustments to the FTE caps for a
hospital that provides residency positions to medical residents who
have partially completed a residency training program at a hospital
which closed.
For purposes of this final rule, we will allow for temporary
adjustments to a hospital's FTE cap to reflect residents affected by a
hospital closure. That is, we will allow an adjustment to a hospital's
FTE cap if the hospital meets the following criteria: (1) During the
July 1996-June 1997 residency year the hospital assumed additional
medical residents from a hospital that was closing; (2) The hospital
added the residents with the intent of allowing them to complete their
education program; and (3) The hospital that closed does not seek
reimbursement for the residents. As stated above, this adjustment will
be temporary to allow Medicare payment for those residents from the
closed hospital. After this period, the hospital's cap will be based
solely on the statutory base year. Hospitals seeking an adjustment for
this situation must document to their intermediary that an adjustment
is warranted for this purpose and the length of time that the
adjustment is needed.
Comment: One commenter stated that an appeals process must be
established for providers to present cases when they believe their
particular medical education programs have been unfairly penalized.
Response: Since the direct and indirect medical education FTE
counts are used in determining hospital payments on the basis of a cost
reporting period and the hospital has appeal rights on the settlement
of the cost report under 42 CFR Part 405, we do not believe that a new
appeals process needs to be established.
2. Counting Residents Based on a 3-Year Average
Section 1886(h)(4)(G)(iii) of the Act, as added by section 4623 of
the BBA, 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 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. In the August 29 final rule with comment period,
we revised Sec. 413.86(g)(5) accordingly.
For cost reporting periods beginning on or after October 1, 1997,
we indicated in the August 29 final rule with comment period how we
would determine direct GME payments.
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), in the August 29 final rule with comment period
we established 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 weighted FTE count
for residents in allopathic and osteopathic medicine to the hospital's
unweighted number of FTE residents without application of the cap for
the cost reporting period at issue.
Multiply the ratio determined above by the hospital's FTE
cap. 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.
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. In the August 29 final rule with comment period, we revised
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.
Comment: Some commenters stated that application of the 3-year
rolling average rule penalizes hospitals that participate in an
affiliated group and increase residents under an aggregate FTE cap. We
received comments stating that the 3-year rolling average may penalize
hospitals that legitimately qualify for an increase in their FTE count
because they established a medical residency training program on or
after January 1, 1995. The commenters argue that, in these cases,
hospitals should be able to choose to have IME or direct GME payments
based on the current year count of FTE residents or the 3-year rolling
average. One commenter stated that the rolling average methodology
arbitrarily penalizes areas of the country undergoing substantial
growth.
Response: Section 1886(h)(4)(H)(i) states that ``the Secretary
shall, consistent with the principles of subparagraphs (F) and (G),
prescribe rules for the application'' of the FTE caps and the 3-year
rolling average in the case of medical residency programs established
after January 1, 1995. We agree with these commenters that FTE
[[Page 26331]]
residents participating in new medical residency training programs
should be included in the direct and indirect GME FTE counts after
application of the 3-year averaging methodology. Accordingly, we are
revising Sec. 413.86(g)(5) to determine a hospital's 3-year average FTE
count prior to adding residents participating in new medical residency
training programs consistent with section 1886(h)(4)(H)(i). However,
section 1886(h)(4)(H)(ii) states that ``the Secretary may prescribe
rules which allow institutions which are members of the same affiliated
group (as defined by the Secretary) to elect to apply the limitation of
subparagraph (F) on an aggregate basis.'' Since the statute provides
that the Secretary's rules regarding affiliated groups should only
apply to the FTE cap, we believe the 3-year rolling average should be
applied for affiliated groups. That is, we will apply the 3-year
rolling average for hospitals that are part of an affiliated group,
subject to application of the aggregate cap.
Comment: We received some comments asking HCFA to clarify that
dental and podiatric residents are not included in the rolling average
resident count. Several other commenters suggested that we modify the
regulations so that dental and podiatric residents are not included in
the 3-year averaging of FTE counts. The commenters asserted that the
intent of the provision was that the count of dental and podiatric
positions be made separately.
Response: Although the FTE caps established under sections
1886(d)(5)(B)(v) and (h)(4)(F) are limited to residents in allopathic
and osteopathic medicine, there is no similar limitation in section
1886(d)(5)(B)(vi) and (h)(4)(G) when determining indirect and direct
GME payments based on a 3-year average. These provisions state that the
Secretary shall determine payment based on an ``average of the actual
full-time equivalent resident count for the cost reporting period and
the preceding two cost reporting periods.'' There is no statutory
distinction between dental, podiatric and other residents in
determining payment based on the 3-year averaging rules.
Comment: One commenter stated that capping FTEs for individual cost
reporting periods in calculating the 3-year average is not the
intention of the statute. This commenter stated that capping the FTEs
in the individual years depreciates the FTE count for that year,
misrepresenting the total number of FTEs during that year. This
commenter recommended that in calculating the 3-year rolling average,
the gross number of FTEs should be used in the calculation.
Response: Section 1886(h)(4)(G), as added by the BBA, provides that
the computation of the rolling average is ``subject to the limit
described in subparagraph (F)''. The 3-year rolling average must
reflect application of the FTE cap.
3. Special Rules for Applying the Direct GME FTE Limit and Rolling
Average
Under section 1886(h)(4)(H)(i) of the Act, as added by the BBA, 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 in 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 for the BBA indicates concern that there be
proper flexibility to respond to changing needs given the sizeable
number of hospitals that elect to initiate new (or terminate existing)
training programs.
Pursuant to the statute, in the August 29 final rule with comment
period, we established 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'' would 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. The Secretary has broad authority to
prescribe rules for counting residents in new programs, but the
Conference Report for the BBA indicates concern that the aggregate
number of FTE residents should not increase over current levels.
Accordingly, we indicated that we would 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.
Comment: One commenter believed that the Congress intended to
create exceptions for circumstances where commitments to begin new
training programs had been made prior to enactment of the cap,
including situations where programs had begun prior to enactment but
were not filled in 1996 and situations where a new facility opens after
enactment, and had no residents in the base year.
Response: The regulations published on August 29, 1997 provide for
adjustments to hospital FTE caps for hospitals that previously did not
participate in GME training and hospitals that established new medical
residency training programs on or after January 1, 1995 and on or
before the August 5, 1997 enactment of the BBA.
Comment: Some commenters questioned the definition of ``new medical
residency training program'' established for purposes of section
1886(h)(4)(H) of the Act. The regulation defines a new program as one
that receives initial accreditation on or after July 1, 1995. Several
commenters stated that the definition of new program should recognize
programs that have not yet received accreditation but are approved GME
programs eligible for payment. The commenter suggested that the current
definition of ``new medical residency training program'' would not
recognize programs leading to an American Board of Medical Specialties
certification since they are not accredited by an accreditation body,
even though such programs qualify as approved GME programs and are
eligible for payment. Some commenters suggested that the new program
definition be based on the date the residents begin training rather
than the date of an accreditation letter. These commenters noted that
the majority of programs starting July 1, 1995, received their
accreditation letters prior to January 1, 1995, and would not qualify
as new programs. Other commenters believed that a new medical residency
program should be determined based on the date a program received
approval from the accrediting body. One commenter stated that programs
which receive ``provisional accreditation'' should be included in the
regulatory definition of a new program. One commenter stated that the
new program definition should include programs for which hospitals
submitted a formal application before August 5, 1997. The commenter
noted that it takes from 8-12 months before accreditation action is
taken. Another comment requested clarification that the documentation
required under this section (42 CFR 413.86(g)(6)(iv)) related solely to
justifying the existence of a new program.
Response: We inadvertently used the date ``July 1, 1995'' when we
added Sec. 413.86(g)(7) in the final rule with comment published August
29, 1997. We are correcting the date to January 1, 1995 in this final
rule.
As the comments reflect, establishing a newly accredited medical
residency training program can be a costly and
[[Page 26332]]
time consuming process. We recognize that hospitals that either
received accreditation for a new medical residency training program or
began training residents in the new program may have expended
substantial resources during the accreditation process. We also
recognize that hospitals usually do not begin training residents
immediately upon receiving an accreditation letter. For these reasons,
we believe it is appropriate to consider a medical residency training
program to be newly established if the program received initial
accreditation or began training residents on or after January 1, 1995.
We are modifying the regulation accordingly.
A hospital seeking to qualify as a new program must provide
documentation to the intermediary indicating the date a program
received accreditation and/or the date the residents begin training for
the hospital to receive an adjustment to its FTE cap. We are not
allowing programs to be considered newly established based on the date
the sponsor began seeking accreditation since the date of an
accreditation application is not indicative of a substantial commitment
of resources that warrant an adjustment to FTE caps.
Comment: Some commenters requested that the example in the August
29 final rule with comment period at 62 FR 46006, on programs that
received direct GME before January 1, 1995, clearly state that
dentistry and podiatry positions are not subject to the cap and that
hospitals may add new programs in dentistry and podiatry without being
subject to the Secretary's rules for establishment of new programs. The
commenter would also like the statement on page 46006 that HCFA ``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'
modified to indicate that it applies only to allopathic and osteopathic
residency positions.
Response: The regulations and preamble published on August 29,
1997, clearly stated that hospitals may include dental and podiatric
residents in their FTE counts for purposes of direct and indirect
medical education payment without limit, regardless of whether it is an
expansion of an existing program or the establishment of a new program.
We do not believe modification of the regulation is necessary.
Comment: Several commenters requested clarification about
adjustments to the FTE cap for new osteopathic rotating internships.
Another commenter suggested that the osteopathic rotating internship
should be exempt from the cap as are residents in dentistry and
podiatry. One commenter noted that the rules call for counting the
number of first year residents in the third year of the residency
program. The commenter proposed that a consistent rule for internships
would adjust the FTE cap for a new internship program based on the
number of internship positions filled in the third year. One commenter
expressed concern that our rules should recognize that specialty
training in osteopathic medical specialties occurs subsequent to the
osteopathic rotating internship in the second postgraduate year and
that we should separately make adjustments to the FTE caps for new
osteopathic internships and new osteopathic specialty training
programs.
Response: The osteopathic rotating internship is the first
postgraduate year of training for osteopathic medical graduates and
precedes all subsequent specialty training. Since osteopathic rotation
internship programs are individually accredited, we are applying the
same rules for new osteopathic rotating internships that we apply for
all other new medical residency training programs. That is, if a
hospital qualifies for an adjustment to its FTE cap for a new
osteopathic rotating internship, the adjustment will be equal to the
product of the minimum accredited length for the osteopathic rotating
internship (that is, one year) and the number of FTEs participating in
the internship in its third year of existence. Since osteopathic
rotating internships are one year in length, the minimum accredited
length is equal to one year.
We will allow adjustments to FTE caps for new osteopathic specialty
programs based on the product of the minimum length for the accredited
program and the highest number of residents in any program year
subsequent to the osteopathic rotating internship (that is, program
year 2, program year 3 or program year 4) in the third year of the
program's existence. We are applying the same rule for new allopathic
training programs (that is, the adjustment for the new medical
residency program is based on the highest number of residents in any
program year in the third year of the program's existence). The
adjustment to the hospital's FTE cap may not exceed the number of
accredited resident slots for the new medical residency training
program. In response to the comment that the osteopathic rotating
internship be exempt from FTE caps, as stated earlier, the FTE caps
under sections 1886(d)(5)(B)(v) and (h)(4)(F) specifically encompass
residents participating in allopathic and osteopathic training
programs.
a. Hospitals with no residents prior to January 1, 1995. Section
1886(h)(4)(H) of the Act allows the Secretary to prescribe special
rules for the application of the FTE caps and 3-year averaging for
medical residency training programs established on or after January 1,
1995. In the August 29, 1997 final rule with comment period (62 FR
46005), we provided a special rule for application of the FTE resident
cap for hospitals which did not participate in GME training prior to
January 1, 1995. Under this special rule, we allowed hospitals to
establish their FTE cap based on the product of the number of first
year residents participating in accredited GME training programs in the
third year that the hospital received payment for GME and the minimum
accredited length for the type of program.
Comment: Some commenters stated that hospitals that did not receive
GME payments prior to January 1, 1995, and subsequently become teaching
hospitals by affiliating with an existing training program, should be
eligible for GME payments if they incur substantially all of the costs
of the resident training and the overall number of residents does not
increase. In this situation, the location of settings in which
residents receive training changes but there is no net increase in the
number of residents. One commenter stated that the limit on resident
growth in new hospitals to those from ``newly accredited programs''
severely limits flexibility of moving residents and requires a
duplicative administrative burden to start new programs when sharing
residents would work just as well. Another commenter asked whether new
hospitals may include residents transferred from other hospitals if all
parties concur. To ensure that this does not increase the number of
resident slots, hospitals transferring residents would have their caps
correspondingly reduced. Several commenters asked how the cap would
apply to hospitals that decide to become teaching institutions and will
have residency programs that will be a mix of new programs and programs
currently running in another hospital.
Response: Under Sec. 413.86(g)(4), hospitals that are part of the
same affiliated group may elect to apply the FTE cap under section
1886(h)(4)(F) on an aggregate basis. If a hospital that did not receive
direct or indirect GME payment prior to January 1, 1995, qualifies to
be part of the same affiliated group with another hospital that
[[Page 26333]]
participates in residency training, these hospitals can, by mutual
agreement, provide for adjustments to each respective hospital's FTE
cap under an aggregate cap for the affiliated hospitals.
With regard to application of the cap for hospitals that become
teaching institutions on or after January 1, 1995, and on or before
August 5, 1997, our policy is that a hospital can receive an adjustment
to its FTE cap for a new medical residency training program and can
affiliate with hospitals that have existing medical residency training
programs. Hospitals in urban areas that participate in medical
residency training programs for the first time, after the August 5,
1997 enactment date of the BBA may receive an adjustment only for new
medical residency training programs; they cannot affiliate with
hospitals that have existing medical residency training programs. We
are establishing this policy because of our concern that hospitals with
existing medical residency training programs may affiliate with
hospitals that establish new medical residency programs solely for the
purpose of moving the new residency program to its own hospital and
receiving an upward adjustment to its FTE cap under an affiliation
agreement.
We will allow hospitals in rural areas that qualify for an
adjustment to its FTE cap for new medical residency training programs
to affiliate with hospitals in urban areas. However, we will only allow
a rural hospital that qualifies for an adjustment to its FTE cap for a
new medical residency training program to be a member of the same
affiliated group with an urban hospital if the rural hospital provides
training for the FTE equivalent of at least one third of the residents
participating in the joint programs of the affiliated hospitals. We are
allowing these affiliations between rural and urban hospitals to
recognize that rural hospitals may not have sufficient patient care
utilization to be able to establish a training program within the rural
area to meet accreditation standards. However, we remain concerned that
there needs to be a sizeable component of training in the rural area
for the policy to provide appropriate consideration for hospitals
meeting the needs of underserved rural areas. We believe that providing
for at least one third of the training in rural area will allow
programs which focus on, but are not exclusively limited to training in
those areas.
Comment: One commenter argued that there is an inconsistency
between the rules for teaching hospitals that had residents prior to
January 1, 1995, and nonteaching hospitals that became teaching
hospitals between January 1, 1995, and August 5, 1997. Hospitals in the
former category may have their limits adjusted upward for all new
programs established prior to August 5, 1997, while hospitals in the
latter category are allowed an adjustment only for residents in the
first program created even though additional programs may have been
created prior to August 5, 1997. This commenter recommended that all
hospitals be entitled to cap adjustment for programs created before
August 5, 1997.
Response: We agree and will establish the FTE cap for a hospital
which did not participate in residency training prior to January 1,
1995, based on the product of the minimum length for the type of
program and highest number of residents in any program year for all
residency programs created in the 3rd year after residents first begin
training (Sec. 413.86(g)(60)(i) and (ii)). This policy addresses
adjustments for all new medical residency programs established prior to
August 5, 1997.
Comment: One commenter suggested (1) allowing a new hospital 5
years to build its residency programs, and not differentiating between
new and established programs, (2) using the 3-year methodology outlined
in the rule but not differentiating between new and established
programs, or (3) allowing the cap to move with the residents when
programs are transferred from one hospital to another. Another
commenter suggested that permitting hospitals to transfer residency
programs to other hospitals by mutual agreement is necessary to provide
cooperating hospitals, or hospitals within networks, the necessary
flexibility to determine requirements for a quality training program
and how they will meet them.
Response: One of these commenters is suggesting three alternatives
for establishing the FTE cap for a new hospital that establishes a
medical residency training program. Under the first two options, the
commenter is suggesting that we should not distinguish between whether
the hospital's resident count is adjusted for new medical residency
training programs or previously established programs where some or all
of the residents are transferred to the new hospital. As stated
earlier, hospitals that did not participate in a medical residency
training program prior to August 5, 1997, and establish a new medical
residency training program for the first time after the enactment date
of BBA will have their FTE caps established in the third year in which
they participate in residency training.
We are not allowing hospitals that first participate in medical
residency training programs to affiliate with hospitals that already
have an established FTE cap because of our concern that hospitals with
existing medical residency training programs would affiliate with
hospitals that do not currently train residents solely for purposes of
establishing a higher FTE cap, which is inconsistent with sections
1886(d)(5)(B)(v) and (h)(4)(F) of the Act. As a result of this concern,
we are reluctant to adopt the first two approaches suggested by this
commenter for adjusting the FTE cap for a hospital which participates
in medical residency training for the first time after August 5, 1997.
This commenter has also suggested allowing the FTE cap to move between
hospitals when programs are transferred. Hospitals that qualify to be
members of the same affiliated group can mutually agree to adjustments
in their respective FTE caps.
Comment: One commenter stated that the requirement that all new
programs begin at the same time in new hospitals is contradictory to
the Accreditation Council on Graduate Medical Education requirement
that certain new programs be started in hospitals that already have
other programs. Under HCFA's regulations, a new hospital must start all
new programs at once in order to receive an adjustment to the FTE cap
based on the number of residents participating in all of the hospital's
accredited programs in the third year that the hospital participates in
training. The commenter suggested that HCFA provide an adequate time
period for new hospitals to build complementary residency programs that
do not conflict with Accreditation Council on Graduate Medical
Education requirements. One commenter stated that basing the resident
cap for new residency programs on the first program(s) will inhibit
growth of other primary care programs or the introduction of new
primary care programs. One commenter stated that nothing in the statute
suggests that recognition of new programs should be limited to the
first program. This commenter stated that if an internal medicine
program is accredited in April 1996 with its first residents in July
and a specialty program is developed in 1997 with residents beginning
in 1998, the cap should be adjusted to account for the additional
residents in the second program. One commenter recommended that the cap
for new programs be adjusted based on all programs established in the
hospital's first year rather than the first programs simultaneously
established. One
[[Page 26334]]
commenter suggested that the cap adjustment for new programs in
hospitals should be available without a cut-off date. Another commenter
recommended allowing hospitals a period of time, no less than 5 years,
to establish their GME training programs. One commenter stated that the
resident count should be determined in the third year of the program
based on the number of residents in either the first, second, or third
residency year, whichever is the highest. In addition, the regulations
should allow the limits to be adjusted upward for each of the first two
years of the program to permit payments for residents present during
that period.
Response: We agree that hospitals that establish new medical
residency programs will need time to establish complementary residency
programs. Additionally, we are concerned that hospitals may be
disadvantaged by basing the adjustment on the number of first year
residents in the third year of the program's existence. Therefore, we
are revising Sec. 413.86(g)(6)(i) to state that the hospital's cap
adjustment is based on the product of the minimum accredited length for
the specialty program and the highest number of residents training in
any program year during the 3rd year of the program's existence. For
purposes of determining the FTE cap for hospitals which first
participate in GME training on or after January 1, 1995, we will
establish the hospital's FTE cap 3 years after the first medical
residency program is established. The hospital's cap will reflect an
adjustment based on the product of the minimum accredited length for
the program and the highest number of residents in any program year for
each new medical residency program in existence at the time the cap is
established. The hospital's FTE cap may not exceed the number of
accredited resident slots available to the hospital.
b. Hospitals with residents rrior to January 1, 1995 not located in
rural areas. In the August 29, 1997 final rule with comment period, we
also provided a special rule for the application of the FTE cap for
hospitals that participated in GME training before January 1, 1995 and
established medical residency training programs on or after January 1,
1995. Under this special rule, we allowed hospitals with new medical
residency training programs established on or after January 1, 1995 and
on or before August 5, 1997 to adjust their FTE caps. The hospital's
FTE caps are adjusted for the incremental increase in residents
participating in the new medical residency training program which are
not reflected in the hospital's cost reporting period ending during
calendar year 1996.
