Federal Register, Volume 63 Issue 147 (Friday, July 31, 1998)

[Federal Register Volume 63, Number 147 (Friday, July 31, 1998)]
[Rules and Regulations]
[Pages 40954-41131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20459]

[[Page 40953]]

_______________________________________________________________________

Part II

Department of Health and Human Services

_______________________________________________________________________

Health Care Financing Administration

_______________________________________________________________________

42 CFR Parts 405, 412, and 413

Medicare Program: Changes to the Hospital Inpatient Prospective Payment
Systems and Fiscal Year 1999 Rates; Final Rule

Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 / Rules
and Regulations

[[Page 40954]]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 405, 412, and 413

[HCFA-1003-F]
RIN 0938-AI22

Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 1999 Rates

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems for operating costs and capital-related costs to
implement applicable statutory requirements, including section 4407 of
the Balanced Budget Act of 1997 (BBA), as well as changes arising from
our continuing experience with the systems. In addition, in the
addendum to this final rule, we describe changes in the amounts and
factors necessary to determine rates for Medicare hospital inpatient
services for operating costs and capital-related costs. These changes
are applicable to discharges occurring on or after October 1, 1998. We
also set forth rate-of-increase limits as well as changes for hospitals
and hospital units excluded from the prospective payment systems.
Finally, we are implementing the provisions of section 4625 of the BBA
concerning payment for the direct costs of graduate medical education.

DATES: The provisions of this final rule are effective October 1, 1998.
This rule is a major rule as defined in Title 5, United States Code,
section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are
submitting a report to the Congress on this rule on July 31, 1998.

ADDRESSES: Copies: To order copies of the Federal Register containing
this document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8.00. As an alternative, you can view
and photocopy the Federal Register document at most libraries
designated as Federal Depository Libraries and at many other public and
academic libraries throughout the country that receive the Federal
Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents home page address
is http://www.access.gpo.gov/su__docs/, by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call (202) 512-1661; type swais, then login as guest (no
password required).

FOR FURTHER INFORMATION CONTACT:
Nancy Edwards, (410) 786-4531, Operating Prospective Payment, DRG, and
Wage Index Issues.
Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded
Hospitals, and Graduate Medical Education Issues.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary

Sections 1886(d) and (g) of the Social Security Act (the Act) set
forth a system of payment for the operating and capital costs of acute
care hospital inpatient stays under Medicare Part A (Hospital
Insurance) based on prospectively-set rates. Under these prospective
payment systems (PPS), Medicare payment for hospital inpatient
operating and capital-related costs is made at predetermined, specific
rates for each hospital discharge. Discharges are classified according
to a list of diagnosis-related groups (DRGs).
Certain specialty hospitals are excluded from the prospective
payment systems. Under section 1886(d)(1)(B) of the Act, the following
hospitals and units are excluded from PPS: psychiatric hospitals or
units, rehabilitation hospitals or units, children's hospitals, long
term care hospitals, and cancer hospitals. For these hospitals and
units, Medicare payment for operating costs is based on reasonable
costs subject to certain limits.
Under section 1886(a)(4) of the Act, costs incurred in connection
with approved graduate medical education (GME) programs are excluded
from the operating costs of inpatient hospital services. Hospitals with
approved GME programs are paid for the direct costs of GME in
accordance with section 1886(h) of the Act; the amount of payment for
direct GME costs for a cost reporting period is based on the number of
the hospital's residents in that period and the hospital's costs per
resident in a base year.
The regulations governing the hospital inpatient prospective
payment system are located in 42 CFR part 412. The regulations
governing excluded hospitals are located in both parts 412 and 413, and
the graduate medical education regulations are found in part 413.

B. Summary of the Provisions of the May 8, 1998 Proposed Rule

On May 8, 1998, we published a proposed rule in the Federal
Register (63 FR 25576) setting forth proposed changes to the Medicare
hospital inpatient prospective payment systems for both operating costs
and capital-related costs, which would be effective for discharges
occurring on or after October 1, 1998. We also proposed changes in
payments for excluded hospitals and payments for graduate medical
education costs. The following is a summary of the major issues
addressed and changes we proposed to make:
We proposed changes to the FY 1999 DRG classifications and
relative weights, as required by section 1886(d)(4)(C) of the Act.
We proposed to update the hospital wage data for FY 1999.
We also proposed changes to the data categories included in the wage
index and revisions to the wage index based on hospital redesignations.
We discussed several provisions of the regulations in 42
CFR parts 412 and 413 and set forth certain proposed changes concerning
definition of transfer cases, rural referral centers, disproportionate
share adjustment, bad debts, and direct graduate medical education
programs.
We discussed several provisions of the regulations in 42
CFR Part 412 and set forth certain proposed changes and clarifications
concerning capital indirect medical education payments and payments to
new hospitals.
We discussed the criteria governing excluded hospitals
including caps on the target amounts for FY 1999 and exceptions.
In the addendum to the proposed rule, we set forth
proposed changes to the amounts and factors for determining the FY 1999
prospective payment rates for operating costs and capital-related
costs. We also proposed update factors for determining the rate-of-
increase limits for cost reporting periods

[[Page 40955]]

beginning in FY 1999 for hospitals and hospital units excluded from the
prospective payment system.
In Appendix A of the proposed rule, we set forth an
analysis of the impact that the proposed changes would have on affected
entities.
In Appendix B of the proposed rule, we set forth the
technical appendix on the proposed FY 1999 capital cost model.
In Appendix C, as required by section 1886(e)(3)(B) of the
Act, we set forth a report to Congress on our initial estimate of a
recommended update factor for FY 1999 for both hospitals included in
and hospitals excluded from the prospective payment systems.
In Appendix D of the proposed rule, we set forth our
recommendation of the appropriate percentage change for FY 1999 for the
large urban area and other area average standardized amounts (and
hospital-specific rates applicable to sole community and Medicare-
dependent, small rural hospitals) for hospital inpatient services paid
for under the prospective payment system for operating costs.
In Appendix D of the proposed rule, we also set forth our
recommendation of the appropriate percentage change for FY 1999 for
target rate-of-increase limits to the allowable operating costs of
hospital inpatient services furnished by hospitals and hospital units
excluded from the prospective payment system.
In the proposed rule, we discussed in detail the March 1,
1998 recommendations concerning hospital inpatient policies made by the
Medicare Payment Advisory Commission (MedPAC) as well as our responses
to those recommendations. Under section 1805(b) of the Act, MedPAC is
required to submit a report to Congress, not later than March 1 of each
year, that reviews and makes recommendations on Medicare payment
policies.

C. Public Comments Received in Response to the Proposed Rule

A total of 214 items of correspondence containing comments on the
proposed rule were received timely. The main areas of concern addressed
by the commenters were the change in the definition of transfer cases
and the revisions to the wage index. We also received a number of
comments on the proposal to pay qualified nonhospital providers for the
direct costs of graduate medical education.
Summaries of the public comments received and our responses to
those comments are set forth below under the appropriate section.

II. Changes to DRG Classifications and Relative Weights

A. Background

Under the prospective payment system, we pay for inpatient hospital
services on the basis of a rate per discharge that varies by the DRG to
which a beneficiary's stay is assigned. The formula used to calculate
payment for a specific case takes an individual hospital's payment rate
per case and multiplies it by the weight of the DRG to which the case
is assigned. Each DRG weight represents the average resources required
to care for cases in that particular DRG relative to the average
resources used to treat cases in all DRGs.
Congress recognized that it would be necessary to recalculate the
DRG relative weights periodically to account for changes in resource
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires
that the Secretary adjust the DRG classifications and relative weights
annually. These adjustments are made to reflect changes in treatment
patterns, technology, and any other factors that may change the
relative use of hospital resources. The changes to the DRG
classification system and the recalibration of the DRG weights for
discharges occurring on or after October 1, 1998 are discussed below.

B. DRG Reclassification

1. General
Cases are classified into DRGs for payment under the prospective
payment system based on the principal diagnosis, up to eight additional
diagnoses, and up to six procedures performed during the stay, as well
as age, sex, and discharge status of the patient. The diagnosis and
procedure information is reported by the hospital using codes from the
International Classification of Diseases, Ninth Revision, Clinical
Modification (ICD-9-CM). The Medicare fiscal intermediary enters the
information into its claims system and subjects it to a series of
automated screens called the Medicare Code Editor (MCE). These screens
are designed to identify cases that require further review before
classification into a DRG can be accomplished.
After screening through the MCE and any further development of the
claims, cases are classified by the GROUPER software program into the
appropriate DRG. The GROUPER program was developed as a means of
classifying each case into a DRG on the basis of the diagnosis and
procedure codes and demographic information (that is, sex, age, and
discharge status). It is used both to classify past cases in order to
measure relative hospital resource consumption to establish the DRG
weights and to classify current cases for purposes of determining
payment. The records for all Medicare hospital inpatient discharges are
maintained in the Medicare Provider Analysis and Review (MedPAR) file.
The data in this file are used to evaluate possible DRG classification
changes and to recalibrate the DRG weights.
Currently, cases are assigned to one of 496 DRGs in 25 major
diagnostic categories (MDCs). Most MDCs are based on a particular organ
system of the body (for example, MDC 6, Diseases and Disorders of the
Digestive System); however, some MDCs are not constructed on this basis
since they involve multiple organ systems (for example, MDC 22, Burns).
In general, cases are assigned to an MDC based on the principal
diagnosis, before assignment to a DRG. However, there are five DRGs to
which cases are directly assigned on the basis of procedure codes.
These are the DRGs for liver, bone marrow, and lung transplant (DRGs
480, 481, and 495, respectively) and the two DRGs for tracheostomies
(DRGs 482 and 483). Cases are assigned to these DRGs before
classification to an MDC.
Within most MDCs, cases are then divided into surgical DRGs (based
on a surgical hierarchy that orders individual procedures or groups of
procedures by resource intensity) and medical DRGs. Medical DRGs
generally are differentiated on the basis of diagnosis and age. Some
surgical and medical DRGs are further differentiated based on the
presence or absence of complications or comorbidities (hereafter CC).
Generally, GROUPER does not consider other procedures; that is,
nonsurgical procedures or minor surgical procedures generally not
performed in an operating room are not listed as operating room (OR)
procedures in the GROUPER decision tables. However, there are a few
non-OR procedures that do affect DRG assignment for certain principal
diagnoses, such as extracorporeal shock wave lithotripsy for patients
with a principal diagnosis of urinary stones.
We proposed several changes to the DRG classification system for FY
1999. The proposed changes, the comments we received concerning them,
our responses to those comments, and the final DRG changes are set
forth below. Unless otherwise noted, our DRG analysis is based on the
full (100 percent) FY 1997 MedPAR file based on

[[Page 40956]]

bills received through September 30, 1997.
2. MDC 5 (Diseases and Disorders of the Circulatory System)
In the August 29, 1997 hospital inpatient final rule with comment
period (62 FR 45974), we noted that, because of the many recent changes
in heart surgery, we were considering conducting a comprehensive review
of the MDC 5 surgical DRGs. We have begun that review, and based upon
our analysis thus far, we proposed the following DRG changes.
a. Coronary Bypass. There are two DRGs that capture coronary bypass
procedures: DRG 106 (Coronary Bypass with Cardiac Catheterization) and
DRG 107 (Coronary Bypass without Cardiac Catheterization). The
procedures that allow a coronary bypass case to be assigned to DRG 106
include percutaneous valvuloplasty, percutaneous transluminal coronary
angioplasty (PTCA), cardiac catheterization, coronary angiography, and
arteriography.
In analyzing the FY 1997 MedPAR file, we noted that, of cases
assigned to DRG 106, the average standardized charges for coronary
bypass cases with PTCA were significantly higher than those cases
without PTCA. There were approximately 4,400 cases in DRG 106 where
PTCA is performed as a secondary procedure. These cases had an average
standardized charge of approximately $69,000. The average charge of the
approximately 95,000 cases in DRG 106 without PTCA was approximately
$52,000.
Based on this analysis, we proposed to create a new DRG for
coronary bypass cases with PTCA. The cases currently in DRG 106 without
PTCA would be assigned to another DRG and the cases currently assigned
to DRG 107 would be unmodified. Because we would replace two DRGs with
three new DRGs, we proposed to revise the DRG numbers and titles
accordingly. The new DRGs and their titles are set forth below:

DRG 106 Coronary Bypass with PTCA
DRG 107 Coronary Bypass with Cardiac Catheterization
DRG 109 Coronary Bypass without Cardiac Catheterization

We note that DRG 109 has been an empty DRG for the last several years.
We received several comments regarding this proposal.
Comment: While the commenters supported the creation of a new DRG
to capture coronary bypass surgeries with PTCA, some of the commenters
were concerned about the renumbering of the current DRGs 106 and 107.
They believe splitting the cases currently assigned to DRG 106 into new
DRGs 106 and 107 and reassigning the cases currently assigned to DRG
107 to DRG 109 will make it difficult to conduct DRG trend analyses.
The commenters suggested that DRGs 106 and 107 should not be modified
and that DRG 109 be used to capture coronary bypass with PTCA. Two
commenters stated that a DRG that has been invalidated (109) should not
be reintroduced.
Response: Although we understand the commenters' concern, we also
believe that the sequencing of surgical DRGs in hierarchy order is
appropriate. In this case, our alternative to the proposed revision
would have been to delete DRGs 106 and 107 and create three new DRGs
that would have been placed at the end of the DRG table, that is, after
current DRG 503. Because we did have an empty surgical DRG in MDC 5 and
it was numerically close to DRGs 106 and 107, we believed our proposed
retitling was the best alternative.
We note that the surgical DRGs in MDC 5 have been renumbered and
retitled several times since they were first introduced in 1983. As
stated above, we are currently conducting a comprehensive review of the
MDC 5 surgical DRGs. If that review results in the reclassification of
procedures among the current DRGs, we will probably renumber and
retitle those DRGs.
Comment: We received one comment requesting clarification of the
DRG assignment for PTCA and cardiac catheterization procedures when
performed in conjunction with coronary bypass. The commenter suggested
that we add the phrase ``without PTCA'' to the titles of DRGs 107 and
109 to more aptly describe the cases assigned to those DRGs.
Response: Coronary bypass performed in conjunction with single or
multiple PTCA or percutaneous valvuloplasty will be assigned to DRG
106. The procedure codes for PTCA and percutaneous valvuloplasty are as
follows: 35.96, 36.01, 36.02, and 36.05. Procedures assigned to DRG 107
would include any coronary bypass with cardiac catheterization,
coronary angiography, or coronary arteriography, and DRG 109 is for
cases with the coronary bypass procedure only. We believe that the
proposed titles accurately describe the cases assigned to each of the
DRGs and that adding the phrase ``without PTCA'' to the titles of DRGs
107 and 109 is unnecessary. We are incorporating our proposed DRG
changes and DRG numbers and titles in the final DRG classifications.
b. Implantable heart assist system and annuloplasty. In the August
29, 1997 final rule with comment period, we moved implant of an
implantable, pulsatile heart assist system (procedure code 37.66) from
DRGs 110 and 111 (Major Cardiovascular Procedures) ¹ to DRG
108 (Other Cardiothoracic Procedures). Although this move improved
payment for these procedures, they were still much more expensive than
the other cases in DRG 108 ($96,000 for heart assist versus an average
of $54,000 for all other cases in the FY 1996 MedPAR file). We stated
that we would continue to review the MDC 5 surgical DRGs in an attempt
to find a DRG placement for these cases that would be more similar in
terms of resource use.
---------------------------------------------------------------------------

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

As discussed in the proposed rule, in reviewing the FY 1997 MedPAR
file, we noted that heart assist system implant continues to be the
most expensive procedure in DRG 108. In fact, other than heart
transplant, heart assist system implant is the most expensive procedure
in MDC 5. The average FY 1997 charge for these cases, when assigned to
DRG 108, is over $150,000 compared to about $53,000 for all cases in
DRG 108. Obviously, the charges for heart assist implant are increasing
at a much greater rate than the average charges for DRG 108. In
addition, the length of stay for cases coded with 37.66 is
approximately 32 days compared to about 11 days for all other DRG 108
cases.
One possibility for improving payment for these cases is to move
them to DRGs 104 and 105 (Cardiac Valve Procedures). Those DRGs, which
split on the basis of the performance of cardiac catheterization, have
average charges of approximately $66,000 and $51,000, respectively.
While heart assist implant cases are still more expensive than the
average case in these DRGs, payment would be improved. Clinically,
placement of heart assist implant in DRGs 104 and 105 is not without
precedent. Effective with FY 1988, we placed implant of a total
automatic implantable cardioverter defibrillator (AICD) in these DRGs.
In addition, the vast majority of procedures assigned to DRG 108
involve surgically splitting open the sternum to perform the procedure.
However, implant of the heart assist device does not require this
approach.
While reviewing the DRG 108 cases, we also noted that procedure
code 35.33

[[Page 40957]]

(annuloplasty) is assigned to this DRG. Annuloplasty is a valve
procedure and is clinically more similar to the cases assigned to DRGs
104 and 105 than it is to the cases assigned to DRG 108. In addition,
the average standardized charge for annuloplasty cases assigned to DRG
108 is about $67,000, well above the overall average charge of
approximately $53,000 for cases in DRG 108. Therefore, we proposed to
move annuloplasty from DRG 108 to DRGs 104 and 105.
In order to more accurately reflect the cases assigned to DRGs 104
and 105, we proposed to retitle them as follows:

DRG 104 Cardiac Valve and Other Major Cardiothoracic Procedures
with Cardiac Catheterization
DRG 105 Cardiac Valve and Other Major Cardiothoracic Procedures
without Cardiac Catheterization.

We received only supportive comments for our proposal to move
annuloplasty to DRGs 104 and 105; therefore, that change is included in
the final DRGs.
Comment: Commenters generally appreciated any improvement in the
payment for heart assist devices. However, some of them continue to
urge HCFA to reclassify these cases to DRG 103 (Heart Transplant) or to
their own DRG. Two commenters were unsure if we had proposed a
classification change which was reflected in the proposed DRG weights
or had merely requested comment on such a change. Another commenter was
concerned that cases reassigned to DRG 105 (those in which there is no
cardiac catheterization performed) would receive a lower payment than
they currently do in DRG 108.
Response: First, we note that the proposed DRG weights did include
this change; that is, we moved over 2,000 heart assist implant cases
from DRG 108 to DRGs 104 and 105 before recalibrating the proposed
weights. In addition, although the final FY 1999 weight for DRG 105 is
slightly lower than the weight for DRG 108 (5.7099 and 5.9764,
respectively), the much higher DRG 104 weight (7.3690) results in an
overall improvement in payment for these cases when reclassified. Using
the FY 1997 MedPAR cases, we estimate that at least 40 percent of the
heart assist implant cases will be assigned to DRG 104. Thus, as long
as a hospital treats a mix of heart assist implant cases, with and
without the cardiac catheterization procedure, its overall payment
should be higher under the revised classification. We presume this will
be the case for virtually all hospitals.
With regard to the comments concerning reclassification of this
procedure to DRG 103 or a new DRG, we refer the reader to our response
to a similar comment in the August 29, 1997 final rule (62 FR 45967).
3. MDC 22 (Burns)
Under the current DRG system, burn cases are assigned to one of six
DRGs in MDC 22 (Burns), which have not been revised since 1986. In our
FY 1998 hospital inpatient proposed rule (June 2, 1997; 62 FR 29912),
in response to inquiries we had received, we indicated that we would
conduct a comprehensive review of MDC 22 to determine whether changes
in these DRGs could more appropriately capture the variation in
resource use associated with different classes of burn patients. We
solicited public comments on this issue, particularly asking for
recommendations on ways to categorize related diagnosis and procedure
codes to produce DRG groupings that would be more homogeneous in terms
of resource use.
In our May 8, 1998 proposed rule (63 FR 25579), we discussed in
detail the results of our review of MDC 22. We received a proposal
(endorsed by the American Burn Association (ABA)) for restructuring the
DRGs based on several statistical and clinical criteria, including age,
severity of the burn, and the presence of complications or
comorbidities. Subsequently, we worked closely with representatives of
the ABA and with the clinicians who developed the proposal in order to
refine it for Medicare purposes. Based on this work, we proposed to
replace the six existing DRGs in MDC 22 with eight new DRGs. For ease
of reference and classification, the current DRGs in MDC 22, DRGs 456
through 460 and 472, would no longer be valid, and we would establish
new DRGs 504 through 511 to contain all cases that currently group to
MDC 22. (The complete titles of the new DRGs are set forth below.)
In reviewing the Medicare burn cases, we found that the most
important distinguishing characteristic in terms of resource use was
the amount of body surface affected by the burn and how much of that
burn was a 3rd degree burn. The second most important factor was
whether or not the patient received a skin graft. Thus, a patient with
burns covering at least 20 percent of body area, with at least 10
percent of that a 3rd degree burn, consumed the most resources.
However, if a patient met these criteria and did not receive a skin
graft, then the case was much less expensive and the average length of
stay fell from over 30 days to 8 days. The first two proposed burn DRGs
reflect these distinctions (DRGs 504 and 505).
After classifying the most extensive burn cases, we found that the
patients with 3rd degree burns that did not meet the criteria to be
assigned to DRGs 504 and 505 were the most expensive of the remaining
cases (that is, those patients whose burns did not meet the at least 20
percent body area or at least 10 percent 3rd degree criteria). These
burns are referred to clinically as ``full-thickness burns.'' A subset
of these full-thickness burn cases, those with skin graft or an
inhalation injury, were much more expensive than the other cases. After
dividing these patients into two groups, with or without skin graft or
inhalation injury, we examined whether other factors had an influence
on resource use. We found that patients who had a CC (complication or
comorbidity) or a concomitant significant trauma consumed more
resources whether or not they had a skin graft or inhalation injury.
Thus, the next four proposed DRGs were defined as full-thickness burns
with skin graft or inhalation injury with or without CC or significant
trauma, or full-thickness burns without skin graft or inhalation injury
with or without CC or significant trauma (DRGs 506 through 509).
Finally, the last two proposed DRGs (510 and 511) were for cases
with nonextensive burns. These cases are also split on the basis of CCs
or concomitant significant trauma.
Consistent with the recommendations of several commenters on last
year's proposed rule, the new burn DRGs would no longer include a
separate DRG for cases in which burn patients were transferred to
another acute care facility.
The specific diagnosis and procedure codes that were included in
each of the eight proposed DRGs and their titles are as follows.
DRGs 504 and 505--Extensive 3rd Degree Burns with and without Skin
Graft. DRGs 504 and 505 include all cases with burns involving at least
20 percent of body surface area combined with a 3rd degree burn
covering at least 10 percent of body surface area. Thus, these cases
have diagnosis codes of 948.xx, with a fourth digit of 2 or higher
(indicating that burn extends over 20 percent or more of body surface)
and a fifth digit of 1 or higher (indicating a 3rd degree burn
extending over 10 percent or more of body surface). Cases with the
appropriate diagnosis codes are classified into DRG 504 if one of the
following skin graft procedure codes is present:

85.82 Split-thickness graft to breast
85.83 Full-thickness graft to breast
85.84 Pedicle graft to breast
86.60 Free skin graft, NOS
86.61 Full-thickness skin graft to hand

[[Page 40958]]

86.62 Other skin graft to hand
86.63 Full-thickness skin graft to other sites
86.65 Heterograft to skin
86.66 Homograft to skin
86.67 Dermal regenerative graft (new code in FY 1999--see Table 6A
in section VI. of the Addendum)
86.69 Other skin graft to other sites
86.70 Pedicle of flap graft, NOS
86.71 Cutting and preparation of pedicle grafts or flaps
86.72 Advancement of pedicle graft
86.73 Attachment of pedicle or flap graft to hand
86.74 Attachment of pedicle or flap graft to other sites
86.75 Revision of pedicle or flap graft
86.93 Insertion of tissue expander

DRGs 506 and 507--Full Thickness Burn with Skin Graft or Inhalation
Injury with or without CC or Significant Trauma. These DRGs include all
other cases of 3rd degree burns that also have either a skin graft or
an inhalation injury. Thus, these cases have diagnosis codes of 941.xx
through 946.xx, and 949.xx, with a fourth digit of 3 or higher, as well
as cases with codes of 948.xx that did not group into DRGs 504 or 505
(that is, 948.00, 948.01, and 948.1x through 948.9x with a fifth digit
of 0). In addition, cases classified into DRGs 506 and 507 must have
either one of the skin graft procedure codes listed above or one of the
following diagnosis codes for inhalation injuries:

518.5 Pulmonary insufficiency following trauma and surgery
518.81 Respiratory failure
518.84 Acute and chronic respiratory failure (new code in FY 1999--
see Table 6A in section VI. of the Addendum)
947.1 Burn of larynx, trachea, or lung
987.9 Toxic effect of gas, fume, or vapor, NOS

Cases that meet both of these coding criteria are assigned to DRG 506
if there is a diagnosis code indicating either a CC (based on the
standard DRG CC list) or concomitant significant trauma (based on the
significant trauma diagnosis codes, listed by body site, used for
classification in MDC 24).
DRGs 508 and 509--Full Thickness Burn without Skin Graft or
Inhalation Injury with or without CC or Significant Trauma. These DRGs
include all other cases of 3rd degree burns. Thus, these DRGs include
all cases without a skin graft or inhalation injury that have diagnosis
codes of 941.xx through 946.xx, and 949.xx, with a fourth digit of 3 or
higher, as well as cases with codes of 948.xx that did not group into
DRGs 504 or 505. DRG 508 also requires a secondary diagnosis from the
standard CC list or the trauma list based on the significant trauma
diagnosis codes, listed by body site, used for classification in MDC
24.
DRGs 510 and 511--Nonextensive Burns with and without CC or
Significant Trauma. The remaining burn cases would be classified into
one of these two proposed DRGs, depending on whether or not the claim
included a diagnosis code reflecting the presence of a CC or a
significant trauma, as explained above.
Comment: We received five comments on this proposed change. In
general, the commenters, including the ABA, strongly supported the
proposed restructuring of MDC 22. The commenters agreed that the new
burn DRGs should bring about meaningful improvements to the clinical
coherency and payment equity for the cases assigned to the MDC 22 DRGs.
One commenter noted that under the new DRGs, diagnosis codes in the
948.xx series (that is, the codes used to identify the extent of body
surface involved in a burn and the percentage of the body surface with
a 3rd degree burn) would take on added importance and emphasized the
need for coder education in this area. Another commenter submitted
several suggestions for additional procedure codes that should be added
to the list of procedure codes that would result in assignment to DRG
504 and to DRGs 506 and 507. These codes include both additional codes
that the commenter believes should be considered as skin grafts (such
as procedure codes 08.61 through 08.69, reconstruction of eyelid with
flaps or grafts) as well as codes for other procedures (for example,
limb reattachments or eyeball enucleations) that, as the commenter
pointed out, are now considered a related operating room procedure
under existing DRG 472, Extensive Burns with Operating Room Procedure.
This commenter also suggested that DRGs 506 and 507 be identified as
surgical DRGs in Table 5 of the addendum to the final rule.
Response: We appreciate the positive responses generated by this
proposal. We agree that our proposed changes will place greater
emphasis on the need for accurate use of the series 948.xx diagnosis
codes. We note that this issue has been addressed in the American
Hospital Association's quarterly publication, ``Coding Clinic for ICD-
9-CM.'' In the 1994, 4th quarter issue, Coding Clinic stated ``It is
advisable to use category 948 as additional coding when needed to
provide data for evaluating burn mortality, such as that needed by burn
units. It is also advisable to use category 948 as an additional code
for reporting purposes when there is mention of a third-degree burn
involving 20 percent or more of the body surface.'' We believe the vast
majority of burn cases already include the 948.xx coding if
appropriate, especially those treated in burn centers. However, we will
be pleased to work with other hospital groups that are interested in
developing educational materials related to the accurate coding of burn
cases.
In developing the coding classifications used to assign cases under
the burn DRGs, we worked closely with the ABA and its medical
consultants to identify the most significant distinguishing
characteristics in terms of resource use in burn cases. This process
involved both grouping cases that were clinically similar as well as
conducting a series of test runs to maximize the amount of variation in
resource use that could be explained using varying groups of diagnosis
and procedure codes. As stated in the May 8 proposed rule (63 FR
25579), we estimate that the proposed changes to the burn DRGs would
increase by more than 25 percent the amount of variation in resource
use explained by the DRGs in MDC 22, as well as improve the clinical
coherence of the cases within each DRG. As recommended by the ABA, the
procedure codes used to identify skin grafts coincide with the
procedure codes now in use under existing DRG 458, Non-Extensive Burns
with Skin Graft, and we believe that these codes represent the most
resource-intensive skin grafts. Therefore, we are not adding the codes
suggested by the commenter.
We recognize that some procedures now listed under DRG 472 will no
longer affect DRG assignment under the restructured burn DRGs. However,
we believe that the substantially increased ability of the new DRGs to
explain the variation in resource use among burn cases clearly
indicates the appropriateness of narrowing the focus of the
classification system to emphasize the extent and severity of the burn,
in conjunction with skin grafts or inhalation injury. Our analysis
indicated that the presence of skin grafts or inhalation injuries had a
much more consistent effect on the consumption of hospital resources
than the presence of one of the numerous operating room procedures now
listed under DRG 472. We also note that, since the skin graft
procedures now classified to DRG 504 were classified to former DRG 472,
many DRG 472 cases will now be assigned to DRG 504, which has a higher
weight than 472 did (14.1153 versus 10.2429). When the FY 1999 cases
become available, we will review them to assess the revisions to MDC 22
and the possible need for the type of changes suggested by the
commenter.

[[Page 40959]]

Finally, we note that we do not classify DRGs 506 and 507 as
surgical DRGs because they include not only cases involving skin
grafts, which are considered surgical procedures, but also cases
involving inhalation injuries, which would not necessarily involve any
surgical procedures. Thus, in this final rule, we are adopting the
changes to the burn DRGs as proposed.
4. Legionnaires' Disease
Effective with discharges occurring on or after October 1, 1997, a
new diagnosis code was created for pneumonia due to Legionnaires'
disease (code 482.84). In the August 29, 1997 final rule with comment
period, we assigned this code to DRGs 79, 80, and 81 (Respiratory
Infections and Inflammations) (62 FR 46090). However, we did not
include this code as a human immunodeficiency virus (HIV) major related
condition in MDC 25 (HIV Infections). Because pneumonia due to
Legionnaires' disease is a serious respiratory condition that has a
deleterious effect on patients with HIV, we proposed to assign
diagnosis code 482.84 to DRG 489 (HIV with Major Related Condition) as
a major related condition. In addition, we did not assign the code as a
major problem in DRGs 387 (Prematurity with Major Problems) and 389
(Full Term Neonate with Major Problems). These DRGs are assigned to MDC
15 (Newborns and Other Neonates with Conditions Originating in the
Perinatal Period). Again, as a part of the proposed rule, we assigned
diagnosis code 482.84 as a major problem in DRGs 387 and 389 because of
its effect on resource use in treating newborns.
Commenters supported these proposed revisions, and we are
incorporating them into the final DRGs.
5. Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different DRG within the MDC to which the principal diagnosis is
assigned. It is, therefore, necessary to have a decision rule by which
these cases are assigned to a single DRG. The surgical hierarchy, an
ordering of surgical classes from most to least resource intensive,
performs that function. Its application ensures that cases involving
multiple surgical procedures are assigned to the DRG associated with
the most resource-intensive surgical class.
Because the relative resource intensity of surgical classes can
shift as a function of DRG reclassification and recalibration, we
reviewed the surgical hierarchy of each MDC, as we have for previous
reclassifications, to determine if the ordering of classes coincided
with the intensity of resource utilization, as measured by the same
billing data used to compute the DRG relative weights.
A surgical class can be composed of one or more DRGs. For example,
in MDC 5, the surgical class ``heart transplant'' consists of a single
DRG (DRG 103) and the class ``major cardiovascular procedures''
consists of two DRGs (DRGs 110 and 111). Consequently, in many cases,
the surgical hierarchy has an impact on more than one DRG. The
methodology for determining the most resource-intensive surgical class
involves weighing each DRG for frequency to determine the average
resources for each surgical class. For example, assume surgical class A
includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5.
Assume also that the average charge of DRG 1 is higher than that of DRG
3, but the average charges of DRGs 4 and 5 are higher than the average
charge of DRG 2. To determine whether surgical class A should be higher
or lower than surgical class B in the surgical hierarchy, we would
weigh the average charge of each DRG by frequency (that is, by the
number of cases in the DRG) to determine average resource consumption
for the surgical class. The surgical classes would then be ordered from
the class with the highest average resource utilization to that with
the lowest, with the exception of ``other OR procedures'' as discussed
below.
This methodology may occasionally result in a case involving
multiple procedures being assigned to the lower-weighted DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER searches for the procedure in the
most resource-intensive surgical class this result is unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average relative
weight is ordered above a surgical class with a higher average relative
weight. For example, the ``other OR procedures'' surgical class is
uniformly ordered last in the surgical hierarchy of each MDC in which
it occurs, regardless of the fact that the relative weight for the DRG
or DRGs in that surgical class may be higher than that for other
surgical classes in the MDC. The ``other OR procedures'' class is a
group of procedures that are least likely to be related to the
diagnoses in the MDC but are occasionally performed on patients with
these diagnoses. Therefore, these procedures should only be considered
if no other procedure more closely related to the diagnoses in the MDC
has been performed.
A second example occurs when the difference between the average
weights for two surgical classes is very small. We have found that
small differences generally do not warrant reordering of the hierarchy
since, by virtue of the hierarchy change, the relative weights are
likely to shift such that the higher-ordered surgical class has a lower
average weight than the class ordered below it.
Based on the preliminary recalibration of the DRGs, we proposed to
modify the surgical hierarchy as set forth below. However, in
developing the proposed rule, we were unable to test the effects of the
proposed revisions to the surgical hierarchy and to reflect these
changes in the proposed relative weights due to the unavailability of
revised GROUPER software at the time the proposed rule was prepared.
Rather, we simulated most major classification changes to approximate
the placement of cases under the proposed reclassification and then
determined the average charge for each DRG. These average charges then
serve as our best estimate of relative resource use for each surgical
class. We test the proposed surgical hierarchy changes after the
revised GROUPER is received and reflect the final changes in the DRG
relative weights in the final rule.
We proposed to revise the surgical hierarchy for MDC 3 (Diseases
and Disorders of the Ear, Nose, Mouth and Throat) as follows:
We would reorder Sinus and Mastoid Procedures (DRGs 53-54)
above Myringotomy with Tube Insertion (DRGs 61-62).
We would reorder Mouth Procedures (DRGs 168-169) above
Tonsil and Adenoid Procedure Except Tonsillectomy and/or Adenoidectomy
Only (DRGs 57-58).
We received two comments in support of our surgical hierarchy
proposals. However, for this final rule, we tested the proposed changes
using the most recent MedPAR file and the revised GROUPER software, and
we found that the proposal to move Sinus and Mastoid Procedures (DRGs
53-54) above Myringotomy with Tube Insertion (DRGs 61-62) is not
supported. Therefore, this change will not be made in this final rule.
The proposed reordering of DRGs 53 and 54 above Cleft Lip and Palate
Repair (DRG 52) (DRG 52 is currently ordered below DRGs 61 and 62 but
above DRGs 53 and 54) is still supported and will be

[[Page 40960]]

incorporated in the final GROUPER, as will the proposed reordering of
DRGs 168 and 169 above DRGs 57 and 58.
6. Refinement of Complications and Comorbidities List
There is a standard list of diagnoses that are considered CCs. We
developed this list using physician panels to include those diagnoses
that, when present as a secondary condition, would be considered a
substantial complication or comorbidity. In previous years, we have
made changes to the standard list of CCs, either by adding new CCs or
deleting CCs already on the list. We did not propose to delete any of
the diagnosis codes on the CC list.
In the September 1, 1987 final notice concerning changes to the DRG
classification system (52 FR 33143), we modified the GROUPER logic so
that certain diagnoses included on the standard list of CCs would not
be considered a valid CC in combination with a particular principal
diagnosis. Thus, we created the CC Exclusions List. We made these
changes to preclude coding of CCs for closely related conditions, to
preclude duplicative coding or inconsistent coding from being treated
as CCs, and to ensure that cases are appropriately classified between
the complicated and uncomplicated DRGs in a pair.
In the May 19, 1987 proposed notice concerning changes to the DRG
classification system (52 FR 18877), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another (as subsequently corrected
in the September 1, 1987 final notice (52 FR 33154)).
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for a condition should not be considered CCs for
one another.
Conditions that may not co-exist, such as partial/total,
unilateral/bilateral, obstructed/unobstructed, and benign/malignant,
should not be considered CCs for one another.
The same condition in anatomically proximal sites should
not be considered CCs for one another.
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. The FY 1988 revisions were intended to be
only a first step toward refinement of the CC list in that the criteria
used for eliminating certain diagnoses from consideration as CCs were
intended to identify only the most obvious diagnoses that should not be
considered complications or comorbidities of another diagnosis. For
that reason, and in light of comments and questions on the CC list, we
have continued to review the remaining CCs to identify additional
exclusions and to remove diagnoses from the master list that have been
shown not to meet the definition of a CC. (See the September 30, 1988
final rule for the revision made for the discharges occurring in FY
1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990
revision (54 FR 36552); the September 4, 1990 final rule for the FY
1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY
1992 revision (56 FR 43209); the September 1, 1992 final rule for the
FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for
the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule
for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final
rule for the FY 1996 revisions (60 FR 45782); the August 30, 1996 final
rule for the FY 1997 revisions (61 FR 46171); and the August 29, 1997
final rule for the FY 1998 revisions (62 FR 45966)).
We proposed a limited revision of the CC Exclusions List to take
into account the changes that will be made in the ICD-9-CM diagnosis
coding system effective October 1, 1998. (See section II.B.8, below,
for a discussion of ICD-9-CM changes.) These proposed changes were made
in accordance with the principles established when we created the CC
Exclusions List in 1987. We received no comments on these proposed
changes and we are incorporating them as final changes.
Tables 6F and 6G in section VI of the Addendum to this final rule
contain the revisions to the CC Exclusions List that would be effective
for discharges occurring on or after October 1, 1998. Each table shows
the principal diagnoses with changes to the excluded CCs. Each of these
principal diagnoses is shown with an asterisk and the additions or
deletions to the CC Exclusions List are provided in an indented column
immediately following the affected principal diagnosis.
CCs that are added to the list are in Table 6F--Additions to the CC
Exclusions List. Beginning with discharges on or after October 1, 1998,
the indented diagnoses will not be recognized by the GROUPER as valid
CCs for the asterisked principal diagnosis.
CCs that are deleted from the list are in Table 6G--Deletions from
the CC Exclusions List. Beginning with discharges on or after October
1, 1998 the indented diagnoses will be recognized by the GROUPER as
valid CCs for the asterisked principal diagnosis.
Copies of the original CC Exclusions List applicable to FY 1988 can
be obtained from the National Technical Information Service (NTIS) of
the Department of Commerce. It is available in hard copy for $92.00
plus $6.00 shipping and handling and on microfiche for $20.50, plus
$4.00 for shipping and handling. A request for the FY 1988 CC
Exclusions List (which should include the identification accession
number, (PB) 88-133970) should be made to the following address:
National Technical Information Service; United States Department of
Commerce; 5285 Port Royal Road; Springfield, Virginia 22161; or by
calling (703) 487-4650.
Users should be aware of the fact that all revisions to the CC
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, and 1998) and those in Tables 6F and 6G of this document must be
incorporated into the list purchased from NTIS in order to obtain the
CC Exclusions List applicable for discharges occurring on or after
October 1, 1998.
Alternatively, the complete documentation of the GROUPER logic,
including the current CC Exclusions List, is available from 3M/Health
Information Systems (HIS), which, under contract with HCFA, is
responsible for updating and maintaining the GROUPER program. Version
16.0 of this manual, which will include the final FY 1999 DRG changes,
will be available in October 1998 for $225.00, which includes $15.00
for shipping and handling. This manual may be obtained by writing 3M/
HIS at the following address: 100 Barnes Road; Wallingford, Connecticut
06492; or by calling (203) 949-0303.
7. Review of Procedure Codes in DRGs 468, 476, and 477
Each year, we review cases assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR
Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive
OR Procedure Unrelated to Principal Diagnosis) in order to determine
whether it would be appropriate to change the procedures assigned among
these DRGs.
DRGs 468, 476, and 477 are reserved for those cases in which none
of the OR procedures performed is related to the principal diagnosis.
These DRGs are intended to capture atypical cases, that is, those cases
not occurring with sufficient frequency to represent a

[[Page 40961]]

distinct, recognizable clinical group. DRG 476 is assigned to those
discharges in which one or more of the following prostatic procedures
are performed and are unrelated to the principal diagnosis.

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

All remaining OR procedures are assigned to DRGs 468 and 477, with
DRG 477 assigned to those discharges in which the only procedures
performed are nonextensive procedures that are unrelated to the
principal diagnosis. The original list of the ICD-9-CM procedure codes
for the procedures we consider nonextensive procedures, if performed
with an unrelated principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the September 30, 1988 final rule (53 FR
38591). As part of the final rules published on September 4, 1990,
August 30, 1991, September 1, 1992, September 1, 1993, September 1,
1994, September 1, 1995, August 30, 1996, and August 29, 1997, we moved
several other procedures from DRG 468 to 477, as well as moving some
procedures from DRG 477 to 468. (See 55 FR 36135, 56 FR 43212, 57 FR
23625, 58 FR 46279, 59 FR 45336, 60 FR 45783, 61 FR 46173, and 62 FR
45981, respectively.)
a. Adding procedure codes to MDCs. We annually conduct a review of
procedures producing DRG 468 or 477 assignments on the basis of volume
of cases in these DRGs with each procedure. Our medical consultants
then identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical DRGs for the MDC in which the diagnosis falls.
Based on this year's review, we did not identify any necessary changes;
therefore, we did not propose to move any procedures from DRGs 468 and
477 to one of the surgical DRGs.
b. Reassignment of procedures among DRGs 468, 476, and 477. We also
reviewed the list of procedures that produce assignments to DRGs 468,
476, and 477 to ascertain if any of those procedures should be moved
from one of these DRGs to another based on average charges and length
of stay. Generally, we move only those procedures for which we have an
adequate number of discharges to analyze the data. Based on our review
this year, we did not propose to move any procedures from DRG 468 to
DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG 477 to
DRGS 468 or 476.
8. Changes to the ICD-9-CM Coding System
As discussed above in section II.B.1 of this preamble, the ICD-9-CM
is a coding system that is used for the reporting of diagnoses and
procedures performed on a patient. In September 1985, the ICD-9-CM
Coordination and Maintenance Committee was formed. This is a Federal
interdepartmental committee charged with the mission of maintaining and
updating the ICD-9-CM. That mission includes approving coding changes,
and developing errata, addenda, and other modifications to the ICD-9-CM
to reflect newly developed procedures and technologies and newly
identified diseases. The Committee is also responsible for promoting
the use of Federal and non-Federal educational programs and other
communication techniques with a view toward standardizing coding
applications and upgrading the quality of the classification system.
The Committee is co-chaired by the National Center for Health
Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the
ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic
Index for Diseases while HCFA has lead responsibility for the ICD-9-CM
procedure codes included in the Tabular List and Alphabetic Index for
Procedures.
The Committee encourages participation in the above process by
health-related organizations. In this regard, the Committee holds
public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding fields, such
as the American Health Information Management Association (AHIMA)
(formerly American Medical Record Association (AMRA)), the American
Hospital Association (AHA), and various physician specialty groups as
well as physicians, medical record administrators, health information
management professionals, and other members of the public to contribute
ideas on coding matters. After considering the opinions expressed at
the public meetings and in writing, the Committee formulates
recommendations, which then must be approved by the agencies.
The Committee presented proposals for coding changes at public
meetings held on June 5 and December 4 and 5, 1997, and finalized the
coding changes after consideration of comments received at the meetings
and in writing within 30 days following the December 1997 meeting. The
initial meeting for consideration of coding issues for implementation
in FY 2000 was held on June 4, 1998. Copies of the minutes of the 1997
meetings can be obtained from the HCFA Home Page @ http://www.hcfa.gov/
pubaffr.htm, under the ``What's New'' listing. Paper copies of these
minutes are no longer available and the mailing list has been
discontinued. We encourage commenters to address suggestions on coding
issues involving diagnosis codes to: Donna Pickett, Co-Chairperson;
ICD-9-CM Coordination and Maintenance Committee; NCHS; Room 1100; 6525
Belcrest Road; Hyattsville, Maryland 20782. Comments may be sent by E-
mail to: [email protected].
Questions and comments concerning the procedure codes should be
addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination
and Maintenance Committee; HCFA, Center for Health Plans and Providers,
Plan and Provider Purchasing Policy Group, Division of Acute Care; C4-
05-27; 7500 Security Boulevard; Baltimore, Maryland 21244-1850.
Comments may be sent by E-mail to: [email protected].
The ICD-9-CM code changes that have been approved will become
effective October 1, 1998. The new ICD-9-CM codes are listed, along
with their proposed DRG classifications, in Tables 6A and 6B (New
Diagnosis Codes and New Procedure Codes, respectively) in section VI.
of the Addendum to this proposed rule. As we stated above, the code
numbers and their titles were presented for public comment in the ICD-
9-CM Coordination and Maintenance Committee meetings. Both oral and
written comments were considered before the codes were approved.
Therefore, we solicited comments only on the proposed DRG
classifications.
Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment.
Diagnosis codes that have been replaced by expanded codes, other codes,
or have been deleted are in Table 6C (Invalid Diagnosis Codes). These
invalid diagnosis codes will not be recognized by the GROUPER beginning
with discharges occurring on or after October 1, 1998. The

[[Page 40962]]

corresponding new or expanded diagnosis codes are included in Table 6A.
Procedure codes that have been replaced by expanded codes, other codes,
or have been deleted are in Table 6D (Invalid Procedure Codes).
Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis
Code Titles), which also include the proposed DRG assignments for these
revised codes. For FY 1999, there are no revisions to procedure code
titles.
We received several comments about our proposed DRG assignments of
new and revised codes.
Comment: One commenter believes that revised diagnosis code 518.81
(acute respiratory failure) should be assigned as a ``major
complication'' in DRG 121 since it was classified in this manner prior
to the code revision. In addition, new diagnosis codes 518.83 (chronic
respiratory failure) and 518.84 (acute and chronic respiratory failure)
each should also be classified as a ``major complication'' in DRG 121.
Several commenters stated that new procedure code 37.67 (implantation
of cardiomyostimulation system) should not be classified to DRGs 442,
443, and 486 since the procedure is not performed for either injuries
or trauma. Commenters also noted that the DRG assignments as set forth
in Tables 6A through 6E in the May 8, 1998 proposed rule (63 FR 22576)
were not always aligned properly with the appropriate MDC number.
Response: We agree with the commenter that diagnosis codes 518.81,
518.83, and 518.84 should be included on the ``major complication''
list for DRG 121. As noted in the comment, code 518.81 is currently
designated as a major complication and the assignment remains valid. In
addition, the expanded codes 518.83 and 518.84 should be assigned to
the major complication list because these conditions were formerly
assigned to code 518.81. We also agree that procedure code 37.67 should
not have been assigned to DRGs 442, 443, and 486 for the reasons cited
by the commenter. We have revised Tables 6A, 6C, and 6E to reflect
these changes. In addition, we have reformatted the tables to correct
any alignment problems. Finally, we note that in Table 6B, the DRG
assignment of procedure code 86.67 should list only DRGs 504, 506, and
507 under MDC 22. DRGs 458 and 472, which were listed in the proposed
rule, have been deleted as a result of our restructuring of the burn
DRGs (see section II.B.3 of this preamble).
9. Other Issues
a. Palliative care. Effective October 1, 1996 (FY 1997), we
introduced a diagnosis code to allow the identification of those cases
in which palliative care was delivered to a hospital inpatient. This
code, V66.7 (Encounter for palliative care), was unusual in that there
had been no previous code assignment that included the concept of
palliative care. Since this was a new concept, instructional materials
were developed and distributed by the AHA as well as specialty groups
on the use of this new code. With new codes, it sometimes takes several
years for physician documentation to improve and for coders to become
accustomed to looking for this type of information in order to assign a
code. There is an inclusion note listed under V66.7 which indicates
that this code should be used as a secondary diagnosis only; the
patient's medical problem would always be listed first. Currently, use
of diagnosis code V66.7 does not have an impact on DRG assignment.
Consistent with prior practice, we have waited until the FY 1997 data
became available for analysis before considering any possible
modifications to the DRGs.
As discussed in the proposed rule, in analyzing the FY 1997 bills
received through September 1997, we found that 4,769 discharges
included V66.7 as a secondary diagnosis. These cases were widely
distributed throughout 199 DRGs. The vast majority of these DRGs
included five or fewer discharges with use of palliative care. Only 12
DRGs included more than 100 cases. These were the following:

------------------------------------------------------------------------
Number of
DRG Title cases
------------------------------------------------------------------------
10............................... Nervous System Neoplasms 144
with CC.
14............................... Specific Cerebrovascular 272
Disorders Except TIA.
79............................... Respiratory Infections 139
and Inflammations Age
>17 with CC.
82............................... Respiratory Neoplasms... 526
89............................... Simple Pneumonia and 200
Pleurisy Age >17 with
CC.
127.............................. Heart Failure and Shock. 184
172.............................. Digestive Malignancy 226
with CC.
203.............................. Malignancy of 285
Hepatobiliary System or
Pancreas.
239.............................. Pathological Fractures 218
and Musculosketal and
Connective Tissue
Malignancy.
296.............................. Nutritional and 173
Miscellaneous Metabolic
Disorders Age >17 with
CC.
403.............................. Lymphoma and Non-Acute 178
Leukemia with CC.
416.............................. Septicemia Age >17...... 147
------------------------------------------------------------------------

Six of these DRGs are cancer-related; however, the other DRGs are
quite diverse. Upon further analysis, we found that, for the most part,
discharges with code V66.7 do not significantly differ in length of
stay from the discharges in the same DRG without code V66.7. The length
of stay for discharges with code V66.7 are sometimes longer and
sometimes shorter and the comparative length of stay for a given DRG
tends to vary by only one day. In general, the average charges for a
palliative care case discharge with a secondary code of V66.7 were
lower than the charges for other discharges within the DRG. However,
these differences were relatively small and were well within the
standard variation of charges for cases in the DRG.
One approach we could take to revise the DRGs would be to divide
those DRGs with a large number of cases coded with V66.7 into two
different DRGs, with and without palliative care. However, the
relatively small proportion of cases in each DRG argues against this
approach; no DRG has more than 1 percent of its cases coded with
palliative care and, in most cases, the percentage is well under 1
percent. An alternative approach would be to group all palliative care
cases, regardless of the underlying disease or condition, into one new
DRG. However, the charges of these cases are so varied that this is not
a logical choice. In addition, there is a lack of clinical coherence in
such an approach. The underlying diagnoses of these cases range from
respiratory conditions to heart failure to septicemia.

[[Page 40963]]

Because there are so few cases in the FY 1997 data and they are so
widely dispersed among different DRGs, we did not propose any DRG
modification. We will make a more detailed analysis of these cases over
the next year based on a more complete FY 1997 data file as well as
review of the FY 1998 cases that will be available later this year. As
time goes by, hospital coders and physicians should become more aware
of this code and we hope that more complete data will assist our
decision-making process.
We received a few comments supporting our decision to make no DRG
changes at this time for palliative care cases. One commenter agreed
with our statement that it may take several years for use of this code
to spread through the medical community.
b. PTCA. Effective with discharges occurring on or after October 1,
1997, we reassigned cases of PTCA with coronary artery stent implant
from DRG 112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other
Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent
Implant). In the August 29, 1997 final rule with comment period, we
responded to several commenters who contended that PTCA cases treated
with platelet inhibitors were as resource intensive as the PTCA with
stent implant cases and that these cases should also be moved to DRG
116. However, there is currently no code that describes the infusion of
platelet inhibitors. Therefore, we were unable to make any changes in
the DRGs for FY 1998.
As set forth in Table 6B, New Procedure Codes in section VI. of the
addendum to this final rule, a new procedure code for injection or
infusion of platelet inhibitors (code 99.20) will be effective with
discharges occurring on or after October 1, 1998. Our usual policy on
new codes is to assign them to the same DRG or DRGs as their
predecessor code. Because infusion of platelet inhibitors is currently
assigned to a non-OR procedure code, we followed our usual practice and
designated code 99.20 as a non-OR code that does not affect DRG
assignment.
We will not have any data on this new code until we receive bills
for FY 1999. Thus, we would be unable to make any changes in DRG
assignment until FY 2001. We note, however, that the Conference Report
that accompanied the Balanced Budget Act of 1997 contained language
stating that ``* * * in order to ensure that Medicare beneficiaries
have access to innovative new drug therapies, the Conferees believe
that HCFA should consider, to the extent feasible, reliable, validated
data other than MedPAR data in annually recalibrating and reclassifying
the DRGs.'' (H.R. Rep. No. 105-217 at 734 (1997)). At the time the
proposed rule was published, we had received no data that would have
allowed us to make an appropriate modification of DRG 112 for PTCA
cases with platelet infusion therapy. In that rule, we stated that we
would review and analyze any data we received during the comment period
about the use of platelet inhibitors for Medicare beneficiaries.
Since publication of the proposed rule, we received some data
concerning the use of GPIIb/IIIa platelet inhibitor drug therapy as
well as some comments on the issue. A discussion of the data and the
comments and our responses are set forth below.
Comment: The data we received were provided by the pharmaceutical
company that manufactures a GPIIb/IIIa platelet inhibitor. In its
comment accompanying the data, the company states its belief that the
data conclusively demonstrate that procedure code 99.20 should be
assigned to DRG 116 effective for discharges occurring on or after
October 1, 1998. We received two other comments from hospitals
supporting this reassignment in order to improve payment for a
beneficial drug therapy. Another hospital urged HCFA not to make the
reassignment because the commenter believes that there is no evidence
that use of the drug decreases mortality or the risk of need for
emergency coronary bypass in patients undergoing stent implantation. In
addition, this commenter believes that the price charged for platelet
inhibitor is exorbitant and that HCFA should not directly subsidize a
pharmaceutical company through a DRG change. Finally, two commenters, a
drug company and a pharmaceutical association, were encouraged by
HCFA's willingness to consider data other than MedPAR data for
analyzing possible DRG changes.
The data we received comprise two different sets of Medicare
beneficiaries who received PTCA, PTCA with implant of a coronary stent,
PTCA with platelet inhibitor therapy, or PTCA with both implant of a
stent and platelet inhibitor therapy. One set of data consists of just
under 500 patients who received treatment in seven hospitals during a
clinical trial conducted between January 1, 1996 and June 15, 1997. The
other set consists of just over 6,200 patients treated in 83 hospitals
between October 1, 1995 and December 31, 1996 (this is data from a
health care information company that, among other products and
services, performs clinical and financial analysis of data under
contract with hospitals). For the first set of data, the hospitals are
identified; however, for the second set of data, the hospital
identifying information is confidential and was not released to HCFA.
In order to provide HCFA with standardized charges, the information
company obtained the HCFA provider-specific file and standardized the
charges before providing them to HCFA.
According to the commenter, based on the data provided the
approximate average standardized charges for the different classes of
patients are as follows:

PTCA alone--$17,000.
PTCA and stent--$22,000.
PTCA and platelet inhibitor--$24,000.
PTCA and both stent and platelet inhibitor--$29,000.

Based on these data, the drug's manufacturer urges us to reassign
procedure code 99.20 to DRG 116. The commenter also argues that failure
to improve the payment for these cases may result in Medicare
beneficiaries being denied equal access to potentially life-saving
treatment.
Response: We have reviewed the data submitted as well as considered
the comments we have received. Based on the data provided, it appears
that the cost of a PTCA case with platelet inhibitor drug therapy is at
least as expensive as a PTCA case with stent implant. However, the vast
majority of the cases (over 90 percent) cannot be linked to a hospital.
In addition, although the large data set does constitute a sample of
cases, as claimed by the commenter, it is not a random sample, but
rather a sample of those hospitals that contract with the health
information company. The pharmaceutical company states that the 83
hospitals are representative of all hospitals in the country, but we
have no way to verify that claim. Because the data cannot be verified,
and do not reflect a complete data set or a random sample, HCFA cannot
use the data to make a change in the DRG assignment.
The language that Congress included in the Conference Report that
accompanied the Balanced Budget Act of 1997 stated that HCFA should ``*
* * consider, to the extent feasible, reliable, validated data other
than MedPAR data in annually recalibrating and reclassifying the
DRGs.'' The data we have been given does not meet these requirements.
We cannot validate whether the data are Medicare beneficiaries nor can
we verify which hospitals provided the treatment or the amount of
charges reported to Medicare. In addition, we do not believe that we

[[Page 40964]]

should base any DRG reclassification decisions that will increase
payment for a set of cases on data that would not meet HCFA's strict
requirements for making a DRG change that would lower the relative
weight for a set of cases (see discussion below concerning radiosurgery
procedures).
As we have stated in several proposed and final rules (most
recently in the August 30, 1996 final rule in a discussion of the
coronary artery stent implant (61 FR 46170) and the August 29, 1997
final rule in response to a comment on the DRG assignment for new
diagnosis code 686.01) (62 FR 45982), our longstanding practice is to
assign a new code to the same DRG or DRGs as its predecessor code. Our
compelling reason for this practice is our inability to move the cases
associated with the new code to a new DRG assignment as part of the DRG
reclassification and recalibration process. Consequently, our policy is
to wait until we have a full year of Medicare data upon which to base
an analysis of what the most appropriate DRG assignment would be. We
can then move any cases that we would reassign so we can revise the DRG
relative weights accordingly. If we were to assign procedure code 99.20
to DRG 116 at this time, we would be unable to move the cases
associated with that code from DRG 112 into DRG 116 based on the data
provided. Thus, the relative weight of DRG 112 would still reflect the
cases with procedure code 99.20. Since these cases presumably have much
higher charges than the other PTCA cases, the relative weight for DRG
112 would be overstated, which means the payments to those cases would
be overstated. In addition, the charges for PTCA cases with platelet
inhibitor drug therapy would not be reflected in the DRG 116 relative
weight.
Our practice of waiting until we have identifiable MedPAR data
applies to all DRG changes, that is, both those changes that would
enhance payment for a particular diagnosis or procedure, as well as,
those that would decrease payment for a particular diagnosis or
procedure. We note that, in FY 1996, when we created a new procedure
code for stereotactic radiosurgery (92.3), we assigned the code to DRGs
1, 2, and 3, because that is where the predecessor procedure code was
assigned. However, since code 92.3 is a nonoperating room procedure, we
were relatively sure that the code would not remain assigned to DRG 1,
2, and 3 (which are the highest weighted surgical DRGs in MDC 1) once
we had the actual charge data. As discussed in the August 29, 1997
final rule (62 FR 45971), procedure code 92.3 was reassigned to DRGs 7
and 8 once we had the FY 1996 data to analyze. Therefore, we
``overpaid'' those cases for 2 years; that is, their charges were much
less than the average charges for DRGs 1, 2, and 3.
We believe that any data we use to reclassify and recalibrate DRGs
must be comprehensive and valid, as well as verifiable by HCFA.
Concerning the commenter's argument that failure to change the DRG
assignment for infusion of platelet inhibitor will compromise the
availability of this treatment for Medicare beneficiaries, we note, as
we have in several previous documents, that it is a violation of a
hospital's Medicare provider agreement to place restrictions on the
number of Medicare beneficiaries it accepts for treatment unless it
places the same restrictions on all other patients.
c. Implantation of Muscle Stimulator
Comment: We received one comment arguing that the current DRG
assignment for the implantation of a muscle stimulator and the
associated tendon transfer for quadriplegics is inappropriate. The
specific muscle stimulator device (an implanted neuroprosthesis that
restores functional hand motion in people with quadriplegia who are 24
months post-injury) was approved by the Food and Drug Administration in
August 1996. The device is designed to provide neuromuscular
stimulation for certain patients with quadriplegia so that they can
grasp with their hand and perform tasks such as holding eating utensils
and pens and brushing their teeth. In many cases, the patient also
undergoes a tendon transfer to the hand during the same admission or
during a prior admission. The commenter notes that when the tendon
transfer (procedure code 82.56 (other hand tendon transfer or
transplantation)) and the insertion of the muscle stimulator (procedure
code 83.92 (insertion or replacement of skeletal muscle stimulator))
are performed during the same admission, the case is assigned to DRG 7
or 8 (Peripheral and Cranial Nerve and Other Nerve System Procedures).
However, when the procedures are performed during two separate
admissions, the tendon transfer is assigned to DRGs 7 and 8 and the
insertion of the muscle stimulator is assigned to DRG 468 (Extensive OR
Procedure Unrelated to Principal Diagnosis). The commenter stated that
although payment for DRGs 7, 8, and 468 are all significantly less than
the cost of the hospital stay and the device, DRG 468 pays more and
results in the hospital losing less money. The commenter noted that the
device alone costs $24,500 and hospitals report losses of $11,000 to
$26,000 when the device is inserted and a tendon transfer is performed
during the same admission (resulting in assignment to DRGs 7 and 8).
However, when the insertion of the device is performed in a separate
admission, the cases are assigned to DRG 468 and hospitals' losses are
limited to $4,000 to $18,000.
The commenter believes that hospitals will refuse to perform this
very useful surgery unless the DRG assignment is revised. If the
insertion of the muscle stimulator were assigned to a surgical DRG in
MDC 1 where the diagnosis codes for quadriplegia are assigned, the
highest paying DRG assignment would be DRGs 1, 2, and 3 (Craniotomy).
Besides being clinically inappropriate, the commenter believes the
weights for these DRGs are too low to adequately pay for this
procedure.
The commenter recommended both a short and a long-term solution for
this problem. For now, all cases with insertion of muscle stimulators
performed in conjunction with tendon transfer should be assigned to DRG
468. In the long term, HCFA should establish a new DRG for the
implantation of muscle stimulation devices and other stimulation
devices as they become available.
Response: In examining the latest FY 1997 MedPAR file (bills
received through March 1998), we found only three cases for
implantation of muscle stimulators for quadriplegics. One case was
assigned to DRG 7 and the other two to DRG 8. The standardized charge
and length of stay for each case is set forth below.

------------------------------------------------------------------------
Length of
DRG Standardized stay
charge (days)
------------------------------------------------------------------------
7.............................................. $25,227 7
8.............................................. 8,849 2
8.............................................. 42,183 2
------------------------------------------------------------------------

The average charge for all cases assigned to DRG 7 is approximately
$21,000 and the average charge for DRG 8 cases is about $11,500.
With so few cases, we would prefer to review the data in the FY
1998 MedPAR file before making any reclassification. Therefore, we will
add these cases to our FY 2000 DRG reclassification analysis agenda. We
note that the charges reported for two of the three cases are
significantly less than the costs that the commenter believes would be
incurred for this surgery (approximately $35,000).
It would be inappropriate to assign the muscle stimulator
insertions solely

[[Page 40965]]

to DRG 468. This DRG was created to capture a set of clinically
unrelated cases where the only operating room procedures performed are
unrelated to the patient's principal diagnosis. To permanently assign a
procedure code only to DRG 468 would be contrary to the basic design
and precepts of the DRG system.

C. Recalibration of DRG Weights

We proposed to use the same basic methodology for the FY 1999
recalibration as we did for FY 1998. (See the August 29, 1997 final
rule with comment (62 FR 45982).) That is, we recalibrated the weights
based on charge data for Medicare discharges. However, we used the most
current charge information available, the FY 1997 MedPAR file, rather
than the FY 1996 MedPAR file. The MedPAR file is based on fully-coded
diagnostic and surgical procedure data for all Medicare inpatient
hospital bills.
The final recalibrated DRG relative weights are constructed from FY
1997 MedPAR data, based on bills received by HCFA through March 1998,
from all hospitals subject to the prospective payment system and short-
term acute care hospitals in waiver States. The FY 1997 MedPAR file
includes data for approximately 11.3 million Medicare discharges.
The methodology used to calculate the DRG relative weights from the
FY 1997 MedPAR file is as follows:
All the claims were regrouped using the DRG classification
revisions discussed above in section II.B of this preamble.
Charges were standardized to remove the effects of
differences in area wage levels, indirect medical education costs,
disproportionate share payments, and, for hospitals in Alaska and
Hawaii, the applicable cost-of-living adjustment.
The average standardized charge per DRG was calculated by
summing the standardized charges for all cases in the DRG and dividing
that amount by the number of cases classified in the DRG.
We then eliminated statistical outliers, using the same
criteria as was used in computing the current weights. That is, all
cases that are outside of 3.0 standard deviations from the mean of the
log distribution of both the charges per case and the charges per day
for each DRG.
The average charge for each DRG was then recomputed
(excluding the statistical outliers) and divided by the national
average standardized charge per case to determine the relative weight.
A transfer case (including a postacute care transfer case as discussed
in section IV.A of this preamble) is counted as a fraction of a case
based on the ratio of its length of stay (plus one day to account for
the double per diem payment for the first day) to the geometric mean
length of stay of the cases assigned to the DRG. That is, a 5-day
length of stay transfer case assigned to a DRG with a geometric mean
length of stay of 10 days is counted as 0.6 of a total case. Transfers
from DRGs 209, 210, or 211 to postacute care are counted as a fraction
of a discharge based on the ratio determined by dividing the geometric
mean length of stay for the DRG by the sum of half the geometric mean
and half the length of stay for the case, plus one.
We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner
consistent with the methodology for all other DRGs except that the
transplant cases that were used to establish the weights were limited
to those Medicare-approved heart, heart-lung, liver, and lung
transplant centers that have cases in the FY 1995 MedPAR file.
(Medicare coverage for heart, heart-lung, liver, and lung transplants
is limited to those facilities that have received approval from HCFA as
transplant centers.)
Acquisition costs for kidney, heart, heart-lung, liver,
and lung transplants continue to be paid on a reasonable cost basis.
Unlike other excluded costs, the acquisition costs are concentrated in
specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant
for heart and heart-lung transplants); DRG 480 (Liver Transplant); and
DRG 495 (Lung Transplant)). Because these costs are paid separately
from the prospective payment rate, it is necessary to make an
adjustment to prevent the relative weights for these DRGs from
including the effect of the acquisition costs. Therefore, we subtracted
the acquisition charges from the total charges on each transplant bill
that showed acquisition charges before computing the average charge for
the DRG and before eliminating statistical outliers.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We proposed to use that same case
threshold in recalibrating the DRG weights for FY 1999. Using the FY
1997 MedPAR data set, there are 37 DRGs that contain fewer than 10
cases. We computed the weights for the 37 low-volume DRGs by adjusting
the FY 1998 weights of these DRGs by the percentage change in the
average weight of the cases in the other DRGs.
The weights developed according to the methodology described above,
using the final DRG classification changes, result in an average case
weight that is different from the average case weight before
recalibration. Therefore, the new weights are normalized by an
adjustment factor, so that the average case weight after recalibration
is equal to the average case weight before recalibration. This
adjustment is intended to ensure that recalibration by itself neither
increases nor decreases total payments under the prospective payment
system.
Comment: One commenter was concerned about the general trend in the
relative weights. This commenter calculated average relative weights
for each MDC as well as the overall average DRG weight. Based upon this
calculation, the commenter noted that the average weight for the pre-
MDC DRGs and MDCs 8 (Diseases and Disorders of the Musculoskeletal
system and Connective Tissue) and 24 (Multiple Significant Trauma) are
decreasing. Concerning MDC 8, the commenter believes the average weight
is decreasing because of the use of postacute care for these DRGs,
noting that 4 of them are included in the list of 10 DRGs affected by
the transfer to postacute care provision (see section IV.A of this
preamble for a discussion of this provision). The commenter suggested
that we leave the FY 1998 weights intact for MDC 8 until we can assess
the effect of postacute care transfers on average standardized amounts.
For the pre-MDCs and MDC 24, the commenter believes that the cases
assigned to these categories are extremely resource-intensive and that
the average weights should not be decreasing. Finally, the commenter
noted that, although the total weight increased for MDC 22 (Burns), the
average weight decreased. The commenter believes this is inconsistent
with the statement in the proposed rule that the changes being made to
MDC 22 would improve the explanation of variation in resource use in
those DRGs (63 FR 25579).
Response: We reviewed the table of average DRG weights presented in
the comment, both overall and within MDCs, and we found that the
commenter has mistakenly used a simple averaging methodology to
determine the mean weight rather than a weighted averaging methodology,
which is how the DRG relative weights are calculated. For example,
suppose an MDC has three DRGs and there are 3 cases assigned to DRG 1,
6 cases assigned to DRG 2, and 7 cases assigned to DRG 3. The weights
for the DRGs are

[[Page 40966]]

1.000, 2.000, and 3.000, respectively. The simple average weight for
the three DRGs would be calculated by adding the weights and dividing
by the number of DRGs as follows:
[GRAPHIC] [TIFF OMITTED] TR31JY98.051

However, the weighted average would be calculated by first multiplying
the weights of each DRG by the number of cases in that DRG and dividing
by the number of cases as follows:
[GRAPHIC] [TIFF OMITTED] TR31JY98.052

Because of this mistake in average weight calculation, the
commenter has made some incorrect conclusions. For example, the
commenter states that the average DRG weight for FY 1998 is 1.3681 and
the average of the proposed FY 1999 weights is 1.3895. In reality, the
average FY 1998 weight is 1.4606 and the average of the proposed FY
1999 weights is 1.4673.

(Note: These average weights are based on the MedPAR cases used
to recalibrate the weights; that is, the FY 1998 weights are based
on FY 1996 cases reclassified into the FY 1998 DRGs and the proposed
FY 1999 weights are based on FY 1997 cases reclassified into the FY
1999 DRGS).
The average weight of the final FY 1999 weights is 1.4679.

Contrary to the commenter's assertion, the average weight of the
proposed FY 1999 MDC 22 DRGs did not decrease compared to the FY 1998
MDC 22 weights (4.6663 and 4.5234, respectively). In addition, although
all of the FY 1999 proposed pre-MDC DRG weights except DRG 483
decreased relative to FY 1998, the increase in DRG 483 was large enough
(coupled with an increase in cases) to result in an overall higher
average weight for the pre-MDC DRGs. We note that the weights for DRGs
481, 482, and 483 have increased between the proposed and final FY 1999
recalibrations. As we have noted in the past, the weights for the
transplant DRGs (481, 482, and 495) have gradually decreased over the
years. In addition, the transplant DRGs have a relatively small number
of cases with a large range of reported charges. A few very low or high
charge cases can make a relatively dramatic difference in the weights
from year to year (August 29, 1997; 62 FR 45983).
Finally, with regard to the commenter's request that we set the FY
1999 MDC 8 weights equal to the FY 1998 weights, we could refer the
commenter to the discussion above concerning the steps we take in
recalibrating the weights. Each year, when we recalibrate the DRG
weights, we use charge data from the most recent Medicare cases
available. That is, we use the charges reported by hospitals to
establish the weights. In this way, we ensure that we are using the
most recent hospital charging practices and patterns to set the new
relative weights. Because each DRG weight is ``relative'' to all other
DRG weights, we cannot arbitrarily freeze a set of those DRGs at the
previous year's weights. In a relative system such as this, if some
weights increase, others must decrease. Finally, as discussed above,
when we recalibrate the weights, a transfer case is counted as a
fraction of a case rather than a whole case.
Section 1886(d)(4)(C)(iii) of the Act requires that beginning with
FY 1991, reclassification and recalibration changes be made in a manner
that assures that the aggregate payments are neither greater than nor
less than the aggregate payments that would have been made without the
changes. Although normalization is intended to achieve this effect,
equating the average case weight after recalibration to the average
case weight before recalibration does not necessarily achieve budget
neutrality with respect to aggregate payments to hospitals because
payment to hospitals is affected by factors other than average case
weight. Therefore, as we have done in past years and as discussed in
section II.A.4.b of the Addendum to this final rule, we make a budget
neutrality adjustment to assure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.

III. Changes to the Hospital Wage Index

A. Background

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

B. FY 1999 Wage Index Update

The final FY 1999 wage index (effective for hospital discharges
occurring on or after October 1, 1998 and before October 1, 1999) is
based on the data collected from the Medicare cost reports submitted by
hospitals for cost reporting periods beginning in FY 1995 (the FY 1998
wage index was

[[Page 40967]]

based on FY 1994 wage data). The FY 1999 wage index includes the
following categories of data, which were also included in the FY 1998
wage index:
Total salaries and hours from short-term, acute care
hospitals.
Home office costs and hours.
Direct patient care contract labor costs and hours.
The wage index also continues to exclude the direct salaries and hours
for nonhospital services such as skilled nursing facility services,
home health services, or other subprovider components that are not
subject to the prospective payment system. Finally, as discussed in
detail in the August 29, 1997 final rule with comment period, we
calculate a separate Puerto Rico-specific wage index and apply it to
the Puerto Rico standardized amount. (See 62 FR 45984 and 46041) This
wage index is based solely on Puerto Rico's data.
For FY 1999 we proposed two changes to the categories of data
included in the wage index: adding contract labor costs and hours for
top management positions and replacing the fringe benefit category with
the wage-related costs associated with hospital and home office
salaries category. These two changes reflect changes to the Medicare
cost report that were discussed in the September 1, 1994 final rule
with comment period (59 FR 45355). The changes were made to the cost
report for cost reporting periods beginning during FY 1995. Because we
are using wage data from the FY 1995 cost report for the FY 1999 wage
index, these two changes will be reflected in the wage index for the
first time in FY 1999.
As discussed in detail in the September 1, 1994 final rule with
comment period (59 FR 45355), we expanded the definition of contract
services reported on the Worksheet S-3 to include the labor-related
costs associated with contract personnel in a hospital's top four
management positions: Chief Executive Officer/Hospital Administrator,
Chief Operating Officer, Chief Financial Officer, and Nursing
Administrator. We also revised the cost report to reflect a change in
terminology from ``fringe benefits'' to ``wage-related costs,'' to
promote the consistent reporting of these costs. (See September 1, 1994
final rule with comment period (59 FR 45356-45359).) We made this
change in terminology because we believed it would eliminate confusion
regarding those wage-related costs that are incorporated in the wage
index versus the broader definition of fringe benefits recognized under
the Medicare cost reimbursement principles. Wage-related costs, which
include core and other wage-related costs, are reported on the Form
HCFA-339, the Provider Cost Report Reimbursement Questionnaire.
Finally, we analyzed the wage data for the following costs, which
were separately reported for the first time on the FY 1995 cost
reports:
Physician Part A costs.
Resident and Certified Registered Nurse Anesthetist (CRNA)
Part A costs.
Overhead cost and hours by cost center.
Our analyses and proposals concerning these data are set forth below in
section III.C.
Comment: MedPAC submitted a general comment on the wage index.
First, the Commission stated that several of the issues raised in the
proposed rule stem from the failure of the wage index to account for
the mix of occupational categories employed by each hospital and that
if the wage index reflected this mix it would be more accurate. In
addition, MedPAC, noted that new measures are needed to implement each
new prospective system as well as for Medicare+Choice plans and
suggested that attention should be given to alternative strategies for
obtaining labor prices that could eliminate the need to collect data
separately for each type of provider affected. MedPac intends to
examine this issue during the upcoming year.
Response: We have addressed the issue of occupational mix in the
past. In the May 27, 1994 Federal Register, we indicated we were not
proposing to collect occupational mix data due to a lack of support
from the hospital industry for an additional reporting burden with
uncertain impact (59 FR 27724). However, certain segments of the
industry continue to insist that an occupational mix would make the
wage index fairer. We will continue to evaluate all the data and
evidence that we receive on this issue. With respect to MedPAC's
interest in examining alternative data collection strategies, we look
forward to the results of its examination, and will provide whatever
assistance we can.

