[Federal Register Volume 65, Number 148 (Tuesday, August 1, 2000)]
[Rules and Regulations]
[Pages 47054-47211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19108]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 410, 412, 413, and 485

[HCFA-1118-F]
RIN 0938-AK09


Medicare Program; Changes to the Hospital Inpatient Prospective 
Payment Systems and Fiscal Year 2001 Rates

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

ACTION: Final rule.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment system for operating costs to: implement applicable statutory 
requirements, including a number of provisions of the Medicare, 
Medicaid, and State Children's Health Insurance Program Balanced Budget 
Refinement Act of 1999 (Pub. L. 106-113); and implement changes arising 
from our continuing experience with the system. In addition, in the 
Addendum to this final rule, we describe changes to the amounts and 
factors used to determine the rates for Medicare hospital inpatient 
services for

[[Page 47055]]

operating costs and capital-related costs. These changes apply to 
discharges occurring on or after October 1, 2000. We also set forth 
rate-of-increase limits and make changes to our policy for hospitals 
and hospital units excluded from the prospective payment systems.
    We are making changes to the policies governing payments to 
hospitals for the direct costs of graduate medical education, sole 
community hospitals and critical access hospitals.
    We are adding a new condition of participation on organ, tissue, 
and eye procurement for critical access hospitals that parallels the 
condition of participation that we previously published for all other 
Medicare-participating hospitals.
    Lastly, we are finalizing a January 20, 2000 interim final rule 
with comment period (65 FR 3136) that sets forth the criteria to be 
used in calculating the Medicare disproportionate share adjustment in 
reference to Medicaid expansion waiver patient days under section 1115 
of the Social Security Act.

DATES: The provisions of this final rule are effective October 1, 2000. 
This rule is a major rule as defined in 5 U.S.C. 804(2). Pursuant to 5 
U.S.C. 801(a)(1)(A), we are submitting a report to Congress on this 
rule on August 1, 2000.

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

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I. Background

A. 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).
    Certain specialty hospitals are excluded from the prospective 
payment systems. Under section 1886(d)(1)(B) of the Act, the following 
hospitals and hospital units are excluded from the prospective payment 
systems: 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 reasonable costs subject to a hospital-
specific annual limit.
    Under sections 1820 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 programs are excluded from the operating costs of inpatient 
hospital services. Hospitals with approved graduate medical education 
(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 number of 
residents in that period and the hospital's costs per resident in a 
base year.
    The regulations governing the hospital inpatient prospective 
payment system are located in 42 CFR Part 412. The regulations 
governing excluded hospitals and hospital units are located in 42 CFR 
Parts 412 and 413, and the GME regulations are located in 42 CFR Part 
413.
    On November 29, 1999, the Medicare, Medicaid, and State Children's 
Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 
1999, Public Law 106-113, was enacted. Public Law 106-113 made a number 
of changes to the Act affecting prospective payments to hospitals for 
inpatient services and payments to excluded hospitals. This final rule 
implements amendments enacted by Public Law 106-113 relating to FY 2001 
payments for GME costs, disproportionate share hospitals (DSHs), sole 
community hospitals (SCHs), and CAHs. These changes are addressed in 
sections IV and VI of this preamble.
    Other related provisions of Public Law 106-113 that pertain to 
Medicare hospital inpatient payments with an effective date prior to 
October 1, 2000, are addressed in an interim final rule with comment 
period that is published elsewhere in this issue of the Federal 
Register.
    Public Law 106-113 also amended section 1886(j) of the Act, which 
was added by section 4421 of the Balanced Budget Act of 1997 (Public 
Law 105-33). Section 1886(j) of the Act provides for a fully 
implemented prospective payment system for inpatient rehabilitation 
hospitals and rehabilitation units, effective for cost reporting 
periods beginning on or after October 1, 2002, with payment provisions 
during a transitional period of October 1, 2000 to October 1, 2002 
based on target amounts specified in section 1886(b) of the Act. We are 
issuing a separate notice of proposed rulemaking to implement the 
prospective payment system for inpatient rehabilitation hospitals and 
units.

[[Page 47056]]

B. Summary of the Provisions of the May 5, 2000 Proposed Rule

    On May 5, 2000, we published a proposed rule in the Federal 
Register (65 FR 26282) that set forth proposed changes to the Medicare 
hospital inpatient prospective payment system for operating costs for 
FY 2001. In the proposed rule, we made no policy changes relating to 
payments for capital-related costs under the hospital inpatient 
prospective payment system in FY 2001. However, we did propose changes 
to the amounts and factors used in determining the rates for capital-
related costs for FY 2001. The proposed rule also included changes 
relating to payments for GME costs and payments to excluded hospitals 
and units, SCHs, and CAHs.
    The following is a summary of the major changes we proposed and the 
issues we addressed in the May 5, 2000 proposed rule:
     We proposed changes to the FY 2001 DRG classifications and 
relative weights, as required by section 1886(d)(4)(C) of the Act.
     We proposed an update to the FY 2001 hospital wage index, 
using FY 1997 wage data. We also proposed to implement the second year 
phaseout of Part A physician teaching-related costs, Part A certified 
registered nurse anesthetist (CRNA) costs and resident costs from the 
FY 2001 wage index calculation.
     We discussed the impact of our policy on post acute care 
transfers and set forth certain proposed changes concerning sole 
community hospitals (SCHs), rural referral centers (RRCs), the indirect 
medical education adjustment, the DSH adjustment and collection of data 
on uncompensated costs for services furnished in hospitals, the 
Medicare Geographic Classification Review Board (MGCRB) 
classifications, and payment for the direct costs of GME.
     We discussed FY 2001 as the last year of a 10-year 
transition established to phase-in the prospective payment system for 
capital-related costs for inpatient hospital services.
     We discussed a number of proposals concerning excluded 
hospital and hospital units and CAHs. The proposed changes addressed 
limits on and adjustments to the proposed target amounts for FY 2001; 
development of a prospective payment system for inpatient 
rehabilitation hospitals and units; continuous improvement bonus 
payments; clarification that the 5-percent threshold used in 
calculating an excluded hospital's cost per discharge is based only on 
Medicare inpatients discharged from the hospital-within-a-hospital; an 
all-inclusive payment rate option for CAHs; and adding a new condition 
of participation for CAHs relating to organ, tissue, and eye 
procurement.
     In the Addendum to the proposed rule, we set forth 
proposed changes to the amounts and factors for determining the FY 2001 
prospective payment rates for operating costs and capital-related 
costs. We also addressed update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 2001 for 
hospitals and hospital units excluded from the prospective payment 
system.
     In Appendix A of the proposed rule, we set forth an 
analysis of the impact of the proposed changes on affected entities.
     In Appendix B of the proposed rule, we set forth the 
technical appendix on the proposed FY 2001 capital cost model.
     In Appendix C of the proposed rule, as required by section 
1886(e)(3) (B) of the Act, we set forth our report to Congress on our 
initial estimate of a recommended update factor for FY 2001 for 
payments to hospitals included in the prospective payment systems, and 
hospitals excluded from the prospective payment systems.
     In Appendix D of the proposed rule, as required by 
sections 1886(e)(4) and (e)(5) of the Act, we included our 
recommendation of the appropriate percentage change for FY 2001 for:

--Large urban area and other area average standardized amounts (and 
hospital-specific rates applicable to sole community and Medicare-
dependent, small rural hospitals) for hospital inpatient services paid 
for under the prospective payment system for operating costs; and
--Target rate-of-increase limits to the allowable operating costs of 
hospital inpatient services furnished by hospitals and hospital units 
excluded from the prospective payment system.

     In the proposed rule, we discussed recommendations by the 
Medicare Payment Advisory Commission (MedPAC) concerning hospital 
inpatient payment policies and presented our responses to those 
recommendations. Under section 1805(b) of the Act, MedPAC is required 
to submit a report to Congress that reviews and makes recommendations 
on Medicare payment policies no later than March 1 of each year. This 
year, MedPAC released a subsequent report in June containing additional 
recommendations. We respond to those recommendations in section IV.E. 
of this preamble.

C. Public Comments Received in Response to the Proposed Rule

    We received a total of 290 timely items of correspondence 
containing multiple comments on the proposed rule. Major issues 
addressed by commenters included the creation of a new DRG for pancreas 
and kidney transplants, the adequacy of the DRG for heart assist 
devices, various aspects of the wage index calculation, rebasing of the 
SCH payment rates, and reclassification of hospitals.
    Summaries of the public comments received and our responses to 
those comments are set forth below under the appropriate section 
heading.

D. Final Rule for the January 20, 2000 Interim Final Rule

    On January 20, 2000, we published in the Federal Register an 
interim final rule with comment period (65 F 3136) to implement a 
change in the Medicare DSH adjustment calculation policy in reference 
to section 1115 expansion waiver days. The interim final rule set forth 
the criteria to use in calculating the Medicare DSH adjustment for 
hospitals for purposes of payment under the prospective payment system. 
This final rule finalizes the policy in this interim final rule with 
comment period. We discuss this policy in detail in Section IV.E.2. of 
this preamble.

II. Changes to DRG Classifications and Relative Weights

A. Background

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

[[Page 47057]]

weights for discharges occurring on or after October 1, 2000, are 
discussed below.

B. DRG Reclassification

1. General
    Cases are classified into DRGs for payment under the prospective 
payment system based on the principal diagnosis, up to eight additional 
diagnoses, and up to six procedures performed during the stay, as well 
as age, sex, and discharge status of the patient. The diagnosis and 
procedure information is reported by the hospital using codes from the 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (ICD-9-CM). Medicare fiscal intermediaries enter the 
information into their claims processing systems and subject it to a 
series of automated screens called the Medicare Code Editor (MCE). 
These screens are designed to identify cases that require further 
review before classification into a DRG.
    After screening through the MCE and any further development of the 
claims, cases are classified into the appropriate DRG by the Medicare 
GROUPER software program. The GROUPER program was developed as a means 
of classifying each case into a DRG on the basis of the diagnosis and 
procedure codes and demographic information (that is, sex, age, and 
discharge status). It is used both to classify past cases in order to 
measure relative hospital resource consumption to establish the DRG 
weights and to classify current cases for purposes of determining 
payment. The records for all Medicare hospital inpatient discharges are 
maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
The data in this file are used to evaluate possible DRG classification 
changes and to recalibrate the DRG weights.
    In the July 30, 1999 final rule (64 FR 41500), we discussed a 
process for considering non-MedPAR data in the recalibration process. 
In order for the use of particular data to be feasible, we must have 
sufficient time to evaluate and test the data. The time necessary to do 
so depends upon the nature and quality of the data submitted. 
Generally, however, a significant sample of the data should be 
submitted by August 1, approximately 8 months prior to the publication 
of the proposed rule, so that we can test the data and make a 
preliminary assessment as to the feasibility of using the data. 
Subsequently, a complete database should be submitted no later than 
December 1 for consideration in conjunction with the next year's 
proposed rule, and as appropriate, in the recalibration in the final 
rule following the proposed rule.
    Currently, cases are assigned to one of 501 DRGs (including one DRG 
for a diagnosis that is invalid as a discharge diagnosis and one DRG 
for ungroupable diagnoses) in 25 major diagnostic categories (MDCs). 
Most MDCs are based on a particular organ system of the body (for 
example, MDC 6 (Diseases and Disorders of the Digestive System)); 
however, some MDCs are not constructed on this basis since they involve 
multiple organ systems (for example, MDC 22 (Burns)).
    In general, cases are assigned to an MDC based on the principal 
diagnosis, before assignment to a DRG. However, there are presently 
five DRGs to which cases are directly assigned on the basis of 
procedure codes. These are the DRGs for liver, bone marrow, and lung 
transplants (DRGs 480, 481, and 495, respectively) and the two DRGs for 
tracheostomies (DRGs 482 and 483). Cases are assigned to these DRGs 
before classification to an MDC.
    Within most MDCs, cases are then divided into surgical DRGs (based 
on a surgical hierarchy that orders individual procedures or groups of 
procedures by resource intensity) and medical DRGs. Medical DRGs 
generally are differentiated on the basis of diagnosis and age. Some 
surgical and medical DRGs are further differentiated based on the 
presence or absence of complications or comorbidities (CC).
    Generally, the GROUPER does not consider other procedures; that is, 
nonsurgical procedures or minor surgical procedures generally not 
performed in an operating room are not listed as operating room (OR) 
procedures in the GROUPER decision tables. However, there are a few 
non-OR procedures that do affect DRG assignment for certain principal 
diagnoses, such as extracorporeal shock wave lithotripsy for patients 
with a principal diagnosis of urinary stones.
    We proposed several changes to the DRG classification system for FY 
2001 and discussed other issues concerning DRGs. The proposed changes, 
the public comments we received concerning them, and the final DRG 
changes are set forth below. Unless otherwise noted, the changes we are 
implementing will be effective in the revised GROUPER software (Version 
18.0) to be implemented for discharges on or after October 1, 2000. 
(Also unless otherwise specified, our DRG analysis is based on the full 
(100 percent) FY 1999 MedPAR file (bills received through December 31, 
1999 for discharges in FY 1999).
2. MDC 5 (Diseases and Disorders of the Circulatory System)
    In the August 29, 1997 final rule with comment period (62 FR 
45974), we noted that, because of the many recent changes in heart 
surgery, we were considering conducting a comprehensive review of the 
MDC 5 surgical DRGs. In the July 31, 1998 final rule with comment 
period (63 FR 40956), we did adopt some changes to the MDC 5 surgical 
DRGs. Since that time, we have received inquiries on a continuing basis 
regarding these DRGs. We have continued to review Medicare claims data 
and, based on our analysis, we proposed several DRG changes in MDC 5 in 
the May 5, 2000 proposed rule.
    a. Heart Transplant (DRG 103). As previously stated, cases are 
generally assigned to an MDC based on principal diagnosis and 
subsequently assigned to surgical or medical DRGs included in that MDC. 
However, cases involving liver, bone marrow, and lung transplants (DRGs 
480, 481, and 495, respectively) and the two DRGs for tracheostomies 
(DRGs 482 and 483) are directly assigned on the basis of procedure 
codes. Cases assigned to these DRGs before classification to an MDC are 
referred to as pre-MDC. However, cases involving heart transplants are 
currently assigned first to MDC 5 and then to DRG 103.
    Currently, when a bone marrow transplant and a heart transplant are 
performed during the same admission, the case is assigned to DRG 481 
(Bone Marrow Transplant). Because bone marrow transplant cases are 
first classified to pre-MDC, while heart transplants are first assigned 
to MDC 5, the bone marrow transplant assumes precedence in the 
assignment of the case to a DRG. However, payment for DRG 481 is 
substantially less than DRG 103. For FY 2000, the relative weight for 
DRG 103 is 19.5100, while the relative weight for DRG 481 is 8.7285.
    To ensure appropriate DRG assignment of these cases, we proposed 
that the heart transplant DRG, which encompasses combined heart-lung 
transplantation (ICD-9-CM procedure code 33.6) and heart 
transplantation (ICD-9-CM procedure code 37.5) be assigned to pre-MDC. 
In this way, cases involving a bone marrow transplant and a heart 
transplant would be assigned to DRG 103 (DRG 103 would be reordered 
higher in the pre-MDC surgical hierarchy, as discussed in section 
II.B.5. of this preamble).
    We received two comments in support of this proposed change and are 
adopting it as final.

[[Page 47058]]

    b. Heart Assist Devices. We continue to review data in MDC 5 
(Diseases and Disorders of the Circulatory System) to determine if 
cases are being assigned to the most appropriate DRG based on clinical 
coherence and similar resource consumption. At the December 1, 1994 
ICD-9-CM Coordination and Maintenance Committee meeting, we recommended 
that new codes be created to capture single and bi-ventricular heart 
assist systems.
    These codes, 37.65 (Implant of an external, pulsatile heart assist 
system) and 37.66 (Implant of an implantable, pulsatile heart assist 
system), were adopted for use for discharges occurring on or after 
October 1, 1995. However, code 37.66 was deemed investigational and was 
not considered a covered procedure. Effective May 5, 1997, we revised 
Medicare coverage of heart assist devices to allow coverage of a 
ventricular assist device (code 37.66) used for support of blood 
circulation postcardiotomy if certain conditions were met.
    Due to some residual misunderstanding regarding this coverage 
policy, we emphasize that this device was and will continue to be 
listed as a noncovered procedure in the Medicare Code Editor (MCE), the 
front-end software product in the GROUPER program that detects and 
reports errors in the coding of claims data. The reason that this 
device is listed in the MCE, in spite of the fact that its implantation 
is covered, is because of the stringent conditions that must be met by 
hospitals in order to receive payment.
    In the August 29, 1997 final rule (62 FR 45973), we moved procedure 
code 37.66 from DRGs 110 and 111 \1\ (Major Cardiovascular Procedures 
with and without CCs, respectively) to DRG 108 (Other Cardiothoracic 
Procedures). As stated in the July 31, 1998 final rule (63 FR 40956), 
we moved procedure code 37.66 to DRGs 104 and 105 (Cardiac Valve and 
Other Major Cardiothoracic Procedures with and without CCs, 
respectively) for FY 1999.
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    \1\ A single title combined with two DRG numbers is used to 
signify pairs. Generally, the first DRG is for cases with CC and the 
second DRG is for cases without CC. If a third number is included, 
it represents cases with patients who are age 0-17. Occasionally, a 
pair of DRGs is split between age 17 and age 0-17.
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    In the July 30, 1999 final rule (64 FR 41498), we responded to a 
comment suggesting that heart assist devices be assigned to DRG 103. 
For the proposed rule we reviewed the 100 percent FY 1999 MedPAR file 
containing bills through December 31, 1999, and found that there were a 
total of 47 implantable heart assist system procedures performed on 
Medicare beneficiaries. Of these cases, 13 (approximately 28 percent) 
were assigned to DRG 103 (Heart Transplant) and four (approximately 9 
percent) were assigned to DRG 483 (Tracheostomy Except for Face, Mouth 
and Neck Diagnoses), and, therefore, were paid at significantly higher 
rates than the remaining 30 cases. All of the procedure code 37.66 
cases have extremely high charges, which is consistent with past 
analysis, and all of these cases are subject to payment as cost 
outliers.
    Our data analysis indicated that the most cases in any one hospital 
was 5, while 17 hospitals performed only one heart assist system 
implant each. We reiterate that only heart transplant cases can be 
properly assigned to the transplant DRG (August 29, 1997 final rule (62 
FR 45974)). Since heart assist devices are used across DRGs, many not 
involving a transplant, we did not propose to assign procedure code 
37.66 to DRG 103.
    In addition to the review of 37.66, we also looked at procedure 
codes 37.62 (Implant of other heart assist system), 37.63 (Replacement 
and repair of heart assist system), and 37.65 (Implant of an external, 
pulsatile heart assist system). These cases are currently assigned to 
DRGs 110 and 111 (Major Cardiovascular Procedures). We believe that 
these procedures are similar both clinically and in terms of resource 
utilization to procedure code 37.66, which is already assigned to DRGs 
104 and 105. Therefore, we proposed to move codes 37.62, 37.63, and 
37.65 from DRGs 110 and 111 to DRGs 104 and 105.
    Comment: We received four comments on this proposal.
    Two comments in favor of our proposal were received from national 
associations concerned with health care delivery.
    Two commenters requested reevaluation of the DRG assignment of 
mechanical heart assist devices, particularly procedure code 37.66, and 
suggested that a new DRG be created to classify this technology, or 
that these cases be assigned to DRG 103 (Heart Transplant). The 
commenters pointed out that the heart assist implantation procedure is 
typically performed in the same medical centers by the same surgical 
teams as the heart transplant procedure.
    With respect to our past decision not to assign cases with 
procedure code 37.66 to DRG 103, one commenter acknowledged our 
analysis of 1996 MedPAR data showing the costs of these cases to be 
more similar to DRGs 104 and 105 than DRG 103, but suggested that we 
look at more recent data. The commenter also questioned our rationale 
for not assigning these cases to DRG 103 on the basis that heart assist 
devices are used across DRGs.
    One commenter argued that, as all the cases with procedure code 
37.66 were qualified as cost outliers, the misplacement of this 
procedure is evident. This commenter also noted that use of this 
procedure is likely to increase in the future and suggested that HCFA 
position itself ahead of the curve by increasing payment now in 
anticipation of this event. The commenter urged HCFA to examine the 
option of combining code 37.66 with other clinically similar low-volume 
procedures, and creating a new DRG that would more appropriately pay 
these cases. This recommended new DRG could conceivably include codes 
37.62, 37.63, and 37.65, as they are similar both clinically and in 
terms of resource consumption.
    Finally, one commenter expressed concern that the uncovered status 
of procedure code 37.66 in the MCE may be resulting in inappropriate 
payment denials. The commenter recommended that HCFA review the 
procedures employed by fiscal intermediaries to override the MCE edits.
    Response: We are adopting our proposed change to assign procedure 
codes 37.62, 37.63, and 37.65 to DRGs 104 and 105.
    With respect to the comments regarding procedure code 37.66, we 
have continually considered the issue of DRG assignment of heart assist 
devices since this technology was assigned an ICD-9-CM code in 1995, 
and became a Medicare covered procedure (if specific conditions were 
met) effective in 1997. As we noted in the proposed rule, these are 
costly cases that are currently spread across several DRGs. Although 
the outlier policy is intended to help hospitals offset unusually 
costly cases, we are concerned when a particular procedure always 
qualifies as an outlier case.
    However, we do not believe it would be appropriate to redefine DRG 
103 to include these cases at this time. The presently limited 
incidence of these cases, with very few cases occurring at any 
particular hospital over the course of a year, does not warrant 
disrupting the clinical coherence of DRG 103. The fact that these cases 
are spread across a number of DRGs indicates they do not represent a 
clinically cohesive group of patients in terms of their associated 
diagnoses or other procedures.
    We will continue to monitor and evaluate these cases to determine 
whether a better approach might be

[[Page 47059]]

identified, including the possibility of a new DRG for procedure codes 
37.62, 37.63, 37.65, and 37.66. We note that the classification of 
patients into DRGs is a constantly evolving process. As there are 
changes in the coding system, data collection, medical technology, or 
medical practice, all DRG definitions will be reviewed and potentially 
revised.
    Concerning the concept of HCFA positioning itself ``ahead of the 
curve'' by anticipating increased use of heart assist devices and 
raising payment accordingly, we are reluctant to attempt to predict 
future trends in medical practice, especially when such predictions 
would affect payments across all DRGs as a result of DRG recalibration. 
We appreciate the industry's continued interest in this system, and 
look forward to working together to arrive at equitable payments for 
this and other new technologies.
    With respect to the comment concerning fiscal intermediary 
overrides of MCE edits listing procedure code 37.66 as noncovered, we 
will instruct our fiscal intermediaries to be aware of this issue. We 
are concerned that Medicare payment for this procedure be limited to 
those cases for which coverage is appropriate and that payment is not 
inappropriately denied.
    c. Platelet Inhibitors. Effective October 1, 1998, procedure code 
99.20 (Injection or infusion of platelet inhibitor) was created. The 
use of platelet inhibitors have been shown to significantly decrease 
the rate of acute vessel closure, as well as the rate of cardiac 
complications and death.\2\ Platelet inhibitors are frequently 
administered to patients undergoing percutaneous transluminal coronary 
angioplasty (PTCA). In addition, patients admitted with unstable angina 
may also benefit from platelet inhibitors.\2\ This procedure code is 
designated as a non-OR procedure that does not affect DRG assignment 
(platelet inhibitors are administered either through intravenous 
injection or infusion).
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    \2\ Topol EJ and Serruys PW. ``Frontiers in Interventional 
Cardiology.'' Circulation.1998; 98: 1802. and Frishman W et al. 
``Medical therapies for the Prevention of Restenosis after 
Percutaneous Coronary Interventions.'' Curr Probl Cardology. 1998; 
23: 555.
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    For the past 2 years, a manufacturer of platelet inhibitors has 
submitted data to support its position that cases involving platelet 
inhibitor therapy receiving angioplasty should be reclassified from DRG 
112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other 
Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent 
Implant). Using the 100 percent FY 1999 MedPAR file that contains 
discharges through September 30, 1999, we performed analysis for the 
proposed rule of the cases for which procedure code 99.20 was reported. 
There were a total of 37,222 cases spread across 123 DRGs.
    The majority of the platelet inhibitor cases, 28,022 (75 percent of 
all platelet inhibitor cases), are already assigned to DRG 116. The 
average standardized charges for these cases are approximately $26,683, 
compared to approximately $25,251 for DRG 116 overall. In DRG 112, 
there were 4,310 platelet inhibitor cases (12 percent of all platelet 
inhibitor cases) assigned. The average standardized charge for these 
cases is approximately $22,786, compared to approximately $20,224 for 
DRG 112 overall. Although the platelet inhibitor therapy cases that are 
classified to DRG 112 do have somewhat higher charges than the average 
case assigned to this DRG (11 percent, or $2,563), we found several 
procedures in DRG 112 with average standardized charges higher than the 
platelet inhibitor cases. For example, there were 1,560 cases in which 
a single vessel PTCA or coronary atherectomy with thrombolytic agent 
(procedure code 36.02) was performed with an average standardized 
charge of approximately $25,181, and there were 4,951 cases in which a 
multiple vessel PTCA or coronary atherectomy was performed, with or 
without a thrombolytic agent (procedure code 36.05) with an average 
standardized charge of approximately $23,608.
    We also noted that there are several procedures assigned to DRG 112 
that have average standardized charges lower than the average charges 
for all cases in the DRG. For example, average charges for cases with 
procedure code 37.34 (Catheter ablation of lesion or tissues of heart) 
were $18,429.
    There is always some variation in charges within a DRG. The 
difference in variations of charges in DRG 112 is within the normal 
range of charge variations.
    Clinical homogeneity within DRGs has always been a fundamental 
principle considered when assigning codes to appropriate DRGs. 
Currently, DRG 116 includes cases involving the insertion of a 
pacemaker as well as the insertion of coronary artery stents with PTCA. 
On the other hand, cases assigned to DRG 112 involve less invasive 
operating room and, in some cases, nonoperating room procedures.
    The basis for DRG assignment has generally been the diagnosis of 
the patient or the procedures performed. To the extent the use of a 
particular technology becomes prevalent in the treatment of a 
particular type of case, the DRG system is designed to account for any 
increases or decreases in costs through recalibration. Hospitals 
frequently benefit from this process while efficiency-enhancing 
technology is being introduced. We believe that the update factors 
established in section 1886(b)(3)(B)(i) of the Act, combined with the 
potential for continuing improvements in hospital productivity, and 
annual recalibration of the DRG weights, are adequate to finance 
appropriate care of Medicare patients.
    We also discussed in the proposed rule our analysis of cases where 
platelet inhibitor therapy is targeted on acute coronary syndrome 
patients without coronary intervention. These cases are assigned to DRG 
124 (Circulatory Disorders Except Acute Myocardial Infarction with 
Cardiac Catheterization and Complex Diagnosis) or DRG 140 (Angina 
Pectoris). The concern is that both types of cases, those performed in 
conjunction with coronary intervention and those without, be given an 
equal focus in this evaluation.
    Based on our analysis, we found 410 platelet inhibitor cases (1 
percent) assigned to DRG 124. This is a small percentage of cases in 
comparison to the overall total of 134,759 cases assigned to this DRG. 
The platelet inhibitor cases had an average standardized charge of 
approximately $17,378 compared to approximately $14,730 for DRG 124 
overall. As we have indicated, there is always some variation in 
charges within a DRG and this difference is within normal variation.
    There were 66 platelet inhibitor cases (0.2 percent) assigned to 
DRG 140. The average standardized charge for these cases is higher than 
the overall DRG charge, approximately $8,992 and $5,657, respectively. 
However, it represents a small percentage of the total (76,913) cases 
assigned to DRG 140.
    In summary, currently 75 percent of cases where code 99.20 is 
present are assigned to DRG 116. The next most common DRG where these 
cases are assigned is DRG 112 (12 percent). Cases assigned to DRG 116 
generally involve implantation of a pacemaker or artery stent, while 
cases assigned to DRG 112 involve percutaneous cardiovascular 
procedures. Our analysis found a $3,897 difference between cases 
involving platelet inhibitor therapy that were assigned to DRG 116 and 
cases assigned to DRG 112, indicating a clinical distinction between 
the cases grouping to the two DRGs. Finally, among platelet

[[Page 47060]]

inhibitor therapy cases that are assigned to DRG 112, our analysis 
found that the average charges are well within the normal variation 
around the overall average charges within the DRG. Based on these 
findings, we believe it would be inappropriate to assign all cases 
where procedure code 99.20 is present to DRG 116. Therefore, we did not 
propose to change our current policy that specifies that assignment of 
cases to this code does not affect the DRG assignment.
    Comment: We received two comments on this issue. One commenter from 
a national hospital association supported not assigning code 99.20 to 
DRG 116. The other commenter argued that the analysis on which our 
position was based is flawed. This commenter believed that perhaps as 
many as five times the 37,222 cases we identified with ICD-9-CM 
procedure code 99.20 actually exist in the data but the procedure was 
not coded. To remedy this, the commenter suggested two options HCFA 
could pursue. The first option would be to reexamine the data file with 
the goal of excluding cases that appear to be miscoded. The commenter 
suggested that HCFA might check total pharmacy charges in MedPAR and 
exclude from the analysis cases without ICD-9-CM procedure code 99.20 
that have pharmacy charges over a certain threshold (for example, a 
threshold of $500). The second option would be to use outside data to 
capture pharmacy information which would provide more reliable 
information than coding with procedure code 99.20.
    The commenter recommended that HCFA make a concerted effort, 
perhaps through the Medicare fiscal intermediaries, to instruct 
hospitals to use ICD-9-CM procedure code 99.20 on the claim of any case 
that receives any of the three platelet inhibitors.
    Response: We appreciate the support of the hospital association for 
our position on this issue.
    In response to the comment that the MedPAR data underreport 
procedure code 99.20 because the data do not affect DRG assignment and 
payment, we believe it is in hospitals' best interest to submit 
accurate billing data that are utilized in the DRG reclassification and 
recalibration of the DRG relative weights process.
    We disagree with the recommendation that we exclude from our 
analysis any bill with over $500 in pharmacy charges that does not 
report procedure code 99.20. We question the analytical validity of 
this approach, particularly given that many Medicare beneficiaries have 
multiple chronic conditions requiring multiple medications. It is 
simply not possible to determine coding accuracy by reviewing charge 
data submitted on bills. The only way to identify coding errors would 
be to review the actual medical records. To exclude cases with pharmacy 
charges exceeding a certain predetermined threshold would likely skew 
the results of any such analysis.
    We remain open to considering and using non-MedPAR data to make DRG 
changes if the data are reliable and validated. In the July 31, 1999 
final rule (64 FR 41499), we described the timetable and process for 
interested parties to submit non-MedPAR data.
    With respect to the recommendation that we make a concerted effort 
to ensure that hospitals use procedure code 99.20 appropriately, from 
the inception of this procedure code, effective October 1, 1998, HCFA 
has collaborated with the American Hospital Association (AHA) to 
educate coders on platelet inhibitor therapy. An extensive article in 
AHA's publication, Coding Clinic for ICD-9-CM, Fourth Quarter 1998, 
identifies the platelet inhibitor drugs and includes instructions on 
the appropriate code assignment. Coding instructions for platelet 
inhibitors are also available via the 1998 regulatory updates 
teleconference sponsored by AHA.
    d. Extracorporeal Membrane Oxygenation. Extracorporeal Membrane 
Oxygenation (ECMO) is a cardiopulmonary bypass technique that offers 
long-term cardiopulmonary support to patients who have reversible 
cardiopulmonary insufficiency that has not responded to conventional 
management. It involves passing a patient's blood through an 
extracorporeal membrane oxygenator that adds oxygen and removes carbon 
dioxide. The oxygenated blood then is passed through a heat exchanger 
to warm it to body temperature prior to returning it to the patient. 
The process and equipment are similar to those used in open heart 
surgery, but are continued over prolonged periods of time. ECMO 
attempts to provide the patient with artificial cardiopulmonary 
function while his or her own cardiopulmonary functions are incapable 
of sustaining life.
    Since ECMO involves the use of a device that sustains 
cardiopulmonary function while the underlying condition is being 
treated, it is important to identify and treat underlying conditions 
leading to cardiopulmonary failure if the patient is to return to 
normal cardiopulmonary function.
    ECMO is assigned to procedure code 39.65 (Extracorporeal membrane 
oxygenation (ECMO)). This code is not recognized as an OR procedure 
within the DRG system and, therefore, does not affect payment. To 
evaluate the appropriateness of payment under the current DRG 
assignment, we have reviewed a 10-percent sample of Medicare claims in 
the FY 1999 MedPAR file and found only 4 cases in which ECMO was used. 
The charges for these cases ranged from $16,006 to $198,014. Since 
medical literature indicates that ECMO is predominately used on 
newborns and pediatric cases, this low number of claims is not 
surprising. Only in recent years have some hospitals started to use 
ECMO on adults. It is reserved for cases facing almost certain 
mortality.
    Because ECMO is a procedure clinically similar to a heart assist 
device, we proposed that procedure code 39.65 be classified as an OR 
procedure and be classified in DRGs 104 and 105 along with the heart 
assist system procedures (as discussed in section II.B.2.b. of this 
preamble). Those cases in which ECMO was provided, but for which the 
principal diagnosis is not classified to MDC 5, would then be assigned 
to DRG 468 (Extensive OR Procedure Unrelated to Principal Diagnosis). 
This would be appropriate since it is possible that secondary 
conditions or complications may arise during hospitalization that would 
require the use of ECMO. The relatively high weight of DRG 468 would be 
appropriate for these cases.
    Comment: We received two comments in support of the proposal to 
classify procedure code 39.65 as an OR procedure and then assign it to 
DRGs 104 and 105. One of the commenters stated that most of the adult 
patients receiving ECMO will fall within MDC 5 since ECMO is used for 
patients with severe, but reversible, heart or lung disorders that have 
not responded to the usual treatments of mechanical ventilation, 
medicines, and extra oxygen. The commenter further stated that these 
severely ill patients may continue on ECMO for a period of days or 
weeks until the heart or lungs recover, or until the treatment is no 
longer effective.
    Response: We acknowledge the support of the commenters to classify 
39.65 as an OR procedure and then assign it to DRGs 104 and 105 and are 
adopting our proposal as final.
3. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
    a. V05.8 (Vaccination for disease, NEC). DRG 390 (Neonate with 
Other Significant Problems) contains newborn or neonate cases with 
other significant

[[Page 47061]]

problems, not assigned to DRGs 385 through 389, DRG 391, or DRG 469. In 
order to be classified into DRG 391 (Normal Newborn), the neonate must 
have a principal diagnosis as listed under DRG 391 and either no 
secondary diagnosis or a secondary diagnosis as listed under DRG 391. 
Neonates with a secondary diagnosis of V05.8 (Vaccination for disease, 
NEC) are currently classified to DRG 390. Although it would seem that 
healthy newborns who receive vaccinations and have no other problems 
would be assigned to DRG 391, code V05.8 is not included as one of the 
secondary diagnoses under DRG 391, and therefore the case would not be 
classified as a normal newborn (DRG 391). Code V05.8 is assigned to DRG 
390 as a default, since it is not included under another complicated 
neonate DRG or the normal newborn DRG.
    In the proposed rule, we discussed our review of the 
appropriateness of including diagnosis code V05.8 on the list of 
acceptable secondary diagnoses under DRG 390 based on inquires that we 
had received. We pointed out that by including V05.8 on the acceptable 
secondary diagnosis list for DRG 390, newborns who receive vaccinations 
are classified as having significant health problems. The inquirers 
believed this incorrectly labels an otherwise healthy newborn as having 
a significant medical condition. Providing a vaccination to a newborn 
is performed to prevent the infant from contracting a disease.
    We agreed with the inquirers that, absent any evidence of disease, 
a newborn should not be considered as having a significant problem 
simply because a preventative vaccination was provided. Therefore, we 
proposed that V05.8 be removed from the list of acceptable secondary 
diagnoses under DRG 390 and assigned as a secondary diagnosis under DRG 
391. In doing so, these cases would no longer be classified to DRG 390.
    Comment: We received two comments in support of our proposal to 
remove code V05.8 from the list of acceptable secondary diagnoses under 
DRG 390. These commenters agreed that a prophylactic vaccination should 
not be classified as a significant problem. Newborns who receive these 
prophylactic vaccinations should still be considered normal newborns. 
We received no comments in opposition to the proposal.
    Response: We are adopting the proposal to include V05.8 on the list 
of acceptable secondary diagnoses under DRG 391 Normal Newborn. Codes 
V05.3 (Viral hepatitis vaccination) and V05.4 (Varicella vaccination) 
are already listed as acceptable secondary diagnoses under DRG 391.
    b. Diagnosis code 666.02 (Third-stage postpartum hemorrhage, 
delivered with postpartum complication). Diagnosis code 666.02 is 
assigned to DRG 373 (Vaginal Delivery without Complicating Diagnoses). 
This DRG was created for uncomplicated vaginal deliveries. However, 
code 666.22 (Delayed and secondary postpartum hemorrhage, delivered 
with postpartum complication) is assigned to DRG 372 (Vaginal Delivery 
with Complicating Diagnoses). This means that mothers who have a 
delayed and secondary postpartum hemorrhage would be assigned to DRG 
372, while mothers who have a third-stage postpartum hemorrhage would 
not be considered as a complicated delivery.
    We believe a third-stage postpartum hemorrhage should be considered 
a complicating diagnosis and, in order to categorize these cases more 
appropriately, we proposed to move diagnosis code 666.02 from DRG 373 
and assign it as a complicating diagnosis under DRG 372.
    Comment: We received two comments supporting the proposal to 
classify 666.02 as a complicating diagnosis under DRG 372. The 
commenters agreed that a third-stage postpartum hemorrhage should be 
classified as a complicated delivery. There were no comments submitted 
in opposition to this change.
    Response: We are adopting as final our proposal to classify 666.02 
as a complication diagnosis under DRG 372.
    c. Diagnosis Code 759.89 (Specified congenital anomalies, NEC) 
(Alport's Syndrome). Alport's Syndrome (also referred to as hereditary 
nephritis) is an inherited disorder involving damage to the kidney, 
blood in the urine, and, in some cases, loss of hearing. It may also 
include loss of vision. Patients who are not treated early enough or 
who do not respond to treatment may progress to renal failure. A kidney 
transplant is one treatment option for these cases. As with many of the 
congenital anomalies, there is no unique ICD-9-CM code for this 
condition. Alport's Syndrome, along with many other rare and diverse 
congenital anomalies, is assigned to the rather nonspecific diagnosis 
code 759.89 (Specific congenital anomalies, NEC). Examples include 
William Syndrome, Brachio-Oto-Renal Syndrome, and Costello's Syndrome. 
Each of these is a unique hereditary disorder affecting a variety of 
body systems.
    Patients can be diagnosed and treated for congenital anomalies 
throughout their lives; treatment is not restricted to the neonatal 
period. In our GROUPER, however, each diagnosis code is assigned to 
just one MDC. In this case, diagnosis code 759.89 is assigned to MDC 15 
(Newborns and Other Neonates with Conditions Originating in the 
Perinatal Period) although the patient may be an adult.
    In the proposed rule, we referred to a request from a physician 
concerning renal transplants for patients with Alport's Syndrome. The 
physician pointed out that when a patient with Alport's Syndrome is 
admitted for a kidney transplant, the case is assigned to DRG 390 
(Neonate with Other Significant Problems). In these instances, when the 
principal diagnosis is code 759.89, the case is classified to MDC 15 
although the patient may no longer be a newborn. The physician believed 
that these cases should be assigned to DRG 302 (Kidney Transplant).
    The inquirer suggested moving diagnosis code 759.89 to MDC 11 
(Diseases and Disorders of the Kidney and Urinary Tract) so that when a 
kidney transplant is performed, it will be assigned to DRG 302. 
Although this seems quite appropriate for patients with Alport's 
Syndrome found in diagnosis code 759.89, it does not work well for the 
wide variety of patients also described by this code. Many others would 
be inappropriately classified to MDC 11.
    Alport's Syndrome cases with code 759.89 as a principal diagnosis 
who receive a kidney transplant are assigned to DRG 468 (Extensive OR 
Procedure Unrelated to Principal Diagnosis). This DRG has a FY 2000 
relative weight of 3.6400. Also for FY 2000, DRG 302 (Kidney 
Transplant) has a relative weight of 3.5669. Therefore, the payment 
amounts are in fact comparable.
    We discussed several options for resolving this issue:
    (1) If the case is assigned a principal diagnosis code of renal 
failure with Alport's Syndrome as a secondary diagnosis, the case could 
be assigned to DRG 302. As this option would represent a change in the 
sequencing of congenital anomaly codes and related complications, it 
would have to be evaluated and subsequently approved by the Editorial 
Advisory Board for Coding Clinic for ICD-9-CM. The Editorial Advisory 
Board is comprised of representatives from the physician, coding, and 
hospital industry. Final decisions on coding policy issues are made by 
the representatives from the AHA, the American Health Information 
Management Association, the National Center for Health Statistics, and 
HCFA.

[[Page 47062]]

    (2) A unique ICD-9-CM diagnosis code could be created for Alport's 
Syndrome that could then be evaluated for possible assignment within 
MDC 11. This issue has been referred to the National Center for Health 
Statistics for consideration as a future coding modification.
    One difficulty with this option is the large number of congenital 
anomalies and the limited number of unused codes in this section of 
ICD-9-CM. Each new code must be carefully evaluated for 
appropriateness.
    (3) A third option, which was already addressed, involves moving 
diagnosis code 759.89 to MDC 11. The problem with this approach is that 
many cases would then be misassigned to MDC 11 because the congenital 
anomaly would not involve diseases of the kidney and urinary tract.
    (4) A fourth option would be to leave the coding and DRG assignment 
as they currently exist. Since few cases exist, the overall impact may 
be minimal.
    To evaluate the impact of leaving the DRG assignment as it 
currently exists, in the proposed rule we examined data from a 10-
percent sample of Medicare cases in the FY 1999 MedPAR file. There were 
95 cases assigned to a wide range of DRGs with code 759.89 as a 
secondary diagnosis. There was only one case assigned to MDC 15 with a 
principal diagnosis of code 759.89.
    In the proposed rule, we recommended that diagnosis code 759.89 
remain in MDC 15, since it encompasses such a wide variety of 
conditions.
    Comment: We received two comments in support of modifying the 
coding advice for this particular congenital anomaly so that renal 
failure is reported as the principal diagnosis and Alport's Syndrome is 
reported as a secondary diagnosis. One commenter pointed out that a 
distinction exists between those manifestations that are integral to 
the congenital anomaly (and thus, according to the official coding 
guidelines, would not be coded at all) and those that are not 
considered integral. This commenter also supported the recommendation 
for a change in guidelines that would allow sequencing a manifestation 
that is not integral to the congenital anomaly as the principal 
diagnosis. The other commenter indicated that while renal disease is 
usually present in Alport's Syndrome, it does not always lead to renal 
failure. The commenter also supported the reporting of renal failure as 
the principal diagnosis, with Alport's Syndrome as a secondary 
diagnosis.
    Response: The coding and sequencing of Alport's Syndrome patients 
with renal failure who are admitted for renal transplant were addressed 
at the June 2000 meeting of the Editorial Advisory Board of Coding 
Clinic for ICD-9-CM. Coding Clinic for ICD-9-CM is a publication of the 
AHA. The issue specifically addressed was whether the code used for 
Alport's Syndrome or the code for renal failure should be sequenced 
first when the patient is admitted for a renal transplant for the renal 
failure. In cases where manifestations are a key aspect of the 
congenital anomaly, the congenital anomaly code is usually sequenced 
first.
    After careful evaluation, the Board determined that, in this 
specific case, the code for renal failure would be sequenced first, 
followed by the code for Alport's Syndrome. The Board also determined 
that renal failure is not always present for patients with Alport's 
Syndrome. These patients may, in fact, develop renal failure as a 
result of other factors. Therefore, hospitals do not have to sequence 
the congenital anomaly code first. By reporting renal failure as the 
principal diagnosis, the case is appropriately assigned to DRG 302. The 
Board's advice will be published in the third quarter 2000 issue of 
Coding Clinic for ICD-9-CM and will be effective for discharges 
occurring on or after September 1, 2000.
4. MDC 17 (Myeloproliferative Diseases and Disorders and Poorly 
Differentiated Neoplasm)
    Diagnosis code 273.8 (Disorders of plasma protein metabolism, NEC) 
is assigned to DRG 403 (Lymphoma and Nonacute Leukemia with CC) and DRG 
404 (Lymphoma and Nonacute Leukemia without CC). A disorder of plasma 
protein metabolism does not mean one has a lymphoma with nonacute 
leukemia. An individual can have a disorder of plasma protein 
metabolism without having a lymphoma or leukemia.
    In the proposed rule, we considered the appropriateness of 
including diagnosis code 273.8 in DRGs 403 and 404. Disorders of plasma 
protein metabolism are not lymphomas or leukemia, thus diagnosis code 
273.8 is more closely related to DRG 413 (Other Myeloproliferative 
Disorders or Poorly Differentiated Neoplasm Diagnoses with CC) and DRG 
414 (Other Myeloproliferative Disorders or Poorly Differentiated 
Neoplasm Diagnoses without CC).
    We also examined charge data drawn from cases assigned to diagnosis 
code 273.8 in a 10-percent sample of Medicare cases in the FY 1999 
MedPAR file and found that the average charges for these cases were 
also more closely related to DRGs 413 and 414 than to DRGs 403 and 404. 
We proposed to move diagnosis code 273.8 from DRGs 403 and 404 to DRGs 
413 and 414.
    We also noted that diagnosis code 273.8 is included in the 
following surgical DRGs that are performed on patients with lymphoma or 
leukemia:
     DRG 400 (Lymphoma and Leukemia with Major OR Procedure)
     DRG 401 (Lymphoma and Nonacute Leukemia with Other OR 
Procedure with CC)
     DRG 402 (Lymphoma and Nonacute Leukemia with Other OR 
Procedure without CC)
    The same clinical issue would apply to these surgical DRGS 
performed on patients with lymphoma and leukemia. Code 273.8 should be 
assigned to the surgical DRGs for myeloproliferative disorders since 
the cases are clinically similar and, as stated before, code 273.8 is 
not clinically similar to lymphomas and leukemias. Therefore, we 
proposed to remove code 273.8 from the surgical DRGs related to 
lymphoma and leukemia (DRGS 400, 401, and 402) and assigned to the 
following myeloproliferative surgical DRGS, based on the procedure 
performed:
     DRG 406 (Myeloproliferative Disorders or Poorly 
Differentiated Neoplasms with Major OR Procedures with CC)
     DRG 407 (Myeloproliferative Disorders Or Poorly 
Differentiated Neoplasms with Major OR Procedures without CC)
     DRG 408 (Myeloproliferative Disorders or Poorly 
Differentiated Neoplasms with Other OR Procedures)
    Comment: We received two comments supporting our proposal to remove 
code 273.8 from the DRGs for lymphomas and leukemia (medical DRGs 403 
and 404 as well as surgical DRGs 400 through 402). They supported 
moving 273.8 to the DRGs for other myeloproliferative disorders 
(medical DRGs 413 and 414 as well as surgical DRGs 406 through 408). 
One commenter also pointed out that code 273.9 (Unspecified disorder of 
plasma protein metabolism) is clinically similar to 273.8 and is also 
included with the DRGs for lymphomas and leukemia. The commenter asked 
if HCFA also planned to move 273.9 in a similar fashion to that 
proposed for code 273.8 since they appear to be companion codes. The 
commenter asserted that it was inappropriate to keep 273.9 in the DRGS 
for lymphoma and leukemia.
    Response: We agree that code 273.8 should be moved out of the DRGs 
for lymphoma and leukemia and into the DRGs for other 
myeloproliferative disorders. Also, we agree with the commenter who 
stated that code 273.9

[[Page 47063]]

is clinically similar to 273.8 and should be treated in the same 
manner. Each code would be more appropriately assigned to the DRGS for 
other myeloproliferative disorders. Therefore, we are removing 273.9 
from medical DRGS 403 and 404 and assigning it to DRGS 413 and 414. We 
are adopting as final our proposal to remove 273.8 from medical DRGs 
403 and 404 and assign it to medical DRGs 413 and 414. We are also 
removing 273.8 and 273.9 from surgical DRGs 400, 401, and 402 and 
assigning them to surgical DRGs 406, 407, and 408.
5. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different DRG within the MDC to which the principal diagnosis is 
assigned. Therefore, it is necessary to have a decision rule by which 
these cases are assigned to a single DRG. The surgical hierarchy, an 
ordering of surgical classes from most to least resource intensive, 
performs that function. Its application ensures that cases involving 
multiple surgical procedures are assigned to the DRG associated with 
the most resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of DRG reclassification and recalibration, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications, to determine if the ordering of classes coincided 
with the intensity of resource utilization, as measured by the same 
billing data used to compute the DRG relative weights.
    A surgical class can be composed of one or more DRGs. For example, 
in MDC 11, the surgical class ``kidney transplant'' consists of a 
single DRG (DRG 302) and the class ``kidney, ureter and major bladder 
procedures'' consists of three DRGs (DRGs 303, 304, and 305). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one DRG. The methodology for determining the most resource-
intensive surgical class involves weighting each DRG for frequency to 
determine the average resources for each surgical class. For example, 
assume surgical class A includes DRGs 1 and 2 and surgical class B 
includes DRGs 3, 4, and 5. Assume also that the average charge of DRG 1 
is higher than that of DRG 3, but the average charges of DRGs 4 and 5 
are higher than the average charge of DRG 2. To determine whether 
surgical class A should be higher or lower than surgical class B in the 
surgical hierarchy, we would weight the average charge of each DRG by 
frequency (that is, by the number of cases in the DRG) to determine 
average resource consumption for the surgical class. The surgical 
classes would then be ordered from the class with the highest average 
resource utilization to that with the lowest, with the exception of 
``other OR procedures'' as discussed below.
    This methodology may occasionally result in a case involving 
multiple procedures being assigned to the lower-weighted DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER searches for the procedure in the 
most resource-intensive surgical class, this result is unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average relative 
weight is ordered above a surgical class with a higher average relative 
weight. For example, the ``other OR procedures'' surgical class is 
uniformly ordered last in the surgical hierarchy of each MDC in which 
it occurs, regardless of the fact that the relative weight for the DRG 
or DRGs in that surgical class may be higher than that for other 
surgical classes in the MDC. The ``other OR procedures'' class is a 
group of procedures that are least likely to be related to the 
diagnoses in the MDC but are occasionally performed on patients with 
these diagnoses. Therefore, these procedures should only be considered 
if no other procedure more closely related to the diagnoses in the MDC 
has been performed.
    A second example occurs when the difference between the average 
weights for two surgical classes is very small. We have found that 
small differences generally do not warrant reordering of the hierarchy 
since, by virtue of the hierarchy change, the relative weights are 
likely to shift such that the higher-ordered surgical class has a lower 
average weight than the class ordered below it.
    Based on the preliminary recalibration of the DRGs, we proposed to 
modify the surgical hierarchy as set forth below. As we stated in the 
September 1, 1989 final rule (54 FR 36457), we were unable to test the 
effects of proposed revisions to the surgical hierarchy and to reflect 
these changes in the proposed relative weights because the revised 
GROUPER software was unavailable at the time the proposed rule was 
completed. Rather, we simulated most major classification changes to 
approximate the placement of cases under the proposed reclassification, 
then determined the average charge for each DRG. These average charges 
then served as our best estimate of relative resource use for each 
surgical class.
    We proposed to revise the surgical hierarchy for the pre-MDC DRGs, 
MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue), and MDC 10 (Endocrine, Nutritional, and Metabolic 
Diseases and Disorders) as follows:
     In the pre-MDC DRGs, we proposed to move DRG 103 (Heart 
Transplant) from MDC 5 to pre-MDC. We proposed to reorder DRG 103 
(Heart Transplant) above DRG 483 (Tracheostomy Except for Face, Mouth, 
and Neck Diagnoses).
     In the pre-MDC DRGs, we proposed to reorder DRG 481 (Bone 
Marrow Transplant) above DRG 495 (Lung Transplant).
     In MDC 8, we proposed to reorder DRG 230 (Local Excision 
and Removal of Internal Fixation Devices of Hip and Femur) above DRGs 
226 and 227 (Soft Tissue Procedures).
     In MDC 10, we proposed to reorder DRG 288 (OR Procedures 
for Obesity) above DRG 285 (Amputation of Lower Limb for Endocrine, 
Nutritional, and Metabolic Disorders).
    Comment: One commenter supported the surgical hierarchy proposals. 
Another commenter opposed the reordering of DRG 230 above DRGs 226 and 
227 in MDC 8. The commenter stated that, if both procedures are 
performed during the same operative episode, reordering DRGs 226 and 
227 above DRG 230 would more appropriately capture facility resources.
    Response: Although local excision and removal of internal fixation 
devices of hip and femur procedures may be less resource intensive than 
many of the surgical procedures in DRGs 226 and 227, we proposed the 
surgical hierarchy change because our data indicated cases of local 
excision and removal of internal fixation devices of hip and femur are 
more resource intensive than cases in DRGs 226 and 227. At the time of 
our proposed surgical hierarchy change, the average standardized 
charges for cases in DRG 230 were approximately $1,000 more than the 
average standardized charges for cases in DRGs 226 and 227. We are 
adopting the proposed surgical hierarchy change as final so that cases 
with multiple procedures will be assigned to the higher-weighted DRG. 
We will continue to monitor the MDC 8 surgical hierarchy as part of our 
ongoing review.
    Based on a test of the proposed revisions using the most recent 
MedPAR file and the final GROUPER software, we have found that all the 
proposed

[[Page 47064]]

revisions are still supported by the data and no additional changes are 
indicated. Therefore, we are adopting these changes in this final rule.
6. Refinement of Complications and Comorbidities (CC) List
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered a valid CC in combination with a particular principal 
diagnosis. Thus, we created the CC Exclusions List. We made these 
changes for the following reasons: (1) To preclude coding of CCs for 
closely related conditions; (2) to preclude duplicative coding or 
inconsistent coding from being treated as CCs; and (3) to ensure that 
cases are appropriately classified between the complicated and 
uncomplicated DRGs in a pair. We developed this standard list of 
diagnoses using physician panels to include those diagnoses that, when 
present as a secondary condition, would be considered a substantial 
complication or comorbidity. In previous years, we have made changes to 
the standard list of CCs, either by adding new CCs or deleting CCs 
already on the list. In the May 5, 2000 proposed rule, we proposed no 
deletions of the diagnosis codes on the CC list.
    In the May 19, 1987 proposed notice (52 FR 18877) concerning 
changes to the DRG classification system, we explained that the 
excluded secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another (as subsequently corrected 
in the September 1, 1987 final notice (52 FR 33154)).
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for a condition should not be considered CCs for 
one another.
     Conditions that may not coexist, such as partial/total, 
unilateral/bilateral, obstructed/unobstructed, and benign/malignant, 
should not be considered CCs for one another.
     The same condition in anatomically proximal sites should 
not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. The FY 1988 revisions were intended only 
as a first step toward refinement of the CC list in that the criteria 
used for eliminating certain diagnoses from consideration as CCs were 
intended to identify only the most obvious diagnoses that should not be 
considered complications or comorbidities of another diagnosis. For 
that reason, and in light of comments and questions on the CC list, we 
have continued to review the remaining CCs to identify additional 
exclusions and to remove diagnoses from the master list that have been 
shown not to meet the definition of a CC. See the September 30, 1988 
final rule (53 FR 38485) for the revision made for the discharges 
occurring in FY 1989; the September 1, 1989 final rule (54 FR 36552) 
for the FY 1990 revision; the September 4, 1990 final rule (55 FR 
36126) for the FY 1991 revision; the August 30, 1991 final rule (56 FR 
43209) for the FY 1992 revision; the September 1, 1992 final rule (57 
FR 39753) for the FY 1993 revision; the September 1, 1993 final rule 
(58 FR 46278) for the FY 1994 revisions; the September 1, 1994 final 
rule (59 FR 45334) for the FY 1995 revisions; the September 1, 1995 
final rule (60 FR 45782) for the FY 1996 revisions; the August 30, 1996 
final rule (61 FR 46171) for the FY 1997 revisions; the August 29, 1997 
final rule (62 FR 45966) for the FY 1998 revisions; and the July 31, 
1998 final rule (63 FR 40954) for the FY 1999 revisions. In the July 
30, 1999 final rule (64 FR 41490), no modifications were made to the CC 
Exclusions List for FY 2000 because we made no changes to the ICD-9-CM 
codes for FY 2000.
    In this final rule, we are making limited revisions of the CC 
Exclusions List to take into account the changes that will be made in 
the ICD-9-CM diagnosis coding system effective October 1, 2000. (See 
section II.B.8. below, for a discussion of ICD-9-CM changes.) These 
changes are being made in accordance with the principles established 
when we created the CC Exclusions List in 1987.
    Tables 6F and 6G in section V. of the Addendum to this final rule 
contain the revised CC Exclusions List that is effective for discharges 
occurring on or after October 1, 2000. Each table shows the principal 
diagnoses along with changes to the excluded CCs. Each of these 
principal diagnoses is shown with an asterisk and the additions or 
deletions to the CC Exclusions List are provided in an indented column 
immediately following the affected principal diagnosis.
    CCs that were added to the list appear in Table 6F--Additions to 
the CC Exclusions List. Beginning with discharges on or after October 
1, 2000, the indented diagnoses will not be recognized by the GROUPER 
as valid CCs for the asterisked principal diagnosis.
    CCs that were deleted from the list are in Table 6G--Deletions from 
the CC Exclusions List. Beginning with discharges on or after October 
1, 2000, the indented diagnoses will be recognized by the GROUPER as 
valid CCs for the asterisked principal diagnosis.
    Copies of the original CC Exclusions List applicable to FY 1988 can 
be obtained from the National Technical Information Service (NTIS) of 
the Department of Commerce. It is available in hard copy for $92.00 
plus $6.00 shipping and handling and on microfiche for $20.50, plus 
$4.00 for shipping and handling. A request for the FY 1988 CC 
Exclusions List (which should include the identification accession 
number (PB) 88-133970) should be made to the following address: 
National Technical Information Service, United States Department of 
Commerce, 5285 Port Royal Road, Springfield, Virginia 22161; or by 
calling (703) 487-4650.
    Users should be aware of the fact that all revisions to the CC 
Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 
1997, 1998, 1999, and those in Tables 6F and 6G of this document) must 
be incorporated into the list purchased from NTIS in order to obtain 
the CC Exclusions List applicable for discharges occurring on or after 
October 1, 2000. (Note: There was no CC Exclusions List in FY 2000 
because we did not make changes to the ICD-9-CM codes for FY 2000.)
    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with HCFA, is 
responsible for updating and maintaining the GROUPER program. The 
current DRG Definitions Manual, Version 17.0, is available for $225.00, 
which includes $15.00 for shipping and handling. Version 18.0 of this 
manual, which includes the final FY 2001 DRG changes, will be available 
in October 2000 for $225.00. These manuals may be obtained by writing 
3M/HIS at the following address: 100 Barnes Road, Wallingford, 
Connecticut 06492; or by calling (203) 949-0303. Please specify the 
revision or revisions requested.
    We received no comments on the CC Exclusions List in the proposed 
rule.
7. Review of Procedure Codes in DRGs 468, 476, and 477
    Each year, we review cases assigned to DRG 468 (Extensive OR 
Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR 
Procedure Unrelated to Principal Diagnosis), and DRG 477

[[Page 47065]]

(Nonextensive OR Procedure Unrelated to Principal Diagnosis) to 
determine whether it would be appropriate to change the procedures 
assigned among these DRGs.
    DRGs 468, 476, and 477 are reserved for those cases in which none 
of the OR procedures performed is related to the principal diagnosis. 
These DRGs are intended to capture atypical cases, that is, those cases 
not occurring with sufficient frequency to represent a distinct, 
recognizable clinical group. DRG 476 is assigned to those discharges in 
which one or more of the following prostatic procedures are performed 
and are unrelated to the principal diagnosis:

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

    All remaining OR procedures are assigned to DRGs 468 and 477, with 
DRG 477 assigned to those discharges in which the only procedures 
performed are nonextensive procedures that are unrelated to the 
principal diagnosis. The original list of the ICD-9-CM procedure codes 
for the procedures we consider nonextensive procedures, if performed 
with an unrelated principal diagnosis, was published in Table 6C in 
section IV. of the Addendum to the September 30, 1988 final rule (53 FR 
38591). As part of the final rules published on September 4, 1990 (55 
FR 36135), August 30, 1991 (56 FR 43212), September 1, 1992 (57 FR 
23625), September 1, 1993 (58 FR 46279), September 1, 1994 (59 FR 
45336), September 1, 1995 (60 FR 45783), August 30, 1996 (61 FR 46173), 
and August 29, 1997 (62 FR 45981), we moved several other procedures 
from DRG 468 to 477, and some procedures from DRG 477 to 468. No 
procedures were moved in FY 1999, as noted in the July 31, 1998 final 
rule (63 FR 40962), or in FY 2000, as noted in the July 30, 1999 final 
rule (64 FR 41496).
    a. Moving Procedure Codes from DRGs 468 or 477 to MDCs. We annually 
conduct a review of procedures producing assignment to DRG 468 or DRG 
477 on the basis of volume, by procedure, to determine the 
appropriateness of moving procedure codes out of these DRGs into one of 
the surgical DRGs for the MDC into which the principal diagnosis falls. 
The data are arrayed two ways for comparison purposes. We look at a 
frequency count of each major operative procedure code. We also compare 
procedures across MDCs by volume of procedure codes within each MDC. 
That is, using procedure code 57.49 (Other transurethral excision or 
destruction of lesion or tissue of bladder) as an example, we 
determined that this particular code accounted for the highest number 
of major operative procedures (162 cases, or 9.8 percent of all cases) 
reported in the sample of DRG 477. In addition, we determined that 
procedure code 57.49 appeared in MDC 4 (Diseases and Disorders of the 
Respiratory System) 28 times as well as in 9 other MDCs.
    Using a 10-percent sample of the FY 1999 MedPAR file, we determined 
that the quantity of cases in DRG 477 totaled 1,650. There were 106 
instances where the major operative procedure appeared only once (6.4 
percent of the time), resulting in assignment to DRG 477.
    Using the same 10-percent sample of the FY 1999 MedPAR file, we 
reviewed DRG 468. There were a total of 3,858 cases, with one major 
operative code causing the DRG assignment 311 times (or 8 percent) and 
230 instances where the major operative procedure appeared only once 
(or 6 percent of the time).
    Our medical consultants then identified those procedures occurring 
in conjunction with certain principal diagnoses with sufficient 
frequency to justify adding them to one of the surgical DRGs for the 
MDC in which the diagnosis falls. Based on this year's review, we did 
not identify any necessary changes in procedures under either DRG 468 
or 477 and, therefore, did not propose to move any procedures from 
either DRG 468 or DRG 477 to one of the surgical DRGs. We received no 
comments on our review results and, therefore, we will not move any 
procedures from these DRGs for FY 2001.
    b. Reassignment of Procedures Among DRGs 468, 476, and 477. We also 
conduct an annual review of a list of ICD-9-CM procedures that, when in 
combination with their principal diagnosis code, result in assignment 
to DRGs 468, 476, and 477, to ascertain if any of those procedures 
should be moved from one of these DRGs to another of these DRGs based 
on average charges and length of stay. We analyze the data for trends 
such as shifts in treatment practice or reporting practice that would 
make the resulting DRG assignment inappropriate. If our medical 
consultants were to find these shifts, we would propose moving cases to 
keep the DRGs clinically similar or to provide payment for the cases in 
a similar manner. Generally, we move only those procedures for which we 
have an adequate number of discharges to analyze the data. Based on 
this year's review, we proposed not to move any procedures from DRG 468 
to DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG 477 to 
DRGs 468 or 476. We received no comments on this proposal, and 
therefore are not moving any procedures from the DRGs indicated.
    c. Adding Diagnosis Codes to MDCs. It has been brought to our 
attention that an ICD-9-CM diagnosis code should be added to DRG 482 
(Tracheostomy for Face, Mouth and Neck Diagnoses) to preserve clinical 
coherence and homogeneity of the system. In the case of a patient who 
has a facial infection (diagnosis code 682.0 (Other cellulitis and 
abscess, Face)), the face may become extremely swollen and the 
patient's ability to breathe might be impaired. It might be deemed 
medically necessary to perform a temporary tracheostomy (procedure code 
31.1) on the patient until the swelling subsides enough for the patient 
to once again breathe on his or her own.
    The combination of diagnosis code 682.0 and procedure code 31.1 
resulted in assignment to DRG 483 (Tracheostomy Except for Face, Mouth 
and Neck Diagnoses). The absence of diagnosis code 682.0 in DRG 483 
forces the GROUPER algorithm to assign the case based solely on the 
procedure code, without taking this diagnosis into account. Clearly 
this was not the intent, as diagnosis code 682.0 should be included 
with other face, mouth and neck diagnosis. We believe that cases such 
as these would appropriately be assigned to DRG 482. Therefore, we 
proposed to add diagnosis code 682.0 to the list of other face, mouth 
and neck diagnoses already in the principal diagnosis list in DRG 482.
    We received one comment in support of the proposed change, and are 
adopting as final the proposal to add diagnosis code 682.0 to DRG 482.
8. Changes to the ICD-9-CM Coding System
    As described in section II.B.1 of this preamble, the ICD-9-CM is a 
coding system that is used for the reporting of diagnoses and 
procedures performed on a patient. In September 1985, the ICD-9-CM 
Coordination and Maintenance Committee was formed. This is a Federal 
interdepartmental committee, co-chaired by the National Center for

[[Page 47066]]

Health Statistics (NCHS) and HCFA, charged with maintaining and 
updating the ICD-9-CM system. The Committee is jointly responsible for 
approving coding changes, and developing errata, addenda, and other 
modifications to the ICD-9-CM to reflect newly developed procedures and 
technologies and newly identified diseases. The Committee is also 
responsible for promoting the use of Federal and non-Federal 
educational programs and other communication techniques with a view 
toward standardizing coding applications and upgrading the quality of 
the classification system.
    The NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
HCFA has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The Committee encourages participation in the above process by 
health-related organizations. In this regard, the Committee holds 
public meetings for discussion of educational issues and proposed 
coding changes. These meetings provide an opportunity for 
representatives of recognized organizations in the coding field, such 
as the American Health Information Management Association (AHIMA) 
(formerly American Medical Record Association (AMRA)), the AHA), and 
various physician specialty groups as well as physicians, medical 
record administrators, health information management professionals, and 
other members of the public to contribute ideas on coding matters. 
After considering the opinions expressed at the public meetings and in 
writing, the Committee formulates recommendations, which then must be 
approved by the agencies.
    The Committee presented proposals for coding changes for FY 2000 at 
public meetings held on June 4, 1998 and November 2, 1998. Even though 
the Committee conducted public meetings and considered approval of 
coding changes for FY 2000 implementation, we did not implement any 
changes to ICD-9-CM codes for FY 2000 because of our major efforts to 
ensure that all of the Medicare computer systems were compliant with 
the year 2000. Therefore, the code proposals presented at the public 
meetings held on June 4, 1998 and November 2, 1998, that (if approved) 
ordinarily would have been included as new codes for October 1, 1999, 
were held for consideration for inclusion in the annual update for FY 
2001.
    The Committee also presented proposals for coding changes for 
implementation in FY 2001 at public meetings held on May 13, 1999 and 
November 12, 1999, and finalized the coding changes after consideration 
of comments received at the meetings and in writing by January 7, 2000.
    Copies of the Coordination and Maintenance Committee minutes of the 
1999 meetings can be obtained from the HCFA Home Page by typing http://www.hcfa.gov/medicare/icd9cm.htm. Paper copies of these minutes are no 
longer available and the mailing list has been discontinued.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 2000. The new ICD-9-CM codes are listed, along 
with their DRG classifications, in Tables 6A and 6B (New Diagnosis 
Codes and New Procedure Codes, respectively) in section VI. of the 
Addendum to this final rule. As we stated above, the code numbers and 
their titles were presented for public comment at the ICD-9-CM 
Coordination and Maintenance Committee meetings. Both oral and written 
comments were considered before the codes were approved. In the May 5, 
2000 proposed rule, we solicited comments only on the proposed DRG 
classification of these new codes.
    Further, the Committee has approved the expansion of certain ICD-9-
CM codes to require an additional digit for valid code assignment. 
Diagnosis codes that have been replaced by expanded codes or other 
codes, or have been deleted are in Table 6C (Invalid Diagnosis Codes). 
These invalid diagnosis codes will not be recognized by the GROUPER 
beginning with discharges occurring on or after October 1, 2000. For 
codes that have been replaced by new or expanded codes, the 
corresponding new or expanded diagnosis codes are included in Table 6A 
(New Diagnosis Codes). No procedure codes were replaced by expanded 
codes or other codes, and no procedure codes were deleted. Revisions to 
diagnosis code titles appear in Table 6D (Revised Diagnosis Code 
Titles), which also includes the DRG assignments for these revised 
codes. Revisions to procedure code titles appear in Table 6E (Revised 
Procedure Codes Titles).
    Comment: One commenter questioned the DRG assignments in Table 6A 
for new ICD-9-CM codes V45.74, V45.76, V45.77, V45.78 and V45.79. The 
commenter pointed out that it has been HCFA's longstanding practice to 
assign a new code to the same DRG or DRGs as its predecessor code. The 
commenter had seen a draft conversion table prepared by the NCHS for 
codes being revised October 1, 2000, and indicated that the conversion 
table did not support the DRG assignments for these specific codes.
    Response: The commenter is correct. HCFA bases DRG assignments on 
the DRG assignment of the predecessor code. Tables 6A through 6E in the 
proposed rule were prepared prior to NCHS' completion of the conversion 
table. The DRG assignments were based on a mapping of codes V45.74, 
V45.76, V45.77, and V45.78 from code V45.89. However, the correct 
mapping on the conversion table now shows the following predecessor 
codes:

------------------------------------------------------------------------
                                    Previous
            New Code                  Code            Previous DRG
------------------------------------------------------------------------
V45.74..........................        593.89  331, 332, 333
                                        596.8   331, 332, 333
V45.76..........................        518.89  101, 102
V45.77..........................        602.8   352
                                        607.89  352
                                        608.89  352
                                        620.8   358, 359, 369
                                        621.8   358, 359, 369
                                        622.8   358, 359, 369
V45.78..........................        360.89  46, 47, 48
V45.79..........................        255.8   300, 301
                                        289.59  398, 399
                                        388.8   73, 74
                                        569.49  188, 189, 190
                                        577.8   204

[[Page 47067]]

 
                                        V45.89  467
------------------------------------------------------------------------

    We have modified the DRG assignments for V45.74, V45.76, V45.77, 
and V45.78 in Table 6A of this final rule according to the mapping 
indicated in the third column in the preceding table. However, V45.79 
has a number of predecessor codes appearing in multiple MDCs and, thus, 
would not relate to any specific MDC. After discussions with NCHS, we 
determined that this code should continue to use V45.89 as its 
predecessor code for purposes of DRG assignment, since it is not 
restricted to a specific body system. Therefore, the DRG assignment for 
V45.79 was not changed in Table 6A.
9. Other Issues
    a. Immunotherapy. Effective October 1, 1994, procedure code 99.28 
(Injection or infusion of biologic response modifier (BRM) as an 
antineoplastic agent) was created and designated as a non-OR procedure 
that does not affect DRG assignment. This cancer treatment involving 
biological response modifiers is also known as BRM therapy or 
immunotherapy.
    In response to a comment on the May 7, 1999 proposed rule, for the 
FY 2000 final rule we analyzed cases for which procedure code 99.28 was 
reported using the 100 percent FY 1998 MedPAR file. The commenter 
requested that we create a new DRG for BRM therapy or assign cases in 
which BRM therapy is performed to an existing DRG with a high relative 
weight. The commenter suggested that DRG 403 (Lymphoma and Nonacute 
Leukemia with CC) would be an appropriate DRG.
    For the proposed rule, we analyzed all cases for which procedure 
code 99.28 was reported. We identified 1,179 cases in 136 DRGs in 22 
MDCs. No more than 141 cases were assigned to any one particular DRG.
    Of the 1,179 cases, 141 cases (approximately 12 percent) were 
assigned to DRG 403 in MDC 17. We found approximately one-half of these 
cases had other procedures performed in addition to receiving 
immunotherapy, such as chemotherapy, bone marrow biopsy, insertion of 
totally implantable vascular access device, thoracentesis, or 
percutaneous abdominal drainage, which may account for the increased 
charges. There were 123 immunotherapy cases assigned to DRG 82 
(Respiratory Neoplasms) in MDC 4 (Diseases and Disorders of the 
Respiratory System). We noted that, in some cases, in addition to 
immunotherapy, other procedures were performed, such as insertion of an 
intercostal catheter for drainage, thoracentesis, or chemotherapy.
    There were 84 cases assigned to DRG 416 (Septicemia, Age >17) in 
MDC 18 (Infectious and Parasitic Diseases (Systemic or Unspecified 
Sites)). The principal diagnosis for this DRG is septicemia and, in 
addition to receiving treatment for septicemia, immunotherapy was also 
given. There were 79 cases assigned to DRG 410 (Chemotherapy without 
Acute Leukemia as Secondary Diagnosis) in MDC 17.
    The cost of immunotherapy is averaged into the weight for these 
DRGS and, based on our analysis, we did not believe a reclassification 
of these cases was warranted. Due to the limited number of cases that 
were distributed throughout 136 DRGs in 22 MDCs and the variation of 
charges, we concluded that it would be inappropriate to classify these 
cases into a single DRG.
    Although there were 141 cases assigned to DRG 403, it would be 
inappropriate to place all immunotherapy cases, regardless of 
diagnosis, into a DRG that is designated for lymphoma and nonacute 
leukemia. We establish DRGs based on clinical coherence and resource 
utilization. Each DRG encompasses a variety of cases, reflecting a 
range of services and a range of resources. Generally, then, each DRG 
reflects some higher cost cases and some lower cost cases. To the 
extent a new technology is extremely costly relative to the cases 
reflected in the DRG relative weight, the hospital might qualify for 
outlier payments, that is, additional payments over and above the 
standard prospective payment rate.
    We did not receive any comments regarding payment for immunotherapy 
cases.
    b. Pancreas Transplant. Effective July 1, 1999, Medicare covers 
whole organ pancreas transplantation if the transplantation is 
performed simultaneously with or after a kidney transplant (procedure 
codes 55.69, Other kidney transplantation, and V42.0, Organ or tissue 
replaced by transplant, Kidney) (Transmittal No. 115, April 1999). We 
noted that when we published the notification of this coverage in the 
July 30, 1999 final rule (64 FR 41497), we inadvertently made an error 
in announcing the covered codes. We cited the incorrect codes for 
pancreas transplantation as procedure code 52.80 (Pancreatic 
transplant, not otherwise specified) and 52.83 (Heterotransplant of 
pancreas). The correct procedure codes for pancreas transplantation are 
52.80 (Pancreatic transplant, not otherwise specified) and 52.82 
(Homotransplant of pancreas). The Coverage Issues Manual was revised to 
reflect this change via Transmittal 124, April 2000, effective October 
1, 2000.
    Pancreas transplantation is generally limited to those patients 
with severe secondary complications of diabetes, including kidney 
failure. However, pancreas transplantation is sometimes performed on 
patients with labile diabetes and hypoglycemic unawareness. Pancreas 
transplantation for diabetic patients who have not experienced end-
stage renal failure secondary to diabetes is excluded from coverage. 
Medicare also excludes coverage of transplantation of partial 
pancreatic tissue or islet cells.
    In the July 30, 1999 final rule (64 FR 41497), we indicated that we 
planned to review discharge data to determine whether a new DRG should 
be created, or existing DRGs modified, to further classify pancreas 
transplantation in combination with kidney transplantation.
    Under the current DRG classification, if a kidney transplant and a 
pancreas transplant are performed simultaneously on a patient with 
chronic renal failure secondary to diabetes with renal manifestations 
(diagnosis codes 250.40 through 250.43), the case is assigned to DRG 
302 (Kidney Transplant) in MDC 11 (Diseases and Disorders of the Kidney 
and Urinary Tract). If a pancreas transplant is performed following a 
kidney transplant (that is, during a different hospital admission) on a 
patient with chronic renal failure secondary to diabetes with renal 
manifestations, the case is assigned to DRG 468 (Extensive OR Procedure 
Unrelated to Principal Diagnosis). This is because pancreas transplant 
is not assigned to MDC 11, the MDC to which a principal diagnosis of 
chronic renal failure secondary to diabetes is assigned.
    For the proposed rule, using 100 percent of the data in the FY 1999 
MedPAR file (which contains hospital bills received for FY 1999 through

[[Page 47068]]

December 31, 1999), we analyzed the cases for which procedure codes 
52.80 and 52.83 were reported. We identified a total of 79 cases in 8 
DRGs, in 3 MDCs, and in 1 pre-MDC. Of the 79 cases identified, 49 cases 
were assigned to DRG 302, 14 cases were assigned to DRG 468, and 8 
cases were assigned to DRG 191 (Pancreas, Liver and Shunt Procedures 
with CC). The additional 8 cases were distributed over 5 other assorted 
DRGs, and due to their disparity, were not considered in our 
evaluation.
    We examined our data to determine whether it was appropriate to 
propose a new kidney and pancreas transplant DRG. We identified 49 such 
dual transplant cases in the FY 1999 MedPAR file. We do not believe 
this to be a sufficient sample size to warrant the creation of a new 
DRG. Furthermore, we noted that nearly half of these cases occurred at 
a hospital in Maryland, which is not paid under the prospective payment 
system. The rest of the cases are spread across multiple hospitals, 
with no single hospital having more than 5 cases in the FY 1999 MedPAR.
    We received 261 comments on this issue, 244 of which were form 
letters.
    We will continue to monitor these dual transplant cases to 
determine whether it may be appropriate in the future to establish a 
new DRG. However, we are not establishing a new DRG for these cases for 
FY 2001 and the current procedure code classification will remain in 
effect.
    Comment: All commenters called for the establishment of a unique 
DRG recognizing the combined transplant of kidney and pancreas in the 
same operative episode. Some commenters cited increased utilization of 
hospital resources, especially operating-room time, recovery time, and 
immunosuppressive drugs as justification for a separate DRG for a 
combined pancreas-kidney transplant. One commenter forwarded to us 
facility-specific charge data for four dual-transplant patients seen at 
that center through December 1997.
    Response: We stated in the proposed rule that there does appear to 
be a difference between the charges for dual kidney-pancreas transplant 
patients assigned to DRG 302 (Kidney Transplant) and those patients who 
received only a kidney transplant. However, the numbers of dual 
transplant cases in our database were insufficient to warrant 
establishing a new DRG for dual transplants.
    We point out that, given the low volume of these cases and their 
infrequent occurrence in any particular hospital, we believe our 
outlier policy will provide adequate protection for any extraordinarily 
costly cases. Furthermore, there is always variation in terms of the 
costs for cases within a DRG relative to the payments under the 
prospective payment system for that DRG. Although examining these cases 
in isolation from other DRG 302 cases appears to suggest that dual 
transplants are more expensive, the nature of the prospective payment 
system is such that hospitals are expected to be able to offset cases 
where costs are greater than payments with those cases where payments 
exceed costs.
    We further point out that additional Medicare coverage of a 
transplanted organ does not necessarily and immediately result in 
creation of a unique DRG. A specific example of not creating a unique 
DRG is the combined heart-lung transplant procedure. Effective for 
discharges occurring on or after October 1, 1990, Medicare was able to 
identify combined heart-lung transplant using ICD-9-CM code 33.6 
(Combined heart-lung transplantation). Instead of assigning this new 
code to its own specific DRG, however, it was combined with heart 
transplant in DRG 103 (Heart Transplant). When DRG 495 (Lung 
Transplant) was created for cases discharged on or after October 1, 
1994, review of our data revealed that assignment of code 33.6 was more 
clinically coherent with DRG 103 than DRG 495. Therefore, code 33.6 was 
not moved into the new lung transplant DRG. Although this does not 
indicate we will not create a distinct DRG for combined kidney and 
pancreas transplants, it does show a precedent for allowing a 
sufficient sample of cases to accumulate before deciding whether a new 
DRG is necessary.
    Finally, one of the risks of establishing a new DRG based on few 
documentable cases is that a few extremely low-cost cases could 
dramatically reduce the average charges in a year, thereby lowering the 
relative weight and potentially underpaying cases in this DRG by a 
significant amount.
    Comment: Several commenters argued that combined pancreas and 
kidney transplants are underpaid every time they are performed and 
expressed concern that this lack of funding provides limited access to 
this procedure for Medicare beneficiaries.
    Response: We do not believe that beneficiaries' access will be 
limited by our decision. In addition, it is a violation of a hospital's 
Medicare provider agreement to place restrictions on the number of 
Medicare beneficiaries it accepts for treatment unless it places the 
same restrictions on all other patients.
    Comment: One commenter argued that the incremental cost of the 
pancreas transplant was insufficient to cause the claim to move into 
outlier status.
    Response: Our data show covered charges submitted by hospitals 
ranging from a low of approximately $42,000 to a high in excess of 
$182,000 for cases in DRG 302. Outlier payments are meant to alleviate 
the financial effects of treating extraordinarily high-cost cases. 
Therefore, the commenter may be correct in saying that some of the 
cases with lower charges might not be further compensated by outlier 
payments. However, other cases are further compensated to mitigate 
losses experienced by hospitals.
    Comment: One commenter stated we underrepresented the volume of 
future dual transplants under Medicare, citing mid-year approval of 
Medicare coverage for pancreas transplants, and noting that this is not 
enough time to accurately reflect the numbers of procedures since 
patients normally must accrue longer wait times before they receive 
organ offers for transplant.
    Response: It is true that we did not attempt to project the future 
volume of combined kidney and pancreas transplant procedures. We 
reported the number of actual hospital claims in our MedPAR data base, 
submitted through December 1999, when we published the proposed rule in 
the May 5, 2000 Federal Register (65 FR 26294). DRG categories and 
payment are always based on actual historical hospital charge data, not 
projected data. What must also be considered, however, is that dual 
transplants would only appear in statistics concerning DRG 302, while 
HCFA also covers pancreas transplants performed in separate operative 
episodes, subsequent to kidney transplantation. Those pancreatic 
transplants occurring after kidney transplant would appear in DRG 468, 
or potentially other DRGs as well, depending on the principal 
diagnosis.
    Comment: Several commenters noted that the 1998 Annual Report of 
United Network for Organ Sharing (UNOS) indicated there were 966 
simultaneous kidney-pancreas transplants, and questioned HCFA's 
reported 49 cases appearing in DRG 302 as being too low. One commenter, 
citing the inability of HCFA to be able to identify cases of dual 
kidney-pancreas transplants, pointed out the need for a specific DRG 
for this category of patients. Another commenter noted that data were 
lost because of the incorrect publication of ICD-9-CM code 52.83 
(Heterotransplant

[[Page 47069]]

of pancreas) as being a covered procedure.
    Response: Most patients who are experiencing end-stage renal 
disease should be eligible for Medicare benefits. We note, however, 
that none of the commenters submitted specific evidence contrary to our 
finding that, outside of a single hospital in Maryland, no individual 
hospital had more than five Medicare dual transplant cases during FY 
1999.
    Obviously one issue is the timing of the creation of the coverage 
benefit, which was conferred for cases discharged on or after July 1, 
1999. Cases transplanted prior to that date should not have appeared in 
our data as covered procedures.
    We recognize that 52.83 is an incorrect code, and have corrected 
this typographical error in the Medicare Coverage Issues Manual, as 
noted above. Interestingly, the original data reported in the proposed 
notice contained 79 cases of pancreas transplant, but there were only 7 
instances in which code 52.83 was reported. We believe that hospital 
coders recognized the error in the original coverage instruction, and 
chose to submit the less specific code 52.80 instead.
    Comment: Several commenters asserted that it was contradictory for 
us to argue that 49 cases is too few to establish a DRG but we 
indicated in the May 5, 2000 proposed rule that there were 40 DRGs with 
fewer than 10 cases per year.
    Response: These low-volume DRGs are not new, but in most cases were 
created very early during or even prior to the implementation of the 
prospective payment system. Many of these DRGs are related to patient 
categories that are rare in the Medicare population, such as age less 
than 17 or labor and delivery during childbirth. The DRG relative-
weights for these DRGs are adjusted based on the overall change in the 
DRG weights rather than through normal recalibration.
    We do not believe our policy not to establish a new dual transplant 
DRG for combined kidney and pancreas transplants is contradicted by the 
existence of these low-volume DRGs. As the commenters indicated, the 
number of combined kidney and pancreas transplants is likely to 
increase in the next few years, and therefore it is important to ensure 
an accurate and stable DRG payment is established.
    Comment: Several commenters offered to work closely with HCFA to 
identify cases and costs associated with this category of patients.
    Response: We appreciate these offers and the cooperative spirit in 
which they were presented. Our ability to evaluate and implement 
potential DRG changes depends on the availability of validated, 
representative data. We remain open to using non-MedPAR data if the 
data are reliable and validated and enable us to appropriately measure 
relative resource use. We will continue to monitor this category of 
patients, and will address this issue in the FY 2002 proposed rule.