Comment: We received comments stating that an adjustment should be
made to the FTE cap for programs established prior to January 1, 1995,
that had not reached their third year or minimum accredited length for
the type of program during the cost reporting period ending on or
before December 31, 1996.
Response: Section 1886(h)(4)(H) states that the Secretary shall
prescribe rules for application of the FTE cap and 3-year rolling
average ``in the case of medical residency training programs
established on or after January 1, 1995.'' Our policy of limiting
adjustments to FTE caps for medical residency training programs
established on or after January 1, 1995 is consistent with this
statutory requirement.
Comment: We received comments stating that HCFA should allow
adjustments to the FTE cap for new residency programs established on or
after August 5, 1997 in hospitals with existing residency programs.
Many commenters believed that the August 5, 1997 date was unfair to
primary care programs since several new family practice programs were
accredited in September 1997 and there are a number of additional
programs that will be established in the next 1 to 2 years. According
to these commenters, if a public policy goal is to increase the number
of primary care physicians, HCFA should allow for adjustments for
programs created before September, 1999. One comment stated that urban
hospitals will be deterred from opening new, desirable residency
programs such as ambulatory care training programs if they cannot
receive an adjustment for programs established after August 5, 1997. If
HCFA does not allow hospitals in urban areas to create additional
programs after August 5, 1997, this commenter suggested that HCFA allow
adjustments for primary care programs where the majority of training is
in ambulatory care. One commenter requested that the Secretary consider
the needs of elderly beneficiaries in rural areas and allow adjustments
to a hospital's FTE cap for new medical residency training in geriatric
medicine. Another commenter stated that the Secretary should be
required to give special consideration to facilities that establish
residency training programs on or after January 1, 1995 ``which meet
the needs of geriatric populations, including mental health needs of
the aged.''
Response: As we have stated earlier, sections 1886(d)(5)(B)(v) and
1886(h)(4)(F) limit the number of allopathic and osteopathic residents
that a hospital may include in its FTE count for purposes of indirect
and direct GME payments. The Conference Report further states that ``a
facility limit on the number of residents was provided, rather than any
direction on payments according to specialty of physicians in training,
to specifically avoid the involvement by the Secretary in decision
making about workforce matters. The Conferees emphatically believe that
such decisions should remain within each facility, which is best able
to respond to clinical needs and opportunities.''
Since sections 1886(d)(5)(B)(v) and 1886(h)(4)(F) provide for an
FTE cap for medical residents in all allopathic and osteopathic
specialties and the Conference Report states that the Secretary should
not be involved in workforce matters, we disagree with these commenters
that we should allow for adjustments to FTE caps for programs that
train primary care residents, programs that focus on ambulatory
training or geriatric training programs. We believe the statute
anticipates that each facility, within its FTE cap, will make decisions
about training programs based on the needs of its own institution.
c. Rural underserved areas. Consistent with section 1886(h)(4)(H),
we provided a special rule for the application of the FTE cap to give
special consideration to hospitals that meet the needs of underserved
rural areas. Under this special rule, we provide adjustments to FTE
caps for hospitals located in rural areas that established medical
residency training programs on or after January 1, 1995. The caps can
be adjusted for all programs created on or after January 1, 1995
including programs created after the enactment of BBA. The adjustment
to an individual hospital's FTE cap is based on the product of the
number of first year residents participating in the newly established
program in the program's third year of existence and the minimum
accredited length for the program.
Comment: Many commenters recommended that an exception to the FTE
caps should be permitted to encourage existing programs to expand to
meet the needs of rural, underserved areas. Several commenters also
suggested providing an exception to the cap that would allow a
geographic area with substantial population growth to expand existing
medical residency training programs to hospitals which previously have
not participated in residency training. Some commenters suggested that
the needs of rural (and other underserved) areas are frequently met by
facilities that do not exist within
[[Page 26335]]
those areas, but whose graduates subsequently practice there. This
commenter requested that HCFA redesignate certain urban MSAs as rural
for residency training purposes. One commenter suggested that the
designation of programs in underserved areas receiving special
consideration might better be phrased as ``programs whose graduates
serve underserved areas,'' in order to be consistent with the purpose
of this language. Many commenters stated that Congress' intent that
special consideration be given to facilities that meet the needs of
underserved rural areas was meant to include entire States that have
low ``per population'' ratios of both physicians and residents. This
commenter suggested that this special rule could be limited to the five
States with lowest physician to population ratios.
One commenter stated that without an exception, the FTE cap could
have a ``chilling'' effect on urban hospitals sending residents to
rural settings. This commenter stated that there have been several
recent expansions in family practice residency programs that include a
rural training track, with residents located in outlying hospitals, or
with satellite programs designed specifically to train residents to
work in areas with underserved populations. The commenter suggested
that urban hospitals should be eligible for exceptions to the cap if
they place residents in rural, underserved areas. One commenter
recommended that the FTE cap should be adjusted for urban programs that
provide 25 percent of their training in rural areas that are designated
as medically underserved areas and/or health professional shortage
areas.
Another commenter stated that, given the value of rural training to
the needs of underserved populations, HCFA should develop additional
exception language for rural training tracks or programs that seek to
train residents in working with underserved populations. The commenter
recommended that HCFA consider, in designating rural and rural
underserved areas, the population served by the program and where the
graduates practice upon completion of the program rather than the
location of the training of the residents. We received comments
indicating that hospitals will be unlikely to benefit from the special
rules for hospitals located in rural areas. The commenters believed
that it is unlikely that a rural hospital will establish a residency
program because the smallest program which may be accredited is for 12
residents. Another commenter stated that the majority of physicians
will settle within 100 miles of their residency training location and
suggested that programs which serve underserved rural areas should be
defined as:
(a) Any residency program with more than 10 health professional
shortage areas within 100 miles of the program;
(b) Residencies that have identified themselves prior to August 5,
1997 as having the mission of training rural physicians, and have
placed more than 10 percent of residents in the preceding 2 years in
rural underserved areas and more than 40 percent in rural areas; or
(c) Residencies within States where greater than 70 percent of the
land mass is rural; and
(d) Programs meeting the above qualifications and those located
within health professional shortage areas would be disqualified by
being in a community of greater than 100,000.
Response: We believe that the Congress enacted sections
1886(d)(5)(B)(v) and 1886(h)(4)(F) because of a concern about the
growing supply of physicians in combination with reports that the
United States may be training too many physicians for practice in the
21st century. The Conference Report accompanying the BBA states that
the ``conference agreement provides for a `cap' or limit on the number
of residents that may be reimbursed by the Secretary, on a national and
a facility level.'' At the same time, the Conference Report
acknowledged that the FTE caps could create problems in several
circumstances. Accordingly, the statute provides for special rules for
medical residency programs created on or after January 1, 1995, and
directs the Secretary to ``give special consideration to facilities
that meet the needs of rural underserved areas.''
Given the hospital specific FTE caps mandated by the statute and
the Conference Report language that the number of FTE residents paid
for by Medicare should not exceed current levels, we believe our policy
with regard to medical residency training programs created on or after
January 1, 1995, establishes an appropriate balance between the
competing goals of limiting the number of residents in training
nationally and making appropriate payments for necessary training.
Although we acknowledge that GME programs that provide a component of
training in rural areas also include significant training in hospitals
located in urban areas, we are concerned about the impact of providing
adjustments to the FTE limit for hospitals located in non-rural areas
until we have more experience with the current special rules. As we
stated above, we will make adjustments to the caps for rural hospitals
that establish new medical residency training programs and will allow
those hospitals to affiliate with hospitals in nonrural areas. Taken
together, these policies allow rural hospitals, in combination with
urban hospitals, to establish training programs which can receive
Medicare payment for direct and indirect GME. Finally, based on a
review of the 1997/1998 Graduate Medical Education Directory, we would
note that, in limited circumstances, family practice programs of fewer
than 12 residents that focus on rural training may be accredited.
Comment: One commenter suggested that many osteopathic training
programs are located in underserved, urban areas called Empowerment
Zones and that these programs should receive a waiver from the FTE
caps. Another commenter recommends that exceptions be permitted for
urban hospitals serving underserved populations.
Response: As stated above, sections 1886(d)(5)(B)(v) and
1886(h)(4)(F) cap the number of osteopathic and allopathic physicians a
hospital may include in its FTE count. Section 1886(h)(4)(H)(i)
requires the Secretary to prescribe special rules for application of
the cap and the 3-year rolling average for medical residency training
programs created on or after January 1, 1995, and states that the
Secretary should give special consideration to hospitals that meet the
needs of rural underserved areas in drafting these rules. The statute
includes osteopathic medical residency training programs in the FTE
caps and the Secretary is directed by the statute to give special
preference only to rural underserved areas. Consistent with the
statute, we are providing for adjustment to FTE caps for new medical
residency training programs created on or after January 1, 1995 and are
not providing for the types of adjustments suggested by these
commenters.
Comment: Several commenters noted that medicine is constantly
evolving, leading to new specialty training programs. According to the
commenters, new specialties do not necessarily replace old specialties
so absent explicit recognition of new specialties, the cap on resident
training will hamper the ability of teaching institutions to implement
new training programs without downsizing or eliminating existing
programs. The commenters urged HCFA, in consultation with the medical
profession, to look at constructive ways to address this issue.
Response: As we have stated earlier, sections 1886(d)(5)(B)(v) and
(h)(4)(F) provide for limits on the number of
[[Page 26336]]
residents used in determining Medicare payment for indirect and direct
GME. It does not preclude hospitals from establishing new medical
training programs. Nevertheless, we do acknowledge that Medicare's
payments for GME may be important in decisionmaking about training and
the FTE caps mandated by the BBA may have an effect on the future
developments in GME training. These issues would be appropriate
consideration for Congress as well as the Medicare Payment Advisory
Commission and the National Bipartisan Commission on the Future of
Medicare. Section 4629 of the BBA requires the Medicare Payment
Advisory Commission to report on the ``extent Medicare payment policies
and other Federal policies regarding teaching hospitals and graduate
medical education should be changed.'' Section 4021 of the BBA creates
a National Bipartisan Commission on the Future of Medicare which is
required to ``make recommendations regarding the financing of graduate
medical education.''
Comment: One commenter stated that there are no instructions on how
to apply for an exception to the FTE cap.
Response: Hospitals seeking to receive payments under the rules for
a new medical residency training program should consult with and
provide supporting documentation to their fiscal intermediary.
4. Aggregate Direct GME FTE Limit for Affiliated Institutions
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.
a. Definition of affiliated group. Pursuant to the broad authority
conferred by the statute, in the August 29, 1997 final rule with
comment period, we established criteria to define ``affiliated group''.
We defined ``affiliated group'' as
Hospitals in the same geographic wage area that rotate
residents to other hospitals of the group during the course of the
approved program; or
Hospitals that are not located in the same geographic wage
area and are jointly listed as ``major participating institutions'' as
that term is used in the Graduate Medical Education Directory for one
or more programs.
Comment: Some commenters requested that we clarify whether the term
geographic wage area included reclassification for purposes of the wage
index or the national standardized amounts or both. These commenters
have questioned whether ``geographic wage area'' means a metropolitan
statistical area (MSA) before the effect of reclassification and some
commenters were unsure whether the term geographic wage area included
the effect of reclassification for the standardized amount or the wage
index or both.
Response: For purposes of defining an affiliated group, we are
using the terms ``urban area'' and ``rural area'' before the effect of
geographic reclassification under part 412. To avoid further confusion,
we are revising Sec. 413.86(b) to use the terms ``urban area'' and
``rural area'' (as those terms are defined in Sec. 412.62(f)) for the
purpose of defining an affiliated group. Section 412.62(f) states that
an urban area means a metropolitan statistical area or New England
County Metropolitan Area as defined by the Executive Office of
Management and Budget. A rural area means any area outside of an urban
area.
Comment: Some commenters recommended allowing hospitals to be part
of an affiliated group if they are located in the same State or located
in contiguous geographic wage areas.
Response: We agree with this recommendation and are revising the
criteria specified in Sec. 413.86(b) as follows. Specifically, we are
revising this section to provide that hospitals in the same urban area
or a contiguous urban area may be part of the same affiliated group if
the hospitals participate jointly in training residents in at least one
training program. If a hospital is located in a rural area, it may
affiliate with any hospital in which it jointly participates in
training residents in the same rural area or a contiguous area.
Comment: Many commenters disagreed with the limitation of
affiliated group to geographic areas. Some commenters stated that
hospital systems today are geographically diverse, the wage area
distinction is dysfunctional, and the requirement that hospitals be
located in the same geographic wage area or jointly listed as major
participating institutions in the Graduate Medical Education Directory
is too limited. These commenters requested that the wage area and joint
listing requirements be eliminated.
Response: The criteria we established to determine whether two or
more hospitals qualify to be an affiliated group were designed to
identify hospitals that have relationships for training residents and
to allow those hospitals to continue to have the flexibility to rotate
residents under an aggregate FTE cap. By focusing on hospitals that
rotate residents within a geographic area and on whether they are
recognized for jointly participating in residency training by the
accrediting body, we are identifying hospitals that are affiliated for
purposes of GME training. We believe that our approach for identifying
hospitals that require flexibility under an aggregate FTE cap is
reasonable and consistent with section 1886(h)(5)(H) of the Act, which
provides the Secretary with authority to define hospitals that are
members of the same affiliated group. We believe that the geographic
boundary provided by an urban or rural area is an appropriate basis
upon which to identify hospitals that share residents for purposes of
GME training. We agree, however, that focusing solely on hospitals
located within an MSA is limiting and are making the qualifying
criteria for being members of the same affiliated group less
restrictive. Under this final rule, we are allowing hospitals to be
members of the same affiliated group which jointly participate in
residency training and are located in the same or a contiguous MSA or
the same rural area and a contiguous area.
Comment: One commenter stated that the rules regarding ``major
participating institution'' are disadvantageous to residency programs
in small towns and relatively small geographic wage areas because the
definition of ``major participating institution'' requires that the
hospital provide rotations of at least one-sixth of the program length
or 6 months. Since rural hospitals are more likely to sponsor shorter
rotations, hospitals in rural areas would be much less able to meet the
criteria to become part of an affiliated group. The commenter believes
this does not meet with Congressional intent to provide special
consideration for rural areas.
Response: As discussed above, we are modifying the definition of
affiliated group to permit affiliations between hospitals located in
rural areas and hospitals located in an area contiguous to the rural
area.
Comment: Some commenters recommended allowing entities under common
ownership or part of the same ``system'' to be an affiliated group for
purposes of aggregating their caps. Another commenter recommended
creating an additional ``affiliated group'' definition that would allow
aggregation of FTE residents for hospitals under common ownership and
operation with one or more medical schools (the program sponsors)
provided such
[[Page 26337]]
hospitals are within the geographic border of a single state. Another
commenter suggested that hospitals that certify they operate as a
single health care system should be considered an affiliated group,
regardless of the hospitals' geographic locations. These systems
functionally operate coordinated and centrally controlled GME programs
and often rotate their residents among their various facilities
depending on training needs and other considerations.
Response: We agree with the commenters who suggested that hospitals
that are under common ownership should be permitted to be part of the
same affiliated group regardless of geographic boundaries and are
modifying Sec. 413.86(b) accordingly.
Comment: One commenter stated that Medicare's related party
principle should be a basis for defining affiliated group because that
would allow hospitals to better manage training of residents.
Response: We do not agree that Medicare's related party principle
should govern which hospitals qualify to be part of the same affiliated
group. The criteria for being part of an affiliated group are intended
to identify a relationship among hospitals for sharing residents. The
related party principle is used under principles of Medicare cost
reimbursement to determine the costs of a related party which may be
claimed on a hospital's cost report. Under the related party principle,
hospitals may claim costs of a related party which may not be a
hospital. For instance, a hospital may include the costs of a related
medical school on its cost report. Since the related party principle is
used in determining which costs of a related party a hospital is
entitled to claim and is not indicative of joint participation in a
training program, we do not believe the related party principle is
appropriate criteria for determining whether hospitals may be part of
the same affiliated group.
Comment: One commenter stated that the ``affiliation'' policy
should allow for situations where not all affiliated institutions
choose to elect to apply for an aggregate cap.
Response: Hospitals that could qualify to be part of an affiliated
group do not have to affiliate. As we describe in more detail below,
for purposes of applying an aggregate cap hospitals must affiliate by
explicit agreement. If a hospital does not affiliate, that hospital
will remain subject to a cap based on its FTE count in its most recent
cost reporting period ending on or before December 31, 1996. The
aggregate cap will only be applied for hospitals that elect to be part
of an affiliated group.
Comment: Other commenters suggested that unrelated hospitals that
jointly sponsor programs should be allowed to be part of the same
affiliated group.
Response: Under our regulations, common sponsorship will qualify
two or more hospitals to be part of the same affiliated group. We are
revising Sec. 413.86(b) to clarify that hospitals that are jointly
listed for one or more medical residency training programs in the
Graduate Medical Education Directory as a sponsor, primary clinical
site or major participating institution may qualify to be an affiliated
group for purposes of an aggregate FTE cap.
Comment: Many commenters stated that program sponsors should be
able to make decisions about where training should occur and the
hospital FTE caps should be adjusted accordingly. Several commenters
stated that hospitals in an affiliated group should be allowed to
arrange residencies in the manner that best fits their community. One
commenter stated that we should permit adjustments to caps to reflect
rotations resulting from restructuring training programs brought about
by changes in provider affiliations, giving preference to the
sponsoring teaching hospital to subsume residency positions that were
previously in affiliated institutions.
Response: Although we agree that program sponsors are likely the
best qualified to determine how and where training should occur, we do
not believe that it would be appropriate to allow hospital specific
adjustments to FTE caps based on unilateral decisions by program
sponsors or the hospital which sponsors the training program. In
situations where the sponsor of the program is a medical school and not
a hospital, we do not believe it would be appropriate to make
adjustments to hospital FTE caps based on the decision of an entity
that has no relationship to the Medicare program. Furthermore, since
medical schools do not provide cost reports or counts of FTE residents
to Medicare, we do not believe there would be an appropriate mechanism
for making adjustments to hospital FTE caps under the aggregate caps if
decisions regarding affiliations and adjustments are not being made by
hospitals. We would also note that hospitals may be involved in many
medical residency training programs involving different program
directors. Making adjustments to hospital caps based on the decisions
of multiple people within the hospital would not be administratively
feasible. Further, since hospitals may not sponsor all of the programs
they participate in, we do not believe that it is appropriate to make
downward adjustments in a hospital's FTE cap based on a unilateral
decision of another hospital.
Comment: Several commenters noted that the Graduate Medical
Education Directory does not include osteopathic training programs and
requested a reference to an official listing of American Osteopathic
Association approved training programs.
Response: We agree with the commenters who suggested that the
regulation needs a comparable reference for osteopathic medical
residency training programs to the Graduate Medical Education
Directory, which only lists allopathic training programs. Medical
residency programs accredited by the American Osteopathic Association
are listed in a publication called Opportunities, Directory of
Osteopathic Postdoctoral Programs. For purposes of this final rule, if
two hospitals are not located in the same MSA or a contiguous MSA, they
may qualify to be part of the same affiliated group if the hospitals
are jointly listed for one or more programs in Opportunities as the
sponsor or under the heading ``affiliations and outside rotations''
(413.86(b)).
