[Federal Register Volume 65, Number 148 (Tuesday, August 1, 2000)]
[Rules and Regulations]
[Pages 47026-47054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19107]



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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Part 410, et al.



Medicare Program; Provisions of the Balanced Budget Refinement Act of 
1999; Hospital Inpatient Payments and Rates and Costs of Graduate 
Medical Education; Final Rules

  Federal Register / Vol. 65, No. 148 / Tuesday, August 1, 2000 / Rules 
and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 410, 412, 413, 482, and 485

[HCFA-1131-IFC]
RIN 0938-AK20


Medicare Program; Provisions of the Balanced Budget Refinement 
Act of 1999; Hospital Inpatient Payments and Rates and Costs of 
Graduate Medical Education

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

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements, or 
conforms the regulations to, certain statutory provisions relating to 
Medicare payments to hospitals for inpatient services that are 
contained in the Medicare, Medicaid, and State Children's Health 
Insurance Program Balanced Budget Refinement Act of 1999 (Public Law 
106-113). These provisions relate to reclassification of hospitals from 
urban to rural status, reclassification of certain hospitals for 
purposes of payment during Federal fiscal year 2000, critical access 
hospitals, payments to hospitals excluded from the hospital inpatient 
prospective payment system, and payments for indirect and direct 
graduate medical education costs.
    Many of the provisions of Public Law 106-113 modify changes to the 
Social Security Act made by the Balanced Budget Act of 1997 (P.L. 105-
33). These provisions are already in effect in accordance with Public 
Law 106-113.

DATES: Effective Date: This interim final rule with comment period is 
effective on August 1, 2000.
    Comment Period: Comments will be considered if received at the 
appropriate address, as provided below, no later than 5 p.m. on August 
31, 2000.

ADDRESSES: Mail written comments (an original and three copies) to the 
following address only: Health Care Financing Administration, 
Department of Health and Human Services, Attention: HCFA-1131-IFC, P.O. 
Box 8010, Baltimore, MD 21244-1850.
    If you prefer, you may deliver by courier your written comments (an 
original and three copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, 
Washington, DC 20201, or
Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD 
21244-1850.

    Comments mailed to the indicated addresses may be delayed and could 
be considered late.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-1131-IFC.
    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, in Room 443-G of the Department's offices at 
200 Independence Avenue, SW, Washington, DC, on Monday through Friday 
of each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890).
    For comments that relate to information collection requirements, 
mail a copy of comments to the following addresses:

Health Care Financing Administration, Office of Information Services, 
Security and Standards Group, Division of HCFA Enterprise Standards, 
Room N2-14-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850. 
Attn: John Burke HCFA-1131-IFC; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 3001, New Executive Office Building, Washington, DC 20503, 
Attn: Allison Herron Eydt HCFA-1131-IFC, HCFA Desk Officer

FOR FURTHER INFORMATION CONTACT:
Steve Phillips, (410) 786-4531, Operating Prospective Payment, Wage 
Index, and Reclassifications
Tzvi Hefter, (410) 786-4487, Excluded Hospitals, Graduate Medical 
Education, and Critical Access Hospital Issues

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

    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/nara_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).

I. Background: Program Summary

    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to pay for the capital-related costs of hospital inpatient 
stays under a prospective payment system. Under these prospective 
payment systems, 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). Payment for cases within each DRG is 
weighted to account for the average resources used to treat patients 
within that DRG. In addition, these payments are adjusted by a wage 
index (and a geographic adjustment factor derived from the wage index 
in the case of capital payments) to account for the varying costs of 
labor across areas, and by separate adjustment factors for the 
additional operating costs associated with graduate medical education 
(GME) and for treating a disproportionate share of low-income patients.
    Certain specialty hospitals are excluded from the prospective 
payment system. Under section 1886(d)(1)(B) of the Act, the following 
classes of hospitals and hospital units are excluded from the 
prospective payment system: psychiatric hospitals and units, 
rehabilitation hospitals and units, children's hospitals, long-term 
care hospitals, and cancer hospitals. For these hospitals and units, 
Medicare payment for operating costs is based on

[[Page 47027]]

reasonable costs subject to a hospital-specific annual limit.
    Under sections 1814(l) and 1834(g) of the Act, payments are made to 
critical access hospitals (CAHs) (that is, rural nonprofit hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services on a reasonable cost basis. Reasonable cost is 
determined under the provisions of section 1861(v)(i)(A) of the Act and 
existing regulations under 42 CFR Parts 413 and 415.
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities 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 hospital's costs per resident in a base year and the hospital's 
number of residents in that period.
    The regulations governing the hospital inpatient prospective 
payment system are located in 42 CFR Part 412. The regulations 
governing excluded hospitals and hospital units and the regulations 
governing direct GME are located in 42 CFR Part 413. The regulations 
governing CAHs are located in 42 CFR Part 485.

II. Provisions of the Interim Final Rule With Comment Period

    On November 29, 1999, the Medicare, Medicaid, and State Children's 
Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 
(Pub. L. 106-113) was enacted. Public Law 106-113 made a number of 
changes to the Act affecting Medicare payments to hospitals for 
inpatient services. Many of the provisions of Public Law 106-113 are 
modifications to provisions of the Act included in the Balanced Budget 
Act of 1997 (Pub. L. 105-33). Some of the provisions of Public Law 106-
113 became effective prior to, or shortly after, its passage on 
November 29, 1999. Other provisions do not become effective until 
Federal fiscal year (FY) 2001 or later. The provisions of Public Law 
106-113 that are effective beginning October 1, 2000, were included in 
the proposed rule for FY 2001 Medicare hospital inpatient prospective 
payment system published in the Federal Register on May 5, 2000 (65 FR 
26281) which is being finalized in this issue of the Federal Register.
    The following is a summary of the policy changes we are 
implementing in this interim final rule with comment period as a result 
of Public Law 106-113:

A. Changes Relating to Payments for Operating Costs under the Hospital 
Inpatient Prospective Payment System

     Reclassification of Certain Counties. We are implementing 
the provisions of section 152(a) of Public Law 106-113 that 
reclassified hospitals in certain designated counties for purposes of 
making payments to those hospitals under section 1886(d) of the Act for 
FY 2000. The counties affected by this provision are identified under 
section III of this preamble.
     Wage Index. We are implementing sections 153 and 154 of 
Public Law 106-113 that contain provisions affecting the wage indexes 
of specific Metropolitan Statistical Areas (MSA). Under section 153, 
the Hattiesburg, Mississippi FY 2000 wage index is to be calculated 
including wage data from Wesley Medical Center. Under section 154, the 
Allentown-Bethlehem-Easton, Pennsylvania MSA FY 2000 wage index is to 
be calculated including wage data for Lehigh Valley Hospital.
     Reclassification of Certain Urban Hospitals as Rural 
Hospitals. We are implementing section 401 of Public Law 106-113 which 
directed the Secretary to treat certain hospitals located in urban 
areas as being located in the rural area of their State if the hospital 
meets statutory criteria and files an application with HCFA. This 
provision is effective on January 1, 2000.
     Indirect Medical Education (IME) Adjustment. We are 
implementing section 111 of Public Law 106-113 which provides for an 
additional payment to teaching hospitals equal to the additional amount 
the hospitals would have been paid for FY 2000 if the IME adjustment 
formula (which reflects the higher indirect operating costs associated 
with GME) for FY 2000 had remained the same as for FY 1999.
     Medicare-Dependent, Small Rural Hospitals. We are 
implementing section 404 of Public Law 106-113 which extends the 
Medicare-dependent, small rural hospital (MDH) program and its current 
payment methodology for an additional 5 years, from FY 2002 through FY 
2006.

B. Additional Changes Relating to Direct GME and Indirect Medical 
Education

     Initial Residency Period for Child Neurology Residency 
Programs. We are implementing section 312 of Public Law 106-113 which 
provides that in determining the number of residents for purposes of 
GME and IME payments, the period of board eligibility and the initial 
residency period for child neurology is the period of board eligibility 
for pediatrics plus 2 years. This provision applies on and after July 
1, 2000, to residency programs that began before, on, or after November 
29, 1999.
     Residents on Approved Leave of Absences. We are 
implementing section 407(a) of Public Law 106-113 which provides that, 
for purposes of determining a hospital's full-time equivalent (FTE) cap 
for direct GME payments and the IME adjustment, a hospital may count an 
individual to the extent that the individual would have been counted as 
a primary care resident for purposes of the FTE cap but for the fact 
that the individual was on maternity or disability leave or a similar 
approved leave of absence. The provision relating to direct GME is 
effective with cost reporting periods beginning on or after November 
29, 1999. The provision relating to the IME adjustment applies to 
discharges occurring in cost reporting periods beginning on or after 
November 29, 1999.
     Expansion of Number of Unweighted Residents in Rural 
Hospitals. We are implementing section 407(b) of Public Law 106-113 
which provides that a rural hospital's resident FTE count for direct 
GME and IME may not exceed 130 percent of the number of unweighted 
residents that the rural hospital counted in its most recent cost 
reporting period ending on or before December 31, 1996. The provision 
relating to direct GME applies to cost reporting periods beginning on 
or after April 1, 2000. The provision relating to the IME adjustment 
applies to discharges occurring on or after April 1, 2000.
     Urban Hospitals with Rural Training Tracks or Integrated 
Rural Tracks. We are implementing section 407(c) of Public Law 106-113 
which allows an urban hospital that establishes separately accredited 
approved medical residency training programs (or rural training tracks) 
in a rural area or has an accredited training program with an 
integrated rural track to receive an FTE cap adjustment for purposes of 
direct GME and IME. The provision is effective with cost reporting 
periods beginning on or after April 1, 2000, for direct GME, and with 
discharges occurring on or after April 1, 2000, for IME.
     Residents Training at Certain Veterans Affairs Hospitals. 
We are implementing section 407(d) of Public Law 106-113 which provides 
that a non-Veterans Affairs (VA) hospital may receive a temporary 
adjustment to its FTE cap to reflect residents who were training at a 
VA hospital and were transferred on or after January 1, 1997, and 
before July 31, 1998, to the non-VA

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hospital because the program at the VA hospital would lose its 
accreditation by the Accreditation Council on Graduate Medical 
Education if the residents continued to train at the facility. This 
provision applies as if it was included in the enactment of Public Law 
105-33, that is, for direct GME, with cost reporting periods beginning 
on or after October 1, 1997, and for IME, for discharges occurring on 
or after October 1, 1997. If a hospital is owed payments as a result of 
this provision, payments must be made immediately.

C. Payments for Nursing and Allied Health Education: Utilization of 
Medicare+Choice Enrollees

    We are implementing section 541 of Public Law 106-113 which 
provides an additional payment to hospitals that receive payments under 
section 1861(v) of the Act for approved nursing and allied health 
education programs to reflect utilization of Medicare+Choice enrollees. 
This provision is effective for portions of cost reporting periods in a 
year beginning with calendar year 2000.

D. Changes Relating to Hospitals and Hospital Units Excluded From the 
Prospective Payment System

    We are implementing section 121 of Public Law 106-113 which amended 
section 1886(b)(3)(H) of the Act to direct the Secretary to provide for 
an appropriate wage adjustment to the caps on the target amounts for 
psychiatric hospitals and units, rehabilitation hospitals and units, 
and long-term care hospitals for cost reporting periods beginning on or 
after October 1, 1999.

E. Changes Relating to Critical Access Hospitals (CAHs)

    We are implementing--
     Section 401(b)(2) of Public Law 106-113, which contains a 
conforming change to incorporate the reclassifications made by section 
401(a) of Public Law 106-113 to the CAH criteria (section 
1820(c)(2)(B)(i) of the Act). This provision is effective beginning on 
January 1, 2000.
     Section 403(a) of Public Law 106-113, which deletes the 
96-hour length of stay restriction on inpatient care in a CAH and 
authorizes a period of stay that does not exceed, on an annual, average 
basis, 96 hours per patient. This provision is effective beginning on 
November 29, 1999.
     Section 403(b) of Public Law 106-113, which allows for-
profit hospitals to qualify for CAH status. This provision is effective 
beginning on November 29, 1999.
     Section 403(c) of Public Law 106-113, which allows 
hospitals that have closed within 10 years prior to November 29, 1999, 
or hospitals that downsized to a health clinic or health center, to be 
designated as CAHs if they satisfy the established criteria for 
designation, other than the requirement for existing hospital status.
     Section 403(e) of Public Law 106-113, which eliminates the 
Medicare Part B deductible and coinsurance for clinical diagnostic 
laboratory tests furnished by a CAH on an outpatient basis. This 
provision is effective with respect to services furnished on or after 
November 29, 1999.
     Section 403(f) of Public Law 106-113, entitled 
``Participation in Swing Bed Program,'' which amended sections 
1883(a)(1) and (c) of the Act.

F. Changes Relating to Hospital Swing Bed Program

    We are implementing section 408(a) of Public Law 106-113 which 
eliminates the requirement for a hospital to obtain a certification of 
need to use acute care beds as swing beds for skilled nursing facility 
(SNF) level of care patients; and section 408(b) of Public Law 106-113 
which eliminates constraints on the length of stay in swing beds for 
rural hospitals with 50 to 100 beds. These provisions are effective on 
the first day after the expiration of the transition period for 
prospective payments for covered SNF services under the Medicare 
program (that is, at the end of the transition period for the SNF 
prospective payments system that began with the facility's first cost 
reporting period beginning on or after July 1, 1998 and extend through 
the end of the facility's third cost reporting period after this date).

III. Reclassification of Certain Counties

    Under section 152(a) of Public Law 106-113 hospitals in certain 
counties are deemed to be located in specified areas for purposes of 
payment to the hospitals under the hospital inpatient prospective 
payment system, for discharges occurring during FY 2000. For payment 
purposes, hospitals under section 152(a) are to be treated as though 
they were reclassified for purposes of both the standardized amount and 
the wage index. We have calculated FY 2000 wage indexes for hospitals 
in the affected counties. These wage indexes are listed below. No other 
hospitals' FY 2000 wage indexes were affected, including those 
hospitals in the areas to which these affected hospitals were 
reclassified, as well as nonreclassified hospitals located in the areas 
from which these hospitals were reclassified.
    Section 152(a) provides that, for purposes of making payments under 
section 1886(d) of the Act for FY 2000--
     To hospitals in Iredell County, North Carolina, Iredell 
County is deemed to be located in the Charlotte-Gastonia-Rock Hill, 
North Carolina-South Carolina MSA;
     To hospitals in Orange County, New York, Orange County is 
deemed to be located in the New York, New York MSA;
     To hospitals in Lake County, Indiana and Lee County, 
Illinois, Lake County and Lee County are deemed to be located in the 
Chicago, Illinois MSA;
     To hospitals in Hamilton-Middletown, Ohio, Hamilton-
Middletown is deemed to be located in the Cincinnati, Ohio-Kentucky-
Indiana MSA;
     To hospitals in Brazoria County, Texas, Brazoria County is 
deemed to be located in the Houston, Texas MSA;
     To hospitals in Chittenden County, Vermont, Chittenden 
County is deemed to be located in the Boston-Worcester-Lawrence-Lowell-
Brockton, Massachusetts-New Hampshire MSA.
    In accordance with section 153 of Public Law 106-113, for 
discharges occurring during FY 2000, the Hattiesburg, Mississippi MSA 
wage index was recalculated by including the wage data for Wesley 
Medical Center. In accordance with section 154(a), the Allentown-
Bethlehem-Easton, Pennsylvania MSA FY 2000 wage index was recalculated 
by including the wage data for Lehigh Valley Hospital.
    The following table shows the changes to the FY 2000 wage index 
values and geographic adjustment factors for capital payments for the 
hospitals in the affected areas. Hospitals affected by section 152(a) 
of Public Law 106-113 will now also be considered reclassified for 
purposes of the standardized amount.

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                                                                                                         New
                                                   New MSA (for wage index and          New wage     geographic
               County or MSA                           standardized amount)               index      adjustment
                                                                                                    factor (GAF)
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Iredell County, NC.........................  1520...................................        0.9434        0.9609

[[Page 47029]]

 
Orange County, NY..........................  5600...................................        1.4342        1.2801
Lake County, IN............................  1600...................................        1.0750        1.0508
Lee County, IL.............................  1600...................................        1.0750        1.0508
Hamilton-Middletown, OH....................  1640...................................        0.9419        0.9598
Brazoria County, TX........................  3360...................................        0.9388        0.9577
Chittenden County, VT......................  1123...................................        1.1359        1.0912
Hattiesburg, MS MSA........................  MSA is not new.........................        0.7634        0.8312
Allentown-Bethlehem-Easton, PA MSA.........  MSA is not new.........................        1.0228        1.0156
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IV. Reclassifications of Hospitals (Sections 401(a) and (b) of 
Public Law 106-113 and 42 CFR 412.63(b), 412.90(e), 412.102, and 
New 412.103)

A. Permitting Reclassification of Certain Urban Hospitals as Rural 
Hospitals

    Under Medicare law, the location of a hospital can affect its 
payment methodology as well as whether the facility qualifies for 
special treatment both for operating and for capital payments. Whether 
a facility is situated in an urban or a rural area will, for example, 
affect payments based on the wage index values and Federal standardized 
amounts specific to the area. Similarly, the percentage increase in 
payments made to hospitals that treat a disproportionate share of low-
income patients is based, in part, on its urban/rural status, as are 
determinations regarding a hospital's qualification as a sole community 
hospital (SCH), rural referral center (RRC), CAH, or other special 
category of facility. Section 1886(d)(2)(D) of the Act defines an 
``urban area'' as an area within a MSA as defined by the Office of 
Management and Budget. The same provision defines a ``large urban 
area,'' with respect to any fiscal year, as an urban area that the 
Secretary determines (in the publications described in section 
1886(e)(5) of the Act before the fiscal year) has a population of more 
than 1 million as determined based on the most recent available 
published Census Bureau data. Section 1886(d)(2)(D) of the Act further 
defines a ``rural area'' as an area that is outside of a ``large'' 
urban area or ``other'' urban area. Since FY 1995, the average 
standardized amount for hospitals located in rural areas and ``other'' 
urban areas has been equal, as provided for in section 
1886(b)(3)(B)(i)(X) of the Act.
    Several provisions of the Act provide procedures under which a 
hospital can apply for reclassification from one geographic area to 
another: section 1886(d)(8)(B) of the Act, which provides that if 
certain conditions are met, the Secretary shall treat a hospital 
located in a rural county adjacent to one or more urban areas as being 
located in the urban area to which the greatest number of workers in 
the county commute; and section 1886(d)(10) of the Act, which 
establishes the Medicare Geographic Classification Review Board (MGCRB) 
process to permit hospitals to be reclassified for purposes of the 
standardized amount or the wage index if they meet criteria established 
by the Secretary.
    Section 401(a) of Public Law 106-113, which amended section 
1886(d)(8) by adding a new paragraph (E), directs the Secretary to 
treat any subsection (d) hospital located in an urban area as being 
located in the rural area of the State in which the hospital is located 
if the hospital files an application (in the form and manner determined 
by the Secretary) and meets one of the following criteria:
     The hospital is located in a rural census tract of a MSA 
(as determined under the most recent modification of the Goldsmith 
Modification, originally published in the Federal Register on February 
27, 1992 (57 FR 6725));
     The hospital is located in an area designated by any law 
or regulation of the State as a rural area (or is designated by the 
State as a rural hospital);
     The hospital would qualify as a RRC, or as a SCH if the 
hospital were located in a rural area; or
     The hospital meets any other criteria specified by the 
Secretary.
    The statutory effective date of this provision is January 1, 2000.
    The Goldsmith Modification, one of the qualifying statutory 
criteria, evolved from an outreach grant program sponsored by the 
Office of Rural Health Policy of the Health Resources and Services 
Administration (HRSA). The program's purpose was to establish an 
operational definition of rural populations lacking easy geographic 
access to health services. Using 1980 Census Bureau data, Dr. Harold F. 
Goldsmith and his associates created a methodology for identification 
of census tracts that were located within a large metropolitan county 
of at least 1,225 square miles but were so isolated from the 
metropolitan core by distance or physical features as to be more rural 
than urban in character. The most important criterion used to identify 
these census tracts is the comparatively few residents in these areas, 
less than 15 percent of the labor force, who commute to work in the 
metropolitan core and suburbs. Appendix A of this interim final rule 
with comment period lists the identified urban counties with census 
tracts that may qualify as rural under the most recent Goldsmith 
Modification (January 1, 2000). The amendments made by section 401 of 
Public Law 106-113 enable a hospital located in one of these areas to 
be treated as if it were situated in the rural area of the State in 
which it is located. In making determinations under section 
1886(d)(8)(E) of the Act, we will utilize the most recent Goldsmith 
Modification which reflects data based on the 1990 census.
    Additionally, section 401(a) of Public Law 106-113 includes 
hospitals ``* * * located in an area designated by any law or 
regulation of such State as a rural area (or is designated by such 
State as a rural hospital).'' We are requiring that a hospital's 
designation as rural be in the form of either State law or regulation 
if it is the basis for a hospital's request for urban to rural 
reclassification under section 1886(d)(8)(E) of the Act. We believe 
this will help ensure that the provision is implemented consistently 
among States.
    Finally, a hospital also may seek to qualify for reclassification 
premised on the fact that, had it been located in a rural area, it 
would have qualified as an RRC or as an SCH. The hospital would need to 
satisfy the criteria set forth in section 1886(d)(5)(C) of the Act (as 
implemented in regulations at Sec. 412.96) as a RRC, or the criteria 
set forth in section 1886(d)(5)(D) of the Act (as implemented in 
regulations at Sec. 412.92) as an SCH.
    Although the statute authorizes the Secretary to specify further 
qualifying criteria for a section 1886(d)(8)(E) reclassification, we do 
not believe that additional criteria are warranted at this

[[Page 47030]]

time. However, we invite comment specifically on whether the criteria 
in this interim final rule are sufficient at this time, and if not, 
what additional criteria should be incorporated.
    Section IV.C. of this preamble contains information on the 
application process for requesting reclassification under the section 
401 provision.
    A hospital that is reclassified as rural under section 
1886(d)(8)(E) of the Act, as added by section 401(a) of Public Law 106-
113, is treated as rural for all purposes of payment under the Medicare 
inpatient hospital prospective payment system (section 1886(d) of the 
Act), including standardized amount (Secs. 412.60 et seq.), wage index 
(Sec. 412.63), and disproportionate share calculations (Sec. 412.106) 
as of the effective date of the reclassification.