C. Issues Relating to the FY 1999 Wage Index

1. Physician Part A Costs
Currently, if a hospital directly employs a physician, the Part A
portion of the physician's salary and wage-related costs (that is,
administrative and teaching services) is included in the calculation of
the wage index. However, the costs for contract physician Part A
services are not included. Our policy has been that, to be included in
the wage index calculation, a contracted service must be direct patient
care, or, beginning with the FY 1999 wage index, top level management
(see discussion above). Because some States have laws that prohibit
hospitals from directly hiring physicians, the hospitals in those
States have claimed that they are disadvantaged by the wage index's
exclusion of contract physician Part A costs. We began collecting
separate wage data for both direct and contract physician Part A
services on the FY 1995 cost report in order to analyze this issue. As
we discussed in the September 1, 1994 final rule with comment period
(59 FR 45354), our original purpose in collecting these data was to
exclude all physician Part A costs from the wage index.
When we made the change to the cost report, there were five States
in which hospitals were prohibited from directly employing physicians.
We understand that only two States currently maintain this prohibition:
Texas and California. Thus, the number of hospitals affected by our
current policy has decreased. Nevertheless, the fact that hospitals in
these two States are still prohibited from directly employing
physicians for Part A services and, therefore, must enter into
contractual agreements with physicians for these services, perpetuates
the perceived inequity.
The main reason we planned to exclude all Part A physician costs
rather than include the contract costs was our concern that it would be
difficult to accurately attribute the Part A costs and hours of these
contract physicians. In addition, we were concerned that including
these costs could inappropriately inflate the hospitals' average hourly
wages. That is, we anticipated that average costs for contract
physicians would be significantly higher than the costs for those
physicians directly employed by the hospital. However, our analysis of
the data shows that the average hourly wages for contract physician
Part A costs are very similar to, and, in fact slightly lower than, the
costs for salaried physician Part A services.
Based on this result, we believe that continuing to include the
directly employed physician Part A costs and adding the costs for
contract physicians is the better policy. Thus, we proposed to
calculate the FY 1999 wage index including both direct and contract
physician Part A costs.
Of the 5,070 hospitals included in the FY 1995 wage data file,
approximately 32 percent reported contract physician Part A costs.
Including these costs would raise the wage index values for

[[Page 40968]]

2 MSAs (4 hospitals) by more than 5 percent and 7 MSAs (43 hospitals)
by between 2 and 5 percent. Two MSAs and one Statewide rural area (74
hospitals) would experience a decrease between 2 and 5 percent. The
wage index values for the remaining 365 areas (4,949 hospitals) would
be relatively unaffected, experiencing changes of between -2 and 2
percent.
We received several comments regarding the inclusion of contract
physician costs, and physician Part A costs generally. The specific
comments and our responses are set forth below.
Comment: A national hospital association noted its concern about
the inclusion of teaching-related costs in the wage index because
Medicare pays separately for the salaries of teaching physicians
through direct graduate medical education (GME) payments. Nevertheless,
the commenter supports the inclusion of contract physician costs in the
FY 1999 wage index. The commenter indicated that it would work to
develop a consensus among hospital and health system representatives on
which physician salaries, if any, should be included in future wage
indexes. Another commenter supported the inclusion of contract
physician costs but recommended that HCFA take swift action to remove
teaching physician costs ``to achieve geographic equity in payments.''
Several commenters believe that all physician Part A costs,
including teaching physician costs, should be recognized in calculating
the wage index. The commenters asserted that these are costs of doing
business, and including them in the wage index appropriately measures
the geographic variations in what hospitals pay for labor. However,
numerous commenters argued that it is inappropriate to include teaching
physician costs in the wage index because, in effect, it results in
double payment to teaching hospitals for these costs. Recognizing that
HCFA does not have the data available to separately identify the
portion of physician costs attributable to teaching physicians, these
commenters believe it would be preferable to remove all Part A
physician costs from the wage index calculation.
Response: As a conceptual matter, we believe that physician Part A
costs other than teaching physician costs should be included in the
wage index because these costs are paid under the prospective payment
system. Further, in light of the data now available, we believe
including contract physician Part A costs improves equity in the wage
index by allowing hospitals that are prohibited by State law from
directly employing physicians to include their costs of contracted
physicians.
With regard to teaching physician costs, the 1995 cost report does
not separate teaching physician costs from other physician Part A
costs. Consequently, we are unable to exclude teaching physician costs
from the FY 1999 wage index. We believe the optimal approach is to
consider this issue directly in developing the FY 2000 wage index. To
facilitate evaluation of this issue, we will instruct the fiscal
intermediaries to separate teaching physician costs from hospitals' FY
1996 wage data. We will carefully analyze those data, and any changes
we propose to make based on that analysis will be included in the FY
2000 proposed rule.
We do not agree with the commenters' suggestion that, in lieu of
collecting data that would allow us to separately identify teaching
physician costs, we should remove all physician salaries from the wage
index. These physician Part A costs are incurred by the hospital for
services related to such positions as medical director and clinical
department heads. As such, they are legitimate labor costs included
under the prospective payment system. Based on our analysis of the FY
1995 cost reports, we believe that the data reported for physician Part
A costs are sufficiently reliable and complete that inclusion of
physician Part A costs (direct as well as contract costs) for FY 1999
results in a wage index that better reflects relative hospital labor
costs than a wage index that excludes all physician Part A costs.
Moreover, as stated above, we believe the addition of contract
physician Part A costs in the FY 1999 wage index improves the fairness
and accuracy of the wage index relative to the FY 1998 wage index
(which included direct physician Part A costs (salaries) but not
contract physician Part A costs). Thus, rather than excluding all
physician Part A costs, we believe the more responsible approach is to
collect the necessary data as expeditiously as possible in order to
analyze whether it is feasible to separate teaching physician costs
from other physician Part A costs.
Comment: Several commenters favored not only including physician
salaries in the wage index, but also continuing to include teaching
physician salaries. Commenters believe that if Congress had known about
the payment redistributions that would result from eliminating teaching
physician salaries from the wage index before it had enacted the
reductions applicable to teaching hospitals in the Balanced Budget Act
of 1997, it may not have enacted such deep cuts. One commenter also
suggested that if we excluded physician salaries, we would need to
restandardize the large urban standardized amount to reflect the new
wage index.
Another commenter stated that the costs of teaching physicians and
residents should be included in the wage index because Medicare
payments for GME are not sufficient to compensate hospitals for their
GME costs. This commenter compared hospitals' direct GME costs on the
Medicare cost report with the payments they receive and estimated a
shortfall of $900 million. The commenter further noted that reductions
in Medicare disproportionate share payments as a result of the Balanced
Budget Act would have the effect of increasing the empirical estimate
for the indirect graduate medical education adjustment, leading to a
further shortfall in payments for GME.
Response: We cannot know what Congress would or would not have done
if it had known about the impacts of future changes to wage index
policy. Rather, refinements to the wage data should be evaluated on
their individual merits in terms of whether they contribute to or
detract from the fairness and accuracy of the wage index. We disagree
that changes to the wage index may require restandardization of the
large urban standardized amount. The large urban standardized amount
was not created by a separate standardization of the costs of hospitals
in large urban areas, but by applying differential update factors
established by Congress.
We also disagree with the comment that the wage index should
continue to include costs related to teaching physicians and residents
because current and future GME payments are not fully compensating
hospitals for their GME costs. The adequacy of direct GME payments is a
separate issue by virtue of the fact that these costs are recognized
separately and paid for through Medicare outside the prospective
payment system. The amount Medicare pays for direct GME is based on
policy considerations related to the nature of GME, and reflects
Medicare's fair share of those costs. Similarly, indirect GME costs are
distinct from hospitals' labor costs, and the level of IME payments is
not relevant to the wage index.
Comment: Many commenters referred to an analysis done by one
commenter showing the projected payment impacts by State of our
proposed policy of including physician (both direct and contract),
resident, and CRNA costs in the wage index. These commenters

[[Page 40969]]

referred to the large losses that, according to this analysis, certain
States will allegedly suffer because of this policy (California: $79
million; Florida: $36 million; Texas: $10 million). Corresponding gains
were cited among northeast hospitals. The suggestion of these comments
was that we should revise our proposed policy and exclude all of these
costs to redistribute these losses and gains.
Response: We disagree with the characterization of this analysis.
With the exception of contract physician costs, all of these costs have
been included in prior wage indexes. Therefore, the commenter's
analysis does not reflect the impact of the proposed wage index
relative to the current wage index. With respect to the losses in
certain States cited by the commenter, our analysis indicates that, the
projected payment impacts of including contract physician costs
relative to a wage index without these costs are, respectively: a $13
million decrease, a $15 million decrease, and an $18 million increase.
We note that these figures do not reflect the impact of changes to the
wage indexes in these areas resulting from updating from the 1994 wage
data to 1995 wage data, or the exclusion of allocated overhead. They
do, however, present a clearer picture of the impacts in these States
of including contract physician costs relative to current policy.
Comment: One commenter vigorously opposes the inclusion of contract
physician Part A costs, arguing we should instead exclude all physician
Part A costs. The commenter, a national association of health systems,
argued that this proposal contradicts the objectives we identified in
the May 27, 1994 proposed rule (59 FR 27720) and the September 1, 1994
final rule (59 FR 45354), where we discussed the need to separately
collect physician Part A costs. The commenter raises the following
points and ultimately recommends excluding all physician Part A costs
from the calculation of the wage index.
First, the commenter contends that, by choosing to include
physician Part A contract costs rather than exclude all physician Part
A costs, we ``have expanded the unfair and unjustifiable policy tilt
enjoyed by teaching hospitals.'' To emphasize this point, the commenter
notes that over 70 percent of all contract physician costs stem from
teaching hospitals (90 percent of salaried physician costs are also
from teaching hospitals).
Second, the commenter states that our rationale for proposing to
include contract physician costs focused narrowly on whether these
costs would inappropriately inflate the wage data. This narrow focus,
according to the commenter, left out any explanation of why it is
better to include contract physician costs rather than to exclude all
Part A physician costs.
Third, the commenter quotes liberally from our discussion in the
proposed and final rules published in 1994, particularly our rationale
for providing for separate reporting of physician Part A costs on the
cost report. Referenced specifically are the three reasons why HCFA
believed at that time that eliminating physician Part A costs would be
preferable to including contracted physician costs. These reasons were:
(1) Physician costs are not driven by normal labor market situations;
(2) many hospitals indicated difficulties in accurately determining
hours for these physicians' services; and (3) some hospitals have
difficulty separating costs related to Part A from those related to
Part B. The commenter specifically asks HCFA why it has changed its
beliefs.
Finally, the commenter surmises that one reason we proposed to
include contract physician costs is that few areas would experience a
significant change in their wage index values. To refute this, the
commenter describes the results of analysis of the impacts of the
proposed policy. The analysis found ``a dramatic and damaging impact on
California, the largest state in the nation in terms of hospitals and
number of Medicare discharges.'' The commenter believes that ``HCFA's
wage index policy should be based not on whether the outcome will
result in little change, but on whether it is the right policy in the
first place.''
Response: We appreciate the considered arguments and detailed
analysis presented by the commenter and understand the importance of
this issue to the hospitals represented by the association. We agree
with the commenter that the primary consideration in developing and
refining the hospital wage index should be the ``right policy.'' In the
context of the hospital wage index, we believe we should promote the
fair and accurate measurement of relative hospital wage levels across
geographic areas. At the same time, we believe it is appropriate to
consider the potential impact of possible courses of action, though we
agree with the commenter that the potential impact should not be the
driving force in policy decisions.
In the context of the hospital wage index, it is also critical to
keep in mind that developing the ``right policy'' is a function not
only of conceptual issues but also of data issues. If, for example, we
believe as a conceptual matter that a certain type of cost should be
included in the wage index, but the data on those costs are incomplete
and unreliable, then including the costs in the wage index (which are
conceptually right) could (because of the data problems) distort the
measure of relative wage levels across geographic areas, and thus
detract from the fairness and accuracy of the wage index; similarly, if
we believe as a conceptual matter that a certain type of cost should be
excluded from the wage index, but there is incomplete and unreliable
data to separate those costs from other costs, then excluding the costs
based on bad data could detract from the equity of the wage index.
Thus, our ability to implement a ``conceptually right'' policy depends
on the availability of reliable and complete data.
As indicated above in the response to another comment, we believe
there is good reason to include all physician Part A costs, rather than
exclude all physician Part A costs as the commenter recommends. Among
other things, with the exception of teaching physician costs, physician
Part A costs are Part A costs that are paid under the prospective
payment system. In addition, physician Part A costs represent above-
average costs, although only a small percentage of the total for most
hospitals; therefore, excluding all physician Part A costs might
understate the relative wages of some hospitals. Based on our analysis
of the FY 1995 cost reports, we believe that data reported for
physician Part A costs are sufficiently reliable and complete that
inclusion of the costs results in a wage index that is more fair and
accurate, relative to a wage index which would exclude all physician
Part A costs, even if the data are not perfect.
As discussed above, although we have decided to adopt our proposal
to include contract physician Part A costs in the wage index, we intend
to direct the fiscal intermediaries to separately identify physician
Part A costs (salaried and contracted) related to teaching for cost
reports beginning during FY 1996. Although this information will not be
reported separately on the Worksheet S, Part III until FY 1997 cost
reports, we believe this issue merits undertaking a special auditing
effort of the FY 1996 cost reports.
With regard to the high proportion of physician costs attributable
to teaching hospitals, although the distribution of costs seems
disproportionate (and this is a large part of the reason we are
expediting our efforts to separate teaching physician costs from other
physician costs), our analysis of these

[[Page 40970]]

data indicates that, among hospitals reporting these costs, there is
little difference between teaching and nonteaching hospitals in terms
of the relative impact of these costs on hospitals' average hourly
wages. That is, among both teaching and nonteaching hospitals reporting
physician Part A costs, these costs make up between 3 and 4 percent of
their total wage costs. Therefore, although more teaching hospitals
report these costs than nonteaching hospitals (47 percent of teaching
hospitals versus 30 percent of nonteaching hospitals), the average
hourly wages of teaching hospitals are not more heavily weighted by
these costs than they are for nonteaching hospitals.
In fact, two of the MSAs that would be most negatively affected by
excluding all physician costs from the wage data, Pittsburgh, PA and
Rochester, NY, both have more nonteaching hospitals reporting physician
costs than teaching hospitals. We believe the commenter's perception
that we are tilting the wage index policy toward teaching hospitals is
misguided and reflects an oversimplification of the issue. Based on our
analysis of this issue, we are convinced the most prudent course is to
focus on specifically developing data to further improve the fairness
and accuracy of the wage index.
In describing the perceived problems from our discussion of the
physician cost data in the May 27, 1994 proposed rule, the commenter
fails to acknowledge that the discussion was in relation to a proposed
change. In fact, it was in response to public comments on this proposed
change where we agreed to revise the cost report to collect data on
contract physician costs. In addition, the September 1, 1994 final rule
clearly stated that HCFA intended to evaluate the physician cost data
prior to proposing any changes for the FY 1999 wage index.
Regarding the problems associated with contract labor discussed in
the FY 1995 proposed and final rules, we note that the separate
physician cost data were not available at that time, and therefore the
discussion was based on information provided from fiscal intermediaries
and industry sources. Based on our analysis of the data available now,
we believe that the problems are not as widespread as initially feared.
Rather, these costs are similar to those reported for contracted
medical providers that we do include, such as therapists and nursing
staff. The commenter did not allege that there were widespread problems
reporting these data.
The commenter's characterization of the impact of this change on
California's hospitals is inaccurate. No California MSA experiences a
decrease in their wage index of more than 0.6 percent as a result of
this change. The dramatic impacts referenced by the commenter occur
only under the assumption that the comparative baseline excludes all
physician Part A costs, the course recommended by the commenter. While
excluding all physician Part A costs would result in a significant
redistribution of payments to certain States such as California, other
areas would experience dramatic payment decreases relative to last
year.
Comment: One commenter believes that, because the hospital wage
index is used to adjust payments for various other types of providers,
the wage data should be expanded to be as comprehensive as possible.
Specifically, the commenter recommended that wage data related to
excluded distinct part units, as well as all physician data, be
included.
Response: We have convened workgroups, both internally and
externally, to focus on future wage index policies, and we anticipate
that we will continue to focus on the appropriate scope of the wage
data in those workgroups. In addition, any significant changes in the
types of data to be included in the wage index will be implemented
through the annual rulemaking process with opportunity for public
comment, as has been our policy in the past. For the record, we believe
that the hospital wage index should reflect, to the greatest degree
possible, the wage costs associated with the prospective payment areas
of the hospital.
Comment: One commenter believes that there are ``evident problems
with the quality and consistency of the physician contract labor
data,'' which is evidenced by California's ranking as the 7th lowest
State in terms of contract physician average hourly wage. This
commenter also recommended that we begin a more rigorous audit
mechanism of the wage data, stating that data reliability is still a
problem.
Response: We do not include hospitals' data (other than wage-
related costs) if either the salaries or hours reported for contract
labor are zero. Applying this edit to the wage data, California ranks
as the 12th highest State in terms of contract physician average hourly
wages. The analysis provided by the commenters did not include such an
edit; therefore, their results are different. We disagree with the
general point of this comment that there are quality problems with
these data. These data have been subjected to the same review and edit
process as are all wage data. We will continue to monitor the process
for collecting wage data in the future, and make improvements as
necessary. We also encourage hospitals and their associations to feel
free to provide specific recommendations for potential improvements.
Comment: One commenter noted that hospitals that acquire their
physician Part A services through related organizations do not have an
appropriate line on Worksheet S-3 to record these wage costs.
Therefore, these hospitals are disadvantaged by the inclusion of costs
only for directly employed and contract physician Part A services in
the wage index calculation. The commenter recommended that we adjust
the FY 1999 wage index to include related organization physician Part A
costs for hospitals that were unable to include the costs on their
Worksheet S-3s.
Response: The commenter's statements about Worksheet S-3 are
incorrect. The cost report instructions at section 2806.3 of the
Provider Reimbursement Manual, Part II, allow hospitals to include the
costs for physician Part A services from related organizations on line
33 of Worksheet S-3. These costs are also included on the trial
balance, Worksheet A, in column 2 (with any adjustments in column 6).
Regarding the commenter's recommendation, we cannot adjust the final FY
1999 wage index to include costs that hospitals did not properly report
on their cost reports.
2. Resident and CRNA Part A Costs
The wage index presently includes salaries and wage-related costs
for residents in approved medical education programs and for CRNAs
employed by hospitals under the rural pass-through provision. However,
Medicare pays for these costs outside the prospective payment system.
Removing these costs from the wage index calculation would be
consistent with our general policy to exclude costs that are not paid
through the prospective payment system, but, because they were not
separately reported, we could not remove them.
In the September 1, 1994 final rule with comment period (59 FR
45355), we stated that we would begin collecting the resident and CRNA
wage data separately and would evaluate the data before proposing a
change in computing the wage index. However, there were data reporting
problems associated with these costs on the FY 1995 cost report. The
original instructions for reporting

[[Page 40971]]

resident costs on Line 6 of Worksheet S-3, Part III, erroneously
included teaching physician salaries and other teaching program costs
from Worksheet A of the cost report. Although we issued revised
instructions to correct this error, we understand these revisions may
not have been uniformly instituted. Another issue relating to
residents' salaries stems from apparent underreporting of these costs
by hospitals and inconsistent treatment of the associated wage-related
costs.
In addition, the original Worksheet S-3 and reporting
instructions did not provide for the separate reporting of CRNA wage-
related costs. We believe that much of the CRNA Part A costs are
reported under contract labor, rather than under salaried employee
costs, due to the heavy use of contract labor by rural hospitals. We do
not believe that it would be feasible at this time to try to remove
these CRNA Part A costs from the contract labor costs in the FY 1995
cost report data. We improved the reporting instructions for CRNA costs
on the FY 1996 cost report.
Our analysis of the CRNA and resident wage data submitted on the FY
1995 cost report convinces us that these data are inaccurately and
incompletely reported by hospitals. For example, although there are
over 900 teaching hospitals receiving graduate medical education
payments, only about 800 hospitals reported resident cost data. Because
we do not want to make a relatively significant change in the wage
index data calculation without complete and accurate data upon which to
base our decision, we proposed to delay any decision regarding
excluding resident and CRNA costs from the wage index until at least
next year. In the May 8 proposed rule, we announced our intention to
review the FY 1996 data when it becomes available later this year and
present our analysis and any proposals in next year's proposed rule.
Comment: Several commenters believe that HCFA should immediately
exclude intern and resident and CRNA wage costs for the same reasons
the commenters cited for excluding the teaching physician costs. One
commenter objected to our statement that problems with the reporting of
these data (stemming from inconsistent instructions) warranted a one-
year delay. The commenter stated that ``it is better to exclude all
clearly identified costs now rather than waiting some indeterminate
time for all costs to be identified before excluding any of it.''
Analysis purporting to show a negative impact of $24 million on
California due to including these data in the wage index was cited.
Response: As we stated above, the instructions to the FY 1995 cost
report Worksheet S-3 for reporting resident costs did not specifically
separate teaching physician salaries and other GME program costs from
residents' costs. This may have inappropriately inflated resident costs
on Line 6 of Worksheet S-3. As a result, removing the costs reported on
Line 6 from the FY 1999 wage index calculation would distort the wage
index. Our reasoning with respect to retaining the CRNA costs is
similar; that is, if Line 2 was removed, it would result in distortions
since these costs were reported inconsistently. Therefore, because the
data for these costs are not sufficiently reliable and complete, we
maintain our position that the more responsible approach is to delay
removing these costs until more accurate data are available for the FY
2000 wage index. With regard to the negative impact on California, any
analysis based on this data will be skewed by the reporting flaws
noted. The FY 1999 wage index calculation will continue to include
intern and resident and CRNA wage costs.
We also believe that several of the commenters are confused about
the issue of CRNA costs. Currently, only the Part A portion of these
costs are included in the wage index, and the only hospitals paid for
these costs are small rural hospitals who employ the equivalent of no
more than one full-time CRNA and are paid on the basis of reasonable
costs. Therefore, they do not contribute to the concentration of
physician costs in teaching hospitals.
Comment: One commenter noted that the hourly wage rates for
residents are lower than the overall average hourly wage of the
hospitals that pay their salaries, and that the inclusion of residents'
salaries and wage-related costs actually results in a decrease in
teaching hospitals' average hourly wages rather than an increase, as
suggested by most other commenters. The commenter suggested that
removing residents from the data used to calculate the wage index would
increase the wage index values in areas with a high concentration of
teaching hospitals.
Response: The FY 1995 data do not permit us to evaluate the
accuracy of this comment because residents' salaries are commingled
with teaching physicians' salaries for many hospitals. As with all
changes to the wage data, the impacts cannot be evaluated properly
until accurate data are available for all hospitals nationally.
3. Overhead Allocation
In the proposed rule, we discussed in detail our proposal to remove
from the calculation of the FY 1999 wage index the overhead costs
associated with certain subprovider components that are excluded from
the prospective payment system (63 FR 25586). Although the overall
impact on hospitals of this change is relatively small, we believe it
is an appropriate step toward improving the overall consistency of the
wage index. In addition, we believe this change will significantly
increase the accuracy of the wage data for individual hospitals,
especially hospitals that have a relatively small portion of their
facility devoted to acute inpatient care.
We received several comments supporting this change, and none
expressing opposition to it. One commenter referred to it as a step
toward improving uniformity and overall consistency in the wage index
process. We have, therefore, incorporated our proposal in the final
wage index.

D. Verification of Wage Data From the Medicare Cost Report

The data for the FY 1999 wage index were obtained from Worksheet S-
3, Parts III and IV of the FY 1995 Medicare cost reports. The data file
used to construct the final wage index includes FY 1995 data submitted
to the Health Care Provider Cost Report Information System (HCRIS). As
in past years, we performed an intensive review of the wage data,
mostly through the use of edits designed to identify aberrant data.
As a part of the August 29, 1997 final rule with comment period, we
implemented a new timetable for requesting wage data corrections (62 FR
45990). We notified hospitals again of these changes through a February
1998 memorandum to the fiscal intermediaries and in the proposed rule.
As noted in the proposed rule, beginning this year with the FY 1999
wage index, the wage index published in the final rule incorporates all
corrections, including those to correct data entry or tabulation errors
of the final wage data by the intermediary or HCFA.
To allow hospitals an opportunity to evaluate the wage data to be
used to construct the proposed and the final FY 1999 hospital wage
index, we made available to the public data files containing the FY
1995 hospital wage data. In memoranda dated February 2 and April 21,
1998, we instructed all Medicare intermediaries to inform the
prospective payment hospitals they serve of the availability of the
wage data files and the process and timeframe for requesting revisions.
The proposed and the final wage data files were made available February
6 and May 14, 1998,

[[Page 40972]]

through the Internet at HCFA's home page (http://www.hcfa.gov). The
intermediaries were also instructed to advise hospitals of the
alternative availability of these data through their representative
hospital organizations or directly from HCFA.
Table 3C in the Addendum to this final rule, as in the proposed
rule, contains each hospital's adjusted average hourly wage used to
construct the wage index values. A hospital can verify its adjusted
average hourly wage, as calculated from Steps 4 and 5 of the
computation of the wage index (see section III.E of this preamble)
based on the wage data on the hospital's cost report (after taking into
account any adjustments made by the intermediary), by dividing the
adjusted average hourly wage in Table 3C by the applicable wage
adjustment factors as set forth in Step 5 of the computation of the
wage index. However, a hospital's average hourly wage using this
calculation will vary from the average hourly wage shown on Line 32 of
Worksheet S-3, Part III. (See Step 5 for a complete explanation.)
We created the correction process, as detailed in the proposed
rule, to resolve all substantive wage data correction disputes before
finalizing the wage data for the FY 1999 payment rates. Hospitals had
until June 5, 1998, to submit requests to correct errors in the final
wage data (released May 14, 1998) due to data entry or tabulation
errors by the intermediary or HCFA. The correction requests considered
were limited to errors in the final wage data that the hospital could
not have known about prior to the availability of the final wage data
public use file. If hospitals availed themselves of these opportunities
to timely identify and bring errors in their wage data to their
intermediaries' attention, the wage index implemented on October 1
should be free of such errors. Nevertheless, in the unlikely event that
errors should arise after that date, we retain the right to make
midyear changes to the wage index under very limited circumstances.
Specifically, in accordance with Sec. 412.63(w)(2), we may make
midyear corrections to the wage index only in those limited
circumstances where a hospital can show: (1) That the intermediary or
HCFA made an error in tabulating its data; and (2) that the hospital
could not have known about the error, or did not have an opportunity to
correct the error, before the beginning of FY 1999 (that is, by the
June 5, 1998 deadline). As indicated earlier, since a hospital will
have had the opportunity to verify its data, and the intermediary will
notify the hospital of any changes, we do not foresee any specific
circumstances under which midyear corrections would be made. However,
should a midyear correction be necessary, the wage index change for the
affected area will be effective prospectively from the date the
correction is made.

E. Computation of the Wage Index

The method used to compute the final wage index is as follows:
Step 1--As noted above, we based the FY 1999 wage index on wage
data reported on the FY 1995 Medicare cost reports. We gathered data
from each of the non-Federal, short-term, acute care hospitals for
which data were reported on the Worksheet S-3, Parts III and IV of the
Medicare cost report for the hospital's cost reporting period beginning
on or after October 1, 1994 and before October 1, 1995. In addition, we
included data from a few hospitals that had cost reporting periods
beginning in September 1994 and reported a cost reporting period
exceeding 52 weeks. These data were included because no other data from
these hospitals would be available for the cost reporting period
described above, and particular labor market areas might be affected
due to the omission of these hospitals. However, we generally describe
these wage data as FY 1995 data.
Step 2--For each hospital, we subtracted the excluded salaries
(that is, direct salaries attributable to skilled nursing facility
services, home health services, and other subprovider components not
subject to the prospective payment system) from gross hospital salaries
to determine net hospital salaries. To determine total salaries plus
wage-related costs, we added the costs of contract labor for direct
patient care, certain top management, and physician Part A services;
hospital wage-related costs, and any home office salaries and wage-
related costs reported by the hospital, to the net hospital salaries.
The actual calculation is the sum of lines 2, 4, 6, 32, and 33 of
Worksheet S-3, Part III. This calculation differs from the one computed
on line 32 of Worksheet S-3, Part III. Therefore, a hospital's average
hourly wage calculated under this step will be different from the
average hourly wage shown on line 32, column 5.
Step 3--For each hospital, we subtracted the reported excluded
hours from the gross hospital hours to determine net hospital hours. To
determine total hours, we increased the net hours by the addition of
home office hours and hours for contract labor attributable to direct
patient care, certain top management, and physician Part A salaries.
Step 4--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocated overhead
costs. First, we determined the ratio of excluded area hours (Line 24
of Worksheet S-3, Part III) to revised total hours (Line 9 of Worksheet
S-3, Part III, adding back CRNA Part A, physician Part A, and resident
hours). Second, we computed the amounts of overhead salaries and hours
to be allocated to excluded areas by multiplying the above ratio by the
total overhead salaries and hours reported on Line 16 of Worksheet S-3,
Part IV. Finally, we subtracted the computed overhead salaries and
hours associated with excluded areas from the total salaries and hours
derived in Steps 2 and 3.
Step 5--For each hospital, we adjusted the total salaries plus
wage-related costs to a common period to determine total adjusted
salaries plus wage-related costs. To make the wage inflation
adjustment, we estimated the percentage change in the employment cost
index (ECI) for compensation for each 30-day increment from October 14,
1994 through April 15, 1996, for private industry hospital workers from
the Bureau of Labor Statistics Compensation and Working Conditions. For
previous wage indexes, we used the percentage change in average hourly
earnings for hospital industry workers to make the wage inflation
adjustment. For FY 1999 we used the ECI for compensation for private
industry hospital workers because it reflects the price increase
associated with total compensation (salaries plus fringes) rather than
just the increase in salaries, which is what the average hourly
earnings category reflected. In addition, the ECI includes managers as
well as other hospital workers. We changed the methodology used to
compute the monthly update factors. This new methodology uses actual
quarterly ECI data to determine the monthly update factors. The
methodology assures that the update factors match the actual quarterly
and annual percent changes. The inflation factors used to inflate the
hospital's data were based on the midpoint of the cost reporting period
as indicated below.

Midpoint of Cost Reporting Period
------------------------------------------------------------------------
Adjustment
After Before factor
------------------------------------------------------------------------
10/14/94...................................... 11/15/94 1.032882
11/14/94...................................... 12/15/94 1.030771
12/14/94...................................... 01/15/95 1.028721

[[Page 40973]]

01/14/95...................................... 02/15/95 1.026731
02/14/95...................................... 03/15/95 1.024776
03/14/95...................................... 04/15/95 1.022827
04/14/95...................................... 05/15/95 1.020886
05/14/95...................................... 06/15/95 1.018901
06/14/95...................................... 07/15/95 1.016822
07/14/95...................................... 08/15/95 1.014649
08/14/95...................................... 09/15/95 1.012446
09/14/95...................................... 10/15/95 1.010279
10/14/95...................................... 11/15/95 1.008146
11/14/95...................................... 12/15/95 1.006047
12/14/95...................................... 01/15/96 1.003981
01/14/96...................................... 02/15/96 1.001950
02/14/96...................................... 03/15/96 1.000000
03/14/96...................................... 04/15/96 0.998181
------------------------------------------------------------------------

For example, the midpoint of a cost reporting period beginning January
1, 1995 and ending December 31, 1995 is June 30, 1995. An inflation
adjustment factor of 1.016822 would be applied to the wages of a
hospital with such a cost reporting period. In addition, for the data
for any cost reporting period that began in FY 1995 and covers a period
of less than 360 days or greater than 370 days, we annualized the data
to reflect a 1-year cost report. Annualization is accomplished by
dividing the data by the number of days in the cost report and then
multiplying the results by 365.
Step 6--Each hospital was assigned to its appropriate urban or
rural labor market area prior to any reclassifications under sections
1886(d)(8)(B) or 1886(d)(10) of the Act. Within each urban or rural
labor market area, we added the total adjusted salaries plus wage-
related costs obtained in Step 5 for all hospitals in that area to
determine the total adjusted salaries plus wage-related costs for the
labor market area.
Step 7--We divided the total adjusted salaries plus wage-related
costs obtained in Step 6 by the sum of the total hours (from Step 4)
for all hospitals in each labor market area to determine an average
hourly wage for the area.
Step 8--We added the total adjusted salaries plus wage-related
costs obtained in Step 5 for all hospitals in the Nation and then
divided the sum by the national sum of total hours from Step 4 to
arrive at a national average hourly wage. Using the data as described
above, the national average hourly wage is $20.7325.
Step 9--For each urban or rural labor market area, we calculated
the hospital wage index value by dividing the area average hourly wage
obtained in Step 7 by the national average hourly wage computed in Step
8. We note that in June, 1998, OMB announced the designation of the
Missoula, Montana MSA comprising Missoula, Montana.
Step 10--Following the process set forth above, we developed a
separate Puerto Rico-specific wage index for purposes of adjusting the
Puerto Rico standardized amounts. We added the total adjusted salaries
plus wage-related costs (as calculated in Step 5) for all hospitals in
Puerto Rico and divided the sum by the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an overall average hourly wage of
$9.5025 for Puerto Rico. For each labor market area in Puerto Rico, we
calculated the hospital wage index value by dividing the area average
hourly wage (as calculated in Step 7) by the overall Puerto Rico
average hourly wage.
Step 11--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is not located in a rural area may not be less
than the area wage index applicable to hospitals located in rural areas
in that State. Furthermore, this wage index floor is to be implemented
in such a manner as to assure that aggregate prospective payments are
not greater or less than those which would have been made in the year
if this section did not apply. For FY 1999, this change affects 118
hospitals in 32 MSAs. The MSAs affected by this provision are
identified in Table 4A by a footnote.

F. Revisions to the Wage Index Based on Hospital Redesignation

Under section 1886(d)(8)(B) of the Act, hospitals in certain rural
counties adjacent to one or more MSAs are considered to be located in
one of the adjacent MSAs if certain standards are met. Under section
1886(d)(10) of the Act, the Medicare Geographic Classification Review
Board (MGCRB) considers applications by hospitals for geographic
reclassification for purposes of payment under the prospective payment
system.
The methodology for determining the wage index values for
redesignated hospitals is applied jointly to the hospitals located in
those rural counties that were deemed urban under section 1886(d)(8)(B)
of the Act and those hospitals that were reclassified as a result of
the MGCRB decisions under section 1886(d)(10) of the Act. Section
1886(d)(8)(C) of the Act provides that the application of the wage
index to redesignated hospitals is dependent on the hypothetical impact
that the wage data from these hospitals would have on the wage index
value for the area to which they have been redesignated. Therefore, as
provided in section 1886(d)(8)(C) of the Act, the wage index values
were determined by considering the following:
If including the wage data for the redesignated hospitals
would reduce the wage index value for the area to which the hospitals
are redesignated by 1 percentage point or less, the area wage index
value determined exclusive of the wage data for the redesignated
hospitals applies to the redesignated hospitals.
If including the wage data for the redesignated hospitals
reduces the wage index value for the area to which the hospitals are
redesignated by more than 1 percentage point, the hospitals that are
redesignated are subject to that combined wage index value.
If including the wage data for the redesignated hospitals
increases the wage index value for the area to which the hospitals are
redesignated, both the area and the redesignated hospitals receive the
combined wage index value.
The wage index value for a redesignated urban or rural
hospital cannot be reduced below the wage index value for the rural
areas of the State in which the hospital is located.
Rural areas whose wage index values would be reduced by
excluding the wage data for hospitals that have been redesignated to
another area continue to have their wage index values calculated as if
no redesignation had occurred.
Rural areas whose wage index values increase as a result
of excluding the wage data for the hospitals that have been
redesignated to another area have their wage index values calculated
exclusive of the wage data of the redesignated hospitals.
The wage index value for an urban area is calculated
exclusive of the wage data for hospitals that have been reclassified to
another area. However, geographic reclassification may not reduce the
wage index value for an urban area below the statewide rural wage index
value.
We note that, except for those rural areas where redesignation
would reduce the rural wage index value, the wage index value for each
area is computed exclusive of the wage data for hospitals that have
been redesignated from the area for purposes of their wage index. As a
result, several urban areas listed in Table 4a have no hospitals
remaining in the area. This is because all the hospitals originally in
these urban areas have been reclassified to another area by the MGCRB.
These areas with no remaining hospitals receive the prereclassified
wage index value. The prereclassified wage index value will apply as
long as the area remains empty.
The final wage index values for FY 1999 are shown in Tables 4A, 4B,
4C,

[[Page 40974]]

and 4F in the Addendum to this final rule. Hospitals that are
redesignated should use the wage index values shown in Table 4C. Areas
in Table 4C may have more than one wage index value because the wage
index value for a redesignated urban or rural hospital cannot be
reduced below the wage index value for the rural areas of the State in
which the hospital is located. When the wage index value of the area to
which a hospital is redesignated is lower than the wage index value for
the rural areas of the State in which the hospital is located, the
redesignated hospital receives the higher wage index value, that is,
the wage index value for the rural areas of the State in which it is
located, rather than the wage index value otherwise applicable to the
redesignated hospitals.
Tables 4D and 4E list the average hourly wage for each labor market
area, prior to the redesignation of hospitals, based on the FY 1995
wage data. In addition, Table 3C in the Addendum to this final rule
includes the adjusted average hourly wage for each hospital based on
the FY 1995 data (as calculated from Steps 4 and 5, above). The MGCRB
will use the average hourly wage published in the final rule to
evaluate a hospital's application for reclassification for FY 2000,
unless that average hourly wage is later revised in accordance with the
wage data correction policy described in Sec. 412.63(w)(2). In such
cases, the MGCRB will use the most recent revised data used for
purposes of the hospital wage index.
Although we did not propose any changes to the reclassification
guidelines, we received two comments on that issue.
Comment: One commenter was concerned that the number of hospitals
participating in countywide reclassifications has declined over the
years. The commenter believes that this is an indication that the
criteria for hospitals in an urban county seeking reclassification to
another urban county should be adjusted.
Response: When we implemented the MGCRB process, we anticipated
that, over the years, the number of hospitals that would continue to
qualify for reclassification would decrease due to better data
reporting and efforts by hospitals to constrain costs. The
reclassification process is an annual process in which a hospital or
group of hospitals must meet the defined criteria on an annual basis in
order to remain reclassified to an alternative area for either the wage
index, the standardized amount, or both. We note that hospitals that do
not meet the countywide criteria under Sec. 412.234 may apply on an
individual basis.
Comment: One commenter supports the policy that allows rural
hospitals to reclassify to another area for purposes of the
disproportionate share adjustment even if the standardized amount is
the same for both areas. However, this commenter is also concerned that
separate criteria have not been developed for this type of
reclassification and that we continue to rely on the criteria set forth
in Sec. 412.230(d), which is the criteria for reclassification to
another area for purposes of the standardized amount.
Response: Section 4203(a) of the Balanced Budget Act of 1997
provided that, for a limited period of time, a rural hospital may apply
for reclassification to another area for purposes of receiving
disproportionate share payments whether or not the standardized amount
is the same for both areas. Section 4203(b) provides that the MGCRB
will apply the guidelines for reclassification for purposes of the
standardized amount until the Secretary establishes other guidelines.
We believe that the criteria in place for standardized amount
reclassification are appropriate for determining whether hospitals
should be reclassified for purposes of the disproportionate share
payment. The criteria address the extent to which a hospital warrants
reclassification by comparing the hospital's costs to its payments with
and without reclassification. Nevertheless, we welcome specific
suggestions for revising the DSH reclassification criteria.

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

A. Definition of Transfers (Sec. 412.4)

Pursuant to section 1886(d)(5)(I) of the Act, the prospective
payment system distinguishes between ``discharges,'' situations in
which a patient leaves an acute care (prospective payment) hospital
after receiving complete acute care treatment, and ``transfers,''
situations in which the patient is transferred to another acute care
hospital for related care. If a full DRG payment were made to each
hospital involved in a transfer situation, irrespective of the length
of time the patient spent in the ``sending'' hospital prior to
transfer, a strong incentive to increase transfers would be created,
thereby unnecessarily endangering patients' health. Therefore, our
policy, which is set forth in the regulations at Sec. 412.4, provides
that, in a transfer situation, full payment is made to the final
discharging hospital and each transferring hospital is paid a per diem
rate for each day of the stay, not to exceed the full DRG payment that
would have been made if the patient had been discharged without being
transferred.
Currently, the per diem rate paid to a transferring hospital is
determined by dividing the full DRG payment that would have been paid
in a nontransfer situation by the geometric mean length of stay for the
DRG into which the case falls. Hospitals receive twice the per diem for
the first day of the stay and the per diem for every following day up
to the full DRG amount. Transferring hospitals are also eligible for
outlier payments. Two exceptions to the current transfer payment policy
are transfer cases classified into DRG 385 (Neonates, Died or
Transferred to Another Acute Care Facility) and DRG 456 (Burns,
Transferred to Another Acute Care Facility), which receive the full DRG
payment instead of being paid on a per diem basis.
Under section 1886(d)(5)(J) of the Act, which was added by section
4407 of the Balanced Budget Act of 1997, a ``qualified discharge'' from
one of 10 DRGs selected by the Secretary to a postacute care provider
will be treated as a transfer case beginning with discharges on or
after October 1, 1998. Section 1886(d)(5)(J)(iii) confers broad
authority on the Secretary to select 10 DRGs ``based upon a high volume
of discharges classified within such group and a disproportionate use
of'' certain postdischarge services. Section 1886(d)(5)(J)(ii) defines
a ``qualified discharge'' as a discharge from a prospective payment
hospital of an individual whose hospital stay is classified in one of
the 10 selected DRGs if, upon such discharge, the individual--
Is admitted to a hospital or hospital unit that is not a
prospective payment system hospital;
Is admitted to a skilled nursing facility; or
Is provided home health services by a home health agency
if the services relate to the condition or diagnosis for which the
individual received inpatient hospital services and if these services
are provided within an appropriate period as determined by the
Secretary.
The Conference Agreement that accompanied the law noted that
``(t)he Conferees are concerned that Medicare may in some cases be
overpaying hospitals for patients who are transferred to a post acute
care setting after a very short acute care hospital stay. The Conferees
believe that Medicare's payment system should

[[Page 40975]]

continue to provide hospitals with strong incentives to treat patients
in the most effective and efficient manner, while at the same time,
adjust PPS [prospective payment system] payments in a manner that
accounts for reduced hospital lengths of stay because of a discharge to
another setting.'' (H.R. Rep. No. 105-217, 740.) In its March 1, 1997
report, ProPAC expressed similar concerns: ``* * * length of stay
declines have been greater in DRGs associated with substantial
postacute care use, suggesting a shift in care from hospital inpatient
to postacute settings' (pp. 21-22).
In fact, based on the latest available data, overall Medicare
hospital costs per case have decreased during FYs 1994 and 1995. This
unprecedented real decline in costs per case has led to historically
high Medicare operating margins (over 10 percent on average). Along
with these declining lengths of stay and costs per case, there has been
an increase in the utilization of postacute care. In 1990, the rate of
skilled nursing facility services per 1,000 Medicare enrollees was 19.
By 1995, it had grown to 33. Corresponding numbers for home health
agency services are 58 per 1,000 Medicare enrollees during 1990 and 93
per 1,000 enrollees during 1995. Although home health services are not
always directly related to a hospitalization episode, there does appear
to be a trend toward increased use of home health for the provision of
postacute care rehabilitation services. Previous analysis of the
percentage of hospital discharges that receive postacute home health
care showed a 10.3 percent increase in 1994 compared to 1992.
In the May 8, 1998 proposed rule, we discussed our proposals to
implement section 1886(d)(5)(J) of the Act. These proposals are set
forth below.
1. Selection of 10 DRGs
Section 1886(d)(5)(J)(iii)(I) of the Act provides that the
Secretary select 10 DRGs based on a high volume of discharges to
postacute care and a disproportionate use of postacute care services.
Therefore, in order to select the DRGs to be paid as transfers, we
first identified those DRGs with the highest percentage of postacute
care.
We used the FY 1996 MedPAR file because the complete FY 1997 MedPAR
file was not available at the time we conducted our analysis. To
identify postacute care utilization, we merged hospital inpatient bill
files with postacute care bill files matching beneficiary
identification numbers and discharge and admission dates. We created
this file rather than depend on information concerning discharge
destination on the inpatient bill because we have found that the
discharge destination codes included on the hospital bills are often
inaccurate in identifying discharges to a facility other than another
prospective payment hospital.
Section 1886(d)(5)(J)(ii)(III) of the Act requires the Secretary to
choose an appropriate window of days in which the home health services
start in order for the discharge to meet the definition of a transfer.
In order to include postdischarge home health utilization in our
analysis, we identified all hospital discharges for patients who
received any home health care within 7 days after the date of
discharge. (As described below in section IV.A.2., we ultimately
decided to propose 3 days as the window for home health services.)
Starting with the DRG with the highest percentage of postacute care
discharges and continuing in descending order, we selected the first 20
DRG's that had a relatively large number of discharges to postacute
care (our lower limit was 14,000 cases). In order to select 10 DRG's
from the 20 DRG's on our list, for each of the DRG's we considered the
volume and percentage of discharges to postacute care that occurred
before the mean length of stay and whether the discharges occurring
early in the stay were more likely to receive postacute care. The
following table lists the 10 DRG's we proposed to include under our
expanded transfer definition, their percentage of postacute utilization
compared to total cases, and the total number of cases identified as
going to postacute care.

------------------------------------------------------------------------
Percent of Number of
DRG Title and type of DRG postacute postacute
(surgical or medical) utilization cases
------------------------------------------------------------------------
14................ Specific Cerebrovascular 49.5 186,845
Disorders Except
Transient Ischemic Attack
(Medical).
113............... Amputation for Circulatory 59.0 28,402
System Disorders
Excluding Upper Limb and
Toe (Surgical).
209............... Major Joint Limb 71.9 257,875
Reattachment Procedures
of Lower Extremity
(Surgical).
210............... Hip and Femur Procedures 77.8 111,799
Except Major Joint Age
>17 With CC (Surgical).
211............... Hip and Femur Procedures 74.2 19,548
Except Major Joint Age
>17 Without CC (Surgical).
236............... Fractures of Hip and 61.2 24,498
Pelvis (Medical).
263............... Skin Graft and/or 49.4 14,499
Debridement for Skin
Ulcer or Cellulitis With
CC (Surgical).
264............... Skin Graft and/or 39.3 1,328
Debridement for Skin
Ulcer or Cellulitis W/O
CC (Surgical).
429............... Organic Disturbances and 45.4 19,314
Mental Retardation
(Medical).
483............... Tracheostomy Except for 45.3 18,254
Face, Mouth and Neck
Diagnoses (Surgical).
------------------------------------------------------------------------

We included DRG 263 on the list because of its ranking in the top
20 DRG's in terms of postacute utilization and volume of discharges to
postacute care. DRG's 263 and 264 are paired DRG's; that is, the only
difference in the cases assigned to DRG 263 as opposed to DRG 264 is
that the patient has a complicating or comorbid condition. If we
included only DRG 263 in the list, it would be possible for a transfer
case with a relatively short length of stay that should be assigned to
DRG 263 and receive a relatively small transfer payment to be assigned
instead to DRG 264, and receive the full DRG payment, simply by failing
to include the CC diagnosis code on the bill. Therefore, our choice was
to either delete DRG 263 from the list or add DRG 264. We decided to
include DRG 264 in the proposed list because DRG 263 fully meets all
the conditions for inclusion on the list of 10 DRG's.
2. Postacute Care Settings
Section 1886(d)(5)(J)(ii) of the Act requires the Secretary to
define and pay as transfers cases from one of 10 DRG's selected by the
Secretary if the individual is discharged to one of the following
settings:
A hospital or hospital unit that is not a subsection
[1886](d) hospital, that is, a hospital or unit excluded from the
inpatient prospective payment system.
A skilled nursing facility, that is, a facility that meets
the definition of a skilled nursing facility set forth at section 1819
of the Act.
Home health services provided by a home health agency, if
the services are

[[Page 40976]]

related to the condition or diagnosis for which the individual received
inpatient hospital services, and if the home health services are
provided within an appropriate period (as determined by the Secretary).
Section 1886(d)(1)(B) of the Act defines the hospitals and hospital
units that are excluded from the prospective payment system as the
following: psychiatric, rehabilitation, childrens', long-term care, and
cancer hospitals and psychiatric and rehabilitation distinct part units
of a hospital. Therefore, any discharge from a prospective payment
hospital from one of the 10 proposed DRG's that is admitted to one of
these types of facilities on the date of discharge from the acute
hospital, on or after October 1, 1998, would be considered a transfer
and paid accordingly under the prospective payment systems (operating
and capital) for inpatient hospital services.
We proposed that a discharge from a prospective payment hospital to
a skilled nursing facility would include cases discharged from one of
the 10 DRG's from an inpatient bed in the hospital to a bed in the same
hospital that has been designated for the provision of skilled nursing
care (a ``swing'' bed). The swing bed provision allows certain small
rural hospitals to furnish services in inpatient beds which, if
furnished by a skilled nursing facility, would constitute extended care
services. In addition, any patient who receives swing-bed services is
deemed to have received extended care services as if furnished by a
skilled nursing facility. Thus, if swing beds were not included in the
transfer policy, those hospitals with swing bed agreements could move
patients assigned to one of the 10 selected DRG's from an inpatient bed
to a swing bed and receive payment and receive the full DRG payment. In
the proposed rule, we stated that we did not believe that this would be
a fair policy in that it would create a payment advantage for swing bed
hospitals. Therefore, we proposed that a discharge to a swing bed would
be paid as a transfer when the patient is classified to one of the 10
selected DRG's.
Section 1886(d)(5)(J)(ii)(III) of the Act states that the discharge
of an individual who receives home health services upon discharge will
be treated as a transfer if ``such services are provided within an
appropriate period (as determined by the Secretary) * * *.'' As
discussed above in section IV.A.1, we began our analysis using 7 days
(one week) as the time period we would consider. However, after
conducting further analysis, we proposed that 3 days after the date of
discharge would be a more appropriate timeframe. Based on our analysis
of the FY 1996 bills, approximately 90 percent of patients began
receiving home health care within 3 days.
With regard to an appropriate definition of ``home health services
* * * relate[d] to the condition or diagnosis for which the individual
received inpatient hospital services * * *'', we considered several
possible approaches. Under one approach we could compare the principal
diagnosis of the inpatient stay to the diagnosis code indicated on the
home health bill, similar to our policy on the 3-day payment window for
preadmission services. However, we believe that such a policy is far
too restrictive in terms of qualifying discharges for transfer payment.
In addition, a hospital would not know when it discharges a patient to
home health what diagnosis code the home health agency will put on the
bill. Therefore, the hospital would not be able to correctly code the
inpatient bill as a transfer or discharge.
We also considered proposing that any home health care that begins
within the designated timeframe be included ``as related'' in our
definition. However, this definition might be too broad and the
hospital would not be able to predict which cases should be coded as
transfers because the hospital often may not know about home health
services that are provided upon discharge but were not ordered or
planned for as part of the hospital discharge plan.
We proposed that home health services would be considered related
to the hospital discharge if the patient is discharged from the
hospital with a written plan of care for the provision of home health
care services from a home health agency. In this way, the hospital
would be fully aware of the status of the patient when discharged and
could be held responsible for correctly coding the discharge as a
transfer on the inpatient bill. In general, this would mean that the
home health service would qualify as a Part A home health benefit under
section 1861(tt) of the Act as added by section 4611(b) of the BBA.
In the proposed rule, we noted that we plan to compare inpatient
bills with home health service bills for care provided within 3 days
after discharge. If we find that home health services were provided
within the postdischarge window, the hospital will be notified and the
hospital payment adjusted unless the hospital can submit documentation
verifying the discharge status of the patient. This will alert
hospitals if there are problems with their discharge/transfer billing
and allow them to adjust their discharge planning process and billing
practices. If we find a continued pattern of a hospital billing for
cases from the 10 DRG's as discharges and our records indicate that the
patients are receiving postacute care services from an excluded
hospital, a skilled nursing facility, or within the 3-day home health
service window, the hospitals may be investigated for fraudulent or
abusive billing practices.
3. Payment Methodology
The statute does not dictate the payment methodology we must use
for these transfer cases. However, section 1886(d)(5)(J)(i) of the Act
provides that the payment amount for a case may not exceed the sum of
half the full DRG payment amount and half of the payment amount under
the current per diem payment methodology.
Based on our analysis comparing the costs per case for the
transfers in the 10 DRG's with payments under our current transfer
payment methodology, we found that most of the 10 DRG's are
appropriately paid using our current methodology (that is, twice the
per diem for the first day and the per diem for each subsequent day).
In fact, this payment would, on average, slightly exceed costs.
However, this is not true of DRG's 209, 210, and 211. For those three
DRG's, a disproportionate percentage (about 50 percent) of the costs of
the case are incurred on the first day of the stay. Therefore, we
stated in the proposed rule that we would pay DRG's 209, 210, and 211
based on 50 percent of the DRG payment for the first day of the stay
and 50 percent of the per diem for the remaining days of the stay. The
other seven DRG's would be paid under the current transfer payment
methodology.
We proposed to revise Sec. 412.4 to reflect these policies. In
addition, we proposed to delete the reference in Sec. 412.4(d)(2) to
DRG 456 (Burns, Transferred to Another Acute Care Facility) because we
proposed to replace that DRG and there would no longer be any burn DRG
with a transfer designation. As discussed in section II.B.3 of this
preamble, we have adopted that DRG change effective for FY 1999.
We received a large number of comments concerning this proposal. In
general, commenters were opposed to the implementation of any postacute
care transfer policy. Acknowledging that the policy is required by
statute, most commenters also disagreed with the manner in which we
proposed to implement the policy. However, one association representing
postacute care providers was supportive of the proposed policy, in
general, and our

[[Page 40977]]

various policy proposals. As discussed in the specific comments and
responses that follow, we are implementing the discharge to postacute
care provision as set forth in the proposed rule except that we are not
including swing beds in the definition of a postacute care setting and
we are clarifying the payment methodology for DRGs 209, 210, and 211.
Comment: Commenters believed that the postacute care transfer
provision penalizes hospitals for providing effective care and creates
a perverse incentive for hospitals to keep patients longer. Some
commenters suggested that this provision interferes with the practice
of medicine by overriding the clinical decision-making process by
physicians in determining the most appropriate level of care to provide
to their patients. Many commenters stated that the postacute care
transfer policy is contrary to the original intent of the prospective
payment system. Several commenters urged us either to repeal the entire
provision or to support efforts to have it repealed.
Response: We disagree that this provision penalizes hospitals for
effective care. As noted in the May 8 proposed rule, the Conference
Agreement accompanying Public Law 105-33 states that ``Medicare's
payment system should continue to provide hospitals with strong
incentives to treat patients in the most effective and efficient
manner, while at the same time, adjust PPS payments in a manner that
accounts for reduced hospital lengths of stay because of a discharge to
another setting.'' The transfer provision adjusts payments to hospitals
to reflect the reduced lengths of stay arising from the shift of
patient care from the acute care setting to the postacute care setting.
In addition, because Medicare also often pays for the postacute care
portion of beneficiaries' care, the transfer provision appropriately
adjusts hospitals' payments to avoid duplicate payments for the care
provided during a patient's episode of care.
With respect to the payment incentives created by this provision,
we would refer the reader to the tables set forth at Appendix D of this
final rule. These tables graphically demonstrate payments compared to
costs for transfer cases in each of the 10 selected DRGs. These tables
show that, across virtually all lengths of stay for each of the DRGs,
Medicare will pay in excess of costs even after the implementation of
this provision. Thus, the argument that this provision creates perverse
incentives and interferes with the appropriate practice of medicine is
not persuasive. This policy does not require a change in physician
clinical decision-making nor in the manner in which physicians and
hospitals practice medicine; it simply addresses the appropriate level
of payments once those decisions have been made.
We believe a stronger argument can be made that the incentives of
the current policy, where hospitals receive the full DRG payment for
these DRGs regardless of how long patients remain in the acute care
hospital prior to being transferred for postacute care, potentially
have a greater impact on clinical decision-making. Simply put, as costs
rise with each additional acute care day and payments are fixed,
hospitals have a financial incentive to discharge patients as soon as
possible. The incentive is less clear, and can be argued to be neutral,
to the extent that the marginal payments for an additional acute
inpatient care day increase in proportion to the marginal costs of that
day. Thus, the postacute care transfer policy does not create perverse
incentives for hospitals to keep patients longer; instead, it addresses
current incentives to discharge patients as soon as possible.
With respect to whether the provision is contrary to the original
intent of the prospective payment system, we believe it is entirely
consistent with the following statement made in the Federal Register
during the first year of the prospective payment system in response to
a comment concerning the hospital-to-hospital transfer policy: ``(t)he
rationale for per diem payments as part of our transfer policy is that
the transferring hospital generally provides only a limited amount of
treatment. Therefore, payment of the full prospective payment rate
would be unwarranted'' (49 FR 244). We also note that in its earliest
update recommendations, the Prospective Payment Assessment Commission
(MedPAC's predecessor organization) included what it called a site-of-
service substitution adjustment to account for the shifting of portions
of inpatient care to other settings. We believe this provision is an
appropriate and consistent response to the changing treatment practice
of the hospital industry.
Comment: A commenter observed that our estimate of the impact of
this transfer provision on hospitals' payments per case (a 0.6 percent
decrease in payments) results in an overall payment reduction of $600
million for FY 1999. The commenter stated that the Congressional Budget
Office (CBO) estimated the impact at $100 million for FY 1999. The
commenter believed that this disparity in estimates substantiates
claims that the new provision will have undesirable and unintended
consequences.
Response: We believe the commenter's estimate of the impacts of
this provision are overstated. Based on the 0.6 percent decrease in
payment per case estimated in our impact analysis, the projected impact
of this transfer provision is approximately a $480 million decrease in
overall payments. Although this savings estimate is higher than CBO's
estimate, we would note that CBO assumed hospitals would change their
behavior by keeping patients longer. As we describe in our impact
analysis, we do not make any assumptions regarding changes in
hospitals' behavior. We would also note that the precision with which
one can estimate the savings associated with a provision such as this
is highly dependent on the specifications of the provision and the data
available to generate an estimate. Unlike the CBO estimate, our
estimate reflects the 10 actual DRGs to be included and the latest
discharge data to identify which cases would qualify as transfers.
Comment: A large number of commenters objected to the inclusion of
swing beds as a postacute care setting. Many of these commenters stated
that they believed that Congress did not intend that discharges to
swing beds be included in the postacute transfer provision. In
addition, the commenters were concerned about the negative impact of
this policy on rural hospitals and rural health care in general. Two
commenters, including MedPAC, supported our proposal concerning swing
bed discharges.
Response: We proposed to include discharges to swing beds because
the services provided in swing beds are exactly the same as the
services provided in skilled nursing facilities. That is, a swing-bed
hospital is equivalent to a skilled nursing facility when it provides a
swing-bed service. Thus, the policy rationale for including discharges
to skilled nursing facilities in the postacute care provision would
apply equally to discharges to swing beds.
Although we are not persuaded by the commenters that, from a
payment policy perspective, our proposal to include swing beds in the
transfer provision was inappropriate, we understand the commenter's
concern that this policy could have an adverse impact on small rural
hospitals. Although our analysis shows that the impact on these
hospitals is negligible in the aggregate, the impact on individual
hospitals may be more significant. We have decided not to include
discharges to a swing bed in the expanded transfer definition at this

[[Page 40978]]

time. We will monitor these discharges closely and may reconsider this
decision in the future. We note that section 1886(d)(5)(J)(iv) of the
Act requires the Secretary to include a description of the effect of
the postacute care transfer policy in the FY 2001 hospital inpatient
prospective payment system proposed rule.
Comment: Commenters requested clarification of our policy
concerning transfers to skilled nursing facilities. First, the
commenters questioned the Secretary's authority to include as transfers
those discharges to nursing homes that are not certified by Medicare.
In addition, the commenters believed that patients discharged to a
Medicare-certified skilled nursing facility for custodial care should
not be included. The commenters also urged us to limit application of
the transfer policy to discharges to skilled nursing facilities in
cases where the patient receives Medicare-covered postacute care.
Response: Section 1886(d)(5)(J)(ii) of the Act defines a
``qualified discharge'' in part as a discharge of an individual from a
prospective payment system hospital, if upon such discharge, the
individual is ``* * * admitted to a skilled nursing facility. * * *''
There is no language in the statute that further defines skilled
nursing facility. In the proposed rule, we stated that a discharge to a
facility that meets the definition of a skilled nursing facility set
forth at section 1819 of the Act would be considered a transfer.
Discharges to nursing homes that are not certified by Medicare as
skilled nursing facilities, or distinct parts of nursing homes that are
not certified as skilled nursing facilities, would not be considered
transfers.
However, we do not believe it would be appropriate from either a
legal or policy perspective to limit the transfer definition to
situations where a patient is transferred to a skilled nursing facility
for noncovered services. The statute does not limit application of the
transfer definition to ``covered'' skilled nursing facility services.
Moreover, there are several policy reasons why we would not adopt such
a policy. First, it would place an added administrative burden upon the
hospital to evaluate the patient's eligibility for covered skilled
nursing services. Second, it would create incentives for providing
noncovered postacute care that could potentially place beneficiaries at
medical and financial risk. Third, it would be inconsistent with
existing transfer policy (from one acute care hospital to another acute
care hospital), which does not limit the definition of a transfer to
those cases in which a patient receives Medicare-covered services at
the receiving hospital. Finally, the basic rationale for the transfer
policy (that is, adjusting hospital payments to reflect reduced
hospital costs due to discharge to a postacute care facility) applies
regardless of whether the postacute care is covered by Medicare.
Therefore, our final regulations provide that all discharges from the
10 specified DRGs admitted to a skilled nursing facility will be
defined as transfers, regardless of the coverage status of that
admission.
Comment: One commenter believes that patients who were admitted to
a skilled nursing facility any time within 30 days after the date of
discharge (the so-called 30-day skilled nursing facility eligibility
window) and who received care related to the inpatient stay will be
considered a transfer under this policy. The commenter is concerned
that hospitals will be expected to track patients for this period of
time and be held accountable for their actions in such situations.
Response: In order to be considered a transfer, the patient must be
admitted directly from the hospital to the skilled nursing facility. If
the patient is not admitted directly to a skilled nursing facility, it
would not constitute a transfer situation, even if care begins within
the 30-day eligibility window and is related to the acute care hospital
stay.
Comment: One commenter suggested that the expanded transfer
definition should apply only in cases where the patient is transferred
within a hospital system, that is, the patient is discharged to an
entity that is related to or owned by the hospital. A transfer to an
independent postacute care entity would be defined as a discharge.
Response: Section 1886(d)(5)(J)(ii) of the Act defines a qualified
discharge from a prospective payment hospital as one in which the
individual, upon discharge, ``* * * is admitted as an inpatient of a
hospital or hospital unit excluded that is not a subsection (d)
hospital * * * is admitted to a skilled nursing facility * * * is
provided home health services from a home health agency. * * *'' The
statute or the conference report does not limit the applicability of
this provision to postacute care providers that are owned by or related
to the discharging hospital. In addition, we do not believe that
ownership of or affiliation with the postacute care providers is the
overriding concern that led to the enactment of this provision.
Although a hospital that owns or is related to the postacute care
provider has an even greater financial incentive to transfer a patient
early in the hospital stay to that facility, the current incentive to
the hospital itself to discharge the patient as soon as possible is the
same whether or not it owns or is related to the postacute care
provider. Finally, if the transfer definition were based on a
hospital's affiliation with the postacute provider, it would create a
strong incentive to reconfigure the hospital's corporate structure to
avoid being included under the provision.
Comment: One commenter suggested that psychiatric hospitals and
units be excluded from the provision because the postacute care
services furnished by these facilities are unrelated to a medical
hospitalization.
Response: As a legal matter, section 1886(d)(5)(J)(ii)(I) of the
Act includes all hospitals and hospital units excluded from the
prospective payment system. This definition covers psychiatric
hospitals and units. As a policy matter, we also strongly believe that
transfers to psychiatric hospitals and units should be included under
this provision. Inpatient care furnished by hospitals is not limited to
diseases and disorders of the body, but is also furnished to patients
with mental diseases and disorders as evidenced by the nine DRGs
devoted solely to these conditions. Furthermore, exempting psychiatric
hospitals and units from the provision could create an incentive to
temporarily transfer patients who need postacute care to a psychiatric
hospital or unit setting as a way of avoiding the transfer payment,
thus delaying the appropriate medical care for the patient.
Comment: Several commenters disagreed with our proposal to include
as transfers all discharges from the 10 specified DRGs to home health
care that begins within 3 days after the date of discharge. The
commenters argued that postacute care that begins 3 days after
discharge should not be considered a substitute for inpatient hospital
care. Although MedPAC agreed with these commenters that home health
services furnished after a delay of more than one day may not
necessarily be regarded as substituting for inpatient acute care, they
also noted that a 3-day window allows for the fact that most home
health patients do not receive care every day as well as those
occasions in which there may be a delay in arranging for the provision
of planned care. The Commission also stated that a shorter period may
create a stronger incentive to delay the provision of necessary
treatment beyond the window so the hospital can receive the full DRG
payment. Another commenter

[[Page 40979]]

supported 3 days as an appropriate period of time.
Those commenters who recommended an alternative number of days for
the home health window universally stated that a discharge to home
health care should be considered a transfer only if the patients begin
to receive home health care on the day of discharge. One commenter
argued that a 3-day window would lead to either needlessly prolonged
hospital stays or delayed home health care. Another commenter
questioned why we would not want patients transferred to home health
care as soon as possible.
Response: The statute defines ``qualified discharge'' to include
discharges where the individual is provided home health care ``within
an appropriate period (as determined by the Secretary).'' We continue
to believe a 3-day window for home health services is appropriate. Home
health care is a less-structured and more flexible means of providing
postacute care because it is provided not in an institutional setting
but rather in the patient's home. We believe that a 3-day window
provides flexibility in situations where home care may not be available
or medically appropriate immediately upon discharge. It is also of
sufficient length to discourage hospitals and physicians from delaying
the initiation of necessary postacute care, while being short enough to
avoid placing an undue burden upon hospitals that may want to delay
submitting the inpatient hospital claim until they verify whether or
not home health care has begun within the 3 days.
We do not believe that it is appropriate to limit the transfer
definition to situations where home care begins on the same day as the
patient is discharged from the hospital. Our analysis indicates that
currently less than 8 percent of discharged patients who receive home
health services begin receiving those services on the date of
discharge. It is unreasonable to expect that patients who are
discharged in the late afternoon or evening would receive a home health
visit that same day. Furthermore, we believe the financial incentive to
delay needed home care for only a matter of hours would be overwhelming
if we limited the definition to the same day. As we noted in the
proposed rule, approximately 90 percent of patients who receive home
health services after an inpatient hospital stay began their treatment
within 3 days after the date of discharge. We believe 3 days
accommodates current practices, while also being sufficiently narrow to
allow hospitals to determine whether the care was actually delivered
prior to submitting the bill. We intend to monitor this aspect of the
policy through case review in order to track any changes in hospital
practices that may indicate that we need to revise our window
definition.
Comment: One commenter argued that the best method to determine
whether postacute home health services are related to the inpatient
stay would be to match the principal diagnosis codes on the inpatient
and home health bills. The commenter believed this would alleviate
situations where the patient is discharged from the hospital with a
written plan for the provision of home health services, but the
services are related to a medical condition other than the condition
responsible for the inpatient stay. In addition, the commenter noted
that matching principal diagnosis codes would be consistent with
current policy for the 3-day window for preadmission services.
Response: We disagree that the determination of whether home health
care is related to the acute hospitalization should be based on the
presence of identical diagnosis codes on the inpatient and home health
bills. This approach would rely on the coding practices of the
providers involved. Providers, especially postacute care providers,
frequently have the discretion to select from several possible
diagnosis codes. A common practice of postacute care providers is to
use the V57 diagnosis code category (care involving use of
rehabilitation procedures) as principal because those codes best
describe the reason for the postacute care. However, this code is
seldom used by hospitals for acute care discharges because they are
instructed by coding rules to code as principal the condition that
required the hospital admission as determined at the time of discharge.
In fact, if the hospitals coded discharges with the rehabilitation
codes as principal, the discharges would never be included in the
postacute care policy because those discharges would never be
classified to one of the 10 selected DRGs.
We believe our proposed policy on this issue is preferable. We note
that hospitals that code a discharge to home health will be permitted
to indicate through a condition code on the inpatient bill that the
hospital's discharge plan does not call for home care related to the
hospitalization, but that other nonrelated home care is appropriate.
This way, the hospital will make a conscious selection that the home
care the patient is to receive is not related to the hospitalization,
and would be expected to have documentation in the patient's records to
that effect.
Comment: In the context of discussing the home health window,
MedPAC questioned whether the same day requirement for admission to an
excluded hospital or unit or a skilled nursing facility was too
limited. The Commission suggested expanding the definition to account
for a 24-hour period following discharge.
Response: In describing which discharges to excluded hospitals and
units or skilled nursing facilities should be treated as a transfer,
the statute states that the patient is admitted to the facility upon
discharge from the hospital. We believe that Congress intended that the
policy apply to situations when the patient moves from the hospital
directly to the excluded facility or the skilled nursing facility.
Therefore, unless a patient is being transported from the hospital to
the other facility in the middle of the night, the discharge and
admission should occur on the same calendar day. We note that a direct
transfer that spans midnight and results in a one-day difference in the
discharge and admission dates will be considered a transfer for
purposes of this policy.
Comment: Many commenters indicated the discharge to postacute care
provision will be an administrative burden for hospitals. Because
Medicare beneficiaries are free to obtain services without a hospital
referral, hospitals are concerned that they will be subject to
allegations of fraud and abuse if they discharge a beneficiary to home
with no plan of care for home health services and the beneficiary
subsequently receives postacute care without the hospital's knowledge.
These hospitals believe that they may be forced to hold bills for the
10 DRGS when they discharge a patient to self-care at home so they can
follow-up and ensure that the patient did not receive postacute care.
Another commenter is disturbed by our discussion in the proposed
rule concerning future actions we may take if we find continued
patterns of a hospital billing postacute transfer cases as discharges,
including the possibility that hospitals may be investigated for
fraudulent or abusive billing practices. The commenter believes that
our language was too strong and that we are not allowing a period of
transition in which hospitals may make honest billing errors as they
adjust to this new policy.
Finally, commenters suggested that we clarify when hospitals are
responsible for knowing that a case is transferred for postacute care.

[[Page 40980]]

Response: We recognize there may occasionally be cases where a
hospital believes it is discharging a patient to home or another
setting not included in the postacute transfer definition, and a
physician orders postacute care for the patient without notifying the
hospital. Although these cases would be considered transfers under this
provision, we do not believe that such instances, where they occur
truly without knowledge of the hospital, constitute fraudulent actions.
As we indicated in the proposed rule, we intend to monitor postacute
care cases to evaluate whether such situations occur with unlikely
frequency at specific hospitals and we will investigate the
circumstances in those instances.
Although we recognize honest mistakes will occur, we do not believe
it is inappropriate to put hospitals on notice that we reserve the
right to investigate those with aberrant patterns of inaccurate billing
on these cases. While it is reasonable to assume there will be a
learning curve in terms of hospitals' billing practices as these
changes are implemented, we also take seriously our responsibility to
protect the Medicare trust fund. Our intention in including a
discussion of this issue in the proposed rule was an attempt to avoid
any misunderstanding in terms of our commitment to ensure the correct
implementation of this provision.
In response to the request for clarification about the hospital's
responsibility for knowing when a transfer occurs, the hospital is
responsible for coding the bill based on its discharge plan for the
patient, or if it finds out subsequently that postacute care occurred,
it is responsible for either coding the original bill as a transfer or
submitting an adjustment bill. We have consulted with the National
Uniform Billing Committee (NUBC) to ensure that the appropriate changes
are made on the claims form to enable hospitals to accurately code
these cases and to submit corrections to them when additional
information affecting the patient's discharge status code becomes
available after the bill is submitted.
Comment: One commenter recommended that we establish a hierarchical
decision process for determining whether a discharge to home health
services qualifies as a transfer. This commenter believed that the
overriding consideration should be whether the services are related to
the hospital stay. This commenter suggested that any home care ordered
in the discharge plan should constitute related home health care,
regardless of when it is provided.
Response: Congress directed the Secretary to determine the
appropriate time period within which the provision of home health
services would trigger a transfer payment. Services provided outside
that window, even if related to the hospital stay, would not result in
the discharge being considered a transfer. In addition, we believe that
a time limit is consistent with the concern that these transfer cases
are predominantly situations where care is being shifted from the acute
setting to a postacute care setting. If a patient is discharged to home
and does not need home health care for several days, there may be
little, if any, shift of acute care services to the postacute care
setting.
Comment: One commenter stated that we should specify that the
written plan of care for home health services should be defined clearly
as ``a specific order by the patient's physician in the hospital
medical record that directs the hospital to arrange for home health
services upon discharge.''
Response: We do not believe that it is necessary to specify the
precise definition of what a written plan of care for home health
services must entail. We note that we would deem a case to be a
transfer if care related to the discharge was provided within 3 days
after the date of discharge even if the hospital had no written plan of
care.
Comment: A representative of physical therapists expressed concern
that the 3-day window for home health services may influence hospitals
to wait until after the 3 days to initiate home health services. This
commenter is also concerned that our proposal to identify related home
health services based on the written plan of care by the hospital at
the time of discharge may discourage hospitals from planning for home
health, resulting in uncoordinated and delayed postacute care following
discharge.
Response: We believe there are sufficient protections against
hospitals inappropriately delaying home health care. First, the
provision of home health care is ordered by the patient's physician
orders. We believe physicians will be reluctant to compromise their
patients' treatment by inappropriately delaying home health care. In
addition, we will monitor hospitals' discharge patterns to home health
for evidence that care is being routinely delayed until the fourth day
after discharge and intend to aggressively pursue situations where
abuse is evident. If evidence of a pattern of abuse is found, we will
address it through appropriate policy changes in the FY 2001 proposed
rule.
With respect to the commenter's concern that identifying related
home health services based on the hospital's written plan of care may
create a disincentive to plan home care, we will also be able to
identify those cases where home health services were received within 3
days of discharge and the hospital indicated that the patient was
discharged home with no plan for home health services. As we noted
above, we recognize there will be a certain percentage of cases where
home care is arranged after release from the hospital; however, we
would expect such situations to be relatively rare.
Comment: One commenter, representing medical rehabilitation
providers, expressed concern that this provision may change hospitals'
referral patterns, delaying the initiation of rehabilitation services.
The commenter suggested that we collect the following information from
prospective payment hospitals to monitor their referral patterns:
Site of referral for cases in the 10 DRGs, including
discharge to home without postacute care.
Date from onset and length of stay prior to referral, by
DRG.
General medical condition and functional status of the
patient if the hospital normally collects functional information.
In addition, HCFA should collect the following information from
postacute care providers:
The DRG assigned to the acute care hospitalization.
The date from onset and date of referral to the postacute
care provider.
For patients referred for rehabilitation services to a
rehabilitation hospital or unit, the functional status of the patient
on admission to and at discharge from the rehabilitation provider.
The commenter noted that over 90 percent of rehabilitation
providers already use functional assessment tools, therefore, this data
collection would not be excessively burdensome.
Response: We appreciate this commenter's concerns regarding any
potentially adverse effects of this provision with respect to
beneficiaries' health. We already collect most of the hospital data
suggested by the commenter (with the exception of patients' functional
status and medical condition, though even this could be accessed on a
limited basis). Similarly, for postacute providers, the first two items
of data are already readily available in our system. As we have
described above, we intend to use these data to monitor providers'
behavior after implementation of this policy.
Comment: Commenters requested that we require the fiscal
intermediaries to

[[Page 40981]]

automatically adjust the payments received by the hospital when the
hospital codes a case as a discharge and no bill is ever received for
postacute care services. In making this request, the commenters
referred to the process we described in the proposed rule in which we
would compare the discharge status coded on the hospital bills with
postacute care bills received to determine whether qualifying postacute
care was provided when the hospital billed the case as a discharge.
Response: As noted above, hospitals will be able to submit
corrections to their discharge status codes when they determine that
previously submitted bills are incorrect. It would be impractical to
require the fiscal intermediaries to adjust payments for cases coded as
transfers when no matching postacute care bill is identified. Such a
requirement raises a potential scenario where a case may be
inappropriately adjusted upward because the matching postacute bill has
not entered the claims system at the time the bill comparison is made.
The prescribed period of time within which a provider may submit a bill
for Medicare payment is relatively long and we believe it would be
impractical for each intermediary to reprocess already paid bills based
solely on the absence of a matching postacute care bill. In addition,
we note that there may be occasions when no postacute care bill is
submitted even though the patient was discharged to that care. For
example, as we discussed above, if a patient is transferred to a
skilled nursing facility and receives noncovered care, there will be no
bill in the Medicare claims files. We believe it is preferable to
require hospitals to submit bill adjustments.
Comment: One commenter was unclear about how postacute care
transfers will be identified in the billing process. Specifically, the
commenter questioned whether the hospital will indicate a transfer by
the discharge status code or whether the identification will occur by
matching the acute hospitalization bill against a postacute bill at the
fiscal intermediary.
Response: Transfer cases will be identified based on the discharge
status code listed on the hospital claim form (the HCFA-1490, also
known as the UB-92). As noted above, we have consulted with the NUBC to
ensure that the appropriate changes are made on the claims form to
enable hospitals to accurately code these cases. The language in the
proposed rule concerning a process of matching the date of discharge
from the acute hospital stay with the date that postacute care services
begin was a description of the process that HCFA will use as a check to
verify the accuracy of the discharge codes.
Comment: One commenter asked whether the discharge destination code
``08,'' which is described as ``Discharged/transferred to home under
care of a Home IV (intravenous) provider,'' would be used to identify a
transfer. This commenter was also concerned about whether code ``05,''
which is described as ``Discharged/transferred to another type of
institution for inpatient care or referred for outpatient services to
another institution'' would be sufficient to identify transfers to
excluded hospitals or units.
Response: Discharge code ``08'' will not trigger a transfer payment
because it should not be used in situations where a patient is
receiving IV services under the Medicare home health benefit. Rather,
code ``06'' should be used to signify all care provided by a home
health agency under the Medicare home health benefit.
With respect to discharge code ``05,'' the NUBC is discussing what
additional codes need to be added or what current codes may be revised
to allow for more specific coding to distinguish transfer situations
from nontransfers. Instructions on the discharge codes will be provided
to the fiscal intermediaries and, thereafter, to the hospitals before
the effective date of the postacute transfer provision (that is,
October 1, 1998).
Comment: Several commenters suggested that DRG 483 should not be
included as one of the 10 DRGs under this provision. The commenters
believed that this DRG is not clinically homogeneous and includes many
different conditions with different expected lengths of stay. They also
stated that our analysis showed that transfers from this DRG would be
paid below costs for almost every day below the mean length of stay.
One commenter indicated it appeared this DRG was singled out for
specific treatment.
MedPAC commented that the criteria we used to select the 10 DRGs
was reasonable, although it indicated that the list is fairly narrow in
the types of conditions or procedures represented. Therefore, when we
consider an expansion of this list, MedPAC recommended that we include
coronary surgery DRGs, such as the coronary bypass DRGs (106, 107, and
109), and the pneumonia DRGs (89, 90, or 91).
Response: As described in the proposed rule and above in this
section of the preamble, the 10 DRGs were selected based on the
criteria specified in the statute, that is, the DRGs exhibit a high
volume and disproportionate percentage of postacute cases. None of the
10 DRGs were predetermined. With respect to DRG 483, a significant
percentage of discharges (over 45 percent are transferred to postacute
care. This places it in the top 25 DRGs in terms of postacute care
utilization. Of those 25 DRGs, it is ranked 9th in terms of the volume
of cases receiving postacute care. We believe these factors justify its
inclusion.
In addition, contrary to the commenter's statement, our analysis of
payments and costs for transfers in this DRG shows that average
payments exceed average costs for all but those cases transferred very
early in the stay (before the 6th day in a DRG with an average length
of stay of 34 days). (See the table for DRG 483 in Appendix D of this
final rule.) The marginal costs per day for this DRG are consistent
with and are accommodated almost perfectly by the transfer per diem
payment methodology.
We appreciate MedPAC's support regarding our selection criteria and
will take its recommendations regarding additional DRGs into
consideration in our future analysis.
Comment: Some commenters believe that the process we used to select
the 10 DRGs did not reflect the intent of Congress. They suggested
that, in selecting the 10 DRGs, we should include an evaluation of
whether a DRG was prone to inappropriate use of postacute care.
Response: Section 1886(d)(5)(J)(iii)(I) of the Act provides that
the affected DRGs are ``* * *10 diagnosis-related groups selected by
the Secretary based on a high-volume of discharges classified within
such groups and a disproportionate use of post discharge [sic] services
* * *.'' This language does not direct the Secretary to select the 10
DRGs based upon their vulnerability to inappropriate use of postacute
care. As stated earlier, the postacure care transfer provision adjusts
hospital payments to reflect the reduced lengths of stay arising from
the shift of care to the postacute care setting.
Comment: One commenter was offended by the rationale stated in the
proposed rule for including DRG 264 (Skin Graft and/or Debridement for
Skin Ulcer or Cellulitis without complication or comorbidity (CC)) in
the list of 10 DRGs. The commenter argued that no medical record coder
would intentionally fail to list a CC in order to avoid the transfer
payment for a case that groups to DRG 263 (Skin Graft and/or
Debridement for Skin Ulcer or Cellulitis With CC). The commenter noted
that this would be an illegal,

[[Page 40982]]

fraudulent act on the part of the coder and should not be used as a
deciding factor in the methodology for selecting the 10 DRGs.
Response: In making our selection of the 10 DRGs, we decided to
include paired DRGs if one of them met our criteria. While we do not
believe that medical record coders will exclude a CC code in their list
of diagnosis codes, the hospital claim is not generally submitted to
HCFA by the coder, but rather by a billing office where information
included on the claim is frequently subject to additional review. By
including DRG 264, we hope to avoid any questions or issues concerning
the accurate coding of a particular case involving skin graft and
debridement.
Comment: Several commenters stated that the alternative payment
methodology for DRGs 209, 210, and 211 described in the proposed rule
would not pay the full DRG amount until one day after the geometric
mean length of stay for the DRG. This result is contrary to the usual
per diem payment methodology where the full DRG payment is received one
day before the geometric mean length of stay.
Response: The alternative payment methodology in the proposed rule
was described as ``50 percent of the DRG payment for the first day of
the stay, and 50 percent of the per diem for the remaining days of the
stay.'' This wording imprecisely described our proposed policy. The
alternative payment methodology proposed for DRGs 209, 210, and 211 is
equal to 50 percent of the DRG payment plus 50 percent of the amount
which would be paid under our per diem methodology. Under this formula,
on day one of a postacute care transfer, hospitals would receive one-
half the DRG payment amount plus the per diem payment for the DRG (one-
half the usual transfer payment of double the per diem for day one).
For each subsequent day prior to transfer, hospitals receive one-half
the per diem up to the full DRG payment, which is reached one day prior
to the geometric mean length of stay for the DRG. We note that,
although we inaccurately described the methodology, we used the correct
formula in calculating the budget neutrality factors and outlier
thresholds in the proposed rule.
Comment: One commenter believed that the alternative payment
methodology used for DRGs 209, 210, and 211 should be used for all 10
of the DRGs selected under the postacute care transfer provision. The
commenter argued that for postacute care transfers, unlike transfers
under our current transfer policy, the hospital provides all necessary
acute care services to the patient, regardless of length of stay,
before transferring the patient to postacute care.
Response: As noted above, we believe care previously provided in
the acute care setting increasingly has been shifted to the postacute
setting. Therefore, we do not agree with the commenter's belief that
these cases are significantly different from those considered transfers
under our current definition of transfers; in both situations, the
length of stay is reduced and presumably a hospital furnished fewer
services and incurs lower costs relative to a typical discharge.
Furthermore, as demonstrated in the tables comparing average payments
and costs for these DRGs in Appendix D, the seven DRGs that will be
paid under the current per diem methodology have a gradual increase in
costs as length of stay rises, consistent with the gradual increase in
payments under our current per diem methodology. Therefore, we are not
expanding the application of the alternative payment methodology beyond
the three DRGs identified in the proposed rule.
Comment: MedPAC suggested we may wish to evaluate whether the
alternative payment methodology for postacute transfers in DRGs 209,
210, and 211 should be expanded to our policy for transfers between two
acute care hospitals.
Response: We have evaluated our transfer payment formula for our
current transfer policy in the past and revised it to pay double the
per diem amount for the first day of a transfer stay. Because the
majority of cases that are transferred from one acute care hospital to
another result in the case being assigned to a medical DRG, our
analysis indicated that the current per diem payment (with a double
payment on the first day) accurately reflects the costs of these cases,
as it does for the seven DRGs paid under the per diem methodology under
the postacute transfer provision. Although we do not plan further
changes in the payment methodology for transfers to another acute care
hospital, we will continue to evaluate the potential for further
refinements in this policy, particularly in light of the changes
introduced in this final rule.
Comment: One commenter requested clarification of how the indirect
medical education (IME) and disproportionate share hospital (DSH)
adjustments are treated under the transfer payment methodology. This
commenter also requested clarification regarding the outlier payment
calculation for transfer cases and recommended that the transfer
payment rather than the DRG payment serve as the comparative basis for
determining whether a transfer case qualifies as an outlier.
Commenters also indicated some confusion as to when full payment
would be made under the transfer methodology in situations where the
geometric mean length of stay for a DRG is not a whole number, for
example, 9.8 days.
Response: The IME and DSH payments are determined in accordance
with Secs. 412.105(e) and 412.106(a)(2), respectively, by applying the
IME and DSH adjustment factors calculated under those sections to the
DRG revenue. In the case of a transfer occurring before the average
length of stay, the applicable IME or DSH factor would be applied to
the DRG revenue determined under the applicable transfer payment
methodology.
With respect to outliers for transfer cases, the methodology
suggested by the commenter is actually the methodology we use to
determine outliers for these cases. In the September 1, 1995 Federal
Register, we described how the cost outlier threshold is calculated for
transfers (60 FR 45804). The outlier threshold for transfer cases
reflects the fact that transfer cases receive a reduced payment amount.
Specifically, the threshold for transfers paid under the current per
diem methodology is equal to the fixed loss outlier threshold for all
cases ($11,100 for FY 1999) divided by the geometric mean length of
stay for the DRG, multiplied by the length of stay prior to transfer,
plus one day. For postacute transfers in DRGs 209, 210, and 211, the
outlier threshold is determined by dividing the fixed loss outlier
threshold for all cases by the geometric mean length of stay for the
DRG, multiplied by the sum of half the geometric mean and half the
length of stay for the case, plus one. We note that we are making a
conforming change in Sec. 412.80(b), which describes outlier payments
for transfers, to incorporate the revisions we are making in the
transfer policy.
Finally, in the case of a DRG with a geometric mean length of stay
of 9.8 days, full payment would be received on day 9. The following
table illustrates this point, using DRGs 209 and 236 with geometric
mean lengths of stay of 4.9 and 4.1 days, respectively.