Comment: One commenter stated that the American Osteopathic
Association is requiring all accredited osteopathic GME programs to be
part of an osteopathic postdoctoral training institution (OPTI) by July
1, 1999. There are several hospitals that are currently participating
in an approved OPTI. The commenter was concerned that the OPTI is a
consortium of providers and these consortia would not qualify as an
affiliated group. The commenter recommended that HCFA recognize a
formally organized osteopathic GME consortia without geographic limit.
Further, the commenter stated that any affiliation should be recognized
for aggregation purposes even if the hospitals are not in the same
geographic wage area.
Response: We have reviewed materials regarding the OPTI concept
from the American Osteopathic Association and note that an OPTI may
include an ``associate institution'' that provides 6 months or more of
training per year and an ``affiliate institution'' where less than 6
months of rotations per year are occurring. Since the OPTI concept is
not yet fully implemented, we believe it would be premature to begin
recognizing institutions which are part of an OPTI under the definition
of affiliated groups for purposes of an aggregate FTE cap. However, we
will continue to evaluate whether hospitals
[[Page 26338]]
participating in an OPTI could be part of an affiliated group, and we
will specifically focus on the duration of rotations among hospitals
within the OPTI in making this decision.
Comment: Several commenters stated that accreditation requirements
mandated an increase in their hospital's FTE resident count due to the
transfer of residents from a Veterans Affairs Medical Center or a
Department of Defense facility. These commenters stated that an
exception to the FTE cap should be allowed when a hospital's resident
count increased in situations where the aggregate count of residents
among the affiliated hospitals, including Veterans' Affairs Medical
Centers, remains unchanged. Other commenters recommended that HCFA give
program sponsors the ability to transfer residents from Veterans
Affairs' hospitals to non-Veterans' Affairs hospitals.
Response: Sections 1886(d)(5)(B)(v) and (h)(4)(F) of the Act
provide for FTE caps on the basis of a hospital's most recent cost
reporting period ending on or before December 31, 1996. Section
1886(h)(4)(H) of the Act allows hospitals that are part of the same
affiliated group to apply the FTE cap on an aggregate basis. Veterans'
Affairs and Department of Defense hospitals do not have cost reporting
periods for Medicare payment purposes and do not provide data on FTE
resident counts to Medicare. We believe that hospitals that do not
participate in Medicare should not be part of an affiliated group since
the statute caps the number of residents based on the number of
residents reported by the hospital in its Medicare cost reporting
periods. In addition, hospitals that do not participate in Medicare do
not submit cost reports to a fiscal intermediary; therefore, we would
be unable to apply an aggregate FTE cap to an affiliated group that
included these hospitals.
In summary, we are defining an affiliated group as follows:
Hospitals in the same urban area or in contiguous urban
areas which rotate residents to other hospitals of the group during the
course of the program year;
Hospitals located in the same rural area or in contiguous
rural and urban areas that rotate residents to other hospitals of the
group during the course of the program year; or
Hospitals that are--
--Jointly listed as the sponsor, primary clinical site or major
participating institution as those terms are used in the Graduate
Medical Education Directory for one or more programs; or
--Jointly listed as the program sponsor or under affiliations and
outside rotations in Opportunities, the directory of osteopathic
graduate medical education programs; or
Hospitals which are under common ownership.
b. Application of the FTE caps to an affiliated group. In the
August 29, 1997 final rule, we addressed application of the FTE cap for
hospitals which are members of the same affiliated group. Hospitals
which qualify to be part of the same affiliated group may elect to have
the individual FTE caps applied on an aggregate basis. This means that
we would apply a cap to the group as a whole, and the cap for the group
would equal the sum of the individual FTE caps for all hospitals that
are part of the affiliated group. Indirect and direct graduate medical
education payment would be based on hospital specific FTE counts under
an aggregate FTE cap. In the August 29, 1997 final rule with comment
period, we stated that the aggregate FTE cap for an affiliated group
would be applied on an institution-wide basis. We recognize that
hospitals may participate in many different speciality programs and may
share residents for one specialty program with one hospital but share
residents for a different program with another hospital, but we did not
believe it would be administratively feasible to apply the FTE cap on a
program by program basis. That is, the aggregate cap under the August
29, 1997 final rule with comment period would be the combined
individual caps of each hospital that elects to be part of an
affiliated group
Comment: One commenter stated that hospitals may have rotation
relationships with a number of different hospitals. According to these
commenters, aggregation of resident counts among all hospitals is not
practical or feasible. Many commenters suggested that we should permit
hospitals to aggregate resident numbers at the program level if the
hospitals provide supporting documentation that the aggregate count of
residents within the program remains unchanged. One commenter who
supported affiliations at the program level stated that HCFA should
require hospitals to report FTEs by program sponsor and include a
separate count of each program on the Medicare cost report. Hospitals
would have multiple FTE caps and would be responsible for reconciling
each individual program cap with the intermediary. Several commenters
stated that HCFA should allow affiliated hospitals to transfer programs
and that each hospital's cap be adjusted based on a joint letter from
the affected providers.
Response: As we stated in the August 29, 1997 final rule with
comment period, we recognize that many hospitals may share residents
for particular specialty programs. We stated that hospital affiliations
must be on an institution-wide basis because of our concern about the
administrative feasibility of allowing affiliations on a program-by-
program basis. Although we continue to have concerns that program
specific affiliations may generate enormous complexity in monitoring
FTE resident counts for fiscal intermediaries and may impose
significant documentation burdens on hospitals, we agree with the
commenters that it would be appropriate for Medicare to accommodate
agreements between individual hospitals for specific programs. A
hospital could have an agreement with one hospital for a particular
program and another hospital for a different program. An agreement
between two hospitals does not mean only those hospitals are an
affiliated group, if those hospitals also have agreements with other
hospitals. Rather, the affiliated group includes the original two
hospitals that have an agreement and every hospital that has an
agreement with any of those hospitals. We will continue to apply the
FTE cap on an aggregate basis for institutions that are part of an
affiliated group. That is, we will combine the individual caps for each
institution that has an agreement to be an affiliated group to verify
that the sum total of the resident counts for all institutions does not
exceed the aggregate cap. We will make payment to individual hospitals
based on hospital specific FTE counts.
Each agreement must specify the adjustment to each hospital's FTE
counts from the cost reporting period ending during calendar year 1996
for purposes of applying the aggregate FTE cap for the period of the
agreement. The agreements must specify the adjustment to the IME and
direct GME FTE counts separately since hospitals are subject to two
different FTE counts for each respective cap. Since medical residency
training programs generally follow a July 1 to June 30 residency
training year, each agreement should specify adjustments to FTE counts
on a 12-month basis from July 1 to June 30 of each year. The agreements
must be for a minimum of one program year but may be for more than one
year. A hospital will be permitted to engage in multiple agreements
with different hospitals as illustrated below. For example, hospital A
can have an agreement with hospital B for an
[[Page 26339]]
internal medicine program and another agreement with hospital C for
emergency medicine. Although hospitals B and C do not have an agreement
for any program, the affiliated group is A, B, and C, we will apply the
cap on an aggregate basis for A, B, and C; that is the FTE resident
counts at hospitals A, B, and C can not exceed the sum of the combined
caps for the three hospitals.
If the combined FTE counts for hospitals A, B, and C does not
exceed the aggregate cap, we will pay each hospital based on its
hospital specific FTE count. If the combined FTE counts for hospitals
A, B, and C exceed the aggregate cap, we need individual caps for each
hospital in order to limit payment to the number of FTEs included under
the aggregate FTE cap. In this situation, each hospital will be paid
based on its actual FTE up to its individual FTE cap as adjusted per
agreements. We will allow each respective institution's individual cap
to reflect the adjustment per their individual agreements. However, we
are requiring that agreements regarding application of the aggregate
cap planned for the year be completed by the beginning of each
residency training year (that is, July 1). The hospitals in the
affiliated group may adjust the initial FTE counts by June 30 of each
residency training year if actual FTE counts for the program year are
different than projected in the original agreement.
If a hospital cost report does not correspond with a July 1 to June
30 residency training year, we will prorate the changes specified in
the agreement to each hospital's FTE cap on the basis of a cost
reporting period. In the example illustrated below, there is an
agreement between hospitals A and B to allow hospital A an additional
10 residents that were previously included in hospital B's FTE count.
Hospital B also has an agreement with hospital C to allow hospital B an
additional five residents previously counted by hospital C. We are also
assuming that these agreements are for two years. The aggregate FTE cap
for hospitals A, B, and C will be the combined FTE cap for the these
hospitals. For instance, if hospital A, B, and C each have an FTE cap
of 100 residents, the aggregate cap will be 300 residents. The cap will
be applied as follows per the planned changes assuming hospital A has a
July 1 to June 30 cost reporting period and hospital B has a October 1
to September 30 cost reporting period and hospital C has a calendar
year cost report:
----------------------------------------------------------------------------------------------------------------
Planned change
Planned change in FTE for cost
Hospital Cost reporting period count (for 07/01-06/30) reporting
period
----------------------------------------------------------------------------------------------------------------
Hospital A.............................. 07/01/98-6/30/99.......... +10 per agreement with B.. +10.00
Hospital B.............................. 10/01/97-09/30/98......... -10 per agreement with A.. -2.50
10/01/98-9/30/99.......... .......................... -10.00
Hospital B.............................. 10/01/97-09/30/98......... +5 per agreement with C... +1.25
10/01/98-09/30/99......... .......................... +5.00
Hospital B (total)...................... 10/01/97-09/30/98......... -5 per total agreements... -1.25
10/01/98-09/30/99......... .......................... -5.00
Hospital C.............................. 01/01/98-12/31/98......... -5 per agreement with B... -2.50
01/01/99-12/31/99......... .......................... -5.00
----------------------------------------------------------------------------------------------------------------
Since the agreements are effective July 1, 1998, the agreements are
only in effect for 3 months or 25 percent of the year for hospital B's
October 1, 1997 to September 30, 1998 cost report and the FTE reduction
for the portion of the residency training year included in that cost
report is a net -1.25 FTEs (-2.5 to 1.25) for agreements with hospitals
A and C. The agreements are ongoing for the July 1, 1999 to June 30,
2000 residency training year and the adjustment to hospital B's cap is
a net -5.0 FTEs for the October 1, 1998 to September 30, 1999 cost
reporting period (effectively -3.75 for the October 1, 1998 to June 30,
1999 portion of the cost reporting period included in the residency
training year and -1.25 for the July 1, 1999 to September 30, 1999
portion of the cost reporting period included in the residency training
year). Similarly, a prorated portion of the FTE reduction for hospital
C is included in the January 1, 1998 to December 31, 1998 cost
reporting period for the agreement with hospital B. That is, the FTE
reduction for the portion of the July 1, 1998 to June 30, 1999
residency training year included in hospital C's calendar year 1998
cost report is -2.5 FTE.
Since the agreement is ongoing for the July 1, 1999 to June 30, 2000
residency training year, there is a -5.0 FTE reduction for the calendar
year 1999 cost report (effectively -2.5 for the January 1, 1999 to June
30, 1999 portion of the residency training year included in the cost
report and -2.5 FTE for the July 1, 1999 to December 30, 1999 portion
of the residency training year included in the cost report). If the
group's actual FTE count exceeds the aggregate cap, which equals the
combined individual caps for each hospital (hospitals A, B, and C in
the example above), we will apply the individual FTE caps as adjusted
per agreements. For instance, the combined individual caps for
hospitals A, B, and C equals 300 residents. If the total number of
residents for the cost reporting periods ending in 1999 for hospitals
A, B, and C exceeds 300 residents, we will make payments to each
hospital based on the individual cap as adjusted per agreements.
Hospital A would be paid with a cap based on 110 residents (100 + 10)
for its July 1, 1998 to June 30, 1999 cost reporting period. Hospital B
would be paid based on a cap of 95 residents for its October 1, 1998 to
September 30, 1999 cost reporting period. Hospital C would be paid
based on 95 residents for its January 1, 1999 to December 31, 1999 cost
reporting period. Each hospital that exceeds its individual cap after
the adjustments per the agreements will be paid based on the
methodology described in August 29, 1997 final rule with comment period
(62 FR 46004 and 46005) and repeated in the table found in the Appendix
to this final rule. That is, we will multiply the hospital's unweighted
FTE cap (as adjusted per the agreements) by the ratio of the weighted
to unweighted FTE's for the cost reporting period.
Each agreement must also specify the adjustment to each respective
hospital cap in the event the agreement terminates, dissolves or, if
the agreement is for a specified time period, for residency training
years and cost reporting periods subsequent to the period of the
agreement for purposes of applying the FTE cap on an aggregate basis.
In the absence of an agreement on the FTE caps for each respective
institution following the end of the
[[Page 26340]]
agreement, each hospital's FTE cap will be the indirect and direct
medical education FTE count from each hospital's cost reporting periods
ending in 1996 and the cap will not be applied on an aggregate basis.
The net effect of adjustments to each hospital's FTE cap for each
agreement must total zero on a program basis, as provided for in the
above example. That is, if the agreement involves two hospitals, any
positive adjustment for one hospital must be offset by a negative
adjustment for the other hospital of at least the same amount.
We are allowing individual hospitals to enter into agreements with
multiple hospitals, as illustrated above with hospital B. However, we
are concerned about the administrative feasibility of monitoring the
aggregate FTE caps under these agreements. The situation that concerns
us is reconciling adjustments to FTE caps under an aggregate cap when
the agreements involve hospitals with different fiscal intermediaries.
For instance, in the situation where hospital A and hospital B are
serviced by the same fiscal intermediary but hospital C has a different
intermediary, hospitals A and B's fiscal intermediary will receive two
agreements: one between hospital A and hospital B and one between
hospital B and C. Hospital C's fiscal intermediary must receive the
agreement between hospitals A and B as well as the agreement between
hospitals B and C, for the adjustments to be reconciled in the
aggregate. In the absence of the agreement between hospitals B and C,
hospital C's fiscal intermediary would be unaware that a downward
adjustment to hospital C's cap is required. In the absence of the
agreement between hospitals A and B, hospital C's fiscal intermediary
would be unable to reconcile the aggregate FTE cap between hospitals A,
B, and C.
We believe the only way for aggregate FTE caps to be reconciled
based on multiple agreements between hospitals is for each agreement to
be sent to each hospital's fiscal intermediary. Attached to each
agreement would be copies of other agreements that each hospital which
is part of the original agreement has with other hospitals. This would
require hospital A and B's fiscal intermediary to receive the
agreements between hospitals A and B and hospitals B and C and any
other hospitals which have agreements with those hospitals. Thus, if
hospitals A, B, and C constitute the affiliated group, hospital A and
B's fiscal intermediary would have to receive copies of the agreements
between hospitals A and B and hospitals B and C. Hospital C's fiscal
intermediary also would have to receive copies of the agreements
between hospitals B and C and hospitals A and B. The original and
subsequent agreements must include the provider number of each
respective institution which is part of the agreement, signatures of
each hospital representative, the date of the agreement, and the
respective adjustment to each hospital's FTE cap for indirect and
direct graduate medical education. Each agreement must indicate that
copies are being sent to HCFA. Copies of the original agreement must be
sent to: Division of Acute Care, C5-08-27, 7500 Security Boulevard,
Baltimore, Maryland 21244. We will consider changes to the process
described above if we find a less burdensome approach to reconciling
individual FTE caps under aggregate caps.
We are establishing this process for application of an aggregate
FTE cap pursuant to section 1886(h)(4)(H) of the Act, which states that
the ``Secretary may prescribe rules which allow institutions which are
members of the same affiliated group (as defined by the Secretary) to
elect to apply'' the FTE caps on an aggregate basis. The statute
provides the Secretary with broad authority to define what is an
affiliated group and how to apply the FTE caps to members of that group
and we are establishing the process described above under this broad
authority. Our policy provides a mechanism to make payments to
individual hospitals under an overall cap that is consistent with the
caps of the individual hospitals included in the affiliated group. As
we have stated earlier, although we have concerns about the ability to
reconcile multiple agreements, we are providing this policy to allow
hospitals that jointly participate in training the flexibility to
change arrangements for training residents.
Comment: Some commenters stated that hospitals will not have
incentives to form affiliated groups if one hospital will have to
relinquish its FTEs included in its cap to another hospital. These
commenters recommended that HCFA, through the aggregation rules, give
program sponsors the ability to aggregate and then transfer residency
positions between participating hospitals. Another commenter suggested
that we consider allowing hospitals to aggregate FTEs at the level of
the sponsoring institution. One commenter stated that medical schools
that are not part of academic medical centers are at a particular
disadvantage in assuring that they will be able to move their residents
among affiliates.
Response: As we have stated previously, sections 1886(d)(5)(B)(v)
and (h)(4)(F) of the Act limit the number of FTEs that hospitals can
count for Medicare payment for indirect and direct GME, respectively.
While Congress did extend authority to the Secretary to develop rules
that allow hospitals that are part of the same affiliated groups to
elect to apply the FTE cap on an aggregate basis, section
1886(h)(4)(H)(ii) of the Act states that ``institutions which are
members of the same affiliated group'' may ``elect to apply the
limitation of subparagraph (F) on an aggregate basis''. Since Medicare
makes payment to hospitals and subparagraph (F) provides for the FTE
cap on the basis of hospital cost reporting periods, we do not believe
it would be appropriate to allow program sponsors that, as stated
above, may or may not be hospitals to make decisions about hospital FTE
caps for purposes of Medicare payment. Furthermore, participation in an
affiliated group is voluntary. Even in situations where the program
sponsor is a hospital, we believe it would be inappropriate to allow
one hospital to make a decision about the application of individual FTE
caps under an aggregate FTE cap, without the second hospital's
agreement.
We recognize that hospitals may be reluctant to agree to lower
individual FTE caps under an aggregate cap. However, the aggregate
limit is a voluntary provision. Affiliation is an option that hospitals
may ``elect,'' in accordance with rules established by the Secretary,
to allow for the movement of residents among participating hospitals
under an aggregate FTE cap.
Comment: One commenter stated that the IME resident-to-bed ratio
and the FTE resident caps should be applied in the aggregate for
institutions that are members of an affiliated group. The commenter
believed that the application of the cap, as proposed, will have ``the
unintended affect of discouraging multi-hospital and ambulatory site
program configurations''. The commenter noted that there is no
provision in the regulation which would allow an adjustment to the IME
FTE and resident-to-bed ratio cap for affiliated groups.
Response: We agree that Sec. 412.105 should reference
Sec. 413.86(g)(4) for purposes of applying the IME FTE cap on an
aggregate basis. Section 412.105 should also be modified to reference
Sec. 413.86(g)(6) for purposes of adjusting the IME FTE cap for new
medical residency training programs. We are including these references
in Sec. 412.105. However, we disagree that the intern and resident-to-
bed ratio for an affiliated
[[Page 26341]]
group should be determined in the aggregate. Section 1886(h)(4)(H) of
the Act gives the Secretary the authority to develop rules that allow
affiliated hospitals to elect to apply the FTE caps on an aggregate
basis. The statute applies the affiliation provision solely to the FTE
cap.
Comment: One commenter requested that HCFA further clarify the
aggregate adjustment to the caps for affiliated programs. The commenter
asked how the aggregate cap would be calculated for an institution that
has several GME programs but is affiliated with another institution for
only one program. The commenter requested that HCFA provide several
examples of aggregate limit calculations. One commenter asked whether,
in determining the aggregate FTE resident count, affiliated hospitals
will pool their total unweighted FTE count from their respective cost
reports ending on or before December 31, 1996.
Response: We have provided more detailed information above on the
application of the FTE caps for hospitals that are members of the same
affiliated group.