B. Conforming Changes Under Section 401(b) of Public Law 106-113

    Section 401(b) of Public Law 106-113 sets forth conforming 
statutory changes relating to urban to rural reclassifications under 
section 401(a) of Public Law 106-113:
     Section 401(b)(1) provides that if a hospital is being 
treated as being located in a rural area under section 1886(d)(8)(E) of 
the Act (for purposes of section 1886(d) of the Act), the hospital will 
also be treated under section 1833(t) of the Act as being located in a 
rural area. This provision is being addressed in a separate document.
     Section 401(b)(2) amends section 1820(c)(2)(B)(i) of the 
Act by extending the reclassification provisions of section 401(a) to 
the CAH program. A hospital that otherwise would have fulfilled the 
requirements for designation as a CAH had it been located in a rural 
area is now eligible for consideration as a CAH if it is treated as 
being located in a rural area under section 1886(d)(8)(E) of the Act, 
as added by section 401(a) of Public Law 106-113. (A list of certain 
existing hospitals that have been identified as being located in 
Goldsmith areas is included in Appendix B of this interim final rule 
with comment period.) A more detailed discussion of the effect on the 
CAH program in light of this provision, as well as the additional 
amendments to section 1820(c)(2)(B)(i) of the Act included in Public 
Law 106-113, is provided in section X.B. of this preamble.

C. Application Procedures

    The statute provides that a hospital seeking reclassification from 
urban to rural under section 1886(d)(8)(E) of the Act must submit an 
application ``in a form and manner determined by the Secretary.'' We 
are providing that a facility seeking reclassification under section 
401(a) or (b) of Public Law 106-113 must apply in writing to the HCFA 
Regional Office and include documentation satisfying the criteria on 
which its request is based. For information about where to submit an 
application, hospitals may contact their fiscal intermediaries or 
utilize the HCFA website at www.hcfa.gov/medicare/regions/default.htm>. 
The application must be mailed; facsimile or other electronic means are 
not acceptable.
1. Qualification Through the Goldsmith Modification Criteria
    We are specifying that hospitals seeking reclassification through 
the Goldsmith Modification criteria must include specific census tract 
information with their application that can be obtained through the 
following steps:
    (a) The hospital must determine whether it is located within one of 
the urban counties containing one or more Goldsmith areas included in 
Appendix A of this interim final rule with comment period.
    (b) Since only certain census tracts within these listed counties 
qualify as Goldsmith areas, a hospital that identifies its county in 
the listing must find the tract number assigned to its specific street 
location by the U.S. Census Bureau. One way to determine this is 
through an interactive website provided by the U.S. Census Bureau: 
http:/tier2.census.gov/ctsl/ctsl.htm>.
    (c) The hospital must include the 4-digit census tract number in 
its application to the HCFA Regional Office. The HCFA Regional Office 
will utilize census tract data to determine whether the census tract in 
which the hospital is located is situated in a Goldsmith area.
2. Qualification by State Designation
    For hospitals selecting reclassification under qualification by 
State designation, we are providing that the hospital's application 
must include a copy of the State law or regulation that verifies either 
the requesting hospital is situated in an area designated rural by the 
State or that the hospital has been designated as a rural hospital. The 
application must also note the effective date of the rural designation.
3. Qualification as an RRC or as an SCH
    For hospitals seeking reclassification under qualification as an 
RRC or as an SCH, we are providing that the hospital's application must 
include documentation that supports the hospital's assertion that, 
other than its urban location, it satisfies the criteria set forth in 
section 1886(d)(5)(C) of the Act as an RRC, as implemented in 
regulations at Sec. 412.90; or as an SCH as set forth in section 
1886(d)(5)(D) of the Act and implemented in regulations at Sec. 412.92. 
The HCFA Regional Office will review the application in a manner 
consistent with its current procedures in the case of a hospital in a 
rural area that applies for RRC or SCH status (except for the 
requirement that the hospital be located in a rural area).

D. Filing and Effective Dates

    We are establishing the date of receipt of the application by the 
HCFA Regional Office as the filing date. The HCFA Regional Office will 
review the application and forward its approval or disapproval to the 
hospital within 60 calendar days from the filing date. The HCFA 
Regional Office also will forward a copy of its decision to the HCFA 
Central Office and the fiscal intermediary. A hospital that satisfies 
any of the criteria for rural reclassification under section 401(a) of 
Public Law 106-113 will be treated as being located in the rural area 
of the State in which it is located as of its application filing date.
    The statutory effective date of the amendments made by section 401 
of Public Law 106-113 is January 1, 2000. To allow hospitals a grace 
period for filing applications to accommodate this effective date, we 
are providing that a qualifying hospital whose application is received 
by HCFA on or before September 1, 2000, will be considered as being 
located in the rural area of its State for purposes of section 1886(d) 
of the Act as of January 1, 2000. Following that grace period, a 
hospital's filing date is the date on which a complete application is 
received by HCFA. A qualifying hospital that bases its application for 
rural reclassification under section 1886(d)(8)(E) of the Act on its 
satisfaction of either SCH or RRC criteria, and that files on or before 
September 1, 2000, will benefit from the grace period and will be 
considered as being located in the rural area of its State as of 
January 1, 2000, unless the hospital withdraws its request as described 
in section IV.D.3 of this preamble. Once the hospital is rural, it may 
seek either an SCH or an RRC status by following a two-step process 
described respectively, in sections IV.D.1 and IV.D.2 of this preamble. 
The process for approval of the hospital as either an SCH or an RRC 
must be consistent with the processes currently in place for approving 
these applications. We note that whereas SCH designation is effective 
30 days after written notification of HCFA's approval,

[[Page 47031]]

under Sec. 412.92(b)(2)(i), the effective date of RRC designation, 
under 1886(d)(5)(C)(i) of the Act, is linked to the beginning of a 
hospital's reporting period.
1. A Hospital Reclassified as Rural Seeking Designation as an SCH
    A hospital that bases its application for rural reclassification on 
its satisfaction of all SCH criteria set forth in Sec. 412.92, except 
rural location, may seek subsequent designation as an SCH if HCFA 
determines that it qualifies to be treated as rural under section 
1886(d)(8)(E) of the Act. The hospital must indicate this intent on its 
application for rural reclassification. Designation as an SCH for such 
hospital, therefore, would be a two-step process: (1) The hospital's 
reclassification as rural for all payment purposes as of its filing 
date under section 1886(d)(8)(E) of the Act; and (2) the now-rural 
hospital's request for SCH status, which would be effective 30 days 
following the date of HCFA's written notification of approval, as set 
forth in the regulations at Sec. 412.92(b)(2)(i).
    In order to implement section 401(a) of Public Law 106-113 in the 
most expeditious and efficient manner, allowing for necessary payment 
system modifications, for the grace period which extends from January 
1, 2000 to September 1, 2000, we are bundling the above two operations: 
the rural reclassification of a hospital, under section 401(a) of 
Public Law 106-113, and the designation of the hospital as an SCH. A 
hospital that has applied for rural status based on its eligibility as 
an SCH and also is applying to become an SCH, will be granted SCH 
status as of January 1, 2000, if it satisfies the conditions for SCH 
designation in Sec. 412.92, except for rural location as of January 1, 
2000, and its application is filed by September 1, 2000.
2. Hospitals Reclassified as Rural Seeking Designation as a RRC
    A hospital qualifying for rural reclassification under section 
401(a) of Public Law 106-113 because it satisfies RRC criteria under 
Sec. 412.96, except for rural location, will be considered rural for 
all payment purposes as of January 1, 2000, if its application is 
received by September 1, 2000. After September 1, 2000, when the grace 
period expires, the filing date is the date HCFA receives the 
hospital's complete application. If the hospital seeks designation as a 
RRC, the hospital must state its intent to apply for RRC status on its 
application for rural reclassification under section 1886(d)(8)(E) of 
the Act. Designation as an RRC for such a hospital, therefore, is a 
two-step process: (1) The hospital's classification as rural for all 
payment purposes as of its filing date under section 1886(d)(8)(E) of 
the Act; and (2) the now rural hospital's request for RRC status by way 
of a letter to the Regional Office during the quarter preceding the 
start of a cost reporting period, referencing the data it previously 
submitted for rural status. If approved, the hospital is designated an 
RRC at the start of the hospital's next cost reporting period under 
section 1886(d)(5)(C)(i) of the Act (55 FR 36059). Therefore, whereas 
the grace period would grant rural status under section 1886(d)(8)(E) 
of the Act to such a hospital filing on or before September 1, 2000, 
statutory requirements preclude us from granting RRC status 
simultaneously as we are able to do in the case of SCHs described 
above.
3. Withdrawal of an Application for Rural Reclassification
    A hospital may withdraw an application for rural reclassification 
at any time prior to the date of HCFA's decision on whether or not the 
hospital qualifies for rural reclassification under section 
1886(d)(8)(E) of the Act.
4. Cancellation of Rural Reclassification
    We are specifying that a hospital seeking cancellation of rural 
status established under section 1886(d)(8)(E) of the Act must submit 
its written request to HCFA not less than 120 days prior to the end of 
its current cost reporting period. With the beginning of the hospital's 
next cost reporting period, the hospital will be treated as being 
located in an urban area.

E. Changes in the Regulations

    We are adding a new Sec. 412.103 to incorporate the provisions on 
the urban to rural reclassification options set forth in section 
1886(d)(8)(E) of the Act, as added by section 401(a) of Public Law 106-
113, and the application procedures for requesting reclassification. A 
formula for transition payments to hospitals located in an area that 
has undergone geographic reclassification from urban to rural is set 
forth in section 1886(d)(8)(A) of the Act and implemented in 
regulations at Secs. 412.90 and 412.102. We are revising existing 
Secs. 412.63(b)(1) and 412.90(e) and the title of Sec. 412.102 to 
clarify the distinction between hospital reclassification from urban to 
rural and the geographic reclassification (or redesignation) of an 
urban area to rural.
    We are revising Sec. 485.610 by redesignating paragraph (b)(4) as 
paragraph (b)(5) and adding a new paragraph (b)(4) to reflect the 
conforming provision of section 401(b)(2) of Public Law 106-113.

V. Medicare-Dependent, Small Rural Hospitals (Section 404 of Public 
Law 106-113 and 42 CFR 412.90(j) and 412.108)

    Section 404 of Public Law 106-113 added a 5-year extension of the 
Medicare-dependent, small rural hospital (MDH) program (FY 2002 through 
FY 2006). This category of hospitals was originally created by section 
6003(f) of the Omnibus Budget Reconciliation Act of 1989 (Public Law 
101-239), which added section 1886(d)(5)(G) to the Act.
    As set forth in section 1886(d)(5)(G) of the Act, in order to be 
classified as an MDH, a hospital must meet all of the following 
criteria:
     The hospital is located in a rural area.
     The hospital has 100 or fewer beds.
     The hospital is not classified as an SCH (as defined at 
Sec. 412.92).
     In the hospital's cost reporting period that began during 
FY 1987, not less than 60 percent of its inpatient days or discharges 
were attributable to inpatients entitled to Medicare Part A benefits.
    As provided by the law, MDHs were eligible for a special payment 
adjustment under the prospective payment system, effective for cost 
reporting periods beginning on or after April 1, 1990 and ending on or 
before March 31, 1993. Hospitals classified as MDHs were paid using the 
same methodology applicable to SCHs, that is, based on whichever of the 
following rates yielded the greatest aggregate payment for the cost 
reporting period:
     The national Federal rate applicable to the hospital.
     The updated hospital-specific rate using FY 1982 cost per 
discharge.
     The updated hospital-specific rate using FY 1987 cost per 
discharge.
    Section 13501(e)(1) of the Omnibus Budget Reconciliation Act of 
1993 (Public Law 103-66) extended the MDH provision through FY 1994 and 
provided that, after the hospital's first three 12-month cost reporting 
periods beginning on or after April 1, 1990, the additional payment to 
an MDH whose applicable hospital-specific rate exceeded the Federal 
rate was limited to 50 percent of the amount by which the hospital-
specific rate exceeded the Federal rate.
    Section 4204(a)(3) of Public Law 105-33 reinstated the MDH special 
payment for discharges occurring on or after October 1, 1997 and before 
October 1, 2001, but did not revise either the

[[Page 47032]]

qualifying criteria for these hospitals or the payment methodology.
    Section 404(a) of Public Law 106-113 extended the MDH provision to 
discharges occurring on or after October 1, 2002 and before October 1, 
2006.
    We are revising Secs. 412.90(j) and 412.108 to reflect the 
extension of the MDH program.

VI. Changes to the IME Adjustment (Section 111 of Public Law 106-
113 and 42 CFR 412.105(d)(3))

    Section 1886(d)(5)(B) of the Act provides that prospective payment 
hospitals that have residents in an approved GME program receive an 
additional payment to reflect the higher indirect operating costs 
associated with GME. The regulations regarding the calculation of this 
additional payment, known as the IME adjustment, are located at 
Sec. 412.105.
    Section 111(a) of Public Law 106-113 amended section 1886(d)(5)(B) 
of the Act by modifying the transition for the IME adjustment. The IME 
adjustment factor is calculated using a formula multiplier that is 
represented as c in the following equation: c  x  [(1 + r).\.405\-1]. 
The variable r represents the hospital's resident-to-bed ratio.
    Public Law 105-33 established the formula multiplier for discharges 
occurring during FY 2000 at 1.47. However, section 111(b) of Public Law 
106-113 provides for special payments to each hospital to reflect the 
amount of IME payments if c equaled 1.6 for discharges occurring during 
FY 2000, rather than 1.47. In accordance with section 111(b)(2) of 
Public Law 106-113, these special payments will not affect any other 
payments, determinations, or budget neutrality adjustments under 
section 1886(d) of the Act.
    Under amendments enacted by section 111(a) of Public Law 106-113, 
for discharges occurring during FY 2001, the formula multiplier is 
1.54. Changes to the factor for discharges occurring in FY 2001 were 
addressed in the proposed rule on FY 2001 hospital inpatient 
prospective payment system rates and changes that was published in the 
Federal Register on May 5, 2000 (65 FR 26281) and that will be 
finalized by August 1, 2000. Changes to the factor for discharges 
occurring in FY 2002 and thereafter are discussed in the final rule to 
be published by August 1, 2000.
    We are amending Sec. 412.105(d)(3) to reflect the additional 
payment provided for discharges occurring during FY 2000 under section 
111(b)(1) of Public Law 106-113.

VII. Payment for Costs of GME

    Under section 1886(h) of the Act, Medicare pays hospitals for the 
direct costs of GME. The payments are based on the number of residents 
trained by the hospital. Section 1886(h) of the Act, as revised by 
Public Law 105-33, caps the number of residents a hospital may count 
for direct GME and IME. In general, the total number of residents in 
the fields of allopathic or osteopathic medicine in a hospital may not 
exceed the number of such FTE residents in the hospital with respect to 
the hospital's most recent cost reporting period ending on or before 
December 31, 1996. In the regulations we published on August 29, 1997 
(62 FR 46003), May 12, 1998 (63 FR 26327), July 31, 1998 (63 FR 40986), 
and July 30, 1999 (64 FR 41517), we established special rules for 
adjusting the FTE resident caps for indirect and direct GME for new 
medical residency programs. Public Law 106-113 further revised sections 
1886(d) and 1886(h) of the Act to allow a hospital's caps to be 
adjusted if certain additional criteria are met.

A. Counting Primary Care Residents on Certain Approved Leaves of 
Absence in Base-Year FTE Count (Section 407(a)(1) of Public Law 106-113 
and new 42 CFR 412.105(f)(1)(xi) and 413.86(g)(9))

    The limit that was placed on the number of residents that a 
hospital may count for purposes of direct GME and IME is based on the 
number of residents in the hospital's most recent cost reporting period 
ending on or before December 31, 1996. In the situation where a primary 
care resident was previously training in a hospital's residency 
program, but was on an approved leave of absence during the hospital's 
most recent cost reporting period ending on or before December 31, 
1996, the hospital's FTE cap may be lower than it would have been had 
the resident not been on an approved leave of absence. Section 407(a) 
of Public Law 106-113 amended section 1886(h)(4)(F) of the Act to 
direct the Secretary to count an individual for purposes of determining 
a hospital's FTE cap, to the extent that the individual would have been 
counted as a primary care resident for purposes of the FTE cap but for 
the fact that the individual was on maternity or disability leave or a 
similar approved leave of absence.
    The statute allows a hospital to receive an adjustment for those 
residents to its individual FTE cap of up to three additional FTE 
residents. We are providing in this interim final rule with comment 
period that, in order for a hospital to receive this adjustment, the 
leave of absence must have been approved by the residency program 
director to allow the residents to be absent from the program and 
return to the program after the absence. We are requiring that no later 
than 6 months after the date of publication of this interim final rule, 
the hospital must submit a request to the fiscal intermediary for an 
adjustment to its FTE cap and must provide contemporaneous 
documentation of the approval of the leave of absence by the residency 
program director, specific to each additional resident that is to be 
counted for purposes of the adjustment. For example, a letter to the 
resident by the residency program director before the resident takes 
the leave would be sufficient documentation of prior approval of the 
leave of absence.
    Under section 407(a)(3) of Public Law 106-113, this provision is 
effective for direct GME FTE counts with cost reporting periods 
beginning on or after November 29, 1999, and for IME FTE counts, with 
discharges occurring in cost reporting periods beginning on or after 
November 29, 1999.
    We are adding new Secs. 412.105(f)(1)(xi) and 413.86(g)(9) to 
incorporate the provisions of section 407(a) of Public Law 106-113.

B. Adjustments to the FTE Cap for Rural Hospitals (Section 407(b)(1) of 
Public Law 106-113 and 42 CFR 412.105(f)(l)(iv) and 413.86(g)(4))

    Public Law 105-33 included several provisions with the intent of 
encouraging physician training and practice in rural areas. Section 
1886(h)(4)(H)(i) of the Act, as added by section 4623 of Public Law 
105-33, directed the Secretary, in promulgating rules for the purpose 
of the FTE cap, to give special consideration to facilities that meet 
the needs of underserved rural areas. Consistent with the intent of 
this provision, section 407(b) of Public Law 106-113 provides a 30-
percent expansion of a rural hospital's direct and indirect FTE count 
for purposes of establishing the hospital's individual FTE cap. 
Specifically, section 407(b) provides that, effective for direct GME 
with cost reporting periods beginning on or after April 1, 2000, and 
for IME, with discharges occurring on or after April 1, 2000, the FTE 
count may not exceed 130 percent of the number of unweighted residents 
the rural hospital counted in its most recent cost reporting period 
ending on or before December 31, 1996.
    For example, if a hospital located in a rural area had 10 
unweighted FTEs for its count for both direct GME and IME in its most 
recent cost reporting period

[[Page 47033]]

ending on or before December 31, 1996, under this new provision the 
hospital would have a FTE cap of 13 unweighted FTEs, instead of 10 
unweighted FTEs, because the hospital is located in a rural area. The 
revised FTE cap is equal to 130 percent of the number of unweighted 
residents in its most recent cost reporting period ending on or before 
December 31, 1996. The rural hospital's new FTE cap, effective April 1, 
2000, is now 13 FTEs. However, if a hospital located in a rural area 
had zero unweighted FTEs for its count for both direct GME and IME in 
its most recent cost reporting period ending on or before December 31, 
1996, under this new provision, this hospital would receive no 
adjustment to its FTE cap (130 percent of zero is zero FTEs).
    We are incorporating the provisions of section 407(b) of Public Law 
106-113 in Secs. 412.105(f)(1)(iv) and 413.86(g)(4).