[[Page 40983]]

------------------------------------------------------------------------
DRG 209 236
------------------------------------------------------------------------
Full DRG Payment Amount \1\............. $8,400.32 $2,790.60
Per Diem Amount......................... 2,048.86 680.63
Payment for Transfer on Day 1 \2\....... 6,249.02 1,361.26
Payment for Transfer on Day 2........... 7,273.45 2,041.89
Payment for Transfer on Day 3........... 8,297.88 2,722.52
Payment for Transfer on Day 4 \3\....... 8,400.32 2,790.60
------------------------------------------------------------------------
\1\ This amount is determined using the other areas national
standardized amount from Table 1A in Section VI of the addendum to
this final rule. The respective relative DRG weights are taken from
Table 5. For DRG 209, the relative weight is 2.1803, and for DRG 236
it is 0.7243. It assumes a wage index of 1.0, and no IME or DSH
payments. Any IME or DSH payments would be factored into the transfer
amount as described above.
\2\ For DRG 209, the payment amount is equal to one-half of the full DRG
payment amount ($4,200.16) plus the per diem amount ($2,048.86). For
DRG 236, the payment amount is equal to double the per diem amount.
\3\ Total payment is limited to the full DRG amount (with the exception
of outlier cases), rather the result of an additional per diem amount
(or half the per diem).

Comment: A few commenters stated that because average lengths of
stay vary by geographic region, the transfer policy punishes those
regions with average lengths of stay less than the mean. They
recommended that an adjustment factor be developed to recognize this
disparity or that regional averages should be used to compute the per
diem amount.
Response: We recognize that lengths of stay vary by region and are
generally lower in the west, particularly compared to the northeast. In
addition, regions with shorter lengths of stay tend to also have lower
average costs due to the fewer number of days that patients spend in
the hospital. One of the reasons for this variation is the greater
reliance on postacute care earlier in the stay in those areas with
lower average lengths of stay.
We do not believe it would be appropriate to base the transfer
payment methodology on regional average lengths of stay. The national
standardized amounts, which apply across all regions, reflect costs and
lengths of stay across all regions. If a hospital in one region has a
case with certain patient characteristics and a hospital in another
region has a case with identical patient characteristics (including the
same length of stay), we see no reason to have a rule under which one
hospital would receive the full DRG payment but the other hospital
would receive a transfer payment.
Comment: One commenter believed that, in lieu of expanding the
transfer definition, it would make more sense to recalibrate the 10
DRGs to better reflect the recent reductions in lengths of stay and
costs for these categories.
Response: All of the DRGs are recalibrated annually, using the
latest available charge data for Medicare beneficiaries. Because of the
recalibration process, a reduction in the relative weights of certain
DRGs results in an increase in the weights of other DRGs. Therefore,
there are no overall reductions in Medicare payments to hospitals. That
is, although the hospital will receive a reduced payment through lower
weights for the DRGs affected by the shift toward greater utilization
of postacute care early in a stay, it will receive greater payment for
the DRGs in which the weight is increased because there is no reduction
in overall costs. In addition, any reduction in payment for the
selected DRGs is shared by all hospitals including those that have not
reduced their average length of stay and costs through the increased
use of postacute care. We believe that any change in Medicare payment
because of the early transfer of acute care patients to postacute care
should be targeted at those hospitals that have actually incorporated
this practice into their patient care.
Comment: Another commenter noted that, if these cases are to be
treated as transfers for payment, they should be treated that way for
recalibration as well.
Response: We agree. In the proposed rule, we did not revise the
discussion of the recalibration process to specifically mention the
postacute transfers, but we did treat these cases as transfers during
the recalibration process that resulted in the DRG weights set forth in
that rule. For purposes of the DRG recalibration, transfer cases,
including the postacute transfer cases, are counted as a fraction of a
discharge based on the length of stay, thereby reducing proportionately
the contribution of the charges for the case toward the average charges
for the DRG. This process effectively inflates the charges of a
transfer case to what they would have been had the patient's length of
stay been equal to the geometric mean length of stay. If we do not
perform this calculation, these cases would receive reduced payment
because they are transfers, but be treated as discharges in
recalibration, lowering the relative weights for affected DRGs.
Comment: One commenter questioned whether the postacute care
transfer provision will have any effect on the payments made by
Medicare to the postacute providers.
Response: The only payment implication of this provision is to
affect the prospective payment for the acute inpatient hospitalization.
Medicare payment to any postacute providers involved in the stay are
not affected by this policy.

B. Rural Referral Centers (Sec. 412.96)

Under the authority of section 1886(d)(5)(C)(I) of the Act,
Sec. 412.96 sets forth the criteria a hospital must meet in order to
receive special treatment under the prospective payment system as a
rural referral center. For discharges occurring before October 1, 1994,
rural referral centers received the benefit of payment based on the
other urban rather than the rural standardized amount. As of that date,
the other urban and rural standardized amounts were the same. However,
rural referral centers continue to receive special treatment under both
the disproportionate share hospital payment adjustment and the criteria
for geographic reclassification.
One of the criteria under which a rural hospital may qualify as a
rural referral center is to have 275 or more beds available for use. A
rural hospital that does not meet the bed size criterion can qualify as
a rural referral center if the hospital meets two mandatory criteria
(specifying a minimum case-mix index and a minimum number of
discharges) and at least one of the three optional criteria (relating
to specialty composition of medical staff, source of inpatients, or
volume of referrals). With respect to the two mandatory criteria, a
hospital may be classified as a rural referral center if its--
Case-mix index is at least equal to the lower of the
median case-mix index for urban hospitals in its census region,
excluding hospitals with approved teaching programs, or the median
case-mix index for all urban hospitals nationally; and

[[Page 40984]]

Number of discharges is at least 5,000 discharges per year
or, if fewer, the median number of discharges for urban hospitals in
the census region in which the hospital is located. (The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year.)
1. Case-Mix Index
Section 412.96(c)(1) provides that HCFA will establish updated
national and regional case-mix index values in each year's annual
notice of prospective payment rates for purposes of determining rural
referral center status. The methodology we use to determine the
proposed national and regional case-mix index values, is set forth in
regulations at Sec. 412.96(c)(1)(ii). The proposed national case-mix
index value included all urban hospitals nationwide, and the proposed
regional values were the median values of urban hospitals within each
census region, excluding those with approved teaching programs (that
is, those hospitals receiving indirect medical education payments as
provided in Sec. 412.105).
These values were based on discharges occurring during FY 1997
(October 1, 1996 through September 30, 1997) and include bills posted
to HCFA's records through December 1997. Therefore, in addition to
meeting other criteria, for hospitals with fewer than 275 beds, we
proposed that to qualify for initial rural referral center status for
cost reporting periods beginning on or after October 1, 1998, a
hospital's case-mix index value for FY 1997 would have to be at least--
1.3578; or
Equal to the median case-mix index value for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 412.105) calculated by HCFA for the census region in
which the hospital is located. (See the table set forth in the May 8,
1998 proposed rule at 63 FR 25593.)
Based on the latest data available (FY 1997 bills received through
March 31, 1998), the final national case-mix value is 1.3590 and the
median case-mix values by region are set forth in the table below:

------------------------------------------------------------------------
Case-mix
Region index
value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...................... 1.2490
2. Middle Atlantic (PA, NJ, NY).............................. 1.2519
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)....... 1.3474
4. East North Central (IL, IN, MI, OH, WI)................... 1.2711
5. East South Central (AL, KY, MS, TN)....................... 1.3042
6. West North Central (IA, KS, MN, MO, NE, ND, SD)........... 1.2325
7. West South Central (AR, LA, OK, TX)....................... 1.3326
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................. 1.3726
9. Pacific (AK, CA, HI, OR, WA).............................. 1.3427
------------------------------------------------------------------------

For the benefit of hospitals seeking to qualify as referral centers
or those wishing to know how their case-mix index value compares to the
criteria, we are publishing each hospital's FY 1997 case-mix index
value in Table 3C in section VI. of the Addendum to this final rule. In
keeping with our policy on discharges, these case-mix index values are
computed based on all Medicare patient discharges subject to DRG-based
payment.
2. Discharges
Section 412.96(c)(2)(I) provides that HCFA will set forth the
national and regional numbers of discharges in each year's annual
notice of prospective payment rates for purposes of determining
referral center status. As specified in section 1886(d)(5)(C)(ii) of
the Act, the national standard is set at 5,000 discharges. However, we
proposed to update the regional standards. The proposed regional
standards were based on discharges for urban hospitals' cost reporting
periods that began during FY 1996 (that is, October 1, 1995 through
September 30, 1996). That is the latest year for which we have complete
discharge data available.
Therefore, in addition to meeting other criteria, we proposed that
to qualify for initial rural referral center status for cost reporting
periods beginning on or after October 1, 1998, the number of discharges
a hospital must have for its cost reporting period that began during FY
1997 would have to be at least--
5,000; or
Equal to the median number of discharges for urban
hospitals in the census region in which the hospital is located. (See
the table set forth in the May 8, 1998 proposed rule at 63 FR 65594.)
Based on the latest discharge data available for FY 1996, the final
median numbers of discharges for urban hospitals by census region areas
are as follows:

------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)..................... 6,672
2. Middle Atlantic (PA, NJ, NY)............................. 8,676
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)...... 7,753
4. East North Central (IL, IN, MI, OH, WI).................. 7,346
5. East South Central (AL, KY, MS, TN)...................... 6,741
6. West North Central (IA, KS, MN, MO, NE, ND, SD).......... 5,346
7. West South Central (AR, LA, OK, TX)...................... 5,251
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................ 7,992
9. Pacific (AK, CA, HI, OR, WA)............................. 5,993
------------------------------------------------------------------------

We note that the number of discharges for hospitals in each census
region is greater than the national standard of 5,000 discharges.
Therefore, 5,000 discharges is the minimum criterion for all hospitals.
We reiterate that, to qualify for rural referral center status for
cost reporting periods beginning on or after October 1, 1998, an
osteopathic hospital's number of discharges for its cost reporting
period that began during FY 1996 would have to be at least 3,000.
We received no comments on the rural referral center criteria.

C. Payments to Disproportionate Share Hospitals: Conforming Change
Regarding Interpretation of Medicaid Patient Days Included in
Disproportionate Patient Percentage (Sec. 412.106)

Effective for discharges beginning on or after May 1, 1986,
hospitals that treat a disproportionately large number of low-income
patients receive additional payments through the disproportionate share
(DSH) adjustment. One means of determining a hospital's DSH payment
adjustment for a cost reporting period requires calculation of its
disproportionate patient percentage for the period. The
disproportionate patient percentage is the sum of a prescribed Medicare
fraction and a Medicaid fraction for the hospital's fiscal period.
Under clause (I) of section 1886(d)(5)(F)(vi) of the Act and
Sec. 412.106(b)(2), the Medicare fraction is determined by dividing the
number of the hospital's patient days for patients who were entitled
(for such days) to benefits under both Medicare Part A and Supplemental
Security Income (SSI) under Title XVI of the Act, by the total number
of the hospital's patient days for the patients who were entitled to
Medicare Part A. The Medicaid fraction is determined, in accordance
with clause (II) of section 1886(d)(5)(F)(vi) of

[[Page 40985]]

the Act and Sec. 412.106(b)(4), by dividing the number of the
hospital's patient days for patients who (for such days) were eligible
for medical assistance under a State Medicaid plan approved under Title
XIX of the Act but who were not entitled to Medicare Part A, by the
total number of the hospital's patient days for that period.
Initially, HCFA calculated the Medicaid fraction by interpreting
section 1886(d)(5)(F)(vi)(II) of the Act to recognize as Medicaid
patient days only those days for which the hospital received Medicaid
payment for inpatient hospital services. See 51 Fed. Reg. 31454, 31460
(1986). The agency's interpretation was declared invalid by four
Federal circuit courts of appeals. See Cabell Huntington Hosp., Inc. v.
Shalala, 101 F.3d 984, 990-91 (4th Cir. 1996) (following three other
circuits). These courts held that the statute requires, for purposes of
calculating the Medicaid fraction, inclusion of each patient day of
service for which a patient was eligible on that day for medical
assistance under an approved State Medicaid plan. Specifically, the
statute requires inclusion of each hospital patient day for a patient
eligible for Medicaid on such day, regardless of whether particular
items or services were covered or paid under the State Medicaid plan.
On February 27, 1997, the HCFA Administrator issued HCFA Ruling 97-
2, which acquiesced in the four adverse appellate court decisions. The
Ruling changed the agency's statutory construction to comport with
those decisions, in order to facilitate nationwide uniformity in the
calculation of the Medicaid fraction. Like the court decisions, the
Ruling provides that a hospital's Medicaid patient days include each
patient day of service for which a patient was eligible on such day for
medical assistance under an approved State Medicaid plan, regardless of
whether particular items or services were covered or paid under the
State plan. The Ruling also reflects the hospital's burden of
furnishing data adequate to prove each claimed Medicaid patient day,
and of verifying with the State that a patient was eligible for
Medicaid during each day of the inpatient hospital stay.
The Ruling further provides that the agency's new interpretation is
effective February 27, 1997 for each cost reporting period that: (1)
Begins on or after that effective date; (2) was not settled, as of that
date, on the Medicaid patient days issue, by means of an applicable
notice of program reimbursement (NPR) (see Sec. 405.1803); or (3) was
settled through such an NPR as of the Ruling's effective date and is
the subject of a pending administrative appeal or civil action that
satisfies all applicable jurisdictional requirements of the Medicare
statute and regulations. The Ruling also provides, however, that the
change in statutory interpretation effected by the Ruling is not a
basis for reopening a hospital cost reporting period (see
Secs. 405.1885-405.1889) that was finalized previously on the same
matter at issue.
We proposed to revise Sec. 412.106(b)(4) in order to conform the
Medicare regulations to the new statutory construction issued in HCFA
Ruling 97-2. These revisions are necessary to ensure that the
regulations comport with the four appellate court decisions that
declared invalid the agency's prior interpretation and led to the
issuance of the HCFA Ruling. The proposed revisions would further
facilitate nationwide uniformity in the calculation of the Medicaid
fraction.
Since the proposed revisions were intended simply to conform the
regulations to HCFA Ruling 97-2 (and hence to the four adverse court
decisions), revised Sec. 412.106(b)(4) would reiterate the Ruling's
change of interpretation that the Medicaid fraction under section
1886(d)(5)(F)(vi)(II) of the Act includes each hospital patient day for
a patient eligible for Medicaid on such day, regardless of whether
particular items or services were covered or paid under the State
Medicaid Plan. Our proposed revisions to Sec. 412.106(b)(4), like the
Ruling, would continue to place on the hospital the burdens of
production, proof, and verification as to each claimed Medicaid patient
day.
Under our proposal, revised Sec. 412.106(b)(4) would apply to cost
reporting periods beginning on or after October 1, 1998. HCFA Ruling
97-2, which includes the same provisions as proposed
Sec. 412.106(b)(4), would continue to apply to any cost reporting
period beginning before October 1, 1998 provided that, as of February
27, 1997, there is for such period: no submitted cost report; no cost
report settled on the Medicaid patient days issue through an applicable
NPR; or a cost report settled on that issue, which is also the subject
of a jurisdictionally proper administrative appeal or civil action on
the issue.
We received no comments in response to this proposal. Therefore, we
are incorporating the proposed conforming change in this final rule.

D. Payment for Bad Debts (Sec. 413.80)

Section 4451 of the Balanced Budget Act of 1997 reduces the payment
for enrollee bad debt for hospitals. Specifically, this provision
reduces the amount of bad debts otherwise treated as allowable costs,
attributable to the deductibles and coinsurance amounts under this
title, by 25 percent for cost reporting periods beginning during fiscal
year 1998, by 40 percent for cost reporting periods beginning during
fiscal year 1999, and by 45 percent for cost reporting periods
beginning during a subsequent fiscal year. We proposed to conform the
regulations to the statute.
Section 4451 of the Balanced Budget Act of 1997 also provides that
in determining such reasonable costs for hospitals, any copayments
reduced under the election available for hospital outpatient services
under section 1833(t)(5)(B) of the Act will not be treated as a bad
debt. This provision will be implemented in the outpatient prospective
payment system regulation that implements sections 4521, 4522, and 4523
of the Balanced Budget Act of 1997, to be published later this year.
We received one comment regarding the reduction in Medicare bad
debt reimbursement which is discussed below.
Comment: One commenter requested that the regulations and/or cost
report forms (HCFA 2552-96) be modified to clarify that hospital-based
skilled nursing facility bad debts will continue to be 100 percent
reimbursable since freestanding skilled nursing facilities are not
subject to the reduction in reimbursement and skilled nursing
facilities are not mentioned in the law at section 1861(v)(1)(T). The
commenter believed that in the BBA committee reports describing changes
in reimbursement for Medicare bad debts, it seemed clear the changes
were to apply to all providers, yet the law clearly stated that
hospitals are the sole provider type subject to reductions in
reimbursement. The commenter also noted that in reviewing the new
hospital cost report forms, HCFA 2552-96, the commenter believed that
the forms would apply the reduction in reimbursement to hospital-based
skilled nursing facilities.
Response: The HCFA 2552-96 hospital cost report forms do not apply
the reduction in bad debt reimbursement to hospital-based skilled
nursing facilities. Page 36-159, Line 26 and Page 36-164, Line 40
require entering the reduction for ``hospitals only''. Section 4451 of
the BBA, and these implementing regulations, apply only to hospitals
and any subprovider units settled through the hospital cost report,
whether or not they have a separate provider number. Included in this
are rehabilitation units, psychiatric

[[Page 40986]]

units, and childrens' hospitals, which are considered hospital
providers. Cost reports for skilled nursing facilities, home health
agencies, outpatient therapy, comprehensive outpatient rehabilitation
facilities, community mental health centers, federally qualified health
centers, and rural health clinics (after January 1, 1998) are
separately settled and bad debts for these providers are not reduced.
The bad debt reduction does not apply to ambulatory surgical centers
because they are paid on another basis (fee schedule). End stage renal
disease bad debts are computed separately and are not reduced.

E. Payment for Direct Costs of Graduate Medical Education to Hospitals
and Qualified Nonhospital Providers (Secs. 405.2468, 413.85, and
413.86)

1. Statutory Background
Since its inception in 1965, Medicare has provided payment only to
hospitals for the costs of graduate medical education (GME) training.
The BBA allows for direct GME payment to qualified nonhospital
providers to encourage training of future physicians in nonhospital
settings.
Under section 1886(k) of the Act, as added by section 4625 of the
BBA, the Secretary is now authorized, but not required, to pay
qualified nonhospital providers for the direct costs of GME training.
The Conference Report also notes that the Conferees believe this
authority may help alleviate physician shortages in underserved rural
areas. We believe that providing Medicare payment directly to qualified
nonhospital providers may facilitate more training and better quality
training in nonhospital sites.
Section 1886(k) of the Act states: ``For cost reporting periods
beginning on or after October 1, 1997, the Secretary may establish
rules for payment to qualified nonhospital providers for their direct
costs of medical education, if those costs are incurred in the
operation of an approved medical residency training programs described
in subsection (h).'' The statute further provides that, to the extent
the Secretary exercises this broad discretionary authority, the rules
``shall specify the amounts, form, and manner in which such payments
will be made and the portion of such payments that will be made from
each of the trust funds under this title.''
a. Payments only to ``qualified nonhospital providers''. The
statute confers broad discretion on the Secretary regarding whether and
how to pay qualified nonhospital providers for direct GME costs.
However, the statute does specify the entities whom the Secretary can
pay--``qualified nonhospital providers.'' Section 1886(k)(2) of the Act
defines ``qualified nonhospital providers'' to include: Federally
Qualified Health Centers (FQHCs), as defined in section 1861(aa)(4);
Rural Health Centers (RHCs), as defined in section 1861(aa)(2);
Medicare+Choice organizations; and such other providers (other than
hospitals) as the Secretary determines to be appropriate.
b. Payments only for the ``direct costs'' of training. The statute
also specifies the costs the Secretary can pay for under section
1886(k) of the Act. Medicare pays hospitals for both the direct and
indirect costs of medical education under sections 1886(h) and
1886(d)(5)(B) of the Act respectively, but section 1886(k) of the Act
provides for payment to qualified nonhospital providers only for the
direct costs of medical education. In addition, section 1886(k) of the
Act provides for payment for the direct costs of training medical
residents only if those costs are incurred in the operation of an
``approved medical residency training program.'' Accordingly, the
statute authorizes Medicare payments to qualified nonhospital providers
only for the costs of training medical residents, not for the costs of
training other health professionals.
In addition to adding section 1886(k) of the Act, section 4625 of
the BBA amends section 1886(h)(3)(B) of the Act to prohibit double
payments for direct GME to a hospital and a qualified nonhospital
provider. This prohibition on double payments requires that the
Secretary reduce a hospital's GME payments (the ``aggregate approved
amount'' as defined in section 1886(h)(3)(b) of the Act) to the extent
we pay a qualified nonhospital provider for GME under section 1886(k)
of the Act.
2. Payment to Hospitals for GME
Under sections 1886(d)(5)(B)(iv) and 1886(h)(4)(E) of the Act, a
hospital may include the time a resident spends in nonprovider settings
in its indirect medical education (IME) and direct GME full-time
equivalent count if it incurs ``all or substantially all'' of the costs
of training residents in the nonhospital site. Under Secs. 412.105(f)
and 413.86(f)(1)(iii), a hospital may count resident training time in
nonhospital sites for indirect and direct GME respectively if the
resident is involved in patient care and there is a written agreement
between the hospital and the nonhospital site that states that the
resident's compensation for training time spent outside the hospital
setting is to be paid by the hospital.
3. Proposed Policies
Pursuant to section 4625 of the BBA, we proposed to provide
Medicare payment to qualified nonhospital providers for the direct
costs of GME training, effective for portions of cost reporting periods
occurring on or after January 1, 1999. We proposed Medicare would make
GME payments to the following ``qualified nonhospital providers''--
FQHCs, RHCs, and Medicare+Choice organizations. Under the authority of
section 1886(k)(2)(D) of the Act, the Secretary may expand the
definition of a ``qualified nonhospital provider'' to include such
other providers (other than hospitals) as the Secretary determines to
be appropriate. Once we have gained experience providing direct GME
payments to FQHCs, RHCs, and Medicare+Choice organizations, we may
consider including other types of nonhospital providers in the
definition of a ``qualified nonhospital provider.''
Additionally, we proposed that, under certain circumstances, a
hospital may continue to receive GME payments for residents who train
in the nonhospital setting. In those instances where a hospital is
eligible to continue receiving GME payments for residents who train in
the nonhospital setting, the nonhospital site could receive payment
from the hospital for costs they incur in training medical residents.
Thus, our proposed policy would promote the intent of section 4625 of
the BBA to provide financial support, either directly from Medicare or
through the hospital, to qualified nonhospital providers for the direct
costs of training residents in the nonhospital site.
a. ``All or substantially all'' of the costs of training. Similar
to our current policy of paying hospitals for training in nonhospital
sites, we proposed that a qualified nonhospital provider may receive
payment for the direct costs of GME if it incurs ``all or substantially
all'' of the training costs. Although we proposed to pay the qualified
nonhospital provider only when it incurred ``all or substantially all''
of the costs of training, we solicited comment on possible methods for
allocating the GME payments for training in the nonhospital site where
neither the hospital nor the qualified nonhospital provider is
incurring ``all or substantially all'' of the costs of the training
program. Under the proposed system, we would pay either the hospital or
the qualified nonhospital provider for the cost of training in the
nonhospital site, depending on which

[[Page 40987]]

entity incurs ``all or substantially all'' of the costs of training in
the nonhospital site. We proposed to revise the definition of ``all or
substantially all'' of the costs, which currently applies only to
hospitals. Under the proposed redefinition, a hospital or qualified
nonhospital provider would incur ``all or substantially all'' of the
costs for the training program in the nonhospital setting if it pays
for, at a minimum: that portion of the costs of the teaching
physicians' salaries and fringe benefits that are related to the time
spent in teaching and supervision of residents; and residents' salaries
and fringe benefits (including travel and lodging expenses where
applicable).
b. Definition of ``direct costs'' of medical education for
qualified nonhospital providers. Section 4625 of the BBA provides for
payment to qualified nonhospital providers only for the direct costs of
training residents. Our proposed definition of ``direct costs'' for
qualified nonhospital providers is comparable to the direct costs for
hospitals under section 1886(h) of the Act. Under our proposed policy,
direct GME costs include costs incurred by the nonhospital site for the
education and training of medical residents in approved programs. We
proposed to include the following costs in the definition of direct
costs:
residents' salaries and fringe benefits (including related
travel and lodging expenses where applicable);
that portion of costs of the teaching physicians' salaries
and fringe benefits that are related to the time spent in teaching and
supervision of residents; and
other related GME overhead costs.

Consistent with our policies on direct GME costs for hospitals, we
proposed direct GME costs for qualified nonhospital providers will not
include normal operating costs or the marginal increase in costs that
the nonhospital site experiences as a result of having an approved
medical residency training program. For example, a decrease in
productivity and increased intensity in treatment patterns as the
result of a training program do not constitute ``direct costs'' of
training residents in the nonhospital setting; rather, these are the
``indirect costs'' of such training.
Also consistent with our policies for direct GME payments to
hospitals, we proposed to pay qualified nonhospital providers only for
training that is related to the delivery of patient care services.
We also proposed that direct GME costs for qualified nonhospital
providers, like direct GME costs for hospitals, would include only that
portion of costs of the teaching physicians' salaries and fringe
benefits associated with time spent in teaching and supervising
residents. Specifically, a physician's time spent on teaching of a
general nature would constitute a direct GME cost while activities
spent in direct patient care which involve residents do not constitute
direct costs. In addition, we proposed that direct costs in the
qualified nonhospital provider would include that portion of teaching
physicians' salaries and fringe benefits associated with time spent
developing resident schedules and evaluating or rating the residents.
Direct costs may also include the portion of a teaching physician's
office costs allocated to GME.
We stated that direct GME costs for qualified nonhospital providers
would not include the following: a teaching physician's time spent in
the care of individual patients which results in billable services;
teaching physicians' activities that are related to the education of
other health professionals (i.e., classroom instruction in connection
with approved activities other than GME such as provider-operated
nursing programs); teaching physicians' time spent on administrative
and supervisory services to the qualified nonhospital provider that are
unrelated to approved educational activities (i.e. operating costs);
and teaching physician activities that involve nonallowable costs such
as research and medical school activities that are not related to
patient care in the nonhospital setting. Costs associated with the
providing teaching services to undergraduate medical students are also
not include in direct graduate medical education costs.
GME overhead costs include only those costs that are allocable to
direct GME and that are not used in patient care. For example, a
portion of administrative and general costs could be appropriately
allocated to an RHC's or FQHC's GME cost center. Similarly, a
conference room that is dedicated specifically for the training of
residents could be appropriately allocated to an RHC or FQHC's GME cost
center. By contrast, patient care rooms added to an RHC or an FQHC
cannot be appropriately allocated to an RHC's or FQHC's GME cost
center.
One of the advantages of the proposed definition of ``direct
costs'' is that it is administratively feasible. Our definition of
``direct costs'' for qualified nonhospital providers is comparable to
the direct costs that are included in the per resident amount paid to
hospitals under section 1886(h) of the Act. At present, there is
limited information regarding the actual costs of training residents in
nonhospital sites. After we gain experience providing direct GME
payments to qualified nonhospital providers and have reviewed the GME
costs separately reported by these qualified nonhospital providers, we
may revise the definition of ``direct costs.'' We solicited comments on
other elements that may constitute direct costs of GME in the qualified
nonhospital provider that can be identified, reported, and verified as
directly attributable to GME activities through the cost reporting
process. We were interested in comments on whether we should include
other costs in the definition of ``direct costs'' for qualified
nonhospital providers and on the administrative feasibility of
identifying the GME portion of those costs.
c. Determining direct costs. One of our major concerns in
developing policies for paying qualified nonhospital providers for the
direct costs of GME is the administrative feasibility of determining
the amount of direct costs incurred by the qualified nonhospital
provider. It is our understanding that, currently, hospitals and
nonhospital sites often share, to varying degrees, the costs of
training residents in the nonhospital site. Because of the difficulty
in apportioning costs between the hospital and the nonhospital for the
training in the nonhospital site, we believe that it is not
administratively feasible to pay both the hospital and the nonhospital
site for the cost of training in the nonhospital site. We have been
unable to devise a method for accurately apportioning costs between the
two entities.
Furthermore, the potential for both the hospital and the qualified
nonhospital provider to be paid for the same direct GME expenses poses
a significant problem for complying with section 1886(h)(3)(B) of the
Act, as amended by the BBA, which specifically prohibits double
payments. Under this provision, the Secretary shall reduce the
hospital's GME payment (the ``aggregate approved amount'') to the
extent we pay the qualified nonhospital provider for GME costs under
section 1886(k) of the Act. Consequently, our policy must ensure that
Medicare does not pay two entities for the same training time in the
nonhospital site.
Given that the hospital's per resident amount can include, but is
not necessarily based on the costs of training in the nonhospital site,
we were not able to devise an equitable way of reducing the hospital's
per resident payment to reflect payments made

[[Page 40988]]

under section 1886(k) of the Act. It may not be equitable to subtract
the exact amount of payment made to the qualified nonhospital provider
from the hospital's per resident payment because the payment made to
the nonhospital site may be unrelated to the hospital's per resident
amount. We believe that the residents' salaries, teaching physicians'
salaries, and overhead costs for the nonhospital setting will
constitute a different proportion of the total GME costs in the
nonhospital setting as compared with the hospital setting. Rather, it
may be more equitable to determine the proportion of costs incurred by
each entity and reduce the hospital's per resident payment by the
proportion of GME costs incurred by the nonhospital site; however,
since specific components of the per resident amount were not
identified in the hospital's GME base year (1984), we cannot accurately
determine the appropriate amount to reduce the current year hospital
per resident payment amount. Moreover, to reduce the hospital's GME
payments based solely on the amount paid to the qualified nonhospital
provider could result in inequitable payments to the hospital, which
has ongoing costs even when the resident is training in the nonhospital
site. In fact, it could leave the hospital at risk of receiving no
payment for the GME costs it has incurred.
In order to encourage training in nonhospital sites, it is
important to develop a policy that, while providing payment to
qualified nonhospital providers, would also be equitable to hospitals.
We believe that paying only the qualified nonhospital provider for the
training costs could result in hospitals choosing not to rotate their
residents to the nonhospital site. We have been unable to devise an
equitable and accurate method for dividing the GME payment for training
in the nonhospital site if neither the hospital, nor the nonhospital
site incurs ``all or substantially all'' of the costs. As such, we
solicited comment on possible methods for allocating the GME payments
for training in the nonhospital site where neither the hospital nor the
qualified nonhospital provider agrees who is incurring ``all or
substantially all'' of the costs for the training program. We believe
that the policies discussed below are equitable to both hospital and
qualified nonhospital providers and will achieve Congress' objective of
encouraging and supporting training in the nonhospital setting.
Given our concerns about administrative feasibility, the statutory
prohibition on double payments, and developing policies that are
equitable to hospitals as well as qualified nonhospital providers, we
believe the only feasible way to pay for training in nonhospital
settings is to pay either the hospital or the nonhospital provider.
Currently, hospitals may receive payment for the time residents spend
in the nonhospital setting if the hospital incurs ``all or
substantially all'' of the training costs. We proposed to adopt a
similar policy for qualified nonhospital providers; that is, a
qualified nonhospital provider may receive payment for the direct costs
of GME if it incurs ``all or substantially all'' of the training costs.
d. Payment to FQHC's and RHC's. We proposed to pay FQHC's or RHC's
for direct GME costs based on reasonable costs if the FQHC or RHC
incurs ``all or substantially all'' of the costs of training the
resident in the nonhospital setting. The FQHC or RHC would have to
report direct GME costs in a reimbursable cost center on its cost
report under the proposal. Conversely, where an FQHC or RHC did not
incur ``all or substantially all'' of the costs of training residents
in the nonhospital site, the FQHC or RHC would report direct GME costs
in a nonreimbursable cost center on the cost report.
We proposed that the FQHC's and RHC's allowable direct GME costs be
subject to reasonable cost principles in 42 CFR part 413 and other
relevant provisions referenced in part 413. In addition, the FQHC's and
RHC's direct GME costs would be subject to the Reasonable Compensation
Equivalency limits under Secs. 415.60 and 415.70.
Also, Medicare would pay only for its share of the direct costs of
training in the qualified nonhospital provider. We proposed that the
FQHC's and RHC's Medicare share equal the qualified nonhospital
provider's ratio of Medicare visits to total visits. Thus, the amount
of Medicare payment would equal the product of the clinic's Medicare
allowed reasonable direct GME costs and the clinic's ratio of Medicare
visits to total visits.
For FQHC's and RHC's that incur ``all or substantially all'' of the
costs for the training program in the nonhospital setting, we proposed
that the direct GME costs would not be subject to the existing per
visit payment caps for reimbursement under sections 505.1 and 505.2 of
the Medicare Rural Health Clinic and Federally Qualified Health Centers
Manual. We also proposed that, where payment is available under section
1886(k) of the Act for residents working in either an FQHC or an RHC,
the FQHC's and RHC's do not need to include residents as health care
staff in the calculation of productivity standards under section 503 of
the Manual.
e. Payment to Medicare+Choice organizations. We proposed making
direct GME payment to Medicare+Choice organizations which incur ``all
or substantially all'' of the costs of training in a nonhospital site.
The Medicare+Choice organization would be eligible to receive payment
on a reasonable costs basis for residents' salaries and fringe benefits
only for the time that the resident spends in the nonhospital setting.
In addition, we proposed that the Medicare+Choice organization's
allowed costs include only that portion of the teaching physician
salaries and fringe benefits that is related to training in the
nonhospital setting. We proposed limiting payment to Medicare+Choice
organizations to residents' salaries and fringe benefits and
supervisory teaching physician compensation which can be allocated to
direct GME. We did not propose to pay Medicare+Choice organizations for
the costs of overhead that may be associated with a GME program. We
solicited suggestions for creating a methodology for allocating and
reporting overhead costs for Medicare+Choice organizations and
suggestions for mechanisms for the audit and review of the costs for
Medicare+Choice organizations.
Similar to our proposed policy for paying FQHCs and RHCs for direct
costs of GME, we proposed that the Medicare+Choice organization's
reimbursement for residents' salaries and fringe benefits (including
related travel and lodging expenses where applicable) would be subject
to the reasonable cost principles in 42 CFR part 413 and any other
relevant provisions referenced in part 413. In addition, we proposed
the Medicare+Choice organization's GME reimbursement would also be
subject to the Reasonable Compensation Equivalency limits under
Secs. 415.60 and 415.70.
We proposed to allow the Medicare+Choice organization to receive
direct GME payment only for the direct costs of training in the
nonhospital site that are associated with the delivery of patient care
services. In determining the amount of direct GME payments to
Medicare+Choice organizations, we proposed adjusting for Medicare's
share of those education costs. Medicare's share would equal the ratio
of the total number of Medicare enrollees in the Medicare+Choice
organization to total enrollees in the Medicare+Choice organization.
We proposed that, in order to receive the direct GME payment, the

[[Page 40989]]

Medicare+Choice organization must produce a contractual agreement
between itself and the nonhospital sites. Medicare+Choice organizations
may contract with any nonhospital patient care site, including
freestanding clinics, nursing homes, and physicians' offices in
connection with approved programs. The contract between the
Medicare+Choice organization and the nonhospital site must indicate
that, for the time that residents spend in the nonhospital site, the
Medicare+Choice organization agrees to pay for the cost of residents'
salaries and fringe benefits. In addition, the contract must indicate
that the Medicare+Choice organization agrees to pay the portion of the
costs of teaching physicians' salaries and fringe benefits that is
related to the time spent in teaching and supervision of residents and
is unrelated to the volume of services provided by the physician. The
contract must stipulate the portion of each teaching physician's time
that will be spent training residents in the nonhospital setting.
Moreover, the contract must indicate that the Medicare+Choice
organization agrees to identify an amount for the cost of the teaching
physician's salary based on the time that the resident spends in the
nonhospital setting, not based upon a capitated rate for the delivery
of physician services.
f. Payment to hospitals. A hospital may include a resident's
training time in a nonhospital setting in its FTE counts for direct GME
and for IME if the hospital incurs ``all or substantially all'' of the
costs for training in the nonhospital setting. We proposed that, in
order for a hospital to include residents' training time in a
nonhospital setting, the hospital and the nonhospital site must have a
written contract which indicates the hospital is assuming financial
responsibility for, at a minimum, the cost of residents' salaries and
fringe benefits (including travel and lodging expenses where
applicable) and the costs for that portion of teaching physicians'
salaries and fringe benefits related to the time spent in teaching and
supervision of residents.
The contract must indicate that the hospital is assuming financial
responsibility for these costs directly or that the hospital agrees to
reimburse the nonhospital site for such costs. The contract must also
contain an acknowledgment on the part of the qualified nonhospital
provider if the nonhospital site is an FQHC or RHC that, since the
residents' time is being counted by the hospital, the nonhospital site
must report GME costs on the Medicare cost report in a nonreimbursable
GME costs center. In addition, in order to determine teaching physician
compensation that may be allocated to direct GME, the FQHC and RHC will
have to specify the portion of the teaching physicians' time that will
be spent training residents in the nonhospital setting. Under
Sec. 413.86(f)(1)(iii), hospitals may contract with any nonhospital
patient care site such as freestanding clinics, nursing homes, and
physicians' offices in connection with approved programs. Payment to
the hospital for the direct costs of GME training in the nonhospital
setting will continue to reflect Medicare's share, which equals the
hospital's ratio of Medicare inpatient days to total inpatient days.
5. Trust Funds
Under section 1886(k)(1) of the Act, the rules established by the
Secretary for paying qualified nonhospital providers for GME must
specify the portion of Medicare payments that will be made from each of
the Medicare trust funds. We proposed that GME payments made directly
to an FQHC, RHC, or Medicare+Choice organization would be made from the
Federal Supplementary Medical Insurance Trust Fund.
6. Proposed Effective Dates
We proposed that the effective date of these provisions for FQHCs,
RHCs, Medicare+Choice organizations, and hospitals would be January 1,
1999. Of the provisions affecting hospitals, the policies for IME
payments would apply to discharges occurring on or after January 1,
1999. The policies concerning medical education payments to FQHCs,
RHCs, and hospitals would apply to portions of cost reporting periods
occurring on or after January 1, 1999. We proposed that Medicare+Choice
organizations could begin receiving payments for direct GME costs
incurred on or after January 1, 1999.
7. Responses to Comments Received on Proposed Policies and Final Rule
Provisions
Below we are summarize the comments we received on the proposed
policies and provide our responses to those comments.
a. Definition of qualified nonhospital provider. Comment: One
commenter stated that HCFA should expand the definition of a qualified
nonhospital provider to include preventive medicine residencies. This
commenter quoted the Conference Report statement:

The Conferees also note that preventive medicine residency
training occurs most often in nonhospital settings and the Conferees
encourage the Secretary to examine carefully the opportunities to
provide support to such training programs.

The commenter further noted that a small number of residency programs
would benefit if we adopted the suggestion.
Response: Consistent with the direction of the Conference Report,
we have examined how to encourage preventive medicine training through
the Medicare program. We understand that preventive medicine training
consists of one year of clinical training, one year of academic study,
and a practicum year. To the extent that the one year of clinical
training is provided in patient care sites that qualify to receive
medical education payments, Medicare provides payment for training much
in the same way we provide payment for all other specialty programs. A
hospital can count a preventive medicine resident who receives training
in all areas of the hospital complex. The hospital may also count a
preventive medicine resident who receives training in a nonhospital
site if the resident is involved in direct patient care and there is a
written agreement between the hospital and the nonhospital site that
the hospital is incurring ``all or substantially all'' of the costs of
training the resident in the nonhospital site. FQHCs, RHCs, and
Medicare+Choice organizations can receive payment on a reasonable cost
basis for costs associated with training preventive medicine residents
if the entity incurs ``all or substantially all'' of the costs.
Since the year of academic study does not involve direct patient
care, a hospital or qualified nonhospital provider cannot receive
Medicare payment for that year of preventive medicine training. A
fundamental principle of Medicare payment for education is that the
residents must participate in patient care services to patients at the
health care site. Although we believe that preventive medicine
residents are engaging in activities that will benefit all patients,
not just Medicare patients in general, the year of academic study does
not constitute patient care services which would qualify for Medicare
payment for GME.
We understand the clinical training that preventive medicine
residents receive may also occur in patient care sites that do not
receive payments from Medicare, such as public health clinics. Even if
the clinics were included under the definition of qualified nonhospital
provider, Medicare payment to clinics for GME would likely still be
very low because it would reflect the share of services provided by the
clinic to

[[Page 40990]]

Medicare beneficiaries as compared to all services it provides. We do
not believe that Medicare beneficiaries make significant use of public
health clinics for Medicare covered services since these services are
also available through their regular doctor. If we were to provide
payments to public health clinics associated with the training of
preventive medicine residents, we would also have to resolve technical
problems related to providing payments to entities that have never had
a relationship with Medicare. As we stated above, where a hospital or
qualified nonhospital provider incurs ``all or substantially all'' of
the costs of the clinical training in that nonhospital site, Medicare
will make payments for GME costs associated with training preventive
medicine residents.
Comment: One commenter urged HCFA to consider including nonhospital
dental clinics in the definition of qualified nonhospital providers.
One commenter urged us to expand the definition of a qualified
nonhospital provider to make payment of both direct and indirect GME
directly to nursing homes and hospices. One commenter requested
clarification as to whether our definition of a qualified nonhospital
provider includes community mental health centers. If not, the
commenter requested that we consider including community mental health
centers in the definition of qualified nonhospital provider.
Response: As we stated in the proposed rule, we believe that it is
appropriate to have more experience with providing payments to the
qualified nonhospital providers listed in the statute before we expand
the definition to include other sites such as those stated by these
commenters. We note that even if nonhospital dental clinics were
included in the definition of a qualified nonhospital provider, a
dental clinic's low Medicare share means the benefit of the provision
would be small. Dental clinics are likely to have a low Medicare share
because Medicare covers few dental services.
Currently, our definition of qualified nonhospital provider does
not include community mental health centers per se, but it may be
possible for a community mental health center to meet the criteria for
being designated as a rural health clinic under section 1861(aa)(2) of
the Act and section 405.2402.
We would note that a hospital or Medicare+Choice organization may
receive payment associated with resident rotations through the
nonhospital sites suggested by these commenters if the hospital or
Medicare+Choice organization incurs ``all or substantially all'' of the
costs at the clinic. In this way the clinic will be paid by the
hospital for GME costs.
Comment: One commenter argued that Congress specified that a
qualified nonhospital provider includes FQHC's, RHC's, and managed care
plans to ensure that these organizations were included but that
Congress did not intend to limit qualified nonhospital providers to
these organizations. The commenter believed that excluding other
nonhospital sites from the definition of a qualified nonhospital
provider is contrary to Congress' intent.
Response: As we have stated, we will consider other nonhospital
sites in the definition of qualified nonhospital providers once we have
experience with these policies. We disagree that the proposal to limit
the definition of a qualified nonhospital provider at this time to the
entities listed in the statute is inconsistent with Congressional
intent. The statute defines qualified nonhospital provider to include
``such other providers (other than hospitals) as the Secretary
determines to be appropriate.'' Thus, the statute authorizes but does
not require the inclusion of other entities.
Comment: One commenter stated that educational consortia are
becoming important models for community-based graduate medical and
nursing training and suggested that we expand the definition of
qualified nonhospital provider to include consortia.
Response: We are interested in learning more about the development
of GME programs through educational consortia. Section 4628 of the BBA
requires the Secretary to establish a demonstration project under which
GME payments will be made to consortia. We will consider changes to our
GME payment policies based on our evaluation of any future
demonstration projects.
Comment: One commenter urged us to expand the definition of a
qualified nonhospital provider to include Osteopathic Postdoctoral
Training Institutions (OPTIs), community based health care consortia
consisting of one or more colleges accredited by the American
Osteopathic Association (AOA), one or more AOA accredited hospitals,
and other health care facilities such as nursing homes, ambulatory
clinics, community health centers, and managed care organizations. The
commenter suggested that payments be made directly to the OPTI based on
the number of residents participating in OPTI hospitals or a national
average payment. The commenter stated that the OPTI would distribute
the payments among the consortia members.
Response: An OPTI includes hospital and nonhospital sites as well
as educational institutions and we believe an OPTI is a consortium. As
we stated above, we will be studying GME payments to consortia in a
demonstration project required by section 4628 of BBA.
b. Definition of direct costs.
Comment: One commenter suggested that direct costs of training in
nonhospital sites should include mileage associated with travel between
multiple clinic sites. The commenter also stated that direct costs
should include the costs of telemedicine, including telephone, fax,
videoconference, and the internet because these electronic
communication mechanisms enable primary care residents in nonhospital
sites to be trained for practice outside of the resource-rich,
multispecialty hospital setting.
Response: We agree that travel costs may be an element of direct
costs when residents work in multiple nonhospital sites or when
residents travel from a hospital training site to remote clinics. We
disagree that the cost associated with telecommunication services
should be allowable as training costs. Although telecommunication
services may be integral to providing services to patients while
residents are training in nonhospital sites, these services are not
principally designed to be used as GME training tools. Rather, the
telecommunication services to which the commenter is referring, like
the use of a stethoscope or an examining room, are compensated as
operating costs through Medicare's payments for patient care services.
Comment: Several commenters stated that the effect of training on
indirect costs is similar in nonhospital clinics and hospitals. One
commenter suggested that indirect costs are easily identifiable and
should be separately reimbursable in nonhospital settings.
Response: The statute states that the ``Secretary may establish
rules for payment to qualified nonhospital providers for the direct
costs of medical education if those costs are incurred in operation of
an approved medical residency training program described in subsection
(h).'' The statute clearly limits payment to qualified nonhospital
providers under section 1886(k) of the Act for the direct costs of GME.
Comment: One commenter stated that the proposed regulations fail to
reflect that FQHCs are eligible for Part B payments for allowable
teaching costs even without the new methodology

[[Page 40991]]

established pursuant to the new BBA provision. Because FQHCs are
governed by cost reimbursement principles that include teaching costs,
FQHCs are already allowed to claim all training-related costs,
including direct faculty and resident costs. This commenter suggested
that FQHCs that participate in teaching programs should be able to
recapture higher operating costs caused by lower productivity and
increased overhead. According to this commenter, we should consider
including the following in direct costs:

--Slowdown in productivity;
--Facilities and space for training;
--Transportation and living costs for residents;
--Availability of lab and radiology equipment and services;
--Administrative overhead;
--Increased intensity in treatment patterns used in training;
--Equipment costs;
--Library (either onsite or electronic access);
--Capital costs for startup of residency program;
--Increased complexity at teaching FQHCs; and
--Increased social complexity of patient case mix.

Response: The costs of resident salaries and fringe benefits and
supervising physicians may be allowable costs under Sec. 405.2470. If
the RHC or FQHC were to have a written agreement with a hospital where
the hospital provides compensation for these costs to the clinic, these
costs would become nonreimbursable costs. However, FQHCs and RHCs that
have an all-inclusive rate that exceeds the cap under sections 505.1
and 505.2 of the Medicare Rural Health Clinic and Federally Qualified
Health Centers Manual would still benefit from the proposed policy in
that costs above the cap that would otherwise be nonreimbursable by
Medicare can now be compensated as direct GME costs through the
agreement with the hospital. That is, if the FQHC or RHC incurs ``all
or substantially all'' of the costs and receives payment directly from
Medicare, these costs are GME costs that are treated separately in
applying the caps on the all-inclusive rate under sections 505.1 and
505.2 of the Medicare Rural Health Clinic and Federally Qualified
Health Centers Manual.
An additional benefit in the situation where we pay the FQHC or RHC
directly for GME is that residents do not need to be included as health
care staff in the calculation of productivity standards under section
503 of the Manual. We further believe that residents should be excluded
from productivity standards in situations where the hospital is being
paid for training time and GME costs are not reimbursable costs for the
FQHC or RHC. We are adopting this policy in this final rule and will
modify section 503 of the Manual accordingly. Among the items listed in
this comment, we believe that costs which are directly related to the
operation of a medical residency training program (facilities and space
exclusively dedicated to training, resident travel costs between remote
clinic sites) in addition to facility overhead which can be allocated
to a medical education cost center constitute allowable direct GME
costs for which the FQHC or RHC can receive payment directly from
Medicare. We believe the remaining items listed are either indirect
costs of training or allowable cost for patient care services under
Sec. 405.2468(a) through (e) which can only be reimbursed as non-GME
operating costs.
Comment: One commenter was opposed to the application of reasonable
compensation equivalents to physicians in FQHCs and RHCs. The commenter
stated that the BBA required HCFA to subject RHCs to productivity
standards and the per-visit cost limit. According to the commenter, if
Congress had intended for the RCE limits to be imposed on RHCs, the BBA
would have required such a policy. The commenter stated that, by
definition, RHCs and FQHCs are located in areas where it is difficult
to attract physicians and that the providers must pay compensation that
exceeds the RCE limits to attract qualified physicians. The commenter
requested that the limits not be imposed on FQHC and RHC services to
individual patients.
Response: For purposes of making indirect GME payments to FQHCs and
RHCs, the RCE limits will only apply to the portion of a teaching
physician's compensation that is attributable to direct GME. We are not
applying the RCE limit to physician compensation that is related to
providing services to individual patients. Because we intend to pay for
these GME costs on a reasonable cost basis, it is necessary to apply
the RCE limits to assure that GME costs will be reasonable.
Comment: One commenter stated that if HCFA intends to compute the
fixed cost for nonhospital training of all health professionals from
the cost reimbursement data received over the next few years from
qualified nonhospital providers, costs associated with training of
nonphysician health practitioners should also be reported. This
commenter stated that it will be difficult to collect these data at a
later date.
Response: FQHCs and RHCs seeking payment from Medicare for direct
GME must appropriately classify those costs to a GME cost center on the
cost report. These payments are limited to the direct costs the FQHC or
RHC incurs for an approved medical residency training program as
described under section 1886(h) of the Act. Training of non-physician
health professionals are not included in these programs. Therefore, in
submitting costs reports, FQHCs and RHCs must clearly distinguish the
costs of training residents from the cost of training other health
professionals in nonhospital sites. Although FQHCs and RHCs will need
to document costs of approved medical residency programs to be
allocated to the GME cost center, we do not believe the information
benefit associated with obtaining data on training of other health
practitioners would justify imposing an additional administrative
burden on FQHCs and RHCs to report costs for which they will receive no
payment.
c. Revised definition of ``all or substantially all'' of the costs.
Comment: A number of commenters felt the proposed redefinition of ``all
or substantially all'' of the costs will be counterproductive and
result in less training in nonhospital settings. One commenter stated
that the current standard of ``or substantially all'' has helped to
facilitate resident training in nonhospital sites. This commenter
stated that there is strong anecdotal evidence that resident training
in ambulatory sites has been increasing and recommended that any
changes to existing policies be tested for the likelihood that they
promote expanded ambulatory GME.
Response: We disagree with the commenters who suggested that the
proposed redefinition of ``all or substantially all'' of the costs of
training residents in the nonhospital sites will result in less
training in nonhospital settings. First, we do not believe that
hospitals themselves will be discouraged from continuing to rotate
residents to nonhospital sites. Hospitals must consider accreditation
and other program requirements in addition to purely financial
considerations. We have reviewed the program requirements for residency
education in family practice and internal medicine in the 1997-1998 GME
Directory. The Directory specifies that family practice residents must
spend specified amounts of time and see a minimum number of patients in
the family practice center in each residency program year. Similarly,
the Directory specifies that at least 25

[[Page 40992]]

percent of the 3 year residency program for internal medicine must be
in an ambulatory care setting. Given these requirements for primary
care training programs, we do not believe that hospitals will respond
to the revised definition of ``all or substantially all'' of the costs
by rotating fewer residents to nonhospital sites. Moreover, a hospital
that meets the ``all or substantially all'' criterion may count the
resident's training time in the nonhospital site for direct GME as well
as IME.
Second, we believe that our proposal will encourage more ambulatory
sites to participate in training. To the extent our policies would
allow qualified nonhospital providers to receive payments directly from
Medicare, more qualified nonhospital providers may be willing to become
training sites. In addition, the hospital may incur supervisory
teaching physician costs that previously might have been borne by the
nonhospital site. Therefore, the nonhospital site either will receive
revenues for costs that the site itself incurs or will no longer incur
those costs.
Comment: Several commenters agreed that it is appropriate to
provide GME payment to the entity that incurs ``all or substantially
all'' of the costs whether it be the hospital or the qualified
nonhospital provider. Many of these commenters, however, believe that
``all or substantially all'' of the costs should be limited to resident
salaries and fringe benefits.
Response: We disagree. Section 1886(h)(4)(E) of the Act states that
hospitals may include residents in their FTE counts for direct GME if
the hospital incurs ``all or substantially all of the costs of the
training program in that setting.'' Section 1886(d)(5)(B)(iv) of the
Act allows hospitals to count residents for IME effective October 1,
1997 if the hospital ``incurs all or substantially all of the costs for
the training program in that setting.'' As we stated previously and in
the preamble to the proposed rule (63 FR 25597), we reviewed data on
resident costs from recent Medicare hospital cost reports and found
that, on average, resident salaries and fringe benefits account for
less than half of total direct GME costs. We believe that the revised
policy, which requires hospitals to incur a higher percentage of total
training costs in the nonhospital setting than are accounted for by
resident compensation reflect a better measure of ``all or
substantially all'' of the costs than current policy.
Comment: One commenter argued that the rationale for the proposal
is insufficient to merit a change in current policy. This commenter
stated that our proposal focused only cost data from hospitals and not
nonhospital sites. This commenter believed that, because our proposal
addressed training in nonhospital sites, it would be more appropriate
to analyze resident salaries and fringe benefits as a share of overall
training costs at nonhospital sites. The commenter acknowledged that
these data are not available at the present time, but believed that
resident compensation is likely to be a substantial component of
overall training costs in nonhospital sites. The commenter noted that
the preamble to the proposed rule indicates that residents' salaries
and supervisory costs would likely ``constitute a different proportion
of the total GME costs in the nonhospital setting as compared with the
hospital setting.'' (63 FR 25597). The commenter added that direct GME
payments to hospitals are based on 1984 hospital costs that may not
accurately reflect current costs.
Response: Our analysis is based on recent cost report data
submitted to us by hospitals. That data shows that resident salaries
and fringe benefits are less than half of total resident costs for
hospitals. At this time, based on available data as well as a desire to
treat hospitals and nonhospital sites equitably, we believe the
hospital cost report data is a useful proxy for purposes of applying a
standard of ``all or substantially all'' to nonhospital sites. We agree
that it would be appropriate to analyze data on the cost of training
from nonhospital sites and we will consider revisions to our policies
as we obtain cost data from nonhospital sites.
We note that, if resident compensation is, in fact, a larger
percentage of total costs in the nonhospital site relative to the
hospital, as suggested by this commenter, this would mean that costs
other than resident compensation are a smaller proportion of total
costs. The hospital would have to assume relatively modest additional
costs through arrangements with nonhospital sites to continue counting
the residents for indirect and direct GME. We also note that
preliminary data by researchers studying costs incurred by a
nonhospital site to train residents has shown that resident salary and
fringe benefits are a smaller ratio of total costs at the nonhospital
site relative to the hospital. If this conclusion is accurate, it would
provide additional evidence that our revised definition is a better
measure of ``all or substantially all'' of the costs.
Comment: One commenter acknowledged that we revised the definition
of ``all or substantially all'' to address a concern that nonhospital
sites do not have sufficient resources to support their medical
education activities, but argued that the proposed change in policy
will not improve the ability of nonhospital sites to support training
and may compromise existing and developing relationships between
hospital and nonhospital GME sites. This commenter stated that the
relationship between the hospital and nonhospital site should be
voluntary and that it is up to the parties to define the appropriate
parameters of their relationships, including how costs beyond the
resident stipend and benefits should be accommodated.
Response: As we stated earlier, we do not believe that this revised
policy will compromise existing training relationships between
hospitals and nonhospital sites. We agree with the commenter that
arrangements between hospitals and nonhospital sites for training
should be voluntary and the entities should be responsible for
negotiating the parameters of their relationship. If a hospital and
nonhospital site cannot agree on an arrangement regarding costs, the
hospital may pursue an agreement with another nonhospital site for
training. Similarly, if a nonhospital site cannot reach agreement with
a hospital, it does not have to allow its facility to be used as a
training site and can pursue a training arrangement with another
hospital.
Comment: One commenter asked why a nonhospital site would claim
costs, and report an offset to those costs, if the hospital incurs the
GME costs for training in the nonhospital site.
Response: In response to this comment, in this final rule we are
modifying the requirements for both hospitals and qualified nonhospital
providers. As stated previously, hospitals are required to furnish a
written agreement between the hospital and the nonhospital site that
indicates that the hospital is incurring the cost of the resident's
compensation in the nonhospital site and that the hospital is providing
reasonable compensation for teaching activities to the nonhospital
site. The agreement must also indicate the amounts being furnished to
the nonhospital site for teaching activities. If the resident is
working at an FQHC or RHC and there is a written agreement that allows
the hospital to count the resident for indirect and direct GME, the
FQHC or RHC must report its direct GME costs in a nonreimbursable cost
center. The FQHC or RHC is not required to offset from those GME costs
revenues received from the hospital.

[[Page 40993]]

We are requiring the FQHC or RHC to report its direct GME costs in
a nonreimbursable cost center because these costs will no longer be
allowable costs under Sec. 405.2468(a) through (e). As stated earlier,
direct GME costs will not be subject to the cap on the all-inclusive
rate under section 503 of the RHC and FQHC Manual. The reporting of
direct GME costs in a separate cost center on the FQHC and RHC cost
report will also allow us to receive data on the costs of training in
nonhospital sites.
Comment: Some commenters argued that our proposal would impose
undue administrative burden on hospitals and nonhospital sites by
requiring them to report all of the GME costs they incur. One commenter
stated that HCFA should retain the current definition of ``all or
substantially all'' of the costs because it is logical,
straightforward, and appropriate. This commenter asserted that it is
difficult to isolate and quantify costs other than resident salaries
and fringe benefits are incurred in nonhospital sites. According to
this commenter, resident salaries and fringe benefits are easy to
identify and their administration and recordkeeping can be monitored
uniformly across the GME community. The commenter suggested that in
assuming responsibility for resident compensation, the teaching
hospital assumes responsibility for assuring that all residents are
provided appropriate educational environments, supervision, and support
for their training.
Another commenter argued that the proposed redefinition of ``all or
substantially all'' of the costs does not reflect certain services or
costs (e.g. house staff credentialing and related functions) just as
the per resident amounts do not reflect services or costs that are
included in the proposal (e.g. resident travel and lodging). These
commenters suggested that resident salaries and fringe benefits should
suffice as a proxy that appropriate educational services at an
appropriate cost are being delivered by the hospital for the
nonhospital training. Another commenter stated that it is a managed
care organization that pays the resident salaries and fringe benefits
and that this should be sufficient for receiving GME payment in the
nonhospital site. According to these commenters, the entity that incurs
the costs of the resident compensation should be considered to be
incurring ``all or substantially all'' of the costs and be eligible to
count the resident for direct and indirect GME.
Response: We do not believe that we are establishing a burdensome
regulatory structure with tremendous documentation requirements. For
hospitals seeking to count the time of residents training in the
nonhospital site, we are requiring a written agreement between the
hospital and the nonhospital site stating that the hospital will incur
``all or substantially all'' of the costs. The written agreement must
indicate that the hospital is incurring the cost of the resident
salaries and providing compensation for supervisory teaching physician
costs. The agreement must also specify the amounts paid to the
nonhospital site. These agreements and amounts paid by the hospital to
the nonhospital site may be the product of negotiation between the
hospital and nonhospital site. The hospital does not have to report the
nonhospital site's GME costs. We anticipate that in the course of any
negotiation between the hospital and nonhospital site, the nonhospital
site may need to identify its training costs. However, this is a matter
between the hospital and nonhospital.
If a hospital seeks to count the time of residents training in
FQHC's and RHC's, the FQHC or RHC must identify its training costs in a
nonreimbursable GME cost center. FQHC's and RHC's must separately
report GME costs in order to distinguish these costs from other patient
care costs that are paid for by Medicare on the basis of reasonable
costs through the all inclusive rate. Under this final rule, we are not
requiring FQHC's and RHC's to report the offset to those costs for
payments received from the hospital. Requiring FQHC's and RHC's to
report costs without offsetting revenues received from the hospital
will allow us to obtain gross cost data on the costs of training in
nonhospital sites.
RHC's and FQHC's must identify teaching physician costs and
allocate overhead to the direct GME cost center, in addition to the
current cost reporting requirements for these entities. These entities
are currently paid on the basis of costs, and we do not believe the
additional cost reporting requirements will be substantial.
We disagree with the comment that resident compensation should
suffice as a proxy that appropriate educational services, at an
appropriate cost, are being delivered and should be the sole criterion
for determining which entity receives payment. Our concern in
developing this policy is not whether we are paying for appropriate
educational services but whether the entities that incur training costs
are appropriately paid. Regardless of which entity incurs the cost of
the resident's compensation, Medicare should only pay for appropriate
educational services. Other regulations independent of the ``all or
substantially all'' criterion ensure that Medicare pays for accredited
educational programs.
Comment: One commenter stated that teaching physicians in
nonhospital sites may be remunerated through a variety of different
arrangements, including ``in kind'' compensation for continuing
education or through voluntary contributions. According to this
commenter, the proposed policies would require hospitals and
nonhospital sites to identify financial transactions which may not
exist. The commenter further stated that there is no established
methodology for defining or quantifying supervisory costs. The
commenter noted that even if the costs could be identified, the costs
would vary depending upon specialty and the year of residency training,
which would require a sophisticated accounting infrastructure. The
commenter also asserted that community-based physicians would be
discouraged from training residents because of the administrative
burden of documenting the precise number of hours they spend teaching
or supervising residents.
Response: We recognize that there could be a variety of financial
arrangements between hospitals and nonhospital sites with regard to
training. The hospital and the nonhospital site can take into account
those types of arrangements in negotiating an agreement.
Although there will be some additional cost reporting requirements
imposed on FQHC's and RHC's that receive payment for direct GME through
the hospital or directly from Medicare, there are established cost
reporting principles for identifying these costs in providers.
Medicare+Choice organizations, in addition to producing a written
agreement with nonhospital sites, will have to report GME costs when
they incur ``all or substantially all'' of the costs. We are developing
a modest one page cost statement that will allow the Medicare+Choice
organizations to claim direct GME costs that are eligible for payment.
If an FQHC or RHC incurs ``all or substantially all'' of the costs of
the program, and is therefore eligible to be paid directly for GME, we
do not believe the burden of documenting supervisory physician time
spent in GME activities will be substantial. Our expectation is that
physicians will need to estimate the number of hours they will spend in
GME and non-GME activities during the course of the year and verify the
estimates with a limited time study. This is similar to the
documentation that was required of hospitals to allocate teaching
physician costs between Part A

[[Page 40994]]

and Part B and between operating costs and direct medical education.
Comment: Several commenters suggested that we initiate
demonstration projects addressing payment for GME in nonhospital sites.
One commenter suggested that we analyze our proposed revision to ``all
or substantially all'' of the costs through a demonstration project
before implementing the changes on a nationwide basis. Such a
demonstration project would indicate whether the proposed change would
encourage or discourage training in nonhospital sites. Another
commenter suggested that our proposed policy may adversely affect many
GME programs and should be tested prior to being implemented on a
national basis.
Response: Congress established a provision in the BBA authorizing
the Secretary to provide payment to nonhospital sites and we do not
believe a demonstration project is necessary. Furthermore, since this
policy is more stringent than existing regulations, we are doubtful
that hospitals would participate voluntarily in a demonstration
project.
Comment: One commenter objected to the revision of the ``all or
substantially all'' criteria and stated that the proposed policy would
constrain the ability of teaching hospitals and Medicare+Choice
organizations to develop reasonable rotations in hospitals and managed
care plans. The commenter suggested an alternative under which a
Medicare+Choice organization could submit a short application that
would contain agreements between hospitals and Medicare+Choice
organization addressing, among other things, the amount of time
residents would spend at each site.
Under this approach, we would pay the qualified nonhospital
provider based on the product of a per resident amount, the number of
FTE residents, and the Medicare share. Each resident would be counted
as a partial FTE based for the hospital and for the qualified
nonhospital provider based on the percentage of time worked at each
site. A Medicare+Choice organization would be paid its FTE percentage
times a portion of the hospital per resident payment amount or a
national average per resident amount. This commenter argued that this
approach would meet the Congressional objective of allowing residents
to receive training in hospitals and Medicare+Choice organizations
while prohibiting double payment without establishing a cumbersome new
set of cost reporting requirements.
Response: We considered the approach suggested by this commenter
but we believe it would not facilitate training in qualified
nonhospital providers. FQHC's, RHC's, and Medicare+Choice organizations
generally provide a low percentage of total services to Medicare
beneficiaries. The commenter's approach would to some extent substitute
the Medicare share of the qualified nonhospital provider for the
Medicare share of the hospital, and we believe this would result in
lower Medicare payments overall for training in nonhospital sites.
Also, we believe this approach would be inequitable to hospitals in
that they would lose both the direct and indirect medical education
payments for the proportion of time residents spend in the qualified
nonhospital provider even though they have ongoing training costs while
the residents train in the nonhospital site.
We believe that it is reasonable to pay the hospital or qualified
nonhospital provider which incurs ``all or substantially all'' of the
costs. Furthermore, the revised definition reflects a better measure of
``all or substantially all'' of the costs and will result in
appropriate payment to hospitals for training in qualified nonhospital
providers and other nonhospital sites.
As we stated in the May 8 proposed rule (63 FR 25597), we also have
concerns that it would not be equitable to eliminate the hospital's
payment entirely for the time resident's spend in nonhospital sites
because the hospital may continue to incur some of the costs associated
with training residents in nonhospital sites. We believe that the
policies we are adopting are equitable to both hospital and nonhospital
sites and will achieve Congress' objective of encouraging training in
nonhospital sites.
Comment: One commenter stated that there might be important
differences in the accounting and administrative systems of various
categories of qualified nonhospital providers that might present some
difficulties in identifying the cost data necessary to accurately
complete cost reporting forms. Other commenters stated that hospitals
will have difficulty obtaining the necessary data from the nonhospital
sites to complete the agreements or that the revised definition of
``all or substantially all'' would impose undue administrative burden.
Another commenter stated that the revised definition of ``all or
substantially all'' creates a major problem in identifying the portion
of time office physicians spend in teaching and supervising residents
and is another administrative burden placed on physicians.
Response: As stated before, we do not believe we are imposing undue
administrative burden. Direct GME costs for FQHC's and RHC's will have
to be separately identified and reported. Although this will require
the development of a mechanism for FQHC's and RHC's to allocate
overhead and supervisory physician costs to the GME costs center, we do
not believe that our policy will create significant administrative
difficulties for FQHC's and RHC's, which already prepare cost reports
for Medicare. As stated previously, we do not believe this process will
generate a substantial burden on supervising physicians in FQHC's and
RHC's beyond a written agreement between the clinic and the physician
regarding the amount of time the physician expects to spend in GME
activities and a time study verifying the allocation.
The submission of a cost statement for GME will be a new
responsibility for Medicare+Choice organizations which do not have
experience with reporting costs. However, as stated above, we are
developing a one page cost statement of GME expenses to limit the
administrative burden on Medicare+Choice organizations.
With regard to the concern expressed about creating a burdensome
set of new cost reporting requirements, we reiterate that a condition
of payment to the hospital for training in the nonhospital site is the
production of the written agreement between the hospital and the
nonhospital site. We are not requiring hospitals to submit cost data to
Medicare as a precondition to counting the resident for indirect and
direct GME.
Comment: One commenter noted that some arrangements between
hospitals and nonhospital settings for the training of residents
predate the GME base year. This commenter stated that hospitals did not
compensate nonhospital sites for supervisory teaching physician costs
and it would not be fair to shift these costs to teaching hospitals.
The commenter also stated that teaching hospitals have already entered
into written agreements with nonhospital sites under the existing
rules. According to the commenter, the proposed rule would necessitate
renegotiation of thousands of agreements, imposing tremendous
transaction costs upon the academic medical community. The commenter
noted that if the agreements are not renegotiated prior to the
effective date, the hospital will be unable to count the residents for
direct and indirect GME, and this will have a lasting effect because of
the 3 year averaging rules. Another commenter stated that there are
many complex

[[Page 40995]]

contractual arrangements between hospital based programs and
nonhospital sites regarding the placement, training and patient service
utilization of residents, and any change in Medicare GME payment policy
could have significant and unknown impacts on these current training
structures.
Response: The GME provisions of this final rule will be effective
January 1, 1999. All other provisions of this final rule are effective
October 1, 1998. By making a later effective date for the GME
provisions, hospitals and nonhospital sites will have 5 months
following publication of this final rule to negotiate agreements that
will allow hospitals to continue counting residents training in
nonhospital sites for indirect and direct GME. These agreements are
related solely to financial arrangements for training in nonhospital
sites. We do not believe that the agreements regarding these financial
transactions will necessitate changes in the placement and training of
residents.
In response to the comment that it is unfair to shift costs to the
hospital, we believe it is appropriate to include supervisory costs in
the nonhospital site as part of ``all or substantially all'' of the
costs that hospitals must incur to count the resident. Currently, the
hospital is able to count the resident even though its costs for that
resident may be lower during the time the resident trains outside the
hospital. At the same time, the nonhospital site may have incurred
costs for which it received no compensation. We believe that requiring
the hospital to incur the costs associated with training in the
nonhospital site is equitable to both the hospital and nonhospital site
and is consistent with the statutory requirement that the hospital must
incur ``all or substantially all'' of the costs.
Comment: One commenter argued that we should not use reasonable
costs as the basis for making payment to qualified nonhospital
providers. This commenter stated that Medicare+Choice organizations do
not submit cost reports and it would be extraordinarily expensive and
cumbersome to report accounting costs. Several commenters also objected
to our proposal to the extent we would allow overhead costs for FQHCs,
RHCs, and hospitals but not Medicare+Choice organizations. These
commenters believed that the policy cannot be justified on the basis
that Medicare+Choice organizations do not submit cost reports. One
commenter suggested that HCFA use predetermined payment amounts that do
not require the subsequent submission of cost reports. The commenter
noted that the proposed rule itself notes that direct GME payments are
based on average per resident costs from 1984 that might bear little or
no relation to accounting costs in 1998. Another commenter suggested
that Medicare+Choice organizations should be paid an overhead factor
for direct GME costs based on square footage of the clinic and a number
of other factors. Alternatively, this commenter suggested use of an
average overhead factor based on the number of residents trained until
actual overhead expenses for Medicare+Choice organizations can be
identified.
Response: Medicare+Choice organizations will typically contract
with clinics for the provision of services to beneficiaries. In these
situations, we can make payment directly to the Medicare+Choice
organization if the plan produces a written agreement with the clinics
where training occurs that the plan will incur ``all or substantially
all'' of the costs associated with training in the nonhospital site. We
are requiring a written agreement between the Medicare+Choice
organization and the nonhospital sites. We believe that the primary
components of GME costs are resident compensation and supervisory
teaching physician costs and that facility overhead costs which can be
allocated to direct GME are a smaller component of direct GME costs.
Nevertheless, we agree that we should not limit allowable direct GME
costs for Medicare+Choice organizations to resident compensation and
supervisory physician costs. If the Medicare+Choice organization can
document other direct GME costs that directly relate to a training
program, we will allow these costs. We note that, at this time, it is
not feasible to develop an average overhead factor which can be paid to
Medicare+Choice organizations that incur ``all or substantially all''
of the costs of a training program in a nonhospital site. This is
because our data systems on hospital GME costs do not distinguish
between supervisory teaching physician costs and overhead costs
attributable to direct GME.
In response to the comment that we use square footage or other
mechanisms as a basis for allocating overhead to GME costs for
Medicare+Choice organizations, we are concerned about developing a
sophisticated cost allocation process for determining Medicare+Choice
allowable direct GME costs since Medicare+Choice organizations do not
submit cost reports. However, we are revising our proposal to require
the written agreement to state that the Medicare+Choice organization
will incur the costs of residents' salaries and fringe benefits and
provide reasonable compensation for the remaining costs of the training
program in the nonhospital site. Based on the statement of costs, the
Medicare+Choice organization will report its costs to HCFA and we will
provide payment based on the lower of the Medicare+Choice
organization's cost per resident or a national average of the hospital
per resident amounts.
Comment: Several commenters were concerned that if neither the
hospital or nonhospital site incurs ``all or substantially all'' of the
costs, neither setting would receive payment even though each entity
incurs a portion of the training costs. One commenter suggested that
there will be difficulty allocating costs under our proposed definition
of ``incurring costs'' and stated that we should encourage affiliations
and provide simpler and clearer guidance for institutions.
Response: Under this final rule, an entity must incur ``all or
substantially all'' of the costs to receive payments for the time the
resident spends in the nonhospital site. Since we do not conduct cost-
finding to determine who bears ``all or substantially all'' of the
graduate medical education costs, we are generally dependent on
hospital and non-hospital provider agreements to determine who bears
them. As stated earlier in this final rule as well as in the proposed
rule, we do not believe it would be administratively feasible to
apportion payments appropriate to the hospital and nonhospital site in
situations where neither the hospital or nonhospital site agree on who
incurs ``all or substantially all'' of the costs. We must also consider
the statutory prohibition on double payments in these situations.
Furthermore, although it may be appropriate to provide payment for GME
costs where the nonhospital site incurs only a portion of the training
costs, we do not believe it would be equitable to allow a nonhospital
site to be paid where it was incurring only a portion of the costs but
only allow payment to a hospital when it incurs ``all or substantially
all'' of the costs.
In response to the commenter who suggested that we should encourage
``affiliations,'' we believe the revised definition of ``all or
substantially all'' of the costs provides incentives for hospitals and
nonhospital sites to reach agreement with regard to financial
arrangements for training in nonhospital sites to avoid the situation
where neither entity receives payment for GME.
Comment: One commenter asked whether hospitals would be eligible to
receive payments in situations where the teaching faculty volunteers
their

[[Page 40996]]

services and neither the hospital or nonhospital entity incurs costs
for supervisory teaching physicians, but the hospital incurs the costs
of resident salaries and fringe benefits (including travel and lodging
expenses where applicable). The commenter asked whether the contract
should state that there are no teaching physician costs incurred and
the remainder of the costs represent ``all or substantially all'' of
the costs. Another commenter stated that the ``all or substantially
all'' definition creates special problems where community physicians
voluntarily serve in a teaching capacity without compensation. The
commenter stated that the implication of the proposed policy is that
some portion of the community physician's earnings must be included in
the calculation and asked that we either delete the proposed change or
specify that voluntary supervision of training residents does not need
to be included in the definition of ``all or substantially all'' of the
costs.
Response: We have received anecdotal information that some
supervisory teaching physicians participate in teaching activities
without compensation in nonhospital clinics. Although there may be
situations where a supervising physician is participating in teaching,
we do not believe that lack of explicit compensation for teaching
activities means that physicians are necessarily volunteering their
time. Rather, we believe that the physician's compensation in the
clinic encompasses both teaching and nonteaching activities.
Nevertheless, for purposes of satisfying the requirement of a written
agreement, the written agreement between a hospital and a nonhospital
site may specify that there is no payment to the clinic for supervisory
activities because the clinic does not have these costs.
Comment: One commenter stated that a hospital was permitted to
include, within in its GME base period costs, teaching physician costs
related to the hospital by common ownership or control under
Sec. 413.17. Citing the GME consistency principle at
Sec. 412.113(b)(3), this commenter requested that we clarify that the
same policy applies in the context of GME payment to nonhospital sites.
That is, the regulation should include specific language which states
that costs incurred by an organization related to the hospital under
Sec. 413.17 will be recognized as if incurred by the hospital in
applying the expanded definition of ``all or substantially all'' of the
costs.
Response: The consistency principle under Sec. 412.113(b)(3)
required consistent treatment of medical education costs during the
transition to the inpatient hospital PPS during the 1980s. This rule
was intended to prevent medical education costs from being included in
hospital payments for operating costs and also being paid on a
reasonable costs basis to hospitals as GME during the early years of
the PPS. We do not see a relationship between the consistency rule and
our proposed policies with regard to payment for GME training in
nonhospital sites.
With regard to the costs of related parties under Sec. 413.17, our
policy was not to include costs associated with training in nonhospital
clinics in the per resident amount even though certain direct GME costs
of related parties could have been allowable. We also do not believe
that Sec. 413.17 has applicability to our proposed policy. We are
requiring a written agreement between hospitals and nonhospital sites
for purposes of this final rule, even where the hospital and
nonhospital site are related organizations under Sec. 413.17. In
practice, since we are requiring an agreement between hospitals and
nonhospital sites that are under common ownership or control, the
agreements should be a formality.
Comment: One commenter stated that the necessary statutory and
regulatory incentives do not exist for teaching hospitals to provide
compensation to nonhospital sites for their GME costs.
Response: We disagree. The proposed rule requires a written
agreement between the hospital and nonhospital site that the hospital
will provide compensation to the nonhospital site for certain types of
GME costs. Without this agreement, the hospital will be unable to count
the resident for indirect and direct GME. As stated earlier, the
agreements must also indicate the amounts the hospital will actually
pay to the nonhospital site for GME training.
Comment: One commenter stated the definition of ``all or
substantially all'' of the costs should not include residents' travel
and lodging costs. This commenter stated that there is no rationale for
this change and that the criteria imposes significant reporting burdens
with no offsetting benefits. The commenter also stated that the phrase
``where applicable'' is vague and requires additional definition
language (related to distance, means of travel) if entities are to
understand their reporting obligations.
Response: Our intent in adding the phrase ``including residents
travel and lodging costs, where applicable'' was to provide for the
inclusion of direct GME costs that may be more prevalent in a
nonhospital setting than in the hospital setting. The phrase ``where
applicable'' means that depending on the specific arrangement in some
cases, residents will be responsible for paying their own travel and
lodging costs while serving at the nonhospital site. In other cases, it
is possible that the site will pay for the residents to travel to the
site and for lodging while at the site. This is basically a fringe
benefit paid by the site for the resident. Therefore, in situations
where travel and lodging is an expense of the nonhospital site while
the resident is training there, the written agreement must indicate
that the hospital will incur these costs. In determining whether the
hospital has incurred ``all or substantially all'' of the costs of the
program, the hospital must include this ``unique'' fringe benefit if it
was paid for by the nonhospital site.
Comment: One commenter stated that the proposed regulations
effectively deny payments to FQHC's unless they incur ``all or
substantially all'' of the costs of the program. The commenter stated
that since the FQHC does not typically pay the residents' salaries, the
proposed rule does not significantly increase the ability of the FQHC
to recover GME costs. This commenter stated that it is eminently
possible to devise a method under which hospitals that utilize
qualified nonhospital providers would report costs showing allowable
FQHC costs. In these situations, costs would be apportioned to the
proper cost center.
Response: We disagree. The FQHC can recover its GME costs either
directly from Medicare if it incurs ``all or substantially all'' of the
costs, or from the hospital through the written agreement. Without a
written agreement that specifies the amounts the hospital will pay the
nonhospital site for training in the nonhospital site, the hospital
will be unable to count the resident for indirect and direct GME.
d. Medicare share. Comment: One commenter stated that the
limitation of direct GME payments to FQHC's based on Medicare's share
at the FQHC will seriously constrain participation because only 8
percent of FQHC patients are Medicare patients. The commenter quoted
the Conference Report which states that ``the Conferees believe this
authority may help alleviate physician shortages in rural areas.''
According to this commenter, the combination of requiring the FQHC to
incur ``all or substantially all'' of the costs in order to receive
payment and the limitation to Medicare share does little to provide
sufficient resources to allow FQHC's to train physicians in underserved
rural areas. The commenter believed the limitation of payments based on
Medicare's share is not

[[Page 40997]]

required by the BBA provision authorizing GME to qualified nonhospital
providers and is contrary to the intent of the law.
Response: It is a fundamental and longstanding principle that, to
the extent Medicare pays for certain types of costs, the Medicare
program should pay only its fair share. This principle applies not only
in the context of Medicare payment for medical education, but also to
Medicare payment in general.
Comment: One commenter stated that Medicare enrollees use 3.5 times
the number of outpatient services as non-enrollees. The commenter
suggested that it would be more equitable to base Medicare's share for
Medicare+Choice organizations on the ratio of outpatient expenses for
Medicare enrollees to total enrollees. As an alternative, this
commenter suggested using Medicare visits to total visits to calculate
Medicare share, consistent with the calculation in the inpatient
setting of Medicare inpatient days to total inpatient days.
Response: We believe that either of the proposals suggested by this
commenter would impose significant additional reporting
responsibilities on Medicare+Choice organizations which receive payment
from Medicare for direct GME. Basing the Medicare share calculation on
the ratio of outpatient expenses attributable to Medicare beneficiaries
to total expenses would require Medicare+Choice organizations to
provide a sophisticated report of expenses not unlike the Medicare cost
report. In situations where the Medicare+Choice organization is
contracting for services provided in a clinic, this would require the
Medicare+Choice organization to document costs which are not even its
own. We considered using the ratio of Medicare enrollee to total
enrollee visits in the Medicare share calculation, but have concerns
that this approach would also be burdensome in that it would require
Medicare+Choice organizations to furnish utilization data for clinics
or physician offices that they do not own or control.
e. National average per resident amounts. Comment: One commenter
argued that national average per resident amounts are not appropriate
for the nonhospital setting. According to the commenter, residency
training differs from other types of services because it involves
complicated transactions with nongovernmental entities such as medical
schools that may sponsor a hospital's programs and compensate
physicians directly, and accreditation bodies that may require a
certain content and curriculum in training programs.
Response: We did not propose the use of national average per
resident amounts in the nonhospital setting but will consider whether a
national average per resident amount is appropriate after we have
experience with the provision and have reliable data on the costs of
training in the nonhospital setting.

f. Technical errors concerning GME policy published in the May 12, 1998
final rule.