C. Recalibration of DRG Weights

    We proposed to use the same basic methodology for the FY 2001 
recalibration as we did for FY 2000 (July 30, 1999 final rule (64 FR 
41498)). That is, we recalibrated the weights based on charge data for 
Medicare discharges. However, we used the most current charge 
information available, the FY 1999 MedPAR file. (For the FY 2000 
recalibration, we used the FY 1998 MedPAR file.) The MedPAR file is 
based on fully coded diagnostic and procedure data for all Medicare 
inpatient hospital bills.
    The final recalibrated DRG relative weights are constructed from FY 
1999 MedPAR data (discharges occurring between October 1, 1998 and 
September 30, 1999), based on bills received by HCFA through March 
2000, from all hospitals subject to the prospective payment system and 
short-term acute care hospitals in waiver States. The FY 1999 MedPAR 
file includes data for approximately 11.0 million Medicare discharges.
    The methodology used to calculate the DRG relative weights from the 
FY 1999 MedPAR file is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed DRG classification revisions discussed in section 
II.B. of this preamble.
     Charges were standardized to remove the effects of 
differences in area wage levels, indirect medical education and 
disproportionate share payments, and, for hospitals in Alaska and 
Hawaii, the applicable cost-of-living adjustment.
     The average standardized charge per DRG was calculated by 
summing the standardized charges for all cases in the DRG and dividing 
that amount by the number of cases classified in the DRG.
     We then eliminated statistical outliers, using the same 
criteria used in computing the current weights. That is, all cases that 
are outside of 3.0 standard deviations from the mean of the log 
distribution of both the charges per case and the charges per day for 
each DRG are eliminated.
     The average charge for each DRG was then recomputed 
(excluding the statistical outliers) and divided by the national 
average standardized charge per case to determine the relative weight. 
A transfer case is counted as a fraction of a case based on the ratio 
of its transfer payment under the per diem payment methodology to the 
full DRG payment for nontransfer cases. That is, transfer cases paid 
under the transfer methodology equal to half of what the case would 
receive as a nontransfer would be counted as 0.5 of a total case.
     We established the relative weight for heart and heart-
lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner 
consistent with the methodology for all other DRGs except that the 
transplant cases that were used to establish the weights were limited 
to those Medicare-approved heart, heart-lung, liver, and lung 
transplant centers that have cases in the FY 1999 MedPAR file. 
(Medicare coverage for heart, heart-lung, liver, and lung transplants 
is limited to those facilities that have received approval from HCFA as 
transplant centers.)
     Acquisition costs for kidney, heart, heart-lung, liver, 
lung, and pancreas transplants continue to be paid on a reasonable cost 
basis. Unlike other excluded costs, the acquisition costs are 
concentrated in specific DRGs (DRG 302 (Kidney Transplant); DRG 103 
(Heart Transplant); DRG 480 (Liver Transplant); DRG 495 (Lung 
Transplant); and DRG 468 (Pancreas)). Because these costs are paid 
separately from the prospective payment rate, it is necessary to make 
an adjustment to prevent the relative weights for these DRGs from 
including the acquisition costs. Therefore, we subtracted the 
acquisition charges from the total charges on each transplant bill that 
showed acquisition charges before computing the average charge for the 
DRG and before eliminating statistical outliers.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. We proposed to use the same case threshold 
in recalibrating the DRG weights for FY 2001. Using the FY 1999 MedPAR 
data set, there were 40 DRGs containing fewer than 10 cases. We 
computed the weights for these 40 low-volume DRGs by adjusting the FY 
2000 weights of these DRGs by the percentage change in the average 
weight of the cases in the other DRGs.
    The weights developed according to the methodology described above, 
using the DRG classification changes, resulted in an average case 
weight that differs from the average case weight before recalibration. 
Therefore, the new weights are normalized by an adjustment factor 
(1.45507) so that the

[[Page 47070]]

average case weight after recalibration is equal to the average case 
weight before recalibration. This adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the prospective payment system.
    We received no comments on DRG recalibration.
    Section 1886(d)(4)(C)(iii) of the Act requires that, beginning with 
FY 1991, reclassification and recalibration changes be made in a manner 
that assures that the aggregate payments are neither greater than nor 
less than the aggregate payments that would have been made without the 
changes. Although normalization is intended to achieve this effect, 
equating the average case weight after recalibration to the average 
case weight before recalibration does not necessarily achieve budget 
neutrality with respect to aggregate payments to hospitals because 
payment to hospitals is affected by factors other than average case 
weight. Therefore, as we have done in past years and as discussed in 
section II.A.4.a. of the Addendum to this final rule, we make a budget 
neutrality adjustment to assure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met.

III. Changes to the Hospital Wage Index

A. Background

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

B. FY 2001 Wage Index Update

    The FY 2001 wage index values in section VI of the Addendum to this 
final rule (effective for hospital discharges occurring on or after 
October 1, 2000 and before October 1, 2001) are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 1997 (the FY 2000 wage index was 
based on FY 1996 wage data).
    The FY 2001 wage index includes the following categories of data 
associated with costs paid under the hospital inpatient prospective 
payment system (as well as outpatient costs), which were also included 
in the FY 2000 wage index:

     Salaries and hours from short-term, acute care hospitals.
     Home office costs and hours.
     Certain contract labor costs and hours.
     Wage-related costs.

    Consistent with the wage index methodology for FY 2000, the wage 
index for FY 2001 also continues to exclude the direct and overhead 
salaries and hours for services not paid through the inpatient 
prospective payment system such as skilled nursing facility services, 
home health services, or other subprovider components that are not 
subject to the prospective payment system.
    We calculate a separate Puerto Rico-specific wage index and apply 
it to the Puerto Rico standardized amount. (See 62 FR 45984 and 46041.) 
This wage index is based solely on Puerto Rico's data. Finally, section 
4410 of Public Law 105-33 provides that, for discharges on or after 
October 1, 1997, the area wage index applicable to any hospital that is 
not located in a rural area may not be less than the area wage index 
applicable to hospitals located in rural areas in that State.
    Comment: One commenter believed that the FY 2001 wage calculation 
does not allow for inflationary effects or existing contractual 
increases, and recommended that we consider using a more recent 
Medicare cost reporting year and allow for inflationary wage 
adjustments.
    Response: Due to the time period allowed for: (1) hospitals to 
complete and submit their cost reports to their intermediaries, (2) 
intermediaries to review and submit the cost reports to HCFA, (3) 
intermediaries to perform a separate, detailed review of all wage data 
and submit the results to HCFA, and (4) HCFA to compile a complete set 
of all hospitals' wage data from a given Federal fiscal year, we do not 
have available more recent reliable data to calculate the wage index. 
As described in the proposed rule (65 FR 26299) and section III.E. of 
this final rule, we adjust the wage data to a common period that 
reflects the latest cost reporting period for the filing year. Because 
the wage index is a relative measure, comparing area average hourly 
wages to a national average hourly wage, we believe the wage index is 
minimally impacted by inflationary effects beyond those accounted for 
by adjusting the data to a common period.

C. FY 2001 Wage Index

    Because the hospital wage index is used to adjust payments to 
hospitals under the prospective payment system, it should, to the 
extent possible, reflect the wage costs associated with the areas of 
the hospital included under the hospital inpatient prospective payment 
system. In response to concerns within the hospital community related 
to the removal from the wage index calculation costs related to GME 
(teaching physicians and residents) and certified registered nurse 
anesthetists (CRNAs), which are paid by Medicare separately from the 
prospective

[[Page 47071]]

payment system, in 1998 the AHA convened a workgroup to develop a 
consensus recommendation on this issue. The workgroup recommended that 
costs related to GME and CRNAs be phased out of the wage index 
calculation over a 5-year period. Based upon our analysis of hospitals' 
FY 1996 wage data, and consistent with the AHA workgroup's 
recommendation, we specified in the July 30, 1999 final rule (64 FR 
41505) that we would phase-out these costs from the calculation of the 
wage index over a 5-year period, beginning in FY 2000. In keeping with 
the decision to phase-out costs related to GME and CRNAs, the final FY 
2001 wage index is based on a blend of 60 percent of an average hourly 
wage including these costs, and 40 percent of an average hourly wage 
excluding these costs.
    Comment: We received one comment in support of our continued 
transition of removing GME and CRNA costs from the wage index 
calculation. We also received a comment from a national association 
representing nurse anesthetists expressing concern that, as a result of 
disparities in cost reporting systems and vague fiscal intermediary 
instructions, CRNA costs that should be paid under Part B might still 
be reported in hospitals' FY 1997 cost reports. The commenter also 
stated that removing CRNA costs from the wage index eliminates a 
payment mechanism for the indirect patient care activities performed by 
CRNAs, resulting in a disincentive for hospitals to employ CRNAs. To 
avoid any disruption in the ``continuous operations of hospitals,'' the 
commenter recommended that, prior to implementing any changes to the 
wage index calculation, HCFA should refine the Part A cost data 
collection and cost reporting process and instruct the fiscal 
intermediaries to provide all hospitals with ``explicit instructions as 
to the appropriate reporting of CRNA costs.'' The commenter believed 
this refinement to the cost data will identify and exclude only the 
CRNA salary costs related to the rural hospital cost pass-through 
provisions and allow Part A reimbursement for indirect patient care 
which are not reimbursed under Medicare Part B. In keeping with the 
general policy to exclude costs that are not paid through the Medicare 
prospective payment system, the commenter also recommended that HCFA 
exclude salaries reported under Medicare Part A for anesthesia 
assistants.
    Response: We note that the FY 2001 wage index is the second year of 
the transition to eliminating Part A CRNA costs from the wage index. As 
evidenced in the impact analysis in the May 5, 2000 proposed rule (65 
FR 26415), eliminating these CRNA and GME costs has an insignificant 
impact, with no category of hospitals impacted by more than 0.1 
percent. Therefore, we do not believe it is necessary to delay further 
removal of CRNA costs.
    Payment for CRNA services is made under a fee schedule under 
Medicare Part B (Supplementary medical insurance), with the sole 
exception of payments to hospitals under the rural pass-through 
provision. Although a hospital contracting for CRNA services would 
include the costs on its cost report, the fiscal intermediary forwards 
the information to the carrier for payment under the fee schedule. As 
the commenter noted, this payment structure has been in place since 
January 1, 1989. We believe that intermediaries and carriers are 
generally well informed and experienced in the handling of these costs. 
However, we will consider whether further clarification of our 
instructions is necessary.
    The commenter also stated that Medicare does not specifically 
exclude anesthesia assistants, who are also reimbursed under Part B, 
from the wage index. The cost report instructions for Worksheet A, Line 
20, refer to nonphysician anesthetists, which include both CRNAs and 
anesthesia assistants. We will consider whether our Worksheet S-3 
instructions need to be revised to explicitly instruct hospitals to 
remove the Part B costs associated with anesthesia assistants as well.
1. Teaching Physician Costs and Hours Survey
    As discussed in the July 30, 1999 final rule, because the FY 1996 
cost reporting data did not separate teaching physician costs from 
other physician Part A costs, we instructed our fiscal intermediaries 
to survey teaching hospitals to collect data on teaching physician 
costs and hours payable under the per resident amounts (Sec. 413.86) 
and reported on Worksheet A, Line 23 of the hospitals' cost report.
    The FY 1997 cost reports also do not separately report teaching 
physician costs. Therefore, we once again conducted a special survey to 
collect data on these costs. (For the FY 1998 cost reports, we have 
revised the Worksheet S-3, Part II so that hospitals can separately 
report teaching physician Part A costs. Therefore, after this year, it 
will no longer be necessary for us to conduct this special survey.)
    The survey data collected as of mid-January 2000 were included in 
the preliminary public use data file made available on the Internet in 
February 2000 at HCFA's home page (http://www.hcfa.gov). At that time, 
we had received teaching physician data for 459 out of 770 teaching 
hospitals reporting physician Part A costs on their Worksheet S-3, Part 
II. Also, in some cases, fiscal intermediaries reported that teaching 
hospitals did not incur teaching physician costs. In early January 
2000, we instructed fiscal intermediaries to review the survey data for 
consistency with the Supplemental Worksheet A-8-2 of the hospitals' 
cost reports. Supplemental Worksheet A-8-2 is used to apply the 
reasonable compensation equivalency limits to the costs of provider-
based physicians, itemizing these costs by the corresponding line 
number on Worksheet A.
    When we notified the hospitals, through our fiscal intermediaries, 
that they could review the survey data on the Internet, we also 
notified hospitals that requests for changes to the teaching survey 
data had to be submitted by March 6, 2000. We instructed fiscal 
intermediaries to review the requests for changes received from 
hospitals and submit necessary data revisions to HCFA by April 3, 2000. 
We removed from the wage data the physician Part A teaching costs and 
hours reported on the survey form for every hospital that completed the 
survey. These data had been verified by the fiscal intermediary before 
submission to HCFA.
    For the FY 2000 wage index, the AHA workgroup recommended that, if 
reliable teaching physician data were not available for removing 
teaching costs from hospitals' total physician Part A costs, HCFA 
should remove 80 percent of the costs and hours reported by hospitals 
attributable to physicians' Part A services. In calculating the FY 2000 
wage index, if we did not receive survey data for a teaching hospital, 
we removed 80 percent of the hospital's reported total physician Part A 
costs and hours from the calculation. In the May 5, 2000 proposed rule, 
for the FY 2001 wage index, we proposed a different approach. In some 
instances, fiscal intermediaries had verified that teaching hospitals 
do not have teaching physician costs; for these hospitals, it is not 
necessary to adjust the hospitals' physician Part A costs. We conferred 
with the fiscal intermediaries to distinguish teaching hospitals that 
did not have teaching physician costs from teaching hospitals that had 
not identified the portion of their physician Part A costs associated 
with teaching physicians (that is, hospitals that did not complete the 
teaching survey).

[[Page 47072]]

    In calculating the final FY 2001 wage index, we removed 100 percent 
of the physician Part A costs and hours (reported on Worksheet S-3, 
Lines 4, 10, 12, and 18) in the FY 2001 wage index calculation for 
those hospitals where the fiscal intermediary verifies that the 
hospital has otherwise unidentified teaching physician costs included 
in physician Part A costs and hours. For those teaching hospitals whose 
fiscal intermediaries identified as having costs attributable to 
teaching physicians but reported no physician Part A costs on the 
Worksheet S-3, we removed 100 percent of Worksheet A, Line 23, Column 
1. To determine the hours to be removed, the costs reported on Line 23 
of the Worksheet A, Column 1 are divided by the national average hourly 
wage for teaching physicians of $59.17 based upon the survey.
    We note that Line 23 of Worksheet A, Column 1, flows directly into 
hospitals' total salaries on Worksheet S-3, Part II. Line 23 contains 
GME costs not directly attributable to residents' salaries or fringe 
benefits. Therefore, these costs tend to be costs associated with 
teaching physicians. To the extent a hospital fails to separately 
identify the proportion of its Line 23, Worksheet A costs associated 
with teaching physicians, we believe it is reasonable to remove all of 
these costs under the presumption that they are all associated with 
teaching physicians.
    Thus, as we proposed in the May 5 proposed rule, for the FY 2001 
wage index, we are either using the data submitted on the teaching 
physician survey (837 hospitals), or, in the absence of such data, 
removing 100 percent of physician Part A costs reported on Worksheet S-
3 (287 hospitals), or removing the amount reported on Line 23 of 
Worksheet A, Column 1 (18 hospitals).
    We received one comment in support of removing 100 percent of 
physician Part A costs and hours from teaching hospitals where the 
fiscal intermediary verifies that the hospital has otherwise 
unidentifiable teaching costs included in physician Part A costs and 
hours.
2. Nurse Practitioner and Clinical Nurse Specialist Costs
    The current wage index includes salaries and wage-related costs for 
nurse practitioners (NPs) and clinical nurse specialists (CNSs) who, 
similar to physician assistants and CRNAs (unless at hospitals under 
the rural pass-through exception for CRNAs), are paid under the 
physician fee schedule. Over the past year, we have received several 
inquiries from hospitals and fiscal intermediaries regarding NP costs 
and how they should be handled for purposes of the hospital wage index. 
Because Medicare generally pays for NP and CNS costs under Part B 
outside the hospital prospective payment system, removing NP and CNS 
Part B costs from the wage index calculation would be consistent with 
our general policy to exclude, to the extent possible, costs that are 
not paid through the hospital prospective payment system. Because NP 
and CNS costs are not separately reported on the Worksheet S-3 for FYs 
1997, 1998, and 1999, the FY 2000 Worksheet S-3 and cost reporting 
instructions will be revised to allow for separate reporting of NP and 
CNS Part A and Part B costs. We plan to exclude the Part B costs 
beginning with the FY 2004 wage index. These services are pervasive in 
both rural and urban settings. As such, because the wage index is a 
relative measure, we believe there will be no significant overall 
impact resulting from the removal of Part B costs for NPs and CNSs.
    We did not receive any public comments on our plan to exclude NP 
and CNS Part B costs from the wage index calculation, beginning with 
the FY 2004 wage index.
3. Severance and Bonus Pay Costs
    On October 6, 1999, we issued a memorandum to hospitals and fiscal 
intermediaries regarding our policy on treatment of severance and bonus 
pay costs in developing the wage index, effective beginning with the FY 
2001 wage index. (The hospital cost report instructions also will be 
amended to reflect our policy on these costs.) We stated that severance 
pay costs may be included on Worksheet S-3 as salaries on Part II, Line 
1, only if the associated hours are included. If the hospital has no 
accounting of the hours, or if the costs are not based on hours, the 
severance pay costs may not be included in the wage index. On the other 
hand, bonus pay costs may be included in the cost report on Line 1 of 
Worksheet S-3 with no corresponding hours. Due to the inquiries we 
continue to receive from hospitals regarding the inclusion of severance 
pay costs on cost reports, in the May 5 proposed rule, we clarified our 
policy in this area.
    Hospitals vary in their accounting of severance pay costs. Some 
hospitals base the amounts to be paid on hours, for example, 80 hours 
worth of pay. Others do not; for example, a 15-year employee may be 
offered a $25,000 buyout package. Some hospitals record associated 
hours; others do not. The Wage Index Workgroup has suggested that we 
not include any severance pay costs in the wage index calculation, that 
these costs are for terminated employees, and, therefore, they should 
be considered an administrative rather than a salary expense.
    Severance pay costs can be substantial amounts, particularly in 
periods of downsizing. In the proposed rule, we state our view that, if 
severance pay costs are included with no associated hours, the wage 
index, which is a relative measure of wage costs across labor market 
areas, would be distorted.
    We included severance pay costs in the proposed FY 2001 wage index 
as a salary cost to the extent that associated hours also were 
reported. However, we solicited public comments on this issue. We 
received two comments on this issue.
    Comment: Two national hospital associations disagree with our 
policy clarification that severance pay costs may be included on 
Worksheet S-3, Part II, Line 1 as salaries only if associated hours are 
included. These commenters argued that HCFA's wage index policy is that 
wages and benefits are to be determined in accordance with generally 
accepted accounting principles (GAAP) rather than Medicare cost 
reimbursement principles and that under GAAP severance pay is 
classified as salaries and wages. They also argued that, unless a 
terminated employee continues to work or is still considered to be 
employed by the provider after the last regular pay period that 
additional hours should not be reported for severance pay. Further, for 
employees receiving severance pay, ``there are no hours to report'' 
because ``their job has been eliminated and they are no longer employed 
by the provider.''
    Response: As indicated in the proposed rule, we exclude severance 
pay costs from the wage index calculation if there are no associated 
hours because we believe that inclusion of such costs might lead to a 
distortion of the wage index. The wage index is a relative measure of 
average hourly wages across geographic areas, and we believe that 
severance pay costs (which might be significant) without associated 
hours might inappropriately inflate the average hourly wage for a given 
hospital or area for a given time period (which in turn would distort 
the relative measure of wages across areas). For example, if we 
included severance pay costs with no associated hours, then a hospital 
might be more likely to qualify for geographic reclassification for 
purposes of the wage index simply because it incurred significant 
severance pay costs in a given year. In light of the comments, we will 
continue to examine this issue to determine whether inclusion of 
severance pay costs with no

[[Page 47073]]

associated hours would lead to a better measure of relative wages as 
opposed to a distortion in the measure and to determine whether it is 
feasible and appropriate to revise our policy on severance pay costs in 
the future.
4. Health Insurance and Health-Related Costs
    In the September 1, 1994 final rule (59 FR 45356), we stated that 
health insurance, purchased or self-insurance, is a core wage-related 
cost. Over the past year, we have received several inquiries from 
hospitals and hospital associations requesting that we define 
``purchased health insurance costs.'' In response, in the May 5 
proposed rule, we clarified that, for wage index purposes, we define 
``purchased health insurance costs'' as the premiums and administrative 
costs a hospital pays on behalf of its employees for health insurance 
coverage. ``Self-insurance'' includes the hospital's costs (not 
charges) for covered services delivered to its employees, less any 
amounts paid by the employees, and less the personnel costs for 
hospital staff who delivered the services (these costs are already 
included in the wage index). For purchased health insurance and self-
health insurance, the included costs must be for services covered in a 
health insurance plan.
    Also, in the September 1, 1994 final rule (59 FR 45357), we 
addressed a comment about the inclusion of health-related costs in the 
calculation of the wage index. Such health-related costs include 
employee physical examinations, flu shots, and clinic visits, and other 
services that are not covered by employees' health insurance plans but 
are provided at no cost or at discounted rates to employees of the 
hospital. In the May 5 proposed rule, we proposed to clarify that the 
costs for these services may be included as an ``other'' wage-related 
cost if (among other criteria), when all such health-related costs are 
combined, the total of such costs is greater than one percent of the 
hospital's total salaries (less excluded area salaries). As discussed 
in the September 1, 1994 final rule, a cost may be allowable as an 
``other wage-related cost'' if it meets certain criteria. Under one 
criterion, the wage-related cost must be greater than one percent of 
total salaries (less excluded area salaries). For purposes of applying 
this 1-percent test with respect to the health-related costs at issue 
here, we look at the combined total of the health-related costs (not 
charges) for services delivered to its employees, less any amounts 
employees paid, and less the personnel costs for hospital staff who 
delivered the services (as these costs are already included in the wage 
index).
    Comment: We received several comments regarding our policy and 
definitions for health insurance and health-related costs. Some 
commenters interpreted the policy clarification in the proposed rule as 
stating that self-insurance will no longer be included as core wage-
related costs. They believe that not including these costs is 
inconsistent with the fundamental concept of core wage-related costs. 
One commenter pointed to the 1994 HCFA/Industry workgroup which 
established the list of core wage-related costs still in use, and 
contended that ``(t)hese proposed changes are inconsistent with the 
agreements reached in those original workgroup meetings.''
    Response: As noted in the May 5 proposed rule, we previously stated 
our policy regarding health insurance and health-related costs in the 
FY 1995 final rule. We emphasize again in this final rule that, health 
insurance costs, whether purchased or self-insured, is, and will 
continue to be, a core wage-related cost. We did not propose a change 
in this policy, nor are we implementing a change in this policy in this 
final rule.
    Comment: Some commenters objected to our statement in the proposed 
rule that only health self-insurance costs (not charges, and exclusive 
of any amounts paid by covered employees and less the personnel costs 
for hospital staff who delivered the services) are allowable core wage-
related costs, and also argued that health self-insurance costs should 
be determined in accordance with GAAP which would include charges and 
personnel costs. They suggested that excluding costs that are 
determined in accordance with GAAP would create major inconsistencies 
among hospitals and inevitably result in major swings in the wage index 
for individual MSAs.
    Two commenters recommended that HCFA review this policy to avoid 
creating disincentives to hospitals that develop cost-effective health-
insurance benefits; they asserted that there should be no 
differentiation between purchased health insurance and self-funded 
health insurance.
    Response: We disagree with the commenters that we are unfairly and 
inconsistently treating hospitals that self-insure by not allowing as a 
wage-related cost the salary costs for employees who deliver the health 
services. The personnel costs of delivering health care to all of a 
hospital's patients are already included in the wage index through line 
1 of Worksheet S-3, Part II. Accounting for these hospital personnel 
costs on lines 13 or 14 for wage-related costs would falsely overstate 
a hospital's average hourly wage. Unless a hospital actually incurs the 
personnel costs twice, it is inappropriate to include the costs twice. 
Our policy does not require the exclusion of staff personnel costs from 
the premium costs for hospitals that purchase health insurance. As 
defined above and in the proposed rule, purchased health insurance 
costs include the premiums and administrative costs a hospital pays on 
behalf of its employees for health insurance coverage. The commenters 
suggested that the premium costs may include a hospital's staff 
personnel costs. We believe it is appropriate to allow the entire 
premium cost to a hospital as a wage-related cost if the intermediary 
verifies that the amount is an actual cost to the hospital.
    Nevertheless, we agree with the commenters that, overall, for 
``wage-related costs'', the application of GAAP creates a more static 
wage index and a better measure of relative wages across areas. For the 
FY 2002 wage index, we will advise hospitals to apply GAAP for wage-
related costs, including health insurance and health-related costs. 
However, for self-health insurance and health-related costs, personnel 
costs associated with hospital staff that deliver the services to the 
employees must continue to be excluded from wage-related costs, if the 
costs are already included in the wage data as salaries on Worksheet S-
3, Part II, Line I.
    Comment: One commenter recommended that the insurance plan 
requirements be eliminated from our definition of health insurance 
costs, stating that hospitals should be required to maintain adequate 
records in support of the services they provide to their employees at 
either no cost or below cost. In expressing the concern that employee 
health benefits are ever-changing, the commenter recommended that not 
only must HCFA's definition of insurance plans be specific but it 
should also be implemented prospectively with sufficient clarification 
to reduce inconsistency in interpretation by the fiscal intermediaries.
    Response: We are concerned that adopting this recommendation would 
make it difficult for intermediaries to accurately track benefits 
provided to a hospital's employees, leading to greater disparity in the 
treatment of these costs across hospitals. We will give further 
consideration to the implications of this recommendation, however.
    Comment: One commenter recommended that health-related costs, for 
such items as ``employee physicals,

[[Page 47074]]

flu shots, and clinic visits'' should be included as a core wage-
related cost; therefore, the 1-percent threshold criteria for health 
related costs should be eliminated.
    Response: In the September 1, 1994 final rule, when we published 
the list of core wage-related costs agreed upon by the workgroup, we 
responded to comments specifically suggesting that health-related 
services (as opposed to self-insured health services, which was clearly 
on the original core list) be added to the core list. In our response, 
we pointed out that the core list was developed in conjunction with the 
hospital industry, to establish a list of commonly recognized costs 
that contribute significantly to the wage costs of a hospital and are 
readily identifiable in the hospital's records. Health-related benefits 
was not included on the core list at that time. We continue to believe 
these health-related benefits do not fit the criteria established by 
the workgroup for identifying core wage-related costs.
5. Elimination of Wage Costs Associated With Rural Health Clinics and 
Federally Qualified Health Centers
    The current hospital wage index includes the salaries and wage-
related costs of hospital-based rural health clinics (RHCs) and 
federally qualified health centers (FQHCs). However, Medicare pays for 
these costs outside the hospital inpatient prospective payment system. 
Effective January 1, 1998, under section 1833(f) of the Act, as amended 
by section 4205 of Public Law 105-33, Medicare pays both hospital-based 
and freestanding RHCs and FQHCs on a cost-per-visit basis. Medicare 
cost reporting forms for RHCs and FQHCs were revised to reflect this 
legislative change, beginning with cost reporting periods ending on or 
after September 30, 1998 (the FY 1998 cost report). Other cost-
reimbursed outpatient departments, such as ambulatory surgical centers, 
community mental health centers, and comprehensive outpatient 
rehabilitation facilities, are presently excluded from the wage index. 
Therefore, consistent with our wage index refinements that exclude, to 
the extent possible, costs associated with services not paid under the 
hospital inpatient prospective payment system, we believe it would be 
appropriate to exclude all salary costs associated with RHCs and FQHCs 
from the wage index calculation if we had feasible, reliable data for 
such exclusion.
    Because RHC and FQHC costs are not separately reported on the 
Worksheet S-3 for FYs 1997, 1998, and 1999, we cannot exclude these 
costs from the FY 2001, FY 2002, or FY 2003 wage indexes. Therefore, we 
will revise the FY 2000 Worksheet S-3 to begin providing for the 
separate reporting of RHC and FQHC salaries, wage-related costs, and 
hours. We will evaluate the wage data for RHCs and FQHCs in developing 
the FY 2004 wage index.
    We received no public comments on this issue.

D. Verification of Wage Data From the Medicare Cost Report

    The data for the FY 2001 wage index were obtained from Worksheet S-
3, Parts II and III of the FY 1997 Medicare cost reports. The data file 
used to construct the wage index includes FY 1997 data submitted to 
HCFA as of mid-July 2000. As in past years, we performed an intensive 
review of the wage data, mostly through the use of edits designed to 
identify aberrant data.
    We asked our fiscal intermediaries to revise or verify data 
elements that resulted in specific edit failures. The unresolved data 
elements that were included in the calculation of the proposed FY 2001 
wage index have been resolved and are reflected in calculation of the 
final FY 2001 wage index. We note that, as part of this process to 
identify aberrant data and correct any errors prior to the calculation 
of the final FY 2001 wage index, we notified by letter those hospitals 
that were leading to large variations in the wage indexes of their 
labor market areas compared to the FY 2000 wage index. These hospitals 
were instructed to review their data to identify the reason for the 
large increases or decreases and notify their fiscal intermediary of 
any necessary corrections. This resulted in several revisions to the 
data.
    Also, as part of our editing process, in the final wage index, we 
removed data for 15 hospitals that failed edits. For eight of these 
hospitals, we were unable to obtain sufficient documentation to verify 
or revise the data because the hospitals are no longer participating in 
the Medicare program or are in bankruptcy status. Two hospitals had 
erroneous average hourly wages (negative and zero) after allocating 
overhead to their excluded areas and, therefore, were removed from the 
calculation. The data from the remaining five hospitals also failed the 
edits and were removed. As a result, the final FY 2001 wage index is 
calculated based on FY 1997 wage data for 4,950 hospitals.

E. Computation of the FY 2001 Wage Index

    The method used to compute the FY 2001 wage index follows. We note 
one technical change to the formula used to calculate the proposed wage 
index. For the first time, in the proposed rule we subtracted line 13 
of Worksheet S-3, Part III from total hours when determining the 
excluded hours ratio used to estimate the amount of overhead attributed 
to excluded areas. Although we continue to believe this is the correct 
formula for determining this ratio, it resulted in very large and 
inappropriate increases in the average hourly wages for some hospitals. 
Therefore, in calculating the final FY 2001 wage index, we are not 
subtracting line 13 of Worksheet S-3, Part III in the calculation.
    Step 1--As noted above, we based the FY 2001 wage index on wage 
data reported on the FY 1997 Medicare cost reports. We gathered data 
from each of the non-Federal, short-term, acute care hospitals for 
which data were reported on the Worksheet S-3, Parts II and III of the 
Medicare cost report for the hospital's cost reporting period beginning 
on or after October 1, 1996 and before October 1, 1997. In addition, we 
included data from a few hospitals that had cost reporting periods 
beginning in September 1996 and reported a cost reporting period 
exceeding 52 weeks. These data were included because they did not have 
a cost report begin during the period described above. However, we 
generally describe these wage data as FY 1997 data. We note that, if a 
hospital had more than one cost reporting period beginning during FY 
1997 (for example, a hospital had two short cost reporting periods 
beginning on or after October 1, 1996 and before October 1, 1997), we 
included wage data from only one of the cost reporting periods, the 
longest, in the wage index calculation. If there was more than one cost 
reporting period and the periods were equal in length, we included the 
wage data from the latest period in the wage index calculation.
    Step 2--Salaries--The method used to compute a hospital's average 
hourly wage is a blend of 60 percent of the hospital's average hourly 
wage including all GME and CRNA costs, and 40 percent of the hospital's 
average hourly wage after eliminating all GME and CRNA costs.
    In calculating a hospital's average salaries plus wage-related 
costs, including all GME and CRNA costs, we subtracted from Line 1 
(total salaries) the Part B salaries reported on Lines 3 and 5, home 
office salaries reported on

[[Page 47075]]

Line 7, and excluded salaries reported on Lines 8 and 8.01 (that is, 
direct salaries attributable to skilled nursing facility services, home 
health services, and other subprovider components not subject to the 
prospective payment system). We also subtracted from Line 1 the 
salaries for which no hours were reported on Lines 2, 4, and 6. To 
determine total salaries plus wage-related costs, we added to the net 
hospital salaries the costs of contract labor for direct patient care, 
certain top management, and physician Part A services (Lines 9 and 10), 
home office salaries and wage-related costs reported by the hospital on 
Lines 11 and 12, and nonexcluded area wage-related costs (Lines 13, 14, 
16, 18, and 20).
    We note that contract labor and home office salaries for which no 
corresponding hours are reported were not included. In addition, wage-
related costs for specific categories of employees (Lines 16, 18, and 
20) are excluded if no corresponding salaries are reported for those 
employees (Lines 2, 4, and 6, respectively).
    We then calculated a hospital's salaries plus wage-related costs by 
subtracting from total salaries the salaries plus wage-related costs 
for teaching physicians, Part A CRNAs (Lines 2 and 16), and residents 
(Lines 6 and 20).
    Step 3--Hours--With the exception of wage-related costs, for which 
there are no associated hours, we computed total hours using the same 
methods as described for salaries in Step 2.
    Step 4--For each hospital reporting both total overhead salaries 
and total overhead hours greater than zero, we then allocated overhead 
costs. First, we determined the ratio of excluded area hours (sum of 
Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours 
(Line 1 minus the sum of Part II, Lines 3, 5, and 7). We then computed 
the amounts of overhead salaries and hours to be allocated to excluded 
areas by multiplying the above ratio by the total overhead salaries and 
hours reported on Line 13 of Worksheet S-3, Part III. Finally, we 
subtracted the computed overhead salaries and hours associated with 
excluded areas from the total salaries and hours derived in Steps 2 and 
3.
    Step 5--For each hospital, we adjusted the total salaries plus 
wage-related costs to a common period to determine total adjusted 
salaries plus wage-related costs. To make the wage adjustment, we 
estimated the percentage change in the employment cost index (ECI) for 
compensation for each 30-day increment from October 14, 1996 through 
April 15, 1998 for private industry hospital workers from the Bureau of 
Labor Statistics' Compensation and Working Conditions. We use the ECI 
because it reflects the price increase associated with total 
compensation (salaries plus fringes) rather than just the increase in 
salaries. In addition, the ECI includes managers as well as other 
hospital workers. This methodology to compute the monthly update 
factors uses actual quarterly ECI data and assures that the update 
factors match the actual quarterly and annual percent changes. The 
factors used to adjust the hospital's data were based on the midpoint 
of the cost reporting period, as indicated below.

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
                                                              Adjustment
               After                         Before             factor
------------------------------------------------------------------------
10/14/96...........................  11/15/96..............      1.02848
11/14/96...........................  12/15/96..............      1.02748
12/14/96...........................  01/15/97..............      1.02641
01/14/97...........................  02/15/97..............      1.02521
02/14/97...........................  03/15/97..............      1.02387
03/14/97...........................  04/15/97..............      1.02236
04/14/97...........................  05/15/97..............      1.02068
05/14/97...........................  06/15/97..............      1.01883
06/14/97...........................  07/15/97..............      1.01695
07/14/97...........................  08/15/97..............      1.01520
08/14/97...........................  09/15/97..............      1.01357
09/14/97...........................  10/15/97..............      1.01182
10/14/97...........................  11/15/97..............      1.00966
11/14/97...........................  12/15/97..............      1.00712
12/14/97...........................  01/15/98..............      1.00451
01/14/98...........................  02/15/98..............      1.00213
02/14/98...........................  03/15/98..............      1.00000
03/14/98...........................  04/15/98..............      0.99798
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 1997 and ending December 31, 1997 is June 30, 1997. An 
adjustment factor of 1.01695 would be applied to the wages of a 
hospital with such a cost reporting period. In addition, for the data 
for any cost reporting period that began in FY 1997 and covers a period 
of less than 360 days or more than 370 days, we annualized the data to 
reflect a 1-year cost report. Annualization is accomplished by dividing 
the data by the number of days in the cost report and then multiplying 
the results by 365.
    Step 6--Each hospital was assigned to its appropriate urban or 
rural labor market area before any reclassifications under section 
1886(d)(8)(B) or section 1886(d)(10) of the Act. Within each urban or 
rural labor market area, we added the total adjusted salaries plus 
wage-related costs obtained in Step 5 (with and without GME and CRNA 
costs) for all hospitals in that area to determine the total adjusted 
salaries plus wage-related costs for the labor market area.
    Step 7--We divided the total adjusted salaries plus wage-related 
costs obtained under both methods in Step 6 by the sum of the 
corresponding total hours (from Step 4) for all hospitals in each labor 
market area to determine an average hourly wage for the area.
    Because the FY 2001 wage index is based on a blend of average 
hourly wages, we then added 60 percent of the average hourly wage 
calculated without removing GME and CRNA costs, and 40 percent of the 
average hourly wage calculated with these costs excluded.
    Step 8--We added the total adjusted salaries plus wage-related 
costs obtained in Step 5 for all hospitals in the nation and then 
divided the sum by the national sum of total hours from Step 4 to 
arrive at a national average hourly wage (using the same blending 
methodology described in Step 7). Using the data as described above, 
the national average hourly wage is $21.7702.
    Step 9--For each urban or rural labor market area, we calculated 
the hospital wage index value by dividing the area average hourly wage 
obtained in Step 7 by the national average hourly wage computed in Step 
8.
    Step 10--Following the process set forth above, we developed a 
separate Puerto Rico-specific wage index for purposes of adjusting the 
Puerto Rico standardized amounts. (The national Puerto Rico 
standardized amount is adjusted by a wage index calculated for all 
Puerto Rico labor market areas based on the national average hourly 
wage as described above.) We added the total adjusted salaries plus 
wage-related costs (as calculated in Step 5) for all hospitals in 
Puerto Rico and divided the sum by the total hours for Puerto Rico (as 
calculated in Step 4) to arrive at an overall average hourly wage of 
$10.1902 for Puerto Rico.
    For each labor market area in Puerto Rico, we calculated the Puerto 
Rico-specific wage index value by dividing the area average hourly wage 
(as calculated in Step 7) by the overall Puerto Rico average hourly 
wage.
    Step 11--Section 4410 of Public Law 105-33 provides that, for 
discharges on or after October 1, 1997, the area wage index applicable 
to any hospital that is located in an urban area may not be less than 
the area wage index applicable to hospitals located in rural areas in 
that State. Furthermore, this wage index floor is to be implemented in 
such a manner as to assure that aggregate prospective payment system 
payments are not greater or less than those that would have been made 
in the year if this section did not apply. For FY 2001, this change 
affects 193 hospitals in 34 MSAs. The MSAs affected by this

[[Page 47076]]

provision are identified in Table 4A by a footnote.

F. Revisions to the Wage Index Based on Hospital Redesignation

    Under section 1886(d)(8)(B) of the Act, hospitals in certain rural 
counties adjacent to one or more MSAs are considered to be located in 
one of the adjacent MSAs if certain standards are met. Under section 
1886(d)(10) of the Act, the Medicare Geographic Classification Review 
Board (MGCRB) considers applications by hospitals for geographic 
reclassification for purposes of payment under the prospective payment 
system. Applications for MGCRB reclassification are now on the internet 
at http://www.hcfa.gov/regs/appeals.
1. Provisions of Public Law 106-113
    Under section 152(b) of Public Law 106-113, hospitals in certain 
counties are deemed to be located in specified areas for purposes of 
payment under the hospital inpatient prospective payment system, for 
discharges occurring on or after October 1, 2000. For payment purposes, 
these hospitals are to be treated as though they were reclassified for 
purposes of both the standardized amount and the wage index. In the May 
5 proposed rule we calculated FY 2001 wage indexes for hospitals in the 
affected counties as if they were reclassified to the specified area.
    For purposes of making payments under section 1886(d) of the Act 
for FY 2001, section 152(b) provides the following:

     Iredell County, North Carolina is deemed to be located in 
the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina MSA;
     Orange County, New York is deemed to be located in the New 
York, New York MSA;
     Lake County, Indiana and Lee County, Illinois are deemed 
to be located in the Chicago, Illinois MSA;
     Hamilton-Middletown, Ohio is deemed to be located in the 
Cincinnati, Ohio-Kentucky-Indiana MSA;
     Brazoria County, Texas is deemed to be located in the 
Houston, Texas MSA;
     Chittenden County, Vermont is deemed to be located in the 
Boston-Worcester-Lawrence-Lowell-Brockton, Massachusetts-New Hampshire 
MSA.

    Section 152(b) also requires that these reclassifications be 
treated for FY 2001 as though they are reclassification decisions by 
the MGCRB. Therefore, in the May 5 proposed rule, we proposed that the 
wage indexes for the areas to which these hospitals are reclassifying, 
as well as the wage indexes for the areas in which they are located, 
would be subject to all of the normal rules for calculating wage 
indexes for hospitals affected by reclassification decisions by the 
MGCRB, as described below.
    In addition, we proposed that the reclassifications enacted by 
section 152(b) pertain only to the hospitals located in the specified 
counties, not to hospitals in other counties within the MSA or 
hospitals reclassified into the MSA by the MGCRB.
    Under section 154(b) of Public Law 106-113, the Allentown-
Bethlehem-Easton, Pennsylvania MSA wage index was calculated including 
the wage data for Lehigh Valley Hospital. Section 154(b) states that, 
for FY 2001, ``[n]otwithstanding any other provision of section 1886(d) 
of the Social Security Act (42 U.S.C. 1395ww(d)), in calculating and 
applying the wage indices under that section for discharges occurring 
during fiscal year 2001, Lehigh Valley Hospital shall be treated as 
being classified in the Allentown-Bethlehem-Easton Metropolitan 
Statistical Area.'' We stated in the proposed rule that this statutory 
language directs us to include Lehigh Valley Hospital's wage data in 
the wage index calculation for the Allentown-Bethlehem-Easton MSA for 
FY 2000 and FY 2001.
    Section 1886(d)(8)(B) of the Act established that a hospital 
located in a rural county adjacent to one or more urban areas is 
treated as being located in the MSA to which the greatest number of 
workers in the county commute, if the rural county would otherwise be 
considered part of an MSA (or NECMAs), if the commuting rates used in 
determining outlying counties were determined on the basis of the 
aggregate number of resident workers who commute to (and, if applicable 
under the standards, from) the central county or counties of all 
contiguous MSAs. Through FY 2000, hospitals are required to use 
standards published in the Federal Register on January 3, 1980, by the 
Office of Management and Budget. For FY 2000, there were 27 hospitals 
affected by this provision.
    Section 402 of Public Law 106-113 amended section 1886(d)(8)(B) of 
the Act to allow hospitals to elect to use the standards published in 
the Federal Register on January 3, 1980 (1980 decennial census data) or 
March 30, 1990 (1990 decennial census data) during FY 2001 and FY 2002. 
As of FY 2003, hospitals will be required to use the standards 
published in the Federal Register by the Director of the Office of 
Management and Budget based on the most recent available decennial 
population data.
    We are in the process of working with the Office of Management and 
Budget to identify the hospitals that would be affected by this 
amendment. We will revise payments to hospitals in the affected 
counties as soon as data is available. Hospitals will have this option 
during FY 2001 and FY 2002. After FY 2002, hospitals will be required 
to use data based on the 2000 decennial census. We refer the reader to 
the September 30, 1988 final rule (53 FR 38499) for a complete 
discussion of our approach to identify the outlying counties using the 
standards published in the January 3, 1980 Federal Register.
    Comment: We received three comments on our proposed policy to treat 
hospitals reclassifying into an area containing one of the counties 
reclassified by section 152(b) in a manner similar to any other 
situation where a hospital reclassifies into an area where hospitals in 
that area have been reclassified into another area. The commenters, all 
hospitals that have been granted a reclassification into an area 
containing a county reclassified by section 152(b), requested that they 
should be permitted to reclassify along with the county identified by 
section 152(b). They added that, in the event it was determined that 
their preferred solution was not permissible, the wage index of the 
area to which they were reclassified should be calculated by including 
the wage data for the hospitals reclassified by section 152(b).
    The commenters noted that they would be at a competitive 
disadvantage by the section 152(b) reclassifications if they were 
treated similar to other decisions by the MGCRB. In addition, they 
believed that the Secretary has some discretion with respect to 
calculating the wage indexes for areas with hospitals that have been 
reclassified, noting that the legislation does not specifically direct 
the Secretary to exclude reclassified hospitals from the calculation 
for the area in which a hospital is actually located.
    Response: We have reconsidered the methodology for calculating the 
wage index applicable to hospitals reclassified into the MSAs that 
contain the counties specified in section 152(b) of Public Law 106-113. 
We continue to believe that the hospitals located in the counties 
specified in section 152(b) should be distinguished from the hospitals 
that were reclassified by the MGCRB into the MSAs containing those 
counties. Congress provided special treatment for hospitals in the 
counties specified in the statute, but it did not provide special 
treatment for hospitals

[[Page 47077]]

reclassified to the MSAs that contain those counties. Moreover, under 
the MGCRB process, hospitals are reclassified into MSAs as a whole, not 
into specific counties within an MSA; for example, some hospitals were 
reclassified by the MGCRB into the Newburgh, NY-PA MSA, which contains 
Orange County, NY and one other county, but those hospitals were not 
reclassified into Orange County itself. Thus, the benefits of section 
152(b) apply only to the hospitals located in the counties specified by 
Congress.
    Consistent with one of the suggestions of the commenters, however, 
we are revising the methodology reflected in the proposed rule with 
respect to the calculation of the wage index values for the MSAs 
containing the counties specified in section 152(b). The proposed rule 
reflected our normally applicable policy with respect to 
reclassifications, under which the wages of hospitals reclassified out 
of an MSA would be excluded from the calculation of the wage index 
value for that MSA; application of our normal rules might lead to an 
unexpected decrease in the wage index value for an MSA arising from the 
provisions of section 152(b). To address the unexpected decrease that 
might otherwise occur, we believe that it is appropriate to calculate 
the wage index values for the MSAs that contain the counties specified 
in section 152(b) (e.g., the Newburgh MSA) by including the wages of 
hospitals that were reclassified out of the area by section 152(b). We 
believe that we should not exclude the wages of those hospitals because 
Congress has provided special treatment for those hospitals, and we 
believe that including the wages of the reclassified hospitals 
appropriately reconciles the provisions of section 152(b) of Public Law 
106-113, the MGCRB statutory and regulatory scheme, section 
1886(d)(3)(E) of the Act, as well as the expectations of the hospitals 
prior to the enactment of section 152(b).
    Comment: We received one comment related to our proposed treatment 
of Lehigh Valley Hospital's wage data under section 154(b) of Public 
Law 106-113. For FY 2001, Lehigh Valley Hospital was reclassified by 
the MGCRB to the Philadelphia MSA. The commenter argued that it was not 
Congress' intent that Lehigh Valley Hospital should be precluded from 
reclassifying.
    The commenter also contended that the statutory language of section 
154(b) could allow HCFA to permit Lehigh Valley Hospital to reclassify 
to Philadelphia, while the hospital's wage data would still be used to 
calculate the Allentown-Bethlehem-Easton MSA wage index. The commenter 
stated that by indicating this provision that Lehigh Valley ``shall be 
treated'' as being in the Allentown MSA, Congress did not intend to 
prohibit Lehigh Valley from reclassifying. If this had been Congress' 
intent, it would have been stated as such.
    Response: In the proposed rule, we included Lehigh Valley 
Hospital's wage data in the wage index calculation for the Allentown-
Bethlehem-Easton MSA. We also indicated that we believed the statutory 
language of section 154(b) required us to apply the Allentown-
Bethlehem-Easton MSA wage index to Lehigh Valley Hospital for payments 
during FY 2001. However, we note that, despite the language of section 
154(b), the MGCRB did reclassify Lehigh Valley Hospital to the 
Philadelphia MSA for FY 2001, and the HCFA Administrator did not 
reverse that decision. This has the effect of leaving stand the 
decision by the MGCRB to reclassify Lehigh Valley Hospital into the 
Philadelphia MSA for purposes of calculating and applying the 
Philadelphia wage index.
    With respect to calculating the Allentown-Bethlehem-Easton MSA wage 
index, section 154(b) requires that we include Lehigh Valley Hospital's 
wage data in calculating the wage index for this MSA. We note that the 
provision is effective ``(n)otwithstanding any other provision of 
section 1886(d) of the Social Security Act.'' Therefore, although our 
normal policy is to remove the wage data of a hospital reclassified out 
of an area when calculating that area's wage index, section 154(b) 
directs us to include Lehigh's wage data in calculating the wage index 
for the A-B-E MSA.
2. Effects of Reclassification
    The methodology for determining the wage index values for 
redesignated hospitals is applied jointly to the hospitals located in 
those rural counties that were deemed urban under section 1886(d)(8)(B) 
of the Act and those hospitals that were reclassified as a result of 
the MGCRB decisions under section 1886(d)(10) of the Act. Section 
1886(d)(8)(C) of the Act provides that the application of the wage 
index to redesignated hospitals is dependent on the hypothetical impact 
that the wage data from these hospitals would have on the wage index 
value for the area to which they have been redesignated. Therefore, 
except as discussed above, as provided in section 1886(d)(8)(C) of the 
Act, the wage index values were determined by considering the 
following:
     If including the wage data for the redesignated hospitals 
would reduce the wage index value for the area to which the hospitals 
are redesignated by 1 percentage point or less, the area wage index 
value determined exclusive of the wage data for the redesignated 
hospitals applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the redesignated 
hospitals are subject to that combined wage index value.
     If including the wage data for the redesignated hospitals 
increases the wage index value for the area to which the hospitals are 
redesignated, both the area and the redesignated hospitals receive the 
combined wage index value.
     The wage index value for a redesignated urban or rural 
hospital cannot be reduced below the wage index value for the rural 
areas of the State in which the hospital is located.
     Rural areas whose wage index values would be reduced by 
excluding the wage data for hospitals that have been redesignated to 
another area continue to have their wage index values calculated as if 
no redesignation had occurred.
     Rural areas whose wage index values increase as a result 
of excluding the wage data for the hospitals that have been 
redesignated to another area have their wage index values calculated 
exclusive of the wage data of the redesignated hospitals.
     The wage index value for an urban area is calculated 
exclusive of the wage data for hospitals that have been reclassified to 
another area. However, geographic reclassification may not reduce the 
wage index value for an urban area below the statewide rural wage index 
value.
    We note that, except for those rural areas in which redesignation 
would reduce the rural wage index value, the wage index value for each 
area is computed exclusive of the wage data for hospitals that have 
been redesignated from the area for purposes of their wage index. As a 
result, several urban areas listed in Table 4A have no hospitals 
remaining in the area. This is because all the hospitals originally in 
these urban areas have been reclassified to another area by the MGCRB. 
These areas with no remaining hospitals receive the prereclassified 
wage index value. The prereclassified wage index value will apply as 
long as the area remains empty.
    The final wage index values for FY 2001 are shown in Tables 4A, 4B, 
4C, and 4F in the Addendum to this final rule. Hospitals that are 
redesignated

[[Page 47078]]

should use the wage index values shown in Table 4C. Areas in Table 4C 
may have more than one wage index value because the wage index value 
for a redesignated urban or rural hospital cannot be reduced below the 
wage index value for the rural area of the State in which the hospital 
is located. When the wage index value of the area to which a hospital 
is redesignated is lower than the wage index value for the rural area 
of the State in which the hospital is located, the redesignated 
hospital receives the higher wage index value; that is, the wage index 
value for the rural area of the State in which it is located, rather 
than the wage index value otherwise applicable to the redesignated 
hospitals.
    Tables 4D and 4E list the average hourly wage for each labor market 
area, before the redesignation of hospitals, based on the FY 1997 wage 
data. In addition, Table 3C in the Addendum to this final rule includes 
the adjusted average hourly wage for each hospital based on the FY 1997 
data as of July 2000 (reflecting the phase-out of GME and CRNA wages as 
described at section III.C of this preamble). The MGCRB will use the 
average hourly wage published in this final rule to evaluate a 
hospital's application for reclassification for FY 2002 (unless that 
average hourly wage is later revised in accordance with the wage data 
correction policy described in Sec. 412.63(w)(2)). We note that in 
adjudicating these wage index reclassifications the MGCRB will use the 
average hourly wages for each hospital and labor market area that are 
reflected in the final FY 2001 wage index.
    We indicated in the proposed rule that, at the time the proposed 
wage index was constructed, the MGCRB had completed its review of FY 
2001 reclassification requests. The final FY 2001 wage index values 
incorporate all 493 hospitals redesignated for purposes of the wage 
index (hospitals redesignated under section 1886(d)(8)(B) or 
1886(d)(10) of the Act, and section 152(b) Public Law 106-113) for FY 
2001). Since publication of the May 5 proposed rule, the number of 
reclassifications has changed because some MGCRB decisions were still 
under review by the Administrator and because some hospitals decided to 
withdraw their requests for reclassification.
    Changes to the wage index that resulted from withdrawals of 
requests for reclassification, wage index corrections, appeals, and the 
Administrator's review process have been incorporated into the wage 
index values published in this final rule. The changes affect not only 
the wage index value for specific geographic areas, but also the wage 
index value redesignated hospitals receive; that is, whether they 
receive the wage index value for the area to which they are 
redesignated, or a wage index value that includes the data for both the 
hospitals already in the area and the redesignated hospitals. Further, 
the wage index value for the area from which the hospitals are 
redesignated is affected.
    Comment: One commenter recommended that the average hourly wages 
shown in Tables 4D and 4E should be consistent with the values shown in 
Tables 4A and 4B. In support of this recommendation, the commenter 
suggested that, because our policy for computing the wage index values 
for urban areas excludes wages for hospitals that have reclassified to 
another area, the average hourly wages shown in Table 4D should be 
computed exclusive of the reclassified hospitals. The commenter 
believed the recommended change has the potential of impacting a 
hospital's efforts to reclassify because the hospital may not qualify 
based on the ``unadjusted'' hourly wage currently shown in Table 4D.
    Response: As discussed above and in the May 5 proposed rule (65 FR 
26301), the average hourly wages in Tables 4D and 4E reflect the labor 
market area average hourly wages before hospital redesignations. We 
provide the unadjusted rather than adjusted average hourly wages 
because the MGCRB must use unadjusted average hourly wages in 
determining a hospital's eligibility for reclassification. A hospital 
that wishes to apply for reclassification for the FY 2002 wage index 
(deadline is September 1, 2000) should use the average hourly wage data 
in Tables 3C, 4D, and 4E of the FY 2001 proposed and final rules to 
determine whether it meets the requirements for reclassification. With 
the exception of urban areas that receive the statewide rural wage 
index value, an urban area's adjusted average hourly wage may be 
calculated by multiplying the area wage index value in Table 4A by the 
national average hourly wage.
    Comment: One commenter questioned whether the number of hospitals 
reclassified for the wage index for FY 2001 cited in the proposed rule 
(586) was accurate.
    Response: The correct number of wage index reclassifications for FY 
2001 at the time the proposed rule was published was 386. As stated 
above, the final number of wage index reclassifications is 490.

A. Wage Data Corrections

    In the proposed rule, we stated that, to allow hospitals time to 
evaluate the wage data used to construct the proposed FY 2001 hospital 
wage index, we would make available in May 2000 a final public data 
file containing the FY 1997 hospital wage data.
    The final wage data file was released on May 5, 2000. As noted 
above in section III.C. of this preamble, this file included hospitals' 
teaching survey data as well as cost report data. As with the file made 
available in February 2000, we made the final wage data file released 
in May 2000 available to hospital associations and the public (on the 
Internet). However, this file was made available only for the limited 
purpose of identifying any potential errors made by HCFA or the fiscal 
intermediary in the entry of the final wage data that the hospital 
could not have known about before the release of the final wage data 
public use file. It is not for the initiation of new wage data 
correction requests.
    If, after reviewing the May 2000 final data file, a hospital 
believed that its wage data were incorrect due to a fiscal intermediary 
or HCFA error in the entry or tabulation of the final wage data, it was 
provided an opportunity to send a letter to both its fiscal 
intermediary and HCFA, outlining why the hospital believed an error 
exists and provide all supporting information, including dates. These 
requests had to be received by us and the intermediaries no later than 
June 5, 2000.
    Changes to the hospital wage data were made only in those very 
limited situations involving an error by the intermediary or HCFA that 
the hospital could not have known about before its review of the final 
wage data file. Specifically, neither the intermediary nor HCFA 
accepted the following types of requests at this stage of the process:
     Requests for wage data corrections that were submitted too 
late to be included in the data transmitted to HCRIS on or before April 
3, 2000.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 2000 
wage data file.
     Requests to revisit factual determinations or policy 
interpretations made by the intermediary or HCFA during the wage data 
correction process.
     Verified corrections to the wage index received timely 
(that is, by June 5, 2000) are incorporated into the final wage index 
in this final rule, to be effective October 1, 2000.
    We believe the wage data correction process provides hospitals with 
sufficient opportunity to bring errors in

[[Page 47079]]

their wage data to the intermediary's attention. Moreover, because 
hospitals had access to the final wage data by early May 2000, they had 
the opportunity to detect any data entry or tabulation errors made by 
the intermediary or HCFA before the development and publication of the 
FY 2001 wage index and its implementation on October 1, 2000. If 
hospitals avail themselves of this opportunity, the FY 2001 wage index 
implemented on October 1 should be free of these errors. Nevertheless, 
we retain the right to make midyear changes to the wage index under 
very limited circumstances.
    Specifically, in accordance with Sec. 412.63(w)(2), we may make 
midyear corrections to the wage index only in those limited 
circumstances in which a hospital can show (1) that the intermediary or 
HCFA made an error in tabulating its data; and (2) that the hospital 
could not have known about the error, or did not have an opportunity to 
correct the error, before the beginning of FY 2001 (that is, by the 
June 5, 2000 deadline). As indicated earlier, since a hospital had the 
opportunity to verify its data, and the intermediary notified the 
hospital of any changes, we do not foresee any specific circumstances 
under which midyear corrections would be made. However, should a 
midyear correction be necessary, the wage index change for the affected 
area will be effective prospectively from the date the correction is 
made.
    Comment: One commenter expressed concern about the process used in 
preparing the final wage index data, especially teaching survey data. 
The commenter was concerned that errors would not be corrected before 
the publication of the final rule. Without providing specific 
information, the commenter further stated that it still believed that 
there were a number of ``omission errors in the data'' and that the 
situation would have been better handled if the data were corrected and 
reposted.
    Response: We acknowledge the commenter's concern and reiterate that 
the purpose of making the wage data available for review on the 
Internet is to allow hospitals time to evaluate the wage data used in 
constructing the hospital wage index. We encourage hospitals to review 
their data and to address and resolve issues in dispute prior to the 
publication of the final wage index data file. We acknowledge that the 
teaching physician data submitted by several providers were not 
accurately reported in the public use wage index data file published on 
May 5, 2000. Once we became aware of the errors, we took the necessary 
steps to review and incorporate the appropriate data. The updated file 
was then made available on our Internet website at: http://www.hcfa.gov/medicare/ippsmain.htm.

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

A. Expanding the Transfer Definition to Include Postacute Care 
Discharges (Sec. 412.4)

    In accordance with section 1886(d)(5)(I) of the Act, the 
prospective payment system distinguishes between ``discharges,'' 
situations in which a patient leaves an acute care (prospective 
payment) hospital after receiving complete acute care treatment, and 
``transfers,'' situations in which the patient is transferred to 
another acute care hospital for related care. Our policy, as set forth 
in the regulations at Sec. 412.4, provides that, in a transfer 
situation, full payment is made to the final discharging hospital and 
each transferring hospital is paid a per diem rate for each day of the 
stay, not to exceed the full DRG payment that would have been made if 
the patient had been discharged without being transferred.
    Effective with discharges on or after October 1, 1998, section 
1886(d)(5)(J) of the Act required the Secretary to define and pay as 
transfers all cases assigned to one of 10 DRGs (identified below) 
selected by the Secretary if the individuals are discharged to one of 
the following settings:
     A hospital or hospital unit that is not a subsection 
1886(d) hospital. (Section 1886(d)(1)(B) of the Act identifies the 
hospitals and hospital units that are excluded from the term 
``subsection (d) hospital'' as psychiatric hospitals and units, 
rehabilitation hospitals and units, children's hospitals, long-term 
care hospitals, and cancer hospitals.)
     A skilled nursing facility (as defined at section 1819(a) 
of the Act).
     Home health services provided by a home health agency, if 
the services relate to the condition or diagnosis for which the 
individual received inpatient hospital services, and if the home health 
services are provided within an appropriate period (as determined by 
the Secretary).
    Therefore, any discharge from a prospective payment hospital from 
one of the selected 10 DRGs that is admitted to a hospital excluded 
from the prospective payment system on the date of discharge from the 
acute care hospital, on or after October 1, 1998, would be considered a 
transfer and paid accordingly under the prospective payment systems 
(operating and capital) for inpatient hospital services. Similarly, a 
discharge from an acute care inpatient hospital paid under the 
prospective payment system to a skilled nursing facility on the same 
date would be defined as a transfer and paid as such. We consider 
situations in which home health services related to the condition or 
diagnosis of the inpatient admission are received within 3 days after 
the discharge as a transfer.
    The statute specifies that the Secretary select 10 DRGs based upon 
a high volume of discharges to postacute care and a disproportionate 
use of postacute care services. We identified the following DRGs with 
the highest percentage of postacute care:
     DRG 14 (Specific Cerebrovascular Disorders Except 
Transient Ischemic Attack (Medical))
     DRG 113 (Amputation for Circulatory System Disorders 
Except Upper Limb and Toe (Surgical))
     DRG 209 (Major Joint Limb Reattachment Procedures of Lower 
Extremity (Surgical))
     DRG 210 (Hip and Femur Procedures Except Major Joint 
Procedures Age >17 with CC (Surgical))
     DRG 211 (Hip and Femur Procedures Except Major Joint 
Procedures Age >17 without CC (Surgical))
     DRG 236 (Fractures of Hip and Pelvis (Medical))
     DRG 263 (Skin Graft and/or Debridement for Skin Ulcer or 
Cellulitis with CC (Surgical))
     DRG 264 (Skin Graft and/or Debridement for Skin Ulcer or 
Cellulitis without CC (Surgical))
     DRG 429 (Organic Disturbances and Mental Retardation 
(Medical))
     DRG 483 (Tracheostomy Except for Face, Mouth and Neck 
Diagnoses (Surgical))
    Generally, we pay for transfers based on a per diem payment, 
determined by dividing the DRG payment by the average length of stay 
for that DRG. The transferring hospital receives twice the per diem 
rate the first day and the per diem rate for each following day, up to 
the full DRG payment. Of the 10 selected DRGs, 7 are paid under this 
method. However, three DRGs exhibit a disproportionate share of costs 
very early in the hospital stay. For these three DRGs, hospitals 
receive one-half of the DRG payment for the first day of the stay and 
one-half of the payment they would receive under the current transfer 
payment method, up to the full DRG payment.