Comment: Several commenters recommended that an adjustment be made
for hospitals that jointly participated in a residency training program
prior to December 31, 1996 and subsequently ended the arrangement. If a
hospital ended a joint training agreement, the sponsor will have to
find another training site but may not be able to find an alternative
unless the FTEs of the previously affiliated hospital can be counted by
the new hospital that affiliates with the sponsor. Similarly, one
commenter suggested that a group of hospitals that is ``legally''
affiliated should be allowed to include the base year FTEs of all
member hospitals in application of the cap, even if those hospitals are
no longer involved in resident training and the programs are moved to
other hospitals in the group. Another commenter stated that HCFA should
apply both institutional and aggregate caps using a flexible
methodology that recognizes changes in hospital clinical and teaching
affiliations. This commenter stated that the application of the
resident cap should be governed by a methodology that ensures fair and
equitable treatment of providers whose resident counts change as a
consequence of disaffiliation or other major programmatic changes. One
commenter recommended that hospitals that disaffiliate have the option
of determining the distribution of resident counts among each of the
hospitals so long as the aggregate limit is not exceeded. If hospitals
cannot reach an agreement, limits could be based on their respective
base year resident counts.
Response: Hospitals that no longer have a relationship for training
residents do not meet the criteria for being members of the same
affiliated group even if those hospitals jointly participated in
residency training in the past. The criteria for being members of the
same affiliated group are intended to recognize that hospitals which
have relationships for training residents need flexibility in those
arrangements under an aggregate FTE cap. If hospitals no longer have a
relationship for training residents, we do not believe there is a need
for this same flexibility. We recognize there are situations where the
sponsor of a training program terminated its relationship for training
residents with a hospital after 1996 and, as a result, there may be
fewer FTE residents that may be counted for indirect and direct
graduate medical education payment purposes. However, this is a direct
result of the Balanced Budget Act which specifically required FTE caps
to be based on 1996 FTE counts.
Comment: One commenter requested instructions on how hospitals
should apply to be part of an affiliated group.
Response: As stated above, hospitals seeking to receive payments as
an affiliated group must provide agreements specifying adjustments to
FTE caps by July 1 of each year for the contemporaneous residency
training year.
In summary, we will apply the FTE caps for an affiliated group as
follows:
Hospitals that qualify to be members of the same
affiliated group for the current residency training year and elect an
aggregate cap must provide an agreement to the fiscal intermediary and
HCFA specifying the planned changes to individual hospital counts under
an aggregate FTE cap by July 1 for the contemporaneous (or subsequent)
residency training year.
Each agreement must be for a minimum of one year and may
specify the adjustment to each respective hospital cap under an
aggregate cap in the event the agreement terminates, dissolves or, if
the agreement is for a specified time period, for residency training
years and cost reporting periods subsequent to the period of the
agreement. In the absence of an agreement on the FTE caps for each
respective institution following the end of the agreement, each
hospital's FTE cap will be the IME and direct GME FTE count from each
hospital's cost reporting periods ending in 1996.
Each agreement must specify that any positive adjustment
for one hospital must be offset by a negative adjustment for the other
hospital of at least the same amount.
The original agreements must be signed and dated by
representatives of each respective hospital that is a party to the
agreement and that agreement must be provided to the hospital's fiscal
intermediary with a copy to the HCFA. Copies of agreements that each
hospital which is part of the original agreement has with other
hospitals must also be attached.
Hospitals that provided an earlier agreement for planned
changes in hospital FTE counts may provide a subsequent agreement on
June 30 of each year modifying the agreement for applying the
individual hospital caps under an aggregate FTE cap.
If the combined FTE counts for the individual hospitals that are
members of the same affiliated group do not exceed the aggregate cap,
we will pay each hospital based on its hospital specific FTE count. If
the combined FTE counts for the individual hospitals that are members
of the same affiliated group do not exceed the aggregate cap, we will
pay each hospital based on its FTE cap as adjusted per agreements.
O. Payment to Managed Care Plans for Graduate Medical Education
Section 4624 of the BBA amended section 1886(h)(3) of the Act to
provide a 5-year phase-in of payments to teaching hospitals for GME
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 in all areas
of the hospital (and nonhospital settings 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, the ratio of the total number of inpatient bed days that are
attributable to Medicare managed care enrollees to total inpatient
days, and an 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.
In the August 29 final rule with comment period, we revised
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
[[Page 26342]]
periods beginning on or after January 1, 1998.
Section 4001 of the BBA 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. The BBA also added section 1853(a)(3)(B) of the Act to require
the Secretary to collect data necessary from managed care organizations
to implement this provision.
Comment: One commenter supported using teaching hospitals, not
managed care plans, as the source of statistics for indirect and direct
GME payments for Medicare managed care beneficiaries. This commenter
also supported including payments for Medicare managed care
beneficiaries in periodic interim payments (PIP) made to hospitals
because of the current lengthy delays in receiving payments from
managed care organizations. Another commenter supported careful
implementation of this provision and expressed particular concern about
identifying and verifying managed care patients days and discharges.
One commenter stated that HCFA should use data from ``no pay'' claims
from hospitals to make GME payments for Medicare managed care
beneficiaries. This commenter had strong concerns that an alternate
claims submission and reporting mechanism which relies upon managed
care entities to submit DRG and related patient information is fraught
with potential problems which will likely affect data integrity and
cash flow. One commenter suggested that HCFA utilize the expertise
available in the hospital field to develop an administratively simple
and low-cost mechanism to make GME payments to hospitals for Medicare
managed care patients.
Response: As we stated in the final rule with comment published on
August 29, 1997, section 4001 of the BBA 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. Section
1853(a)(3)(B) requires the Secretary to collect the necessary data to
implement the provision. Under section 4622 and 4624 of the BBA,
teaching hospitals may receive indirect and direct GME payments
associated with Medicare+Choice discharges. Since publication of the
final rule with comment on August 29, 1997, we have consulted with
hospitals, managed care plans, and fiscal intermediaries for purposes
of developing a process to implement these provisions.
We anticipate teaching hospitals will need to submit claims
associated with Medicare+Choice discharges to the fiscal intermediaries
for purposes of receiving indirect and direct medical education
payments. When the claims are processed, the fiscal intermediaries will
make the IME payment associated with a Medicare+Choice discharge
directly to the teaching hospital. Teaching hospitals will also be
required to submit bills associated with Medicare+Choice organizations
to the managed care plans. The inpatient encounter data from these
bills will be submitted by the managed care plans to HCFA for purposes
of implementing the risk adjustment methodology. The fiscal
intermediaries should revise interim payments to reflect the Medicare
direct GME payment associated with Medicare+Choice discharges. However,
until the fiscal intermediaries have more experience with paying
hospitals for direct GME associated with Medicare+Choice discharges, we
believe the fiscal intermediaries will have limited data upon which to
base interim payment. We are making adjustments to the Medicare cost
report to allow for settlement of the cost report reflective of direct
GME payment associated with Medicare+Choice discharges.
P. Payment to Nonhospital Providers
Under section 4625 of the BBA, 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 invited comments on how to implement this provision,
particularly on how to determine appropriate payment for ambulatory
sites.
We recently published a proposed rule to implement section 4625 of
the BBA.
Q. Payment for Combined Medical Residency Training Programs
1. Initial Residency Period
Under Sec. 413.86(g)(2) residents within an initial residency
period are weighted as 1.0 FTE for purposes of the direct GME payment.
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 the BBA amended section 1886(h)(5)(G) of the
Act to require that for combined programs consisting only of primary
care training, the initial residency period 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 family
medicine, general internal medicine, general pediatrics, preventive
medicine, geriatric medicine, or osteopathic general practice. This
provision also added one year to the initial residency period for
combined primary care and obstetrics and gynecology programs. In the
August 29 final rule with comment period, we amended Sec. 413.86(g)(1)
to implement the provisions of section 1886(h)(5)(G).
Comment: One commenter sponsors a dual program in Family Practice/
Osteopathic Manipulative Medicine and noted that it was not recognized
in the regulations as a combined primary care residency program that is
eligible for an additional year in the initial residency period limit
under the special rule for combined primary care medical residency
programs.
Response: Section 1886(h)(5)(H) defines primary care resident to
mean a resident enrolled in an approved medical residency training
program in family medicine, general internal medicine, general
pediatrics, preventive medicine, geriatric medicine, or osteopathic
general practice. Since osteopathic manipulative medicine is not
included in the definition of a primary care resident, the special rule
for primary care combined programs does not apply.
[[Page 26343]]
2. Effective Dates
Comment: One commenter stated that the effective dates for IME and
direct GME are inconsistent; one is ``effective for discharges on or
after October 1, 1997'' while the other is for ``cost reporting periods
on or after October 1, 1997''.
Response: We have received a number of questions regarding the
effective dates for the provisions of the BBA related to GME. Section
4621(b) of the BBA, which amended section 1886(d)(5)(B)(v)of the Act to
establish the FTE cap for the indirect medical education adjustment, is
effective for discharges occurring on or after October 1, 1997. The cap
on the intern and resident to bed ratio mandated by section
1886(d)(5)(B)(vi) (as amended by section 4621(b) of the BBA) is
effective beginning with the hospital's first cost reporting period
occurring on or after October 1, 1997. Section 4623 of the BBA
establishes the FTE cap for direct graduate medical education and is
effective beginning with a hospital's first cost reporting period
beginning on or after October 1, 1997.
3. Accrediting Body Reference
Comment: One commenter recommended that we revise our regulations
to indicate that the accrediting body for dental residencies is the
Commission on Dental Accreditation rather than the Council on Dental
Education.
Response: We are amending Sec. 415.152 to reflect this comment.
R. Special Categories of Excluded Hospitals (Sec. 412.23)
Section 4417(b) of the BBA 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. We
revised Sec. 412.23(e) to implement this provision.
Section 4418 of the BBA 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. In the August 29 final rule with comment period, we revised
the regulations at Sec. 412.23(f) to incorporate this provision.
We received no public comments on these revisions.
S. Payment of Hospitals and Units Excluded from the Prospective Payment
System (Sec. 413.40)
The BBA significantly altered the payment provisions for excluded
hospitals and units. Prior to the passage of the BBA, 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. We received 19 comments on our implementation of
the BBA provisions for PPS-excluded hospitals and units. Below we
discuss the statutory and regulatory provisions (see 62 FR 46016
through 46020), as well as our comments and responses.
1. Rate-of-Increase Percentages for Excluded Hospitals and Units
(Sec. 413.40(c) and (g))
Section 4411 of the BBA amended section 1886(b)(3)(B) of the Act
regarding the rate-of-increase percentages to be applied to target
amounts. 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.
Comment: One commenter requested that we clarify the data needed to
calculate the applicable rate-of-increase percentages under section
4411(b).
Response: Under section 1886(b)(3)(B)(vi) of the Social Security
Act, as added by section 4411 of the BBA, the update factor for a given
cost reporting period is determined by comparing the hospital's
allowable costs ``for the most recent cost reporting period for which
information is available'' to the hospital's target amount ``for such
cost reporting period.'' In the August 29, 1997 final rule with comment
period, we provided four examples of the calculation of the applicable
rate-of-increase percentages for cost reporting periods beginning in FY
1999. These examples reflect the information necessary to compute the
applicable rate-of-increase percentages. The fiscal intermediary will
compute the applicable rate-of-increase before the beginning of each
cost reporting period, using the most recent cost report data.
2. Request for a new base period (Sec. 413.40(b))
Sections 4413(a) and 4413(b) of the BBA 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).
Comment: One commenter argued that, if an excluded hospital or unit
does not request a new base period under the new statutory payment
methodologies of sections 4413(a) and (b), the hospital should
nevertheless be permitted to obtain a new base period at any time
pursuant to the previously published regulation at Sec. 413.40(i) and
to receive
[[Page 26344]]
payments under the payment methodology of the new statutory provision.
Another commenter asserted a hospital should be allowed to choose the
five cost reporting periods for calculating a rebased FY 1998 target
amount per discharge, in order to reflect expected cost report
reopenings.
Response: Under sections 4413(a) and (b) of BBA, an excluded
hospital or unit may elect rebasing and receive a revised target amount
for the hospital's 12-month cost reporting period beginning during FY
1998 (October 1, 1997 through September 30, 1998). As indicated in the
August 29 final rule with comment period, this is a one time option
(for FY 1998 only). If a hospital does not elect rebasing for the cost
reporting period beginning during fiscal year 1998, it cannot elect
rebasing at a later date for a later cost reporting period.
With regard to the suggestion of the commenter that we allow
hospitals to choose which cost reports to use to calculate a rebased
target amount, the statute requires the Secretary to use the five
``most recent settled cost reports as of the date of enactment'' of the
BBA (August 5, 1997).
Comment: Three commenters believe that the timeframe for requesting
a new base period under section 4413 is unduly short, arguing that the
required information is difficult to obtain. One commenter suggested
the timeframe be extended to 90 days after the beginning of the cost
reporting period beginning in FY 1998.
Response: In the August 29 final rule with comment period, we
stated that a hospital that elects rebasing 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
believe that this is a reasonable timeframe for a hospital to elect
rebasing. The information required for an election includes the
hospital's name, provider number, cost reporting period, and the cost
per case from the hospital's five most recent settled cost reports. All
of this information should be readily available to the hospital.
A hospital's target amount for a cost reporting period should be
established before the beginning of the cost reporting period, so that,
among other things, the hospital can appropriately structure its costs
within the target amount. Due to the extremely short timeframe between
the enactment of the BBA and the beginning of FY 1998, we established a
special rule to address hospitals whose cost reporting periods begin
early in FY 1998. As noted above, we believe our timeframes are
reasonable and that is not necessary or appropriate to extend the
timeframes.
Comment: One commenter asked that we further clarify the
calculation of the disproportionate share percentage to determine
whether a long-term care hospital is eligible for rebasing under
section 4413(b) of the BBA.
Response: Under the statute, a long-term care hospital may elect
rebasing under section 4413(b) of the BBA if, among other things, ``the
hospital would have a disproportionate patient percentage of at least
70 percent (as determined by the Secretary under subsection
(d)(5)(F)(vi)) if the hospital were a subsection (d) hospital.'' As
stated both in the preamble of the final rule (62 FR 46018) and at
Sec. 413.40(v) of the regulation text (62 FR 46032), the calculation of
the disproportionate patient percentage is addressed at Sec. 412.106 of
the Medicare regulations. Fiscal intermediaries are familiar with the
calculation of the disproportionate patient percentage and can assist a
long-term care hospital if necessary.
3. Limitation on the Target Amount for Excluded Hospitals and Units
(Sec. 413.40(c))
Section 4414 of the BBA 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 statute directs the Secretary to
calculate ``the 75th percentile of target amounts'' for three classes
of hospitals--psychiatric hospitals and units, rehabilitation hospitals
and units, and long-term care hospitals--for ``cost reporting periods
ending during fiscal year 1996.''
Similarly, section 4416 of the BBA (discussed further below)
establishes a new statutory payment methodology for new excluded
hospitals. To determine payments for a new excluded hospital, the
statute directs the Secretary to calculate ``110 percent of the
national median of target amounts for hospitals in the same class as
the hospital for cost reporting periods ending during fiscal year
1996.'' The amount calculated in section 4416 is updated and adjusted
for differences in area wage levels, and the resulting figure is a
limit on payments for the new hospital or unit.
Thus, sections 4414 and 4416 both direct the Secretary to examine
target amounts for three classes of hospitals for cost reporting
periods ending during FY 1996. However, section 4416, unlike section
4414, requires that the calculation applicable to new hospitals reflect
an adjustment for differences in area wage levels.
The 75th percentile of the target amounts for cost reporting
periods ending during fiscal year 1996, as updated by the market basket
up to FY 1998 (as corrected in a correction notice published March 6,
1998 (63 FR 11148)) are as follows:
(1) Psychiatric hospitals and units: $10,534
(2) Rehabilitation hospitals and units: $19,104
(3) Long-term care hospitals: $37,688
In the August 29, 1997 final rule with comment period, we stated
that if a hospital has a target amount that is capped at the 75th
percentile, the hospital would not be granted an exception payment as
governed by Secs. 413.40(a) and (g) 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 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 and are unaffected by
the 75th percentile cap.
Comment: One commenter suggested that Sec. 413.40(c)(4)(iii) of the
regulations be modified to clarify that in the case of a psychiatric
hospital or unit, rehabilitation hospital or unit, or long-term care
hospital, the target amount for FYs 1998 through 2002 is equal to the
lower of--
The hospital specific target amount (the net allowable
costs in a base period increased by the update factor for the subject
period); or
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
for the subject period.
Response: We agree with the commenter and are modifying
Sec. 413.40(c)(4)(iii) to incorporate this clarification.
Comment: Five commenters argued that section 4414 requires the
Secretary to estimate, but not implement, caps using the 75th
percentile of the target amounts for psychiatric and rehabilitation
hospitals or units, and long-term care hospitals. One commenter
asserted that the Secretary should have waited for additional
legislation to implement caps on the target amounts and then
independently determine whether to implement in light of the impacts of
other provisions of the BBA.
Response: The title of section 4414 of the BBA is ``Cap on the
TEFRA limits.'' The Conference Report indicates that
[[Page 26345]]
the provision limits, or caps, target amounts for hospitals excluded
from PPS. The statute requires us to calculate a cap for cost reporting
periods beginning during fiscal year 1998, and requires updates to the
caps for cost reporting periods beginning during fiscal years 1999
through 2002. We do not believe the Congress intended that we calculate
these numbers but not apply them as a cap. Moreover, since the statute
requires us to calculate a cap for cost reporting periods beginning
during fiscal year 1998, we do not believe the application of the caps
should be delayed until subsequent years.
Comment: Two commenters believe the payment caps on target amounts
for rehabilitation hospitals and units and long-term care hospitals
under section 4414 and section 4416 are not correct because separate
caps were not established within each class of excluded hospital (in
particular rehabilitation and long-term care hospitals) to reflect
hospitals specializing in the treatment of high cost patients, such as
a rehabilitation unit which specializes in treating Medicare patients
with spinal cord injuries.
Response: Section 4414 provides that, ``In the case of a hospital
or unit that is within a class of hospital described in clause (iv),
the Secretary shall estimate the 75th percentile of the target amounts
for such hospitals within such class * * *.'' Similarly, section 4416
provides that ``in the case of a hospital or unit that is within a
class described in subparagraph (B) which first receives payments under
this section on or after October 1, 1997,'' the amount of payment is
based in part on ``110 percent of the national median of the target
amount for hospitals in the same class as the hospital * * *.'' Both
statutory provisions list three classes of hospitals and indicate that
each ``shall be treated as a separate class of hospitals.'' We believe
the best reading of the statutory language is that we calculate the
caps for each class of hospital as a whole. If a hospital chooses to
subspecialize in high cost patients, it will need to consider the
impacts the caps on the target amounts will have on its reimbursement.
Comment: Four commenters believed the caps on the target amounts
that were calculated under section 4414 are not correct because
discharge weighting and wage adjustments were not applied to the FY
1996 target amounts in determining the 75th percentile caps on the
target amounts.
Response: The statute directs the Secretary to ``estimate the 75th
percentile of the target amounts'' for three classes of hospitals.
Section 4414 does not direct the Secretary to estimate the 75th
percentile of discharge-weighted target amounts.
Several commenters contended that we should implement a wage
adjustment in applying the caps for individual hospitals. Under such a
wage adjustment, the hospitals within a class of hospitals would be
capped at different numbers, reflecting different wage adjustments for
different geographic areas. Implementation of a wage adjustment would
adversely affect some hospitals. In the August 29 final rule with
comment period, we calculated the caps without wage adjustments. We
continue to believe that our methodology for establishing the caps
reflects the best interpretation of the statute. As discussed below, we
believe that the statutory language, the statutory scheme, and the
legislative history, viewed together, strongly argue against making a
wage adjustment in applying the TEFRA caps.
Section 1886(b)(3)(H)(i) of the Act, as added by section 4414 of
the BBA, states that, ``In the case of a hospital or unit that is
within a class of hospital described in clause (iv), the Secretary
shall estimate the 75th percentile of the target amounts for such
hospitals within such class for cost reporting periods ending during
fiscal year 1996.'' (Emphasis added.) Clause (iv), in turn, lists three
classes of hospitals and indicates that each ``shall be treated as a
separate class of hospital.'' Thus, the statute directs the Secretary
to examine target amounts in a prior period and to calculate a single
number--the 75th percentile of those target amounts--for each of three
classes of hospitals.