In the May 12, 1998 final rule for the FY 1998 inpatient hospital
prospective payment system, we set forth certain policies on GME. The
portion of the May 12, 1998 final rule concerning counting residents
for direct medical education (beginning at (63 FR 26327)) contained the
following technical errors:
Merged Hospitals--On page 26329, third column, we stated
that the FTE cap of merged hospitals would be the aggregation of the
FTE cap for each hospital participating in the merger. We stated that
Sec. 413.86 would be modified to reflect this policy, but we did not
modify the regulations text. We do not believe a change to the
regulations text is necessary.
Application of the FTE Cap--There is a discrepancy between
the methodologies described in the August 29, 1997 final rule with
comment period (62 FR 46005) and the May 12, 1998 final rule (63 FR
26330) for application of the FTE cap in situations where a hospital
has more residents than the cap. The methodology described in the May
12, 1998 final rule is incorrect. The correct methodology is described
in the August 29, 1997 final rule with comment period.
New Medical Residency Training Program--On page 26332, in
the first column, we stated, ``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
clarifying that, for hospitals that trained residents prior to January
1, 1995, we will adjust the FTE caps for programs were accredited or
began training residents on or after January 1, 1995 and prior to
August 5, 1997.
Application of the FTE Cap to an Affiliated Group--On page
26341, in the third column, we stated, ``If the combined FTE counts for
the individual hospitals do not exceed the aggregate cap, we will pay
each hospital based on its FTE cap as adjusted per agreements.'' That
sentence should have read as follows: ``If the combined FTE counts for
the individual hospitals exceed the aggregate cap, we will pay each
hospital based on its FTE cap as adjusted per agreements.''

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

A. Cap on the Capital Indirect Medical Education Adjustment Ratio
(Sec. 417.322)

Under section 1886(g) of the Act, the Secretary has broad
discretion in implementing the capital prospective payment system.
Section 412.322 of the regulations specifies the formula for the
capital indirect medical education (IME) adjustment factor. The capital
IME adjustment is intended to pay the Medicare capital prospective
payment system share of the indirect costs of medical education to
teaching hospitals. The formula was incorporated in the August 30, 1991
final rule for the capital prospective payment system (56 FR 43380),
and uses the ratio of interns and residents to average daily census
(defined as total inpatient days divided by the number of days in the
cost reporting period). Section 1886(d)(5)(B) of the Act requires the
use of the ratio of residents-to-beds to calculate the IME adjustment
for the operating prospective payment system. However, pursuant to our
authority under section 1886(g) of the Act, we adopted the resident to
average daily census ratio for the capital prospective payment system
because we believed it was a more appropriate method for measuring
teaching intensity, and because we believed it was less subject to
manipulation.
The IME adjustment factor increases by approximately 2.8 percentage
points for each 0.10 increase in the hospital's ratio of residents to
average daily census. The IME adjustment for inpatient capital-related
costs for hospitals paid under the prospective payment system takes the
form of [e raised to the power (.2822 x ratio of interns and residents
to average daily census)-1] where e is the natural antilog of 1, based
on the total cost regression results. In order to determine the Federal
rate portion of the hospital's payment, the IME adjustment factor is
multiplied by the standard Federal rate, the DRG weight, the geographic
adjustment factor, and any other relevant payment adjustments such as
the DSH adjustment or the large urban add-on. The formula is as
follows: (Standard Federal Rate) x (DRG weight) x (GAF) x (Large Urban
Add-on, if applicable) x (COLA adjustment for hospitals located in
Alaska and Hawaii) x (1 + Disproportionate Share Adjustment Factor +
IME Adjustment Factor, if applicable).

[[Page 40998]]

In the May 8, 1998 proposed rule (63 FR 25600) we indicated that it
had come to our attention that because of the application of the
capital IME adjustment, one hospital would receive a capital IME
payment greater than its total hospital costs. We also stated that of
the approximately 1,200 teaching hospitals in the United States, based
on December 1997 data, 8 hospitals had a resident to average daily
census ratio of more than 1.5. A resident to average daily census ratio
of 1.5 results in a capital IME adjustment factor of 0.53, which
increases the Federal rate portion of the hospital's capital payment by
53 percent.
To address this unintended effect of the capital IME methodology,
we proposed capping the capital IME ratio at 1.5. A ratio greater than
1.5 means a hospital has, on average, considerably more residents than
inpatients. Capping the ratio at 1.5 would allow for one resident per
patient on the inpatient side plus some outpatient training, and would
keep capital IME payments more consistent with the costs incurred.
Because the operating IME ratio is based on the number of beds, it has
only slightly exceeded 1.0 in two cases. This change would ensure that
the capital IME adjustment is more in line with hospital costs.
We received no comments on our proposed change. We have decided to
implement this policy as proposed. Effective October 1, 1998, the
capital IME ratio will be capped at 1.5.

B. Payment Methodology for Mergers Involving New Hospitals
(Sec. 412.331)

The August 30, 1991 final rule (56 FR 43418), which implemented the
capital prospective payment system, established special payment
provisions for new hospitals. Under Sec. 412.324(b), a new hospital is
paid 85 percent of its allowable Medicare capital-related costs through
its first cost reporting period ending at least 2 years after the
hospital accepts its first patient. The first cost reporting period
beginning at least 1 year after the hospital accepts its first patient
is the hospital's base year for purposes of determining its hospital-
specific rate. Section 412.302(b) defines a new hospital's old capital
costs as allowable capital-related costs for land and depreciable
assets that were put in use for patient care on or before the last day
of the hospital's base year cost reporting period. Beginning with the
third year, the hospital is paid under the fully prospective or hold-
harmless payment methodology, as appropriate. If the hospital is paid
under the hold-harmless payment methodology, the hospital's hold-
harmless payments for its old capital costs can continue for up to 8
years.
In the August 30, 1991 final rule, we defined a new hospital as one
that had operated (under previous or present ownership) for less than 2
years and did not have a 12-month cost reporting period that ended on
or before December 31, 1990. In the September 1, 1992 final rule (57 FR
39789), as a result of situations brought to our attention after
publication of the original prospective payment system final rule, we
clarified that the new hospital exemption would not apply in situations
where the facility was not truly a new hospital.
In the May 8, 1998 proposed rule (63 FR 25600), we indicated that
questions had arisen regarding application of our rules for payment of
new hospitals in merger situations. We stated that consistent with our
previously stated policy, we were proposing to further clarify the new
hospital payment provisions. We proposed that, if during the period it
is eligible for payment as a new hospital (as defined at
Sec. 412.300(b) and Sec. 412.328(b)), a new hospital merges with one or
more existing hospitals, and the merger meets the existing capital-
related reasonable cost rules regarding the criteria for recognizing a
merger at Sec. 413.134 and the new hospital is the surviving
corporation (as defined in Sec. 413.134(l)(2)), we would treat as old
capital only those assets of the existing hospital that met the
definition of old capital (as defined in Sec. 412.302(b)) prior to the
merger, for purposes of determining payments after the merger.
Any assets of the existing hospital that were considered new
capital prior to the merger would still be considered new capital after
the merger. However, the merger cannot be used to convert the existing
hospital's new capital into old capital. After the merger, the
discharges of each campus of the merged entity would maintain their
pre-merger payment methodology until the end of the 2-year period that
the new hospital campus is eligible for reasonable cost reimbursement
as defined at Sec. 412.324(b). That is, the discharges at the new
hospital would be paid based on 85 percent of its allowable Medicare
hospital capital-related costs, while discharges from the existing
hospital would continue to be paid under that hospital's methodology,
that is, fully prospective or hold-harmless. At the end of this period,
the intermediary would calculate a hospital specific rate for the
``new'' campus of the merged hospital. Finally, the calculation
methodology for hospital mergers at new Sec. 412.331(a)(1) and (2)
would be performed and a combined hospital-specific rate would be
determined and a payment methodology selected for the merged hospital
as a whole.
The calculation at Sec. 412.331(a)(1) and (2) uses each hospital's
base year old capital costs. Any new capital of the previously existing
hospital would not be used in the determination. If the merged entity
qualifies for the hold-harmless payment methodology, only the capital
which meets the definition of old capital at Sec. 412.302(b) would be
eligible for hold-harmless payments.
We received one comment on our proposal.
Comment: One hospital association commented on the policy that only
the assets of the existing hospital that met the definition of old
capital prior to the merger would be treated as old capital after the
merger, even if all of the capital had been acquired and put into use
during the new hospital's base year. They also stated that the proposal
changes the regulatory definition of a new hospital's old capital,
revises its payment methodology determination, and creates special
payment rules for new hospitals that merge with existing hospitals. The
commenter also states that a hospital in a situation similar to that
described in our example was told that after a merger between a new
hospital and an existing hospital, all assets acquired by the new
hospital in the base year would become old capital costs. The commenter
suggests that if HCFA will not reconsider the proposed change, at least
it should not be applied retroactively.
Response: As indicated in the proposed rule, we addressed this
issue because questions have arisen regarding application of our rules
for payment for new hospitals in merger situations. Accordingly, we
proposed to clarify the application of our rules in merger situations.
Before the proposed rule, we had not specifically addressed in the
Federal Register the issue of mergers between an ``existing'' hospital
and a ``new'' hospital, but our clarification is consistent with
existing rules; the clarification does not reflect new policy or a
change in policy that can only be applied prospectively.
The commenter is correct that with regard to the capital of the
existing hospital that merges with a new hospital, our proposal would
treat as old capital only capital that qualified as old capital prior
to the merger. Any capital that was new capital of the existing
hospital prior to the merger would remain new capital after the merger.
The new hospital will be paid 85 percent of its allowable Medicare
inpatient hospital capital-related costs through its

[[Page 40999]]

cost reporting period ending at least two years after the hospital
accepts its first patient. In our September 1, 1992 final rule (57 FR
39789), we clarified that the new hospital exemption under the capital
prospective payment system would not apply to a facility that opened as
an acute care hospital if that hospital had previously operated under
current or prior ownership and had a historic asset base. We also
clarified that even a hospital that replaced its entire facility (with
or without a change of ownership) would not qualify for a new hospital
exemption and that a previously existing PPS-excluded hospital (paid
under section 1886(b) of the Act) that became an acute care hospital
(paid under section 1886(d)) of the Act would not qualify as a new
hospital. With this current proposal we are clarifying our rules as
they apply to a new hospital which merges with an existing hospital.
When a new hospital merges with an existing hospital that has
already had the benefit of reasonable cost reimbursement prior to the
inception of capital PPS, on October 1, 1991, we believe it would be
inappropriate for all of the capital assets of a previously existing
hospital to be eligible for payment as old capital simply because it
merged with a new hospital. As with the other situations that we
clarified in 1992, this current clarification of the regulation at
Sec. 412.331(a)(3) is consistent with the principle that the new
hospital exemption should only be available to those hospitals that had
not received reasonable cost payments in the past and needed special
payment protection during their initial period of operation. Our policy
seeks to ensure that when a new hospital acquires the assets of an
existing hospital through a merger, any assets of the existing hospital
that were previously considered new capital prior to the merger are not
transformed to old capital, as a result of the merger. The new hospital
will still be paid 85 percent of its allowable Medicare capital-related
costs for all other assets it acquires through the end of its base
period.
The commenter fails to note that our current payment rules at
Sec. 412.331(a)(3) for merger situations already provide that only the
existing capital-related costs related to the assets of each merged or
consolidated hospital as of December 31, 1990 are recognized as old
capital costs during the transition period. If the merged hospital is
paid under the hold-harmless methodology after merger or consolidation,
only that original base year old capital is eligible for hold-harmless
payments. These rules mean that in cases of a merger between two
existing hospitals, only the capital assets which were recognized as
old capital prior to December 31, 1990 are eligible for payment as old
capital after the merger. We are clarifying that this principle would
also apply to the situation of merger between an existing hospital and
a new hospital. The regulation that defines a new hospital's old
capital was not intended to apply to capital acquired through merger
with an existing hospital subject to capital PPS.
Finally, the commenter is mistaken that HCFA has previously ruled
that the new capital assets of an existing hospital could be paid as
old capital after a merger with a new hospital. In fact, our policy is
consistent with our regulation at Sec. 412.331(a)(3) cited above, in
that only the existing capital-related costs related to the assets of
each merged or consolidated hospital as of December 31, 1990 are
recognized as old capital costs during the transition period.
We are implementing this clarification as proposed. For an example
of how our policy works, see the May 8, 1998 proposed rule (63 FR
25601).

C. Special Exceptions Process

As described in Sec. 412.348(g) of the regulations, an additional
payment may be made for up to 10 years beyond the end of the capital
PPS transition period for eligible hospitals that meet: (1) a project
need requirement, (2) a project size requirement, and, (3) in the case
of certain urban hospitals, an excess capacity test. The regulation
establishing this special exceptions provision, and describing the
criteria by which eligible hospitals qualify, was published on
September 1, 1994 (59 FR 45385). At that time we described the purpose
of the special exceptions process as ``* * * narrowly defined, focusing
on a small group of hospitals who found themselves in a disadvantaged
position. The target hospitals were those who had an immediate and
imperative need to begin major renovations or replacements just after
the beginning of the capital prospective payment system. These
hospitals would not be eligible for protection under the old capital
and obligated capital provisions, and would not have been allowed any
time to accrue excess capital prospective payments to fund these
projects.''
The special exceptions process is available to certain classes of
hospitals that meet the eligibility criteria described at
Sec. 412.348(g)(1). The eligible classes of hospitals are sole
community hospitals; urban hospitals with at least 100 beds that either
have a disproportionate share percentage of 20.2 percent or receive at
least 30 percent of their revenue from State or local funds for
indigent care; and hospitals with a combined inpatient Medicare and
Medicaid utilization of at least 70 percent.
Eligible hospitals must satisfy a project need requirement as
described at Sec. 412.348(g)(2) and a project size requirement as
described at Sec. 412.348(g)(5). For hospitals in States with
Certificate of Need (CON) requirements, the project need requirement is
satisfied by obtaining CON approval. For other hospitals, the project
need requirement is satisfied by meeting an age of assets test. The
project size requirement is satisfied if the hospital completes the
qualifying project during the period beginning on or after its first
cost reporting period beginning on or after October 1, 1991 to the end
of its last cost reporting period beginning before October 1, 2001, and
the project meets certain cost thresholds specified in the regulations.
The minimum payment level for qualifying hospitals is 70 percent of
allowable capital-related costs. A qualifying hospital may receive
payments for up to ten years from the year which it completes a
qualifying project. Finally, the regulations at Sec. 412.348(g)(8)
describe the cumulative payment comparison and offsetting amounts which
are used to determine a qualifying hospital's exception payment.
A few hospitals have expressed concern with the required completion
date of October 1, 2001, and other qualifying criteria for the special
exceptions. When we established the special exceptions process, we
selected the hospital's cost reporting period beginning before October
1, 2001 as the project completion date, because hospitals are eligible
to receive special exceptions payments for up to ten years from the
year in which they complete their project. If a project is completed by
September 30, 2001, then exceptions payments could continue up to
October 30, 2011. We intended to limit cost-based exceptions payments
to the period not more than ten years beyond the end of the transition
to fully prospective payment for capital. When we adopted the criteria
for the special exceptions process, we selected the project completion
date with the goal of not extending this transition unnecessarily. In
addition, we believed that eligible hospitals will not have had the
opportunity to reserve prior year capital PPS payments for financing
projects begun in the early years of PPS.

[[Page 41000]]

In order for us to analyze the impact of potential changes in the
special exceptions policies, we are soliciting the following
information on major capital construction projects as defined at
Sec. 412.348(g)(5) that will be put to use for patient care on or after
October 1, 1996:
(1) Name, address, phone number and provider number of hospital;
(2) Cost of capital project;
(3) Date of CON approval, if required;
(4) Start date of project; and
(5) Anticipated completion date.
Please forward this information by September 30, 1998 to the
Division of Acute Care, Attention: Cassandra Black at the following
address: HCFA, C4-01-26, 7500 Security Blvd., Baltimore, Md. 21244-
1850. We will analyze the data to determine whether any changes in the
special exceptions policies are necessary. Any changes, if necessary,
would be included in next year's FY 2000 proposed rule for hospital
PPS.

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

Limits on and Adjustments to the Target Amounts for Excluded Hospitals
and Units (Sec. 413.40(g))

1. Updated Caps
Section 1886(b)(3) of the Act as amended by section 4414 of the BBA
established caps on the target amounts for excluded hospitals and units
for cost reporting periods beginning on or after October 1, 1997,
through September 30, 2002. The caps on the target amounts apply to the
following three categories of excluded hospitals: psychiatric hospitals
and units, rehabilitation hospitals and units, and long-term care
hospitals. For purposes of calculating the caps, the statute requires
the Secretary to first calculate the 75th percentile of the target
amounts for each class of hospital (psychiatric, rehabilitation, or
long-term care) for cost reporting periods ending during FY 1996. The
resulting amounts are updated by the market basket percentage to the
applicable fiscal year.
A discussion of how the caps on the target amounts were calculated
for cost reporting periods beginning during FY 1998 can be found in the
August 29, 1997, final rule with comment period (62 FR 46018). On March
6, 1998, we published a correction notice correcting the caps for FY
1998 (63 FR 11148).
In the May 8 proposed rule for FY 1999, we published proposed caps
for cost reporting periods beginning during FY 1999 (63 FR 25601);
however, the caps that we published inadvertently reflected updates to
the amounts published on August 29, 1997, rather than the corrected
amounts published on March 6, 1998 (see May 13, 1998 correction notice,
63 FR 26565). Thus, as corrected, the proposed caps for FY 1999 were as
follows:

(1) Psychiatric hospitals and units: $10,797
(2) Rehabilitation hospitals and units: $19,582
(3) Long-term care hospitals: $38,630

These proposed caps reflected an update of 2.5 percent, the projected
market basket percentage increase at the time we developed the proposed
rule.
The final projection of the market basket percentage for excluded
hospitals and units for FY 1999, based on the most recent data
available, is 2.4 percent. Accordingly, the final caps on the target
amounts for existing hospitals for cost reporting periods beginning
during FY 1999 are as follows:

(1) Psychiatric hospitals and units: $10,787
(2) Rehabilitation hospitals and units: $19,562
(3) Long-term care hospitals: $38,593
2. New Excluded Hospitals and Units (Sec. 413.40(f))
Section 1886(b)(7) of the Act establishes a new statutory payment
methodology for new psychiatric hospitals and units, rehabilitation
hospitals and units, and long-term care hospitals. Under the statutory
methodology, for a hospital that is within a class of hospitals
specified in the statute and which first receives payments on or after
October 1, 1997, the amount of payment will be determined as follows.
For each of the first two cost reporting periods, the amount of payment
is lesser of (1) the operating costs per case, or (2) 110 percent of
the national median of target amounts for the same class of hospitals
for cost reporting periods ending during FY 1996, updated and adjusted
for differences in area wage levels.
In the August 29, 1997 final rule with comment period, we published
the figures for 110 percent of the national median of target amounts
for each class of hospital (62 FR 46020). In the May 12, 1998 final
rule for FY 1998, we revised the figure for long-term care hospitals to
$21,494 (63 FR 26347).
The table below lists 110 percent of the wage neutral national
median target amounts for each class of excluded hospitals for cost
reporting periods beginning during FY 1999. These figures reflect
updates to the final FY 1998 figures by the projected market basket
increase of 2.4 percent. For a new provider, the labor-related share of
the target amount should be multiplied by the appropriate geographic
area wage index and added to the nonlabor-related share in order to
determine the limit on payment under the statutory payment methodology
for new providers.

------------------------------------------------------------------------
Labor- Nonlabor-
Total related related
share share
------------------------------------------------------------------------
(1) Psychiatric................................... $6,214 $2,472
(2) Rehabilitation................................ 12,219 4,858
(3) Long-Term Care................................ 15,749 6,261
------------------------------------------------------------------------

3. Classification of Hospitals and Units (Sec. 413.40(c))
In the May 8 proposed rule, we stated that, after publication of
the August 29, 1997 final rule with comment period, some excluded
facilities had suggested that if they are currently excluded as one
class of hospital or unit but also qualify for exclusion as another
class of hospital, they should be permitted to choose which
classification applies for purposes of applying the cap on target
amounts. For example, some hospitals that participate in Medicare as
psychiatric hospitals (defined under section 1861(f) of the Act, and
the special conditions of participation in 42 CFR part 482 subpart E)
have noted that they have average lengths of stay greater than 25 days.
Those hospitals have asked to be ``reclassified'' as long-term care
hospitals and given the benefit of the higher cap on target amounts
applicable to that hospital class.
In the proposed rule, we indicated that we had considered these
hospitals' suggestions but, for reasons explained in that document,
believed it would not be appropriate to adopt them. Accordingly, in the
May 8 proposed rule, we proposed to revise Sec. 413.40(c)(4)(iii) to
specify that, for purposes of that paragraph, the classification of a
hospital that was excluded from the prospective payment system for its
cost reporting period ending in FY 1996 would be determined by its
classification (that is, the basis on which it was excluded) in FY
1996. If a hospital or unit was not excluded for a cost reporting
period ending in FY 1996, but could be excluded on more than one basis
(for example, as either a rehabilitation or long-term care hospital) in
a given cost reporting period, it would be assigned to the
classification group with the lowest limit.
Comment: One commenter agreed that psychiatric hospitals should not
be allowed the higher cap on target amounts that is applicable to long-
term care hospitals, even if they also have average lengths of
inpatient stay greater than 25 days. The commenter pointed out that
psychiatric hospitals participate in Medicare under a provision of the
law (section 1861(f) of the Act) that is separate from the provision
applicable

[[Page 41001]]

to other excluded hospitals (section 1861(e) of the Act), and that the
exclusion criteria for psychiatric hospitals differ from those for
other hospitals. The commenter stated that because of these
differences, a psychiatric hospital could not qualify for exclusion as
another type of hospital or be eligible for the cap that applies to
another type of hospital. The commenter suggested that it is
unnecessary to specify that a psychiatric hospital cannot qualify for
the cap on target amounts applicable to long-term care or other types
of excluded hospitals.
Response: If a hospital qualifies under more than one of the
exclusion criteria pursuant to section 1886(d)(1)(B) of the Act, we
would apply the lowest applicable cap to the hospital. For example,
where a hospital qualifies as both a rehabilitation and long-term care
hospital, we will apply the lower rehabilitation hospital cap to the
hospital. Since this rule applies to all PPS-excluded hospitals,
whether a psychiatric hospital can qualify as another type of hospital
or not, the policy of applying the lowest cap is still needed.
Comment: One commenter pointed out that some non-psychiatric
(section 1861(e) of the Act) hospitals might be able to qualify for
exclusion either as rehabilitation or as long-term care hospitals. The
commenter stated that in many cases such facilities are excluded as
long-term care hospitals. Therefore, the commenter recommended that any
hospital in this category be given the benefit of the long-term care
hospital cap.
Response: We understand that some hospitals may simultaneously be
able to qualify for exclusion on more than one basis. If a hospital is
excluded from PPS as a certain type of hospital, we believe the
hospital should be subject to the cap applicable for that class of
hospital, even if it qualifies for exclusion on another basis. Thus, if
a hospital qualifies for exclusion on more than one basis, then it is
subject to all applicable caps, which in turn means the hospital's
target amount cannot exceed the lowest of the applicable caps. We
believe this policy not only is appropriate, but also provides greater
incentives for efficient and cost-effective operation.
Comment: Two commenters stated that if a hospital is classified as
one type of hospital in any period to which the limits apply, and does
not simultaneously qualify for exclusion on any other basis, the law
(section 1886(b)(3) of the Act) does not authorize application of any
cap other than the one applicable to the exclusion category to which
the hospital is assigned. One commenter stated that this is the case
even if the basis for the hospital's exclusion in a given cost
reporting period is different than the basis for its exclusion for the
cost reporting period ending during FY 1996 (for example, a hospital
may have been excluded as a rehabilitation hospital during that period
and later qualified for exclusion as a long-term care hospital).
Response: We agree with the commenter that, if the basis for a
hospital's exclusion for a given cost reporting period is different
than the basis for the hospital's exclusion for the cost reporting
period ending during FY 1996, the earlier basis of exclusion should not
control which cap applies. We are revising Sec. 413.40(c)(4)(iv)
accordingly. Thus, in applying the caps to excluded hospitals (or
units), we will consider only the current basis (or bases) for
exclusion. As stated above, if a hospital qualifies for more than one
type of exclusion, its target amount may not exceed the lowest of the
applicable caps.
We note that, for the reasons explained in the proposed rule, we
continue to be concerned that hospitals and units may seek changes in
their basis of exclusion solely to take advantage of a higher cap, and
that the resulting changes could compromise the effectiveness of the
caps. We will monitor this situation carefully and may seek further
legislative changes to the extent necessary to preserve the
effectiveness of the caps.
Comment: One commenter recommended that the regulations be revised
to state that where two hospitals who are subject to different caps on
TEFRA limits merge, the TEFRA cap that applies is the cap of the
surviving hospital.
Response: If two hospitals merge, the cap that applies depends on
the status of the surviving entity. However, we do not believe that the
regulations as described above, can be interpreted in any other way.
Therefore, we do not agree that the regulations need to be revised to
specifically address this situation.
Comment: One commenter suggested that if a new hospital subject to
the limits revised under Sec. 413.40(f)(2)(ii) changes the basis on
which it is excluded from the PPS (for example, from being a
rehabilitation hospital to a long-term care hospital), the cap applied
for purposes of the comparison should be the cap applicable to the
hospital's ``current'' exclusion category, not the hospital's previous
exclusion category.
Response: We agree that the cap applied should be based on the
exclusion category for which the hospital currently qualifies. In light
of the changes made in response to comments described above, we do not
believe the regulations need to be further revised.
4. Exceptions
The August 29, 1997 final rule with comment period (62 FR 46018)
specified that a hospital that has a target amount that is capped at
the 75th percentile, would not be granted an adjustment payment to the
target amount (also referred to as an exception payment) as governed by
Sec. 413.40(g)(3) based solely on a comparison of its costs or patient
mix in its base year to its costs or patient mix in the payment year.
Since the hospital's target amount would not be determined based on its
own experience in a base year, any comparison of costs or patient mix
in its base year to costs or patient mix in the payment year would be
irrelevant.
In addition, in the May 8, 1998 proposed rule, we proposed to
clarify that, to the extent we grant an exception in accordance with
Sec. 413.40(g)(3) to a hospital not affected by the cap, the amount of
the exception would be limited to the cap on the hospital's target
amount. By establishing caps on TEFRA target amounts, Congress has
limited payments to individual hospitals based on amounts that reflect
the cost experience of other hospitals. Therefore, in determining the
extent of any adjustment paid to a hospital as an exception under our
regulations at Sec. 413.40(g)(3), we believe it is consistent with
Congressional intent to limit the extent of the adjustment to the
hospital's cap on its target amount.
We proposed to revise Sec. 413.40(g)(1) in order to set forth the
limitation on the adjustment payments.
Comment: One commenter stated that the proposed rule conflicts with
section 1886(b)(4)(A)(i) of the Act, which requires HCFA to provide for
adjustments to providers who exceed their TEFRA ceiling. The commenter
also believed that our proposed provision limiting the TEFRA exception
to the TEFRA cap is inconsistent with HCFA's past TEFRA adjustment
processing practices. The commenter also stated that the proposed rule
would adversely affect beneficiaries by limiting the scope and extent
of services that hospitals in high wage areas are financially able to
deliver. For these reasons, the commenter requested that HCFA modify
the proposed rule to permit the granting of exceptions to the TEFRA
cap.
Response: Section 1886(b)(4)(A)(i) of the Act provides that the
Secretary

[[Page 41002]]

``shall provide'' for exceptions and adjustments ``where events beyond
the hospital's control or extraordinary circumstances, including
changes in the case mix of such hospital, create a distortion in the
increase in costs for a cost reporting period.'' Prior to the enactment
of Public Law 105-33, the payment for each excluded hospital was
limited by a hospital-specific target amount, which was updated each
year. The exceptions and adjustments provision provided for payments
above the hospital's target amount if the hospital experienced ``a
distortion in the increase in costs'' for a given period. Thus, a
hospital could receive an exception based on its cost experience.
The BBA enacted a system of caps which significantly changed the
TEFRA payment system. Under the new system of TEFRA caps, a hospital's
payments are not based solely on its own cost experience; instead, a
hospital is now subject to a cap based on the cost experience of other
hospitals.
We believe our policies harmonize the exceptions provision and the
cap provision. Under our policies, a hospital whose target amount is
below the cap may receive an exception up to the cap. Thus, consistent
with the mandate of section 1886(b)(4) of the Act, we continue to
provide for exceptions, contrary to the assertion of the commenter.
However, by establishing caps on TEFRA target amounts, Congress has
limited payments to individual hospitals based on amounts that reflect
the cost experience of other hospitals. Therefore, in determining the
extent of any adjustment paid to a hospital as an exception under our
regulations, we believe it is consistent with Congressional intent to
limit the extent of the adjustment to the hospital's cap on its target
amount. If a hospital's otherwise applicable target amount is above the
cap, it cannot receive an exception based solely on a comparison of its
current year costs or patient mix to base year costs or patient mix.

VII. MedPAC Recommendations

As required by law, we have reviewed the March 1998 report
submitted by MedPAC to Congress and gave its recommendations careful
consideration in conjunction with the proposals set forth in the
proposed rule. We also responded to the individual recommendations in
the proposed rule. The comments we received on the treatment of the
MedPAC recommendations are set forth below along with our responses to
those comments. However, if we received no comments from the public
concerning a MedPAC recommendation or our response to that
recommendation, we have not repeated the recommendation and response in
the discussion below. Recommendations concerning the update factors for
inpatient operating costs and for hospitals and hospital distinct-part
units excluded from the prospective payment system are discussed in
Appendix C, of this final rule.

Potential Effects of Target Amount Caps

Recommendation: The wage-related portion of the excluded hospital
target amount caps should be adjusted by the appropriate hospital wage
index to account for geographic differences in wages. (For more
information see Volume 1, chapter 7, page 71 of the March 1998 report.)
Response in the Proposed Rule: As MedPAC indicated in its
recommendation, legislation would be required to adjust the target
amount caps in such a substantial manner as to adjust for differences
in area labor costs.
Comment: Several commenters believed that the caps on the target
amounts should be wage adjusted in order to recognize the different
labor markets. They believe to do otherwise would be unfair and
inequitable and may cause hospitals to cut back on services they
provide to their Medicare beneficiaries.
Response: We previously addressed this issue in the final rule
published in the Federal Register on May 12, 1998 (63 FR 26345). Our
decision, as expressed in our response in that final rule, remains
unchanged.

VIII. Other Required Information

Requests for Data From the Public

In order to respond promptly to public requests for data related to
the prospective payment system, we have set up a process under which
commenters can gain access to the raw data on an expedited basis.
Generally, the data are available in computer tape format or
cartridges; however, some files are available on diskette, and on the
Internet at HTTP://WWW.HCFA.GOV/STATS/PUBFILES.HTML. In our May 8
proposed rule, we published a list of data files that are available for
purchase (63 FR 25603).

List of Subjects

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements, 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 Chapter IV is amended as set forth below:
A. Part 405 is amended as follows:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

1. The authority citation for part 405 is revised to read as
follows:

Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and
1886(k) of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a),
1395hh, 1395kk, 1395rr and 1395ww(k)), and sec. 353 of the Public
Health Service Act (42 U.S.C. 263a), unless otherwise noted.

Subpart X--Rural Health Clinic and Federally Qualified Health
Center Services

2. In Sec. 405.2468, a new paragraph (f) is added to read as
follows:

Sec. 405.2468 Allowable costs

* * * * *
(f) Graduate medical education. (1) Effective for that portion of
cost reporting periods occurring on or after January 1, 1999, if an RHC
or an FQHC incurs ``all or substantially all'' of the costs for the
training program in the nonhospital setting as defined in
Sec. 413.86(b) of this chapter, the RHC or FQHC may receive direct
graduate medical education payment for those residents.
(2) Direct graduate medical education costs are not included as
allowable cost under Sec. 405.2466(b)(1)(i); and therefore, are not
subject to the limit on the all-inclusive rate for allowable costs.
(3) Allowable graduate medical education costs must be reported on
the RHC's or the FQHC's cost report under a separate cost center.
(4) Allowable graduate medical education costs are non-reimbursable
if payment for these costs are received from a hospital or a
Medicare+Choice organization.
(5) Allowable direct graduate medical education costs under
paragraphs (f)(6) and (f)(7)(i) of this section, are subject to
reasonable cost principles under part 413 and the reasonable
compensation equivalency limits in Secs. 415.60 and 415.70 of this
chapter.
(6) The allowable direct graduate medical education costs are those
costs

[[Page 41003]]

incurred by the nonhospital site for the educational activities
associated with patient care services of an approved program, subject
to the redistribution and community support principles in
Sec. 413.85(c).
(i) The following costs are allowable direct graduate medical
education costs to the extent that they are reasonable--
(A) The costs of the residents' salaries and fringe benefits
(including travel and lodging expenses where applicable).
(B) The portion of teaching physicians' salaries and fringe
benefits that are related to the time spent teaching and supervising
residents.
(C) Facility overhead costs that are allocated to direct graduate
medical education.
(ii) The following costs are not allowable graduate medical
education costs--
(A) Costs associated with training, but not related to patient care
services.
(B) Normal operating and capital-related costs.
(C) The marginal increase in patient care costs that the RHC or
FQHC experiences as a result of having an approved program.
(D) The costs associated with activities described in
Sec. 413.85(d) of this chapter.
(7) Payment is equal to the product of--
(i) The RHC's or the FQHC's allowable direct graduate medical
education costs; and
(ii) Medicare's share, which is equal to the ratio of Medicare
visits to the total number of visits (as defined in Sec. 405.2463).
(8) Direct graduate medical education payments to RHCs and FQHCs
made under this section are made from the Federal Supplementary Medical
Insurance Trust Fund.
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 1895hh).

Subpart A--General Provisions

2. Section 412.4 is revised to read as follows:

Sec. 412.4 Discharges and transfers.

(a) Discharges. Subject to the provisions of paragraphs (b) and (c)
of this section, a hospital inpatient is considered discharged from a
hospital paid under the prospective payment system when--
(1) The patient is formally released from the hospital; or
(2) The patient dies in the hospital.
(b) Transfer--Basic rule. A discharge of a hospital inpatient is
considered to be a transfer for purposes of payment under this part if
the discharge is made under any of the following circumstances:
(1) From a hospital to the care of another hospital that is--
(i) Paid under the prospective payment system; or
(ii) Excluded from being paid under the prospective payment system
because of participation in an approved Statewide cost control program
as described in subpart C of part 403 of this chapter.
(2) From one inpatient area or unit of a hospital to another
inpatient area or unit of the hospital that is paid under the
prospective payment system.
(c) Transfers--Special 10 DRG rule. For discharges occurring on or
after October 1, 1998, a discharge of a hospital inpatient is
considered to be a transfer for purposes of this part when the
patient's discharge is assigned, as described in Sec. 412.60(c), to one
of the qualifying diagnosis-related groups (DRGs) listed in paragraph
(d) of this section and the discharge is made under any of the
following circumstances--
(1) To a hospital or distinct part hospital unit excluded from the
prospective payment system under subpart B of this part.
(2) To a skilled nursing facility.
(3) To home under a written plan of care for the provision of home
health services from a home health agency and those services begin
within 3 days after the date of discharge.
(d) Qualifying DRGs. The qualifying DRGs for purposes of paragraph
(c) of this section are DRGs 14, 113, 209, 210, 211, 236, 263, 264,
429, and 483.
(e) Payment for discharges. The hospital discharging an inpatient
(under paragraph (a) of this section) is paid in full, in accordance
with Sec. 412.2(b).
(f) Payment for transfers. (1) General rule. Except as provided in
paragraph (f)(2) or (f)(3) of this section, a hospital that transfers
an inpatient under the circumstances described in paragraph (b) or (c)
of this section, is paid a graduated per diem rate for each day of the
patient's stay in that hospital, not to exceed the amount that would
have been paid under subparts D and M of this part if the patient had
been discharged to another setting. The per diem rate is determined by
dividing the appropriate prospective payment rate (as determined under
subparts D and M of this part) by the geometric mean length of stay for
the specific DRG to which the case is assigned. Payment is graduated by
paying twice the per diem amount for the first day of the stay, and the
per diem amount for each subsequent day, up to the full DRG payment.
(2) Special rule for DRGs 209, 210, and 211. A hospital that
transfers an inpatient under the circumstances described in paragraph
(c) of this section and the transfer is assigned to DRGs 209, 210 or
211 is paid as follows:
(i) 50 percent of the appropriate prospective payment rate (as
determined under subparts D and M of this part) for the first day of
the stay; and
(ii) 50 percent of the amount calculated under paragraph (f)(1) of
this section for each day of the stay, up to the full DRG payment.
(3) Transfer assigned to DRG 385. If a transfer is classified into
DRG 385 (Neonates, died or transferred) the transferring hospital is
paid in accordance with Sec. 412.2(e).
(4) Outliers. Effective with discharges occurring on or after
October 1, 1984, a transferring hospital may qualify for an additional
payment for extraordinarily high-cost cases that meet the criteria for
cost outliers as described in subpart F of this part.

Subpart F--Payment for Outlier Cases

3. In Sec. 412.80, paragraph (b) is revised to read as follows:

Sec. 412.80 General provisions

* * * * *
(b) Outlier cases in transferring hospitals. HCFA provides cost
outlier payments to a transferring hospital for cases paid in
accordance with Sec. 412.4(f), if the hospital's charges for covered
services furnished to the beneficiary, adjusted to costs by applying
cost-to-charge ratios as described in Sec. 412.84(h), exceed the DRG
payment for the case plus a fixed dollar amount (adjusted for
geographic variation in costs) as specified by HCFA, divided by the
geometric mean length of stay for the DRG, and multiplied by an
applicable factor determined as follows:
(1) For transfer cases paid in accordance with Sec. 412.4(f)(1),
the applicable factor is equal to the length of stay plus 1 day.
(2) For transfer cases paid in accordance with Sec. 412.4(f)(2),
the applicable factor is equal to 0.5 plus the product of the length of
stay plus 1 day multiplied by 0.5.
* * * * *

[[Page 41004]]

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

Sec. 412.105 [Amended]

4. In Sec. 412.105(f)(1)(ii)(C), the reference to
``413.86(f)(1)(iii)'' is revised to read ``413.86(f)(4).''
5. In Sec. 412.106, paragraph (b)(4) is revised to read as follows:

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

* * * * *
(b) * * *
(4) Second computation. The fiscal intermediary determines, for the
same cost reporting period used for the first computation, the number
of the hospital's patient days of service for which patients were
eligible for Medicaid but not entitled to Medicare Part A, and divides
that number by the total number of patient days in the same period. For
purposes of this second computation, the following requirements apply:
(i) A patient is deemed eligible for Medicaid on a given day if the
patient is eligible for medical assistance under an approved State
Medicaid plan on such day, regardless of whether particular items or
services were covered or paid under the State plan.
(ii) The hospital has the burden of furnishing data adequate to
prove eligibility for each Medicaid patient day claimed under this
paragraph, and of verifying with the State that a patient was eligible
for Medicaid during each claimed patient hospital day.
* * * * *

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

6. In Sec. 412.322, paragraph (a)(3) is revised to read as follows:

Sec. 412.322 Indirect medical education adjustment factor.

(a) * * *
(3) The measurement of teaching activity is the ratio of the
hospital's full-time equivalent residents to average daily census. This
ratio cannot exceed 1.5.
* * * * *
7. In Sec. 412.331, paragraphs (a) and (b) are redesignated as
paragraphs (b) and (c) respectively, a new paragraph (a) is added and
the first sentence of the introductory text of newly redesignated
paragraph (b) is revised to read as follows:

Sec. 412.331 Determining hospital-specific rates in cases of hospital
merger, consolidation, or dissolution.

(a) New hospital merger or consolidation. If, after a new hospital
accepts its first patient but before the end of its base year, it
merges with one or more existing hospitals, and two or more separately
located hospital campuses are maintained, the hospital-specific rate
and payment determination for the merged entity are determined as
follows--
(1) Post-merger base year payment methodology. The new campus is
paid based on reasonable costs until the end of its base year. The
existing campus remains on its previous payment methodology until the
end of the new campus' base year. Effective with the first cost
reporting period beginning after the the end of the new campus' base
year, the intermediary determines a hospital-specific rate applicable
to the new campus in accordance with Sec. 412.328, and then determines
a revised hospital-specific rate for the merged entity in accordance
with paragraph (a)(2) of this section.
(2) Revised hospital-specific rate. Using each hospital's base
period data, the intermediary determines a combined average discharge-
weighted hospital-specific rate.
(3) Post-base year payment determination. To determine the
applicable payment methodology under Sec. 412.336 and for payment
purposes under Sec. 412.340 or Sec. 412.344, the discharge-weighted
hospital-specific rate determined by the intermediary is compared to
the Federal rate. The revised payment methodology is effective on the
first day of the cost reporting period beginning after the end of the
new campus' base year.
(b) Existing hospital merger or consolidation. If, after the base
year, two or more hospitals merge or consolidate into one hospital as
provided for under Sec. 413.134(k) of this chapter and the provisions
of paragraph (a) of this section do not apply, the intermediary
determines a revised hospital-specific rate applicable to the combined
facility under Sec. 412.328, which is effective beginning with the date
of merger or consolidation. * * *
* * * * *
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 FOR SKILLED NURSING FACILITIES

1. The authority citation for part 413 is revised to read as
follows:

Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i) and
(n), 1861(v), 1871, 1881, 1883, and 1866 of the Social Security Act
(42 U.S.C. 1302, 1395f(b), 1395g, 1395l, 1395l(a), (i) and (n),
1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart C--Limits on Cost Reimbursement

2. In Sec. 413.40, paragraph (c)(4)(iv) is redesignated as
paragraph (c)(4)(v), a new paragraph (c)(4)(iv) is added, and paragraph
(g)(1) is revised to read as follows:

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

* * * * *
(c) * * *
(4) * * *
(iv) For purposes of the limits on target amounts established under
paragraph (c)(4)(iii) of this section, each hospital or unit that
qualifies for exclusion as a member of only one class of excluded
facility (psychiatric hospital or unit, rehabilitation hospital or
unit, or long-term care hospital) will be subject to the limit
applicable to that class. If a hospital or unit qualifies to be
classified in more than one way under the exclusion criteria in subpart
B of part 412 of this chapter, the hospital's or unit's target amount
may not exceed the lowest applicable limit.
* * * * *
(g) Adjustments--(1) General rule. HCFA may adjust the amount of
the operating costs considered in establishing the rate-of-increase
ceiling for one or more cost reporting periods, including both periods
subject to the ceiling and the hospital's base period, under the
circumstances specified in paragraphs (g)(2), (g)(3), and (g)(4) of
this section. When an adjustment is requested by the hospital, HCFA
makes an adjustment only to the extent that the hospital's operating
costs are reasonable, attributable to the circumstances specified
separately identified by the hospital, and verified by the
intermediary. HCFA may grant an adjustment requested by the hospital
only if the hospital's operating costs exceed the rate-of-increase
ceiling imposed under this section. In the case of a psychiatric
hospital or unit,

[[Page 41005]]

rehabilitation hospital or unit, or long-term care hospital, the amount
of payment made to a hospital after an adjustment under paragraph
(g)(3) of this section may not exceed the applicable limit based on
75th percentile of the target amounts for hospitals of the same class
as described in Sec. 413.40(c)(4)(iii).
* * * * *

Subpart F--Specific Categories of Costs

3. In Sec. 413.80, paragraph (h) is redesignated as paragraph (i),
and a new paragraph (h) is added to read as follows:

Sec. 413.80 Bad debts, charity, and courtesy allowances.

* * * * *
(h) Limitations on bad debts. In determining reasonable costs for
hospitals, the amount of bad debts otherwise treated as allowable costs
(as defined in paragraph (e) of this section) is reduced--
(1) For cost reporting periods beginning during fiscal year 1998,
by 25 percent;
(2) For cost reporting periods beginning during fiscal year 1999,
by 40 percent; and
(3) For cost reporting periods beginning during a subsequent fiscal
year, by 45 percent.
* * * * *
4. In Sec. 413.85, a new paragraph (h) is added to read as follows:

Sec. 413.85 Cost of educational activities.

* * * * *
(h) Medicare+Choice organizations. (1) Effective January 1, 1999,
Medicare+Choice organizations may receive direct graduate medical
education payments for the time that residents spend in nonhospital
provider settings such as freestanding clinics, nursing homes, and
physicians' offices in connection with approved programs.
(2) Medicare+Choice organizations may receive direct graduate
medical education payments if all of the following conditions are met:
(i) The resident spends his or her time in patient care activities.
(ii) The Medicare+Choice organization incurs ``all or substantially
all'' of the costs for the training program in the nonhospital setting
as defined in Sec. 413.86(b).
(iii) There is a written agreement between the Medicare+Choice
organization and the nonhospital site that indicates the
Medicare+Choice organization will incur the costs of the resident's
salary and fringe benefits and provide reasonable compensation to the
nonhospital site for teaching activities.
(3) A Medicare+Choice organization's allowable direct graduate
medical education costs, subject to the redistribution and community
support principles in Sec. 413.85(c), consist of--
(i) Residents' salaries and fringe benefits (including travel and
lodging where applicable); and
(ii) Reasonable compensation to the nonhospital site for teaching
activities related to the training of medical residents.
(4) The direct graduate medical education payment is equal to the
product of--
(i) The lower of--
(A) The Medicare+Choice organization's allowable direct graduate
medical education costs per resident as defined in paragraph (h)(3) of
this section; or
(B) The national average per resident amount; and
(ii) Medicare's share, which is equal to the ratio of the number of
Medicare beneficiaries enrolled to the total number of individuals
enrolled in the Medicare+Choice organization.
(5) Direct graduate medical education payments made to
Medicare+Choice organizations under this section are made from the
Federal Supplementary Medical Insurance Trust Fund.
5. In Sec. 413.86, the introductory text of paragraph (b) is
republished, a new definition in alphabetical order is added to
paragraph (b), paragraphs (i) and (j) are redesignated as paragraphs
(j)and (k) respectively, paragraph (f)(2) is redesignated as new
paragraph (i), paragraphs (f)(2)(i) through (vii) are redesignated as
paragraphs (i)(1) through (7) respectively, the introductory text of
paragraph (f)(1) is redesignated as the introductory text of paragraph
(f), paragraphs (f)(1)(i) through (iii) are redesignated as paragraphs
(f)(1) through (3) respectively, paragraphs (f)(1)(iii)(A) and (B) are
redesignated as (f)(3)(i) and (ii) respectively, new paragraphs (f)(2)
and (f)(3) introductory text are revised, and a new paragraph (f)(4) is
added to read as follows:

Sec. 413.86 Direct graduate medical education payments.

* * * * *
(b) Definitions. For purposes of this section, the following
definitions apply:
* * * * *
All or substantially all of the costs for the training program in
the nonhospital setting means the residents' salaries and fringe
benefits (including travel and lodging where applicable) and the
portion of the cost of teaching physicians' salaries and fringe
benefits attributable to direct graduate medical education.
* * * * *
(f) * * *
(2) No individual may be counted as more than one FTE. Except as
provided in paragraphs (f)(3) and (4) of this section, if a resident
spends time in more than one hospital or, in a nonprovider setting, the
resident counts as partial FTE based on the proportion of time worked
at the hospital to the total time worked. A part-time resident counts
as a partial FTE based on the proportion of allowable time worked
compared to the total time necessary to fill a full-time internship or
residency slot.
(3) On or after July, 1, 1987 and for portions of cost reporting
periods occurring before January 1, 1999, the time residents spend in
nonprovider settings such as freestanding clinics, nursing homes, and
physicians' offices in connection with approved programs is not
excluded in determining the number of FTE residents in the calculation
of a hospital's resident count if the following conditions are met--
* * * * *
(4) For portions of cost reporting periods occurring on or after
January 1, 1999, the time residents spend in nonprovider settings such
as freestanding clinics, nursing homes, and physicians' offices in
connection with approved programs may be included in determining the
number of FTE residents in the calculation of a hospital's resident
count if the following conditions are met--
(i) The resident spends his or her time in patient care activities.
(ii) The written agreement between the hospital and the nonhospital
site must indicate that the hospital will incur the cost of the
resident's salary and fringe benefits while the resident is training in
the nonhospital site and the hospital is providing reasonable
compensation to the nonhospital site for supervisory teaching
activities. The agreement must indicate the compensation the hospital
is providing to the nonhospital site for supervisory teaching
activities.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance)

[[Page 41006]]

Dated: July 23, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

Dated: July 27, 1998.
Donna E. Shalala,
Secretary.
[Editorial Note: The following addendum and appendixes will not
appear in the Code of Federal Regulations.]

Addendum--Schedule of Standardized Amounts Effective With
Discharges Occurring On or After October 1, 1998, Payment Amounts
for Blood Clotting Factor Effective for Discharges Occurring On or
After October 1, 1998, and Update Factors and Rate-of-Increase
Percentages Effective With Cost Reporting Periods Beginning On or
After October 1, 1998

I. Summary and Background

In this addendum, we set forth the amounts and factors for
determining prospective payment rates for Medicare inpatient operating
costs and Medicare inpatient capital-related costs. In addition, we set
forth the updated add-on payment amounts for blood clotting factors. We
also set forth rate-of-increase percentages for updating the target
amounts for hospitals and hospital units excluded from the prospective
payment system.
For discharges occurring on or after October 1, 1998, except for
sole community hospitals, Medicare-dependent, small rural hospitals,
and hospitals located in Puerto Rico, each hospital's payment per
discharge under the prospective payment system will be based on 100
percent of the Federal national rate.
Sole community hospitals are paid based on whichever of the
following rates yield the greatest aggregate payment: the Federal
national rate, the updated hospital-specific rate based on FY 1982 cost
per discharge, or the updated hospital-specific rate based on FY 1987
cost per discharge. Medicare-dependent, small rural hospitals are paid
based on the Federal national rate or, if higher, the Federal national
rate plus 50 percent of the difference between the Federal national
rate and the updated hospital-specific rate based on FY 1982 or FY 1987
cost per discharge, whichever is higher. For hospitals in Puerto Rico,
the payment per discharge is based on the sum of 50 percent of a Puerto
Rico rate and 50 percent of a national rate.
As discussed below in section II, we are making changes in the
determination of the prospective payment rates for Medicare inpatient
operating costs. The changes, to be applied prospectively, affect the
calculation of the Federal rates. In section III, we are updating the
payments per unit for blood clotting factor provided to hospital
inpatients who have hemophilia. In section IV of this addendum, we
discuss our changes for determining the prospective payment rates for
Medicare inpatient capital-related costs. Section V of this addendum
sets forth our changes for determining the rate-of-increase limits for
hospitals excluded from the prospective payment system. The tables to
which we refer in the preamble to this final rule are presented at the
end of this addendum in section VI.

II. Changes to Prospective Payment Rates For Inpatient Operating
Costs for FY 1999

The basic methodology for determining prospective payment rates for
inpatient operating costs is set forth at Sec. 412.63 for hospitals
located outside of Puerto Rico. The basic methodology for determining
the prospective payment rates for inpatient operating costs for
hospitals located in Puerto Rico is set forth at Secs. 412.210 and
412.212. Below, we discuss the factors used for determining the
prospective payment rates. The Federal and Puerto Rico rate changes
will be effective with discharges occurring on or after October 1,
1998. As required by section 1886(d)(4)(C) of the Act, we must also
adjust the DRG classifications and weighting factors for discharges in
FY 1999.
In summary, the standardized amounts set forth in Tables 1A and 1C
of section VI of this addendum reflect--
Updates of 0.5 percent for all areas (that is, the market
basket percentage increase of 2.4 percent minus 1.9 percentage points);
An adjustment to ensure budget neutrality as provided for
in sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act by applying new
budget neutrality adjustment factors to the large urban and other
standardized amounts;
An adjustment to ensure budget neutrality as provided for
in section 1886(d)(8)(D) of the Act by removing the FY 1998 budget
neutrality factor and applying a revised factor; and
An adjustment to apply the revised outlier offset by
removing the FY 1998 outlier offset and applying a new offset.
The standardized amounts set forth in Tables 1E and 1F of section
VI of this addendum, which apply to ``temporary relief'' hospitals (see
62 FR 46001 for a discussion of these hospitals), reflect updates of
0.8 percent for all areas but otherwise reflect the same adjustments as
the national standardized amounts. As described in Sec. 412.107, these
hospitals receive an update that is 0.3 percentage points more than the
update factor applicable to all other prospective payment hospitals for
FY 1999.

A. Calculation of Adjusted Standardized Amounts

1. Standardization of Base-Year Costs or Target Amounts
Section 1886(d)(2)(A) of the Act required the establishment of
base-year cost data containing allowable operating costs per discharge
of inpatient hospital services for each hospital. The preamble to the
September 1, 1983 interim final rule (48 FR 39763) contains a detailed
explanation of how base-year cost data were established in the initial
development of standardized amounts for the prospective payment system
and how they are used in computing the Federal rates.
Section 1886(d)(9)(B)(i) of the Act required that Medicare target
amounts be determined for each hospital located in Puerto Rico for its
cost reporting period beginning in FY 1987. The September 1, 1987 final
rule contains a detailed explanation of how the target amounts were
determined and how they are used in computing the Puerto Rico rates (52
FR 33043, 33066).
The standardized amounts are based on per discharge averages of
adjusted hospital costs from a base period or, for Puerto Rico,
adjusted target amounts from a base period, updated and otherwise
adjusted in accordance with the provisions of section 1886(d) of the
Act. Sections 1886(d)(2) (B) and (C) of the Act required that the base-
year per discharge costs be updated for FY 1984 and then standardized
in order to remove from the cost data the effects of certain sources of
variation in cost among hospitals. These include case mix, differences
in area wage levels, cost of living adjustments for Alaska and Hawaii,
indirect medical education costs, and payments to hospitals serving a
disproportionate share of low-income patients.
Under sections 1886(d)(2)(H) and (d)(3)(E) of the Act, in making
payments under the prospective payment system, the Secretary estimates
from time to time the proportion of costs that are wages and wage-
related costs. Since October 1, 1997, when the market basket was last
revised, we have considered 71.1 percent of costs to be labor-related
for purposes of the prospective payment system. For the Puerto Rico
standardized amounts, the labor share is 71.3 percent. We are revising
the discharge-weighted national standardized amount for Puerto Rico to
reflect the proportion of discharges in large urban and other areas
from the FY 1997 MedPAR file.

[[Page 41007]]

2. Computing Large Urban and Other Area Averages
Sections 1886(d)(2)(D) and (3) of the Act require the Secretary to
compute two average standardized amounts for discharges occurring in a
fiscal year: one for hospitals located in large urban areas and one for
hospitals located in other areas. In addition, under sections
1886(d)(9)(B)(iii) and (C)(i) of the Act, the average standardized
amount per discharge must be determined for hospitals located in urban
and other areas in Puerto Rico. Hospitals in Puerto Rico are paid a
blend of 50 percent of the applicable Puerto Rico standardized amount
and 50 percent of a national standardized payment amount.
Section 1886(d)(2)(D) of the Act defines ``urban area'' as those
areas within a Metropolitan Statistical Area (MSA). A ``large urban
area'' is defined as an urban area with a population of more than
1,000,000. In addition, section 4009(i) of Public Law 100-203 provides
that a New England County Metropolitan Area (NECMA) with a population
of more than 970,000 is classified as a large urban area. As required
by section 1886(d)(2)(D) of the Act, population size is determined by
the Secretary based on the latest population data published by the
Bureau of the Census. Urban areas that do not meet the definition of a
``large urban area'' are referred to as ``other urban areas.'' Areas
that are not included in MSAs are considered ``rural areas'' under
section 1886(d)(2)(D) of the Act. Payment for discharges from hospitals
located in large urban areas will be based on the large urban
standardized amount. Payment for discharges from hospitals located in
other urban and rural areas will be based on the other standardized
amount.
Based on 1997 population estimates published by the Bureau of the
Census, 61 areas meet the criteria to be defined as large urban areas
for FY 1999. These areas are identified by a footnote in Table 4A. We
note that on June 23, 1998, the Office of Management and Budget
announced the designation of the Missoula, Montana MSA. We have
incorporated this change in this final rule.
3. Updating the Average Standardized Amounts
Under section 1886(d)(3)(A) of the Act, we update the area average
standardized amounts each year. In accordance with section
1886(d)(3)(A)(iv) of the Act, we are updating the large urban and the
other areas average standardized amounts for FY 1999 using the
applicable percentage increases specified in section 1886(b)(3)(B)(i)
of the Act. Section 1886(b)(3)(B)(i)(XIV) of the Act specifies that,
for hospitals in all areas, the update factor for the standardized
amounts for FY 1999 is equal to the market basket percentage increase
minus 1.9 percentage points. The ``temporary relief'' provision under
section 4401 of Public Law 105-33 provides for an update equal to the
market basket percentage increase minus 1.6 percentage points for
hospitals that are not Medicare-dependent, small rural hospitals, that
receive no IME or DSH payments, that are located in a state in which
aggregate Medicare operating payments for such hospitals were less than
their aggregate allowable Medicare operating costs for their cost
reporting periods beginning during FY 1995, and whose Medicare
operating payments are less than their allowable Medicare operating
costs for their cost reporting period beginning during FY 1999.
The percentage change in the market basket reflects the average
change in the price of goods and services purchased by hospitals to
furnish inpatient care. The most recent forecast of the hospital market
basket increase for FY 1999 is 2.4 percent. Thus, for FY 1999, the
update to the average standardized amounts equals 0.5 percent (0.8
percent for those hospitals qualifying under the ``temporary relief''
provision of Public Law 105-33).
As in the past, we are adjusting the FY 1998 standardized amounts
to remove the effects of the FY 1998 geographic reclassifications and
outlier payments before applying the FY 1999 updates. That is, we are
increasing the standardized amounts to restore the reductions that were
made for the effects of geographic reclassification and outliers. We
then apply the new offsets to the standardized amounts for outliers and
geographic reclassifications for FY 1999.
Although the update factor for FY 1999 is set by law, we are
required by section 1886(e)(4)(A) of the Act to report to Congress on
our final recommendation of update factors for FY 1999 for both
prospective payment hospitals and hospitals excluded from the
prospective payment system. We have included our final recommendations
in Appendix C to this final rule.
4. Other Adjustments to the Average Standardized Amounts
a. Recalibration of DRG Weights and Updated Wage Index--Budget
Neutrality Adjustment. Section 1886(d)(4)(C)(iii) of the Act specifies
that beginning in FY 1991, the annual DRG reclassification and
recalibration of the relative weights must be made in a manner that
ensures that aggregate payments to hospitals are not affected. As
discussed in section II of the preamble, we normalized the recalibrated
DRG weights by an adjustment factor, so that the average case weight
after recalibration is equal to the average case weight prior to
recalibration.
Section 1886(d)(3)(E) of the Act specifies that the hospital wage
index must be updated on an annual basis beginning October 1, 1993.
This provision also requires that any updates or adjustments to the
wage index must be made in a manner that ensures that aggregate
payments to hospitals are not affected by the change in the wage index.
To comply with the requirement of section 1886(d)(4)(C)(iii) of the
Act that DRG reclassification and recalibration of the relative weights
be budget neutral, and the requirement in section 1886(d)(3)(E) of the
Act that the updated wage index be budget neutral, and the requirement
in section 4410 of Public law 105-33 that application of the floor on
the wage index be budget neutral, we used historical discharge data to
simulate payments and compared aggregate payments using the FY 1998
relative weights and wage index to aggregate payments using the FY 1999
relative weights and wage index. The same methodology was used for the
FY 1998 budget neutrality adjustment. (See the discussion in the
September 1, 1992 final rule (57 FR 39832).) Based on this comparison,
we computed a budget neutrality adjustment factor equal to 0.999006. We
adjust the Puerto Rico-specific standardized amounts for the effect of
DRG reclassification and recalibration. We computed a budget neutrality
adjustment factor for Puerto Rico-specific standardized amounts equal
to 0.998912. These budget neutrality adjustment factors are applied to
the standardized amounts without removing the effects of the FY 1998
budget neutrality adjustments. We do not remove the prior budget
neutrality adjustment because estimated aggregate payments after the
changes in the DRG relative weights and wage index should equal
estimated aggregate payments prior to the changes. If we removed the
prior year adjustment, we would not satisfy this condition.
In addition, we will continue to apply the same FY 1999 adjustment
factor to the hospital-specific rates that are effective for cost
reporting periods beginning on or after October 1, 1998, in

[[Page 41008]]

order to ensure that we meet the statutory requirement that aggregate
payments neither increase nor decrease as a result of the
implementation of the FY 1999 DRG weights and updated wage index. (See
the discussion in the September 4, 1990 final rule (55 FR 36073).)
b. Reclassified hospitals--budget neutrality adjustment. Section
1886(d)(8)(B) of the Act provides that certain rural hospitals are
deemed urban effective with discharges occurring on or after October 1,
1988. In addition, section 1886(d)(10) of the Act provides for the
reclassification of hospitals based on determinations by the Medicare
Geographic Classification Review Board (MGCRB). Under section
1886(d)(10) of the Act, a hospital may be reclassified for purposes of
the standardized amount or the wage index, or both.
Under section 1886(d)(8)(D) of the Act, the Secretary is required
to adjust the standardized amounts so as to ensure that total aggregate
payments under the prospective payment system after implementation of
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective payments that would have
been made absent these provisions. To calculate this budget neutrality
factor, we used historical discharge data to simulate payments, and
compared total prospective payments (including IME and DSH payments)
prior to any reclassifications to total prospective payments after
reclassifications. In the proposed rule, we applied an adjustment
factor of 0.994019 to ensure that the effects of reclassification are
budget neutral. The final budget neutrality adjustment factor is
0.993433.
The adjustment factor is applied to the standardized amounts after
removing the effects of the FY 1998 budget neutrality adjustment
factor. We note that the proposed FY 1999 adjustment reflected wage
index and standardized amount reclassifications approved by the MGCRB
or the Administrator as of February 27, 1998. The effects of any
additional reclassification changes resulting from appeals and reviews
of the MGCRB decisions for FY 1999 or from a hospital's request for the
withdrawal of a reclassification request are reflected in the final
budget neutrality adjustment that is required under section
1886(d)(8)(D) of the Act and that is published in this final rule.
c. Outliers. Section 1886(d)(5)(A) of the Act provides for payments
in addition to the basic prospective payments for ``outlier'' cases,
cases involving extraordinarily high costs (cost outliers). Section
1886(d)(3)(B) of the Act requires the Secretary to adjust both the
large urban and other area national standardized amounts by the same
factor to account for the estimated proportion of total DRG payments
made to outlier cases. Similarly, section 1886(d)(9)(B)(iv) of the Act
requires the Secretary to adjust the large urban and other standardized
amounts applicable to hospitals in Puerto Rico to account for the
estimated proportion of total DRG payments made to outlier cases.
Furthermore, under section 1886(d)(5)(A)(iv) of the Act, outlier
payments for any year must be projected to be not less than 5 percent
nor more than 6 percent of total payments based on DRG prospective
payment rates.
i. FY 1999 Outlier Thresholds. For FY 1998, the fixed loss cost
outlier threshold is equal to the prospective payment for the DRG plus
the IME and DSH payments plus $11,050 ($10,080 for hospitals that have
not yet entered the prospective payment system for capital-related
costs). The marginal cost factor for cost outliers (the percent of
costs paid after costs for the case exceed the threshold) is 80
percent. We applied an outlier adjustment to the FY 1998 standardized
amounts of 0.948840 for the large urban and other areas rates and
0.9382 for the capital Federal rate.
We proposed to establish a fixed loss cost outlier threshold for FY
1999 equal to the prospective payment rate for the DRG plus the IME and
DSH payments plus $11,350 ($10,355 for hospitals that have not yet
entered the prospective payment system for capital-related costs). In
addition, we proposed to maintain the marginal cost factor for cost
outliers at 80 percent. In setting the final FY 1999 outlier
thresholds, we used updated data and a revised cost inflation factor.
In this final rule, we are establishing a fixed loss cost outlier
threshold for FY 1999 equal to the prospective payment rate for the DRG
plus IME and DSH payments plus $11,100 ($10,129 for hospitals that have
not yet entered the prospective payment system for capital-related
costs). In addition, we are maintaining the marginal cost factor for
cost outliers at 80 percent. In FY 1994, we began using a cost
inflation factor rather than a charge inflation factor to update billed
charges for purposes of estimating outlier payments. This refinement
was made to improve our estimation methodology. For FY 1998, we used a
cost inflation factor of minus 2.005 percent (a cost per case decrease
of 2.005 percent). In the proposed rule, based on data then available,
we used a cost inflation factor of minus 1.831 percent to set outlier
thresholds for FY 1999. Based on the most recent data available, we are
using a cost inflation factor of minus 1.724 percent to set the final
FY 1999 outlier thresholds.
ii. Other changes concerning outliers. In accordance with section
1886(d)(5)(A)(iv) of the Act, we calculated outlier thresholds so that
outlier payments are projected to equal 5.1 percent of total payments
based on DRG prospective payment rates. In accordance with section
1886(d)(3)(E), we reduced the FY 1999 standardized amounts by the same
percentage to account for the projected proportion of payments paid to
outliers.
As stated in the September 1, 1993 final rule (58 FR 46348), we
establish outlier thresholds that are applicable to both inpatient
operating costs and inpatient capital-related costs. When we modeled
the combined operating and capital outlier payments, we found that
using a common set of thresholds resulted in a higher percentage of
outlier payments for capital-related costs than for operating costs. We
project that the thresholds for FY 1999 will result in outlier payments
equal to 5.1 percent of operating DRG payments and 6.1 percent of
capital payments based on the Federal rate.
The proposed outlier adjustment factors applied to the standardized
amounts for FY 1999 were as follows:

------------------------------------------------------------------------
Operating Capital
standardized federal
amounts rate
------------------------------------------------------------------------
National....................................... 0.948819 0.9378
Puerto Rico.................................... 0.972962 0.9626
------------------------------------------------------------------------

The final outlier adjustment factors applied to the standardized
amounts for FY 1999 are as follows:

------------------------------------------------------------------------
Operating Capital
standardized federal
amounts rate
------------------------------------------------------------------------
National....................................... 0.948740 0.9392
Puerto Rico.................................... 0.972959 0.9634
------------------------------------------------------------------------

As in the proposed rule, we apply the outlier adjustment factors
after removing the effects of the FY 1998 outlier adjustment factors on
the standardized amounts.
Table 8A in section VI of this addendum contains the updated
Statewide average operating cost-to-charge ratios for urban hospitals
and for rural hospitals to be used in calculating cost outlier payments
for those hospitals for which the intermediary is unable to compute a
reasonable hospital-specific cost-to-charge ratio. These Statewide

[[Page 41009]]

average ratios would replace the ratios published in the August 29,
1997 final rule with comment period (62 FR 46113), effective October 1,
1998. Table 8B contains comparable Statewide average capital cost-to-
charge ratios. These average ratios would be used to calculate cost
outlier payments for those hospitals for which the intermediary
computes operating cost-to-charge ratios lower than 0.217484 or greater
than 1.27282 and capital cost-to-charge ratios lower than 0.01313 or
greater than 0.17490. This range represents 3.0 standard deviations
(plus or minus) from the mean of the log distribution of cost-to-charge
ratios for all hospitals. We note that the cost-to-charge ratios in
Tables 8A and 8B will be used during FY 1999 when hospital-specific
cost-to-charge ratios based on the latest settled cost report are
either not available or outside the three standard deviations range.
iii. FY 1997 and FY 1998 outlier payments. In the August 29, 1997
final rule with comment period (62 FR 46041), we stated that, based on
available data, we estimated that actual FY 1997 outlier payments would
be approximately 4.8 percent of actual total DRG payments. This was
computed by simulating payments using actual FY 1996 bill data
available at the time. That is, the estimate of actual outlier payments
did not reflect actual FY 1997 bills but instead reflected the
application of FY 1997 rates and policies to available FY 1996 bills.
Our current estimate, using available FY 1997 bills, is that actual
outlier payments for FY 1997 were approximately 5.5 percent of actual
total DRG payments. We note that the MedPAR file for FY 1997 discharges
continues to be updated.
We currently estimate that actual outlier payments for FY 1998 will
be approximately 5.4 percent of actual total DRG payments, slightly
higher than the 5.1 percent we projected in setting outlier policies
for FY 1998. This estimate is based on simulations using the March 1998
update of the provider-specific file and the March 1998 update of the
FY 1997 MedPAR file (discharge data for FY 1997 bills). We used these
data to calculate an estimate of the actual outlier percentage for FY
1998 by applying FY 1998 rates and policies to available FY 1997 bills.
We received one comment on outliers, which commended us for
improving our outlier estimation methodology.
5. FY 1999 Standardized Amounts
The adjusted standardized amounts are divided into labor and
nonlabor portions. Table 1A (Table 1E for ``temporary relief''
hospitals) contains the two national standardized amounts that are
applicable to all hospitals, except for hospitals in Puerto Rico. Under
section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto
Rico payment rate is based on the discharge-weighted average of the
national large urban standardized amount and the national other
standardized amount (as set forth in Table 1A and 1E). The labor and
nonlabor portions of the national average standardized amounts for
Puerto Rico hospitals are set forth in Table 1C (Table 1F for
``temporary relief'' hospitals). These tables also include the Puerto
Rico standardized amounts.

B. Adjustments for Area Wage Levels and Cost of Living

Tables 1A, 1C, 1E and 1F, as set forth in section VI of this
addendum, contain the labor-related and nonlabor-related shares used to
calculate the prospective payment rates for hospitals located in the 50
States, the District of Columbia, and Puerto Rico. This section
addresses two types of adjustments to the standardized amounts that are
made in determining the prospective payment rates as described in this
addendum.
1. Adjustment for Area Wage Levels
Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require
that an adjustment be made to the labor-related portion of the
prospective payment rates to account for area differences in hospital
wage levels. This adjustment is made by multiplying the labor-related
portion of the adjusted standardized amounts by the appropriate wage
index for the area in which the hospital is located. In section III of
the preamble, we discuss certain revisions we are making to the wage
index. The wage index is set forth in Tables 4A through 4F of this
addendum.
2. Adjustment for Cost of Living in Alaska and Hawaii
Section 1886(d)(5)(H) of the Act authorizes an adjustment to take
into account the unique circumstances of hospitals in Alaska and
Hawaii. Higher labor-related costs for these two States are taken into
account in the adjustment for area wages described above. For FY 1999,
we are adjusting the payments for hospitals in Alaska and Hawaii by
multiplying the nonlabor portion of the standardized amounts by the
appropriate adjustment factor contained in the table below.

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

------------------------------------------------------------------------
Alaska--All areas............................................. 1.25
Hawaii: ........
County of Honolulu.......................................... 1.225
County of Hawaii............................................ 1.15
County of Kauai............................................. 1.225
County of Maui.............................................. 1.225
County of Kalawao........................................... 1.225
------------------------------------------------------------------------

(The above factors are based on data obtained from the U.S.
Office of Personnel Management.)

C. DRG Relative Weights

As discussed in section II of the preamble, we have developed a
classification system for all hospital discharges, assigning them into
DRGs, and have developed relative weights for each DRG that reflect the
resource utilization of cases in each DRG relative to Medicare cases in
other DRGs. Table 5 of section VI of this addendum contains the
relative weights that we will use for discharges occurring in FY 1999.
These factors have been recalibrated as explained in section II.C of
the preamble.

D. Calculation of Prospective Payment Rates for FY 1999 General Formula
for Calculation of Prospective Payment Rates for FY 1999

Prospective payment rate for all hospitals located outside of
Puerto Rico except sole community hospitals and Medicare-dependent,
small rural hospitals = Federal rate.
Prospective payment rate for sole community hospitals = Whichever
of the following rates yields the greatest aggregate payment: 100
percent of the Federal rate, 100 percent of the updated FY 1982
hospital-specific rate, or 100 percent of the updated FY 1987 hospital-
specific rate.
Prospective payment rate for Medicare-dependent, small rural
hospitals = 100 percent of the Federal rate plus, if the greater of the
updated FY 1982 hospital-specific rate or the updated FY 1987 hospital-
specific rate is higher than the Federal rate, 50 percent of the
difference between the applicable hospital-specific rate and the
Federal rate.
Prospective payment rate for Puerto Rico = 50 percent of the Puerto
Rico rate + 50 percent of a discharge-weighted average of the national
large urban standardized amount and the national other standardized
amount.
1. Federal Rate
For discharges occurring on or after October 1, 1998 and before
October 1,

[[Page 41010]]

1999, except for sole community hospitals, Medicare-dependent, small
rural hospitals, and hospitals in Puerto Rico, the hospital's payment
is based exclusively on the Federal national rate.
The payment amount is determined as follows:
Step 1--Select the appropriate national standardized amount
considering the type of hospital and designation of the hospital as
large urban or other (see Table 1A or 1E, in section VI of this
addendum).
Step 2--Multiply the labor-related portion of the standardized
amount by the applicable wage index (see Tables 4A, 4B, and 4C in
section VI of this addendum).
Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the appropriate cost-of-
living adjustment factor.
Step 4--Add the amount from Step 2 and the nonlabor-related portion
of the standardized amount (adjusted if appropriate under Step 3).
Step 5--Multiply the final amount from Step 4 by the relative
weight corresponding to the appropriate DRG (see Table 5 in section VI
of this addendum).
2. Hospital-Specific Rate (Applicable Only to Sole Community Hospitals
and Medicare-Dependent, Small Rural Hospitals)
Sections 1886(d)(5)(D)(i) and (b)(3)(C) of the Act provide that
sole community hospitals are paid based on whichever of the following
rates yields the greatest aggregate payment: the Federal rate, the
updated hospital-specific rate based on FY 1982 cost per discharge, or
the updated hospital-specific rate based on FY 1987 cost per discharge.
Sections 1886(d)(5)(G) and (b)(3)(D) of the Act provide that
Medicare-dependent, small rural hospitals are paid based on whichever
of the following rates yields the greatest aggregate payment: the
Federal rate or the Federal rate plus 50 percent of the difference
between the Federal rate and the greater of the updated hospital-
specific rate based on FY 1982 and FY 1987 cost per discharge.
Hospital-specific rates have been determined for each of these
hospitals based on both the FY 1982 cost per discharge and the FY 1987
cost per discharge. For a more detailed discussion of the calculation
of the FY 1982 hospital-specific rate and the FY 1987 hospital-specific
rate, we refer the reader to the September 1, 1983 interim final rule
(48 FR 39772); the April 20, 1990 final rule with comment (55 FR
15150); and the September 4, 1990 final rule (55 FR 35994).
a. Updating the FY 1982 and FY 1987 hospital-specific rates for FY
1999. We are increasing the hospital-specific rates by 0.5 percent (the
hospital market basket percentage increase of 2.4 percent minus 1.9
percentage points) for sole community hospitals and Medicare-dependent,
small rural hospitals located in all areas for FY 1999. Section
1886(b)(3)(C)(iv) of the Act provides that the update factor applicable
to the hospital-specific rates for sole community hospitals equals the
update factor provided under section 1886(b)(3)(B)(iv) of the Act,
which, for FY 1999, is the market basket rate of increase minus 1.9
percentage points. Section 1886(b)(3)(D) of the Act provides that the
update factor applicable to the hospital-specific rates for Medicare-
dependent, small rural hospitals equals the update factor provided
under section 1886(b)(3)(B)(iv) of the Act, which, for FY 1999, is the
market basket rate of increase minus 1.9 percentage points.
b. Calculation of hospital-specific rate. For sole community
hospitals and Medicare-dependent, small rural hospitals, the applicable
FY 1999 hospital-specific rate would be calculated by increasing the
hospital's hospital-specific rate for the preceding fiscal year by the
applicable update factor (0.5 percent), which is the same as the update
for all prospective payment hospitals except ``temporary relief''
hospitals. In addition, the hospital-specific rate would be adjusted by
the budget neutrality adjustment factor (that is, 0.999006) as
discussed in section II.A.4.a of this Addendum. This resulting rate
would be used in determining under which rate a sole community hospital
or Medicare-dependent, small rural hospital is paid for its discharges
beginning on or after October 1, 1998, based on the formula set forth
above.
3. General Formula for Calculation of Prospective Payment Rates for
Hospitals Located in Puerto Rico Beginning on or After October 1, 1998
and Before October 1, 1999
a. Puerto Rico rate. The Puerto Rico prospective payment rate is
determined as follows:
Step 1--Select the appropriate adjusted average standardized amount
considering the large urban or other designation of the hospital (see
Table 1C or 1F of section VI of this addendum).
Step 2--Multiply the labor-related portion of the standardized
amount by the appropriate Puerto Rico-specific wage index (see Table 4F
in section VI of this addendum).
Step 3--Add the amount from Step 2 and the nonlabor-related portion
of the standardized amount.
Step 4--Multiply the result in Step 3 by 50 percent.
Step 5--Multiply the amount from Step 4 by the appropriate DRG
relative weight (see Table 5 in section VI of this addendum).
b. National rate. The national prospective payment rate is
determined as follows:
Step 1--Multiply the labor-related portion of the national average
standardized amount (see Table 1C or 1F of section VI of the addendum)
by the appropriate national wage index (see Tables 4A and 4B in section
VI of this addendum).
Step 2--Add the amount from Step 1 and the nonlabor-related portion
of the national average standardized amount.
Step 3--Multiply the result in Step 2 by 50 percent.
Step 4--Multiply the amount from Step 3 by the appropriate DRG
relative weight (see Table 5 in section VI of this addendum).
The sum of the Puerto Rico rate and the national rate computed
above equals the prospective payment for a given discharge for a
hospital located in Puerto Rico.

III. Changes to the Payment Rates for Blood Clotting Factor for
Hemophilia Inpatients

As discussed in our August 29, 1997 final rule with comment period
(62 FR 46002) and our May 12, 1998 final rule (63 FR 26327), section
4452 of Public Law 105-33 amended section 6011(d) of Public Law 101-239
to reinstate the add-on payment for the costs of administering blood
clotting factor to Medicare beneficiaries who have hemophilia and who
are hospital inpatients for discharges occurring on or after October 1,
1997.
We are calculating the add-on payment for FY 1999 using the same
methodology we described in the August 29, 1997 and May 12, 1998 final
rules. That is, we are establishing a price per unit of clotting factor
based on the average wholesale price (AWP). To identify the AWP, we are
using the most recent data available from First Databank. The add-on
payment amount for each clotting factor, as described by HCFA's Common
Procedure Coding System (HCPCS), is based on the median AWP of the
several products available in that category of factor, discounted by 15
percent.

[[Page 41011]]

Based on this methodology, the prices per unit of factor for FY
1999 are as follows:

J7190 Factor VIII (antihemophilic factor, human)............... 0.78
J7192 Factor VIII (antihemophilic factor, recombinant)......... 1.00
J7194 Factor IX (complex)...................................... 0.38
J7196 Other hemophilia clotting factors (e.g., anti-inhibitors) 1.10
Q0160 Factor IX (antihemophilic factor, purified,
nonrecombinant)............................................... 0.93
Q0161 Factor IX (antihemophilic factor, purified, recombinant). 1.00

These prices for blood clotting factor administered to inpatients
who have hemophilia will be effective for discharges beginning on or
after October 1, 1998 through September 30, 1999. Payment will be made
for blood clotting factor only if there is an ICD-9-CM diagnosis code
for hemophilia included on the bill.