[[Page 47080]]

    As required by section 1886(d)(5)(J)(iv) of the Act, we included in 
the FY 2001 proposed rule published on May 5, 2000 (65 FR 26302), a 
description of the effect of the provision to treat as transfers cases 
that are assigned to one of the 10 selected DRGs and receive postacute 
care upon their discharge from the hospital. Under contract with HCFA 
(Contract No. 500-95-0006), Health Economics Research, Inc. (HER) 
conducted an analysis of the impact on hospitals and hospital payments 
of the postacute transfer provision. The analysis sought to obtain 
information on four primary areas: How hospitals responded in terms of 
their transfer practices; a comparison of payments and costs for these 
cases; whether hospitals are attempting to circumvent the policy by 
delaying postacute care or coding the patient's discharge status as 
something other than a transfer; and what the next possible step is for 
expanding the transfer payment policy beyond the current 10 selected 
DRGs or the current postacute destinations.
    In addition, in accordance with section 1886(d)(5)(J)(iv)(I) of the 
Act, we included in the May 5, 2000 proposed rule for FY 2001 a 
discussion of whether other postdischarge services should be added to 
this postacute care transfer provision. Since FY 1999 was the first 
year this policy was effective and because of pending changes to 
payment policies for other postacute care settings such as hospital 
outpatient departments, we have limited data to assess whether 
additional postacute care settings should be included. We will continue 
to closely monitor this issue as more data become available.
    In its analysis, HER relied on HCFA's Standard Analytic Files 
containing claims submission data through September 1999. However, the 
second and third quarter submissions for calendar year 1999 were not 
complete. It was decided that transfer cases would be identified by 
linking acute hospital discharges with postacute records based on 
Medicare beneficiary numbers and dates of discharge from the acute 
hospital with dates of admission or provision of service by the 
postacute provider. This method was used rather than selecting cases 
based on the discharge status code on the claim even though this code 
is being used for payment to these cases because we wanted to also 
assess how accurately hospitals are coding this status. However, the 
need to link acute and postacute episodes further limited the analytic 
data, due to the greater time lag for collecting postacute records. 
Therefore, much of HER's analysis focused on only the first two 
quarters of FY 1999. The two preceding fiscal years served as a 
baseline for purposes of comparison.
    Since the publication of the May 5, 2000 proposed rule for FY 2001, 
HER has updated the results of its study of the impact on hospitals and 
hospital payments of the postacute transfer provision. In its revised 
analysis, HER found that the volume of postacute transfers qualifying 
for the lower per diem payment during the first 6 months of FY 1999 
fell from 28 percent of total discharges under the 10 DRGs before the 
implementation of the payment change to 18 percent. It appears this 
decline was largely the result of a drop in the geometric mean length 
of stay in two high-volume DRGs (DRGs 14 and 209) that reduced the 
number of days qualifying a case for the per diem payment. In FY 1998, 
the geometric mean length of stay was 5.1 days for DRG 14 and 5.3 days 
for DRG 209. The geometric mean length of stay for both DRGs in FY 1999 
was 4.9 days. To qualify for a per diem payment, a case's length of 
stay must be less than the DRG's geometric mean length of stay minus 
one day. Therefore, cases in these two DRGs with lengths of stay of 
five days were counted as qualified for per diem payments under the 
postacute care transfer rules in FY 1998 but not in FY 1999. Because 
DRGs 14 and 209 account for approximately 65 percent of the cases in 
the 10 DRGs, the drop in the threshold for qualifying cases contributed 
significantly to the magnitude of the decline in qualifying cases 
overall.
    Correspondingly, HER found an increase in the volume and share of 
postacute transfers that did not qualify for the lower per diem 
payment. The share of long-stay postacute transfers paid under the full 
DRG amount (e.g., those with a length of stay equal to at least one day 
less than the geometric mean length of stay minus one day) increased 
from 35 percent during the first half of FY 1998 to 43 percent during 
the first 6 months of FY 1999. Again, some of this increase is 
attributable to the drop in the geometric mean lengths of stay in DRGs 
14 and 209.
    According to HER, to some extent, the shift in the distribution of 
postacute transfers from qualifying to nonqualifying cases may suggest 
that hospitals have responded to the policy change by holding patients 
longer before releasing them to a postacute care provider. Total 
postacute transfers fell by 13 percent between the two payment periods, 
suggesting that hospitals may also have responded by resuming the 
provision of services that were previously performed by postacute care 
providers, resulting in an elimination of some postacute transfers. 
However, additional analysis would be necessary to separate the effects 
of the drop in the geometric mean length of stay from the hospital 
behavioral effects.
    The study shows that the average length of stay of qualifying 
postacute transfers rose slightly between the two payment periods, from 
4.16 days before the policy change to 4.33 days after. In contrast, the 
average length of stay of long-stay transfers and nontransfers for the 
same set of DRGs fell between the two 6-month study periods, by 15.9 
and 16.6 percent, respectively. This indicates that, overall, hospitals 
were keeping cases slightly longer prior to transfer.
    The figures on the impact of ``delayed'' transfers (for example, 
those patients transferred to a postacute care provider beyond the 1 or 
3 day qualifying time period) remain unchanged. HER found little 
evidence that hospitals are responding to the policy change by 
increasing the time interval between prospective payment system 
discharge and postacute care admission or visit.
    The study also did not find evidence that changes in prospective 
payment system hospital treatment and discharge behavior are resulting 
in increased lengths of stay or numbers of visits during the subsequent 
postacute care episode. Average lengths of stay and number of visits at 
postacute care providers following provider payment system discharge 
actually fell between the two payment periods. It is likely that any 
adverse effects of hospital behavior on patient care would have 
manifested itself in greater postacute care lengths of stay and number 
of visits following the implementation of the payment reform. HER found 
no evidence of this.
    The average cost of qualifying postacute transfers rose in real 
terms by 2.4 percent after the policy change. According to HER, average 
profits for qualifying postacute transfers fell from $3,496 per case 
prior to the transfer policy change to $2,255 following the 
implementation of the payment reform. Average payments with adjustments 
for IME, DSH and outliers declined in real terms by 9.6 percent.
    HER found that the postacute transfer policy resulted in a 
reduction in expenditures of $239 million during the first half of FY 
1999. Annualized over a 1-year period, the policy reform lowered annual 
payments by an estimated $478 million. (In our estimate of the impacts 
of this policy, we estimated the total impact to be $480

[[Page 47081]]

million (63 FR 40977).) The estimated annual savings resulting from the 
policy change is equivalent to a 4.5 percent reduction in program 
expenditures in the 10 pilot DRGs and a 0.5 percent reduction in 
overall prospective payment system expenditures. The ``price'' effect 
(for example, holding hospital treatment and admission patterns 
constant) resulted in a savings of $276 million during the first half 
of FY 1999 (or an estimated $552 million annually). However, the 
decline in the number of transfers qualifying for the lower per diem, 
as well as the longer lengths of stay of short-stay postacute transfer 
cases, resulted in an offsetting reduction in savings of $37 million 
during the first 6 months of FY 1999 (or $74 million annually). As 
stated above, the combination of the positive ``price'' effect and the 
negative ``volume'' effect led to a net savings of $239 million during 
the first half of FY 1999 (or an estimated $478 million annually).
    The study also examined the discharge destination codes as reported 
on the acute care hospital claims against postacute care transfers 
identified on the basis of a postacute care claim indicating the 
patient qualifies as a transfer. This analysis found that, in 1998, 
only 74 percent of transfer cases had discharge destination codes on 
the acute care hospital claim that were consistent with whether there 
was a postacute care claim for the case matching the date of discharge. 
In FY 1999, the year the postacute care transfer policy went into 
effect, this rate rose to 79 percent. This indicates that hospitals are 
improving the accuracy of coding transfer cases.
    Transfers to hospitals or units excluded from the prospective 
payment system must have a discharge destination code (Patient Status) 
of 05. Transfers to a skilled nursing facility must have a discharge 
destination code of 03. Transfers to a home health agency must have a 
discharge destination code of 06. If the hospital's continuing care 
plan for the patient is not related to the purpose of the inpatient 
hospital admission, a condition code 42 must be entered on the claim. 
If the continuing care plan is related to the purpose of the inpatient 
hospital admission, but care did not start within 3 days after the date 
of discharge, a condition code 43 must be entered on the claim. The 
presence of either of these condition codes in conjunction with 
discharge destination code 06 will result in full payment rather than 
the transfer payment amount. We intend to closely monitor the accuracy 
of hospitals' discharge destination coding in this regard and take 
whatever steps are necessary to ensure that accurate payment is made 
under this policy.
    Section 1886(d)(5)(J)(iv)(II) of the Act authorized but did not 
require the Secretary to include as part of the proposed rule 
additional DRGs to include under the postacute care transfer provision. 
As part of ``The President's Plan to Modernize and Strengthen Medicare 
for the 21st Century'' (July 2, 1999), the Administration committed to 
not expanding the number of DRGs included in the policy until FY 2003. 
Therefore, we did not propose any change to the postacute care settings 
or the 10 DRGs.
    HER did undertake an analysis of how additional DRGs might be 
considered for inclusion under the policy. The analysis supports the 
initial 10 DRGs selected as being consistent with the nature of the 
Congressional mandate. According to HER, ``[t]he top 10 DRGs chosen 
initially by HCFA exhibit very large PAC [postacute care] levels and 
PAC discharge rates (except for DRG 264, Skin Graft and/or Debridement 
for Skin Ulcer or Cellulitis without CC, which was paired with DRG 
263). All 10 appear to be excellent choices based on the other criteria 
as well. Most have fairly high short-stay PAC [postacute care] rates 
(except possibly for Strokes, DRG 14, and Mental Retardation, DRG 
429).''
    Extending the policy beyond these initial DRGs, however, may well 
require more extensive analysis and grouping of like-DRGs. One concern 
raised in the analysis relates to single DRGs including multiple 
procedures with varying lengths of stay. Because the transfer payment 
methodology only considers the DRG overall geometric mean length of 
stay for a DRG, certain procedures with short lengths of stay relative 
to other procedures in the same DRG may be more likely to be treated as 
transfers. The analysis also considers pairs of DRGs, such as DRGs 263 
and 264, as well as larger bundles of DRGs (grouped by common elements 
such as trauma, infections, and major organ procedures). According to 
HER, ``[i]n extending the PAC transfer policy, it is necessary to go 
beyond the flawed concept of a single DRG to discover multiple DRGs 
with a common link that exhibit similar PAC statistics. Aggregation of 
this sort provides a logical bridge in expanding the PAC transfer 
policy that is easily justified to Congress and that avoids unintended 
inequities in the way DRGs-and potentially hospitals-are treated under 
this policy. Hospitals can be inadvertently penalized or not under the 
current implementation criteria due to systematic differences in the 
DRG mix.''
    Finally, the HER report concludes with a discussion of the issues 
related to potentially expanding the postacute care transfer policy to 
all DRGs. On the positive side, HER points to the benefits of expanding 
the policy to include all DRGs:
     A simple, uniform formula-driven policy;
     Same policy rationale exists for all DRGs-the statutory 
provision requiring the Secretary to select only 10 DRGs was a 
political compromise;
     DRGs with little utilization of short-stay postacute care 
would not be harmed by the policy;
     Less confusion in discharge destination coding; and
     Hospitals that happen to be disproportionately treating 
the current 10 DRGs may be harmed more than hospitals with an 
aggressive short-stay postacute care transfer policy for other DRGs.
    According to HER, the negative implications of expanding the policy 
to all DRGs include:
     The postacute care transfer policy is irrelevant for many 
DRGs;
     Added burden for the fiscal intermediaries to verify 
discharge destination codes;
     Diluted program savings beyond the initial 10 DRGs;
     Difficulty in identifying ongoing postacute care that 
resumes after discharge; and
     Heterogeneous procedures within single DRGs having varying 
lengths of stay.
    The HER report in final format may be obtained from the HCFA 
website at: http://www.hcfa.gov/medicare/ippsmain.htm
    Comment: One commenter observed that in our discussion in the 
proposed rule (65 FR 26303) of postacute care transfers to a skilled 
facility, we stated that ``(t)his would include cases discharged from 
one of the 10 selected DRGs to a designated swing bed for skilled 
nursing facilities.'' The commenter believed that HCFA clearly excluded 
swing bed transfers from the postacute care transfer policy in the July 
31, 1998 final rule and asked for clarification.
    Response: The commenter is correct that we excluded swing bed 
transfers from the postacute care transfer policy in the July 31, 1998 
final rule (63 FR 40977). We are not changing the policy to include 
swing beds at this time. The sentence in question was inadvertently 
included in the proposed rule.
    Comment: One commenter believed the transfer policy is contrary to 
the

[[Page 47082]]

design of the prospective payment system and penalizes clinical 
decision making by physicians in discharging their patients to the 
appropriate level of care. The commenter suggested that the HER study 
shows that the net outcome of the policy has been to pay hospitals less 
and increase the complexity and administrative costs of the inpatient 
prospective payment system. The commenter cited the disadvantages of 
expanding the policy to all DRGs set forth in the HER report and 
recommended that the Administration revisit this policy in light of the 
findings of the researchers that care, not finances, is driving the 
length of stay in these cases.
    Response: We disagree with the commenter that the postacute 
transfer policy penalizes clinical decisionmaking by physicians in 
discharging their patients to the appropriate level of care, but rather 
believe that the policy appropriately adjusts payments to hospitals to 
reflect the amount of care actually provided in the acute care setting. 
Furthermore, this policy does not require a change in physician 
clinical decisionmaking nor in the manner in which physicians and 
hospitals practice medicine. It simply addresses the appropriate level 
of payments once those decisions have been made.
    With respect to whether the provision is contrary to the original 
intent of the prospective payment system, we believe it is entirely 
consistent with the following statement made in the Federal Register 
during the first year of the prospective payment system in response to 
a comment concerning the hospital-to-hospital transfer policy: ``(t)he 
rationale for per diem payments as part of our transfer policy is that 
the transferring hospital generally provides only a limited amount of 
treatment. Therefore, payment of the full prospective payment rate 
would be unwarranted'' (49 FR 244). We also note that in its earliest 
update recommendations, the Prospective Payment Assessment Commission 
(MedPAC's predecessor organization) included what it called a site-of-
service substitution adjustment to account for the shifting of portions 
of inpatient care to other settings. We believe this provision is an 
appropriate and consistent response to the changing treatment practice 
of the hospital industry.
    Though we are not expanding the policy to include all DRGs at this 
time, HER points to advantages as well as the disadvantages cited by 
the commenter of doing so, including:
     A simple, uniform formula-driven policy;
     Same policy rationale exists for all DRGs--the statutory 
provision requiring the Secretary to select only 10 DRGs was a 
political compromise;
     DRGs with little utilization of short-stay postacute care 
would not be harmed by the policy;
     Less confusion in discharge destination coding; and
     Hospitals that happen to be disproportionately treating 
the current 10 DRGs may be harmed more than hospitals with an 
aggressive short-stay postacute care transfer policy for other DRGs.
    Finally, we also believe that care, not finances, should drive the 
length of stay and all other clinical decisions in these cases, and 
that payments should be aligned with the care given in each provider 
setting.
    Comment: One commenter agreed with our decision to not expand the 
number of DRGs subject to the postacute transfer policy. The commenter 
believed that the policy should be revoked because the cost savings 
have far exceeded the estimates relied on in developing the policy and, 
more fundamentally, because it violates the notion of averaging that is 
at the heart of an appropriate prospective payment system. The 
commenter also believed that the introduction of prospective payment in 
virtually all postacute settings obviates the need for this expansion 
of transfer policy.
    The commenter stated that the use of the geometric mean length of 
stay to determine the payment amount does not fully consider the 
medical practice patterns of physicians in different regions of the 
country and appears to penalize those areas that already achieved a 
lower length of stay.
    Response: Since updating its study after the proposed rule was 
published, HER reports that the policy resulted in savings of $478 
million, remarkably close to our estimate of $480 million published in 
the July 31, 1998 final rule (63 FR 40977). Furthermore, as we stated 
in our previous response, we believe that the policy is entirely 
consistent with the original intent of the prospective payment system.
    We disagree with the commenter's belief that the introduction of 
prospective payment systems to postacute settings obviates the need for 
the transfer policy. The purpose of the policy is to align payments 
with the care actually provided in the inpatient setting. The policy is 
particularly appropriate for areas of the country where care has been 
more aggressively shifted from acute to postacute settings.

B. Sole Community Hospitals (SCHs)(Secs. 412.63, 412.73, and 413.75, 
proposed new Sec. 412.77, and Sec. 412.92)

    Under the hospital inpatient prospective payment system, special 
payment protections are provided to sole community hospitals (SCHs). 
Section 1886(d)(5)(D)(iii) of the Act defines an SCH as, among other 
things, a hospital that, by reason of factors such as isolated 
location, weather conditions, travel conditions, or absence of other 
hospitals (as determined by the Secretary), is the sole source of 
inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations that set forth the criteria a hospital 
must meet to be classified as an SCH are located at Sec. 412.92(a).
    Currently SCHs are paid based on whichever of the following rates 
yields the greatest aggregate payment to the hospital for the cost 
reporting period: The Federal national rate applicable to the hospital; 
or the hospital's ``target amount''--that is, either the updated 
hospital-specific rate based on FY 1982 costs per discharge, or the 
updated hospital-specific rate based on FY 1987 costs per discharge.
    Section 405 of Public Law 106-113, which amended section 1886(b)(3) 
of the Act, provides that an SCH that was paid for its cost reporting 
period beginning during 1999 on the basis of either its FY 1982 or FY 
1987 target amount (the hospital-specific rate as opposed to the 
Federal rate) may elect to receive payment under a methodology using a 
third hospital-specific rate based on the hospital's FY 1996 costs per 
discharge. This amendment to the statute means that, for cost reporting 
periods beginning on or after October 1, 2000, eligible SCHs can elect 
to use the allowable FY 1996 operating costs for inpatient hospital 
services as the basis for their target amount, rather than either their 
FY 1982 or FY 1987 costs.
    We are aware that language in the Conference Report accompanying 
Public Law 106-113 indicates that the House bill (H.R. 3075) would have 
permitted SCHs that were being paid the Federal rate to rebase, not 
SCHs that were paid on the basis of either their FY 1982 or FY 1987 
target amount (H.R. Conf. Rep. No. 106-479, 106th Cong., 1st Sess. at 
890 (1999)). The language of the section 405 amendment to section 
1886(b)(3) (which added new subparagraph (I)(ii)) clearly limits the 
option to substitute the FY 1996 base year to SCHs that were paid for 
their cost reporting periods beginning during 1999 on the basis of the 
target amount applicable to the hospital under section 1886(b)(3)(C).

[[Page 47083]]

    In the May 5 proposed rule, we proposed that, when calculating an 
eligible SCH's FY 1996 hospital-specific rate, we utilize the same 
basic methodology used to calculate FY 1982 and FY 1987 bases. That 
methodology is set forth in Secs. 412.71 through 412.75 of the 
regulations and discussed in detail in several prospective payment 
system documents published in the Federal Register on September 1, 1983 
(48 FR 3977); January 3, 1984 (49 FR 256); June 1, 1984 (49 FR 23010); 
and April 20, 1990 (55 FR 15150).
    Since we anticipate that eligible hospitals will elect the option 
to rebase using their FY 1996 cost reporting periods, we proposed that 
our fiscal intermediaries would identify those SCHs that were paid for 
their cost reporting periods beginning during 1999 on the basis of 
their target amounts. For these hospitals, fiscal intermediaries would 
calculate the FY 1996 hospital-specific rate as described below in this 
section IV.B. If this rate exceeds a hospital's current target amount 
based on the greater of the FY 1982 or FY 1987 hospital-specific rate, 
the hospital will receive payment based on the FY 1996 hospital-
specific rate (based on the blended amounts described at section 
1886(b)(3)(I)(i) of the Act) unless the hospital notifies its fiscal 
intermediary in writing prior to the end of the cost reporting period 
that it does not wish to be paid on the basis of the FY 1996 hospital-
specific rate. Thus, if a hospital does not notify its fiscal 
intermediary before the end of the cost reporting period that it 
declines the rebasing option, we would deem the lack of such 
notification as an election to have section 1886(b)(3)(I) of the Act 
apply to the hospital.
    We further proposed that an SCH's decision to decline this option 
for a cost reporting period will remain in effect for subsequent 
periods until such time as the hospital notifies its fiscal 
intermediary otherwise.
    The FY 1996 hospital-specific rate will be based on FY 1996 cost 
reporting periods beginning on or after October 1, 1995 and before 
October 1, 1996, that are 12 months or longer. If the hospital's last 
cost reporting period ending on or before September 30, 1996 is less 
than 12 months, the hospital's most recent 12-month or longer cost 
reporting period ending before the short period report would be 
utilized in the computations. If a hospital has no cost reporting 
period beginning in FY 1996, it would not have a hospital-specific rate 
based on FY 1996.
    For each hospital eligible for FY 1996 rebasing, the fiscal 
intermediary will calculate a hospital-specific rate based on the 
hospital's FY 1996 cost report as follows:
     Determine the hospital's total allowable Medicare 
inpatient operating cost, as stated on the FY 1996 cost report.
     Divide the total Medicare operating cost by the number of 
Medicare discharges in the cost reporting period to determine the FY 
1996 base period cost per case. For this purpose, transfers are 
considered to be discharges.
     In order to take into consideration the hospital's 
individual case-mix, divide the base year cost per case by the 
hospital's case-mix index applicable to the FY 1996 cost reporting 
period. This step is necessary to standardize the hospital's base 
period cost for case-mix and is consistent with our treatment of both 
FY 1982 and FY 1987 base-period costs per case. A hospital's case-mix 
is computed based on its Medicare patient discharges subject to DRG-
based payment.
    We proposed that the fiscal intermediary will notify eligible 
hospitals of their FY 1996 hospital-specific rate prior to October 1, 
2000. Consistent with our policies relating to FY 1982 and FY 1987 
hospital-specific rates, we proposed to permit hospitals to appeal a 
fiscal intermediary's determination of the FY 1996 hospital-specific 
rate under the procedures set forth in 42 CFR part 405, subpart R, 
which concern provider payment determinations and appeals. In the event 
of a modification of base period costs for FY 1996 rebasing due to a 
final nonappealable court judgment or certain administrative actions 
(as defined in Sec. 412.72(a)(3)(i)), the adjustment would be 
retroactive to the time of the intermediary's initial calculation of 
the base period costs, consistent with the policy for rates based on FY 
1982 and FY 1987 costs.
    Section 405 prescribes the following formula to determine the 
payment for SCHs that elect rebasing:
    For discharges during FY 2001:
     75 percent of the updated FY 1982 or FY 1987 former target 
(identified in the statute as the ``subparagraph (C) target amount''), 
plus
     25 percent of the updated FY 1996 amount (identified in 
the statute as the ``rebased target amount'').
    For discharges during FY 2002:
     50 percent of the updated FY 1982 or FY 1987 former 
target, plus
     50 percent of the updated FY 1996 amount.
    For discharges during FY 2003:
     25 percent of the updated FY 1982 or FY 1987 former 
target, plus
     75 percent of the updated FY 1996 amount.
    For discharges during FY 2004 or any subsequent fiscal year, the 
hospital-specific rate would be determined based on 100 percent of the 
updated FY 1996 amount.
    We proposed to add a new Sec. 412.77 and amend Sec. 412.92(d) to 
incorporate the provisions of section 1886(b)(3)(I) of the Act, as 
added by section 405 of Public Law 106-113.
    Section 406 of Public Law 106-113 amended section 
1886(b)(3)(B)(i)(XVI) of the Act to provide, for fiscal year 2001, for 
full market basket updates to both the Federal and hospital-specific 
payment rates applicable to sole community hospitals. In the May 5 
proposed rule, we proposed to amend Secs. 412.63, 412.73, and 412.75 to 
incorporate the amendment made by section 406 of Public Law 106-113.
    We received several public comments on our proposal.
    Comment: Several commenters discussed the difference between the 
language in the statutory provision, which limits the updated 1996-
rebasing option to SCHs that were paid on the basis of their target 
amount (hospital specific rate) in 1999, and the language of the 
accompanying Conference report (H.R. Conf. Rep. No. 106-479, 106th 
Cong., 1st Sess. at 890 (1999)). The Conference report indicated that 
the House bill (H.R. 3075) would have permitted SCHs that were being 
paid the Federal rate to rebase rather than SCHs that were paid on the 
basis of either their FY 1982 or FY 1987 target amount. One commenter, 
in particular, believed that despite the clear statutory language, HCFA 
had the ability to allow leeway in determining which hospitals were 
eligible to elect 1996 rebasing. In support of this view, the commenter 
made the assertion that the Federal rate used in SCH payment 
computations included outlier and disproportionate share payments (DSH) 
as well as other special provisions. Therefore, the hospital-specific 
rate should be compared to the base Federal rate of the geographic 
area, without the add-ons, to determine which amount would yield the 
largest payment. Additionally, the total Federal payments on the 
hospital's cost report may exceed the hospital-specific payments in 
some years, while falling below them in other years because of the 
potential fluctuations of outliers and DSH payments. The commenter 
argued, therefore, that to determine whether an SCH is to be paid on 
the basis of the target amount, hospital-specific payments should be 
compared to the base Federal payments without the addition of outliers 
and DSH payments.

[[Page 47084]]

    Response: We disagree with the commenter's argument. The commenter 
is correct in saying that in any one year, the target amount may be 
exceeded by calculations of the Federal rate. This is the reason why 
the calculation is done yearly, so that the hospital may receive the 
highest possible payment for that specific year based on a comparison 
of what each payment scheme would generate for the hospital. The 
statute clearly states the rebasing option is available to an SCH that, 
for its cost reporting period beginning on or after October 1, 2000, is 
paid on the basis of the target amount. As we stated in the proposed 
rule, we are aware of the difference between this rebasing plan set 
forth in section 405 of Public Law 106-113 and the one described in the 
Conference Report, but the unambiguous language of the statute controls 
over the language of the Conference Report.
    Comment: One commenter pointed to an inconsistency between the text 
of proposed Sec. 412.77 and the preamble to the proposed rule. The 
preamble stated that, in the absence of notification to the contrary 
from the hospital, the intermediary will base payment on the 1996 
hospital specific rate, if this rate exceeds the 1982 or 1987 hospital-
specific rate. The proposed regulation language at Sec. 412.77(a) 
indicated that, in the absence of notification, the hospital payment 
would be based on the 1996 hospital specific rate without the 
qualification that this rate would need to exceed the 1982 or 1987 base 
year rates.
    Response: We believe that the commenter's concern about 
inconsistency may stem from a typographical error that appeared in the 
text of proposed Sec. 412.77 in the proposed rule, that incorrectly 
referenced Sec. 412.72, rather than revised Sec. 412.92. The payment 
determination formula used for SCHs is set forth in Sec. 412.92(d), 
which has been revised to include the 1996 rebasing option. That 
formula clearly states that an SCH is paid based on whichever yields 
the greatest aggregate payment for the cost reporting period: the 
Federal payment rate, the 1982 or 1987 hospital-specific rate, or the 
1996 hospital-specific rate. We have deleted the incorrect reference to 
Sec. 412.72. In addition, for the sake of clarity, we have added a 
sentence to Sec. 412.77(a)(1), further modified Sec. 412.92(d)(1), and 
added a new Sec. 412.92(d)(2) (the existing paragraph (d)(2) is 
redesignated as paragraph (d)(3)).
    Comment: One commenter disagreed with the proposal that the 
intermediary should include the 1996 hospital specific rate in its 
payment calculations it if it is higher than either the 1982 or 1987 
hospital specific rates, in the absence of notification to the 
contrary. Rather, the commenter suggested that an eligible hospital be 
required to state its choice to be paid on this basis.
    Response: We believe that it is more efficient from an 
administrative standpoint to require a hospital to notify its fiscal 
intermediary if it chooses not to receive payment based on the (higher) 
FY 1996 hospital-specific rate. The only time that a hospital that is 
eligible for rebasing will be paid based on its 1996 amount is if that 
amount is higher than either the 1982 or 1987 hospital specific rates 
and also higher than the Federal rate. We do not know why a hospital 
would elect not to receive payment based on the highest of its possible 
choices. Therefore, rather than requiring a hospital to provide written 
notification to the fiscal intermediary when its FY 1996 hospital-
specific rate is higher than its FY 1982 and FY 1987 hospital-specific 
rates, we deem the hospital to have made an election to be paid based 
on the FY 1996 hospital-specific rate, unless it notifies its fiscal 
intermediary otherwise.
    Comment: Two commenters requested a clarification as to the 
proposed timing for a hospital that is eligible for payment based on 
its 1996 hospital-specific rate to notify its intermediary of its 
intention not to elect payment based on this rate.
    Response: We agree that in the proposed rule the preamble and the 
proposed regulation language were contradictory. Accordingly, we are 
revising Sec. 412.77(a)(2) to require that an eligible hospital must 
notify its intermediary of its intent not to elect payment based on its 
FY 1996 hospital-specific rate prior to the end of the cost reporting 
period for which the payments would otherwise be made. This schedule 
will allow hospitals an opportunity to consider their options.

C. Rural Referral Centers (Sec. 412.96)

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec. 412.96 set forth the criteria a hospital must meet 
in order to receive special treatment under the prospective payment 
system as a rural referral center (RRC). For discharges occurring 
before October 1, 1994, RRCs received the benefit of payment based on 
the other urban amount rather than the rural standardized amount. 
Although the other urban and rural standardized amounts were the same 
for discharges beginning with that date, RRCs would continue to receive 
special treatment under both the DSH payment adjustment and the 
criteria for geographic reclassification.
    As discussed in 62 FR 45999 and 63 FR 26317, under section 4202 of 
Public Law 105-33, a hospital that was classified as an RRC for FY 1991 
is to be classified as an RRC for FY 1998 and later years so long as 
that hospital continued to be located in a rural area and did not 
voluntarily terminate its RRC status. Otherwise, a hospital seeking RRC 
status must satisfy applicable criteria. One of the criteria under 
which a hospital may qualify as an RRC is to have 275 or more beds 
available for use. A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (specifying a minimum case-mix index and a minimum number 
of discharges) and at least one of three optional criteria (relating to 
specialty composition of medical staff, source of inpatients, or 
referral volume). With respect to the two mandatory prerequisites, a 
hospital may be classified as an RRC if its--
     Case-mix index is at least equal to the lower of the 
median case-mix index for urban hospitals in its census region, 
excluding hospitals with approved teaching programs, or the median 
case-mix index for all urban hospitals nationally; and
     Number of discharges is at least 5,000 per year, or if 
fewer, the median number of discharges for urban hospitals in the 
census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year.)
1. Case-Mix Index
    Section 412.96(c)(1) provides that HCFA will establish updated 
national and regional case-mix index values in each year's annual 
notice of prospective payment rates for purposes of determining RRC 
status. The methodology we use to determine the national and regional 
case-mix index values is set forth in regulations at 
Sec. 412.96(c)(1)(ii). The proposed national case-mix index value for 
FY 2001 in the May 5 proposed rule included all urban hospitals 
nationwide, and the regional values are the median values of urban 
hospitals within each census region, excluding those with approved 
teaching programs (that is, those hospitals receiving indirect medical 
education payments as provided in Sec. 412.105). These values were 
based on discharges occurring during FY 1999 (October 1, 1998 through 
September 30, 1999) and include bills posted to HCFA's records through 
March 2000.

[[Page 47085]]

    We proposed that, in addition to meeting other criteria, hospitals 
with fewer than 275 beds, if they are to qualify for initial RRC status 
for cost reporting periods beginning on or after October 1, 2000, must 
have a case-mix index value for FY 1999 that is at least--
     1.3408; or
     The median case-mix index value for urban hospitals 
(excluding hospitals with approved teaching programs as identified in 
Sec. 412.105) calculated by HCFA for the census region in which the 
hospital is located. (See the table set forth in the May 5, 2000 
proposed rule at 65 FR 26306.)
    Based on the latest data available (FY 1999 bills received through 
March 31, 2000), the median case-mix values by region are set forth in 
the table below.

------------------------------------------------------------------------
                                                               Case-mix
                           Region                            index value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....................       1.2289
2. Middle Atlantic (PA, NJ, NY)............................       1.2385
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).....       1.3113
4. East North Central (IL, IN, MI, OH, WI).................       1.2623
5. East South Central (AL, KY, MS, TN).....................       1.2661
6. West North Central (IA, KS, MN, MO, NE, ND, SD).........       1.1822
7. West South Central (AR, LA, OK, TX).....................       1.2813
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)...............       1.3250
9. Pacific (AK, CA, HI, OR, WA)............................       1.3036
------------------------------------------------------------------------

    For the benefit of hospitals seeking to qualify as RRCs or those 
wishing to know how their case-mix index value compares to the 
criteria, we are publishing each hospital's FY 1999 case-mix index 
value in Table 3C in section VI. of the Addendum to this final rule. In 
keeping with our policy on discharges, these case-mix index values are 
computed based on all Medicare patient discharges subject to DRG-based 
payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that HCFA will set forth the 
national and regional numbers of discharges in each year's annual 
notice of prospective payment rates for purposes of determining RRC 
status. As specified in section 1886(d)(5)(C)(ii) of the Act, the 
national standard is set at 5,000 discharges. However, in the May 5 
proposed rule, we proposed to update the regional standards. The 
proposed regional standards were based on discharges for urban 
hospitals' cost reporting periods that began during FY 1998 (that is, 
October 1, 1997 through September 30, 1998). That is the latest year 
for which we have complete discharge data available.
    Therefore, we proposed that, in addition to meeting other criteria, 
a hospital, if it is to qualify for initial RRC status for cost 
reporting periods beginning on or after October 1, 2000, must have as 
the number of discharges for its cost reporting period that began 
during FY 1999 a figure that is at least--
     5,000; or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located. (See the table set 
forth in the May 5, 2000 proposed rule at 65 FR 26307.)
    Based on the latest discharge data available for FY 1999, the final 
median number of discharges for urban hospitals by census region areas 
are as follows:

------------------------------------------------------------------------
                                                              Number of
                           Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....................        6,725
2. Middle Atlantic (PA, NJ, NY)............................        8,736
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).....        7,911
4. East North Central (IL, IN, MI, OH, WI).................        7,661
5. East South Central (AL, KY, MS, TN).....................        6,883
6. West North Central (IA, KS, MN, MO, NE, ND, SD).........        5,829
7. West South Central (AR, LA, OK, TX).....................        5,385
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)...............        8,026
9. Pacific (AK, CA, HI, OR, WA)............................        6,268
------------------------------------------------------------------------

    We note that the number of discharges for hospitals in each census 
region is greater than the national standard of 5,000 discharges. 
Therefore, 5,000 discharges is the minimum criterion for all hospitals.
    We reiterate that an osteopathic hospital, if it is to qualify for 
RRC status for cost reporting periods beginning on or after October 1, 
2000, must have at least 3,000 discharges for its cost reporting period 
that began during FY 1999.
    We did not receive any comments on the RRC criteria.

D. Indirect Medical Education (IME) Adjustment(Sec. 412.105)

    Section 1886(d)(5)(B) of the Act provides that prospective payment 
hospitals that have residents in an approved graduate medical education 
(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 indirect 
medical education (IME) adjustment, are located at Sec. 412.105.
    Section 111 of Public Law 106-113 modified the transition for the 
IME adjustment that was established by Public Law 105-33. We are 
publishing these changes in a separate interim final rule with comment 
period that appears elsewhere in this issue of the Federal Register. 
However, for discharges occurring during FY 2001, the adjustment 
formula equation used to calculate the IME adjustment factor is 1.54 
x  [(1+r) \.405\-1]. (The variable r represents the hospital's 
resident-to-bed ratio.)
    In the proposed rule, we inadvertently omitted the revised 
transition for the IME adjustment for FYs 2002 and thereafter. 
Specifically, for discharges occurring on or after October 1, 2001, the 
adjustment formula equation used to calculate the IME adjustment factor 
is 1.35  x  [(1+r)\.405\-1]. We are adding a new Sec. 412.105(d)(3)(vi) 
to reflect this change.
    In the July 30, 1999 final rule (64 FR 41517), we set forth certain 
policies that affected payment for both direct and indirect GME. These 
policies related to adjustments to full-time equivalent (FTE) resident 
caps for new medical residency programs affecting both direct and 
indirect GME programs; the adjustment to GME caps for certain hospitals 
under construction prior to August 5, 1997 (the enactment date of 
Public Law 105-33) to account for residents in new medical residency 
training programs; and the temporary adjustment to FTE caps to reflect 
residents affected by hospital closures. When we amended the 
regulations under Sec. 413.86 for direct GME, we inadvertently did not 
make the corresponding changes in Sec. 412.105 for IME. In the May 5 
proposed rule, we proposed to make the following conforming changes:
     To amend Sec. 412.105(f)(1)(vii) to provide for an 
adjustment to the FTE caps for new medical residency programs as 
specified under Sec. 413.86(g)(6).
     To add a new Sec. 412.105(f)(1)(viii) related to the 
adjustment to the FTE caps for newly constructed hospitals that sponsor 
new residency programs in effect on or after January 1, 1995, and on or 
before August 5, 1997, that either received initial accreditation by 
the appropriate accrediting body or temporarily trained residents at 
another hospital(s) until the facility was completed, to conform to the 
provisions of Sec. 413.86(g)(7).
     To add a new Sec. 412.105(f)(1)(ix) to specify that a 
hospital may receive a

[[Page 47086]]

temporary adjustment to its FTE cap to take into account residents 
added because of another hospital's closure if the hospital meets the 
criteria listed under Sec. 413.86(g)(8).
    In addition, we proposed to add a cross-reference to 
``Sec. 413.86(d)(3)(i) through (v)'' in Sec. 412.105(g), and to correct 
the applicable period in both Secs. 412.105(g) and 413.86(d)(3) by 
revising the phrase ``For portions of cost reporting periods beginning 
on or after January 1, 1998'' to read ``For portions of cost reporting 
periods occurring on or after January 1, 1998''.
    We received one public comment on the proposed changes to the IME 
regulations.
    Comment: One commenter recommended that the temporary adjustment 
allowed to a hospital's FTE cap under the proposed 
Sec. 412.105(f)(1)(ix) to account for residents added because of 
another hospital's closure should be a permanent adjustment to maintain 
the current level of trainees.
    Response: In the proposed rule, we were merely making a conforming 
change to the IME regulations based on a change in the GME regulations 
in the July 30, 1999 final rule. As indicated in the July 30, 1999 
final rule (65 FR 41522), we continue to believe that, when a hospital 
assumes the training of additional residents because of another 
hospital's closure, an adjustment to the hospital's FTE cap should only 
be available for the period of time necessary to train those displaced 
residents. At that time we provided for the temporary adjustment 
because of hospitals' reluctance to accept additional residents from a 
closed hospital without a temporary adjustment to their caps. We do not 
believe currently there is justification for a permanent adjustment 
because of the temporary training provisions for the displaced 
residents.

E. Payments to DSH Hospitals (Sec. 412.106)

1. Changes to the DSH Formula
    Effective for discharges beginning on or after May 1, 1986, 
hospitals that treat a disproportionately large number of low-income 
patients (as defined in section 1886(d)(5)(F) of the Act) receive 
additional payments through the DSH adjustment. Section 4403(a) of 
Public Law 105-33 amended section 1886(d)(5)(F) of the Act to reduce 
the payment a hospital would otherwise receive under the current DSH 
formula by 1 percent for FY 1998, 2 percent for FY 1999, 3 percent for 
FY 2000, 4 percent for FY 2001, 5 percent for 2002, and 0 percent for 
FY 2003 and each subsequent fiscal year. Subsequently, section 112 of 
Public Law 106-113 modified the amount of the reductions under Public 
Law 105-33 by changing the reduction to 3 percent for FY 2001 and 4 
percent for FY 2002. The reduction continues to be 0 percent for FY 
2003 and each subsequent fiscal year. In the May 5 proposed rule, we 
proposed to revise Sec. 412.106(e) to reflect the changes in the 
statute made by Public Law 106-113.
    Section 112 of Public Law 106-113 also directs the Secretary to 
require prospective payment system hospitals to submit data on the 
costs incurred by the hospitals for providing inpatient and outpatient 
hospital services for which the hospitals are not compensated, 
including non-Medicare bad debt, charity care, and charges for medical 
and indigent care to the Secretary as part of hospitals' cost reports. 
These data are required for cost reporting periods beginning on or 
after October 1, 2001. We will be revising our instructions to 
hospitals for cost reports for FY 2002 to capture these data.
    Comment: Several commenters provided positive reinforcement 
concerning the impending collection of uncompensated care data via 
offers of assistance in this effort. Also, commenters made the point 
that, at this time, uncompensated care does not have a common national 
definition.
    Response: We are aware that uncompensated care does not currently 
have a common national definition. One of our tasks will be to define 
the reporting parameters so that the data will be reported in a uniform 
manner. This is the main reason that we have not sought to use 
uncompensated care data in the Medicare DSH adjustment calculation in 
the past. We will keep these comments in mind as we proceed.
    Comment: One commenter was concerned about the pending publication 
of the Report to Congress on the Medicare DSH formula. This commenter 
asked HCFA to complement its data collection efforts by issuing the 
report as required by Public Law 105-33.
    Response: We are in the process of completing this report and 
intend to submit it to Congress in the near future.
2. DSH Adjustment Calculation: Change in the Treatment of Certain 
Medicaid Patient Days in States With Section 1115 Expansion Waivers
    On January 20, 2000, we published in the Federal Register an 
interim final rule with comment period (65 FR 3136) to implement a 
change in the Medicare DSH adjustment calculation policy in reference 
to section 1115 expansion waiver days. That interim final rule set 
forth criteria to use in calculating the Medicare DSH adjustment for 
hospitals for purposes of payment under the prospective payment system.
    Under section 1886(d)(5)(F) of the Act, an adjustment is made to 
the hospital's inpatient prospective payment system payment for serving 
a disproportionate share of low-income or Medicaid and Medicare 
patients. The size of a hospital's Medicare DSH adjustment is based on 
the sum of the percentage of patient days attributable to patients 
eligible for both Medicare Part A and Supplemental Security Income 
(SSI) and the percentage of patient days attributable to patients 
eligible for Medicaid but not Medicare Part A.
    Some States provide medical assistance (Medicaid) under a 
demonstration project (also referred to as a section 1115 waiver).
    Under policy in existence before the January 20, 2000 interim final 
rule, hospitals were to include in the Medicare DSH calculation only 
those days for populations under the section 1115 waiver who were or 
could have been made eligible under a State Medicaid plan. Patient days 
of the expanded eligibility groups, however, were not to be included in 
the Medicare DSH calculation.
    In the January 20, 2000 interim final rule with comment period, we 
revised the policy, effective with discharges occurring on or after 
January 20, 2000, to allow hospitals to include the patient days of all 
populations eligible for Title XIX matching payments in a State's 
section 1115 waiver in calculating the hospital's Medicare DSH 
adjustment. This policy was reflected in a revision to Sec. 412.106 of 
the regulations.
    We received 11 public comments on the inclusion of Section 1115 
waiver days in the Medicare disproportionate share adjustment 
calculation.
    Comment: Several commenters were concerned with the inclusion in 
the January 20, 2000 interim final rule with comment period of 
expansion waiver days in the Medicaid portion of the Medicare DSH 
adjustment calculation. States without a Medicaid expansion waiver in 
place believed that States that did have a Medicaid expansion waiver in 
place received an unfair advantage. In addition, comments from 
Pennsylvania hospitals supported the continued inclusion of general 
assistance days in the Medicaid portion of the Medicare DSH adjustment 
calculation as well as expansion waiver days. Finally, some commenters 
urged HCFA to revise the

[[Page 47087]]

Medicare DSH adjustment calculation to include charity care days.
    Response: While we initially determined that States under a 
Medicaid expansion waiver could not include those expansion waiver days 
as part of the Medicare DSH adjustment calculation, we have since 
consulted extensively with Medicaid staff and have determined that 
section 1115 expansion waiver days are utilized by patients whose care 
is considered to be an approved expenditure under Title XIX. While this 
does advantage States that have a section 1115 expansion waiver in 
place, these days are considered to be Title XIX days by Medicaid 
standards.
    Some States operate under a section 1115 waiver without an 
expansion (for example, Arizona). The days that are utilized by 
patients under the section 1115 waiver are already part of the Medicaid 
portion of the Medicare DSH adjustment calculation because the section 
1115 waiver includes patients who otherwise would have been eligible 
for Medicaid Title XIX.
    General assistance days are days for patients covered under a 
State-only or county-only general assistance program, whether or not 
any payment is available for health care services under the program. 
Charity care days are those days that are utilized by patients who 
cannot afford to pay and whose care is not covered or paid by any 
health insurance program. While we recognize that these days may be 
included in the calculation of a State's Medicaid DSH payments, these 
patients are not Medicaid-eligible under the State plan and are not 
considered Title XIX beneficiaries. Therefore, Pennsylvania, and other 
States that have erroneously included these days in the Medicare 
disproportionate share adjustment calculation in the past, will be 
precluded from including such days in the future. We would like to 
point out that these States were held harmless from adverse action in 
this matter for any cost reporting period beginning prior to December 
31, 1999. We are in the process of preparing a Report to Congress on 
the Medicare DSH adjustment calculation which presents various options 
for calculating the adjustment.
    Comment: One commenter was concerned about the inclusion of days in 
the Medicaid portion of the Medicare DSH adjustment calculation for 
additional States that are approved for expansion waivers in the 
future. Also, this commenter questioned whether or not the expenditures 
related to the expansion waiver days for Medicare DSH would be 
considered in the budget neutrality evaluation prior to approval of the 
expansion waiver application.
    Response: As stated in the January 20, 2000 interim final rule with 
comment period, days utilized under section 1115 expansion waivers will 
be included in the Medicaid portion of the Medicare DSH adjustment 
calculation. As a result, the days utilized under any approved section 
1115 expansion waiver in the future would be included in this 
calculation. However, the State will not be held accountable for the 
expenditures associated with Medicare DSH in the budget neutrality test 
for the section 1115 expansion waiver, as those payments are made from 
the Medicare program, not the Medicaid program.
    Comment: Several commenters were concerned that the inclusion of 
section 1115 expansion waiver days was effective on January 20, 2000, 
rather than on January 1, 2000. These same commenters pointed out that 
the hold harmless provisions of Program Memorandum A-99-62 (December 
1999) concern hospitals whose cost reporting periods begin on or prior 
to December 31, 1999. Therefore, many hospitals may be paid differently 
during different periods of the same cost report.
    Response: We understand that discharges prior to January 20, 2000 
will be handled one way, and discharges as of January 20, 2000 may be 
paid differently. While we can enforce an existing policy for a 
previous time period, we do not believe we can retroactively institute 
new policy.

F. Medicare Geographic Classification Review Board (Secs. 412.256 and 
412.276)

    With the creation of the Medicare Geographic Classification Review 
Board (MGCRB), beginning in FY 1991, under section 1886(d)(10) of the 
Act, hospitals could request reclassification from one geographic 
location to another for the purpose of using the other area's 
standardized amount for inpatient operating costs or the wage index 
value, or both (September 6, 1990 interim final rule with comment 
period (55 FR 36754), June 4, 1991 final rule with comment period (56 
FR 25458), and June 4, 1992 proposed rule (57 FR 23631)). Implementing 
regulations in Subpart L of Part 412 (Sec. 412.230 et seq.) set forth 
criteria and conditions for redesignations from rural to urban, rural 
to rural, or from an urban area to another urban area with special 
rules for SCHs and RRCs.
1. Provisions of Public Law 106-113
    Section 401 of Public Law 106-113 amended section 1886(d)(8) of the 
Act by adding subparagraph (E), which creates a mechanism, separate and 
apart from the MGCRB, permitting an urban hospital to apply to the 
Secretary to be treated as being located in the rural area of the State 
in which the hospital is located. The statute directs the Secretary to 
treat a qualifying hospital as being located in a rural area for 
purposes of provisions under section 1886(d) of the Act. In addition, 
section 401 of Public Law 106-113 went on to provide for such 
reclassifications from urban to rural for purposes of Medicare payments 
to outpatient departments and to hospitals that would qualify to become 
critical access hospitals.
    Regulations implementing section 1886(d)(8)(E) of the Act are 
included in an interim final rule with comment period implementing 
certain provisions of Public Law 106-111 published elsewhere in this 
issue of the Federal Register. The statutory language of section 
1886(d)(8)(E) of the Act does not address the issue of interactions 
between changes in classification under section 1886(d)(8)(E) of the 
Act and the MGCRB reclassification process under section 1886(d)(10) of 
the Act. The Secretary has extremely broad authority under section 
1886(d)(10) of the Act to establish criteria for reclassification under 
the MGCRB process. Section 401 of Public Law 106-113 does not amend 
section 1886(d)(10) of the Act to limit the agency's discretion under 
the provision in any way, nor does section 1886(d)(8)(E) of the Act (as 
added by section 401) refer to section 1886(d)(10) of the Act. However, 
we note that in the Conference Report accompanying Public Law 106-113, 
the language discussing the House bill (H.R. 3075, as passed) indicates 
that: ``[H]ospitals qualifying under this section shall be eligible to 
qualify for all categories and designations available to rural 
hospitals, including sole community, Medicare dependent, critical 
access, and referral centers. Additionally, qualifying hospitals shall 
be eligible to apply to the Medicare Geographic Reclassification Review 
Board for geographic reclassification to another area''.
    In the May 5, 2000 proposed rule, we indicated that we are 
concerned that section 1886(d)(8)(E) might create an opportunity for 
some urban hospitals to take advantage of the MGCRB process by first 
seeking to be reclassified as rural under section 1886(d)(8)(E) (and 
receiving the benefits afforded to rural hospitals) and in turn seek 
reclassification through the MGCRB back to the urban area for purposes 
of their standardized amount and wage index and thus also receive the 
higher payments that might result from being treated as being located 
in an urban area. That is, we were concerned that

[[Page 47088]]

some hospitals might inappropriately seek to be treated as being 
located in a rural area for some purposes and as being located in an 
urban area for other purposes. In light of the Conference Report 
language noted above discussing the House bill and what appears to be 
the potential for inappropriately inconsistent treatment of the same 
hospital on the other hand, in the May 5 proposed rule, we solicited 
public comment on this issue, and indicated that we might impose a 
limitation on such MGCRB reclassifications in this final rule for FY 
2001, if such action appears warranted. We also sought specific 
comments on how such a limitation, if any, should be imposed and 
provided several examples and alternatives.
    We received seven public comments on the interaction of urban to 
rural reclassification under section 1886(d)(8)(E) and reclassification 
under the MGCRB. Several additional comments were received regarding 
specific aspects of implementation of section 1886(d)(8)(E) of the Act 
(added by section 401 of Public Law 106-113). These issues are 
addressed in the interim final rule with comment period, published 
elsewhere in this issue of the Federal Register, that implements 
certain provisions of Public Law 106-113.
    Comment: Several of our commenters urged HCFA to place no 
restrictions on access to MGCRB reclassification for urban hospitals 
that have elected to reclassify to rural under section 1886(d)(8)(E) of 
the Act, citing the Conference Report as evidence of the Congressional 
intent in enacting this provision. These commenters argued that these 
now-rural hospitals should receive the same treatment as geographically 
rural hospitals, noting that current Medicare policy permits 
geographically rural hospitals to reclassify, under the MGCRB, to urban 
areas for their wage index or standard payment amounts, or both. This 
means that geographically rural hospitals can take advantage of both 
rural as well as urban payment amounts. This same option, these 
commenters asserted, should be available to urban hospitals that 
petition for reclassification under section 1886(d)(8)(E).
    Response: Under section 1886(d)(8)(E) of the Act, as added by 
section 401 of the Public Law 106-113, a hospital located in an urban 
area may file an application to be treated as being located in a rural 
area for purposes of payment under section 1886(d) of the Act. The 
issue here is whether a hospital that has been reclassified from an 
urban area to a rural area under section 1886(d)(8)(E) of the Act 
should be permitted to subsequently be reclassified under the MGCRB 
process from the rural area to another area. As discussed below, we 
believe that, for purposes of the MGCRB process, it is appropriate to 
distinguish between hospitals that are reclassified as rural under 
section 1886(d)(8)(E) of the Act and hospitals that are geographically 
rural. However, in light of our understanding of the intent underlying 
the language in the Conference Report for Public Law 106-113, we are 
revising a policy relating to RRCs so that certain urban hospitals that 
are not RRCs under current policy will be granted RRC status and can 
receive special treatment under the MGCRB process.
    Section 1886(d)(8)(E) of the Act, as added by section 401 of Public 
Law 106-113, provides that, for purposes of section 1886(d) of the Act, 
if a hospital files an application and meets applicable criteria, the 
Secretary ``shall treat the hospital as being located in the rural area 
* * * of the State in which the hospital is located.'' As discussed 
above and in the proposed rule, a description of the House bill in the 
Conference Report for Public Law 106-113 indicates that hospitals 
reclassified as rural under section 1886(d)(8)(E) of the Act would be 
``eligible to apply'' to the MGCRB for reclassification under the MGCRB 
process. Significantly, however, the terms of section 1886(d)(8)(E) of 
the Act do not refer to section 1886(d)(10) of the Act (which addresses 
the MGCRB reclassification process), and section 401 of Public Law 106-
113 did not amend section 1886(d)(10) of the Act to limit the agency's 
discretion under that provision in any way. Put another way, section 
1886(d)(8)(E) of the Act does not contain any language indicating that 
hospitals treated as rural under that provision can subsequently be 
treated as urban under section 1886(d)(10) of the Act, and section 
1886(d)(10) does not contain language indicating that the Secretary 
must permit reclassification to an urban area of hospitals treated as 
rural under section 1886(d)(8)(E) of the Act. Thus, under the statute, 
the Secretary has broad discretion to determine when MGCRB 
reclassification is appropriate and, in enacting section 401 of Public 
Law 106-113, Congress did not enact any statutory amendments to limit 
that discretion in any way.
    The statutory language of section 1886(d)(8)(E) of the Act directs 
the Secretary to treat qualifying hospitals, for purposes of section 
1886(d) of the Act, ``as being located in the rural area * * * of the 
State in which the hospital is located''. Section 1886(d) of the Act 
encompasses the hospital wage index and the standardized amount. 
Consistent with the statutory language, we are providing that a 
hospital reclassified as rural under section 1886(d)(8)(E) of the Act 
will be treated as being located in a rural area for purposes of 
section 1886(d) of the Act, and cannot subsequently be reclassified 
under the MGCRB process to an urban area (in order to be treated as 
being located in an urban area for certain purposes under section 
1886(d) of the Act).
    This policy is consistent not only with the statutory language but 
also with the policy considerations underlying the MGCRB process. The 
MGCRB process permits a hospital to be reclassified from one geographic 
area to another if it is significantly disadvantaged by its geographic 
location and would be paid more appropriately if it were reclassified 
to another area. We believe that it would be illogical to permit a 
hospital that applied to be reclassified from urban to rural under 
section 1886(d)(8)(E) of the Act because it was disadvantaged as an 
urban hospital to then utilize a process that was established to enable 
hospitals significantly disadvantaged by their rural or small urban 
location to reclassify to another urban location. If an urban hospital 
applies under section 1886(d)(8)(E) of the Act in order to be treated 
as being located in a rural area, then it would be anomalous at best 
for the urban hospital to subsequently claim that it is significantly 
disadvantaged by the rural status for which it applied and should be 
reclassified to an urban area.
    Furthermore, permitting hospitals the option of seeking rural 
reclassification under section 1886(d)(8)(E) of the Act for certain 
payment advantages, coupled with the ability to pursue a subsequent 
MGCRB reclassification back to an urban area, could have implications 
beyond those originally envisioned under Public Law 106-113. In 
particular, we are concerned about the potential interface between 
rural reclassifications under section 401 and section 407(b)(2) of 
Public Law 106-113, which authorizes a 30-percent expansion in a rural 
hospital's resident full-time equivalent count for purposes of Medicare 
payment for the indirect costs of medical education (IME) under section 
1886(d)(5)(B) of the Act. (Reclassification from urban to rural under 
section 1886(d)(8)(E) of the Act can affect IME payments to a hospital, 
which are made under section 1886(d)(5)(B) of the Act, but not payments 
for the direct costs of GME,

[[Page 47089]]

which are made under section 1886(h) of the Act.)
    Congress clearly intended hospitals that become rural under section 
1886(d)(8)(E) of the Act to receive some benefit as a result. For 
example, some hospitals currently located in very large urban counties 
are in fact fairly small, isolated hospitals. Some of these hospitals 
will now be able to be designated a rural hospital and become eligible 
to be designated a critical access hospital.
    In addition, one of the criteria under section 1886(d)(8)(E) of the 
Act is that the hospital would qualify as an SCH or an RRC if it were 
located in a rural area. An SCH would be eligible to be paid on the 
basis of the higher of its hospital-specific rate or the Federal rate. 
On the other hand, the only benefit under section 1886(d) of the Act 
for an urban hospital to become an RRC would be waiver of the proximity 
requirements that are otherwise applicable under the MGCRB process, as 
set forth in Sec. 412.230(a)(3).
    We agree with the commenters that Congress contemplated that 
hospitals might seek to be reclassified as rural under section 
1886(d)(E) of the Act in order to become RRCs so that the hospital 
would be exempt from the MGCRB proximity requirement and could be 
reclassified by the MGCRB to another urban area. -
    Therefore, we sought a policy approach that would appropriately 
account for our concern that these urban to rural redesignations not be 
utilized inappropriately, but would benefit hospitals seeking to 
reclassify under the MGCRB process by achieving RRC status. We decided 
to reconsider our application of section 4202(b) of Public Law 105-33, 
which states, in part, ``Any hospital classified as a rural referral 
center by the Secretary * * * for FY 1991 shall be classified as such a 
rural referral center for fiscal year 1998 and each subsequent fiscal 
year.'' In the August 29, 1997 final rule with comment period, we 
reinstated RRC status for all hospitals that lost the status due to 
triennial review or MGCRB reclassification, but not to hospitals that 
lost RRC status because they were now urban for all purposes because of 
the OMB designation of their geographic area as urban (62 FR 45999). 
Our rationale at that time for not reinstating RRC status for these 
hospitals was that a hospital had to be rural in order to qualify for 
reinstatement as an RRC, and these hospitals were no longer located in 
rural areas.
    We are aware of several specific hospitals that were RRCs for FY 
1991, but subsequently lost their status when the county in which they 
were located became urban, and have expressed their wish to be 
redesignated as an RRC in order to be eligible to reclassify. We 
believe that the language in the Conference Report accompanying Public 
Law 106-113 was intended to address these hospitals; that is, we 
believe that the intent underlying this language (a description of the 
House bill) was to allow certain urban hospitals to become RRCs (upon 
reclassifying from urban to rural under section 1886(d)(8)(E) of the 
Act) and then reclassify under the MGCRB process (as RRCs, the 
hospitals would be exempt from the MGCRB's proximity requirements). 
Accordingly, in light of section 1886(d)(8)(E) of the Act and the 
language in the Conference Report, we have decided to revisit our 
policy decision on section 4202(b) of Public Law 105-33. Effective as 
of October 1, 2000, hospitals located in what is now an urban area, if 
they were ever an RRC, will be reinstated to RRC status under section 
4202(b) of Public Law 105-33. (In the August 27, 1997 final rule, we 
indicated that we recognized there were hospitals that qualified for 
RRC status after 1991 that lost their status in a subsequent year due 
to MGCRB reclassification. Therefore, we determined that we would 
permit any hospital that qualified as an RRC at any point that had lost 
its RRC status as a result of MGCRB reclassification to be reinstated, 
regardless of whether it was designated an RRC in 1991. Similarly, for 
purposes of this policy, we will permit hospitals that previously 
qualified as an RRC and that lost their status due to OMB redesignation 
of the county in which they are located from rural to urban to be 
reinstated as an RRC.) Such hospitals would benefit from the waiver of 
the MGCRB's proximity requirements, as long as they are designated as 
RRCs at the time the MGCRB acts on their application.
    We are not permitting hospitals redesignated as rural under section 
1886(d)(8)(E) of the Act to be eligible for subsequent reclassification 
by the MGCRB, and are revising the regulations governing MGCRB 
reclassifications (Sec. 412.230) accordingly.
    Comment: Several commenters suggested alternative policy options 
regarding the interaction of the distinct reclassification provisions 
found under sections 1886(d)(8)(E) and 1886(d)(10) of the Act. First, 
it was recommended that HCFA formulate a policy that would allow urban 
hospitals reclassifying to rural under section 1886(d)(8)(E) of the Act 
the same access to urban reclassification under the MGCRB process that 
the law makes available to geographically rural hospitals. One 
commenter posits two possible limitations on MGCRB reclassifications 
for these now-rural hospitals. One possibility is that an urban 
hospital that reclassifies to rural under section 1886(d)(8)(E) of the 
Act be permitted to reclassify only to another MSA, but be precluded 
from reclassifying back to the MSA in which it is situated. Second, the 
commenter suggested that reclassifications under the MGCRB process be 
restricted solely to the wage index for formerly urban hospitals that 
have elected to reclassify to rural under section 1886(d)(8)(E) of the 
Act.
    Response: Although the alternatives suggested by the commenters 
would limit to some degree the possible inappropriate incentives for 
hospitals to become rural under section 1886(d)(8)(E) of the Act, we 
are concerned that they would still allow these hospitals to receive 
inappropriate payments, albeit on a more limited basis. Therefore, we 
have not selected these alternative approaches.
    Comment: One health system argued that preventing an urban hospital 
that has reclassified to rural under section 1886(d)(8)(E) of the Act 
from reclassifying through restricting the MGCRB process would reduce 
the number of hospitals reclassifying as rural under section 
1886(d)(8)(E) of the Act. The commenter further noted that even if we 
permitted an urban hospital that reclassified to a rural area under 
section 1886(d)(8)(E) of the Act to reclassify through the MGCRB 
process, the hospital would suffer financial losses during the period 
between when it was rural for all payment purposes and its 
reclassification back to urban.
    Response: We wish to emphasize that urban to rural reclassification 
under section 1886(d)(8)(E) of the Act is entirely voluntary. Each 
hospital anticipating that it may qualify under this provision should 
determine the impact of Medicare payment policies if it were to 
reclassify. As discussed above, we believe that our policies here are 
consistent with the Secretary's broad authority under section 
1886(d)(10) of the Act, the statutory language in section 1886(d)(8)(E) 
of the Act, as well as our understanding of the intent underlying the 
description of the House bill in the Conference Report.
2. Revised Thresholds Applicable to Rural Hospitals for Wage Index 
Reclassifications
    Existing Secs. 412.230(e)(1)(iii) and (e)(1)(iv) provide that 
hospitals may obtain reclassification to another area for purposes of 
calculating and applying

[[Page 47090]]

the wage index if the hospital's average hourly wages are at least 108 
percent of the average hourly wages in the area where it is physically 
located, and at least 84 percent of the average hourly wages in a 
proximate area to which the hospital seeks reclassification. These 
thresholds apply equally to urban and rural hospitals seeking 
reclassification.
    Historically, the financial performance of rural hospitals under 
the prospective payment system has lagged behind that of urban 
hospitals. Despite an overall increase in recent years of Medicare 
inpatient operating profit margins, some rural hospitals continue to 
struggle financially (as measured by Medicare inpatient operating 
prospective payment system payments minus costs, divided by payments). 
For example, during FY 1997, while the national average hospital margin 
was 15.1 percent, it was 8.9 percent for rural hospitals. In addition, 
approximately one-third of rural hospitals continue to experience 
negative Medicare inpatient margins despite this relatively high 
average margin.
    In response to the lower margins of rural hospitals and the 
potential for a negative impact on beneficiaries' access to care if 
these hospitals were to close, we considered potential administrative 
changes that could help improve payments for rural hospitals. One 
approach in that regard would be to make it easier for rural hospitals 
to reclassify for purposes of receiving a higher wage index. The 
current thresholds for applying for wage index reclassification are 
based on our previous analysis showing the average hospital wage as a 
percentage of its area wage was 96 percent, and one standard deviation 
from that average was equal to 12 percentage points (see the June 4, 
1992 proposed rule (57 FR 23635) and the September 1, 1992 final rule 
(57 FR 39770)). Because rural hospitals' financial performance has 
consistently remained below that of urban hospitals, we now believe 
that rural hospitals merit special dispensation with respect to 
qualifying for reclassification for purposes of the wage index. 
Therefore, we proposed to change those average wage threshold 
percentages so more rural hospitals can be reclassified. Specifically, 
we proposed to lower the upper threshold for rural hospitals to 106 
percent and the lower threshold to 82 percent. The thresholds for urban 
hospitals seeking reclassification for purposes of the wage index would 
be unchanged. We note that rural hospitals comprised nearly 90 percent 
of FY 2000 wage index reclassifications. Under the proposal, beginning 
October 1, 2000, rural hospitals would be able to reclassify for the 
wage index if, among other things, their average hourly wages are at 
least 106 percent of the area in which they are physically located, and 
at least 82 percent of the average hourly wages in the proximate area 
to which it seeks reclassification.
    Although it is difficult to estimate precisely how many additional 
hospitals might qualify by lowering the thresholds because we do not 
have data indicating which hospitals meet all of the other 
reclassification criteria (e.g., proximity), our analysis indicated 
that, if we were to raise the 108 percent threshold to 109 percent, 
approximately 20 rural hospitals would no longer qualify. If the upper 
threshold were to be raised to 110 percent, another 16 hospitals would 
not qualify. On the other hand, increasing the lower threshold from 84 
percent to 85 percent would result in only 2 rural hospitals becoming 
ineligible to reclassify. Only 1 additional hospital would be affected 
by raising the threshold to 86 percent. Based on this analysis, we 
anticipated approximately 50 rural hospitals are likely to benefit from 
the proposed change.
    We believe this proposal, as adopted, achieves an appropriate 
balance between allowing certain hospitals that are currently just 
below the thresholds to become eligible for reclassification, while not 
liberalizing the criteria so much that an excessive number of hospitals 
begin to reclassify. Because these reclassifications are budget 
neutral, nonreclassified hospitals' payments are negatively impacted by 
reclassification.
    We believe there are many factors associated with lower margins 
among rural hospitals. We note that section 410 of Public Law 106-113 
requires the Comptroller General of the United States to ``conduct a 
study of the current laws and regulations for geographic 
reclassification of hospitals to determine whether such 
reclassification is appropriate for purposes of applying wage 
indices.'' In addition, section 411 of Public Law 106-113 requires 
MedPAC to conduct a study on the adequacy and appropriateness of the 
special payment categories and methodologies established for rural 
hospitals. We anticipate that the results of these studies will help 
identify other areas to help improve payments for rural hospitals, 
either through reclassifications or other means.
    Comment: Commenters were unclear about the effective date for the 
change in wage index thresholds for rural hospitals applying for 
reclassification.
    Response: The revised thresholds apply to applications submitted to 
the MGCRB (by September 1, 2000) for reclassification for FY 2002. 
These revised guidelines do not apply to decisions that have already 
been issued by the MGCRB for FY 2001.

G. Payment for Direct Costs of Graduate Medical Education (Sec. 413.86)

1. Background
    Under section 1886(h) of the Act, Medicare pays hospitals for the 
direct costs of graduate medical education (GME). The payments are 
based on the number of residents trained by the hospital. Section 
1886(h) of the Act, as amended by section 4623 of Public Law 105-33, 
caps the number of residents that hospitals may count for direct GME.
    Section 9202 of the Consolidated Omnibus Reconciliation Act (COBRA) 
of 1985 (Pub. L. 99-272) established a methodology for determining 
payments to hospitals for the costs of approved GME programs at section 
1886(h)(2) of the Act. Section 1886(h)(2) of the Act, as implemented in 
regulations at Sec. 413.86(e), sets forth a payment methodology for the 
determination of a hospital-specific, base-period per resident amount 
(PRA) that is calculated by dividing a hospital's allowable costs of 
GME for a base period by its number of residents in the base period. 
The base period is, for most hospitals, the hospital's cost reporting 
period beginning in FY 1984 (that is, the period of October 1, 1983 
through September 30, 1984). The PRA is multiplied by the number of 
full-time equivalent (FTE) residents working in all areas of the 
hospital complex (or non-hospital sites, when applicable), and the 
hospital's Medicare share of total inpatient days to determine 
Medicare's direct GME payments. In addition, as specified in section 
1886(h)(2)(D)(ii) of the Act, for cost reporting periods beginning on 
or after October 1, 1993, through September 30, 1995, each hospital's 
PRA for the previous cost reporting period is not adjusted for any FTE 
residents who are not either a primary care or an obstetrics and 
gynecology resident. As a result, hospitals with both primary care/
obstetrics and gynecology residents and non-primary care residents have 
two separate PRAs for FY 1994 and, thereafter, one for primary care and 
one for non-primary care. (Thus, for purposes of this proposed rule, 
when we refer to a hospital's PRA, this amount is inclusive of any CPI-
U adjustments the hospital may have received since the hospital's base-
year, including any CPI-U adjustments the hospital may have received 
because the hospital trains primary care/non-

[[Page 47091]]

primary care residents, as specified under existing 
Sec. 413.86(e)(3)(ii)).
2. Use of National Average Per Resident Amount Methodology in Computing 
Direct GME Payments
    Section 311 of Public Law 106-113 amended section 1886(h)(2) of the 
Act to establish a methodology for the use of a national average PRA in 
computing direct GME payments for cost reporting periods beginning on 
or after October 1, 2000 and on or before September 30, 2005. 
Generally, section 311 establishes a ``floor'' and a ``ceiling'' based 
on a locality-adjusted, updated, weighted average PRA. Each hospital's 
PRA is compared to the floor and ceiling to determine whether its PRA 
should be revised. Accordingly, in the May 5, 2000 proposed rule, we 
proposed to implement section 311 by setting forth the prescribed 
methodology for calculation of the weighted average PRA. We then 
discussed the proposed steps for determining whether a hospital's PRA 
will be adjusted based upon the proposed calculated weighted average 
PRA, in accordance with the methodology specified under section 311 of 
Public Law 106-113.
    We proposed to calculate the weighted average PRA based upon data 
from hospitals' cost reporting periods ending during FY 1997 (October 
1, 1996 through September 30, 1997), as directed by section 311 of 
Public Law 106-113. We accessed these FY 1997 cost reporting data from 
the Hospital Cost Report Information System (HCRIS) and also obtained 
the necessary data for those hospitals that are not included in HCRIS 
(because they file manual cost reports), from those hospitals' fiscal 
intermediaries. If a hospital had more than one cost reporting period 
ending in FY 1997, we proposed to include all of its cost reports 
ending in FY 1997 in our calculations. However, if a hospital did not 
have a cost reporting period ending in FY 1997, such as a hospital with 
a long cost reporting period beginning in FY 1996 and ending in FY 
1998, the hospital is excluded from our calculations.
    We have slightly revised the weighted average PRA in this final 
rule because of changes in the data that have come to our attention 
since the publication of the proposed rule. In the proposed rule, one 
hospital was excluded from our calculations because it was a new 
teaching hospital with no established PRA (the first year of training 
for a new teaching hospital is paid for by Medicare on a cost basis; a 
PRA is applied in calculating a hospital's payment beginning with the 
hospital's second year of residency training) even though it did have a 
cost reporting period ending during FY 1997. In the weighted average 
calculation in this final rule, we have excluded one more hospital 
because we learned that this hospital was also a new teaching hospital 
in FY 1997 with no established PRA. We also have added one hospital to 
the weighted average calculation because it was inadvertently excluded 
in the calculation in the proposed rule. In addition, we found that the 
data of two hospitals that were used in the weighted average 
calculation in the proposed rule were incorrect, and we have made the 
corrections for the weighted average calculation in this final rule. 
The total number of hospitals that we include in our calculation is 
unchanged from the proposed rule and remains at 1,235. Thirty-five of 
these hospitals are hospitals with more than one cost report.
    In accordance with section 311 of Public Law 106-113, we proposed 
to calculate the weighted average PRA in the following manner:
    Step 1: We determine each hospital's single PRA by adding each 
hospital's primary care and non-primary care PRAs, weighted by its 
respective FTEs, and dividing by the sum of the FTEs for primary care 
and non-primary care residents.
    Step 2: We standardize each hospital's single PRA by dividing it by 
the 1999 geographic adjustment factor (GAF) (which is an average of the 
three geographic index values (weighted by the national average weight 
for the work component, practice expense component, and malpractice 
component)) in accordance with section 1848(e) of the Act and 42 CFR 
414.26 (which is used to adjust physician payments for the different 
wage areas), for the physician fee schedule area in which the hospital 
is located.
    Step 3: We add all the standardized hospital PRAs (as calculated in 
Step 2), each weighted by hospitals' respective FTEs, and then divide 
by the total number of FTEs.
    Based upon this three-step calculation, we determined the weighted 
average PRA (for cost reporting periods ending during FY 1997) to be 
$68,464. (The weighted average PRA calculated for the proposed rule was 
$68,487.)
    For cost reporting periods beginning on or after October 1, 2000 
and on or before September 30, 2005 (FY 2001 through FY 2005), the 
national average PRA is applied using the following three steps:
    Step 1: Update the weighted average PRA for inflation. Under 
section 1886(h)(2) of the Act, as amended by section 311 of Public Law 
106-113, the weighted average PRA is updated by the estimated 
percentage increase in the consumer price index for all urban consumers 
(CPI-U) during the period beginning with the month that represents the 
midpoint of the cost reporting periods ending during FY 1997 and ending 
with the midpoint of the hospital's cost reporting period that begins 
in FY 2001. Therefore, the weighted average standardized PRA ($68,464) 
would be updated by the increase in CPI-U for the period beginning with 
the midpoint of all cost reporting periods for hospitals with cost 
reporting periods ending during FY 1997 (October 1, 1996), and ending 
with the midpoint of the individual hospital's cost reporting period 
that begins during FY 2001.
    For example, Hospital A has a calendar year cost reporting period. 
Thus, for Hospital A, the weighted average PRA is updated from October 
1, 1996 to July 1, 2001, because July 1 is the midpoint of its cost 
reporting period beginning on or after October 1, 2000. Or, for 
example, if Hospital B has a cost reporting period starting October 1, 
the weighted average PRA is updated from October 1, 1996 to April 1, 
2001, the midpoint of the cost reporting period for Hospital B. 
Therefore, the starting point for updating the weighted average PRA is 
the same date for all hospitals (October 1, 1996), but the ending date 
is different because it is dependent upon the cost reporting period for 
each hospital.
    Step 2: Adjust for locality. In accordance with section 1886(h)(2) 
of the Act, as amended by section 311 of Public Law 106-113, once the 
weighted average PRA is updated according to each hospital's cost 
reporting period, the updated weighted average PRA (the national 
average PRA) is further adjusted to calculate a locality-adjusted 
national average PRA for each hospital. This is done by multiplying the 
updated national average PRA by the 1999 GAF (as specified in the 
October 31, 1997 Federal Register (62 FR 59257)) for the fee schedule 
area in which the hospital is located.
    Step 3: Determine possible revisions to the PRA. For cost reporting 
periods beginning on or after October 1, 2000 and on or before 
September 30, 2005, the locality-adjusted national average PRA, as 
calculated in Step 2, is then compared to the hospital's individual 
PRA. Based upon the provisions of section 1886(h)(2) of the Act, as 
amended by section 311 of Public Law 106-113, a hospital's PRA is 
revised, if appropriate, according to the following:

[[Page 47092]]

     Floor--For cost reporting periods beginning in FY 2001, to 
determine which PRAs (primary care and non-primary care separately) are 
below the 70 percent floor, a hospital's locality-adjusted national 
average PRA is multiplied by 70 percent. This resulting number is then 
compared to the hospital's PRA that is updated for inflation to the 
current cost reporting period. If the hospital's PRA would be less than 
70 percent of the locality-adjusted national average PRA, the 
individual PRA is replaced by 70 percent of the locality-adjusted 
national average PRA for that cost reporting period and would be 
updated for inflation in future years by the CPI-U.
    We noted that there may be some hospitals with primary care and 
non-primary care PRAs where both PRAs are replaced by 70 percent of the 
locality-adjusted national average PRA. In these situations, the 
hospital would receive identical PRAs; no distinction in PRAs would be 
made for differences in inflation (because a hospital has both primary 
care and non-primary care PRAs, each of which is updated as described 
in Sec. 413.86(e)(3)(ii)) as of cost reporting periods beginning on or 
after October 1, 2000.
    For example, if the FY 2001 locality-adjusted national average PRA 
for Area X is $100,000, then 70 percent of that amount is $70,000. If, 
in Area X, Hospital A has a primary care FY 2001 PRA of $69,000 and a 
non-primary care FY 2001 PRA of $67,000, both of Hospital A's FY 2001 
PRAs are replaced by the $70,000 floor. Thus, $70,000 is the amount 
that would be used to determine Hospital A's direct GME payments for 
both primary care and non-primary care FTEs in its cost reporting 
period beginning in FY 2001, and the $70,000 PRA would be updated for 
inflation by the CPI-U in subsequent years.
     Ceiling--For cost reporting periods beginning on or after 
October 1, 2000 and on or before September 30, 2005 (FY 2001 through FY 
2005), a ceiling that is equal to 140 percent of each locality-adjusted 
national average PRA is calculated and compared to each individual 
hospital's PRA. If the hospital's PRA is greater than 140 percent of 
the locality-adjusted national average PRA, the PRA would be adjusted 
depending on the fiscal year as follows:
    a. FY 2001. For cost reporting periods beginning in FY 2001, each 
hospital's PRA from the preceding cost reporting period (that is, the 
PRA with which its direct GME payments were made in FY 2000) is 
compared to the FY 2001 locality-adjusted national average PRA. If the 
individual hospital's FY 2000 PRA exceeds 140 percent of the FY 2001 
locality-adjusted national average PRA, the PRA is frozen at the FY 
2000 PRA, and is not updated in FY 2001 by the CPI-U factor, subject to 
the limitation in section IV.G.2.d. of this preamble.
    For example, if the FY 2001 locality-adjusted national average PRA 
``ceiling'' for Area Y is $140,000 (that is, 140 percent of $100,000, 
the hypothetical locality-adjusted national average PRA), and if, in 
this area, Hospital B has a FY 2000 PRA of $140,001, then for FY 2001, 
Hospital B's PRA is frozen at $140,001 and is not updated by the CPI-U 
for FY 2001.
    b. FY 2002. For cost reporting periods beginning in FY 2002, the 
methodology used to calculate each hospital's individual PRA would be 
the same as described in section IV.G.2.a. above for FY 2001. Each 
hospital's PRA from the preceding cost reporting period (that is, the 
PRA with which its direct GME payments were made in FY 2001) is 
compared to the FY 2002 locality-adjusted national average PRA. If the 
individual hospital's FY 2001 PRA exceeds 140 percent of the FY 2002 
locality-adjusted national average PRA, the PRA is frozen at the FY 
2001 PRA, and is not updated in FY 2002 by the CPI-U factor, subject to 
the limitation in section IV.G.2.d. of this preamble.
    c. FY 2003, FY 2004, and FY 2005. For cost reporting periods 
beginning in FY 2003, FY 2004, and FY 2005, if the hospital's PRA for 
the previous cost reporting period is greater than 140 percent of the 
locality-adjusted national average PRA for that same previous cost 
reporting period (for example, for the cost reporting period beginning 
in FY 2003, compare the hospital's PRA from the FY 2002 cost reporting 
period to the locality-adjusted national average PRA from FY 2002), 
then, subject to the limitation in section IV.G.2.d. of this preamble, 
the hospital's PRA is updated in accordance with section 
1886(h)(2)(D)(i) of the Act, except that the CPI-U applied is reduced 
(but not below zero) by 2 percentage points.
    For example, for purposes of Hospital A's FY 2003 cost report, 
Hospital A's PRA for FY 2002 is compared to Hospital A's locality-
adjusted national average PRA ceiling for FY 2002. If, in FY 2002, 
Hospital A's PRA is $100,001 and the FY 2002 locality-adjusted national 
average PRA ceiling is $100,000, then for FY 2003, Hospital A's PRA is 
updated with the FY 2003 CPI-U minus 2 percent. If, in this scenario, 
the CPI-U for FY 2003 is 1.024, Hospital A would update its PRA in FY 
2003 by 1.004 (the CPI-U minus 2 percentage points). However, if the 
CPI-U factor for FY 2003 is 1.01 and subtracting 2 percentage points of 
1.01 yields 0.99, the PRA for FY 2003 would not be updated, and would 
remain $100,001.
    We note that, while the language in section 1886(h)(2)(D)(iv)(I) 
and in section 1886(h)(2)(D)(iv)(II) of the Act (the sections that 
describe the adjustments to PRAs for hospitals that exceed 140 percent 
of the locality-adjusted national average PRA) is very similar, the 
language does differ. Section 1886(h)(2)(D)(iv)(I) of the Act states 
that for a cost reporting period beginning during FY 2000 or FY 2001, 
``if the approved FTE resident amount for a hospital for the preceding 
cost reporting period exceeds 140 percent of the locality-adjusted 
national average per resident amount * * * for that hospital and period 
* * *, the approved FTE resident amount for the period involved shall 
be the same as the approved FTE resident amount for such preceding cost 
reporting period.'' (Emphasis added.) Section 1886(h)(2)(D)(iv)(II) of 
the Act states that for a cost reporting period beginning during FY 
2003, FY 2004, or FY 2005, ``if the approved FTE resident amount for a 
hospital for the preceding cost reporting period exceeds 140 percent of 
the locality-adjusted national average per resident amount * * * for 
that hospital and preceding period, the approved FTE resident amount 
for the period involved shall be updated * * *.'' (Emphasis added.) 
Accordingly, for FYs 2001 and 2002, a hospital's PRA from the previous 
cost reporting period is compared to the locality-adjusted national 
average PRA of the current cost reporting period. For FY 2003, FY 2004, 
or FY 2005, a hospital's PRA from the previous cost reporting period is 
compared to the locality-adjusted national average PRA from the 
previous cost reporting period.
    d. General rule for hospitals that exceed the ceiling. For cost 
reporting periods beginning in FY 2001 through FY 2005, if a hospital's 
PRA exceeds 140 percent of the locality-adjusted national average PRA 
and it is adjusted under any of the above criteria, the current year 
PRA cannot be reduced below 140 percent of the locality-adjusted 
national average PRA.
    For example, to determine the PRA of Hospital A, in FY 2003, 
Hospital A had a FY 2002 PRA of $100,001 and the FY 2002 locality-
adjusted national average PRA ceiling is $100,000. For FY 2003, 
applying an update of the CPI-U factor minus 2 percentage points (for 
example, 1.024 - .02 = 1.004 would yield an updated PRA of $100,401) 
while the locality-adjusted national average PRA (before calculation of 
the ceiling) is

[[Page 47093]]

updated for FY 2003 with the full CPI-U factor (1.024) so that the 
ceiling of $100,000 is now increased to $102,400 (that is, $100,000 x 
1.024 = $102,400). Therefore, applying the adjustment would result in a 
PRA of $100,401, which is under the ceiling of $102,400 for FY 2003. In 
this situation, for purposes of the FY 2003 cost report, Hospital A's 
PRA equals $102,400.
    We note that if the hospital's PRA does not exceed 140 percent of 
the locality-adjusted national average PRA, the PRA is updated by the 
CPI-U for the respective fiscal year. If a hospital's PRA is updated by 
the CPI-U because it is less than 140 percent of the locality-adjusted 
national average PRA for a respective fiscal year, and once updated, 
the PRA exceeds the 140 percent ceiling for the respective fiscal year, 
the updated PRA would still be used to calculate the hospital's direct 
GME payments. Whether a hospital's PRA exceeds the ceiling is 
determined before the application of the update factors; if a 
hospital's PRA exceeds the ceiling only because of the application of 
the update factors, the hospital's PRA would retain the CPI-U factors.
    For example, if, in FY 2001, the locality-adjusted national average 
PRA ceiling for Area Y is $140,000, and if, in this area, Hospital B 
has a FY 2000 PRA of $139,000, then for FY 2001, Hospital B's PRA is 
updated for inflation for FY 2001 because the PRA is below the ceiling. 
However, once the update factors are applied, Hospital B's PRA is now 
$142,000 (that is, above the $140,000 ceiling). In this scenario, 
Hospital B's inflated PRA would be used to calculate its direct GME 
payments because Hospital B has only exceeded the ceiling after the 
application of the inflation factors.
     PRAs greater than or equal to the floor and less than or 
equal to the ceiling. For cost reporting periods beginning in FY 2001 
through FY 2005, if a hospital's PRA is greater than or equal to 70 
percent and less than or equal to 140 percent of the locality-adjusted 
national average PRA, the hospital's PRA is updated using the existing 
methodology specified in Sec. 413.86(e)(3)(i).
    For cost reporting periods beginning in FY 2006 and thereafter, a 
hospital's PRA for its preceding cost reporting period would be updated 
using the existing methodology specified in Sec. 413.86(e)(3)(i).
    We proposed to redesignate the existing Sec. 413.86(e)(4) as 
Sec. 413.86(e)(5) and add the rules implementing section 1886(h)(2) of 
the Act, as amended by section 311 of Public Law 106-113, in the 
vacated Sec. 413.86(e)(4). Because we proposed to apply the methodology 
for updating the PRA for inflation that is described in existing 
Sec. 413.86(e)(3), we also proposed to amend Sec. 413.86(e)(3) to make 
those rules applicable to the cost reporting periods (FY 2001 through 
FY 2005) specified in the proposed Sec. 413.86(e)(4), and in subsequent 
cost reporting periods.
    In addition, we proposed to make a conforming change by amending 
proposed redesignated Sec. 413.86(e)(5) to account for situations in 
which hospitals do not have a 1984 base period and establish a PRA in a 
cost reporting period beginning on or after October 1, 2000. We believe 
there are two factors to consider when a new teaching hospital 
establishes its PRA under proposed redesignated Sec. 413.86(e)(5). 
First, for example, when calculating the weighted mean value of PRAs of 
hospitals located in the same geographic area or the weighted mean of 
the PRAs in the hospital's census region (as specified in 
Sec. 412.62(f)(1)(i)), the hospitals' PRAs used to calculate the 
weighted mean values are subject to the provisions of proposed 
Sec. 413.86(e)(4), the national average PRA methodology. Second, the 
resulting PRA established under proposed redesignated Sec. 413.86(e)(5) 
also would be subject to the national average PRA methodology specified 
in proposed Sec. 413.86(e)(4).
    We also proposed to make a clarifying amendment to the proposed 
redesignated Sec. 413.86(e)(5)(i)(B) to account for an oversight in the 
regulations text when we amended our regulations on August 29, 1997 (62 
FR 46004). In the preamble of the August 29, 1997 final rule, in 
setting forth our policy on the determination of per resident amounts 
for hospitals that did not have residents in the 1984 GME base period, 
we stated that we would use a ``weighted'' average of the per resident 
amounts for hospitals located in the same geographic area. However, we 
inadvertently did not include a specific reference to ``weighted'' in 
the language of the regulation text. Therefore, we are proposing to 
specify that the ``weighted mean value'' of per resident amounts of 
hospitals located in the same geographic wage area is used for 
determining the base period for certain hospitals for cost reporting 
periods beginning in the same fiscal years.
    We received two public comments on the GME provisions included in 
the proposed rule.
    Comment: One commenter supported the implementation of section 311 
of Public Law 106-113. Another commenter suggested that there is 
ambiguity in our volunteer physician policy regarding the rotation of 
residents to nonhospital sites. The commenter requested that we 
explicitly state that, so long as the other criteria under the 
nonhospital policy are met, hospitals may receive direct GME payments 
for residents training in nonhospital sites when the hospitals do not 
incur supervisory costs, if the written agreement, which is signed by 
both the hospital and nonhospital site, indicates that the supervisory 
physician has agreed to volunteer his or her time in supervising 
activities.
    Response: We did not propose to make any revisions to our policy 
regarding training residents in nonhospital sites. Any changes in 
policy regarding an adjustment for training at nonhospital sites would 
need to go through the notice and comment procedures. We will consider 
the merits of the commenter's recommendation for a change in policy for 
a future proposed rulemaking.