Pursuant to this mandate, we examined the best available data to
identify hospitals within each class of hospitals for the cost report
period ending during fiscal year 1996, to identify those hospitals that
were actually subject to a target amount for the cost reporting period
ending during fiscal year 1996, and to determine the target amounts for
those hospitals. We then calculated the 75th percentile of those target
amounts for each class. Thus, we did exactly what the statute directs
us to do.
The statutory language directs the Secretary to calculate the 75th
percentile of target amounts, but it does not explicitly direct or even
authorize the Secretary to make adjustments to that number after the
number is calculated. Contrary to the belief of some commenters, our
decision not to implement a wage adjustment is not based solely on the
fact that the statute does not explicitly require one. We agree that
the absence of an explicit instruction, in and of itself, does not
necessarily mean that the Secretary cannot implement a wage adjustment.
However, congressional ``silence'' on this issue must be construed in
light of the statutory scheme and the legislative history, as well as
policy considerations.
Two aspects of the statutory scheme argue against making a wage
adjustment in applying the caps. First, as discussed above, section
4414 requires us to calculate a separate number for each class of
hospitals. Congress has established a scheme which directs us to
recognize differences across types of hospitals, but does not direct us
to recognize differences in wages. If we were to calculate numbers as
directed by Congress, and then adjust those numbers for factors that
the Congress did not address, we would arguably undermine the scheme
established by the Congress.
In addition to the ``scheme'' of section 4414 itself, one should
also consider section 4414 in light of the other statutory provisions.
Several commenters have pointed out that in several other statutory
provisions the Congress did explicitly require a wage adjustment. We
agree that this is significant, but unlike the commenters we believe it
argues against making a wage adjustment in this context. We concluded
that, because the Congress explicitly requires wage adjustments in some
contexts, congressional failure to require a wage adjustment in this
context reflects a judgment by the Congress that the agency should not
make one here.
In addition to the statutory text and scheme, the legislative
history also supports a single cap applied to all hospitals within each
class of hospitals. The Conference Report indicates that, under the
House Bill, a target amount for a PPS-exempt hospital ``could not be
greater than the 90th percentile of the target amounts for cost
reporting periods beginning during that fiscal year.'' This language
indicates that all hospitals within a class would be capped at a single
number (the 90th percentile). The Conference Report indicates that the
Senate Amendment contained a similar provision ``except that the target
amount could not be greater than the 75th percentile of the target
amount for each class of hospitals.'' Again, this language indicates
that all hospitals within a given class would be capped at the same
number (in this case, the 75th percentile rather than the 90th
percentile).
The Conference Report then indicates that ``[t]he conference
agreement includes the House bill, with
[[Page 26346]]
amendments. The Secretary would be required to estimate the 75th
percentile of the target amounts for each category of hospitals * *
*.'' There is no reference anywhere in the Conference Report to a wage
adjustment to the TEFRA caps.
Thus, we believe the statutory text, the statutory scheme, and the
legislative history all support a cap that is not adjusted for wages.
None of these factors by itself is necessarily dispositive, but taken
together, we believe the best interpretation of the statute is that we
should not make a wage adjustment.
While from a broad policy perspective a wage adjustment might be
appropriate, policy considerations do not dictate a wage adjustment.
While a wage adjustment might be preferable policy, the lack of a wage
adjustment is not unreasonable. Congress could reasonably have made a
judgment that all hospitals within a class should be subject to the
same cap, whether for administrative ease, budgetary considerations, or
some other reason.
Some commenters argue that failure to make a wage adjustment is
inconsistent with other Medicare payment policies. But a payment cap is
different from a payment rate. A payment cap does not affect every
hospital, only hospitals that are above the cap. Therefore, a wage
adjustment is less imperative in this context. And one could reasonably
conclude that the Congress made a judgment that the 75th percentile
reflects a reasonable cap regardless of geographic area. Although we
believe implementation of the cap without a wage adjustment represents
the best reading of the statute, we believe that accounting for area
wage differences is an appropriate policy and would support a hospital
sponsored legislative change. We would work with Congress to develop
such a policy and its ramifications.
Taking into consideration the statutory language, the statutory
scheme, and the legislative history, we believe the best reading of the
statute enacted by the Congress is that we should calculate a single
number for hospitals within each class and not apply a wage adjustment.
We believe that, in any event, the Secretary's policy is consistent
with the statute and is reasonable.
Comment: Three commenters objected to the data we used to calculate
the caps on the target amounts for long-term care hospitals under
section 4414. Six commenters objected to the data we used to calculate
110 percent of the national median of target amounts for long-term care
hospitals under section 4416. The commenters asserted that the data set
used to compute the cap incorrectly excluded hospitals, incorrectly
included hospitals, and reflected inaccurate 1996 target amounts for
Medicare certified long-term care hospitals. One commenter recommended
that the caps on target amounts for long-term care hospitals be
recalculated from ``time to time'' to reverify the data.
Response: As explained in the final rule with comment period (62 FR
46018), we developed the caps on the target amounts using the best
available data to identify hospitals in each class that were subject to
a target amount and to determine the target amounts for those
hospitals. We verified the data to the extent possible during the
extraordinarily short timeframe between the enactment of the BBA
(August 5, 1997) and the required publication date of the final rule
(August 29, 1997).
The commenters contended that the data we used to calculate the
caps was faulty. First, they argue that we incorrectly excluded 20
hospitals that were subject to a target amount in 1996 from the
calculation of the new hospital cap. We have determined that this
argument is largely erroneous. In fact, 16 of these 20 hospitals were
new hospitals in their exemption period during 1996; these hospitals
were exempt from the target amount system and were not subject to a
target amount in their cost reporting period ending during FY 1996. The
statute directs us to calculate the 75th percentile ``of target
amounts,'' so these hospitals were correctly excluded from the
calculation.
Of the remaining four hospitals, two hospitals became PPS hospitals
during or after FY 1996 but did have a target amount for the cost
reporting period ending in FY 1996. When we were developing the August
29, 1997 rule, we believed that the two remaining hospitals were in
their exemption period during FY 1996, but in light of the comments, we
have determined that these hospitals were subject to a target amount
during their cost reporting period ending during FY 1996. As discussed
further below, we are revising the caps (prospectively) to reflect the
target amounts for these four hospitals.
The commenters also asserted that the Secretary has the discretion
to include an additional 15 target amounts for long-term care hospitals
that were in their exemption period for the cost reporting period
during FY 1996. The commenters argue that the cost reporting period
ending during FY 1996 serves as the base period for these hospitals and
thus the Secretary should include the data for these hospitals in the
110 percent of the median calculation. Based on the comments, we
reexamined these hospitals and confirmed that these 15 hospitals were
in their exemption period for the cost reporting period ending during
FY 1996. If a hospital was within its exemption period, it was not
subject to a target amount for the cost reporting period ending in FY
1996, whether or not that period was ultimately used as the hospital's
base period for calculating the target amount for future years. Since
the statute directs us to examine ``target amounts,'' the data for
these hospitals were properly excluded from the calculations.
The commenters also contended that we inappropriately included
hospitals with an average length of stay of less than 25 days in the
110 percent of the median calculation. Under the statute, a hospital
may be excluded as a long-term hospital if its average length of stay
is greater than 25 days. Under our implementing regulations, a hospital
qualifies to be paid as a long-term care hospital for a given cost
reporting period if its average length of stay for a prior period is
greater than 25 days. Therefore, a hospital may be classified as a
long-term care hospital for a given cost reporting period even if its
average length of stay for that period ultimately turns out to be less
than 25 days.
The hospitals cited by the commenters were classified as long-term
care hospitals for the cost reporting period ending during FY 1996, and
were paid under the target amount methodology. Accordingly, these
hospitals were properly included in the calculations.
Thus, the commenter's assertions regarding our data were largely
erroneous. Nevertheless, in light of the information that is now
available to us, including information in the public comments, we are
revising the calculations. We are revising the 110 percent of the
median calculation to include the target amounts for the two hospitals
described earlier that converted to PPS after the cost reporting ending
during FY 1996, and the target amounts for the two hospitals that we
originally believed to be in the exemption period in FY 1996. The
target amounts for these hospitals appropriately should be included in
the 110 percent of the median and 75th percentile calculation. The
addition of these data did not change the 75th percentile calculation.
We are also including the target amounts for three hospitals which were
previously excluded because of a lack of wage index data. The target
amounts for these three hospitals were already included in the 75th
percentile calculation because
[[Page 26347]]
a lack of wage index data did not impact the calculation of the 75th
percentile cap.
As a result of these revisions, the updated 110 percent of the
national median target amounts for new long-term care hospitals is
$21,494 for FY 1998. The labor-related share is $15,380 and non labor-
related share $6,114.
We are applying these revised caps prospectively. For a new long-
term care hospital whose cost reporting period began prior to the
effective date of this final rule, the revised calculations would apply
to the portion of the cost reporting period that occurs after the
revision becomes effective. We note that these revised caps shall be
the basis for the caps applicable for future cost reporting periods.
We are making a one-time mid-year revision to the caps because of
the extraordinary circumstances presented by the timing of the
enactment of the BBA. We do not agree with the commenter who argued
that the caps on target amounts for long-term care hospitals should be
recalculated from ``time to time'' in order to reverify the data. The
statute provides that the cap in a future year shall be determined by
taking the cap for the previous year and applying an update factor.
Comment: One commenter disagreed with the elimination of exception
payments for a hospital with a target amount that was capped.
Response: Section 4414 of the BBA establishes a cap, that is, a
limit, on the target amounts for rehabilitation hospitals and units,
psychiatric hospitals and units, and long-term care hospitals.
Generally, we believe it would be anomalous to set a cap on a
hospital's target amount and then grant the hospital an exception so
that it could receive payments above the cap.
4. Bonus and Relief Payments (Sec. 413.40(d))
a. Bonus payments. Section 4415 of the BBA 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 a 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 the BBA amended section 1886(b)(2) of
the Act to provide for ``continuous improvement bonus payments'' for
hospitals that meet certain criteria.
b. Relief payments. Section 4415 of the BBA 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 equal the ceiling. If a hospital's costs are greater than
110 percent of the ceiling, payment will equal 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 the BBA does not provide relief for costs that are within 110
percent of the ceiling, we made 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 received no public comments on this corresponding change.
5. New Excluded Hospitals and Units (Sec. 413.40(f))
With the enactment of sections 4416 and 4419 of the BBA, which
amended section 1886(b)(4) of the Act and added section 1886(b)(7) of
the Act, Congress established a new framework for payments for new
excluded providers. First, section 4419(a) amended section
1886(b)(4)(A)(i) of the Act, to eliminate ``exemptions'' for all
classes of excluded entities except children's hospitals. Second,
section 4416 added a new section 1886(b)(7) of the Act to establish a
new statutory payment methodology for psychiatric hospitals and units,
rehabilitation hospitals and units, and long-term care hospitals which
first receives payments on or after October 1, 1997. For these
hospitals, the amount of payment for each of the first two cost
reporting periods 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 to the first cost reporting period and adjusted for differences
in area wage levels. The target amount for the 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.
Comment: One commenter requested clarification as to whether the 6-
month qualification period, during which a long-term care hospital
demonstrates an average length of stay of greater than 25 days, will be
included as part of the 2-year exemption period for new excluded
hospitals under section 4419.
Response: As explained in the August 29 final rule with comment
period (62 FR 46019), section 4419 eliminates the 2-year exemption
period for all classes of excluded hospitals except children's
hospitals. Thus, effective October 1, 1997, we will no longer grant an
exemption for new long-term care hospitals. If a hospital qualifies as
a new-long term care hospital, the statutory payment methodology under
section 4416 applies for the hospital's first two years as a long-term
care hospital. A hospital is not classified as a long-term care
hospital during the 6-month qualification period.
Comment: Two commenters suggested that Sec. 413.40(f) of the
regulations be modified to state that the new statutory payment
methodology of section 4416 does not apply to a hospital or unit that
changes the basis of its exclusion (for example, from long-term care to
rehabilitation) on or after October 1, 1997. One commenter, a long-term
care hospital chain, objected to our policy and asserted that we had
engaged in retroactive rulemaking and incorrect statutory
interpretation because an existing PPS hospital that is acquired and
recertified as a long-term care hospital on or after October 1, 1997
will now be subject to lower new long-term care hospital caps.
Response: Section 1886(b)(7) of the Act, as amended by section 4416
of the BBA, applies ``in the case of a hospital or unit that is within
a class of hospital described in subparagraph (B) which first receives
payments on or after October 1, 1997.'' Thus, the statutory payment
methodology of section 4416 of the BBA applies if two conditions are
met: (1) the hospital or unit is within one of the classes of hospitals
specified in the statute (psychiatric, rehabilitation, long-term care),
and (2) the hospital ``first receives payments on or after October 1,
1997.'' We believe these two conditions should be read together. That
is, section 4416 applies if the hospital first receives payments on or
after October 1, 1997 as a hospital within one of the excluded classes.
Thus, if a hospital first receives payments on or after October 1,
1997 as a PPS-excluded hospital in one of the specified classes
(psychiatric, rehabilitation, or long-term care), then it is subject to
the statutory payment methodology for new excluded hospitals under
section 1886(b)(7) of the Act. The methodology for new excluded
hospitals applies if a hospital received payments as a PPS hospital
before October 1, 1997 and became excluded on or after October 1, 1997.
If a hospital received payments as a PPS-excluded hospital in one of
the classes before October 1, 1997, the hospital would be subject to
the cap for non-new hospitals under section 1886(b)(3)(H) of the Act,
as added by section 4414 of the BBA.
[[Page 26348]]
6a. Grandfathering of Certain Hospitals-Within-Hospitals
Section 4417 of the BBA specifies that a hospital that was
classified by the Secretary on or before September 30, 1995 as an
excluded long-term 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. While this provision is specific to
long-term care hospitals, we believe the considerations underlying the
legislation also apply to other types of hospitals-within-hospitals.
Therefore, as explained in the preamble to the August 29, 1997 interim
final rule with comment period (62 FR 46014), we revised our
regulations applicable to prospective payment system exclusions of
``hospitals within hospitals'' to implement section 4417 (a)(1) of the
BBA, by specifying that if a hospital was excluded from the prospective
payment system on or before September 30, 1995, the criteria applicable
to hospitals within hospitals do not apply to it (see Sec. 412.22(f)).
We also noted that in light of this revision, we were withdrawing our
earlier proposal to include a specific provision for State-owned
hospitals-within-hospitals. That provision, described in the June 2,
1997 proposed rule (62 FR 29902), was designed to allow continued
exclusion of State-owned facilities that had been operated for many
years as hospitals-within-hospitals but had not been able to
restructure themselves because of the requirements of State law.
Since publication of the August 29, 1997 final rule with comment
period, some hospital managers and representatives have asked whether
Sec. 412.22(f) applies only to hospitals that were and were also
organized as hospitals-within-hospitals on or before September 30,
1995, or to any hospitals that may have been excluded from the
prospective payment system on or before that date.
We wish to clarify that the rule is a grandfathering provision that
applies only to those hospitals that were excluded from the prospective
payment system on or before September 30, 1995, and were also organized
as hospitals-within-hospitals on or before that date. Hospitals that
were PPS-excluded on or before September 30, 1995, but were not
excluded as hospitals-within-hospitals at that time, do not qualify for
exclusion under section 4417(a). If they choose to reorganize
themselves in ways that result in application of the hospital-within-a-
hospital criteria, they will have to meet these criteria to preserve
their prospective payment system exclusion status. We are making
changes in Sec. 412.22(f) to clarify this point.
6b. Capital Payments for Excluded Hospitals and Units (Sec. 413.40(j))
Section 4412 of the BBA 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 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.
Comment: One commenter suggested that Sec. 413.40(j) of the
regulations be modified to state that the 15-percent reduction for
capital-related costs required by section 4412 of the BBA does not
apply to capital-related costs for outpatient services.
Response: We agree with the commenter and are modifying
Sec. 413.40(j).
7. Report on Adjustment Payments to the Ceiling (Sec. 413.40(g))
Section 4419(b) of the BBA amended section 1886(b)(4) of the Act to
require 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. We will publish this report in the annual
rulemaking documents for the hospital inpatient prospective payment
systems.
T. Limited-Service Rural Hospital Program
Prior to the BBA, the statute authorized a seven State Essential
Access Community Hospital (EACH) and Rural Primary Care Hospitals
(RPCH) program. RPCHs were limited-service rural hospitals that
provided outpatient and short-term inpatient hospital care on an urgent
or emergency basis and then released patients or transferred them to an
EACH or other acute care hospital.
Montana also has a separate, limited service hospital program
called the Medical Assistance Facility (MAF), that has been in
operation since 1988 and operates under a demonstration waiver from
HCFA. These limited service hospitals are reimbursed for providing
treatment to Medicare beneficiaries even though they are not required
to meet all requirements applicable to hospitals. A total of 12 MAFs
have been licensed and certified.
The BBA replaced the EACH/RPCH program with the Medicare Rural
Hospital Flexibility Program (MRHFP).
The MRHFP is available in any State that chooses to set up such a
program and provides 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 (CAHs).
To be eligible as a CAH, a facility must be a rural public or
nonprofit hospital located in a State that has established a MRHFP, and
must be either located more than a 35-mile drive from any other
hospital or CAH or certified by the State as being a necessary provider
of health care services to residents in the area. 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 BBA also defined 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 with at least one
other member 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.
Under the BBA, no new EACH designations will be made, but rural
hospitals designated as EACHs under previous statutory provisions may
continue to be paid as sole community
[[Page 26349]]
hospitals. The previous payment provisions applicable to RPCHs are
repealed, and the statute instead provides that CAHs will be paid on a
reasonable cost basis for their inpatient and outpatient services. The
statute 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.
The BBA also provided 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.
To allow the changes made by the enactment of the BBA to be
implemented by the statutory effective date of October 1, 1997, we
published the August 29, 1997 final rule with comment period that
retained the provisions of then existing RPCH regulations, except where
the BBA clearly required us to make a change. In the August 29 final
rule with comment period, we described in detail the substantive
changes that we made to parts 409, 410, 412, 413, and 485 to implement
the section 4201 amendments (62 FR 46008). We also made nomenclature
changes to reflect the statutory change from RPCHs to CAHs.
In the August 29 final rule with comment period, we discussed in
detail the process for review and acceptance of State assurances from
States interested in establishing a MRHFP (62 FR 46009). Specifically,
we described the assurances and information that must be included in a
State's application. We solicited comments on whether the information
and assurances were sufficient, or whether other information or
assurances are needed.
Section 1820(k) of the Act, as in effect prior to the enactment of
the BBA, explicitly authorized States with EACH programs to designate
facilities in adjacent States as EACHs or RPCHs if certain conditions
were met. Section 4201 of BBA revoked that authority. Therefore, a
facility can be designated as a CAH only by a State in which it is
located. We revised Sec. 485.606 to remove any reference to this
authority.
Section 1820(f)(1)(B) of the Act, as in effect prior to the
enactment of the BBA, explicitly allowed, under certain circumstances,
States with EACH programs to designate facilities as RPCHs even though
the facilities had closed and were no longer functioning as hospitals
at the time they applied for RPCH status. The BBA removed that
authority so there is now no basis on which a closed facility can be
designated as a CAH. We revised Sec. 485.612 to reflect this change.
We received 33 letters of comment. We summarize the comments and
give our responses below.