IV. Changes to Payment Rates for Inpatient Capital-Related Costs
for FY 1999

The prospective payment system for hospital inpatient capital-
related costs was implemented for cost reporting periods beginning on
or after October 1, 1991. Effective with that cost reporting period and
during a 10-year transition period extending through FY 2001, hospital
inpatient capital-related costs are paid on the basis of an increasing
proportion of the capital prospective payment system Federal rate and a
decreasing proportion of a hospital's historical costs for capital.
The basic methodology for determining Federal capital prospective
rates is set forth at Secs. 412.308 through 412.352. Below we discuss
the factors that we used to determine the Federal rate and the
hospital-specific rates for FY 1999. The rates will be effective for
discharges occurring on or after October 1, 1998.
For FY 1992, we computed the standard Federal payment rate for
capital-related costs under the prospective payment system by updating
the FY 1989 Medicare inpatient capital cost per case by an actuarial
estimate of the increase in Medicare inpatient capital costs per case.
Each year after FY 1992 we update the standard Federal rate, as
provided in Sec. 412.308(c)(1), to account for capital input price
increases and other factors. Also, Sec. 412.308(c)(2) provides that the
Federal rate is adjusted annually by a factor equal to the estimated
proportion of outlier payments under the Federal rate to total capital
payments under the Federal rate. In addition, Sec. 412.308(c)(3)
requires that the Federal rate be reduced by an adjustment factor equal
to the estimated proportion of payments for exceptions under
Sec. 412.348. Furthermore, Sec. 412.308(c)(4)(ii) requires that the
Federal rate be adjusted so that the annual DRG reclassification and
the recalibration of DRG weights and changes in the geographic
adjustment factor are budget neutral. For FYs 1992 through 1995,
Sec. 412.352 required that the Federal rate also be adjusted by a
budget neutrality factor so that aggregate payments for inpatient
hospital capital costs were projected to equal 90 percent of the
payments that would have been made for capital-related costs on a
reasonable cost basis during the fiscal year. That provision expired in
FY 1996. Section 412.308(b)(2) describes the 7.4 percent reduction to
the rate made in FY 1994, and Sec. 412.308(b)(3) describes the 0.28
percent reduction to the rate made in FY 1996 as a result of the
revised policy of paying for transfers. In the FY 1998 final rule with
comment period (62 FR 45966) we implemented section 4402 of the BBA,
which required that for discharges occurring on or after October 1,
1997 and before October 1, 2002, the unadjusted standard Federal rate
is reduced by 17.78 percent. A small part of that reduction will be
restored effective October 1, 2002.
For each hospital, the hospital-specific rate was calculated by
dividing the hospital's Medicare inpatient capital-related costs for a
specified base year by its Medicare discharges (adjusted for
transfers), and dividing the result by the hospital's case mix index
(also adjusted for transfers). The resulting case-mix adjusted average
cost per discharge was then updated to FY 1992 based on the national
average increase in Medicare's inpatient capital cost per discharge and
adjusted by the exceptions payment adjustment factor and the budget
neutrality adjustment factor to yield the FY 1992 hospital-specific
rate. Since FY 1992, the hospital-specific rate has been updated
annually for inflation and for changes in the exceptions payment
adjustment factor. For FYs 1992 through 1995, the hospital-specific
rate was also adjusted by a budget neutrality adjustment factor. In the
FY 1998 final rule with comment period (62 FR 46012) we implemented
section 4402 of the BBA, which required that for discharges occurring
on or after October 1, 1997 and before October 1, 2002, the unadjusted
hospital-specific rate is reduced by 17.78 percent. A small part of
that reduction will also be restored effective October 1, 2002.
To determine the appropriate budget neutrality adjustment factor
and the exceptions payment adjustment factor, we developed a dynamic
model of Medicare inpatient capital-related costs, that is, a model
that projects changes in Medicare inpatient capital-related costs over
time. With the expiration of the budget neutrality provision, the model
is still used to estimate the exceptions payment adjustment and other
factors. The model and its application are described in greater detail
in Appendix B of this final rule.
In accordance with section 1886(d)(9)(A) of the Act, under the
prospective payment system for inpatient operating costs, hospitals
located in Puerto Rico are paid for operating costs under a special
payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a
blended rate that consisted of 75 percent of the applicable
standardized amount specific to Puerto Rico hospitals and 25 percent of
the applicable national average standardized amount. However, effective
October 1, 1997, as a result of section 4406 of the BBA, operating
payments to hospitals in Puerto Rico are based on a blend of 50 percent
of the applicable standardized amount specific to Puerto Rico hospitals
and 50 percent of the applicable national average standardized amount.
In conjunction with this change to the operating blend percentage,
effective with discharges on or after October 1, 1997, we compute
capital payments to hospitals in Puerto Rico based on a blend of 50
percent of the Puerto Rico rate and 50 percent of the Federal rate.
Section 412.374 provides for the use of this blended payment system for
payments to Puerto Rico hospitals under the prospective payment system
for inpatient capital-related costs. Accordingly, for capital-related
costs we compute a separate payment rate specific to Puerto Rico
hospitals using the same methodology used to compute the national
Federal rate for capital.

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

For FY 1998, the Federal rate was $371.51. In the proposed rule, we
stated that the proposed FY 1999 Federal rate was $377.25. In this
final rule, we are establishing a FY 1999 Federal rate of $378.05.
In the discussion that follows, we explain the factors that were
used to determine the FY 1999 Federal rate. In particular, we explain
why the FY 1999 Federal rate has increased 1.76 percent compared to the
FY 1998 Federal rate. Even though we estimate that Medicare hospital
inpatient discharges will decline by approximately 2.25 percent between
FY 1998 and FY 1999, we also estimate that aggregate capital payments

[[Page 41012]]

will increase by 2.78 percent during this same period. This aggregate
increase is primarily due to the change in the federal rate blend
percentage from 70 percent to 80 percent, the 1.76 percent increase in
the rate, and a projected increase in case mix.
The major factor contributing to the increase in the capital
Federal rate for FY 1999 relative to FY 1998 is that the FY 1999
exceptions reduction factor is 1.28 percent higher than the factor for
FY 1998. The exceptions reduction factor equals 1 minus the projected
percentage of exceptions payments. We estimate that the projected
percentage of exceptions payments for FY 1999 will be lower than the
projected percentage for FY 1998; accordingly, the FY 1999 rate
reflects less of a reduction to account for exceptions than the FY 1998
rate.
Total payments to hospitals under the prospective payment system
are relatively unaffected by changes in the capital prospective
payments. Since capital payments constitute about 10 percent of
hospital payments, a 1 percent change in the capital Federal rate
yields only about 0.1 percent change in actual payments to hospitals.
Aggregate payments under the capital prospective payment transition
system are estimated to increase in FY 1999 compared to FY 1998.
1. Standard Federal Rate Update
a. Description of the update framework. Under section
412.308(c)(1), the standard Federal rate is updated on the basis of an
analytical framework that takes into account changes in a capital input
price index (CIPI) and other factors. The update framework consists of
a CIPI and several policy adjustment factors. Specifically, we have
adjusted the projected CIPI rate of increase as appropriate each year
for case-mix index related changes, for intensity, and for errors in
previous CIPI forecasts. The proposed rule reflected an update factor
of 0.2 percent, based on data available at that time. Under the update
framework the final update factor for FY 1999 is 0.1 percent. This
update factor is based on a projected 0.7 percent increase in the CIPI,
policy adjustment factors of -0.2, and a forecast error correction of
-0.4 percent. We explain the basis for the FY 1999 CIPI projection in
section D of this addendum. Here we describe the policy adjustments
that have been applied.
The case-mix index is the measure of the average DRG weight for
cases paid under the prospective payment system. Because the DRG weight
determines the prospective payment for each case, any percentage
increase in the case-mix index corresponds to an equal percentage
increase in hospital payments.
The case-mix index can change for any of several reasons:
The average resource use of Medicare patients changes
(``real'' case-mix change);
Changes in hospital coding of patient records result in
higher weight DRG assignments (``coding effects''); and
The annual DRG reclassification and recalibration changes
may not be budget neutral (``reclassification effect'').
We define real case-mix change as actual changes in the mix (and
resource requirements) of Medicare patients as opposed to changes in
coding behavior that result in assignment of cases to higher-weighted
DRGs but do not reflect higher resource requirements. In the update
framework for the prospective payment system for operating costs, we
adjust the update upwards to allow for real case-mix change, but remove
the effects of coding changes on the case-mix index. We also remove the
effect on total payments of prior changes to the DRG classifications
and relative weights, in order to retain budget neutrality for all
case-mix index-related changes other than patient severity. (For
example, we adjusted for the effects of the FY 1992 DRG
reclassification and recalibration as part of our FY 1994 update
recommendation.) The operating adjustment consists of a reduction for
total observed case-mix change, an increase for the portion of case-mix
change that we determine is due to real case-mix change rather than
coding modifications, and an adjustment for the effect of prior DRG
reclassification and recalibration changes. We have adopted this case-
mix index adjustment in the capital update framework as well.
For FY 1999, we are projecting a 1.0 percent increase in the case-
mix index. We estimate that real case-mix increase will equal 0.8
percent in FY 1999. Therefore, the net adjustment for case-mix change
in FY 1999 is--0.2 percentage points.
We estimate that DRG reclassification and recalibration result in a
0.0 percent change in the case mix when compared with the case-mix
index that would have resulted if we had not made the reclassification
and recalibration changes to the DRGs.
The capital update framework contains an adjustment for forecast
error. The input price index forecast is based on historical trends and
relationships ascertainable at the time the update factor is
established for the upcoming year. In any given year there may be
unanticipated price fluctuations that may result in differences between
the actual increase in prices faced by hospitals and the forecast used
in calculating the update factors. In setting a prospective payment
rate under the framework, we make an adjustment for forecast error only
if our estimate of the capital input price index rate of increase for
any year is off by 0.25 percentage points or more. There is a 2-year
lag between the forecast and the measurement of the forecast error. We
estimate a forecast error of -0.4 percentage points in the update for
FY 1997. That is, current data indicate that the FY 1997 CIPI used in
calculating the FY 1997 update factor overstated price increases by 0.4
percent. Therefore we are making a -0.4 percent adjustment for forecast
error in the update for FY 1999.
Under the capital prospective payment system framework, we also
make an adjustment for changes in intensity. We calculate this
adjustment using the same methodology and data as in the framework for
the operating prospective payment system. The intensity factor for the
operating update framework reflects how hospital services are utilized
to produce the final product, that is, the discharge. This component
accounts for changes in the use of quality-enhancing services, changes
in within-DRG severity, and expected modification of practice patterns
to remove cost-ineffective services.
We calculate case-mix constant intensity as the change in total
charges per admission, adjusted for price level changes (the CPI
hospital component), and changes in real case mix. The use of total
charges in the calculation of the intensity factor makes it a total
intensity factor, that is, charges for capital services are already
built into the calculation of the factor. We have, therefore,
incorporated the intensity adjustment from the operating update
framework into the capital update framework. Without reliable estimates
of the proportions of the overall annual intensity increases that are
due, respectively, to ineffective practice patterns and to the
combination of quality-enhancing new technologies and within-DRG
complexity, we assume, as in the revised operating update framework,
that one-half of the annual increase is due to each of these factors.
The capital update framework thus provides an add-on to the input price
index rate of increase of one-half of the estimated annual increase in
intensity to allow for within-DRG severity increases and the adoption
of quality-enhancing technology.

[[Page 41013]]

For FY 1999, we have developed a Medicare-specific intensity
measure based on a 5-year average using FY 1993-1997 data. In
determining case-mix constant intensity, we found that observed case-
mix increase was 0.9 percent in FY 1993, 0.8 percent in FY 1994, 1.7
percent in FY 1995, 1.6 percent in FY 1996, and 0.3 percent in FY 1997.
For FY 1995 and FY 1996, we estimate that real case-mix increase was
1.0 to 1.4 percent each year. The estimate for those years is supported
by past studies of case-mix change by the RAND Corporation. The most
recent study was ``Has DRG Creep Crept Up? Decomposing the Case Mix
Index Change Between 1987 and 1988'' by G. M. Carter, J. P. Newhouse,
and D. A. Relles, R-4098-HCFA/ProPAC (1991). The study suggested that
real case-mix change was not dependent on total change, but was usually
a fairly steady 1.0 to 1.5 percent per year. We use 1.4 percent as the
upper bound because the RAND study did not take into account that
hospitals may have induced doctors to document medical records more
completely in order to improve payment. Following that study, we
consider up to 1.4 percent of observed case-mix change as real for FY
1992 through FY 1997. Based on this analysis, we believe that all of
the observed case-mix increase for FY 1993, FY 1994 and FY 1997 is
real.
We calculate case-mix constant intensity as the change in total
charges per admission, adjusted for price level changes (the CPI
hospital component), and changes in real case-mix. Given estimates of
real case mix of 0.9 percent for FY 1993, 0.8 percent for FY 1994, 1.0
percent for FY 1995, and 1.0 percent for FY 1996, and 0.3 percent for
FY 1997, we estimate that case-mix constant intensity declined by an
average 1.5 percent during FYs 1993 through 1997, for a cumulative
decrease of 7.3 percent. If we assume that real case-mix increase was
0.9 percent for FY 1993, 0.8 percent for FY 1994, 1.4 percent for FY
1995, 1.4 percent for FY 1996 and 0.3 percent for FY 1997, we estimate
that case-mix constant intensity declined by an average 1.6 percent
during FYs 1993 through 1997, for a cumulative decrease of 7.7 percent.
Since we estimate that intensity has declined during that period, we
are making a 0.0 percent intensity adjustment for FY 1999.
In summary, the FY 1999 final update under our framework is 0.1
percent. This update factor is based on a projected 0.7 percent
increase in the CIPI, policy adjustment factors of -0.2, and a forecast
error correction of -0.4 percent.
b. Comparison of HCFA and MedPAC update recommendations. As
discussed in the proposed rule, MedPAC recommended a 0.0 to 0.7 percent
update to the standard Federal rate and we recommended a 0.2 percent
update. (See the May 8, 1998 proposed rule for a discussion of the
differences between the MedPAC and HCFA update frameworks (63 FR
25615)). In this final rule, as discussed in the previous section, we
are implementing a 0.1 percent update to the capital Federal rate.
Comment: MedPAC noted our update recommendation of 0.2 percent was
within the range of the 0.0 percent to 0.7 percent update which they
had recommended. They also restated a comment from their March report,
that although the operating and capital payment rates are determined
separately, they are related to the costs generated by providing
hospital services to the same Medicare patients, and distinguishing
between them for payment purposes is arbitrary and does not foster
efficient hospital decision-making about resource allocation. Since the
transition to fully prospective payment for capital will end on
September 30, 2001, the objective of combining the two payment systems
should be kept in mind.
Response: Several years ago ProPAC made a similar comment
recommending the adoption of a single update framework for adjusting
operating and capital prospective payment rates when the transition to
full Federal rate capital payments is complete. In the September 1,
1995 prospective payment system final rule (60 FR 45816) we responded
that our long term goal was to develop a single update framework and
that we would begin development of a unified framework. We stated that
in the meantime we would maintain as much consistency as possible with
the current operating framework in order to facilitate the eventual
development of a unified framework. We believe that because of the
similarities in the operating and capital update frameworks, they could
be combined without too much difficulty. We maintain our goal of
combining the update frameworks at the end of the capital transition
period and may examine combining the payment systems post transition.
2. Outlier Payment Adjustment Factor
Section 412.312(c) establishes a unified outlier methodology for
inpatient operating and inpatient capital-related costs. A single set
of thresholds is used to identify outlier cases for both inpatient
operating and inpatient capital-related payments. Outlier payments are
made only on the portion of the Federal rate that is used to calculate
the hospital's inpatient capital-related payments (for example, 80
percent for cost reporting periods beginning in FY 1999 for hospitals
paid under the fully prospective methodology). Section 412.308(c)(2)
provides that the standard Federal rate for inpatient capital-related
costs be reduced by an adjustment factor equal to the estimated
proportion of outlier payments under the Federal rate to total
inpatient capital-related payments under the Federal rate. The outlier
thresholds are set so that operating outlier payments are projected to
be 5.1 percent of total operating DRG payments. The inpatient capital-
related outlier reduction factor reflects the inpatient capital-related
outlier payments that would be made if all hospitals were paid 100
percent of the Federal rate. For purposes of calculating the outlier
thresholds and the outlier reduction factor, we model payments as if
all hospitals were paid 100 percent of the Federal rate because, as
explained above, outlier payments are made only on the portion of the
Federal rate that is included in the hospital's inpatient capital-
related payments.
In the August 29, 1997 final rule with comment period, we estimated
that outlier payments for capital in FY 1998 would equal 6.18 percent
of inpatient capital-related payments based on the Federal rate.
Accordingly, we applied an outlier adjustment factor of 0.9382 to the
Federal rate. For FY 1999, we estimate that outlier payments for
capital will equal 6.08 percent of inpatient capital-related payments
based on the Federal rate. We are, therefore, establishing an outlier
adjustment factor of 0.9392 to the Federal rate. Thus, estimated
capital outlier payments for FY 1999 represent a smaller percentage of
total capital standard payments than in FY 1998.
The outlier reduction factors are not built permanently into the
rates; that is, they are not applied cumulatively in determining the
Federal rate. Therefore, the net change in the outlier adjustment to
the Federal rate for FY 1999 is 1.0011 (0.9392/0.9382). Thus, the
outlier adjustment increases the FY 1999 Federal rate by 0.11 percent
(1.0011-1) compared with the FY 1998 outlier adjustment.
3. Budget Neutrality Adjustment Factor for Changes in DRG
Classifications and Weights and the Geographic Adjustment Factor
Section 412.308(c)(4)(ii) requires that the Federal rate be
adjusted so that

[[Page 41014]]

aggregate payments for the fiscal year based on the Federal rate after
any changes resulting from the annual DRG reclassification and
recalibration and changes in the GAF are projected to equal aggregate
payments that would have been made on the basis of the Federal rate
without such changes. We use the actuarial model, described in Appendix
B, to estimate the aggregate payments that would have been made on the
basis of the Federal rate without changes in the DRG classifications
and weights and in the GAF. We also use the model to estimate aggregate
payments that would be made on the basis of the Federal rate as a
result of those changes. We then use these figures to compute the
adjustment required to maintain budget neutrality for changes in DRG
weights and in the GAF.
For FY 1998, we calculated a GAF/DRG budget neutrality factor of
0.9989. In the proposed rule for FY 1999, we proposed a GAF/DRG budget
neutrality factor of 1.0032. In this final rule, based on calculations
using updated data, we are applying a factor of 1.0027. The GAF/DRG
budget neutrality factors are built permanently into the rates; that
is, they are applied cumulatively in determining the Federal rate. This
follows from the requirement that estimated aggregate payments each
year be no more than they would have been in the absence of the annual
DRG reclassification and recalibration and changes in the GAF. The
incremental change in the adjustment from FY 1998 to FY 1999 is 1.0027.
The cumulative change in the rate due to this adjustment is 1.0028 (the
product of the incremental factors for FY 1993, FY 1994, FY 1995, FY
1996, FY 1997, FY 1998, and FY 1999: 0.9980 x 1.0053 x 0.9998 x 0.9994
x 0.9987 x 0.9989 x 1.0027 = 1.0028).
This factor accounts for DRG reclassifications and recalibration
and for changes in the GAF. It also incorporates the effects on the GAF
of FY 1999 geographic reclassification decisions made by the MGCRB
compared to FY 1998 decisions. However, it does not account for changes
in payments due to changes in the disproportionate share and indirect
medical education adjustment factors or in the large urban add-on.
4. Exceptions Payment Adjustment Factor
Section 412.308(c)(3) requires that the standard Federal rate for
inpatient capital-related costs be reduced by an adjustment factor
equal to the estimated proportion of additional payments for exceptions
under Sec. 412.348 relative to total payments under the hospital-
specific rate and Federal rate. We use an actuarial model described in
Appendix B to determine the exceptions payment adjustment factor.
For FY 1998, we estimated that exceptions payments would equal 3.41
percent of aggregate payments based on the Federal rate and the
hospital-specific rate. Therefore, we applied an exceptions reduction
factor of 0.9659 (1--0.0341) in determining the Federal rate. In the
May 8, 1998 proposed rule, we estimated that exceptions payments for FY
1999 would equal 2.39 percent of aggregate payments based on the
Federal rate and the hospital-specific rate. Therefore, we proposed an
exceptions payment reduction factor of 0.9761 to the Federal rate for
FY 1999. For this final rule, based on updated data, we estimate that
exceptions payments for FY 1999 will equal 2.17 percent of aggregate
payments based on the Federal rate and the hospital-specific rate. We
are, therefore, applying an exceptions payment reduction factor of
0.9783 (1--0.0217) to the Federal rate for FY 1999. The final
exceptions reduction factor for FY 1999 is 1.28 percent higher than the
factor for FY 1998 and .23 percent higher than the factor in the FY
1999 proposed rule.
The exceptions reduction factors are not built permanently into the
rates; that is, the factors are not applied cumulatively in determining
the Federal rate. Therefore, the net adjustment to the FY 1999 Federal
rate is 0.9783/0.9659, or 1.0128.
5. Standard Capital Federal Rate for FY 1999
For FY 1998, the capital Federal rate was $371.51. With the changes
we proposed to the factors used to establish the Federal rate, we
proposed that the FY 1999 Federal rate would be $377.25. In this final
rule, we are establishing a FY 1999 Federal rate of $378.05. The
Federal rate for FY 1999 was calculated as follows:
The FY 1999 update factor is 1.0010, that is, the update
is 0.10 percent.
The FY 1999 budget neutrality adjustment factor that is
applied to the standard Federal payment rate for changes in the DRG
relative weights and in the GAF is 1.0027.
The FY 1999 outlier adjustment factor is 0.9392.
The FY 1999 exceptions payments adjustment factor is
0.9783.
Since the Federal rate has already been adjusted for differences in
case mix, wages, cost of living, indirect medical education costs, and
payments to hospitals serving a disproportionate share of low-income
patients, we have made no additional adjustments in the standard
Federal rate for these factors other than the budget neutrality factor
for changes in the DRG relative weights and the GAF.
We are providing a chart that shows how each of the factors and
adjustments for FY 1999 affected the computation of the FY 1999 Federal
rate in comparison to the FY 1998 Federal rate. The FY 1999 update
factor has the effect of increasing the Federal rate by 0.10 percent
compared to the rate in FY 1998, while the final geographic and DRG
budget neutrality factor has the effect of increasing the Federal rate
by 0.27 percent. The FY 1999 outlier adjustment factor has the effect
of increasing the Federal rate by 0.11 percent compared to FY 1998. The
FY 1999 exceptions reduction factor has the effect of increasing the
Federal rate by 1.27 percent compared to the exceptions reduction
factor for FY 1998. The combined effect of all the changes is to
increase the Federal rate by 1.76 percent compared to the Federal rate
for FY 1998.

Comparison of Factors and Adjustments--FY 1998 Federal Rate and FY 1999 Federal Rate
----------------------------------------------------------------------------------------------------------------
Percent
FY 98 FY 99 Change change
----------------------------------------------------------------------------------------------------------------
Update factor \1\......................................... 1.0090 1.0010 1.0010 0.10
GAF/DRG Adjustment Factor \1\............................. 0.9989 1.0027 1.0027 0.27
Outlier Adjustment Factor \2\............................. 0.9382 0.9392 1.0011 0.11
Exceptions Adjustment Factor \2\.......................... 0.9659 0.9783 1.0128 1.28
Federal Rate.............................................. $371.51 $378.05 1.0176 1.76
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the rates. Thus, for
example, the incremental change from FY 1998 to FY 1999 resulting from the application of the GAF/DRG budget
neutrality factor for FY 1999 is 1.0027.

[[Page 41015]]

\2\ The outlier reduction factor and the exceptions reduction factor are not built permanently into the rates;
that is, these factors are not applied cumulatively in determining the rates. Thus, for example, the net
change resulting from the application of the FY 1999 outlier reduction factor is 0.9392/0.9382, or 1.0011.

We are also providing a chart that shows how the final FY 1999
Federal rate differs from the proposed FY 1999 Federal rate.

Comparison of Factors and Adjustments--FY 1999 Proposed Federal Rate and FY 1999 Final Federal Rate
----------------------------------------------------------------------------------------------------------------
Proposed FY Percent
99 Final FY 99 Change change
----------------------------------------------------------------------------------------------------------------
Update factor............................................. 1.0020 1.0010 0.9990 -0.10
GAF/DRG Adjustment Factor................................. 1.0032 1.0027 0.9995 -0.05
Outlier Adjustment Factor................................. 0.9378 0.9392 1.0015 0.15
Exceptions Adjustment Factor.............................. 0.9761 0.9783 1.0023 0.23
Federal Rate.............................................. $377.25 $378.05 1.0021 0.21
----------------------------------------------------------------------------------------------------------------

6. Special Rate for Puerto Rico Hospitals
As explained at the beginning of this section, hospitals in Puerto
Rico are paid based on 50 percent of the Puerto Rico rate and 50
percent of the Federal rate. The Puerto Rico rate is derived from the
costs of Puerto Rico hospitals only, while the Federal rate is derived
from the costs of all acute care hospitals participating in the
prospective payment system (including Puerto Rico). To adjust
hospitals' capital payments for geographic variations in capital costs,
we apply a geographic adjustment factor (GAF) to both portions of the
blended rate. The GAF is calculated using the operating PPS wage index
and varies depending on the MSA or rural area in which the hospital is
located. We use the Puerto Rico wage index to determine the GAF for the
Puerto Rico part of the capital blended rate and the national wage
index to determine the GAF for the national part of the blended rate.
Since we implemented a separate GAF for Puerto Rico, we applied
separate budget neutrality adjustments for the national GAF and for the
Puerto Rico GAF. We applied the same budget neutrality factor for DRG
reclassifications and recalibration nationally and for Puerto Rico.
Separate adjustments were unnecessary for FY 1998 since the Puerto Rico
specific GAF was implemented that year. For FY 1999 the Puerto Rico GAF
budget neutrality factor is 0.9988, while the DRG adjustment is 1.0034,
for a combined cumulative adjustment of 1.0022. (For a more detailed
explanation of this change see Appendix B.)
In computing the payment for a particular Puerto Rico hospital, the
Puerto Rico portion of the rate (50%) is multiplied by the Puerto Rico-
specific GAF for the MSA in which the hospital is located, and the
national portion of the rate (50%) is multiplied by the national GAF
for the MSA in which the hospital is located (which is computed from
national data for all hospitals in the United States and Puerto Rico).
In FY 1998, we implemented a 17.78 percent reduction to the Puerto Rico
rate as a result of the BBA.
For FY 1998, before application of the GAF, the special rate for
Puerto Rico hospitals was $177.57. With the changes we proposed to the
factors used to determine the rate, the proposed FY 1999 special rate
for Puerto Rico was $180.73. In this final rule, the FY 1999 capital
rate for Puerto Rico is $181.10.

B. Determination of Hospital-Specific Rate Update

Section 412.328(e) of the regulations provides that the hospital-
specific rate for FY 1999 be determined by adjusting the FY 1998
hospital-specific rate by the following factors:
1. Hospital-Specific Rate Update Factor
The hospital-specific rate is updated in accordance with the update
factor for the standard Federal rate determined under
Sec. 412.308(c)(1). For FY 1999, we are updating the hospital-specific
rate by a factor of 1.0010.
2. Exceptions Payment Adjustment Factor
For FYs 1992 through FY 2001, the updated hospital-specific rate is
multiplied by an adjustment factor to account for estimated exceptions
payments for capital-related costs under Sec. 412.348, determined as a
proportion of the total amount of payments under the hospital-specific
rate and the Federal rate. For FY 1999, we estimated in the proposed
rule that exceptions payments would be 2.39 percent of aggregate
payments based on the Federal rate and the hospital-specific rate.
Therefore, we proposed that the updated hospital-specific rate be
adjusted by a factor of 0.9761. In this final rule, we estimate that
exceptions payments will be 2.17 percent of aggregate payments based on
the Federal rate and the hospital-specific rate. Accordingly, for FY
1999, we are applying an exceptions reduction factor of 0.9783 to the
hospital-specific rate. The exceptions reduction factors are not built
permanently into the rates; that is, the factors are not applied
cumulatively in determining the hospital-specific rate. The net
adjustment to the FY 1999 hospital-specific rate is 0.9783/0.9659, or
1.0128.
3. Net Change to Hospital-Specific Rate
We are providing a chart to show the net change to the hospital-
specific rate. The chart shows the factors for FY 1998 and FY 1999 and
the net adjustment for each factor. It also shows that the cumulative
net adjustment from FY 1998 to FY 1999 is 1.0138, which represents a
increase of 1.38 percent to the hospital-specific rate. For each
hospital, the FY 1999 hospital-specific rate is determined by
multiplying the FY 1998 hospital-specific rate by the cumulative net
adjustment of 1.0138.

FY 1999 Update and Adjustments to Hospital-Specific Rates
----------------------------------------------------------------------------------------------------------------
Net Percent
FY 98 FY 99 adjustment change
----------------------------------------------------------------------------------------------------------------
Update Factor............................................... 1.0090 1.0010 1.0010 0.10
Exceptions Payment Adjustment Factor........................ 0.9659 0.9783 1.0128 1.28

[[Page 41016]]

Cumulative Adjustments...................................... 0.9746 0.9880 1.0138 1.38
----------------------------------------------------------------------------------------------------------------
Note: The update factor for the hospital-specific rate is applied cumulatively in determining the rates. Thus,
the incremental increase in the update factor from FY 1998 to FY 1999 is 1.0020. In contrast, the exceptions
payment adjustment factor is not applied cumulatively. Thus, for example, the incremental increase in the
exceptions reduction factor from FY 1998 to FY 1999 is 0.9783/0.9659, or 1.0128.

C. Calculation of Inpatient Capital-Related Prospective Payments for FY
1999

During the capital prospective payment system transition period, a
hospital is paid for the inpatient capital-related costs under one of
two payment methodologies--the fully prospective payment methodology or
the hold-harmless methodology. The payment methodology applicable to a
particular hospital is determined when a hospital comes under the
prospective payment system for capital-related costs by comparing its
hospital-specific rate to the Federal rate applicable to the hospital's
first cost reporting period under the prospective payment system. The
applicable Federal rate was determined by making adjustments as
follows:
For outliers by dividing the standard Federal rate by the
outlier reduction factor for that fiscal year; and,
For the payment adjustment factors applicable to the
hospital (that is, the hospital's GAF, the disproportionate share
adjustment factor, and the indirect medical education adjustment
factor, when appropriate).
If the hospital-specific rate is above the applicable Federal rate,
the hospital is paid under the hold-harmless methodology. If the
hospital-specific rate is below the applicable Federal rate, the
hospital is paid under the fully prospective methodology.
For purposes of calculating payments for each discharge under both
the hold-harmless payment methodology and the fully prospective payment
methodology, the standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG weight) x (GAF) x (Large Urban Add-on,
if applicable) x (COLA adjustment for hospitals located in Alaska and
Hawaii) x (1 + Disproportionate Share Adjustment Factor + IME
Adjustment Factor, if applicable). The result is the adjusted Federal
rate.
Payments under the hold-harmless methodology are determined under
one of two formulas. A hold-harmless hospital is paid the higher of the
following:
100 percent of the adjusted Federal rate for each
discharge; or
An old capital payment equal to 85 percent (100 percent
for sole community hospitals) of the hospital's allowable Medicare
inpatient old capital costs per discharge for the cost reporting period
plus a new capital payment based on a percentage of the adjusted
Federal rate for each discharge. The percentage of the adjusted Federal
rate equals the ratio of the hospital's allowable Medicare new capital
costs to its total Medicare inpatient capital-related costs in the cost
reporting period.
Once a hospital receives payment based on 100 percent of the
adjusted Federal rate in a cost reporting period beginning on or after
October 1, 1994 (or the first cost reporting period after obligated
capital that is recognized as old capital under Sec. 412.302(c) is put
in use for patient care, if later), the hospital continues to receive
capital prospective payment system payments on that basis for the
remainder of the transition period.
Payment for each discharge under the fully prospective methodology
is the sum of the following:
The hospital-specific rate multiplied by the DRG relative
weight for the discharge and by the applicable hospital-specific
transition blend percentage for the cost reporting period; and
The adjusted Federal rate multiplied by the Federal
transition blend percentage.
The blend percentages for cost reporting periods beginning in FY
1999 are 80 percent of the adjusted Federal rate and 20 percent of the
hospital-specific rate.
Hospitals may also receive outlier payments for those cases that
qualify under the thresholds established for each fiscal year. Section
412.312(c) provides for a single set of thresholds to identify outlier
cases for both inpatient operating and inpatient capital-related
payments. Outlier payments are made only on that portion of the Federal
rate that is used to calculate the hospital's inpatient capital-related
payments. For fully prospective hospitals, that portion is 80 percent
of the Federal rate for discharges occurring in cost reporting periods
beginning during FY 1999. Thus, a fully prospective hospital will
receive 80 percent of the capital-related outlier payment calculated
for the case for discharges occurring in cost reporting periods
beginning in FY 1999. For hold-harmless hospitals paid 85 percent of
their reasonable costs for old inpatient capital, the portion of the
Federal rate that is included in the hospital's outlier payments is
based on the hospital's ratio of Medicare inpatient costs for new
capital to total Medicare inpatient capital costs. For hold-harmless
hospitals that are paid 100 percent of the Federal rate, 100 percent of
the Federal rate is included in the hospital's outlier payments.
The outlier thresholds for FY 1999 are in section II.A.4.c of this
Addendum. For FY 1999, a case qualifies as a cost outlier if the cost
for the case (after standardization for the indirect teaching
adjustment and disproportionate share adjustment) is greater than the
prospective payment rate for the DRG plus $11,100.
During the capital prospective payment system transition period, a
hospital may also receive an additional payment under an exceptions
process if its total inpatient capital-related payments are less than a
minimum percentage of its allowable Medicare inpatient capital-related
costs. The minimum payment level is established by class of hospital
under Sec. 412.348. The minimum payment levels for portions of cost
reporting periods beginning in FY 1999 are:
Sole community hospitals (located in either an urban or
rural area), 90 percent;
Urban hospitals with at least 100 beds and a
disproportionate share patient percentage of at least 20.2 percent; and
Urban hospitals with at least 100 beds that qualify for
disproportionate share payments under Sec. 412.106(c)(2), 80 percent;
and
All other hospitals, 70 percent.
Under Sec. 412.348(d), the amount of the exceptions payment is
determined by comparing the cumulative payments made to the hospital
under the capital prospective payment system to the cumulative minimum
payment levels applicable to the hospital for each cost reporting
period subject to that system.

[[Page 41017]]

Any amount by which the hospital's cumulative payments exceed its
cumulative minimum payment is deducted from the additional payment that
would otherwise be payable for a cost reporting period.
New hospitals are exempted from the capital prospective payment
system for their first 2 years of operation and are paid 85 percent of
their reasonable costs during that period. A new hospital's old capital
costs are its allowable costs for capital assets that were put in use
for patient care on or before the later of December 31, 1990 or the
last day of the hospital's base year cost reporting period, and are
subject to the rules pertaining to old capital and obligated capital as
of the applicable date. Effective with the third year of operation, we
will pay the hospital under either the fully prospective methodology,
using the appropriate transition blend in that Federal fiscal year, or
the hold-harmless methodology. If the hold-harmless methodology is
applicable, the hold-harmless payment for assets in use during the base
period would extend for 8 years, even if the hold-harmless payments
extend beyond the normal transition period.

D. Capital Input Price Index

1. Background
Like the prospective payment hospital operating input price index,
the Capital Input Price Index (CIPI) is a fixed-weight price index that
measures the price changes associated with costs during a given year.
The CIPI differs from the operating input price index in one important
aspect--the CIPI reflects the vintage nature of capital, which is the
acquisition and use of capital over time. Capital expenses in any given
year are determined by the stock of capital in that year (that is,
capital that remains on hand from all current and prior capital
acquisitions). An index measuring capital price changes needs to
reflect this vintage nature of capital. Therefore, the CIPI was
developed to capture the vintage nature of capital by using a weighted-
average of past capital purchase prices up to and including the current
year.
Using Medicare cost reports, AHA data, and Securities Data
Corporation data, a vintage-weighted price index was developed to
measure price increases associated with capital expenses. We
periodically update the base year for the operating and capital input
prices to reflect the changing composition of inputs for operating and
capital expenses. Currently, the CIPI is based to FY 1992 and was last
rebased in 1997. The most recent explanation of the CIPI was discussed
in the final rule with comment period for FY 1998 published in the
August 29, 1997 Federal Register (62 FR 46050). The following Federal
Register documents also describe development and revisions of the
methodology involved with the construction of the CIPI: September 1,
1992 (57 FR 40016), May 26, 1993 (58 FR 30448), September 1, 1993 (58
FR 46490), May 27, 1994 (59 FR 27876), September 1, 1994 (59 FR 45517),
June 2, 1995 (60 FR 29229), and September 1, 1995 (60 FR 45815), May
31, 1996 (61 FR 27466), August 30, 1996 (61 FR 46196), and June 2, 1997
(62 FR 29953), August 29, 1997 (67 FR 46050), and May 8, 1998 (63 FR
25619).
2. Forecast of the CIPI for Federal Fiscal Year 1999
DRI forecasts a 0.7 percent increase in the CIPI for FY 1999. This
is the outcome of a projected 1.9 percent increase in vintage-weighted
depreciation prices (building and fixed equipment, and movable
equipment) and a 2.9 percent increase in other capital expense prices
in FY 1999, partially offset by a 3.0 percent decline in vintage-
weighted interest rates in FY 1999. The weighted average of these three
factors produces the 0.7 percent increase for the CIPI as a whole.

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

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

The inpatient operating costs of hospitals and hospital units
excluded from the prospective payment system are subject to rate-of-
increase limits established under the authority of section 1886(b) of
the Act, which is implemented in Sec. 413.40 of the regulations. Under
these limits, an annual target amount (expressed in terms of the
inpatient operating cost per discharge) is set for each hospital, based
on the hospital's own historical cost experience trended forward by the
applicable rate-of-increase percentages (update factors). In the case
of a psychiatric hospital or unit, rehabilitation hospital or unit, or
long-term care hospital, the target amount may not exceed the 75th
percentile of target amounts for hospitals and units in the same class
(psychiatric, rehabilitation, and long-term care). The target amount is
multiplied by the number of Medicare discharges in a hospital's cost
reporting period, yielding the ceiling on aggregate Medicare inpatient
operating costs for the cost reporting period.
Each hospital's target amount is adjusted annually, at the
beginning of its cost reporting period, by an applicable update factor.
Section 1886(b)(3)(B) of the Act provides that for cost reporting
periods beginning on or after October 1, 1998 and before October 1,
1999, the update factor is the market basket less a percentage point
between 0 and 2.5 depending on the hospital's or unit's costs in
relation to the ceiling. For hospitals with costs exceeding the ceiling
by 10 percent or more, the update factor is the market basket increase.
For hospitals with costs exceeding the ceiling by less than 10 percent,
the update factor is the greater of 0 percent or the market basket
minus .25 percent for each percentage point by which costs are less
than 10 percent over the ceiling. For hospitals with costs equal to or
less than the ceiling but greater than 66.7 percent of the ceiling, the
update factor is the greater of 0 percent or the market basket minus
2.5 percent. For hospitals with costs that do not exceed 66.7 percent
of the ceiling, the update factor is 0.
The most recent forecast of the market basket increase for FY 1999
for hospitals and hospital units excluded from the prospective payment
system is 2.4 percent; therefore, the update to a hospital's target
amount for its cost reporting period beginning in FY 1999 would be
between 0 and 2.4 percent.
In addition, section 1886(b)(3)(H) of the Act provides that for
cost reporting periods beginning on or after October 1, 1998 and before
October 1, 1999, the target amount for psychiatric hospitals and units,
rehabilitation hospitals and units, and long-term care hospitals may
not exceed an updated cap that is based on the 75th percentile of
target amounts for hospitals in the same class for cost reporting
periods ending during FY 1996. The FY 1998 75th percentile target
amounts were $10,534 for psychiatric hospitals and units, $19,104 for
rehabilitation hospital and units, and $37,688 for long-term care
hospitals. As discussed in detail in section VII. of the preamble, for
purposes of calculating the caps, the statute requires the Secretary to
first calculate the 75th percentile of the target amounts for each
class of hospital (psychiatric, rehabilitation, or long-term care) for
cost reporting periods ending during FY 1996. The resulting amounts are
updated by the market basket percentage to the applicable fiscal year.

B. Wage Index Exceptions for Excluded Hospitals and Units

In the August 30, 1991 final rule (56 FR 43232), we set forth our
policy for target amount adjustments for

[[Page 41018]]

significant wage increases. Effective with cost reporting periods
beginning on or after April 1, 1990, significant increases in wages
since the base period are recognized as a basis for an adjustment in
the target amount under Sec. 413.40(g).
To qualify for an adjustment, the excluded hospital or hospital
unit must be located in a labor market area for which the average
hourly wage increased significantly more than the national average
hourly wage between the hospital's base period and the period subject
to the ceiling. We use the hospital wage index for prospective payment
hospitals to determine the rate of increase in the average hourly wage
in the labor market area. For a hospital to qualify for an adjustment,
the wage index value for the cost reporting period subject to the
ceiling must be at least 8 percent higher than the wage index based on
wage survey data collected for the base year cost reporting period. If
survey data are not available for one (or both) of the cost reporting
periods used in the comparison, the wage index based on the latest
available survey data collected before that cost reporting period will
be used. For example, to make the comparison between a 1983 base period
and a hospital's cost reporting period beginning in FY 1996, we would
use the rate of increase between the wage index based on 1982 wage data
and the wage index based on the FY 1995 data, since the FY 1995 data
are the most recent data currently available. Further, the comparison
is made without regard to geographic reclassifications made by the
MGCRB under sections 1886(d) (8) and (10) of the Act. Therefore, the
comparison is made based on the wage index value of the labor market
area in which the hospital is actually located.
We determine the amount of the adjustment for wage increases by
considering three factors for the time between the base period and the
period for which an adjustment is requested: The rate of increase in
the hospital's average hourly wage; the rate of increase in the average
hourly wage in the labor market area in which the hospital is located;
and, the rate of increase in the national average hourly wage for
hospital workers. The adjustment is limited to the amount by which the
lower of the hospital's or the labor market area's rate of increase in
average hourly wages significantly exceeds the national increase (that
is, exceeds the national rate of increase by more than 8 percent). For
purposes of computing the adjustment, the relative rate of increase in
the average hourly wage for the labor market area is assumed to have
been the same over each of the intervening years between the wage
surveys.
To determine the rate of increase in the national average hourly
wage, we use the average hourly earnings (AHE) for hospital workers
produced by the Bureau of Labor Statistics.
The average hourly earnings for hospital workers show the following
increases:

1992=4.8 percent
1993=3.6 percent
1994=2.7 percent
1995=3.3 percent
1996=3.1 percent
1997=2.0 percent
1998=2.6 percent
1999=2.7 percent

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

VI. Tables

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

Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico,
Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 1E--National Adjusted Operating Standardized Amounts for
``Temporary Relief'' Hospitals, Labor/Nonlabor
Table 1F--Adjusted Operating Standardized Amounts for ``Temporary
Relief'' Hospitals in Puerto Rico, Labor/Nonlabor
Table 3C--Hospital Case Mix Indexes for Discharges Occurring in Federal
Fiscal Year 1997 and Hospital Average Hourly Wage for Federal Fiscal
Year 1999 Wage Index
Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Urban Areas
Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Rural Areas
Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Hospitals That Are Reclassified
Table 4D--Average Hourly Wage for Urban Areas
Table 4E--Average Hourly Wage for Rural Areas
Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment
Factor (GAF)
Table 5--List of Diagnosis Related Groups (DRGs), Relative Weighting
Factors, Geometric Mean Length of Stay, and Arithmetic Mean Length of
Stay Points Used in the Prospective Payment System
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Invalid Procedure Codes
Table 6E--Revised Diagnosis Code Titles
Table 6F--Additions to the CC Exclusions List
Table 6G--Deletions to the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile
Lengths of Stay FY 97 MEDPAR Update 03/98 GROUPER V15.0
Table 7B--Medicare Prospective Payment System Selected Percentile
Lengths of Stay FY 97 MEDPAR Update 03/98 GROUPER V16.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios for Urban
and Rural Hospitals (Case Weighted) July 1998
Table 8B--Statewide Average Capital Cost-to-Charge Ratios (Case
Weighted) July 1998
Table 10--Percentage Difference on Wage Indexes for Areas that Qualify
for a Wage Index Exception for Excluded Hospitals and Units

[[Page 41019]]

Table 1A.--National Adjusted Operating Standardized Amounts, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
Large urban areas Other areas
----------------------------------------------------------------------------------------------------------------
Labor-related Nonlabor-related Labor-related Nonlabor-related
----------------------------------------------------------------------------------------------------------------
2,783.42................... 1,313.41 2,739.36 1,113.47
----------------------------------------------------------------------------------------------------------------

Table 1C.--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
Large urban areas Other areas
---------------------------------------------------
Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
National.................................................... 2,760.01 1,121.87 2,760.01 1,121.87
Puerto Rico................................................. 1,327.81 534.48 1,306.79 526.01
----------------------------------------------------------------------------------------------------------------

Table 1D.--Capital Standard Federal Payment Rate
------------------------------------------------------------------------
Rate
------------------------------------------------------------------------
National....................................................... 378.05
Puerto Rico.................................................... 181.10
------------------------------------------------------------------------

Table 1E.--National Adjusted Operating Standardized Amounts for ``Temporary Relief'' Hospitals, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
Large urban areas Other areas
----------------------------------------------------------------------------------------------------------------
Labor-related Nonlabor-related Labor-related Nonlabor-related
----------------------------------------------------------------------------------------------------------------
2,791.73................... 1,134.76 2,747.54 1,116.79
----------------------------------------------------------------------------------------------------------------

Table 1F.--Adjusted Operating Standardized Amounts for ``Temporary Relief'' Hospitals in Puerto Rico, Labor/
Nonlabor
----------------------------------------------------------------------------------------------------------------
Large urban areas Other areas
---------------------------------------------------
Labor Nonlabor Labor Nonlabor
----------------------------------------------------------------------------------------------------------------
National.................................................... 2,768.25 1,125.22 2,768.25 1,125.22
Puerto Rico................................................. 1,331.77 536.08 1,310.69 527.58
----------------------------------------------------------------------------------------------------------------

BILLING CODE 4120-01-P

[[Page 41020]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.000

[[Page 41021]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.001

[[Page 41022]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.002

[[Page 41023]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.003

[[Page 41024]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.004

[[Page 41025]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.005

[[Page 41026]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.006

[[Page 41027]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.007

[[Page 41028]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.008

[[Page 41029]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.009

[[Page 41030]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.010

[[Page 41031]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.011

[[Page 41032]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.012

[[Page 41033]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.013

[[Page 41034]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.014

[[Page 41035]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.015

[[Page 41036]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.016

[[Page 41037]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.017

[[Page 41038]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.018

[[Page 41039]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.019

[[Page 41040]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.020

[[Page 41041]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.021

[[Page 41042]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.022

[[Page 41043]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.023

[[Page 41044]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.024

[[Page 41045]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.025

[[Page 41046]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.026

[[Page 41047]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.027

[[Page 41048]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.028

[[Page 41049]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.029

[[Page 41050]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.030

[[Page 41051]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.031

BILLING CODE 4120-01-C

[[Page 41052]]

Table 4A.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Urban Areas
------------------------------------------------------------------------
Wage
Urban area (Constituent counties) index GAF
------------------------------------------------------------------------
0040 Abilene, TX................................... 0.8083 0.8644
Taylor, TX
0060 Aguadilla, PR................................. 0.4738 0.5996
Aguada, PR
Aguadilla, PR
Moca, PR
0080 Akron, OH..................................... 0.9954 0.9968
Portage, OH
Summit, OH
0120 Albany, GA.................................... 0.7993 0.8578
Dougherty, GA
Lee, GA
0160 Albany-Schenectady-Troy, NY................... 0.8629 0.9040
Albany, NY
Montgomery, NY
Rensselaer, NY
Saratoga, NY
Schenectady, NY
Schoharie, NY
0200 Albuquerque, NM............................... 0.8632 0.9042
Bernalillo, NM
Sandoval, NM
Valencia, NM
0220 Alexandria, LA................................ 0.8544 0.8978
Rapides, LA
0240 Allentown-Bethlehem-Easton, PA................ 1.0226 1.0154
Carbon, PA
Lehigh, PA
Northampton, PA
0280 Altoona, PA................................... 0.9355 0.9554
Blair, PA
0320 Amarillo, TX.................................. 0.8509 0.8953
Potter, TX
Randall, TX
0380 Anchorage, AK................................. 1.3007 1.1973
Anchorage, AK
0440 Ann Arbor, MI................................. 1.1057 1.0712
Lenawee, MI
Livingston, MI
Washtenaw, MI
0450 Anniston, AL.................................. 0.8676 0.9073
Calhoun, AL
0460 Appleton-Oshkosh-Neenah, WI................... 0.8844 0.9193
Calumet, WI
Outagamie, WI
Winnebago, WI
0470 Arecibo, PR................................... 0.4878 0.6117
Arecibo, PR
Camuy, PR
Hatillo, PR
0480 Asheville, NC................................. 0.8960 0.9276
Buncombe, NC
Madison, NC
0500 Athens, GA.................................... 0.8692 0.9085
Clarke, GA
Madison, GA
Oconee, GA
0520 \1\ Atlanta, GA............................... 0.9936 0.9956
Barrow, GA
Bartow, GA
Carroll, GA
Cherokee, GA
Clayton, GA
Cobb, GA
Coweta, GA
DeKalb, GA
Douglas, GA
Fayette, GA
Forsyth, GA
Fulton, GA
Gwinnett, GA
Henry, GA
Newton, GA
Paulding, GA
Pickens, GA
Rockdale, GA
Spalding, GA
Walton, GA
0560 Atlantic-Cape May, NJ.........................
Atlantic, NJ
Cape May, NJ 1.0377 1.0257
0600 Augusta-Aiken, GA-SC.......................... 0.9253 0.9482
Columbia, GA
McDuffie, GA
Richmond, GA
Aiken, SC
Edgefield, SC
0640 \1\ Austin-San Marcos, TX..................... 0.8442 0.8905
Bastrop, TX
Caldwell, TX
Hays, TX
Travis, TX
Williamson, TX
0680 \2\ Bakersfield, CA........................... 0.9959 0.9972
Kern, CA
0720 \1\ Baltimore, MD............................. 0.9663 0.9768
Anne Arundel, MD
Baltimore, MD
Baltimore City, MD
Carroll, MD
Harford, MD
Howard, MD
Queen Anne's, MD
0733 Bangor, ME.................................... 0.9495 0.9651
Penobscot, ME
0743 Barnstable-Yarmouth, MA....................... 1.5415 1.3449
Barnstable, MA
0760 Baton Rouge, LA............................... 0.8891 0.9227
Ascension, LA
East Baton Rouge, LA
Livingston, LA
West Baton Rouge, LA
0840 Beaumont-Port Arthur, TX...................... 0.9071 0.9354
Hardin, TX
Jefferson, TX
Orange, TX
0860 Bellingham, WA................................ 1.1459 1.0978
Whatcom, WA
0870 \2\ Benton Harbor, MI......................... 0.8903 0.9235
Berrien, MI
0875 \1\ Bergen-Passaic, NJ........................ 1.1774 1.1183
Bergen, NJ
Passaic, NJ
0880 Billings, MT.................................. 0.9162 0.9418
Yellowstone, MT
0920 Biloxi-Gulfport-Pascagoula, MS................ 0.8294 0.8798
Hancock, MS
Harrison, MS
Jackson, MS
0960 Binghamton, NY................................ 0.9078 0.9359
Broome, NY
Tioga, NY
1000 Birmingham, AL................................ 0.9092 0.9369
Blount, AL
Jefferson, AL
St. Clair, AL
Shelby, AL
1010 Bismarck, ND.................................. 0.8042 0.8614
Burleigh, ND
Morton, ND
1020 Bloomington, IN............................... 0.8984 0.9293
Monroe, IN
1040 Bloomington-Normal, IL........................ 0.8870 0.9212
McLean, IL
1080 Boise City, ID................................ 0.9209 0.9451
Ada, ID
Canyon, ID
1123 \1\ Boston-Worcester-Lawrence-Lowell-Brockton,
MA-NH.............................................. 1.1307 1.0878
Bristol, MA
Essex, MA
Middlesex, MA
Norfolk, MA
Plymouth, MA
Suffolk, MA
Worcester, MA
Hillsborough, NH
Merrimack, NH
Rockingham, NH
Strafford, NH
1125 Boulder-Longmont, CO.......................... 1.0059 1.0040
Boulder, CO
1145 Brazoria, TX.................................. 0.8925 0.9251
Brazoria, TX
1150 Bremerton, WA................................. 1.1079 1.0727
Kitsap, WA
1240 Brownsville-Harlingen-San Benito, TX.......... 0.8255 0.8769
Cameron, TX
1260 Bryan-College Station, TX..................... 0.8084 0.8645
Brazos, TX
1280 \1\ Buffalo-Niagara Falls, NY................. 0.9607 0.9729
Erie, NY
Niagara, NY
1303 Burlington, VT................................ 0.9616 0.9735
Chittenden, VT
Franklin, VT
Grand Isle, VT
1310 Caguas, PR.................................... 0.4419 0.5716
Caguas, PR
Cayey, PR
Cidra, PR
Gurabo, PR
San Lorenzo, PR
1320 Canton-Massillon, OH.......................... 0.8827 0.9181

[[Page 41053]]

Carroll, OH
Stark, OH
1350 Casper, WY.................................... 0.9170 0.9424
Natrona, WY
1360 Cedar Rapids, IA.............................. 0.8833 0.9185
Linn, IA
1400 Champaign-Urbana, IL.......................... 0.8789 0.9154
Champaign, IL
1440 Charleston-North Charleston, SC............... 0.9134 0.9399
Berkeley, SC
Charleston, SC
Dorchester, SC
1480 Charleston, WV................................ 0.9009 0.9310
Kanawha, WV
Putnam, WV
1520 \1\ Charlotte-Gastonia-Rock Hill, NC-SC....... 0.9562 0.9698
Cabarrus, NC
Gaston, NC
Lincoln, NC
Mecklenburg, NC
Rowan, NC
Stanly, NC
Union, NC
York, SC
1540 Charlottesville, VA........................... 1.0294 1.0200
Albemarle, VA
Charlottesville City, VA
Fluvanna, VA
Greene, VA
1560 Chattanooga, TN-GA............................ 0.9093 0.9370
Catoosa, GA
Dade, GA
Walker, GA
Hamilton, TN
Marion, TN
1580 \2\ Cheyenne, WY.............................. 0.8787 0.9153
Laramie, WY
1600 \1\ Chicago, IL............................... 1.0469 1.0319
Cook, IL
DeKalb, IL
DuPage, IL
Grundy, IL
Kane, IL
Kendall, IL
Lake, IL
McHenry, IL
Will, IL
1620 Chico-Paradise, CA............................ 1.0167 1.0114
Butte, CA
1640 \2\ Cincinnati, OH-KY-IN...................... 0.9615 0.9735
Dearborn, IN
Ohio, IN
Boone, KY
Campbell, KY
Gallatin, KY
Grant, KY
Kenton, KY
Pendleton, KY
Brown, OH
Clermont, OH
Hamilton, OH
Warren, OH
1660 Clarksville-Hopkinsville, TN-KY............... 0.8231 0.8752
Christian, KY
Montgomery, TN
1680 \1\ Cleveland-Lorain-Elyria, OH............... 0.9907 0.9936
Ashtabula, OH
Cuyahoga, OH
Geauga, OH
Lake, OH
Lorain, OH
Medina, OH
1720 Colorado Springs, CO.......................... 0.9410 0.9592
El Paso, CO
1740 Columbia, MO.................................. 0.8961 0.9276
Boone, MO
1760 Columbia, SC.................................. 0.9310 0.9522
Lexington, SC
Richland, SC
1800 Columbus, GA-AL...............................
Russell, AL....................................... 0.8529 0.8968
Chattahoochee, GA
Harris, GA
Muscogee, GA
1840 \1\ Columbus, OH.............................. 0.9802 0.9864
Delaware, OH
Fairfield, OH
Franklin, OH
Licking, OH
Madison, OH
Pickaway, OH
1880 Corpus Christi, TX............................ 0.8549 0.8982
Nueces, TX
San Patricio, TX
1900 \2\ Cumberland, MD-WV (Maryland Hospitals).... 0.8574 0.9000
Allegany, MD
Mineral, WV
1900 Cumberland, MD-WV (West Virginia Hospital).... 0.8259 0.8772
Allegany, MD
Mineral, WV
1920 \1\ Dallas, TX................................ 0.9364 0.9560
Collin, TX
Dallas, TX
Denton, TX
Ellis, TX
Henderson, TX
Hunt, TX
Kaufman, TX
Rockwall, TX
1950 Danville, VA.................................. 0.9065 0.9350
Danville City, VA
Pittsylvania, VA
1960 DavenportMoline-Rock Island, IA-IL............ 0.8431 0.8897
Scott, IA
Henry, IL
Rock Island, IL
2000 Dayton-Springfield, OH........................ 0.9584 0.9713
Clark, OH
Greene, OH
Miami, OH
Montgomery, OH
2020 Daytona Beach, FL............................. 0.9153 0.9412
Flagler, FL
Volusia, FL
2030 Decatur, AL................................... 0.8251 0.8766
Lawrence, AL
Morgan, AL
2040 Decatur, IL................................... 0.8052 0.8621
Macon, IL
2080 \1\ Denver, CO................................ 1.0059 1.0040
Adams, CO
Arapahoe, CO
Denver, CO
Douglas, CO
Jefferson, CO
2120 Des Moines, IA................................ 0.8494 0.8942
Dallas, IA
Polk, IA
Warren, IA
2160 \1\ Detroit, MI............................... 1.0567 1.0385
Lapeer, MI
Macomb, MI
Monroe, MI
Oakland, MI
St. Clair, MI
Wayne, MI
2180 Dothan, AL.................................... 0.7909 0.8516
Dale, AL
Houston, AL
2190 Dover, DE..................................... 0.9383 0.9573
Kent, DE
2200 Dubuque, IA................................... 0.8240 0.8758
Dubuque, IA
2240 Duluth-Superior, MN-WI........................ 1.0031 1.0021
St. Louis, MN
Douglas, WI
2281 Dutchess County, NY........................... 0.9904 0.9934
Dutchess, NY
2290 \2\ Eau Claire, WI............................ 0.8729 0.9111
Chippewa, WI
Eau Claire, WI
2320 El Paso, TX................................... 0.9235 0.9470
El Paso, TX
2330 Elkhart-Goshen, IN............................ 0.9388 0.9577
Elkhart, IN
2335 \2\ Elmira, NY................................ 0.8605 0.9022
Chemung, NY
2340 Enid, OK...................................... 0.7969 0.8560
Garfield, OK
2360 Erie, PA...................................... 0.9290 0.9508
Erie, PA
2400 Eugene-Springfield, OR........................ 1.1217 1.0818
Lane, OR
2440 Evansville-Henderson, IN-KY................... 0.8547 0.8981

[[Page 41054]]

Posey, IN
Vanderburgh, IN
Warrick, IN
Henderson, KY
2520 Fargo-Moorhead, ND-MN......................... 0.9537 0.9681
Clay, MN
Cass, ND
2560 Fayetteville, NC.............................. 0.8407 0.8880
Cumberland, NC
2580 Fayetteville-Springdale-Rogers, AR............ 0.8632 0.9042
Benton, AR
Washington, AR
2620 Flagstaff, AZ-UT.............................. 0.9543 0.9685
Coconino, AZ
Kane, UT
2640 Flint, MI..................................... 1.1054 1.0710
Genesee, MI
2650 Florence, AL.................................. 0.7692 0.8355
Colbert, AL
Lauderdale, AL
2655 Florence, SC.................................. 0.8520 0.8961
Florence, SC
2670 Fort Collins-Loveland, CO..................... 1.0319 1.0217
Larimer, CO
2680 \1\ Ft. Lauderdale, FL........................ 0.9867 0.9909
Broward, FL
2700 Fort Myers-Cape Coral, FL..................... 0.8936 0.9259
Lee, FL
2710 Fort Pierce-Port St. Lucie, FL................ 1.0263 1.0179
Martin, FL
St. Lucie, FL
2720 Fort Smith, AR-OK............................. 0.7639 0.8316
Crawford, AR
Sebastian, AR
Sequoyah, OK
2750 \2\ Fort Walton Beach, FL..................... 0.8896 0.9230
Okaloosa, FL
2760 Fort Wayne, IN................................ 0.9066 0.9351
Adams, IN
Allen, IN
De Kalb, IN
Huntington, IN
Wells, IN
Whitley, IN
2800 \1\ Forth Worth-Arlington, TX................. 0.9729 0.9814
Hood, TX
Johnson, TX
Parker, TX
Tarrant, TX
2840 Fresno, CA.................................... 1.0409 1.0278
Fresno, CA
Madera, CA
2880 Gadsden, AL................................... 0.8799 0.9161
Etowah, AL
2900 Gainesville, FL............................... 0.9482 0.9642
Alachua, FL
2920 Galveston-Texas City, TX...................... 1.0848 1.0573
Galveston, TX
2960 Gary, IN...................................... 0.9482 0.9642
Lake, IN
Porter, IN
2975 \2\ Glens Falls, NY........................... 0.8605 0.9022
Warren, NY
Washington, NY
2980 Goldsboro, NC................................. 0.8548 0.8981
Wayne, NC
2985 Grand Forks, ND-MN............................ 0.8918 0.9246
Polk, MN
Grand Forks, ND
2995 Grand Junction, CO............................ 0.9099 0.9374
Mesa, CO
3000 \1\ Grand Rapids-Muskegon-Holland, MI......... 0.9992 0.9995
Allegan, MI
Kent, MI
Muskegon, MI
Ottawa, MI
3040 Great Falls, MT............................... 0.9304 0.9518
Cascade, MT
3060 Greeley, CO................................... 0.9477 0.9639
Weld, CO
3080 Green Bay, WI................................. 0.9268 0.9493
Brown, WI
3120 \1\ Greensboro-Winston-Salem-High Point, NC... 0.9567 0.9701
Alamance, NC
Davidson, NC
Davie, NC
Forsyth, NC
Guilford, NC
Randolph, NC
Stokes, NC
Yadkin, NC
3150 Greenville, NC................................ 0.9454 0.9623
Pitt, NC
3160 Greenville-Spartanburg-Anderson, SC........... 0.9242 0.9475
Anderson, SC
Cherokee, SC
Greenville, SC
Pickens, SC
Spartanburg, SC
3180 Hagerstown, MD................................ 1.0204 1.0139
Washington, MD
3200 Hamilton-Middletown, OH....................... 0.9253 0.9482
Butler, OH
3240 Harrisburg-Lebanon-Carlisle, PA............... 1.0082 1.0056
Cumberland, PA
Dauphin, PA
Lebanon, PA
Perry, PA
3283 \1\^{, \2\ Hartford, CT......................... 1.2100 1.1394
Hartford, CT
Litchfield, CT
Middlesex, CT
Tolland, CT
3285 \2\ Hattiesburg, MS........................... 0.7327 0.8082
Forrest, MS
Lamar, MS
3290 Hickory-Morganton-Lenoir, NC.................. 0.8668 0.9067
Alexander, NC
Burke, NC
Caldwell, NC
Catawba, NC
3320 Honolulu, HI.................................. 1.1535 1.1027
Honolulu, HI
3350 Houma, LA..................................... 0.8215 0.8740
Lafourche, LA
Terrebonne, LA
3360 \1\ Houston, TX............................... 0.9904 0.9934
Chambers, TX
Fort Bend, TX
Harris, TX
Liberty, TX
Montgomery, TX
Waller, TX
3400 Huntington-Ashland, WV-KY-OH.................. 0.9668 0.9771
Boyd, KY
Carter, KY
Greenup, KY
Lawrence, OH
Cabell, WV
Wayne, WV
3440 Huntsville, AL................................ 0.8403 0.8877
Limestone, AL
Madison, AL
3480 \1\ Indianapolis, IN.......................... 0.9852 0.9898
Boone, IN
Hamilton, IN
Hancock, IN
Hendricks, IN
Johnson, IN
Madison, IN
Marion, IN
Morgan, IN
Shelby, IN
3500 Iowa City, IA................................. 0.9502 0.9656
Johnson, IA
3520 Jackson, MI................................... 0.9244 0.9476
Jackson, MI
3560 Jackson, MS................................... 0.8310 0.8809
Hinds, MS
Madison, MS
Rankin, MS
3580 Jackson, TN................................... 0.8578 0.9003
Madison, TN
Chester, TN
3600 \1\ Jacksonville, FL.......................... 0.8919 0.9246
Clay, FL
Duval, FL
Nassau, FL
St. Johns, FL
3605 \2\ Jacksonville, NC.......................... 0.8130 0.8678
Onslow, NC
3610 \2\ Jamestown, NY............................. 0.8605 0.9022
Chautauqua, NY
3620 Janesville-Beloit, WI......................... 0.9071 0.9354
Rock, WI
3640 Jersey City, NJ............................... 1.1623 1.1085
Hudson, NJ

[[Page 41055]]

3660 Johnson City-Kingsport-Bristol, TN-VA......... 0.8792 0.9156
Carter, TN
Hawkins, TN
Sullivan, TN
Unicoi, TN
Washington, TN
Bristol City, VA
Scott, VA
Washington, VA
3680 \2\ Johnstown, PA............................. 0.8683 0.9078
Cambria, PA
Somerset, PA
3700 Jonesboro, AR................................. 0.7595 0.8283
Craighead, AR
3710 Joplin, MO.................................... 0.7890 0.8502
Jasper, MO
Newton, MO
3720 Kalamazoo-Battlecreek, MI..................... 1.1355 1.0909
Calhoun, MI
Kalamazoo, MI
Van Buren, MI
3740 Kankakee, IL.................................. 0.9438 0.9612
Kankakee, IL
3760 \1\ Kansas City, KS-MO........................ 0.9666 0.9770
Johnson, KS
Leavenworth, KS
Miami, KS
Wyandotte, KS
Cass, MO
Clay, MO
Clinton, MO
Jackson, MO
Lafayette, MO
Platte, MO
Ray, MO
3800 Kenosha, WI................................... 0.9149 0.9409
Kenosha, WI
3810 Killeen-Temple, TX............................ 1.0131 1.0090
Bell, TX
Coryell, TX-
3840 Knoxville, TN................................. 0.8937 0.9259
Anderson, TN
Blount, TN
Knox, TN
Loudon, TN
Sevier, TN
Union, TN
3850 Kokomo, IN.................................... 0.9295 0.9512
Howard, IN
Tipton, IN
3870 La Crosse, WI-MN.............................. 0.8933 0.9256
Houston, MN
La Crosse, WI
3880 Lafayette, LA................................. 0.8311 0.8810
Acadia, LA
Lafayette, LA
St. Landry, LA
St. Martin, LA
3920 Lafayette, IN................................. 0.8928 0.9253
Clinton, IN
Tippecanoe, IN
3960 Lake Charles, LA.............................. 0.7690 0.8354
Calcasieu, LA
3980 Lakeland-Winter Haven, FL..................... 0.8896 0.9230
Polk, FL
4000 Lancaster, PA................................. 0.9581 0.9711
Lancaster, PA
4040 Lansing-East Lansing, MI...................... 1.0112 1.0077
Clinton, MI
Eaton, MI
Ingham, MI
4080 \2\ Laredo, TX................................ 0.7441 0.8168
Webb, TX
4100 Las Cruces, NM................................ 0.8989 0.9296
Dona Ana, NM
4120 \1\ Las Vegas, NV-AZ.......................... 1.1438 1.0964
Mohave, AZ
Clark, NV
Nye, NV
4150 Lawrence, KS.................................. 0.8674 0.9072
Douglas, KS
4200 Lawton, OK.................................... 0.8716 0.9102
Comanche, OK
4243 Lewiston-Auburn, ME........................... 0.9169 0.9423
Androscoggin, ME
4280 Lexington, KY................................. 0.8525 0.8965
Bourbon, KY
Clark, KY
Fayette, KY
Jessamine, KY
Madison, KY
Scott, KY
Woodford, KY
4320 Lima, OH...................................... 0.8968 0.9281
Allen, OH
Auglaize, OH
4360 Lincoln, NE................................... 0.9323 0.9531
Lancaster, NE
4400 Little Rock-North Little Rock, AR............. 0.8553 0.8985
Faulkner, AR
Lonoke, AR
Pulaski, AR
Saline, AR
4420 Longview-Marshall, TX......................... 0.8717 0.9103
Gregg, TX
Harrison, TX
Upshur, TX
4480 \1\ Los Angeles-Long Beach, CA................ 1.2070 1.1375
Los Angeles, CA
4520 Louisville, KY-IN............................. 0.9113 0.9384
Clark, IN
Floyd, IN
Harrison, IN
Scott, IN
Bullitt, KY
Jefferson, KY
Oldham, KY
4600 Lubbock, TX................................... 0.8514 0.8957
Lubbock, TX
4640 Lynchburg, VA................................. 0.8919 0.9246
Amherst, VA
Bedford, VA
Bedford City, VA
Campbell, VA
Lynchburg City, VA
4680 Macon, GA..................................... 0.8629 0.9040
Bibb, GA
Houston, GA
Jones, GA
Peach, GA
Twiggs, GA
4720 Madison, WI................................... 1.0040 1.0027
Dane, WI
4800 Mansfield, OH................................. 0.8552 0.8984
Crawford, OH
Richland, OH
4840 Mayaguez, PR.................................. 0.4188 0.5510
Anasco, PR
Cabo Rojo, PR
Hormigueros, PR
Mayaguez, PR
Sabana Grande, PR
San German, PR
4880 McAllen-Edinburg-Mission, TX.................. 0.8506 0.8951
Hidalgo, TX
4890 Medford-Ashland, OR........................... 1.0042 1.0029
Jackson, OR
4900 Melbourne-Titusville-Palm Bay, FL............. 0.9236 0.9470
Brevard, FL
4920 \1\ Memphis, TN-AR-MS......................... 0.8371 0.8854
Crittenden, AR
DeSoto, MS
Fayette, TN
Shelby, TN
Tipton, TN
4940 Merced, CA.................................... 1.0240 1.0164
Merced, CA
5000 \1\ Miami, FL................................. 1.0038 1.0026
Dade, FL
5015 \1\ Middlesex-Somerset-Hunterdon, NJ.......... 1.0785 1.0531
Hunterdon, NJ
Middlesex, NJ
Somerset, NJ
5080 \1\ Milwaukee-Waukesha, WI.................... 0.9135 0.9399
Milwaukee, WI
Ozaukee, WI
Washington, WI
Waukesha, WI
5120 \1\ Minneapolis-St. Paul, MN-WI............... 1.0877 1.0593
Anoka, MN
Carver, MN
Chisago, MN
Dakota, MN
Hennepin, MN
Isanti, MN
Ramsey, MN
Scott, MN
Sherburne, MN
Washington, MN
Wright, MN

[[Page 41056]]

Pierce, WI
St. Croix, WI
5140 Missoula, MT.................................. 0.9208 0.9451
Missoula, MT
5160 Mobile, AL.................................... 0.8395 0.8871
Baldwin, AL
Mobile, AL
5170 Modesto, CA................................... 1.0368 1.0251
Stanislaus, CA
5190 \1\ Monmouth-Ocean, NJ........................ 1.1341 1.0900
Monmouth, NJ
Ocean, NJ
5200 Monroe, LA.................................... 0.8236 0.8756
Ouachita, LA
5240 Montgomery, AL................................ 0.7877 0.8492
Autauga, AL
Elmore, AL
Montgomery, AL
5280 Muncie, IN.................................... 0.9434 0.9609
Delaware, IN
5330 Myrtle Beach, SC.............................. 0.8196 0.8726
Horry, SC
5345 Naples, FL.................................... 1.0199 1.0136
Collier, FL
5360 \1\ Nashville, TN............................. 0.9500 0.9655
Cheatham, TN
Davidson, TN
Dickson, TN
Robertson, TN
Rutherford TN
Sumner, TN
Williamson, TN
Wilson, TN
5380 \1\ Nassau-Suffolk, NY........................ 1.3579 1.2331
Nassau, NY
Suffolk, NY
5483 \1\ New Haven-Bridgeport-Stamford-Waterbury-
Danbury, CT........................................ 1.2271 1.1504
Fairfield, CT
New Haven, CT
5523 \2\ New London-Norwich, CT.................... 1.2100 1.1394
New London, CT
5560 \1\ New Orleans, LA........................... 0.9330 0.9536
Jefferson, LA
Orleans, LA
Plaquemines, LA
St. Bernard, LA
St. Charles, LA
St. James, LA
St. John The Baptist, LA
St. Tammany, LA
5600 \1\ New York, NY.............................. 1.4431 1.2855
Bronx, NY
Kings, NY
New York, NY
Putnam, NY
Queens, NY
Richmond, NY
Rockland, NY
Westchester, NY
5640 \1\ Newark, NJ................................ 1.0895 1.0605
Essex, NJ
Morris, NJ
Sussex, NJ
Union, NJ
Warren, NJ
5660 Newburgh, NY-PA............................... 1.1247 1.0838
Orange, NY
Pike, PA
5720 \1\ Norfolk-Virginia Beach-Newport News, VA-NC 0.8214 0.8740
Currituck, NC
Chesapeake City, VA
Gloucester, VA
Hampton City, VA
Isle of Wight, VA
James City, VA
Mathews, VA
Newport News City, VA
Norfolk City, VA
Poquoson City, VA
Portsmouth City, VA
Suffolk City, VA
Virginia Beach City, VA
Williamsburg City, VA
York, VA
5775 \1\ Oakland, CA............................... 1.5194 1.3317
Alameda, CA
Contra Costa, CA
5790 Ocala, FL..................................... 0.9172 0.9425
Marion, FL
5800 Odessa-Midland, TX............................ 0.8683 0.9078
Ector, TX
Midland, TX
5880 \1\ Oklahoma City, OK......................... 0.8727 0.9110
Canadian, OK
Cleveland, OK
Logan, OK
McClain, OK
Oklahoma, OK
Pottawatomie, OK
5910 Olympia, WA................................... 1.1547 1.1035
Thurston, WA
5920 Omaha, NE-IA.................................. 0.9993 0.9995
Pottawattamie, IA
Cass, NE
Douglas, NE
Sarpy, NE
Washington, NE
5945 \1\ Orange County, CA......................... 1.1472 1.0986
Orange, CA
5960 \1\ Orlando, FL............................... 0.9834 0.9886
Lake, FL
Orange, FL
Osceola, FL
Seminole, FL
5990 \2\ Owensboro, KY............................. 0.7861 0.8481
Daviess, KY
6015 \2\ Panama City, FL........................... 0.8896 0.9230
Bay, FL
6020 Parkersburg-Marietta, WV-OH (West Virginia
Hospitals)......................................... 0.8034 0.8608
Washington, OH
Wood, WV
6020 \2\ Parkersburg-Marietta, WV-OH (Ohio
Hospitals)......................................... 0.8537 0.8973
Washington, OH
Wood, WV
6080 \2\ Pensacola, FL............................. 0.8896 0.9230
Escambia, FL
Santa Rosa, FL
6120 Peoria-Pekin, IL.............................. 0.8081 0.8642
Peoria, IL
Tazewell, IL
Woodford, IL
6160 \1\ Philadelphia, PA-NJ....................... 1.1382 1.0927
Burlington, NJ
Camden, NJ
Gloucester, NJ
Salem, NJ
Bucks, PA
Chester, PA
Delaware, PA
Montgomery, PA
Philadelphia, PA
6200 \1\ Phoenix-Mesa, AZ.......................... 0.9611 0.9732
Maricopa, AZ
Pinal, AZ
6240 Pine Bluff, AR................................ 0.7929 0.8531
Jefferson, AR
6280 \1\ Pittsburgh, PA............................ 0.9809 0.9869
Allegheny, PA
Beaver, PA
Butler, PA
Fayette, PA
Washington, PA
Westmoreland, PA
6323 \2\ Pittsfield, MA............................ 1.0857 1.0579
Berkshire, MA
6340 Pocatello, ID................................. 0.8811 0.9170
Bannock, ID
6360 Ponce, PR..................................... 0.4799 0.6049
Guayanilla, PR
Juana Diaz, PR
Penuelas, PR
Ponce, PR
Villalba, PR
Yauco, PR
6403 Portland, ME.................................. 0.9595 0.9721
Cumberland, ME
Sagadahoc, ME
York, ME
6440 \1\ Portland-Vancouver, OR-WA................. 1.1202 1.0808
Clackamas, OR
Columbia, OR
Multnomah, OR
Washington, OR
Yamhill, OR
Clark, WA

[[Page 41057]]

6483 \1\ Providence-Warwick-Pawtucket, RI.......... 1.0824 1.0557
Bristol, RI
Kent, RI
Newport, RI
Providence, RI
Washington, RI
6520 Provo-Orem, UT................................ 0.9907 0.9936
Utah, UT
6560 Pueblo, CO.................................... 0.8731 0.9113
Pueblo, CO
6580 Punta Gorda, FL............................... 0.9050 0.9339
Charlotte, FL
6600 Racine, WI.................................... 0.9149 0.9409
Racine, WI
6640 \1\ Raleigh-Durham-Chapel Hill, NC............ 0.9833 0.9885
Chatham, NC
Durham, NC
Franklin, NC
Johnston, NC
Orange, NC
Wake, NC
6660 Rapid City, SD................................ 0.8226 0.8748
Pennington, SD
6680 Reading, PA................................... 0.9254 0.9483
Berks, PA
6690 Redding, CA................................... 1.1883 1.1254
Shasta, CA
6720 Reno, NV...................................... 1.1118 1.0753
Washoe, NV
6740 \2\ Richland-Kennewick-Pasco, WA.............. 1.0512 1.0348
Benton, WA
Franklin, WA
6760 Richmond-Petersburg, VA....................... 0.9231 0.9467
Charles City County, VA
Chesterfield, VA
Colonial Heights City, VA
Dinwiddie, VA
Goochland, VA
Hanover, VA
Henrico, VA
Hopewell City, VA
New Kent, VA
Petersburg City, VA
Powhatan, VA
Prince George, VA
Richmond City, VA
6780 \1\ Riverside-San Bernardino, CA.............. 1.0141 1.0096
Riverside, CA
San Bernardino, CA
6800 Roanoke, VA................................... 0.8528 0.8967
Botetourt, VA
Roanoke, VA
Roanoke City, VA
Salem City, VA
6820 Rochester, MN................................. 1.1723 1.1150
Olmsted, MN
6840 \1\ Rochester, NY............................. 0.9677 0.9778
Genesee, NY
Livingston, NY
Monroe, NY
Ontario, NY
Orleans, NY
Wayne, NY
6880 Rockford, IL.................................. 0.8634 0.9043
Boone, IL
Ogle, IL
Winnebago, IL
6895 Rocky Mount, NC............................... 0.9031 0.9326
Edgecombe, NC
Nash, NC
6920 \1\ Sacramento, CA............................ 1.1864 1.1242
El Dorado, CA
Placer, CA
Sacramento, CA
6960 Saginaw-Bay City-Midland, MI.................. 0.9507 0.9660
Bay, MI
Midland, MI
Saginaw, MI
6980 St. Cloud, MN................................. 0.9607 0.9729
Benton, MN
Stearns, MN
7000 St. Joseph, MO................................ 0.9910 0.9938
Andrew, MO
Buchanan, MO
7040 \1\ St. Louis, MO-IL.......................... 0.9171 0.9425
Clinton, IL
Jersey, IL
Madison, IL
Monroe, IL
St. Clair, IL
Franklin, MO
Jefferson, MO
Lincoln, MO
St. Charles, MO
St. Louis, MO
St. Louis City, MO
Warren, MO
7080 \2\ Salem, OR................................. 0.9933 0.9954
Marion, OR
Polk, OR
7120 Salinas, CA................................... 1.5175 1.3306
Monterey, CA
7160 \1\ Salt Lake City-Ogden, UT.................. 0.9400 0.9585
Davis, UT
Salt Lake, UT
Weber, UT
7200 San Angelo, TX................................ 0.7662 0.8333
Tom Green, TX
7240 \1\ San Antonio, TX........................... 0.8117 0.8669
Bexar, TX
Comal, TX
Guadalupe, TX
Wilson, TX
7320 \1\ San Diego, CA............................. 1.2336 1.1546
San Diego, CA
7360 \1\ San Francisco, CA......................... 1.3507 1.2286
Marin, CA
San Francisco, CA
San Mateo, CA
7400 \1\ San Jose, CA.............................. 1.3724 1.2421
Santa Clara, CA
7440 \1\ San Juan-Bayamon, PR...................... 0.4633 0.5904
Aguas Buenas, PR
Barceloneta, PR
Bayamon, PR
Canovanas, PR
Carolina, PR
Catano, PR
Ceiba, PR
Comerio, PR
Corozal, PR
Dorado, PR
Fajardo, PR
Florida, PR
Guaynabo, PR
Humacao, PR
Juncos, PR
Los Piedras, PR
Loiza, PR
Luguillo, PR
Manati, PR
Morovis, PR
Naguabo, PR
Naranjito, PR
Rio Grande, PR
San Juan, PR
Toa Alta, PR
Toa Baja, PR
Trujillo Alto, PR
Vega Alta, PR
Vega Baja, PR
Yabucoa, PR
7460 San Luis Obispo-Atascadero-Paso Robles, CA.... 1.0739 1.0500
San Luis Obispo, CA
7480 Santa Barbara-Santa Maria-Lompoc, CA.......... 1.1218 1.0819
Santa Barbara, CA
7485 Santa Cruz-Watsonville, CA.................... 1.4011 1.2598
Santa Cruz, CA
7490 Santa Fe, NM.................................. 0.9623 0.9740
Los Alamos, NM
Santa Fe, NM
7500 Santa Rosa, CA................................ 1.3099 1.2031
Sonoma, CA
7510 Sarasota-Bradenton, FL........................ 0.9553 0.9692
Manatee, FL
Sarasota, FL
7520 Savannah, GA.................................. 1.0081 1.0055
Bryan, GA
Chatham, GA
Effingham, GA
7560 \2\ Scranton--Wilkes-Barre--Hazleton, PA...... 0.8683 0.9078
Columbia, PA
Lackawanna, PA
Luzerne, PA
Wyoming, PA
7600 \1\ Seattle-Bellevue-Everett, WA.............. 1.1560 1.1044

[[Page 41058]]

Island, WA
King, WA
Snohomish, WA
7610 Sharon, PA.................................... 0.8866 0.9209
Mercer, PA
7620 \2\ Sheboygan, WI............................. 0.8729 0.9111
Sheboygan, WI
7640 Sherman-Denison, TX........................... 0.8588 0.9010
Grayson, TX
7680 Shreveport-Bossier City, LA................... 0.9400 0.9585
Bossier, LA
Caddo, LA
Webster, LA
7720 Sioux City, IA-NE............................. 0.8499 0.8946
Woodbury, IA
Dakota, NE
7760 Sioux Falls, SD............................... 0.8931 0.9255
Lincoln, SD
Minnehaha, SD
7800 South Bend, IN................................ 0.9880 0.9918
St. Joseph, IN
7840 Spokane, WA................................... 1.0952 1.0643
Spokane, WA
7880 Springfield, IL............................... 0.8739 0.9118
Menard, IL
Sangamon, IL
7920 Springfield, MO............................... 0.8088 0.8647
Christian, MO
Greene, MO
Webster, MO
8003 Springfield, MA............................... 1.0857 1.0579
Hampden, MA
Hampshire, MA
8050 State College, PA............................. 0.9469 0.9633
Centre, PA
8080 \2\ Steubenville-Weirton, OH-WV (Ohio
Hospitals)......................................... 0.8537 0.8973
Jefferson, OH
Brooke, WV
Hancock, WV
8080 Steubenville-Weirton, OH-WV (West Virginia
Hospitals)......................................... 0.8447 0.8909
Jefferson, OH
Brooke, WV
Hancock, WV
8120 Stockton-Lodi, CA............................. 1.1099 1.0740
San Joaquin, CA
8140 Sumter, SC.................................... 0.8144 0.8688
Sumter, SC
8160 Syracuse, NY.................................. 0.9420 0.9599
Cayuga, NY
Madison, NY
Onondaga, NY
Oswego, NY
8200 \2\ Tacoma, WA................................ 1.0512 1.0348
Pierce, WA
8240 \2\ Tallahassee, FL........................... 0.8896 0.9230
Gadsden, FL
Leon, FL
8280 \1\ Tampa-St. Petersburg-Clearwater, FL....... 0.9203 0.9447
Hernando, FL
Hillsborough, FL
Pasco, FL
Pinellas, FL
8320 Terre Haute, IN............................... 0.9010 0.9311
Clay, IN
Vermillion, IN
Vigo, IN
8360 Texarkana, AR-Texarkana, TX................... 0.8542 0.8977
Miller, AR
Bowie, TX
8400 Toledo, OH.................................... 1.0012 1.0008
Fulton, OH
Lucas, OH
Wood, OH
8440 Topeka, KS.................................... 0.9833 0.9885
Shawnee, KS
8480 Trenton, NJ................................... 1.0532 1.0361
Mercer, NJ
8520 Tucson, AZ.................................... 0.9047 0.9337
Pima, AZ
8560 Tulsa, OK..................................... 0.8481 0.8933
Creek, OK
Osage, OK
Rogers, OK
Tulsa, OK
Wagoner, OK
8600 Tuscaloosa, AL................................ 0.7658 0.8330
Tuscaloosa, AL
8640 Tyler, TX..................................... 0.8837 0.9188
Smith, TX
8680 \2\ Utica-Rome, NY............................ 0.8605 0.9022
Herkimer, NY
Oneida, NY
8720 Vallejo-Fairfield-Napa, CA.................... 1.2845 1.1870
Napa, CA
Solano, CA
8735 Ventura, CA................................... 1.0715 1.0484
Ventura, CA
8750 Victoria, TX.................................. 0.8400 0.8875
Victoria, TX
8760 Vineland-Millville-Bridgeton, NJ.............. 1.0463 1.0315
Cumberland, NJ
8780 Visalia-Tulare-Porterville, CA................ 1.0105 1.0072
Tulare, CA
8800 Waco, TX...................................... 0.8389 0.8867
McLennan, TX
8840 \1\ Washington, DC-MD-VA-WV................... 1.0812 1.0549
District of Columbia, DC
Calvert, MD
Charles, MD
Frederick, MD
Montgomery, MD
Prince Georges, MD
Alexandria City, VA
Arlington, VA
Clarke, VA
Culpeper, VA
Fairfax, VA
Fairfax City, VA
Falls Church City, VA
Fauquier, VA
Fredericksburg City, VA
King George, VA
Loudoun, VA
Manassas City, VA
Manassas Park City, VA
Prince William, VA
Spotsylvania, VA
Stafford, VA
Warren, VA
Berkeley, WV
Jefferson, WV
8920 Waterloo-Cedar Falls, IA...................... 0.8350 0.8838
Black Hawk, IA
8940 Wausau, WI.................................... 0.9753 0.9830
Marathon, WI
8960 \1\ West Palm Beach-Boca Raton, FL............ 1.0203 1.0139
Palm Beach, FL
9000 \2\ Wheeling, WV-OH (West Virginia Hospitals). 0.7892 0.8503
Belmont, OH
Marshall, WV
Ohio, WV
9000 \2\ Wheeling, WV-OH (Ohio Hospitals).......... 0.8537 0.8973
Belmont, OH
Marshall, WV
Ohio, WV
9040 Wichita, KS................................... 0.8917 0.9245
Butler, KS
Harvey, KS
Sedgwick, KS
9080 Wichita Falls, TX............................. 0.7847 0.8470
Archer, TX
Wichita, TX
9140 \2\ Williamsport, PA.......................... 0.8683 0.9078
Lycoming, PA
9160 Wilmington-Newark, DE-MD...................... 1.1894 1.1261
New Castle, DE
Cecil, MD
9200 Wilmington, NC................................ 0.9364 0.9560
New Hanover, NC
Brunswick, NC
9260 \2\ Yakima, WA................................ 1.0512 1.0348
Yakima, WA
9270 Yolo, CA...................................... 1.0636 1.0431
Yolo, CA
9280 York, PA...................................... 0.9431 0.9607
York, PA
9320 Youngstown-Warren, OH......................... 0.9836 0.9887
Columbiana, OH
Mahoning, OH
Trumbull, OH
9340 Yuba City, CA................................. 1.0889 1.0601

[[Page 41059]]

Sutter, CA
Yuba, CA
9360 Yuma, AZ...................................... 1.0080 1.0055
Yuma, AZ
------------------------------------------------------------------------
\1\ Large Urban Area
\2\ Hospitals geographically located in the area are assigned the
statewide rural wage index for FY 1999.

Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Rural Areas
------------------------------------------------------------------------
Wage
Nonurban area index GAF
------------------------------------------------------------------------
Alabama............................................. 0.7338 0.8090
Alaska.............................................. 1.2456 1.1623
Arizona............................................. 0.8007 0.8588
Arkansas............................................ 0.7265 0.8035
California.......................................... 0.9959 0.9972
Colorado............................................ 0.8454 0.8914
Connecticut......................................... 1.2100 1.1394
Delaware............................................ 0.8826 0.9180
Florida............................................. 0.8896 0.9230
Georgia............................................. 0.7905 0.8513
Hawaii.............................................. 1.0933 1.0630
Idaho............................................... 0.8495 0.8943
Illinois............................................ 0.7942 0.8540
Indiana............................................. 0.8398 0.8873
Iowa................................................ 0.7793 0.8430
Kansas.............................................. 0.7330 0.8084
Kentucky............................................ 0.7861 0.8481
Louisiana........................................... 0.7481 0.8198
Maine............................................... 0.8485 0.8936
Maryland............................................ 0.8574 0.9000
Massachusetts....................................... 1.0857 1.0579
Michigan............................................ 0.8903 0.9235
Minnesota........................................... 0.8613 0.9028
Mississippi......................................... 0.7327 0.8082
Missouri............................................ 0.7468 0.8188
Montana............................................. 0.8596 0.9016
Nebraska............................................ 0.7690 0.8354
Nevada.............................................. 0.9276 0.9498
New Hampshire....................................... 1.0262 1.0179
New Jersey \1\...................................... ........
New Mexico.......................................... 0.8136 0.8683
New York............................................ 0.8605 0.9022
North Carolina...................................... 0.8130 0.8678
North Dakota........................................ 0.7514 0.8222
Ohio................................................ 0.8537 0.8973
Oklahoma............................................ 0.7139 0.7939
Oregon.............................................. 0.9933 0.9954
Pennsylvania........................................ 0.8683 0.9078
Puerto Rico......................................... 0.4089 0.5420
Rhode Island \1\.................................... ........
South Carolina...................................... 0.8063 0.8629
South Dakota........................................ 0.7524 0.8230
Tennessee........................................... 0.7508 0.8218
Texas............................................... 0.7441 0.8168
Utah................................................ 0.8878 0.9217
Vermont............................................. 0.9436 0.9610
Virginia............................................ 0.7863 0.8482
Washington.......................................... 1.0512 1.0348
West Virginia....................................... 0.7892 0.8503
Wisconsin........................................... 0.8729 0.9111
Wyoming............................................. 0.8787 0.9153
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.

Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
Hospitals That are Reclassified
------------------------------------------------------------------------
Wage
Area index GAF
------------------------------------------------------------------------
Abilene, TX......................................... 0.8083 0.8644
Albany, GA.......................................... 0.7905 0.8513
Albuquerque, NM..................................... 0.8632 0.9042
Alexandria, LA...................................... 0.8544 0.8978
Allentown-Bethlehem-Easton, PA...................... 1.0226 1.0154
Amarillo, TX........................................ 0.8509 0.8953
Anchorage, AK....................................... 1.3007 1.1973
Asheville, NC....................................... 0.8960 0.9276
Atlanta, GA......................................... 0.9936 0.9956
Augusta-Aiken, GA-SC................................ 0.9253 0.9482
Baltimore, MD....................................... 0.9663 0.9768
Barnstable-Yarmouth, MA............................. 1.4458 1.2872
Baton Rouge, LA..................................... 0.8891 0.9227
Benton Harbor, MI................................... 0.8903 0.9235
Bergen-Passaic, NJ.................................. 1.1774 1.1183
Billings, MT........................................ 0.9162 0.9418
Binghamton, NY...................................... 0.9078 0.9359
Birmingham, AL...................................... 0.9092 0.9369
Bismarck, ND........................................ 0.7863 0.8482
Boise City, ID...................................... 0.9209 0.9451
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH.... 1.1307 1.0878
Brazoria, TX........................................ 0.8925 0.9251
Bryan-College Station, TX........................... 0.8084 0.8645
Buffalo-Niagara Falls, NY........................... 0.9607 0.9729
Burlington, VT...................................... 0.9616 0.9735
Caguas, PR.......................................... 0.4419 0.5716
Canton-Massillon, OH................................ 0.8827 0.9181
Casper, WY.......................................... 0.9170 0.9424
Champaign-Urbana, IL................................ 0.8789 0.9154
Charleston-North Charleston, SC..................... 0.9134 0.9399
Charleston, WV...................................... 0.8782 0.9149
Charlotte-Gastonia-Rock Hill, NC-SC................. 0.9562 0.9698
Charlottesville, VA................................. 0.9754 0.9831
Chattanooga, TN-GA.................................. 0.8888 0.9224
Chicago, IL......................................... 1.0469 1.0319
Cincinnati, OH-KY-IN................................ 0.9615 0.9735
Clarksville-Hopkinsville, TN-KY..................... 0.8231 0.8752
Cleveland-Lorain-Elyria, OH......................... 0.9907 0.9936
Columbia, MO........................................ 0.8817 0.9174
Columbus, GA-AL..................................... 0.8529 0.8968
Columbus, OH........................................ 0.9802 0.9864
Corpus Christi, TX.................................. 0.8549 0.8982
Dallas, TX.......................................... 0.9364 0.9560
Danville, VA........................................ 0.8735 0.9115
Davenport-Moline-Rock Island, IA-IL................. 0.8431 0.8897
Dayton-Springfield, OH.............................. 0.9584 0.9713
Denver, CO.......................................... 1.0059 1.0040
Des Moines, IA...................................... 0.8494 0.8942
Duluth-Superior, MN-WI.............................. 1.0031 1.0021
Dutchess County, NY................................. 0.9904 0.9934
Elkhart-Goshen, IN.................................. 0.9388 0.9577
Eugene-Springfield, OR.............................. 1.1072 1.0722
Evansville-Henderson, IN-KY......................... 0.8433 0.8898
Fargo-Moorhead, ND-MN............................... 0.9264 0.9490
Fayetteville, NC.................................... 0.8407 0.8880
Flagstaff, AZ-UT.................................... 0.9543 0.9685
Flint, MI........................................... 1.1054 1.0710
Fort Collins-Loveland, CO........................... 1.0319 1.0217
Ft. Lauderdale, FL.................................. 0.9867 0.9909
Fort Pierce-Port St. Lucie, FL...................... 1.0263 1.0179
Fort Smith, AR-OK................................... 0.7535 0.8238
Fort Walton Beach, FL............................... 0.8640 0.9047
Forth Worth-Arlington, TX........................... 0.9729 0.9814
Gadsden, AL......................................... 0.8799 0.9161
Gainesville, FL..................................... 0.9482 0.9642
Goldsboro, NC....................................... 0.8353 0.8841
Grand Forks, ND-MN.................................. 0.8918 0.9246
Grand Junction, CO.................................. 0.9099 0.9374
Grand Rapids-Muskegon-Holland, MI................... 0.9878 0.9916
Great Falls, MT..................................... 0.9304 0.9518
Greeley, CO......................................... 0.9376 0.9568
Green Bay, WI....................................... 0.9268 0.9493
Greenville, NC...................................... 0.9118 0.9387
Greenville-Spartanburg-Anderson, SC................. 0.9242 0.9475
Harrisburg-Lebanon-Carlisle, PA..................... 1.0082 1.0056
Hartford, CT........................................ 1.1879 1.1251
Hattiesburg, MS..................................... 0.7327 0.8082
Hickory-Morganton-Lenoir, NC........................ 0.8668 0.9067
Honolulu, HI........................................ 1.1535 1.1027
Houston, TX......................................... 0.9904 0.9934
Huntington-Ashland, WV-KY-OH........................ 0.9295 0.9512
Huntsville, AL...................................... 0.8240 0.8758
Indianapolis, IN.................................... 0.9748 0.9827
Iowa City, IA....................................... 0.9382 0.9573
Jackson, MS......................................... 0.8310 0.8809
Jackson, TN......................................... 0.8578 0.9003
Jacksonville, FL.................................... 0.8919 0.9246
Johnson City-Kingsport-Bristol, TN-VA............... 0.8792 0.9156
Jonesboro, AR....................................... 0.7595 0.8283
Joplin, MO.......................................... 0.7890 0.8502
Kalamazoo-Battlecreek, MI........................... 1.1102 1.0742
Kansas City, KS-MO.................................. 0.9666 0.9770
Knoxville, TN....................................... 0.8937 0.9259
Lafayette, LA....................................... 0.8311 0.8810
Lansing-East Lansing, MI............................ 0.9995 0.9997
Las Cruces, NM...................................... 0.8989 0.9296

[[Page 41060]]

Las Vegas, NV-AZ.................................... 1.1438 1.0964
Lexington, KY....................................... 0.8525 0.8965
Lima, OH............................................ 0.8787 0.9153
Lincoln, NE......................................... 0.9051 0.9340
Little Rock-North Little Rock, AR................... 0.8553 0.8985
Los Angeles-Long Beach, CA.......................... 1.2070 1.1375
Louisville, KY-IN................................... 0.9113 0.9384
Macon, GA........................................... 0.8502 0.8948
Madison, WI......................................... 1.0040 1.0027
Mansfield, OH....................................... 0.8552 0.8984
Memphis, TN-AR-MS................................... 0.8371 0.8854
Merced, CA.......................................... 1.0240 1.0164
Milwaukee-Waukesha, WI.............................. 0.9135 0.9399
Minneapolis-St. Paul, MN-WI......................... 1.0877 1.0593
Modesto, CA......................................... 1.0368 1.0251
Monroe, LA.......................................... 0.8097 0.8654
Montgomery, AL...................................... 0.7877 0.8492
Myrtle Beach, SC.................................... 0.8196 0.8726
Nashville, TN....................................... 0.9322 0.9531
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT. 1.2271 1.1504
New London-Norwich, CT.............................. 1.1665 1.1112
New Orleans, LA..................................... 0.9330 0.9536
New York, NY........................................ 1.4431 1.2855
Newburgh, NY-PA..................................... 1.1247 1.0838
Oakland, CA......................................... 1.5194 1.3317
Odessa-Midland, TX.................................. 0.8683 0.9078
Oklahoma City, OK................................... 0.8727 0.9110
Omaha, NE-IA........................................ 0.9993 0.9995
Orange County, CA................................... 1.1472 1.0986
Orlando, FL......................................... 0.9834 0.9886
Peoria-Pekin, IL.................................... 0.8081 0.8642
Philadelphia, PA-NJ................................. 1.1382 1.0927
Pittsburgh, PA...................................... 0.9661 0.9767
Pocatello, ID (Idaho Hospital)...................... 0.8673 0.9071
Pocatello, ID (Wyoming Hospitals)................... 0.8787 0.9153
Portland, ME........................................ 0.9595 0.9721
Portland-Vancouver, OR-WA........................... 1.1202 1.0808
Provo-Orem, UT...................................... 0.9907 0.9936
Raleigh-Durham-Chapel Hill, NC...................... 0.9833 0.9885
Rapid City, SD...................................... 0.8226 0.8748
Reno, NV............................................ 1.1118 1.0753
Rochester, MN....................................... 1.1723 1.1150
Rockford, IL........................................ 0.8634 0.9043
Sacramento, CA...................................... 1.1864 1.1242
Saginaw-Bay City-Midland, MI........................ 0.9507 0.9660
St. Cloud, MN....................................... 0.9607 0.9729
St. Louis, MO-IL.................................... 0.9171 0.9425
Salt Lake City-Ogden, UT............................ 0.9400 0.9585
San Diego, CA....................................... 1.2336 1.1546
Santa Fe, NM........................................ 0.9493 0.9650
Santa Rosa, CA...................................... 1.2934 1.1927
Seattle-Bellevue-Everett, WA........................ 1.1560 1.1044
Sharon, PA.......................................... 0.8866 0.9209
Sherman-Denison, TX................................. 0.8266 0.8777
Sioux City, IA-NE................................... 0.8499 0.8946
Sioux Falls, SD..................................... 0.8828 0.9182
South Bend, IN...................................... 0.9880 0.9918
Spokane, WA......................................... 1.0752 1.0509
Springfield, IL..................................... 0.8739 0.9118
Springfield, MO..................................... 0.8088 0.8647
State College, PA................................... 0.8812 0.9170
Syracuse, NY........................................ 0.9420 0.9599
Tallahassee, FL..................................... 0.8518 0.8960
Tampa-St. Petersburg-Clearwater, FL................. 0.9203 0.9447
Texarkana, AR-Texarkana, TX......................... 0.8542 0.8977
Toledo, OH.......................................... 1.0012 1.0008
Topeka, KS.......................................... 0.9609 0.9731
Tucson, AZ.......................................... 0.9047 0.9337
Tulsa, OK........................................... 0.8376 0.8857
Tuscaloosa, AL...................................... 0.7658 0.8330
Tyler, TX........................................... 0.8837 0.9188
Vallejo-Fairfield-Napa, CA.......................... 1.2845 1.1870
Victoria, TX........................................ 0.8400 0.8875
Washington, DC-MD-VA-WV............................. 1.0812 1.0549
Waterloo-Cedar Falls, IA............................ 0.8350 0.8838
Wausau, WI.......................................... 0.9442 0.9614
Wichita, KS......................................... 0.8789 0.9154
Wichita Falls, TX................................... 0.7677 0.8344
Rural Alabama....................................... 0.7338 0.8090
Rural Illinois...................................... 0.7942 0.8540
Rural Louisiana..................................... 0.7481 0.8198
Rural Massachusetts................................. 1.0421 1.0286
Rural Michigan...................................... 0.8903 0.9235
Rural Minnesota..................................... 0.8613 0.9028
Rural Missouri...................................... 0.7468 0.8188
Rural Nevada........................................ 0.8851 0.9198
Rural New Mexico.................................... 0.8136 0.8683
Rural Oregon........................................ 0.9933 0.9954
Rural Washington.................................... 1.0512 1.0348
Rural Wyoming....................................... 0.8787 0.9153
------------------------------------------------------------------------

Table 4D.--Average Hourly Wage for Urban Areas
------------------------------------------------------------------------
Average
Urban area hourly
wage
------------------------------------------------------------------------
Abilene, TX.................................................. 16.5825
Aguadilla, PR................................................ 9.8222
Akron, OH.................................................... 20.5687
Albany, GA................................................... 16.5708
Albany-Schenectady-Troy, NY.................................. 17.8900
Albuquerque, NM.............................................. 17.8958
Alexandria, LA............................................... 17.7146
Allentown-Bethlehem-Easton, PA............................... 21.2002
Altoona, PA.................................................. 19.3951
Amarillo, TX................................................. 17.6070
Anchorage, AK................................................ 26.6324
Ann Arbor, MI................................................ 22.9238
Anniston, AL................................................. 17.9884
Appleton-Oshkosh-Neenah, WI.................................. 18.3354
Arecibo, PR.................................................. 10.1129
Asheville, NC................................................ 18.5755
Athens, GA................................................... 18.0203
Atlanta, GA.................................................. 20.6008
Atlantic-Cape May, NJ........................................ 23.9678
Augusta-Aiken, GA-SC......................................... 19.1829
Austin-San Marcos, TX........................................ 17.5021
Bakersfield, CA.............................................. 19.3407
Baltimore, MD................................................ 20.0332
Bangor, ME................................................... 19.6846
Barnstable-Yarmouth, MA...................................... 31.9593
Baton Rouge, LA.............................................. 18.4325
Beaumont-Port Arthur, TX..................................... 18.8069
Bellingham, WA............................................... 23.7572
Benton Harbor, MI............................................ 17.7241
Bergen-Passaic, NJ........................................... 25.3184
Billings, MT................................................. 18.9960
Biloxi-Gulfport-Pascagoula, MS............................... 17.1946
Binghamton, NY............................................... 18.8217
Birmingham, AL............................................... 18.8506
Bismarck, ND................................................. 16.6736
Bloomington, IN.............................................. 18.6271
Bloomington-Normal, IL....................................... 18.3900
Boise City, ID............................................... 19.0323
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH............. 23.4028
Boulder-Longmont, CO......................................... 20.8550
Brazoria, TX................................................. 18.5041
Bremerton, WA................................................ 22.9686
Brownsville-Harlingen-San Benito, TX......................... 17.1138
Bryan-College Station, TX.................................... 16.2473
Buffalo-Niagara Falls, NY.................................... 19.9187
Burlington, VT............................................... 19.8983
Caguas, PR................................................... 9.1414
Canton-Massillon, OH......................................... 18.3002
Casper, WY................................................... 18.0774
Cedar Rapids, IA............................................. 18.3134
Champaign-Urbana, IL......................................... 18.1242
Charleston-North Charleston, SC.............................. 18.9373
Charleston, WV............................................... 18.6776
Charlotte-Gastonia-Rock Hill, NC-SC.......................... 19.8253
Charlottesville, VA.......................................... 21.3425
Chattanooga, TN-GA........................................... 18.8525
Cheyenne, WY................................................. 16.9321
Chicago, IL.................................................. 21.7048
Chico-Paradise, CA........................................... 21.0787
Cincinnati, OH-KY-IN......................................... 19.9348
Clarksville-Hopkinsville, TN-KY.............................. 16.7045
Cleveland-Lorain-Elyria, OH.................................. 20.5401
Colorado Springs, CO......................................... 19.5098
Columbia, MO................................................. 18.5780
Columbia, SC................................................. 19.3016
Columbus, GA-AL.............................................. 17.6831
Columbus, OH................................................. 20.3213
Corpus Christi, TX........................................... 17.6885
Cumberland, MD-WV............................................ 17.1237
Dallas, TX................................................... 19.4566
Danville, VA................................................. 18.7936
Davenport-Moline-Rock Island, IA-IL.......................... 17.4790
Dayton-Springfield, OH....................................... 19.8696
Daytona Beach, FL............................................ 18.9775
Decatur, AL.................................................. 17.1056
Decatur, IL.................................................. 16.6936
Denver, CO................................................... 20.8379
Des Moines, IA............................................... 17.5526
Detroit, MI.................................................. 21.9074
Dothan, AL................................................... 16.3982

[[Page 41061]]

Dover, DE.................................................... 19.4527
Dubuque, IA.................................................. 17.0836
Duluth-Superior, MN-WI....................................... 20.6977
Dutchess County, NY.......................................... 21.8781
Eau Claire, WI............................................... 17.8112
El Paso, TX.................................................. 19.1468
Elkhart-Goshen, IN........................................... 19.3331
Elmira, NY................................................... 17.5367
Enid, OK..................................................... 16.5214
Erie, PA..................................................... 19.2614
Eugene-Springfield, OR....................................... 23.2566
Evansville, Henderson, IN-KY................................. 17.7198
Fargo-Moorhead, ND-MN........................................ 19.7733
Fayetteville, NC............................................. 17.4302
Fayetteville-Springdale-Rogers, AR........................... 17.8965
Flagstaff, AZ-UT............................................. 19.7032
Flint, MI.................................................... 22.9184
Florence, AL................................................. 15.9479
Florence, SC................................................. 17.6631
Fort Collins-Loveland, CO.................................... 21.3936
Fort Lauderdale, FL.......................................... 20.3766
Fort Myers-Cape Coral, FL.................................... 18.5257
Fort Pierce-Port St. Lucie, FL............................... 21.2784
Fort Smith, AR-OK............................................ 15.8375
Fort Walton Beach, FL........................................ 17.8995
Fort Wayne, IN............................................... 18.7962
Fort Worth-Arlington, TX..................................... 20.1487
Fresno, CA................................................... 21.5811
Gadsden, AL.................................................. 18.2411
Gainesville, FL.............................................. 19.6396
Galveston-Texas City, TX..................................... 22.4914
Gary, IN..................................................... 19.6025
Glens Falls, NY.............................................. 17.6404
Goldsboro, NC................................................ 17.7222
Grand Forks, ND-MN........................................... 18.3589
Grand Junction, CO........................................... 17.0997
Grand Rapids-Muskegon-Holland, MI............................ 20.7161
Great Falls, MT.............................................. 18.4336
Greeley, CO.................................................. 19.6480
Green Bay, WI................................................ 19.0230
Greensboro-Winston-Salem-High Point, NC...................... 19.8355
Greenville, NC............................................... 19.6007
Greenville-Spartanburg-Anderson, SC.......................... 19.1612
Hagerstown, MD............................................... 21.1564
Hamilton-Middletown, OH...................................... 19.1833
Harrisburg-Lebanon-Carlisle, PA.............................. 20.9016
Hartford, CT................................................. 24.5817
Hattiesburg, MS.............................................. 15.0868
Hickory-Morganton-Lenoir, NC................................. 18.4995
Honolulu, HI................................................. 23.9148
Houma, LA.................................................... 17.0314
Houston, TX.................................................. 20.5336
Huntington-Ashland, WV-KY-OH................................. 20.0441
Huntsville, AL............................................... 17.4211
Indianapolis, IN............................................. 20.4258
Iowa City, IA................................................ 19.6992
Jackson, MI.................................................. 19.1645
Jackson, MS.................................................. 17.2283
Jackson, TN.................................................. 17.7852
Jacksonville, FL............................................. 18.4915
Jacksonville, NC............................................. 15.6996
Jamestown, NY................................................ 15.9148
Janesville-Beloit, WI........................................ 18.8060
Jersey City, NJ.............................................. 24.0964
Johnson City-Kingsport-Bristol, TN-VA........................ 18.2276
Johnstown, PA................................................ 17.9084
Jonesboro, AR................................................ 15.3904
Joplin, MO................................................... 16.3572
Kalamazoo-Battlecreek, MI.................................... 23.5418
Kankakee, IL................................................. 19.5674
Kansas City, KS-MO........................................... 20.0395
Kenosha, WI.................................................. 18.9676
Killeen-Temple, TX........................................... 21.0041
Knoxville, TN................................................ 18.5294
Kokomo, IN................................................... 19.2700
La Crosse, WI-MN............................................. 18.5196
Lafayette, LA................................................ 17.1506
Lafayette, IN................................................ 18.3693
Lake Charles, LA............................................. 15.9437
Lakeland-Winter Haven, FL.................................... 18.5726
Lancaster, PA................................................ 19.8644
Lansing-East Lansing, MI..................................... 20.9650
Laredo, TX................................................... 15.2556
Las Cruces, NM............................................... 18.4298
Las Vegas, NV-AZ............................................. 23.7139
Lawrence, KS................................................. 17.9827
Lawton, OK................................................... 18.0698
Lewiston-Auburn, ME.......................................... 19.0090
Lexington, KY................................................ 17.6740
Lima, OH..................................................... 18.5932
Lincoln, NE.................................................. 19.3291
Little Rock-North Little Rock, AR............................ 17.6667
Longview-Marshall, TX........................................ 18.0723
Los Angeles-Long Beach, CA................................... 24.9564
Louisville, KY-IN............................................ 18.8926
Lubbock, TX.................................................. 17.6523
Lynchburg, VA................................................ 18.4907
Macon, GA.................................................... 17.8909
Madison, WI.................................................. 20.8155
Mansfield, OH................................................ 17.7305
Mayaguez, PR................................................. 8.6819
McAllen-Edinburg-Mission, TX................................. 17.6361
Medford-Ashland, OR.......................................... 20.8190
Melbourne-Titusville-Palm Bay, FL............................ 19.1487
Memphis, TN-AR-MS............................................ 17.3552
Merced, CA................................................... 20.8449
Miami, FL.................................................... 20.8119
Middlesex-Somerset-Hunterdon, NJ............................. 23.1702
Milwaukee-Waukesha, WI....................................... 18.9231
Minneapolis-St. Paul, MN-WI.................................. 22.5517
Missoula, MT................................................. 19.0914
Mobile, AL................................................... 17.4040
Modesto, CA.................................................. 21.4951
Monmouth-Ocean, NJ........................................... 23.5125
Monroe, LA................................................... 17.0762
Montgomery, AL............................................... 16.2493
Muncie, IN................................................... 19.5589
Myrtle Beach, SC............................................. 16.9930
Naples, FL................................................... 21.1457
Nashville, TN................................................ 19.6966
Nassau-Suffolk, NY........................................... 28.1530
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.......... 25.6149
New London-Norwich, CT....................................... 24.1351
New Orleans, LA.............................................. 19.3440
New York, NY................................................. 29.9194
Newark, NJ................................................... 24.6026
Newburgh, NY-PA.............................................. 23.1779
Norfolk-Virginia Beach-Newport News, VA-NC................... 17.0290
Oakland, CA.................................................. 31.1506
Ocala, FL.................................................... 19.0159
Odessa-Midland, TX........................................... 17.9849
Oklahoma City, OK............................................ 18.0923
Olympia, WA.................................................. 23.9389
Omaha, NE-IA................................................. 20.7181
Orange County, CA............................................ 23.8979
Orlando, FL.................................................. 20.3876
Owensboro, KY................................................ 16.1460
Panama City, FL.............................................. 17.6753
Parkersburg-Marietta, WV-OH.................................. 16.6559
Pensacola, FL................................................ 16.9466
Peoria-Pekin, IL............................................. 16.7415
Philadelphia, PA-NJ.......................................... 23.5963
Phoenix-Mesa, AZ............................................. 19.9270
Pine Bluff, AR............................................... 16.4382
Pittsburgh, PA............................................... 20.3368
Pittsfield, MA............................................... 22.4781
Pocatello, ID................................................ 18.2669
Ponce, PR.................................................... 9.9487
Portland, ME................................................. 19.8655
Portland-Vancouver, OR-WA.................................... 23.2244
Providence-Warwick, RI....................................... 22.4405
Provo-Orem, UT............................................... 20.5384
Pueblo, CO................................................... 18.1010
Punta Gorda, FL.............................................. 18.7634
Racine, WI................................................... 18.9687
Raleigh-Durham-Chapel Hill, NC............................... 20.3867
Rapid City, SD............................................... 17.0546
Reading, PA.................................................. 19.1866
Redding, CA.................................................. 24.6374
Reno, NV..................................................... 23.0512
Richland-Kennewick-Pasco, WA................................. 21.3732
Richmond-Petersburg, VA...................................... 19.1375
Riverside-San Bernardino, CA................................. 21.4175
Roanoke, VA.................................................. 17.6802
Rochester, MN................................................ 24.3054
Rochester, NY................................................ 20.0636
Rockford, IL................................................. 17.8998
Rocky Mount, NC.............................................. 18.7242
Sacramento, CA............................................... 24.5905
Saginaw-Bay City-Midland, MI................................. 19.7109
St. Cloud, MN................................................ 19.9167
St. Joseph, MO............................................... 20.5465
St. Louis, MO-IL............................................. 19.0136
Salem, OR.................................................... 20.5776
Salinas, CA.................................................. 31.4614
Salt Lake City-Ogden, UT..................................... 19.4382
San Angelo, TX............................................... 15.8857
San Antonio, TX.............................................. 16.8290
San Diego, CA................................................ 25.4828
San Francisco, CA............................................ 28.8570
San Jose, CA................................................. 28.7281
San Juan-Bayamon, PR......................................... 9.6051
San Luis Obispo-Atascadero-Paso Robles, CA................... 22.2647
Santa Barbara-Santa Maria-Lompoc, CA......................... 23.2580
Santa Cruz-Watsonville, CA................................... 29.0487
Santa Fe, NM................................................. 19.9519
Santa Rosa, CA............................................... 28.2508
Sarasota-Bradenton, FL....................................... 19.8054
Savannah, GA................................................. 20.9009
Scranton-Wilkes Barre-Hazleton, PA........................... 17.2431
Seattle-Bellevue-Everett, WA................................. 23.9486
Sharon, PA................................................... 18.3824
Sheboygan, WI................................................ 17.0899
Sherman-Denison, TX.......................................... 17.8053
Shreveport-Bossier City, LA.................................. 19.4893

[[Page 41062]]

Sioux City, IA-NE............................................ 17.6215
Sioux Falls, SD.............................................. 18.5158
South Bend, IN............................................... 20.4831
Spokane, WA.................................................. 22.7055
Springfield, IL.............................................. 18.1176
Springfield, MO.............................................. 16.7688
Springfield, MA.............................................. 22.8337
State College, PA............................................ 19.6319
Steubenville-Weirton, OH-WV.................................. 17.5119
Stockton-Lodi, CA............................................ 23.0115
Sumter, SC................................................... 16.8850
Syracuse, NY................................................. 19.5305
Tacoma, WA................................................... 21.5661
Tallahassee, FL.............................................. 17.5545
Tampa-St. Petersburg-Clearwater, FL.......................... 18.9348
Terre Haute, IN.............................................. 18.6798
Texarkana, AR-Texarkana, TX.................................. 17.7097
Toledo, OH................................................... 20.7579
Topeka, KS................................................... 20.3862
Trenton, NJ.................................................. 21.8355
Tucson, AZ................................................... 18.7576
Tulsa, OK.................................................... 17.5841
Tuscaloosa, AL............................................... 15.8762
Tyler, TX.................................................... 18.3215
Utica-Rome, NY............................................... 17.4892
Vallejo-Fairfield-Napa, CA................................... 26.6436
Ventura, CA.................................................. 22.7551
Victoria, TX................................................. 17.4131
Vineland-Millville-Bridgeton, NJ............................. 21.6923
Visalia-Tulare-Porterville, CA............................... 20.9493
Waco, TX..................................................... 17.3923
Washington, DC-MD-VA-WV...................................... 22.4162
Waterloo-Cedar Falls, IA..................................... 16.5347
Wausau, WI................................................... 20.2214
West Palm Beach-Boca Raton, FL............................... 21.2323
Wheeling, OH-WV.............................................. 15.8460
Wichita, KS.................................................. 18.4872
Wichita Falls, TX............................................ 16.2686
Williamsport, PA............................................. 17.7778
Wilmington-Newark, DE-MD..................................... 24.6591
Wilmington, NC............................................... 19.4129
Yakima, WA................................................... 21.4371
Yolo, CA..................................................... 22.0507
York, PA..................................................... 19.5520
Youngstown-Warren, OH........................................ 20.3921
Yuba City, CA................................................ 22.5751
Yuma, AZ..................................................... 20.8977
------------------------------------------------------------------------

Table 4E.--Average Hourly Wage for Rural Areas
------------------------------------------------------------------------
Average
Nonurban area hourly
wage
------------------------------------------------------------------------
Alabama...................................................... 15.1457
Alaska....................................................... 25.8250
Arizona...................................................... 16.5996
Arkansas..................................................... 15.0624
California................................................... 20.6476
Colorado..................................................... 17.5278
Connecticut.................................................. 25.0854
Delaware..................................................... 18.2993
Florida...................................................... 18.4445
Georgia...................................................... 16.3888
Hawaii....................................................... 22.6670
Idaho........................................................ 17.6129
Illinois..................................................... 16.4463
Indiana...................................................... 17.4120
Iowa......................................................... 16.1574
Kansas....................................................... 15.1960
Kentucky..................................................... 16.2977
Louisiana.................................................... 15.4880
Maine........................................................ 17.5914
Maryland..................................................... 17.7750
Massachusetts................................................ 22.5095
Michigan..................................................... 18.4407
Minnesota.................................................... 17.8572
Mississippi.................................................. 15.1905
Missouri..................................................... 15.4837
Montana...................................................... 17.4489
Nebraska..................................................... 15.9437
Nevada....................................................... 19.2311
New Hampshire................................................ 21.2761
New Jersey \1\............................................... .........
New Mexico................................................... 16.8682
New York..................................................... 17.8401
North Carolina............................................... 16.8551
North Dakota................................................. 15.5776
Ohio......................................................... 17.6991
Oklahoma..................................................... 14.8012
Oregon....................................................... 20.5901
Pennsylvania................................................. 18.0013
Puerto Rico.................................................. 8.4766
Rhode Island \1\............................................. .........
South Carolina............................................... 16.7176
South Dakota................................................. 15.5989
Tennessee.................................................... 15.5660
Texas........................................................ 15.4273
Utah......................................................... 18.4060
Vermont...................................................... 19.5637
Virginia..................................................... 16.3017
Washington................................................... 21.7934
West Virginia................................................ 16.3620
Wisconsin.................................................... 18.0975
Wyoming...................................................... 18.2168
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.

Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF)
----------------------------------------------------------------------------------------------------------------
Wage index--
reclass. GAF--
Area Wage index GAF hospitals Reclass.
hospitals
----------------------------------------------------------------------------------------------------------------
Aguadilla, PR............................................... 1.0336 1.0229 ........... ...........
Arecibo, PR................................................. 1.0642 1.0435 ........... ...........
Caguas, PR.................................................. 0.9642 0.9753 0.9642 0.9753
Mayaguez, PR................................................ 0.9136 0.9400 ........... ...........
Ponce, PR................................................... 1.0470 1.0320 ........... ...........
San Juan-Bayamon, PR........................................ 1.0108 1.0074 ........... ...........
Rural Puerto Rico........................................... 0.8920 0.9247 ........... ...........
----------------------------------------------------------------------------------------------------------------

BILLING CODE 4120-01-P

[[Page 41063]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.032

[[Page 41064]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.033

[[Page 41065]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.034

[[Page 41066]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.035

[[Page 41067]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.036

[[Page 41068]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.037

[[Page 41069]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.038

[[Page 41070]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.039

[[Page 41071]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.040

[[Page 41072]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.041

[[Page 41073]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.042

[[Page 41074]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.043

[[Page 41075]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.044

[[Page 41076]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.045

[[Page 41077]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.046

BILLING CODE 4120-01-C

[[Page 41078]]

Table 6A.--New Diagnosis Codes
----------------------------------------------------------------------------------------------------------------
Diagnosis
code Description CC MDC DRG
----------------------------------------------------------------------------------------------------------------
337.3....... Autonomic dysreflexia....... N 1 18, 19
438.53...... Other paralytic syndrome, N 1 12
bilateral.
482.40...... Pneumonia due to Y 4 79, 80, 81
Staphyloccus, unspecified. 5 121 \1\
15 387, 389 \2\
25 489 \3\
482.41...... Pneumonia due to Y 4 79, 80, 81
Staphylococcus aureus. 5 121 \1\
15 387, 389 \2\
25 489 \3\
482.49...... Other Staphylococcus Y 4 79, 80, 81
pneumonia. 5 121 \1\
15 387, 389 \2\
25 489 \3\
518.83...... Chronic respiratory failure. Y 4 87
5 121 \1\
518.84...... Acute and chronic Y 4 87
respiratory failure. 5 121 \1\
22 506, 507
519.00...... Unspecified tracheostomy Y Pre 482
complication. 4 101, 102
519.01...... Infection of tracheostomy... Y Pre 482
4 101, 102
519.02...... Mechanical complication of Y Pre 482
tracheostomy. 4 101, 102
519.09...... Other tracheostomy Y Pre 482
complication. 4 101, 102
536.40...... Unspecified gastrostomy Y 6 188, 189, 190
complication.
536.41...... Infection of gastrostomy.... Y 6 188, 189, 190
536.42...... Mechanical complication of Y 6 188, 189, 190
gastrostomy.
536.49...... Other gastrostomy Y 6 188, 189, 190
complication.
564.81...... Neurogenic bowel............ N 6 182, 183, 184
564.89...... Other functional disorders N 6 182, 183, 184
of intestine.
569.62...... Mechanical complication of Y 6 188, 189, 190
colostomy and enterostomy.
659.70...... Abnormality in fetal heart N 14 370, 371, 372, 373, 374, 375
rate/rhythm, unspecified as
to episode of care or not
applicable.
659.71...... Abnormality in fetal heart N 14 370, 371, 372, 373, 374, 375
rate/rhythm, delivered,
with or without mention of
antepartum condition.
659.73...... Abnormality in fetal heart N 14 383, 384
rate/rhythm, antepartum
condition or complication.
763.81...... Abnormality in fetal heart N 15 390
rate or rhythm before the
onset of labor.
763.82...... Abnormality in fetal heart N 15 390
rate or rhythm during labor.
763.83...... Abnormality in fetal heart N 15 390
rate or rhythm, unspecified
as to time of onset.
763.89...... Other specified N 15 390
complications of labor and
delivery affecting fetus
and newborn.
780.71...... Chronic fatigue syndrome.... N 23 463, 464
25 490
780.79...... Other malaise and fatigue... N 23 463, 464
25 490
786.03...... Apnea....................... Y 4 99, 100
25 490
786.04...... Cheyne-Stokes respiration... Y 4 99, 100
25 490
786.05...... Shortness of breath......... N 4 99, 100
25 490
786.06...... Tachypnea................... N 4 99, 100
25 490
786.07...... Wheezing.................... N 4 99, 100
25 490
965.61...... Poisoning by propionic acid N 21 449, 450, 451
derivatives.
965.69...... Poisoning by other N 21 449, 450, 451
antirheumatics.
995.86...... Malignant hyperthermia...... Y 21 454,455
996.55...... Mechanical complications due Y 21 452, 453
to artificial skin graft
and decellularized
allodermis.
996.56...... Mechanical complications due Y 21 452, 453
to peritoneal dialysis
catheter.
996.68...... Infection and inflammatory Y 21 452, 453
reaction due to peritoneal
dialysis catheter.
V02.51...... Carrier or suspected carrier N 23 467
of Group B streptococcus.
V02.52...... Carrier or suspected carrier N 23 467
of other streptococcus.
V02.59...... Carrier or suspected carrier N 23 467
of other specified
bacterial diseases.
V10.48...... Personal history of N 17 411, 412
malignant neoplasm of
epididymis.
V13.61...... Personal history of N 23 467
hypospadias.
V13.69...... Personal history other N 23 467
congenital malformation.

[[Page 41079]]

V16.51...... Family history of malignant N 23 467
neoplasm of kidney.
V16.59...... Family history of malignant N 23 467
neoplasm of other urinary
organs.
V18.61...... Family history of polycystic N 23 467
kidney.
V18.69...... Family history of other N 23 467
kidney diseases.
V23.81...... Supervision of high-risk Y 14 469
pregnancy of elderly
primigravida.
V23.82...... Supervision of high-risk Y 14 469
pregnancy of elderly
multigravida.
V23.83...... Supervision of high-risk Y 14 469
pregnancy of young
primigravida.
V23.84...... Supervision of high-risk Y 14 469
pregnancy of young
multigravida.
V23.89...... Supervision of other high- Y 14 469
risk pregnancy.
V26.51...... Tubal ligation status....... N 23 467
V26.52...... Vasectomy status............ N 23 467
V29.3....... Observation for suspected N 23 467
genetic or metabolic
condition.
V43.83...... Organ or tissue replaced by N 23 467
artificial skin.
V44.50...... Unspecified cystostomy N 23 467
status.
V44.51...... Cutaneous-vesicostomy status N 23 467
V44.52...... Appendico-vesicostomy status N 23 467
V44.59...... Other cystostomy status..... N 23 467
V56.2....... Fitting and adjustment of N 11 317
peritoneal dialysis
catheter.
V58.62...... Encounter for aftercare for N 23 465, 466
long- term (current) use of
antibiotics.
V76.44...... Special screening for N 23 467
malignant neoplasm of
prostate.
V76.45...... Special screening for N 23 467
malignant neoplasm of
testis.
----------------------------------------------------------------------------------------------------------------
\1\ Classified as a ``major complication'' in this DRG.
\2\ Classified as a ``major problem'' in these DRGs.
\3\ HIV major related condition in this DRG.

Table 6B.--New Procedure Codes
----------------------------------------------------------------------------------------------------------------
Procedure
code Description OR MDC DRG
----------------------------------------------------------------------------------------------------------------
36.31....... Open chest transmyocardial Y 5 108
revascularization.
36.32....... Other transmyocardial Y 5 108
revascularization.
36.39....... Other heart revascularization. Y 5 108
37.67....... Implantation of Y 5 110, 111
cardiomyostimulation system.
75.37....... Amnioinfusion................. N
86.67....... Dermal regenerative graft..... Y 1 7, 8
3 63
5 120
6 170, 171
8 217
9 263, 264, 265, 266
10 287
21 439
22 504, 506, 507
24 486
92.30....... Stereotactic radiosurgery, not N \1\ 1 7, 8
otherwise specified. 10 292, 293
17 401, 402, 408
92.31....... Single source photon N \1\ 1 7, 8
radiosurgery. 10 292, 293
17 401, 402, 408
92.32....... Multi-source photon N \1\ 1 7, 8
radiosurgery. 10 292, 293
17 401, 402, 408
92.33....... Particulate radiosurgery...... N \1\ 1 7, 8
10 292, 293
17 401, 402, 408
92.39....... Stereotactic radiosurgery, not N \1\ 1 7, 8
elsewhere classified. 10 292, 293
17 401, 402, 408
96.29....... Reduction of intussusception N
of alimentary tract.
99.10....... Injection or infusion of N
thrombolytic agent.
99.20....... Injection or infusion of N
platelet inhibitor.
----------------------------------------------------------------------------------------------------------------
\1\ Non-operating room procedure that affects DRG assignment.

[[Page 41080]]

Table 6C.--Invalid Diagnosis Codes
----------------------------------------------------------------------------------------------------------------
Diagnosis
code Description CC MDC DRG
----------------------------------------------------------------------------------------------------------------
482.4....... Pneumonia due to Y 4 79, 80, 81
Staphylococcus. 5 121 \1\1
15 387, 389 \2\
25 489 \3\
519.0....... Tracheostomy complication... Y PRE 482
4 101, 102
564.8....... Other specified functional N 6 182, 183, 184
disorders of intestine.
763.8....... Other specified N 15 390
complications of labor and
delivery affecting fetus
and newborn.
780.7....... Malaise and fatigue......... N 23 463, 464
25 490
965.6....... Poisoning by antirheumatics N 21 449, 450, 451
[antiphlogistics].
V02.5....... Carrier or suspected carrier N 23 467
of other specified
bacterial diseases.
V13.6....... Personal history of N 23 467
congenital malformations.
V16.5....... Family history of malignant N 23 467
neoplasm of urinary organs.
V18.6....... Family history of kidney N 23 467
diseases.
V23.8....... Supervision of other high- Y 14 469
risk pregnancy.
V44.5....... Cystostomy status........... N 23 467
----------------------------------------------------------------------------------------------------------------
\1\ Classified as a ``major complication'' in this DRG.
\2\ Classified as a ``major problem'' in these DRGs.
\3\ HIV major related condition in this DRG.

Table 6D.--Invalid Procedure Codes
----------------------------------------------------------------------------------------------------------------
Procedure
code Description OR MDC DRG
----------------------------------------------------------------------------------------------------------------
36.3........ Other heart Y 5 108
revascularization.
92.3........ Stereotactic radiosurgery... N \1\ 1 7,8
10 292, 293
17 401, 402, 408
----------------------------------------------------------------------------------------------------------------
\1\ Non-operating room procedure that affects DRG assignment.

Table 6E.--Revised Diagnosis Code Titles
----------------------------------------------------------------------------------------------------------------
Diagnosis
code Description CC MDC DRG
----------------------------------------------------------------------------------------------------------------
518.81...... Acute respiratory failure... Y 4 87
5 121 \1\
22 506, 507
659.60...... Elderly multigravida N 14 370, 371, 372, 373, 374, 375
unspecified as to episode
of care or not applicable.
659.61...... Elderly multigravida N 14 370, 371, 372, 373, 374, 375
delivered, with mention of
antepartum condition.
659.63...... Elderly multigravida with N 14 383, 384
antepartum condition or
complication.
V56.1....... Fitting and adjustment of N 11 317
extracorporeal dialysis
catheter.
V82.4....... Maternal postnatal screening N 23 467
for chromosomal anomalies.
----------------------------------------------------------------------------------------------------------------
\1\ Classified as a ``major complication'' in this DRG.

[[Page 41081]]

Table 6F.--Additions to the CC Exclusions List
Page 1 of 3 Pages
CCs that are added to the list are in Table 6F--Additions to the CC
Exclusions List. Each of the principal diagnoses is shown with an
asterisk, and the revisions to the CC Exclusions List are provided in an
indented column immediately following the affected principal diagnosis.
------------------------------------------------------------------------

------------------------------------------------------------------------
*01100 *01123 *01146 *01172 *01195 *01281 *11515 48249
48240 48240 48240 48240 48240 48240 48240 *48230
48241 48241 48241 48241 48241 48241 48241 48240
48249 48249 48249 48249 48249 48249 48249 48241
*01101 *01124 *01150 *01173 *01196 *01282 *11595 48249
48240 48240 48240 48240 48240 48240 48240 *48231
48241 48241 48241 48241 48241 48241 48241 48240
48249 48249 48249 48249 48249 48249 48249 48241
*01102 *01125 *01151 *01174 *01200 *01283 *1221 48249
48240 48240 48240 48240 48240 48240 48240 *48232
48241 48241 48241 48241 48241 48241 48241 48240
48249 48249 48249 48249 48249 48249 48249 48241
*01103 *01126 *01152 *01175 *01201 *01284 *1304 48249
48240 48240 48240 48240 48240 48240 48240 *48239
48241 48241 48241 48241 48241 48241 48241 48240
48249 48249 48249 48249 48249 48249 48249 48241
*01104 *01130 *01153 *01176 *01202 *01285 *1363 48249
48240 48240 48240 48240 48240 48240 48240 *48240
48241 48241 48241 48241 48241 48241 48241 01100
48249 48249 48249 48249 48249 48249 48249 01101
*01105 *01131 *01154 *01180 *01203 *01286 *3373 01102
48240 48240 48240 48240 48240 48240 3350
01103
48241 48241 48241 48241 48241 48241 33510 01104
48249 48249 48249 48249 48249 48249 33511 01105
*01106 *01132 *01155 *01181 *01204 *01790 01106
33519
48240 48240 48240 48240 48240 48240 33520 01110
48241 48241 48241 48241 48241 48241 33521 01111
48249 48249 48249 48249 48249 48249 33522 01112
*01110 *01133 *01156 *01182 *01205 *01791 33523 01113
48240 48240 48240 48240 48240 48240 33524 01114
48241 48241 48241 48241 48241 48241 33529 01115
48249 48249 48249 48249 48249 48249 3358 01116
*01111 *01134 *01160 *01183 *01206 *01792 3359 01120
48240 48240 48240 48240 48240 48240 *4800 01121
48241 48241 48241 48241 48241 48241 48240 01122
48249 48249 48249 48249 48249 48249 48241 01123
*01112 *01135 *01161 *01184 *01210 *01793 48249 01124
48240 48240 48240 48240 48240 48240 *4801 01125
48241 48241 48241 48241 48241 48241 48240 01126
48249 48249 48249 48249 48249 48249 48241 01130
*01113 *01136 *01162 *01185 *01211 *01794 48249 01131
48240 48240 48240 48240 48240 48240 *4802 01132
48241 48241 48241 48241 48241 48241 48240 01133
48249 48249 48249 48249 48249 48249 48241 01134
*01114 *01140 *01163 *01186 *01212 *01795 48249 01135
48240 48240 48240 48240 48240 48240 *4808 01136
48241 48241 48241 48241 48241 48241 48240 01140
48249 48249 48249 48249 48249 48249 48241 01141
*01115 *01141 *01164 *01190 *01213 *01796 48249 01142
48240 48240 48240 48240 48240 48240 *4809 01143
48241 48241 48241 48241 48241 48241 48240 01144
48249 48249 48249 48249 48249 48249 48241 01145
*01116 *01142 *01165 *01191 *01214 *0212 48249 01146
48240 48240 48240 48240 48240 48240 *481 01150
48241 48241 48241 48241 48241 48241 48240 01151
48249 48249 48249 48249 48249 48249 48241 01152
*01120 *01143 *01166 *01192 *01215 *0310 48249 01153
48240 48240 48240 48240 48240 48240 *4820 01154
48241 48241 48241 48241 48241 48241 48240 01155
48249 48249 48249 48249 48249 48249 48241 01156
*01121 *01144 *01170 *01193 *01216 *0391 48249 01160
48240 48240 48240 48240 48240 48240 *4821 01161
48241 48241 48241 48241 48241 48241 48240 01162
48249 48249 48249 48249 48249 48249 48241 01163
*01122 *01145 *01171 *01194 *01280 *11505 48249 01164
48240 48240 48240 48240 48240 48240 *4822 01165
48241 48241 48241 48241 48241 48241 48240 01166
48249 48249 48249 48249 48249 48249 48241 01170
------------------------------------------------------------------------

[[Page 41082]]

Page 2 of 3 Pages
------------------------------------------------------------------------

------------------------------------------------------------------------
01171 4955 01183 5078 01195 48240 48241 48249
01172 4956 01184 5080 01196 48241 48249 *5061
01173 4957 01185 5081 01200 48249 *4950 48240
01174 4958 01186 5171 01201 *48283 48240 48241
01175 4959 01190 *48249 01202 48240 48241 48249
01176 5060 01191 01100 01203 48241 48249 *5062
01180 5061 01192 01101 01204 48249 *4951 48240
01181 5070 01193 01102 01205 *48284 48240 48241
01182 5071 01194 01103 01206 48240 48241 48249
01183 5078 01195 01104 01210 48241 48249 *5063
01184 5080 01196 01105 01211 48249 *4952 48240
01185 5081 01200 01106 01212 *48289 48240 48241
01186 5171 01201 01110 01213 48240 48241 48249
01190 *48241 01202 01111 01214 48241 48249 *5064
01191 01100 01203 01112 01215 48249 *4953 48240
01192 01101 01204 01113 01216 *4829 48240 48241
01193 01102 01205 01114 0310 48240 48241 48249
01194 01103 01206 01115 11505 48241 48249 *5069
01195 01104 01210 01116 11515 48249 *4954 48240
01196 01105 01211 01120 1304 *4830 48240 48241
01200 01106 01212 01121 1363 48240 48241 48249
01201 01110 01213 01122 481 48241 48249 *5070
01202 01111 01214 01123 4820 48249 *4955 48240
01203 01112 01215 01124 4821 *4831 48240 48241
01204 01113 01216 01125 4822 48240 48241 48249
01205 01114 0310 01126 48230 48241 48249 *5071
01206 01115 11505 01130 48231 48249 *4956 48240
01210 01116 11515 01131 48232 *4838 48240 48241
01211 01120 1304 01132 48239 48240 48241 48249
01212 01121 1363 01133 48240 48241 48249 *5078
01213 01122 481 01134 48241 48249 *4957 48240
01214 01123 4820 01135 48249 *4841 48240 48241
01215 01124 4821 01136 48281 48240 48241 48249
01216 01125 4822 01140 48282 48241 48249 *5080
0310 01126 48230 01141 48283 48249 *4958 48240
11505 01130 48231 01142 48284 *4843 48240 48241
11515 01131 48232 01143 48289 48240 48241 48249
1304 01132 48239 01144 4829 48241 48249 *5081
1363 01133 48240 01145 4830 48249 *4959 48240
481 01134 48241 01146 4831 *4845 48240 48241
4820 01135 48249 01150 4838 48240 48241 48249
4821 01136 48281 01151 4841 48241 48249 *5088
4822 01140 48282 01152 4843 48249 *496 48240
48230 01141 48283 01153 4845 *4846 48240 48241
48231 01142 48284 01154 4846 48240 48241 48249
48232 01143 48289 01155 4847 48241 48249 *5089
48239 01144 4829 01156 4848 48249 *500 48240
48240 01145 4830 01160 485 *4847 48240 48241
48241 01146 4831 01161 486 48240 48241 48249
48249 01150 4838 01162 4870 48241 48249 *5171
48281 01151 4841 01163 4950 48249 *501 48240
48282 01152 4843 01164 4951 *4848 48240 48241
48283 01153 4845 01165 4952 48240 48241 48249
48284 01154 4846 01166 4953 48241 48249 *5178
48289 01155 4847 01170 4954 48249 *502 48240
4829 01156 4848 01171 4955 *485 48240 48241
4830 01160 485 01172 4956 48240 48241 48249
4831 01161 486 01173 4957 48241 48249 *51881
4838 01162 4870 01174 4958 48249 *503 51883
4841 01163 4950 01175 4959 *486 48240 51884
4843 01164 4951 01176 5060 48240 48241 78603
4845 01165 4952 01180 5061 48241 48249 78604
4846 01166 4953 01181 5070 48249 *504 *51882
4847 01170 4954 01182 5071 *4870 48240 51883
4848 01171 4955 01183 5078 48240 48241 51884
485 01172 4956 01184 5080 48241 48249 78603
486 01173 4957 01185 5081 48249 *505 78604
4870 01174 4958 01186 5171 *4871 48240 *51883
4950 01175 4959 01190 *48281 48240 48241 51881
4951 01176 5060 01191 48240 48241 48249 51882
4952 01180 5061 01192 48241 48249 *5060 51883
4953 01181 5070 01193 48249 *494 48240 51884
4954 01182 5071 01194 *48282 48240 48241 78603
------------------------------------------------------------------------

[[Page 41083]]

Page 3 of 3 Pages
------------------------------------------------------------------------

------------------------------------------------------------------------
78604 53642 *99656 56962 V2384 V2384
7991 53649 99655 *99791 V2389 V2389
*51884 56962 99656 53640 *V230 V239
51881 9974 99659 53641 V2381 *V2389
51882 *53642 99660 53642 V2382 V237
51883 53640 99661 53649 V2383 V2381
51884 53641 99662 56962 V2384 V2382
78603 53642 99663 99586 V2389 V2383
78604 53649 99664 99655 *V231 V2384
7991 56962 99665 99656 V2381 V2389
*51889 9974 99666 99668 V2382 V239
48240 *53649 99667 *99799 V2383 *V239
48241 53640 99668 53640 V2384 V2381
48249 53641 99669 53641 V2389 V2382
*51900 53642 99670 53642 *V232 V2383
51900 53649 99671 53649 V2381 V2384
51901 56962 99672 56962 V2382 V2389
51902 9974 99673 99586 V2383
51909 *56960 99674 99655 V2384
*51901 56962 99675 99656 V2389
51900 *56961 99676 99668 *V233
51901 56962 99677 *9980 V2381
51902 *56962 99678 99586 V2382
51909 56960 99679 *99811 V2383
*51902 56961 *99659 99586 V2384
51900 56962 99655 *99812 V2389
51901 56969 99656 99586 *V234
51902 *56969 99668 *99813 V2381
51909 56962 *99660 99586 V2382
*51909 *74861 99655 *99881 V2383
51900 48240 99656 53640 V2384
51901 48241 99668 53641 V2389
51902 48249 *99668 53642 *V235
51909 *78603 99655 53649 V2381
*5191 78603 99656 56962 V2382
51900 78604 99659 99586 V2383
51901 *78604 99660 *99883 V2384
51902 78603 99661 53640 V2389
51909 78604 99662 53641 *V237
*5198 *7991 99663 53642 V2381
48240 51883 99664 53649 V2382
48241 51884 99665 56962 V2383
48249 78603 99666 99586 V2384
51883 78604 99667 *99889 V2389
51884 *9584 99668 53640 *V2381
51900 99586 99669 53641 V237
51901 *9954 99670 53642 V2381
51902 99586 99671 53649 V2382
51909 *99586 99672 56962 V2383
78603 99586 99673 99586 V2384
78604 *99652 99674 *9989 V2389
*5199 99655 99675 53640 V239
48240 *99655 99676 53641 *V2382
48241 99652 99677 53642 V237
48249 99655 99678 53649 V2381
51883 99660 99679 56962 V2382
51884 99661 *99669 99586 V2383
51900 99662 99655 *V220 V2384
51901 99663 99656 V2381 V2389
51902 99665 99668 V2382 V239
51909 99666 *99670 V2383 *V2383
78603 99667 99655 V2384 V237
78604 99669 99656 V2389 V2381
*53640 99670 99668 *V221 V2382
53640 99671 *99679 V2381 V2383
53641 99672 99655 V2382 V2384
53642 99673 99656 V2383 V2389
53649 99674 99668 V2384 V239
56962 99675 *9974 V2389 *V2384
9974 99676 53640 *V222 V237
*53641 99677 53641 V2381 V2381
53640 99678 53642 V2382 V2382
53641 99679 53649 V2383 V2383
------------------------------------------------------------------------

[[Page 41084]]

Table 6G.--Deletions to the CC Exclusions List
[CCs that are deleted from the list are in Table 6G--Deletions to the CC
Exclusions List. Each of the principal diagnoses is shown with an
asterisk, and the revisions to the CC Exclusions List are provided in an
indented column immediately following the affected principal diagnosis.]
------------------------------------------------------------------------

------------------------------------------------------------------------
*01100 *01146 *01195 *11515 01143 48282 4824 4824
4824 4824 4824 4824 01144 48283 *4870 *5178
*01101 *01150 *01196 *11595 01145 48284 4824 4824
4824 4824 4824 4824 01146 48289 *4871 *51889
*01102 *01151 *01200 *1221 01150 4829 4824 4824
4824 4824 4824 4824 01151 4830 *494 *5190
*01103 *01152 *01201 *1304 01152 4831 4824 5190
4824 4824 4824 4824 01153 4838 *4950 *5191
*01104 *01153 *01202 *1363 01154 4841 4824 5190
4824 4824 4824 4824 01155 4843 *4951 *5198
*01105 *01154 *01203 *4800 01156 4845 4824 4824
4824 4824 4824 4824 01160 4846 *4952 5190
*01106 *01155 *01204 *4801 01161 4847 4824 *5199
4824 4824 4824 4824 01162 4848 *4953 4824
*01110 *01156 *01205 *4802 01163 485 4824 5190
4824 4824 4824 4824 01164 486 *4954 *74861
*01111 *01160 *01206 *4808 01165 4870 4824 4824
4824 4824 4824 4824 01166 4950 *4955 *V220
*01112 *01161 *01210 *4809 01170 4951 4824 V238
4824 4824 4824 4824 01171 4952 *4956 *V221
*01113 *01162 *01211 *481 4953 4824 V238
01172
4824 4824 4824 4824 01173 4954 *4957 *V222
*01114 *01163 *01212 *4820 01174 4955 4824 V238
4824 4824 4824 4824 01175 4956 *4958 *V230
*01115 *01164 *01213 *4821 01176 4957 4824 V238
4824 4824 4824 4824 01180 4958 *4959 *V231
*01116 *01165 *01214 *4822 01181 4959 4824 V238
4824 4824 4824 4824 01182 5060 *496 *V232
*01120 *01166 *01215 *48230 01183 5061 4824 V238
4824 4824 4824 4824 01184 5070 *500 *V233
*01121 *01170 *01216 *48231 01185 5071 4824 V238
4824 4824 4824 4824 01186 5078 *501 *V234
*01122 *01171 *01280 *48232 01190 5080 4824 V238
4824 4824 4824 4824 01191 5081 *502 *V235
*01123 *01172 *01281 *48239 01192 5171 4824 V238
4824 4824 4824 4824 01193 *48281 *503 *V237
*01124 *01173 *01282 *4824 01194 4824 4824 V238
4824 4824 4824 01100 01195 *48282 *504 *V238
*01125 *01174 *01283 01101 01196 4824 4824 V237
4824 4824 4824 01102 01200 *48283 *505 V238
*01126 *01175 *01284 01103 01201 4824 4824 V239
4824 4824 4824 01104 01202 *48284 *5060 *V239
*01130 *01176 *01285 01105 01203 4824 4824 V238
4824 4824 4824 01106 01204 *48289 *5061
*01131 *01180 *01286 01110 01205 4824 4824
4824 4824 4824 01111 01206 *4829 *5062
*01132 *01181 *01790 01112 01210 4824 4824
4824 4824 4824 01113 01211 *4830 *5063
*01133 *01182 *01791 01114 01212 4824 4824
4824 4824 4824 01115 01213 *4831 *5064
*01134 *01183 *01792 01116 01214 4824 4824
4824 4824 4824 01120 01215 *4838 *5069
*01135 *01184 *01793 01121 01216 4824 4824
4824 4824 4824 01122 0310 *4841 *5070
*01136 *01185 *01794 01123 11505 4824 4824
4824 4824 4824 01124 11515 *4843 *5071
*01140 *01186 *01795 01125 1304 4824 4824
4824 4824 4824 01126 1363 *4845 *5078
*01141 *01190 *01796 01130 481 4824 4824
4824 4824 4824 01131 4820 *4846 *5080
*01142 *01191 *0212 01132 4821 4824 4824
4824 4824 4824 01133 4822 *4847 *5081
*01143 *01192 *0310 01134 48230 4824 4824
4824 4824 4824 01135 48231 *4848 *5088
*01144 *01193 *0391 01136 48232 4824 4824
4824 4824 4824 01140 48239 *485 *5089
*01145 *01194 *11505 01141 4824 4824 4824
4824 4824 4824 01142 48281 *486 *5171
------------------------------------------------------------------------

[[Page 41085]]

Table 7A.--Medicare Prospective Payment System Selected Percentile Lengths of Stay
[FY97 MEDPAR Update 03/98 Grouper V15.0]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number Arithmetic 10th 25th 50th 75th 90th
DRG discharges mean LOS percentile percentile percentile percentile percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 36863 9.6140 2 4 7 12 20
2....................................... 7073 10.0431 3 5 8 13 20
3....................................... 3 9.3333 7 7 9 12 12
4....................................... 6387 7.7417 1 3 5 9 17
5....................................... 101629 3.6388 1 2 2 4 8
6....................................... 359 3.0306 1 1 2 4 7
7....................................... 12693 10.1052 2 4 7 12 20
8....................................... 3051 3.1786 1 1 2 4 7
9....................................... 1712 6.5724 1 3 5 8 13
10...................................... 19898 6.8603 2 3 5 8 14
11...................................... 2976 4.1398 1 2 3 5 8
12...................................... 38546 6.6802 2 3 5 8 12
13...................................... 6395 5.4835 2 3 4 6 9
14...................................... 374285 6.2936 2 3 5 8 12
15...................................... 146334 3.8586 1 2 3 5 7
16...................................... 13990 5.9277 2 3 4 7 11
17...................................... 3228 3.4291 1 2 3 4 7
18...................................... 27696 5.5756 2 3 4 7 10
19...................................... 7354 3.8089 1 2 3 5 7
20...................................... 6638 10.1788 2 5 8 13 19
21...................................... 1386 6.8283 2 3 5 8 14
22...................................... 2803 4.6522 2 2 4 6 9
23...................................... 6933 4.2573 1 2 3 5 8
24...................................... 58307 5.0648 1 2 4 6 10
25...................................... 22886 3.4256 1 2 3 4 7
26...................................... 35 3.2857 1 1 3 4 7
27...................................... 4246 5.4788 1 1 3 7 12
28...................................... 14087 5.9295 1 2 4 7 12
29...................................... 4349 3.5220 1 1 3 4 7
31...................................... 3135 4.4287 1 2 3 5 8
32...................................... 1378 2.9594 1 1 2 3 5
34...................................... 20202 5.4414 1 3 4 7 11
35...................................... 4292 3.5517 1 2 3 4 7
36...................................... 5421 1.5379 1 1 1 1 2
37...................................... 1697 3.7183 1 1 2 4 8
38...................................... 116 2.5948 1 1 2 3 5
39...................................... 1908 2.0383 1 1 1 2 4
40...................................... 2300 3.1822 1 1 2 4 7
42...................................... 4052 2.0908 1 1 1 2 4
43...................................... 120 3.4250 1 2 3 5 7
44...................................... 1346 5.0498 2 3 4 6 9
45...................................... 2428 3.4773 1 2 3 4 6
46...................................... 3177 4.6396 1 2 4 6 9
47...................................... 1232 3.2873 1 1 3 4 7
48...................................... 2 4.5000 4 4 5 5 5
49...................................... 2297 5.0004 1 2 4 6 9
50...................................... 3026 1.9752 1 1 2 2 3
51...................................... 308 2.8182 1 1 1 3 6
52...................................... 89 2.7528 1 1 2 3 7
53...................................... 3012 3.6597 1 1 2 4 8
54...................................... 2 6.0000 5 5 7 7 7
55...................................... 1704 2.9607 1 1 2 3 6
56...................................... 695 2.8374 1 1 2 3 6
57...................................... 611 3.6759 1 1 3 4 7
59...................................... 121 2.4215 1 1 2 3 5
60...................................... 1 4.0000 4 4 4 4 4
61...................................... 280 4.6464 1 1 2 5 10
62...................................... 4 1.2500 1 1 1 1 2
63...................................... 3733 4.4466 1 2 3 5 9
64...................................... 3432 6.6973 1 2 5 8 14
65...................................... 29238 2.9721 1 2 2 4 5
66...................................... 6848 3.2604 1 2 3 4 6
67...................................... 494 3.7854 1 2 3 4 7
68...................................... 11573 4.1497 1 2 3 5 7
69...................................... 3471 3.3244 1 2 3 4 6
70...................................... 37 2.5405 1 1 2 3 4
71...................................... 100 3.9300 1 2 3 6 7
72...................................... 829 3.7853 1 2 3 5 7
73...................................... 6323 4.4058 1 2 3 6 8
74...................................... 2 2.5000 2 2 3 3 3

[[Page 41086]]

75...................................... 41135 10.2396 4 5 8 13 20
76...................................... 41950 11.3136 3 5 9 14 21
77...................................... 2041 4.8863 1 2 4 7 10
78...................................... 31059 7.3075 3 5 7 9 12
79...................................... 248239 8.4083 3 4 7 10 15
80...................................... 8319 5.8721 2 3 5 7 10
81...................................... 7 11.2857 2 3 6 7 8
82...................................... 71558 7.1252 2 3 6 9 14
83...................................... 7419 5.5741 2 3 4 7 10
84...................................... 1322 3.3162 1 2 3 4 6
85...................................... 22565 6.6618 2 3 5 8 13
86...................................... 1510 3.8801 1 2 3 5 7
87...................................... 73527 6.3192 1 3 5 8 12
88...................................... 390502 5.4117 2 3 4 7 10
89...................................... 471124 6.2766 2 4 5 8 11
90...................................... 39143 4.4608 2 3 4 6 8
91...................................... 48 3.9375 1 2 3 5 7
92...................................... 14606 6.3852 2 3 5 8 12
93...................................... 1323 4.3583 1 2 4 6 8
94...................................... 13510 6.4760 2 3 5 8 12
95...................................... 1408 3.8544 1 2 3 5 7
96...................................... 62085 4.8491 2 3 4 6 9
97...................................... 25768 3.8219 1 2 3 5 7
98...................................... 28 4.9286 1 2 3 5 13
99...................................... 26603 3.0405 1 1 2 4 6
100..................................... 10353 2.1232 1 1 2 3 4
101..................................... 20349 4.4392 1 2 3 5 9
102..................................... 4579 2.7917 1 1 2 3 5
103..................................... 515 50.5320 9 14 32 71 124
104..................................... 29432 12.4392 4 7 10 16 23
105..................................... 25718 9.6492 4 6 8 11 17
106..................................... 107341 10.6962 6 7 9 12 17
107..................................... 69437 7.9517 4 5 7 9 13
108..................................... 8142 11.7677 4 6 9 14 22
110..................................... 62676 9.6167 2 5 8 12 18
111..................................... 5616 5.8063 2 4 6 7 9
112..................................... 119137 3.9263 1 1 3 5 8
113..................................... 46975 12.2664 4 6 9 15 24
114..................................... 8543 8.4041 2 4 7 11 16
115..................................... 15131 8.7469 2 4 7 11 17
116..................................... 210530 4.1764 1 2 3 5 8
117..................................... 3747 3.9861 1 1 2 5 9
118..................................... 6529 2.9326 1 1 2 3 6
119..................................... 1640 5.3829 1 1 3 7 13
120..................................... 38162 8.1769 1 2 5 10 18
121..................................... 170973 6.6427 2 4 6 8 12
122..................................... 83711 4.1990 1 2 4 6 7
123..................................... 43626 4.3987 1 1 2 5 10
124..................................... 155144 4.4560 1 2 4 6 9
125..................................... 63029 2.8712 1 1 2 4 6
126..................................... 5445 12.4382 4 6 9 15 25
127..................................... 723327 5.5118 2 3 4 7 10
128..................................... 16139 6.0284 3 4 5 7 9
129..................................... 4482 2.9514 1 1 1 3 7
130..................................... 98650 5.9904 2 3 5 7 10
131..................................... 24713 4.6719 1 3 4 6 8
132..................................... 175262 3.1519 1 2 3 4 6
133..................................... 6682 2.4811 1 1 2 3 5
134..................................... 30563 3.4498 1 2 3 4 6
135..................................... 8271 4.3344 1 2 3 5 8
136..................................... 1117 2.9687 1 1 2 4 5
138..................................... 210196 4.0456 1 2 3 5 8
139..................................... 67634 2.5762 1 1 2 3 5
140..................................... 108283 2.9686 1 1 2 4 5
141..................................... 82219 3.8511 1 2 3 5 7
142..................................... 36801 2.7878 1 1 2 3 5
143..................................... 144774 2.2571 1 1 2 3 4
144..................................... 79437 5.2262 1 2 4 7 10
145..................................... 6398 2.8678 1 1 2 4 6
146..................................... 10433 10.2667 5 7 9 12 17

[[Page 41087]]

147..................................... 1790 6.7374 4 5 7 8 10
148..................................... 147867 12.2636 5 7 10 15 22
149..................................... 14480 6.8502 4 5 6 8 10
150..................................... 23924 10.8759 4 6 9 13 19
151..................................... 4176 5.8829 2 3 5 8 10
152..................................... 4736 8.3328 4 5 7 10 14
153..................................... 1616 5.6293 3 4 5 7 8
154..................................... 34592 13.3723 4 7 11 16 25
155..................................... 4766 4.6897 1 2 4 6 9
156..................................... 2 18.0000 6 6 30 30 30
157..................................... 9351 5.4102 1 2 4 7 11
158..................................... 4141 2.6218 1 1 2 3 5
159..................................... 18453 4.9685 1 2 4 6 10
160..................................... 9823 2.6793 1 1 2 3 5
161..................................... 14694 4.0874 1 2 3 5 9
162..................................... 7099 2.0338 1 1 1 2 4
163..................................... 6 10.0000 1 4 9 13 13
164..................................... 5319 8.5336 4 5 7 10 15
165..................................... 1658 4.9566 2 3 5 6 8
166..................................... 3561 5.1106 2 3 4 6 9
167..................................... 2350 2.8400 1 2 2 4 5
168..................................... 1732 4.5704 1 2 3 6 9
169..................................... 853 2.5768 1 1 2 3 5
170..................................... 12888 11.2453 2 5 8 14 23
171..................................... 1013 4.8164 1 2 4 6 9
172..................................... 33258 7.1141 2 3 5 9 14
173..................................... 2164 3.9750 1 1 3 5 8
174..................................... 250195 4.9246 2 3 4 6 9
175..................................... 21767 3.0099 1 2 3 4 5
176..................................... 18457 5.4888 2 3 4 7 10
177..................................... 11202 4.5540 2 2 4 6 8
178..................................... 3523 3.2109 1 2 3 4 6
179..................................... 12572 6.4144 2 3 5 8 12
180..................................... 93855 5.4295 2 3 4 7 10
181..................................... 21459 3.5079 1 2 3 4 6
182..................................... 236477 4.3554 1 2 3 5 8
183..................................... 70321 3.0159 1 1 2 4 6
184..................................... 91 3.2857 1 2 2 4 7
185..................................... 4110 4.4822 1 2 3 6 9
187..................................... 892 3.9608 1 2 3 5 8
188..................................... 75769 5.5554 1 2 4 7 11
189..................................... 8683 3.2034 1 1 2 4 6
190..................................... 62 5.2903 1 2 4 7 11
191..................................... 10738 14.5968 4 7 11 18 29
192..................................... 839 6.7247 2 4 6 8 12
193..................................... 7407 12.4918 5 7 10 15 22
194..................................... 774 6.9225 3 4 6 9 12
195..................................... 7134 9.8004 4 6 8 12 17
196..................................... 1274 5.7245 2 4 5 7 10
197..................................... 25188 8.6282 3 5 7 10 15
198..................................... 6401 4.5894 2 3 4 6 8
199..................................... 2067 10.1751 3 5 8 14 20
200..................................... 1357 11.4952 2 4 8 14 24
201..................................... 1670 14.3072 4 6 11 18 29
202..................................... 28883 6.7510 2 3 5 8 13
203..................................... 29715 6.8468 2 3 5 9 14
204..................................... 53504 6.0856 2 3 5 7 11
205..................................... 23103 6.5500 2 3 5 8 13
206..................................... 1630 4.0865 1 2 3 5 8
207..................................... 35726 5.1383 1 2 4 6 10
208..................................... 9541 2.9005 1 1 2 4 6
209..................................... 364469 5.4343 3 4 5 6 8
210..................................... 142415 7.0179 3 4 6 8 12
211..................................... 26144 5.1433 3 4 5 6 8
212..................................... 13 3.7692 1 2 4 5 6
213..................................... 7546 8.4157 2 4 6 11 16
216..................................... 6154 9.8351 2 4 7 12 19
217..................................... 20823 12.9944 3 5 9 16 27
218..................................... 24004 5.3243 2 3 4 6 10
219..................................... 18448 3.2888 1 2 3 4 5

[[Page 41088]]

220..................................... 5 3.2000 1 1 3 4 7
223..................................... 18683 2.6174 1 1 2 3 5
224..................................... 7760 2.0628 1 1 2 3 4
225..................................... 5697 4.3498 1 2 3 5 9
226..................................... 5583 5.9226 1 2 4 7 12
227..................................... 4638 2.7288 1 1 2 3 5
228..................................... 2773 3.4241 1 1 2 4 8
229..................................... 1114 2.3887 1 1 2 3 5
230..................................... 2399 4.5302 1 2 3 5 9
231..................................... 10765 4.5644 1 2 3 5 9
232..................................... 498 3.8273 1 1 2 4 9
233..................................... 4948 7.6326 2 3 5 9 16
234..................................... 2286 3.6374 1 2 3 5 7
235..................................... 5378 5.3103 1 3 4 6 10
236..................................... 39661 5.1485 1 3 4 6 9
237..................................... 1608 3.6486 1 2 3 5 7
238..................................... 7892 8.8692 3 4 7 11 17
239..................................... 59978 6.4285 2 3 5 8 12
240..................................... 13753 6.6862 2 3 5 8 13
241..................................... 2925 4.0021 1 2 3 5 7
242..................................... 2652 6.7266 2 3 5 8 13
243..................................... 82323 4.8596 2 3 4 6 9
244..................................... 12497 5.0070 2 3 4 6 9
245..................................... 4392 3.7368 1 2 3 5 7
246..................................... 1280 3.9313 1 2 3 5 7
247..................................... 12331 3.4951 1 2 3 4 7
248..................................... 8162 4.6837 1 2 4 6 9
249..................................... 10919 3.6445 1 1 3 4 7
250..................................... 3586 4.2284 1 2 3 5 8
251..................................... 2229 2.9484 1 1 2 4 5
252..................................... 1 1.0000 1 1 1 1 1
253..................................... 19548 4.8593 1 3 4 6 9
254..................................... 9373 3.3465 1 2 3 4 6
255..................................... 2 3.5000 1 1 6 6 6
256..................................... 5566 5.1175 1 2 4 6 10
257..................................... 21299 2.9851 1 2 2 3 5
258..................................... 16484 2.1352 1 1 2 3 3
259..................................... 3797 3.0830 1 1 2 3 7
260..................................... 4492 1.5410 1 1 1 2 2
261..................................... 2003 2.2476 1 1 2 3 4
262..................................... 665 4.2391 1 1 3 6 9
263..................................... 27639 11.4184 3 5 8 14 22
264..................................... 3332 7.0624 2 3 5 8 14
265..................................... 4341 6.5312 1 2 4 8 13
266..................................... 2480 3.4161 1 1 2 4 7
267..................................... 254 4.5984 1 2 3 5 9
268..................................... 888 3.5676 1 1 2 4 7
269..................................... 9483 7.8891 2 3 6 10 16
270..................................... 2696 3.1439 1 1 2 4 7
271..................................... 23100 7.1558 3 4 6 9 13
272..................................... 5981 6.4233 2 3 5 8 12
273..................................... 1315 4.8008 1 2 4 6 8
274..................................... 2440 6.7398 1 3 5 8 14
275..................................... 215 3.5163 1 1 3 4 7
276..................................... 944 4.4492 1 2 4 6 8
277..................................... 82207 5.9080 2 3 5 7 10
278..................................... 24763 4.4937 2 3 4 6 8
279..................................... 12 5.0000 2 2 4 7 9
280..................................... 14318 4.3117 1 2 3 5 8
281..................................... 6028 3.1443 1 1 3 4 6
282..................................... 2 2.0000 2 2 2 2 2
283..................................... 5236 4.8010 1 2 4 6 9
284..................................... 1668 3.3171 1 2 3 4 6
285..................................... 5567 11.0223 3 5 8 13 21
286..................................... 2153 6.9833 3 4 5 8 13
287..................................... 6222 11.2252 3 5 8 13 22
288..................................... 1521 5.9382 3 3 5 6 9
289..................................... 5499 3.2366 1 1 2 3 7
290..................................... 8981 2.5171 1 1 2 3 4
291..................................... 67 1.7612 1 1 1 2 3