H. Outliers: Miscellaneous Change

    Under the provisions of section 1886(d)(5)(A)(i) of the Act, the 
Secretary does not pay for day outliers for discharges from hospitals 
paid under the prospective payment systems that occur after September 
30, 1997. In the May 5 proposed rule, we proposed to make a conforming 
change to Sec. 412.2(a) by deleting the reference to an additional 
payment for both inpatient operating and inpatient capital-related 
costs for cases that have an atypically long length of stay. We did not 
receive any comments on this proposal and are adopting the change as 
final.

V. The Prospective Payment System for Capital-Related Costs: The 
Last Year of the Transition Period

    Since FY 2001 is the last year of the 10-year transition period 
established to phase in the prospective payment system for hospital 
capital-related costs, for the readers' benefit, we are providing a 
summary of the statutory basis for the system, the development and 
evolution of the system, the methodology used to determine capital-
related payments to hospitals, and the policy for providing exceptions 
payments during the transition period.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' Under 
the statute, the Secretary has broad authority in establishing and 
implementing the capital prospective payment system. We initially 
implemented the capital prospective payment system in the August 30, 
1991 final rule (56 FR 43409), in which we

[[Page 47094]]

established a 10-year transition period to change the payment 
methodology for Medicare inpatient capital-related costs from a 
reasonable cost-based methodology to a prospective methodology (based 
fully on the Federal rate).
    The 10-year transition period established to phase in the 
prospective payment system for capital-related costs is effective for 
discharges occurring on or after October 1, 1991 (FY 1992) through 
discharges occurring on or before September 30, 2001. For FY 2001, 
hospitals paid under the fully prospective transition period 
methodology will be paid 100 percent of the Federal rate and zero 
percent of their hospital-specific rate, while hospitals paid under the 
hold-harmless transition period methodology will be paid 85 percent of 
their allowable old capital costs (100 percent for sole community 
hospitals) plus a payment for new capital costs based on the Federal 
rate. Fiscal year 2001 is the final year of the capital transition 
period and, therefore, the last fiscal year for which a portion of a 
hold-harmless hospital's capital costs per discharge will be paid on a 
cost basis (except for new hospitals). In the proposed rule, we stated 
that since fully prospective hospitals will be paid based on 100 
percent of the Federal rate and zero percent of their hospital-specific 
rate, we did not determine a proposed hospital-specific rate update for 
FY 2001 in section IV of the Addendum of the proposed rule. However, it 
has come to our attention that an update to the hospital-specific rate 
is necessary on October 1, 2000, for hospitals with cost reporting 
periods that do not coincide with the Federal fiscal year. Therefore, 
the hospital-specific rate update for FY 2001 is shown in section IV of 
the Addendum of this final rule. For cost reporting periods beginning 
on or after October 1, 2001 (FY 2002), payment for capital-related 
costs will be determined based solely on the capital standard Federal 
rate. Hospitals that were defined as ``new'' for the purposes of 
capital payments during the transition period (Sec. 412.30(b)) will 
continue to be paid according to the applicable payment methodology 
outlined in Sec. 412.324.
    Generally, during the transition period, inpatient capital-related 
costs are paid on a per discharge basis, and the amount of payment 
depends on the relationship between the hospital-specific rate and the 
Federal rate during the hospital's base year. A hospital with a base 
year hospital-specific rate lower than the Federal rate is paid under 
the fully prospective payment methodology during the transition period. 
This method is based on a dynamic blend percentage of the hospital's 
hospital-specific rate and the applicable Federal rate for each year 
during the transition period. A hospital with a base period hospital-
specific rate greater than the Federal rate is paid under the hold-
harmless payment methodology during the transition period. A hospital 
paid under the hold-harmless payment methodology receives the higher of 
(1) a blended payment of 85 percent of reasonable cost for old capital 
plus an amount for new capital based on a portion of the Federal rate 
or (2) a payment based on 100 percent of the adjusted Federal rate. The 
amount recognized as old capital is generally limited to the allowable 
Medicare capital-related costs that were in use for patient care as of 
December 31, 1990. Under limited circumstances, capital-related costs 
for assets obligated as of December 31, 1990, but put in use for 
patient care after December 31, 1990, also may be recognized as old 
capital if certain conditions are met. These costs are known as 
obligated capital costs. New capital costs are generally defined as 
allowable Medicare capital-related costs for assets put in use for 
patient care after December 31, 1990. Beginning in FY 2001, at the 
conclusion of the transition period for the capital prospective payment 
system, capital payments will be based solely on the Federal rate for 
the vast majority of hospitals.
    During the transition period, new hospitals are exempt from the 
prospective payment system for capital-related costs for their first 2 
years of operation and are paid 85 percent of their reasonable cost 
during that period. The hospital's first 12-month cost reporting period 
(or combination of cost reporting periods covering at least 12 months) 
beginning at least 1 year after the hospital accepts its first patient 
serves as the hospital's base period. Those base year costs qualify as 
old capital and are used to establish its hospital-specific rate used 
to determine its payment methodology under the capital prospective 
payment system. Effective with the third year of operation, the 
hospital is paid under either the fully prospective methodology or the 
hold-harmless methodology. If the fully prospective methodology is 
applicable, the hospital is paid using the appropriate transition blend 
of its hospital-specific rate and the Federal rate for that fiscal year 
until the conclusion of the transition period, at which time the 
hospital will be paid based on 100 percent of the Federal rate. If the 
hold-harmless methodology is applicable, the hospital will receive 
hold-harmless payment for assets in use during the base period for 8 
years, which may extend beyond the transition period.
    The basic methodology for determining capital prospective payments 
based on the Federal rate is set forth in Sec. 412.312. For the purpose 
of calculating payments for each discharge, the standard Federal rate 
is adjusted as follows:

(Standard Federal Rate)  x  (DRG Weight)  x  (GAF)  x  (Large Urban 
Add-on, if applicable)  x 
(COLA Adjustment for Hospitals Located in Alaska and Hawaii)  x  (1 + 
DSH Adjustment Factor + IME Adjustment Factor).

    Hospitals may also receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. Section 
412.312(c) provides for a single set of thresholds to identify outlier 
cases for both inpatient operating and inpatient capital-related 
payments.
    During the capital prospective payment system transition period, a 
hospital may also receive an additional payment under an exceptions 
process if its total inpatient capital-related payments are less than a 
minimum percentage of its allowable Medicare inpatient capital-related 
costs for qualifying classes of hospitals. For up to 10 years after the 
conclusion of the transition period, a hospital may also receive an 
additional payment under a special exceptions process if certain 
qualifying criteria are met and its total inpatient capital-related 
payments are less than the 70 percent minimum percentage of its 
allowable Medicare inpatient capital-related costs.
    In accordance with section 1886(d)(9)(A) of the Act, under the 
prospective payment system for inpatient operating costs, hospitals 
located in Puerto Rico are paid for operating costs under a special 
payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a 
blended rate that consisted of 75 percent of the applicable 
standardized amount specific to Puerto Rico hospitals and 25 percent of 
the applicable national average standardized amount. However, effective 
October 1, 1997, under amendments to the Act enacted by section 4406 of 
Public Law 105-33, operating payments to hospitals in Puerto Rico are 
based on a blend of 50 percent of the applicable standardized amount 
specific to Puerto Rico hospitals and 50 percent of the applicable 
national average standardized amount. In conjunction with this change 
to the

[[Page 47095]]

operating blend percentage, effective with discharges on or after 
October 1, 1997, we compute capital payments to hospitals in Puerto 
Rico based on a blend of 50 percent of the Puerto Rico rate and 50 
percent of the Federal rate.
    Section 412.374 provides for the use of this blended payment system 
for payments to Puerto Rico hospitals under the prospective payment 
system for inpatient capital-related costs. Accordingly, for capital-
related costs, we compute a separate payment rate specific to Puerto 
Rico hospitals using the same methodology used to compute the national 
Federal rate for capital-related costs.
    In the August 30, 1991 final rule, we established a capital 
exceptions policy, which provides for exceptions payments during the 
transition period (Sec. 412.348). Section 412.348 provides that, during 
the transition period, a hospital may receive additional payment under 
an exceptions process when its regular payments are less than a minimum 
percentage, established by class of hospital, of the hospital's 
reasonable capital-related costs. The amount of the exceptions payment 
is the difference between the hospital's minimum payment level and the 
payments the hospital would receive under the capital prospective 
payment system in the absence of an exceptions payment. The comparison 
is made on a cumulative basis for all cost reporting periods during 
which the hospital is subject to the capital prospective payment 
transition rules. The minimum payment percentages for regular capital 
exceptions payments by class of hospitals for FY 2001 are:
     For sole community hospitals, 90 percent;
     For urban hospitals with at least 100 beds that have a 
disproportionate share patient percentage of at least 20.2 percent or 
that received more than 30 percent of their net inpatient care revenues 
from State or local governments for indigent care, 80 percent;
     For all other hospitals, 70 percent of the hospital's 
reasonable inpatient capital-related costs.
    The provision for regular exceptions payments will expire at the 
end of the transition period. Payments will no longer be adjusted to 
reflect regular exceptions payments at Sec. 412.348. Accordingly, for 
cost reporting periods beginning on or after October 1, 2001, hospitals 
will receive only the per discharge payment based on the Federal rate 
for capital costs (plus any applicable DSH or IME and outlier 
adjustments) unless a hospital qualifies for a special exceptions 
payment under Sec. 412.348(g).
    Under the special exceptions provision at Sec. 412.348(g), an 
additional payment may be made for up to 10 years beyond the end of the 
capital prospective payment system transition period for eligible 
hospitals. The capital special exceptions process is budget neutral; 
that is, even after the end of the capital prospective payment system 
transition, we will continue to make an adjustment to the capital 
Federal rate in a budget neutral manner to pay for exceptions, as long 
as an exceptions policy is in force. Currently, the limited special 
exceptions policy will allow for exceptions payments for 10 years 
beyond the conclusion of the 10-year capital transition period or 
through September 30, 2011.

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

A. Limits on and Adjustments to the Target Amounts for Excluded 
Hospitals and Units (Secs. 413.40(b)(4) and (g))

1. Updated Caps
    Section 1886(b)(3) of the Act (as amended by section 4414 of Public 
Law 105-33) establishes caps on the target amounts for certain existing 
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.
    A discussion of how the caps on the target amounts were calculated 
can be found in the August 29, 1997 final rule with comment period (62 
FR 46018); the May 12, 1998 final rule (63 FR 26344); the July 31, 1998 
final rule (63 FR 41000), and the July 30, 1999 final rule (64 FR 
41529). For purposes of calculating the caps on existing facilities, 
the statute required us to calculate the national 75th percentile of 
the target amounts for each class of hospital (psychiatric, 
rehabilitation, or long-term care) for cost reporting periods ending 
during FY 1996. Under section 1886(b)(3)(H)(iii) of the Act, the 
resulting amounts are updated by the market basket percentage to the 
applicable fiscal year. 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, explicitly 
instructed the Secretary to provide an appropriate adjustment to take 
into account area differences in 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 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 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, effective for cost reporting periods beginning on or after 
October 1, 1999, through September 30, 2002. Elsewhere in this issue of 
the Federal Register we are publishing an interim final rule with 
comment period implementing this provision for cost reporting periods 
beginning on or after October 1, 1999 and before October 1, 2000. This 
final rule addresses the wage adjusted caps on the target amounts for 
excluded hospitals and units for cost reporting periods beginning on or 
after October 1, 2000.
    For purposes of calculating the caps on the target amounts, 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.'' 
Furthermore, section 1886(b)(3)(H)(iii), 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 the 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 increase through FY 2000. For 
cost reporting periods beginning during FY 2001 and FY 2002, we update 
the previous year's wage-neutralized national 75th percentile target 
amount for each class of hospital by the applicable market basket 
percentage increase. In determining the wage-neutralized 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 Pub. L. 106-113) to 
determine the appropriate wage

[[Page 47096]]

adjustment, we 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, which is described in detail in the interim final rule 
with comment period that implements the provisions of section 121 
Public Law 106-113 that is published elsewhere in this issue of the 
Federal Register.
    As stated in the May 5, 2000 proposed rule, we wage neutralized 
each hospital's FY 1996 target amount to account for area differences 
in wage-related costs. For each class of hospitals, we 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 PPS-excluded hospital 
costs was revised in connection with other revisions to the PPS-
excluded hospital market basket published in the August 29, 1997 final 
rule (62 FR 45996). Based on the relative weights of the labor cost 
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 
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, as we stated in the May 5 proposed rule, we wage neutralize 
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 
1998 hospital wage index under the hospital inpatient prospective 
payment system (see Sec. 412.63), as shown in Tables 4A and 4B of the 
August 29, 1997 final rule (62 FR 46070). 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. Then, the wage-neutralized 
target amounts for hospitals within each class were arrayed in order to 
determine the national wage-neutralized 75th percentile caps on the 
target amounts for each class of hospital.
    As stated in the May 5 proposed rule, this methodology for wage-
neutralizing the national 75th percentile of the target amounts 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, but we 
believe that the acute care hospital wage data utilized reflect area 
differences in wage-related costs. Moreover, in light of the short 
timeframe for implementing this provision, we used the wage data for 
acute hospitals since they are the most feasible data source. Reliable 
wage data for excluded hospitals and units are not available.
    Comment: One commenter objected to our use of the FY 1998 hospital 
wage index, which is based on FY 1994 wage data from Medicare cost 
reports, to wage neutralize the labor-related portion of each 
hospital's FY 1996 target amount in establishing area wage adjustments 
to the caps on the target amounts for long-term care hospitals. The 
commenter favored using the most current wage data (the FY 2001 wage 
index, based on FY 1997 Medicare cost report data) to estimate wage 
adjustments to the caps on the target amounts for excluded hospitals 
and units.
    Response: We reconsidered our methodology for wage-neutralizing 
each hospital's FY 1996 target amount used in determining the wage-
neutralized national 75th percentile target amount for each class of 
hospital. In the May 5, 2000 proposed rule, the labor-related portion 
of each hospital's FY 1996 target amount was wage neutralized by 
dividing it by the FY 1998 hospital inpatient prospective payment 
system wage index. The FY 1998 hospital inpatient prospective payment 
system wage index was calculated using FY 1994 wage data due to the 4-
year lag time in receiving the data used in the annual calculation of 
the wage index. We have reconsidered this methodology and believe it is 
appropriate to wage neutralize the labor-related portion of each 
hospital's FY 1996 target amount by the FY 2000 hospital inpatient 
prospective payment system wage index. The FY 2000 wage index is the 
most current wage data available to wage neutralize each hospital's FY 
1996 target amount, and the FY 2000 wage index was calculated based on 
FY 1996 wage data and therefore reflects area differences in wage-
related FY 1996 costs. The FY 2001 wage index will be applied to the 
wage-related portion of the cap to determine each hospital's FY 2001 
wage-adjusted cap on its target amount.
    In the May 5, 2000 proposed rule (65 FR 26314), we proposed the 
labor-related and nonlabor-related shares of the wage-neutralized 
national 75th percentile caps on the target amounts for FY 2001 as 
follows:

------------------------------------------------------------------------
                                                  FY 2001      FY 2001
                                                  proposed     proposed
      Class of excluded hospital or unit           labor-     nonlabor-
                                                  related      related
                                                   share        share
------------------------------------------------------------------------
Psychiatric...................................       $8,106       $3,223
Rehabilitation................................       15,108        6,007
Long-Term Care................................       29,312       11,654
------------------------------------------------------------------------

    Taking into account the national 75th percentile of the target 
amounts for cost reporting periods ending during FY 1996 (wage-
neutralized using the FY 2000 acute care wage index), the wage 
adjustment provided for under Public Law 106-113, and the applicable 
update factor based on the market basket percentage increase to FY 
2001, we are establishing the labor-related and nonlabor-related 
portions of the caps on the target amounts for FY 2001 using the 
methodology outlined above as follows:.

------------------------------------------------------------------------
                                                  FY 2001      FY 2001
                                                   labor-     nonlabor-
      Class of excluded hospital or unit          related      related
                                                   share        share
------------------------------------------------------------------------
Psychiatric...................................       $8,131       $3,233
Rehabilitation................................       15,164        6,029
Long-Term Care................................       29,284       11,642
------------------------------------------------------------------------

    These caps on the target amounts for FY 2001 reflect the use of the 
FY 2000 wage index in determining the FY 1996 national wage-neutralized 
75th percentile target amounts, updated to FY 2001 by the applicable 
market basket percentage increase. The market basket percentage 
increase for excluded hospitals and units for FY 2001 is currently 
forecast at 3.4 percent. At the time the proposed rule was issued, the 
market basket increase was forecast at 3.1 percent.
    Finally, the cap on a hospital's FY 2001 target amount per 
discharge is determined by adding the hospital's nonlabor-related 
portion of the national 75th percentile target amount to its wage-
adjusted labor-related portion of the national 75th percentile target 
amount. 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 percentile target amount for the 
hospital's class by the hospital's applicable wage index. For FY 2001, 
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, 2000 and ending on 
or before September 30, 2001 as shown in Tables 4A and 4B of this final 
rule, a hospital's applicable wage index corresponds to the area in 
which the hospital or unit is physically

[[Page 47097]]

located (MSA or rural area) and is not subject to prospective payment 
system hospital reclassification under section 1886(d)(10) of the Act.
    Comment: One commenter requested that HCFA provide long-term care 
hospitals the opportunity to redesignate to another rural or urban area 
under the standards outlined in Sec. 412.230 for prospective payment 
system hospitals. The commenter believed that section 121 of Public Law 
106-113 directs HCFA to make accurate area wage adjustments for 
excluded hospitals and that, in the interest of equity, HCFA should 
afford long-term care hospitals a process analogous to the MGCRB so 
that these providers would be able to redesignate their wage area to a 
rural or urban area. Additionally, the commenter recommended that long-
term care hospitals located in ``close proximity'' (as defined in 
Sec. 412.230(b)) to a prospective payment system hospital that has been 
allowed to reclassify its area wage index, should also be allowed to 
reclassify to that wage area.
    Response: Section 121 of Public Law 106-113 directs the Secretary 
to make ``an appropriate adjustment'' to account for area wage-related 
differences. As we stated in the May 5 proposed rule, long-term care 
hospitals and psychiatric and rehabilitation hospitals and units which 
are exempt from the prospective payment system are not subject to 
prospective payment system hospital reclassification under section 
1886(d)(10)(A) of the Act. This section establishes the MGCRB for the 
purpose of evaluating applications from short-term acute care 
providers. There is no equivalent statutory provision for HCFA to 
develop an alternative board for long-term care hospitals or for 
psychiatric and rehabilitation hospitals and units, or both.
    While it would be feasible to allow units physically located in PPS 
hospitals that have been reclassified by the MGCRB to use the wage-
index for the area to which that hospital has been reclassified, at the 
present time there is no process in place to make reclassification 
determinations for excluded free-standing providers. The wage-
adjustment to the cap on the target amounts for existing excluded 
providers is only effective through FY 2002 and there is not enough 
time to develop and implement a process to determine reclassification 
for free-standing excluded providers. There are approximately 1000 
free-standing excluded facilities (529 psychiatric, 196 rehabilitation 
and 242 long-term care). Therefore, in the interest of equity, we 
believe that in determining a hospital's wage-adjusted cap on its 
target amount, it is appropriate for excluded hospitals and units to 
use the wage index associated with the area in which it is physically 
located (MSA or rural area) and prospective payment system 
reclassification under section 1886(d)(10) of the Act is not 
applicable. This policy is consistent with the determination of the 
wage-adjusted caps on the target amounts for new excluded hospitals and 
units, which are not subject to reclassification when applying the wage 
index in the calculation of the cap. Additionally, skilled-nursing 
facility and ambulatory surgical center payment systems both use the 
acute-care inpatient hospital PPS wage index and do not allow for 
reclassifications since there is no analogous determination process to 
the MGCRB, which only has authority over PPS hospitals under section 
1886(d)(10)(a) of the Act. Therefore, consistent with these policies 
regarding the application of the acute care wage index to other types 
of facilities, we are not implementing the commenter's recommendation 
to permit reclassification of an excluded hospital's or unit's wage 
index in determining the wage-adjusted cap on their target amount under 
Sec. 41340(c)(4)(iii).
    Comment: One commenter asserted that this is the first time HCFA 
has applied area wage adjustments to excluded hospitals and units. The 
commenter suggested that HCFA assess whether long-term care hospitals 
have a different mix of occupations compared to short-term acute care 
facilities and recommended that HCFA propose an appropriate adjustment 
to the acute care wage index to account for the relative wage-related 
costs for the occupational categories of long-term care hospitals or 
establish a long-term care hospital specific area wage index. The 
commenter noted that the acute care wage index includes some wage data 
derived from hospital-based psychiatric and rehabilitation units, but 
contains no data from long-term care hospitals. Also, the commenter 
argued that HCFA did not meet the statutory requirements of section 
1886(b)(3)(H) of the Act as amended by section 121 of Public Law 106-
113, which states that the Secretary shall provide for an appropriate 
adjustment ``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'' (emphasis added), since 
the acute care wage index data are based on data exclusively from 
short-term acute care hospitals.
    Response: As stated in the May 5, 2000 proposed rule (65 FR 26314), 
we recognize that wages may differ for prospective payment system acute 
care hospitals and excluded hospitals, but we believe the acute care 
wage index data accurately reflects area differences in wage-related 
costs and they are the most feasible data source. For this reason the 
acute care hospital wage index is used for the Medicare prospective 
payment systems for outpatient facilities, skilled nursing facilities, 
and home health facilities.
    Currently, there is hospital specific wage data available to 
develop a wage index based on data from excluded hospitals (or, as the 
commenter specifically requested, a long-term care hospital exclusive 
wage index). We may consider exploring the feasibility of developing a 
wage index for excluded hospitals and units in the future. However, the 
commenter has not presented any evidence that the acute care wage index 
inappropriately reflects the differences in wage-related costs for 
excluded hospital and units. We believe that the acute care wage index 
provides for an appropriate adjustment to account for wage-related 
costs in determining a hospital's wage-adjusted cap on its target 
amount.
    In the interim final rule with comment period implementing certain 
provisions of Public Law 106-113 that we are publishing elsewhere in 
this issue of the Federal Register we revised Secs. 413.40(c)(4)(i) and 
(c)(4)(ii) to incorporate the changes in the formula used to determine 
the limitation on the target amounts for excluded hospitals and units, 
as provided for by section 121 of Public Law 106-113.
    In response to the May 5, 2000 proposed rule, we received two 
public comments relating to establishment of the wage-adjusted caps on 
the target amounts for excluded hospitals and units.
    Comment: One commenter believed that the provision for a wage-
adjustment to the national 75th percentile target amount cap placed on 
hospitals excluded from the prospective payment system provided HCFA 
with the broad authority to transition to a wage-adjusted cap over more 
than one period. The commenter suggested that the wage-adjusted caps on 
target amounts be phased-in over a period of time in a manner similar 
to the removal of teaching physician costs from the wage index 
calculation.
    Response: Public Law 106-113, which was enacted November 29, 1999, 
directed us to retroactively provide for

[[Page 47098]]

a wage adjustment for the national 75th percentile target amounts for 
psychiatric and rehabilitation hospitals and units and for long-term 
care hospitals as of October 1, 1999. The purpose of the wage-
adjustment to the 75th percentile cap on target amounts for excluded 
providers is to account for area differences in wage-related costs. We 
believe that the intent of this provision is to account for these wage 
differences beginning with cost reporting periods starting during FY 
2000. Phasing-in the wage-adjustment to the caps on the target amounts 
would mitigate the purpose of the wage-adjustment because hospitals 
located in areas with wage index values greater than one would not 
receive the full intended benefit of the provision. Additionally, as we 
stated in the interim final rule with comment that we are publishing 
elsewhere in this issue of the Federal Register we estimate that most 
providers (93.3 percent of psychiatric hospitals and units, 97.5 
percent of rehabilitation hospitals and units, and 93.5 percent of 
long-term care hospitals) are either not effected or are positively 
effected by the wage adjustment to the caps on the target amounts. 
Therefore, we believe it is inappropriate to phase in the wage-
adjustment to the caps on the target amounts as the commenter 
recommended.
    Additionally, the removal of the teaching physician costs on the 
wage index is set for a 5-year phase-out, while the wage-adjusted caps 
on national target amounts are only legislated to remain in effect from 
FY 2000 to FY 2002. As such, the remaining period of time for which 
these caps are in effect is too brief to warrant the administrative 
resources that would be involved in such a transition. The 5-year 
phase-out of the removal of teaching costs from the wage index was 
implemented based on the recommendation of an industry group made up of 
representatives from national and state hospital associations. While 
one commenter advocated the phase-in of the wage-adjustment to the caps 
on the target amounts, another commenter supported the complete 
implementation of the wage-adjustment to the caps on the target amounts 
effective FY 2000, since this adjustment reflects the higher cost 
incurred by providers located in areas with higher than the national 
average of labor expenditures.
    Comment: One commenter commended the wage-adjustment to the caps on 
the target amounts for psychiatric and rehabilitation hospital and 
units and long-term care hospitals mandated by section 121 of Public 
Law 106-113. The commenter supported the application of the acute care 
wage index to the caps on the national target amounts since the wage 
adjustment aids providers who incur costs higher than the national 
average simply because they are located in marketplaces with higher 
labor prices. The commenter also noted that the target amounts for 
existing hospitals are now in line with the target amounts for new 
hospitals, which have been wage adjusted since their implementation in 
FY 1998 by Public Law 105-33. The commenter further suggested that, if 
the three classes of hospitals have not been transitioned to 
prospective payment systems by FY 2002, the wage adjustment to the 
national target amounts for both new and existing providers should 
remain in place.
    Response: We agree with the comment and we believe that our 
implementation of the wage adjustment is consistent with the statutory 
provision in Public Law 106-113. However, regardless of whether the 
prospective payment systems for these classes of providers have been 
implemented, we will only be in a position to continue the use of the 
wage-adjusted caps on the target amounts beyond FY 2002 if Congress 
directs us to do so through additional legislation.
2. Updated Caps for New Excluded Hospitals and Units (Sec. 413.40(f))
    Section 1886(b)(7) of the Act establishes a payment methodology for 
new psychiatric hospitals and units, rehabilitation hospitals and 
units, and long-term care hospitals. Under the statutory methodology, 
for a hospital that is within a class of hospitals specified in the 
statute and that first receives payment as a hospital or unit excluded 
from the prospective payment system on or after October 1, 1997, the 
amount of payment will be determined as follows:
    For the first two 12-month cost reporting periods, the amount of 
payment is the lesser of (1) the operating costs per case; or (2) 110 
percent of the national median of target amounts for the same class of 
hospitals for cost reporting periods ending during FY 1996, updated to 
the first cost reporting period in which the hospital receives payments 
and adjusted for differences in area wage levels. The amounts included 
in the following table reflect the updated 110 percent of the wage 
neutral national median target amounts for each class of excluded 
hospitals and units for cost reporting periods beginning during FY 
2001. These figures are updated to reflect the market basket increase 
of 3.4 percent. For a new provider, the labor-related share of the 
target amount is multiplied by the appropriate geographic area wage 
index and added to the nonlabor-related share in order to determine the 
per case limit on payment under the statutory payment methodology for 
new providers.

------------------------------------------------------------------------
                                                   Labor-     Nonlabor-
      Class of excluded hospital or unit          related      related
                                                   share        share
------------------------------------------------------------------------
Psychiatric...................................       $6,611       $2,630
Rehabilitation................................       13,002        5,169
Long-Term Care................................       16,757        6,662
------------------------------------------------------------------------

3. Development of Prospective Payment System for Inpatient 
Rehabilitation Hospitals and Units
    Section 4421 of Public Law 105-33 added section 1886(j) to the Act. 
Section 1886(j) of the Act mandates the phase-in of a case-mix adjusted 
prospective payment system for inpatient rehabilitation services 
(freestanding hospitals and units) for cost reporting periods beginning 
on or after October 1, 2000 and before October 1, 2002. The prospective 
payment system will be fully implemented for cost reporting periods 
beginning on or after October 1, 2002. Section 1886(j) was amended by 
section 125 of Public Law 106-113 to require the Secretary to use the 
discharge as the payment unit under the prospective payment system for 
inpatient rehabilitation services and to establish classes of patient 
discharges by functional-related groups.
    We will issue a separate notice of proposed rulemaking in the 
Federal Register on the prospective payment system for inpatient 
rehabilitation facilities. That document will discuss the requirements 
in section 1886(j)(1)(A)(i) of the Act for a transition phase covering 
the first two cost reporting periods under the prospective payment 
system. During this transition phase, inpatient rehabilitation 
facilities will receive a payment rate comprised of a blend of the 
facility specific rate (the TEFRA percentage) based on the amount that 
would have been paid under Part A with respect to these costs if the 
prospective payment system would not be implemented and the inpatient 
rehabilitation facility prospective payment rate (prospective payment 
percentage). As set forth in sections 1886(j)(1)(C)(i) and (ii) of the 
Act, the TEFRA percentage for a cost reporting period beginning on or 
after October 1, 2000, and before October 1, 2001, is 66\2/3\ percent; 
the prospective payment percentage is 33\1/3\ percent. For cost 
reporting periods beginning on or after October 1, 2001 and before 
October 1, 2002, the TEFRA percentage is 33\1/3\

[[Page 47099]]

percent and the prospective payment percentage is 66\2/3\ percent.
    As provided in section 1886(j)(3)(A) of the Act, the prospective 
payment rates will be based on the average inpatient operating and 
capital costs of rehabilitation facilities and units. Payments will be 
adjusted for case-mix using patient classification groups, area wages, 
inflation, outlier status and any other factors the Secretary 
determines necessary. We will propose to set the prospective payment 
amounts in effect during FY 2001 so that total payments under the 
system are projected to equal 98 percent of the amount of payments that 
would have been made under the current payment system. Outlier payments 
in a fiscal year may not be projected or estimated to exceed 5 percent 
of the total payments based on the rates for that fiscal year.
4. Continuous Improvement Bonus Payment
    Under Sec. 413.40(d)(4), for cost reporting periods beginning on or 
after October 1, 1997, an ``eligible'' hospital may receive continuous 
improvement bonus payments in addition to its payment for inpatient 
operating costs plus a percentage of the hospital's rate-of-increase 
ceiling (as specified in Sec. 413.40(d)(2)). An eligible hospital is a 
hospital that has been a provider excluded from the prospective payment 
system for at least three full cost reporting periods prior to the 
applicable period and the hospital's operating costs per discharge for 
the applicable period are below the lowest of its target amount, 
trended costs, or expected costs for the applicable period. Prior to 
enactment of Public Law 106-113, the amount of the continuous 
improvement bonus payment was equal to the lesser of--
    (a) 50 percent of the amount by which operating costs were less 
than the expected costs for the period; or
    (b) 1 percent of the ceiling.
    Section 122 of Public Law 106-113 amended section 1886(b)(2) of the 
Act to provide, for cost reporting periods beginning on or after 
October 1, 2000, and before September 30, 2001, for an increase in the 
continuous improvement bonus payment for long-term care and psychiatric 
hospitals and units. Under section 1886(b)(2) of the Act, as amended, a 
hospital that is within one of these two classes of hospitals 
(psychiatric hospitals or units and long-term-care hospitals) will 
receive the lesser of 50 percent of the amount by which the operating 
costs are less than the expected costs for the period, or the increased 
percentages mandated by statute as follows:
    (a) For a cost reporting period beginning on or after October 1, 
2000 and before September 30, 2001, 1.5 percent of the ceiling; and
    (b) For a cost reporting period beginning on or after
    October 1, 2001, and before September 30, 2002, 2 percent of the 
ceiling.
    We did not receive any public comments on our proposed revision of 
Sec. 413.40(d)(4) to incorporate this provision of the statute and, 
therefore, are adopting it as final.
5. Changes in the Types of Patients Served or Inpatient Care Services 
That Distort the Comparability of a Cost Reporting Period to the Base 
Year Are Grounds for Requesting an Adjustment Payment in Accordance 
With Section 1886(b)(4) of the Act
    Section 4419(b) of Public Law 104-33 requires the Secretary to 
publish annually in the Federal Register a report describing the total 
amount of adjustment (exception) payments made to excluded hospitals 
and units, by reason of section 1886(b)(4) of the Act, during the 
previous fiscal year. However, the data on adjustment payments made 
during the previous fiscal year are not available in time to publish a 
report describing the total amount of adjustment payments made to all 
excluded hospitals and units in the subsequent year's final rule 
published in the Federal Register.
    The process of requesting, adjudicating, and awarding an adjustment 
payment for a given cost reporting period occurs over a 2-year period 
or longer. An excluded hospital or unit must first file its cost report 
for the previous fiscal year with its intermediary within 5 months 
after the close of the previous fiscal year. The fiscal intermediary 
then reviews the cost report and issues a Notice of Program 
Reimbursement (NPR) in approximately 2 months. If the hospital's 
operating costs are in excess of the ceiling, the hospital may file a 
request for an adjustment payment within 6 months from the date of the 
NPR. The intermediary, or HCFA, depending on the type of adjustment 
requested, then reviews the request and determines if an adjustment 
payment is warranted. This determination is often not made until more 
than 6 months after the date the request is filed. Therefore, it is not 
possible to provide data in a final rule on adjustments granted for 
cost reports ending in the previous Federal fiscal year, since those 
adjustments have not even been requested by that time. However, in an 
attempt to provide interested parties at least some relevant data on 
adjustments, we are publishing data on requests for adjustments that 
were processed by the fiscal intermediaries or HCFA during the previous 
Federal fiscal year.
    The table below includes the most recent data available from the 
fiscal intermediaries and HCFA on adjustment payments that were 
adjudicated during FY 1999. By definition these were for cost reporting 
periods ending in years prior to FY 1998. The total adjustment payments 
awarded to excluded hospitals and units during FY 1999 are $73,532,146. 
The table depicts for each class of hospital, in aggregate, the number 
of adjustment requests adjudicated, the excess operating cost over the 
ceiling, and the amount of the adjustment payment.

----------------------------------------------------------------------------------------------------------------
                                                                             Excess cost over      Adjustment
                      Class of hospital                           Number         ceiling            payment
----------------------------------------------------------------------------------------------------------------
Psychiatric..................................................          198       $100,861,663        $49,986,012
Rehabilitation...............................................           53         32,690,736         16,798,634
Long-term care...............................................            4          3,239,164          2,577,455
Children's...................................................            7          3,311,758          1,470,670
Cancer.......................................................            2          4,849,093          2,699,375
----------------------------------------------------------------------------------------------------------------


[[Page 47100]]

B. Responsibility for Care of Patients in Hospitals-Within-Hospitals 
(Sec. 413.40(a)(3))

    Effective October 1, 1999, for hospitals-within-hospitals, we 
implemented a policy that allows for a 5-percent threshold for cases in 
which a patient discharged from an excluded hospital-within-a-hospital 
and admitted to the host hospital was subsequently readmitted to the 
excluded hospital-within-a-hospital. With respect to these cases, if 
the excluded hospital exceeds the 5-percent threshold, we do not 
include any previous discharges to the prospective payment hospital in 
calculating the excluded hospital's cost per discharge. That is, the 
entire stay is considered one Medicare ``discharge'' for purposes of 
payments to the excluded hospital. The effect of this rule, as 
explained more fully in the May 7, 1999 proposed rule (64 FR 24716) and 
in the July 30, 1999 final rule (64 FR 41490), is to prevent 
inappropriate Medicare payment to hospitals having a large number of 
such stays.
    In the existing regulations at Sec. 413.40(a)(3), we state that the 
5-percent threshold is determined based on the total number of 
discharges from the hospital-within-a-hospital. We have received 
questions as to whether, in determining whether the threshold is met, 
we consider Medicare patients only or all patients (Medicare and non-
Medicare). To avoid any further misunderstanding, in the May 5, 2000 
proposed rule, we indicated our intent to clarify the definition of 
``ceiling'' in Sec. 413.40(a)(3) by specifying that the 5-percent 
threshold is based on the Medicare inpatients discharged from the 
hospital-within-a-hospital in a particular cost reporting period, not 
on total Medicare and non-Medicare inpatient discharges.
    We did not receive any public comments on our proposed 
clarification of the definition of ``ceiling'' in Sec. 413.40(a)(3) 
and, therefore, are adopting the revision as final.

C. Critical Access Hospitals (CAHs)

1. Election of Payment Method (Sec. 413.70)
    Section 1834(g) of the Act, as in effect before enactment of Public 
Law 106-113, provided that the amount of payment for outpatient CAH 
services is the reasonable costs of the CAH in providing such services. 
However, the reasonable costs of the CAH's services to outpatients 
included only the CAH's costs of providing facility services, and did 
not include any payment for professional services. Physicians and other 
practitioners who furnished professional services to CAH outpatients 
billed the Part B carrier for these services and were paid under the 
physician fee schedule in accordance with the provisions of section 
1848 of the Act.
    Section 403(d) of Public Law 106-113 amended section 1834(g) of the 
Act to permit the CAH to elect to be paid for its outpatient services 
under another option. CAHs making this election would be paid amounts 
equal to the sum of the following, less the amount that the hospital 
may charge as described in section 1866(a)(2)(A) of the Act (that is, 
Part A and Part B deductibles and coinsurance):
    (1) For facility services, not including any services for which 
payment may be made as outpatient professional services, the reasonable 
costs of the CAH in providing the services; and
    (2) For professional services otherwise included within outpatient 
CAH services, the amounts that would otherwise be paid under Medicare 
if the services were not included in outpatient CAH services.
    Section 403(d) of Public Law 106-113 added section 1834(g)(3) to 
the Act to further specify that payment amounts under this election are 
be determined without regard to the amount of the customary or other 
charge.
    The amendment made by section 403(d) is effective for cost 
reporting periods beginning on or after October 1, 2000.
    In the May 5, 2000 proposed rule, we proposed to revise Sec. 413.70 
to incorporate the provisions of section 403(d) of Public Law 106-113. 
The existing Sec. 413.70 specifies a single set of reasonable cost 
basis payment rules applicable to both inpatient and outpatient 
services furnished by CAHs. As section 403(d) of Public Law 106-113 
provides that, for outpatient CAH services, CAHs may elect to be paid 
on a reasonable cost basis for facility services and on a fee schedule 
basis for professional services, we proposed to revise the section to 
allow for separate payment rules for CAH inpatient and outpatient 
services.
    We proposed to place the provisions of existing Sec. 413.70(a) and 
(b) that relate to payment on a reasonable cost basis for inpatient 
services furnished by a CAH under proposed Sec. 413.70(a). Proposed 
Sec. 413.70(a)(2) also stated that payment to a CAH for inpatient 
services does not include professional services to CAH inpatients and 
is subject to the Part A hospital deductible and coinsurance determined 
under 42 CFR Part 409, Subpart G.
    We proposed to include under Sec. 413.70(b) the payment rules for 
outpatient services furnished by CAHs, including the option for CAHs to 
elect to be paid on the basis of reasonable costs for facility services 
and on the basis of the physician fee schedule for professional 
services. Under proposed Sec. 413.70(b)(2), we would retain the 
existing provision that unless the CAH elects the option provided for 
under section 403 of Public Law 106-113, payment for outpatient CAH 
services is on a reasonable cost basis, as determined in accordance 
with section 1861(v)(1)(A) of the Act and the applicable principles of 
cost reimbursement in Parts 413 and 415 (except for certain payment 
principles that do not apply; that is, the lesser of costs or charges, 
RCE limits, any type of reduction to operating or capital costs under 
Sec. 413.124 or Sec. 413.130(j)(7), and blended payment amounts for 
ambulatory surgical center services, radiology services, and other 
diagnostic services).
    Under proposed Sec. 413.70(b)(3), we specified that any CAH that 
elects to be paid under the optional method must make an annual request 
in writing, and deliver the request for the election to the fiscal 
intermediary at least 60 days before the start of the affected cost 
reporting period. In addition, proposed Sec. 413.70(b)(3)(ii) stated 
that if a CAH elects payment under this method, payment to the CAH for 
each outpatient visit will be the sum of the following two amounts:
     For facility services, not including any outpatient 
professional services for which payment may be made on a fee schedule 
basis, the amount would be the reasonable costs of the services as 
determined in accordance with applicable principles of cost 
reimbursement in 42 CFR Parts 413 and 415, except for certain payment 
principles that would not apply as specified above; and
     For professional services, otherwise payable to the 
physician or other practitioner on a fee schedule basis, the amounts 
would be those amounts that would otherwise be paid for the services if 
the CAH had not elected payment under this method.
    We also proposed in Sec. 413.70(b)(3)(iii) that payment to a CAH 
for outpatient services would be subject to the Part B deductible and 
coinsurance amounts, as determined under Secs. 410.152, 410.160, and 
410.161. In proposed Sec. 413.70(c), we stated that final payment to 
the CAH for its facility services to inpatients and outpatients 
furnished during a cost reporting would be based on a cost report for 
that period, as required under Sec. 413.20(b).

[[Page 47101]]

    Comment: One commenter expressed concern about several CAH payment 
issues on which we did not propose to change existing policy. These 
comments related to payment for costs attributable to Medicare bed 
debts, counting of beds toward the 15- and 25-bed maximums, and payment 
for swing-bed services in CAHs.
    Response: Because these comments dealt with matters beyond the 
scope of the proposed rule, we have received them with interest and 
will consider whether any changes in policy are needed at a later date.
    We are adopting the proposed revisions to Sec. 413.70 as final. The 
revised Sec. 413.70 includes at paragraph (b)(2)(iii) the text of a 
paragraph (c) that was added in the interim final rule with comment 
period that implemented certain provisions of Public Law 106-33 
published elsewhere in this issue of the Federal Register. We did not 
revise the text of this paragraph (c); we merely changed the paragraph 
coding to fit it into the scheme of coding of the revised Sec. 413.70.
2. Condition of Participation: Organ, Tissue, and Eye Procurement 
(Sec. 485.643)
    Sections 1820(c)(2)(B) and 1861(mm) of the Act set forth the 
criteria for designating a CAH. Under this authority, the Secretary has 
established in regulations the minimum requirements a CAH must meet to 
participate in Medicare (42 CFR Part 485, Subpart F).
    Section 1905(a) of the Act provides that Medicaid payments may be 
made for any other medical care, and any other type of remedial care 
recognized under State law, specified by the Secretary. The Secretary 
has specified CAH services as Medicaid services in regulations. 
Specifically, the regulations at 42 CFR 440.170(g)(1)(i), define CAH 
services under Medicaid as those services furnished by a provider 
meeting the Medicare conditions of participation (CoP).
    Section 1138 of the Act provides that a CAH participating in 
Medicare must establish written protocols to identify potential organ 
donors that: (1) Assure that potential donors and their families are 
made aware of the full range of options for organ or tissue donation as 
well as their rights to decline donation; (2) encourage discretion and 
sensitivity with respect to the circumstances, views, and beliefs of 
those families; and (3) require that an organ procurement agency 
designated by the Secretary be notified of potential organ donors.
    On June 22, 1998, as part of the Medicare hospital conditions of 
participation under Part 482, subpart C, we added to the regulations at 
Sec. 482.45, a condition that specifically addressed organ, tissue, and 
eye procurement. However, Part 482 does not apply to CAHs, as CAHs are 
a distinct type of provider with separate CoP under Part 485. 
Therefore, in the proposed rule, we proposed to add a CoP for organ, 
tissue, and eye procurement for CAHs at a new Sec. 485.643 that 
generally parallels the CoP at Sec. 482.45 for all Medicare hospitals 
with respect to the statutory requirement in section 1138 of the Act 
concerning organ donation. CAHs are not full service hospitals and 
therefore are not equipped to perform organ transplantations. 
Therefore, we did not propose to include the standard applicable to 
Medicare hospitals that CAHs must be a member of the Organ Procurement 
and Transplantation Network (OPTN), abide by its rules and provide 
organ transplant-related data to the OPTN, the Scientific Registry, 
organ procurement agencies, or directly to the Department on request of 
the Secretary.
    The proposed CoP for CAHs included several requirements designed to 
increase organ donation. One of these requirements is that a CAH must 
have an agreement with the Organ Procurement Organization (OPO) 
designated by the Secretary, under which the CAH will contact the OPO 
in a timely manner about individuals who die or whose death is 
imminent. The OPO will then determine the individual's medical 
suitability for donation. In addition, the CAH must have an agreement 
with at least one tissue bank and at least one eye bank to cooperate in 
the retrieval, processing, preservation, storage, and distribution of 
tissues and eyes, as long as the agreement does not interfere with 
organ donation. The proposed CoP would require a CAH to ensure, in 
collaboration with the OPO with which it has an agreement, that the 
family of every potential donor is informed of its option to either 
donate or not donate organs, tissues, or eyes. The CAH may choose to 
have OPO staff perform this function, have CAH and OPO staff jointly 
perform this function, or rely exclusively on CAH staff. Research 
indicates that consent to organ donation is highest when the formal 
request is made by OPO staff or by OPO staff and hospital staff 
together. While we require collaboration, we also recognize that CAH 
staff may wish to perform this function and may do so when properly 
trained. Moreover, the CoP would require the CAH to ensure that CAH 
employees who initiate a request for donation to the family of a 
potential donor have been trained as designated requestors.
    Finally, we proposed that the CoP would require the CAH to work 
with the OPO and at least one tissue bank and one eye bank in educating 
staff on donation issues, reviewing death records to improve 
identification of potential donors, and maintaining potential donors 
while necessary testing and placement of organs and tissues is 
underway.
    Because we were sensitive to the possible burden the proposed CoP 
could place on CAHs, we invited public comments and information 
concerning the following requirements: (1) Developing written protocols 
for donations; (2) developing agreements with OPOs, tissue banks, and 
eye banks; (3) referring all deaths to the OPO; (4) working 
cooperatively with the designated OPO, tissue bank, and eye bank in 
educating staff on donation issues, reviewing death records, and 
maintaining potential donors. We note that the proposed requirement 
allowed some degree of flexibiilty for the CAH. For example, the CAH 
would have the option of using an OPO-approved education program to 
train its own employees as routine requestors or deferring requesting 
services to the OPO, the tissue bank, or the eye bank to provide 
requestors.
    We did not receive any public comments on the proposed CAH CoP on 
organ, tissue, and eye procurement. We are adopting Sec. 485.643 as 
final.

VII. MedPAC Recommendations

    On March 1, 2000 the Medicare Payment Advisory Commission (MedPAC) 
issued its annual report to Congress, including several recommendations 
related to the inpatient operating payment system. Those related to the 
inpatient prospective payment systems were: Congress should establish a 
single set of payment adjustors for both the operating and capital 
systems; HCFA should expand the definition of transfers which applies a 
transfer policy to patients transferred to postacute settings; and, 
Congress should reformulate the Medicare DSH adjustment. In the 
proposed rule, we responded to these recommendations.
    In addition, this year MedPAC published another report in June with 
additional recommendations. Among the recommendations were: FY 2001 
updates to the operating and capital payment rates; moving to refined 
DRGs to better capture variations in patient severity; adopting DRG-
specific outlier offsets; Congress should provide the Secretary the 
authority to adjust the

[[Page 47102]]

base payment amounts for anticipated coding changes; and, Congress 
should fold inpatient direct GME into the prospective payment system 
through a revised teaching hospital adjustment. A discussion of 
MedPAC's update recommendation can be found in Appendix D of this final 
rule.

A. Combined Operating and Capital Prospective Payment Systems 
(Recommendation 3J: March Report)

    Recommendation: The Congress should combine prospective payment 
system operating and capital payment rates to create a single 
prospective rate for hospital inpatient care. This change would require 
a single set of payment adjustments--in particular, for indirect 
medical education and disproportionate share hospital payments--and a 
single payment update.
    Response: We responded to a similar comment in the July 30, 1999 
final rule (64 FR 41552), the July 31, 1998 final rule (63 FR 41013), 
and the September 1, 1995 final rule (60 FR 45816). In those rules, we 
stated that our long-term goal was to develop a single update framework 
for operating and capital prospective payments and that we would begin 
development of a unified framework. However, we have not yet developed 
such a single framework as the actual operating system update has been 
determined by Congress through FY 2002. In the meantime, we intend to 
maintain as much consistency as possible with the current operating 
framework in order to facilitate the eventual development of a unified 
framework. We maintain our goal of combining the update frameworks at 
the end of the 10-year capital transition period (the end of FY 2001) 
and may examine combining the payment systems post-transition. Because 
of the similarity of the update frameworks, we believe that they could 
be combined with little difficulty.
    In the discussion of its recommendation, MedPAC notes that it ``is 
examining broad reforms to the prospective payment system, including 
DRG refinement and modifications of the graduate medical education 
payment and the IME and DSH adjustments. The Commission believes that a 
combined hospital prospective payment rate should be established 
whether or not broader reforms are undertaken. However, if the Congress 
acts on any or all of the Commission's recommendations, it should 
consider combining operating and capital payments as part of a larger 
package.''
    We agree that ultimately the operating and capital prospective 
payment systems should be combined into a single system. However, we 
believe that, because of MedPAC's ongoing analysis and the 
Administration's pending DSH report to Congress, any such unification 
should occur within the context of other system refinements.

B. Continuing Postacute Transfer Payment Policy (Recommendation 3K: 
March Report)

    Recommendation: The Commission recommends continuing the existing 
policy of adjusting per case payments through an expanded transfer 
policy when a short length of stay results from a portion of the 
patient's care being provided in another setting.
    Response: As noted in section IV.A. of this preamble, we have 
undertaken (through a contract with HER) an analysis of the impact on 
hospitals and hospital payments of the postacute transfer provision. 
That analysis (based on preliminary data covering only approximately 6 
months of discharge data) showed a minimal impact on the rate of short-
stay postacute transfers after implementation of the policy. However, 
average profit margins as measured by HER declined from $3,496 prior to 
implementation of the policy to $2,255 after implementation. We believe 
these preliminary findings demonstrate that the postacute transfer 
provision has had only marginal impact on existing practice patterns 
while more closely aligning the payments to hospitals for these cases 
with the costs incurred. Therefore, we agree with MedPAC's 
recommendation that the policy should be continued.

C. Disproportionate Share Hospitals (DSH) (Recommendations 3L and 3M: 
March Report)

    Recommendation: To address longstanding problems and current legal 
and regulatory developments, Congress should reform the 
disproportionate share adjustment to: Include the costs of all poor 
patients in calculating low-income shares used to distribute 
disproportionate share payments, and use the same formula to distribute 
payments to all hospitals covered by prospective payment.
    Response: As we noted in section IV.E. of this preamble, Public Law 
106-113 directed the Secretary to require subsection (d) hospitals (as 
defined in section 1886(d)(1)(B) of the Act) to submit data on costs 
incurred for providing inpatient and outpatient hospital services for 
which the hospital is not compensated, including non-Medicare bad debt, 
charity care, and charges for Medicaid and indigent care. These data 
must be reported on the hospital's cost reports for cost reporting 
periods beginning on or after October 1, 2001, and will provide 
information that will enable MedPAC and us to evaluate potential 
refinements to the DSH formula to address the issues referred to by 
MedPAC.
    Medicare fiscal intermediaries will audit these data to ensure 
their accuracy and consistency. Our experience with administering the 
current DSH formula leads us to believe that this auditing function 
would necessarily be extensive, because the non-Medicare data that 
would be collected have never before been collected and reviewed by 
Medicare's fiscal intermediaries. The data would have to be determined 
to be accurate and usable, and corrected if necessary.
    We agree that the current statutory payment formula could be 
improved, largely because of different threshold levels and different 
formula parameters applicable to different groups of hospitals. We are 
in the process of preparing a report to Congress on the Medicare DSH 
adjustment that includes options for amending the statutory formula.
    Comment: We received one comment regarding MedPAC's recommendation. 
The commenter expressed the concern that any unrecoverable costs from 
certified registered nurse anesthetist services in providing anesthesia 
and related care to indigent patients may not be included in the bad 
debt costs of hospitals.
    Response: One of the difficulties in collecting uncompensated care 
and non-Medicare bad debt data is defining exactly the types of data 
being sought, particularly when there are no existing cost reporting 
guidelines to follow. We will be working closely with the hospital 
industry to identify and collect these data.
    Recommendation: To provide further protection for the primarily 
voluntary hospitals with mid-level low-income shares, the minimum 
value, or threshold, for the low-income share that a hospital must have 
before payment is made should be set to make 60 percent of hospitals 
eligible to receive disproportionate share payments.
    Response: Currently, fewer than 40 percent of all prospective 
payment system hospitals receive DSH payments. Therefore, this 
recommendation would entail significant redistributions of existing DSH 
payments if implemented in a budget neutral manner. We are particularly 
concerned about the effect of this recommendation on hospitals 
receiving substantial DSH payments currently, including major teaching 
hospitals and public hospitals. The analysis by MedPAC demonstrates 
that

[[Page 47103]]

these hospitals would be negatively impacted, if more hospitals were 
made eligible for DSH payments.

D. Severity-Adjusted DRGs (Recommendation 3A: June Report)

    Recommendation: The Secretary should improve the hospital inpatient 
prospective payment system by adopting, as soon as practicable, DRG 
refinements that more fully capture differences in severity of illness 
among patients. At the same time, she should make the DRG payment rates 
more accurate by basing the DRG relative weights on the national 
average of hospitals' relative values in each DRG.
    Response: For its analysis, MedPAC used the severity 
classifications from the all patient refined diagnosis related groups 
(APR-DRG) system. According to MedPAC, under this system each patient 
is initially assigned to 1 of 355 APR-DRGs. Each APR-DRG is broken into 
four severity classes: minor, moderate, major or extreme. Assignment to 
these classes within the APR-DRG is based on specific combinations of 
secondary diagnoses, age, procedures, and other factors. This process 
yields 1,420 distinct groups, compared with fewer than 500 DRGs. The 
MedPAC points out that ``to avoid creating refined DRGs that might have 
unstable relative weights, the Secretary should be selective in 
adopting clinical distinctions similar to those reflected in the APR-
DRGs. This will require carefully weighing the benefits of more 
accurate clinical and economic distinctions against the potential for 
instability in relative weights based on small numbers of cases (p. 
64).''
    The MedPAC's predecessor, the Prospective Payment Assessment 
Commission, made a similar recommendation in 1995. In the June 2, 1995 
proposed rule (60 FR 29246), we agreed with the Commission's judgment 
that adopting the severity DRGs would tend to reduce discrepancies 
between payments and costs for individual cases and thereby improve 
payment equity among hospitals. In the same rule, we also agreed with 
the Commission that basing DRG weights on standardized charges results 
in weights that are somewhat distorted as measures of the relative 
costliness of treating a typical case in each DRG, and that the 
hospital-specific relative value method of setting weights may reduce 
or eliminate distortions present in the current system.
    However, in our discussion on DRG refinements in the same rule (60 
FR 29209) we reiterated our position published in the final rule on 
September 1, 1992 (57 FR 39761) that we would not propose to make 
significant changes to the DRG classification system, unless we are 
able either to improve our ability to predict coding changes by 
validating in advance the impact that potential DRG changes may have on 
coding behavior, or to make methodological changes to prevent building 
the inflationary effects of the coding changes into future program 
payments. In addition, we would need specific legislative authority to 
offset, through adjustments to the standardized amounts, any 
significant anticipated increase in payments attributable to changes in 
coding practices caused by significant changes to the DRG 
classification system. Because we have not been granted this authority, 
we do not believe it would be appropriate to adopt revised severity-
adjusted DRGs at this time.

E. DRG-Specific Outlier Offsets (Recommendation 3B: June Report)

    Recommendation: Congress should amend the law to change the method 
now used to finance outlier payments under the hospital inpatient 
prospective payment system. Projected outlier payments in each DRG 
should be financed through an offsetting adjustment to the relative 
weight for the category, rather than the current flat adjustment to the 
national average base payment amounts.
    Response: Under this recommendation, outlier payments would be 
financed through an offset to the relative weight of each DRG based on 
the proportion of outlier cases in that DRG, rather than an overall 
offset to the standardized amounts as is done currently. This would 
more directly relate payments under each DRG to the proportion of 
outlier cases occurring within that DRG.
    Because the effects on DRG weights of implementing severity 
refinements, changing the method used to calculate DRG relative 
weights, and adopting DRG-specific outlier financing are interactive, 
we believe that we should make appropriate changes concurrently. 
Therefore, as stated in our response to recommendation 3A, we would not 
recommend that Congress implement this recommendation until we are able 
to offset, through adjustments to the standardized amounts, any 
significant anticipated increase in payments attributable to changes in 
coding practices caused by significant changes to the DRG 
classification system.
    In addition, we are concerned that any benefits of adopting the 
Commission's recommendation would not outweigh the additional 
complexity and variation it would add to the already complex process of 
calculating outlier thresholds so that outlier payments are projected 
to equal a certain percentage between 5 and 6 of DRG payments.

F. Gradual Implementation of DRG Refinement and DRG-Specific Outlier 
Offsets (Recommendation 3C: June Report)

    Recommendation: To avoid imposing extraordinary financial burdens 
on individual providers, the Congress should ensure that the case-mix 
measurement and outlier financing policies recommended earlier are 
implemented gradually over a period of several years. Further, the 
Congress should consider including protective policies, such as 
exemptions or hold-harmless provisions, for providers in circumstances 
in which vulnerable populations' access to care might be disrupted.
    Response: The Commission's analyses show that implementing its 
case-mix measurement and outlier financing recommendations would 
substantially change PPS payments for many hospitals and may impose 
heavy burdens on individual hospitals. The Commission believes that 
many of these hospitals could accommodate the changes in an orderly way 
under traditional phase-in mechanisms. The Commission also states that 
some hospitals, including some groups of rural hospitals, may need 
longer term relief from the financial impact of these changes. The 
Commission suggests that this relief might include such approaches as 
targeted additional payments, hold-harmless provisions, and temporary 
or permanent exemptions.
    We are concerned that implementing the Commission's recommendations 
may increase the need for special payment exceptions for various 
categories of hospitals to ensure continued access to care for many 
Medicare beneficiaries. Before recommending implementation of these 
refinements to the payment system, they must be examined to determine 
how the changes would impact hospitals financially and strategies would 
need to be developed for countering effects that could endanger 
beneficiaries' access to quality health care.

G. Congress Should Grant the Secretary the Authority to Offset Payments 
for Anticipated Coding Changes (Recommendation 3D: June Report)

    Recommendation: The Congress should give the Secretary explicit 
authority to adjust the hospital inpatient base payment amounts if 
anticipated

[[Page 47104]]

coding improvements in response to refinements in case-mix measurement 
are expected to increase aggregate payments by a substantial amount 
during the forthcoming year. This adjustment should be separate from 
the annual update. Further, the Congress should require the Secretary 
to measure the extent of actual coding improvements based on the bills 
providers submit for payment and make a timely adjustment to correct 
any substantial forecast error.
    Response: In the past, whenever significant refinements to the DRGs 
have been implemented, there have been unanticipated payment increases 
as hospitals have responded with changes to their coding practices, 
resulting in more cases being assigned to higher-weighted DRGs than 
estimated when the DRG relative weights were calculated. We anticipate 
that a similar effect would occur following implementation of refined 
DRGs.
    Therefore, we agree with MedPAC's recommendation that Congress give 
the Secretary explicit authority to adjust the hospital inpatient base 
payment amounts if anticipated coding improvements in response to 
refinements in case-mix measurement are expected to increase aggregate 
payments by a substantial amount during the forthcoming year. We also 
agree that adjustments to correct substantial forecast errors would be 
appropriate.

H. Fold Inpatient Direct GME Costs Into the Prospective Payment System 
(Recommendation 3E: June Report)

    Recommendation: Congress should fold inpatient direct graduate 
medical education costs into prospective payment system payment rates 
through a revised teaching hospital adjustment. The new adjustment 
should be set such that the subsidy provided to teaching hospitals 
would be added to the IME adjustment. This recommendation should be 
implemented with a reasonable transition to limit the impact on 
hospitals of substantial changes in Medicare payments and to ensure 
that beneficiaries have continued access to the services that teaching 
hospitals provide.
    Response: MedPAC cites two primary reasons for its recommendation: 
to improve payment equity among teaching hospitals by eliminating the 
wide variation in current hospital-specific GME payment amounts, and to 
establish that GME payments are a part of patient care costs. MedPAC 
proposes three options for folding direct GME costs into PPS in terms 
of its impact on total payments: fold inpatient direct GME costs into 
the prospective payment rates, holding aggregate payments and special 
payments to teaching hospitals constant; fold inpatient direct GME 
costs into the prospective payment rates, holding aggregate payments 
constant, and redistributing teaching hospital subsidies across all 
hospitals; and fold inpatient direct GME costs into prospective payment 
rates with no constraint on aggregate payments and no teaching hospital 
subsidy. The commission recommends the first option. While we do not 
disagree with MedPAC's objectives, we believe that there are still some 
significant issues related to these recommendations.
    First, Congress has already taken steps towards addressing the 
direct GME payment variation. Section 311 of the BBRA of 1999 
established a 70 percent floor and a 140 percent ceiling based on a 
national average per resident amount for direct GME payment purposes 
for FYs 2001 through 2005. While we agree with the objective of 
decreasing the variation in the current per resident amounts, the same 
objective can be achieved by moving to a national, rather than 
hospital-specific, per resident amount.
    Second, MedPAC asserts that folding the direct GME payments into 
the prospective payment system will establish that GME payments are 
payments to account for the increased costs of inpatient care due to 
residency training. However, we would note the current direct GME 
payments are distributed on the basis of Medicare's patient share, 
based on the percentage of total Medicare inpatient days to total 
hospital inpatient days. It is unclear exactly how MedPAC's 
recommendation would better associate GME payments with the increased 
costs of patient care without rebasing the current IME adjustment to 
more appropriately reflect the empirical estimate of those increased 
costs, both direct and indirect. Furthermore, the current distribution 
of IME payments is not directly linked to the involvement of residents 
providing patient care, but instead is based on each Medicare 
discharge, adjusted for the other payment factors. In addition, if the 
recommended teaching adjustment is a mechanism for accounting for the 
extra costs of inpatient training, it seems inappropriate to include 
residents not training in inpatient settings in a payment for inpatient 
care costs.
    Third, MedPAC estimates show that the IME adjustment for operating 
payments would be only 3.2 percent, if it were based on the empirical 
relationship between costs and the ratio of residents to hospital beds. 
This is significantly less than the adjustment of 5.5 percent, which is 
the adjustment set for the end of the phase-in under current law. 
MedPAC asserts that approximately $1.5 billion of the IME payments to 
teaching hospitals result from paying more than the empirical estimate 
suggests. Under MedPAC's recommendation, the direct GME payments would 
essentially be added to current IME payments. However, we feel that it 
is inappropriate to revise the teaching adjustment in such a way that 
would constitute a further add-on to the current IME payments which 
MedPAC believes are excessive. Before such a change is adopted, 
Congress should determine a more accurate level at which to set the IME 
adjustment.
    In addition, we note that MedPAC recommends folding the direct GME 
costs into the prospective payment system based on the most recent cost 
reports. The costs associated with GME, however, are no longer 
routinely audited by the fiscal intermediaries. Any reconstitution of 
the direct GME payment methodology based on recent cost reports would 
require further extensive audit work by the fiscal intermediaries.

VIII. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have set up a process under which 
commenters can gain access to the raw data on an expedited basis. 
Generally, the data are available in computer tape or cartridge format; 
however, some files are available on diskette as well as on the 
Internet at http://www.hcfa.gov/stats/pubfiles.html. In our May 5, 2000 
proposed rule, we published a list of data files that are available for 
purchase (65 FR 26318 through 26320).

B. 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 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.

[[Page 47105]]

     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.
    In the May 5, 2000 proposed rule, we solicited public comment on 
each of the information collection requirements in Secs. 412.77, 
412.92, and 485.643 described below.
Section 412.77, Determination of the hospital-specific rate for 
inpatient operating costs for certain sole community hospitals based on 
a Federal fiscal year 1996 base period, and Sec. 412.92, Special 
treatment: sole community hospitals.
    Sections 412.77(a)(2) and 412.92(d)(1)(ii) state that an otherwise 
eligible hospital that elects not to receive payment based on its 
hospital-specific rate as determined under Sec. 412.77 must notify its 
fiscal intermediary of its decision prior to the beginning of its cost 
reporting period beginning on or after October 1, 2000.
    We estimate that it will take each hospital that notifies its 
intermediary of its election not to receive payments based on its 
hospital-specific rate as determined under Sec. 412.77 an hour to draft 
and send its notice. However, we are unable at this time to determine 
how many hospitals will make this election and, therefore, will need to 
notify their intermediaries of their decision.
Section 485.643, Condition of participation: Organ, tissue, and eye 
procurement.
    It is important to note that because of the inherent flexibility of 
this final regulation, the extent of the information collection 
requirements is dependent upon decisions that will be made either by 
the CAH or by the CAH in conjunction with the OPO or the tissue and eye 
banks, or both. Thus, the paperwork burden on individual CAHs will vary 
and is subject, in large part, to their decisionmaking.
    The burden associated with the requirements of this section 
include: (1) The requirement to maintain protocol documentation 
demonstrating that the five requirements of this section have been met; 
(2) the requirement for a CAH to notify an OPO, a tissue bank, or an 
eye bank of any imminent or actual death; and (3) the time required for 
a hospital to document and maintain OPO referral information.
    We estimate that, on average, the requirement to maintain protocol 
documentation demonstrating that the requirements of this section have 
been met will impose one hour of burden on each CAH (on 161 CAHs) on an 
annual basis, resulting in a total of 161 annual burden hours.
    The CoP in this section will require CAHs to notify the OPO about 
every death that occurs in the CAH. The average Medicare hospital has 
approximately 165 beds and 200 deaths per year. However, by statute and 
regulation, CAHs may use no more than 15 beds for acute care services. 
Assuming that the number of deaths in a hospital is related to the 
number of acute care beds, there should be approximately 18 deaths per 
year in the average CAH. We estimate that the average notification 
telephone call to the OPO takes 5 minutes. Based on this estimate, a 
CAH would need approximately 90 minutes per year to notify the OPO 
about all deaths and imminent deaths.
    Under the CoP, a CAH may agree to have the OPO determine medical 
suitability for tissue and eye donation or may have alternative 
arrangements with a tissue bank and an eye bank. These alternative 
arrangements could include the CAH's direct notification of the tissue 
and eye bank of potential tissue and eye donors or direct notification 
of all deaths. If a CAH chose to contact both a tissue bank and an eye 
bank directly on all deaths, it could need an additional 180 minutes 
per year (that is, 5 minutes per call) in order to call both the tissue 
and eye bank directly. Again, the impact is small, and this regulation 
permits the CAH to decide how this process will take place. We note 
that many communities already have a one-phone call system in place. In 
addition, some OPOs are also tissue banks or eye banks, or both. A CAH 
that chooses to use the OPO's tissue and eye bank services in these 
localities would need to make only one telephone call on every death.
    We estimate that additional time would be needed by the CAH to 
annotate the patient record or fill out a form regarding the 
disposition of a call to the OPO, the tissue bank, or the eye bank, or 
all three. This recordkeeping should take no more than 5 minutes to 
record each disposition or call. Therefore, all of the paperwork burden 
associated with the call(s) could add up to an additional 270 minutes 
per year per CAH.
    In summary, the information collection requirements of this section 
would be a range of 3 to 6 hours per CAH annually.
    We did not receive any comments on the proposed information 
collection and recordkeeping requirements.
    These new information collection and recordkeeping requirements 
have been submitted to the Office of Management and Budget (OMB) for 
review under the authority of PRA. These requirements will not be 
effective until they have been approved by OMB.
    The requirements associated with a hospital's application for a 
geographic redesignation, codified in Part 412, are currently approved 
by OMB under OMB approval number 0938-0573, with an expiration date of 
September 30, 2002.

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 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).


Sec. 410.152  [Amended]

    2. In Sec. 410.152, paragraph (k)(2), the cross-reference 
``Sec. 413.70(c)'' is removed and ``Sec. 413.70(b)(2)(iii)(B)'' is 
added in its place.

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 412.2 is amended by revising the last sentence of 
paragraph (a) to read as follows:

[[Page 47106]]

Sec. 412.2  Basis of payment.

    (a) Payment on a per discharge basis. * * * An additional payment 
is made for both inpatient operating and inpatient capital-related 
costs, in accordance with subpart F of this part, for cases that are 
extraordinarily costly to treat.
* * * * *


Sec. 412.4  [Amended]

    3. In Sec. 412.4(f)(3), the reference to ``Sec. 412.2(e)'' is 
removed and ``Sec. 412.2(b)'' is added in its place.

    4. Section 412.63 is amended by:
    A. Revising paragraph (s).
    B. Redesignating paragraphs (t), (u), (v), and (w) as paragraphs 
(u), (v), (w), and (x) respectively.
    C. Adding a new paragraph (t).


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

* * * * *
    (s) Applicable percentage change for fiscal year 2001. The 
applicable percentage change for fiscal year 2001 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this subchapter) for sole community 
hospitals and the increase in the market basket index minus 1.1 
percentage points for other hospitals in all areas.
    (t) Applicable percentage change for fiscal year 2002. The 
applicable percentage change for fiscal year 2002 is the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec. 413.40(a) of this subchapter) minus 1.1 percentage 
points for hospitals in all areas.
* * * * *

    5. Section 412.73 is amended by:
    A. Revising paragraph (c)(12).
    B. Adding paragraphs (c)(13), (c)(14), and (c)(15).


Sec. 412.73  Determination of the hospital-specific rate based on a 
Federal fiscal year 1982 base period.

* * * * *
    (c) Updating base-year costs--* * *
    (12) For Federal fiscal years 1996 through 2000. For Federal fiscal 
years 1996 through 2000, the update factor is the applicable percentage 
change for other prospective payment hospitals in each respective year 
as set forth in Secs. 412.63(n) through (r).
    (13) For Federal fiscal year 2001. For Federal fiscal year 2001, 
the update factor is the percentage increase in the market basket index 
for prospective payment hospitals (as defined in Sec. 413.40(a) of this 
chapter).
    (14) For Federal fiscal year 2002. For Federal fiscal year 2002, 
the update factor is the percentage increase in the market basket index 
for prospective payment hospitals (as defined in Sec. 413.40(a) of this 
chapter) minus 1.1 percentage points.
    (15) For Federal fiscal year 2003 and for subsequent years. For 
Federal fiscal year 2003 and subsequent years, the update factor is the 
percentage increase in the market basket index for prospective payment 
hospitals (as defined in Sec. 413.40(a) of this chapter).
* * * * *


Sec. 412.75  [Amended]

    6. In Sec. 412.75(d), the cross reference ``Sec. 412.73 (c)(5) 
through (c)(12)'' is removed and ``Sec. 412.75(c)(15)'' is added in its 
place.


Sec. 412.76  [Redesignated]

    7. Section 412.76 is redesignated as a new Sec. 412.78.

    8. A new Sec. 412.77 is added to read as follows:


Sec. 412.77  Determination of the hospital-specific rate for inpatient 
operating costs for certain sole community hospitals based on a Federal 
fiscal year 1996 base period.