C. Rural Track FTE Limitation for Purposes of GME and IME for Urban 
Hospitals That Establish Separately Accredited Approved Medical 
Programs in a Rural Area (Section 407(c) of Public Law 106-113 and new 
42 CFR 412.105(f)(1)(x) and 413.86(g)(11))

    Section 407(c) of Public Law 106-113 amended section 1886(h)(4)(H) 
of the Act to add a provision that, in the case of a hospital that is 
not located in a rural area but establishes separately accredited 
approved medical residency training programs (or rural tracks) in a 
rural area or has an accredited training program with an integrated 
rural track, an adjustment may be made to the hospital's cap on the 
number of residents in order to encourage the training of physicians in 
rural areas. For direct GME, the amendment applies to payments to 
hospitals for cost reporting periods beginning on or after April 1, 
2000; for IME, the amendment applies to discharges occurring on or 
after April l, 2000.
    Section 407(c) of Public Law 106-113 does not define ``rural 
tracks'' or an ``integrated rural track,'' nor are these terms defined 
elsewhere in the Social Security Act or in any applicable Federal 
regulations. Currently, there are a number of accredited residency 
programs, particularly 3-year primary care residency programs, in which 
residents train for 1 year of the program at an urban hospital and are 
then rotated for training for the other 2 years of the 3-year program 
to a rural facility. These separately accredited ``rural track'' 
programs are identified by the Accreditation Council of Graduate 
Medical Education (ACGME) as ``1-2'' rural track programs. We are 
implementing section 407(c) to address these ``1-2'' programs. In 
addition, we are implementing section 407(c) to account for other 
programs that are not ``1-2'' programs but which include rural training 
portions.
    As stated above, there is no existing definition of ``rural track'' 
or ``integrated rural track.'' We are defining at Sec. 413.86(b) a 
``rural track'' and an ``integrated rural track'' as an approved 
medical residency training program established by an urban hospital in 
which residents train for a portion of the program at the urban 
hospital and then rotate for a portion of the program to a rural 
hospital(s) or to a rural nonhospital site(s). We note that ``rural 
track'' and ``integrated rural track,'' for purposes of this 
definition, are synonymous.
    We are amending Sec. 413.86 to add paragraph (g)(11) (and amending 
Sec. 412.105 to add paragraph (f)(1)(x)) to specify that, for direct 
GME, for cost reporting periods beginning on or after April 1, 2000, 
(or, for IME, for discharges occurring on or after April 1, 2000), an 
urban hospital that establishes a new residency program, or has an 
existing residency program, with a rural track (or an integrated rural 
track) may include in its FTE count residents in those rural tracks, in 
addition to the residents subject to the FTE cap at Sec. 413.86(g)(4). 
An urban hospital may count the residents in the rural track up to a 
``rural track FTE limitation'' for that hospital. We are defining this 
rural track FTE limitation at Sec. 413.86(b) as the maximum number of 
residents (as specified at Sec. 413.86(g)(11)(i) through (vi)) training 
in a rural track residency program that an urban hospital may include 
in its FTE count, that is in addition to the number of FTE residents 
already included in the hospital's FTE cap.
    Generally, the rural track policy is divided into two categories: 
Rural track programs in which residents are rotated to a rural area for 
at least two-thirds of the duration of the program; and rural track 
programs in which residents are rotated to a rural area for less than 
two-thirds of the duration of the program. These two categories are 
then subdivided according to where the residents are training in the 
rural area; the residents may be trained in a rural hospital or the 
residents may be trained in a rural nonhospital site. To account for 
rural track residency programs with rural rotations that have program 
lengths greater than or less than 3 years, or that are not ``1-2'' 
programs, we are specifying ``two-thirds of the length of the 
program,'' instead of ``2 out of 3 program years,'' as a qualification 
to count FTEs in the rural track.
    We are specifying that urban hospitals that wish to count FTE 
residents in rural tracks, up to a rural track FTE limitation, must 
comply with the conditions discussed below:
1. Rotating Residents for at Least Two-Thirds of the Program to a Rural 
Hospital(s)
    We are specifying at Sec. 413.86(g)(11)(i) that if an urban 
hospital rotates residents in the rural track program to a rural 
hospital(s) for at least two-thirds of the duration of the program, the 
urban hospital may include those residents in its FTE count for the 
time the rural track residents spend at the urban hospital. The urban 
hospital may include in its FTE count those residents in the rural 
track training at the urban hospital, not to exceed its rural track FTE 
limitation, determined as follows:
     For the first 3 years of the rural track's existence, the 
rural track FTE limitation for each urban hospital will be the actual 
number of FTE residents training in the rural track at the urban 
hospital.
     Beginning with the fourth year of the rural track's 
existence, the rural track FTE limitation is equal to the product of: 
(a) The highest number of residents in any program year who, during the 
third year of the rural track's existence, are training in the rural 
track at the urban hospital or the rural hospital(s) and are designated 
at the beginning of their training to be rotated to the rural 
hospital(s) for at least two-thirds of the duration of the program; and 
(b) the number of years those residents are training at the urban 
hospital.
    We are utilizing the term ``designated'' at Sec. 413.86(g)(11)(i) 
(as well as at Secs. 413.86(g)(11)(ii) and (iv)) to refer to the 
calculation of the rural track FTE limitation. ``Designated'' means 
that the residents must actually have enrolled in that rural track 
program to rotate for a portion of the rural track program to a rural 
area (either rural hospital(s) or rural nonhospital site(s)). To be 
counted as an FTE in this first scenario, these enrolled residents must 
actually rotate for at least two-thirds of the duration of the program 
to a rural hospital(s). If a resident, at the beginning of his or her 
training, intends to train in the rural area for at least two-thirds of 
the duration of the program, but ultimately never does so, this 
resident would be proportionately excluded from the urban hospital's 
FTE count and rural track FTE count.
    We note that if the residents in the rural track are rotating to a 
rural hospital(s), the rural hospital(s) may be eligible to count the 
residents as part of

[[Page 47034]]

its FTE count. If the rural track residency program is a new residency 
program as specified in redesignated Sec. 413.86(g)(12), the rural 
hospital may be eligible to receive an FTE cap adjustment for those 
residents training in the rural track for the time those residents are 
training at the rural hospital(s), in accordance with the provisions of 
existing Sec. 413.86(g)(6)(iii). If the rural track residency program 
is an existing residency program, a rural hospital may be eligible to 
count the FTE residents training in the rural track at the rural 
hospital(s), in accordance with the provisions of Sec. 413.86(g)(4), as 
amended in this interim final rule to implement section 407(b)(1) of 
Public Law 106-113.
2. Rotating Residents for at Least Two-Thirds of the Program to a Rural 
Nonhospital Site
    We are specifying at Sec. 413.86(g)(11)(ii) that if an urban 
hospital rotates residents in the rural track program to a rural 
nonhospital site(s) for at least two-thirds of the duration of the 
program, the urban hospital may include those residents in its FTE 
count, subject to the requirements under existing Sec. 413.86(f)(4). 
The urban hospital may include in its FTE count those residents in the 
rural track, not to exceed its rural track FTE limitation, determined 
as follows:
     For the first 3 years of the rural track's existence, the 
rural track FTE limitation for each urban hospital will be the actual 
number of FTE residents training in the rural track at the urban 
hospital and the rural nonhospital site.
     Beginning with the fourth year of the rural track's 
existence, the rural track FTE limitation is equal to the product of: 
(a) The highest number of residents in any program year who, during the 
third year of the rural track's existence, are training in the rural 
track at the urban hospital and are designated at the beginning of 
their training to be rotated to a rural nonhospital site(s) for at 
least two-thirds of the duration of the program and the rural 
nonhospital site(s); and, (b) the number of years in which the 
residents are expected to complete each program based on the minimum 
accredited length for the type of program.
    We note that we specify at Sec. 413.86(g)(11)(ii) that an urban 
hospital may include in its FTE count those residents in the rural 
track rotating to a rural nonhospital site, subject to the requirements 
under Sec. 413.86(f)(4). The regulations at Sec. 413.86(f)(4) provide, 
in part, that a hospital that incurs ``all or substantially all'' of 
the costs of training residents in a nonhospital site may include those 
residents in determining the number of FTE residents (not to exceed the 
FTE cap) for that hospital. Under this new rural track policy, where 
the urban hospital rotates residents for at least two-thirds of the 
residency program to a rural nonhospital site, the urban hospital would 
be eligible to include in its FTE count residents training in the rural 
track up to its rural track FTE limitation, but the urban hospital must 
still reimburse the rural nonhospital site for the costs of training 
those residents, as specified under Sec. 413.86(f)(4).
    An example of this second scenario is where urban hospital A has a 
new internal medicine residency program that was established July 1, 
1998, and rotates six PGY (program year) 2s and five PGY 3s in the 
third year of the program to rural nonhospital site B. In the third 
year of the program, five PGY 1s who will subsequently rotate to the 
rural nonhospital site are training at hospital A. If hospital A is 
complying with the requirements at Sec. 413.86(f)(4) by incurring all 
or substantially all of the cost of the training at rural nonhospital 
site B, beginning with the fourth year of the program, hospital A will 
receive a rural track FTE limitation of 18 FTEs, because the highest 
number of residents training at either hospital A or rural nonhospital 
site B is six PGY 2s at rural nonhospital site B and the minimum 
accredited length for internal medicine is 3 years (thus, six PGY 2s 
x  3 years = 18 FTEs). (Note that for the first 3 years of the new 
rural track program, the actual count of residents training in the 
rural track at both hospital A and rural nonhospital site B will be 
hospital A's rural track FTE count (and rural track FTE limitation for 
the first 3 years of the new rural track program).)
3. Rotating Residents for Less Than Two-Thirds of the Program to a 
Rural Hospital(s)
    We are specifying at Sec. 413.86(g)(11)(iii) that if an urban 
hospital rotates residents in the rural track program to a rural 
hospital(s) for periods of time that are less than two-thirds of the 
duration of the program, the urban hospital may not include those 
residents in its FTE count (if the urban hospital FTE count exceeds the 
urban hospital FTE cap), nor may the urban hospital include those 
residents when calculating its rural track FTE count. However, we note 
that, in this scenario, if the rural track residency program is a new 
residency program as specified in redesignated Sec. 413.86(g)(12), the 
rural hospital may be eligible to receive an FTE cap adjustment for 
those residents training in the rural track, in accordance with the 
provisions of existing Sec. 413.86(g)(6)(iii). If the rural track 
residency program is an existing residency program, a rural hospital 
may count the FTE residents training in the rural track at the rural 
hospital(s), in accordance with the provisions of Sec. 413.86(g)(4), as 
amended, to incorporate the provisions of section 407(b)(1) of Public 
Law 106-113.
    We are not permitting an urban hospital to count the FTE of 
residents in a rural track rotating to a rural hospital(s) for less 
than two-thirds the duration of the program (either as part of the 
urban hospital's FTE count or as part of its rural track FTE 
limitation), because to do so would inappropriately allow the urban 
hospital to circumvent the FTE caps (assuming the urban hospital's FTE 
count exceeds its FTE cap) by creating a new program with minimal 
training in a rural track. However, in this situation, like the other 
three provisions that concern the training of residents in rural areas, 
we will allow Medicare payment for the rural portion of the training to 
the rural hospital.
4. Rotating Residents for Less Than Two-Thirds of the Program to a 
Rural Nonhospital Site
    We are specifying at Sec. 413.86(g)(11)(iv) that if an urban 
hospital rotates residents in the rural track program to a rural 
nonhospital site(s) for periods of time that are less than two-thirds 
of the duration of the program, the urban hospital may include those 
residents in its FTE count, subject to the requirements under existing 
Sec. 413.86(f)(4). The urban hospital may include in its FTE count 
those residents in the rural track, not to exceed its rural track FTE 
limitation, determined as follows:
     For the first 3 years of the rural track's existence, the 
rural track FTE limitation for the urban hospital will be the actual 
number of FTE residents training in the rural track at the rural 
nonhospital site.
     Beginning with the fourth year of the rural track's 
existence, the rural track FTE limitation is equal to the product of: 
(a) the highest number of residents in any program year who, during the 
third year of the rural track's existence, are training in the rural 
track at the rural nonhospital site(s); and (b) the length of time in 
which the residents are being trained at the rural nonhospital site(s).
    We note that, in this situation, an urban hospital would not be 
able to count the FTE for the rural track

[[Page 47035]]

resident while the resident is training at the urban hospital (unless 
the urban hospital's FTE count does not exceed its FTE cap). The rural 
track FTE count and the rural track FTE limitation for the urban 
hospital would be limited to account for the residents training at the 
rural nonhospital site.
    As in the second scenario at new Sec. 413.86(g)(11)(ii), we are 
specifying at Sec. 413.86(g)(11)(iv) that an urban hospital may include 
in its FTE count those residents in the rural track rotating to a rural 
nonhospital site, subject to the requirements under Sec. 413.86(f)(4). 
Under this new rural track policy, where the urban hospital rotates 
residents for less than two-thirds of the residency program to a rural 
nonhospital site, the urban hospital would be eligible to include in 
its FTE count residents training in the rural track up to its rural 
track FTE limitation, but the urban hospital must still reimburse the 
rural nonhospital site for the costs of training those residents, as 
specified under Sec. 413.86(f)(4).
    We note that, in this last scenario, we are allowing the urban 
hospital to receive a rural track FTE limitation even in situations 
where it is rotating residents to a rural area for a minimal period of 
time (less than two-thirds the duration of the program). We believe 
that this last scenario can be distinguished from the third scenario in 
which the urban hospital is rotating residents to a rural area for a 
minimal portion of the program but to a rural hospital instead of a 
rural nonhospital site. In the third scenario, we are allowing Medicare 
payment to go to the rural hospital for the portion of the urban 
hospital program that involves rural training (but not to the urban 
hospital, since the rural hospital is receiving an FTE cap adjustment 
for that training). However, in the last scenario, we are allowing the 
urban hospital to include the rural track residents in its FTE count 
(and as part of its rural track FTE limitation), based on how long it 
rotates the residents to the rural nonhospital site (and also incurs 
all or substantially all of the training costs). We do not believe that 
the urban hospital can circumvent its FTE cap in this last scenario 
because it will only count the rural track residents based on the 
portion of training in the rural nonhospital site (assuming the urban 
hospital's FTE count exceed its FTE cap).
    An example of this last scenario would be in the situation where 
urban hospital C establishes a new residency program in FY 2001 by 
training six PGY 1s in the first year of the program's existence at the 
urban hospital. In the second year of the program, urban hospital C 
trains six PGY 1s and rotates the (now) six PGY 2s to rural nonhospital 
site D. In the third year of the program, urban hospital C trains seven 
PGY 1s, zero PGY 2s (rotating the six PGY 2s to rural nonhospital site 
D) and six PGY 3s. Urban hospital C would receive a rural track FTE 
limitation of zero FTEs in the first year of the program's existence, 
since urban hospital C did not rotate any residents to a rural 
nonhospital site in that first year; in the second year of the program, 
urban hospital C may count six FTE residents above its FTE cap as its 
second year rural track FTE limitation, since it rotated six PGY 2s to 
rural nonhospital site D in that second year; in the third year of the 
program, urban hospital C may count six FTE residents above its FTE cap 
as its third year rural track FTE limitation, as well, since it rotated 
six PGY 2s to the rural nonhospital site D in the third year. Finally, 
beginning with the fourth year of the rural track program's existence, 
urban hospital C will receive a rural track FTE limitation of seven 
FTEs (seven PGY 1 residents training at urban hospital C that are 
designated to rotate for one year of their training to rural 
nonhospital site D  x  1 year of training at rural nonhospital site D), 
assuming urban hospital C complies with the requirements at 
Sec. 413.86(f)(4) that urban hospital C incurs all or substantially all 
of the costs of training the six residents in rural nonhospital site D.
5. Conditions That Apply to All Urban Hospitals
    We are specifying that all urban hospitals that wish to count FTE 
residents in rural tracks, not to exceed their respective rural track 
FTE limitations, must comply with each of the following conditions, as 
stated at Secs. 413.86(g)(11)(v) and (vi):
    (a) A hospital may not include in its rural track limitation or its 
FTE count (assuming the hospital's FTE count exceeds its cap), FTE 
residents who are training in a rural track residency program that were 
already included as part of the hospital's FTE cap (if the rural track 
program was in existence during the hospital's most recent cost 
reporting period ending on or before December 31, 1996).
    (b) A hospital must base its count of residents in a rural track on 
written contemporaneous documentation that each resident enrolled in a 
rural track program at the urban hospital intends to rotate for a 
portion of the residency program to a rural area. For example, written 
contemporaneous documentation might be a letter of intent signed and 
dated by the rural track residency program director and the resident at 
the time of the resident's entrance into the rural track program as a 
PGY 1.
    (c) All residents who are included by the hospital as part of its 
FTE count (not to exceed its rural track FTE limitation) must 
ultimately train in the rural area.
    (d) If HCFA finds that residents who are included by the urban 
hospital as part of its FTE count did not actually complete the 
training in the rural area, HCFA will reopen the urban hospital's cost 
report within the 3-year reopening period (as specified in 
Sec. 405.1885) and adjust the hospital's Medicare GME payments (and, 
where applicable, the hospital's rural track FTE limitation).

D. Not Counting Against Numerical Limitation Certain Residents 
Transferred From a Department of Veterans Affairs Hospital's Residency 
Program That Loses Accreditation (Section 407(d) of Public Law 106-113 
and new 42 CFR 412.105(f)(1)(xii) and 413.86(g)(10))

    Section 407(d) of Public Law 106-113 addresses the situation where 
residents were training in a residency training program at a Veterans 
Affairs (VA) hospital and then were transferred on or after January 1, 
1997, and before July 31, 1998, to a non-VA hospital because the 
program in which the residents were training would lose its 
accreditation by the ACGME if the residents continued to train at the 
VA hospital. In this situation, the non-VA hospital may receive a 
temporary adjustment to its FTE cap to reflect those residents who were 
transferred to the non-VA hospital for the duration that those 
transferred residents were training at the non-VA hospital. We are 
specifying that, in order to receive this adjustment, the non-VA 
hospital must submit a request to its fiscal intermediary for a 
temporary adjustment to its FTE cap, document that the hospital is 
eligible for this temporary adjustment by identifying the residents who 
have come from the VA hospital, and specify the length of time the 
adjustment is needed.
    We note that section 407(d) of Public Law 106-113 only refers to 
programs that would lose their accreditation by the ACGME. This 
provision does not apply to accreditation by the American Osteopathy 
Association (AOA), the American Podiatry Association (APA), or the 
American Dental Association (ADA).
    Under section 407(d)(3) of Public Law 106-113, this policy is 
effective as if included in the enactment of Public Law 105-33, that 
is, for direct GME, with cost reporting periods beginning

[[Page 47036]]

on or after October 1, 1997, and for IME, discharges occurring on or 
after October 1, 1997. If a hospital is owed payments as a result of 
this provision, payments must be made immediately.
    We are adding new Secs. 412.105(f)(1)(xii) and 413.86(g)(10) to 
incorporate the provisions of section 407(d) of Public Law 106-113.

E. Initial Residency Period for Child Neurology Residency Programs 
(Section 312 of Public Law 106-113 and 42 CFR 413.86(g)(1))

    Generally, section 1886(h)(5)(F) of the Act defines the term 
``initial residency period'' to mean the ``period of board 
eligibility.'' The period of board eligibility is defined in section 
1886(h)(5)(G) of the Act as the period recognized by ACGME as specified 
in the Graduate Medical Education Directory which is published by the 
American Medical Association. The initial residency period limitation 
was designed to limit full Medicare payment for direct GME to the time 
required to train in a single specialty. Therefore, the initial 
residency period is determined based on the minimum time required for a 
resident to become board eligible in a specialty and the published 
periods included in the Graduate Medical Education Directory. During 
the initial residency period, the residents are weighted at 1.0 FTE for 
purposes of Medicare payment. Residents seeking additional specialty or 
subspecialty training are weighted at 0.5 FTE.
    In order to become board eligible in child neurology, residents 
must complete training in more than one specialty. Thus, for example, 
before the effective date of section 312 of Public Law 106-113, if a 
resident enrolled in a child neurology residency program by first 
completing 2 years of training in pediatrics (which is associated with 
a 3-year initial residency period), followed by 3 years of training in 
child neurology, the resident would be limited by the initial residency 
period of pediatrics. Section 312 of Public Law 106-113 amended section 
1886(h)(5) of the Act by adding at the end a clause (v) which states 
that ``in the case of a resident enrolled in a child neurology 
residency training program, the period of board eligibility and the 
initial residency period shall be the period of board eligibility for 
pediatrics plus 2 years.'' (The initial residency period for pediatrics 
is currently 3 years). The amendments made by section 312(a) of Public 
Law 106-113 applies to future child neurology residents and to child 
neurology residents who have already begun their training (for whom an 
initial residency period was already established). However, it does not 
apply to residents who have completed their child neurology training 
before July 1, 2000.
    We are revising Sec. 413.86(g)(1) to reflect that, effective on or 
after July 1, 2000, for residency programs that began before, on, or 
after November 29, 1999, the period of board eligibility and the 
initial residency period for child neurology is now the period of board 
eligibility for pediatrics plus 2 years. We note that the initial 
residency period is the same for all child neurology residents, 
regardless of whether or not the resident completes the first year of 
training in pediatrics or neurology.
    Following are four examples of how a child neurology resident's FTE 
status would be determined:
    Example 1: Assume the resident completes 2 years of training in 
pediatrics followed by 3 years of training in child neurology.
    Before Public Law 106-113:

Year 1: July 1, 1997-June 30, 1998. 1.0 FTE
Year 2: July 1, 1998-June 30, 1999. 1.0 FTE
Year 3: July 1, 1999-June 30, 2000. 1.0 FTE
Year 4: July 1, 2000-June 30, 2001. 0.5 FTE
Year 5: July 1, 2001-June 30, 2002. 0.5 FTE

    After Public Law 106-113:

Year 1: July 1, 1997-June 30, 1998. 1.0 FTE
Year 2: July 1, 1998-June 30, 1999. 1.0 FTE
Year 3: July 1, 1999-June 30, 2000. 1.0 FTE
Year 4: July 1, 2000-June 30, 2001. 1.0 FTE
Year 5: July 1, 2001-June 30, 2002. 1.0 FTE
    Example 2: Assume the resident completes 2 years of training in 
pediatrics followed by 3 years of training in child neurology.
    Before Public Law 106-113:

Year 1: July 1, 1996-June 30, 1997. 1.0 FTE
Year 2: July 1, 1997-June 30, 1998. 1.0 FTE
Year 3: July 1, 1998-June 30, 1999. 1.0 FTE
Year 4: July 1, 1999-June 30, 2000. 0.5 FTE
Year 5: July 1, 2001-June 30, 2001. 0.5 FTE
    After Public Law 106-113:

Year 1: July 1, 1996-June 30, 1997. 1.0 FTE
Year 2: July 1, 1997-June 30, 1998. 1.0 FTE
Year 3: July 1, 1998-June 30, 1999. 1.0 FTE
Year 4: July 1, 1999-June 30, 2000. 0.5 FTE
Year 5: July 1, 2000-June 30, 2001. 1.0 FTE
    Example 3: Assume the resident completes 1 year of neurology 
training, followed by 1 year of pediatrics training, followed by 3 
years of child neurology training.