[[Page 41089]]

292..................................... 5072 10.7744 2 4 8 14 21
293..................................... 351 5.4672 1 2 4 7 12
294..................................... 82620 4.9159 1 2 4 6 9
295..................................... 3630 3.9573 1 2 3 5 7
296..................................... 236933 5.3935 2 3 4 7 10
297..................................... 32857 3.6526 1 2 3 4 7
298..................................... 95 3.6526 1 1 2 4 8
299..................................... 979 5.3463 1 2 4 7 10
300..................................... 16904 6.2827 2 3 5 8 12
301..................................... 2411 3.8075 1 2 3 5 7
302..................................... 8040 10.1373 5 6 8 12 18
303..................................... 19774 9.2208 4 5 7 10 16
304..................................... 12948 8.9874 2 4 7 11 18
305..................................... 2570 3.8911 1 2 3 5 7
306..................................... 10714 5.5080 1 2 3 7 12
307..................................... 2368 2.4041 1 1 2 3 4
308..................................... 9227 6.0016 1 2 4 8 13
309..................................... 3565 2.5910 1 1 2 3 5
310..................................... 26862 4.3113 1 2 3 5 9
311..................................... 7848 1.9509 1 1 1 2 4
312..................................... 1744 4.3354 1 1 3 6 9
313..................................... 589 2.3820 1 1 2 3 5
314..................................... 1 10.0000 10 10 10 10 10
315..................................... 28603 8.0449 1 2 5 10 18
316..................................... 93772 6.7982 2 3 5 9 14
317..................................... 803 2.8543 1 1 2 3 6
318..................................... 6238 6.0928 1 3 4 8 12
319..................................... 412 2.9879 1 1 2 4 6
320..................................... 178400 5.5722 2 3 4 7 10
321..................................... 23782 4.0371 2 2 3 5 7
322..................................... 85 4.0588 2 2 3 4 7
323..................................... 17085 3.2128 1 1 2 4 6
324..................................... 7560 1.9376 1 1 1 2 4
325..................................... 7442 3.9614 1 2 3 5 8
326..................................... 2205 2.7728 1 1 2 3 5
327..................................... 9 2.8889 1 1 2 3 4
328..................................... 767 3.7171 1 2 3 5 7
329..................................... 88 2.2500 1 1 1 3 4
331..................................... 44022 5.5767 1 3 4 7 11
332..................................... 4566 3.5572 1 1 3 5 7
333..................................... 320 4.9219 1 2 4 6 11
334..................................... 18718 4.9703 3 3 4 6 8
335..................................... 10403 3.7142 2 3 3 4 5
336..................................... 54368 3.6034 1 2 3 4 7
337..................................... 31918 2.2865 1 1 2 3 4
338..................................... 2785 4.7885 1 2 3 6 10
339..................................... 2000 4.1895 1 1 3 5 9
340..................................... 2 1.0000 1 1 1 1 1
341..................................... 4945 2.9521 1 1 2 3 6
342..................................... 1013 3.4423 1 2 2 4 7
344..................................... 3904 2.6360 1 1 1 3 5
345..................................... 1349 3.6338 1 1 2 4 8
346..................................... 4889 5.8151 1 3 4 7 11
347..................................... 368 3.1141 1 1 2 4 6
348..................................... 3216 4.2463 1 2 3 5 8
349..................................... 636 2.7453 1 1 2 3 5
350..................................... 6146 4.4007 2 2 4 5 8
352..................................... 640 3.6078 1 1 3 4 7
353..................................... 2831 6.9347 3 4 5 8 12
354..................................... 10001 5.7745 3 3 4 6 10
355..................................... 5668 3.4622 2 3 3 4 5
356..................................... 29070 2.6484 1 2 2 3 4
357..................................... 6365 9.0207 3 5 7 11 17
358..................................... 27581 4.3699 2 3 3 5 7
359..................................... 28195 2.9766 2 2 3 3 4
360..................................... 17946 3.1562 1 2 3 4 5
361..................................... 543 3.3204 1 1 2 3 7
363..................................... 3976 3.3154 1 2 2 3 6
364..................................... 1838 3.5620 1 1 2 5 8
365..................................... 2315 6.8877 1 2 5 9 14

[[Page 41090]]

366..................................... 4395 6.8066 1 3 5 8 14
367..................................... 510 2.8863 1 1 2 3 6
368..................................... 2907 6.3509 2 3 5 8 12
369..................................... 2621 3.0626 1 1 2 4 6
370..................................... 1207 5.4905 2 3 4 5 9
371..................................... 1184 3.4611 2 3 3 4 5
372..................................... 1004 3.1464 1 2 2 3 5
373..................................... 3985 2.1154 1 1 2 2 3
374..................................... 159 3.0629 1 2 2 3 4
375..................................... 9 5.1111 2 2 3 9 10
376..................................... 222 2.9144 1 2 2 3 6
377..................................... 53 4.4528 1 2 3 6 9
378..................................... 171 2.5906 1 2 2 3 4
379..................................... 338 3.5562 1 1 2 3 7
380..................................... 90 2.1556 1 1 2 3 4
381..................................... 192 2.1198 1 1 1 2 4
382..................................... 42 1.2619 1 1 1 1 2
383..................................... 1490 3.7302 1 2 3 4 8
384..................................... 129 2.6512 1 1 1 3 6
385..................................... 1 2.0000 2 2 2 2 2
389..................................... 10 10.2000 1 7 7 15 19
390..................................... 13 6.0000 2 2 4 5 17
392..................................... 2546 10.3987 4 5 7 12 21
394..................................... 1820 7.0368 1 2 4 8 16
395..................................... 71452 4.7241 1 2 3 6 9
396..................................... 16 17.3750 1 1 4 11 13
397..................................... 18933 5.5143 1 2 4 7 11
398..................................... 18263 6.0488 2 3 5 7 11
399..................................... 1325 3.7170 1 2 3 5 7
400..................................... 7291 9.3665 2 3 6 12 20
401..................................... 6715 11.0067 2 4 8 14 23
402..................................... 1465 3.8826 1 1 3 5 8
403..................................... 39249 8.1435 2 3 6 10 17
404..................................... 3823 4.4499 1 2 3 6 9
406..................................... 3326 9.5391 2 4 7 12 20
407..................................... 636 4.3270 1 2 4 5 8
408..................................... 2692 7.5137 1 2 5 9 16
409..................................... 4682 5.8317 2 3 4 6 11
410..................................... 59539 3.4172 1 2 3 4 6
411..................................... 19 3.5263 1 1 2 2 7
412..................................... 25 2.2800 1 1 2 3 4
413..................................... 7854 7.4318 2 3 6 9 15
414..................................... 677 4.1905 1 2 3 5 8
415..................................... 45551 14.3639 4 7 11 18 28
416..................................... 231746 7.3984 2 4 6 9 14
417..................................... 43 5.8837 2 3 5 7 11
418..................................... 21340 6.1925 2 3 5 8 11
419..................................... 15355 5.0178 2 3 4 6 9
420..................................... 2697 3.9459 1 2 3 5 7
421..................................... 12186 3.9568 1 2 3 5 7
422..................................... 89 3.3258 1 2 2 4 7
423..................................... 10830 7.7667 2 3 6 9 15
424..................................... 1640 14.2976 2 5 10 18 29
425..................................... 15541 4.1344 1 2 3 5 8
426..................................... 4507 4.9022 1 2 3 6 10
427..................................... 1656 4.7977 1 2 3 6 10
428..................................... 963 7.2887 1 2 5 8 15
429..................................... 32953 7.1813 2 3 5 8 14
430..................................... 57380 8.7114 2 4 7 11 17
431..................................... 220 7.2409 1 3 5 8 13
432..................................... 414 5.3116 1 2 3 6 12
433..................................... 6874 3.2098 1 1 2 4 7
434..................................... 21742 5.1845 2 3 4 6 9
435..................................... 14706 4.4104 1 2 4 5 8
436..................................... 3357 13.9896 4 7 13 21 27
437..................................... 12879 9.2165 3 5 8 12 16
439..................................... 1149 7.7346 1 3 5 9 16
440..................................... 5199 8.9683 2 3 6 10 19
441..................................... 578 3.4810 1 1 2 4 7
442..................................... 16431 8.1169 1 3 6 10 17

[[Page 41091]]

443..................................... 3185 3.3215 1 1 2 4 7
444..................................... 3471 4.4967 1 2 3 5 8
445..................................... 1261 3.3672 1 2 3 4 6
446..................................... 1 2.0000 2 2 2 2 2
447..................................... 4291 2.5101 1 1 2 3 5
449..................................... 28174 3.7816 1 1 3 5 8
450..................................... 6226 2.0830 1 1 1 2 4
451..................................... 9 2.7778 1 1 1 4 5
452..................................... 23072 5.0396 1 2 4 6 10
453..................................... 3826 2.9260 1 1 2 4 6
454..................................... 3900 4.6767 1 2 3 6 9
455..................................... 772 2.7176 1 1 2 3 5
456..................................... 197 8.4721 1 1 3 9 20
457..................................... 128 3.5781 1 1 1 3 9
458..................................... 1543 15.0194 3 7 12 19 31
459..................................... 487 8.9548 2 3 6 11 19
460..................................... 2357 6.0793 1 3 4 7 12
461..................................... 3071 4.4435 1 1 2 4 11
462..................................... 10468 12.4882 4 6 10 16 23
463..................................... 14079 4.4165 1 2 3 5 8
464..................................... 3582 3.3707 1 2 3 4 6
465..................................... 207 2.9179 1 1 1 3 5
466..................................... 1765 4.0436 1 1 2 4 8
467..................................... 1331 4.4132 1 1 2 4 7
468..................................... 62314 13.4808 3 6 10 17 27
471..................................... 12993 6.0741 3 4 5 7 10
472..................................... 181 27.2983 1 8 19 38 55
473..................................... 8512 12.7849 2 3 7 18 33
475..................................... 110026 11.1951 2 5 9 15 22
476..................................... 5974 11.9093 3 6 10 15 22
477..................................... 28969 8.1503 1 3 6 11 17
478..................................... 124086 7.4574 1 3 5 9 15
479..................................... 18459 3.8438 1 2 3 5 7
480..................................... 415 26.7590 8 11 20 32 55
481..................................... 263 27.8213 16 20 24 33 44
482..................................... 6659 12.7485 4 7 10 15 23
483..................................... 42214 40.2055 14 21 33 50 74
484..................................... 411 14.7591 2 6 11 18 28
485..................................... 3536 9.6649 4 5 7 11 18
486..................................... 2380 12.4319 1 5 10 16 25
487..................................... 4381 7.4170 1 3 6 9 14
488..................................... 874 17.1201 4 7 12 22 35
489..................................... 15056 8.9267 2 4 6 11 19
490..................................... 4923 5.4148 1 2 4 7 11
491..................................... 11099 3.6559 2 2 3 4 6
492..................................... 2359 17.1768 4 5 12 27 36
493..................................... 56592 5.6275 1 2 5 7 11
494..................................... 25335 2.4293 1 1 2 3 5
495..................................... 130 16.7538 7 9 13 19 30
496..................................... 904 10.5564 4 6 8 13 20
497..................................... 22184 6.2841 2 3 5 7 11
498..................................... 12634 3.5001 1 2 3 5 6
499..................................... 36447 4.9602 2 2 4 6 9
500..................................... 36672 2.8703 1 2 2 4 5
501..................................... 1910 10.4806 4 6 8 12 19
502..................................... 471 6.5669 3 4 6 8 10
503..................................... 6366 4.2147 1 2 3 5 8
----------------
11317977
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 7B.--Medicare Prospective Payment System Selected Percentile Lengths of Stay
[FY97 MEDPAR Update 03/98 Grouper V16.0]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number Arithmetic 10th 25th 50th 75th 90th
DRG discharges mean LOS percentile percentile percentile percentile percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 36863 9.6140 2 4 7 12 20
2....................................... 7073 10.0431 3 5 8 13 20
3....................................... 3 9.3333 7 7 9 12 12

[[Page 41092]]

4....................................... 6387 7.7417 1 3 5 9 17
5....................................... 101629 3.6388 1 2 2 4 8
6....................................... 359 3.0306 1 1 2 4 7
7....................................... 12693 10.1052 2 4 7 12 20
8....................................... 3051 3.1786 1 1 2 4 7
9....................................... 1712 6.5724 1 3 5 8 13
10...................................... 19898 6.8603 2 3 5 8 14
11...................................... 2976 4.1398 1 2 3 5 8
12...................................... 38546 6.6802 2 3 5 8 12
13...................................... 6395 5.4835 2 3 4 6 9
14...................................... 374285 6.2936 2 3 5 8 12
15...................................... 146334 3.8586 1 2 3 5 7
16...................................... 13990 5.9277 2 3 4 7 11
17...................................... 3228 3.4291 1 2 3 4 7
18...................................... 27696 5.5756 2 3 4 7 10
19...................................... 7354 3.8089 1 2 3 5 7
20...................................... 6638 10.1788 2 5 8 13 19
21...................................... 1386 6.8283 2 3 5 8 14
22...................................... 2803 4.6522 2 2 4 6 9
23...................................... 6933 4.2573 1 2 3 5 8
24...................................... 58307 5.0648 1 2 4 6 10
25...................................... 22886 3.4256 1 2 3 4 7
26...................................... 35 3.2857 1 1 3 4 7
27...................................... 4246 5.4788 1 1 3 7 12
28...................................... 14087 5.9295 1 2 4 7 12
29...................................... 4349 3.5220 1 1 3 4 7
31...................................... 3135 4.4287 1 2 3 5 8
32...................................... 1378 2.9594 1 1 2 3 5
34...................................... 20202 5.4414 1 3 4 7 11
35...................................... 4292 3.5517 1 2 3 4 7
36...................................... 5421 1.5379 1 1 1 1 2
37...................................... 1697 3.7183 1 1 2 4 8
38...................................... 116 2.5948 1 1 2 3 5
39...................................... 1908 2.0383 1 1 1 2 4
40...................................... 2300 3.1822 1 1 2 4 7
42...................................... 4052 2.0908 1 1 1 2 4
43...................................... 120 3.4250 1 2 3 5 7
44...................................... 1346 5.0498 2 3 4 6 9
45...................................... 2428 3.4773 1 2 3 4 6
46...................................... 3177 4.6396 1 2 4 6 9
47...................................... 1232 3.2873 1 1 3 4 7
48...................................... 2 4.5000 4 4 5 5 5
49...................................... 2297 5.0004 1 2 4 6 9
50...................................... 3026 1.9752 1 1 2 2 3
51...................................... 308 2.8182 1 1 1 3 6
52...................................... 80 2.4125 1 1 2 3 5
53...................................... 3021 3.6660 1 1 2 4 8
54...................................... 2 6.0000 5 5 7 7 7
55...................................... 1704 2.9607 1 1 2 3 6
56...................................... 695 2.8374 1 1 2 3 6
57...................................... 523 3.5488 1 1 3 4 7
59...................................... 121 2.4215 1 1 2 3 5
60...................................... 1 4.0000 4 4 4 4 4
61...................................... 280 4.6464 1 1 2 5 10
62...................................... 4 1.2500 1 1 1 1 2
63...................................... 3733 4.4466 1 2 3 5 9
64...................................... 3432 6.6973 1 2 5 8 14
65...................................... 29238 2.9721 1 2 2 4 5
66...................................... 6848 3.2604 1 2 3 4 6
67...................................... 494 3.7854 1 2 3 4 7
68...................................... 11573 4.1497 1 2 3 5 7
69...................................... 3471 3.3244 1 2 3 4 6
70...................................... 37 2.5405 1 1 2 3 4
71...................................... 100 3.9300 1 2 3 6 7
72...................................... 829 3.7853 1 2 3 5 7
73...................................... 6323 4.4058 1 2 3 6 8
74...................................... 2 2.5000 2 2 3 3 3
75...................................... 41135 10.2396 4 5 8 13 20
76...................................... 41950 11.3136 3 5 9 14 21
77...................................... 2041 4.8863 1 2 4 7 10

[[Page 41093]]

78...................................... 31059 7.3075 3 5 7 9 12
79...................................... 248239 8.4083 3 4 7 10 15
80...................................... 8319 5.8721 2 3 5 7 10
81...................................... 7 11.2857 2 3 6 7 8
82...................................... 71558 7.1252 2 3 6 9 14
83...................................... 7419 5.5741 2 3 4 7 10
84...................................... 1322 3.3162 1 2 3 4 6
85...................................... 22565 6.6618 2 3 5 8 13
86...................................... 1510 3.8801 1 2 3 5 7
87...................................... 73527 6.3192 1 3 5 8 12
88...................................... 390502 5.4117 2 3 4 7 10
89...................................... 471124 6.2766 2 4 5 8 11
90...................................... 39143 4.4608 2 3 4 6 8
91...................................... 48 3.9375 1 2 3 5 7
92...................................... 14606 6.3852 2 3 5 8 12
93...................................... 1323 4.3583 1 2 4 6 8
94...................................... 13510 6.4760 2 3 5 8 12
95...................................... 1408 3.8544 1 2 3 5 7
96...................................... 62085 4.8491 2 3 4 6 9
97...................................... 25768 3.8219 1 2 3 5 7
98...................................... 28 4.9286 1 2 3 5 13
99...................................... 26603 3.0405 1 1 2 4 6
100..................................... 10353 2.1232 1 1 2 3 4
101..................................... 20349 4.4392 1 2 3 5 9
102..................................... 4579 2.7917 1 1 2 3 5
103..................................... 515 50.5320 9 14 32 71 124
104..................................... 30204 12.5198 4 7 10 16 23
105..................................... 26990 9.7535 4 6 8 11 17
106..................................... 4691 10.8874 5 7 9 13 19
107..................................... 102650 10.6875 6 7 9 12 17
108..................................... 6098 11.2642 4 6 9 14 21
109..................................... 69437 7.9517 4 5 7 9 13
110..................................... 62676 9.6167 2 5 8 12 18
111..................................... 5616 5.8063 2 4 6 7 9
112..................................... 119137 3.9263 1 1 3 5 8
113..................................... 46975 12.2664 4 6 9 15 24
114..................................... 8543 8.4041 2 4 7 11 16
115..................................... 15131 8.7469 2 4 7 11 17
116..................................... 210530 4.1764 1 2 3 5 8
117..................................... 3747 3.9861 1 1 2 5 9
118..................................... 6529 2.9326 1 1 2 3 6
119..................................... 1640 5.3829 1 1 3 7 13
120..................................... 38162 8.1769 1 2 5 10 18
121..................................... 170973 6.6427 2 4 6 8 12
122..................................... 83711 4.1990 1 2 4 6 7
123..................................... 43626 4.3987 1 1 2 5 10
124..................................... 155144 4.4560 1 2 4 6 9
125..................................... 63029 2.8712 1 1 2 4 6
126..................................... 5445 12.4382 4 6 9 15 25
127..................................... 723327 5.5118 2 3 4 7 10
128..................................... 16139 6.0284 3 4 5 7 9
129..................................... 4482 2.9514 1 1 1 3 7
130..................................... 98650 5.9904 2 3 5 7 10
131..................................... 24713 4.6719 1 3 4 6 8
132..................................... 175262 3.1519 1 2 3 4 6
133..................................... 6682 2.4811 1 1 2 3 5
134..................................... 30563 3.4498 1 2 3 4 6
135..................................... 8271 4.3344 1 2 3 5 8
136..................................... 1117 2.9687 1 1 2 4 5
138..................................... 210196 4.0456 1 2 3 5 8
139..................................... 67634 2.5762 1 1 2 3 5
140..................................... 108283 2.9686 1 1 2 4 5
141..................................... 82219 3.8511 1 2 3 5 7
142..................................... 36801 2.7878 1 1 2 3 5
143..................................... 144774 2.2571 1 1 2 3 4
144..................................... 79437 5.2262 1 2 4 7 10
145..................................... 6398 2.8678 1 1 2 4 6
146..................................... 10433 10.2667 5 7 9 12 17
147..................................... 1790 6.7374 4 5 7 8 10
148..................................... 147867 12.2636 5 7 10 15 22

[[Page 41094]]

149..................................... 14480 6.8502 4 5 6 8 10
150..................................... 23924 10.8759 4 6 9 13 19
151..................................... 4176 5.8829 2 3 5 8 10
152..................................... 4736 8.3328 4 5 7 10 14
153..................................... 1616 5.6293 3 4 5 7 8
154..................................... 34592 13.3723 4 7 11 16 25
155..................................... 4766 4.6897 1 2 4 6 9
156..................................... 2 18.0000 6 6 30 30 30
157..................................... 9351 5.4102 1 2 4 7 11
158..................................... 4141 2.6218 1 1 2 3 5
159..................................... 18453 4.9685 1 2 4 6 10
160..................................... 9823 2.6793 1 1 2 3 5
161..................................... 14694 4.0874 1 2 3 5 9
162..................................... 7099 2.0338 1 1 1 2 4
163..................................... 6 10.0000 1 4 9 13 13
164..................................... 5319 8.5336 4 5 7 10 15
165..................................... 1658 4.9566 2 3 5 6 8
166..................................... 3561 5.1106 2 3 4 6 9
167..................................... 2350 2.8400 1 2 2 4 5
168..................................... 1790 4.5961 1 2 3 6 9
169..................................... 883 2.5787 1 1 2 3 5
170..................................... 12888 11.2453 2 5 8 14 23
171..................................... 1013 4.8164 1 2 4 6 9
172..................................... 33258 7.1141 2 3 5 9 14
173..................................... 2164 3.9750 1 1 3 5 8
174..................................... 250195 4.9246 2 3 4 6 9
175..................................... 21767 3.0099 1 2 3 4 5
176..................................... 18457 5.4888 2 3 4 7 10
177..................................... 11202 4.5540 2 2 4 6 8
178..................................... 3523 3.2109 1 2 3 4 6
179..................................... 12572 6.4144 2 3 5 8 12
180..................................... 93855 5.4295 2 3 4 7 10
181..................................... 21459 3.5079 1 2 3 4 6
182..................................... 236477 4.3554 1 2 3 5 8
183..................................... 70321 3.0159 1 1 2 4 6
184..................................... 91 3.2857 1 2 2 4 7
185..................................... 4110 4.4822 1 2 3 6 9
187..................................... 892 3.9608 1 2 3 5 8
188..................................... 75769 5.5554 1 2 4 7 11
189..................................... 8683 3.2034 1 1 2 4 6
190..................................... 62 5.2903 1 2 4 7 11
191..................................... 10738 14.5968 4 7 11 18 29
192..................................... 839 6.7247 2 4 6 8 12
193..................................... 7407 12.4918 5 7 10 15 22
194..................................... 774 6.9225 3 4 6 9 12
195..................................... 7134 9.8004 4 6 8 12 17
196..................................... 1274 5.7245 2 4 5 7 10
197..................................... 25188 8.6282 3 5 7 10 15
198..................................... 6401 4.5894 2 3 4 6 8
199..................................... 2067 10.1751 3 5 8 14 20
200..................................... 1357 11.4952 2 4 8 14 24
201..................................... 1670 14.3072 4 6 11 18 29
202..................................... 28883 6.7510 2 3 5 8 13
203..................................... 29715 6.8468 2 3 5 9 14
204..................................... 53504 6.0856 2 3 5 7 11
205..................................... 23103 6.5500 2 3 5 8 13
206..................................... 1630 4.0865 1 2 3 5 8
207..................................... 35726 5.1383 1 2 4 6 10
208..................................... 9541 2.9005 1 1 2 4 6
209..................................... 364469 5.4343 3 4 5 6 8
210..................................... 142415 7.0179 3 4 6 8 12
211..................................... 26144 5.1433 3 4 5 6 8
212..................................... 13 3.7692 1 2 4 5 6
213..................................... 7546 8.4157 2 4 6 11 16
216..................................... 6154 9.8351 2 4 7 12 19
217..................................... 20823 12.9944 3 5 9 16 27
218..................................... 24004 5.3243 2 3 4 6 10
219..................................... 18448 3.2888 1 2 3 4 5
220..................................... 5 3.2000 1 1 3 4 7
223..................................... 18683 2.6174 1 1 2 3 5

[[Page 41095]]

224..................................... 7760 2.0628 1 1 2 3 4
225..................................... 5697 4.3498 1 2 3 5 9
226..................................... 5583 5.9226 1 2 4 7 12
227..................................... 4638 2.7288 1 1 2 3 5
228..................................... 2773 3.4241 1 1 2 4 8
229..................................... 1114 2.3887 1 1 2 3 5
230..................................... 2399 4.5302 1 2 3 5 9
231..................................... 10765 4.5644 1 2 3 5 9
232..................................... 498 3.8273 1 1 2 4 9
233..................................... 4948 7.6326 2 3 5 9 16
234..................................... 2286 3.6374 1 2 3 5 7
235..................................... 5378 5.3103 1 3 4 6 10
236..................................... 39661 5.1485 1 3 4 6 9
237..................................... 1608 3.6486 1 2 3 5 7
238..................................... 7892 8.8692 3 4 7 11 17
239..................................... 59978 6.4285 2 3 5 8 12
240..................................... 13753 6.6862 2 3 5 8 13
241..................................... 2925 4.0021 1 2 3 5 7
242..................................... 2652 6.7266 2 3 5 8 13
243..................................... 82323 4.8596 2 3 4 6 9
244..................................... 12497 5.0070 2 3 4 6 9
245..................................... 4392 3.7368 1 2 3 5 7
246..................................... 1280 3.9313 1 2 3 5 7
247..................................... 12331 3.4951 1 2 3 4 7
248..................................... 8162 4.6837 1 2 4 6 9
249..................................... 10919 3.6445 1 1 3 4 7
250..................................... 3586 4.2284 1 2 3 5 8
251..................................... 2229 2.9484 1 1 2 4 5
252..................................... 1 1.0000 1 1 1 1 1
253..................................... 19548 4.8593 1 3 4 6 9
254..................................... 9373 3.3465 1 2 3 4 6
255..................................... 2 3.5000 1 1 6 6 6
256..................................... 5566 5.1175 1 2 4 6 10
257..................................... 21299 2.9851 1 2 2 3 5
258..................................... 16484 2.1352 1 1 2 3 3
259..................................... 3797 3.0830 1 1 2 3 7
260..................................... 4492 1.5410 1 1 1 2 2
261..................................... 2003 2.2476 1 1 2 3 4
262..................................... 665 4.2391 1 1 3 6 9
263..................................... 27639 11.4184 3 5 8 14 22
264..................................... 3332 7.0624 2 3 5 8 14
265..................................... 4341 6.5312 1 2 4 8 13
266..................................... 2480 3.4161 1 1 2 4 7
267..................................... 254 4.5984 1 2 3 5 9
268..................................... 888 3.5676 1 1 2 4 7
269..................................... 9483 7.8891 2 3 6 10 16
270..................................... 2696 3.1439 1 1 2 4 7
271..................................... 23100 7.1558 3 4 6 9 13
272..................................... 5981 6.4233 2 3 5 8 12
273..................................... 1315 4.8008 1 2 4 6 8
274..................................... 2440 6.7398 1 3 5 8 14
275..................................... 215 3.5163 1 1 3 4 7
276..................................... 944 4.4492 1 2 4 6 8
277..................................... 82207 5.9080 2 3 5 7 10
278..................................... 24763 4.4937 2 3 4 6 8
279..................................... 12 5.0000 2 2 4 7 9
280..................................... 14318 4.3117 1 2 3 5 8
281..................................... 6028 3.1443 1 1 3 4 6
282..................................... 2 2.0000 2 2 2 2 2
283..................................... 5236 4.8010 1 2 4 6 9
284..................................... 1668 3.3171 1 2 3 4 6
285..................................... 5567 11.0223 3 5 8 13 21
286..................................... 2153 6.9833 3 4 5 8 13
287..................................... 6222 11.2252 3 5 8 13 22
288..................................... 1521 5.9382 3 3 5 6 9
289..................................... 5499 3.2366 1 1 2 3 7
290..................................... 8981 2.5171 1 1 2 3 4
291..................................... 67 1.7612 1 1 1 2 3
292..................................... 5072 10.7744 2 4 8 14 21
293..................................... 351 5.4672 1 2 4 7 12

[[Page 41096]]

294..................................... 82620 4.9159 1 2 4 6 9
295..................................... 3630 3.9573 1 2 3 5 7
296..................................... 236933 5.3935 2 3 4 7 10
297..................................... 32857 3.6526 1 2 3 4 7
298..................................... 95 3.6526 1 1 2 4 8
299..................................... 979 5.3463 1 2 4 7 10
300..................................... 16904 6.2827 2 3 5 8 12
301..................................... 2411 3.8075 1 2 3 5 7
302..................................... 8040 10.1373 5 6 8 12 18
303..................................... 19774 9.2208 4 5 7 10 16
304..................................... 12948 8.9874 2 4 7 11 18
305..................................... 2570 3.8911 1 2 3 5 7
306..................................... 10714 5.5080 1 2 3 7 12
307..................................... 2368 2.4041 1 1 2 3 4
308..................................... 9227 6.0016 1 2 4 8 13
309..................................... 3565 2.5910 1 1 2 3 5
310..................................... 26862 4.3113 1 2 3 5 9
311..................................... 7848 1.9509 1 1 1 2 4
312..................................... 1744 4.3354 1 1 3 6 9
313..................................... 589 2.3820 1 1 2 3 5
314..................................... 1 10.0000 10 10 10 10 10
315..................................... 28603 8.0449 1 2 5 10 18
316..................................... 93772 6.7982 2 3 5 9 14
317..................................... 803 2.8543 1 1 2 3 6
318..................................... 6238 6.0928 1 3 4 8 12
319..................................... 412 2.9879 1 1 2 4 6
320..................................... 178400 5.5722 2 3 4 7 10
321..................................... 23782 4.0371 2 2 3 5 7
322..................................... 85 4.0588 2 2 3 4 7
323..................................... 17085 3.2128 1 1 2 4 6
324..................................... 7560 1.9376 1 1 1 2 4
325..................................... 7442 3.9614 1 2 3 5 8
326..................................... 2205 2.7728 1 1 2 3 5
327..................................... 9 2.8889 1 1 2 3 4
328..................................... 767 3.7171 1 2 3 5 7
329..................................... 88 2.2500 1 1 1 3 4
331..................................... 44022 5.5767 1 3 4 7 11
332..................................... 4566 3.5572 1 1 3 5 7
333..................................... 320 4.9219 1 2 4 6 11
334..................................... 18718 4.9703 3 3 4 6 8
335..................................... 10403 3.7142 2 3 3 4 5
336..................................... 54368 3.6034 1 2 3 4 7
337..................................... 31918 2.2865 1 1 2 3 4
338..................................... 2785 4.7885 1 2 3 6 10
339..................................... 2000 4.1895 1 1 3 5 9
340..................................... 2 1.0000 1 1 1 1 1
341..................................... 4945 2.9521 1 1 2 3 6
342..................................... 1013 3.4423 1 2 2 4 7
344..................................... 3904 2.6360 1 1 1 3 5
345..................................... 1349 3.6338 1 1 2 4 8
346..................................... 4889 5.8151 1 3 4 7 11
347..................................... 368 3.1141 1 1 2 4 6
348..................................... 3216 4.2463 1 2 3 5 8
349..................................... 636 2.7453 1 1 2 3 5
350..................................... 6146 4.4007 2 2 4 5 8
352..................................... 640 3.6078 1 1 3 4 7
353..................................... 2831 6.9347 3 4 5 8 12
354..................................... 10001 5.7745 3 3 4 6 10
355..................................... 5668 3.4622 2 3 3 4 5
356..................................... 29070 2.6484 1 2 2 3 4
357..................................... 6365 9.0207 3 5 7 11 17
358..................................... 27581 4.3699 2 3 3 5 7
359..................................... 28195 2.9766 2 2 3 3 4
360..................................... 17946 3.1562 1 2 3 4 5
361..................................... 543 3.3204 1 1 2 3 7
363..................................... 3976 3.3154 1 2 2 3 6
364..................................... 1838 3.5620 1 1 2 5 8
365..................................... 2315 6.8877 1 2 5 9 14
366..................................... 4395 6.8066 1 3 5 8 14
367..................................... 510 2.8863 1 1 2 3 6

[[Page 41097]]

368..................................... 2907 6.3509 2 3 5 8 12
369..................................... 2621 3.0626 1 1 2 4 6
370..................................... 1207 5.4905 2 3 4 5 9
371..................................... 1184 3.4611 2 3 3 4 5
372..................................... 1004 3.1464 1 2 2 3 5
373..................................... 3985 2.1154 1 1 2 2 3
374..................................... 159 3.0629 1 2 2 3 4
375..................................... 9 5.1111 2 2 3 9 10
376..................................... 222 2.9144 1 2 2 3 6
377..................................... 53 4.4528 1 2 3 6 9
378..................................... 171 2.5906 1 2 2 3 4
379..................................... 338 3.5562 1 1 2 3 7
380..................................... 90 2.1556 1 1 2 3 4
381..................................... 192 2.1198 1 1 1 2 4
382..................................... 42 1.2619 1 1 1 1 2
383..................................... 1490 3.7302 1 2 3 4 8
384..................................... 129 2.6512 1 1 1 3 6
385..................................... 1 2.0000 2 2 2 2 2
389..................................... 10 10.2000 1 7 7 15 19
390..................................... 13 6.0000 2 2 4 5 17
392..................................... 2546 10.3987 4 5 7 12 21
394..................................... 1820 7.0368 1 2 4 8 16
395..................................... 71452 4.7241 1 2 3 6 9
396..................................... 16 17.3750 1 1 4 11 13
397..................................... 18933 5.5143 1 2 4 7 11
398..................................... 18263 6.0488 2 3 5 7 11
399..................................... 1325 3.7170 1 2 3 5 7
400..................................... 7291 9.3665 2 3 6 12 20
401..................................... 6715 11.0067 2 4 8 14 23
402..................................... 1465 3.8826 1 1 3 5 8
403..................................... 39249 8.1435 2 3 6 10 17
404..................................... 3823 4.4499 1 2 3 6 9
406..................................... 3326 9.5391 2 4 7 12 20
407..................................... 636 4.3270 1 2 4 5 8
408..................................... 2692 7.5137 1 2 5 9 16
409..................................... 4682 5.8317 2 3 4 6 11
410..................................... 59539 3.4172 1 2 3 4 6
411..................................... 19 3.5263 1 1 2 2 7
412..................................... 25 2.2800 1 1 2 3 4
413..................................... 7854 7.4318 2 3 6 9 15
414..................................... 677 4.1905 1 2 3 5 8
415..................................... 45551 14.3639 4 7 11 18 28
416..................................... 231746 7.3984 2 4 6 9 14
417..................................... 43 5.8837 2 3 5 7 11
418..................................... 21340 6.1925 2 3 5 8 11
419..................................... 15355 5.0178 2 3 4 6 9
420..................................... 2697 3.9459 1 2 3 5 7
421..................................... 12186 3.9568 1 2 3 5 7
422..................................... 89 3.3258 1 2 2 4 7
423..................................... 10830 7.7667 2 3 6 9 15
424..................................... 1640 14.2976 2 5 10 18 29
425..................................... 15541 4.1344 1 2 3 5 8
426..................................... 4507 4.9022 1 2 3 6 10
427..................................... 1656 4.7977 1 2 3 6 10
428..................................... 963 7.2887 1 2 5 8 15
429..................................... 32953 7.1813 2 3 5 8 14
430..................................... 57380 8.7114 2 4 7 11 17
431..................................... 220 7.2409 1 3 5 8 13
432..................................... 414 5.3116 1 2 3 6 12
433..................................... 6874 3.2098 1 1 2 4 7
434..................................... 21742 5.1845 2 3 4 6 9
435..................................... 14706 4.4104 1 2 4 5 8
436..................................... 3357 13.9896 4 7 13 21 27
437..................................... 12879 9.2165 3 5 8 12 16
439..................................... 1149 7.7346 1 3 5 9 16
440..................................... 5199 8.9683 2 3 6 10 19
441..................................... 578 3.4810 1 1 2 4 7
442..................................... 16431 8.1169 1 3 6 10 17
443..................................... 3185 3.3215 1 1 2 4 7
444..................................... 3471 4.4967 1 2 3 5 8

[[Page 41098]]

445..................................... 1261 3.3672 1 2 3 4 6
446..................................... 1 2.0000 2 2 2 2 2
447..................................... 4291 2.5101 1 1 2 3 5
449..................................... 28174 3.7816 1 1 3 5 8
450..................................... 6226 2.0830 1 1 1 2 4
451..................................... 9 2.7778 1 1 1 4 5
452..................................... 23072 5.0396 1 2 4 6 10
453..................................... 3826 2.9260 1 1 2 4 6
454..................................... 3900 4.6767 1 2 3 6 9
455..................................... 772 2.7176 1 1 2 3 5
461..................................... 3071 4.4435 1 1 2 4 11
462..................................... 10468 12.4882 4 6 10 16 23
463..................................... 14079 4.4165 1 2 3 5 8
464..................................... 3582 3.3707 1 2 3 4 6
465..................................... 207 2.9179 1 1 1 3 5
466..................................... 1765 4.0436 1 1 2 4 8
467..................................... 1331 4.4132 1 1 2 4 7
468..................................... 62290 13.4801 3 6 10 17 27
471..................................... 12993 6.0741 3 4 5 7 10
473..................................... 8512 12.7849 2 3 7 18 33
475..................................... 110026 11.1951 2 5 9 15 22
476..................................... 5972 11.9089 3 6 10 15 22
477..................................... 28961 8.1501 1 3 6 11 17
478..................................... 124086 7.4574 1 3 5 9 15
479..................................... 18459 3.8438 1 2 3 5 7
480..................................... 415 26.7590 8 11 20 32 55
481..................................... 263 27.8213 16 20 24 33 44
482..................................... 6659 12.7485 4 7 10 15 23
483..................................... 42214 40.2055 14 21 33 50 74
484..................................... 411 14.7591 2 6 11 18 28
485..................................... 3536 9.6649 4 5 7 11 18
486..................................... 2380 12.4319 1 5 10 16 25
487..................................... 4381 7.4170 1 3 6 9 14
488..................................... 874 17.1201 4 7 12 22 35
489..................................... 15056 8.9267 2 4 6 11 19
490..................................... 4923 5.4148 1 2 4 7 11
491..................................... 11099 3.6559 2 2 3 4 6
492..................................... 2359 17.1768 4 5 12 27 36
493..................................... 56592 5.6275 1 2 5 7 11
494..................................... 25335 2.4293 1 1 2 3 5
495..................................... 130 16.7538 7 9 13 19 30
496..................................... 904 10.5564 4 6 8 13 20
497..................................... 22184 6.2841 2 3 5 7 11
498..................................... 12634 3.5001 1 2 3 5 6
499..................................... 36447 4.9602 2 2 4 6 9
500..................................... 36672 2.8703 1 2 2 4 5
501..................................... 1910 10.4806 4 6 8 12 19
502..................................... 471 6.5669 3 4 6 8 10
503..................................... 6366 4.2147 1 2 3 5 8
504..................................... 158 31.8481 9 14 26 39 57
505..................................... 174 5.8218 1 1 1 5 11
506..................................... 1138 16.7926 4 8 13 22 34
507..................................... 395 8.9747 2 4 7 12 17
508..................................... 1227 7.8240 2 3 5 10 16
509..................................... 483 4.9896 1 2 3 6 10
510..................................... 1024 6.9355 2 3 5 8 14
511..................................... 328 4.8323 1 2 3 6 9
----------------
11317977
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 41099]]

Table 8A.--Statewide Average Operating Cost-To-Charge Ratios for Urban
and Rural Hospitals (Case Weighted) July 1998
------------------------------------------------------------------------
State Urban Rural
------------------------------------------------------------------------
ALABAMA............................................. 0.387 0.442
ALASKA.............................................. 0.503 0.733
ARIZONA............................................. 0.374 0.542
ARKANSAS............................................ 0.516 0.458
CALIFORNIA.......................................... 0.365 0.480
COLORADO............................................ 0.467 0.566
CONNECTICUT......................................... 0.546 0.532
DELAWARE............................................ 0.506 0.487
DISTRICT OF COLUMBIA................................ 0.521 ........
FLORIDA............................................. 0.384 0.394
GEORGIA............................................. 0.498 0.498
HAWAII.............................................. 0.434 0.558
IDAHO............................................... 0.563 0.585
ILLINOIS............................................ 0.445 0.547
INDIANA............................................. 0.559 0.597
IOWA................................................ 0.514 0.641
KANSAS.............................................. 0.415 0.641
KENTUCKY............................................ 0.496 0.520
LOUISIANA........................................... 0.442 0.495
MAINE............................................... 0.620 0.576
MARYLAND............................................ 0.764 0.818
MASSACHUSETTS....................................... 0.541 0.571
MICHIGAN............................................ 0.468 0.580
MINNESOTA........................................... 0.532 0.603
MISSISSIPPI......................................... 0.478 0.499
MISSOURI............................................ 0.442 0.519
MONTANA............................................. 0.529 0.574
NEBRASKA............................................ 0.483 0.640
NEVADA.............................................. 0.322 0.585
NEW HAMPSHIRE....................................... 0.574 0.584
NEW JERSEY.......................................... 0.437 ........
NEW MEXICO.......................................... 0.467 0.511
NEW YORK............................................ 0.551 0.623
NORTH CAROLINA...................................... 0.522 0.464
NORTH DAKOTA........................................ 0.617 0.666
OHIO................................................ 0.534 0.569
OKLAHOMA............................................ 0.460 0.530
OREGON.............................................. 0.554 0.620
PENNSYLVANIA........................................ 0.406 0.528
PUERTO RICO......................................... 0.479 0.561
RHODE ISLAND........................................ 0.571 ........
SOUTH CAROLINA...................................... 0.472 0.478
SOUTH DAKOTA........................................ 0.537 0.620
TENNESSEE........................................... 0.482 0.507
TEXAS............................................... 0.428 0.536
UTAH................................................ 0.535 0.632
VERMONT............................................. 0.615 0.576
VIRGINIA............................................ 0.476 0.499
WASHINGTON.......................................... 0.600 0.661
WEST VIRGINIA....................................... 0.591 0.573
WISCONSIN........................................... 0.569 0.641
WYOMING............................................. 0.495 0.698
------------------------------------------------------------------------

Table 8B.--Statewide Average Capital Cost-To-Charge Ratios (Case
Weighted) July 1998
------------------------------------------------------------------------
State Ratio
------------------------------------------------------------------------
ALABAMA....................................................... 0.050
ALASKA........................................................ 0.066
ARIZONA....................................................... 0.043
ARKANSAS...................................................... 0.054
CALIFORNIA.................................................... 0.039
COLORADO...................................................... 0.053
CONNECTICUT................................................... 0.041
DELAWARE...................................................... 0.057
DISTRICT OF COLUMBIA.......................................... 0.040
FLORIDA....................................................... 0.046
GEORGIA....................................................... 0.049
HAWAII........................................................ 0.045
IDAHO......................................................... 0.054
ILLINOIS...................................................... 0.043
INDIANA....................................................... 0.059
IOWA.......................................................... 0.054
KANSAS........................................................ 0.051
KENTUCKY...................................................... 0.051
LOUISIANA..................................................... 0.055
MAINE......................................................... 0.040
MARYLAND...................................................... 0.013
MASSACHUSETTS................................................. 0.056
MICHIGAN...................................................... 0.046
MINNESOTA..................................................... 0.055
MISSISSIPPI................................................... 0.048
MISSOURI...................................................... 0.048
MONTANA....................................................... 0.052
NEBRASKA...................................................... 0.057
NEVADA........................................................ 0.066
NEW HAMPSHIRE................................................. 0.066
NEW JERSEY.................................................... 0.039
NEW MEXICO.................................................... 0.047
NEW YORK...................................................... 0.053
NORTH CAROLINA................................................ 0.047
NORTH DAKOTA.................................................. 0.075
OHIO.......................................................... 0.053
OKLAHOMA...................................................... 0.055
OREGON........................................................ 0.055
PENNSYLVANIA.................................................. 0.043
PUERTO RICO................................................... 0.054
RHODE ISLAND.................................................. 0.033
SOUTH CAROLINA................................................ 0.052
SOUTH DAKOTA.................................................. 0.061
TENNESSEE..................................................... 0.056
TEXAS......................................................... 0.051
UTAH.......................................................... 0.056
VERMONT....................................................... 0.047
VIRGINIA...................................................... 0.058
WASHINGTON.................................................... 0.066
WEST VIRGINIA................................................. 0.056
WISCONSIN..................................................... 0.052
WYOMING....................................................... 0.056
------------------------------------------------------------------------

BILLING CODE 4120-01-P

[[Page 41100]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.047

[[Page 41101]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.048

[[Page 41102]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.049

[[Page 41103]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.050

BILLING CODE 4120-01-C

[[Page 41104]]

Appendix A--Regulatory Impact Analysis

I. Introduction

Section 804(2) of Title 5, United States Code (as added by
section 251 of Public Law 104-121), specifies that a ``major rule''
is any rule that the Office of Management and Budget finds is likely
to result in--
An annual effect on the economy of $100 million or
more;
A major increase in costs or prices for consumers,
individual industries, Federal, State, or local government agencies,
or geographic regions; or
Significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United
States-based enterprises to compete with foreign-based enterprises
in domestic and export markets.
We estimate that the impact of this final rule will be to
decrease payments to hospitals by approximately $530 million in FY
1999. Therefore, this rule is a major rule as defined in Title 5,
United States Code, section 804(2).
We have examined the impacts 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 RFA requires agencies to analyze options
for regulatory relief for small businesses. 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 or less annually.
Also, section 1102(b) of the Social Security Act requires us to
prepare a regulatory impact analysis for any final rule that may
have a significant impact on the operations of a substantial number
of small rural hospitals. Such an 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.
It is clear that the changes being made in this document will
affect both a substantial number of small rural hospitals as well as
other classes of hospitals, and the effects on some may be
significant. Therefore, the discussion below, in combination with
the rest of this final rule, constitutes a combined regulatory
impact analysis and regulatory flexibility analysis.
In accordance with the provisions of Executive Order 12866, this
final rule was reviewed by the Office of Management and Budget.

II. Changes in the Final Rule

Since we published the proposed rule, the market basket
estimates for hospitals subject to the prospective payment system
and hospitals and units excluded from the system have both fallen by
0.2 percentage points. As a result, the updates are 0.2 percent
lower than the updates reflected in the impact analysis for the
proposed rule.
Also, in the proposed rule, we included discharges to swing beds
under the expanded transfer definition. In this final rule we are
not including swing beds from the definition of a postacute care
setting. The overall payment impact of this change is relatively
very small (an increase of approximately $4 million).
With the exception of these two changes, we are generally
implementing the policy and statutory changes discussed in the
proposed rule.

III. Limitations of Our Analysis

As has been the case in previously published regulatory impact
analyses, the following quantitative analysis presents the projected
effects of our policy changes, as well as statutory changes
effective for FY 1999, on various hospital groups. We estimate the
effects of individual policy changes by estimating payments per case
while holding all other payment policies constant. We use the best
data available, but we do not attempt to predict behavioral
responses to our policy changes, and we do not make adjustments for
future changes in such variables as admissions, lengths of stay, or
case mix.
We received no comments on the methodology used for the impact
analysis in the proposed rule.

IV. GME Payment to Nonhospital Providers

In the past, Medicare only paid hospitals for GME costs.
Therefore, FQHCs, RHCs, and Medicare+Choice organizations may have
been reluctant to train large numbers of residents since Medicare
would not reimburse their incurred training costs. This final rule
specifies that Medicare will reimburse the qualified nonhospital
provider for Medicare's share of the reasonable costs of the
training where the qualified nonhospital provider incurs all or
substantially all of the costs of the training at that site. This
final rule may facilitate more training of residents in settings
where many of those residents will ultimately practice after their
training is completed. Additionally, this could result in an
increase in the number of physicians practicing in underserved
areas.
In addition, hospitals are currently allowed to count residents
working in nonhospital sites in their FTE count of residents for
determining indirect and direct graduate medical education payments,
if the hospital incurs ``all or substantially all of the costs'' of
the training at the non-hospital site. The regulation defined the
statutory requirement of ``all or substantially all'' to mean at
least the residents' salaries and fringe benefits. In this final
rule, we are defining ``all or substantially all'' of the costs of
training in the nonhospital site to mean residents' salaries and
fringe benefits as well as the portion of teaching physicians'
salaries and fringe benefits that can be allocated to direct GME. We
believe that this definition will not discourage training in
nonhospital settings.
Section 4625 of the Balanced Budget Act, which provides for
direct graduate medical education payments to nonhospital providers,
would have minimal impact in the context of total graduate medical
education costs. We believe that the most significant impact
resulting from making payment directly to qualified nonhospital
providers and the redefinition of ``all or substantially all'' will
be that additional nonhospital sites may participate in training
residents. We expect that such an impact will result in little if
any additional cost to Medicare.

V. Hospitals Included in and Excluded From the Prospective Payment
System

The prospective payment systems for hospital inpatient operating
and capital-related costs encompass nearly all general, short-term,
acute care hospitals that participate in the Medicare program. There
were 45 Indian Health Service hospitals in our database, which we
excluded from the analysis due to the special characteristics of the
prospective payment method for these hospitals. Among other short-
term, acute care hospitals, only the 50 such hospitals in Maryland
remain excluded from the prospective payment system under the waiver
at section 1814(b)(3) of the Act. Thus, as of July 1998, we have
included 4,975 hospitals in our analysis. This represents about 82
percent of all Medicare-participating hospitals. The majority of
this impact analysis focuses on this set of hospitals.
The remaining 18 percent are specialty hospitals that are
excluded from the prospective payment system and continue to be paid
on the basis of their reasonable costs (subject to a rate-of-
increase ceiling on their inpatient operating costs per discharge).
These hospitals include psychiatric, rehabilitation, long-term care,
children's, and cancer hospitals. The impacts of our final policy
changes on these hospitals are discussed below.

VI. Impact on Excluded Hospitals and Units

As of July 1998, there were 1,077 specialty hospitals excluded
from the prospective payment system and instead paid on a reasonable
cost basis subject to the rate-of-increase ceiling under
Sec. 413.40. In addition, there were 2,408 psychiatric and
rehabilitation units in hospitals otherwise subject to the
prospective payment system. These excluded units are also paid in
accordance with Sec. 413.40.
As required by section 1886(b)(3)(B) of the Act, the update
factor applicable to the rate-of-increase limit for excluded
hospitals and units for FY 1999 would be between 0 and 2.4 percent,
depending on the hospital's costs in relation to its limit.
The impact on excluded hospitals and units of the update in the
rate-of-increase limit depends on the cumulative cost increases
experienced by each excluded hospital or unit since its applicable
base period. For excluded hospitals and units that have maintained
their cost increases at a

[[Page 41105]]

level below the percentage increases in the rate-of-increase limits
since their base period, the major effect will be on the level of
incentive payments these hospitals and units receive. Conversely,
for excluded hospitals and units with per-case cost increases above
the cumulative update in their rate-of-increase limits, the major
effect will be the amount of excess costs that would not be
reimbursed.
We note that, under Sec. 413.40(d)(3), an excluded hospital or
unit whose costs exceed 110 percent of its rate-of-increase limit
receives its rate-of-increase limit plus 50 percent of the
difference between its reasonable costs and 110 percent of the
limit, not to exceed 110 percent of its limit. In addition, under
the various provisions set forth in Sec. 413.40, certain excluded
hospitals and units can obtain payment adjustments for justifiable
increases in operating costs that exceed the limit. At the same
time, however, by generally limiting payment increases, we continue
to provide an incentive for excluded hospitals and units to restrain
the growth in their spending for patient services.

VII. Quantitative Impact Analysis of the Final Policy Changes Under the
Prospective Payment System for Operating Costs

A. Basis and Methodology of Estimates

In this final rule, we are announcing policy changes and payment
rate updates for the prospective payment systems for operating and
capital-related costs. We have prepared separate impact analyses of
the changes to each system. This section deals with changes to the
operating prospective payment system.
The data used in developing the quantitative analyses presented
below are taken from the FY 1997 MedPAR file and the most current
provider-specific file that is used for payment purposes. Although
the analyses of the changes to the operating prospective payment
system do not incorporate cost data, the most recently available
hospital cost report data were used to categorize hospitals. Our
analysis has several qualifications. First, we do not make
adjustments for behavioral changes that hospitals may adopt in
response to these final policy changes. Second, due to the
interdependent nature of the prospective payment system, it is very
difficult to precisely quantify the impact associated with each
change. Third, we draw upon various sources for the data used to
categorize hospitals in the tables. In some cases, particularly the
number of beds, there is a fair degree of variation in the data from
different sources. We have attempted to construct these variables
with the best available source overall. For individual hospitals,
however, some miscategorizations are possible.
Using cases in the FY 1997 MedPAR file, we simulated payments
under the operating prospective payment system given various
combinations of payment parameters. Any short-term, acute care
hospitals not paid under the general prospective payment systems
(Indian Health Service hospitals and hospitals in Maryland) are
excluded from the simulations. Payments under the capital
prospective payment system, or payments for costs other than
inpatient operating costs, are not analyzed here. Estimated payment
impacts of final FY 1999 changes to the capital prospective payment
system are discussed below in section VIII of this Appendix.
The final changes discussed separately below are the following:
The effects of implementing the expanded transfer
definition enacted by section 4407 of the BBA, which counts as a
transfer any discharge from one of 10 DRGs if upon discharge the
patient is admitted to an excluded hospital or distinct part unit or
a skilled nursing facility, or is provided home health care that is
related to the hospitalization within 3 days of the date of
discharge.
The effects of the annual reclassification of diagnoses
and procedures and the recalibration of the DRG relative weights
required by section 1886(d)(4)(C) of the Act.
The effects of changes in hospitals' wage index values
reflecting the wage index update (FY 1995 data).
The effects of two changes to the wage index for FY
1999: (1) Including the Part A costs associated with physicians
under contract; and (2) removing the overhead costs related to
departments excluded from the wage data used to calculate the wage
index (for example, skilled nursing facilities and distinct part
units).
The effects of geographic reclassifications by the
Medicare Geographic Classification Review Board (MGCRB) that will be
effective in FY 1999.
The total change in payments based on FY 1999 policies
relative to payments based on FY 1998 policies.
To illustrate the impacts of the FY 1999 changes, our analysis
begins with a FY 1999 baseline simulation model using: the FY 1998
GROUPER (version 15.0); the FY 1998 wage index; the transfer
definition prior to implementation of section 4407 of the BBA; and
no MGCRB reclassifications. Outlier payments are set at 5.1 percent
of total DRG payments.
Each final and statutory policy change is then added
incrementally to this baseline model, finally arriving at an FY 1999
model incorporating all of the changes. This allows us to isolate
the effects of each change.
Our final comparison illustrates the percent change in payments
per case from FY 1998 to FY 1999. Four factors have significant
impacts here. First is the update to the standardized amounts. In
accordance with section 1886(d)(3)(A)(iv) of the Act, we are
updating the large urban and the other areas average standardized
amounts for FY 1999 by the most recently forecasted hospital market
basket increase for FY 1999 of 2.4 percent minus 1.9 percentage
points. Similarly, section 1886(b)(3)(C)(ii) of the Act provides
that the update factor applicable to the hospital-specific rates for
sole community hospitals (SCHs) and Medicare-dependent, small rural
hospitals (MDHs) is equal to the market basket increase of 2.4
percent minus 1.9 percentage points (for an update of 0.5 percent).
A second significant factor impacting changes in hospitals'
payments per case from FY 1998 to FY 1999 is a change in MGCRB
reclassification status from one year to the next. That is,
hospitals reclassified in FY 1998 that are no longer reclassified in
FY 1999 may have a negative payment impact going from FY 1998 to FY
1999; conversely, hospitals not reclassified in FY 1998 that are
reclassified in FY 1999 may have a positive impact. In some cases,
these impacts can be quite substantial, so if a relatively small
number of hospitals in a particular category lose their
reclassification status, the percentage increase in payments for the
category may be below the national mean.
A third significant factor is that we currently estimate that
actual outlier payments during FY 1998 will be 5.4 percent of actual
total DRG payments. When the FY 1998 final rule was published, we
projected FY 1998 outlier payments would be 5.1 percent of total DRG
payments, and the standardized amounts were reduced correspondingly.
The effects of the slightly higher than expected outlier payments
during FY 1998 (as discussed in the Addendum to this final rule) are
reflected in the analyses below comparing our current estimates of
FY 1998 payments per case to estimated FY 1999 payments per case.
Fourth, payments per case in FY 1999 are reduced from FY 1998
for hospitals that receive the indirect medical education (IME) or
the disproportionate share (DSH) adjustments. Section
1886(d)(5)(B)(ii) of the Act provides that the IME adjustment is
reduced from approximately a 7.0 percent increase for every 10
percent increase in a hospital's resident-to-bed ratio in FY 1998,
to a 6.5 percent increase in FY 1999. Similarly, in accordance with
section 1886(d)(5)(F)(ix) of the Act, the DSH adjustment for FY 1999
is reduced by 2 percent from what would otherwise have been paid,
compared to a 1 percent reduction for FY 1998.
Table I demonstrates the results of our analysis. The table
categorizes hospitals by various geographic and special payment
consideration groups to illustrate the varying impacts on different
types of hospitals. The top row of the table shows the overall
impact on the 4,975 hospitals included in the analysis. This is 113
fewer hospitals than were included in the impact analysis in the FY
1998 final rule with comment period (62 FR 46119).
The next four rows of Table I contain hospitals categorized
according to their geographic location (all urban, which is further
divided into large urban and other urban, or rural). There are 2,810
hospitals located in urban areas (MSAs or NECMAs) included in our
analysis. Among these, there are 1,611 hospitals located in large
urban areas (populations over 1 million), and 1,199 hospitals in
other urban areas (populations of 1 million or fewer). In addition,
there are 2,165 hospitals in rural areas. The next two groupings are
by bed-size categories, shown separately for urban and rural
hospitals. The final groupings by geographic location are by census
divisions, also shown separately for urban and rural hospitals.
The second part of Table I shows hospital groups based on
hospitals' FY 1999 payment classifications, including any
reclassifications under section 1886(d)(10) of the Act. For example,
the rows labeled urban,

[[Page 41106]]

large urban, other urban, and rural show the numbers of hospitals
paid based on these categorizations (after consideration of
geographic reclassifications) are 2,894, 1,698, 1,196, and 2,081,
respectively.
The next three groupings examine the impacts of the final
changes on hospitals grouped by whether or not they have residency
programs (teaching hospitals that receive an IME adjustment),
receive DSH payments, or some combination of these two adjustments.
There are 3,880 nonteaching hospitals in our analysis, 854 teaching
hospitals with fewer than 100 residents, and 241 teaching hospitals
with 100 or more residents.
In the DSH categories, hospitals are grouped according to their
DSH payment status, and whether they are considered urban or rural
after MGCRB reclassifications. Hospitals in the rural DSH
categories, therefore, represent hospitals that were not
reclassified for purposes of the standardized amount or for purposes
of the DSH adjustment. (They may, however, have been reclassified
for purposes of the wage index.) The next category groups hospitals
considered urban after geographic reclassification, in terms of
whether they receive the IME adjustment, the DSH adjustment, both,
or neither.
The next row separately examines hospitals that available data
show may qualify under section 4401(b) of the BBA for the special
temporary relief provision, which grants an additional 0.3 percent
update to the standardized amounts (in addition to the 0.5 percent
update other hospitals receive during FY 1999), resulting in a 0.8
percent update for this category of hospitals. To be eligible, a
hospital must not be an MDH, nor may it receive either IME or DSH
payments. It must also experience a negative margin on its operating
prospective payments during FY 1999. We estimated eligible hospitals
based on whether they had a negative operating margin on their FY
1995 cost report (latest available data). Finally, to qualify, a
hospital must be located in a State where the aggregate FY 1995
operating prospective payments were less than the aggregate
associated costs for all of the non-IME, non-DSH, non-MDH hospitals
in the State. There are 344 hospitals in this row.
The next four rows examine the impacts of the final changes on
rural hospitals by special payment groups (SCHs, rural referral
centers (RRCs), and MDHs), as well as rural hospitals not receiving
a special payment designation. The RRCs (145), SCHs (637), MDHs
(352), and SCH and RRCs (59) shown here were not reclassified for
purposes of the standardized amount. There are six SCHs that will be
reclassified for the standardized amount in FY 1999 that, therefore,
are not included in these rows. There are seven hospitals that
continue to be paid under the same rules as SCHs, by virtue of their
prior designation as essential access community hospitals (EACH).
These hospitals are categorized in our analysis as SCHs (there are
also three EACH/RRCs).
The next two groupings are based on type of ownership and the
hospital's Medicare utilization expressed as a percent of total
patient days. These data are taken primarily from the FY 1995
Medicare cost report files, if available (otherwise FY 1994 data are
used). Data needed to determine ownership status or Medicare
utilization percentages were unavailable for 115 hospitals. For the
most part, these are new hospitals.
The next series of groupings concern the geographic
reclassification status of hospitals. The first three groupings
display hospitals that were reclassified by the MGCRB for both FY
1998 and FY 1999, or for either of those 2 years, by urban/rural
status. The next rows illustrate the overall number of FY 1999
reclassifications, as well as the numbers of reclassified hospitals
grouped by urban and rural location. The final row in Table I
contains hospitals located in rural counties but deemed to be urban
under section 1886(d)(8)(B) of the Act.

Table I.--Impact Analysis of Changes for FY 1999 Operating Prospective Payment System
[Percent Changes in Payments Per Case]

Contract MGCRB
Num. of Pac tran. DRG re- New wage phys. pt Allocated DRG & WI recl- All FY 99
hosps.\1\ prov- calib.\3\ Data \4\ A Costs overhead changes assifi- changes
ision \2\ \5\ costs \6\ \7\ cation \9\
(0) (1) (2) (3) (4) (5) (6) (7) (8)
(BY GEOGRAPHIC LOCATION):
ALL HOSPITALS.................................. 4,975 -0.6 0.1 0.0 0.0 0.0 0.0 0.0 -1.0
URBAN HOSPITALS................................ 2,810 -0.7 0.2 -0.1 0.0 -0.1 -0.2 -0.4 -1.3
LARGE URBAN................................ 1,611 -0.7 0.2 -0.4 0.0 -0.1 -0.5 -0.5 -1.7
OTHER URBAN................................ 1,199 -0.6 0.1 0.4 0.0 -0.1 0.3 -0.4 -0.7
RURAL HOSPITALS................................ 2,165 -0.4 0.1 0.7 0.0 0.4 1.0 2.7 1.3
BED SIZE (URBAN):
0-99 BEDS...................................... 704 -0.8 0.1 -0.2 0.0 0.0 -0.2 -0.6 -0.9
100-199 BEDS................................... 937 -0.9 0.2 -0.2 0.0 -0.1 -0.2 -0.5 -1.2
200-299 BEDS................................... 568 -0.7 0.2 -0.2 0.0 -0.1 -0.2 -0.4 -1.2
300-499 BEDS................................... 449 -0.6 0.1 -0.1 0.0 -0.1 -0.2 -0.5 -1.4
500 OR MORE BEDS............................... 152 -0.5 0.1 0.1 0.0 -0.2 0.0 -0.3 -1.6
BED SIZE (RURAL):
0-49 BEDS...................................... 1,137 -0.2 0.0 0.7 0.0 0.5 1.0 0.0 1.0
50-99 BEDS..................................... 634 -0.3 0.0 0.6 0.0 0.4 0.8 1.1 0.8
100-149 BEDS................................... 229 -0.5 0.1 0.6 -0.1 0.5 1.0 3.6 1.1
(0) (1) (2) (3) (4) (5) (6) (7) (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
150-199 BEDS................................... 91 -0.5 0.1 0.8 0.0 0.4 1.1 4.5 2.5
200 OR MORE BEDS............................... 74 -0.4 0.1 0.8 0.0 0.3 1.1 5.3 1.7
URBAN BY CENSUS DIVISION:
NEW ENGLAND.................................... 152 -0.7 0.1 -1.1 0.2 -0.3 -1.2 -0.2 -2.6
MIDDLE ATLANTIC................................ 425 -0.4 0.2 0.2 0.2 -0.1 0.3 -0.4 -0.9
SOUTH ATLANTIC................................. 414 -0.6 0.2 0.7 -0.2 -0.1 0.5 -0.5 -0.4
EAST NORTH CENTRAL............................. 476 -0.8 0.1 -0.4 -0.2 -0.3 -0.9 -0.4 -2.2
EAST SOUTH CENTRAL............................. 162 -0.5 0.2 0.7 -0.2 -0.3 0.2 -0.5 -0.7
WEST NORTH CENTRAL............................. 189 -0.7 0.1 0.6 0.2 0.2 1.0 -0.5 -0.1
WEST SOUTH CENTRAL............................. 354 -1.0 0.2 -0.7 0.3 -0.1 -0.4 -0.5 -1.6
MOUNTAIN....................................... 129 -0.9 0.1 -0.1 0.1 -0.1 -0.2 -0.5 -1.1
PACIFIC........................................ 461 -0.8 0.2 -0.9 -0.2 0.1 -0.9 -0.4 -2.0
PUERTO RICO.................................... 48 -0.8 0.3 0.9 -0.2 -0.3 0.5 -0.6 -0.3
RURAL BY CENSUS DIVISION:
NEW ENGLAND.................................... 53 -0.4 0.0 1.0 0.0 0.0 0.9 1.4 -0.3
MIDDLE ATLANTIC................................ 80 -0.2 0.0 0.7 0.4 0.2 1.2 1.7 1.3
SOUTH ATLANTIC................................. 286 -0.4 0.1 0.6 -0.2 0.3 0.7 3.8 1.8
EAST NORTH CENTRAL............................. 285 -0.4 0.1 0.8 -0.1 0.3 1.0 2.1 1.3
EAST SOUTH CENTRAL............................. 269 -0.3 0.1 1.3 -0.2 0.4 1.5 2.7 1.7
WEST NORTH CENTRAL............................. 500 -0.3 -0.1 0.9 0.0 0.7 1.5 2.3 1.4
WEST SOUTH CENTRAL............................. 342 -0.5 0.1 0.1 0.1 0.5 0.6 3.5 0.7

[[Page 41107]]

(0) (1) (2) (3) (4) (5) (6) (7) (8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
MOUNTAIN....................................... 204 -0.2 0.0 0.2 -0.1 0.5 0.5 1.8 0.6
PACIFIC........................................ 141 -0.5 0.1 0.3 -0.2 0.5 0.6 2.4 0.7
PUERTO RICO.................................... 5 -0.5 0.0 2.3 -0.2 -0.2 1.8 1.7 -0.2
(BY PAYMENT CATEGORIES):
URBAN HOSPITALS................................ 2,894 -0.7 0.2 -0.1 0.0 -0.1 -0.2 -0.4 -1.3
LARGE URBAN................................ 1,698 -0.7 0.2 -0.4 0.0 -0.1 -0.4 -0.3 -1.6
OTHER URBAN................................ 1,196 -0.6 0.1 0.4 0.0 -0.1 0.3 -0.4 -0.6
RURAL HOSPITALS................................ 2,081 -0.4 0.1 0.7 0.0 0.4 1.0 2.4 1.1
TEACHING STATUS:
NON-TEACHING................................... 3,880 -0.7 0.1 0.1 -0.1 0.1 0.2 0.3 -0.3
LESS THAN 100 RES.............................. 854 -0.7 0.1 -0.1 0.0 -0.1 -0.2 -0.3 -1.1
100+ RESIDENTS................................. 241 -0.5 0.2 -0.1 0.1 -0.2 -0.1 -0.3 -2.0
DISPROPORTIONATE SHARE HOSPITALS (DSH):
NON-DSH........................................ 3,089 -0.6 0.1 0.1 0.0 0.0 0.0 0.3 -0.6
URBAN DSH:
100 BEDS OR MORE........................... 1,404 -0.7 0.2 -0.1 0.0 -0.1 -0.1 -0.4 -1.4
FEWER THAN 100 BEDS........................ 88 -0.6 0.2 -0.6 -0.1 0.0 -0.7 -0.4 -1.2
RURAL DSH:
SOLE COMMUNITY (SCH)....................... 162 -0.2 0.0 0.7 -0.1 0.3 0.8 0.0 1.0
REFERRAL CENTERS (RRC)..................... 53 -0.5 0.2 1.1 -0.1 0.4 1.4 5.6 2.5
(0) (1) (2) (3) (4) (5) (6) (7) (8)
OTHER RURAL DSH HOSP:
100 BEDS OR MORE........................... 60 -0.6 0.2 0.9 -0.2 0.5 1.3 1.1 0.7
FEWER THAN 100 BEDS........................ 119 -0.2 0.0 1.1 -0.1 0.5 1.4 -0.2 1.3
URBAN TEACHING AND DSH:
BOTH TEACHING AND DSH.......................... 709 -0.7 0.2 -0.1 0.0 -0.1 -0.2 -0.5 -1.6
TEACHING AND NO DSH............................ 331 -0.6 0.1 -0.1 0.0 -0.2 -0.3 -0.1 -1.3
NO TEACHING AND DSH............................ 783 -0.8 0.2 0.0 -0.1 0.0 0.0 -0.2 -0.7
NO TEACHING AND NO DSH......................... 1,071 -0.7 0.1 -0.1 0.0 -0.1 -0.2 -0.4 -0.9
SPECIAL UPDATE HOSPITALS (UNDER SEC. 4401(b) OF
PUBLIC LAW 105-33)................................ 344 -0.6 0.1 0.0 -0.1 -0.1 -0.1 -0.2 -0.8
RURAL HOSPITAL TYPES:
NONSPECIAL STATUS HOSPITALS.................... 888 -0.4 0.1 0.9 -0.1 0.6 1.3 1.2 0.7
RRC............................................ 145 -0.6 0.2 0.9 0.0 0.4 1.4 6.4 2.2
SCH............................................ 637 -0.1 -0.1 0.3 0.0 0.2 0.4 0.1 0.4
MDH............................................ 352 -0.2 0.0 0.8 0.0 0.5 1.2 0.5 1.0
SCH AND RRC.................................... 59 -0.2 0.0 0.3 -0.1 0.2 0.3 2.0 1.2
TYPE OF OWNERSHIP:
VOLUNTARY...................................... 2,858 -0.6 0.1 0.0 0.0 -0.1 -0.1 -0.1 -1.0
PROPRIETARY.................................... 671 -0.9 0.2 0.1 -0.1 0.0 0.0 0.2 -1.0
GOVERNMENT..................................... 1,331 -0.5 0.2 0.1 0.0 0.1 0.2 0.3 -0.5
(0) (1) (2) (3) (4) (5) (6) (7) (8)
UNKNOWN........................................ 115 -0.8 0.2 0.3 -0.2 0.1 0.4 -0.5 -1.0
MEDICARE UTILIZATION AS A PERCENT OF INPATIENT
DAYS:
0-25........................................... 247 -0.6 0.2 -1.0 0.0 0.0 -0.8 -0.2 -2.0
25-50.......................................... 1,264 -0.7 0.2 -0.2 0.0 -0.1 -0.2 -0.3 -1.5
50-65.......................................... 1,978 -0.6 0.1 0.2 0.0 -0.1 0.1 0.2 -0.6
OVER 65........................................ 1,371 -0.6 0.1 0.2 0.0 0.0 0.3 0.1 -0.2
UNKNOWN........................................ 115 -0.8 0.2 0.3 -0.2 0.1 0.4 -0.5 -1.0
HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC
REVIEW BOARD:
RECLASSIFICATION STATUS DURING FY 98 AND FY 99:
RECLASSIFIED DURING BOTH FY98 AND FY99..... 315 -0.5 0.1 0.6 -0.1 0.2 0.7 6.8 -0.5
URBAN.................................. 72 -0.4 0.2 0.4 -0.1 -0.2 0.1 4.9 -1.0
RURAL.................................. 243 -0.5 0.1 0.7 -0.1 0.4 1.1 8.3 -0.1
RECLASSIFIED DURING FY 99 ONLY............. 170 -0.5 0.1 0.5 0.0 0.3 0.8 5.0 5.4
URBAN.................................. 15 -0.7 0.1 -0.1 0.1 0.1 0.1 4.6 2.3
RURAL.................................. 155 -0.5 0.1 0.7 0.0 0.3 1.0 5.1 6.3
RECLASSIFIED DURING FY 98 ONLY............. 126 -0.7 0.1 0.3 -0.1 -0.1 0.1 -0.6 -3.6
URBAN.................................. 53 -0.8 0.1 0.2 -0.1 -0.3 -0.1 -0.7 -2.9
(0) (1) (2) (3) (4) (5) (6) (7) (8)
RURAL.................................. 73 -0.3 0.1 0.6 -0.1 0.4 1.0 -0.5 -5.9
FY 99 RECLASSIFICATIONS:
ALL RECLASSIFIED HOSP.......................... 485 -0.5 0.1 0.6 -0.1 0.2 0.7 6.2 1.4
STAND. AMOUNT ONLY......................... 94 -0.6 0.1 0.5 0.0 -0.2 0.3 1.0 -0.7
WAGE INDEX ONLY............................ 281 -0.5 0.1 0.4 -0.1 0.3 0.6 6.9 -1.2
BOTH....................................... 47 -0.6 0.2 0.9 -0.2 -0.3 0.5 3.7 -2.2
NONRECLASSIFIED............................ 4,526 -0.7 0.1 0.0 0.0 -0.1 -0.1 -0.4 -0.9
ALL URBAN RECLASS.............................. 87 -0.5 0.2 0.3 -0.1 -0.2 0.1 4.8 -0.3
STAND. AMOUNT ONLY......................... 26 -0.4 0.2 1.3 -0.1 -0.3 0.9 0.8 0.1
WAGE INDEX ONLY............................ 40 -0.5 0.1 -0.3 0.0 0.1 -0.2 7.2 0.0
BOTH....................................... 21 -0.5 0.2 0.8 -0.2 -0.5 0.1 2.8 1.3

[[Page 41108]]

NONRECLASSIFIED............................ 2,696 -0.7 0.2 -0.1 0.0 -0.1 -0.2 -0.6 1.3
ALL RURAL RECLASS.............................. 398 -0.5 0.1 0.7 -0.1 0.4 1.1 7.0 2.4
STAND. AMOUNT ONLY......................... 55 -0.4 0.1 0.9 -0.1 0.4 1.1 4.8 2.7
WAGE INDEX ONLY............................ 314 -0.5 0.1 0.7 0.0 0.4 1.1 6.9 2.2
BOTH....................................... 29 -0.5 0.1 0.8 -0.1 0.3 1.1 10.0 3.8
NONRECLASSIFIED............................ 1,767 -0.3 0.0 0.7 0.0 0.4 0.9 -0.4 0.4
OTHER RECLASSIFIED HOSPITALS (SECTION
1886(d)(8)(B)).................................... 27 -0.5 0.1 -0.4 0.0 -0.3 -0.6 1.0 1.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Because data necessary to classify some hospitals by category are missing, the total number of hospitals in each category may not equal the national
total. Discharge data are from FY 1997, and hospital cost report data are from reporting periods beginning in FY 1994 and FY 1995.
\2\ This column displays the impact of the change enacted by section 4407 of the BBA, which defines discharges from 1 of 10 DRGs to postacute care as
transfers. Under our final policy, 3 of the 10 DRGs will be paid under an alternative methodology where they will receive 50 percent of the full DRG
amount on the first day and 50 percent of the current per diem transfer payment amount for each day of the stay. The remaining seven DRGs would be
paid using our current transfer payment methodology.
\3\ This column displays the payment impact of the recalibration of the DRG weights based on FY 1997 MedPAR data and the DRG classification changes, in
accordance with section 1886(d)(4)(C) of the Act.
\4\ This column shows the payment effects of updating the data used to calculate the wage index with data from the FY 1995 cost reports.
\5\ This column displays the impact of adding contract Part A physician costs to the wage data.
\6\ This column illustrates the payment impact of removing the overhead costs allocated to departments where the directly assigned costs are already
excluded from the wage index calculation (for example, SNFs and distinct part units).
\7\ This column displays the combined impact of the reclassification and recalibration of the DRGs, the updated and revised wage data used to calculate
the wage index, and the budget neutrality adjustment factor for these two changes, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of
the Act. Thus, it represents the combined impacts shown in columns 2, 3, 4, and 5, and the FY 1999 budget neutrality factor of 0.999006.
\8\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects shown here
demonstrate the FY 1999 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 1999.
Reclassification for prior years has no bearing on the payment impacts shown here.
\9\ This column shows changes in payments from FY 1998 to FY 1999. It incorporates all of the changes displayed in columns 1, 6, and 7 (the changes
displayed in columns 2, 3, 4 and 5 are included in column 6). It also displays the impact of the FY 1999 update, changes in hospitals'
reclassification status in FY 1999 compared to FY 1998, the difference in outlier payments from FY 1998 to FY 1999, and the reductions to payments
through the IME and DSH adjustments taking effect during FY 1999. The sum of these columns may be different from the percentage changes shown here due
to rounding and interactive effects.

B. Impact of the Implementation of the Expanded Transfer Definition
(Column 1)

Section 1886(d)(5)(J) of the Act (added by section 4407 of the
BBA) requires the Secretary to select 10 DRGs for which discharges
(from any one of these DRGs) to a postacute care provider will be
treated as a transfer beginning with discharges on or after October
1, 1998. Column 1 shows the impact of this provision.
Although the expanded definition encompasses only 10 DRGs, they
were selected, in accordance with the statute, based upon their
large and disproportionate volume of cases receiving postacute care.
Therefore, the overall payment impact of this change is significant
(a 0.6 percent decrease in payments per case).
The 10 DRGs that we are including under this provision are
identified in section IV.A. of the preamble to this final rule. In
addition to selecting 10 DRGs, the statute authorizes the Secretary
to develop an alternative transfer payment methodology for DRGs
where a substantial portion of the costs of the cases occur very
early in the stay. This is particularly likely to happen in some
surgical DRGs because of the high cost of the surgical procedure.
Based on our analysis comparing the costs per case for these cases
with payments under our current transfer payment methodology, we
will pay the current transfer per diem for all DRGs except DRGs 209,
210, and 211. For those three DRGs, the alternative payment
methodology is 50 percent of the full DRG payment amount, plus 50
percent of the current per diem transfer payment for each day of the
stay, up to the full DRG payment.
To simulate the impact of these final policies, we adjusted
hospitals' transfer-adjusted discharges and case-mix index values
(using version 15 of the GROUPER) to reflect the impact of this
expansion in the transfer definition. The transfer-adjusted
discharge fraction is calculated one of two ways, depending on the
transfer payment methodology. Under our current transfer payment
methodology, and for all but the three DRGs receiving special
payment consideration, this adjustment is made simply by adding one
to the length of stay and dividing that amount by the geometric mean
length of stay for the DRG (with the resulting fraction not to
exceed 1.0). For example, a transfer after 3 days from a DRG with a
geometric mean length of stay of 6 days would have a transfer-
adjusted discharge fraction of 0.667 ((3+1)/6).
For transfers from any one of the three DRGs receiving the
alternative payment methodology, the transfer-adjusted discharge
fraction is 0.5 (to reflect that these cases receive half the full
DRG amount the first day), plus one-half of the result of dividing
one plus the length of stay prior to transfer by the geometric mean
length of stay for the DRG. As with the above adjustment, the result
is equal to the lesser of the transfer-adjusted discharge fraction
or 1.
The transfer-adjusted case-mix index values are calculated by
summing the transfer-adjusted DRG weights and dividing by the
transfer-adjusted discharges. The transfer-adjusted DRG weights are
calculated by multiplying the DRG weight by the lesser of 1 or the
transfer-adjusted discharge fraction for the case, divided by the
geometric mean length of stay for the DRG. In this way, simulated
payments per case can be compared before and after the change to the
transfer policy.
This change has the greatest impact among urban hospitals (0.7
percent decrease). Among urban hospitals, hospitals with up to 99
beds and those with between 100 and 199 beds are most affected, with
0.8 percent and 0.9 percent reductions in payments, respectively.
For urban hospitals grouped by census division, the Middle Atlantic
division has the smallest negative impact, a 0.4 percent decrease.
The Middle Atlantic division has traditionally had the longest
average lengths of stay, therefore, it is reasonable that the impact
is smallest here. Transfer cases with a length of stay more than the
(geometric) mean length of stay minus one day do not experience any
payment impact under this provision. (Full payment is reached one
day prior to the mean length of stay due to the double per diem paid
for the first day under our current transfer payment methodology.)
Rural hospitals experience a smaller payment impact overall,
especially the smallest rural hospitals: those with fewer than 50
beds (a 0.2 percent decrease). The smallest impacts among rural
census divisions are in the Middle Atlantic and the Mountain. The
largest rural impacts are in the West South Central and the Pacific
divisions, and Puerto Rico, all with 0.5 percent decreases. This
change is consistent with the shorter lengths of stay in these
geographic regions.
The largest negative impact is a 1.0 percent decrease in
payments observed among urban West South Central hospitals. The
smallest negative impact occurs in SCHs (0.1 percent decrease).
Those SCHs paid based on their hospital-specific amount would see no
impact related to this change, since there is no transfer adjustment
made to the hospital-specific amount.