    (a) Applicability. (1) This section applies to a hospital that has 
been designated as a sole community hospital, as described in 
Sec. 412.92, that received payment for its cost reporting period 
beginning during 1999 based on its hospital-specific rate for either 
fiscal year 1982 under Sec. 412.73 or fiscal year 1987 under 
Sec. 412.75, and that elects under paragraph (a)(2) of this section to 
be paid based on a fiscal year 1996 base period. If the 1996 hospital-
specific rate exceeds the hospital-specific rates for either fiscal 
year 1982 or 1987, unless the hospital elects to the contrary, this 
rate will be used in the payment formula set forth under 
Sec. 412.92(d)(1).
    (2) Hospitals that are otherwise eligible for but elect not to 
receive payment on the basis of their Federal fiscal year 1996 updated 
costs per case must notify their fiscal intermediary of this decision 
prior to the end of their cost reporting period beginning on or after 
October 1, 2000, for which such payments would otherwise be made. If a 
hospital does not make the notification to its fiscal intermediary 
before the end of the cost reporting period, the hospital is deemed to 
have elected to have section 1886(b)(3)(I) of the Act apply to the 
hospital.
    (3) This section applies only to cost reporting periods beginning 
on or after October 1, 2000.
    (4) The formula for determining the hospital-specific costs for 
hospitals described under paragraph (a)(1) of this section is set forth 
in paragraph (f) of this section.
    (b) Based costs for hospitals subject to fiscal year 1996 rebasing. 
(1) General rule. Except as provided in paragraph (b)(2) of this 
section, for each hospital eligible under paragraph (a) of this 
section, the intermediary determines the hospital's Medicare Part A 
allowable inpatient operating costs, as described in Sec. 412.2(c), for 
the 12-month or longer cost reporting period ending on or after 
September 30, 1996 and before September 30, 1997, and computes the 
hospital-specific rate for purposes of determining prospective payment 
rates for inpatient operating costs as determined under Sec. 412.92(d).
    (2) Exceptions. (i) If the hospital's last cost reporting period 
ending before September 30, 1997 is for less than 12 months, the base 
period is the hospital's most recent 12-month or longer cost reporting 
period ending before the short period report.
    (ii) If the hospital does not have a cost reporting period ending 
on or after September 30, 1996 and before September 30, 1997, and does 
have a cost reporting period beginning on or after October 1, 1995 and 
before October 1, 1996, that cost reporting period is the base period 
unless the cost reporting period is for less than 12 months. If that 
cost reporting period is for less than 12 months, the base period is 
the hospital's most recent 12-month or longer cost reporting period 
ending before the short cost reporting period. If a hospital has no 
cost reporting period beginning in fiscal year 1996, the hospital will 
not have a hospital-specific rate based on fiscal year 1996.
    (c) Costs on a per discharge basis. The intermediary determines the 
hospital's average base-period operating cost per discharge by dividing 
the total operating costs by the number of discharges in the base 
period. For purposes of this section, a transfer as defined in 
Sec. 412.4(b) is considered to be a discharge.
    (d) Case-mix adjustment. The intermediary divides the average base-
period cost per discharge by the hospital's case-mix index for the base 
period.
    (e) Updating base-period costs. For purposes of determining the 
updated base-period costs for cost reporting periods beginning in 
Federal fiscal year 1996, the update factor is determined using the 
methodology set forth in Sec. 412.73(c)(12) through (c)(15).
    (f) DRG adjustment. The applicable hospital-specific cost per 
discharge is multiplied by the appropriate DRG weighting factor to 
determine the hospital-specific base payment amount

[[Page 47107]]

(target amount) for a particular covered discharge.
    (g) Notice of hospital-specific rates. The intermediary furnishes a 
hospital eligible for rebasing a notice of the hospital-specific rate 
as computed in accordance with this section. The notice will contain a 
statement of the hospital's Medicare Part A allowable inpatient 
operating costs, the number of Medicare discharges, and the case-mix 
index adjustment factor used to determine the hospital's cost per 
discharge for the Federal fiscal year 1996 base period.
    (h) Right to administrative and judicial review. An intermediary's 
determination of the hospital-specific rate for a hospital is subject 
to administrative and judicial review. Review is available to a 
hospital upon receipt of the notice of the hospital-specific rate. This 
notice is treated as a final intermediary determination of the amount 
of program reimbursement for purposes of subpart R of part 405 of this 
chapter.
    (i) Modification of hospital-specific rate. (1) The intermediary 
recalculates the hospital-specific rate to reflect the following:
    (i) Any modifications that are determined as a result of 
administrative or judicial review of the hospital-specific rate 
determinations; or
    (ii) Any additional costs that are recognized as allowable costs 
for the hospital's base period as a result of administrative or 
judicial review of the base-period notice of amount of program 
reimbursement.
    (2) With respect to either the hospital-specific rate determination 
or the amount of program reimbursement determination, the actions taken 
on administrative or judicial review that provide a basis for the 
recalculations of the hospital-specific rate include the following:
    (i) A reopening and revision of the hospital's base-period notice 
of amount of program reimbursement under Secs. 405.1885 through 
405.1889 of this chapter.
    (ii) A prehearing order or finding issued during the provider 
payment appeals process by the appropriate reviewing authority under 
Sec. 405.1821 or Sec. 405.1853 of this chapter that resolved a matter 
at issue in the hospital's base-period notice of amount of program 
reimbursement.
    (iii) An affirmation, modification, or reversal of a Provider 
Reimbursement Review Board decision by the Administrator of HCFA under 
Sec. 405.1875 of this chapter that resolved a matter at issue in the 
hospital's base-period notice of amount of program reimbursement.
    (iv) An administrative or judicial review decision under 
Sec. 405.1831, Sec. 405.1871, or Sec. 405.1877 of this chapter that is 
final and no longer subject to review under applicable law or 
regulations by a higher reviewing authority, and that resolved a matter 
at issue in the hospital's base-period notice of amount of program 
reimbursement.
    (v) A final, nonappealable court judgment relating to the base-
period costs.
    (3) The adjustments to the hospital-specific rate made under 
paragraphs (i)(1) and (i)(2) of this section are effective 
retroactively to the time of the intermediary's initial determination 
of the rate.

    9. Section 412.92 is amended by:
    A. Revising paragraph (d)(1).
    B. Redesignating paragraph (d)(2) as paragraph (d)(3).
    C. Adding a new paragraph (d)(2).


Sec. 412.92  Special treatment: sole community hospitals.

* * * * *
    (d) Determining prospective payment rates for inpatient operating 
costs for sole community hospitals--(1) General rule. For cost 
reporting periods beginning on or after April 1, 1990, a sole community 
hospital is paid based on whichever of the following amounts yields the 
greatest aggregate payment for the cost reporting period:
    (i) The Federal payment rate applicable to the hospitals as 
determined under Sec. 412.63.
    (ii) The hospital-specific rate as determined under Sec. 412.73.
    (iii) The hospital-specific rate as determined under Sec. 412.75.
    (iv) For cost reporting periods beginning on or after October 1, 
2000, the hospital-specific rate as determined under Sec. 412.77 
(calculated under the transition schedule set forth in paragraph (d)(2) 
of this section), if the sole community hospital was paid for its cost 
reporting period beginning during 1999 on the basis of the hospital-
specific rate specified in paragraph (d)(1)(ii) or (d)(1)(iii) of this 
section, unless the hospital elects otherwise under Sec. 412.77(a)(1).
    (2) Transition of FY 1996 hospital-specific rate. The intermediary 
calculates the hospital-specific rate determined on the basis of the 
fiscal year 1996 base period rate as follows:
    (i) For Federal fiscal year 2001, the hospital-specific rate is the 
sum of 75 percent of the greater of the hospital-specific rates 
specified in paragraph (d)(1)(ii) or (d)(1)(iii) of this section, plus 
25 percent of the hospital-specific rate specified in paragraph 
(d)(1)(iv) of this section.
    (ii) For Federal fiscal year 2002, the hospital-specific rate is 
the sum of 50 percent of the greater of the hospital-specific rates 
specified in paragraph (d)(1)(ii) or (d)(1)(iii) of this section plus 
50 percent of the hospital-specific rate specified in paragraph 
(d)(1)(iv) of this section.
    (iii) For Federal fiscal year 2003, the hospital-specific rate is 
the sum of 25 percent of the greater of the hospital-specific rates 
specified in paragraph (d)(1)(ii) or (d)(1)(iii) of this section, plus 
75 percent of the hospital-specific rate specified in paragraph 
(d)(1)(iv) of this section.
    (iv) For Federal fiscal year 2004 and any subsequent fiscal years, 
the hospital-specific rate is 100 percent of the hospital-specific rate 
specified in paragraph (d)(1)(iv) of this section.
* * * * *

    10. Section 412.105 is amended by:
    A. Revising paragraph (d)(3)(v).
    B. Adding a new paragraph (d)(3)(vi).
    C. Republishing paragraph (f)(1) introductory text and revising 
paragraph (f)(1)(vii).
    D. Adding new paragraphs (f)(1)(viii) and (f)(1)(ix).
    E. Revising paragraph (g).


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

* * * * *
    (d) Determination of education adjustment factor. * * *
    (3) * * *
    (v) For discharges occurring during fiscal year 2001, 1.54.
    (vi) For discharges occurring on or after October 1, 2001, 1.35.
* * * * *
    (f) Determining the total number of full-time equivalent residents 
for cost reporting periods beginning on or after July 1, 1991. (1) For 
cost reporting periods beginning on or after July 1, 1991, the count of 
full-time equivalent residents for the purpose of determining the 
indirect medical education adjustment is determined as follows:
* * * * *
    (vii) If a hospital establishes a new medical residency training 
program, as defined in Sec. 413.86(g)(9) of this subchapter, the 
hospital's full-time equivalent cap may be adjusted in accordance with 
the provisions of Secs. 413.86(g)(6)(i) through (iv) of this 
subchapter.
    (viii) A hospital that began construction of its facility prior to 
August 5, 1997, and sponsored new medical residency training programs 
on

[[Page 47108]]

or after January 1, 1995 and on or before August 5, 1997, that either 
received initial accreditation by the appropriate accrediting body or 
temporarily trained residents at another hospital(s) until the facility 
was completed, may receive an adjustment to its full-time equivalent 
cap in accordance with the provisions of Sec. 413.86(g)(7) of this 
subchapter.
    (ix) A hospital may receive a temporary adjustment to its full-time 
equivalent cap to reflect residents added because of another hospital's 
closure if the hospital meets the criteria specified in 
Sec. 413.86(g)(8) of this subchapter.
* * * * *
    (g) Indirect medical education payment for managed care enrollees. 
For portions of cost reporting periods occurring on or after January 1, 
1998, a payment is made to a hospital for indirect medical education 
costs, as determined under paragraph (e) of this section, for 
discharges associated with individuals who are enrolled under a risk-
sharing contract with an eligible organization under section 1876 of 
the Act or with a Medicare+Choice organization under title XVIII, Part 
C of the Act during the period, according to the applicable payment 
percentages described in Secs. 413.86(d)(3)(i) through (d)(3)(v) of 
this subchapter.

    11. In Sec. 412.106, the introductory text of paragraph (e) is 
republished and paragraphs (e)(4) and (e)(5) are revised to read as 
follows:


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

* * * * *
    (e) Reduction in payment for FYs 1998 through 2002. The amounts 
otherwise payable to a hospital under paragraph (d) of this section are 
reduced by the following:
* * * * *
    (4) For FY 2001, 3 percent.
    (5) For FY 2002, 4 percent.
* * * * *

    12. Section 412.230 is amended by:
    A. Adding a new paragraph (a)(5)(iv).
    B. Republishing the introductory text of paragraph (e)(1).
    C. Revising paragraph (e)(1)(iii) and (e)(1)(iv).


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

    (a) General. * * *
    (5) Limitations on redesignation. * * *
    (iv) An urban hospital that has been granted redesignation as rural 
under Sec. 412.103 cannot receive an additional reclassification by the 
MGCRB based on this acquired rural status as long as such redesignation 
is in effect.
* * * * *
    (e) Use of urban or other rural area's wage index--(1) Criteria for 
use of area's wage index. Except as provided in paragraphs (e)(3) and 
(e)(4) of this section, to use an area's wage index, a hospital must 
demonstrate the following:
* * * * *
    (iii) One of the following conditions apply:
    (A) With respect to redesignations for Federal fiscal year 1994 
through 2001, the hospital's average hourly wage is at least 108 
percent of the average hourly wage of hospitals in the area in which 
the hospital is located; or
    (B) With respect to redesignations for Federal fiscal year 2002 and 
later years, the hospital's average hourly wage is, in the case of a 
hospital located in a rural area, at least 106 percent, and, in the 
case of a hospital located in an urban area, at least 108 percent of 
the average hourly wage of hospitals in the area in which the hospital 
is located; and
    (iv) One of the following conditions apply:
    (A) For redesignations effective before fiscal year 1999, the 
hospital's average hourly wage weighted for occupational categories is 
at least 90 percent of the average hourly wages of hospitals in the 
area to which it seeks redesignation.
    (B) With respect to redesignations for fiscal year 1994 through 
2001, the hospital's average hourly wage is equal to at least 84 
percent of the average hourly wage of hospitals in the area to which it 
seeks redesignation.
    (C) With respect to redesignations for fiscal year 2002 and later 
years, the hospital's average hourly wage is equal to, in the case of a 
hospital located in a rural area, at least 82 percent, and in the case 
of a hospital located in an urban area, at least 84 percent of the 
average hourly wage of hospitals in the area to which it seeks 
redesignation.
* * * * *

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 is revised 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. In Sec. 413.40, paragraph (a)(3) is amended by revising 
paragraph (B) of the definition of ``ceiling'' and paragraph (d)(4) is 
revised, to read as follows:


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

    (a) Introduction. * * *
    (3) Definitions. * * *
    Ceiling. * * *
    (B) The hospital-within-a-hospital has discharged to the other 
hospital and subsequently readmitted more than 5 percent (that is, in 
excess of 5.0 percent) of the total number of Medicare inpatients 
discharged from the hospital-within-a-hospital in that cost reporting 
period.
* * * * *
    (d) Application of the target amount in determining the amount of 
payment. * * *
    (4) Continuous improvement bonus payments. (i) For cost reporting 
periods beginning on or after October 1, 1997 and ending before October 
1, 2000, eligible hospitals (as defined in paragraph (d)(5) of this 
section) receive payments in addition to those in paragraph (d)(2) of 
this section, as applicable. These payments are equal to the lesser 
of--
    (A) 50 percent of the amount by which the operating costs are less 
than the expected costs for the period; or
    (B) 1 percent of the ceiling.
    (ii) For cost reporting periods beginning on or after October 1, 
2000, and ending before September 30, 2001, eligible psychiatric 
hospitals and units and long-tern care hospitals (as defined in 
paragraph (d)(5) of this section) receive payments in addition to those 
in paragraph (d)(2) of this section, as applicable. These payments are 
equal to the lesser of--
    (A) 50 percent of the amount by which the operating costs are less 
than the expected costs for the period; or
    (B) 1.5 percent of the ceiling.
    (iii) For cost reporting periods beginning on or after October 1, 
2001, and before September 30, 2002, eligible psychiatric hospitals and 
units and long-term care hospitals receive payments in addition to 
those in paragraph (d)(5) of this section, as applicable. These 
payments are equal to the lesser of--
    (A) 50 percent of the amount by which the operating costs are less 
than the expected costs for the periods; or
    (B) 2 percent of the ceiling.
* * * * *

[[Page 47109]]


    3. Section 413.70 is revised to read as follows:


Sec. 413.70  Payment for services of a CAH.

    (a) Payment for inpatient services furnished by a CAH. (1) Payment 
for inpatient services of a CAH is the reasonable costs of the CAH in 
providing CAH services to its inpatients, as determined in accordance 
with section 1861(v)(1)(A) of the Act and the applicable principles of 
cost reimbursement in this part and in Part 415 of this chapter, except 
that the following payment principles are excluded when determining 
payment for CAH inpatient services:
    (i) Lesser of cost or charges;
    (ii) Ceilings on hospital operating costs; and
    (iii) Reasonable compensation equivalent (RCE) limits for physician 
services to providers.
    (2) Payment to a CAH for inpatient services does not include any 
costs of physician services or other professional services to CAH 
inpatients, and is subject to the Part A hospital deductible and 
coinsurance, as determined under subpart G of part 409 of this chapter.
    (b) Payment for outpatient services furnished by a CAH--(1) 
General. Unless the CAH elects to be paid for services to its 
outpatients under the method specified in paragraph (b)(3) of this 
section, the amount of payment for outpatient services of a CAH is the 
amount determined under paragraph (b)(2) of this section.
    (2) Reasonable costs for facility services. (i) Payment for 
outpatient services of a CAH is the reasonable costs of the CAH in 
providing CAH services to its outpatients, as determined in accordance 
with section 1861(v)(1)(A) of the Act and the applicable principles of 
cost reimbursement in this part and in Part 415 of this chapter, except 
that the following payment principles are excluded when determining 
payment for CAH outpatient services:
    (A) Lesser of costs or charges;
    (B) RCE limits;
    (C) Any type of reduction to operating or capital costs under 
Sec. 413.124 or Sec. 413.130(j)(7); and
    (D) Blended payment amounts for ambulatory surgical services, 
radiology services, and other diagnostic services;
    (ii) Payment to a CAH under paragraph (b)(2) of this section does 
not include any costs of physician services or other professional 
services to CAH outpatients, and is subject to the Part B deductible 
and coinsurance amounts, as determined under Secs. 410.152(k), 410.160, 
and 410.161 of this chapter.
    (iii) The following payment principles are used when determining 
payment for outpatient clinical diagnostic laboratory tests.
    (A) The amount paid is equal to 100 percent of the least of--
    (1) Charges determined under the fee schedule as set forth in 
section 1833(h)(1) or section 1834(d)(1) of the Act;
    (2) 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
    (3) A negotiated rate established under section 1833(h)(6) of the 
Act.
    (B) 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.
    (3) Election to be paid reasonable costs for facility services plus 
fee schedule for professional services. (i) A CAH may elect to be paid 
for outpatient services in any cost reporting period under the method 
described in paragraphs (b)(3)(ii) and (b)(3)(iii) of this section. 
This election must be made in writing, made on an annual basis, and 
delivered to the intermediary at least 60 days before the start of each 
affected cost reporting period. An election of this payment method, 
once made for a cost reporting period, remains in effect for all of 
that period and applies to all services furnished to outpatients during 
that period.
    (ii) If the CAH elects payment under this method, payment to the 
CAH for each outpatient visit will be the sum of the following amounts:
    (A) For facility services, not including any services for which 
payment may be made under paragraph (b)(3)(ii)(B) of this section, the 
reasonable costs of the services as determined under paragraph 
(b)(2)(i) of this section; and
    (B) For professional services otherwise payable to the physician or 
other practitioner on a fee schedule basis, the amounts that otherwise 
would be paid for the services if the CAH had not elected payment under 
this method.
    (iii) Payment to a CAH is subject to the Part B deductible and 
coinsurance amounts, as determined under Secs. 410.152, 410.160, and 
410.161 of this chapter.
    (c) Final payment based on cost report. Final payment to the CAH 
for CAH facility services to inpatients and outpatients furnished 
during a cost reporting is based on a cost report for that period, as 
required under Sec. 413.20(b).

    4. Section 413.86 is amended by:
    A. Revising the first sentence of paragraph (d)(3).
    B. Revising the introductory text of paragraph (e)(3).
    C. Redesignating paragraph (e)(4) as paragraph (e)(5).
    D. Adding a new paragraph (e)(4).
    E. Revising newly designated paragraph(e)(5)(i)(B).
    F. Adding a new paragraph (e)(5)(iv).


Sec. 413.86  Direct graduate medical education payments.

* * * * *
    (d) Calculating payment for graduate medical education costs. * * *
    (3) Step Three. For portions of cost reporting periods occurring on 
or after January 1, 1998, the product derived in step one is multiplied 
by the proportion of the hospital's inpatient days attributable to 
individuals who are enrolled under a risk-sharing contract with an 
eligible organization under section 1876 of the Act and who are 
entitled to Medicare Part A or with a Medicare+Choice organization 
under Title XVIII, Part C of the Act. * * *
    (e) Determining per resident amounts for the base period. * * *
    (3) For cost reporting periods beginning on or after July 1, 1986. 
Subject to the provisions of paragraph (e)(4) of this section, for cost 
reporting periods beginning on or after July 1, 1986, a hospital's 
base-period per resident amount is adjusted as follows:
* * * * *
    (4) For cost reporting periods beginning on or after October 1, 
2000 and ending on or before September 30, 2005. For cost reporting 
periods beginning on or after October 1, 2000 and ending on or before 
September 30, 2005, a hospital's per resident amount for each fiscal 
year is adjusted in accordance with the following provisions:
    (i) General provisions. For purposes of Sec. 413.86(e)(4)--
    (A) Weighted average per resident amount. The weighted average per 
resident amount is established as follows:
    (1) Using data from hospitals' cost reporting periods ending during 
FY 1997, HCFA calculates each hospital's single per resident amount by 
adding each hospital's primary care and non-primary care per resident 
amounts, weighted by its respective FTEs, and dividing by the sum of 
the FTEs for primary care and non-primary care residents.
    (2) Each hospital's single per resident amount calculated under 
paragraph (e)(4)(i)(A)(1) of this section is standardized by the 1999 
geographic adjustment factor for the physician fee schedule area (as 
determined under Sec. 414.26 of this chapter) in which the hospital is 
located.

[[Page 47110]]

    (3) HCFA calculates an average of all hospitals' standardized per 
resident amounts that are determined under paragraph (e)(4)(i)(A)(2) of 
this section. The resulting amount is the weighted average per resident 
amount.
    (B) Primary care/obstetrics and gynecology and non-primary care per 
resident amounts. A hospital's per resident amount is an amount 
inclusive of any CPI-U adjustments that the hospital may have received 
since the hospital's base year, including any CPI-U adjustments the 
hospital may have received because the hospital trains primary care/
obstetrics and gynecology residents and non-primary care residents as 
specified under paragraph (e)(3)(ii) of this section.
    (ii) Adjustment beginning in FY 2001 and ending in FY 2005. For 
cost reporting periods beginning on or after October 1, 2000 and ending 
on or before September 30, 2005, a hospital's per resident amount is 
adjusted in accordance with paragraphs (e)(4)(ii)(A) through 
(e)(4)(ii)(C) of this section, in that order:
    (A) Updating the weighted average per resident amount for 
inflation. The weighted average per resident amount (as determined 
under paragraph (e)(4)(i)(A) of this section) is updated by the 
estimated percentage increase in the CPI-U during the period beginning 
with the month that represents the midpoint of the cost reporting 
periods ending during FY 1997 (that is, October 1, 1996) and ending 
with the midpoint of the hospital's cost reporting period that begins 
in FY 2001.
    (B) Adjusting for locality. The updated weighted average per 
resident amount determined under paragraph (e)(4)(ii)(A) of this 
section (the national average per resident amount) is adjusted for the 
locality of each hospital by multiplying the national average per 
resident amount by the 1999 geographic adjustment factor for the 
physician Fee schedule area in which each hospital is located, 
established in accordance with Sec. 414.26 of this subchapter.
    (C) Determining necessary revisions to the per resident amount. The 
locality-adjusted national average per resident amount, as calculated 
in accordance with paragraph (e)(4)(ii)(B) of this section, is compared 
to the hospital's per resident amount is revised, if appropriate, 
according to the following three categories:
    (1) Floor. For cost reporting periods beginning on or after October 
1, 2000 and on or before September 30, 2001, if the hospital's per 
resident amount would otherwise be less than 70 percent of the 
locality-adjusted national average per resident amount for FY 2001 (as 
determined under paragraph (e)(4)(ii)(B) of this section), the per 
resident amount is equal to 70 percent of the locality-adjusted 
national average per resident amount for FY 2001. For subsequent cost 
reporting periods, the hospital's per resident amount is updated using 
the methodology specified under paragraph (e)(3)(i) of this section.
    (2) Ceiling. If the hospital's per resident amount is greater than 
140 percent of the locality-adjusted national average per resident 
amount, the per resident amount is adjusted as follows for FY 2001 
through FY 2005:
    (i) FY 2001. For cost reporting periods beginning on or after 
October 1, 2000 and on or before September 30, 2001, if the hospital's 
FY 2000 per resident amount exceeds 140 percent of the FY 2001 
locality-adjusted national average per resident amount (as calculated 
under paragraph (e)(4)(ii)(B) of this section), then, subject to the 
provision stated in paragraph (e)(4)(ii)(C)(2)(iv) of this section, the 
hospital's per resident amount is frozen at the FY 2000 per resident 
amount and is not updated for FY 2001 by the CPI-U factor.
    (ii) FY 2002. For cost reporting periods beginning on or after 
October 1, 2001 and on or before September 30, 2002, if the hospital's 
FY 2001 per resident amount exceeds 140 percent of the FY 2002 
locality-adjusted national average per resident amount, then, subject 
to the provision stated in paragraph (e)(4)(ii)(C)(2)(iv) of this 
section, the hospital's per resident amount is frozen at the FY 2001 
per resident amount and is not updated for FY 2002 by the CPI-U factor.
    (iii) FY 2003 through FY 2005. For cost reporting periods beginning 
on or after October 1, 2002 and on or before September 30, 2005, if the 
hospital's per resident amount for the previous cost reporting period 
is greater than 140 percent of the locality-adjusted national average 
per resident amount for that same previous cost reporting period (for 
example, for cost reporting periods beginning in FY 2003, compare the 
hospital's per resident amount from the FY 2002 cost report to the 
hospital's locality-adjusted national average per resident amount from 
FY 2002), then, subject to the provision stated in paragraph 
(e)(4)(ii)(C)(2)(iv) of this section, the hospital's per resident 
amount is adjusted using the methodology specified in paragraph 
(e)(3)(i) of this section, except that the CPI-U applied for a 12-month 
period is reduced (but not below zero) by 2 percentage points.
    (iv) General rule for hospitals that exceed the ceiling. For cost 
reporting periods beginning on or after October 1, 2000 and on or 
before September 30, 2005, if a hospital's per resident amount exceeds 
140 percent of the hospital's locality-adjusted national average per 
resident amount and it is adjusted under any of the criteria 
(e)(4)(ii)(C)(2)(i) through (iii) of this section, the current year per 
resident amount cannot be reduced below 140 percent of the locality-
adjusted national average per resident amount.
    (3) Per resident amounts greater than or equal to the floor and 
less than or equal to the ceiling. For cost reporting periods beginning 
on or after October 1, 2000 and on or before September 30, 2005, if a 
hospital's per esident amount is greater than or equal to 70 percent 
and less than or equal to 140 percent of the hospital's locality-
adjusted national average per resident amount for each respective 
fiscal year, the hospital's per resident amount is updated using the 
methodology specified in paragraph (e)(3)(i) of this section.
    (5) Exceptions--(i) Base period for certain hospitals. * * *
    (B) The weighted mean value of per resident amounts of hospitals 
located in the same geographic wage area, as that term is used in the 
prospective payment system under part 412 of this chapter, for cost 
reporting periods beginning in the same fiscal years. If there are 
fewer than three amounts that can be used to calculate the weighted 
mean value, the calculation of the per resident amounts includes all 
hospitals in the hospital's region as that term is used in 
Sec. 412.62(f)(1)(i) of his chapter.
* * * * *
    (iv) Effective October 1, 2000, the per resident amounts 
established under paragraphs (e)(5)(i) through (iii) of this section 
are subject to the provisions of paragraph (e)(4) of this section.

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

    D. Part 485 is amended as follows:

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

    Authority: Sec. 1820 of the Act (42 U.S.C. 1395i-1114), unless 
otherwise noted.

    2. A new Sec. 485.643 is added to subpart F to read as follows:


Sec. 485.643  Condition of participation: Organ, tissue, and eye 
procurement.

    The CAH must have and implement written protocols that:
    (a) Incorporate an agreement with an OPO designated under part 486 
of this chapter, under which it must notify, in a timely manner, the 
OPO or a third party designated by the OPO of individuals whose death 
is imminent or

[[Page 47111]]

who have died in the CAH. The OPO determines medical suitability for 
organ donation and, in the absence of alternative arrangements by the 
CAH, the OPO determines medical suitability for tissue and eye 
donation, using the definition of potential tissue and eye donor and 
the notification protocol developed in consultation with the tissue and 
eye banks identified by the CAH for this purpose;
    (b) Incorporate an agreement with at least one tissue bank and at 
least one eye bank to cooperate in the retrieval, processing, 
preservation, storage and distribution of tissues and eyes, as may be 
appropriate to assure that all usable tissues and eyes are obtained 
from potential donors, insofar as such an agreement does not interfere 
with organ procurement;
    (c) Ensure, in collaboration with the designated OPO, that the 
family of each potential donor is informed of its option to either 
donate or not donate organs, tissues, or eyes. The individual 
designated by the CAH to initiate the request to the family must be a 
designated requestor. A designated requestor is an individual who has 
completed a course offered or approved by the OPO and designed in 
conjunction with the tissue and eye bank community in the methodology 
for approaching potential donor families and requesting organ or tissue 
donation;
    (d) Encourage discretion and sensitivity with respect to the 
circumstances, views, and beliefs of the families of potential donors;
    (e) Ensure that the CAH works cooperatively with the designated 
OPO, tissue bank and eye bank in educating staff on donation issues, 
reviewing death records to improve identification of potential donors, 
and maintaining potential donors while necessary testing and placement 
of potential donated organs, tissues, and eyes take place.
    (f) For purposes of these standards, the term ``Organ'' means a 
human kidney, liver, heart, lung, or pancreas.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare-Hospital Insurance)
    Dated: July 24, 2000.
Nancy Ann Min DeParle,
Administrator, Health Care, Financing Administration

    Dated: July 24, 2000.
Donna E. Shalaa,
Secretary.
    [Editorial Note: The following Addendum and appendixes will not 
appear in the Code of Federal Regulations.]

Addendum--Schedule of Standardized Amounts Effective with Discharges 
Occurring On or After October 1, 2000 and Update Factors and Rate-of-
Increase Percentages Effective With Cost Reporting Periods Beginning On 
or After October 1, 2000

I. Summary and Background

    In this Addendum, we are setting forth the amounts and factors 
for determining prospective payment rates for Medicare inpatient 
operating costs and Medicare inpatient capital-related costs. We are 
also setting forth rate-of-increase percentages for updating the 
target amounts for hospitals and hospital units excluded from the 
prospective payment system.
    For discharges occurring on or after October 1, 2000, except for 
sole community hospitals, Medicare-dependent, small rural hospitals, 
and hospitals located in Puerto Rico, each hospital's payment per 
discharge under the prospective payment system will be based on 100 
percent of the Federal national rate.
    Sole community hospitals are paid based on whichever of the 
following rates yields the greatest aggregate payment: the Federal 
national rate, the updated hospital-specific rate based on FY 1982 
cost per discharge, the updated hospital-specific rate based on FY 
1987 cost per discharge, or, if qualified, 25 percent of the updated 
hospital-specific rate based on FY 1996 cost per discharge, plus 75 
percent of the updated FY 1982 or FY 1987 hospital-specific rate. 
Section 405 of Public Law 106-113 amended section 1886(b)(3) of the 
Act to allow a sole community hospital that was paid for its cost 
reporting period beginning during FY 1999 on the basis of either its 
FY 1982 or FY 1987 hospital-specific rate to elect to rebase its 
hospital-specific ate based on its FY 1996 cost per discharge.
    Section 404 of Public Law 106-113 amended section 1886(d)(5)(G) 
of the Act to extend the special treatment for Medicare-dependent, 
small rural hospitals. Medicare-dependent, small rural hospitals are 
paid based on the Federal national rate or, if higher, the Federal 
national rate plus 50 percent of the difference between the Federal 
national rate and the updated hospital-specific rate based on FY 
1982 or FY 1987 cost per discharge, whichever is higher.
    For hospitals in Puerto Rico, the payment per discharge is based 
on the sum of 50 percent of a Puerto Rico rate and 50 percent of a 
Federal national rate.
    As discussed below in section II of this Addendum, we are making 
changes in the determination of the prospective payment rates for 
Medicare inpatient operating costs for FY 2001. The changes, to be 
applied prospectively, affect the calculation of the Federal rates. 
In section III of this Addendum, we finalize our proposal to 
discontinue listing updates to the payments per unit for blood 
clotting factor provided to hospital inpatients who have hemophilia. 
In section IV of this Addendum, we discuss our changes for 
determining the prospective payment rates for Medicare inpatient 
capital-related costs for FY 2001. Section V of this Addendum sets 
forth our changes for determining the rate-of-increase limits for 
hospitals excluded from the prospective payment system for FY 2001. 
The tables to which we refer in the preamble to this final rule are 
presented at the end of this Addendum in section VI.

II. Changes to Prospective Payment Rates For Inpatient Operating Costs 
for FY 2001

    The basic methodology for determining prospective payment rates 
for inpatient operating costs is set forth at Sec. 412.63 for 
hospitals located outside of Puerto Rico. The basic methodology for 
determining the prospective payment rates for inpatient operating 
costs for hospitals located in Puerto Rico is set forth at 
Secs. 412.210 and 412.212. Below, we discuss the factors used for 
determining the prospective payment rates. The Federal and Puerto 
Rico rate changes will be effective with discharges occurring on or 
after October 1, 2000. As required by section 1886(d)(4)(C) of the 
Act, we must also adjust the DRG classifications and weighting 
factors for discharges in FY 2001.
    In summary, the standardized amounts set forth in Tables 1A and 
1C of section VI of this Addendum reflect--
     Updates of 2.3 percent for all areas (that is, the 
market basket percentage increase of 3.4 percent minus 1.1 
percentage points);
     An adjustment to ensure budget neutrality as provided 
for in sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act by 
applying new budget neutrality adjustment factors to the large urban 
and other standardized amounts;
     An adjustment to ensure budget neutrality as provided 
for in section 1886(d)(8)(D) of the Act by removing the FY 2000 
budget neutrality factor and applying a revised factor;
     An adjustment to apply the revised outlier offset by 
removing the FY 2000 outlier offsets and applying a new offset; and
     An adjustment in the Puerto Rico standardized amounts 
to reflect the application of a Puerto Rico-specific wage index.
    The standardized amounts set forth in table 1E of section VI of 
this Addendum, which apply to sole community hospitals, reflect 
updates of 3.4 percent (that is, the full market basket percentage 
increase) as provided for in section 406 of Public Law 106-113, but 
otherwise reflect the same adjustments as the national standardized 
amounts.

A. Calculation of Adjusted Standardized Amounts

1. Standardization of Base-Year Costs or Target Amounts

    Section 1886(d)(2)(A) of the Act required the establishment of 
base-year cost data containing allowable operating costs per 
discharge of inpatient hospital services for each hospital. The 
preamble to the September 1, 1983 interim final rule (48 FR 39763) 
contains a detailed explanation of how base-year cost data were 
established in the initial development of standardized amounts for 
the prospective payment system and how they are used in computing 
the Federal rates.
    Section 1886(d)(9)(B)(i) of the Act required us to determine the 
Medicare target amounts

[[Page 47112]]

for each hospital located in Puerto Rico for its cost reporting 
period beginning in FY 1987. The September 1, 1987 final rule (52 FR 
33043, 33066) contains a detailed explanation of how the target 
amounts were determined and how they are used in computing the 
Puerto Rico rates.
    The standardized amounts are based on per discharge averages of 
adjusted hospital costs from a base period or, for Puerto Rico, 
adjusted target amounts from a base period, updated and otherwise 
adjusted in accordance with the provisions of section 1886(d) of the 
Act. Sections 1886(d)(2)(B) and (d)(2)(C) of the Act required us to 
update base-year per discharge costs for FY 1984 and then 
standardize the cost data in order to remove the effects of certain 
sources of cost variations among hospitals. These effects include 
case-mix, differences in area wage levels, cost-of-living 
adjustments for Alaska and Hawaii, indirect medical education costs, 
a payments to hospitals serving a disproportionate share of low-
income patients.
    Under sections 1886(d)(2)(H) and (d)(3)(E) of the Act, in making 
payments under the prospective payment system, the Secretary 
estimates from time to time the proportion of costs that are wages 
and wage-related costs. Since October 1, 1997, when the market 
basket was last revised, we have considered 71.1 percent of costs to 
be labor-related for purposes of the prospective payment system. The 
average labor share in Puerto Rico is 71.3 percent. We are revising 
the discharge-weighted national standardized amount for Puerto Rico 
to reflect the proportion of discharges in large urban and other 
areas from the FY 1999 MedPAR file.
    Comment: One commenter asserted that our labor share of 71.1 
percent is overstated and particularly disadvantageous to small 
rural hospitals. The commenter questioned how we arrived at this 
percentage when their informal survey of 300 hospitals found none 
with salaries and benefits in excess of 56 percent of total 
operating costs. The commenter proposed that HCFA should only 
recognize costs that are included in the wage index survey on the 
cost report when recalculating the labor share.
    Response: We set forth the latest revision of the labor share 
calculation in the August 29, 1997 final rule (62 FR 45993) after 
considering comments in response to our proposal set forth in the 
June 2, 1997 proposed rule (62 FR 29920). We feel that our current 
methodology accurately captures, on average, the operating costs 
faced by hospitals that are affected by local labor markets. It 
should also be noted that the wage and benefit shares of the 
prospective payment system's market basket are determined using the 
wage index survey data provided in the Medicare Cost Reports. 
However, we will take these comments into consideration when we 
perform our next periodic revision of the hospital operating market 
basket.

2. Computing Large Urban and Other Area Averages

    Sections 1886(d)(2)(D) and (d)(3) of the Act require the 
Secretary to compute two average standardized amounts for discharges 
occurring in a fiscal year: one for hospitals located in large urban 
areas and one for hospitals located in other areas. In addition, 
under sections 1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the Act, the 
average standardized amount per discharge must be determined for 
hospitals located in urban and other areas in Puerto Rico. Hospitals 
in Puerto Rico are paid a blend of 50 percent of the applicable 
Puerto Rico standardized amount and 50 percent of a national 
standardized payment amount.
    Section 1886(d)(2)(D) of the Act defines ``urban area'' as those 
areas within a Metropolitan Statistical Area (MSA). A ``large urban 
area'' is defined as an urban area with a population of more than 1 
million. In addition, section 4009(i) of Public Law 100-203 provides 
that a New England County Metropolitan Area (NECMA) with a 
population of more than 970,000 is classified as a large urban area. 
As required by section 1886(d)(2)(D) of the Act, population size is 
determined by the Secretary based on the latest population data 
published by the Bureau of the Census. Urban areas that do not meet 
the definition of a ``large urban area'' are referred to as ``other 
urban areas.'' Areas that are not included in MSAs are considered 
``rural areas'' under section 1886(d)(2)(D) of the Act. Payment for 
discharges from hospitals located in large urban areas will be based 
on the large urban standardized amount. Payment for discharges from 
hospitals located in other urban and rural areas will be based on 
the other standardized amount.
    Based on 1998 population estimates published by the Bureau of 
the Census, 61 areas meet the criteria to be defined as large urban 
areas for FY 2001. These areas are identified by a footnote in Table 
4A.

3. Updating the Average Standardized Amounts

    Under section 1886(d)(3)(A) of the Act, we update the area 
average standardized amounts each year. In accordance with section 
1886(d)(3)(A)(iv) of the Act, we are updating the large urban areas' 
and the other areas' average standardized amounts for FY 2001 using 
the applicable percentage increases specified in section 
1886(b)(3)(B)(i) of the Act. Section 1886(b)(3)(B)(i)(XVI) of the 
Act specifies an update factor for the standardized amounts for FY 
2001 equal to the market basket percentage increase minus 1.1 
percentage points for hospitals, except sole community hospitals, in 
all areas. The Act, as amended by section 406 of Public Law 106-113, 
specifies an update factor equal to the market basket percentage 
increase for sole community hospitals.
    The percentage change in the market basket reflects the average 
change in the price of goods and services purchased by hospitals to 
furnish inpatient care. The most recent forecast of the hospital 
market basket increase for FY 2001 is 3.4 percent. Thus, for FY 
2001, the update to the average standardized amounts equals 3.4 
percent for sole community hospitals and 2.3 percent for other 
hospitals.
    As in the past, we are adjusting the FY 2000 standardized 
amounts to remove the effects of the FY 2000 geographic 
reclassifications and outliner payments before applying the FY 2001 
updates. That is, we are increasing the standardized amounts to 
restore the reductions that were made for the effects of geographic 
reclassification and outliners. We then apply the new offsets to the 
standardized amounts for outliners and geographic reclassifications 
for FY 2001.
    Although the update factors for FY 2001 are set by law, we are 
required by section 1886(e)(3) of the Act to report to the Congress 
our initial recommendation of update factors for FY2001 for both 
prospective payment hospitals and hospitals excluded from the 
prospective payment system. We have included our final 
recommendations in Appendix C to this final rule.

4. Other Adjustments to the Average Standardized Amounts

    a. Recalibration of DRG Weights and Updated Wage Index--Budget 
Neutrality Adjustment. Section 1886(d)(4)(C)(iii) of the Act 
specifies that, beginning in FY 1991, the annual DRG 
reclassification and recalibration of the relative weights must be 
made in a manner that ensures that aggregate payments to hospitals 
are not affected. As discussed in section II of the preamble, we 
normalized the recalibrated DRG weights by an adjustment factor, so 
that the average case weight after recalibration is equal to the 
average case weight prior to recalibration.
    Section 1886(d)(3)(E) of the Act requires us to update the 
hospital wage index on an annual basis beginning October 1, 1993. 
This provision also requires us to make any updates or adjustments 
to the wage index in a manner that ensures that aggregate payments 
to hospitals are not affected by the change in the wage index.
    To comply with the requirement of section 1886(d)(4)(C)(iii) of 
the Act that DRG reclassification and recalibration of the relative 
weights be budget neutral, and the requirement in section 
1886(d)(3)(E) of the Act that the updated wage index be budget 
neutral, we used historical discharge data to simulate payments and 
compared aggregate payments using the FY 2000 relative weights and 
wage index to aggregate payments using the FY 2001 relative weights 
and wage index. The same methodology was used for the FY 2000 budget 
neutrality adjustment. (See the discussion in the September 1, 1992 
final rule (57 FR 39832).) Based on this comparison, we computed a 
budget neutrality adjustment factor equal to 0.997225. We also 
adjusted the Puerto Rico-specific standardized amounts to adjust for 
the effects of DRG reclassification and recalibration. We computed a 
budget neutrality adjustment factor for Puerto Rico-specific 
standardized amounts equal to 0.999649. These budget neutrality 
adjustment factors are applied to the standardized amounts without 
removing the effects of the FY 2000 budget neutrality adjustments. 
We do not remove the prior budget neutrality adjustment because 
estimated aggregate payments after the changes in the DRG relative 
weights and wage index should equal estimated aggregate payments 
prior to the changes. If we removed the prior year adjustment, we 
would not satisfy this condition.
    In addition, we will continue to apply these same adjustment 
factors to the hospital-specific rates that are effective for cost

[[Page 47113]]

reporting periods beginning in on or after October 1, 2000. (See the 
discussion in the September 4, 1990 final rule (55 FR 6073).)
    b. Reclassified Hospitals--Budget Neutrality Adjustment. Section 
1886(d)(8)(B) of the Act provides that, effective with discharges 
occurring on or after October 1, 1988, certain rural hospitals are 
deemed urban. In addition, section 1886(d)(10) of the Act provides 
for the reclassification of hospitals based on determinations by the 
Medicare Georgraphic Classification Review Board (MGCRB). Under 
section 1886(d)(10) of the Act, a hospital may be reclassified for 
purposes of the standardized amount or the wage index, or both.
    Under section 1886(d)(8)(D) of the Act, the Secretary is 
required to adjust the standardized amounts so as to ensure that 
aggregate payments under the prospective payment system after 
implementation of the provisions of sections 1886(d)(8)(B) and (C) 
and 1886(d)(10) of the Act are equal to the aggregate prospective 
payments that would have been made absent these provisions. Section 
152(b) of Public Law 106-113 requires reclassifications under that 
subsection to be treated as reclassifications under section 
1886(d)(10) of the Act. To calculate this budget neutrality factor, 
we used historical discharge data to simulate payments, and compared 
total prospective payments (including IME and DSH payments) prior to 
any reclassifications to total prospective payments after 
reclassifications. In the May 5, 2000 proposed rule, based on these 
simulations, we applied an adjustment factor of 0.994270 to ensure 
that the effects of reclassification are budget neutral. The final 
budget neutrality adjustment factor is 0.993187.
    The adjustment factor is applied to the standardized amounts 
after removing the effects of the FY 2000 budget neutrality 
adjustment factor. We note that the proposed FY 2001 adjustment 
reflected wage index and standardized amount reclassifications 
approved by the MGCRB or the Administrator as of February 29, 2000. 
The effects of any additional reclassification changes that occurred 
as a result of appeals and reviews of MGCRB decisions for FY 2001 or 
hospitals' withdrawal of reclassification requests are reflected in 
the final budget neutrality adjustment required under section 
1886(d)(8)(D) of the Act and published in this final rule.
    c. Outliers. Section 1886(d)(5)(A) of the Act provides for 
payments in addition to the basic prospective payments for 
``outlier'' cases, cases involving extraordinarily high costs (cost 
outliers). Section 1886(d)(3)(B) of the Act requires the Secretary 
to adjust both the large urban and other area national standardized 
amounts by the same factor to account for the estimated proportion 
of total DRG payments made to outlier cases. Similarly, section 
1886(d)(9)(B)(iv) of the Act requires the Secretary to adjust the 
large urban and other standardized amounts applicable to hospitals 
in Puerto Rico to account for the estimated proportion of total DRG 
payments made to outlier cases. Furthermore, under section 
1886(d)(5)(A)(iv) of the Act, outlier payments for any year must be 
projected to be not less than 5 percent nor more than 6 percent of 
total payments based on DRG prospective payment rates.
    i. FY 2001 outlier thresholds. For FY 2000, the fixed loss cost 
outlier threshold was equal to the prospective payment for the DRG 
plus $14,050 ($12,827 for hospitals that have not yet entered the 
prospective payment system for capital-related costs). The marginal 
cost factor for cost outliers (the percent of costs paid after costs 
for the case exceed the threshold) was 80 percent. We applied an 
outlier adjustment to the FY 2000 standardized amounts of 0.948859 
for the large urban and other areas rates and 0.9402 for the capital 
Federal rate.
    For FY 2001, we proposed to establish a fixed loss cost outlier 
threshold equal to the prospective payment rate for the DRG plus the 
IME and DSH payments plus $17,250 ($15,763 for hospitals that have 
not yet entered the prospective payment system for capital-related 
costs). In addition, we proposed to maintain the marginal cost 
factor for cost outliers at 80 percent. In setting the final FY 2001 
outlier thresholds, we used updated data. In this final rule, we are 
establishing a fixed loss cost outlier threshold equal to the 
prospective payment rate for the DRG plus the IME and DSH payments 
plus $17,550 ($16,036 for hospitals that have not yet entered the 
prospective payment system for capital-related costs). In addition, 
we are maintaining the marginal cost factor for cost outliers at 80 
percent. As we have explained in the past, to calculate outlier 
thresholds we apply a cost inflation factor to update costs for the 
cases used to simulate payments. For FY 1999, we used a cost 
inflation factor of minus 1.724 percent (a cost per case decrease of 
1.724 percent). For FY 2000, we used a cost inflation factor of zero 
percent. To set the proposed FY 2001 outlier thresholds, we used a 
cost inflation factor of 1.0 percent. We are using a cost inflation 
actor of 1.8 percent to set the final FY 2001 outlier thresholds. 
This factor reflects our analysis of the best available cost report 
data as well as calculations (using the best available data) 
indicating that the percentage of actual outlier payments for FY 
1999 is higher than we projected before the beginning of FY 1999, 
and that the percentage of actual outlier payments for FY 2000 will 
likely be higher than we projected before the beginning of FY 2000. 
The calculations of ``actual'' outlier payments are discussed below.
    ii. Other changes concerning outliers. In accordance with 
section 1886(d)(5)(A)(iv) of the Act, we calculated outlier 
thresholds so that outlier payments are projected to equal 5.1 
percent of total payments based on DRG prospective payment rates. In 
accordance with section 1886(d)(3)(E), we reduced the FY 2001 
standardized amounts by the same percentage to account for the 
projected proportion of payments paid to outliers.
    As stated in the September 1, 1993 final rule (58 FR 46348), we 
established outlier thresholds that are applicable to both inpatient 
operating costs and inpatient capital-related costs. When we modeled 
the combined operating and capital outlier payments, we found that 
using a common set of thresholds resulted in a higher percentage of 
outlier payments for capital-related costs than for operating costs. 
We project that the thresholds for FY 2001 will result in outlier 
payments equal to 5.1 percent of operating DRG payments and 5.9 
percent of capital payments based on the Federal rate.
    The proposed outlier adjustment factors applied to the standardized 
amounts for FY 2001 were as follows:

------------------------------------------------------------------------
                                                 Operating     Capital
                                               standardized    federal
                                                  amounts        rate
------------------------------------------------------------------------
National.....................................      0.948865       0.9416
Puerto Rico..................................      0.975408       0.9709
------------------------------------------------------------------------

    The final outlier adjustment factors applied to the standardized 
amounts for FY 2001 are as follows:

------------------------------------------------------------------------
                                                 Operating     Capital
                                               standardized    federal
                                                  amounts        rate
------------------------------------------------------------------------
National.....................................      0.948908       0.9409
Puerto Rico..................................      0.974791       0.9699
------------------------------------------------------------------------

    As in the proposed rule, we apply the outlier adjustment factors 
after removing the effects of the FY 2000 outlier adjustment factors on 
the standardized amounts.
    Table 8A in section VI of this Addendum contains the updated 
Statewide average operating cost-to-charge ratios for urban hospitals 
and for rural hospitals to be used in calculating cost outlier payments 
for those hospitals for which the fiscal intermediary is unable to 
compute a reasonable hospital-specific cost-to-charge ratio. These 
Statewide average ratios replace the ratios published in the July 30, 
1999 final rule (64 FR 41620). Table 8B contains comparable Statewide 
average capital cost-to-charge ratios. These average ratios will be 
used to calculate cost outlier payments for those hospitals for which 
the fiscal intermediary computes operating cost-to-charge ratios lower 
than 0.200265 or greater than 1.298686 and capital cost-to-charge 
ratios lower than 0.01262 greater than 0.16792. This range represents 
3.0 standard deviations (plus or minus) from the mean of the log 
distribution of cost-to-charge ratios for all hospitals. We note that 
the cost-to-charge ratios in Tables 8A and 8B will be used during FY 
2001 when hospital-specific cost-to-charge ratios based on the latest 
settled cost report are either not available or outside the three 
standard deviations range.
    iii. FY 1999 and FY 2000 outlier payments. In the July 30, 1999 
final rule (64 FR 41547), we stated that, based on available data, we 
estimated that actual

[[Page 47114]]

FY 1999 outlier payments would be approximately 6.3 percent of actual 
total DRG payments. This was computed by simulating payments using the 
March 1998 bill data available at the time. That is, the estimate of 
actual outlier payments did not reflect actual FY 1999 bills but 
instead reflected the application of FY 1999 rates and policies to 
available FY 1998 bills. Our current estimate, using available FY 1999 
bills, indicates that actual outlier payments for FY 1999 were 
approximately 7.6 percent of actual total DRG payments. We note that 
the MedPAR file for FY 1999 discharges continues to be updated. Thus, 
the data indicate that, for FY 1999, the percentage of actual outlier 
payments relative to actual total payments is higher than we projected 
before FY 1999 (and thus exceeds the percentage by which we reduced the 
standardized amounts for FY 1999). In fact, the data indicate that the 
proportion of actual outlier payments for FY 1999 exceeds 6 percent. 
Nevertheless, consistent with the policy and statutory interpretation 
we have maintained since the inception of the prospective payment 
system, we do not plan to recoup money and make retroactive adjustments 
to outlier payments for FY 1999.
    We currently estimate that actual outlier payments for FY 2000 will 
be approximately 6.2 percent of actual total DRG payments, higher than 
the 5.1 percent we projected in setting outlier policies for FY 2000. 
This estimate is based on simulations using the March 2000 update of 
the provider-specific file and the March 2000 update of the FY 1999 
MedPAR file (discharge data for FY 1999 bills). We used these data to 
calculate an estimate of the actual outlier percentage for FY 2000 by 
applying FY 2000 rates and policies to available FY 1999 bills.
    Comment: Several commenters opposed the proposed change in the cost 
outlier fixed loss amount from $14,050 to $17,250. The commenters 
stated that our rationale for this change is that outlier payments were 
approximately 7.5 percent of total actual DRG payments in FY 1999 and 
are anticipated to be 6.1 percent in FY 2000. The commenters observed 
that no additional payments were made in previous years when outlier 
payments fell below 5.1 percent. The commenters stated that cost 
outlier thresholds were adjusted as a result of changes made by Public 
Law 105-33 and that the reason current payments exceed the 5.1 percent 
target was due to these changes. The commenters also noted that the 
majority of hospitals did not reap windfall profits on outlier cases, 
merely mitigated their losses. The commenters characterized these 
losses as particularly devastating as they come at a time when MedPAC's 
analyses show that hospitals' financial performance is deteriorating. 
One commenter suggested that the Secretary consider acting 
independently of Congress by lowering the FY 2001 outlier threshold 
without further reducing the standardized payment amount.
    Response: We believe the commenters misunderstood the methodology 
for calculating the FY 2001 outlier fixed loss amount. Under section 
1886(d)(5)(A)(iv) of the Act, we are required to set the outlier 
threshold at a level such that outlier payments are projected to be not 
less than 5 percent nor more than 6 percent of total payments based on 
DRG prospective payment rates. That FY 2000 outlier payments are now 
anticipated to exceed 5.1 percent of total payments is an indication 
that costs are rising faster than we predicted when setting the outlier 
fixed loss amount prior to the beginning of FY 2000. This was one of 
several factors taken into consideration when we estimated FY 2001 
costs to model projected outlier payments for FY 2001. The outlier 
fixed loss amount is set to meet the aforementioned statutory 
requirement. Each year we set the outlier thresholds for the upcoming 
fiscal year by making projections based on the best available data; we 
do not make the thresholds more stringent simply because current data 
indicate that, in a previous year, actual outlier payments turned out 
to be more than we projected when we set the outlier thresholds for 
that year. Thus, the change in the outlier fixed loss amount from 
$14,050 (for FY 2000) to $17,250 (proposed FY 2001) reflects estimates 
and projections about costs in FY 2001. We did not increase the outlier 
fixed loss amount simply because we now expect that actual outlier 
payments exceed 5.1 percent of actual total DRG payments for FY 1999 
and FY 2000 respectively.
    We do not concur with the commenters' assertion that changes to the 
outlier methodology made by Public Law 105-33 caused current outlier 
payments to exceed 5.1 percent. Public Law 105-33 did not change the 
statutory requirement that projected outlier payments be between 5 
percent and 6 percent of projected total payments based on DRG 
prospective payment rates. Again, we believe that current outlier 
payments are greater than expected in part because actual hospital 
costs may be higher than reflected in the methodology used to set the 
outlier threshold.
    Finally, we believe in the concept of outlier payments as a 
protection against the financial effects of treating extraordinarily 
high-cost cases through an offsetting adjustment to the standardized 
amounts according to the statutory requirements set forth as required 
in sections 1886(d)(5)(A)(iv) and 1886(d)(3)(E) of the Act. These 
sections of the Act require that outlier thresholds be calculated so 
that outlier payments are projected to equal between 5 and 6 percent of 
total payments based on DRG prospective payment rates and the 
standardized amounts are to be reduced by the same percentage to 
account for the projected proportion of payments paid to outliers.
5. FY 2001 Standardized Amounts
    The adjusted standardized amounts are divided into labor and 
nonlabor portions. Table 1A (Table 1E for sole community hospitals) 
contains the two national standardized amounts that are applicable to 
all hospitals, except hospitals in Puerto Rico. Under section 
1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto Rico 
payment rate is based on the discharge-weighted average of the national 
large urban standardized amount and the national other standardized 
amount (as set forth in Table 1A). The labor and nonlabor portions of 
the national average standardized amounts for Puerto Rico hospitals are 
set forth in Table 1C. This table also includes the Puerto Rico 
standardized amounts.

B. Adjustments for Area Wage Levels and Cost of Living

    Tables 1A, 1C and 1E, as set forth in this Addendum, contain the 
labor-related and nonlabor-related shares used to calculate the 
prospective payment rates for hospitals located in the 50 States, the 
District of Columbia, and Puerto Rico. This section addresses two types 
of adjustments to the standardized amounts that are made in determining 
the prospective payment rates as described in this Addendum.
1. Adjustment for Area Wage Levels
    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the 
prospective payment rates to account for area differences in hospital 
wage levels. This adjustment is made by multiplying the labor-related 
portion of the adjusted standardized amounts by the appropriate wage 
index for the area in which the hospital is located. In section III of 
this preamble, we discuss the data and methodology for the FY 2001 wage 
index. The wage index is set forth in

[[Page 47115]]

Tables 4A through 4F of this Addendum.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
    Section 1886(d)(5)(H) of the Act authorizes an adjustment to take 
into account the unique circumstances of hospitals in Alaska and 
Hawaii. Higher labor-related costs for these two States are taken into 
account in the adjustment for area wages described above. For FY 2001, 
we are adjusting the payments for hospitals in Alaska and Hawaii by 
multiplying the nonlabor portion of the standardized amounts by the 
appropriate adjustment factor contained in the table below.

 Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii Hospitals
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
    All areas..................................................     1.25
Hawaii:
    County of Honolulu.........................................     1.25
    County of Hawaii...........................................     1.15
    County of Kauai............................................    1.225
    County of Maui.............................................   .1.225
    County of Kalawao..........................................   1.225
------------------------------------------------------------------------
The above factors are based on data obtained from the U.S. Office of
  Personnel Management.

C. DRG Relative Weights

    As discussed in section II of the preamble, we have developed a 
classification system for all hospital discharges, assigning them into 
DRGs, and have developed relative weights for each DRG that reflect the 
resource utilization of cases in each DRG relative to Medicare cases in 
other DRGs. Table 5 of section VI of this Addendum contains the 
relative weights that we will use for discharges occurring in FY 2001. 
These factors have been recalibrated as explained in section II of the 
preamble.

D. Calculation of Prospective Payment Rates for FY 2001

General Formula for Calculation of Prospective Payment Rates for FY 
2001
    The prospective payment rate for all hospitals located outside of 
Puerto Rico except sole community hospitals and Medicare-dependent, 
small rural hospitals = Federal rate.
    The prospective payment rate for sole community hospitals = 
whichever of the following rates yields the greatest aggregate payment: 
The Federal national rate, the updated hospital-specific rate based on 
FY 1982 cost per discharge, the updated hospital-specific rate based on 
FY 1987 cost per discharge, or, if the sole community hospital was paid 
for its cost reporting period beginning during FY 1999 on the basis of 
either its FY 1982 or FY 1987 hospital-specific rate and elects 
rebasing, 25 percent of its updated hospital-specific rate based on FY 
1996 cost per discharge plus 75 percent of its updated FY 1982 or FY 
1987 hospital-specific rate.
    Prospective payment rate for Medicare-dependent, small rural 
hospitals = 100 percent of the Federal rate, or, if the greater of the 
updated FY 1982 hospital-specific rate or the updated FY 1987 hospital-
specific rate is higher than the Federal rate, 100 percent of the 
Federal rate plus 50 percent of the difference between the applicable 
hospital-specific rate and the Federal rate.
    Prospective payment rate for Puerto Rico = 50 percent of the Puerto 
Rico rate + 50 percent of a discharge-weighted average of the national 
large urban standardized amount and the Federal national other 
standardized amount.
1. Federal Rate
    For discharges occurring on or after October 1, 2000 and before 
October 1, 2001, except for sole community hospitals, Medicare-
dependent, small rural hospitals and hospitals in Puerto Rico, the 
hospital's payment is based exclusively on the Federal national rate.
    The payment amount is determined as follows:
    Step 1--Select the appropriate national standardized amount 
considering the type of hospital and designation of the hospital as 
large urban or other (see Table 1A or 1E1 in section VI of this 
Addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located (see Tables 4A, 4B, and 4C of section VI of 
this Addendum).
    Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the appropriate cost-of-
living adjustment factor.
    Step 4--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount (adjusted, if appropriate, under Step 3).
    Step 5--Multiply the final amount from Step 4 by the relative 
weight corresponding to the appropriate DRG (see Table 5 of section VI 
of this Addendum).
2. Hospital-Specific Rate (Applicable Only to Sole Community Hospitals 
and Medicare-Dependent, Small Rural Hospitals)
    Section 1886(b)(3)(C) of the Act, as amended by section 405 of 
Public Law 106-113, provides that sole community hospitals are paid 
based on whichever of the following rates yields the greatest aggregate 
payment: the Federal national rate, the updated hospital-specific rate 
based on FY 1982 cost per discharge, the updated hospital-specific rate 
based on FY 1987 cost per discharge, or, if the sole community hospital 
was paid for its cost reporting period beginning during FY 1999 on the 
basis of either its FY 1982 or FY 1987 hospital-specific rate and 
elects rebasing, 25 percent of its updated hospital-specific rate based 
on FY 1996 cost per discharge plus 75 percent of the updated FY 1982 or 
FY 1987 hospital-specific rate.
    Section 1886(d)(5)(G) of the Act, as amended by section 404 of 
Public Law 106-113, provides that Medicare-dependent, small rural 
hospitals are paid based on whichever of the following rates yields the 
greatest aggregate payment: the Federal rate or the Federal rate plus 
50 percent of the difference between the Federal rate and the greater 
of the updated hospital-specific rate based on FY 1982 and FY 1987 cost 
per discharge.
    Hospital-specific rates have been determined for each of these 
hospitals based on either the FY 1982 cost per discharge, the FY 1987 
cost per discharge or, for qualifying sole community hospitals, the FY 
1996 cost per discharge. For a more detailed discussion of the 
calculation of the hospital-specific rates, we refer the reader to the 
September 1, 1983 interim final rule (48 FR 39772); the April 20, 1990 
final rule with comment (55 FR 15150); and the September 4, 1990 final 
rule (55 FR 35994).
    a. Updating the FY 1982 and FY 1987 Hospital-Specific Rates for FY 
2001. We are increasing the hospital-specific rates by 3.4 percent (the 
hospital market basket rate of increase) for sole community hospitals 
and by 2.3 percent (the hospital market basket percentage increase 
minus 1.1 percentage points) for Medicare-dependent, small rural 
hospitals for FY 2001. Section 1886(b)(3)(C)(iv) of the Act provides 
that the update factor applicable to the hospital-specific rates for 
sole community hospitals equal the update factor provided under section 
1886(b)(3)(B)(iv) of the Act, which, for sole community hospitals in FY 
2001, is the market basket rate of increase. Section 1886(b)(3)(D) of 
the Act provides that the update factor applicable to the hospital-
specific rates for Medicare-dependent, small rural hospitals equal the 
update factor provided under section 1886(b)(3)(B)(iv) of the Act, 
which, for FY 2001, is the

[[Page 47116]]

market basket rate of increase minus 1.1 percentage points.
    b. Calculation of Hospital-Specific Rate. For sole community 
hospitals, the applicable FY 2001 hospital-specific rate is the greater 
of the following: the hospital-specific rate for the preceding fiscal 
year, increased by the applicable update factor (3.4 percent); or, if 
the hospital qualifies to rebase its hospital-specific rate based on 
cost per case in FY 1996 and elects rebasing, 75 percent of the 
hospital-specific rate for the preceding fiscal year, increased by the 
applicable update factor, plus 25 percent of its rebased FY 1996 
hospital-specific rate updated through FY 2001. For Medicare-dependent, 
small rural hospitals, the applicable FY 2001 hospital-specific rate is 
calculated by increasing the hospital's hospital-specific rate for the 
preceding fiscal year by the applicable update factor (2.3 percent), 
which is the same as the update for all prospective payment hospitals, 
except sole community hospitals. In addition, the hospital-specific 
rate is adjusted by the budget neutrality adjustment factor (that is, 
0.997225) as discussed in section II.A.4.a. of this Addendum. The 
resulting rate is used in determining under which rate a sole community 
hospital or Medicare-dependent, small rural hospital is paid for its 
discharges beginning on or after October 1, 2000, based on the formula 
set forth above.
3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning on or After October 1, 2000 
and Before October 1, 2001
    a. Puerto Rico Rate. The Puerto Rico prospective payment rate is 
determined as follows:
    Step 1--Select the appropriate adjusted average standardized amount 
considering the large urban or other designation of the hospital (see 
Table 1C of section VI of the Addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the appropriate Puerto Rico-specific wage index (see Table 4F 
of section VI of the Addendum).
    Step 3--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount.
    Step 4--Multiply the result in Step 3 by 50 percent.
    Step 5--Multiply the amount from Step 4 by the appropriate DRG 
relative weight (see Table 5 of section VI of the Addendum).
    b. National Rate. The national prospective payment rate is 
determined as follows:
    Step 1--Multiply the labor-related portion of the national average 
standardized amount (see Table 1C of section VI of the Addendum) by the 
appropriate national wage index (see Tables 4A and 4B of section VI of 
the Addendum).
    Step 2--Add the amount from Step 1 and the nonlabor-related portion 
of the national average standardized amount.
    Step 3--Multiply the result in Step 2 by 50 percent.
    Step 4--Multiply the amount from Step 3 by the appropriate DRG 
relative weight (see Table 5 of section VI of the Addendum).
    The sum of the Puerto Rico rate and the national rate computed 
above equals the prospective payment for a given discharge for a 
hospital located in Puerto Rico.

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

    For the past 2 years in the Federal Register (63 FR 41010 and 64 FR 
41549), we have discussed section 4452 of Public Law 105-33, which 
amended section 6011(d) of Public Law 101-239 to reinstate the add-on 
payment for the costs of administering blood clotting factor to 
Medicare beneficiaries who have hemophilia and who are hospital 
inpatients for discharges occurring on or after October 1, 1997. In 
these prior rules, we have described the payment policy that the 
payment amount for clotting factors covered by this inpatient benefit 
is equal to 85 percent of the AWP, subject to the Part A deductible and 
coinsurance requirements, and specifically listed the updated add-on 
payment amounts for each clotting factor, as described by HCFA's Common 
Procedure Coding System (HCPCS). Because we are not changing the policy 
established 2 years ago, we are discontinuing the practice of listing 
these amounts in the annual proposed and final rules. Instead, the 
program manuals will instruct fiscal intermediaries to follow this 
policy and obtain the average wholesale price (AWP) for each relevant 
HCPCS from either their corresponding local carrier or the Medicare 
durable medical equipment regional carrier (DMERC) that has 
jurisdiction in their area. Carriers already calculate the AWP based on 
the median AWP of the several products available in each category of 
factor.
    The payment amounts will be determined using the most recent AWP 
data available to the carrier at the time the intermediary performs 
these annual update calculations.
    These amounts are updated annually and are effective for discharges 
beginning on or after October 1 of the current year through September 
30 of the following year. Payment will be made for blood clotting 
factor only if there is an ICD-9-CM diagnosis code for hemophilia 
included on the bill.
    Comment: One commenter disagreed with our proposal to have 
individual Medicare contractors determine the payment allowance for the 
pass-through amount payable for clotting factors for inpatients with 
hemophilia. The commenter stated that individual Medicare contractors 
would not maintain a uniform payment amount and this inconsistency 
would result in wide disparities in reimbursement. The commenter 
recommended that HCFA continue to set a standard national rate that 
would be the same for everyone. The commenter also expressed concern 
that updates in payment allowances for clotting factors would vary 
widely among contractors.
    Response: We continue to believe that our carriers are the most 
appropriate entities to obtain the AWP for these factors, and are 
therefore proceeding with our proposed change. While we do not 
anticipate inconsistency in the payment allowances for these products 
around the country, we do not want to jeopardize access to these 
essential biologicals for Medicare beneficiaries who are hemophiliacs. 
Therefore, we have determined that a more appropriate approximation for 
the cost of clotting factor furnished on an inpatient basis is 95 
percent of the AWP, consistent with the Part B benefit for the same 
factors. This increase from 85 percent to 95 percent of the AWP will 
assure access despite possible Medicare contractor variations in the 
applicable AWP.

IV. Changes to Payment Rates for Inpatient Capital-Related Costs 
for FY 2001

    The prospective payment system for hospital inpatient capital-
related costs was implemented for cost reporting periods beginning on 
or after October 1, 1991. Effective with that cost reporting period and 
during a 10-year transition period extending through FY 2001, hospital 
inpatient capital-related costs are paid on the basis of an increasing 
proportion of the capital prospective payment system Federal rate and a 
decreasing proportion of a hospital's historical costs for capital.
    The basic methodology for determining capital Federal prospective 
rates is set forth at Secs. 412.308 through 412.352. Below we discuss 
the factors that we used to determine the capital

[[Page 47117]]

Federal rate and the hospital-specific rates and the hospital-specific 
rates for FY 2001. The rates will be effective for discharges occurring 
on or after October 1, 2000.
    For FY 1992, we computed the standard Federal payment rate for 
capital-related costs under the prospective payment system by updating 
the FY 1989 Medicare inpatient capital cost per case by an actuarial 
estimate of the increase in Medicare inpatient capital costs per case. 
Each year after FY 1992, we update the standard capital Federal rate, 
as provided in Sec. 412.308(c)(1), to account for capital input price 
increases and other factors. Also, Sec. 412.308(c)(2) provides that the 
capital Federal rate is adjusted annually by a factor equal to the 
estimated proportion of outlier payments under the capital Federal rate 
to total capital payments under the capital Federal rate. In addition, 
Sec. 412.308(c)(3) requires that the capital Federal rate be reduced by 
an adjustment factor equal to the estimated proportion of payments for 
exceptions under Sec. 412.348. Furthermore, Sec. 412.308(c)(4)(ii) 
requires that the capital Federal rate be adjusted so that the annual 
DRG reclassification and the recalibration of DRG weights and changes 
in the geographic adjustment factor are budget neutral. For FYs 1992 
through 1995, Sec. 412.352 required that the capital Federal rate also 
be adjusted by a budget neutrality factor so that aggregate payments 
for inpatient hospital capital costs were projected to equal 90 percent 
of the payments that would have been made for capital-related costs on 
a reasonable cost basis during the fiscal year. That provision expired 
in FY 1996. Section 412.308(b)(2) describes the 7.4 percent reduction 
to the rate that was made in FY 1994, and Sec. 412.308(b)(3) describes 
the 0.28 percent reduction to the rate made in FY 1996 as a result of 
the revised policy of paying for transfers. In the FY 1998 final rule 
with comment period (62 FR 45966), we implemented section 4402 of 
Public Law 105-33, which requires that for discharges occurring on or 
after October 1, 1997, and before October 1, 2002, the unadjusted 
standard capital Federal rate is reduced by 17.78 percent. A small part 
of that reduction will be restored effective October 1, 2002.
    For each hospital, the hospital-specific rate was calculated by 
dividing the hospital's Medicare inpatient capital-related costs for a 
specified base year by its Medicare discharges (adjusted for 
transfers), and dividing the result by the hospital's case mix index 
(also adjusted for transfers). The resulting case-mix adjusted average 
cost per discharge was then updated to FY 1992 based on the national 
average increase in Medicare's inpatient capital cost per discharge and 
adjusted by the exceptions payment adjustment factor and the budget 
neutrality adjustment factor to yield the FY 1992 hospital-specific 
rate. Since FY 1992, the hospital-specific rate has been updated 
annually for inflation and for changes in the exceptions payment 
adjustment factor. For FYs 1992 through 1995, the hospital-specific 
rate was also adjusted by a budget neutrality adjustment factor. 
Section 4402 of Public Law 105-33 also requires that fFor discharges 
occurring on or after October 1, 1997, and before October 1, 2002, the 
unadjusted hospital-specific rate is reduced by 17.78 percent. A small 
part of this reduction will be restored effective October 1, 2002.
    To determine the appropriate budget neutrality adjustment factor 
and the exceptions payment adjustment factor, we developed a dynamic 
model of Medicare inpatient capital-related costs, that is, a model 
that projects changes in Medicare inpatient capital-related costs over 
time. With the expiration of the budget neutrality provision, the model 
is still used to estimate the exceptions payment adjustment and other 
factors. The model and its application are described in greater detail 
in Appendix B of this final rule.
    In accordance with section 1886(d)(9)(A) of the Act, under the 
prospective payment system for inpatient operating costs, hospitals 
located in Puerto Rico are paid for operating costs under a special 
payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a 
blended rate that consisted of 75 percent of the applicable 
standardized amount specific to Puerto Rico hospitals and 25 percent of 
the applicable national average standardized amount. However, effective 
October 1, 1997, as a result of section 4406 of Public Law 105-33, 
operating payments to hospitals in Puerto Rico are based on a blend of 
50 percent of the applicable standardized amount specific to Puerto 
Rico hospitals and 50 percent of the applicable national average 
standardized amount. In conjunction with this change to the operating 
blend percentage, effective with discharges on or after October 1, 
1997, we compute capital payments to hospitals in Puerto Rico based on 
a blend of 50 percent of the Puerto Rico rate and 50 percent of the 
capital Federal rate.
    Section 412.374 provides for the use of this blended payment system 
for payments to Puerto Rico hospitals under the prospective payment 
system for inpatient capital-related costs. Accordingly, for capital-
related costs, we compute a separate payment rate specific to Puerto 
Rico hospitals using the same methodology used to compute the national 
Federal rate for capital.