    Note: The initial residency period for neurology is currently 4 
years.

    Before Public Law 106-113:

Year 1: July 1, 1997-June 30, 1998. 1.0 FTE
Year 2: July 1, 1998-June 30, 1999. 1.0 FTE
Year 3: July 1, 1999-June 30, 2000. 1.0 FTE
Year 4: July 1, 2000-June 30, 2001. 1.0 FTE
Year 5: July 1, 2001-June 30, 2002. 0.5 FTE

    After Public Law 106-113:

Year 1: July 1, 1997-June 30, 1998. 1.0 FTE
Year 2: July 1, 1998-June 30, 1999. 1.0 FTE
Year 3: July 1, 1999-June 30, 2000. 1.0 FTE
Year 4: July 1, 2000-June 30, 2001. 1.0 FTE
Year 5: July 1, 2001-June 30, 2002. 1.0 FTE
    Example 4: Assume the resident completes 1 year of neurology 
training, followed by 1 year of pediatrics training, followed by 3 
years of child neurology training.

    Note: The initial residency period for neurology is currently 4 
years.

    Before Public Law 106-113:

Year 1: July 1, 1996-June 30, 1997. 1.0 FTE
Year 2: July 1, 1997-June 30, 1998. 1.0 FTE
Year 3: July 1, 1998-June 30, 1999. 1.0 FTE
Year 4: July 1, 1999-June 30, 2000. 1.0 FTE
Year 5: July 1, 2000-June 30, 2001. 0.5 FTE

    After Public Law 106-113:

Year 1: July 1, 1996-June 30, 1997. 1.0 FTE
Year 2: July 1, 1997-June 30, 1998. 1.0 FTE
Year 3: July 1, 1998-June 30, 1999. 1.0 FTE
Year 4: July 1, 1999-June 30, 2000. 1.0 FTE
Year 5: July 1, 2000-June 30, 2001. 1.0 FTE

F. Technical Amendment

    It has come to our attention that the first sentence of existing 
Sec. 413.86(g)(1) contains a technical error. The first sentence of 
this paragraph reads ``For purposes of this section, an initial 
residency period is the number of years necessary to satisfy the 
minimum requirements for certification in a specialty or subspecialty, 
plus one year.'' This section of the regulation was revised as a result 
of section 13563(b) of Public Law 103-66, and was effective only until 
June 30, 1995. Generally, effective July 1, 1995, an initial residency 
period is defined as the minimum number of years required for board 
eligibility. Therefore, we are revising the first sentence of paragraph 
(g)(1) of Sec. 413.86 accordingly. The remainder of paragraph (g)(1) of 
Sec. 413.86 is unchanged.

VIII. Additional Payment to Hospitals That Operate Approved Nursing 
and Allied Health Education Programs (Section 541 of Public Law 
106-113 and 42 CFR 413.86(d) and new 413.87)

    Under sections 1861(v) and 1886(a) of the Act, hospitals that 
operate approved nursing or allied health education programs may be 
eligible for the pass-through payment under the prospective payment 
system. Section 1886(h) of the Act establishes the methodology for 
determining payments to hospitals for the direct costs of GME programs. 
Section 1886(h) of the Act, as implemented in regulations at 
Sec. 413.86, specifies that Medicare payments for direct costs of GME 
are based on a prospectively determined per resident amount (PRA). The 
PRA is multiplied by the number of FTE residents working in all areas 
of the hospital complex (and nonhospital sites, where applicable), and 
the hospital's Medicare share of total inpatient days to determine 
Medicare's direct GME payment.
    Section 1886(h)(3)(D) of the Act, as added by section 4624 of 
Public Law 105-33, provides a 5-year phase-in of payments to teaching 
hospitals for direct costs of GME associated with

[[Page 47037]]

services to Medicare+Choice (managed care) enrollees for portions of 
cost reporting periods occurring on or after January 1, 1998. The 
amount of payment for direct GME is equal to the product of the PRA, 
the number of FTE residents working in all areas of the hospital (and 
nonhospital sites, if applicable), the ratio of the number of inpatient 
bed days that are attributable to Medicare+Choice enrollees to total 
inpatient bed days, and an applicable percentage. The applicable 
percentages are 20 percent for portions of cost reporting periods 
occurring in calendar year 1998, 40 percent in calendar year 1999, 60 
percent in calendar year 2000, 80 percent in calendar year 2001, and 
100 percent in calendar year 2002 and subsequent years. (Section 
1886(d)(11) of the Act, as added by section 4622 of Public Law 105-33, 
provides a 5-year phase-in of payments to teaching hospitals for IME 
associated with services to Medicare+Choice enrollees for portions of 
cost reporting periods occurring on or after January 1, 1998, as well. 
However, the Medicare+Choice IME payments are irrelevant for the 
purposes of this section of the interim final rule, because although 
section 541 of Public Law 106-113 affects the payments for 
Medicare+Choice direct GME, it in no way affects the payments for 
Medicare+Choice IME.)
    Section 541 of Public Law 106-113 further amended section 1886 of 
the Act by adding subsection (l) and amending section 1886(h)(3)(D) to 
provide for additional payments to hospitals for nursing and allied 
health education programs associated with services to Medicare+Choice 
enrollees. Hospitals that, under Sec. 413.85, operate approved nursing 
or allied health education programs and receive Medicare reasonable 
cost reimbursement for these programs would receive additional 
payments. This provision is effective for portions of cost reporting 
periods occurring in a calendar year, beginning with calendar year 
2000.
    Section 1886(l) of the Act, as added by section 541 of Public Law 
106-113, specifies the methodology to be used to calculate these 
additional payments and places a limitation on the total amount that is 
projected to be expended in any calendar year; that is, $60 million. In 
this document, we refer to the total amount of $60 million or less as 
the payment ``pool.'' We emphasize that we use the term ``pool'' solely 
for ease of reference; the term reflects an estimated dollar figure, a 
number that is plugged into a formula to calculate the amount of 
additional payments. The term ``pool'' does not refer to a discrete 
fund of money that is set aside in order to make the additional 
payments (thus, for example, if the estimated ``pool'' is $50 million, 
we use the number 50 million to calculate the amount of additional 
payments, but this does not mean that we set aside $50 million in a 
separate fund from which we make the additional payments). The total 
amount of additional payments associated with utilization of 
Medicare+Choice enrollees is based on the ratio of total direct GME 
payments for Medicare+Choice enrollees to total Medicare direct GME 
payments, multiplied by the total Medicare nursing and allied health 
education payments. A hospital would receive its share of these 
additional payments in proportion to the amount of Medicare nursing and 
allied health education payments received in the cost reporting period 
that ended in the fiscal year that is 2 years prior to the current 
calendar year, to the total amount of nursing and allied health 
payments made to all hospitals in that cost reporting period. Section 
541(b) of Public Law 106-113 amended section 1886(h)(3) of the Act to 
provide that direct GME payments for Medicare+Choice utilization will 
be reduced to account for the additional payments that are made for 
nursing and allied health education programs under the provisions of 
section 1886(l) of the Act.
    We are implementing section 541 by establishing regulations at new 
Sec. 413.87 to incorporate the provisions of section 1886(l) of the 
Act. We are specifying the rules for a hospital's eligibility to 
receive the additional payment under section 1886(l), the requirements 
for determining the additional payment to each eligible hospital, and 
the methodologies for calculating each additional payment and for 
calculating the payment ``pool.'' These provisions are discussed below:

A. Qualifying Conditions for Payment

    We are providing that, for portions of cost reporting periods 
occurring on or after January 1, 2000, a hospital that operates a 
nursing or allied health education program in accordance with 
Sec. 413.85 may receive an additional payment amount associated with 
Medicare+Choice utilization if it meets two conditions.
    First, section 541 of Public Law 106-113 directs the Secretary to 
determine the amount of payment for each hospital based on an ``* * * 
estimate of the ratio of the amount of payments made under section 
1861(v) to the hospital for nursing and allied health education 
activities for the hospital's cost reporting period ending in the 
second preceding fiscal year to the total of such amounts for all 
hospitals for such cost reporting periods.'' (Emphasis added). 
Accordingly, we are providing that the hospital must have received 
reasonable cost Medicare payment for a nursing or allied health 
education program(s) in its cost reporting period(s) ending in the 
fiscal year that is 2 years prior to the current calendar year. For 
example, if the current calendar year is calendar year 2000, the fiscal 
year that is 2 years prior to calendar year 2000 is FY 1998. In this 
example, if a hospital did not receive reasonable cost payment for 
approved nursing or allied health education programs in FY 1998, but 
first establishes these programs and receives such payment as specified 
in Sec. 413.85 after FY 1998, the hospital will only be eligible to 
receive an additional payment amount in the calendar year that is 2 
years after the respective fiscal year. For example, if the hospital 
establishes a nursing or allied health program in FY 1999, it will 
first be eligible to receive an additional payment amount in calendar 
year 2001.
    Second, section 541 of Public Law 106-113 states, ``For portions of 
cost reporting periods occurring in a year (beginning with 2000), the 
Secretary shall provide for an additional payment amount for any 
hospital that receives payments for the costs of approved educational 
activities for nurse and allied health professional training * * *.'' 
(Emphasis added). Accordingly, we are specifying that the hospital also 
must be receiving reasonable costs payment for its nursing or allied 
health education program(s) in the current calendar year to receive 
these additional payments for nursing and allied health training.

B. Calculating the Additional Payment Amount

    The Medicare fiscal intermediary will determine if the hospital is 
eligible to receive the additional payment by applying the two criteria 
specified in section VIII.A.1. of this preamble. For portions of cost 
reporting periods occurring on or after January 1, 2000, an eligible 
hospital will receive the additional payment amount calculated 
according to the following steps:
    Step 1: Determine the hospital's total Medicare payments received 
for approved nursing or allied health education programs based on data 
from the settled cost reports for the period(s) ending in the fiscal 
year that is 2 years prior to the current calendar year.
    For example, if the current calendar year is 2000, determine the 
hospital's total nursing or allied health education payments made in 
its cost reporting period ending in FY 1998. If a hospital

[[Page 47038]]

has more than one cost reporting period ending in that fiscal year, the 
fiscal intermediary will sum the nursing and allied health payments 
made to the hospital over those cost reporting periods.
    Step 2: Determine the ratio of the individual hospital's total 
nursing or allied health payments from Step 1, to the total of all 
nursing and allied health education program payments made across all 
hospitals for all cost reporting periods ending in the fiscal year that 
is 2 years prior to the current calendar year.
    To determine these total payments, we will use the best available 
cost reporting data for the applicable hospitals from the Hospital Cost 
Report Information System (HCRIS) that is for cost reporting periods in 
the fiscal year that is 2 years prior to the current calendar year. If 
the necessary data are not included in HCRIS because a hospital files a 
manual cost report, we will obtain the necessary data from the fiscal 
intermediaries that serve those hospitals. If a hospital has more than 
one cost reporting period ending in the fiscal year that is 2 years 
prior to the current calendar year, we will include all of the 
hospital's cost reports for those periods in our calculations. If a 
hospital does not have a cost reporting period ending in the fiscal 
year that is 2 years prior to the current calendar year (such as a 
hospital with a long cost reporting period), the hospital will be 
included in the calculations for the calendar year that is 2 years 
after the fiscal year in which the long cost reporting period ends.
    Each calendar year, HCFA will determine and publish in a proposed 
rule and a final rule the total amount of nursing and allied health 
education payments made across all hospitals during the fiscal year 
that is 2 years prior to the current calendar year.
    Step 3: Multiply the ratio calculated in step 2 by the 
Medicare+Choice nursing and allied health payment ``pool'' (described 
under section VIII.C. of this preamble) that is determined by HCFA for 
the current calendar year.
    The resulting product is each respective hospital's additional 
payment amount. We note that, as evidenced by the methodology outlined 
above, in accordance with section 541 of Public Law 106-113, Congress 
is not requiring each hospital's additional payment amount for a given 
period to be based on the hospital's Medicare+Choice utilization in 
that period.

C. HCFA Calculation of Medicare+Choice Nursing and Allied Health 
Payment ``Pool''

    In accordance with section 1886(l) of the Act, each calendar year, 
HCFA estimates a total amount, not to exceed $60 million, which is the 
basis for determining the additional payments for nursing and allied 
health education associated with Medicare+Choice enrollees to hospitals 
that operate approved nursing or allied health education programs. The 
total amount is calculated in the following manner:
    Step 1: We determine the ratio of projected total Medicare+Choice 
direct GME payments across all hospitals in the current calendar year 
to projected total direct GME payments across all hospitals in the 
current calendar year.
    Step 2: We multiply the ratio calculated in step 1 by projected 
total nursing and allied health education reasonable cost payments 
across all hospitals in the current calendar year.
    The resulting product of Step 1 and Step 2, not to exceed $60 
million, is the Medicare+Choice nursing and allied health payment 
``pool'' for the current calendar year.
    The projections of Medicare+Choice direct GME, direct GME, and 
nursing and allied health payments for a calendar year are based on 
such payments from the best available cost report data from the HCRIS. 
(For example, for calendar year 2000, the projections are based on the 
best available cost report data from HCRIS 1998). These payment amounts 
are then increased to the appropriate calendar year using the increases 
allowed by section 1886(h) of the Act for these services (using the 
percentage applicable for the current calendar year for Medicare+Choice 
direct GME and the Consumer Price Index (CPI) increases for direct GME, 
and assuming nursing and allied health remains a constant percentage of 
inpatient hospital spending).

D. Proportional Reduction to Medicare+Choice Direct GME Payments

    In order for the Secretary to make the additional payments to 
eligible hospitals operating approved nursing or allied health 
education programs, section 1886(h)(3)(D) of the Act, as amended by 
section 541(b) of Public Law 106-113, specifies that the Secretary will 
carve out an estimated percentage of payments that are made to teaching 
hospitals for direct GME associated with services to Medicare+Choice 
enrollees. Specifically, the law provides that the estimated reductions 
in Medicare+Choice direct GME payments must equal the estimated total 
additional Medicare+Choice nursing and allied health education 
payments. Because the data for the components of the formula used to 
calculate this percentage will change each year (due to percentage 
changes in the Medicare+Choice direct GME phase-in, changes in direct 
GME payment amounts, and changes in nursing and allied health education 
payment amounts), we will calculate and publish the applicable 
percentage reduction each year in the proposed rule and the final rule 
for the annual update to the hospital inpatient prospective payment 
system rates. The percentage is estimated by calculating the ratio of 
the Medicare+Choice nursing and allied health payment ``pool'' for the 
current calendar year to the projected total Medicare+Choice direct GME 
payments made across all hospitals for the current calendar year.

E. Calculation of Amounts for Calendar Year 2000

    The total amount of nursing and allied health education payments 
made across all hospitals for cost reporting periods ending in FY 1998, 
that is, 2 fiscal years prior to calendar year 2000, is estimated at 
$220,622,805. We have calculated this amount for FY 2000 based upon 
data from hospitals' cost reporting periods ending during FY 1998 
(October 1, 1997 through September 30, 1998), as provided by section 
541 of Public Law 106-113. (Section VIII.B. of this preamble provides a 
more detailed explanation of how this amount was derived.) We note 
that, if a hospital did not have a cost reporting period ending in FY 
1998, such as a hospital with a long cost reporting period beginning in 
FY 1997 and ending in FY 1999, the hospital was excluded from our 
calendar year 2000 calculations (but will be included in our calendar 
year 2001 calculations). We are including data for 1,257 hospitals in 
the calendar year 2000 calculations. Ten of these hospitals had more 
than one cost reporting period.
    According to the methodology outlined in section VIII.C. of this 
preamble, we have estimated the Medicare+Choice nursing and allied 
health education payment ``pool'' for calendar year 2000 to be 
$26,272,140. The ratio of each hospital's nursing and allied health 
education payments from its cost reporting period ending in FY 1998 to 
total nursing and allied health education payments made from all cost 
reporting periods ending in FY 1998 is then multiplied by $26,272,140 
to determine each hospital's additional

[[Page 47039]]

payment amount (as described in section VIII.B. of this preamble).
    For calendar year 2000, the projected total Medicare+Choice direct 
GME payments made to all hospitals is $250 million. Therefore, 
consistent with the methodology described in section VIII.D. of this 
preamble, the ratio for calendar year 2000 is $26,272,140 to $250 
million, which equals a 10.5 percent reduction to each hospital's 
Medicare+Choice direct GME payment during calendar year 2000.
    Accordingly, for portions of cost reporting periods occurring in 
calendar year 2000, hospitals that receive Medicare+Choice direct GME 
payments will have these payments reduced by 10.5 percent. 
Specifically, each hospital with a calendar year cost reporting period 
that is receiving Medicare+Choice direct GME payments will have those 
payments reduced by 10.5 percent for the period of January through 
December 2000. If a hospital does not have a calendar year cost 
reporting period, then the reductions to its Medicare+Choice direct GME 
payments will depend upon the portion of its cost reporting period that 
falls within the current calendar year. For example, if a hospital has 
an October through September fiscal year, its Medicare+Choice direct 
GME payments from October through December 1999 will not be affected. 
However, the hospital's Medicare+Choice direct GME payments from 
January through September 2000 (from its FY 2000 cost reporting 
period), and its Medicare+Choice direct GME payments from October 
through December 2000 (from its FY 2001 cost reporting period), will be 
reduced by 10.5 percent. Its Medicare+Choice direct GME payments for 
the remainder of its FY 2001 cost reporting period, which extends from 
January through September 2001, will be reduced by the applicable 
percentage for calendar year 2001. Similarly, if a hospital has a July 
through June cost reporting period, its Medicare+Choice direct GME 
payments from July through December 1999 will not be affected. However, 
its Medicare+Choice direct GME payments from January through June 2000, 
and its Medicare+Choice direct GME payments from July through December 
2000, will be reduced by 10.5 percent. Its Medicare+Choice direct GME 
payments for the remainder of its cost reporting period, which extends 
from January through June 2001, will be reduced by the applicable 
percentage for calendar year 2001.
    In general, we note that hospitals that operate both GME and 
nursing or allied health education programs should experience either a 
net gain or loss as a result of this provision, because although their 
Medicare+Choice direct GME payments will be reduced by a certain 
percentage, their Medicare+Choice nursing and allied health payments 
will be increased. However, hospitals that operate only GME programs 
will see their Medicare reimbursement reduced, and hospitals that 
operate only nursing or allied health education programs will see their 
Medicare reimbursement increased.

F. Regulation Changes

    We are adding a new Sec. 413.87 to incorporate the provisions of 
section 541 of Public Law 106-113. In addition, we are making a 
conforming change to Secs. 413.86(d)(4) through (d)(6) to account for 
the revised methodology in determining a hospital's Medicare+Choice 
direct GME payments.

IX. Hospitals and Units Excluded From the Prospective Payment 
System (Section 121 of Public Law 106-113 and 42 CFR 
413.40(c)(4)(iii)(B) and 413.40(c)(4)(v))

A. Limitation on the Target Amounts

    In the August 29, 1997 final rule (62 FR 46018), in accordance with 
section 4414 of Public Law 105-33, we implemented section 1886(b)(3)(H) 
of the Act, which provides for 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 classes of excluded hospitals: 
psychiatric hospitals and units, rehabilitation hospitals and units, 
and long-term care hospitals. In establishing the caps on the target 
amounts within each class of hospital for new hospitals, section 
1886(b)(7)(C) of the Act, as amended by section 4416 of Public Law 105-
33, instructed the Secretary to provide an appropriate adjustment to 
take into account area differences in average wage-related costs. 
However, since the statutory language under section 4414 of Public Law 
105-33 did not provide for the Secretary to account for area 
differences in wage-related costs in establishing the caps on the 
target amounts within each class of hospital for existing hospitals, 
HCFA did not account for wage-related differences in establishing the 
caps on the target amounts for existing facilities in FY 1998.
    Section 121 of Public Law 106-113, which amended section 
1886(b)(3)(H) of the Act, directed the Secretary to provide for an 
appropriate wage adjustment to the caps on the target amounts for 
psychiatric hospitals and units, rehabilitation hospitals and units and 
long-term care hospitals, effective for cost reporting periods 
beginning on or after October 1, 1999, through September 30, 2002. For 
purposes of calculating the caps, section 1886(b)(3)(H)(ii) of the Act 
requires the Secretary to first ``estimate the 75th percentile of the 
target amounts for such hospitals within such class for cost reporting 
periods ending during fiscal year 1996.'' Section 1886(b)(3)(H)(iii) of 
the Act, as added by Public Law 106-113, requires the Secretary to 
provide for ``an appropriate adjustment to the labor-related portion of 
the amount determined under such subparagraph to take into account 
differences between average wage-related costs in the area of the 
hospital and the national average of such costs within the same class 
of hospital.''
    For cost reporting periods beginning in FY 2000, we update the FY 
1996 wage-neutralized national 75th percentile target amount for each 
class of hospital by the market basket percentage increase up through 
FY 2000. For cost reporting periods beginning during FY 2001 through 
2002, we update the previous fiscal year's wage-neutralized national 
75th percentile target amount for each class of hospital by the 
applicable market basket percentage increase. In determining the 
national 75th percentile target amount for each class of hospital and 
consistent with the broad authority conferred on the Secretary by 
section 1886(b)(3)(H)(iii) of the Act (as added by Public Law 106-113) 
to determine the appropriate wage adjustment, we have accounted for 
differences in wage-related costs by adjusting the caps on the target 
amounts for each class of hospital (psychiatric, rehabilitation, and 
long-term care) using the methodology described in the following 
section.