1. State Rural Health Care Plan Review and Approval
Comment: One commenter stated that in view of differences between
the various States that may set up a MRHFP, HCFA should not impose
common standards or criteria on all State plans or, if some common
standards are needed, should give States advance notice of the
standards and how they will be applied. Other commenters stated that
the regulations regarding the development of State rural health plans
should allow States maximum flexibility in the development of CAHs in
rural areas of the State. Specifically, the commenters suggested that
the reference to ``certain requirements'' for the State rural health
care plan be clarified. The commenters believed that States should be
given maximum flexibility within a defined format to plan for their
rural heath care access needs. Also, since the creation of a State
rural health care plan is reflective of the needs of the health care
recipients in a given State, the commenters believed it would be
appropriate to give the regional offices authority to approve these
State plans. Another commenter stated the CAHs need to be designed to
permit as much flexibility as possible and to allow linkages with other
programs to maximize their abilities to serve the frontier areas of the
individual state. The State rural health care plan must address the
unique needs and conditions of the particular rural settings within
their boundaries.
Response: We recognize that the factors limiting access to care can
vary from State to State, and even from one rural area to another
within a State. To account for this diversity, we agree that States
should be allowed as much flexibility as possible to tailor plans to
meet the unique needs of their residents and the conditions of the
particular rural setting, including the needs of those living in
frontier areas. We also agree that CAHs within a State be given as much
flexibility as possible. At the same time, however, the BBA requires
that all State rural health care plans meet certain minimum
requirements.
Regarding State responsibilities, the statute specifies that the
rural health care plan must provide for the creation of one or more
rural health networks, promote regionalization of rural health services
in the State, and improve access to hospital and other health services
for rural residents of the State. In addition, the statute requires the
State to develop the 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. We intend to impose the
common standards for State rural health care plans only to the extent
that they are mandated by statute. If HCFA develops any additional
common standards for the State rural health care plan beyond those
mandated by the current statute to ensure that the new legislation is
administered in a fair and predictable way, those requirements would be
communicated through regulation. Regarding regional office approval, we
agree that the regional offices should have authority to approve the
State rural health care plans, and have issued instructions that allow
them to do this. We do, of course, expect that the regional offices
will consult with HCFA's central office on any issues having national
policy significance.
Comment: Other commenters stated that given their experience under
the RPCH program, they recommend greater emphasis on the creation and
maintenance of a rural health network. They suggested that the MRHFP
will be better served by more fully defining network requirements and
mandating network membership for CAHs. Another commenter noted that the
financial incentives used for network formation benefit Medicare
beneficiaries. They stated that their rural health network has been
extremely helpful as an enhancement to the care they can provide. One
commenter suggested that there needs to be a better definition of the
network described in the regulations, regarding the actual functions of
the network.
Response: We support the creation of rural health networks as
envisioned in the legislation. However, the legislation does not
preclude an otherwise eligible hospital from becoming a CAH solely
because it is not a network member. In view of this, we do not believe
it would be appropriate at this point to mandate network membership. We
also note that section 1820(d) of the Act defines ``rural health
network'' and does not explicitly authorize the imposition of any
additional requirements on networks. In view of these considerations,
at this point, we have decided not to mandate network membership for
CAHs or
[[Page 26350]]
impose further requirements on networks.
Comment: Given the fragile and unstable financial condition of
small rural hospitals, a lengthy process for reviewing and approving
State rural health care plans is untenable. Several commenters
suggested that HCFA should set a 30 or 60 day time limit for review and
approval of State rural health care plans, and allow States to proceed
to designate and certify facilities as CAHs based on assurances in a
draft rural health plan, as long as the State pledges to complete the
plan in a timely fashion. Another commenter did not specify a timeframe
for action, but emphasized that HCFA should act quickly on State rural
health care plans and that all requests for additional information
should be reasonable in scope, with consistency among regional offices
as to the type and extent of additional information requested.
Response: We agree that State rural health care plans should be
reviewed and approved as quickly as possible, and that requests for
additional information should be reasonable and specific, so that the
approval process is not unduly delayed. However, we do not believe a
self-imposed deadline would be useful to help achieve an expedited
approval process. States are free to designate facilities under a draft
plan, but no facility will be assigned a CAH provider number and give a
provider agreement until the State rural health care plan has been
approved and the CAH is certified as meeting all the requirements
following an initial survey by the State agency.
Comment: Because changes in their circumstances may affect rural
hospitals' interest in participating in the MRHFP, any list of
facilities that the State has designated or plans to designate as CAHs
will not be static, but will change frequently. Commenters suggested
that instead of requiring the State to submit such a list, HCFA should
simply ask for a description of the process for State designation, and
of the criteria used to select hospitals for designation.
Response: We recognize that there may be frequent changes in any
list of facilities that the State plans to designate, and agree that it
is important for the State to describe its selection process and
criteria clearly. However, we continue to believe a list of current and
prospective designees is useful in developing an overall view of the
State program.
Comment: Some commenters stated that HCFA should allow States great
flexibility in making ``necessary provider'' certifications, and in
defining key terms such as ``mountainous terrain'' or ``secondary
roads.'' The commenter recommended that States be allowed to perform
these functions without special waivers or centralized review. One
commenter asked that we refer to States as ``designating'' rather than
certifying necessary providers. Another commenter stated that the
statute gives States broad authority to designate facilities as CAHs,
even if they do not meet statutory requirements such as distance. Still
another commenter suggested that necessary provider status be dependent
solely on State designation with no Federal oversight. However, one
commenter took the opposite view, stating that it is important that
HCFA provide clear implementation instructions that allow providers and
HCFA staff to know whether the criteria are met. This commenter
believed that unless such criteria are developed and issued, there
could be confusion as to what constitutes mountainous terrain or
secondary roads.
Response: We agree that States should have great flexibility in
making these certifications and in determining how to apply the
distance requirements in making State designations. However, consistent
implementation of the statute requires that the regional office also
exercise oversight over these functions through the State rural health
care plan approval process, and by ensuring that hospitals are given
CAH status by the Secretary only if they meet applicable statute and
regulations. To emphasize the importance of complying with applicable
statute and regulations, we are revising Sec. 485.606(b)(1) to specify
that facilities (other than grandfathered facilities) will be
recognized as CAHs by HCFA only after they have been surveyed and found
to meet applicable requirements.
We are also revising the section heading for Sec. 485.606 and the
paragraph for Sec. 485.606(b) to refer to ``certification'' rather than
designation by HCFA. This change in terminology is being made for
consistency with section 1820(e) of the Act which also refers to
certification by the Secretary.
Regarding the terms used to describe State findings of necessary
provider status, we will continue to refer to hospitals ``certified''
by the State as necessary providers because that is the term used in
the statute (section 1820(c)(2)(B)(i)(II) of the Act) and because
designation is used in another context to denote a finding by the State
that the hospital meets all requirements to be a CAH under its plan,
not merely the location requirements (sections 1820(b)(2) and (c)(1)
and (2) of the Act).
2. Criteria for Designation as a CAH
Comment: One commenter stated that the existence of the 35-mile
restriction fails to recognize the value of providing services even
when certain rural providers are within 35 miles of another hospital,
and that it fails to take into account the significantly greater
population density of these rural areas and the importance of
maintaining service for an older and poorer population where no
significant transportation systems are in place. The commenter
encouraged HCFA to reconsider its policy encouraging such limits as the
35-mile and rather encourage overall implementation of CAH status for
many rural hospitals in the country. Commenters also noted that in some
States there are no hospitals located more than 35 miles from others,
and recommended that the regulations be revised to allow States to
develop alternative mileage criteria for State designations.
Response: The statute at section 1820(c)(2)(B)(i)(I) of the Act
specifically includes the requirement that a hospital seeking CAH
status be more than 35 miles (or, in mountainous areas or those with
only secondary roads, 15 miles) from the nearest other hospital or CAH,
and HCFA does not have the authority to allow States to substitute
another standard. However, the statute also authorizes States to
designate otherwise eligible facilities that do not meet the standard
as CAHs if the State finds the facility is a ``necessary provider''. We
believe this provision allows States adequate flexibility to deal with
specific situations in which access is limited even though the
prospective CAH is within 35 miles of another hospital.
Comment: One commenter was concerned about the location
requirements at Sec. 485.610(b)(4) which provide that a CAH must be
located more than a 35-mile drive from a hospital or another CAH or the
CAH must be certified by the State as being a necessary provider of
health care services to residents in the area. The commenter
interpreted this provision to mean that either the quantified criteria
fit a particular situation or it is left to the State to determine the
appropriateness of the necessary provider situation. The commenter also
stated that the second means of establishing CAH eligibility is not a
waiver of the first standard; it simply stands apart from the mileage
criteria.
Response: As stated previously, section 1820(c)(2)(B)(i)(I) of the
Act includes a general requirement that a hospital seeking CAH status
be more than 35 miles (or, in mountainous areas
[[Page 26351]]
or those with only secondary roads, 15 miles) from the nearest hospital
or CAH. Section 1820(c)(2)(B)(i)(II) provides an exception to that
general requirement for a hospital that is certified by the State as a
necessary provider of health care services to residents in the area. We
do not agree with the commenter's view that the provision for
``necessary provider'' certification somehow stands apart from the
basic requirement. On the contrary, it clearly is set up as an
alternative method of qualifying for a facility which cannot meet the
basic mileage rule. In this context, we also wish to clarify that the
necessary provider certification must be specific to each hospital, and
that we would not accept a blanket statement, unsupported by any other
information, to the effect that a State considers all hospitals it has
designated as CAHs to be ``necessary providers.'' We would expect that
State criteria for making the ``necessary provider'' certification will
be defined in the State rural health care plan. The States can make the
designation of necessary provider of health care services to residents
of an area, however, this is just one of several criteria the facility
must satisfy to qualify as a CAH. The assertion that these other
criteria have been met is subject to Secretarial review and approval.
Section 1820(b)(3) makes it clear that the Secretary may require, as
part of the application process, ``other information and assurances.''
As to the ``necessary provider'' determination, the Secretary may
require the State to submit the information that formed the basis of
the State's determination.
Comment: One commenter suggested that the regulations be clarified
to allow a State's ``necessary provider'' certification as an
alternative to the distance criteria. The commenter believed that State
criteria should be related to community needs and access issues, and
State criteria should be outlined in the State rural health care plan.
Response: While we agree that the State should outline its criteria
in its plan, the regulations at Sec. 486.610(b)(4) already provide for
certification by the State of a ``necessary provider'' in place of the
distance requirement and we believe no further clarification is
necessary.
Comment: One commenter stated that a per-stay limitation on the
length of inpatient stay, such as the 96-hour limit imposed under the
MRHFP, may be more restrictive than the average length of stay rule
applicable to RPCHs. The commenter noted that PROs are authorized to
waive the per-stay limit for particular cases, but suggested that
obtaining such waivers would be burdensome for both the facility and
the PRO and therefore should be used only rarely. Therefore, the
commenter indicated an interest in seeking a legislative change to
return to a rule based on a facility-wide average length of stay,
saying that such a limit would allow CAHs greater flexibility to serve
patients.
Response: Because a change in the statute would be needed to
authorize use of a length-of-stay limit based on facility averages, we
have not revised the regulations based on this comment. We will, of
course, consider the commenter's views in deciding whether to support
any proposed amendments to the provisions imposing a per-stay limit.
Comment: One commenter noted that the definition of ``rural'' used
under both the RPCH and MRHFP regulations, which is the same definition
used for other Medicare payment purposes, considers each individual
county to be either ``urban'' or ``rural'' in its entirety. The
commenter pointed out that there are some large counties that encompass
both densely populated urban areas and very small, remote rural areas.
Another commenter expressed the view that the statute should be changed
to allow use of a definition that recognizes some areas of such
counties as being ``rural,'' and asked that we support such a change.
Another commenter simply asked that the implementing regulation at
Sec. 485.610(b)(2) be changed to reflect this type of situation.
Response: We agree that a change in the statute would be needed to
authorize such a definition, since section 1820(c)(2)(B)(i) of the Act
mandates use of the ``rural'' definition in section 1886(d)(2)(D) of
the Act. Thus we did not revise the regulations based on these
comments.
Comment: One commenter stated that in order to extend acute care
services to areas that have not previously had access to these
services, facilities other than hospitals should be considered eligible
for designation as critical access hospitals. The commenter suggested
that Congress intended that this be done so that extremely remote
areas, such as some parts of Alaska, would have access to hospital-
level services for the first time through the MRHFP.
Response: We do not agree that the intent of the legislation as
enacted was to expand acute care capacity into new areas. On the
contrary, we believe it is intended to preserve existing acute care
capacity by encouraging appropriate downsizing and reduction in the
scope of services in order to use the remaining capacity in the most
efficient manner. Furthermore, we note that section 1820(c)(2)(B)(i) of
the Act, specifies that a State may designate a facility as a CAH only
if the facility is a hospital. In view of the specificity of the
statute on this point, we do not believe that either the States or HCFA
have discretion to designate nonhospital facilities as CAHs.
3. Grandfathering/Transition Issues
Comment: One commenter asked that we clarify the statutory language
that would allow RPCHs to be grandfathered as CAHs. A commenter
suggested that the regulations be revised to grandfather all existing
RPCHs as CAHs immediately, and all MAFs as CAHs effective October 1,
1998, following the phaseout of the MAF program. Another commenter
suggested that existing RPCHs be grandfathered as CAHs without regard
to whether they are otherwise eligible for State designation. Another
commenter expressed concern regarding the interpretation of the term
``otherwise eligible''; the intent being that RPCH facilities that do
not meet all the new requirements will not be grandfathered in. They
believe that automatic designation of all existing MAFs and RPCHs as
CAHs is the only approach that reflects the common meaning of the term
``grandfathering.'' One commenter believed all existing RPCH facilities
must be grandfathered and be consistent with the current rules that
were in effect when the facility was designated as such.
Response: Under section 1820(h) of the Act, grandfathering is
available only to MAFs operating in Montana and to RPCHs designated as
such by the Secretary under section 1820 prior to enactment of the BBA
(August 5, 1997), if they are otherwise eligible for designation by the
State under section 1820(c). We have no authority to extend
grandfathering to other facilities that do not meet these requirements.
Moreover, when a State represents that a facility should qualify as a
grandfathered CAH, HCFA may request data to support that representation
pursuant to section 1820(b)(3) of the Act.
Comment: One commenter suggested that some special provision be
made for facilities that were designated as RPCHs under previous
legislation, but cannot meet the 35-mile distance criterion imposed by
the new legislation. The commenter noted that such facilities will
likely be designated as CAHs under the new legislation, and suggested
that they continue to be treated as RPCHs at least until the State has
submitted a rural health care plan under the new MRHFP.
Response: As noted in previous responses, the statute has provided
[[Page 26352]]
States with the authority to certify facilities as ``necessary
providers'' if the 35-mile criterion is not met. However, for a RPCH to
be treated as a CAH (assuming it meets the other statutory
requirements) in lieu of the 35 mile criterion, it will need to be
certified by the State as being a necessary provider of health care
services to residents in its area by the beginning of its next cost
reporting period. However, section 1820(h) of the Act allows
grandfathering of a MAF or RPCH only if the facility or hospital is
otherwise eligible and we intend to implement this provision of the
statute.
4. Payment Issues
Comment: Under the EACH/RPCH program, EACHs participating in the
program received sole community status as an incentive for
participating as a member of a EACH/RPCH network. One commenter pointed
out that while the regulations allow for the continuation of enhanced
reimbursement to EACHs, there is no such enhanced payment to acute care
facilities serving as resources to CAH facilities. The commenter
recommended sole community reimbursement to those acute care hospitals
that will assist CAHs.
Response: Section 4201(c)(4) of the BBA authorized the continuation
of payment for those hospitals who had participated as EACHs in the
EACH/RPCH program and, thus, were designated sole community hospitals.
The regulations reflect this statutory provision. However, we have no
statutory authority to adopt the commenter's recommendation of allowing
sole community status for those hospitals assisting the CAHs under the
MRHFP.
Comment: One commenter stated that the amendments made by the BBA
do not necessarily eliminate the all-inclusive payment option for
outpatient services that was explicitly provided for under prior law
(section 1834(g)(1)(B) of the Act, as in effect before enactment of the
BBA). The commenter noted that section 1834(g) of the Act was amended
to provide for payment of the reasonable cost of the CAH in providing
the outpatient services, and suggested that the all-inclusive rate
method, as a cost-based method, would be permitted by the new
legislation. Commenters also argued that the all-inclusive rate method
furthers one of the goals of the BBA, in that it encourages the
development of integrated rural health networks. Thus, the commenter
recommended that the regulations be revised to again make the all-
inclusive rate method available for outpatient services. Another
commenter also recommended that the all-inclusive rate option be made
available to critical access hospitals or, as an alternative, that the
RPCHs that had elected the all-inclusive method continue to be paid
under that method at least until October 1, 1998.
One commenter stated that some facilities that had operated
provider-based rural health clinics in the past closed those clinics
and instead elected payment under the all-inclusive rate option,
thereby benefiting by being able to claim payment at levels of cost
higher than would be permitted under the physician fee schedule. The
commenter stated that such facilities may choose to reopen their rural
health clinics if they are not allowed to continue to claim payment
under the all-inclusive rate method. The commenter suggested that
reopening the facilities as RHCs would entail considerable
administrative expense for the facility and suggested that this could
be avoided if the all-inclusive option were retained. One commenter
stated that because of the all-inclusive method they have been able to
enter into legally binding contracts with health professionals to
provide skilled medical services. To interrupt these contracts (by
discontinuing the all-inclusive method) could result in the
discontinuation of these services to their patients and could prove
financially detrimental to the well-being of the hospital.
Other commenters also expressed concern regarding the elimination
of the all-inclusive method. Of these commenters, one stated that this
method enabled small rural hospitals to recruit and retain physicians
because they could integrate the physician and hospital payments.
Another stated that this method simplified the billing process because,
by combining the professional portion of an encounter with the
technical service, time and paperwork are reduced. Several commenters
stated that elimination of the all-inclusive method will have
significant financial implications, prevent some hospitals who would
otherwise benefit from the program from participating, and many rural
patients will lose access to specialists because this option
strengthened the ability to recruit traveling physician clinics.
Another commenter stated that the all-inclusive-rate method should be
reinstated or, at a minimum, a professional fee should be included in
the facility cost structure for CAHs.
Response: We reviewed the commenters' concerns carefully, but we do
not agree that we have discretion to retain the all-inclusive rate
option. Under Medicare, physician services to hospital patients are not
paid through the hospital, but are billed separately to the Medicare
carrier and paid for under the physician fee schedule (sections
1832(a)(1), 1861(s)(1), and 1842 of the Act). Facility services are
billed to the Medicare intermediary. Previous law (specifically,
section 1834(g)(1)(B) of the Act, as in effect before the enactment of
the BBA), explicitly authorized an exception to this practice, in that
it permitted RPCHs to elect to be paid for services to outpatients
under an all-inclusive rate method, described in that section, which
reflects the costs of both facility and physician services.
The BBA amended section 1834(g) of the Act to eliminate the RPCH
payment methods, including the all-inclusive rate option. Under the
statute, as amended, the option of paying for physician services to
hospital patients through payment to the CAH for its costs no longer
exists. On the contrary, CAHs are to be paid for their reasonable costs
of facility services. Physician services will be billed separately to
the Medicare Part B carrier, and payment will be made under the
physician fee schedule. We also considered the proposal that RPCHs that
had elected to be paid for outpatient services under the all-inclusive
rate method be allowed to continue receiving payment under that method
until October 1, 1998. At this time, we are allowing existing RPCHs
that are to be grandfathered as CAHs to continue to receive payment
under the all-inclusive payment until each facility's first cost
reporting period beginning after October 1, 1997. However, since the
statute made no provision for extension of this payment methodology for
CAHs, this payment methodology will be eliminated at the end of the
period stated above. Continuation of previous payment methods for MAFs
through September 30, 1998, is possible because section 4201(c)(6) of
the BBA explicitly authorizes such a transition period for them.
However, there is no similar provision for RPCHs.
Regarding RHC conversions, we do not accept the commenter's claim
that eliminating the all-inclusive payment method will force hospitals
to set up RHCs. Physicians who provide services to outpatients of CAHs
are entitled to bill for these services on the same basis as if they
had been furnished in a hospital outpatient department.