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

    In the July 30, 1999 final rule (64 FR 41551), we established a 
capital Federal rate of $377.03 for FY 2000. In the proposed rule, we 
stated that, as a result of the changes we proposed to the factors used 
to establish the capital Federal rate, the proposed FY 2001 capital 
Federal rate was $383.06. In this final rule, we are establishing a FY 
2001 capital Federal rate of $382.03.
    In the discussion that follows, we explain the factors that were 
used to determine the FY 2001 capital Federal rate. In particular, we 
explain why the FY 2001 capital Federal rate has increased 1.33 percent 
compared to the FY 2000 capital Federal rate. We also estimate 
aggregate capital payments will increase by 5.48 percent during this 
same period. This increase is primarily due to the increase in the 
number of hospital admissions, the increase in case-mix, and the 
increase in the Federal blend percentage from 90 to 100 percent for 
fully prospective payment hospitals.
    Total payments to hospitals under the prospective payment system 
are relatively unaffected by changes in the capital prospective 
payments. Since capital payments constitute about 10 percent of 
hospital payments, a 1 percent change in the capital Federal rate 
yields only about 0.1 percent change in actual payments to hospitals. 
Aggregate payments under the capital prospective payment transition 
system are estimated to increase in FY 2001 compared to FY 2000.
1. Standard Capital Federal Rate Update
    a. Description of the Update Framework. Under Sec. 412.308(c)(1), 
the standard capital Federal rate is updated on the basis of an 
analytical framework that takes into account changes in a capital input 
price index and other factors. The update framework consists of a 
capital input price index (CIPI) and several policy adjustment factors. 
Specifically, we have adjusted the projected CIPI rate of increase as 
appropriate each year for case-mix index-related changes, for 
intensity, and for errors in previous CIPI forecasts. The proposed rule 
reflected an update factor for FY 2001 under that framework of 0.9 
percent, based on data available at that

[[Page 47118]]

time. Under the update framework, the final update factor for FY 2001 
is 0.9 percent. This update factor is based on a projected 0.9 percent 
increase in the CIPI, a 0.0 percent adjustment for intensity, a 0.0 
percent adjustment for case-mix, a 0.0 percent adjustment for the FY 
1999 DRG reclassification and recalibration, and a forecast error 
correction of 0.0 percent. We explain the basis for the FY 2001 CIPI 
projection in section II.D of this Addendum. In this section IV of the 
Addendum, we describe the policy adjustments that have been applied.
    The case-mix index is the measure of the average DRG weight for 
cases paid under the prospective payment system. Because the DRG weight 
determines the prospective payment for each case, any percentage 
increase in the case-mix index corresponds to an equal percentage 
increase in hospital payments.
    The case-mix index can change for any of several reasons:
     The average resource use of Medicare patients changes 
(``real'' case-mix change);
     Changes in hospital coding of patient records result in 
higher weight DRG assignments (``coding effects''); and
     The annual DRG reclassification and recalibration changes 
may not be budget neutral (``reclassification effect'').
    We define real case-mix change as actual changes in the mix (and 
resource requirements) of Medicare patients as opposed to changes in 
coding behavior that result in assignment of cases to higher weighted 
DRGs but do not reflect higher resource requirements. In the update 
framework for the prospective payment system for operating costs, we 
adjust the update upwards to allow for real case-mix change, but remove 
the effects of coding changes on the case-mix index. We also remove the 
effect on total payments of prior changes to the DRG classifications 
and relative weights, in order to retain budget neutrality for all 
case-mix index-related changes other than patient severity. (For 
example, we adjusted for the effects of the FY 1999 DRG 
reclassification and recalibration as part of our FY 2001 update 
recommendation.) We have adopted this case-mix index adjustment in the 
capital update framework as well.
    For FY 2001, we are projecting a 0.5 percent increase in the case-
mix index. We estimate that real case-mix increase will equal 0.5 
percent in FY 2001. Therefore, the net adjustment for case-mix change 
in FY 2001 is 0.0 percentage points.
    Comment: One commenter stated that the magnitude of the upward 
adjustment of 0.5 percent for real case-mix change and the downward 
adjustment of 0.5 percent for projected case-mix change (a net case-mix 
adjustment of 0.0 percent) for FY 2001 appears inconsistent with past 
numbers published by HCFA. They recommend that we review our adjustment 
for case-mix and provide a basis for these adjustment amounts.
    Response: HCFA's Office of the Actuary estimates the projection of 
total case-mix changes used in the capital and operating update 
frameworks. The estimate of case-mix change for FY 2001 is the same as 
the estimate of case-mix change for FY 2000 published in the July 30, 
1999 final rule (64 FR 41551). This estimate of case-mix change for FY 
2001 is also very close to what has been used for the past 5 years. 
Past estimates of case-mix change have always assumed that most of the 
case-mix change will be real, and therefore the net adjustments for 
case-mix change have always been small or zero. Again this year, our 
estimate assumes the same kind of relationship. Therefore, we believe 
that our projection of a 0.5 percent increase in the case-mix index and 
our estimate that real case-mix increase will equal 0.5 percent (for a 
net case-mix adjustment of 0.0 percent) in FY 2001 is consistent with 
past case-mix change update recommendations. As more experience 
develops we may be able to develop a better estimate of the real part 
of the case-mix increase.
    We estimate that FY 1999 DRG reclassification and recalibration 
will result in a 0.0 percent change in the case-mix when compared with 
the case-mix index that would have resulted if we had not made the 
reclassification and recalibration changes to the DRGs. Therefore, we 
are making a 0.0 percent adjustment for DRG reclassification and 
recalibration in the update recommendation for FY 2001.
    The capital update framework contains an adjustment for forecast 
error. The input price index forecast is based on historical trends and 
relationships ascertainable at the time the update factor is 
established for the upcoming year. In any given year there may be 
unanticipated price fluctuations that may result in differences between 
the actual increase in prices and the forecast used in calculating the 
update factors. In setting a prospective payment rate under the 
framework, we make an adjustment for forecast error only if our 
estimate of the change in the capital input price index for any year is 
off by 0.25 percentage points or more. There is a 2-year lag between 
the forecast and the measurement of the forecast error. A forecast 
error of 0.0 percentage points was calculated for the FY 1999 update. 
That is, current historical data indicate that the FY 1999 CIPI used in 
calculating the forecasted FY 1999 update factor did not overstate or 
understate realized price increases. We therefore are making a 0.0 
percent adjustment for forecast error in the update for FY 2001.
    Under the capital prospective payment system framework, we also 
make an adjustment for changes in intensity. We calculate this 
adjustment using the same methodology and data as in the framework for 
the operating prospective payment system. The intensity factor for the 
operating update framework reflects how hospital services are utilized 
to produce the final product, that is, the discharge. This component 
accounts for changes in the use of quality-enhancing services, changes 
in within-DRG severity, and expected modification of practice patterns 
to remove cost-ineffective services.
    We calculate case-mix constant intensity as the change in total 
charges per admission, adjusted for price level changes (the CPI for 
hospital and related services), and changes in real case-mix. The use 
of total charges in the calculation of the proposed intensity factor 
makes it a total intensity factor, that is, charges for capital 
services are already built into the calculation of the factor. 
Therefore, we have incorporated the intensity adjustment from the 
operating update framework into the capital update framework. Without 
reliable estimates of the proportions of the overall annual intensity 
increases that are due, respectively, to ineffective practice patterns 
and to the combination of quality-enhancing new technologies and 
within-DRG complexity, we assume, as in the revised operating update 
framework, that one-half of the annual increase is due to each of these 
factors. The capital update framework thus provides an add-on to the 
input price index rate of increase of one-half of the estimated annual 
increase in intensity to allow for within-DRG severity increases and 
the adoption of quality-enhancing technology.
    For FY 2001, we have developed a Medicare-specific intensity 
measure based on a 5-year average using FY 1995 through 1999 data. In 
determining case-mix constant intensity, we found that observed case-
mix increase was 1.7 percent in FY 1995, 1.6 percent in FY 1996, 0.3 
percent in FY 1997, -0.4 percent in FY 1998, and -0.3 percent in FY 
1999. For FY 1995 and FY 1996, we estimate that real case-mix increase 
was 1.0 to 1.4 percent each year. The estimate for those years is 
supported by

[[Page 47119]]

past studies of case-mix change by the RAND Corporation. The most 
recent study was ``Has DRG Creep Crept Up? Decomposing the Case Mix 
Index Change Between 1987 and 1988'' by G. M. Carter, J. P. Newhouse, 
and D. A. Relles, R-4098-HCFA/ProPAC (1991). The study suggested that 
real case-mix change was not dependent on total change, but was usually 
a fairly steady 1.0 to 1.5 percent per year. We use 1.4 percent as the 
upper bound because the RAND study did not take into account that 
hospitals may have induced doctors to document medical records more 
completely in order to improve payment. Following that study, we 
consider up to 1.4 percent of observed case-mix change as real for FY 
1995 through FY 1999. Based on this analysis, we believe that all of 
the observed case-mix increase for FY 1997, FY 1998, and FY 1999 is 
real. The increases for FY 1995 and FY 1996 were in excess of our 
estimate of real case-mix increase.
    We calculate case-mix constant intensity as the change in total 
charges per admission, adjusted for price level changes (the CPI for 
hospital and related services), and changes in real case-mix. Given 
estimates of real case-mix of 1.0 percent for FY 1995, 1.0 percent for 
FY 1996, 0.3 percent for FY 1997, -0.4 percent for FY 1998, and -0.3 
percent for FY 1999, we estimate that case-mix constant intensity 
declined by an average 0.7 percent during FYs 1995 through 1999, for a 
cumulative decrease of 3.6 percent. If we assume that real case-mix 
increase was 1.4 percent for FY 1995, 1.4 percent for FY 1996, 0.3 
percent for FY 1997, -0.4 percent for FY 1998, and -0.3 percent for FY 
1999, we estimate that case-mix constant intensity declined by an 
average 0.9 percent during FYs 1995 through 1999, for a cumulative 
decrease of 4.5 percent. Since we estimate that intensity has declined 
during that period, we are recommending a 0.0 percent intensity 
adjustment for FY 2001.
    We note that the operating recommendation addressed in Appendix C 
of this final rule reflects the possible range that a negative 
adjustment could span (-0.6 percent to 0.0 percent adjustment) based on 
our analyses that intensity has declined during that 5-year period. 
While the calculation of the adjustment for intensity is identical in 
both the capital and the operating update frameworks, consistent with 
past capital update recommendations and the FY 2001 operating 
recommendation, we did not make a negative adjustment for intensity in 
the FY 2001 capital update.
    b. Comparison of HCFA and MedPAC Update Recommendations. MedPAC's 
FY 2001 update recommendation for capital prospective payments was not 
included in its March 2000 Report to Congress. In the May 5, 2000 
proposed rule, we stated that we would address the comparison of HCFA's 
update recommendation and MedPAC's update recommendation in this final 
rule, once we have had the opportunity to review the data analyses that 
substantiate MedPAC's recommendation.
    In its June 2000 Report to Congress, MedPAC presented a combined 
operating and capital update for hospital inpatient prospective payment 
system payments for FY 2001, and recommended that Congress implement a 
single combined (operating and capital) prospective payment system 
rate. With the end of the transition to fully prospective capital 
payments ending with FY 2001, both operating and capital prospective 
system payments will be made using standard Federal rates adjusted by 
hospital specific payment variables. Currently, section 
1886(b)(3)(B)(i)(XVI) of the Act sets forth the FY 2001 percentage 
increase in the prospective payment system operating cost standardized 
amounts. The prospective payment system capital update is set under the 
framework established by the Secretary outlined in Sec. 412.308(c)(1).
    For FY 2001, MedPAC's update framework supports a combined 
operating and capital update for hospital inpatient prospective payment 
system payments of 3.5 percent to 4.0 percent (or between the increase 
in the combined operating and capital market basket plus 0.6 percentage 
points and the increase in the combined operating and capital market 
basket plus 1.1 percentage points). MedPAC also notes that while the 
number of hospitals with negative inpatient hospital margins have 
increased in FY 1998 (mostly likely as the result of the implementation 
of Pub. L. 105-33), overall high inpatient Medicare margins generally 
offset hospital losses on other lines of Medicare services. MedPAC 
continues to project positive (greater than 11 percentage points) 
Medicare inpatient hospital margins through FY 2002.
    MedPAC's FY 2001 combined operating and capital update framework 
uses a weighted average of HCFA's forecasts of the operating (PPS Input 
Price Index) and capital (CIPI) market baskets. This combined market 
basket is used to develop an estimate of the change in overall 
operating and capital prices. MedPAC calculated a combined market 
basket forecast by weighting the operating market basket forecast by 
0.92 and the capital market basket forecast by 0.08, since operating 
costs are estimated to represent 92 percent of total hospital costs 
(capital costs are estimated to represent the remaining 8 percent of 
total hospital costs). MedPAC's combined market basket for FY 2001 is 
estimated to increase by 2.9 percent, based on HCFA's March 2000 
forecasted operating market basket increase of 3.1 percent and HCFA's 
March 2000 forecasted capital market basket increase of 0.9 percent.
    HCFA's Response to MedPAC's Recommendation: As we stated in the May 
5, 2000 proposed rule (65 FR 26317), we responded to a similar comment 
in the July 30, 1999 final rule (64 FR 41552), the July 31, 1998 final 
rule (63 FR 41013), and the September 1, 1995 final rule (60 FR 45816). 
In those rules, we stated that our long-term goal was to develop a 
single update framework for operating and capital prospective payments 
and that we would begin development of a unified framework. However, we 
have not yet developed such a single framework as the actual operating 
system update has been determined by Congress through FY 2002. In the 
meantime, we intend to maintain as much consistency as possible with 
the current operating framework in order to facilitate the eventual 
development of a unified framework. We maintain our goal of combining 
the update frameworks at the end of the 10-year capital transition 
period (the end of FY 2001) and may examine combining the payment 
systems post-transition. Because of the similarity of the update 
frameworks, we believe that they could be combined with little 
difficulty.
    Our recommendation for updating the prospective payment system 
capital Federal rate is supported by the following analyses that 
measure changes in scientific and technological advances, practice 
pattern changes, changes in case-mix, the effect of reclassification 
and recalibration, and forecast error correction. MedPAC recommends a 
3.5 to 4.0 percent combined operating and capital update for hospital 
inpatient prospective payments. Under our existing capital update 
framework, we are recommending a 0.9 percent update to the capital 
Federal rate. For purposes of comparing HCFA's capital update 
recommendation and MedPAC's update recommendation for FY 2001, we have 
isolated the capital component of MedPAC's combined market basket 
forecast, which was based on HCFA's March 2000 CIPI forecast of 0.9 
percent. As a result, MedPAC's update recommendation for FY 2001 for 
capital

[[Page 47120]]

payments is between 1.4 percent and 1.9 percent (see Table 1).
    There are some differences between HCFA's and MedPAC's update 
frameworks, which account for the difference in the respective update 
recommendations. In it's combined FY 2001 update recommendation, MedPAC 
uses HCFA's capital input price index (the CIPI) as the starting point 
for estimating the change in prices since the previous year. HCFA's 
CIPI includes price measures for interest expense, which are an 
indicator of the interest rates facing hospitals during their capital 
purchasing decisions. Previously, MedPAC's capital market basket did 
not include interest expense; instead it included a financing policy 
adjustment when necessary to account for the prolonged changes in 
interest rates. HCFA's CIPI is vintage-weighted, meaning that it takes 
into account price changes from past purchases of capital when 
determining the current period update. In the past, MedPAC's capital 
market basket was not vintage-weighted, and only accounted for the 
current year price changes. This year, both HCFA's and MedPAC's FY 2001 
update frameworks use HCFA's CIPI, which is currently forecast at 0.9 
percent.
    MedPAC and HCFA also differ in the adjustments they make in their 
respective frameworks. (See Table 1 for a comparison of HCFA and 
MedPAC's update recommendations.) MedPAC makes an adjustment for 
scientific and technological advances, which is offset by a fixed 
standard for productivity growth. HCFA has not adopted a separate 
adjustment for capital science and technology or productivity and 
efficiency. Instead, we have identified a total intensity factor, which 
reflects scientific and technological advances, but we have not 
identified an adequate total productivity measure. The Commission also 
includes a site-of-care substitution adjustment (unbundling of the 
payment unit) to account for the decline in the average length of 
Medicare acute inpatient stays. This adjustment is designed to shift 
funding along with associated costs when Medicare patients are 
discharged to postacute settings that replace acute impatient days. 
Other factors, such as technological advances that allow for a 
decreased need in follow-up care and BBA mandated policy on payment for 
transfer cases that limits payments within certain DRGs, are reflected 
in the site-of-care substitution adjustment as well. A negative 
intensity adjustment would capture the site-of-care substitution 
accounted for in MedPAC's update framework. However, we did not make a 
negative adjustment for intensity this year. We may examine the 
appropriateness of adopting a negative intensity adjustment at a later 
date.
    For FY 2001, MedPAC recommends a 0.0 percent combined adjustment 
for site-of-care substitutions. MedPAC recommends a 0.0 to a 0.5 
percent combined adjustment for scientific and technological advances, 
which was offset by a fixed productivity standard of 0.5 percent for FY 
2001. We recommend a 0.0 percent intensity adjustment.
    Additionally, MedPAC has included an adjustment for one-time 
factors to account for significant costs incurred by hospitals for 
unusual, non-recurring events or for the costs of major new regulatory 
requirements. The Commission is not recommending any additional 
allowance for FY 2001 and recommends a 0.0 percent combined adjustment 
for one-time factors for FY 2001.
    MedPAC makes a two-part adjustment for case-mix changes, which 
takes into account changes in case-mix in the past year. They recommend 
a 0.5 percent combined adjustment for DRG coding change and a 0.0 
percent combined adjustment for within-DRG complexity change. This 
results in a combined total case mix adjustment of 0.5 percent. We 
recommend a 0.0 percent total case-mix adjustment, since we are 
projecting a 0.5 percent increase in the case-mix index and we estimate 
that real case-mix increase will equal 0.5 percent in FY 2001.
    We recommend a 0.0 percent adjustment for forecast error 
correction. MedPAC's combined FY 2001 update recommendation includes a 
0.1 percent adjustment for forecast error correction. However, they 
noted that this forecast error adjustment is a result of the difference 
between the forecasted FY 1999 operating market basket of 2.4 percent 
and the actual FY 1999 operating market basket increase of 2.5 percent. 
The FY 1999 capital market basket forecast was equal to the actual 
observed increase of 0.7 percent for capital costs. Therefore, we have 
included 0.0 percent adjustment for FY 1999 forecast error correction 
in the comparison of MedPAC's and HCFA's update recommendations for FY 
2001 shown below in Table 1.
    We applied MedPAC's ratio of hospital capital costs to total 
hospital costs (8 percent) to the adjustment factors in their update 
framework for comparison with HCFA's capital update framework. The net 
result of these adjustments is that MedPAC has recommended a 0.9 to 1.0 
percent update to the capital Federal rate for FY 2001. MedPAC believes 
that the annual updates to the capital and operating payments under the 
prospective payment system should not differ substantially, even though 
they are determined separately, since they correspond to costs 
generated by providing the same inpatient hospital services to the same 
Medicare patients. We describe the basis for our 0.9 percent total 
capital update for FY 2001 in the preceding section. While our 
recommendation is below the range recommended by MedPAC, in past years 
our update recommendation has been above the lower limit of MedPAC's 
update recommendation. For instance, for FY 2000 MedPAC's update 
recommendation was -1.1 percent to 1.8 percent. HCFA's FY 2000 update 
factor was 0.3 percent, which is 1.4 percentage points higher than the 
lower limit of MedPAC's update recommendation. For FY 2001, our update 
0.9 percent is only 0.5 percentage points below MedPAC's lower limit of 
their recommendation.

   Table 1.--HCFA's FY 2001 Update Factor and MedPAC's Recommendation
------------------------------------------------------------------------
                                               HCFA's
                                               update        MedPAC's
                                               factor     recommendation
------------------------------------------------------------------------
Capital Input Price Index.................          0.9  0.9\1\
------------------------------------------------------------------------
                        Policy Adjustment Factors
------------------------------------------------------------------------
Intensity.................................          0.0  ...............
    Science and Technology................  ...........  0.0 to 0.5
    Intensity.............................  ...........  (\2\)

[[Page 47121]]

 
    Real within DRG Change................  ...........  (\3\)
                                           -----------------------------
Site-of-Care Substitution.................  ...........  0.0
                                           -----------------------------
    Subtotal..............................          0.0  0.0 to 0.5
------------------------------------------------------------------------
                       Case-Mix Adjustment Factors
------------------------------------------------------------------------
Projected Case-Mix Change.................         -0.5  ...............
Real Across DRG Change....................          0.5  ...............
Coding Change.............................  ...........  0.5
Real within DRG Change....................          \4\  0.0
                                           -----------------------------
    Subtotal..............................          0.0  0.5
                                           =============================
One-Time Factors..........................  ...........  0.0
Effect of FY 1998 Reclassification and              0.0  ...............
 Recalibration.
Forecast Error Correction.................          0.0  0.0
                                           -----------------------------
    Total Update..........................          0.9  1.4 to 1.9
------------------------------------------------------------------------
\1\ Used HCFA's March 2000 capital market basket forecast in its
  combined update recommendations.
\2\ Included in MedPAC's productivity offset in its science and
  technology adjustment.
\3\ Included in MedPAC's case-mix adjustment.
\4\ Included in HCFA's intensity factor.

2. Outlier Payment Adjustment Factor
    Section 412.312(c) establishes a unified outlier methodology for 
inpatient operating and inpatient capital-related costs. A single set 
of thresholds is used to identify outlier cases for both inpatient 
operating and inpatient capital-related payments. Outlier payments are 
made only on the portion of the capital Federal rate that is used to 
calculate the hospital's inpatient capital-related payments (for 
example, 100 percent for cost reporting periods beginning in FY 2001 
for hospitals paid under the fully prospective payment methodology). 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of outlier payments under the capital 
Federal rate to total inpatient capital-related payments under the 
capital Federal rate. The outlier thresholds are set so that operating 
outlier payments are projected to be 5.1 percent of total operating DRG 
payments. The inpatient capital-related outlier reduction factor 
reflects the inpatient capital-related outlier payments that would be 
made if all hospitals were paid 100 percent of the capital Federal 
rate. For purposes of calculating the outlier thresholds and the 
outlier reduction factor, we model payments as if all hospitals were 
paid 100 percent of the capital Federal rate because, as explained 
above, outlier payments are made only on the portion of the capital 
Federal rate that is included in the hospital's inpatient capital-
related payments.
    In the July 30, 1999 final rule, we estimated that outlier payments 
for capital in FY 2000 would equal 5.98 percent of inpatient capital-
related payments based on the capital Federal rate (64 FR 41553). 
Accordingly, we applied an outlier adjustment factor of 0.9402 to the 
capital Federal rate. Based on the thresholds as set forth in section 
II.A.4.d. of this Addendum, we estimate that outlier payments for 
capital will equal 5.91 percent of inpatient capital-related payments 
based on the capital Federal rate in FY 2001. Therefore, we are 
establishing an outlier adjustment factor of 0.9409 to the capital 
Federal rate. Thus, the projected percentage of capital outlier 
payments to total capital standard payments for FY 2001 is lower than 
the percentage for FY 2000.
    The outlier reduction factors are not built permanently into the 
rates; that is, they are not applied cumulatively in determining the 
capital Federal rate. Therefore, the net change in the outlier 
adjustment to the capital Federal rate for FY 2001 is 1.0007 (0.9409/
0.9402). The outlier adjustment increases the FY 2001 capital Federal 
rate by 0.07 percent compared with the FY 2000 outlier adjustment.
3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the Geographic Adjustment Factor
    Section 412.308(c)(4)(ii) requires that the capital Federal rate be 
adjusted so that aggregate payments for the fiscal year based on the 
capital Federal rate after any changes resulting from the annual DRG 
reclassification and recalibration and changes in the GAF are projected 
to equal aggregate payments that would have been made on the basis of 
the capital Federal rate without such changes. We use the actuarial 
model, described in Appendix B of this final rule, to estimate the 
aggregate payments that would have been made on the basis of the 
capital Federal rate without changes in the DRG classifications and 
weights and in the GAF. We also use the model to estimate aggregate 
payments that would be made on the basis of the capital Federal rate as 
a result of those changes. We then use these figures to compute the 
adjustment required to maintain budget neutrality for changes in DRG 
weights and in the GAF.
    For FY 2000, we calculated a GAF/DRG budget neutrality factor of 
0.9985. In the proposed rule for FY 2001, we proposed a GAF/DRG budget 
neutrality factor of 0.9986. In this final rule, based on calculations 
using updated data, we are applying a factor of 0.9979. The GAF/DRG 
budget neutrality factors are built permanently into the rates; that 
is,

[[Page 47122]]

they are applied cumulatively in determining the capital Federal rate. 
This follows from the requirement that estimated aggregate payments 
each year be no more than they would have been in the absence of the 
annual DRG reclassification and recalibration and changes in the GAF. 
The incremental change in the adjustment from FY 2000 to FY 2001 is 
0.9979. The cumulative change in the rate due to this adjustment is 
0.9993 (the product of the incremental factors for FY 1993, FY 1994, FY 
1995, FY 1996, FY 1997, FY 1998, FY 1999, FY 2000, and FY 2001: 0.9980 
x  1.0053  x  0.9998  x  0.9994  x  0.9987  x  0.9989  x  1.0028  x  
0.9985  x  0.9979 = 0.9993).
    This factor accounts for DRG reclassifications and recalibration 
and for changes in the GAF. It also incorporates the effects on the GAF 
of FY 2001 geographic reclassification decisions made by the MGCRB 
compared to FY 2000 decisions. However, it does not account for changes 
in payments due to changes in the DSH and IME adjustment factors or in 
the large urban add-on.
4. Exceptions Payment Adjustment Factor
    Section 412.308(c)(3) requires that the standard capital Federal 
rate for inpatient capital-related costs be reduced by an adjustment 
factor equal to the estimated proportion of additional payments for 
exceptions under Sec. 412.348 relative to total payments under the 
hospital-specific rate and capital Federal rate. We use the model 
originally developed for determining the budget neutrality adjustment 
factor to determine the exceptions payment adjustment factor. We 
describe that model in Appendix B to this final rule.
    For FY 2000, we estimated that exceptions payments would equal 2.70 
percent of aggregate payments based on the capital Federal rate and the 
hospital-specific rate. Therefore, we applied an exceptions reduction 
factor of 0.9730 (1 -0.0270) in determining the capital Federal rate. 
In the May 5, 2000 proposed rule, we estimated that exceptions payments 
for FY 2001 would equal 2.04 percent of aggregate payments based on the 
capital Federal rate and the hospital-specific rate. Therefore, we 
proposed an exceptions payment reduction factor of 0.9796 to the 
capital Federal rate for FY 2001. The proposed exceptions reduction 
factor for FY 2001 was 0.68 percent higher than the factor for FY 2000. 
For this final rule, based on updated data, we estimate that exceptions 
payments for FY 2001 will equal 2.15 percent of aggregate payments 
based on the capital Federal rate and the hospital-specific rate. We 
are, therefore, applying an exceptions payment reduction factor of 
0.9785 (1 - 0.0215) to the capital Federal rate for FY 2001. The final 
exceptions reduction factor for FY 2001 is 0.57 percent higher than the 
factor for FY 2000 and 0.11 percent lower than the factor in the FY 
2001 proposed rule.
    The exceptions reduction factors are not built permanently into the 
rates; that is, the factors are not applied cumulatively in determining 
the capital Federal rate. Therefore, the net adjustment to the FY 2001 
capital Federal rate is 0.9785/0.9730, or 1.0057.
5. Standard Capital Federal Rate for FY 2001
    For FY 2000, the capital Federal rate was $377.03. As a result of 
changes that we proposed to the factors used to establish the capital 
Federal rate, we proposed that the FY 2001 capital Federal rate would 
be $383.06. In this final rule, we are establishing the capital Federal 
rate of $382.03. The capital Federal rate for FY 2001 was calculated as 
follows:
     The FY 2001 update factor is 1.0090; that is, the update 
is 0.90 percent.
     The FY 2001 budget neutrality adjustment factor that is 
applied to the standard capital Federal payment rate for changes in the 
DRG relative weights and in the GAF is 0.9979.
     The FY 2001 outlier adjustment factor is 0.9409.
     The FY 2001 exceptions payments adjustment factor is 
0.9785.
    Since the capital Federal rate has already been adjusted for 
differences in case-mix, wages, cost-of-living, indirect medical 
education costs, and payments to hospitals serving a disproportionate 
share of low-income patients, we have made no additional adjustments in 
the standard capital Federal rate for these factors other than the 
budget neutrality factor for changes in the DRG relative weights and 
the GAF.
    We are providing a chart that shows how each of the factors and 
adjustments for FY 2001 affected the computation of the FY 2001 capital 
Federal rate in comparison to the FY 2000 capital Federal rate. The FY 
2001 update factor has the effect of increasing the capital Federal 
rate by 0.90 percent compared to the rate in FY 2000, while the 
geographic and DRG budget neutrality factor has the effect of 
decreasing the capital Federal rate by 0.21 percent. The FY 2001 
outlier adjustment factor has the effect of increasing the capital 
Federal rate by 0.07 percent compared to FY 2000. The FY 2001 
exceptions reduction factor has the effect of increasing the capital 
Federal rate by 0.57 percent compared to the exceptions reduction for 
FY 2000. The combined effect of all the changes is to increase the 
capital Federal rate by 1.33 percent for FY 2001 compared to the 
capital Federal rate for FY 2000.

      Comparison of Factors and Adjustments: FY 2000 Capital Federal Rate and FY 2001 Capital Federal Rate
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
                                                                FY 2000      FY 2001       Change       change
----------------------------------------------------------------------------------------------------------------
Update factor \1\...........................................       1.0030       1.0090       1.0090         0.90
GAF/DRG Adjustment Factor \1\...............................       0.9985       0.9979       0.9979        -0.21
Outlier Adjustment Factor \2\...............................       0.9402       0.9409       1.0007         0.07
Exceptions Adjustment Factor \2\............................       0.9730       0.9785       1.0057         0.57
Federal Rate................................................      $377.03      $382.03       1.0133        1.33
----------------------------------------------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the rates. Thus, for
  example, the incremental change from FY 2000 to FY 2001 resulting from the application of the 0.9979 GAF/DRG
  budget neutrality factor for FY 2001 is 0.9979.
\2\ The outlier reduction factor and the exceptions reduction factor are not built permanently into the rates;
  that is, these factors are not applied cumulatively in determining the rates. Thus, for example, the net
  change resulting from the application of the FY 2001 outlier reduction factor is 0.9409/0.9402, or 1.0007.

    As stated previously in this section, the FY 2001 capital Federal 
rate has increased 1.33 percent compared to the FY 2000 capital Federal 
rate as a result of the combination of the FY 2001 factors and 
adjustments applied to the

[[Page 47123]]

capital Federal rate. Specifically, the capital update factor increased 
the FY 2001 capital Federal rate 0.90 percent over FY 2000. The 
exceptions reduction factor increased 0.57 percent from 0.9730 for FY 
2000 to 0.9785 for FY 2001, which results in an increase to the capital 
Federal rate for FY 2001 compared to FY 2000. Also, the outlier 
adjustment factor increased 0.07 percent from 0.9402 for FY 2000 to 
0.9409 for FY 2001, which results in an increase to the capital Federal 
rate for FY 2001 compared to FY 2000. The GAF/DRG adjustment factor 
decreased 0.21 percent from 0.9986 for FY 2000 to 0.9979 for FY 2001, 
which results in a decrease the capital Federal rate for FY 2001 
compared to FY 2000. The effect of all of these changes is a 1.33 
percent increase in the FY 2001 capital Federal rate compared to FY 
2000.
    We are also providing a chart that shows how the final FY 2001 
capital Federal rate differs from the proposed FY 2001 capital Federal 
rate.

 Comparison of Factors and Adjustments: FY 2001 Proposed Capital Federal Rate and FY 2001 Final Capital Federal
                                                      Rate
----------------------------------------------------------------------------------------------------------------
                                                              Proposed FY    Final FY                  Percent
                                                                  2001         2001        Change       change
----------------------------------------------------------------------------------------------------------------
Update Factor\1\............................................       1.0090       1.0090       1.0000         0.00
GAF/DRG Adjustment Factor...................................       0.9986       0.9979       0.9992        -0.08
Outlier Adjustment Factor...................................       0.9416       0.9409       0.9992        -0.08
Exceptions Adjustment Factor................................       0.9796       0.9785       0.9989        -0.11
Federal Rate................................................      $383.06      $382.03       0.9973        -0.27
----------------------------------------------------------------------------------------------------------------

6. Special Rate for Puerto Rico Hospitals
    As explained at the beginning of section IV of this Addendum, 
hospitals in Puerto Rico are paid based on 50 percent of the Puerto 
Rico rate and 50 percent of the capital Federal rate. The Puerto Rico 
rate is derived from the costs of Puerto Rico hospitals only, while the 
capital Federal rate is derived from the costs of all acute care 
hospitals participating in the prospective payment system (including 
Puerto Rico). To adjust hospitals' capital payments for geographic 
variations in capital costs, we apply a geographic adjustment factor 
(GAF) to both portions of the blended rate. The GAF is calculated using 
the operating prospective payment system wage index and varies 
depending on the MSA or rural area in which the hospital is located. We 
use the Puerto Rico wage index to determine the GAF for the Puerto Rico 
part of the capital-blended rate and the national wage index to 
determine the GAF for the national part of the blended rate.
    Since we implemented a separate GAF for Puerto Rico in FY 1998, we 
also apply separate budget neutrality adjustments for the national GAF 
and for the Puerto Rico GAF. However, we apply the same budget 
neutrality factor for DRG reclassifications and recalibration 
nationally and for Puerto Rico. The Puerto Rico GAF budget neutrality 
factor is 1.0037, while the DRG adjustment is 1.0001, for a combined 
cumulative adjustment of 1.0037.
    In computing the payment for a particular Puerto Rico hospital, the 
Puerto Rico portion of the rate (50 percent) is multiplied by the 
Puerto Rico-specific GAF for the MSA in which the hospital is located, 
and the national portion of the rate (50 percent) is multiplied by the 
national GAF for the MSA in which the hospital is located (which is 
computed from national data for all hospitals in the United States and 
Puerto Rico). In FY 1998, we implemented a 17.78 percent reduction to 
the Puerto Rico rate as a result of Public Law 105-33.
    For FY 2000, before application of the GAF, the special rate for 
Puerto Rico hospitals was $174.81. With the changes we proposed to the 
factors used to determine the rate, the proposed FY 2001 special rate 
for Puerto Rico was $185.38. In this final rule, the FY 2001 capital 
rate for Puerto Rico is $185.06.

B. Determination of Hospital-Specific Rate Update

    Section 412.328(e) of the regulations provides that the hospital-
specific rate for FY 2001 be determined by adjusting the FY 2000 
hospital-specific rate by the following factors:
1. Hospital-Specific Rate Update Factor
    The hospital-specific rate is updated in accordance with the update 
factor for the standard capital Federal rate determined under 
Sec. 412.308(c)(1). For FY 2001, we are updating the hospital-specific 
rate by a factor of 1.0090.
2. Exceptions Payment Adjustment Factor
    For FYs 1992 through FY 2001, the updated hospital-specific rate is 
multiplied by an adjustment factor to account for estimated exceptions 
payments for capital-related costs under Sec. 412.348, determined as a 
proportion of the total amount of payments under the hospital-specific 
rate and the capital Federal rate. For FY 2001, we estimated in the 
proposed rule that exceptions payments would be 2.04 percent of 
aggregate payments based on the capital Federal rate and the hospital-
specific rate. Therefore, the proposed exceptions adjustment factor was 
0.9796. In this final rule, we estimate that exceptions payments will 
be 2.15 percent of aggregate payments based on the capital Federal rate 
and hospital-specific rate. Accordingly, for FY 2001, we are applying 
an exceptions reduction factor of 0.9785 to the hospital-specific rate. 
The exceptions reduction factors are not built permanently into the 
rates; that is, the factors are not applied cumulatively in determining 
the hospital-specific rate. The net adjustment to the FY 2001 hospital-
specific rate is 0.9785/0.9730, or 1.0057.
3. Net Change to Hospital-Specific Rate
    We are providing a chart to show the net change to the hospital-
specific rate. The chart shows the factors for FY 2000 and FY 2001 and 
the net adjustment for each factor. It also shows that the cumulative 
net adjustment from FY 2000 to FY 2001 is 1.0147, which represents an 
increase of 1.47 percent to the hospital-specific rate. For each 
hospital, the FY 2001 hospital-specific rate is determined by 
multiplying the FY 2000 hospital-specific rate by the cumulative net 
adjustment of 1.0147.

[[Page 47124]]



                            FY 2001 Update and Adjustments to Hospital-Specific Rates
----------------------------------------------------------------------------------------------------------------
                                                                                            Net        Percent
                                                                FY 2000      FY 2001     adjustment     change
----------------------------------------------------------------------------------------------------------------
Update Factor...............................................       1.0030       1.0090       1.0090         0.90
Exceptions Payment Adjustment Factor........................       0.9730       0.9785       1.0057         0.57
Cumulative Adjustments......................................       0.9759       0.9903       1.0147        1.47
----------------------------------------------------------------------------------------------------------------
Note: The update factor for the hospital-specific rate is applied cumulatively in determining the rates. Thus,
  the incremental increase in the update factor from FY 2000 to FY 2001 is 1.0090. In contrast, the exceptions
  payment adjustment factor is not applied cumulatively. Thus, for example, the incremental increase in the
  exceptions reduction factor from FY 2000 to FY 2001 is 0.9785/0.9730, or 1.0057.

C. Calculation of Inpatient Capital-Related Prospective Payments for FY 
2001

    During the capital prospective payment system transition period, a 
hospital is paid for the inpatient capital-related costs under one of 
two payment methodologies--the fully prospective payment methodology or 
the hold-harmless methodology. The payment methodology applicable to a 
particular hospital is determined when a hospital comes under the 
prospective payment system for capital-related costs by comparing its 
hospital-specific rate to the capital Federal rate applicable to the 
hospital's first cost reporting period under the prospective payment 
system. The applicable capital Federal rate was determined by making 
adjustments as follows:
     For outliers, by dividing the standard capital Federal 
rate by the outlier reduction factor for that fiscal year; and
     For the payment adjustments applicable to the hospital, by 
multiplying the hospital's GAF, disproportionate share adjustment 
factor, and IME adjustment factor, when appropriate.
    If the hospital-specific rate is above the applicable capital 
Federal rate, the hospital is paid under the hold-harmless methodology. 
If the hospital-specific rate is below the applicable capital Federal 
rate, the hospital is paid under the fully prospective methodology.
    For purposes of calculating payments for each discharge under both 
the hold-harmless payment methodology and the fully prospective payment 
methodology, the standard capital Federal rate is adjusted as follows: 
(Standard Federal Rate)  x  (DRG weight)  x  (GAF)  x  (Large Urban 
Add-on, if applicable)  x  (COLA adjustment for hospitals located in 
Alaska and Hawaii)  x  (1 + Disproportionate Share Adjustment Factor + 
IME Adjustment Factor, if applicable). The result is the adjusted 
capital Federal rate.
    Payments under the hold-harmless methodology are determined under 
one of two formulas. A hold-harmless hospital is paid the higher of the 
following:
     100 percent of the adjusted capital Federal rate for each 
discharge; or
     An old capital payment equal to 85 percent (100 percent 
for sole community hospitals) of the hospital's allowable Medicare 
inpatient old capital costs per discharge for the cost reporting period 
plus a new capital payment based on a percentage of the adjusted 
capital Federal rate for each discharge. The percentage of the adjusted 
capital Federal rate equals the ratio of the hospital's allowable 
Medicare new capital costs to its total Medicare inpatient capital-
related costs in the cost reporting period.
    Once a hospital receives payment based on 100 percent of the 
adjusted capital Federal rate in a cost reporting period beginning on 
or after October 1, 1994 (or the first cost reporting period after 
obligated capital that is recognized as old capital under 
Sec. 412.302(c) is put in use for patient care, if later), the hospital 
continues to receive capital prospective payment system payments on 
that basis for the remainder of the transition period.
    Payment for each discharge under the fully prospective methodology 
is based on the applicable transition blend percentage of the hospital-
specific rate and the adjusted capital Federal rate. Thus, for FY 2001 
payments under the fully prospective methodology will be based on 100 
percent of the adjusted capital Federal rate and zero percent of the 
hospital-specific rate.
    Hospitals also may receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. Section 
412.312(c) provides for a single set of thresholds to identify outlier 
cases for both inpatient operating and inpatient capital-related 
payments. Outlier payments are made only on that portion of the capital 
Federal rate that is used to calculate the hospital's inpatient 
capital-related payments. For fully prospective hospitals, that portion 
is 100 percent of the capital Federal rate for discharges occurring in 
cost reporting periods beginning during FY 2001. Thus, a fully 
prospective hospital will receive 100 percent of the capital-related 
outlier payment calculated for the case for discharges occurring in 
cost reporting periods beginning in FY 2001. For hold-harmless 
hospitals that are paid 85 percent of their reasonable costs for old 
inpatient capital, the portion of the capital Federal rate that is 
included in the hospital's outlier payments is based on the hospital's 
ratio of Medicare inpatient costs for new capital to total Medicare 
inpatient capital costs. For hold-harmless hospitals that are paid 100 
percent of the capital Federal rate, 100 percent of the capital Federal 
rate is included in the hospital's outlier payments.
    The outlier thresholds for FY 2001 are in section II.A.4.c. of this 
Addendum. For FY 2001, a case qualifies as a cost outlier if the cost 
for the case (after standardization for the indirect teaching 
adjustment and disproportionate share adjustment) is greater than the 
prospective payment rate for the DRG plus $17,550.
    During the capital prospective payment system transition period, a 
hospital also may receive an additional payment under an exceptions 
process if its total inpatient capital-related payments are less than a 
minimum percentage of its allowable Medicare inpatient capital-related 
costs. The minimum payment level is established by class of hospital 
under Sec. 412.348. The minimum payment levels for portions of cost 
reporting periods occurring in FY 2001 are:
     Sole community hospitals (located in either an urban or 
rural area), 90 percent;
     Urban hospitals with at least 100 beds and a 
disproportionate share patient percentage of at least 20.2 percent or 
that receive more than 30 percent of their net inpatient care revenues 
from State or local governments for indigent care, 80 percent; and
     All other hospitals, 70 percent.
    Under Sec. 412.348(d), the amount of the exceptions payment is 
determined by comparing the cumulative payments made to the hospital 
under the capital prospective payment system to the

[[Page 47125]]

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

D. Capital Input Price Index

1. Background
    Like the operating input price index, the Capital Input Price Index 
(CIPI) is a fixed-weight price index that measures the price changes 
associated with costs during a given year. The CIPI differs from the 
operating input price index in one important aspect--the CIPI reflects 
the vintage nature of capital, which is the acquisition and use of 
capital over time. Capital expenses in any given year are determined by 
the stock of capital in that year (that is, capital that remains on 
hand from all current and prior capital acquisitions). An index 
measuring capital price changes needs to reflect this vintage nature of 
capital. Therefore, the CIPI was developed to capture the vintage 
nature of capital by using a weighted-average of past capital purchase 
prices up to and including the current year.
    Using Medicare cost reports, American Hospital Association (AHA) 
data, and Securities Data Company data, a vintage-weighted price index 
was developed to measure price increases associated with capital 
expenses. We periodically update the base year for the operating and 
capital input prices to reflect the changing composition of inputs for 
operating and capital expenses. Currently, the CIPI is based to FY 1992 
and was last rebased in 1997. The most recent explanation of the CIPI 
was discussed in the final rule with comment period for FY 1998 
published on August 29, 1997 (62 FR 46050).
2. Forecast of the CIPI for Federal Fiscal Year 2001
    We are forecasting the CIPI to increase 0.9 percent for FY 2001. 
This reflects a projected 1.5 percent increase in vintage-weighted 
depreciation prices (building and fixed equipment, and movable 
equipment) and a 3.6 percent increase in other capital expense prices 
in FY 2001, partially offset by a 1.2 percent decline in vintage-
weighted interest rates in FY 2001. The weighted average of these three 
factors produces the 0.9 percent increase for the CIPI as a whole.

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

    The inpatient operating costs of hospitals and hospital units 
excluded from the prospective payment system are subject to rate-of-
increase limits established under the authority of section 1886(b) of 
the Act, which is implemented in regulations at Sec. 413.40. Under 
these limits, a hospital-specific target amount (expressed in terms of 
the inpatient operating cost per discharge) is set for each hospital, 
based on the hospital's own historical cost experience trended forward 
by the applicable rate-of-increase percentages (update factors). In the 
case of a psychiatric hospital or hospital unit, a rehabilitation 
hospital or hospital unit, or a long-term care hospital, the target 
amount may not exceed the updated figure for the 75th percentile of 
target amounts adjusted 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 hospitals 
and units in the same class (psychiatric, rehabilitation, and long-term 
care) for cost reporting periods ending during FY 1996. The target 
amount is multiplied by the number of Medicare discharges in a 
hospital's cost reporting period, yielding the ceiling on aggregate 
Medicare inpatient operating costs for the cost reporting period.
    Each hospital-specific target amount is adjusted annually, at the 
beginning of each hospital's cost reporting period, by an applicable 
update factor.
    Section 1886(b)(3)(B) of the Act, which is implemented in 
regulations at Sec. 413.40(c)(3)(vii), provides that for cost reporting 
periods beginning on or after October 1, 1998 and before October 1, 
2002, the update factor for a hospital or unit depends on the 
hospital's or hospital unit's costs in relation to the ceiling for the 
most recent cost reporting period for which information is available. 
For hospitals with costs exceeding the ceiling by 10 percent or more, 
the update factor is the market basket increase. For hospitals with 
costs exceeding the ceiling by 10 percent or more, the update factor is 
the market basket increase. For hospitals with costs exceeding the 
ceiling by less than 10 percent, the update factor is the market basket 
minus .25 percent for each percentage point by which costs are less 
than 10 percent over the ceiling. For hospitals with costs equal to or 
less than the ceiling but greater than 66.7 percent of the ceiling, the 
update factor is the greater of 0 percent or the market basket minus 
2.5 percent. For hospitals with costs that do not exceed 66.7 percent 
of the ceiling, the update factor is 0.
    The most recent forecast of the market basket increase for FY 2001 
for hospitals and hospital units excluded from the prospective payment 
system is 3.4 percent. Therefore, the update to a hospital's target 
amount for its cost reporting period beginning in FY 2001 would be 
between 0.9 and 3.4 percent, or 0 percent, depending on the hospital's 
or unit's costs in relation to its rate-of-increase limit.
    In addition, Sec. 413.40(c)(4)(iii) requires that for cost 
reporting periods beginning on or after October 1, 1998 and before 
October 1, 2002, the target amount for each psychiatric hospital or 
hospital unit, rehabilitation hospital or hospital unit, and long-term 
care hospital cannot exceed a cap on the target amounts for hospitals 
in the same class.
    Section 121 of Public Law 106-113 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, effective for cost reporting periods beginning on or after 
October 1, 1999, through September 30, 2002. We are publishing an 
interim final rule with comment period elsewhere in this issue of the 
Federal Register that implements this provision for cost reporting 
periods beginning on or after October 1, 1999 and before October 1, 
2000. This final rule addresses the wage adjustment to the caps for 
cost reporting periods beginning on or after October 1, 2000.
    As discussed in section VI. of the preamble of this final rule, 
under section 121 of Public Law 106-113, the cap on the target amount 
per discharge is determined by adding the hospital's

[[Page 47126]]

nonlabor-related portion of the national 75th percentile cap to its 
wage-adjusted, labor-related portion of the national 75th percentile 
cap (the labor-related portion of costs equals 0.71553 and the 
nonlabor-related portion of costs equals 0.28447). A hospital's wage-
adjusted, labor-related portion of the target amount is calculated by 
multiplying the labor-related portion of the national 75th percentile 
cap for the hospital's class by the wage index under the hospital 
inpatient prospective payment system (see Sec. 412.63), without taking 
into account reclassifications under sections 1886(d)(10) and (d)(8)(B) 
of the Act.
    For cost reporting periods beginning in FY 2001, in the May 5, 2000 
proposed rule, we included the following proposed caps:

------------------------------------------------------------------------
                                                   Labor-     Nonlabor-
      Class of excluded hospital or unit          related      related
                                                   share        share
------------------------------------------------------------------------
Psychiatric...................................       $8,106       $3,223
Rehabilitation................................       15,108        6,007
Long-Term Care................................       29,312       11,654
------------------------------------------------------------------------

    We have reconsidered the methodology that was originally used to 
calculate the labor-related and nonlabor-related portions of the 
proposed FY 2001 wage neutralized national 75th percentile caps on the 
target amounts for each class of provider. Using the revised 
methodology discussed previously in this final rule, we have calculated 
revised labor-related and nonlabor-related portions of the wage-
neutralized 75th percentile caps for FY 2001 for each class of 
hospital, updated by the market basket percentage increase of 3.4 
percent. These revised caps are as follows:

------------------------------------------------------------------------
                                                   Labor-     Nonlabor-
      Class of excluded hospital or unit          related      related
                                                   share        share
------------------------------------------------------------------------
Psychiatric...................................       $8,131       $3,233
Rehabilitation................................       15,164        6,029
Long-Term Care................................       29,284       11,642
------------------------------------------------------------------------

    Regulations at Sec. 413.40(d) specify the formulas for determining 
bonus and relief payments for excluded hospitals and specify 
established criteria for an additional bonus payment for continuous 
improvement. Regulations at Sec. 413.40(f)(2)(ii) specify the payment 
methodology for new hospitals and hospital units (psychiatric, 
rehabilitation, and long-term care) effective October 1, 1997.

VI. Tables

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

Table 1A--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor
Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, 
Labor/Nonlabor
Table 1D--Capital Standard Federal Payment Rate
Table 1E--National Adjusted Operating Standardized Amounts for Sole 
Community Hospitals (SCH), Labor/Nonlabor
Table 3C--Hospital Case Mix Indexes for Discharges Occurring in Federal 
Fiscal Year 1999 and Hospital Average Hourly Wage for Federal Fiscal 
Year 2001 Wage Index
Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Urban Areas
Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Rural Areas
Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
Hospitals That Are Reclassified
Table 4D--Average Hourly Wage for Urban Areas
Table 4E--Average Hourly Wage for Rural Areas
Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF)
Table 5--List of Diagnosis Related Groups (DRGs), Relative Weighting 
Factors, Geometric Mean Length of Stay, and Arithmetic Mean Length of 
Stay Points Used in the Prospective Payment System
Table 6A--New Diagnosis Codes
Table 6B--New Procedure Codes
Table 6C--Invalid Diagnosis Codes
Table 6D--Revised Diagnosis Code Titles
Table 6E--Revised Procedure Codes
Table 6F--Additions to the CC Exclusions List
Table 6G--Deletions to the CC Exclusions List
Table 7A--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 99 MedPAR Update March 2000 GROUPER V18.0
Table 7B--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay FY 99 MedPAR Update March 2000 GROUPER V18.0
Table 8A--Statewide Average Operating Cost-to-Charge Ratios for Urban 
and Rural Hospitals (Case Weighted) March 2000
Table 8B--Statewide Average Capital Cost-to-Charge Ratios (Case 
Weighted) March 2000

                   Table 1a.--National Adjusted Operating Standardized Amounts, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
                    Large urban areas                                           Other areas
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related
----------------------------------------------------------------------------------------------------------------
             $2,864.19                    $1,164.21                   $2,818.85                   $1,145.78
----------------------------------------------------------------------------------------------------------------


               Table 1c.--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
                                                         Large urban areas                  Other areas
                                                 ---------------------------------------------------------------
                                                       Labor         Nonlabor          Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
National........................................       $2,839.54       $1,154.19       $2,839.54       $1,154.19
Puerto Rico.....................................       $1,374.71         $553.36       $1,352.95         $544.60
----------------------------------------------------------------------------------------------------------------


[[Page 47127]]


            Table 1d.--Capital Standard Federal Payment Rate
------------------------------------------------------------------------
                                                                 Rate
------------------------------------------------------------------------
National...................................................      $382.03
Puerto Rico................................................      $185.06
------------------------------------------------------------------------


    Table 1e.--National Adjusted Operating Standardized Amounts for Sole Community Hospitals, Labor/Nonlabor
----------------------------------------------------------------------------------------------------------------
                    Large urban areas                                           Other areas
----------------------------------------------------------------------------------------------------------------
       Labor-related               Nonlabor-related              Labor-related             Nonlabor-related
----------------------------------------------------------------------------------------------------------------
             $2,894.99                    $1,176.73                   $2,849.16                   $1,158.10
----------------------------------------------------------------------------------------------------------------

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Table 4a.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Urban Areas
------------------------------------------------------------------------
                                                        Wage
         Urban area  (constituent counties)             index      GAF
------------------------------------------------------------------------
0040  Abilene, TX...................................    0.8240    0.8758
  Taylor, TX
0060  Aguadilla, PR.................................    0.4391    0.5692
  Aguada, PR
  Aguadilla, PR
  Moca, PR
0080  Akron, OH.....................................    0.9736    0.9818
  Portage, OH
  Summit, OH
0120  Albany, GA....................................    0.9933    0.9954
  Dougherty, GA
  Lee, GA
0160  Albany-Schenectady-Troy, NY...................    0.8549    0.8982
  Albany, NY
  Montgomery, NY
  Rensselaer, NY
  Saratoga, NY
  Schenectady, NY
  Schoharie, NY
0200  Albuquerque, NM...............................    0.9136    0.9400
  Bernalillo, NM
  Sandoval, NM
  Valencia, NM
0220  Alexandria, LA................................    0.8170    0.8707
  Rapides, LA
0240  Allentown-Bethlehem-Easton, PA................    1.0040    1.0027
  Carbon, PA
  Lehigh, PA
  Northampton, PA
0280  Altoona, PA...................................    0.9346    0.9547
  Blair, PA
0320  Amarillo, TX..................................    0.8715    0.9101
  Potter, TX
  Randall, TX
0380  Anchorage, AK.................................    1.2865    1.1883
  Anchorage, AK
0440  Ann Arbor, MI.................................    1.1254    1.0843
  Lenawee, MI
  Livingston, MI
  Washtenaw, MI
0450  Anniston, AL..................................    0.8284    0.8790
  Calhoun, AL
0460  Appleton-Oshkosh-Neenah, WI...................    0.9052    0.9341
  Calumet, WI
  Outagamie, WI
  Winnebago, WI
0470  Arecibo, PR...................................    0.4525    0.5810
  Arecibo, PR
  Camuy, PR
  Hatillo, PR
0480  Asheville, NC.................................    0.9516    0.9666
  Buncombe, NC
  Madison, NC
0500  Athens, GA....................................    0.9739    0.9821
  Clarke, GA
  Madison, GA
  Oconee, GA
0520  \1\ Atlanta, GA...............................    1.0096    1.0066
  Barrow, GA
  Bartow, GA
  Carroll, GA
  Cherokee, GA
  Clayton, GA
  Cobb, GA
  Coweta, GA
  DeKalb, GA
  Douglas, GA
  Fayette, GA
  Forsyth, GA
  Fulton, GA
  Gwinnett, GA
  Henry, GA
  Newton, GA
  Paulding, GA
  Pickens, GA
  Rockdale, GA
  Spalding, GA
  Walton, GA
0560  Atlantic-Cape May, NJ.........................    1.1182    1.0795
  Atlantic, NJ
  Cape May, NJ
0580  Auburn-Opelika, AL............................    0.8106    0.8661
  Lee, AL
0600  Augusta-Aiken, GA-SC..........................    0.9160    0.9417
  Columbia, GA
  McDuffie, GA
  Richmond, GA
  Aiken, SC Edgefield, SC
0640  \1\ Austin-San Marcos, TX.....................    0.9577    0.9708
  Bastrop, TX
  Caldwell, TX
  Hays, TX
  Travis, TX
  Williamson, TX
0680  \2\ Bakersfield, CA...........................    0.9861    0.9905
  Kern, CA
0720  \1\ Baltimore, MD.............................    0.9365    0.9561
  Anne Arundel, MD
  Baltimore, MD
  Baltimore City, MD
  Carroll, MD
  Harford, MD
  Howard, MD
  Queen Anne's, MD
0733  Bangor, ME....................................    0.9561    0.9697
  Penobscot, ME
0743  Barnstable-Yarmouth, MA.......................    1.3839    1.2492
  Barnstable, MA
0760  Baton Rouge, LA...............................    0.8842    0.9192
  Ascension, LA
  East Baton Rouge, LA
  Livingston, LA
  West Baton Rouge, LA
0840  Beaumont-Port Arthur, TX......................    0.8744    0.9122
  Hardin, TX
  Jefferson, TX
  Orange, TX
0860  Bellingham, WA................................    1.1439    1.0964
  Whatcom, WA
0870  \2\ Benton Harbor, MI.........................    0.9021    0.9319
  Berrien, MI
0875  \1\ Bergen-Passaic, NJ........................    1.1605    1.1073
  Bergen, NJ
  Passaic, NJ
0880  Billings, MT..................................    0.9591    0.9718
  Yellowstone, MT
0920  Biloxi-Gulfport-Pascagoula, MS................    0.8236    0.8756
  Hancock, MS
  Harrison, MS
  Jackson, MS
0960  Binghamton, NY................................    0.8690    0.9083
  Broome, NY
  Tioga, NY
1000  Birmingham, AL................................    0.8477    0.8930
  Blount, AL
  Jefferson, AL
  St. Clair, AL
  Shelby, AL
1010  Bismarck, ND..................................    0.7897    0.8507
  Burleigh, ND
  Morton, ND
1020  Bloomington, IN...............................    0.8733    0.9114
  Monroe, IN
1040  Bloomington-Normal, IL........................    0.9156    0.9414
  McLean, IL
1080  Boise City, ID................................    0.9042    0.9334
  Ada, ID
  Canyon, ID
1123  \1\ \2\ Boston-Worcester-Lawrence-Lowell-         1.1204    1.0810
 Brockton, MA-NH (MA Hospitals).....................
  Bristol, MA
  Essex, MA
  Middlesex, MA
  Norfolk, MA
  Plymouth, MA
  Suffolk, MA
  Worcester, MA
  Hillsborough, NH
  Merrimack, NH
  Rockingham, NH
  Strafford, NH
1123  \1\ Boston-Worcester-Lawrence-Lowell-Brockton,    1.1160    1.0781
 MA-NH (NH Hospitals)...............................
  Bristol, MA
  Essex, MA
  Middlesex, MA
  Norfolk, MA
  Plymouth, MA
  Suffolk, MA
  Worcester, MA
  Hillsborough, NH
  Merrimack, NH
  Rockingham, NH
  Strafford, NH
1125  Boulder-Longmont, CO..........................    0.9731    0.9815
  Boulder, CO
1145   Brazoria, TX.................................    0.8658    0.9060
  Brazoria, TX
1150  Bremerton, WA.................................    1.0975    1.0658
  Kitsap, WA
1240  Brownsville-Harlingen-San Benito, TX..........    0.8722    0.9106

[[Page 47150]]

 
  Cameron, TX
1260  Bryan-College Station, TX.....................    0.8237    0.8756
  Brazos, TX
1280  \1\ Buffalo-Niagara Falls, NY.................    0.9580    0.9710
  Erie, NY
  Niagara, NY
1303  Burlington, VT................................    1.0735    1.0498
  Chittenden, VT
  Franklin, VT
  Grand Isle, VT
1310  Caguas, PR....................................    0.4562    0.5842
  Caguas, PR
  Cayey, PR
  Cidra, PR
  Gurabo, PR
  San Lorenzo, PR
1320  \2\ Canton-Massillon, OH......................    0.8670    0.9069
  Carroll, OH
  Stark, OH
1350  \2\ Casper, WY................................    0.8817    0.9174
  Natrona, WY
1360  Cedar Rapids, IA..............................    0.8736    0.9116
  Linn, IA
1400  Champaign-Urbana, IL..........................    0.9198    0.9444
  Champaign, IL
1440  Charleston-North Charleston, SC...............    0.9067    0.9351
  Berkeley, SC
  Charleston, SC
  Dorchester, SC
1480  Charleston, WV................................    0.9240    0.9473
  Kanawha, WV
  Putnam, WV
1520  \1\ Charlotte-Gastonia-Rock Hill, NC-SC.......    0.9391    0.9579
  Cabarrus, NC
  Gaston, NC
  Lincoln, NC
  Mecklenburg, NC
  Rowan, NC
  Stanly, NC
  Union, NC
  York, SC
1540  Charlottesville, VA...........................    1.0789    1.0534
  Albemarle, VA
  Charlottesville City, VA
  Fluvanna, VA
  Greene, VA
1560  Chattanooga, TN-GA............................    0.9833    0.9885
  Catoosa, GA
  Dade, GA
  Walker, GA
  Hamilton, TN
  Marion, TN
1580  \2\ Cheyenne, WY..............................    0.8817    0.9174
  Laramie, WY
1600  \1\ Chicago, IL...............................    1.1146    1.0771
  Cook, IL
  DeKalb, IL
  DuPage, IL
  Grundy, IL
  Kane, IL
  Kendall, IL
  Lake, IL
  McHenry, IL
  Will, IL
1620  Chico-Paradise, CA............................    0.9918    0.9944
  Butte, CA
1640  \1\ 1Cincinnati, OH-KY-IN.....................    0.9415    0.9596
  Dearborn, IN
  Ohio, IN
  Boone, KY
  Campbell, KY
  Gallatin, KY
  Grant, KY
  Kenton, KY
  Pendleton, KY
  Brown, OH
  Clermont, OH
  Hamilton, OH
  Warren, OH
1660  Clarksville-Hopkinsville, TN-KY...............    0.8277    0.8785
  Christian, KY
  Montgomery, TN
1680  \1\ Cleveland-Lorain-Elyria, OH...............    0.9593    0.9719
  Ashtabula, OH
  Cuyahoga, OH
  Geauga, OH
  Lake, OH
  Lorain, OH
  Medina, OH
1720  Colorado Springs, CO..........................    0.9697    0.9792
  El Paso, CO
1740  Columbia, MO..................................    0.8961    0.9276
  Boone, MO
1760  Columbia, SC..................................    0.9554    0.9692
  Lexington, SC
  Richland, SC
1800  Columbus, GA-AL...............................    0.8568    0.8996
  Russell, AL
  Chattahoochee, GA
  Harris, GA
  Muscogee, GA
1840  \1\ Columbus, OH..............................    0.9619    0.9737
  Delaware, OH
  Fairfield, OH
  Franklin, OH
  Licking, OH
  Madison, OH
  Pickaway, OH
1880  Corpus Christi, TX............................    0.8726    0.9109
  Nueces, TX
  San Patricio, TX
1890  Corvallis, OR.................................    1.1326    1.0890
  Benton, OR
1900  \2\ Cumberland, MD-WV (MD Hospitals)..........    0.8651    0.9055
  Allegany, MD
  Mineral, WV
1900  Cumberland, MD-WV (WV Hospital)...............    0.8369    0.8852
  Allegany, MD
  Mineral, WV
1920  \1\ Dallas, TX................................    0.9913    0.9940
  Collin, TX
  Dallas, TX
  Denton, TX
  Ellis, TX
  Henderson, TX
  Hunt, TX
  Kaufman, TX
  Rockwall, TX
1950  Danville, VA..................................    0.8589    0.9011
  Danville City, VA
  Pittsylvania, VA
1960  Davenport-Moline-Rock Island, IA-IL...........    0.8898    0.9232
  Scott, IA
  Henry, IL
  Rock Island, IL
 
2000  Dayton-Springfield, OH........................    0.9442    0.9614
  Clark, OH
  Greene, OH
  Miami, OH
  Montgomery, OH
 
2020  Daytona Beach, FL.............................    0.9147    0.9408
  Flagler, FL
  Volusia, FL
2030  Decatur, AL...................................    0.8534    0.8971
  Lawrence, AL
  Morgan, AL
2040  \2\Decatur, IL................................    0.8160    0.8700
  Macon, IL
2080  \1\ Denver, CO................................    1.0181    1.0124
  Adams, CO
  Arapahoe, CO
  Denver, CO
  Douglas, CO
  Jefferson, CO
2120  Des Moines, IA................................    0.9118    0.9387
  Dallas, IA
  Polk, IA
  Warren, IA
2160  \1\ Detroit, MI...............................    1.0510    1.0347
  Lapeer, MI
  Macomb, MI
  Monroe, MI
  Oakland, MI
  St. Clair, MI
  Wayne, MI
2180  Dothan, AL....................................    0.8013    0.8592
  Dale, AL
  Houston, AL
2190  Dover, DE.....................................    1.0078    1.0053
  Kent, DE
2200  Dubuque, IA...................................    0.8746    0.9123
  Dubuque, IA
2240  Duluth-Superior, MN-WI........................    1.0043    1.0029

[[Page 47151]]

 
  St. Louis, MN
  Douglas, WI
2281  Dutchess County, NY...........................    0.9491    0.9649
  Dutchess, NY
2290  \2\ Eau Claire, WI............................    0.8880    0.9219
  Chippewa, WI
  Eau Claire, WI
2320  El Paso, TX...................................    0.9346    0.9547
  El Paso, TX
2330  Elkhart-Goshen, IN............................    0.9145    0.9406
  Elkhart, IN
2335  Elmira, NY....................................    0.8546    0.8980
  Chemung, NY
2340  Enid, OK......................................    0.8610    0.9026
  Garfield, OK
2360  Erie, PA......................................    0.8985    0.9293
  Erie, PA
2400  Eugene-Springfield, OR........................    1.0965    1.0651
  Lane, OR
2440  \2\ Evansville-Henderson, IN-KY (IN Hospitals)    0.8602    0.9020
  Posey, IN
  Vanderburgh, IN
  Warrick, IN
  Henderson, KY
2440  Evansville-Henderson, IN-KY (KY Hospitals)....    0.8173    0.8710
  Posey, IN
  Vanderburgh, IN
  Warrick, IN
  Henderson, KY
2520  Fargo-Moorhead, ND-MN.........................    0.8749    0.9125
  Clay, MN
  Cass, ND
2560  Fayetteville, NC..............................    0.8655    0.9058
  Cumberland, NC
2580  Fayetteville-Springdale-Rogers, AR............    0.7910    0.8517
  Benton, AR
  Washington, AR
2620  Flagstaff, AZ-UT..............................    1.0686    1.0465
  Coconino, AZ
  Kane, UT
2640  Flint, MI.....................................    1.1205    1.0810
  Genesee, MI
2650  Florence, AL..................................    0.7652    0.8325
  Colbert, AL
  Lauderdale, AL
2655  Florence, SC..................................    0.8777    0.9145
  Florence, SC
2670  Fort Collins-Loveland, CO.....................    1.0647    1.0439
  Larimer, CO
2680  \1\ Ft. Lauderdale, FL........................    1.0152    1.0104
  Broward, FL
2700  Fort Myers-Cape Coral, FL.....................    0.9247    0.9478
  Lee, FL
2710  Fort Pierce-Port St. Lucie, FL................    0.9622    0.9740
  Martin, FL
  St. Lucie, FL
2720  Fort Smith, AR-OK.............................    0.8052    0.8621
  Crawford, AR
  Sebastian, AR
  Sequoyah, OK
2750  Fort Walton Beach, FL.........................    0.9607    0.9729
  Okaloosa, FL
2760  Fort Wayne, IN................................    0.8665    0.9065
  Adams, IN
  Allen, IN
  De Kalb, IN
  Huntington, IN
  Wells, IN
  Whitley, IN
2800  \1\ Forth Worth-Arlington, TX.................    0.9527    0.9674
  Hood, TX
  Johnson, TX
  Parker, TX
  Tarrant, TX
2840  Fresno, CA....................................    1.0104    1.0071
  Fresno, CA
  Madera, CA
2880  Gadsden, AL...................................    0.8423    0.8891
  Etowah, AL
2900  Gainesville, FL...............................    1.0074    1.0051
  Alachua, FL
2920  Galveston-Texas City, TX......................    0.9918    0.9944
  Galveston, TX
2960  Gary, IN......................................    0.9454    0.9623
  Lake, IN
  Porter, IN
2975  \2\ Glens Falls, NY...........................    0.8499    0.8946
  Warren, NY
  Washington, NY
2980  \2\ Goldsboro, NC.............................    0.8441    0.8904
  Wayne, NC
2985  Grand Forks, ND-MN............................    0.8954    0.9271
  Polk, MN
  Grand Forks, ND
2995  Grand Junction, CO............................    0.9471    0.9635
  Mesa, CO
3000  \1\ Grand Rapids-Muskegon-Holland, MI.........    1.0248    1.0169
  Allegan, MI
  Kent, MI
  Muskegon, MI
  Ottawa, MI
3040  Great Falls, MT...............................    0.9331    0.9537
  Cascade, MT
3060  Greeley, CO...................................    0.9814    0.9872
  Weld, CO
3080  Green Bay, WI.................................    0.9308    0.9521
  Brown, WI
3120  \1\ Greensboro-Winston-Salem-High Point, NC...    0.9124    0.9391
  Alamance, NC
  Davidson, NC
  Davie, NC
  Forsyth, NC
  Guilford, NC
  Randolph, NC
  Stokes, NC
  Yadkin, NC
3150  Greenville, NC................................    0.9384    0.9574
  Pitt, NC
3160  Greenville-Spartanburg-Anderson, SC...........    0.9003    0.9306
  Anderson, SC
  Cherokee, SC
  Greenville, SC
  Pickens, SC
  Spartanburg, SC
3180  Hagerstown, MD................................    0.9409    0.9591
  Washington, MD
3200  Hamilton-Middletown, OH.......................    0.9061    0.9347
  Butler, OH
3240  Harrisburg-Lebanon-Carlisle, PA...............    0.9386    0.9575
  Cumberland, PA
  Dauphin, PA
  Lebanon, PA
  Perry, PA
3283  \1\ \2\ Hartford, CT..........................    1.1715    1.1145
  Hartford, CT
  Litchfield, CT
  Middlesex, CT
  Tolland, CT
3285  \2\ Hattiesburg, MS...........................    0.7491    0.8205
  Forrest, MS
  Lamar, MS
3290  Hickory-Morganton-Lenoir, NC..................    0.8755    0.9130
  Alexander, NC
  Burke, NC
  Caldwell, NC
  Catawba, NC
3320  Honolulu, HI..................................    1.1866    1.1243
  Honolulu, HI
3350  Houma, LA.....................................    0.8086    0.8646
  Lafourche, LA
  Terrebonne, LA
3360  \1\ Houston, TX...............................    0.9732    0.9816
  Chambers, TX
  Fort Bend, TX
  Harris, TX
  Liberty, TX
  Montgomery, TX
  Waller, TX
3400  Huntington-Ashland, WV-KY-OH..................    0.9876    0.9915
  Boyd, KY
  Carter, KY
  Greenup, KY
  Lawrence, OH
  Cabell, WV
  Wayne, WV
3440  Huntsville, AL................................    0.8932    0.9256
  Limestone, AL
  Madison, AL
3480  \1\ Indianapolis, IN..........................    0.9787    0.9854
  Boone, IN
  Hamilton, IN

[[Page 47152]]

 
  Hancock, IN
  Hendricks, IN
  Johnson, IN
  Madison, IN
  Marion, IN
  Morgan, IN
  Shelby, IN
3500  Iowa City, IA.................................    0.9657    0.9764
  Johnson, IA
3520  Jackson, MI...................................    0.9134    0.9399
  Jackson, MI
3560  Jackson, MS...................................    0.8812    0.9170
  Hinds, MS
  Madison, MS
  Rankin, MS
3580  Jackson, TN...................................    0.8796    0.9159
  Madison, TN
  Chester, TN
3600  \1\ Jacksonville, FL..........................    0.9208    0.9451
  Clay, FL
  Duval, FL
  Nassau, FL
  St. Johns, FL
3605  \2\ Jacksonville, NC..........................    0.8441    0.8904
  Onslow, NC
3610  \2\ Jamestown, NY.............................    0.8499    0.8946
  Chautauqua, NY
3620  Janesville-Beloit, WI.........................    0.9585    0.9714
  Rock, WI
3640  Jersey City, NJ...............................    1.1573    1.1052
  Hudson, NJ
3660  Johnson City-Kingsport-Bristol, TN-VA.........    0.8328    0.8822
  Carter, TN
  Hawkins, TN
  Sullivan, TN
  Unicoi, TN
  Washington, TN
  Bristol City, VA
  Scott, VA
  Washington, VA
3680  Johnstown, PA.................................    0.8578    0.9003
  Cambria, PA
  Somerset, PA
3700  Jonesboro, AR.................................    0.7832    0.8459
  Craighead, AR
3710  Joplin, MO....................................    0.8148    0.8691
  Jasper, MO
  Newton, MO
3720  Kalamazoo-Battlecreek, MI.....................    1.0453    1.0308
  Calhoun, MI
  Kalamazoo, MI
  Van Buren, MI
3740  Kankakee, IL..................................    0.9902    0.9933
  Kankakee, IL
3760  \1\ Kansas City, KS-MO........................    0.9498    0.9653
  Johnson, KS
  Leavenworth, KS
  Miami, KS
  Wyandotte, KS
  Cass, MO
  Clay, MO
  Clinton, MO
  Jackson, MO
  Lafayette, MO
  Platte, MO
  Ray, MO
3800  Kenosha, WI...................................    0.9611    0.9732
  Kenosha, WI
3810  Killeen-Temple, TX............................    1.0119    1.0081
  Bell, TX
  Coryell, TX
3840  Knoxville, TN.................................    0.8340    0.8831
  Anderson, TN
  Blount, TN
  Knox, TN
  Loudon, TN
  Sevier, TN
  Union, TN
3850  Kokomo, IN....................................    0.9525    0.9672
  Howard, IN
  Tipton, IN
3870  La Crosse, WI-MN..............................    0.9211    0.9453
  Houston, MN
  La Crosse, WI
3880  Lafayette, LA.................................    0.8490    0.8940
  Acadia, LA
  Lafayette, LA
  St. Landry, LA
  St. Martin, LA
3920  Lafayette, IN.................................    0.8834    0.9186
  Clinton, IN
  Tippecanoe, IN
3960  \2\ Lake Charles, LA..........................    0.7713    0.8371
  Calcasieu, LA
3980  Lakeland-Winter Haven, FL.....................    0.8928    0.9253
  Polk, FL
4000  Lancaster, PA.................................    0.9259    0.9486
  Lancaster, PA
4040  Lansing-East Lansing, MI......................    0.9934    0.9955
  Clinton, MI
  Eaton, MI
  Ingham, MI
4080  Laredo, TX....................................    0.8168    0.8706
  Webb, TX
4100  Las Cruces, NM................................    0.8658    0.9060
  Dona Ana, NM
4120  \1\ Las Vegas, NV-AZ..........................    1.0796    1.0538
  Mohave, AZ
  Clark, NV
  Nye, NV
4150  Lawrence, KS..................................    0.8190    0.8722
  Douglas, KS
4200  Lawton, OK....................................    0.8996    0.9301
  Comanche, OK
4243  Lewiston-Auburn, ME...........................    0.9036    0.9329
  Androscoggin, ME
4280  Lexington, KY.................................    0.8866    0.9209
  Bourbon, KY
  Clark, KY
  Fayette, KY
  Jessamine, KY
  Madison, KY
  Scott, KY
  Woodford, KY
4320  Lima, OH......................................    0.9320    0.9529
  Allen, OH
  Auglaize, OH
4360  Lincoln, NE...................................    0.9666    0.9770
  Lancaster, NE
4400  Little Rock-North Little Rock, AR.............    0.8906    0.9237
  Faulkner, AR
  Lonoke, AR
  Pulaski, AR
  Saline, AR
4420  Longview-Marshall, TX.........................    0.8922    0.9249
  Gregg, TX
  Harrison, TX
  Upshur, TX
4480  \1\ Los Angeles-Long Beach, CA................    1.2033    1.1351
  Los Angeles, CA
4520  Louisville, KY-IN.............................    0.9350    0.9550
  Clark, IN
  Floyd, IN
  Harrison, IN
  Scott, IN
  Bullitt, KY
  Jefferson, KY
  Oldham, KY
4600  Lubbock, TX...................................    0.8838    0.9189
  Lubbock, TX
4640  Lynchburg, VA.................................    0.8867    0.9210
  Amherst, VA
  Bedford, VA
  Bedford City, VA
  Campbell, VA
  Lynchburg City, VA
4680  Macon, GA.....................................    0.8974    0.9285
  Bibb, GA
  Houston, GA
  Jones, GA
  Peach, GA
  Twiggs, GA
4720  Madison, WI...................................    1.0271    1.0185
  Dane, WI
4800  Mansfield, OH.................................    0.8690    0.9083
  Crawford, OH
  Richland, OH
4840  Mayaguez, PR..................................    0.4589    0.5866
  Anasco, PR
  Cabo Rojo, PR
  Hormigueros, PR
  Mayaguez, PR
  Sabana Grande, PR
  San German, PR
4880  McAllen-Edinburg-Mission, TX..................    0.8566    0.8994
  Hidalgo, TX
4890  Medford-Ashland, OR...........................    1.0344    1.0234
  Jackson, OR
4900  Melbourne-Titusville-Palm Bay, FL.............    0.9688    0.9785
  Brevard, Fl

[[Page 47153]]

 
4920  \1\ Memphis, TN-AR-MS.........................    0.8723    0.9107
  Crittenden, AR
  DeSoto, MS
  Fayette, TN
  Shelby, TN
  Tipton, TN
4940  \2\ Merced, CA................................    0.9861    0.9905
  Merced, CA
5000  \1\ Miami, FL.................................    1.0059    1.0040
  Dade, FL
5015  \1\ Middlesex-Somerset-Hunterdon, NJ..........    1.0333    1.0227
  Hunterdon, NJ
  Middlesex, NJ
  Somerset, NJ
5080  \1\ Milwaukee-Waukesha, WI....................    0.9767    0.9840
  Milwaukee, WI
  Ozaukee, WI
  Washington, WI
  Waukesha, WI
5120  \1\ Minneapolis-St. Paul, MN-WI...............    1.1017    1.0686
  Anoka, MN
  Carver, MN
  Chisago, MN
  Dakota, MN
  Hennepin, MN
  Isanti, MN
  Ramsey, MN
  Scott, MN
  Sherburne, MN
  Washington, MN
  Wright, MN
  Pierce, WI
  St. Croix, WI
5140  Missoula, MT..................................    0.9332    0.9538
  Missoula, MT
5160  Mobile, AL....................................    0.8163    0.8702
  Baldwin, AL
  Mobile, AL
5170  Modesto, CA...................................    1.0396    1.0270
  Stanislaus, CA
5190  \1\ Monmouth-Ocean, NJ........................    1.1283    1.0862
  Monmouth, NJ
  Ocean, NJ
5200  Monroe, LA....................................    0.8396    0.8872
  Ouachita, LA
5240  Montgomery, AL................................    0.7653    0.8326
  Autauga, AL
  Elmore, AL
  Montgomery, AL
5280  Muncie, IN....................................    1.0969    1.0654
  Delaware, IN
5330  Myrtle Beach, SC..............................    0.8440    0.8903
  Horry, SC
5345  Naples, FL....................................    0.9661    0.9767
  Collier, FL
5360  \1\ Nashville, TN.............................    0.9490    0.9648
  Cheatham, TN
  Davidson, TN
  Dickson, TN
  Robertson, TN
  Rutherford, TN
  Sumner, TN
  Williamson, TN
  Wilson, TN
5380  \1\ Nassau-Suffolk, NY........................    1.3932    1.2549
  Nassau, NY
  Suffolk, NY
5483  \1\ New Haven-Bridgeport-Stamford-Waterbury-      1.2034    1.1352
 Danbury, CT........................................
  Fairfield, CT
  New Haven, CT
5523  New London-Norwich, CT........................    1.2063    1.1371
  New London, CT
5560  \1\ New Orleans, LA...........................    0.9295    0.9512
  Jefferson, LA
  Orleans, LA
  Plaquemines, LA
  St. Bernard, LA
  St. Charles, LA
  St. James, LA
  St. John The Baptist, LA
  St. Tammany, LA
5600  \1\ New York, NY..............................    1.4651    1.2989
  Bronx, NY
  Kings, NY
  New York, NY
  Putnam, NY
  Queens, NY
  Richmond, NY
  Rockland, NY
  Westchester, NY
5640  \1\ Newark, NJ................................    1.0757    1.0512
  Essex, NJ
  Morris, NJ
  Sussex, NJ
  Union, NJ
  Warren, NJ
5660  Newburgh, NY-PA...............................    1.0847    1.0573
  Orange, NY
  Pike, PA
5720  \1\ Norfolk-Virginia Beach-Newport News, VA-NC    0.8422    0.8890
  Currituck, NC
  Chesapeake City, VA
  Gloucester, VA
  Hampton City, VA
  Isle of Wight, VA
  James City, VA
  Mathews, VA
  Newport News City, VA
  Norfolk City, VA
  Poquoson City, VA
  Portsmouth City, VA
  Suffolk City, VA
  Virginia Beach City, VA
  Williamsburg City, VA
  York, VA
5775  \1\ Oakland, CA...............................    1.4983    1.3190
  Alameda, CA
  Contra Costa, CA
5790  Ocala, FL.....................................
  Marion, FL                                            0.9243    0.9475
5800  Odessa-Midland, TX............................    0.9205    0.9449
  Ector, TX
  Midland, TX
5880  \1\ Oklahoma City, OK.........................    0.8822    0.9177
  Canadian, OK
  Cleveland, OK
  Logan, OK
  McClain, OK
  Oklahoma, OK
  Pottawatomie, OK
5910  Olympia, WA...................................    1.0677    1.0459
  Thurston, WA
5920  Omaha, NE-IA..................................    0.9572    0.9705
  Pottawattamie, IA
  Cass, NE
  Douglas, NE
  Sarpy, NE
  Washington, NE
5945  \1\ Orange County, CA.........................    1.1411    1.0946
  Orange, CA
5960  \1\ Orlando, FL...............................    0.9610    0.9731
  Lake, FL
  Orange, FL
  Osceola, FL
  Seminole, FL
5990  Owensboro, KY.................................    0.8159    0.8699
  Daviess, KY
6015  Panama City, FL...............................    0.9010    0.9311
  Bay, FL
6020  Parkersburg-Marietta, WV-OH (WV Hospitals)....    0.8274    0.8783
  Washington, OH
  Wood, WV
6020  \2\ Parkersburg-Marietta, WV-OH (OH Hospitals)    0.8670    0.9069
  Washington, OH
  Wood, WV
6080  \2\ Pensacola, FL.............................    0.8928    0.9253
  Escambia, FL
  Santa Rosa, FL
6120  Peoria-Pekin, IL..............................    0.8646    0.9052
  Peoria, IL
  Tazewell, IL
  Woodford, IL
6160  \1\ Philadelphia, PA-NJ.......................    1.0937    1.0633
  Burlington, NJ
  Camden, NJ
  Gloucester, NJ
  Salem, NJ
  Bucks, PA
  Chester, PA
  Delaware, PA
  Montgomery, PA
  Philadelphia, PA
6200  \1\ Phoenix-Mesa, AZ..........................    0.9669    0.9772