B. Wage-Neutralized National 75th Percentile Target Amounts

    In determining the wage-neutralized national 75th percentile target 
amount for each class of hospital, we used FY 1996 hospital cost report 
data and determined the labor-related portion of each hospital's FY 
1996 target amount by multiplying its target amount by the most recent 
actuarial estimate of the labor-related portion of excluded hospital 
costs (or 0.71553). This actuarial estimate of the labor-related share 
of excluded hospital costs reflects revisions made in connection with 
other revisions to the excluded hospital market basket published in the 
August 29, 1997 final rule (62 FR 45996). Based on the most recent 
estimate of the relative weights of the labor cost

[[Page 47040]]

categories (wages and salaries, employee benefits, professional fees, 
postal services, and all other labor intensive services), the labor-
related portion is 71.553 percent. The remaining 28.447 percent is the 
most recent estimate of the nonlabor-related portion. Similarly, we 
determined the nonlabor-related portion of each hospital's FY 1996 
target amount by multiplying its target amount by the actuarial 
estimate of the nonlabor-related portion of costs (or 0.28447).
    Next, we wage-neutralized each hospital's FY 1996 target amount by 
dividing the labor-related portion of each hospital's FY 1996 target 
amount by the hospital's FY 2000 hospital wage index under the hospital 
inpatient prospective payment system (see Sec. 412.63), as shown in 
Tables 4A and 4B of the July 30, 1999 final rule (64 FR 41585). The FY 
2000 wage index is the most current wage index available. Moreover, the 
FY 2000 hospital inpatient prospective payment system wage index was 
calculated using FY 1996 data. Within the specified class of hospital, 
each hospital's FY 1996 target amount was wage-neutralized using the 
published FY 2000 wage index. Each hospital's wage-neutralized FY 1996 
target amount was calculated by adding the nonlabor-related portion of 
its target amount and the wage-neutralized labor-related portion of its 
target amount.
    This methodology for wage-neutralizing each hospital's target 
amount to determine the national 75th percentile of the target amounts 
for each class of hospital is identical to the methodology we utilized 
for the wage index adjustment described in the August 29, 1997 final 
rule (62 FR 46020) to calculate the wage-adjusted 110 percent of the 
national median target amounts for new excluded hospitals and units. 
Again, we recognize that wages may differ for prospective payment 
hospitals and excluded hospitals and units, but we believe that the 
wage data reflect area differences in wage-related costs.
    In light of the short timeframe we have for implementing section 
121 of Public Law 106-113 for cost reporting provisions beginning in FY 
2000, the FY 2000 wage data for acute care hospitals was the most 
feasible data source to determine the wage-neutralized national 75th 
percentile target amounts since reliable wage data for hospitals and 
hospital units excluded from the prospective payment system is not 
available.
    Within each class of hospital, the wage-neutralized national 75th 
percentile target amounts were determined by arraying the hospitals' 
wage-neutralized FY 1996 target amounts. The wage-neutralized national 
75th percentile target amount for each class of hospital is then 
separated into a labor-related share and a nonlabor-related share based 
on actuarial estimates of 71.553 percent labor-related share and 28.447 
percent nonlabor-related share.
    In the July 30, 1999 final rule (64 FR 41557), based on the 
national 75th percentile of the target amounts for cost reporting 
periods ending during FY 1996 (which did not account for area wage-
related differences), updated by the market basket percentage increase 
to FY 2000, we had established the caps on the target amounts for 
existing excluded hospitals and units as follows:
     Psychiatric hospitals and units: $11,100
     Rehabilitation hospitals and units: $20,129
     Long-term care hospitals: $39,712
    Using the wage-neutralized national 75th percentile of the target 
amounts for cost reporting periods ending during FY 1996, updated by 
the applicable market basket percentage increase to FY 2000, and the 
wage adjustment provided for under the amendments made by Public Law 
106-113, we are establishing the labor-related share and nonlabor-
related share of the FY 2000 wage-neutralized national 75th percentile 
target amounts for each class of hospital to determine a hospital's FY 
2000 cap on the target amount as follows:

----------------------------------------------------------------------------------------------------------------
                                                                              Labor-related    Nonlabor-related
                     Class of excluded hospital or unit                           share              share
----------------------------------------------------------------------------------------------------------------
Psychiatric................................................................           $7,863              $3,126
Rehabilitation.............................................................           14,666               5,831
Long-Term Care.............................................................           28,321              11,259
----------------------------------------------------------------------------------------------------------------

    We note that the March 2000 Program Memorandum (Transmittal Number 
A-00-16) issued to all Medicare fiscal intermediaries listed incorrect 
amounts for the labor-related portion and nonlabor-related portion of 
the wage-neutralized caps on the target amounts for FY 2000. The FY 
2001 proposed rule (65 FR 26314) also listed incorrect amounts for the 
labor-related portion and nonlabor-related portion of the proposed FY 
2001 wage-neutralized national 75th percentile caps on the target 
amounts. The correct labor-related and nonlabor-related portions of the 
wage-neutralized national 75th percentile cap on the target amount for 
FY 2000 for each class of hospital are listed above. The correct labor-
related and nonlabor-related portions of the FY 2001 wage-neutralized 
national 75th percentile caps on the target amounts for each class of 
hospital will be included in the FY 2001 hospital inpatient prospective 
payment system final rule to be published by August 1, 2000.
    The estimates of the national 75th percentile of the target amounts 
were developed from the best available data on the hospital-specific 
target amounts for cost reporting periods ending during fiscal year 
1996 and then updated by the market basket percentage increase for FY 
2000. We used the data that have been reported to HCFA for over 3,000 
hospitals and units within the three classes of hospitals specified by 
the statute. We note that, with respect to long-term care hospitals, we 
used the same data (provider universe and target amount figures for 
hospitals within that class) as were used to establish the caps on the 
target amounts for long-term care hospitals published in the May 12, 
1998 final rule (63 FR 26347). The data for psychiatric hospitals and 
units and rehabilitation hospitals and units used to establish the caps 
on the target amounts for these classes of hospitals included updates 
to the hospital's FY 1996 target amounts resulting from settling cost 
reports that previously had not been settled prior to August 1997 when 
the final rule establishing the caps on the target amounts for existing 
excluded hospitals was published.

C. Wage-Adjusted Target Amounts

    We are specifying that, within each class of hospital, a hospital's 
wage-adjusted cap on the target amount per discharge for FY 2000 is 
determined by adding the hospital's nonlabor-related portion of the 
wage-neutralized national 75th percentile cap to its wage-adjusted 
labor-related portion of the national 75th percentile cap. A hospital's 
wage-adjusted labor-related portion of the target amount is calculated 
by multiplying the labor-related portion of the wage-neutralized 
national 75th

[[Page 47041]]

percentile cap for the hospital's class by the hospital's applicable 
wage index. For FY 2000, a hospital's applicable wage index is the wage 
index under the hospital inpatient prospective payment system (see 
Sec. 412.63) for cost reporting periods beginning on or after October 
1, 1999, and ending on or before September 30, 2000 as shown in Tables 
4A and 4B of the July 30, 1999 final rule (64 FR 41585). The FY 1996 
wage-neutralized national 75th percentile target amount for each class 
of hospital updated through FY 2000 by the applicable market basket 
percentage increase for excluded hospitals and hospital units used to 
determine a hospital's limitation on its FY 2000 target amount. For FY 
2000, a hospital's FY 2000 limitation on its target amount is used to 
determine payments for excluded hospitals and units under 
Sec. 413.40(d). The FY 2000 acute care hospital wage index is used to 
wage-adjust the labor-related portion of the FY 2000 wage-neutralized 
national 75th percentile target amount within the specified class of 
hospital since it is used to provide for an appropriate wage adjustment 
by accounting for differences in area wage-related costs in FY 2000 
hospital inpatient prospective payment system payments. As we stated 
previously in this section, we recognize that wages may differ for 
prospective payment hospitals and excluded hospitals and units, but we 
believe that these wage data reflect area differences in wage-related 
costs. A hospital's applicable wage index is the wage index value for 
the area in which the hospital or unit is physically located (MSA or 
rural area) without taking into account prospective payment system 
hospital reclassification under section 1886(d)(10) of the Act, and 
section 1886(d)(8) of the Act as amended by section 401 of Public Law 
106-113.

D. Changes in the Regulations

    We are revising Secs. 413.40(c)(4)(iii)(B) and (c)(4)(v) to 
incorporate the changes in the methodology used to determine the 
limitation on the target amounts for psychiatric hospitals and units, 
rehabilitation hospitals and units, and long-term care hospitals, as 
provided for under the amendments made by section 121 of Public Law 
106-113.

X. Critical Access Hospitals (CAHs)

A. Background: The Medicare Rural Hospital Flexibility Program and CAHs

    Section 4201 of Public Law 105-33 amended section 1820 of the Act 
to create a nationwide Medicare Rural Hospital Flexibility (MRHF) 
Program to replace the 7-State Essential Access Community Hospital/
Rural Primary Care Hospital (EACH/RPCH) program. Under section 
1820(c)(2) of the Act, as amended, a State could designate certain 
rural hospitals as CAHs if they were located a specified distance from 
other hospitals, made 24-hour emergency care available, and kept 
inpatients for a limited period of time. Additionally, CAH staffing 
requirements differed from those of other hospitals under Medicare and 
CAHs received payment for inpatient and outpatient services on the 
basis of reasonable cost. A comprehensive discussion of CAHs within the 
context of the MRHF Program may be found in the August 29, 1997 Federal 
Register (62 FR 45970 and 46008-46010).
    Sections 401(b) and 403 of Public Law 106-113 modified the CAH 
program set forth in section 1820 of the Act.

B. Permitting Certain Facilities To Be Designated as CAHs (Section 
401(b) of Public Law 106-113 and 42 CFR 485.610)

    One of the threshold criteria for designation as a CAH under 
section 1820(c)(2)(B)(i) of the Act is that the hospital must be rural 
as defined in section 1886(d)(2)(D) of the Act. Section IV. of this 
preamble discusses the option of urban to rural classification for a 
``subsection (d)'' hospital authorized by section 401(a) of Public Law 
106-113 under an amendment to section 1886(d)(8) of the Act. Section 
401(b)(2) of Public Law 106-113 amended section 1820(c)(2)(B)(i) of the 
Act to authorize a State to designate a hospital in an urban area as a 
CAH if, under one of the criteria set forth in section 1886(d)(8)(E) of 
the Act, it would be treated as being located in the rural area of the 
State in which the hospital is located. Section 401(b)(2) only provides 
authority for a hospital to meet the rural requirement. We note that 
the hospital would have to otherwise meet the statutory and regulatory 
requirements governing CAH designation.
    The first criteria in section 401(a) specified that a hospital will 
be treated as located in a rural area if the hospital is located in a 
rural census tract of an MSA, as determined under the most recent 
Goldsmith Modification, originally published in the Federal Register on 
February 27, 1992. A listing of existing hospitals that may qualify as 
CAHs because they are located in Goldsmith areas is included in 
Appendix B of this interim final rule with comment period.
    The application procedures and effective dates for an urban 
hospital seeking to reclassify as rural and thus eligible for CAH 
designation are set forth in the new regulation at Sec. 412.103 that 
implements section 401(a), and discussed in section IV.C. of this 
interim final rule with comment period. We also are revising the 
regulation concerning CAH location at Sec. 485.610(b) to reflect this 
amendment.

C. Other Legislative Changes Affecting CAHs

1. 96-hour Average Length of Stay Standard (Section 403(a) of Public 
Law 106-113 and 42 CFR 485.620(b))
    Prior to the enactment of Public Law 106-113, section 
1820(c)(2)(B)(iii) of the Act limited CAH designation only to 
facilities that provided inpatient care to each patient for a period of 
time not to exceed 96 hours, unless a longer period was required 
because of inclement weather or other emergency conditions, or a peer 
review organization (PRO) or equivalent entity, on request, waived the 
96-hour restriction. Section 403(a) of Public Law 106-113 amended 
section 1820(c)(2)(B)(iii) of the Act to require that the 96-hour limit 
on stays be applied on an annual average basis, and to delete the 
provisions regarding waiver of longer stays. Therefore, CAHs will be 
permitted to keep some individual patients more than 96 hours without a 
waiver request, so long as the facility's average length of acute stays 
in any 12-month cost reporting period is not more than 96 hours.
    The effective date of this provision is November 29, 1999.
    We are revising the conditions of participation for length of stay 
for CAHs at Sec. 485.620(b) to reflect this change.
2. For-Profit Facilities (Section 403(b) of Public Law 106-113 and 42 
CFR 485.610(a))
    Prior to enactment of Public Law 106-113, section 1820(c)(2)(B) of 
the Act allowed only nonprofit or public hospitals to be designated as 
CAHs. Section 403(b) of Public Law 106-113 revises section 
1820(c)(2)(B) of the Act to remove the words ``nonprofit or public'' 
before ``hospitals,'' thus enabling for-profit hospitals to qualify for 
CAH status.
    We are revising the conditions of participation related to the 
status and location for CAHs at Sec. 485.610(a) to reflect this change.
3. Closed and Downsized Hospitals (Section 403(c) of Public Law 106-113 
and 42 CFR 485.610(a)(1))
    Under section 1820(c)(2) of the Act, CAH designation was available 
only to facilities currently operating as hospitals. Section 403(c) of 
Public Law 106-113 amended the statute to permit

[[Page 47042]]

a State to designate as a CAH a facility that previously was a hospital 
but ceased operations on or after November 29, 1989 (10 years prior to 
the enactment of Public Law 106-113), if that facility fulfills the 
criteria under section 1820(c)(2)(B) of the Act for CAH designation as 
of the effective date of its designation. The amendment also allows 
State CAH designation for facilities that previously had been 
hospitals, but are currently State-licensed health clinics or health 
centers if they meet the revised criteria for CAH designation under 
section 1820(c)(2)(B) of the Act as of the effective date of 
designation.
    We are revising the CAH criteria for State certification at 
Sec. 485.610(a)(1) to reflect this change.
4. Elimination of Coinsurance for Clinical Diagnostic Laboratory Tests 
Furnished by a CAH (Section 403(e) of Public Law 106-113 and 42 CFR 
410.152 and 413.70))
    Under the law in effect before the enactment of Public Law 106-113, 
clinical diagnostic laboratory services furnished by a CAH to its 
outpatients were, like other outpatient CAH services, paid for on a 
reasonable cost basis, subject to the Part B deductible and coinsurance 
provisions. With respect to coinsurance, this means that the 
beneficiary was responsible for payment of 20 percent of the CAH's 
customary charges for the services and the CAH received payment from 
the Medicare program equal to 80 percent of its reasonable costs of 
furnishing the services.
    Section 403(e) of Public Law 106-113 eliminated the Part B 
coinsurance and deductible for laboratory tests furnished by a CAH on 
an outpatient basis by providing for Medicare payment to the full 
amount of the lesser of the fee schedule or billed charges. Thus, CAHs 
are not permitted to impose a deductible or coinsurance charge on the 
beneficiary for these services, and Medicare Part B is to pay 100 
percent of the lesser of the amount determined under the local 
laboratory fee schedule, the national limitation amount for that test, 
or the amount of the charges billed for the tests. In the case of 
services paid for on the basis of a negotiated rate under section 
1833(h)(6) of the Act, the amount to be paid is equal to 100 percent of 
the negotiated rate. The effect of this change is that clinical 
diagnostic laboratory tests furnished by a CAH to its outpatients will 
be paid for on the same basis as is paid for these services furnished 
by all hospitals to outpatients.
    Section 403(e)(2) of Public Law 106-113 provides that this 
provision is effective with respect to services furnished on or after 
November 29, 1999.
    We are clarifying our policy and incorporating the provisions of 
section 403(e) of Public Law 106-113 in Secs. 410.152 and 413.70 of the 
regulations.
    Since enactment of Public Law 106-113, we have received many 
inquiries from the provider community about implementation of section 
403(e). In response, we wish to note that revised payment instructions 
were issued in June 2000 as Medicare Intermediary Manual Transmittal 
No. 1799 and as Medicare Hospital Manual Transmittal No. 757, and that 
needed Part B electronic bill processing system changes will be made as 
soon as possible. The payment instructions explain that CAHs are to no 
longer collect deductible or coinsurance for these services and that 
any amounts collected from beneficiaries for these services provided on 
or after November 29, 1999, are to be returned to the beneficiaries in 
an appropriate and timely manner. The instructions also explain that 
payments to CAHs for the services will be adjusted, at cost report 
settlement, to reflect the payment method required by section 403(e).
5. Participation in Swing-Bed Program (Section 403(f) of Public Law 
106-113)
    Section 403(f) of Public Law 106-113, entitled ``Improvements in 
the Critical Access Hospital Program,'' includes a provision on swing-
bed agreements. Since our existing regulations at Sec. 485.645 already 
provide for swing beds in CAHs, we are not making any changes to our 
regulations based on this provision.

XI. Hospital Swing-Bed Program

    Section 408(a) of Public Law 106-113 amended section 1883(b) of the 
Act to remove the provision that in order for a hospital to enter into 
an agreement to provide Medicare post-hospital extended care services, 
the hospital had to be granted a certificate of need for the provision 
of long-term care services from the State health planning and 
development agency (designated under section 1521 of the Public Health 
Service Act) for the State in which the hospital is located. Section 
408(b) of Public Law 106-113 amended section 1883(d) of the Act to 
remove the provisions under paragraphs (d)(2) and (d)(3) that placed 
restrictions on lengths of stays in hospitals with more than 49 beds 
for post-hospital extended care services. These provisions are 
effective on the first day after the expiration of the transition 
period under section 1888(e)(2)(E) of the Act for payment for covered 
skilled nursing facility (SNF) services under the Medicare program; 
that is, at the end of the transition period for the SNF prospective 
payments system that began with the facility's first cost reporting 
period beginning on or after July 1, 1998 and extend through the end of 
the facility's third cost reporting period after this date.
    The Medicare regulations that implemented the provision of section 
1883(b) of the Act are located at Sec. 482.66(a)(3). The regulations 
that implemented the provisions of sections 1883(d)(2) and (d)(3) of 
the Act are located at Secs. 482.66(a)(6) and (a)(7). As a result of 
the changes made by section 408(a) and (b) of Public Law 106-113, we 
are removing Secs. 482.66(a)(3), (a)(6), and (a)(7). (Existing 
paragraphs (a)(4) and (a)(5) are being redesignated as (a)(3) and 
(a)(4) respectively as a result of the removal of existing paragraph 
(a)(3).)

XII. Waiver of Notice of Proposed Rulemaking and Delay in the 
Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of the rule take effect. However, section 1871(b) of the Act 
provides that publication of a notice of proposed rulemaking is not 
required before a rule takes effect where ``a statute establishes a 
specific deadline for the implementation of the provision and the 
deadline is less than 150 days after the date of enactment of the 
statute in which the deadline is contained.'' In addition, we may waive 
a notice of proposed rulemaking if we find good cause that notice and 
comment are impracticable, unnecessary, or contrary to the public 
interest.
    On July 30, 1999, we published a final rule addressing FY 2000 
payment rates and policies for prospective payment system hospitals and 
excluded hospitals (64 FR 41490). Subsequently, on November 29, 1999, 
Public Law 106-113 was enacted. Public Law 106-113 contained a number 
of provisions relating to issues addressed in the final rule that have 
effective dates of October 1, 1999, November 29, 1999, or dates prior 
to the beginning of FY 2001 (that is, October 1, 2000).
    In accordance with section 1871(b) of the Act, publication of a 
notice of proposed rulemaking is not required before implementing the 
statutory provisions of Public Law 106-113 that take effect on October 
1, 1999, November 29, 1999, January 1, 2000, or

[[Page 47043]]

April 1, 2000. In addition, we find good cause to waive prior notice 
and comment procedures with respect to the provisions of this interim 
final rule with comment period that implement the specified provisions 
of Public Law 106-113 with these effective dates (except for sections 
404 and 408), because the statutory provisions implemented by this 
document are clear and specific. Moreover, it would be impracticable to 
undertake such procedures before those provisions take effect, given 
the extremely short timeframe for implementing these statutory 
provisions.
    Sections 404 and 408 are both provisions of Public Law 106-113 that 
contain changes to programs that have prospective effective dates after 
October 1, 2000. However, these provisions are specific and leave no 
room for further interpretation. That is, section 404 extends the MCH 
program as it is currently operated from FY 2002 through 2006. Sections 
408(a) and (b) remove two provisions relating to implementation of the 
hospital swing-bed provision under sections 1883(b) and (d) that are 
effective on the first day after the expiration of the transition 
period under section 1888(e)(2)(E) of the Act for payment for covered 
SNF services; that is at the end of the transition period for the SNF 
prospective payments system that began with the facility's first cost 
reporting period beginning on or after July 1, 1998, and extend through 
the end of the facility's third cost reporting period after that date. 
These provisions of Public Law 106-113 require no exercise of 
discretion and we are merely conforming the Medicare regulations to the 
statute.
    We are providing a 30-day period for public comments on all of 
these provisions.
    This rule has been determined to be a major rule as defined in 
Title 5, United States Code, section 804(2). Ordinarily, under 5 U.S.C. 
801, as added by section 251 of Public Law 104-121, major rule shall 
take effect 60 days after the later of (1) the date a report on the 
rule is submitted to Congress or (2) the date the rule is published in 
the Federal Register. However, section 808(2) of Title 5, United States 
Code, provides that, notwithstanding 5 U.S.C. 801, a major rule shall 
take effect at such time as the Federal agency promulgating the rule 
determines, if, for good cause, the agency finds that notice and public 
procedure are impracticable, unnecessary, or contrary to the public 
interest. As indicated above, for good cause we find that it was 
impracticable to complete notice and comment procedures before 
publication of this rule and to delay the effective date of this rule . 
Accordingly, pursuant to 5 U.S.C. 808, these regulations are effective 
August 1, 2000.