[[Page 41109]]

C. Impact of the Changes to the DRG Classifications and Relative
Weights (Column 2)

In column 2 of Table I, we present the combined effects of the
DRG reclassifications and recalibration, as discussed in section II
of the preamble to this final rule. Section 1886(d)(4)(C)(i) of the
Act requires us to annually make appropriate classification changes
and to recalibrate the DRG weights in order to reflect changes in
treatment patterns, technology, and any other factors that may
change the relative use of hospital resources.
We compared aggregate payments using the FY 1998 DRG relative
weights (GROUPER version 15) to aggregate payments using the final
FY 1999 DRG relative weights (GROUPER version 16). Overall, payments
increase by 0.1 percent due to the DRG changes, although this is
prior to applying the budget neutrality factor for DRG and wage
index changes (see column 6). Consistent with the minor changes
reflected in the FY 1999 GROUPER, the redistributional impacts of
DRG reclassifications and recalibration across hospital groups are
very small (a 0.2 percent increase for large urban hospitals, and a
0.1 percent increase for other urban hospitals as well as for rural
hospitals). Within hospital categories, the net effects for urban
hospitals are small positive changes for all hospitals (a 0.2
percent increase for hospitals with between 100 and 299 beds, and a
0.1 percent increase for smaller or larger urban hospitals). Rural
hospitals with 100 or more beds experience an increase of 0.1
percent, for smaller rural hospitals, there is no impact (0.0
percent change).
The breakdowns by urban census division show that the increase
among urban hospitals is spread across all census categories, with
the largest increase (0.3 percent) for hospitals in Puerto Rico. For
rural hospitals, there is no impact (that is, a 0.0 percent change)
for hospitals in the New England, Middle Atlantic, and Mountain
census divisions. The West North Central division experiences a 0.1
percent decrease. All other rural census divisions experience a 0.1
percent increase. The only other hospital category experiencing a
negative impact is SCHs, with a 0.1 percent decrease.
This pattern of small increases or no change applies to all
other hospital categories. Overall, we attribute this change to the
increasing severity of illness of hospital inpatients. That is, as
greater numbers of less acutely ill patients are treated outside the
inpatient setting, the acuity of the remaining hospital inpatients
increases. Although, in the past, this effect was seen more clearly
in large urban and very large rural hospitals, which often had more
outpatient settings available for patient treatment, hospitals in
all areas now appear to be able to take advantage of this practice.
Of course, in general, these positive impacts are very minor, with
virtually no hospital group experiencing more than a 0.2 percent
increase.

D. Impact of Updating the Wage Data (Column 3)

Section 1886(d)(3)(E) of the Act requires that, beginning
October 1, 1993, we annually update the wage data used to calculate
the wage index. In accordance with this requirement, the wage index
for FY 1999 is based on data submitted for hospital cost reporting
periods beginning on or after October 1, 1994 and before October 1,
1995. As with the previous column, the impact of the new data on
hospital payments is isolated by holding the other payment
parameters constant in the two simulations. That is, column 3 shows
the percentage changes in payments when going from a model using the
FY 1998 wage index based on FY 1994 wage data before geographic
reclassifications to a model using the FY 1999 prereclassification
wage index based on FY 1995 wage data.
The wage data collected on the FY 1995 cost reports includes,
for the first time, contract labor costs and hours for top
management positions as allowable in the wage index calculation. In
addition, the changes to wage-related costs associated with hospital
and home office salaries that were discussed in the September 1,
1994 final rule (59 FR 45355) are reflected in the FY 1995 data.
These changes are reflected in column 3, as well as other year-to-
year changes in hospitals' labor costs.
The results indicate that the new wage data have no overall
impact in hospital payments. Rural hospitals as a category, however,
benefit from the update. Their payments increase by 0.7 percent.
These increases are attributable to increases above 5 percent in the
wage index values for the rural areas of several States.
Urban hospitals as a group are not significantly affected by the
updated wage data (a 0.1 percent decrease). The gains of hospitals
in other urban areas (0.4 percent increase) are offset by decreases
among hospitals in large urban areas (0.4 percent decrease). The
negative impact among large urban areas appears to be largely due to
three large urban MSAs with decreases of greater than 6 percent in
their wage index values due to the FY 1995 data.
Among urban census divisions, New England experiences the
largest decline, 1.1 percent. This is primarily attributable to a
2.0 percent decline in the Boston MSA's wage index. The negative
impact in the Pacific division is associated with three MSAs that
have a 7 percent decline in their wage index. On the other hand, in
urban Puerto Rico, two MSAs had increases of more than 10 percent.
The largest increases are in the rural census divisions. Rural
Puerto Rico experiences the greatest positive impact, 2.3 percent.
Hospitals in two other census divisions receive positive increases
of at least 1.0 percent; East South Central at 1.3 percent, and New
England at 1.0 percent. We believe these positive impacts of the new
wage data for rural hospitals stem from the expansion of the
contract labor definition, specifically the inclusion certain
management categories. On average, the hourly cost of contract labor
increased for rural hospitals by 5.9 percent. Among urban hospitals,
the increase was 4.2 percent.

E. Impact of Including Contract Physician Part A Costs (Column 4)

As discussed in section III.C.1 of the preamble, we began
collecting separate wage data for both direct and contract physician
Part A services on the FY 1995 cost report. This change was made in
order to address any potential inequity of including only salaried
Part A physician costs in the wage index while some States had laws
prohibiting their hospitals from employing physicians directly
(forcing hospitals to contract with physicians for administrative
services). We are including contract physician Part A costs in the
wage index calculation.
Column 4 shows the payment impacts of including these data.
Although only two States currently maintain the prohibition against
hospitals directly employing physicians (Texas and California), many
hospitals in other States reported these costs as well. Thus, the
impacts of this final change extend well beyond Texas and
California.
In general, most hospital categories experience either no
changes due to this final policy, or small (0.1 percent) increases
or decreases. Urban hospitals in the West South Central census
division (which includes Texas) have a 0.3 percent increase.
Hospitals in the Pacific division (which includes California) have a
decrease of 0.2 percent overall in their wage index.
The MSA with the greatest increase due to this change is
Galveston-Texas City, TX. Although hospitals in this MSA experience
a drop in their wage index due to the use of FY 1995 data, much of
that decrease is recovered by a 12 percent increase resulting from
the inclusion of contract physician Part A costs. Two California
MSAs experience increases in their wage indexes of at least 1.0
percent: Stockton-Lodi and Fresno.

F. Impact of Removing Overhead Costs of Excluded Areas (Column 5)

Prior years' wage index calculations have removed the direct
wages and hours associated with certain subprovider components
excluded from the prospective payment system; however, the overhead
costs associated with these excluded components have not been
removed. We revised the FY 1995 cost report to allow hospitals to
report separately overhead salaries and hours, and for the FY 1999
wage index we are removing the overhead costs and hours allocated to
areas of the hospital excluded from the wage index calculation.
Column 5 displays the impacts on FY 1999 payments per case of
implementing this change. The overall payment impact is 0.0 percent;
however, the impact diverges along urban and rural lines. Urban
hospitals lose 0.1 percent as a result of removing these overhead
costs, while rural hospitals gain 0.4 percent.
Hospitals in the rural West North Central census division
experience the largest percentage increase (0.7 percent). All the
rural Statewide wage indexes increased in this census division, led
by Minnesota (3.2 percent) and South Dakota (2.4 percent).
The combined wage index changes in Table I are determined by
summing the individual impacts in columns 3, 4, and 5. For example,
the rural West North Central census division gains 0.9 percent from
the new wage data, and 0.7 percent from removing the overhead costs
allocated to

[[Page 41110]]

excluded areas. Therefore, the combined impact of the FY 1999 wage
index for these hospitals is a 1.6 percent increase.
The following chart compares the shifts in wage index values for
labor market areas for FY 1999 relative to FY 1998. This chart
demonstrates the impact of the changes for the FY 1999 wage index
relative to the FY 1998 wage index. The majority of labor market
areas (305) experience less than a 5 percent change. A total of 38
labor market areas experience an increase of more than 5 percent,
with 9 having an increase greater than 10 percent. A total of 28
areas (all urban) experience decreases of more than 5 percent,
although, of those, all decline by less than 10 percent.

------------------------------------------------------------------------
Number of labor
market areas
Percentage change in area wage index values ---------------------
FY 1998 FY 1999
------------------------------------------------------------------------
Increase more than 10 percent..................... 2 9
Increase more than 5 percent and less than 10
percent.......................................... 24 29
Increase or decrease less than 5 percent.......... 334 305
Decrease more than 5 percent and less than 10
percent.......................................... 9 28
Decrease more than 10 percent..................... 1 0
------------------------------------------------------------------------

Among urban hospitals, 129 would experience an increase of more
than 5 percent and 23 more than 10 percent. More rural hospitals
have increases greater than 5 percent (355), but none greater than
10 percent. On the negative side, 186 urban hospitals but no rural
hospitals have decreases in their wage index values of at least 5
percent (none have decreases greater than 10 percent). The following
chart shows the impact for urban and rural hospitals.

------------------------------------------------------------------------
Number of hospitals
Percentage change in area wage index values ---------------------
Urban Rural
------------------------------------------------------------------------
Increase more than 10 percent..................... 23 0
Increase more than 5 percent and less than 10
percent.......................................... 129 355
Increase or decrease less than 5 percent.......... 2472 1810
Decrease more than 5 percent and less than 10
percent.......................................... 186 0
Decrease more than 10 percent..................... 0 0
------------------------------------------------------------------------

G. Combined Impact of DRG and Wage Index Changes--Including Budget
Neutrality Adjustment (Column 6)

The impact of DRG reclassifications and recalibration on
aggregate payments is required by section 1886(d)(4)(C)(iii) of the
Act to be budget neutral. In addition, section 1886(d)(3)(E) of the
Act specifies that any updates or adjustments to the wage index are
to be budget neutral. As noted in the Addendum to this final rule,
we compared aggregate payments using the FY 1998 DRG relative
weights and wage index to aggregate payments using the FY 1999 DRG
relative weights and wage index. Based on this comparison, we
computed a wage and recalibration budget neutrality factor of
0.999006. In Table I, the combined overall impacts of the effects of
both the DRG reclassifications and recalibration and the updated
wage index are shown in column 6. The 0.0 percent impact for All
Hospitals demonstrates that these changes, in combination with the
budget neutrality factor, are budget neutral.
For the most part, the changes in this column are the sum of the
changes in columns 2, 3, 4, and 5, minus approximately 0.1 percent
attributable to the budget neutrality factor. There may, of course,
be some variation of plus or minus 0.1 percent due to rounding.

H. Impact of MGCRB Reclassifications (Column 7)

Our impact analysis to this point has assumed hospitals are paid
on the basis of their actual geographic location (with the exception
of ongoing policies that provide that certain hospitals receive
payments on bases other than where they are geographically located,
such as hospitals in rural counties that are deemed urban under
section 1886(d)(8)(B) of the Act). The changes in column 7 reflect
the per case payment impact of moving from this baseline to a
simulation incorporating the MGCRB decisions for FY 1999. As noted
below, these decisions affect hospitals' standardized amount and
area wage index assignments. In addition, rural hospitals may be
reclassified for purposes of receiving a higher DSH adjustment.
Beginning in 1998, by February 28 of each year, the MGCRB makes
reclassification determinations that will be effective for the next
fiscal year, which begins on October 1. (In previous years, these
determinations were made by March 30.) The MGCRB may approve a
hospital's reclassification request for the purpose of using the
other area's standardized amount, wage index value, or both. For FYs
1999 through 2001, a hospital may reclassify for purposes of
qualifying for a DSH adjustment or to receive a higher DSH payment.
The FY 1999 final wage index values incorporate all of the
MGCRB's reclassification decisions for FY 1999. The wage index
values also reflect all decisions made by the HCFA Administrator
through the appeals and review process. The overall effect of
geographic reclassification is required by section 1886(d)(8)(D) of
the Act to be budget neutral. Therefore, we applied an adjustment of
0.993433 to ensure that the effects of reclassification are budget
neutral. (See section II.A.4 of the Addendum to this final rule.)
As a group, rural hospitals benefit from geographic
reclassification. Their payments rise 2.7 percent, while payments to
urban hospitals decline 0.4 percent. Hospitals in other urban areas
see a decrease in payments of 0.4 percent, while large urban
hospitals lose 0.5 percent. Among urban hospital groups (that is,
bed size, census division, and special payment status), payments
generally decline.
A positive impact is evident among all rural hospital groups
except the smallest hospitals (under 50 beds), which experience no
payment impact overall. The smallest increase among the rural census
divisions is 1.4 percent for New England. The largest increase is in
rural South Atlantic, with an increase of 3.8 percent.
Among rural hospitals designated as RRCs, 116 hospitals are
reclassified for purposes of the wage index only, leading to the 6.4
percent increase in payments among RRCs overall. This positive
impact on RRCs is also reflected in the category of rural hospitals
with 200 or more beds, which has a 5.3 percent increase in payments.
Rural hospitals reclassified for FY 1998 and FY 1999 experience
a 8.3 percent increase in payments. This may be due to the fact that
these hospitals have the most to gain from reclassification and have
been reclassified for a period of years. Rural hospitals
reclassified for FY 1999 only experience a 5.1 percent increase in
payments, while rural hospitals reclassified for FY 1998 only
experience a 0.5 percent decrease in payments. Urban hospitals
reclassified for FY 1998 but not FY 1999 experience a 0.7 percent
decline in payments overall. Urban hospitals reclassified for FY
1999 but not for FY 1998 experience a 4.6 percent increase in
payments.
The FY 1999 Reclassification rows of Table I show the changes in
payments per case for all FY 1999 reclassified and nonreclassified
hospitals in urban and rural locations for each of the three
reclassification categories (standardized amount only, wage index
only, or both). The table illustrates that the largest impact for
reclassified rural hospitals is for those hospitals reclassified for
both the standardized amount and the wage index. These hospitals
receive a 10.0 percent increase in payments. In addition, rural
hospitals reclassified just for the wage index receive a 6.9 percent
payment increase. The overall impact on reclassified hospitals is to
increase their payments per case by an average of 6.2 percent for FY
1999.
Among the 27 rural hospitals deemed to be urban under section
1886(d)(8)(B) of the Act, payments increase 1.0 percent due to MGCRB
reclassification. This is because, although these hospitals are
treated as being attached to an urban area in our baseline (their
redesignation is ongoing, rather than annual like the MGCRB
reclassifications), they are eligible for MGCRB reclassification.
For FY 1999, one hospital in this category reclassified to a large
urban area.
The reclassification of hospitals primarily affects payment to
nonreclassified hospitals through changes in the wage index and the
geographic reclassification budget neutrality adjustment required by
section 1886(d)(8)(D) of the Act. Among hospitals that are not
reclassified, the overall impact of hospital reclassifications is an
average decrease in payments per case of about 0.4 percent. Urban
nonreclassified hospitals decrease slightly more, experiencing a 0.6
percent decrease (roughly the amount of the budget neutrality
offset).
The number of reclassifications for purposes of the standardized
amount, or for

[[Page 41111]]

both the standardized amount and the wage index, has decreased from
149 in FY 1998 to 141 in FY 1999. The number of wage index only
reclassifications decreased from 284 in FY 1998 to 281 in FY 1999.

I. All Changes (Column 8)

Column 8 compares our estimate of payments per case,
incorporating all changes reflected in this final rule for FY 1999
(including statutory changes), to our estimate of payments per case
in FY 1998. It includes the effects of the 0.5 percent update to the
standardized amounts and the hospital-specific rates for SCHs and
MDHs. It also reflects the 0.3 percentage point difference between
the projected outlier payments in FY 1999 (5.1 percent of total DRG
payments) and the current estimate of the percentage of actual
outlier payments in FY 1998 (5.4 percent), as described in the
introduction to this Appendix and the Addendum to this final rule.
Additional changes affecting the difference between FY 1998 and
FY 1999 payments are the reductions to the IME and DSH adjustments
enacted by the BBA. These changes initially went into effect during
FY 1998 and include additional decreases in payment for each of
several succeeding years. As noted in the introduction to this
impact analysis, for FY 1999, IME is reduced to approximately a 6.5
percent rate of increase, and DSH is reduced by 2 percent from what
hospitals otherwise would receive. We estimate the overall effect of
these statutory changes to be a 0.5 percent reduction in FY 1999
payments relative to FY 1998. For hospitals receiving both IME and
DSH, the impact is estimated to be a 0.9 percent reduction in
payments per case.
Column 8 also includes the impacts of FY 1999 MGCRB
reclassifications compared to the payment impacts of FY 1998
reclassifications. Therefore, when comparing FY 1999 payments to FY
1998, the percent changes due to FY 1999 reclassifications shown in
column 7 need to be offset by the effects of reclassification on
hospitals' FY 1998 payments (column 7 of Table 1, August 29, 1997
final rule with comment period; 62 FR 46119). For example, the
impact of MGCRB reclassifications on rural hospitals' FY 1998
payments was approximately a 2.2 percent increase, offsetting much
of the 2.7 percent increase in column 7 for FY 1999. Therefore, the
net change in FY 1999 payments due to reclassification for rural
hospitals is actually closer to an increase of 0.5 percent relative
to FY 1998. However, last year's analysis contained a somewhat
different set of hospitals, so this might affect the numbers
slightly.
There might also be interactive effects among the various
factors comprising the payment system that we are not able to
isolate. For these reasons, the values in column 8 may not equal the
sum of the changes in columns 1, 6, and 7, plus the other impacts
that we are able to identify.
The overall payment change from FY 1998 to FY 1999 for all
hospitals is a 1.0 percent decrease. This reflects the 0.6 percent
net change in total payments due to the postacute transfer change
for FY 1999 shown in column 1; the 0.5 percent update for FY 1999,
the 0.3 percent lower outlier payments in FY 1999 compared to FY
1998 (5.1 percent compared to 5.4 percent); and the 0.5 percent
reduction due to lower IME and DSH payments.
Hospitals in urban areas experience a 1.3 percent drop in
payments per case compared to FY 1998. Urban hospitals lose 0.9
percent due to the combined effects of the expanded transfer
definition and the DRG and wage index changes. The 0.4 percent
negative impact due to reclassification is offset by an identical
negative impact for FY 1998. The impact of reducing IME and DSH is a
0.5 percent reduction in FY 1999 payments per case. Most of this
negative impact is incurred by hospitals in large urban areas, where
payments are expected to fall 1.7 percent per case compared to 0.7
percent per case for hospitals in other urban areas.
Hospitals in rural areas, meanwhile, experience a 1.3 percent
payment increase. As discussed previously, this is primarily due to
a smaller negative impact due to the expanded transfer definition
(0.4 percent decrease compared to 0.6 percent nationally) and the
positive effect due to the wage index and DRG changes (1.0 percent
increase).
Among census divisions, urban New England displays the largest
negative impact, 2.6 percent. This outcome is primarily related to
the 1.1 percent decrease due to the new wage data. Similarly, urban
East North Central experiences a 2.2 percent drop in payments per
case, due to a 0.9 percent drop due to the combined wage index and
DRG changes. The urban Pacific and the urban West South Central also
experience overall larger payment declines, with 2.0 and 1.6 percent
decreases, respectively. The urban West North Central has the
smallest negative change among urban census divisions (0.1 percent),
stemming primarily from a 1.0 percent increase due to the DRG and
wage index changes. Hospitals in this census division also are less
reliant on IME and DSH funding, and are, therefore, impacted less by
these reductions.
The only rural census division to experience a negative payment
impact is New England (0.3 percent decrease). This appears to result
from a much smaller reclassification effect for rural New England
hospitals in FY 1999. For FY 1998, the impact of MGCRB
reclassification for these hospitals was a 2.1 percent increase (see
62 FR 46119). For FY 1999, the increase is only 1.4 percent. The
largest increases by a rural census division are in the South
Atlantic and the East South Central, with 1.8 and 1.7 percent
increases, respectively. In the South Atlantic, this is primarily
due to a larger FY 1999 benefit from MGCRB reclassifications. For
the East South Central, it is largely due to a 1.3 percent increase
from the FY 1995 wage data.
Among special categories of rural hospitals, RRCs have the
largest increase, 2.2 percent. This carries over to other categories
as well: rural hospitals with between 150 and 200 beds have a 2.5
percent rise in payments (there are 37 RRCs in this category); and
RRCs receiving DSH see a 2.5 percent increase.
The largest negative payment impacts from FY 1998 to FY 1999 are
among hospitals that were reclassified for FY 1998 and are not
reclassified for FY 1999. Overall, these hospitals lose 3.6 percent.
The urban hospitals in this category lose 2.9 percent, while the
rural hospitals lose 5.9 percent. On the other hand, hospitals
reclassified for FY 1999 that were not reclassified for FY 1998
would experience the greatest payment increases: 5.4 percent
overall; 6.3 percent for 155 rural hospitals; and 2.3 percent for 15
urban hospitals.

Table II.--Impact Analysis of Changes for FY 1999 Operating Prospective Payment System
[Payments per case]

Average FY Average FY
Number of 1998 1999
hospitals payment per payment per All changes
case case
(1) (2) \1\ (3) \1\ (4)
----------------------------------------------------------------------------------------------------------------
(BY GEOGRAPHIC LOCATION):
ALL HOSPITALS........................................... 4,975 6,773 6,707 -1.0
URBAN HOSPITALS......................................... 2,810 7,342 7,246 -1.3
LARGE URBAN AREAS....................................... 1,611 7,891 7,758 -1.7
OTHER URBAN AREAS....................................... 1,199 6,589 6,544 -0.7
RURAL AREAS............................................. 2,165 4,460 4,517 1.3
BED SIZE (URBAN):
0-99 BEDS............................................... 704 4,931 4,889 -0.9
100-199 BEDS............................................ 937 6,128 6,056 -1.2
200-299 BEDS............................................ 568 6,934 6,851 -1.2

[[Page 41112]]

300-499 BEDS............................................ 449 7,846 7,738 -1.4
500 OR MORE BEDS........................................ 152 9,743 9,592 -1.6
BED SIZE (RURAL):
0-49 BEDS............................................... 1,137 3,665 3,701 1.0
50-99 BEDS.............................................. 634 4,176 4,207 0.8
100-149 BEDS............................................ 229 4,613 4,662 1.1
150-199 BEDS............................................ 91 4,776 4,895 2.5
200 OR MORE BEDS........................................ 74 5,610 5,704 1.7
URBAN BY CENSUS DIV:
NEW ENGLAND............................................. 152 7,887 7,682 -2.6
MIDDLE ATLANTIC......................................... 425 8,181 8,107 -0.9
SOUTH ATLANTIC.......................................... 414 6,978 6,948 -0.4
EAST NORTH CENTRAL...................................... 476 7,029 6,873 -2.2
EAST SOUTH CENTRAL...................................... 162 6,569 6,524 -0.7
(1) (2) \1\ (3) \1\ (4)
WEST NORTH CENTRAL...................................... 189 7,001 6,996 -0.1
WEST SOUTH CENTRAL...................................... 354 6,830 6,720 -1.6
MOUNTAIN................................................ 129 7,046 6,971 -1.1
PACIFIC................................................. 461 8,409 8,245 -2.0
PUERTO RICO............................................. 48 3,065 3,056 -0.3
RURAL BY CENSUS DIV:
NEW ENGLAND............................................. 53 5,305 5,287 -0.3
MIDDLE ATLANTIC......................................... 80 4,818 4,881 1.3
SOUTH ATLANTIC.......................................... 286 4,610 4,694 1.8
EAST NORTH CENTRAL...................................... 285 4,496 4,553 1.3
EAST SOUTH CENTRAL...................................... 269 4,162 4,235 1.7
WEST NORTH CENTRAL...................................... 500 4,178 4,236 1.4
WEST SOUTH CENTRAL...................................... 342 3,991 4,017 0.7
MOUNTAIN................................................ 204 4,750 4,779 0.6
PACIFIC................................................. 141 5,608 5,647 0.7
PUERTO RICO............................................. 5 2,374 2,370 -0.2
(BY PAYMENT CATEGORIES):
URBAN HOSPITALS......................................... 2,894 7,299 7,207 -1.3
LARGE URBAN AREAS....................................... 1,698 7,798 7,670 -1.6
OTHER URBAN AREAS....................................... 1,196 6,570 6,530 -0.6
RURAL AREAS............................................. 2,081 4,444 4,494 1.1
TEACHING STATUS:
NON-TEACHING............................................ 3,880 5,468 5,450 -0.3
FEWER THAN 100 RESIDENTS................................ 854 7,228 7,145 -1.1
100 OR MORE RESIDENTS................................... 241 10,974 10,755 -2.0
DISPROPORTIONATE SHARE HOSPITALS (DSH):
NON-DSH................................................. 3,089 5,837 5,799 -0.6
URBAN DSH:
100 BEDS OR MORE.................................... 1,404 7,951 7,843 -1.4
FEWER THAN 100 BEDS................................. 88 5,068 5,007 -1.2
(1) (2) \1\ (3) \1\ (4)
RURAL DSH:
SOLE COMMUNITY (SCH)................................ 162 4,211 4,251 1.0
REFERRAL CENTERS (RRC).............................. 53 5,294 5,428 2.5
OTHER RURAL DSH HOSP:
100 BEDS OR MORE.................................... 60 4,134 4,162 0.7
FEWER THAN 100 BEDS................................. 119 3,553 3,600 1.3
URBAN TEACHING AND DSH:
BOTH TEACHING AND DSH................................... 709 8,975 8,828 -1.6
TEACHING AND NO DSH..................................... 331 7,384 7,291 -1.3
NO TEACHING AND DSH..................................... 783 6,318 6,271 -0.7
NO TEACHING AND NO DSH.................................. 1,071 5,664 5,612 -0.9
SPECIAL UPDATE HOSPITALS (UNDER SEC. 4401(b) OF PUBLIC
LAW 105-33............................................. 344 5,276 5,236 -0.8
RURAL HOSPITAL TYPES:
NONSPECIAL STATUS
HOSPITALS............................................... 888 3,920 3,947 0.7
RRC..................................................... 145 5,170 5,286 2.2
SCH..................................................... 637 4,484 4,502 0.4

[[Page 41113]]

MDH..................................................... 352 3,715 3,753 1.0
SCH AND RRC............................................. 59 5,339 5,402 1.2
TYPE OF OWNERSHIP:
VOLUNTARY............................................... 2,858 6,956 6,884 -1.0
PROPRIETARY............................................. 671 6,160 6,096 -1.0
GOVERNMENT.............................................. 1,331 6,243 6,209 -0.5
UNKNOWN................................................. 115 7,894 7,811 -1.0
MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:
0-25.................................................... 247 8,931 8,755 -2.0
25-50................................................... 1,264 8,254 8,127 -1.5
50-65................................................... 1,978 6,170 6,134 -0.6
OVER 65................................................. 1,371 5,253 5,241 -0.2
UNKNOWN................................................. 115 7,894 7,811 -1.0
HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW
BOARD:
RECLASSIFICATION STATUS DURING FY98 AND FY99:
RECLASSIFIED DURING BOTH FY98 AND FY99.............. 315 5,971 5,944 -0.5
URBAN........................................... 72 7,376 7,302 -1.0
RURAL........................................... 243 5,258 5,254 -0.1
RECLASSIFIED DURING FY99 ONLY....................... 170 5,149 5,427 5.4
URBAN........................................... 15 8,019 8,207 2.3
RURAL........................................... 155 4,668 4,960 6.3
RECLASSIFIED DURING FY98 ONLY....................... 126 6,310 6,084 -3.6
URBAN........................................... 53 7,218 7,011 -2.9
RURAL........................................... 73 4,453 4,188 -5.9
FY 99 RECLASSIFICATIONS:
ALL RECLASSIFIED HOSP................................... 485 5,683 5,763 1.4
STAND. AMT. ONLY.................................... 94 5,940 5,899 -0.7
WAGE INDEX ONLY..................................... 281 6,007 5,935 -1.2
BOTH................................................ 47 6,407 6,264 -2.2
NONRECLASS.......................................... 4,526 6,851 6,786 -0.9
ALL URBAN RECLASS....................................... 87 7,497 7,472 -0.3
STAND. AMT. ONLY.................................... 26 5,630 5,635 0.1
WAGE INDEX ONLY..................................... 40 8,874 8,872 0.0
BOTH................................................ 21 6,810 6,725 -1.3
NONRECLASS.......................................... 2,696 7,348 7,249 -1.3
ALL RURAL RECLASS....................................... 398 5,016 5,134 2.4
STAND. AMT. ONLY.................................... 55 4,374 4,494 2.7
WAGE INDEX ONLY..................................... 314 5,083 5,194 2.2
BOTH................................................ 29 5,039 5,231 3.8
NONRECLASS.......................................... 1,767 4,109 4,127 0.4
OTHER RECLASSIFIED HOSPITALS (SECTION 1886(d)(8)(B)).... 27 4,765 4,714 -1.1
----------------------------------------------------------------------------------------------------------------
\1\ These payment amounts per case do not reflect any estimates of annual case-mix increase.

Table II presents the projected impact on payments per case of
the final changes for FY 1999 for urban and rural hospitals and for
the different categories of hospitals shown in Table I. It compares
the projected payments per case for FY 1999 with the average
estimated per case payments for FY 1998, as calculated under our
models. Thus, this table presents, in terms of the average dollar
amounts paid per discharge, the combined effects of the changes
presented in Table I. The percentage changes shown in the last
column of Table II equal the percentage changes in average payments
from column 8 of Table I.

VIII. Impact of Changes in the Capital Prospective Payment System

A. General Considerations

We now have data that were unavailable in previous impact
analyses for the capital prospective payment system. Specifically,
we have cost report data available for the fourth year of the
capital prospective payment system (cost reports beginning in FY
1995) available through the March 1998 update of the Health Care
Provider Cost Report Information System (HCRIS). We also have
updated information on the projected aggregate amount of obligated
capital approved by the fiscal intermediaries. However, our impact
analysis of payment changes for capital-related costs is still
limited by the lack of hospital-specific data on several items.
These are the hospital's projected new capital costs for each year,
its projected old capital costs for each year, and the actual
amounts of obligated capital that will be put in use for patient
care and recognized as Medicare old capital costs in each year. The
lack of this information affects our impact analysis in the
following ways:
Major investment in hospital capital assets (for
example in building and major fixed equipment) occurs at irregular
intervals. As a result, there can be significant variation in the
growth rates of Medicare capital-related costs per case among
hospitals. We do not have the necessary hospital-specific budget
data to project the hospital capital growth rate for individual
hospitals.
Moreover, our policy of recognizing certain obligated
capital as old capital makes it difficult to project future capital-
related costs for individual hospitals. Under Sec. 412.302(c), a
hospital is required to notify

[[Page 41114]]

its intermediary that it has obligated capital by the later of
October 1, 1992, or 90 days after the beginning of the hospital's
first cost reporting period under the capital prospective payment
system. The intermediary must then notify the hospital of its
determination whether the criteria for recognition of obligated
capital have been met by the later of the end of the hospital's
first cost reporting period subject to the capital prospective
payment system or 9 months after the receipt of the hospital's
notification. The amount that is recognized as old capital is
limited to the lesser of the actual allowable costs when the asset
is put in use for patient care or the estimated costs of the capital
expenditure at the time it was obligated. We have substantial
information regarding intermediary determinations of projected
aggregate obligated capital amounts. However, we still do not know
when these projects will actually be put into use for patient care,
the actual amount that will be recognized as obligated capital when
the project is put into use, or the Medicare share of the recognized
costs. Therefore, we do not know actual obligated capital
commitments for purposes of the FY 1999 capital cost projections. In
Appendix B of this final rule, we discuss the assumptions and
computations that we employ to generate the amount of obligated
capital commitments for use in the FY 1999 capital cost projections.
In Table III of this section, we present the redistributive
effects that are expected to occur between ``hold-harmless''
hospitals and ``fully prospective'' hospitals in FY 1999. In
addition, we have integrated sufficient hospital-specific
information into our actuarial model to project the impact of the
final FY 1999 capital payment policies by the standard prospective
payment system hospital groupings. While we now have actual
information on the effects of the transition payment methodology and
interim payments under the capital prospective payment system and
cost report data for most hospitals, we still need to randomly
generate numbers for the change in old capital costs, new capital
costs for each year, and obligated amounts that will be put in use
for patient care services and recognized as old capital each year.
We continue to be unable to predict accurately FY 1999 capital costs
for individual hospitals, but with the most recent data hospitals'
experience under the capital prospective payment system, there is
adequate information to estimate the aggregate impact on most
hospital groupings.

B. Projected Impact Based on the Final FY 1999 Actuarial Model

1. Assumptions

In this impact analysis, we model dynamically the impact of the
capital prospective payment system from FY 1998 to FY 1999 using a
capital cost model. The FY 1999 model, as described in Appendix B of
this final rule, integrates actual data from individual hospitals
with randomly generated capital cost amounts. We have capital cost
data from cost reports beginning in FY 1989 through FY 1995 as
reported on the March 1998 update of HCRIS, interim payment data for
hospitals already receiving capital prospective payments through
PRICER, and data reported by the intermediaries that include the
hospital-specific rate determinations that have been made through
April 1, 1998 in the provider-specific file. We used these data to
determine the final FY 1999 capital rates. However, we do not have
individual hospital data on old capital changes, new capital
formation, and actual obligated capital costs. We have data on costs
for capital in use in FY 1995, and we age that capital by a formula
described in Appendix B. Therefore, we need to randomly generate
only new capital acquisitions for any year after FY 1995. All
Federal rate payment parameters are assigned to the applicable
hospital.
For purposes of this impact analysis, the FY 1999 actuarial
model includes the following assumptions:
Medicare inpatient capital costs per discharge will
change at the following rates during these periods:

Average Percentage Change in Capital Costs Per Discharge
------------------------------------------------------------------------
Percentage
Fiscal year change
------------------------------------------------------------------------
1997........................................................ -3.02
1998........................................................ -0.46
1999........................................................ 0.61
------------------------------------------------------------------------

We have reduced our estimate of the growth in Medicare costs per
discharge from the August 29, 1997 final rule with comment period to
this final rule based on later cost data. We are now estimating a
much smaller increase in costs per discharge.
The Medicare case-mix index will increase by 1.0
percent in FY 1998 and FY 1999.
The Federal capital rate and hospital-specific rate
were updated in FY 1996 by an analytical framework that considers
changes in the prices associated with capital-related costs, and
adjustments to account for forecast error, changes in the case-mix
index, allowable changes in intensity, and other factors. The final
FY 1999 update for inflation is 0.10 percent (see section IV of the
Addendum).

2. Results

We have used the actuarial model to estimate the change in
payment for capital-related costs from FY 1998 to FY 1999. Table III
shows the effect of the capital prospective payment system on low
capital cost hospitals and high capital cost hospitals. We consider
a hospital to be a low capital cost hospital if, based on a
comparison of its initial hospital-specific rate and the applicable
Federal rate, it will be paid under the fully prospective payment
methodology. A high capital cost hospital is a hospital that, based
on its initial hospital-specific rate and the applicable Federal
rate, will be paid under the hold-harmless payment methodology.
Based on our actuarial model, the breakdown of hospitals is as
follows:

Capital Transition Payment Methodology for FY 1999
----------------------------------------------------------------------------------------------------------------
Percent of Percent of
Type of hospital Percent of Percent of capital capital
hospitals discharges costs payments
----------------------------------------------------------------------------------------------------------------
Low Cost Hospital........................................... 66 62 53 58
High Cost Hospital.......................................... 34 38 47 42
----------------------------------------------------------------------------------------------------------------

A low capital cost hospital may request to have its hospital-
specific rate redetermined based on old capital costs in the current
year, through the later of the hospital's cost reporting period
beginning in FY 1994 or the first cost reporting period beginning
after obligated capital comes into use (within the limits
established in Sec. 412.302(e) for putting obligated capital in to
use for patient care). If the redetermined hospital-specific rate is
greater than the adjusted Federal rate, these hospitals will be paid
under the hold-harmless payment methodology. Regardless of whether
the hospital became a hold-harmless payment hospital as a result of
a redetermination, we continue to show these hospitals as low
capital cost hospitals in Table III.
Assuming no behavioral changes in capital expenditures, Table
III displays the percentage change in payments from FY 1998 to FY
1999 using the above described actuarial model. With the final
Federal rate, we estimate aggregate Medicare capital payments will
increase by 2.78 percent in FY 1999.

[[Page 41115]]

Table III.--Impact of Proposed Changes for FY 1999 on Payments per Discharge
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent
Number of Adjusted Average Hospital Hold Exceptions Total change
hospitals Discharges Federal Federal specific harmless payment payment over FY
payment percent payment payment 1998
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 1998 Payments per Discharge:
Low Cost Hospitals............................... 3,258 6,777,970 $458.00 72.42 $86.30 $3.85 $8.89 $557.04 ........
Fully Prospective............................ 3,024 6,149,617 441.23 70.00 95.12 ........ 7.61 543.95 ........
100% Federal Rate............................ 204 554,222 650.05 100.00 ........ 17.77 667.82 ........
Hold Harmless................................ 30 74,130 413.10 61.17 ........ 351.63 49.36 814.09 ........
High Cost Hospitals.............................. 1,643 4,203,327 635.31 95.72 ........ 37.11 15.30 687.72 ........
100% Federal Rate............................ 1,415 3,748,353 660.94 100.00 ........ ........ 10.62 671.56 ........
Hold Harmless................................ 228 454,974 424.09 61.78 ........ 342.86 53.86 820.81 ........
--------------------------------------------------------------------------------------------------
Total Hospitals.......................... 4,901 10,981,297 525.87 81.61 53.27 16.58 11.35 607.06 ........
FY 1999 Payments per Discharge:
Low Cost Hospitals............................... 3,258 6,626,732 527.01 81.53 58.33 3.13 9.57 598.04 7.36
Fully Prospective............................ 3,024 6,012,484 515.37 80.00 64.29 ........ 8.28 587.94 8.09
100% Federal Rate............................ 207 545,059 663.77 100.00 ........ ........ 17.97 681.75 2.09
Hold Harmless................................ 27 69,188 460.62 66.21 ........ 300.02 55.73 816.37 0.28
High Cost Hospitals.............................. 1,643 4,107,081 656.33 96.98 ........ 26.89 20.02 703.24 2.26
100% Federal Rate............................ 1,438 3,730,929 674.49 100.00 ........ ........ 14.16 688.65 2.54
Hold Harmless................................ 205 376,151 476.26 68.09 ........ 293.59 78.14 847.99 3.31
--------------------------------------------------------------------------------------------------
Total Hospitals.......................... 4,901 10,733,812 576.49 87.61 36.01 12.22 13.57 638.29 5.15
--------------------------------------------------------------------------------------------------------------------------------------------------------

We project that low capital cost hospitals paid under the fully
prospective payment methodology will experience an average increase
in payments per case of 7.36 percent, and high capital cost
hospitals will experience an average increase of 2.26 percent.
For hospitals paid under the fully prospective payment
methodology, the Federal rate payment percentage will increase from
70 percent to 80 percent and the hospital-specific rate payment
percentage will decrease from 30 to 20 percent in FY 1999. The
Federal rate payment percentage for hospitals paid under the hold-
harmless payment methodology is based on the hospital's ratio of new
capital costs to total capital costs. The average Federal rate
payment percentage for high cost hospitals receiving a hold-harmless
payment for old capital will increase from 61.78 percent to 68.09
percent. We estimate the percentage of hold-harmless hospitals paid
based on 100 percent of the Federal rate will increase from 86.3
percent to 87.6 percent. We estimate that high cost hold-harmless
hospitals will experience an increase in payments of 3.31 per cent
from FY 1998 to FY 1999. This is different from our projection in
the proposed rule, which projected a decrease in payments. This
change is a result of lower projected capital costs, which means
some hospitals who otherwise would have been paid hold-harmless will
now receive 100 percent of the federal rate. Since these are the
lowest cost hospitals in the hold-harmless grouping, removing these
hospitals from the mix increased the average projected hold-harmless
payment and, consequently, the average projected total payment.
We expect that the average hospital-specific rate payment per
discharge will decrease from $53.27 in FY 1998 to $36.01 in FY 1999.
This is partly due to the decrease in the hospital-specific rate
payment percentage from 30 percent in FY 1998 to 20 percent in FY
1999.
We are making no changes in our exceptions policies for FY 1999.
As a result, the minimum payment levels would be:
90 percent for sole community hospitals;
80 percent for urban hospitals with 100 or more beds
and a disproportionate share patient percentage of 20.2 percent or
more; or
70 percent for all other hospitals.
We estimate that exceptions payments will be 2.13 percent of the
total capital payments in FY 1999. Since the August 29, 1997 final
rule with comment period, we have reduced our estimates of capital
cost per case based on more recent data. Although we still estimate
that more hospitals will receive exceptions payment in FY 1999 than
in FY 1998 fewer hospitals will have costs over the exceptions
threshold then we previously estimated. The projected distribution
of the eligible hospitals and exception payments is shown in the
table below:

Estimated FY 1999 Exceptions Payments
------------------------------------------------------------------------
Percent of
Type of hospital Number of exceptions
hospitals payments
------------------------------------------------------------------------
Low Capital Cost.............................. 185 44
High Capital Cost............................. 215 56
-------------------------
Total..................................... 400 100
------------------------------------------------------------------------

C. Cross-Sectional Comparison of Capital Prospective Payment
Methodologies

Table IV presents a cross-sectional summary of hospital
groupings by capital prospective payment methodology. This
distribution is generated by our actuarial model.

Table IV.--Distribution by Method of Payment (Hold-Harmless/Fully Prospective) of Hospitals Receiving Capital
Payments

(2) Hold-harmless (3)
(1) Total -------------------------- Percentage
No. of Percentage Percentage paid fully
Hospitals paid hold- paid fully prospective
harmless federal rate
(A) (B)
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
All hospitals........................................... 4,901 4.7 33.6 61.7
Large urban areas (populations over 1 million).......... 1,574 5.4 41.1 53.5
Other urban areas (populations of 1 million of fewer)....... 1,178 5.4 41.6 53.0

[[Page 41116]]

Rural areas............................................. 2,149 3.9 23.6 72.5
Urban hospitals......................................... 2,752 5.4 41.3 53.3
0-99 beds........................................... 656 5.3 34.8 59.9
100-199 beds........................................ 929 7.3 47.0 45.6
200-299 beds........................................ 567 5.5 41.4 53.1
300-499 beds........................................ 448 1.8 40.8 57.4
500 or more beds.................................... 152 4.6 35.5 59.9
Rural hospitals......................................... 2,149 3.9 23.6 72.5
0-49 beds........................................... 1,124 3.6 15.7 80.6
50-99 beds.......................................... 632 4.6 28.5 66.9
100-149 beds........................................ 229 3.1 39.7 57.2
150-199 beds........................................ 90 5.6 26.7 67.8
200 or more beds.................................... 74 1.4 48.6 50.0
By Region:
Urban by Region......................................... 2,752 5.4 41.3 53.3
New England......................................... 151 0.0 27.8 72.2
Middle Atlantic..................................... 421 5.0 33.3 61.8
South Atlantic...................................... 409 5.1 53.8 41.1
East North Central.................................. 472 4.7 31.4 64.0
East South Central.................................. 157 7.0 52.2 40.8
West North Central.................................. 183 6.6 36.1 57.4
West South Central.................................. 334 12.0 57.2 30.8
Mountain............................................ 125 4.8 52.0 43.2
Pacific............................................. 452 3.3 37.6 59.1
Puerto Rico......................................... 48 2.1 27.1 70.8
Rural by Region......................................... 2,149 3.9 23.6 72.5
New England......................................... 53 0.0 22.6 77.4
Middle Atlantic..................................... 79 5.1 24.1 70.9
South Atlantic...................................... 282 2.5 33.0 64.5
East North Central.................................. 283 3.2 19.1 77.7
East South Central.................................. 267 0.7 35.2 64.0
West North Central.................................. 498 3.4 16.3 80.3
West South Central.................................. 339 3.5 28.0 68.4
Mountain............................................ 203 11.3 14.3 74.4
Pacific............................................. 140 6.4 22.1 71.4
Large urban areas (populations over 1 million).......... 1,661 5.5 40.9 53.6
Other urban areas (populations of 1 million of fewer)... 1,175 5.1 41.8 53.1
Rural areas............................................. 2,065 3.9 23.0 73.1
Teaching Status:
Non-teaching........................................ 3,809 4.8 33.1 62.1
Fewer than 100 Residents............................ 852 4.9 35.7 59.4
100 or more Residents............................... 240 2.9 32.9 64.2
Disproportionate share hospitals (DSH):
Non-DSH............................................. 3,030 5.1 29.2 65.6
Urban DSH:
100 or more beds................................ 1,398 4.6 44.1 51.3
Less than 100 beds.............................. 82 2.4 26.8 70.7
Rural DSH:
Sole Community (SCH/EACH)....................... 162 4.3 22.8 72.8
Referral Center (RRC/EACH)...................... 53 3.8 49.1 47.2
Other Rural:
100 or more beds............................ 60 1.7 40.0 58.3
Less than 100 beds.......................... 116 0.0 28.4 71.6
Urban teaching and DSH:.............................
Both teaching and DSH............................... 707 3.8 36.8 59.4
Teaching and no DSH................................. 330 6.1 32.1 61.8
No teaching and DSH................................. 773 5.0 49.0 45.9
No teaching and no DSH.............................. 1,026 6.3 41.5 52.1
Rural Hospital Types:
Non special status hospitals........................ 875 1.7 24.2 74.1
RRC/EACH............................................ 145 1.4 39.3 59.3
SCH/EACH............................................ 636 8.8 19.5 71.7
Medicare-dependent hospitals (MDH).................. 350 0.9 18.0 81.1

[[Page 41117]]

SCH, RRC and EACH................................... 59 8.5 30.5 61.0
Type of Ownership:
Voluntary........................................... 2,848 4.7 33.1 62.2
Proprietary......................................... 658 8.2 60.2 31.6
Government.......................................... 1,329 3.2 21.1 75.6
Medicare Utilization as a Percent of Inpatient Days:
0-25................................................ 237 3.8 32.1 64.1
25-50............................................... 1,259 5.3 41.5 53.1
50-65............................................... 1,972 5.3 33.4 61.4
Over 65............................................. 1,367 3.7 26.5 69.8
----------------------------------------------------------------------------------------------------------------

As we explain in Appendix B, we were not able to determine a
hospital-specific rate for 74 of the 4,975 hospitals in our
database. Consequently, the payment methodology distribution is
based on 4,901 hospitals. These data should be fully representative
of the payment methodologies that will be applicable to hospitals.
The cross-sectional distribution of hospital by payment
methodology is presented by: (1) Geographic location, (2) region,
and (3) payment classification. This provides an indication of the
percentage of hospitals within a particular hospital grouping that
will be paid under the fully prospective payment methodology and the
hold-harmless payment methodology.
The percentage of hospitals paid fully Federal (100 percent of
the Federal rate) as hold-harmless hospitals is expected to increase
to 33.6 percent in FY 1999. We note that the number of hospitals
paid fully Federal as hold-harmless hospitals has not increased as
quickly as we predicted in the August 29, 1997 final rule with
comment period because of revised estimates.
Table IV indicates that 61.7 percent of hospitals will be paid
under the fully prospective payment methodology. (This figure,
unlike the figure of 66 percent for low cost capital hospitals in
the previous section, takes account of the effects of
redeterminations. In other words, this figure does not include low
cost hospitals that, following a hospital-specific rate
redetermination, are now paid under the hold-harmless methodology.)
As expected, a relatively higher percentage of rural and
governmental hospitals (72.5 percent and 75.6 percent, respectively
by payment classification) are being paid under the fully
prospective methodology. This is a reflection of their lower than
average capital costs per case. In contrast, only 31.6 percent of
proprietary hospitals are being paid under the fully prospective
methodology. This is a reflection of their higher than average
capital costs per case. (We found at the time of the August 30, 1991
final rule (56 FR 43430) that 62.7 percent of proprietary hospitals
had a capital cost per case above the national average cost per
case.)

D. Cross-Sectional Analysis of Changes in Aggregate Payments

We used our FY 1999 actuarial model to estimate the potential
impact of our final changes for FY 1999 on total capital payments
per case, using a universe of 4,901 hospitals. The individual
hospital payment parameters are taken from the best available data,
including: the April 1, 1998 update to the provider-specific file,
cost report data, and audit information supplied by intermediaries.
In Table V we present the results of the cross-sectional analysis
using the results of our actuarial model and the aggregate impact of
the FY 1999 payment policies. Columns 3 and 4 show estimates of
payments per case under our model for FY 1998 and FY 1999. Column 5
shows the total percentage change in payments from FY 1998 to FY
1999. Column 6 presents the percentage change in payments that can
be attributed to Federal rate changes alone.
Federal rate changes represented in Column 6 include the 1.8
percent increase in the Federal rate, a 1.0 percent increase in case
mix, changes in the adjustments to the Federal rate (for example,
the effect of the new hospital wage index on the geographic
adjustment factor), and reclassifications by the MGCRB. Column 5
includes the effects of the Federal rate changes represented in
Column 6. Column 5 also reflects the effects of all other changes,
including: the change from 70 percent to 80 percent in the portion
of the Federal rate for fully prospective hospitals, the hospital-
specific rate update, changes in the proportion of new to total
capital for hold-harmless hospitals, changes in old capital (for
example, obligated capital put in use), hospital-specific rate
redeterminations, and exceptions. The comparisons are provided by:
(1) Geographic location, (2) region, and (3) payment classification.
The simulation results show that, on average, capital payments
per case can be expected to increase 5.1 percent in FY 1999. The
results show that the effect of the Federal rate changes alone is to
increase payments by 1.8 percent. In addition to the increase
attributable to the Federal rate changes, a 3.3 percent increase is
attributable to the effects of all other changes.
Our comparison by geographic location shows that urban and rural
hospitals will experience slightly different rates of increase in
capital payments per case (4.9 percent and 6.7 percent,
respectively). This difference is due to the lower rate of increase
for urban hospitals relative to rural hospitals (1.6 percent and 3.4
percent, respectively) from the Federal rate changes alone. Urban
hospitals will gain approximately the same as rural hospitals (3.3
percent for both) from the effects of all other changes.
All regions are estimated to receive increases in total capital
payments per case, partly due to the increased share of payments
that are based on the Federal rate (from 70 to 80 percent). Changes
by region vary from a low of 4.0 percent increase (West South
Central urban region) to a high of 8.6 percent increase (Middle
Atlantinc Rural Region).
By type of ownership, government hospitals are projected to have
the largest rate of increase (6.6 percent, 2.2 percent due to
Federal rate changes and 4.4 percent from the effects of all other
changes). Payments to voluntary hospitals will increase 5.2 percent
(a 1.8 percent increase due to Federal rate changes and a 3.4
percent increase from the effects of all other changes) and payments
to proprietary hospitals will increase 3.1 percent (a 1.5 percent
increase due to Federal rate changes and a 1.6 percent increase from
the effects of all other changes).
Section 1886(d)(10) of the Act established the MGCRB. Hospitals
may apply for reclassification for purposes of the standardized
amount, wage index, or both and for purposes of DSH, for FY 1999-
2001. Although the Federal capital rate is not affected, a
hospital's geographic classification for purposes of the operating
standardized amount does affect a hospital's capital payments as a
result of the large urban adjustment factor and the disproportionate
share adjustment for urban hospitals with 100 or more beds.
Reclassification for wage index purposes affects the geographic
adjustment factor since that factor is constructed from the hospital
wage index.

[[Page 41118]]

To present the effects of the hospitals being reclassified for
FY 1999 compared to the effects of reclassification for FY 1998, we
show the average payment percentage increase for hospitals
reclassified in each fiscal year and in total. For FY 1999
reclassifications, we indicate those hospitals reclassified for
standardized amount purposes only, for wage index purposes only, and
for both purposes. The reclassified groups are compared to all other
nonreclassified hospitals. These categories are further identified
by urban and rural designation.
Hospitals reclassified for FY 1999 as a whole are projected to
experience a 7.1 percent increase in payments (a 3.8 percent
increase attributable to Federal rate changes and a 3.3 percent
increase attributable to the effects of all other changes). Payments
to nonreclassified hospitals will increase slightly less (6.2
percent) than reclassified hospitals (7.1 percent) overall. Payments
to nonreclassified hospitals will increase less than reclassified
hospitals from the Federal rate changes (1.9 percent compared to 3.8
percent), but they will gain about the same from the effects of all
other changes (3.3 percent for both).

Table V.--Comparison of Total Payments Per Case
[FY 1998 Payments Compared to FY 1999 Payments]
----------------------------------------------------------------------------------------------------------------
Portion
Number of Average FY Average FY attributable
hospitals 1998 pay- 1999 pay- All changes to Federal
ments/case ments/case rate change
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
All hospitals............................. 4,901 607 638 5.1 1.8
Large urban areas (populations over 1
million)................................. 1,574 700 733 4.7 1.4
Other urban areas (populations of 1
million or fewer)........................ 1,178 596 628 5.3 1.9
Rural areas............................... 2,149 406 433 6.7 3.4
Urban hospitals........................... 2,752 656 688 4.9 1.6
0-99 beds............................. 656 482 502 4.3 1.5
100-199 beds.......................... 929 581 606 4.4 1.5
200-299 beds.......................... 567 626 655 4.8 1.6
300-499 beds.......................... 448 682 718 5.4 1.6
500 or more beds...................... 152 830 872 5.1 1.6
Rural hospitals........................... 2,149 406 433 6.7 3.4
0-49 beds............................. 1,124 323 346 7.2 3.0
50-99 beds............................ 632 389 413 6.2 2.8
100-149 beds.......................... 229 423 450 6.4 3.2
150-199 beds.......................... 90 437 468 7.2 4.2
200 or more beds...................... 74 499 534 7.0 4.1
By Region:
Urban by Region........................... 2,752 656 688 4.9 1.6
New England........................... 151 663 700 5.7 0.9
Middle Atlantic....................... 421 711 747 5.1 2.0
South Atlantic........................ 409 642 674 5.0 2.3
East North Central.................... 472 615 646 4.9 0.9
East South Central.................... 157 602 626 4.0 1.4
West North Central.................... 183 638 677 6.1 2.6
West South Central.................... 334 664 691 4.0 1.2
Mountain.............................. 125 684 715 4.6 1.5
Pacific............................... 452 717 752 4.9 1.1
Puerto Rico........................... 48 272 286 5.5 2.6
Rural by Region........................... 2,149 406 433 6.7 3.4
New England........................... 53 474 505 6.3 2.4
Middle Atlantic....................... 79 427 463 8.6 3.9
South Atlantic........................ 282 437 467 7.0 3.7
East North Central.................... 283 402 431 7.2 3.5
East South Central.................... 267 376 400 6.3 3.5
West North Central.................... 498 387 410 6.0 3.4
West South Central.................... 339 372 394 6.1 2.8
Mountain.............................. 203 421 442 4.9 2.3
Pacific............................... 140 466 501 7.3 3.0
By Payment Classification:
All hospitals............................. 4,901 607 638 5.1 1.8
Large urban areas (populations over 1
million)................................. 1,661 693 725 4.7 1.4
Other urban areas (populations of 1
million or fewer)........................ 1,175 594 626 5.4 2.0
Rural areas............................... 2,065 404 430 6.5 3.2
Teaching Status:
Non-teaching.......................... 3,809 513 538 4.9 2.0
Fewer than 100 Residents.............. 852 643 678 5.5 1.7
100 or more Residents................. 240 897 944 5.2 1.5
Urban DSH:
100 or more beds.................. 1,398 690 725 5.0 1.6
Less than 100 beds................ 82 457 475 3.9 1.0
Rural DSH:
Sole Community (SCH/EACH)......... 162 362 379 4.7 2.7
Referral Center (RRC/EACH)........ 53 472 507 7.4 4.6
Other Rural:
100 or more beds.................. 60 378 397 5.1 2.8
Less than 100 beds................ 116 318 339 6.5 3.4

[[Page 41119]]

Urban teaching and DSH:
Both teaching and DSH................. 707 759 799 5.2 1.6
Teaching and no DSH................... 330 662 701 5.8 1.6
No teaching and DSH................... 773 580 607 4.7 1.8
No teaching and no DSH................ 1,026 554 576 3.9 1.6
Rural Hospital Types:
Nonspecial status hospitals........... 875 368 391 6.1 2.7
RRC/EACH.............................. 145 469 503 7.3 4.3
SCH/EACH.............................. 636 390 412 5.9 2.3
Medicare-dependent hospitals (MDH).... 350 323 352 9.0 3.7
SCH, RRC and EACH..................... 59 499 526 5.5 3.2
Hospitals Reclassified by the Medicare
Geographic Classification:
Review Board:
Reclassification Status During
FY98 and FY99:
Reclassified During Both FY98
and FY99..................... 315 541 568 5.0 1.9
Reclassified During FY99 Only..... 170 466 521 11.8 7.8
Reclassified During FY98 Only..... 106 598 607 1.6 -1.4
FY99 Reclassifications:
All Reclassified Hospitals........ 485 515 551 7.1 3.8
All Nonreclassified Hospitals..... 4,453 613 645 5.2 1.9
All Urban Reclassified Hospitals.. 87 651 695 6.7 2.3
Urban Nonreclassified Hospitals... 2,638 657 689 4.9 1.6
All Reclassified Rural Hospitals.. 398 464 498 7.4 4.5
Rural Nonreclassified Hospitals... 1,751 369 392 6.1 2.4
Other Reclassified Hospitals (Section
1886(D)(8)(B))....................... 27 470 492 4.6 1.3
Type of Ownership:
Voluntary............................. 2,848 621 654 5.2 1.8
Proprietary........................... 658 612 631 3.1 1.5
Government............................ 1,329 530 566 6.6 2.2
Medicare Utilization as a Percent of
Inpatient Days:
0-25.................................. 237 687 736 7.2 1.2
25-50................................. 1,259 726 761 4.7 1.5
50-65................................. 1,972 561 591 5.3 2.0
----------------------------------------------------------------------------------------------------------------

Appendix B--Technical Appendix on the Capital Cost Model and Required
Adjustments

Under section 1886(g)(1)(A) of the Act, we set capital
prospective payment rates for FY 1992 through FY 1995 so that
aggregate prospective payments for capital costs were projected to
be 10 percent lower than the amount that would have been payable on
a reasonable cost basis for capital-related costs in that year. To
implement this requirement, we developed the capital acquisition
model to determine the budget neutrality adjustment factor. Even
though the budget neutrality requirement expired effective with FY
1996, we must continue to determine the recalibration and geographic
reclassification budget neutrality adjustment factor, and the
reduction in the Federal and hospital-specific rates for exceptions
payments. To determine these factors, we must continue to project
capital costs and payments.
We have used the capital acquisition model since the start of
prospective payments for capital costs. We now have 4 years of cost
reports under the capital prospective payment system. For FY 1998,
we developed a new capital cost model to replace the capital
acquisition model. This revised model makes use of the data from
these cost reports.
The following cost reports are used in the capital cost model
for this final rule: the March 31, 1998 update of the cost reports
for PPS-IX (cost reporting periods beginning in FY 1992), PPS-X
(cost reporting periods beginning in FY 1993), PPS-XI (cost
reporting periods beginning in FY 1994), and PPS-XII (cost reporting
periods beginning in FY 1995). In addition, to model payments, we
use the April 1, 1998 update of the provider-specific file, and the
March 1994 update of the intermediary audit file.
Since hospitals under alternative payment system waivers (that
is, hospitals in Maryland) are currently excluded from the capital
prospective payment system, we excluded these hospitals from our
model.
We developed FY 1992 through FY 1998 hospital-specific rates
using the provider-specific file and the intermediary audit file.
(We used the cumulative provider-specific file, which includes all
updates to each hospital's records, and chose the latest record for
each fiscal year.) We checked the consistency between the provider-
specific file and the intermediary audit file. We ensured that
increases in the hospital-specific rates were at least as large as
the published updates (increases) for the hospital-specific rates
each year. We were able to match hospitals to the files as shown in
the following table:

------------------------------------------------------------------------
Number of
Source hospitals
------------------------------------------------------------------------
Provider-Specific File Only................................ 118
Provider-Specific and Audit File........................... 4,857
------------
Total.................................................. 4,975
------------------------------------------------------------------------

Ninety-seven of the 4,975 hospitals had unusable or missing data
or had no cost reports available. We determined from the cost
reports that 23 of the 97 hospitals were paid under the hold-
harmless methodology. Since the hospital-specific amount is not used
to determine payments for these hospitals, we were able to include
these 23 hospitals in the analysis. We used the cost report data of
4,901 hospitals for the analysis. Seventy-four hospitals could not
be used in the analysis because of insufficient information. These
hospitals account for approximately 0.3 percent of admissions,
therefore, any effects from the elimination of their cost report
data should be minimal.
We analyzed changes in capital-related costs (depreciation,
interest, rent, leases, insurance, and taxes) reported in the cost
reports. We found a wide variance among hospitals in the growth of
these costs. For hospitals with more than 100 beds, the distribution
and mean of these cost increases were different for large changes in
bed-size

[[Page 41120]]

(greater than +20 percent). We also analyzed changes in the growth
in old capital and new capital for cost reports that provided this
information. For old capital, we limited the analysis to decreases
in old capital. We did this since the opportunity for most hospitals
to treat ``obligated'' capital put into service as old capital has
expired. Old capital costs should, therefore, decrease as assets
become fully depreciated, and as interest costs decrease as the loan
is amortized.
The new capital cost model separates the hospitals into three
mutually exclusive groups. Hold-harmless hospitals with data on old
capital were placed in the first group. Of the remaining hospitals,
those hospitals with fewer than 100 beds comprise the second group.
The third group consists of all hospitals that did not fit into
either of the groups. Each of these groups displayed unique patterns
of growth in capital costs. We found that the gamma distribution is
useful in explaining and describing the patterns of increase in
capital costs. A gamma distribution is a statistical distribution
that can be used to describe patterns of growth rates, with greatest
proportion of rates being at the low end. We use the gamma
distribution to estimate individual hospital rates of increase as
follows:
(1) For hold-harmless hospitals, old capital cost changes were
fitted to a truncated gamma distribution, that is, a gamma
distribution covering only the distribution of cost decreases. New
capital costs changes were fitted to the entire gamma distribution
allowing for both decreases and increases.
(2) For hospitals with fewer than 100 beds (small), total
capital cost changes were fitted to the gamma distribution allowing
for both decreases and increases.
(3) Other (large) hospitals were further separated into three
groups:
Bed-size decreases over 20 percent (decrease).
Bed-size increases over 20 percent (increase).
Other (no-change).
Capital cost changes for large hospitals were fitted to gamma
distributions for each bed-size change group, allowing for both
decreases and increases in capital costs. We analyzed the
probability distribution of increases and decreases in bed-size for
large hospitals. We found the probability somewhat dependent on the
prior year change in bed-size and factored this dependence into the
analysis. Probabilities of bed-size change were determined. Separate
sets of probability factors were calculated to reflect the
dependence on prior year change in bed-size (increase, decrease, and
no change).
The gamma distributions were fitted to changes in aggregate
capital costs for the entire hospital. We checked the relationship
between aggregate costs and Medicare per discharge costs. For large
hospitals, there was a small variance, but the variance was larger
for small hospitals. Since costs are used only for the hold-harmless
methodology and to determine exceptions, we decided to use the gamma
distributions fitted to aggregate cost increases for estimating
distributions of cost per discharge increases.
Capital costs per discharge calculated from the cost reports
were increased by random numbers drawn from the gamma distribution
to project costs in future years. Old and new capital were projected
separately for hold-harmless hospitals. Aggregate capital per
discharge costs were projected for all other hospitals. Because the
distribution of increases in capital costs varies with changes in
bed-size for large hospitals, we first projected changes in bed-size
for large hospitals before drawing random numbers from the gamma
distribution. Bed-size changes were drawn from the uniform
distribution with the probabilities dependent on the previous year
bed-size change. The gamma distribution has a shape parameter and a
scaling parameter. (We used different parameters for each hospital
group, and for old and new capital.)
We used discharge counts from the cost reports to calculate
capital cost per discharge. To estimate total capital costs for FY
1997 (the MedPR data year) and later, we use the number of
discharges from the MedPAR data. Some hospitals have considerably
more discharges in FY 1997 than in the years for which we calculated
cost per discharge from the cost report data. Consequently, a
hospital with few cost report discharges would have a high capital
cost per discharge since fixed costs would be allocated over only a
few discharges. If discharges increase substantially, the cost per
discharge would decrease because fixed costs would be allocated over
more discharges. If the projection of capital cost per discharge is
not adjusted for increases in discharges, the projection of
exceptions would be overstated. We address this situation by
recalculating the cost per discharge with the MedPAR discharges if
the MedPAR discharges exceed the cost report discharges by more than
20 percent. We do not adjust for increases of less than 20 percent
because we have not received all of the FY 1997 discharges, and we
have removed some discharges from the analysis because they are
statistical outliers. This adjustment reduces our estimate of
exceptions payments, and consequently, the reduction to the Federal
rate for exceptions is smaller. We will continue to monitor our
modeling of exceptions payments and make adjustments as needed.
The average national capital cost per discharge generated by
this model is the combined average of many randomly generated
increases. This average must equal the projected average national
capital cost per discharge, which we projected separately (outside
this model). We adjusted the shape parameter of the gamma
distributions so that the modeled average capital cost per discharge
matches our projected capital cost per discharge. The shape
parameter for old capital was not adjusted since we are modeling the
aging of ``existing'' assets. This model provides a distribution of
capital costs among hospitals that is consistent with our aggregate
capital projections.
Once each hospital's capital-related costs are generated, the
model projects capital payments. We use the actual payment
parameters (for example, the case-mix index and the geographic
adjustment factor) that are applicable to the specific hospital.
To project capital payments, the model first assigns the
applicable payment methodology (fully prospective or hold-harmless)
to the hospital as determined from the provider-specific file and
the cost reports. The model simulates Federal rate payments using
the assigned payment parameters and hospital-specific estimated
outlier payments. The case-mix index for a hospital is derived from
the FY 1997 MedPAR file using the FY 1999 DRG relative weights
published in section V. of the Addendum to this final rule. The
case-mix index is increased each year after FY 1997 based on
analysis of past experiences in case-mix increases. Based on
analysis of recent case-mix increases, we estimate that case-mix
will increase 1.0 percent in FY 1998 and 1.0 percent in FY 1999.
(Since we are using FY 1997 cases for our analysis, the FY 1997
increase in case mix has no effect on projected capital payments.)
Changes in geographic classification and revisions to the
hospital wage data used to establish the hospital wage index affect
the geographic adjustment factor. Changes in the DRG classification
system and the relative weights affect the case-mix index.
Section 412.308(c)(4)(ii) requires that the estimated aggregate
payments for the fiscal year, based on the Federal rate after any
changes resulting from DRG reclassifications and recalibration and
the geographic adjustment factor, equal the estimated aggregate
payments based on the Federal rate that would have been made without
such changes. For FY 1998, the budget neutrality adjustment factor
was 1.00015.
Since we implemented a separate geographic adjustment factor for
Puerto Rico, we applied separate budget neutrality adjustments for
the national geographic adjustment factor and the Puerto Rico
geographic adjustment factor. We applied the same budget neutrality
factor for DRG reclassifications and recalibration nationally and
for Puerto Rico. Separate adjustments were unnecessary for FY 1998
since the geographic adjustment factor for Puerto Rico was
implemented in 1998.
To determine the factors for FY 1999, we first determined the
portions of the Federal national and Puerto Rico rates that would be
paid for each hospital in FY 1999 based on its applicable payment
methodology. Using our model, we then compared, separately for the
national rate and the Puerto Rico rate, estimated aggregate Federal
rate payments based on the FY 1998 DRG relative weights and the FY
1998 geographic adjustment factor to estimated aggregate Federal
rate payments based on the FY 1998 relative weights and the FY 1999
geographic adjustment factor. In making the comparison, we held the
FY 1999 Federal rate portion constant and set the other budget
neutrality adjustment factor and the exceptions reduction factor to
1.00. We determined that, to achieve budget neutrality for the
changes in the national geographic adjustment factor, an incremental
budget neutrality adjustment of 0.99930 for FY 1999 should be
applied to the previous cumulative FY 1998 adjustment of 1.00015,
yielding a cumulative adjustment of 0.99945 through FY 1999. Since
this is the first adjustment for Puerto Rico, the incremental and
cumulative adjustment for Puerto Rico would be 0.99883 through FY

[[Page 41121]]

1999. We apply these new adjustments, then compare estimated
aggregate Federal rate payments based on the FY 1998 DRG relative
weights and the FY 1999 geographic adjustment factors to estimated
aggregate Federal rate payments based on the FY 1999 DRG relative
weights and the FY 1999 geographic adjustment factors. The
incremental adjustment for DRG classifications and changes in
relative weights would be 1.00336 nationally and for Puerto Rico.
The cumulative adjustments for DRG classifications and changes in
relative weights and for changes in the geographic adjustment
factors through 1999 would be 1.00281 nationally, and 1.00219 for
Puerto Rico. The following table summarizes the adjustment factors
for each fiscal year:

Budget Neutrality Adjustment for DRG Reclassifications and Recalibration and the Geographic Adjustment Factors
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Puerto Rico
-----------------------------------------------------------------------------------------------------------
Incremental adjustment Incremental adjustment
Fiscal year ------------------------------------------ -----------------------------------------------------
Geographic DRG Cumulative Geographic DRG
adjustment reclassifications Combined adjustment reclassifications Combined Cumulative
factor and recalibration factor and recalibration
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992........................................ .......... ................. ......... 1.00000 .......... ................. ......... ..........
1993........................................ .......... ................. 0.99800 0.99800 .......... ................. ......... ..........
1994........................................ .......... ................. 1.00531 1.00330 .......... ................. ......... ..........
1995........................................ .......... ................. 0.99980 1.00310 .......... ................. ......... ..........
1996........................................ .......... ................. 0.99940 1.00250 .......... ................. ......... ..........
1997........................................ .......... ................. 0.99873 1.00123 .......... ................. ......... ..........
1998........................................ .......... ................. 0.99892 1.00015 .......... ................. ......... 1.00000
1999........................................ 0.99930 1.00336 1.00266 1.00281 0.99883 1.00336 1.00219 1.00219
--------------------------------------------------------------------------------------------------------------------------------------------------------

The methodology used to determine the recalibration and
geographic (DRG/GAF) budget neutrality adjustment factor is similar
to that used in establishing budget neutrality adjustments under the
prospective payment system for operating costs. One difference is
that, under the operating prospective payment system, the budget
neutrality adjustments for the effect of geographic
reclassifications are determined separately from the effects of
other changes in the hospital wage index and the DRG relative
weights. Under the capital prospective payment system, there is a
single DRG/GAF budget neutrality adjustment factor (the national
rate and the Puerto Rico rate are determined separately) for changes
in the geographic adjustment factor (including geographic
reclassification) and the DRG relative weights. In addition, there
is no adjustment for the effects that geographic reclassification
has on the other payment parameters, such as the payments for
serving low-income patients or the large urban add-on payments.
In addition to computing the DRG/GAF budget neutrality adjustment
factor, we used the model to simulate total payments under the
prospective payment system.
Additional payments under the exceptions process are accounted for
through a reduction in the Federal and hospital-specific rates.
Therefore, we used the model to calculate the exceptions reduction
factor. This exceptions reduction factor ensures that aggregate
payments under the capital prospective payment system, including
exceptions payments, are projected to equal the aggregate payments that
would have been made under the capital prospective payment system
without an exceptions process. Since changes in the level of the
payment rates change the level of payments under the exceptions
process, the exceptions reduction factor must be determined through
iteration.
In the August 30, 1991 final rule (56 FR 43517), we indicated that
we would publish each year the estimated payment factors generated by
the model to determine payments for the next 5 years. The table below
provides the actual factors for fiscal years 1992 through 1999, and the
estimated factors that would be applicable through FY 2003. We caution
that these are estimates for fiscal years 2000 and later, and are
subject to revisions resulting from continued methodological
refinements, receipt of additional data, and changes in payment policy
changes. We note that in making these projections, we have assumed that
the cumulative national DRG/GAF budget neutrality adjustment factor
will remain at 1.00281 (1.00219 for Puerto Rico) for FY 1999 and later
because we do not have sufficient information to estimate the change
that will occur in the factor for years after FY 1999.
The projections are as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal
Update Exceptions Budget DRG/GAF Outlier Federal rate (after
Fiscal year factor reduction neutrality adjustment adjustment rate outlier
factor factor factor \1\ factor adjustment reduction)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992......................................................... N/A 0.9813 0.9602 .9497 415.59
1993......................................................... 6.07 .9756 .9162 .9980 .9496 417.29
1994......................................................... 3.04 .9485 .8947 1.0053 .9454 \2\ .9260 378.34
1995......................................................... 3.44 .9734 .8432 .9998 .9414 376.83
1996......................................................... 1.20 .9849 N/A .9994 .9536 \3\ .9972 461.96
1997......................................................... 0.70 .9358 N/A .9987 .9481 438.92
1998......................................................... 0.90 .9659 N/A .9989 .9382 \4\ .8222 371.51
1999......................................................... 0.10 .9783 N/A 1.0027 .9392 378.05
2000......................................................... 0.70 .9763 N/A \5\ 1.0000 \5\ .9392 379.92
2001......................................................... 0.70 .9735 N/A 1.0000 .9392 381.48
2002......................................................... 0.70 \6\ 1.0000 N/A 1.0000 .9392 394.61
2003......................................................... 0.80 \6\ 1.0000 N/A 1.0000 .9392 \4\ 1.0255 407.92
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: The incremental change over the previous year.
\2\ Note: OBRA 1993 adjustment.

[[Page 41122]]

\3\ Note: Adjustment for change in the transfer policy.
\4\ Note: Balanced Budget Act of 1997 adjustment.
\5\ Note: Future adjustments are, for purposes of this projection, assumed to remain at the same level.
\6\ Note: We are unable to estimate exceptions payments for the year under the special exceptions provision (Sec. 412.348(g) of the regulations)
because the regular exceptions provision (Sec. 412.348(e)) expires.

Appendix C--Recommendation of Update Factors for Operating Cost Rates
of Payment for Inpatient Hospital Services

I. Background

Several provisions of the Act address the setting of update
factors for inpatient services furnished in FY 1999 by hospitals
subject to the prospective payment system and those excluded from
the prospective payment system. Section 1886(b)(3)(B)(i)(XIV) of the
Act sets the FY 1999 percentage increase in the operating cost
standardized amounts equal to the rate of increase in the hospital
market basket minus 1.9 percent for prospective payment hospitals in
all areas. Section 1886(b)(3)(B)(iv) of the Act sets the FY 1999
percentage increase in the hospital-specific rates applicable to
sole community and Medicare-dependent, small rural hospitals equal
to the rate set forth in section 1886(b)(3)(B)(i) of the Act, that
is, the same update factor as all other hospitals subject to the
prospective payment system, or the rate of increase in the market
basket minus 1.9 percentage points. Under section
1886(b)(3)(B)(ii)(VII) of the Act, the FY 1999 percentage increase
in the rate of increase limits for hospitals excluded from the
prospective payment system can range from the rate of increase in
the excluded hospital market basket to zero, depending on the
hospital's costs in relation to its limit for the most recent cost
reporting period for which information is available.
In accordance with section 1886(d)(3)(A) of the Act, we are
updating the standardized amounts, the hospital-specific rates, and
the rate-of-increase limits for hospitals excluded from the
prospective payment system as provided in section 1886(b)(3)(B) of
the Act. Based on the second quarter 1998 forecast of the FY 1999
market basket increase of 2.4 percent for hospitals subject to the
prospective payment system, the updates in the standardized amounts
are 0.5 percent for hospitals in both large urban and other areas.
The update in the hospital-specific rate applicable to sole
community and Medicare-dependent, small rural hospitals is also 0.5
percent. The update for hospitals excluded from the prospective
payment system can be as high as the percentage increase in the
excluded hospital market basket (currently estimated at 2.4 percent)
or as low as zero, depending on the hospital's costs in relation to
its rate-of-increase limit. (See section V of the addendum to this
final rule.)
Section 1886(e)(4) of the Act requires that the Secretary,
taking into consideration the recommendations of the Medicare
Payment Advisory Commission (MedPAC), recommend update factors for
each fiscal year that take into account the amounts necessary for
the efficient and effective delivery of medically appropriate and
necessary care of high quality. In its March 1, 1998 report, MedPAC
stated that, although a somewhat lower update could be justified in
light of changes in the utilization and provision of hospital
inpatient care, the legislated update of the market basket increase
minus 1.9 percentage points will provide a reasonable level of
payments to hospitals.
Under section 1886(e)(5) of the Act, we are required to publish
the update factors recommended under section 1886(e)(4) of the Act.
Accordingly, we published the FY 1999 update factors recommended by
the Secretary as Appendix D of the May 8, 1998 proposed rule (63 FR
25704).

II. Secretary's Final Recommendations

We received two comments concerning our proposed
recommendations, neither of which took issue with the update
recommendation itself. Therefore, our final recommendations for the
operating update for both prospective and excluded hospitals do not
differ from the proposed, except that the forecast of the market
basket percentage increase has been revised from 2.6 to 2.4 percent
for prospective payment hospitals and from 2.5 to 2.4 percent for
excluded hospitals.
Comment: The commenters suggested that HCFA's update framework
take into account the impact of ``Year 2000'' (Y2K) systems''
conversions on hospital expenditures.
Response: The purpose of the hospital input price indexes in the
hospital market basket is to measure the price escalation associated
with the inputs needed to provide hospital services, not to measure
changes in the quantity and quality of inputs used to provide these
services. The increased costs associated with Y2K systems
conversions are in the form of 3 factors: (1) Increased quantities
(such as more workers), (2) increased price levels for higher
quality workers (with higher wage levels) or other inputs, and (3)
increased price escalation, holding constant the quantity and
quality of inputs (such as faster wage and input price escalation
rates). The third factor of increased escalation for wages and
prices should be picked up by the hospital input price indexes.
Since the input price indexes measure the ``pure price'' changes
associated with the inputs needed to provide hospital services, they
would reflect the potentially faster rate of price escalation faced
by hospitals from Y2K. An example would be higher market prices paid
by hospitals for goods and services purchased from suppliers that
also incurred higher production costs due to the Y2K conversion. We
believe that the price proxies used in the hospital input price
indexes, such as CPIs, PPIs, and ECIs, will reflect any escalating
prices since all sectors of the economy are faced with additional
costs of Y2K. This escalation will show up in the monthly or
quarterly updates of the price proxies from the Bureau of Labor
Statistics.
Any change in the mix of inputs caused by Y2K would not be
picked up in the index until it is rebased. Such a change would
cause a modification of the weights in the input price index.
However, any changes in the weights are likely to have a minimal
effect on the overall percent change in the index. For example, we
did a sensitivity analysis of this effect by increasing the weight
for professional and technical wages and benefits by 10 percent with
a corresponding 10 percent decrease in the non-professional and
technical wages and benefits. Altering the weights in this manner
had no impact on the overall percent change in the index.
Comment: MedPAC commented that HCFA's recommendations differed
from those of MedPAC in the proposed rule because HCFA did not
separately account for hospital product change. Hospital product
change reflects the dramatic change in recent years in the role of
the hospital inpatient setting in the continuum of care. More
patients are receiving postacute care after a hospital stay, and the
average length of acute care stays has declined sharply.
Response: HCFA recognizes the changes in hospital inpatient care
delivery noted by MedPAC and for FY 1999, accounted for them in the
determination of the intensity factor. To the extent that there is a
mismatch in component designation between HCFA and MedPAC, HCFA is
willing to work with MedPAC to set more clearly defined and mutually
agreeable categories for future update recommendations.

BILLING CODE 4120-01-P

[[Page 41123]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.053

[[Page 41124]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.054

[[Page 41125]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.055

[[Page 41126]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.056

[[Page 41127]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.057

[[Page 41128]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.058

[[Page 41129]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.059

[[Page 41130]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.060

[[Page 41131]]

[GRAPHIC] [TIFF OMITTED] TR31JY98.061

[FR Doc. 98-20459 Filed 7-30-98; 8:45 am]
BILLING CODE 4120-01-C}