[[Page 47154]]

 
  Maricopa, AZ
  Pinal, AZ
6240  Pine Bluff, AR................................    0.7791    0.8429
  Jefferson, AR
6280  \1\ Pittsburgh, PA............................    0.9741    0.9822
  Allegheny, PA
  Beaver, PA
  Butler, PA
  Fayette, PA
  Washington, PA
  Westmoreland, PA
6323  \2\ Pittsfield, MA............................    1.1204    1.0810
  Berkshire, MA
6340  Pocatello, ID.................................    0.9076    0.9358
  Bannock, ID
6360  Ponce, PR.....................................    0.5006    0.6226
  Guayanilla, PR
  Juana Diaz, PR
  Penuelas, PR
  Ponce, PR
  Villalba, PR
  Yauco, PR
6403  Portland, ME..................................    0.9748    0.9827
  Cumberland, ME
  Sagadahoc, ME
  York, ME
6440  \1\ Portland-Vancouver, OR-WA.................    1.0910    1.0615
  Clackamas, OR
  Columbia, OR
  Multnomah, OR
  Washington, OR
  Yamhill, OR
  Clark, WA
6483  \1\ Providence-Warwick-Pawtucket, RI..........    1.0864    1.0584
  Bristol, RI
  Kent, RI
  Newport, RI
  Providence, RI
  Washington, RI
6520  Provo-Orem, UT................................    1.0041    1.0028
  Utah, UT
6560  \2\ Pueblo, CO................................    0.8968    0.9281
  Pueblo, CO
6580  Punta Gorda, FL...............................    0.9613    0.9733
  Charlotte, FL
6600  Racine, WI....................................    0.9246    0.9477
  Racine, WI
6640  \1\ Raleigh-Durham-Chapel Hill, NC............    0.9646    0.9756
  Chatham, NC
  Durham, NC
  Franklin, NC
  Johnston, NC
  Orange, NC
  Wake, NC
6660  Rapid City, SD................................    0.8865    0.9208
  Pennington, SD
6680  Reading, PA...................................    0.9152    0.9411
  Berks, PA
6690  Redding, CA...................................    1.1664    1.1112
  Shasta, CA
6720  Reno, NV......................................    1.0550    1.0373
  Washoe, NV
6740  Richland-Kennewick-Pasco, WA..................    1.1460    1.0978
  Benton, WA
  Franklin, WA
6760  Richmond-Petersburg, VA.......................    0.9617    0.9736
  Charles City County, VA
  Chesterfield, VA
  Colonial Heights City, VA
  Dinwiddie, VA
  Goochland, VA
  Hanover, VA
  Henrico, VA
  Hopewell City, VA
  New Kent, VA
  Petersburg City, VA
  Powhatan, VA
  Prince George, VA
  Richmond City, VA
6780  \1\ Riverside-San Bernardino, CA..............    1.1115    1.0751
  Riverside, CA
  San Bernardino, CA
6800  Roanoke, VA...................................    0.8782    0.9149
  Botetourt, VA
  Roanoke, VA
  Roanoke City, VA
  Salem City, VA
6820  Rochester, MN.................................    1.1315    1.0883
  Olmsted, MN
6840  \1\ Rochester, NY.............................    0.9182    0.9432
  Genesee, NY
  Livingston, NY
  Monroe, NY
  Ontario, NY
  Orleans, NY
  Wayne, NY
6880  Rockford, IL..................................    0.8819    0.9175
  Boone, IL
  Ogle, IL
  Winnebago, IL
6895  Rocky Mount, NC...............................    0.8849    0.9197
  Edgecombe, NC
  Nash, NC
6920  \1\ Sacramento, CA............................    1.1957    1.1302
  El Dorado, CA
  Placer, CA
  Sacramento, CA
6960  Saginaw-Bay City-Midland, MI..................    0.9575    0.9707
  Bay, MI
  Midland, MI
  Saginaw, MI
6980  St. Cloud, MN.................................    1.0016    1.0011
  Benton, MN
  Stearns, MN
7000  St. Joseph, MO................................    0.9071    0.9354
  Andrew, MO
  Buchanan, MO
7040  \1\ 1St. Louis, MO-IL.........................    0.9049    0.9339
  Clinton, IL
  Jersey, IL
  Madison, IL
  Monroe, IL
  St. Clair, IL
  Franklin, MO
  Jefferson, MO
  Lincoln, MO
  St. Charles, MO
  St. Louis, MO
  St. Louis City, MO
  Warren, MO
7080  Salem, OR.....................................    1.0132    1.0090
  Marion, OR
  Polk, OR
7120  Salinas, CA...................................    1.4502    1.2899
  Monterey, CA
7160  \1\ Salt Lake City-Ogden, UT..................    0.9811    0.9870
  Davis, UT
  Salt Lake, UT
  Weber, UT
7200  San Angelo, TX................................    0.8083    0.8644
  Tom Green, TX
7240  \1\ San Antonio, TX...........................    0.8580    0.9004
  Bexar, TX
  Comal, TX
  Guadalupe, TX
  Wilson, TX
7320  \1\ San Diego, CA.............................    1.1784    1.1190
  San Diego, CA
7360  \1\ San Francisco, CA.........................    1.4193    1.2710
  Marin, CA
  San Francisco, CA
  San Mateo, CA
7400  \1\ San Jose, CA..............................    1.3564    1.2321
  Santa Clara, CA
7440  \1\ San Juan-Bayamon, PR......................    0.4690    0.5954
  Aguas Buenas, PR
  Barceloneta, PR
  Bayamon, PR
  Canovanas, PR
  Carolina, PR
  Catano, PR
  Ceiba, PR
  Comerio, PR
  Corozal, PR
  Dorado, PR
  Fajardo, PR
  Florida, PR
  Guaynabo, PR
  Humacao, PR
  Juncos, PR
  Los Piedras, PR
  Loiza, PR
  Luguillo, PR
  Manati, PR
  Morovis, PR
  Naguabo, PR
  Naranjito, PR
  Rio Grande, PR
  San Juan, PR
  Toa Alta, PR
  Toa Baja, PR
  Trujillo Alto, PR

[[Page 47155]]

 
  Vega Alta, PR
  Vega Baja, PR
  Yabucoa, PR
7460  San Luis Obispo-Atascadero-Paso Robles, CA....    1.0673    1.0456
  San Luis Obispo, CA
7480  Santa Barbara-Santa Maria-Lompoc, CA..........    1.0597    1.0405
  Santa Barbara, CA
7485  Santa Cruz-Watsonville, CA....................    1.4095    1.2650
  Santa Cruz, CA
7490  Santa Fe, NM..................................    1.0537    1.0365
  Los Alamos, NM
  Santa Fe, NM
7500  Santa Rosa, CA................................    1.2646    1.1744
  Sonoma, CA
7510  Sarasota-Bradenton, FL........................    0.9809    0.9869
  Manatee, FL
  Sarasota, FL
7520  Savannah, GA..................................    0.9697    0.9792
  Bryan, GA
  Chatham, GA
  Effingham, GA
7560  \2\ Scranton--Wilkes-Barre--Hazleton, PA......    0.8578    0.9003
  Columbia, PA
  Lackawanna, PA
  Luzerne, PA
  Wyoming, PA
7600  \1\ Seattle-Bellevue-Everett, WA..............    1.1016    1.0685
  Island, WA
  King, WA
  Snohomish, WA
7610  \2\ Sharon, PA................................    0.8578    0.9003
  Mercer, PA
7620  \2\ Sheboygan, WI.............................    0.8880    0.9219
  Sheboygan, WI
7640  Sherman-Denison, TX...........................    0.8795    0.9158
  Grayson, TX
7680  Shreveport-Bossier City, LA...................    0.8750    0.9126
  Bossier, LA
  Caddo, LA
  Webster, LA
7720  Sioux City, IA-NE.............................    0.8473    0.8927
  Woodbury, IA
  Dakota, NE
7760  Sioux Falls, SD...............................    0.8790    0.9155
  Lincoln, SD
  Minnehaha, SD
7800  South Bend, IN................................    1.0029    1.0020
  St. Joseph, IN
7840  Spokane, WA...................................    1.0513    1.0349
  Spokane, WA
7880  Springfield, IL...............................    0.8685    0.9080
  Menard, IL
  Sangamon, IL
7920  Springfield, MO...............................    0.8488    0.8938
  Christian, MO
  Greene, MO
  Webster, MO
8003  \2\ Springfield, MA...........................    1.1204    1.0810
  Hampden, MA
  Hampshire, MA
8050  State College, PA.............................    0.9038    0.9331
  Centre, PA
8080  \2\ Steubenville-Weirton, OH-WV (OH Hospitals)    0.8670    0.9069
  Jefferson, OH
  Brooke, WV
  Hancock, WV
8080  Steubenville-Weirton, OH-WV (WV Hospitals)....    0.8548    0.8981
  Jefferson, OH
  Brooke, WV
  Hancock, WV
8120  Stockton-Lodi, CA.............................    1.0629    1.0427
  San Joaquin, CA
8140  \2\ Sumter, SC................................    0.8370    0.8853
  Sumter, SC
8160  Syracuse, NY..................................    0.9594    0.9720
  Cayuga, NY
  Madison, NY
  Onondaga, NY
  Oswego, NY
8200  Tacoma, WA....................................    1.1564    1.1046
  Pierce, WA
8240  \2\ Tallahassee, FL...........................    0.8928    0.9253
  Gadsden, FL
  Leon, FL
8280  \1\ Tampa-St. Petersburg-Clearwater, FL.......    0.9099    0.9374
  Hernando, FL
  Hillsborough, FL
  Pasco, FL
  Pinellas, FL
8320  \2\ Terre Haute, IN...........................    0.8602    0.9020
  Clay, IN
  Vermillion, IN
  Vigo, IN
8360  Texarkana, AR-Texarkana, TX...................    0.8427    0.8894
  Miller, AR
  Bowie, TX
8400  Toledo, OH....................................    0.9664    0.9769
  Fulton, OH
  Lucas, OH
  Wood, OH
8440  Topeka, KS....................................    0.9117    0.9387
  Shawnee, KS
8480  Trenton, NJ...................................    1.0137    1.0094
  Mercer, NJ
8520  Tucson, AZ....................................    0.8821    0.9177
  Pima, AZ
8560  Tulsa, OK.....................................    0.8454    0.8914
  Creek, OK
  Osage, OK
  Rogers, OK
  Tulsa, OK
  Wagoner, OK
8600  Tuscaloosa, AL................................    0.8064    0.8630
  Tuscaloosa, AL
8640  Tyler, TX.....................................    0.9404    0.9588
  Smith, TX
8680  Utica-Rome, NY................................    0.8560    0.8990
  Herkimer, NY
  Oneida, NY
8720  Vallejo-Fairfield-Napa, CA....................    1.2266    1.1501
  Napa, CA
  Solano, CA
8735  Ventura, CA...................................    1.0479    1.0326
  Ventura, CA
8750  Victoria, TX..................................    0.8154    0.8696
  Victoria, TX
8760  Vineland-Millville-Bridgeton, NJ..............    1.0501    1.0340
  Cumberland, NJ
8780  \2\ Visalia-Tulare-Porterville, CA............    0.9861    0.9905
  Tulare, CA
8800  Waco, TX......................................    0.8314    0.8812
  McLennan, TX
8840  \1\ Washington, DC-MD-VA-WV...................    1.0755    1.0511
  District of Columbia, DC
  Calvert, MD
  Charles, MD
  Frederick, MD
  Montgomery, MD
  Prince Georges, MD
  Alexandria City, VA
  Arlington, VA
  Clarke, VA
  Culpeper, VA
  Fairfax, VA
  Fairfax City, VA
  Falls Church City, VA
  Fauquier, VA
  Fredericksburg City, VA
  King George, VA
  Loudoun, VA
  Manassas City, VA
  Manassas Park City, VA
  Prince William, VA
  Spotsylvania, VA
  Stafford, VA
  Warren, VA  Berkeley, WV
  Jefferson, WV
8920  Waterloo-Cedar Falls, IA......................    0.8802    0.9163
  Black Hawk, IA
8940  Wausau, WI....................................    0.9426    0.9603
  Marathon, WI
8960  \1\ 1West Palm Beach-Boca Raton, FL...........    0.9615    0.9735
  Palm Beach, FL
9000  \2\ Wheeling, WV-OH (WV Hospitals)............    0.8231    0.8752
  Belmont, OH
  Marshall, WV

[[Page 47156]]

 
  Ohio, WV
9000  \2\ Wheeling, WV-OH (OH Hospitals)............    0.8670    0.9069
  Belmont, OH
  Marshall, WV
  Ohio, WV
9040  Wichita, KS...................................    0.9544    0.9685
  Butler, KS
  Harvey, KS
  Sedgwick, KS
9080  Wichita Falls, TX.............................    0.7668    0.8337
  Archer, TX
  Wichita, TX
9140  \2\ Williamsport, PA..........................    0.8578    0.9003
  Lycoming, PA
9160  Wilmington-Newark, DE-MD......................    1.1191    1.0801
  New Castle, DE
  Cecil, MD
9200  Wilmington, NC................................    0.9402    0.9587
  New Hanover, NC
  Brunswick, NC
9260  \2\ Yakima, WA................................    1.0434    1.0295
  Yakima, WA
9270  Yolo, CA......................................    1.0199    1.0136
  Yolo, CA
9280  York, PA......................................    0.9264    0.9490
  York, PA
9320  Youngstown-Warren, OH.........................    0.9543    0.9685
  Columbiana, OH
  Mahoning, OH Trumbull, OH
9340  Yuba City, CA.................................    1.0706    1.0478
  Sutter, CA
  Yuba, CA
9360  Yuma, AZ......................................    0.9529    0.9675
  Yuma, AZ
------------------------------------------------------------------------
\1\ Large Urban Area.
\2\ Hospitals geographically located in the area are assigned the
  statewide rural wage index for FY 2001.


Table 4b.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                               Rural Areas
------------------------------------------------------------------------
                                                        Wage
                    Nonurban area                       index      GAF
------------------------------------------------------------------------
Alabama.............................................    0.7528    0.8233
Alaska..............................................    1.2392    1.1582
Arizona.............................................    0.8317    0.8814
Arkansas............................................    0.7445    0.8171
California..........................................    0.9861    0.9905
Colorado............................................    0.8968    0.9281
Connecticut.........................................    1.1715    1.1145
Delaware............................................    0.9074    0.9356
Florida.............................................    0.8928    0.9253
Georgia.............................................    0.8329    0.8823
Hawaii..............................................    1.1059    1.0714
Idaho...............................................    0.8678    0.9075
Illinois............................................    0.8160    0.8700
Indiana.............................................    0.8602    0.9020
Iowa................................................    0.8030    0.8605
Kansas..............................................    0.7605    0.8290
Kentucky............................................    0.7931    0.8532
Louisiana...........................................    0.7713    0.8371
Maine...............................................    0.8766    0.9138
Maryland............................................    0.8651    0.9055
Massachusetts.......................................    1.1204    1.0810
Michigan............................................    0.9021    0.9319
Minnesota...........................................    0.8881    0.9219
Mississippi.........................................    0.7491    0.8205
Missouri............................................    0.7707    0.8366
Montana.............................................    0.8688    0.9082
Nebraska............................................    0.8109    0.8663
Nevada..............................................    0.9232    0.9467
New Hampshire.......................................    0.9845    0.9894
New Jersey \1\......................................  ........  ........
New Mexico..........................................    0.8497    0.8945
New York............................................    0.8499    0.8946
North Carolina......................................    0.8441    0.8904
North Dakota........................................    0.7716    0.8373
Ohio................................................    0.8670    0.9069
Oklahoma............................................    0.7491    0.8205
Oregon..............................................    1.0132    1.0090
Pennsylvania........................................    0.8578    0.9003
Puerto Rico.........................................    0.4264    0.5578
Rhode Island \1\....................................  ........  ........
South Carolina......................................    0.8370    0.8853
South Dakota........................................    0.7570    0.8264
Tennessee...........................................    0.7838    0.8464
Texas...............................................    0.7507    0.8217
Utah................................................    0.9037    0.9330
Vermont.............................................    0.9427    0.9604
Virginia............................................    0.8189    0.8721
Washington..........................................    1.0434    1.0295
West Virginia.......................................    0.8231    0.8752
Wisconsin...........................................    0.8880    0.9219
Wyoming.............................................    0.8817   0.9174
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.


Table 4c.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                     Hospitals That Are Reclassified
------------------------------------------------------------------------
                                                        Wage
                        Area                            index      GAF
------------------------------------------------------------------------
Abilene, TX.........................................    0.8240    0.8758
Akron, OH...........................................    0.9736    0.9818
Alexandria, LA......................................    0.8170    0.8707
Amarillo, TX........................................    0.8715    0.9101
Anchorage, AK.......................................    1.2865    1.1883
Ann Arbor, MI.......................................    1.1064    1.0717
Atlanta, GA.........................................    1.0096    1.0066
Atlantic-Cape May, NJ...............................    1.0822    1.0556
Augusta-Aiken, GA-SC................................    0.9160    0.9417
Baton Rouge, LA.....................................    0.8734    0.9115
Benton Harbor, MI...................................    0.9021    0.9319
Bergen-Passaic, NJ..................................    1.1605    1.1073
Billings, MT........................................    0.9591    0.9718
Binghamton, NY......................................    0.8690    0.9083
Birmingham, AL......................................    0.8477    0.8930
Bismarck, ND........................................    0.7897    0.8507
Bloomington-Normal, IL..............................    0.9156    0.9414
Boise City, ID......................................    0.9042    0.9334
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH        1.1160    1.0781
 (NH, RI, and VT Hospitals).........................
Burlington, VT......................................    1.0550    1.0373
Casper, WY..........................................    0.8817    0.9174
Champaign-Urbana, IL................................    0.9084    0.9363
Charleston-North Charleston, SC.....................    0.9067    0.9351
Charleston, WV......................................    0.8904    0.9236
Charlotte-Gastonia-Rock Hill, NC-SC.................    0.9391    0.9579
Chattanooga, TN-GA..................................    0.9624    0.9741
Chicago, IL.........................................    1.1015    1.0684
Cincinnati, OH-KY-IN................................    0.9415    0.9596
Clarksville-Hopkinsville, TN-KY.....................    0.8277    0.8785
Cleveland-Lorain-Elyria, OH.........................    0.9593    0.9719
Columbia, MO........................................    0.8756    0.9130
Columbia, SC........................................    0.9433    0.9608
Columbus, OH........................................    0.9619    0.9737
Dallas, TX..........................................    0.9913    0.9940
Danville, VA........................................    0.8212    0.8738
Davenport-Moline-Rock Island, IA-IL.................    0.8898    0.9232
Dayton-Springfield, OH..............................    0.9442    0.9614
Denver, CO..........................................    1.0181    1.0124
Des Moines, IA......................................    0.9011    0.9312
Dothan, AL..........................................    0.8013    0.8592
Dover, DE...........................................    0.9769    0.9841
Duluth-Superior, MN-WI..............................    1.0043    1.0029
Eau Claire, WI......................................    0.8880    0.9219
Erie, PA............................................    0.8985    0.9293
Eugene-Springfield, OR..............................    1.0965    1.0651
Fargo-Moorhead, ND-MN...............................    0.8517    0.8959
Fayetteville, NC....................................    0.8469    0.8924
Flagstaff, AZ-UT....................................    1.0525    1.0357
Flint, MI...........................................    1.1058    1.0713
Florence, AL........................................    0.7652    0.8325
Florence, SC........................................    0.8777    0.9145
Fort Collins-Loveland, CO...........................    1.0647    1.0439
Ft. Lauderdale, FL..................................    1.0152    1.0104
Fort Pierce-Port St. Lucie, FL......................    0.9622    0.9740
Fort Smith, AR-OK...................................    0.7947    0.8544
Fort Walton Beach, FL...............................    0.9358    0.9556
Fort Wayne, IN......................................    0.8665    0.9065
Forth Worth-Arlington, TX...........................    0.9527    0.9674
Gadsden, AL.........................................    0.8423    0.8891
Grand Forks, ND-MN..................................    0.8954    0.9271
Grand Junction, CO..................................    0.9471    0.9635
Grand Rapids-Muskegon-Holland, MI...................    1.0248    1.0169
Great Falls, MT.....................................    0.9331    0.9537
Greeley, CO.........................................    0.9573    0.9706
Green Bay, WI.......................................    0.9308    0.9521
Greensboro-Winston-Salem-High Point, NC.............    0.9124    0.9391
Greenville, NC......................................    0.9172    0.9425
Greenville-Spartanburg-Anderson, SC.................    0.9003    0.9306
Harrisburg-Lebanon-Carlisle, PA.....................    0.9386    0.9575

[[Page 47157]]

 
Hartford, CT (MA Hospital)..........................    1.1420    1.0952
Hattiesburg, MS.....................................    0.7491    0.8205
Hickory-Morganton-Lenoir, NC........................    0.8577    0.9002
Honolulu, HI........................................    1.1866    1.1243
Houston, TX.........................................    0.9732    0.9816
Huntington-Ashland, WV-KY-OH........................    0.9605    0.9728
Huntsville, AL......................................    0.8779    0.9147
Indianapolis, IN....................................    0.9787    0.9854
Jackson, MS.........................................    0.8698    0.9089
Jackson, TN.........................................    0.8796    0.9159
Jacksonville, FL....................................    0.9208    0.9451
Jersey City, NJ.....................................    1.1573    1.1052
Johnson City-Kingsport-Bristol, TN-VA...............    0.8328    0.8822
Joplin, MO..........................................    0.8148    0.8691
Kalamazoo-Battlecreek, MI...........................    1.0311    1.0212
Kansas City, KS-MO..................................    0.9498    0.9653
Knoxville, TN.......................................    0.8340    0.8831
Kokomo, IN..........................................    0.9525    0.9672
Lafayette, LA.......................................    0.8490    0.8940
Lansing-East Lansing, MI............................    0.9934    0.9955
Las Cruces, NM......................................    0.8510    0.8954
Las Vegas, NV-AZ....................................    1.0796    1.0538
Lexington, KY.......................................    0.8712    0.9099
Lima, OH............................................    0.9320    0.9529
Lincoln, NE.........................................    0.9666    0.9770
Little Rock-North Little Rock, AR...................    0.8791    0.9155
Longview-Marshall, TX...............................    0.8732    0.9113
Los Angeles-Long Beach, CA..........................    1.2033    1.1351
Louisville, KY-IN...................................    0.9350    0.9550
Lynchburg, VA.......................................    0.8749    0.9125
Macon, GA...........................................    0.8974    0.9285
Madison, WI.........................................    1.0271    1.0185
Mansfield, OH.......................................    0.8690    0.9083
Memphis, TN-AR-MS...................................    0.8584    0.9007
Milwaukee-Waukesha, WI..............................    0.9767    0.9840
Minneapolis-St. Paul, MN-WI.........................    1.1017    1.0686
Missoula, MT........................................    0.9332    0.9538
Mobile, AL..........................................    0.8163    0.8702
Monmouth-Ocean, NJ..................................    1.1283    1.0862
Montgomery, AL......................................    0.7653    0.8326
Myrtle Beach, SC (NC Hospital)......................    0.8441    0.8904
Nashville, TN.......................................    0.9301    0.9516
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.    1.2034    1.1352
New London-Norwich, CT..............................    1.1926    1.1282
New Orleans, LA.....................................    0.9295    0.9512
New York, NY........................................    1.4463    1.2875
Newburgh, NY-PA.....................................    1.0666    1.0451
Norfolk-Virginia Beach-Newport News, VA-NC..........    0.8441    0.8904
Oakland, CA.........................................    1.4983    1.3190
Ocala, FL...........................................    0.9243    0.9475
Odessa-Midland, TX..................................    0.9074    0.9356
Oklahoma City, OK...................................    0.8822    0.9177
Omaha, NE-IA........................................    0.9572    0.9705
Orange County, CA...................................    1.1411    1.0946
Orlando, FL.........................................    0.9610    0.9731
Peoria-Pekin, IL....................................    0.8646    0.9052
Philadelphia, PA-NJ.................................    1.0937    1.0633
Pine Bluff, AR......................................    0.7680    0.8346
Pittsburgh, PA......................................    0.9575    0.9707
Pittsfield, MA (VT Hospital)........................    0.9914    0.9941
Pocatello, ID.......................................    0.8715    0.9101
Portland, ME........................................    0.9629    0.9744
Portland-Vancouver, OR-WA...........................    1.0910    1.0615
Provo-Orem, UT......................................    1.0041    1.0028
Raleigh-Durham-Chapel Hill, NC......................    0.9646    0.9756
Rapid City, SD......................................    0.8865    0.9208
Redding, CA.........................................    1.1664    1.1112
Reno, NV............................................    1.0438    1.0298
Richland-Kennewick-Pasco, WA........................    1.1147    1.0772
Roanoke, VA.........................................    0.8782    0.9149
Rochester, MN.......................................    1.1315    1.0883
Rockford, IL........................................    0.8819    0.9175
Sacramento, CA......................................    1.1957    1.1302
Saginaw-Bay City-Midland, MI........................    0.9575    0.9707
St. Cloud, MN.......................................    1.0016    1.0011
St. Joseph, MO......................................    0.8848    0.9196
St. Louis, MO-IL....................................    0.9049    0.9339
Salinas, CA.........................................    1.4502    1.2899
Salt Lake City-Ogden, UT............................    0.9811    0.9870
San Diego, CA.......................................    1.1784    1.1190
Santa Cruz-Watsonville, CA..........................    1.3897    1.2528
Santa Fe, NM........................................    1.0000    1.0000
Santa Rosa, CA......................................    1.2398    1.1586
Seattle-Bellevue-Everett, WA........................    1.1016    1.0685
Sherman-Denison, TX.................................    0.8795    0.9158
Sioux City, IA-NE...................................    0.8473    0.8927
South Bend, IN......................................    1.0029    1.0020
Spokane, WA.........................................    1.0333    1.0227
Springfield, IL.....................................    0.8685    0.9080
Springfield, MO.....................................    0.8212    0.8738
Syracuse, NY........................................    0.9594    0.9720
Tampa-St. Petersburg-Clearwater, FL.................    0.9099    0.9374
Texarkana, AR-Texarkana, TX.........................    0.8427    0.8894
Toledo, OH..........................................    0.9664    0.9769
Topeka, KS..........................................    0.9117    0.9387
Tucson, AZ..........................................    0.8821    0.9177
Tulsa, OK...........................................    0.8454    0.8914
Tuscaloosa, AL......................................    0.8064    0.8630
Tyler, TX...........................................    0.9141    0.9403
Victoria, TX........................................    0.8154    0.8696
Washington, DC-MD-VA-WV.............................    1.0755    1.0511
Waterloo-Cedar Falls, IA............................    0.8802    0.9163
Wausau, WI..........................................    0.9426    0.9603
Wichita, KS.........................................    0.9262    0.9489
Rural Alabama.......................................    0.7528    0.8233
Rural Florida.......................................    0.8928    0.9253
Rural Illinois......................................    0.8160    0.8700
Rural Louisiana.....................................    0.7713    0.8371
Rural Michigan......................................    0.9021    0.9319
Rural Minnesota.....................................    0.8881    0.9219
Rural Missouri......................................    0.7707    0.8366
Rural Montana.......................................    0.8688    0.9082
Rural Oregon........................................    1.0132    1.0090
Rural Texas.........................................    0.7507    0.8217
Rural Washington....................................    1.0434    1.0295
Rural West Virginia.................................    0.8231    0.8752
Rural Wisconsin.....................................    0.8880    0.9219
Rural Wyoming (NE Hospital).........................    0.8671    0.9070
------------------------------------------------------------------------


             Table 4d.--Average Hourly Wage for Urban Areas
------------------------------------------------------------------------
                                                                Average
                          Urban area                             hourly
                                                                  wage
------------------------------------------------------------------------
Abilene, TX..................................................    17.9387
Aguadilla, PR................................................     9.5583
Akron, OH....................................................    21.1962
Albany, GA...................................................    21.6247
Albany-Schenectady-Troy, NY..................................    18.6106
Albuquerque, NM..............................................    19.8899
Alexandria, LA...............................................    17.7452
Allentown-Bethlehem-Easton, PA...............................    21.8571
Altoona, PA..................................................    20.3472
Amarillo, TX.................................................    18.9724
Anchorage, AK................................................    27.8515
Ann Arbor, MI................................................    24.5003
Anniston, AL.................................................    18.0347
Appleton-Oshkosh-Neenah, WI..................................    19.7058
Arecibo, PR..................................................     9.8505
Asheville, NC................................................    20.7157
Athens, GA...................................................    21.2027
Atlanta, GA..................................................    21.9792
Atlantic-Cape May, NJ........................................    24.3440
Auburn-Opelika, AL...........................................    17.6461
Augusta-Aiken, GA-SC.........................................    19.9424
Austin-San Marcos, TX........................................    20.8502
Bakersfield, CA..............................................    21.0688
Baltimore, MD................................................    20.3888
Bangor, ME...................................................    20.8150
Barnstable-Yarmouth, MA......................................    30.1277
Baton Rouge, LA..............................................    19.2487
Beaumont-Port Arthur, TX.....................................    19.0352
Bellingham, WA...............................................    24.9039
Benton Harbor, MI............................................    18.8768
Bergen-Passaic, NJ...........................................    25.7937
Billings, MT.................................................    20.8676
Biloxi-Gulfport-Pascagoula, MS...............................    17.9290
Binghamton, NY...............................................    18.9175
Birmingham, AL...............................................    18.4002
Bismarck, ND.................................................    16.7742
Bloomington,IN...............................................    19.0130
Bloomington-Normal, IL.......................................    19.8003
Boise City, ID...............................................    19.6053
Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH.............    24.2959
Boulder-Longmont, CO.........................................    21.1843
Brazoria, TX.................................................    18.8483
Bremerton, WA................................................    23.8918
Brownsville-Harlingen-San Benito, TX.........................    18.9870

[[Page 47158]]

 
Bryan-College Station, TX....................................    17.9324
Buffalo-Niagara Falls, NY....................................    20.8552
Burlington, VT...............................................    23.3707
Caguas, PR...................................................     9.9325
Canton-Massillon, OH.........................................    18.6867
Casper, WY...................................................    18.9923
Cedar Rapids, IA.............................................    19.0186
Champaign-Urbana, IL.........................................    20.0245
Charleston-North Charleston, SC..............................    19.6765
Charleston, WV...............................................    20.1160
Charlotte-Gastonia-Rock Hill, NC-SC..........................    20.4436
Charlottesville, VA..........................................    23.4885
Chattanooga, TN-GA...........................................    21.4064
Cheyenne, WY.................................................    18.0869
Chicago, IL..................................................    24.2653
Chico-Paradise, CA...........................................    21.5925
Cincinnati, OH-KY-IN.........................................    20.4967
Clarksville-Hopkinsville, TN-KY..............................    17.8606
Cleveland-Lorain-Elyria, OH..................................    20.8921
Colorado Springs, CO.........................................    21.1114
Columbia, MO.................................................    19.5074
Columbia, SC.................................................    20.7995
Columbus, GA-AL..............................................    18.6521
Columbus, OH.................................................    20.9403
Corpus Christi, TX...........................................    18.9962
Corvallis, OR................................................    24.6574
Cumberland, MD-WV............................................    18.2190
Dallas, TX...................................................    21.5801
Danville, VA.................................................    18.6983
Davenport-Moline-Rock Island, IA-IL..........................    19.3712
Dayton-Springfield, OH.......................................    20.5545
Daytona Beach, FL............................................    20.0282
Decatur, AL..................................................    18.5791
Decatur, IL..................................................    17.6894
Denver, CO...................................................    22.1647
Des Moines, IA...............................................    19.8508
Detroit, MI..................................................    22.8814
Dothan, AL...................................................    17.2926
Dover, DE....................................................    21.9391
Dubuque, IA..................................................    19.0397
Duluth-Superior, MN-WI.......................................    21.8388
Dutchess County, NY..........................................    22.3121
Eau Claire, WI...............................................    19.1358
El Paso, TX..................................................    20.3455
Elkhart-Goshen, IN...........................................    19.9093
Elmira, NY...................................................    18.6041
Enid, OK.....................................................    18.7450
Erie, PA.....................................................    19.5597
Eugene-Springfield, OR.......................................    23.8704
Evansville, Henderson, IN-KY.................................    17.7939
Fargo-Moorhead, ND-MN........................................    19.0467
Fayetteville, NC.............................................    18.8418
Fayetteville-Springdale-Rogers, AR...........................    17.2213
Flagstaff, AZ-UT.............................................    23.2631
Flint, MI....................................................    24.3942
Florence, AL.................................................    16.5808
Florence, SC.................................................    19.1069
Fort Collins-Loveland, CO....................................    23.1791
Fort Lauderdale, FL..........................................    22.0334
Fort Myers-Cape Coral, FL....................................    20.1312
Fort Pierce-Port St. Lucie, FL...............................    20.7635
Fort Smith, AR-OK............................................    17.5292
Fort Walton Beach, FL........................................    20.9154
Fort Wayne, IN...............................................    18.8629
Fort Worth-Arlington, TX.....................................    20.7411
Fresno, CA...................................................    21.9976
Gadsden, AL..................................................    18.3371
Gainesville, FL..............................................    21.9311
Galveston-Texas City, TX.....................................    21.5917
Gary, IN.....................................................    20.5814
Glens Falls, NY..............................................    18.2029
Goldsboro, NC................................................    18.3380
Grand Forks, ND-MN...........................................    19.1930
Grand Junction, CO...........................................    19.8299
Grand Rapids-Muskegon-Holland, MI............................    22.3091
Great Falls, MT..............................................    19.7346
Greeley, CO..................................................    21.3659
Green Bay, WI................................................    20.0839
Greensboro-Winston-Salem-High Point, NC......................    19.8775
Greenville, NC...............................................    20.4282
Greenville-Spartanburg-Anderson, SC..........................    19.5991
Hagerstown, MD...............................................    20.4841
Hamilton-Middletown, OH......................................    19.7254
Harrisburg-Lebanon-Carlisle, PA..............................    20.4334
Hartford, CT.................................................    24.7589
Hattiesburg, MS..............................................    16.3068
Hickory-Morganton-Lenoir, NC.................................    19.6096
Honolulu, HI.................................................    25.8269
Houma, LA....................................................    17.6029
Houston, TX..................................................    21.1868
Huntington-Ashland, WV-KY-OH.................................    21.4993
Huntsville, AL...............................................    19.4455
Indianapolis, IN.............................................    21.3060
Iowa City, IA................................................    21.0244
Jackson, MI..................................................    19.8852
Jackson, MS..................................................    19.1842
Jackson, TN..................................................    19.1498
Jacksonville, FL.............................................    20.0465
Jacksonville, NC.............................................    16.9298
Jamestown, NY................................................    17.0195
Janesville-Beloit, WI........................................    20.8677
Jersey City, NJ..............................................    25.0412
Johnson City-Kingsport-Bristol, TN-VA........................    18.0083
Johnstown, PA................................................    19.2587
Jonesboro, AR................................................    17.0500
Joplin, MO...................................................    17.7376
Kalamazoo-Battlecreek, MI....................................    22.7571
Kankakee, IL.................................................    21.5573
Kansas City, KS-MO...........................................    20.6781
Kenosha, WI..................................................    20.9242
Killeen-Temple, TX...........................................    22.0298
Knoxville, TN................................................    18.1556
Kokomo, IN...................................................    20.7207
La Crosse, WI-MN.............................................    20.0533
Lafayette, LA................................................    18.4838
Lafayette, IN................................................    19.2317
Lake Charles, LA.............................................    16.1070
Lakeland-Winter Haven, FL....................................    20.1126
Lancaster, PA................................................    20.1576
Lansing-East Lansing, MI.....................................    21.6264
Laredo, TX...................................................    17.7822
Las Cruces, NM...............................................    18.8479
Las Vegas, NV-AZ.............................................    23.5027
Lawrence, KS.................................................    17.8290
Lawton, OK...................................................    19.5850
Lewiston-Auburn, ME..........................................    19.6724
Lexington, KY................................................    19.3007
Lima, OH.....................................................    20.2889
Lincoln, NE..................................................    20.9569
Little Rock-North Little Rock, AR............................    19.3875
Longview-Marshall, TX........................................    19.4243
Los Angeles-Long Beach, CA...................................    26.1164
Louisville, KY-IN............................................    20.3544
Lubbock, TX..................................................    19.2404
Lynchburg, VA................................................    19.3031
Macon, GA....................................................    19.5357
Madison, WI..................................................    22.3606
Mansfield, OH................................................    18.9191
Mayaguez, PR.................................................     9.9900
McAllen-Edinburg-Mission, TX.................................    18.6487
Medford-Ashland, OR..........................................    22.5185
Melbourne-Titusville-Palm Bay, FL............................    21.0904
Memphis, TN-AR-MS............................................    18.9896
Merced, CA...................................................    20.9989
Miami, FL....................................................    21.8997
Middlesex-Somerset-Hunterdon, NJ.............................    24.1094
Milwaukee-Waukesha, WI.......................................    21.2638
Minneapolis-St. Paul, MN-WI..................................    23.9833
Missoula, MT.................................................    20.1896
Mobile, AL...................................................    17.7700
Modesto, CA..................................................    22.6325
Monmouth-Ocean, NJ...........................................    24.5529
Monroe, LA...................................................    18.2776
Montgomery, AL...............................................    16.6605
Muncie, IN...................................................    23.8791
Myrtle Beach, SC.............................................    18.3751
Naples, FL...................................................    21.0332
Nashville, TN................................................    20.6601
Nassau-Suffolk, NY...........................................    30.3304
New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT..........    26.7711
New London-Norwich, CT.......................................    26.2605
New Orleans, LA..............................................    20.2347
New York, NY.................................................    31.8954
Newark, NJ...................................................    25.7698
Newburgh, NY-PA..............................................    23.6150
Norfolk-Virginia Beach-Newport News, VA-NC...................    18.3132
Oakland, CA..................................................    32.6189
Ocala, FL....................................................    20.1230
Odessa-Midland, TX...........................................    20.0403
Oklahoma City, OK............................................    19.2048
Olympia, WA..................................................    23.2441
Omaha, NE-IA.................................................    20.8374
Orange County, CA............................................    24.9648
Orlando, FL..................................................    20.9206
Owensboro, KY................................................    17.7626
Panama City, FL..............................................    19.6150
Parkersburg-Marietta, WV-OH..................................    18.0122
Pensacola, FL................................................    17.7997
Peoria-Pekin, IL.............................................    18.8206
Philadelphia, PA-NJ..........................................    23.8095
Phoenix-Mesa, AZ.............................................    21.0494
Pine Bluff, AR...............................................    16.9610
Pittsburgh, PA...............................................    21.2070
Pittsfield, MA...............................................    22.3968
Pocatello, ID................................................    19.7591
Ponce, PR....................................................    10.8985
Portland, ME.................................................    21.2220
Portland-Vancouver, OR-WA....................................    23.7513
Providence-Warwick, RI.......................................    23.6503
Provo-Orem, UT...............................................    21.8338
Pueblo, CO...................................................    19.1909
Punta Gorda, FL..............................................    20.9268
Racine, WI...................................................    20.1287
Raleigh-Durham-Chapel Hill, NC...............................    21.0003
Rapid City, SD...............................................    19.2995
Reading, PA..................................................    19.9251
Redding, CA..................................................    25.3926

[[Page 47159]]

 
Reno, NV.....................................................    22.9669
Richland-Kennewick-Pasco, WA.................................    24.9481
Richmond-Petersburg, VA......................................    20.9366
Riverside-San Bernardino, CA.................................    24.4685
Roanoke, VA..................................................    19.0494
Rochester, MN................................................    24.6337
Rochester, NY................................................    19.9884
Rockford, IL.................................................    19.1994
Rocky Mount, NC..............................................    19.2653
Sacramento, CA...............................................    26.0143
Saginaw-Bay City-Midland, MI.................................    20.8446
St. Cloud, MN................................................    21.8042
St. Joseph, MO...............................................    19.7467
St. Louis, MO-IL.............................................    19.6997
Salem, OR....................................................    22.1817
Salinas, CA..................................................    31.5702
Salt Lake City-Ogden, UT.....................................    21.3500
San Angelo, TX...............................................    17.5980
San Antonio, TX..............................................    18.6797
San Diego, CA................................................    25.6544
San Francisco, CA............................................    30.8184
San Jose, CA.................................................    29.7210
San Juan-Bayamon, PR.........................................    10.2110
San Luis Obispo-Atascadero-Paso Robles, CA...................    23.2360
Santa Barbara-Santa Maria-Lompoc, CA.........................    23.0707
Santa Cruz-Watsonville, CA...................................    30.5664
Santa Fe, NM.................................................    22.9400
Santa Rosa, CA...............................................    27.5311
Sarasota-Bradenton, FL.......................................    21.3554
Savannah, GA.................................................    21.1099
Scranton-Wilkes Barre-Hazleton, PA...........................    18.3332
Seattle-Bellevue-Everett, WA.................................    23.9393
Sharon, PA...................................................    17.2591
Sheboygan, WI................................................    18.2407
Sherman-Denison, TX..........................................    18.9273
Shreveport-Bossier City, LA..................................    19.0499
Sioux City, IA-NE............................................    18.4457
Sioux Falls, SD..............................................    19.1359
South Bend, IN...............................................    21.7709
Spokane, WA..................................................    22.8867
Springfield, IL..............................................    18.9066
Springfield, MO..............................................    18.4778
Springfield, MA..............................................    23.1578
State College, PA............................................    19.6769
Steubenville-Weirton, OH-WV..................................    18.6092
Stockton-Lodi, CA............................................    23.1397
Sumter, SC...................................................    18.0057
Syracuse, NY.................................................    20.7876
Tacoma, WA...................................................    25.1749
Tallahassee, FL..............................................    18.6017
Tampa-St. Petersburg-Clearwater, FL..........................    19.5532
Terre Haute, IN..............................................    18.0773
Texarkana, AR-Texarkana, TX..................................    18.2062
Toledo, OH...................................................    21.4050
Topeka, KS...................................................    19.8476
Trenton, NJ..................................................    22.0690
Tucson, AZ...................................................    19.1447
Tulsa, OK....................................................    18.4038
Tuscaloosa, AL...............................................    17.5550
Tyler, TX....................................................    20.4737
Utica-Rome, NY...............................................    18.6360
Vallejo-Fairfield-Napa, CA...................................    27.9688
Ventura, CA..................................................    24.0125
Victoria, TX.................................................    17.7514
Vineland-Millville-Bridgeton, NJ.............................    22.8607
Visalia-Tulare-Porterville, CA...............................    20.7921
Waco, TX.....................................................    18.1006
Washington, DC-MD-VA-WV......................................    23.4147
Waterloo-Cedar Falls, IA.....................................    18.2949
Wausau, WI...................................................    20.5039
West Palm Beach-Boca Raton, FL...............................    21.0777
Wheeling, OH-WV..............................................    16.8341
Wichita, KS..................................................    20.7776
Wichita Falls, TX............................................    16.6925
Williamsport, PA.............................................    18.2688
Wilmington-Newark, DE-MD.....................................    24.3629
Wilmington, NC...............................................    20.4690
Yakima, WA...................................................    21.5675
Yolo, CA.....................................................    22.2042
York, PA.....................................................    20.1674
Youngstown-Warren, OH........................................    20.7757
Yuba City, CA................................................    23.3065
Yuma, AZ.....................................................    20.7458
------------------------------------------------------------------------


             Table 4e.--Average Hourly Wage for Rural Areas
------------------------------------------------------------------------
                                                                Average
                        Nonurban area                            hourly
                                                                  wage
------------------------------------------------------------------------
Alabama......................................................    16.3047
Alaska.......................................................    26.9769
Arizona......................................................    18.1056
Arkansas.....................................................    16.2080
California...................................................    21.4673
Colorado.....................................................    19.5235
Connecticut..................................................    25.5035
Delaware.....................................................    19.7543
Florida......................................................    19.4165
Georgia......................................................    18.1321
Hawaii.......................................................    24.0749
Idaho........................................................    18.8912
Illinois.....................................................    17.7653
Indiana......................................................    18.7277
Iowa.........................................................    17.4823
Kansas.......................................................    16.5568
Kentucky.....................................................    17.2663
Louisiana....................................................    16.6925
Maine........................................................    19.0838
Maryland.....................................................    18.8330
Massachusetts................................................    24.3924
Michigan.....................................................    19.5659
Minnesota....................................................    19.3332
Mississippi..................................................    16.3073
Missouri.....................................................    16.7596
Montana......................................................    18.9143
Nebraska.....................................................    17.6541
Nevada.......................................................    20.0985
New Hampshire................................................    21.4334
New Jersey \1\...............................................  .........
New Mexico...................................................    18.4985
New York.....................................................    18.5034
North Carolina...............................................    18.3772
North Dakota.................................................    16.7982
Ohio.........................................................    18.8756
Oklahoma.....................................................    16.3084
Oregon.......................................................    22.0574
Pennsylvania.................................................    18.6739
Puerto Rico..................................................     9.2817
Rhode Island \1\.............................................  .........
South Carolina...............................................    18.2215
South Dakota.................................................    16.4806
Tennessee....................................................    17.0628
Texas........................................................    16.3317
Utah.........................................................    19.6740
Vermont......................................................    20.1891
Virginia.....................................................    17.8284
Washington...................................................    22.7144
West Virginia................................................    17.9182
Wisconsin....................................................    19.3321
Wyoming......................................................   19.1944
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.


                Table 4f.--Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF)
----------------------------------------------------------------------------------------------------------------
                                                                                   Wage  index--       GAF--
                      Area                          Wage  index         GAF          reclass.        reclass.
                                                                                     hospitals       hospitals
----------------------------------------------------------------------------------------------------------------
Aguadilla, PR...................................          0.9380          0.9571  ..............  ..............
Arecibo, PR.....................................          0.9667          0.9771  ..............  ..............
Caguas, PR......................................          0.9747          0.9826  ..............  ..............
Mayaguez, PR....................................          0.9803          0.9865  ..............  ..............
Ponce, PR.......................................          1.0695          1.0471  ..............  ..............
San Juan-Bayamon, PR............................          1.0020          1.0014  ..............  ..............
Rural Puerto Rico...............................          0.9108          0.9380  ..............  ..............
----------------------------------------------------------------------------------------------------------------


[[Page 47160]]


  Table 5.--List of Diagnosis Related Groups (DRGs), Relative Weighting Factors, Geometric and Arithmetic Mean
                                                 Length of Stay
----------------------------------------------------------------------------------------------------------------
                                                                             Relative    Geometric    Arithmetic
      DRG          MDC            Type                  DRG title            weights     mean  LOS    mean  LOS
----------------------------------------------------------------------------------------------------------------
1..............       01  SURG                 CRANIOTOMY AGE >17 EXCEPT        3.0970          6.3          9.1
                                                FOR TRAUMA.
2..............       01  SURG                 CRANIOTOMY FOR TRAUMA AGE        3.1142          7.3          9.7
                                                >17.
3..............       01  SURG                 *CRANIOTOMY AGE 0-17......       1.9629         12.7         12.7
4..............       01  SURG                 SPINAL PROCEDURES.........       2.2918          4.8          7.4
5..............       01  SURG                 EXTRACRANIAL VASCULAR            1.4321          2.3          3.3
                                                PROCEDURES.
6..............       01  SURG                 CARPAL TUNNEL RELEASE.....        .8246          2.2          3.2
7..............       01  SURG                 PERIPH & CRANIAL NERVE &         2.5919          6.9         10.3
                                                OTHER NERV SYST PROC W CC.
8..............       01  SURG                 PERIPH & CRANIAL NERVE &         1.3948          2.1          3.0
                                                OTHER NERV SYST PROC W/O
                                                CC.
9..............       01  MED                  SPINAL DISORDERS &               1.3134          4.7          6.6
                                                INJURIES.
10.............       01  MED                  NERVOUS SYSTEM NEOPLASMS W       1.2273          4.9          6.7
                                                CC.
11.............       01  MED                  NERVOUS SYSTEM NEOPLASMS W/       .8345          3.1          4.2
                                                O CC.
12.............       01  MED                  DEGENERATIVE NERVOUS              .8925          4.5          6.1
                                                SYSTEM DISORDERS.
13.............       01  MED                  MULTIPLE SCLEROSIS &              .7644          4.1          5.1
                                                CEREBELLAR ATAXIA.
14.............       01  MED                  SPECIFIC CEREBROVASCULAR         1.2070          4.7          6.1
                                                DISORDERS EXCEPT TIA.
15.............       01  MED                  TRANSIENT ISCHEMIC ATTACK         .7480          2.9          3.6
                                                & PRECEREBRAL OCCLUSIONS.
16.............       01  MED                  NONSPECIFIC                      1.1652          4.7          6.2
                                                CEREBROVASCULAR DISORDERS
                                                W CC.
17.............       01  MED                  NONSPECIFIC                       .6539          2.6          3.4
                                                CEREBROVASCULAR DISORDERS
                                                W/O CC.
18.............       01  MED                  CRANIAL & PERIPHERAL NERVE        .9600          4.3          5.6
                                                DISORDERS W CC.
19.............       01  MED                  CRANIAL & PERIPHERAL NERVE        .6963          2.9          3.7
                                                DISORDERS W/O CC.
20.............       01  MED                  NERVOUS SYSTEM INFECTION         2.7744          7.9         10.6
                                                EXCEPT VIRAL MENINGITIS.
21.............       01  MED                  VIRAL MENINGITIS..........       1.4966          5.2          6.9
22.............       01  MED                  HYPERTENSIVE                     1.0082          3.8          5.0
                                                ENCEPHALOPATHY.
23.............       01  MED                  NONTRAUMATIC STUPOR & COMA        .8027          3.2          4.2
24.............       01  MED                  SEIZURE & HEADACHE AGE >17        .9914          3.7          5.0
                                                W CC.
25.............       01  MED                  SEIZURE & HEADACHE AGE >17        .6043          2.6          3.3
                                                W/O CC.
26.............       01  MED                  SEIZURE & HEADACHE AGE 0-         .6441          2.4          3.2
                                                17.
27.............       01  MED                  TRAUMATIC STUPOR & COMA,         1.2912          3.2          5.1
                                                COMA 1 HR.
28.............       01  MED                  TRAUMATIC STUPOR & COMA,         1.3102          4.5          6.3
                                                COMA 1 HR AGE >17 W CC.
29.............       01  MED                  TRAUMATIC STUPOR & COMA,          .7015          2.8          3.7
                                                COMA 1 HR AGE 17 W/O CC.
30.............       01  MED                  *TRAUMATIC STUPOR & COMA,         .3320          2.0          2.0
                                                COMA 1 HR AGE 0-17.
31.............       01  MED                  CONCUSSION AGE >17 W CC...        .8715          3.1          4.2
32.............       01  MED                  CONCUSSION AGE >17 W/O CC.        .5422          2.1          2.7
33.............       01  MED                  *CONCUSSION AGE 0-17......        .2086          1.6          1.6
34.............       01  MED                  OTHER DISORDERS OF NERVOUS       1.0099          3.8          5.2
                                                SYSTEM W CC.
35.............       01  MED                  OTHER DISORDERS OF NERVOUS        .6027          2.7          3.4
                                                SYSTEM W/O CC.
36.............       02  SURG                 RETINAL PROCEDURES........        .6639          1.2          1.4
37.............       02  SURG                 ORBITAL PROCEDURES........       1.0016          2.6          3.7
38.............       02  SURG                 PRIMARY IRIS PROCEDURES...        .4833          1.8          2.5
39.............       02  SURG                 LENS PROCEDURES WITH OR           .5778          1.5          1.9
                                                WITHOUT VITRECTOMY.
40.............       02  SURG                 EXTRAOCULAR PROCEDURES            .8635          2.3          3.6
                                                EXCEPT ORBIT AGE >17.
41.............       02  SURG                 *EXTRAOCULAR PROCEDURES           .3380          1.6          1.6
                                                EXCEPT ORBIT AGE 0-17.
42.............       02  SURG                 INTRAOCULAR PROCEDURES            .6478          1.6          2.2
                                                EXCEPT RETINA, IRIS &
                                                LENS.
43.............       02  MED                  HYPHEMA...................        .4977          2.6          3.4
44.............       02  MED                  ACUTE MAJOR EYE INFECTIONS        .6337          4.1          5.0
45.............       02  MED                  NEUROLOGICAL EYE DISORDERS        .7022          2.7          3.3
46.............       02  MED                  OTHER DISORDERS OF THE EYE        .7749          3.5          4.6
                                                AGE >17 W CC.
47.............       02  MED                  OTHER DISORDERS OF THE EYE        .5085          2.5          3.3
                                                AGE >17 W/O CC.
48.............       02  MED                  *OTHER DISORDERS OF THE           .2977          2.9          2.9
                                                EYE AGE 0-17.
49.............       03  SURG                 MAJOR HEAD & NECK                1.8301          3.5          5.0
                                                PROCEDURES.
50.............       03  SURG                 SIALOADENECTOMY...........        .8537          1.6          2.0
51.............       03  SURG                 SALIVARY GLAND PROCEDURES         .7934          1.8          2.5
                                                EXCEPT SIALOADENECTOMY.
52.............       03  SURG                 CLEFT LIP & PALATE REPAIR.        .8410          1.6          2.1
53.............       03  SURG                 SINUS & MASTOID PROCEDURES       1.2118          2.3          3.7
                                                AGE >17.
54.............       03  SURG                 *SINUS & MASTOID                  .4826          3.2          3.2
                                                PROCEDURES AGE 0-17.
55.............       03  SURG                 MISCELLANEOUS EAR, NOSE,          .9039          1.9          2.9
                                                MOUTH & THROAT PROCEDURES.
56.............       03  SURG                 RHINOPLASTY...............        .9451          2.1          3.1
57.............       03  SURG                 T&A PROC, EXCEPT                 1.0704          2.5          4.0
                                                TONSILLECTOMY &/OR
                                                ADENOIDECTOMY ONLY, AGE
                                                >17.
58.............       03  SURG                 *T&A PROC, EXCEPT                 .2740          1.5          1.5
                                                TONSILLECTOMY &/OR
                                                ADENOIDECTOMY ONLY, AGE 0-
                                                17.
59.............       03  SURG                 TONSILLECTOMY &/OR                .6943          1.8          2.5
                                                ADENOIDECTOMY ONLY, AGE
                                                >17.
60.............       03  SURG                 *TONSILLECTOMY &/OR               .2087          1.5          1.5
                                                ADENOIDECTOMY ONLY, AGE 0-
                                                17.
61.............       03  SURG                 MYRINGOTOMY W TUBE               1.2660          2.8          4.8
                                                INSERTION AGE >17.
62.............       03  SURG                 *MYRINGOTOMY W TUBE               .2955          1.3          1.3
                                                INSERTION AGE 0-17.
63.............       03  SURG                 OTHER EAR, NOSE, MOUTH &         1.3402          3.0          4.3
                                                THROAT O.R. PROCEDURES.
64.............       03  MED                  EAR, NOSE, MOUTH & THROAT        1.2288          4.3          6.5
                                                MALIGNANCY.
65.............       03  MED                  DYSEQUILIBRIUM............        .5385          2.3          2.9

[[Page 47161]]

 
66.............       03  MED                  EPISTAXIS.................        .5590          2.5          3.2
67.............       03  MED                  EPIGLOTTITIS..............        .8105          2.8          3.5
68.............       03  MED                  OTITIS MEDIA & URI AGE >17        .6750          3.4          4.2
                                                W CC.
69.............       03  MED                  OTITIS MEDIA & URI AGE >17        .5152          2.7          3.3
                                                W/O CC.
70.............       03  MED                  OTITIS MEDIA & URI AGE 0-         .4628          2.4          2.9
                                                17.
71.............       03  MED                  LARYNGOTRACHEITIS.........        .7712          3.0          3.9
72.............       03  MED                  NASAL TRAUMA & DEFORMITY..        .6428          2.6          3.3
73.............       03  MED                  OTHER EAR, NOSE, MOUTH &          .7777          3.3          4.4
                                                THROAT DIAGNOSES AGE >17.
74.............       03  MED                  *OTHER EAR, NOSE, MOUTH &         .3358          2.1          2.1
                                                THROAT DIAGNOSES AGE 0-17.
75.............       04  SURG                 MAJOR CHEST PROCEDURES....       3.1331          7.8         10.0
76.............       04  SURG                 OTHER RESP SYSTEM O.R.           2.7908          8.4         11.3
                                                PROCEDURES W CC.
77.............       04  SURG                 OTHER RESP SYSTEM O.R.           1.1887          3.5          5.0
                                                PROCEDURES W/O CC.
78.............       04  MED                  PULMONARY EMBOLISM........       1.3698          6.0          7.0
79.............       04  MED                  RESPIRATORY INFECTIONS &         1.6501          6.6          8.5
                                                INFLAMMATIONS AGE >17 W
                                                CC.
80.............       04  MED                  RESPIRATORY INFECTIONS &          .9373          4.7          5.8
                                                INFLAMMATIONS AGE >17 W/O
                                                CC.
81.............       04  MED                  *RESPIRATORY INFECTIONS &        1.5204          6.1          6.1
                                                INFLAMMATIONS AGE 0-17.
82.............       04  MED                  RESPIRATORY NEOPLASMS.....       1.3799          5.2          7.0
83.............       04  MED                  MAJOR CHEST TRAUMA W CC...        .9808          4.4          5.6
84.............       04  MED                  MAJOR CHEST TRAUMA W/O CC.        .5539          2.8          3.4
85.............       04  MED                  PLEURAL EFFUSION W CC.....       1.2198          4.9          6.4
86.............       04  MED                  PLEURAL EFFUSION W/O CC...        .6984          2.9          3.8
87.............       04  MED                  PULMONARY EDEMA &                1.3781          4.8          6.3
                                                RESPIRATORY FAILURE.
88.............       04  MED                  CHRONIC OBSTRUCTIVE               .9317          4.2          5.2
                                                PULMONARY DISEASE.
89.............       04  MED                  SIMPLE PNEUMONIA &               1.0647          5.0          6.0
                                                PLEURISY AGE >17 W CC.
90.............       04  MED                  SIMPLE PNEUMONIA &                .6590          3.6          4.2
                                                PLEURISY AGE >17 W/O CC.
91.............       04  MED                  SIMPLE PNEUMONIA &                .6890          2.8          3.4
                                                PLEURISY AGE 0-17.
92.............       04  MED                  INTERSTITIAL LUNG DISEASE        1.1863          5.0          6.3
                                                W CC.
93.............       04  MED                  INTERSTITIAL LUNG DISEASE         .7309          3.3          4.1
                                                W/O CC.
94.............       04  MED                  PNEUMOTHORAX W CC.........       1.1704          4.8          6.3
95.............       04  MED                  PNEUMOTHORAX W/O CC.......        .6098          3.0          3.7
96.............       04  MED                  BRONCHITIS & ASTHMA AGE           .7871          3.9          4.7
                                                >17 W CC.
97.............       04  MED                  BRONCHITIS & ASTHMA AGE           .5873          3.1          3.7
                                                >17 W/O CC.
98.............       04  MED                  BRONCHITIS & ASTHMA AGE 0-        .8768          3.2          4.7
                                                17.
99.............       04  MED                  RESPIRATORY SIGNS &               .7117          2.5          3.2
                                                SYMPTOMS W CC.
100............       04  MED                  RESPIRATORY SIGNS &               .5437          1.8          2.2
                                                SYMPTOMS W/O CC.
101............       04  MED                  OTHER RESPIRATORY SYSTEM          .8563          3.3          4.4
                                                DIAGNOSES W CC.
102............       04  MED                  OTHER RESPIRATORY SYSTEM          .5550          2.1          2.7
                                                DIAGNOSES W/O CC.
103............      PRE  SURG                 HEART TRANSPLANT..........      19.0098         30.7         51.8
104............       05  SURG                 CARDIAC VALVE & OTHER            7.1843          8.9         11.7
                                                MAJOR CARDIOTHORACIC PROC
                                                W CARDIAC CATH.
105............       05  SURG                 CARDIAC VALVE & OTHER            5.6567          7.4          9.3
                                                MAJOR CARDIOTHORACIC PROC
                                                W/O CARDIAC CATH.
106............       05  SURG                 CORONARY BYPASS W PTCA....       7.5203          9.3         11.2
107............       05  SURG                 CORONARY BYPASS W CARDIAC        5.3762          9.2         10.3
                                                CATH.
108............       05  SURG                 OTHER CARDIOTHORACIC             5.6525          8.0         10.6
                                                PROCEDURES.
109............       05  SURG                 CORONARY BYPASS W/O PTCA         4.0198          6.8          7.7
                                                OR CARDIAC CATH.
110............       05  SURG                 MAJOR CARDIOVASCULAR             4.1358          7.1          9.5
                                                PROCEDURES W CC.
111............       05  SURG                 MAJOR CARDIOVASCULAR             2.2410          4.7          5.5
                                                PROCEDURES W/O CC.
112............       05  SURG                 PERCUTANEOUS                     1.8677          2.6          3.8
                                                CARDIOVASCULAR PROCEDURES.
113............       05  SURG                 AMPUTATION FOR CIRC SYSTEM       2.7806          9.8         12.8
                                                DISORDERS EXCEPT UPPER
                                                LIMB & TOE.
114............       05  SURG                 UPPER LIMB & TOE                 1.5656          6.0          8.3
                                                AMPUTATION FOR CIRC
                                                SYSTEM DISORDERS.
115............       05  SURG                 PRM CARD PACEM IMPL W            3.4711          6.0          8.4
                                                AMI,HRT FAIL OR SHK,OR
                                                AICD LEAD OR GNRTR PR.
116............       05  SURG                 OTH PERM CARD PACEMAK IMPL       2.4190          2.6          3.7
                                                OR PTCA W CORONARY ARTERY
                                                STENT IMPLNT.
117............       05  SURG                 CARDIAC PACEMAKER REVISION       1.2966          2.6          4.0
                                                EXCEPT DEVICE REPLACEMENT.
118............       05  SURG                 CARDIAC PACEMAKER DEVICE         1.4939          1.9          2.8
                                                REPLACEMENT.
119............       05  SURG                 VEIN LIGATION & STRIPPING.       1.2600          2.9          4.9
120............       05  SURG                 OTHER CIRCULATORY SYSTEM         2.0352          4.9          8.1
                                                O.R. PROCEDURES.
121............       05  MED                  CIRCULATORY DISORDERS W          1.6194          5.5          6.7
                                                AMI & MAJOR COMP,
                                                DISCHARGED ALIVE.
122............       05  MED                  CIRCULATORY DISORDERS W          1.0884          3.3          4.0
                                                AMI W/O MAJOR COMP,
                                                DISCHARGED ALIVE.
123............       05  MED                  CIRCULATORY DISORDERS W          1.5528          2.8          4.6
                                                AMI, EXPIRED.

[[Page 47162]]

 
124............       05  MED                  CIRCULATORY DISORDERS            1.4134          3.3          4.4
                                                EXCEPT AMI, W CARD CATH &
                                                COMPLEX DIAG.
125............       05  MED                  CIRCULATORY DISORDERS            1.0606          2.2          2.8
                                                EXCEPT AMI, W CARD CATH W/
                                                O COMPLEX DIAG.
126............       05  MED                  ACUTE & SUBACUTE                 2.5379          9.3         12.0
                                                ENDOCARDITIS.
127............       05  MED                  HEART FAILURE & SHOCK.....       1.0130          4.2          5.4
128............       05  MED                  DEEP VEIN THROMBOPHLEBITIS        .7651          5.0          5.8
129............       05  MED                  CARDIAC ARREST,                  1.0968          1.8          2.9
                                                UNEXPLAINED.
130............       05  MED                  PERIPHERAL VASCULAR               .9471          4.7          5.9
                                                DISORDERS W CC.
131............       05  MED                  PERIPHERAL VASCULAR               .5898          3.6          4.4
                                                DISORDERS W/O CC.
132............       05  MED                  ATHEROSCLEROSIS W CC......        .6707          2.4          3.1
133............       05  MED                  ATHEROSCLEROSIS W/O CC....        .5663          1.9          2.4
134............       05  MED                  HYPERTENSION..............        .5917          2.6          3.3
135............       05  MED                  CARDIAC CONGENITAL &              .9083          3.3          4.5
                                                VALVULAR DISORDERS AGE
                                                >17 W CC.
136............       05  MED                  CARDIAC CONGENITAL &              .6065          2.2          2.9
                                                VALVULAR DISORDERS AGE
                                                >17 W/O CC.
137............       05  MED                  *CARDIAC CONGENITAL &             .8192          3.3          3.3
                                                VALVULAR DISORDERS AGE 0-
                                                17.
138............       05  MED                  CARDIAC ARRHYTHMIA &              .8291          3.1          4.0
                                                CONDUCTION DISORDERS W CC.
139............       05  MED                  CARDIAC ARRHYTHMIA &              .5141          2.0          2.5
                                                CONDUCTION DISORDERS W/O
                                                CC.
140............       05  MED                  ANGINA PECTORIS...........        .5740          2.2          2.7
141............       05  MED                  SYNCOPE & COLLAPSE W CC...        .7219          2.9          3.7
142............       05  MED                  SYNCOPE & COLLAPSE W/O CC.        .5552          2.2          2.7
143............       05  MED                  CHEST PAIN................        .5402          1.8          2.2
144............       05  MED                  OTHER CIRCULATORY SYSTEM         1.1668          3.8          5.4
                                                DIAGNOSES W CC.
145............       05  MED                  OTHER CIRCULATORY SYSTEM          .6322          2.2          2.8
                                                DIAGNOSES W/O CC.
146............       06  SURG                 RECTAL RESECTION W CC.....       2.7430          8.9         10.2
147............       06  SURG                 RECTAL RESECTION W/O CC...       1.6221          6.0          6.6
148............       06  SURG                 MAJOR SMALL & LARGE BOWEL        3.4347         10.1         12.1
                                                PROCEDURES W CC.
149............       06  SURG                 MAJOR SMALL & LARGE BOWEL        1.5667          6.1          6.7
                                                PROCEDURES W/O CC.
150............       06  SURG                 PERITONEAL ADHESIOLYSIS W        2.8523          9.1         11.2
                                                CC.
151............       06  SURG                 PERITONEAL ADHESIOLYSIS W/       1.3427          4.8          5.9
                                                O CC.
152............       06  SURG                 MINOR SMALL & LARGE BOWEL        1.9462          6.8          8.2
                                                PROCEDURES W CC.
153............       06  SURG                 MINOR SMALL & LARGE BOWEL        1.2080          4.9          5.5
                                                PROCEDURES W/O CC.
154............       06  SURG                 STOMACH, ESOPHAGEAL &            4.1475         10.1         13.3
                                                DUODENAL PROCEDURES AGE
                                                >17 W CC.
155............       06  SURG                 STOMACH, ESOPHAGEAL &            1.3751          3.3          4.4
                                                DUODENAL PROCEDURES AGE
                                                >17 W/O CC.
156............       06  SURG                 *STOMACH, ESOPHAGEAL &            .8436          6.0          6.0
                                                DUODENAL PROCEDURES AGE 0-
                                                17.
157............       06  SURG                 ANAL & STOMAL PROCEDURES W       1.2388          3.9          5.5
                                                CC.
158............       06  SURG                 ANAL & STOMAL PROCEDURES W/       .6638          2.1          2.6
                                                O CC.
159............       06  SURG                 HERNIA PROCEDURES EXCEPT         1.3347          3.8          5.0
                                                INGUINAL & FEMORAL AGE
                                                >17 W CC.
160............       06  SURG                 HERNIA PROCEDURES EXCEPT          .7837          2.2          2.7
                                                INGUINAL & FEMORAL AGE
                                                >17 W/O CC.
161............       06  SURG                 INGUINAL & FEMORAL HERNIA        1.1017          2.9          4.2
                                                PROCEDURES AGE >17 W CC.
162............       06  SURG                 INGUINAL & FEMORAL HERNIA         .6229          1.6          2.0
                                                PROCEDURES AGE >17 W/O CC.
163............       06  SURG                 HERNIA PROCEDURES AGE 0-17        .6921          2.4          2.9
164............       06  SURG                 APPENDECTOMY W COMPLICATED       2.3760          7.1          8.4
                                                PRINCIPAL DIAG W CC.
165............       06  SURG                 APPENDECTOMY W COMPLICATED       1.2838          4.3          4.9
                                                PRINCIPAL DIAG W/O CC.
166............       06  SURG                 APPENDECTOMY W/O                 1.4802          4.0          5.1
                                                COMPLICATED PRINCIPAL
                                                DIAG W CC.
167............       06  SURG                 APPENDECTOMY W/O                  .8937          2.3          2.7
                                                COMPLICATED PRINCIPAL
                                                DIAG W/O CC.
168............       03  SURG                 MOUTH PROCEDURES W CC.....       1.2141          3.2          4.7
169............       03  SURG                 MOUTH PROCEDURES W/O CC...        .7455          1.9          2.4
170............       06  SURG                 OTHER DIGESTIVE SYSTEM           2.8686          7.7         11.2
                                                O.R. PROCEDURES W CC.
171............       06  SURG                 OTHER DIGESTIVE SYSTEM           1.1975          3.6          4.8
                                                O.R. PROCEDURES W/O CC.
172............       06  MED                  DIGESTIVE MALIGNANCY W CC.       1.3485          5.1          7.0
173............       06  MED                  DIGESTIVE MALIGNANCY W/O          .7700          2.8          3.9
                                                CC.
174............       06  MED                  G.I. HEMORRHAGE W CC......        .9985          3.9          4.8
175............       06  MED                  G.I. HEMORRHAGE W/O CC....        .5501          2.5          2.9
176............       06  MED                  COMPLICATED PEPTIC ULCER..       1.1052          4.1          5.3
177............       06  MED                  UNCOMPLICATED PEPTIC ULCER        .8998          3.7          4.6
                                                W CC.
178............       06  MED                  UNCOMPLICATED PEPTIC ULCER        .6604          2.6          3.1
                                                W/O CC.
179............       06  MED                  INFLAMMATORY BOWEL DISEASE       1.0576          4.7          6.0
180............       06  MED                  G.I. OBSTRUCTION W CC.....        .9423          4.2          5.4
181............       06  MED                  G.I. OBSTRUCTION W/O CC...        .5304          2.8          3.4
182............       06  MED                  ESOPHAGITIS, GASTROENT &          .7922          3.4          4.4
                                                MISC DIGEST DISORDERS AGE
                                                >17 W CC.

[[Page 47163]]

 
183............       06  MED                  ESOPHAGITIS, GASTROENT &          .5717          2.4          3.0
                                                MISC DIGEST DISORDERS AGE
                                                >17 W/O CC.
184............       06  MED                  ESOPHAGITIS, GASTROENT &          .5119          2.5          3.3
                                                MISC DIGEST DISORDERS AGE
                                                0-17.
185............       03  MED                  DENTAL & ORAL DIS EXCEPT          .8621          3.3          4.5
                                                EXTRACTIONS &
                                                RESTORATIONS, AGE >17.
186............       03  MED                  *DENTAL & ORAL DIS EXCEPT         .3216          2.9          2.9
                                                EXTRACTIONS &
                                                RESTORATIONS, AGE 0-17.
187............       03  MED                  DENTAL EXTRACTIONS &              .7649          2.9          3.8
                                                RESTORATIONS.
188............       06  MED                  OTHER DIGESTIVE SYSTEM           1.1005          4.1          5.6
                                                DIAGNOSES AGE >17 W CC.
189............       06  MED                  OTHER DIGESTIVE SYSTEM            .5796          2.4          3.1
                                                DIAGNOSES AGE >17 W/O CC.
190............       06  MED                  OTHER DIGESTIVE SYSTEM            .9884          4.1          6.0
                                                DIAGNOSES AGE 0-17.
191............       07  SURG                 PANCREAS, LIVER & SHUNT          4.3914         10.5         14.2
                                                PROCEDURES W CC.
192............       07  SURG                 PANCREAS, LIVER & SHUNT          1.7916          5.3          6.6
                                                PROCEDURES W/O CC.
193............       07  SURG                 BILIARY TRACT PROC EXCEPT        3.3861         10.3         12.6
                                                ONLY CHOLECYST W OR W/O
                                                C.D.E. W CC.
194............       07  SURG                 BILIARY TRACT PROC EXCEPT        1.6191          5.6          6.8
                                                ONLY CHOLECYST W OR W/O
                                                C.D.E. W/O CC.
195............       07  SURG                 CHOLECYSTECTOMY W C.D.E. W       2.9062          8.3          9.9
                                                CC.
196............       07  SURG                 CHOLECYSTECTOMY W C.D.E. W/      1.6593          4.9          5.7
                                                O CC.
197............       07  SURG                 CHOLECYSTECTOMY EXCEPT BY        2.4544          7.2          8.7
                                                LAPAROSCOPE W/O C.D.E. W
                                                CC.
198............       07  SURG                 CHOLECYSTECTOMY EXCEPT BY        1.2339          3.9          4.5
                                                LAPAROSCOPE W/O C.D.E. W/
                                                O CC.
199............       07  SURG                 HEPATOBILIARY DIAGNOSTIC         2.3584          7.2          9.7
                                                PROCEDURE FOR MALIGNANCY.
200............       07  SURG                 HEPATOBILIARY DIAGNOSTIC         3.2262          7.0         10.8
                                                PROCEDURE FOR NON-
                                                MALIGNANCY.
201............       07  SURG                 OTHER HEPATOBILIARY OR           3.4035         10.2         13.9
                                                PANCREAS O.R. PROCEDURES.
202............       07  MED                  CIRRHOSIS & ALCOHOLIC            1.3001          4.9          6.5
                                                HEPATITIS.
203............       07  MED                  MALIGNANCY OF                    1.3250          5.0          6.7
                                                HEPATOBILIARY SYSTEM OR
                                                PANCREAS.
204............       07  MED                  DISORDERS OF PANCREAS            1.2018          4.5          5.9
                                                EXCEPT MALIGNANCY.
205............       07  MED                  DISORDERS OF LIVER EXCEPT        1.2048          4.7          6.3
                                                MALIG,CIRR,ALC HEPA W CC.
206............       07  MED                  DISORDERS OF LIVER EXCEPT         .6751          3.0          3.9
                                                MALIG,CIRR,ALC HEPA W/O
                                                CC.
207............       07  MED                  DISORDERS OF THE BILIARY         1.1032          4.0          5.2
                                                TRACT W CC.
208............       07  MED                  DISORDERS OF THE BILIARY          .6538          2.3          2.9
                                                TRACT W/O CC.
209............       08  SURG                 MAJOR JOINT & LIMB               2.0912          4.6          5.2
                                                REATTACHMENT PROCEDURES
                                                OF LOWER EXTREMITY.
210............       08  SURG                 HIP & FEMUR PROCEDURES           1.8152          6.0          6.9
                                                EXCEPT MAJOR JOINT AGE
                                                >17 W CC.
211............       08  SURG                 HIP & FEMUR PROCEDURES           1.2647          4.5          4.9
                                                EXCEPT MAJOR JOINT AGE
                                                >17 W/O CC.
212............       08  SURG                 *HIP & FEMUR PROCEDURES           .8472         11.1         11.1
                                                EXCEPT MAJOR JOINT AGE 0-
                                                17.
213............       08  SURG                 AMPUTATION FOR                   1.7726          6.4          8.7
                                                MUSCULOSKELETAL SYSTEM &
                                                CONN TISSUE DISORDERS.
214............       08  SURG                 NO LONGER VALID...........        .0000           .0           .0
215............       08  SURG                 NO LONGER VALID...........        .0000           .0           .0
216............       08  SURG                 BIOPSIES OF                      2.2042          7.1          9.8
                                                MUSCULOSKELETAL SYSTEM &
                                                CONNECTIVE TISSUE.
217............       08  SURG                 WND DEBRID & SKN GRFT            2.9230          8.9         13.2
                                                EXCEPT HAND,FOR
                                                MUSCSKELET & CONN TISS
                                                DIS.
218............       08  SURG                 LOWER EXTREM & HUMER PROC        1.5337          4.2          5.4
                                                EXCEPT HIP, FOOT, FEMUR
                                                AGE >17 W CC.
219............       08  SURG                 LOWER EXTREM & HUMER PROC        1.0255          2.7          3.3
                                                EXCEPT HIP, FOOT, FEMUR
                                                AGE >17 W/O CC.
220............       08  SURG                 *LOWER EXTREM & HUMER PROC        .5844          5.3          5.3
                                                EXCEPT HIP, FOOT, FEMUR
                                                AGE 0-17.
221............       08  SURG                 NO LONGER VALID...........        .0000           .0           .0
222............       08  SURG                 NO LONGER VALID...........        .0000           .0           .0
223............       08  SURG                 MAJOR SHOULDER/ELBOW PROC,        .9585          2.0          2.6
                                                OR OTHER UPPER EXTREMITY
                                                PROC W CC.
224............       08  SURG                 SHOULDER, ELBOW OR FOREARM        .7997          1.7          2.1
                                                PROC, EXC MAJOR JOINT
                                                PROC, W/O CC.
225............       08  SURG                 FOOT PROCEDURES...........       1.0851          3.3          4.7
226............       08  SURG                 SOFT TISSUE PROCEDURES W         1.4770          4.3          6.3
                                                CC.
227............       08  SURG                 SOFT TISSUE PROCEDURES W/O        .8036          2.1          2.7
                                                CC.
228............       08  SURG                 MAJOR THUMB OR JOINT             1.0664          2.4          3.6
                                                PROC,OR OTH HAND OR WRIST
                                                PROC W CC.
229............       08  SURG                 HAND OR WRIST PROC, EXCEPT        .7169          1.8          2.4
                                                MAJOR JOINT PROC, W/O CC.