XIII. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. Comments on the 
provisions of this interim final rule with comment period will be 
considered if we receive them by the date specified in the DATES 
section of this preamble.

XIV. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this interim final rule with 
comment period as required by Executive Order 12866 and the Regulatory 
Flexibility Act (RFA) (Pub. L. 96-354). Executive Order 12866 directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
annually). The RFA requires agencies to analyze options for regulatory 
relief of small businesses. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations and government 
agencies. Most hospitals and most other providers and suppliers are 
small entities, either by nonprofit status or by having revenues of $5 
million or less annually. For purposes of the RFA, all hospitals are 
considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    Also, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $100 million. This interim final rule with comment 
period does not mandate any requirements for State, local, or tribal 
governments.
    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. 
We are providing below, in combination with the rest of this interim 
final rule with comment period, a discussion of the regulatory impact 
on providers of the various provisions of Public Law 106-113 
implemented in this interim final rule with comment period for which we 
are able to compute estimates of fiscal impact. Two sections of Public 
Law 106-113, sections 401 and 403, authorize certain hospitals to 
reclassify into different payment categories or apply for designation 
as a different class of provider. Since we have no way of anticipating 
how many hospitals will avail themselves of these options, we cannot 
predict the financial impact on the Medicare program of these 
provisions. The total anticipated impact of the provisions for which we 
can gather data is $400 million for FY 2000. These provisions, along 
with those for which data cannot be predicted, are discussed below.

B. Anticipated Effects

1. Impact of Changes Relating to the IME Adjustment Factor Schedule
    As discussed in section VI. of this interim final rule with comment 
period, we are implementing the revised transition schedule for the IME 
adjustment for FY 2000. Section 111 of Public Law 106-113 provides for 
special payments to be made to each hospital to reflect the amount of 
IME payments if the payment factor for FY 2000 equaled 1.6 rather than 
1.47.
    For the purposes of this interim final rule, we have simulated the 
difference in IME payments due to the change described above based on 
the figures we used for computing the proposed FY 2001 prospective 
payment system rates. We have estimated that, for FY 2000, the total 
increase in IME payments to teaching hospitals is approximately $342.2 
million, or 0.81 percent.
2. Impact on Excluded Hospitals and Units
    We are implementing section 121(a) of Public Law 106-113, which 
amended section 1886(b)(3)(H) of the Act to direct the Secretary to 
make an appropriate wage adjustment to the 75th percentile cap on 
target amounts for psychiatric

[[Page 47044]]

hospitals and units, rehabilitation hospitals and units, and long-term 
care hospitals, established in FY 1998 by section 4414 of Public Law 
105-33. The data sources for determining the wage-neutralized national 
75th percentile target amounts were FY 1996 cost report data and the FY 
2000 inpatient hospital prospective payment system wage index data.
    Prior to the enactment of Public Law 106-113, target amounts for 
these hospitals were set, in accordance with the regulations at 
Sec. 413.40(c)(4)(iii), at the lesser of the hospital-specific target 
amount or the national 75th percentile target amount, which was not 
adjusted to account for area differences in wage-related costs. Public 
Law 106-113 amended the regulations at Sec. 413.40(c)(4)(iii) to 
specify that target amounts for FY 2000 for psychiatric hospitals and 
units, rehabilitation hospitals and units, and long-term care hospitals 
are set at the lesser of the hospital-specific target amount or the 
wage-adjusted cap on the target amount, which is derived from the 
national 75th percentile wage-neutralized target amount for each class 
of hospital.
    In order to estimate the impact of the wage-adjusted target amounts 
on hospitals within each class, we first calculated the target amount 
for each hospital as it was set under section 4414 of Public Law 105-
33. Each hospital's target amount was set at the lesser of the 
hospital's hospital-specific target amount or the national 75th 
percentile target amount. In accordance the regulations at 42 CFR 
413.40(d), we then compared the resulting target amount to the 
hospital's costs per discharge.
    Taking into account the provisions of section 123(a) of Public Law 
106-113, we then repeated the comparative calculations described above, 
replacing the national unadjusted 75th percentile target amount with 
each hospital's wage-adjusted target amount. The results were compared 
to show the estimated impact on these classes of hospitals and units as 
follows:

                                       Percent of Total Providers By Type
----------------------------------------------------------------------------------------------------------------
                                                                              Percent of free-     Percent of
                           Class of hospital/unit                                 standing       hospital-based
                                                                                  hospitals           units
----------------------------------------------------------------------------------------------------------------
Psychiatric.................................................................              30.7              69.3
Rehabilitation..............................................................              16.4              83.6
Long-Term Care..............................................................             100.0            (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.


                                Percent of Total Providers By Geographic Location
----------------------------------------------------------------------------------------------------------------
                                                            Percent of large  Percent of other
                  Class of hospital/unit                          urban             urban       Percent of rural
----------------------------------------------------------------------------------------------------------------
Psychiatric...............................................              48.3              33.5              18.2
Rehabilitation............................................              49.8              38.1              12.1
Long Term Care............................................              68.6              23.1               8.3
----------------------------------------------------------------------------------------------------------------


                                     Net Change in FY 2000 Cap Per Discharge
----------------------------------------------------------------------------------------------------------------
                                                              Unadjusted FY    Wage-neutral FY
                  Class of hospital/unit                       2000 target       2000 target     Net percentage
                                                               amount \1\          amount            change
----------------------------------------------------------------------------------------------------------------
Psychiatric...............................................           $11,100           $10,990              -1.0
Rehabilitation............................................            20,129            20,496              +1.8
Long-Term Care............................................            39,712            39,580             -0.3
----------------------------------------------------------------------------------------------------------------
\1\ As published in the July 30, 1999 Final Rule (64 FR 41557).


                                         Net Change by Class of Hospital
----------------------------------------------------------------------------------------------------------------
                                                               Percent of        Percent of        Percent of
                                                                Providers         providers         providers
                  Class of hospital/unit                      estimated to      estimated to      estimated to
                                                               experience       experience no      experience
                                                             negative impact       impact       positive impacts
----------------------------------------------------------------------------------------------------------------
Psychiatric...............................................               6.7              87.7               5.6
Rehabilitation............................................               2.5              95.0               2.5
Long-Term Care............................................               6.5              90.2               3.3
----------------------------------------------------------------------------------------------------------------

    The impact of the wage-adjusted caps on target amounts on excluded 
hospitals and units (psychiatric, rehabilitation, and long-term care) 
was estimated based on FY 1996 data as this was the most complete data 
source available. The target amounts (hospital-specific targets, 75th 
percentile targets, and wage-adjusted targets) and costs compared in 
this estimated impact analysis were trended forward to account for 
inflation through FY 2000.
    When comparing the costs to target amounts to determine the impact 
on hospitals, we did not attempt to determine the impact on incentive 
payments, continuous improvement bonus payments, or other payment 
adjustments for excluded hospitals outlined in the regulations at 
Sec. 413.40(d). The actual impact on payments to each class of hospital 
depends on the cost experienced by each excluded hospital or unit since 
its

[[Page 47045]]

applicable base period. It is important to note that while the 
providers whose hospital-specific target amounts exceed the wage-
adjusted cap on the target amounts will have their target amounts 
reduced to their wage-adjusted target amount, the real impact on each 
hospital and unit will depend on the level of its operating cost per 
discharge in relation to its target amount as outlined in at 
Sec. 413.40(d).
    As discussed in the preceding paragraphs, excluded hospital 
payments are calculated based on the lesser of costs per discharge or 
the target amount as set forth under Sec. 413.40(c)(4)(iii). 
Consequently, the fact that the wage-neutralized national 75th 
percentile target amounts decreased slightly for both psychiatric 
hospitals and units and long-term care hospitals does not necessarily 
imply lower payments.
    Approximately 75 percent of the hospitals and units in each of 
these classes have hospital-specific target amounts lower than both the 
unadjusted and wage-neutralized target amounts, and of those hospitals 
and units whose hospital-specific target amounts are higher than both 
the unadjusted and wage-neutralized target amounts, many have costs 
lower than their target amounts. Consequently, as shown in the table 
``Net Change by Class of Hospital,'' most hospitals and hospital units 
do not appear to experience an impact from the wage-adjustment to the 
target amounts.
    Among those hospitals that do appear to experience an impact from 
the wage-adjustment to the target amount, the wage-index associated 
with their location is an indicator in determining whether that impact 
is positive or negative. Since the wage-neutralized target amounts are 
wage-adjusted using the hospital inpatient prospective payment system 
wage index, hospital's located in areas with wage-index values greater 
than one will have higher wage-adjusted target amounts relative to 
hospitals located in areas with wage-index values less than one.
3. Impact of Provisions on Reclassification of Hospitals
    We are implementing section 401(a) of Public Law 106-113, which 
added a new section 1886(d)(8)(E) to the Act that directs the Secretary 
to treat any hospital located in an urban area as being located in the 
rural area of a State if the hospital files an application and meets 
certain criteria specified in the statute.
    The number of hospitals that will seek to reclassify from urban to 
rural is unknown at this time. However, generally, reclassification may 
affect payment rates under the prospective payment system, wage index 
calculations, and DSH, SCH, and IME adjustments.
4. Impact of Provisions on CAHs
    We are implementing sections 401(b) and 403 of Public Law 106-113, 
which made a number of modifications to the CAH program under section 
1820 of the Act. Specifically, it--
     Authorizes a State to designate a hospital as a CAH if, as 
set forth in the section 401(a) criteria for a hospital to be eligible 
to request reclassification from urban to rural, it would be considered 
as being located in the rural area of the State in which the hospital 
is located.
     Requires the 96-hour limit on stays in CAHs to be applied 
on an annual average basis and deletes the provisions regarding waiver 
for longer stays.
     Provides that for-profit hospitals may qualify for CAH 
status.
     Permits a State to designate as a CAH a facility that 
previously was a hospital but ceased operations on or after November 
29, 1989 if that facility fulfills the criteria under section 
1820(c)(2)(B) of the Act as of the effective date of its designation.
     Permits a State to designate as a CAH a facility that was 
once a hospital that downsized and now functions as a State licensed 
health clinic or health center, if the facility meets criteria under 
section 1820(c)(2)(B) of the Act as of the effective date of its 
designation.
     Eliminates the coinsurance and deductible for outpatient 
clinical diagnostic laboratory tests furnished by a CAH and requires 
that such tests be paid for on the same basis as would apply if the 
tests had been performed on an outpatient basis.
     Reaffirms the eligibility of CAHs that meet the applicable 
requirements to enter into ``swing-bed'' agreements, thus permitting 
inpatient CAH facilities to be used for furnishing of extended care 
services type (SNF) services.
    The number of facilities that qualify as CAHs will increase as a 
consequence of the Public Law 106-113 amendments to the CAH program. 
CAHs are paid on a reasonable cost basis rather than under the 
prospective payment system. The budgetary impact of these amendments 
will correlate with the number of facilities that are designated as 
CAHs under the statutory amendment made by sections 401(b) and 403 of 
Public Law 106-113. However, we are unable at this time to predict the 
number of facilities that will be designated as CAHs under these 
provisions.
5. Impact of Provisions on MDHs
    We are incorporating the provisions of section 404 of Public Law 
106-113, which extended special payments under the prospective payment 
system to MDHs for 5 years, from FY 2002 through FY 2006. We estimate 
that the extension will amount to an increase in payment of 4.4 percent 
for each of the 5 years of the MDH extension. There is no increase in 
payment amounts for MDHs for FY 2000 as a result of PublicLaw 106-113.
6. Impact of Direct GME and IME Provisions
    We are amending our regulations to incorporate changes mandated by 
sections 407(a) through (d) of Public Law 106-113, which amended 
sections 1886(d) and (h) of the Act to address specific GME FTE cap 
issues. These changes include increasing the cap for rural hospitals 
and urban hospitals that establish programs with training in rural 
areas, revising the FTE caps for hospitals with certain residents on 
leave during the base period, and temporarily increasing the cap for 
hospitals that train residents that transferred from certain VA 
hospitals. The regulations also reflect the provisions of section 312 
of Public Law 106-113, which amended section 1886(h)(5) of the Act to 
change (for purposes of payment) the initial residency period for child 
neurology residents.
    a. Approved Leave of Absences of Residents. Section VII.A. of this 
interim final rule implements section 407(a) of Public Law 106-113, 
which directs the Secretary to count an individual for purposes of 
determining a hospital's FTE cap, to the extent that the individual 
would have been counted as a primary care resident for purposes of the 
FTE cap but for the fact that the individual was on maternity or 
disability leave or a similar approved leave of absence. The provision 
allows a hospital to receive an adjustment to its individual FTE cap of 
up to three additional FTE residents. We are unable to predict at this 
time the number of residents affected by this provision. However, we 
believe the financial impact will be negligible, because few hospitals 
and FTEs are likely to be affected.
    b. Adjustment to FTE Caps for Rural Hospitals. As explained in 
section VII.C. of this interim final rule, we are implementing section 
407(b) of Public Law 106-113 which provides for a 30-percent expansion 
to a rural hospital's FTE resident cap. We have calculated an estimated 
impact on the Medicare program as a result of this provision. We used 
the best available cost report data

[[Page 47046]]

from 1995 HCRIS, which included the resident counts from which the 
rural hospitals' (and urban hospitals') caps were set. Seventy rural 
teaching hospitals were included in this impact analysis.
    To determine the impact of this provision, we first estimated the 
average GME (direct GME and IME combined) payment amount made to rural 
hospitals in FY 1995. Then, we increased the average GME payment amount 
by 30-percent and multiplied this amount by 70 to reflect a potential 
30-percent increase in the number of FTEs across all rural hospitals. 
Next, we updated this amount for inflation from FY 1995 to FY 2000, and 
from FY 2000 through FY 2004. Specifically, the estimated costs for 
each fiscal year are as follows:

FY 2000: $28.8 million
FY 2001: $29.5 million
FY 2002: $30.2 million
FY 2003: $31.1 million
FY 2004: $31.9 million

    The total maximum estimated cost for FY 2000 through FY 2004 is 
$151.5 million. However, we do not anticipate that all rural hospitals 
will expand their counts by 30-percent in FY 2000. Therefore, we 
believe that the actual cost in FY 2000 will be somewhat less than 
$28.8 million.
    c. Urban Hospitals with Rural Track Residency Programs. As 
discussed in section VII.C. of this interim final rule with comment 
period, we are implementing the provision that allows an urban hospital 
that establishes a new residency program or has an existing residency 
program with a rural track (or an integrated rural track) to include in 
its FTE count residents in those rural tracks, in addition to the 
residents already included in the hospital's FTE cap.
    We estimated the costs to the Medicare program from FY 2000 through 
FY 2004 based on the number of currently existing (as of May 2000), 
separately accredited, ``1-2'' rural training track programs. 
Considering that there are currently 26 such programs, each averaging 4 
residents, and making assumptions about the growth of new programs, we 
estimate that the cost from FY 2000 through FY 2004 will be $75 
million. Specifically, the estimated cost per year is $5 million for FY 
2000, $10 million for FY 2001, and $20 million for FYs 2002, 2003, and 
2004.
    d. Residents Training at VA Hospitals That Would Lose 
Accreditation. Section VII.D. of this interim final rule with comment 
period implements section 407(d) of Public Law 106-113 which addresses 
the situation where a non-VA hospital temporarily takes on residents 
training at a VA hospital because the program at the VA hospital would 
lose its ACGME accreditation if the residents continued to train at the 
VA hospital. We estimate that the number of residents affected by this 
provision will be small; we know of only one hospital that is affected 
by this provision. Therefore, the financial impact will be negligible.
    e. Child Neurology Training. We are implementing the provisions of 
section 312 of Public Law 106-113 which amended section 1886(h)(5) of 
the Act to revise the initial residency period for child neurology 
residency programs. We believe this provision will have a minimal 
financial impact, because there are so few hospitals that will be 
affected by this provision.
7. Medicare+Choice Nursing and Allied Health Education Payments
    As discussed in section VIII. of this interim final rule, we are 
implementing the methodology for determining the additional payments to 
be made to hospitals that receive reasonable cost payment for approved 
nursing or allied health education programs for their services 
associated with Medicare+Choice enrollees. The estimated total amount 
calculated for these payments, not to exceed $60,000,000 in a calendar 
year, is based on the proportion of projected total direct GME payments 
for Medicare+Choice enrollees to projected total direct GME payments, 
multiplied by projected total nursing and allied health education 
payments. Hospitals would receive these payments in proportion to the 
amount of Medicare nursing and allied health education payments 
received in the cost reporting period that ended in the fiscal year 
that is 2 years prior to the current calendar year, to the total amount 
of nursing and allied health education payments paid to all hospitals 
in that cost reporting period. Direct GME payments for Medicare+Choice 
utilization would be reduced to reflect the estimated amount of 
additional payments that would be made for nursing and allied health 
education programs under this provision. For a more detailed 
explanation of this policy, refer to section VIII. of this preamble.
    By requiring that the Medicare+Choice direct GME payments be 
reduced in order to provide for the additional nursing and allied 
health education payments, this provision is designed to be budget 
neutral in the aggregate. However, on a hospital specific basis, 
hospitals that operate both GME and nursing or allied health education 
programs may experience either a net gain or loss as a result of this 
provision. This is because, although their Medicare+Choice direct GME 
payments will be reduced by a certain percentage, their nursing and 
allied health education payments will be increased. However, those 
hospitals that operate only GME programs will see their Medicare 
reimbursement reduced, and those hospitals that operate only nursing or 
allied health education programs will see their Medicare reimbursement 
increased.
    As explained in section VIII.E. of this preamble, the percentage 
decrease to hospitals' Medicare+Choice direct GME payments is 10.5 
percent. For purposes of this interim final rule with comment period, 
we have estimated a percentage increase to hospitals' nursing and 
allied health education payments for calendar year 2000. When the 
nursing and allied health education payment ``pool'' is added to the 
total projected nursing and allied health education payments for 
calendar year 2000, the estimated percentage increase in total nursing 
and allied health payments is 10.2 percent.
8. Hospital Swing Bed Program
    The elimination of the requirements for State certification of need 
to use acute care beds as swing beds for long-term care patients and 
the elimination of the constraints on the length of stay in swing beds 
for rural hospitals with 50 to 100 beds will have a positive effect on 
providers, especially rural hospitals. However, we do not have the 
necessary data to determine at this time a budgetary impact of these 
provisions on Medicare payments.

C. Federalism

    We have examined this interim final rule with comment period in 
accordance with Executive Order 13132, Federalism, and have determined 
that this interim final rule with comment period will not have any 
negative impact on the rights, rules, and responsibilities of State, 
local, or tribal governments.

D. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, this 
interim final rule with comment period was reviewed by the Office of 
Management and Budget.

XV. Information Collection Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is

[[Page 47047]]

submitted to the Office of Management and Budget (OMB) for review and 
approval. In order to fairly evaluate whether an information collection 
should be approved by OMB, section 3506(c)(2)(A) of the Paperwork 
Reduction Act of 1995 requires that we solicit comment on the following 
issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for 
Sec. 412.103(b), which contains information collection and 
recordkeeping requirements.
    Section 412.103(b) specifies that a facility seeking 
reclassification under section 401(a) or (b) of Public Law 106-113 must 
apply in writing to the HCFA Regional Office and include documentation 
of the criteria on which its request is based. The application must be 
mailed; facsimile or other electronic means are not acceptable.
    The hospital's application must include a copy of the State law or 
regulation or other authoritative document verifying that the 
requesting hospital is situated in an area determined to be rural by 
the State or the hospital is considered to be a rural hospital.
    We estimate that it will take each hospital approximately 30 
minutes to complete the application process. We estimate that 
additional time would be needed to collect the required documentation. 
This recordkeeping should take no more than approximately 2 hours. 
Therefore, the paperwork burden associated with the reclassification 
process would add up to an additional 2\1/2\ hours per hospital that 
request reclassification under section 401 of Public Law 106-113.
    These information collection and recordkeeping requirements are not 
effective until they are approved by OMB.
    Comments on these information collection and recordkeeping 
requirements should be mailed to the following addresses:

Health Care Financing Administration, Office of Information Services, 
Security and Standards Group, Division of HCFA Enterprise Standards, 
Room N2-14-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850, 
Attn: John Burke HCFA-1131-IFC; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 3001, New Executive Office Building, Washington, DC 20503, 
Attn: Allison Herron Eydt HCFA-1131-IFC, HCFA Desk Officer.

