[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