We agree that one major goal of the legislation is to foster
networking and appropriate integration of services. However, we believe
that integration of services through improved coordination, sharing of
patient information, and other clinical measures does not require that
physician billing
[[Page 26353]]
and facility billing be integrated, nor that such financial integration
necessarily encourages clinical integration.
Comment: Several commenters requested that HCFA clarify that
coinsurance amounts for CAH services are to be determined based on the
hospital's charges, as is the case for full-service hospitals and most
other providers.
Response: We agree and have made appropriate revisions to
Sec. 410.152(k) in these final rules.
Comment: The principle of lesser of cost or charges was not applied
to RPCH payment determinations under previous statutory provisions.
Commenters recommended that HCFA clarify that this principle also does
not apply in determining the amount of payment for CAH services.
Response: We agree and have made revisions to Secs. 413.13(c)(2)
and 413.70 to specify that this principle does not apply to CAH payment
determinations.
Comment: One commenter stated that some CAHs may need to use locum
tenens (temporary substitute) physicians to maintain the availability
of emergency services on a 24-hour basis. The commenter recommended
that the regulations be revised to state that costs of locum tenens
physicians are allowable.
Response: As is the case for full-service hospitals, standby costs
of emergency room physicians who are present at the emergency room are
allowable costs and will, to the extent they are reasonable in amount,
be taken into account in computing Medicare payment. However, Medicare
does not recognize costs of ``on-call'' physicians as allowable costs
of operating a CAH.
Comment: One commenter asked for clarification as to which specific
reasonable cost payment principles will be applied in determining
payment to CAHs. Specifically the commenter asked whether, for
inpatient services, CAHs would be subject to the principles of lesser
of cost or charges, ceilings on the rate of hospital cost increases,
limits on payment for services of physical, occupational, and other
therapy services furnished under arrangements, reasonable compensation
equivalent (RCE) limits on payments for services of physicians to
providers, and the SNF routine nursing service cost limits. With
respect to outpatient services, the commenter asked whether payment
would be subject to the principles of lesser of cost or charges,
reasonable compensation equivalent (RCE) limits on payments for
services of physicians to providers, the 5.8 percent operating cost
reduction, the capital cost reduction, blended payment amounts for ASC,
radiology, and other diagnostic services, and the fee schedule for
clinical laboratory tests.
Response: We plan to apply the limits on physical, occupational,
speech, and other therapy services furnished under arrangements in
determining the reasonableness of costs of both inpatient and
outpatient services. We do not plan to apply the principles of lesser
of cost or charges; ceilings on the rate of hospital cost increases;
any type of reductions of operating or capital costs under Sec. 413.24
or Sec. 413.130(j)(7); the blended payment amounts for ambulatory
surgical centers (ASC) services, radiology, and other diagnostic
services; or the clinical laboratory fee schedule. We do not plan to
apply RCE limits on payments of physicians to providers. However, we
note that the costs of these services will be subject to both the
prudent buyer principle (section 2103 of the Medicare Provider
Reimbursement Manual) and the requirement that costs not be
``substantially out of line'' with those of other, similar institutions
(Sec. 413.9(c)(2)). Intermediaries are authorized to examine all
claimed costs to make sure they are not substantially out of line. An
intermediary might in this respect refer to the RCE limits as one guide
as to what may be reasonable in a given case. We have not specified
that the SNF routine cost limits do not apply to CAHs, since this is
self-evident.
Comment: One commenter suggested that, to ensure that payment
policies are applied uniformly in all States and to make it easier for
critical access hospitals to have questions answered and problems
resolved, a single national intermediary should be designated to handle
all CAH payment.
Response: In the case of both hospitals and CAHs, the intermediary
for a particular facility is determined by the location of the
facility. In general, each facility is serviced by a nonprofit or
commercial insurance plan that also administers other health insurance
programs for facilities in the State, and is familiar with
characteristics of health care delivery systems in that State.
Therefore, use of the existing intermediaries to make payment to CAHs
should help contribute to an orderly transition to the new program,
since the intermediary servicing a facility as a CAH would also have
serviced it as a hospital or RPCH and would be fully familiar with the
facility's operation and cost characteristics. However, we agree that
use of a single national intermediary (or regional intermediaries)
would appear to have some advantages in terms of ensuring that payment
is made uniformly and consistently. We will consider this suggestion
further and evaluate the feasibility of a single national intermediary
at some time in the future.
5. Other Issues
Comment: One commenter stated that both the RPCH and CAH
regulations allow facilities to close at times when there are no
inpatients, as long as the emergency services requirements in
Sec. 485.618 are met. The commenter stated that existing regulations
allow emergency services to be provided through a triage and on-call
system, while anti-dumping requirements under section 1867 of the Act
require that all patients coming to the emergency room be seen by a
physician or midlevel practitioner. The commenter stated that
compliance with the provisions of section 1867 of the Act will increase
a CAH's cost of operating an outpatient department and suggested that
retention of the all-inclusive rate is needed to meet the added cost.
Response: The emergency services requirements for CAHs are exactly
the same as they were for RPCHs, as are the section 1867 provisions on
examination and treatment for emergency medical conditions and women in
labor (as implemented under Secs. 489.20(q) and 489.24). Except for the
change in terminology from RCPH to ``critical access hospital'', the
regulations at Sec. 485.618 were not changed in any way. With respect
to personnel, these regulations provide (in paragraph (d)) that there
must, on a 24-hour a day basis, be a practitioner with training and
experience in emergency care on call and immediately available by
telephone or radio contact, and available on site within 30 minutes.
The practitioner referred to may be an M.D. or D.O, a physician
assistant, or a nurse practitioner. Within this minimum staffing
requirement, the CAH is obligated by the regulations at Sec. 489.24 to
provide an appropriate medical screening examination and, if necessary,
stabilizing treatment to any person who comes to the emergency room and
requests examination or treatment, or has such a request made on his or
her behalf. As noted in Sec. 489.24, these services need only be
provided within the capability of the CAH's emergency department. Thus,
the transition to CAH status should not generate any additional costs
for the facility.
Comment: One commenter stated that Congress clearly intended to
allow CAHs to maintain swing beds, and suggested that restricting CAH
swing-bed agreements to those facilities that
[[Page 26354]]
had such agreements as full-service hospitals or as RPCHs would be
unfair to other hospitals and former RPCHs, and could limit access to
skilled nursing services for Medicare patients. Therefore, the
commenter suggested that we revise the regulations to make it clear
that hospitals or RPCHs that do not have swing-bed agreements at the
time they become CAHs are free to enter into those agreements later, if
they meet the requirements in Sec. 485.645.
Response: We agree and have revised Sec. 485.645(a)(1) to eliminate
the requirement that a facility have had a hospital swing-bed agreement
when it applied for CAH designation.
Comment: One commenter recommended that, for purposes of waiving
the 96-hour length of stay restriction under Sec. 482.620(b), we
provide that peer review organizations (PROs) should have discretion to
base decisions only on clinical judgment of specific cases, without
having to follow guidelines imposed by HCFA. One commenter also states
that the 96 hours length of stay should be an average of 96 hours.
Response: We agree that PROs will necessarily have to make case-
specific clinical judgements to implement this waiver provision, and do
not plan to release any guidelines to them in the near future. However,
further experience with the program may indicate a need for centralized
guidelines to ensure that the waiver provision is implemented uniformly
in all States, and if such guidelines are needed they will be issued.
As to an average of 96 hours length of stay, the statute is clear that
the longest stay permitted will be a 96-hour period, that is, the 96-
hour limit will be applied on a per-stay basis rather than to the
facility-wide average length of stay. Consequently, we made no changes
in the regulations based on this comment.
Comment: One commenter stated that revised Sec. 485.612
(``Compliance with hospital requirements at time of application'')
would effectively eliminate participation in the CAH program by
hospitals that are licensed but not certified. The commenter believed
the intent of Congress was to limit CAH candidates to only hospitals in
full compliance with the Medicare/Medicaid conditions of participation
at the time of application.
Response: We agree, the MRHFP was established through changes to
the Medicare law and its purpose is to preserve access to services by
Medicare beneficiaries. Hospitals that do not participate in Medicare
cannot be paid for nonemergency services to Medicare patients, and thus
do not serve as a source of care for most Medicare services. In view of
this, we do not believe there is any basis for making CAH designations
available to these hospitals. This approach is consistent with previous
RPCH policy and with the statutory requirement that only hospitals be
designated as CAHs.
Comment: One commenter stated that it would serve the Medicare
program well to permit CAHs more flexibility in the realm of surgery.
As a RPCH, they performed only ambulatory type surgeries, while as an
acute care hospital they performed several types of low complexity
general surgeries. These low complexity cases were done safely,
economically, and close to home. They believe that this flexibility
would serve to enhance their ability in emergency cases.
Response: Under previous statute and regulations (section
1820(f)(1)(F)(ii) and 42 CFR 485.614(b)(3)), RPCHs were restricted to
certain types of inpatient surgical and other services requiring
general anesthesia, except in emergency cases where the attending
physician certified that the risk of transfer to a hospital outweighed
the benefits of the transfer. This restriction was removed by the BBA,
and Sec. 485.614 was also removed in the August 29, 1997 final rule
with comment period. Of course, CAHs are still required to comply with
any State licensure laws affecting their scope of services.
Comment: One commenter stated that CAH legislation requires
credentialing and quality assurance review to be done by another
facility. Currently, many providers that might seek CAH designation do
their own credentialing and quality assurance review. The commenter
believes that requiring outside performance of these functions would be
unreasonable and would recommend some type of grandfathering of these
responsibilities.
Response: The commenter correctly notes that the statute requires
that a network CAH's credentialing and quality assurance review be done
by an outside entity. We have amended Sec. 485.603(c) to reflect this
and require all network CAHs to have an agreement for credentialing and
quality assurance with at least one hospital that is a network member,
one PRO or equivalent entity, or one other appropriate and qualified
entity identified in the State rural health care plan. We have also
made a conforming change and have revised Sec. 485.641(b)(4) to allow
the same three options for the review of the quality and
appropriateness of the diagnosis and treatment furnished by doctors of
medicine or osteopathy at the CAH. We recognize that where a facility
is located in an extremely remote area, performance review and
credentialing by an outside entity can present practical problems. On
the other hand, given the small numbers of practitioners furnishing
services in a CAH, it may be difficult or impossible to achieve
objective in-house review. The majority of CAHs have a limited number
of staff and resources to accomplish credentialing and quality
assurance in an efficient and effective manner. Assistance from a
knowledgeable source outside the facility will enable the CAH to be
more efficient in the utilization of their immediate resources. We
encourage CAHs to develop strategies for electronic sharing of patient
records and other data related to practitioner performance and quality
assurance.
Comment: One commenter noted that the statutory provision
authorizing grandfathering of essential access community hospitals
(EACHs) required only that the hospitals have been designated by the
Secretary as EACHs under the statute in effect on September 30, 1997
(section 1886(d)(5)(D) of the Act, as amended by section 4201(c)(4) of
the BBA). In this commenter's view the revised regulations at
Sec. 412.109(a) are more restrictive, in that they would require the
hospital, to retain its EACH status, to comply with the terms,
conditions, and limitations that were applicable when HCFA designated
the hospital as an EACH. The commenter noted that the definition of
``network'' under the new legislation differs from the regulatory
criteria for EACH designation that were in effect before October 1,
1997, in that previously regulations required the EACH to provide
emergency and medical backup services to RPCHs participating in the
network of which it is a member as well as to other RPCHs throughout
its service area, while the new statutory definition of a ``network''
does not include a specific requirement for emergency and medical
backup services. The commenter stated that an EACH should not lose its
EACH designation solely because it changes its network agreements to
conform to the new statutory requirements.
Response: This commenter is correct in noting that the network
definition under the current statute differs from the EACH designation
criteria previously in effect. We agree that network agreements entered
into after the effective date of the new provision (October 1, 1997)
should reflect current statutory requirements. However, it does not
necessarily follow that a hospital should be able to change the terms
of its agreements made under a previous statutory provision, while
maintaining
[[Page 26355]]
an advantageous level of payment available under that same previous
statutory provision. Thus, if a hospital designated as an EACH under
prior statute wants to retain its sole community hospital status, it
will have to abide by the agreements it made in order to obtain its
EACH designation. If the hospital wants to scale down its
responsibilities to the level required by current statute for an acute
care hospital that is a network member, it is free to do so but will no
longer be able to claim sole community hospital status. The hospital
clearly will not be permitted to scale down its obligations but
continue to be paid as if it were assuming those responsibilities.
Comment: Two commenters asserted that managed care involvement
should be allowed with recognition and protection for low volume. They
recommended that Medicare+Choice plans should allow for CAH
participation.
Response: There is no prohibition on the use of CAH services under
managed care or Medicare+Choice. However, we have no authority to
mandate the level of payment by these plans to the CAHs.
Comment: Two commenters recommended that CAHs be allowed to link
formally with other Federal programs such as Rural Health Clinics,
Public Health, and emergency medical service.
Response: Under the new legislation, a new MRHFP was established.
Under this program, States are encouraged to set up rural health
networks. These networks are defined as an organization consisting of
at least one CAH and at least one full-service hospital. As to the CAH
linking with other types of organizations, there is no statutory
prohibition against a State establishing these linkages under its rural
health care plan, and there is nothing in the regulations that
precludes CAHs from participating in other Federal programs. Each
program would be required to independently meet the applicable Federal
regulations. A CAH that participates in any additional Federal programs
would be responsible for compliance with all the Medicare CAH
requirements and any other program requirements in which it
participates.
Comment: Communities with CAHs should receive an exception to the
EMS restrictions, since they do not have the funds to provide quality
EMS service.
Response: We do not believe our emergency medical service
requirements are complicated or complex requirements. Rather, in our
development of the original conditions of participation, we attempted
to be flexible and sympathetic to the need of these facilities. We do
not believe we can be any more flexible and remain within the confines
of the statute.
Comment: Several commenters requested additional funding to support
survey and certification activities. They believe that Federal grant
funding should be used to support survey and certification activities,
combined CAH and hospital surveys should be allowed, and States should
recognize CAH participation in EMS and trauma planning.
Response: Congress did not authorize an appropriation of additional
funds to survey critical access hospitals. CAH initial surveys will be
scheduled and conducted by the State survey agencies in accordance with
national priorities which reflect statutorily mandated workload
requirements and budget realities. Federal grant funding is not
authorized to support survey and certification activities. In addition,
CAH and hospital surveys would not be combined, as these providers are
statutorily and categorically different entities and subject to
separate requirements. We do not see the added value of attempting to
combine hospital and CAH surveys. Regarding the comment that States
should recognize CAH participation in EMS and trauma planning, we
believe this comment is addressed to the States rather than to HCFA in
implementation of the MRHFP.
Comment: Some commenters recommended that HCFA take action to
increase understanding of the Medicare Rural Hospital Flexibility
Program and simplify its implementation.
Response: We agree, and have attempted to provide interim guidance
wherever possible to clarify the requirements of the Medicare Rural
Hospital Flexibility Program legislation. For example, we recently
provided our regional offices with guidance on implementing the
requirement that a hospital seeking CAH designation provide not more
than 15 (or, in the case of a swing-bed facility, 25) acute care
inpatient beds. Because of the specificity of the law on this point, a
State rural health care plan would not be approvable unless it
specified that potential CAHs would provide not more than the allowed
number of acute care inpatient beds, and a hospital that provided more
than the allowed number of beds would not be eligible for State
designation as a CAH, and could not be certified by the Secretary as a
CAH. CAHs are, as limited-service facilities, subject to less rigorous
standards than full-service hospitals and it is important to ensure
that they are truly low-volume, short-stay facilities as envisioned in
the statute. However, this does not mean that each hospital seeking CAH
designation must necessarily reduce its State licensure to the 15 or
25-bed level. It does mean the hospital must reduce its number of
Medicare certified beds to the allowed level (15 or 25 beds) and that
it has to actually provide no more than the number of inpatient acute
beds for which it is Medicare-certified, or risk termination of its
Medicare participation agreement and loss of all Medicare revenue.
Since the CAH designation is related to how the facility is certified
for participation under the Medicare program, we believe the use of
Medicare certified beds is appropriate. Further, the use of Medicare
certified beds is consistent with the policies on hospital and CAH
swing-beds (see Secs. 482.66 and 485.645).
We note that for cost reporting and certain payment provisions (for
example, Medicare-dependent hospitals and the indirect medical
education adjustment), a facility's bed size is based on the average
number of beds available and maintained over the cost reporting period.
We do not believe it would be appropriate to use this measure of bed
size for purposes of CAH certification. First, it is based on an
average number of beds that are available over the cost reporting
period. The statute establishes an absolute limit on the number of beds
that may be provided at any point in time during the cost reporting
period. Secondly, this measure can only determine bed size
retrospectively and is not useful as a prospectively applicable measure
of compliance with the limits on beds provided by CAHs.
Comment: Two commenters suggested that CAHs and their communities
that have been given incentives to provide services in underserved
areas (HPSAs or MUAs) should be allowed to keep those incentives after
the need for them has passed, so the practitioners recruited through
the incentives do not leave, leading to new shortages.
Response: With regard to the commenters' concern regarding
previously given incentives, such incentives were not granted by us,
and therefore; we have no authority to permit the continuance of such
incentives. The MRHFP was established to assist such rural hospitals
that may need the support of other facilities by setting up networks
with agreements with full service facilities concerning transportation
and communications, not as an incentive for recruitment of
practitioners.
[[Page 26356]]
III. Provisions of the Final Rule
In summary, in this final rule, we are making changes to the
following regulations in 42 CFR as described in the preceding portions
of this preamble:
Section 410.152
Section 412.105
Section 413.13
Section 413.40
Section 413.70
Section 413.86
Section 415.152
Section 485.603
Section 485.641
Section 485.645
Technical Corrections
Regarding the Medicare geographic classifications, we are
making two technical changes:
--In Sec. 412.230, paragraph (e)(3), the phrase ``If a hospital is a
rural referral center,'' is revised to read ``If a hospital was ever a
rural referral center''.
--In Sec. 412.256, paragraph (a)(2), the phrase ``the month preceding''
is revised to read ``the 13-month period preceding''.
In regard to inpatient hospital capital costs, we are making a
cross-reference change in Sec. 412.322(a)(1) to change the phrase
``under Sec. 412.105(g)'' to read ``under Sec. 412.105(f)''.
IV. Impact Statement
We have examined the impact of this final rule as required by
Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Public
Law 96-354). Executive Order 12866 directs agencies to assess all costs
and benefits of available regulatory alternatives and, when regulation
is necessary, to select regulatory approaches that maximize net
benefits (including potential economic, environmental, public health
and safety effects; distributive impacts; and equity). The Regulatory
Flexibility Act (RFA) requires agencies to analyze options for
regulatory relief for small businesses, unless we certify that the
regulation would not have a significant economic impact on a
substantial number of small entities. For purposes of the RFA, most
hospitals, and most other providers, physicians and health care
suppliers are small entities, either by nonprofit status or by having
revenues of $5 million of less annually.
Also, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a final rule may have a significant
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 603
of the RFA. With the exception of hospitals located in certain New
England counties, for purposes of section 1102(b) of the Act, we define
a small rural hospital as a hospital with fewer than 100 beds that is
located outside of a Metropolitan Statistical Area (MSA) or New England
County Metropolitan Area (NECMA). Section 601(g) of the Social Security
Amendments of 1983 (Public Law 98-21) designated hospitals in certain
New England counties as belonging to the adjacent NECMA. Thus, for
purposes of the prospective payment system, we classify these hospitals
as urban hospitals. We are not preparing an analysis for section
1102(b) of the Act because we have determined, and we certify, that
this final rule will not have a significant impact on the operations of
a substantial number of small rural hospitals.