List of Subjects

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Rural areas, X-rays.

42 CFR Part 412

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

42 CFR Part 413

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

42 CFR Part 482

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

42 CFR Part 485

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

    42 CFR Chapter IV is amended as set forth below:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

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

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


    2. Section 410.152 is amended by revising paragraph (k) to read as 
follows:


Sec. 410.152  Amounts of payment.

* * * * *
    (k) Amount of payment: Outpatient CAH services. (1) Payment for CAH 
outpatient services is the reasonable cost of the CAH in providing 
these services, as determined in accordance with section 1861(v)(1)(A) 
of the Act, with Sec. 413.70(b) and (c) of this chapter, and with the 
applicable principles of cost reimbursement in part 413 and in part 415 
of this chapter.
    (2) Payment for CAH outpatient services is subject to the 
applicable Medicare Part B deductible and coinsurance amounts, except 
as described in Sec. 413.70(c) of this chapter, with Part B coinsurance 
being calculated as 20 percent of the customary (insofar as reasonable) 
charges of the CAH for the services.
* * * * *

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    B. Part 412 is amended as follows:
    1. The authority citation for part 412 continues to read as 
follows:

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

    2. Section 412.63 is amended by revising paragraph (b)(1) to read 
as follows:


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

* * * * *
    1. Geographic classifications. (1) For purposes of this section, 
the definitions set forth in Sec. 412.62(f) apply, except that, 
effective January 1, 2000, a hospital reclassified as rural may mean a 
reclassification that results from a geographic redesignation as set 
forth in Sec. 412.62(f)(1)(iv) or a reclassification that results from 
an urban hospital applying for reclassification as rural as set forth 
in Sec. 412.103.
* * * * *

    3. Section 412.90 is amended by revising paragraphs (e) and (j) to 
read as follows:


Sec. 412.90  General rules.

* * * * *
    (e) Hospitals located in areas that are reclassified from urban to 
rural. (1) HCFA adjusts the rural Federal payment amounts for inpatient 
operating costs for hospitals located in geographic areas that are 
reclassified from urban to rural as defined in Sec. 412.62(f). This 
adjustment is set forth in Sec. 412.102.
    (2) HCFA establishes a procedure by which certain individual 
hospitals located in urban areas may apply for reclassification as 
rural. The criteria for reclassification are set forth in Sec. 412.103.
* * * * *
    (j) Medicare-dependent, small rural hospitals. For cost reporting 
periods beginning on or after April 1, 1990 and before October 1, 1994, 
or beginning on or after October 1, 1997 and before October 1, 2006, 
HCFA adjusts the prospective payment rates for inpatient operating 
costs determined under subparts D and E of this part if a hospital is 
classified as a Medicare-dependent, small rural hospital.
* * * * *

[[Page 47048]]


    4. The section heading of Sec. 412.102 is revised to read as 
follows:


Sec. 412.102  Special treatment: Hospitals located in areas that are 
reclassified from urban to rural as a result of a geographic 
redesignation.

    5. A new Sec. 412.103 is added to read as follows:


Sec. 412.103  Special treatment: Hospitals located in urban areas and 
that apply for reclassification as rural.

    (a) General criteria. A prospective payment hospital that is 
located in an urban area (as defined in Sec. 412.62(f)(1)(ii)) may be 
reclassified as a rural hospital if it submits an application in 
accordance with paragraph (b) of this section and meets any of the 
following conditions:
    (1) The hospital is located in a rural census tract of a 
Metropolitan Statistical Area (MSA) as determined under the most recent 
version of the Goldsmith Modification as determined by the Office of 
Rural Health Policy (ORHP) of the Health Resources and Services 
Administration which is available via the ORHP website at http://www.nal.usda.gov/orph or from the U.S. Department of Health and Human 
Services, Health Resources and Services Administration, Office of Rural 
Health Policy, 5600 Fishers Lane, Room 9-05, Rockville, MD 20857.
    (2) The hospital is located in an area designated by any law or 
regulation of the State in which it is located as a rural area, or the 
hospital is designated as a rural hospital by State law or regulation.
    (3) The hospital would qualify as a rural referral center as set 
forth in Sec. 412.96, or as a sole community hospital as set forth in 
Sec. 412.92, if the hospital were located in a rural area.
    (b) Application requirements. (1) Written application. A hospital 
seeking reclassification under this section must submit a complete 
application in writing to HCFA in accordance with paragraphs (b)(2) and 
(b)(3) of this section.
    (2) Contents of application. An application is complete if it 
contains an explanation of how the hospital meets the condition that 
constitutes the basis of the request for reclassification set forth in 
paragraph (a) of this section, including data and documentation 
necessary to support the request.
    (3) Mailing of application. An application must be mailed to the 
HCFA Regional Office by the requesting hospital and may not be 
submitted by facsimile or other electronic means.
    (4) Notification by HCFA. Within 5 business days after receiving 
the hospital's application, the HCFA Regional Office will send the 
hospital a letter acknowledging receipt, with a copy to the HCFA 
Central Office.
    (5) Filing date. The filing date of the application is the date 
HCFA receives the application.
    (c) HCFA review. The HCFA Regional Office will review the 
application and notify the hospital of its approval or disapproval of 
the request within 60 days of the filing date.
    (d) Effective dates of reclassification. (1) Except as specified in 
paragraph (d)(2) of this section, HCFA will consider a hospital that 
satisfies any of the criteria set forth in paragraph (a) of this 
section as being located in the rural area of the State in which the 
hospital is located as of that filing date.
    (2) If a hospital's complete application is received in HCFA by 
September 1, 2000, and satisfies any of the criteria set forth in 
paragraph (a) of this section, HCFA will consider the filing date to be 
January 1, 2000.
    (e) Withdrawal of application. A hospital may withdraw an 
application at any time prior to the date of HCFA's decision as set 
forth in paragraph (c) of this section.
    (f) Duration of classification. An approved reclassification under 
this section remains in effect without need for reapproval unless there 
is a change in the circumstances under which the classification was 
approved.
    (g) Cancellation of classification. (1) A hospital may cancel its 
rural reclassification by submitting a written request to the HCFA 
Regional Office not less than 120 days prior to the end of its current 
cost reporting period.
    (2) The hospital's cancellation of the classification is effective 
beginning with the hospital's next full cost reporting period following 
the date of its request for cancellation.
    6. Section 412.105 is amended by:
    A. Revising paragraph (d)(3)(iv).
    B. Revising paragraph (f)(1)(iv).
    C. Adding and reserving paragraphs (f)(1)(viii) and (ix).
    D. Adding new paragraphs (f)(1)(x), (f)(1)(xi), and (f)(1)(xii).


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

* * * * *
    (d) Determination of education adjustment factor. * * *
    (3) Step three. * * *
    (iv) For discharges occurring during fiscal year 2000, 1.47.
    (A) Each hospital receives an amount that is equal in the aggregate 
to the difference between the amount of payments made to the hospital 
if `c' equaled 1.6, rather than 1.47.
    (B) The payment of this amount will not affect any other payments, 
determinations, or budget neutrality adjustments.
* * * * *
    (f) Determining the total number of full-time equivalent residents 
for cost reporting periods beginning on or after July 1, 1991. (1) * * 
*
    (iv) Effective for discharges occurring on or after October 1, 
1997, the total number of FTE residents in the fields of allopathic and 
osteopathic medicine in either a hospital or a nonhospital setting that 
meets the criteria listed in paragraph (f)(1)(ii) of this section may 
not exceed the number of such FTE residents in the hospital (or, in the 
case of a hospital located in a rural area, effective for discharges 
occurring on or after April 1, 2000, 130 percent of that number) with 
respect to the hospital's most recent cost reporting period ending on 
or before December 31, 1996.
* * * * *
    (x) Effective for discharges occurring on or after April 1, 2000, 
an urban hospital that establishes a new residency program (as defined 
in Sec. 413.86(g)(12) of this subchapter), or has an existing residency 
program, with a rural track (or an integrated rural track) may include 
in its FTE count residents in those rural tracks in accordance with the 
provisions of Secs. 413.86(g)(11) of this subchapter.
    (xi) Effective for discharges occurring in cost reporting periods 
beginning on or after November 29, 1999, a hospital may receive an 
adjustment to its FTE cap of up to three additional FTEs to the extent 
that the additional residents would have been counted as primary care 
residents for purposes of the hospital's FTE cap but for the fact that 
the additional residents were on maternity or disability leave or a 
similar approved leave of absence, in accordance with the provisions of 
Sec. 413.86(g)(9) of this subchapter.
    (xii) For discharges occurring on or after October 1, 1997, a non-
Veterans Affairs (VA) hospital may receive a temporary adjustment to 
its FTE cap to reflect residents who had been previously trained at a 
VA hospital and were subsequently transferred to the non-VA hospital, 
if the hospital meets the criteria and other provisions of 
Sec. 413.86(g)(10) of this subchapter.
* * * * *


Sec. 412.108  [Amended]

    6. Section 412.108 is amended as follows:
    a. In paragraph (a)(1), the date ``October 1, 2001'', is removed 
and ``October 1, 2006'' is added in its place.

[[Page 47049]]

    b. In paragraph (c)(2)(ii) the date ``October 1, 2001'', is removed 
and ``October 1, 2006'' is added in its place.

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

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

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1871, 1881, 1883, and 1886 of the Social Security Act (42 
U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 
1395hh, 1395rr, 1395tt, and 1395ww).

    2. Section 413.40 is amended by republishing the introductory text 
of paragraph (c)(4) and of paragraph (c)(4)(iii) and revising 
paragraphs (c)(4)(iii)(B) and (c)(4)(v), to read as follows:


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

* * * * *
    (c) Costs subject to the ceiling. * * *
    (4) Target amounts. The intermediary will establish a target amount 
for each hospital. The target amount for a cost reporting period is 
determined as follows:
* * * * *
    (iii) In the case of a psychiatric hospital or unit, rehabilitation 
hospital or unit, or long-term care hospital, the target amount is the 
lower of--
* * * * *
    (B) One of the following for the applicable cost reporting period--
    (1) For cost reporting periods beginning during fiscal year 1998, 
the 75th percentile of target amounts for hospitals in the same class 
(psychiatric hospital or unit, rehabilitation hospital or unit, or 
long-term care hospital) for cost reporting periods ending during FY 
1996, increased by the applicable market basket percentage up to the 
first cost reporting period beginning on or after October 1, 1997.
    (2) For cost reporting periods beginning during fiscal year 1999, 
the amount determined under paragraph (c)(4)(iii)(B)(1) of this 
section, increased by the market basket percentage up through the 
subject period, subject to the provisions of paragraph (c)(4)(iv) of 
this section.
    (3) For cost reporting periods beginning during fiscal year 2000--
    (i) The labor-related portion and the nonlabor-related portion of 
the wage-neutralized 75th percentile of target amounts for hospitals in 
the same class (psychiatric hospital or unit, rehabilitation hospital 
or unit, or long-term care hospital) for cost reporting periods ending 
during FY 1996, are increased by the applicable market basket 
percentage up to the first cost reporting period beginning on or after 
October 1, 1999.
    (ii) The labor-related portion of the wage-neutralized 75th 
percentile target amounts under paragraph (c)(4)(iii)(B)(4)(i) of this 
section is wage adjusted by multiplying it by the hospital's FY 2000 
hospital inpatient prospective payment system wage index.
    (iii) The wage-adjusted 75th percentile target amounts for 
hospitals in the same class is determined by adding the nonlabor-
related portion of the wage-neutralized 75th percentile target amounts 
under paragraph (c)(4)(iii)(B)(3)(i) of this section and the hospital's 
wage-adjusted labor-related portion of the wage-neutralized 75th 
percentile target amounts determined under paragraph 
(c)(4)(iii)(B)(3)(ii) of this section, subject to the provisions of 
paragraph (c)(4)(iv) of this section.
    (4) For cost reporting periods beginning during fiscal years 2001 
and 2002--
    (i) The amounts determined under paragraph (c)(4)(iii)(B)(3)(i) of 
this section are increased by the market basket percentage up through 
the subject period.
    (ii) The labor-related portion of the wage-neutralized 75th 
percentile target amounts under paragraph (c)(4)(iii)(B)(4)(i) of this 
section is wage-adjusted by multiplying by the hospital's FY 2001 
hospital inpatient prospective payment system wage index, for cost 
reporting periods beginning during fiscal year 2001 and the hospital's 
FY 2002 hospital inpatient prospective payment system wage index for 
cost reporting periods beginning during fiscal year 2002.
    (iii) The wage-adjusted 75th percentile target amounts for 
hospitals in the same class are determined by adding the nonlabor-
related portion of the wage-neutralized 75th percentile target amounts 
under paragraph (c)(4)(iii)(B)(4)(i) of this section and the hospital's 
wage-adjusted labor-related portion of the wage-neutralized 75th 
percentile target amounts determined under paragraph 
(c)(4)(iii)(B)(4)(ii) of this section, subject to the provisions of 
paragraph (c)(4)(iv) of this section.
* * * * *
    (v) In the case of a hospital that received payments under 
paragraph (f)(2)(ii) of this section as a newly created hospital or 
unit, to determine the hospital's target amount for the hospital's 
third 12-month cost reporting period, the payment amount determined 
under paragraph (f)(2)(ii)(A) of this section for the preceding cost 
reporting period is updated to the third cost reporting period.
* * * * *

    3. Section 413.70 is amended by:
    A. Revising paragraphs (b)(2)(iii) and (b)(2)(iv).
    B. Removing paragraph (b)(2)(v).
    C. Adding a new paragraph (c).


Sec. 413.70  Payment for services of a CAH.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Any type of reduction to operating or capital costs under 
Sec. 413.124 or Sec. 413.130(j)(7); and
    (iv) Blended payment amounts for ASC, radiology, and other 
diagnostic services.
    (c) The following payment principles are used when determining 
payment for outpatient clinical diagnostic laboratory tests:
    (1) The amount paid is equal to 100 percent of the least of--
    (i) Charges determined under the fee schedule as set forth in 
section 1833(h)(1) or section 1834(d)(1) of the Act;
    (ii) The limitation amount for that test determined under section 
1833(h)(4)(B) of the Act or the amount of the charges billed for the 
test; or
    (iii) A negotiated rate established under section 1833(h)(6) of the 
Act.
    (2) Payment for outpatient clinical diagnostic laboratory tests is 
not subject to the Medicare Part B deductible and coinsurance amounts, 
as specified in Sec. 410.152(k) of this chapter.

    4. Section 413.86 is amended by:
    A. Adding definitions of ``rural track FTE limitation'' and ``rural 
track or integrated rural track'' in alphabetical order under paragraph 
(b).
    B. Revising paragraphs (d)(4) and (d)(5).
    C. Adding a new paragraph (d)(6).
    D. Revising paragraph (g)(1).
    E. Revising the first sentence of paragraph (g)(4).
    F. Redesignating paragraph (g)(9) as paragraph (g)(12).
    G. Add new paragraphs (g)(9), (g)(10), and (g)(11).


Sec. 413.86  Direct graduate medical education payments.

* * * * *
    (b) Definitions. * * *
    Rural track FTE limitation means the maximum number of residents 
(as

[[Page 47050]]

specified in paragraph (g)(11) of this section) training in a rural 
track residency program that an urban hospital may include in its FTE 
count and that is in addition to the number of FTE residents already 
included in the hospital's FTE cap.
    Rural track or integrated rural track means an approved medical 
residency training program established by an urban hospital in which 
residents train for a portion of the program at the urban hospital and 
then rotate for a portion of the program to a rural hospital(s) or a 
rural nonhospital site(s).
* * * * *
    (d) Calculating payment for graduate medical education costs. * * *
    (4) Step four. Effective for cost reporting periods beginning on or 
after January 1, 2000, the product derived from step three is reduced 
in accordance with the provisions of Sec. 413.87(f).
    (5) Step five. (i) For portions of cost reporting periods beginning 
on or after January 1, 1998 and before January 1, 2000, add steps two 
and three.
    (ii) Effective for portions of cost reporting periods beginning on 
or after January 1, 2000, add the results of steps two and four.
    (6) Step six. The product derived in step two is apportioned 
between Part A and Part B of Medicare based on the ratio of Medicare's 
share of reasonable costs excluding graduate medical education costs 
attributable to each part as determined through the Medicare cost 
report.
* * * * *
    (g) Determining the weighted number of FTE residents. (1) 
Generally, for purposes of this section, effective July 1, 1995, an 
initial residency period is defined as the minimum number of years 
required for board eligibility. Prior to July 1, 1995, the initial 
residency period equals the minimum number of years required for board 
eligibility in a specialty or subspecialty plus 1 year. An initial 
residency period may not exceed 5 years in order to be counted toward 
determining FTE status except in the case of fellows in an approved 
geriatric program whose initial residency period may last up to 2 
additional years. Effective July 1, 2000, for residency programs that 
began before, on, or after November 29, 1999, the period of board 
eligibility and the initial residency period for a resident in an 
approved child neurology program is the period of board eligibility for 
pediatrics plus 2 years. Effective August 10, 1993, residents or 
fellows in an approved preventive medicine residency or fellowship 
program also may be counted as a full FTE resident for up to 2 
additional years beyond the initial residency period limitations. For 
combined residency programs, an initial residency period is defined as 
the time required for individual certification in the longer of the 
programs. If the resident is enrolled in a combined medical residency 
training program in which all of the individual programs (that are 
combined) are for training primary care residents (as defined in 
paragraph (b) of this section) or obstetrics and gynecology residents, 
the initial residency period is the time required for individual 
certification in the longer of the programs plus 1 year.
* * * * *
    (4) For purposes of determining direct graduate medical education 
payment, for cost reporting periods beginning on or after October 1, 
1997, a hospital's unweighted FTE count for residents in allopathic and 
osteopathic medicine may not exceed the hospital's unweighted FTE count 
(or, effective for cost reporting periods beginning on or after April 
1, 2000, 130 percent of the unweighted FTE count for a hospital located 
in a rural area) for these residents for the most recent cost reporting 
period ending on or before December 31, 1996. * * *
    (9) Effective for cost reporting periods beginning on or after 
November 29, 1999, a hospital may receive an adjustment to its FTE cap 
of up to three additional resident FTEs, if the hospital meets the 
following criteria:
    (i) The additional residents are residents of a primary care 
program that would have been counted by the hospital as residents for 
purposes of the hospital's FTE cap but for the fact that the additional 
residents were on maternity or disability leave or a similar approved 
leave of absence during the hospital's most recent cost reporting 
period ending on or before December 31, 1996;
    (ii) The leave of absence was approved by the residency program 
director to allow the residents to be absent from the program and 
return to the program after the leave of absence; and
    (iii) No later than 6 months after August 1, 2000, the hospital 
submits to the fiscal intermediary a request for an adjustment to its 
FTE cap, and provides contemporaneous documentation of the approval of 
the leave of absence by the residency director, specific to each 
additional resident that is to be counted for purposes of the 
adjustment.
    (10) For cost reporting periods beginning on or after October 1, 
1997, a non-Veterans Affairs (VA) hospital may receive a temporary 
adjustment to its FTE cap to reflect residents who had previously 
trained at a VA hospital and were subsequently transferred to the non-
VA hospital, if that hospital meets the following criteria:
    (i) The transferred residents had been training previously at a VA 
hospital in a program that would have lost its accreditation by the 
ACGME if the residents continued to train at the VA hospital;
    (ii) The residents were transferred to the hospital from the VA 
hospital on or after January 1, 1997, and before July 31, 1998; and
    (iii) The hospital submits a request to its fiscal intermediary for 
a temporary adjustment to its FTE cap, documents that it is eligible 
for this temporary adjustment by identifying the residents who have 
come from the VA hospital, and specifies the length of time those 
residents will be trained at the hospital.
    (11) For cost reporting periods beginning on or after April 1, 
2000, an urban hospital that establishes a new residency program, or 
has an existing residency program, with a rural track (or an integrated 
rural track) may include in its FTE count residents in those rural 
tracks, in addition to the residents subject to its FTE cap specified 
under paragraph (g)(4) of this section. An urban hospital with a rural 
track residency program may count residents in those rural tracks up to 
a rural track FTE limitation if the hospital complies with the 
conditions specified in paragraphs (g)(11)(i) through (g)(11)(vi) of 
this section.
    (i) If an urban hospital rotates residents in the rural track 
program to a rural hospital(s) for at least two-thirds of the duration 
of the program, the urban hospital may include those residents in its 
FTE count for the time the rural track residents spend at the urban 
hospital. The urban hospital may include in its FTE count those 
residents in the rural track training at the urban hospital, not to 
exceed its rural track FTE limitation, determined as follows:
    (A) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for each urban hospital will be the actual number 
of FTE residents training in the rural track at the urban hospital.
    (B) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of the highest 
number of residents in any program year, who during the third year of 
the rural track's existence are training in the rural track at the 
urban hospital or the rural hospital(s) and are designated at the 
beginning of their training to be rotated to the rural hospital(s) for 
at least two-

[[Page 47051]]

thirds of the duration of the program, and the number of years those 
residents are training at the urban hospital.
    (ii) If an urban hospital rotates residents in the rural track 
program to a rural nonhospital site(s) for at least two-thirds of the 
duration of the program, the urban hospital may include those residents 
in its FTE count, subject to the requirements under paragraph (f)(4) of 
this section. The urban hospital may include in its FTE count those 
residents in the rural track, not to exceed its rural track FTE 
limitation, determined as follows:
    (A) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for each urban hospital will be the actual number 
of FTE residents training at the urban hospital and the rural 
nonhospital site(s).
    (B) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of--
    (1) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the 
rural track at--
    (i) The urban hospital and are designated at the beginning of their 
training to be rotated to a rural nonhospital site(s) for at least two-
thirds of the duration of the program; and
    (ii) The rural nonhospital site(s); and
    (2) The number of years in which the residents are expected to 
complete each program based on the minimum accredited length for the 
type of program.
    (iii) If an urban hospital rotates residents in the rural track 
program to a rural hospital(s) for periods of time that are less than 
two-thirds of the duration of the program, the rural hospital may not 
include those residents in its FTE count (if the urban hospital's FTE 
count exceeds that hospital's FTE cap), nor may the urban hospital 
include those residents when calculating its rural track FTE 
limitation.
    (iv) If an urban hospital rotates residents in the rural track 
program to a rural nonhospital site(s) for periods of time that are 
less than two-thirds of the duration of the program, the urban hospital 
may include those residents in its FTE count, subject to the 
requirements under paragraph (f)(4) of this section. The urban hospital 
may include in its FTE count those residents in the rural track, not to 
exceed its rural track FTE limitation, determined as follows:
    (A) For the first 3 years of the rural track's existence, the rural 
track FTE limitation for the urban hospital will be the actual number 
of FTE residents training in the rural track at the rural nonhospital 
site(s).
    (B) Beginning with the fourth year of the rural track's existence, 
the rural track FTE limitation is equal to the product of--
    (1) The highest number of residents in any program year who, during 
the third year of the rural track's existence, are training in the 
rural track at the rural nonhospital site(s) or are designated at the 
beginning of their training to be rotated to the rural nonhospital 
site(s) for a period that is less than two-thirds of the duration of 
the program; and
    (2) The length of time in which the residents are being training at 
the rural nonhospital site(s) only.
    (v) All urban hospitals that wish to count FTE residents in rural 
tracks, not to exceed their respective rural track FTE limitation, must 
also comply with all of the following conditions:
    (A) An urban hospital may not include in its rural track FTE 
limitation or (assuming the urban hospital's FTE count exceeds its FTE 
cap) FTE count residents who are training in a rural track residency 
program that were already included as part of the hospital's FTE cap.
    (B) The hospital must base its count of residents in a rural track 
on written contemporaneous documentation that each resident enrolled in 
a rural track program at the hospital intends to rotate for a portion 
of the residency program to a rural area.
    (C) All residents that are included by the hospital as part of its 
FTE count (not to exceed its rural track FTE limitation) must 
ultimately train in the rural area.
    (vi) If HCFA finds that residents who are included by the urban 
hospital as part of its FTE count did not actually complete the 
training in the rural area, HCFA will reopen the urban hospital's cost 
report within the 3-year reopening period as specified in Sec. 405.1885 
of this chapter and adjust the hospital's Medicare GME payments (and, 
where applicable, the hospital's rural track FTE limitation).
* * * * *

    5. A new Sec. 413.87 is added to read as follows:


Sec. 413.87  Payments for Medicare+Choice nursing and allied health 
education programs.

    (a) Statutory basis. This section implements section 1886(l) of the 
Act, which provides for additional payments to hospitals that operate 
and receive Medicare reasonable cost reimbursement for approved nursing 
and allied health education programs and the methodology for 
determining the additional payments.
    (b) Scope. This section sets forth the rules for determining an 
additional payment amount to hospitals that receive payments for the 
costs of operating approved nursing or allied health education programs 
under Sec. 413.85.
    (c) Qualifying conditions for payment. For portions of cost 
reporting periods occurring on or after January 1, 2000, a hospital 
that operates and receives payment for a nursing or allied health 
education program under Sec. 413.85 may receive an additional payment 
amount. The hospital may receive the additional payment amount, which 
is calculated in accordance with the provisions of paragraph (d) of 
this section, if both of the conditions specified in paragraph (c)(1) 
and (c)(2) of this section are met.
    (1) The hospital must have received Medicare reasonable cost 
payment for an approved nursing or allied health education program 
under Sec. 413.85 in its cost reporting period(s) ending in the fiscal 
year that is 2 years prior to the current calendar year. (For example, 
if the current year is calendar year 2000, the fiscal year that is 2 
years prior to calendar year 2000 is FY 1998.) For a hospital that 
first establishes a nursing or allied health education program and 
receives reasonable cost payment for the program as specified under 
Sec. 413.85 after FY 1998, the hospital is eligible to receive an 
additional payment amount in a calendar year that is 2 years after the 
respective fiscal year so long as the hospital also meets the condition 
under paragraph (c)(2) of this section.
    (2) The hospital must be receiving reasonable cost payment for an 
approved nursing or allied health education program under Sec. 413.85 
in the current calendar year.
    (d) Calculating the additional payment amount. Subject to the 
provisions of paragraph (f) of this section relating to calculating a 
proportional reduction in Medicare+Choice direct GME payments, the 
additional payment amount specified in paragraph (c) of this section is 
calculated according to the following steps:
    (1) Step one. Each calendar year, determine the hospital's total 
nursing and allied health education program payments from its cost 
reporting period(s) ending in the fiscal year that is 2 years prior to 
the current calendar year.
    (2) Step two. Determine the ratio of the hospital's payments from 
step one to the total of all nursing and allied health education 
program payments across all hospitals for all cost reporting periods 
ending in the fiscal year that is 2 years prior to the current calendar 
year.

[[Page 47052]]

    (3) Step three. Multiply the ratio calculated in step two by the 
amount determined in accordance with paragraph (e) of this section for 
the current calendar year. The resulting product is each respective 
hospital's additional payment amount.
    (e) Calculation of the payment ``pool.'' (1) Subject to paragraph 
(e)(3) of this section, each calendar year, HCFA will calculate a 
Medicare+Choice nursing and allied health payment ``pool'' according to 
the following steps:
    (i) Determine the ratio of projected total Medicare+Choice direct 
GME payments made in accordance with the provisions of 
Sec. 413.86(d)(3) across all hospitals in the current calendar year to 
projected total direct GME payments made across all hospitals in the 
current calendar year.
    (ii) Multiply the ratio calculated in paragraph (e)(1)(i) of this 
section by projected total Medicare nursing and allied health education 
reasonable cost payments made across all hospitals in the current 
calendar year.
    (2) The resulting product of the steps under paragraph (e)(1)(i) 
and (e)(1)(ii) of this section is the Medicare+Choice nursing and 
allied health payment pool for the current calendar year.
    (3) The payment pool may not exceed $60 million in any calendar 
year.

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

    D. Part 482 is amended as follows:
    1. The authority citation for Part 482 continues to read as 
follows:

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


Sec. 482.66  [Amended]

    2. Section 482.66 is amended by:
    A. Removing paragraph (a)(3).
    B. Redesignating paragraphs (a)(4) and (a)(5) as (a)(3) and (a)(4), 
respectively.
    C. Removing paragraphs (a)(6) and (a)(7).

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

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

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

    2. Section 485.610 is amended by:
    A. Revising paragraph (a).
    B. Republishing the introductory text of paragraph (b).
    C. Redesignating paragraph (b)(4) as paragraph (b)(5) and 
republishing newly designated paragraph (b)(5).
    D. Adding a new paragraph (b)(4).


Sec. 485.610  Condition of participation: Status and location.

    (a) Standard: Status. The facility is--
    (1) A currently participating hospital that meets all conditions of 
participation set forth in this subpart;
    (2) A recently closed facility, provided that the facility--
    (i) Was a hospital that ceased operations on or after the date that 
is 10 years before November 29, 1999; and
    (ii) Meets the criteria for designation under this subpart as of 
November 29, 1999; or
    (3) A health clinic or a health center (as defined by the State) 
that--
    (i) Is licensed by the State as a health clinic or a health center;
    (ii) Was a hospital that was downsized to a health clinic or a 
health center; and
    (iii) As of the effective date of its designation, meets the 
criteria for designation set forth in this subpart.
    (b) Standard: Location. The CAH meets the following requirements:
* * * * *
    (4) The CAH is being treated as being located in a rural area in 
accordance with Sec. 412.103 of this chapter.
    (5) The CAH is located more than a 35-mile drive (or, in the case 
of mountainous terrain or in areas with only secondary roads available, 
a 15-mile drive) from a hospital or another CAH, or the CAH is 
certified by the State as being a necessary provider of health care 
services to residents in the area.

    3. Section 485.620 is amended by revising paragraph (b) to read as 
follows:


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

* * * * *
    (b) Standard: Length of stay. The CAH provides acute inpatient care 
for a period that does not exceed, on an annual average basis, 96 hours 
per patient.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance)

    Dated: July 21, 2000.
Nancy Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Dated: July 24, 2000.
Donna E. Shalala,
Secretary.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.


Appendix A--Urban Counties as of January 1, 2000 with Census Tracts That
            May Qualify as Rural Under Goldsmith Modification
                       [Based on 1990 Census Data]
------------------------------------------------------------------------
                  County                                State
------------------------------------------------------------------------
BALDWIN...................................  ALABAMA.
MOBILE....................................  ALABAMA.
TUSCALOOSA................................  ALABAMA.
ANCHORAGE.................................  ALASKA.
COCONINO..................................  ARIZONA.
MARICOPA..................................  ARIZONA.
MOHAVE....................................  ARIZONA.
PIMA......................................  ARIZONA.
PINAL.....................................  ARIZONA.
YUMA......................................  ARIZONA.
BUTTE.....................................  CALIFORNIA.
EL DORADO.................................  CALIFORNIA.
FRESNO....................................  CALIFORNIA.
KERN......................................  CALIFORNIA.
LOS ANGELES...............................  CALIFORNIA.
MADERA....................................  CALIFORNIA.
MERCED....................................  CALIFORNIA.
MONTEREY..................................  CALIFORNIA.
PLACER....................................  CALIFORNIA.
RIVERSIDE.................................  CALIFORNIA.
SAN BERNARDINO............................  CALIFORNIA.
SAN DIEGO.................................  CALIFORNIA.
SAN JOAQUIN...............................  CALIFORNIA.
SAN LUIS OBISPO...........................  CALIFORNIA.
SANTA BARBARA.............................  CALIFORNIA.
SANTA CLARA...............................  CALIFORNIA.
SHASTA....................................  CALIFORNIA.
SONOMA....................................  CALIFORNIA.
STANISLAUS................................  CALIFORNIA.
TULARE....................................  CALIFORNIA.
VENTURA...................................  CALIFORNIA.
ADAMS.....................................  COLORADO.
EL PASO...................................  COLORADO.
LARIMER...................................  COLORADO.
MESA......................................  COLORADO.
PUEBLO....................................  COLORADO.
WELD......................................  COLORADO.
COLLIER...................................  FLORIDA.
DADE......................................  FLORIDA.
MARION....................................  FLORIDA.
OSCEOLA...................................  FLORIDA.
PALM BEACH................................  FLORIDA.
POLK......................................  FLORIDA.
BUTLER....................................  KANSAS.
RAPIDES...................................  LOUISIANA.
TERREBONNE................................  LOUISIANA.
PENOBSCOT.................................  MAINE.
WORCESTER.................................  MASSACHUSETTS.
POLK......................................  MINNESOTA.
ST. LOUIS.................................  MINNESOTA.
STEARNS...................................  MINNESOTA.
CASCADE...................................  MONTANA.
MISSOULA..................................  MONTANA.
YELLOWSTONE...............................  MONTANA.
CLARK.....................................  NEVADA.
NYE.......................................  NEVADA.
WASHOE....................................  NEVADA.
DONA ANA..................................  NEW MEXICO.
SANDOVAL..................................  NEW MEXICO.
SANTA FE..................................  NEW MEXICO.
HERKIMER..................................  NEW YORK.
BURLEIGH..................................  NORTH DAKOTA.
CASS......................................  NORTH DAKOTA.
GRAND FORKS...............................  NORTH DAKOTA.
MORTON....................................  NORTH DAKOTA.
OSAGE.....................................  OKLAHOMA.

[[Page 47053]]

 
CLACKAMAS.................................  OREGON.
JACKSON...................................  OREGON.
LANE......................................  OREGON.
LYCOMING..................................  PENNSYLVANIA.
PENNINGTON................................  SOUTH DAKOTA.
BEXAR.....................................  TEXAS.
BRAZORIA..................................  TEXAS.
HARRIS....................................  TEXAS.
HIDALGO...................................  TEXAS.
TOM GREEN.................................  TEXAS.
WEBB......................................  TEXAS.
KANE......................................  UTAH.
UTAH......................................  UTAH.
BENTON....................................  WASHINGTON.
FRANKLIN..................................  WASHINGTON.
KING......................................  WASHINGTON.
PIERCE....................................  WASHINGTON.
SNOHOMISH.................................  WASHINGTON.
SPOKANE...................................  WASHINGTON.
WHATCOM...................................  WASHINGTON.
YAKIMA....................................  WASHINGTON.
DOUGLAS...................................  WISCONSIN.
MARATHON..................................  WISCONSIN.
LARAMIE...................................  WYOMING.
NATRONA...................................  WYOMING.
------------------------------------------------------------------------


   Appendix B.--Hospitals as of January 1, 2000 That May Qualify as Rural Within a Goldsmith Modification Area
                                           [Based on 1990 Census Data]
----------------------------------------------------------------------------------------------------------------
             Hospital name                             County                               State
----------------------------------------------------------------------------------------------------------------
North Baldwin Hospital................  BALDWIN............................  ALABAMA.
South Baldwin Hospital................  BALDWIN............................  ALABAMA.
Thomas Hospital.......................  BALDWIN............................  ALABAMA.
Flagstaff Medical Center..............  COCONINO...........................  ARIZONA.
Page Hospital.........................  COCONINO...........................  ARIZONA.
Wickenburg Regional Hospital..........  MARICOPA...........................  ARIZONA.
Bullhead Community Hospital...........  MOHAVE.............................  ARIZONA.
Havasu Samaritan Regional Hospital....  MOHAVE.............................  ARIZONA.
Kingman Regional Medical Center.......  MOHAVE.............................  ARIZONA.
Mohave Valley Hospital and Medical      MOHAVE.............................  ARIZONA.
 Center.
Central Arizona Medical Center........  PINAL..............................  ARIZONA.
Casa Grande Regional Medical Center...  PINAL..............................  ARIZONA.
Biggs-Gridley Memorial Hospital.......  BUTTE..............................  CALIFORNIA.
Feather River Hospital................  BUTTE..............................  CALIFORNIA.
Barton Memorial Hospital..............  EL DORADO..........................  CALIFORNIA.
Coalinga Regional Medical Center......  FRESNO.............................  CALIFORNIA.
Kingsburg Medical Center..............  FRESNO.............................  CALIFORNIA.
Sanger General Hospital...............  FRESNO.............................  CALIFORNIA.
Selma District Hospital...............  FRESNO.............................  CALIFORNIA.
Sierra Kings Health Care District.....  FRESNO.............................  CALIFORNIA.
Delano Regional Medical Center........  KERN...............................  CALIFORNIA.
Kern Valley Hospital..................  KERN...............................  CALIFORNIA.
Ridgecrest Community Hospital.........  KERN...............................  CALIFORNIA.
Tehachapi Valley Hospital.............  KERN...............................  CALIFORNIA.
Westside District Hospital............  KERN...............................  CALIFORNIA.
Avalon Municipal Hospital and Clinic..  LOS ANGELES........................  CALIFORNIA.
Chowchilla District Memorial Hospital.  MADERA.............................  CALIFORNIA.
Madera Community Hospital.............  MADERA.............................  CALIFORNIA.
Bloss Memorial Hospital...............  MERCED.............................  CALIFORNIA.
Dos Palos Memorial Hospital...........  MERCED.............................  CALIFORNIA.
Los Banos Community Hospital..........  MERCED.............................  CALIFORNIA.
Sutter Auburn Faith Hospital..........  PLACER.............................  CALIFORNIA.
Palo Verde Hospital...................  RIVERSIDE..........................  CALIFORNIA.
San Gorgonio Memorial Hospital........  RIVERSIDE..........................  CALIFORNIA.
Santa Ynez Valley Cottage Hospital....  SANTA BARBARA......................  CALIFORNIA.
Barstow Community Hospital............  SAN BERNARDINO.....................  CALIFORNIA.
Needles Desert Community Hospital.....  SAN BERNARDINO.....................  CALIFORNIA.
Hi-Desert Medical Center..............  SAN BERNARDINO.....................  CALIFORNIA.
Doctors Hospital of Manteca...........  SAN JOAQUIN........................  CALIFORNIA.
``St Dominic's Hospital''.............  SAN JOAQUIN........................  CALIFORNIA.
Tracy Community Memorial Hospital.....  SAN JOAQUIN........................  CALIFORNIA.
Twin Cities Community Hospital........  SAN LUIS OBISPO....................  CALIFORNIA.
South Valley Hospital.................  SANTA CLARA........................  CALIFORNIA.
Petaluma Valley Hospital..............  SONOMA.............................  CALIFORNIA.
Sonoma Valley Health Care District....  SONOMA.............................  CALIFORNIA.
Del Puerto Hospital...................  STANISLAUS.........................  CALIFORNIA.
Emanuel Medical Center................  STANISLAUS.........................  CALIFORNIA.
Oak Valley District Hospital..........  STANISLAUS.........................  CALIFORNIA.
Alta District Hospital................  TULARE.............................  CALIFORNIA.

[[Page 47054]]

 
Sierra View District Hospital.........  TULARE.............................  CALIFORNIA.
Tulare District Hospital..............  TULARE.............................  CALIFORNIA.
Lindsay District Hospital.............  TULARE.............................  CALIFORNIA.
Exeter Memorial Hospital..............  TULARE.............................  CALIFORNIA.
Estes Park Medical Center.............  LARIMER............................  COLORADO.
McKee Medical Center..................  LARIMER............................  COLORADO.
Glades General Hospital...............  PALM BEACH.........................  FLORIDA.
Bartow Memorial Hospital..............  POLK...............................  FLORIDA.
Heart of Florida Hospital.............  POLK...............................  FLORIDA.
Polk General Hospital.................  POLK...............................  FLORIDA.
Lake Wales Medical Center.............  POLK...............................  FLORIDA.
Susan B. Allen Memorial Hospital......  BUTLER.............................  KANSAS.
Millinocket Regional Hospital.........  PENOBSCOT..........................  MAINE.
Penobscot Valley Hospital.............  PENOBSCOT..........................  MAINE.
Harrington Memorial Hospital..........  WORCESTER..........................  MASSACHUSETTS.
Heywood Hospital......................  WORCESTER..........................  MASSACHUSETTS.
Athol Memorial Hospital...............  WORCESTER..........................  MASSACHUSETTS.
Clinton Hospital......................  WORCESTER..........................  MASSACHUSETTS.
First Care Medical Services...........  POLK...............................  MINNESOTA.
Riverview Healthcare Association......  POLK...............................  MINNESOTA.
Ely-Bloomenson Community Hospital.....  ST. LOUIS..........................  MINNESOTA.
Eveleth Health Services Park..........  ST. LOUIS..........................  MINNESOTA.
Cook Hospital & Convalescent Center...  ST. LOUIS..........................  MINNESOTA.
University Medical Center--Mesabi.....  ST. LOUIS..........................  MINNESOTA.
Virginia Regional Medical Center......  ST. LOUIS..........................  MINNESOTA.
White Community Hospital..............  ST. LOUIS..........................  MINNESOTA.
Albany Area Hospital & Medical Center.  STEARNS............................  MINNESOTA.
``St Michael's Hospital''.............  STEARNS............................  MINNESOTA.
Melrose Hospital & Pine Villa.........  STEARNS............................  MINNESOTA.
Paynesville Area Health Care..........  STEARNS............................  MINNESOTA.
Nye Regional Medical Center...........  NYE................................  NEVADA.
Lake Tahoe Medical Center.............  WASHOE.............................  NEVADA.
Little Falls Hospital.................  HERKIMER...........................  NEW YORK.
Northwood Deaconess Healthcare........  GRAND FORKS........................  NORTH DAKOTA.
Fairfax Memorial Hospital.............  OSAGE..............................  OKLAHOMA.
Pawhuska Hospital.....................  OSAGE..............................  OKLAHOMA.
Ashland Community Hospital............  JACKSON............................  OREGON.
Cottage Grove Hospital................  LANE...............................  OREGON.
Peace Harbor Hospital.................  LANE...............................  OREGON.
Jersey Shore Hospital.................  LYCOMING...........................  PENNSYLVANIA.
Muncy Valley Hospital.................  LYCOMING...........................  PENNSYLVANIA.
Angleton-Danbury General Hospital.....  BRAZORIA...........................  TEXAS.
Brazosport Memorial Hospital..........  BRAZORIA...........................  TEXAS.
Sweeny Community Hospital.............  BRAZORIA...........................  TEXAS.
Kane County Hospital..................  KANE...............................  UTAH.
Prosser Memorial Hospital.............  BENTON.............................  WASHINGTON.
Providence Toppenish Hospital.........  YAKIMA.............................  WASHINGTON.
Sunnyside Community Hospital..........  YAKIMA.............................  WASHINGTON.
----------------------------------------------------------------------------------------------------------------

[FR Doc. 00-19107 Filed 7-31-00; 8:45 am]
BILLING CODE 4120-01-P