In the August 29, 1997 final rule with comment period, we discussed
in detail the impact of the provisions of the BBA (62 FR 46115). We
stated that several provisions of the statute made significant changes
in inpatient hospital payments for the operating and capital
prospective payment systems during FY 1998. The major portion of this
final rule merely responds to comments on the August 29 final rule with
comment period and makes clarifying changes. However it does make a few
policy changes that have an impact on hospitals as follows:
1. Graduate Medical Education
Section 4623 of the BBA established a limitation on the number of
residents that a hospital can receive Medicare direct and indirect
medical education payments. This final rule will provide hospitals with
more opportunities to receive adjustments to the FTE caps for GME for
medical residency programs established on or after January 1, 1995.
While this may result in Medicare paying for more residents than under
the policies announced in the August 29, 1997 final rule with comment
period, we anticipate this impact will be modest. In addition,
hospitals that are members of the same affiliated group will also have
more flexibility relative to the August 29, 1997 final rule with
comment period under an aggregate FTE cap. We believe that these
changes will have a minimal (if any) financial impact on the Medicare
program.
2. Excluded Hospitals and Units
a. Limitations on the Target Amount
In accordance with section 4416 of the BBA, we calculated a cap on
the TEFRA target amounts for new PPS-excluded hospitals. This cap is
set at 110 percent of the median target amount for each type of
hospital. We have recalculated the 110 percent of the median target
amount for new long-term care hospitals, based on a review of the data.
As a result the limit will be revised from $18,947 to $21,494.
Therefore, fewer new long-term care hospitals will be adversely
affected by the cap. Although we do not know the precise financial
impact of this change, we estimate that any additional costs to the
Medicare program will be small given the small number of long-term care
hospitals that could potentially be affected.
b. Critical Access Hospitals--Credentialing and Quality Assurance
We are requiring all CAHs to have an agreement for credentialing
and quality assurance with at least one hospital that is a network
member, one PRO or equivalent entity, or one other appropriate and
qualified entity identified in the State rural health care plan. For
facilities located in an extremely remote area, performance review and
credentialing by an outside entity can present practical problems.
However, given the small numbers of practitioners furnishing services
in a CAH, it may be difficult or impossible to achieve objective in-
house review. Therefore, making the requirements consistent will allow
the providers more flexibility in selecting an entity to perform the
credentialing and quality assurance functions. We believe that this
requirement would not present an additional financial burden to the
provider.
c. Critical Access Hospitals--Swing-Bed Agreements
Previously, swing-bed agreements were restricted to those
facilities that had hospital swing-bed agreements at the time of their
becoming a CAH. However, due to comments received, we have changed the
regulations to clarify that hospitals or rural primary care hospitals
that do not have swing-bed agreements at the time they become CAHs may
enter into such agreements at a later time if they meet the swing-bed
requirements. This change will increase the number of CAHs that may
qualify for swing-bed agreements, and thus may lead to additional
utilization of SNF-level services and higher costs. However, at this
time, we are unable to estimate the number of facilities that will
request participation in the swing-bed program, or estimate whether or
not utilization and costs will increase.
For purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside a Metropolitan
Statistical Area and has
[[Page 26357]]
fewer than 50 beds. We are not preparing an analysis for section
1102(b) of the Act because we have determined, and we certify, that
this final rule will not have a significant impact on the operations of
a substantial number of small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.
List of Subjects
42 CFR Part 410
Health facilities, Health professions, Kidney diseases,
Laboratories, Medicare, Rural areas, X-rays.
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 415
Health facilities, Health professions, Medicare, Reporting and
recordkeeping requirements.
42 CFR Part 485
Grant programs-health, Health facilities, Medicaid, Medicare,
Reporting and recordkeeping requirements.
42 CFR chapter IV is amended as set forth below:
A. Part 410 is amended as set forth below:
PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS
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 1395(hh)), unless otherwise indicated.
Subpart I--Payment of SMI Benefits
Sec. 410.152 [Amended]
2. In Sec. 410.152, paragraph (k), second sentence, the phrase
``coinsurance amounts, as described in Sec. 413.70(b)(3) of this
chapter'' is revised to read ``coinsurance amounts with Part B
coinsurance being calculated as 20 percent of the customary (in so far
as reasonable) charges of the CAH for the services''.
B. Part 412 is amended as set forth below:
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 B--Hospital Services Subject to and Excluded From the
Prospective Payment System for Inpatient Operating Costs and
Inpatient Capital-Related Costs
2. In Sec. 412.22, paragraph (f) is revised to read as follows:
Sec. 412.22 Excluded hospitals and hospital units: General rules.
* * * * *
(f) Application for certain hospitals. If a hospital was excluded
from the prospective payment systems under the provisions of this
section on or before September 30, 1995, and at that time occupied
space in a building also used by another hospital, or in one or more
buildings located on the same campus as buildings used by another
hospital, the criteria in paragraph (e) of this section do not apply to
the hospital.
* * * * *
Subpart G--Special Treatment of Certain Facilities Under the
Prospective Payment System for Inpatient Operating Costs
3. In Sec. 412.105, the last sentence of paragraph (a)(1) is
revised, the parenthetical phrase in the last sentence of paragraph
(f)(1)(v) is revised, and new paragraphs (f)(1)(vi) and (vii) are added
to read as follows:
Sec. 412.105 Special treatment: Hospitals that incur indirect costs
for graduate medical education programs.
* * * * *
(a) * * *
(1) * * * Except for the special circumstances for affiliated
groups and new programs described in paragraphs (f)(1)(vi) and
(f)(1)(vii) 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.
* * * * *
(f) * * *
(1) * * *
(v) * * * (subject to the requirements set forth in paragraphs
(f)(1)(ii)(C) and (f)(1)(iv) of this section) * * *
(vi) Hospitals that are part of the same affiliated group (as
described in Sec. 413.86(b)) may elect to apply the limit at paragraph
(f)(1)(iv) of this section on an aggregate basis.
(vii) If a hospital establishes a new medical residency training
program, the hospital's FTE cap may be adjusted in accordance with the
provisions of Sec. 413.86(g)(6)(i) through (iv).
* * * * *
Subpart L--The Medicare Geographic Classification Review Board
Sec. 412.230 [Amended]
4. In Sec. 412.230, paragraph (e)(3), the phrase ``If a hospital is
a rural referral center,'' is revised to read ``If a hospital was ever
a rural referral center''.
Sec. 412.256 [Amended]
5. In Sec. 412.256, paragraph (a)(2), the phrase ``the month
preceding'' is revised to read ``the 13-month period preceding''.
Subpart M--Prospective Payment System for Inpatient Hospital
Capital Costs
Sec. 412.322 [Amended]
6. In Sec. 412.322(a)(1), the phrase ``under Sec. 412.105(g)'' is
revised to read ``under Sec. 412.105(f)''.
C. Part 413 is amended as set forth below:
PART 413--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).
Subpart A--Introduction and General Rules
2. In section 413.13, a new paragraph (c)(2)(iv) is added to read
as follows:
Sec. 413.13 Amount of payment if customary charges for services
furnished are less than reasonable costs.
* * * * *
(c) * * *
(2) * * *
(iv) Critical access hospital (CAH) services. The lesser of costs
or charges principle does not apply in determining payment for
inpatient or outpatient services furnished by a CAH under Sec. 413.70.
* * * * *
[[Page 26358]]
Subpart C--Limits on Cost Reimbursement
3. Section 413.40 paragraphs (c)(4)(iii) and (j) are revised to
read as follows.
Sec. 413.40 Ceiling on the rate-of-increase in hospital inpatient
costs.
* * * * *
(c) * * *
(4) * * *
(iii) In the case of a psychiatric hospital or unit, rehabilitation
hospital or unit, or long-term care hospital, the target amount is the
lower of--
(A) The hospital-specific target amount (the net allowable costs in
a base period increased by the applicable update factors); or
(B) One of the following for the applicable cost reporting period--
(1) 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.
(2) For cost reporting periods beginning during fiscal years 1999
through 2002, the amount determined under paragraph (c)(4)(iii)(B)(1)
of this section, increased by the market basket percentage up through
the subject period, subject to the provisions of paragraph (c)(4)(iv)
of this section.
* * * * *
(j) Reduction to capital-related costs. For psychiatric hospital
and units, rehabilitation hospitals and units, and long-term care
hospitals, the amount otherwise payable for capital-related costs for
hospital inpatient services is reduced by 15 percent for portions of
cost reporting periods occurring on or after October 1, 1997 through
September 30, 2002.
Subpart E--Payments to Providers
4. Section 413.70 is revised to read as follows:
Sec. 413.70 Payment for services of a CAH.
(a) Except as provided in paragraph (b) of this section, 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.
(b) The following payment principles are excluded when determining
payment for CAH inpatient and outpatient services:
(1) For inpatient services--
(i) Lesser of cost or charges;
(ii) Ceilings on hospital operating costs; and
(iii) Reasonable compensation equivalent (RCE) limits for physician
services to providers;
(2) For outpatient services--
(i) Lesser of costs or charges;
(ii) RCE limits;
(iii) Any type of reduction to operating or capital costs under
Sec. 413.124 or Sec. 413.130(j)(7) of this part;
(iv) Blended payment amounts for ASC, radiology, and other
diagnostic services; and
(v) Clinical laboratory fee schedule.
Subpart F--Specific Categories of Costs
5. In Sec. 413.86, the definition of ``affiliated group in
paragraph (b) is revised, paragraph (g)(5) is amended by adding new
sentences at the end of the paragraph, and paragraphs (g)(6)(i),
(g)(6)(ii), and (g)(7) are revised to read as follows:
Sec. 413.86 Direct graduate medical education payments.
* * * * *
(b) * * *
Affiliated group means--
(1) Two or more hospitals located in the same urban or rural area
(as those terms are defined in Sec. 412.62(f) of this subchapter) or in
contiguous areas if individual residents work at each of the hospitals
during the course of the program; or
(2) If the hospitals are not located in the same or a contiguous
urban or rural area, the hospitals are jointly listed--
(i) As the sponsor, primary clinical site or major participating
institution for one or more of the programs as these terms are used in
Graduate Medical Education Directory, 1997-1998; or
(ii) As the sponsor or under ``affiliations and outside rotations''
for one or more programs in operation in Opportunities, Directory of
Osteopathic Postdoctoral Education Programs.
(3) The hospitals are under common ownership.
* * * * *
(g) Determining the weighted number of FTE residents. * * *
* * * * *
(5) * * * If a hospital qualifies for an adjustment to the limit
established under paragraph (g)(4) of this section for new medical
residency programs created under paragraph (g)(6) of this section, the
count of residents participating in new medical residency training
programs above the number included in the hospital's FTE count for the
cost reporting period ending during calendar year 1996 is added after
applying the averaging rules in this paragraph for a period of years.
Residents participating in new medical residency training programs are
included in the hospital's FTE count before applying the averaging
rules after the period of years has expired. For purposes of this
paragraph, the period of years equals the minimum accredited length for
the type of program. The period of years begins when the first resident
begins training.
(6) * * *
(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 highest
number of residents in any program year during the third year of the
first program's existence for all new residency training programs and
the number of years in which residents are expected to complete the
programs based on the minimum accredited length for the type of
program. For these hospitals the cap will only be adjusted for the
programs established on or after January 1, 1995. Except for rural
hospitals, the cap will not be revised for new programs established
after the 3 years. Only rural hospitals that qualify for an adjustment
to its FTE cap under this paragraph are permitted to be part of the
same affiliated group for purposes of an aggregate FTE limit.
(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 on or before August 5, 1997.
Adjustments to the hospital's FTE resident limit for the new program
are based on the product of the highest number of residents in any
program 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.
* * * * *
[[Page 26359]]
(7) For purposes of paragraph (g) of this section, a new medical
residency training program means a medical residency that receives
initial accreditation by the appropriate accrediting body or begins
training residents on or after January 1, 1995.
* * * * *
D. Part 415 is amended as set forth below:
PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS,
SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN
CERTAIN SETTINGS
1. The authority citation for Part 415 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
Subpart D--Physician Services in Teaching Settings
Sec. 415.152 [Amended]
2. In Sec. 415.152, under the definition of ``approved graduate
medical education (GME)'', the phrase ``Council on Dental Education of
the American Dental Association'' is revised to read ``Commission on
Dental Accreditation of the American Dental Association'.
E. 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).
Subpart F--Conditions of Participation: Critical Access Hospitals
(CAHs)
2. Section 485.603 is amended by revising paragraph (c) to read as
follows:
Sec. 485.603 Rural health network.
* * * * *
(c) Each CAH has an agreement with respect to credentialing and
quality assurance with at least--
(1) One hospital that is a member of the network when applicable;
(2) One PRO or equivalent entity; or
(3) One other appropriate and qualified entity identified in the
State rural health care plan.
3. In 485.606, the section heading, the heading and introductory
text of paragraph (b), and paragraph (b)(1) are revised to read as
follows:
Sec. 485.606 Designation and Certification of CAHs
* * * * *
(b) Criteria for HCFA certification. HCFA certifies a facility as a
CAH if--
(1) The facility is designated as a CAH by the State in which it is
located and has been surveyed by the State survey agency or by HCFA and
found to meet all conditions of participation in this Part and all
other applicable requirements for participation in Part 489 of this
chapter.
* * * * *
4. In Sec. 485.641 the introductory text of paragraph (b) is
republished and paragraph (b)(4) is revised to read as follows:
Sec. 485.641 Condition of participation: Periodic evaluation and
quality assurance review.
* * * * *
(b) Standard: Quality assurance. The CAH has an effective quality
assurance program to evaluate the quality and appropriateness of the
diagnosis and treatment furnished in the CAH and of the treatment
outcomes. The program requires that--
* * * * *
(4) The quality and appropriateness of the diagnosis and treatment
furnished by doctors of medicine or osteopathy at the CAH are evaluated
by--
(i) One hospital that is a member of the network, when applicable;
(ii) One PRO or equivalent entity; or
(iii) One other appropriate and qualified entity identified in the
State rural health care plan; and
* * * * *
5. Section 485.645 is 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 provided 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 (c) of this section.
(a) Eligibility. A CAH must meet the following eligibility
requirements:
(1) The facility has been certified as a CAH by HCFA under
Sec. 485.606(b) of this subpart; and
(2) The facility provides not more than 25 inpatient beds, and the
number of beds used at any time for acute care inpatient services does
not exceed 15 beds. Any bed of a unit of the facility that is licensed
as distinct-part SNF at the time the facility applies to the State for
designation as a CAH is not counted under paragraph (a) of this
section.
(b) Facilities participating as rural primary care hospitals
(RPCHs) on September 30, 1997. These facilities must meet the following
requirements:
(1) Notwithstanding paragraph (a) of this section, a CAH that
participated in Medicare as a 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.
(2) A CAH that was granted swing-bed approval under paragraph
(b)(1) of this section may request that its application to be a CAH and
swing-bed provider be reevaluated under paragraph (a) 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 (b)(1) of this section and may not request
reinstatement under paragraph (b)(1) of this section.
(c) Payment. Payment for inpatient RPCH services to a CAH that has
qualified as a CAH under the provisions in paragraph (a) of this
section is made in accordance with Sec. 413.70 of this chapter. Payment
for post-hospital SNF-level of care services is made in accordance with
the payment provisions in Sec. 413.114 of this chapter.
(d) SNF services. The CAH is substantially in compliance with the
following SNF requirements contained in subpart B of part 483 of this
chapter:
(1) Residents rights (Sec. 483.10(b)(3) through (b)(6), (d) (e),
(h), (i), (j)(1)(vii) and (viii), (l), and (m) of this chapter).
(2) Admission, transfer, and discharge rights (Sec. 483.12(a) of
this chapter).
(3) Resident behavior and facility practices (Sec. 483.13 of this
chapter).
(4) Patient activities (Sec. 483.15(f) of this chapter), except
that the services may be directed either by a qualified professional
meeting the requirements of Sec. 485.15(f)(2), or by an individual on
the facility staff who is designated as the activities director and who
serves in consultation with a therapeutic recreation specialist,
occupational therapist, or other professional with experience or
education in recreational therapy.
(5) Social services (Sec. 483.15(g) of this chapter).
(6) Comprehensive assessment, comprehensive care plan, and
discharge planning (Sec. 483.20(b), (d), and (e) of this chapter).
(7) Specialized rehabilitative services (Sec. 483.45 of this
chapter).
(8) Dental services (Sec. 483.55 of this chapter).
[[Page 26360]]
(9) Nutrition (Sec. 483.25(i) of this chapter).
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance)
Dated: April 24, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
Dated: May 1, 1998.
Donna E. Shalala,
Secretary.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix: Illustration of Determination of GME Payment
Hospital Cost Reporting Period Ending 12/31/96
------------------------------------------------------------------------
Number of
Type of FTE FTEs
------------------------------------------------------------------------
Unweighted................................................... \1\ 100
Weighted..................................................... \1\ 90
------------------------------------------------------------------------
\1\ Allopathic and Osteopathic Residents.
Hospital Cost Reporting Period Beginning 1/12/97
------------------------------------------------------------------------
Number of
Type of FTE FTEs
------------------------------------------------------------------------
Unweighted.................................................. \1\ 110
Weighted.................................................... \1\ 100
Adjusted Weighted........................................... \2\ 100.00
Dentists and Podiatrists.................................... 5.00
-----------
Total................................................... 105.00
------------------------------------------------------------------------
\1\ Allopathic and Osteopathic Residents.
\2\ Since the FTE cap does not apply until 01/01/98 the adjusted
weighted FTEs are equal to the weighted FTEs.
Hospital Cost Reporting Period Beginning 1/12/98
------------------------------------------------------------------------
Number of
Type of FTE FTEs
------------------------------------------------------------------------
Unweighted.................................................. \1\ 110
Weighted.................................................... \1\ 100
Adjusted Weighted........................................... \2\ 90.91
Dentists and Podiatrists.................................... 5.00
-----------
Total................................................... 95.91
------------------------------------------------------------------------
\1\ Allopathic and Osteopathic Residents.
\2\ The adjusted weighted=((Current year's Weighted FTEs/Current year's
Unweighted FTEs) * FTE cap)=((100/110) * 100).
Hospital Cost Reporting Period Beginning 1/12/99
------------------------------------------------------------------------
Number of
Type of FTE FTEs
------------------------------------------------------------------------
Unweighted.................................................. \1\ 90
Weighted.................................................... \1\ 90
Adjusted weighted........................................... 90
Dentists and podiatrists.................................... 5.00
-----------
Total................................................... 95.00
------------------------------------------------------------------------
\1\ Allopathic and Osteopathic Residents.
Determination of Payments for Hospital Cost Reporting Period Beginning 1/
12/99
------------------------------------------------------------------------
Per Total
Type of resident resident FTEs resident
amount amount
------------------------------------------------------------------------
Primary Care..................... $50,000 80.00 $4,000,000
Other............................ 47,000 15.00 705,000
--------------------------------------
95.00 4,705,000
------------------------------------------------------------------------
Total resident amount Total number of FTEs Average per resident amount
$4,705,000.......................... 95.00 \1\ $49,526
----------------------------------------------------------------------------------------------------------------
Total # of Total # of 3-year
Total # of FTEs (for 01/01/97) FTEs (for FTEs (for average
01/01/98) 01/01/99) FTEs
105.00........................... 95.91 95.00 \2\ 98.64
------------------------------------------------------------------------
Average per resident amount 3-Year average FTEs Aggregate approved amount
$49,526............................. 98.64 \3\ $4,885,096
----------------------------------------------------------------------------------------------------------------
Aggregate approved amount Medicare patient load Direct GME payment
$4,885,096.......................... 0.5 \4\ $2,442,548
----------------------------------------------------------------------------------------------------------------
\1\ The Average Per Resident Amount = (Total Resident Amount/Total number of FTEs).
\2\ The 3-Year Average = (the sum of the Total number of FTEs for 3 cost reporting periods/3).
\3\ The Aggregate Amount = (Average Per Resident Amount * 3-year Average FTEs).
\4\ The Direct GME Payment = (Aggregate Approved Amount * Medicare Patient Load).
[FR Doc. 98-12231 Filed 5-8-98; 8:45 am]
BILLING CODE 4120-01-P