[[Page 47164]]

 
230............       08  SURG                 LOCAL EXCISION & REMOVAL         1.2490          3.4          5.1
                                                OF INT FIX DEVICES OF HIP
                                                & FEMUR.
231............       08  SURG                 LOCAL EXCISION & REMOVAL         1.3825          3.2          4.8
                                                OF INT FIX DEVICES EXCEPT
                                                HIP & FEMUR.
232............       08  SURG                 ARTHROSCOPY...............       1.0828          2.3          3.6
233............       08  SURG                 OTHER MUSCULOSKELET SYS &        2.0890          5.3          7.7
                                                CONN TISS O.R. PROC W CC.
234............       08  SURG                 OTHER MUSCULOSKELET SYS &        1.2661          2.7          3.6
                                                CONN TISS O.R. PROC W/O
                                                CC.
235............       08  MED                  FRACTURES OF FEMUR........        .7582          3.8          5.2
236............       08  MED                  FRACTURES OF HIP & PELVIS.        .7218          4.0          5.0
237............       08  MED                  SPRAINS, STRAINS, &               .5681          3.0          3.7
                                                DISLOCATIONS OF HIP,
                                                PELVIS & THIGH.
238............       08  MED                  OSTEOMYELITIS.............       1.3496          6.4          8.6
239............       08  MED                  PATHOLOGICAL FRACTURES &          .9745          4.9          6.2
                                                MUSCULOSKELETAL & CONN
                                                TISS MALIGNANCY.
240............       08  MED                  CONNECTIVE TISSUE                1.2712          4.9          6.6
                                                DISORDERS W CC.
241............       08  MED                  CONNECTIVE TISSUE                 .6177          3.1          3.9
                                                DISORDERS W/O CC.
242............       08  MED                  SEPTIC ARTHRITIS..........       1.0724          5.1          6.6
243............       08  MED                  MEDICAL BACK PROBLEMS.....        .7262          3.7          4.7
244............       08  MED                  BONE DISEASES & SPECIFIC          .7155          3.7          4.8
                                                ARTHROPATHIES W CC.
245............       08  MED                  BONE DISEASES & SPECIFIC          .4832          2.8          3.6
                                                ARTHROPATHIES W/O CC.
246............       08  MED                  NON-SPECIFIC ARTHROPATHIES        .5570          2.9          3.6
247............       08  MED                  SIGNS & SYMPTOMS OF               .5696          2.6          3.5
                                                MUSCULOSKELETAL SYSTEM &
                                                CONN TISSUE.
248............       08  MED                  TENDONITIS, MYOSITIS &            .7864          3.7          4.8
                                                BURSITIS.
249............       08  MED                  AFTERCARE, MUSCULOSKELETAL        .6913          2.6          3.8
                                                SYSTEM & CONNECTIVE
                                                TISSUE.
250............       08  MED                  FX, SPRN, STRN & DISL OF          .6929          3.3          4.3
                                                FOREARM, HAND, FOOT AGE
                                                >17 W CC.
251............       08  MED                  FX, SPRN, STRN & DISL OF          .4995          2.4          3.0
                                                FOREARM, HAND, FOOT AGE
                                                >17 W/O CC.
252............       08  MED                  *FX, SPRN, STRN & DISL OF         .2538          1.8          1.8
                                                FOREARM, HAND, FOOT AGE 0-
                                                17.
253............       08  MED                  FX, SPRN, STRN & DISL OF          .7253          3.7          4.7
                                                UPARM,LOWLEG EX FOOT AGE
                                                >17 W CC.
254............       08  MED                  FX, SPRN, STRN & DISL OF          .4413          2.6          3.2
                                                UPARM,LOWLEG EX FOOT AGE
                                                >17 W/O CC.
255............       08  MED                  *FX, SPRN, STRN & DISL OF         .2956          2.9          2.9
                                                UPARM,LOWLEG EX FOOT AGE
                                                0-17.
256............       08  MED                  OTHER MUSCULOSKELETAL             .7959          3.8          5.2
                                                SYSTEM & CONNECTIVE
                                                TISSUE DIAGNOSES.
257............       09  SURG                 TOTAL MASTECTOMY FOR              .9107          2.3          2.8
                                                MALIGNANCY W CC.
258............       09  SURG                 TOTAL MASTECTOMY FOR              .7232          1.8          2.0
                                                MALIGNANCY W/O CC.
259............       09  SURG                 SUBTOTAL MASTECTOMY FOR           .9068          1.8          2.8
                                                MALIGNANCY W CC.
260............       09  SURG                 SUBTOTAL MASTECTOMY FOR           .6532          1.3          1.4
                                                MALIGNANCY W/O CC.
261............       09  SURG                 BREAST PROC FOR NON-              .9362          1.7          2.2
                                                MALIGNANCY EXCEPT BIOPSY
                                                & LOCAL EXCISION.
262............       09  SURG                 BREAST BIOPSY & LOCAL             .8754          2.7          3.8
                                                EXCISION FOR NON-
                                                MALIGNANCY.
263............       09  SURG                 SKIN GRAFT &/OR DEBRID FOR       2.1219          8.9         12.2
                                                SKN ULCER OR CELLULITIS W
                                                CC.
264............       09  SURG                 SKIN GRAFT &/OR DEBRID FOR       1.1479          5.4          7.2
                                                SKN ULCER OR CELLULITIS W/
                                                O CC.
265............       09  SURG                 SKIN GRAFT &/OR DEBRID           1.5309          4.3          6.6
                                                EXCEPT FOR SKIN ULCER OR
                                                CELLULITIS W CC.
266............       09  SURG                 SKIN GRAFT &/OR DEBRID            .8707          2.4          3.3
                                                EXCEPT FOR SKIN ULCER OR
                                                CELLULITIS W/O CC.
267............       09  SURG                 PERIANAL & PILONIDAL             1.0792          3.1          5.2
                                                PROCEDURES.
268............       09  SURG                 SKIN, SUBCUTANEOUS TISSUE        1.1405          2.4          3.7
                                                & BREAST PLASTIC
                                                PROCEDURES.
269............       09  SURG                 OTHER SKIN, SUBCUT TISS &        1.7004          5.8          8.3
                                                BREAST PROC W CC.
270............       09  SURG                 OTHER SKIN, SUBCUT TISS &         .7670          2.3          3.3
                                                BREAST PROC W/O CC.
271............       09  MED                  SKIN ULCERS...............       1.0104          5.5          7.1
272............       09  MED                  MAJOR SKIN DISORDERS W CC.        .9994          4.8          6.3
273............       09  MED                  MAJOR SKIN DISORDERS W/O          .6179          3.2          4.2
                                                CC.
274............       09  MED                  MALIGNANT BREAST DISORDERS       1.2061          4.9          7.0
                                                W CC.
275............       09  MED                  MALIGNANT BREAST DISORDERS        .5301          2.4          3.4
                                                W/O CC.
276............       09  MED                  NON-MALIGANT BREAST               .6899          3.6          4.6
                                                DISORDERS.
277............       09  MED                  CELLULITIS AGE >17 W CC...        .8396          4.7          5.7
278............       09  MED                  CELLULITIS AGE >17 W/O CC.        .5522          3.6          4.3
279............       09  MED                  *CELLULITIS AGE 0-17......        .6644          4.2          4.2
280............       09  MED                  TRAUMA TO THE SKIN, SUBCUT        .6788          3.2          4.2
                                                TISS & BREAST AGE >17 W
                                                CC.

[[Page 47165]]

 
281............       09  MED                  TRAUMA TO THE SKIN, SUBCUT        .4729          2.4          3.1
                                                TISS & BREAST AGE >17 W/O
                                                CC.
282............       09  MED                  *TRAUMA TO THE SKIN,              .2570          2.2          2.2
                                                SUBCUT TISS & BREAST AGE
                                                0-17.
283............       09  MED                  MINOR SKIN DISORDERS W CC.        .6917          3.5          4.6
284............       09  MED                  MINOR SKIN DISORDERS W/O          .4336          2.5          3.2
                                                CC.
285............       10  SURG                 AMPUTAT OF LOWER LIMB FOR        1.9961          7.7         10.5
                                                ENDOCRINE, NUTRIT, &
                                                METABOL DISORDERS.
286............       10  SURG                 ADRENAL & PITUITARY              2.1299          4.9          6.2
                                                PROCEDURES.
287............       10  SURG                 SKIN GRAFTS & WOUND DEBRID       1.8283          7.8         10.5
                                                FOR ENDOC, NUTRIT & METAB
                                                DISORDERS.
288............       10  SURG                 O.R. PROCEDURES FOR              2.1607          4.5          5.7
                                                OBESITY.
289............       10  SURG                 PARATHYROID PROCEDURES....        .9914          2.0          3.1
290............       10  SURG                 THYROID PROCEDURES........        .9193          1.8          2.4
291............       10  SURG                 THYROGLOSSAL PROCEDURES...        .5487          1.4          1.6
292............       10  SURG                 OTHER ENDOCRINE, NUTRIT &        2.4538          6.9         10.0
                                                METAB O.R. PROC W CC.
293............       10  SURG                 OTHER ENDOCRINE, NUTRIT &        1.2289          3.6          5.1
                                                METAB O.R. PROC W/O CC.
294............       10  MED                  DIABETES AGE >35..........        .7589          3.6          4.7
295............       10  MED                  DIABETES AGE 0-35.........        .7587          2.9          3.9
296............       10  MED                  NUTRITIONAL & MISC                .8594          4.0          5.2
                                                METABOLIC DISORDERS AGE
                                                >17 W CC.
297............       10  MED                  NUTRITIONAL & MISC                .5179          2.8          3.5
                                                METABOLIC DISORDERS AGE
                                                >17 W/O CC.
298............       10  MED                  NUTRITIONAL & MISC                .5269          2.5          3.1
                                                METABOLIC DISORDERS AGE 0-
                                                17.
299............       10  MED                  INBORN ERRORS OF                  .9632          4.0          5.6
                                                METABOLISM.
300............       10  MED                  ENDOCRINE DISORDERS W CC..       1.0829          4.7          6.1
301............       10  MED                  ENDOCRINE DISORDERS W/O CC        .6133          2.9          3.7
302............       11  SURG                 KIDNEY TRANSPLANT.........       3.4241          7.9          9.4
303............       11  SURG                 KIDNEY, URETER & MAJOR           2.4602          7.0          8.5
                                                BLADDER PROCEDURES FOR
                                                NEOPLASM.
304............       11  SURG                 KIDNEY, URETER & MAJOR           2.3407          6.4          8.9
                                                BLADDER PROC FOR NON-
                                                NEOPL W CC.
305............       11  SURG                 KIDNEY, URETER & MAJOR           1.1825          3.1          3.8
                                                BLADDER PROC FOR NON-
                                                NEOPL W/O CC.
306............       11  SURG                 PROSTATECTOMY W CC........       1.2489          3.7          5.5
307............       11  SURG                 PROSTATECTOMY W/O CC......        .6460          1.9          2.3
308............       11  SURG                 MINOR BLADDER PROCEDURES W       1.6449          4.2          6.4
                                                CC.
309............       11  SURG                 MINOR BLADDER PROCEDURES W/       .9339          2.0          2.5
                                                O CC.
310............       11  SURG                 TRANSURETHRAL PROCEDURES W       1.1172          3.0          4.4
                                                CC.
311............       11  SURG                 TRANSURETHRAL PROCEDURES W/       .6174          1.6          1.9
                                                O CC.
312............       11  SURG                 URETHRAL PROCEDURES, AGE         1.0173          3.0          4.5
                                                >17 W CC.
313............       11  SURG                 URETHRAL PROCEDURES, AGE          .6444          1.7          2.1
                                                >17 W/O CC.
314............       11  SURG                 *URETHRAL PROCEDURES, AGE         .4953          2.3          2.3
                                                0-17.
315............       11  SURG                 OTHER KIDNEY & URINARY           2.0474          4.2          7.5
                                                TRACT O.R. PROCEDURES.
316............       11  MED                  RENAL FAILURE.............       1.3424          4.9          6.7
317............       11  MED                  ADMIT FOR RENAL DIALYSIS..        .7395          2.1          3.2
318............       11  MED                  KIDNEY & URINARY TRACT           1.1313          4.3          6.0
                                                NEOPLASMS W CC.
319............       11  MED                  KIDNEY & URINARY TRACT            .6040          2.2          2.9
                                                NEOPLASMS W/O CC.
320............       11  MED                  KIDNEY & URINARY TRACT            .8621          4.3          5.4
                                                INFECTIONS AGE >17 W CC.
321............       11  MED                  KIDNEY & URINARY TRACT            .5686          3.2          3.8
                                                INFECTIONS AGE >17 W/O CC.
322............       11  MED                  KIDNEY & URINARY TRACT            .4939          3.3          4.1
                                                INFECTIONS AGE 0-17.
323............       11  MED                  URINARY STONES W CC, &/OR         .7996          2.4          3.2
                                                ESW LITHOTRIPSY.
324............       11  MED                  URINARY STONES W/O CC.....        .4509          1.6          1.9
325............       11  MED                  KIDNEY & URINARY TRACT            .6460          3.0          3.9
                                                SIGNS & SYMPTOMS AGE >17
                                                W CC.
326............       11  MED                  KIDNEY & URINARY TRACT            .4297          2.1          2.7
                                                SIGNS & SYMPTOMS AGE >17
                                                W/O CC.
327............       11  MED                  *KIDNEY & URINARY TRACT           .3543          3.1          3.1
                                                SIGNS & SYMPTOMS AGE 0-17.
328............       11  MED                  URETHRAL STRICTURE AGE >17        .7455          2.8          3.9
                                                W CC.
329............       11  MED                  URETHRAL STRICTURE AGE >17        .5253          1.7          2.0
                                                W/O CC.
330............       11  MED                  *URETHRAL STRICTURE AGE 0-        .3191          1.6          1.6
                                                17.
331............       11  MED                  OTHER KIDNEY & URINARY           1.0221          4.1          5.6
                                                TRACT DIAGNOSES AGE >17 W
                                                CC.
332............       11  MED                  OTHER KIDNEY & URINARY            .5997          2.5          3.3
                                                TRACT DIAGNOSES AGE >17 W/
                                                O CC.
333............       11  MED                  OTHER KIDNEY & URINARY            .8247          3.5          5.0
                                                TRACT DIAGNOSES AGE 0-17.
334............       12  SURG                 MAJOR MALE PELVIC                1.5591          4.2          4.9
                                                PROCEDURES W CC.
335............       12  SURG                 MAJOR MALE PELVIC                1.1697          3.2          3.4
                                                PROCEDURES W/O CC.
336............       12  SURG                 TRANSURETHRAL                     .8880          2.7          3.5
                                                PROSTATECTOMY W CC.
337............       12  SURG                 TRANSURETHRAL                     .6152          1.9          2.2
                                                PROSTATECTOMY W/O CC.
338............       12  SURG                 TESTES PROCEDURES, FOR           1.1900          3.5          5.3
                                                MALIGNANCY.
339............       12  SURG                 TESTES PROCEDURES, NON-          1.0769          3.0          4.6
                                                MALIGNANCY AGE >17.

[[Page 47166]]

 
340............       12  SURG                 *TESTES PROCEDURES, NON-          .2835          2.4          2.4
                                                MALIGNANCY AGE 0-17.
341............       12  SURG                 PENIS PROCEDURES..........       1.1709          2.1          3.2
342............       12  SURG                 CIRCUMCISION AGE >17......        .8240          2.5          3.1
343............       12  SURG                 *CIRCUMCISION AGE 0-17....        .1541          1.7          1.7
344............       12  SURG                 OTHER MALE REPRODUCTIVE          1.1519          1.6          2.3
                                                SYSTEM O.R. PROCEDURES
                                                FOR MALIGNANCY.
345............       12  SURG                 OTHER MALE REPRODUCTIVE           .8800          2.6          3.8
                                                SYSTEM O.R. PROC EXCEPT
                                                FOR MALIGNANCY.
346............       12  MED                  MALIGNANCY, MALE                  .9756          4.3          5.8
                                                REPRODUCTIVE SYSTEM, W CC.
347............       12  MED                  MALIGNANCY, MALE                  .5922          2.4          3.4
                                                REPRODUCTIVE SYSTEM, W/O
                                                CC.
348............       12  MED                  BENIGN PROSTATIC                  .7142          3.2          4.2
                                                HYPERTROPHY W CC.
349............       12  MED                  BENIGN PROSTATIC                  .4380          2.0          2.6
                                                HYPERTROPHY W/O CC.
350............       12  MED                  INFLAMMATION OF THE MALE          .6992          3.6          4.4
                                                REPRODUCTIVE SYSTEM.
351............       12  MED                  *STERILIZATION, MALE......        .2364          1.3          1.3
352............       12  MED                  OTHER MALE REPRODUCTIVE           .6858          2.8          3.8
                                                SYSTEM DIAGNOSES.
353............       13  SURG                 PELVIC EVISCERATION,             1.9292          5.3          6.7
                                                RADICAL HYSTERECTOMY &
                                                RADICAL VULVECTOMY.
354............       13  SURG                 UTERINE, ADNEXA PROC FOR         1.5284          4.9          5.9
                                                NON-OVARIAN/ADNEXAL MALIG
                                                W CC.
355............       13  SURG                 UTERINE, ADNEXA PROC FOR          .9278          3.1          3.3
                                                NON-OVARIAN/ADNEXAL MALIG
                                                W/O CC.
356............       13  SURG                 FEMALE REPRODUCTIVE SYSTEM        .7846          2.1          2.4
                                                RECONSTRUCTIVE PROCEDURES.
357............       13  SURG                 UTERINE & ADNEXA PROC FOR        2.3628          6.9          8.5
                                                OVARIAN OR ADNEXAL
                                                MALIGNANCY.
358............       13  SURG                 UTERINE & ADNEXA PROC FOR        1.2263          3.7          4.4
                                                NON-MALIGNANCY W CC.
359............       13  SURG                 UTERINE & ADNEXA PROC FOR         .8593          2.6          2.8
                                                NON-MALIGNANCY W/O CC.
360............       13  SURG                 VAGINA, CERVIX & VULVA            .8860          2.4          3.0
                                                PROCEDURES.
361............       13  SURG                 LAPAROSCOPY & INCISIONAL         1.2318          2.2          3.5
                                                TUBAL INTERRUPTION.
362............       13  SURG                 *ENDOSCOPIC TUBAL                 .3022          1.4          1.4
                                                INTERRUPTION.
363............       13  SURG                 D&C, CONIZATION & RADIO-          .8136          2.5          3.5
                                                IMPLANT, FOR MALIGNANCY.
364............       13  SURG                 D&C, CONIZATION EXCEPT FOR        .7530          2.6          3.6
                                                MALIGNANCY.
365............       13  SURG                 OTHER FEMALE REPRODUCTIVE        1.8425          4.9          7.3
                                                SYSTEM O.R. PROCEDURES.
366............       13  MED                  MALIGNANCY, FEMALE               1.2467          4.8          6.8
                                                REPRODUCTIVE SYSTEM W CC.
367............       13  MED                  MALIGNANCY, FEMALE                .5676          2.4          3.2
                                                REPRODUCTIVE SYSTEM W/O
                                                CC.
368............       13  MED                  INFECTIONS, FEMALE               1.1205          5.0          6.7
                                                REPRODUCTIVE SYSTEM.
369............       13  MED                  MENSTRUAL & OTHER FEMALE          .5704          2.4          3.2
                                                REPRODUCTIVE SYSTEM
                                                DISORDERS.
370............       14  SURG                 CESAREAN SECTION W CC.....       1.0631          4.4          5.7
371............       14  SURG                 CESAREAN SECTION W/O CC...        .7157          3.3          3.6
372............       14  MED                  VAGINAL DELIVERY W                .6077          2.7          3.5
                                                COMPLICATING DIAGNOSES.
373............       14  MED                  VAGINAL DELIVERY W/O              .4169          2.0          2.3
                                                COMPLICATING DIAGNOSES.
374............       14  SURG                 VAGINAL DELIVERY W                .7565          2.6          3.4
                                                STERILIZATION &/OR D&C.
375............       14  SURG                 *VAGINAL DELIVERY W O.R.          .6860          4.4          4.4
                                                PROC EXCEPT STERIL &/OR
                                                D&C.
376............       14  MED                  POSTPARTUM & POST ABORTION        .5224          2.6          3.5
                                                DIAGNOSES W/O O.R.
                                                PROCEDURE.
377............       14  SURG                 POSTPARTUM & POST ABORTION        .8899          2.6          3.8
                                                DIAGNOSES W O.R.
                                                PROCEDURE.
378............       14  MED                  ECTOPIC PREGNANCY.........        .7664          2.0          2.3
379............       14  MED                  THREATENED ABORTION.......        .3959          2.0          3.1
380............       14  MED                  ABORTION W/O D&C..........        .4843          1.8          2.2
381............       14  SURG                 ABORTION W D&C, ASPIRATION        .5331          1.5          1.9
                                                CURETTAGE OR HYSTEROTOMY.
382............       14  MED                  FALSE LABOR...............        .2127          1.3          1.5
383............       14  MED                  OTHER ANTEPARTUM DIAGNOSES        .5137          2.7          3.9
                                                W MEDICAL COMPLICATIONS.
384............       14  MED                  OTHER ANTEPARTUM DIAGNOSES        .3161          1.6          2.3
                                                W/O MEDICAL COMPLICATIONS.
385............       15  MED                  *NEONATES, DIED OR               1.3767          1.8          1.8
                                                TRANSFERRED TO ANOTHER
                                                ACUTE CARE FACILITY.
386............       15  MED                  *EXTREME IMMATURITY OR           4.5400         17.9         17.9
                                                RESPIRATORY DISTRESS
                                                SYNDROME, NEONATE.
387............       15  MED                  *PREMATURITY W MAJOR             3.1007         13.3         13.3
                                                PROBLEMS.
388............       15  MED                  *PREMATURITY W/O MAJOR           1.8709          8.6          8.6
                                                PROBLEMS.
389............       15  MED                  *FULL TERM NEONATE W MAJOR       1.8408          4.7          4.7
                                                PROBLEMS.
390............       15  MED                  NEONATE W OTHER                   .9471          3.0          4.0
                                                SIGNIFICANT PROBLEMS.
391............       15  MED                  *NORMAL NEWBORN...........        .1527          3.1          3.1
392............       16  SURG                 SPLENECTOMY AGE >17.......       3.1739          7.1          9.5
393............       16  SURG                 *SPLENECTOMY AGE 0-17.....       1.3486          9.1          9.1

[[Page 47167]]

 
394............       16  SURG                 OTHER O.R. PROCEDURES OF         1.5969          4.1          6.7
                                                THE BLOOD AND BLOOD
                                                FORMING ORGANS.
395............       16  MED                  RED BLOOD CELL DISORDERS          .8257          3.3          4.5
                                                AGE >17.
396............       16  MED                  RED BLOOD CELL DISORDERS         1.1573          2.5          3.8
                                                AGE 0-17.
397............       16  MED                  COAGULATION DISORDERS.....       1.2278          3.8          5.2
398............       16  MED                  RETICULOENDOTHELIAL &            1.2750          4.7          6.0
                                                IMMUNITY DISORDERS W CC.
399............       16  MED                  RETICULOENDOTHELIAL &             .6881          2.8          3.6
                                                IMMUNITY DISORDERS W/O CC.
400............       17  SURG                 LYMPHOMA & LEUKEMIA W            2.6309          5.8          9.1
                                                MAJOR O.R. PROCEDURE.
401............       17  SURG                 LYMPHOMA & NON-ACUTE             2.7198          7.8         11.2
                                                LEUKEMIA W OTHER O.R.
                                                PROC W CC.
402............       17  SURG                 LYMPHOMA & NON-ACUTE             1.0985          2.8          4.0
                                                LEUKEMIA W OTHER O.R.
                                                PROC W/O CC.
403............       17  MED                  LYMPHOMA & NON-ACUTE             1.7594          5.7          8.1
                                                LEUKEMIA W CC.
404............       17  MED                  LYMPHOMA & NON-ACUTE              .8480          3.1          4.2
                                                LEUKEMIA W/O CC.
405............       17  MED                  *ACUTE LEUKEMIA W/O MAJOR        1.9120          4.9          4.9
                                                O.R. PROCEDURE AGE 0-17.
406............       17  SURG                 MYELOPROLIF DISORD OR            2.8275          7.6         10.3
                                                POORLY DIFF NEOPL W MAJ
                                                O.R.PROC W CC.
407............       17  SURG                 MYELOPROLIF DISORD OR            1.3179          3.6          4.4
                                                POORLY DIFF NEOPL W MAJ
                                                O.R.PROC W/O CC.
408............       17  SURG                 MYELOPROLIF DISORD OR            2.0008          4.8          7.7
                                                POORLY DIFF NEOPL W OTHER
                                                O.R.PROC.
409............       17  MED                  RADIOTHERAPY..............       1.1215          4.4          5.9
410............       17  MED                  CHEMOTHERAPY W/O ACUTE            .9468          2.9          3.7
                                                LEUKEMIA AS SECONDARY
                                                DIAGNOSIS.
411............       17  MED                  HISTORY OF MALIGNANCY W/O         .3305          2.0          2.3
                                                ENDOSCOPY.
412............       17  MED                  HISTORY OF MALIGNANCY W           .4841          2.0          2.7
                                                ENDOSCOPY.
413............       17  MED                  OTHER MYELOPROLIF DIS OR         1.3645          5.3          7.3
                                                POORLY DIFF NEOPL DIAG W
                                                CC.
414............       17  MED                  OTHER MYELOPROLIF DIS OR          .7548          3.0          4.1
                                                POORLY DIFF NEOPL DIAG W/
                                                O CC.
415............       18  SURG                 O.R. PROCEDURE FOR               3.5925         10.4         14.3
                                                INFECTIOUS & PARASITIC
                                                DISEASES.
416............       18  MED                  SEPTICEMIA AGE >17........       1.5278          5.5          7.4
417............       18  MED                  SEPTICEMIA AGE 0-17.......       1.1717          3.7          6.0
418............       18  MED                  POSTOPERATIVE & POST-            1.0074          4.8          6.2
                                                TRAUMATIC INFECTIONS.
419............       18  MED                  FEVER OF UNKNOWN ORIGIN           .8709          3.7          4.8
                                                AGE >17 W CC.
420............       18  MED                  FEVER OF UNKNOWN ORIGIN           .6057          3.0          3.6
                                                AGE >17 W/O CC.
421............       18  MED                  VIRAL ILLNESS AGE >17.....        .6796          3.1          3.9
422............       18  MED                  VIRAL ILLNESS & FEVER OF          .7854          2.8          5.1
                                                UNKNOWN ORIGIN AGE 0-17.
423............       18  MED                  OTHER INFECTIOUS &               1.7250          5.9          8.2
                                                PARASITIC DISEASES
                                                DIAGNOSES.
424............       19  SURG                 O.R. PROCEDURE W PRINCIPAL       2.2810          8.7         13.5
                                                DIAGNOSES OF MENTAL
                                                ILLNESS.
425............       19  MED                  ACUTE ADJUSTMENT REACTION         .7031          3.0          4.1
                                                & PSYCHOLOGICAL
                                                DYSFUNCTION.
426............       19  MED                  DEPRESSIVE NEUROSES.......        .5301          3.3          4.6
427............       19  MED                  NEUROSES EXCEPT DEPRESSIVE        .5637          3.3          5.0
428............       19  MED                  DISORDERS OF PERSONALITY &        .7342          4.4          7.1
                                                IMPULSE CONTROL.
429............       19  MED                  ORGANIC DISTURBANCES &            .8530          4.9          6.7
                                                MENTAL RETARDATION.
430............       19  MED                  PSYCHOSES.................        .7644          5.8          8.2
431............       19  MED                  CHILDHOOD MENTAL DISORDERS        .6392          4.8          6.6
432............       19  MED                  OTHER MENTAL DISORDER             .6546          3.2          4.8
                                                DIAGNOSES.
433............       20  MED                  ALCOHOL/DRUG ABUSE OR             .2824          2.2          3.0
                                                DEPENDENCE, LEFT AMA.
434............       20  MED                  ALC/DRUG ABUSE OR DEPEND,         .7256          3.9          5.1
                                                DETOX OR OTH SYMPT TREAT
                                                W CC.
435............       20  MED                  ALC/DRUG ABUSE OR DEPEND,         .4176          3.4          4.3
                                                DETOX OR OTH SYMPT TREAT
                                                W/O CC.
436............       20  MED                  ALC/DRUG DEPENDENCE W             .7433         10.3         12.9
                                                REHABILITATION THERAPY.
437............       20  MED                  ALC/DRUG DEPENDENCE,              .6606          7.5          9.0
                                                COMBINED REHAB & DETOX
                                                THERAPY.
438............       20  ...................  NO LONGER VALID...........        .0000           .0           .0
439............       21  SURG                 SKIN GRAFTS FOR INJURIES..       1.7092          5.3          8.2
440............       21  SURG                 WOUND DEBRIDEMENTS FOR           1.9096          5.8          8.9
                                                INJURIES.
441............       21  SURG                 HAND PROCEDURES FOR               .9463          2.2          3.3
                                                INJURIES.
442............       21  SURG                 OTHER O.R. PROCEDURES FOR        2.3403          5.4          8.3
                                                INJURIES W CC.
443............       21  SURG                 OTHER O.R. PROCEDURES FOR         .9978          2.5          3.4
                                                INJURIES W/O CC.
444............       21  MED                  TRAUMATIC INJURY AGE >17 W        .7243          3.2          4.2
                                                CC.
445............       21  MED                  TRAUMATIC INJURY AGE >17 W/       .5076          2.4          3.0
                                                O CC.
446............       21  MED                  *TRAUMATIC INJURY AGE 0-17        .2964          2.4          2.4
447............       21  MED                  ALLERGIC REACTIONS AGE >17        .5166          1.9          2.5
448............       21  MED                  *ALLERGIC REACTIONS AGE 0-        .0975          2.9          2.9
                                                17.

[[Page 47168]]

 
449............       21  MED                  POISONING & TOXIC EFFECTS         .8076          2.6          3.7
                                                OF DRUGS AGE >17 W CC.
450............       21  MED                  POISONING & TOXIC EFFECTS         .4406          1.6          2.0
                                                OF DRUGS AGE >17 W/O CC.
451............       21  MED                  *POISONING & TOXIC EFFECTS        .2632          2.1          2.1
                                                OF DRUGS AGE 0-17.
452............       21  MED                  COMPLICATIONS OF TREATMENT       1.0152          3.5          5.0
                                                W CC.
453............       21  MED                  COMPLICATIONS OF TREATMENT        .4987          2.2          2.8
                                                W/O CC.
454............       21  MED                  OTHER INJURY, POISONING &         .8593          3.2          4.6
                                                TOXIC EFFECT DIAG W CC.
455............       21  MED                  OTHER INJURY, POISONING &         .4672          2.0          2.6
                                                TOXIC EFFECT DIAG W/O CC.
456............                                NO LONGER VALID...........        .0000           .0           .0
457............                                NO LONGER VALID...........        .0000           .0           .0
458............                                NO LONGER VALID...........        .0000           .0           .0
459............                                NO LONGER VALID...........        .0000           .0           .0
460............                                NO LONGER VALID...........        .0000           .0           .0
461............       23  SURG                 O.R. PROC W DIAGNOSES OF         1.2101          2.4          4.6
                                                OTHER CONTACT W HEALTH
                                                SERVICES.
462............       23  MED                  REHABILITATION............       1.2401          9.4         11.7
463............       23  MED                  SIGNS & SYMPTOMS W CC.....        .6936          3.3          4.3
464............       23  MED                  SIGNS & SYMPTOMS W/O CC...        .4775          2.4          3.1
465............       23  MED                  AFTERCARE W HISTORY OF            .5756          2.1          3.4
                                                MALIGNANCY AS SECONDARY
                                                DIAGNOSIS.
466............       23  MED                  AFTERCARE W/O HISTORY OF          .6840          2.3          3.9
                                                MALIGNANCY AS SECONDARY
                                                DIAGNOSIS.
467............       23  MED                  OTHER FACTORS INFLUENCING         .5112          2.3          4.1
                                                HEALTH STATUS.
468............                                EXTENSIVE O.R. PROCEDURE         3.6399          9.2         13.0
                                                UNRELATED TO PRINCIPAL
                                                DIAGNOSIS.
469............                                **PRINCIPAL DIAGNOSIS             .0000           .0           .0
                                                INVALID AS DISCHARGE
                                                DIAGNOSIS.
470............                                **UNGROUPABLE.............        .0000           .0           .0
471............       08  SURG                 BILATERAL OR MULTIPLE            3.1957          5.0          5.7
                                                MAJOR JOINT PROCS OF
                                                LOWER EXTREMITY.
472............                                NO LONGER VALID...........        .0000           .0           .0
473............       17  SURG                 ACUTE LEUKEMIA W/O MAJOR         3.5822          7.6         13.2
                                                O.R. PROCEDURE AGE >17.
474............                                NO LONGER VALID...........        .0000           .0           .0
475............       04  MED                  RESPIRATORY SYSTEM               3.6936          8.1         11.3
                                                DIAGNOSIS WITH VENTILATOR
                                                SUPPORT.
476............           SURG                 PROSTATIC O.R. PROCEDURE         2.2547          8.4         11.7
                                                UNRELATED TO PRINCIPAL
                                                DIAGNOSIS.
477............           SURG                 NON-EXTENSIVE O.R.               1.8204          5.4          8.1
                                                PROCEDURE UNRELATED TO
                                                PRINCIPAL DIAGNOSIS.
478............       05  SURG                 OTHER VASCULAR PROCEDURES        2.3333          4.9          7.3
                                                W CC.
479............       05  SURG                 OTHER VASCULAR PROCEDURES        1.4326          2.8          3.6
                                                W/O CC.
480............      PRE  SURG                 LIVER TRANSPLANT..........       9.4744         14.7         19.5
481............      PRE  SURG                 BONE MARROW TRANSPLANT....       8.6120         23.8         26.6
482............      PRE  SURG                 TRACHEOSTOMY FOR FACE,           3.5785         10.0         12.9
                                                MOUTH & NECK DIAGNOSES.
483............      PRE  SURG                 TRACHEOSTOMY EXCEPT FOR         15.9677         33.7         41.2
                                                FACE, MOUTH & NECK
                                                DIAGNOSES.
484............       24  SURG                 CRANIOTOMY FOR MULTIPLE          5.5606          8.8         13.1
                                                SIGNIFICANT TRAUMA.
485............       24  SURG                 LIMB REATTACHMENT, HIP AND       3.0998          7.7          9.5
                                                FEMUR PROC FOR MULTIPLE
                                                SIGNIFICANT TRA.
486............       24  SURG                 OTHER O.R. PROCEDURES FOR        4.9048          8.1         12.2
                                                MULTIPLE SIGNIFICANT
                                                TRAUMA.
487............       24  MED                  OTHER MULTIPLE SIGNIFICANT       2.0604          5.6          7.8
                                                TRAUMA.
488............       25  SURG                 HIV W EXTENSIVE O.R.             4.5574         11.5         17.0
                                                PROCEDURE.
489............       25  MED                  HIV W MAJOR RELATED              1.7414          6.0          8.6
                                                CONDITION.
490............       25  MED                  HIV W OR W/O OTHER RELATED        .9680          3.7          5.1
                                                CONDITION.
491............       08  SURG                 MAJOR JOINT & LIMB               1.6685          2.9          3.5
                                                REATTACHMENT PROCEDURES
                                                OF UPPER EXTREMITY.
492............       17  MED                  CHEMOTHERAPY W ACUTE             4.2467         10.9         16.1
                                                LEUKEMIA AS SECONDARY
                                                DIAGNOSIS.
493............       07  SURG                 LAPAROSCOPIC                     1.8180          4.3          5.7
                                                CHOLECYSTECTOMY W/O
                                                C.D.E. W CC.
494............       07  SURG                 LAPAROSCOPIC                     1.0388          2.0          2.5
                                                CHOLECYSTECTOMY W/O
                                                C.D.E. W/O CC.
495............      PRE  SURG                 LUNG TRANSPLANT...........       8.6087         13.4         20.5
496............       08  SURG                 COMBINED ANTERIOR/               5.5532          7.8         10.0
                                                POSTERIOR SPINAL FUSION.
497............       08  SURG                 SPINAL FUSION W CC........       2.9441          4.9          6.2
498............       08  SURG                 SPINAL FUSION W/O CC......       1.9057          2.8          3.4
499............       08  SURG                 BACK & NECK PROCEDURES           1.4572          3.6          4.8
                                                EXCEPT SPINAL FUSION W CC.
500............       08  SURG                 BACK & NECK PROCEDURES            .9805          2.2          2.7
                                                EXCEPT SPINAL FUSION W/O
                                                CC.
501............       08  SURG                 KNEE PROCEDURES W PDX OF         2.6283          8.4         10.6
                                                INFECTION W CC.
502............       08  SURG                 KNEE PROCEDURES W PDX OF         1.4434          4.9          6.0
                                                INFECTION W/O CC.
503............       08  SURG                 KNEE PROCEDURES W/O PDX OF       1.2156          3.1          4.0
                                                INFECTION.
504............       22  SURG                 EXTENSIVE 3RD DEGREE BURNS      12.6064         24.1         30.5
                                                W SKIN GRAFT.

[[Page 47169]]

 
505............       22  MED                  EXTENSIVE 3RD DEGREE BURNS       2.0166          2.5          4.7
                                                W/O SKIN GRAFT.
506............       22  SURG                 FULL THICKNESS BURN W SKIN       4.4825         12.9         17.6
                                                GRAFT OR INHAL INJ W CC
                                                OR SIG TRAUMA.
507............       22  SURG                 FULL THICKNESS BURN W SKIN       1.8560          6.6          9.3
                                                GRFT OR INHAL INJ W/O CC
                                                OR SIG TRAUMA.
508............       22  MED                  FULL THICKNESS BURN W/O          1.3302          5.1          7.3
                                                SKIN GRFT OR INHAL INJ W
                                                CC OR SIG TRAUMA.
509............       22  MED                  FULL THICKNESS BURN W/O           .8071          4.1          6.2
                                                SKIN GRFT OR INH INJ W/O
                                                CC OR SIG TRAUMA.
510............       22  MED                  NON-EXTENSIVE BURNS W CC         1.4088          5.2          7.9
                                                OR SIGNIFICANT TRAUMA.
511............       22  MED                  NON-EXTENSIVE BURNS W/O CC        .6536          3.1         4.5
                                                OR SIGNIFICANT TRAUMA.
----------------------------------------------------------------------------------------------------------------
* MEDICARE DATA HAVE BEEN SUPPLEMENTED BY DATA FROM 19 STATES FOR LOW VOLUME DRGS.
** DRGS 469 AND 470 CONTAIN CASES WHICH COULD NOT BE ASSIGNED TO VALID DRGS.
NOTE: GEOMETRIC MEAN IS USED ONLY TO DETERMINE PAYMENT FOR TRANSFER CASES.
NOTE: ARITHMETIC MEAN IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.
NOTE: RELATIVE WEIGHTS ARE BASED ON MEDICARE PATIENT DATA AND MAY NOT BE APPROPRIATE FOR OTHER PATIENTS.


                                         Table 6a.--New Diagnosis Codes
----------------------------------------------------------------------------------------------------------------
  Diagnosis
    code               Description                   CC               MDC                     DRG
----------------------------------------------------------------------------------------------------------------
      007.5   Cyclosporiasis..............  N                              6  182, 183,184
      082.40  Unspecified ehrlichiosis....  N                             18  423
      082.41  Ehrlichiosis Chafiensis (E.   N                             18  423
               Chafiensis).
      082.49  Other ehrlichiosis..........  N                             18  423
      285.21  Anemia in end-stage renal     N                             16  395, 396
               disease.
      285.22  Anemia in neoplastic disease  N                             16  395, 396
      285.29  Anemia of other chronic       N                             16  395, 396
               illness.
      294.10  Dementia in conditions        N                             19  429
               classified elsewhere
               without behavioral
               disturbance.
      294.11  Dementia in conditions        N                             19  429
               classified elsewhere with
               behavioral disturbance.
      372.81  Conjunctivochalasis.........  N                              2  46, 47, 48
      372.89  Other disorders of            N                              2  46, 47, 48
               conjunctiva.
      477.1   Allergic rhinitis, due to     N                              3  68, 69, 70
               food.
      493.02  Extrinsic asthma, with acute  Y                              4  96, 97, 98
               exacerbation.
      493.12  Intrinsic asthma, with acute  Y                              4  96, 97, 98
               exacerbation.
      493.22  Chronic obstructive asthma,   Y                              4  88
               with acute exacerbation.
      493.92  Unspecified asthma, with      Y                              4  96, 97, 98
               acute exacerbation.
      494.0   Bronchiectasis without acute  N                              4  88
               exacerbation.
      494.1   Bronchiectasis with acute     Y                              4  88
               exacerbation.
      558.3   Allergic gastroenteritis and  N                              6  182, 183, 184
               colitis.
      600.0   Hypertrophy (benign) of       N                             12  348, 349
               prostate.
      600.1   Nodular prostate............  N                             12  348, 349
      600.2   Benign localized hyperplasia  N                             12  348, 349
               of prostate.
      600.3   Cyst of prostate............  N                             12  348, 349
      600.9   Unspecified hyperplasia of    N                             12  348, 349
               prostate.
      645.10  Post term pregnancy,          N                             14  469
               unspecified as to episode
               of care or not applicable.
      645.11  Post term pregnancy,          N                             14  370, 371, 372, 373, 374, 375
               delivered, with or without
               mention of antepartum
               condition.
      645.13  Post term pregnancy,          N                             14  383, 384
               antepartum condition or
               complication.
      645.20  Prolonged pregnancy,          N                             14  469
               unspecified as to episode
               of care or not applicable.
      645.21  Prolonged pregnancy,          N                             14  370, 371, 372, 373, 374, 375
               delivered, with or without
               mention of antepartum
               condition.
      645.23  Prolonged pregnancy,          N                             14  383, 384
               antepartum condition or
               complication.
      692.75  Disseminated superficial      N                              9  283, 284
               actinic porokeratosis
               (DSAP).
      707.10  Unspecified ulcer of lower    Y                              9  263, 264, 271
               limb.
      707.11  Ulcer of thigh..............  Y                              9  263, 264, 271
      707.12  Ulcer of calf...............  Y                              9  263, 264, 271
      707.13  Ulcer of ankle..............  Y                              9  263, 264, 271
      707.14  Ulcer of heel and midfoot...  Y                              9  263, 264, 271
      707.15  Ulcer of other part of foot.  Y                              9  263, 264, 271
      707.19  Ulcer of other part of lower  Y                              9  263, 264, 271
               limb.
      727.83  Plica syndrome..............  N                              8  248
      781.91  Loss of height..............  N                              1  34, 35
      781.92  Abnormal posture............  N                              1  34, 35
      781.99  Other symptoms involving      N                              1  34, 35
               nervous and musculoskeletal
               systems.
      783.21  Loss of weight..............  N                             10  296, 297, 298
      783.22  Underweight.................  N                             10  296, 297, 298
      783.40  Unspecified lack of normal    N                             10  296, 297, 298
               physiological development.

[[Page 47170]]

 
      783.41  Failure to thrive...........  N                             10  296, 297, 298
      783.42  Delayed milestones..........  N                             10  296, 297, 298
      783.43  Short stature...............  N                             10  296, 297, 298
      783.7   Adult failure to thrive.....  N                             10  296, 297, 298
      790.01  Precipitous drop in           N                             16  395, 396
               hematocrit.
      790.09  Other abnormality of red      N                             16  395, 396
               blood cells.
      792.5   Cloudy (hemodialysis)         N                             23  463, 464
               (peritoneal) dialysis
               effluent.
      995.7   Other adverse food            N                             21  454, 455
               reactions, not elsewhere
               classified.
      996.87  Complications of              Y                             21  452, 453
               transplanted organ,
               intestine.
      V15.01  Allergy to peanuts..........  N                             23  467
      V15.02  Allergy to milk products....  N                             23  467
      V15.03  Allergy to eggs.............  N                             23  467
      V15.04  Allergy to seafood..........  N                             23  467
      V15.05  Allergy to other foods......  N                             23  467
      V15.06  Allergy to insects..........  N                             23  467
      V15.07  Allergy to latex............  N                             23  467
      V15.08  Allergy to radiographic dye.  N                             23  467
      V15.09  Other allergy, other than to  N                             23  467
               medicinal agents.
      V21.30  Unspecified low birth weight  N                             23  467
               status.
      V21.31  Low birth weight status,      N                             23  467
               less than 500 grams.
      V21.32  Low birth weight status, 500- N                             23  467
               999 grams.
      V21.33  Low birth weight status,      N                             23  467
               1000-1499 grams.
      V21.34  Low birth weight status,      N                             23  467
               1500-1999 grams.
      V21.35  Low birth weight status,      N                             23  467
               2000-2500 grams.
      V26.21  Fertility testing...........  N                             23  467
      V26.22  Aftercare following           N                             23  467
               sterilization reversal.
      V26.29  Other investigation and       N                             23  467
               testing.
      V42.84  Organ or tissue replaced by   Y                             23  467
               transplant, intestines.
      V45.74  Acquired absence of organ,    N                             11  331, 332, 333
               other parts of urinary
               tract.
      V45.75  Acquired absence of organ,    N                             23  467
               stomach.
      V45.76  Acquired absence of organ,    N                              4  101, 102
               lung.
      V45.77  Acquired absence of organ,    N                             12  352
               genital organs.                                            13  358, 359, 369
      V45.78  Acquired absence of organ,    N                              2  46, 47, 48
               eye.
      V45.79  Other acquired absence of     N                             23  467
               organ.
      V49.81  Postmenopausal status (age-   N                             23  467
               related) (natural).
      V49.89  Other specified conditions    N                             23  467
               influencing health status.
      V56.31  Encounter for adequacy        N                             11  317
               testing for hemodialysis.
      V56.32  Encounter for adequacy        N                             11  317
               testing for peritoneal
               dialysis.
      V58.83  Encounter for therapeutic     N                             23  465, 466
               drug monitoring.
      V67.00  Follow-up examination,        N                             23  465, 466
               following unspecified
               surgery.
      V67.01  Following surgery, follow-up  N                             23  465, 466
               vaginal pap smear.
      V67.09  Follow-up examination,        N                             23  465, 466
               following other surgery.
      V71.81  Observation for suspected     N                             23  467
               abuse and neglect.
      V71.89  Observation for other         N                             23  467
               specified suspected
               conditions.
      V76.46  Special screening for         N                             23  467
               malignant neoplasms, ovary.
      V76.47  Special screening for         N                             23  467
               malignant neoplasms, Vagina.
      V76.50  Special screening for         N                             23  467
               malignant neoplasms,
               unspecified intestine.
      V76.51  Special screening for         N                             23  467
               malignant neoplasms, colon.
      V76.52  Special screening for         N                             23  467
               malignant neoplasms, small
               intestine.
      V76.81  Special screening for         N                             23  467
               malignant neoplasms,
               nervous system.
      V76.89  Special screening for other   N                             23  467
               malignant neoplasm.
      V77.91  Screening for lipoid          N                             23  467
               disorders.
      V77.99  Other and unspecified         N                             23  467
               endocrine, nutritional,
               metabolic, and immunity
               disorders.
      V82.81  Special screening for         N                             23  467
               osteoporosis.
      V82.89  Special screening for other   N                             23  467
               specified conditions.
----------------------------------------------------------------------------------------------------------------


                                         Table 6b.--New Procedure Codes
----------------------------------------------------------------------------------------------------------------
  Procedure
    code               Description                   OR               MDC                     DRG
----------------------------------------------------------------------------------------------------------------
       39.71  Endovascular implantation of  Y                              5  110, 111
               graft in abdominal aorta.                                  11  315
                                                                          21  442, 443
                                                                          24  486

[[Page 47171]]

 
       39.79  Other endovascular graft      Y                              1  1, 2, 3
               repair of aneurysm.                                         5  110, 111
                                                                          11  315
                                                                          21  442, 443
                                                                          24  486
       41.07  Autologous hematopoietic      Y                            PRE  481
               stem cell transplant with
               purging.
       41.08  Allogeneic hematopoietic      Y                            PRE  481
               stem cell transplant with
               purging.
       41.09  Autologous bone marrow        Y                            PRE  481
               transplant with purging.
       46.97  Transplant of intestine.....  Y                              6  148, 149
                                                                           7  201
                                                                          17  400, 406, 407
                                                                          21  442, 443
                                                                          24  486
       60.96  Transurethral destruction of  Y                             11  306, 307
               prostate tissue by                                         12  1336, 337
               microwave thermotherapy.                                  UNR  476
       60.97  Other transurethral           Y                             11  306, 307
               destruction of prostate                                    12  336, 337
               tissue by other                                           UNR  476
               thermotherapy.
       99.75  Administration of             N
               neuroprotective agent.
----------------------------------------------------------------------------------------------------------------


                                       Table 6c.--Invalid Diagnosis Codes
----------------------------------------------------------------------------------------------------------------
  Diagnosis
    code               Description                   CC               MDC                     DRG
----------------------------------------------------------------------------------------------------------------
      294.1   Dementia in conditions        N                             19  429
               classified elsewhere.
      372.8   Other disorders of            N                              2  46, 47, 48
               conjunctiva.
      494     Bronchiectasis..............  Y                              4  88
      600     Hyperplasia of prostate.....  N                             12  348, 349
      645.00  Prolonged pregnancy,          N                             14  469
               unspecified as to episode
               of care or not applicable.
      645.01  Prolonged pregnancy,          N                             14  370, 371, 372, 373, 374, 375
               delivered, with or without
               mention of antepartum
               condition.
      645.03  Prolonged pregnancy,          N                             14  383, 384
               antepartum condition or
               complication.
      707.1   Ulcer of lower limb, except   Y                              9  263, 264, 271
               decubitus.
      781.9   Other symptoms involving      N                              1  34, 35
               nervous and musculoskeletal
               systems.
      783.2   Abnormal loss of weight.....  N                             10  296, 297, 298
      783.4   Lack of expected normal       N                             10  296, 297, 298
               physiological development.
      790.0   Abnormality of red blood      N                             16  395, 396
               cells.
      V15.0   Allergy, other than to        N                             23  467
               medicinal agents.
      V26.2   Investigation and testing...  N                             23  467
      V49.8   Other specified problems      N                             23  467
               influencing health status.
      V67.0   Follow-up examination         N                             23  465, 466
               following surgery.
      V71.8   Observation for other         N                             23  467
               specified suspected
               conditions.
      V76.8   Special screening for         N                             23  467
               malignant neoplasms, other
               neoplasm.
      V77.9   Other and unspecified         N                             23  467
               endocrine, nutritional,
               metabolic, and immunity
               disorders.
      V82.8   Special screening for other   N                             23  467
               specified conditions.
----------------------------------------------------------------------------------------------------------------


                                    Table 6d.--Revised Diagnosis Code Titles
----------------------------------------------------------------------------------------------------------------
  Diagnosis
    code               Description                   CC               MDC                     DRG
----------------------------------------------------------------------------------------------------------------
      564.1   Irritable bowel syndrome....  N                              6  182
                                                                              183
                                                                              184
      V26.3   Genetic counseling and        N                             23  467
               testing.
      V76.49  Special screening for         N                             23  467
               malignant, other sites.
----------------------------------------------------------------------------------------------------------------


                                       Table 6e.--Revised Procedure Codes
----------------------------------------------------------------------------------------------------------------
  Procedure
    code               Description                   OR               MDC                     DRG
----------------------------------------------------------------------------------------------------------------
       41.01  Autologous bone marrow        Y                            PRE  481
               transplant without purging.
       41.04  Autologous hematopoietic      Y                            PRE  481
               stem cell transplant
               without purging.
       41.05  Allogeneic hematopoietic      Y                            PRE  481
               stem cell transplant
               without purging.

[[Page 47172]]

 
       86.59  Closure of skin and           N
               subcutaneous tissue other
               sites.
----------------------------------------------------------------------------------------------------------------


             Table 6f.--Additions to the CC Exclusions List
  [CCs that are added to the list are in Table 6F--Additions to the CC
    Exclusions List. Each of the principal diagnoses is shown with an
asterisk, and the revisions to the CC Exclusions List are provided in an
indented column immediately following the affected principal diagnosis.]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
*0075       2818      70713    49312    01170    4870     01152    4829
  00841     2824      70714    49322    01171    4950     01153    4830
  00842     28260     70715    49392    01172    4951     01154    4831
  00843     28261     70719  *49391     01173    4952     01155    4838
  00844     28262   *4871      49302    01174    4953     01156    4841
  00845     28263     4941     49312    01175    4954     01160    4843
  00846     28269   *49300     49322    01176    4955     01161    4845
  00847     2830      49302    49392    01180    4956     01162    4846
  00849     28310     49312  *49392     01181    4957     01163    4847
*01790      28311     49322    49301    01182    4958     01164    4848
  4941      28319     49392    49302    01183    4959     01165    485
*01791      2832    *49301     49311    01184    496      01166    486
  4941      2839      49302    49312    01185    5060     01170    4870
*01792      2840      49312    49320    01186    5061     01171    4941
  4941      2848      49322    49321    01190    5070     01172    4950
*01793      2849      49392    49322    01191    5071     01173    4951
  4941      2850    *49302     49391    01192    5078     01174    4952
*01794      2851      49301    49392    01193    5080     01175    4953
  4941    *29410      49302  *4940      01194    5081     01176    4954
*01795      2910      49311    01100    01195    515      01180    4955
  4941      2911      49312    01101    01196    5160     01181    4956
*01796      2912      49320    01102    01200    5161     01182    4957
  4941      2913      49321    01103    01201    5162     01183    4958
*28521      2914      49322    01104    01202    5163     01184    4959
  2800      29181     49391    01105    01203    5168     01185    496
  2814      29189     49392    01106    01204    5169     01186    5060
  2818      2919    *49310     01110    01205    5171     01190    5061
  2824      2920      49302    01111    01206    5172     01191    5070
  28260     29211     49312    01112    01210    5178     01192    5071
  28261     29212     49322    01113    01211    74861    01193    5078
  28262     2922      49392    01114    01212  *4941      01194    5080
  28263     29281   *49311     01115    01213    01100    01195    5081
  28269     29282     49302    01116    01214    01101    01196    515
  2830      29283     49312    01120    01215    01102    01200    5160
  28310     29284     49322    01121    01216    01103    01201    5161
  28311     29289     49392    01122    0310     01104    01202    5162
  28319     2929    *49312     01123    11505    01105    01203    5163
  2832      29381     49301    01124    11515    01106    01204    5168
  2839      29382     49302    01125    1304     01110    01205    5169
  2840      29383     49311    01126    1363     01111    01206    5171
  2848      29384     49312    01130    481      01112    01210    5172
  2849    *29411      49320    01131    4820     01113    01211    5178
  2850      2910      49321    01132    4821     01114    01212    74861
  2851      2911      49322    01133    4822     01115    01213  *496
*28522      2912      49391    01134    48230    01116    01214    4941
  2800      2913      49392    01135    48231    01120    01215  *5061
  2814      2914    *49320     01136    48232    01121    01216    4941
  2818      29181     49302    01140    48239    01122    0310   *5064
  2824      29189     49312    01141    48240    01123    11505    4941
  28260     2919      49322    01142    48241    01124    11515  *5069
  28261     2920      49392    01143    48249    01125    1304     4941
  28262     29211   *49321     01144    48281    01126    1363   *5178
  28263     29212     49302    01145    48282    01130    481      49302
  28269     2922      49312    01146    48283    01131    4820     49312
  2830      29281     49322    01150    48284    01132    4821     49322
  28310     29282     49392    01151    48289    01133    4822     49392
  28311     29283   *49322     01152    4829     01134    48230  *51889
  28319     29284     49301    01153    4830     01135    48231    49302
  2832      29289     49302    01154    4831     01136    48232    49312
  2839      2929      49311    01155    4838     01140    48239    49322
  2840      29381     49312    01156    4841     01141    48240    49392
  2848      29382     49320    01160    4843     01142    48241  *5198
  2849      29383     49321    01161    4845     01143    48249    49302
  2850      29384     49322    01162    4846     01144    48281    49312
  2851    *44023      49391    01163    4847     01145    48282    49322
*28529      70710     49392    01164    4848     01146    48283    49392
  2800      70711   *49390     01165    485      01150    48284  *5199
  2814      70712     49302    01166    486      01151    48289    49302
  49312   *70712      V421
  49322     70710     V426
  49392     70711     V427
*5583       70712     V4281

[[Page 47173]]

 
  00841     70713     V4282
  00842     70714     V4283
  00843     70715     V4289
  00844     70719     V432
  00845   *70713    *99689
  00846     70710     V4284
  00847     70711   *99791
  00849     70712     99687
*6000       70713   *99799
  5960      70714     99687
  5996      70715   *V4284
  6010      70719     V4284
  6012    *70714    *V4289
  6013      70710     V4284
  6021      70711   *V429
  78820     70712     V4284
  78829     70713
*6001       70714
  5960      70715
  5996      70719
  6010    *70715
  6012      70710
  6013      70711
  6021      70712
  78820     70713
  78829     70714
*6002       70715
  5960      70719
  5996    *70719
  6010      70710
  6012      70711
  6013      70712
  6021      70713
  78820     70714
  78829     70715
*6003       70719
  5960    *7078
  5996      70710
  6010      70711
  6012      70712
  6013      70713
  6021      70714
  78820     70715
  78829     70719
*6009     *7079
  5960      70710
  5996      70711
  6010      70712
  6012      70713
  6013      70714
  6021      70715
  78820     70719
  78829   *7098
*70710      70710
  70710     70711
  70711     70712
  70712     70713
  70713     70714
  70714     70715
  70715     70719
  70719   *74861
*70711      4941
  70710   *99680
  70711     99687
  70712     V4284
  70713   *99687
  70714     99680
  70715     99687
  70719     V420
------------------------------------------------------------------------


[[Page 47174]]


             Table 6g.--Deletions to the CC Exclusions List
[CCs that are deleted from the list are in Table 6G--Deletions to the CC
    Exclusions List. Each of the principal diagnoses is shown with an
asterisk, and the revisions to the CC Exclusions List are provided in an
indented column immediately following the affected principal diagnosis.]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
*01790               01135              48231             6021
  494                01136              48232             78820
*01791               01140              48239             78829
  494                01141              48240           *7071
*01792               01142              48241             7071
  494                01143              48249           *7078
*01793               01144              48281             7071
  494                01145              48282           *7079
*01794               01146              48283             7071
  494                01150              48284           *7098
*01795               01151              48289             7071
  494                01152              4829            *74861
*01796               01153              4830              494
  494                01154              4831
*2941                01155              4838
  2910               01156              4841
  2911               01160              4843
  2912               01161              4845
  2913               01162              4846
  2914               01163              4847
  29181              01164              4848
  29189              01165              485
  2919               01166              486
  2920               01170              4870
  29211              01171              494
  29212              01172              4950
  2922               01173              4951
  29281              01174              4952
  29282              01175              4953
  29283              01176              4954
  29284              01180              4955
  29289              01181              4956
  2929               01182              4957
  29381              01183              4958
  29382              01184              4959
  29383              01185              496
  29384              01186              5060
*44023               01190              5061
  7071               01191              5070
*4871                01192              5071
  494                01193              5078
*494                 01194              5080
  01100              01195              5081
  01101              01196              515
  01102              01200              5160
  01103              01201              5161
  01104              01202              5162
  01105              01203              5163
  01106              01204              5168
  01110              01205              5169
  01111              01206              5171
  01112              01210              5172
  01113              01211              5178
  01114              01212              74861
  01115              01213            *496
  01116              01214              494
  01120              01215            *5061
  01121              01216              494
  01122              0310             *5064
  01123              11505              494
  01124              11515            *5069
  01125              1304               494
  01126              1363             *600
  01130              481                5960
  01131              4820               5996
  01132              4821               6010
  01133              4822               6012
  01134              48230              6013
------------------------------------------------------------------------


                                   Table 7a.--Medicare prospective Payment System, Selected Percentile Lengths of Stay
                                                        [FY99 MEDPAR update 03/00 Grouper V17.0]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Number        Arithmetic         10th            25th            50th            75th            90th
                   DRG                      discharges       mean LOS       percentile      percentile      percentile      percentile      percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................           35352          9.1033               2               3               6              12              19
2.......................................            7158          9.6855               3               5               7              12              19
4.......................................            6095          7.3505               1               2               5               9              16
5.......................................           95604          3.2875               1               1               2               4               7
6.......................................             341          3.2405               1               1               2               4               7
7.......................................           12148         10.2934               2               4               7              13              21
8.......................................            3705          3.0103               1               1               2               4               7
9.......................................            1657          6.4484               1               3               5               8              12
10......................................           18437          6.5993               2               3               5               8              13
11......................................            3331          4.1654               1               2               3               5               8
12......................................           45110          6.0509               2               3               4               7              11
13......................................            6256          5.0973               2               3               4               6               9
14......................................          331649          5.9608               2               3               5               7              11
15......................................          140366          3.6304               1               2               3               5               7
16......................................           11170          6.1346               2               3               5               7              12
17......................................            3453          3.3687               1               2               3               4               6
18......................................           26134          5.5426               2               3               4               7              10
19......................................            8011          3.7410               1               2               3               5               7
20......................................            5780         10.2894               3               5               8              13              20
21......................................            1368          6.8575               2               3               5               9              13
22......................................            2519          4.9389               2               2               4               6               9
23......................................            8375          4.2302               1               2               3               5               8
24......................................           52871          5.0135               1               2               4               6              10
25......................................           24604          3.3081               1               2               3               4               6
26......................................              20          3.2000               1               1               2               3               7
27......................................            3645          5.1084               1               1               3               6              12
28......................................           10833          6.2260               1               3               5               8              13
29......................................            3985          3.7064               1               2               3               5               7
31......................................            3301          4.2293               1               2               3               5               8
32......................................            1585          2.7356               1               1               2               3               5
34......................................           19657          5.1974               1               2               4               6              10
35......................................            5225          3.4195               1               2               3               4               6
36......................................            4249          1.3641               1               1               1               1               2
37......................................            1494          3.6921               1               1               3               5               8
38......................................             115          2.5304               1               1               1               3               5
39......................................            1160          1.9112               1               1               1               2               4
40......................................            1765          3.5955               1               1               2               4               8
41......................................               1          4.0000               4               4               4               4               4
42......................................            2723          2.2277               1               1               1               3               5

[[Page 47175]]

 
43......................................              86          3.3605               1               2               3               4               7
44......................................            1237          4.9871               2               3               4               6               9
45......................................            2509          3.2790               1               2               3               4               6
46......................................            2971          4.5796               1               2               4               6               9
47......................................            1180          3.3034               1               1               3               4               6
49......................................            2245          4.9675               1               2               4               6               9
50......................................            2587          1.9849               1               1               1               2               3
51......................................             264          2.5303               1               1               1               3               6
52......................................             198          2.1414               1               1               1               2               5
53......................................            2594          3.6727               1               1               2               4               8
54......................................               4          1.5000               1               1               1               1               3
55......................................            1573          2.8843               1               1               1               3               6
56......................................             533          3.0507               1               1               2               4               6
57......................................             587          3.9642               1               1               2               4               8
59......................................             115          2.5304               1               1               2               3               5
60......................................               2          1.0000               1               1               1               1               1
61......................................             212          4.8302               1               1               2               6              13
62......................................               2          3.5000               2               2               5               5               5
63......................................            3207          4.2728               1               2               3               5               9
64......................................            3189          6.5124               1               2               4               8              14
65......................................           31923          2.8964               1               1               2               4               5
66......................................            6984          3.1714               1               1               3               4               6
67......................................             482          3.5270               1               2               3               4               7
68......................................           13482          4.1567               1               2               3               5               8
69......................................            4254          3.2795               1               2               3               4               6
70......................................              33          2.9091               1               2               3               4               5
71......................................             105          3.8667               1               2               3               6               7
72......................................             824          3.2961               1               2               3               4               6
73......................................            6461          4.3439               1               2               3               5               8
75......................................           39513         10.0058               3               5               8              12              20
76......................................           40171         11.2717               3               5               9              14              21
77......................................            2385          4.8776               1               2               4               7              10
78......................................           30651          6.9464               3               5               6               8              11
79......................................          183896          8.4642               3               4               7              11              16
80......................................            8331          5.6766               2               3               5               7              10
81......................................               5          9.2000               2               2              10              10              19
82......................................           64149          6.9422               2               3               5               9              14
83......................................            6603          5.5326               2               3               4               7              10
84......................................            1549          3.3719               1               2               3               4               6
85......................................           20158          6.3636               2               3               5               8              12
86......................................            1940          3.7845               1               2               3               5               7
87......................................           63294          6.2499               1               3               5               8              12
88......................................          405792          5.2217               2               3               4               7               9
89......................................          526310          6.0247               2               3               5               7              11
90......................................           51516          4.2278               2               3               4               5               7
91......................................              49          3.3469               1               2               3               4               5
92......................................           13842          6.2457               2               3               5               8              12
93......................................            1557          3.9878               1               2               3               5               7
94......................................           12470          6.3005               2               3               5               8              12
95......................................            1589          3.6916               1               2               3               5               7
96......................................           65180          4.7269               2               3               4               6               8
97......................................           31758          3.6849               1               2               3               5               7
98......................................              20          4.7000               1               1               3               6               7
99......................................           18316          3.2260               1               1               2               4               6
100.....................................            7279          2.2124               1               1               2               3               4
101.....................................           19889          4.4315               1               2               3               6               8
102.....................................            5030          2.7356               1               1               2               3               5
103.....................................             461         49.5466               9              12              30              68             118
104.....................................           33364         11.6306               3               6              10              15              22
105.....................................           29546          9.2855               4               5               7              11              17
106.....................................            3820         11.2010               5               7               9              13              19
107.....................................           91043         10.3489               5               7               9              12              17
108.....................................            5267         10.5590               3               5               8              13              20
109.....................................           61942          7.7332               4               5               6               9              13
110.....................................           55263          9.4599               2               5               8              11              18
111.....................................            7172          5.4762               2               4               5               7               8
112.....................................           61239          3.7597               1               1               3               5               8
113.....................................           44445         12.0916               3               6               9              15              24
114.....................................            8543          8.2800               2               4               7              10              16
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[[Page 47176]]

 
116.....................................          309840          3.7279               1               1               3               5               8
117.....................................            3419          4.0433               1               1               2               5               9
118.....................................            6687          2.8065               1               1               1               3               6
119.....................................            1461          4.8542               1               1               3               6              12
120.....................................           36980          8.1173               1               2               5              10              18
121.....................................          164131          6.4386               2               3               5               8              12
122.....................................           81181          3.8293               1               2               3               5               7
123.....................................           41102          4.5805               1               1               3               6              11
124.....................................          135568          4.3735               1               2               3               6               8
125.....................................           75438          2.7854               1               1               2               4               5
126.....................................            5171         11.7343               3               6               9              14              23
127.....................................          683849          5.3364               2               3               4               7              10
128.....................................           11601          5.8042               3               4               5               7               9
129.....................................            4224          2.8570               1               1               1               3               7
130.....................................           89606          5.8064               2               3               5               7              10
131.....................................           27035          4.3769               1               3               4               6               7
132.....................................          153726          3.0483               1               1               2               4               6
133.....................................            7633          2.3958               1               1               2               3               4
134.....................................           33046          3.2976               1               2               3               4               6
135.....................................            7144          4.4709               1               2               3               5               9
136.....................................            1170          2.9103               1               1               2               4               6
138.....................................          192439          4.0078               1               2               3               5               8
139.....................................           77691          2.5071               1               1               2               3               5
140.....................................           76921          2.7133               1               1               2               3               5
141.....................................           86225          3.7087               1               2               3               5               7
142.....................................           42891          2.6783               1               1               2               3               5
143.....................................          186941          2.1669               1               1               2               3               4
144.....................................           79553          5.3212               1               2               4               7              11
145.....................................            6948          2.8094               1               1               2               4               5
146.....................................           11289         10.1758               5               7               9              12              17
147.....................................            2427          6.6135               3               5               6               8              10
148.....................................          135012         12.1210               5               7              10              14              22
149.....................................           17660          6.6535               4               5               6               8              10
150.....................................           20425         11.1526               4               7               9              14              20
151.....................................            4513          5.9280               2               3               5               8              10
152.....................................            4470          8.1953               3               5               7              10              14
153.....................................            1931          5.4604               3               4               5               7               8
154.....................................           29554         13.2574               4               7              10              16              25
155.....................................            6109          4.3495               1               2               3               6               8
156.....................................               2         28.0000              28              28              28              28              28
157.....................................            8234          5.4966               1               2               4               7              11
158.....................................            4427          2.6286               1               1               2               3               5
159.....................................           16536          5.0206               1               2               4               6              10
160.....................................           11065          2.7237               1               1               2               4               5
161.....................................           11551          4.1674               1               2               3               5               9
162.....................................            7067          1.9544               1               1               1               2               4
163.....................................              10          2.9000               1               1               3               3               6
164.....................................            4748          8.3981               4               5               7              10              14
165.....................................            1953          4.8561               2               3               5               6               8
166.....................................            3332          5.0789               2               3               4               6               9
167.....................................            2935          2.7097               1               2               2               3               5
168.....................................            1530          4.6556               1               2               3               6               9
169.....................................             810          2.4247               1               1               2               3               5
170.....................................           11351         11.1690               2               5               8              14              23
171.....................................            1132          4.8012               1               2               4               6               9
172.....................................           30708          6.9805               2               3               5               9              14
173.....................................            2516          3.8557               1               1               3               5               8
174.....................................          237582          4.8236               2               3               4               6               9
175.....................................           28223          2.9429               1               2               3               4               5
176.....................................           15708          5.2687               2               3               4               6              10
177.....................................            9539          4.5524               2               2               4               6               8
178.....................................            3601          3.1427               1               2               3               4               6
179.....................................           12290          6.0134               2               3               5               7              11
180.....................................           85528          5.3979               2               3               4               7              10
181.....................................           24458          3.4102               1               2               3               4               6
182.....................................          234044          4.3621               1               2               3               5               8
183.....................................           79010          2.9636               1               1               2               4               6
184.....................................              99          3.2525               1               2               3               4               5
185.....................................            4361          4.5015               1               2               3               6               9
186.....................................               2          4.5000               2               2               7               7               7

[[Page 47177]]

 
187.....................................             747          3.8220               1               2               3               5               8
188.....................................           75016          5.5813               1               2               4               7              11
189.....................................           11186          3.1402               1               1               2               4               6
190.....................................              70          5.9857               2               3               4               6              11
191.....................................            9437         14.1379               4               7              10              18              28
192.....................................             984          6.5996               2               4               6               8              11
193.....................................            5705         12.5550               5               7              10              15              23
194.....................................             763          6.7720               2               4               6               8              12
195.....................................            4898          9.8944               4               6               8              12              17
196.....................................            1197          5.6942               2               4               5               7               9
197.....................................           20367          8.7332               3               5               7              11              16
198.....................................            6123          4.5065               2               3               4               6               8
199.....................................            1745          9.6682               3               4               8              13              19
200.....................................            1084         10.7694               2               4               8              14              22
201.....................................            1483         13.8206               3               6              11              18              27
202.....................................           25781          6.5065               2               3               5               8              13
203.....................................           29166          6.6874               2               3               5               9              13
204.....................................           55210          5.8583               2               3               4               7              11
205.....................................           22715          6.2907               2               3               5               8              12
206.....................................            1792          3.8337               1               2               3               5               7
207.....................................           30992          5.1140               1               2               4               6              10
208.....................................            9690          2.8994               1               1               2               4               6
209.....................................          343780          5.1256               3               3               4               6               8
210.....................................          127326          6.8134               3               4               6               8              11
211.....................................           31422          4.9172               3               4               4               6               7
212.....................................               7          3.0000               2               2               2               3               4
213.....................................            8933          8.7283               2               4               7              11              17
216.....................................            5871          9.7808               2               4               7              12              20
217.....................................           17768         13.1592               3               5               9              16              28
218.....................................           21587          5.3674               2               3               4               6              10
219.....................................           19362          3.2518               1               2               3               4               5
220.....................................               3          2.3333               1               1               2               4               4
223.....................................           17578          2.5862               1               1               2               3               5
224.....................................            8041          2.0520               1               1               2               3               4
225.....................................            5639          4.7074               1               2               3               6              10
226.....................................            5033          6.3012               1               2               4               8              13
227.....................................            4462          2.6627               1               1               2               3               5
228.....................................            2477          3.5620               1               1               2               4               8
229.....................................            1092          2.4011               1               1               2               3               5
230.....................................            2116          5.0865               1               2               3               6              10
231.....................................           10738          4.8361               1               2               3               6              10
232.....................................             571          3.5692               1               1               2               4               9
233.....................................            4608          7.7129               2               3               6              10              16
234.....................................            2701          3.5724               1               2               3               4               7
235.....................................            5378          5.1264               1               2               4               6              10
236.....................................           38845          4.8570               1               3               4               6               9
237.....................................            1587          3.7284               1               2               3               5               7
238.....................................            7674          8.4730               3               4               6              10              16
239.....................................           51992          6.2172               2               3               5               8              12
240.....................................           11950          6.5921               2               3               5               8              13
241.....................................            2981          3.9410               1               2               3               5               7
242.....................................            2498          6.5524               2               3               5               8              12
243.....................................           85571          4.7006               1               3               4               6               9
244.....................................           11962          4.7800               1               2               4               6               9
245.....................................            4967          3.7246               1               2               3               4               7
246.....................................            1344          3.6384               1               2               3               4               7
247.....................................           15158          3.4474               1               1               3               4               7
248.....................................            9412          4.7385               1               2               4               6               9
249.....................................           10792          3.7782               1               1               3               5               8
250.....................................            3543          4.2484               1               2               3               5               8
251.....................................            2382          2.9866               1               1               3               4               5
252.....................................               1          2.0000               2               2               2               2               2
253.....................................           19064          4.6962               1               3               4               6               9
254.....................................           10447          3.2049               1               2               3               4               6
255.....................................               1          1.0000               1               1               1               1               1
256.....................................            5875          5.1384               1               2               4               6              10
257.....................................           16895          2.8284               1               2               2               3               5
258.....................................           15820          2.0011               1               1               2               2               3
259.....................................            3743          2.7919               1               1               1               3               6
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[[Page 47178]]

 
261.....................................            1766          2.1682               1               1               1               2               4
262.....................................             686          3.7886               1               1               3               5               7
263.....................................           24706         11.6014               3               5               8              14              23
264.....................................            3910          6.9575               2               3               5               8              14
265.....................................            3905          6.6197               1               2               4               8              14
266.....................................            2557          3.3136               1               1               2               4               7
267.....................................             257          5.2140               1               1               3               6              12
268.....................................             915          3.6907               1               1               2               4               8
269.....................................            8941          8.2543               2               3               6              10              16
270.....................................            2767          3.2754               1               1               2               4               7
271.....................................           21233          7.1222               2               4               6               8              13
272.....................................            5503          6.3353               2               3               5               8              12
273.....................................            1346          4.2132               1               2               3               5               8
274.....................................            2381          6.9475               2               3               5               9              14
275.....................................             229          3.3886               1               1               2               4               7
276.....................................            1089          4.6272               1               2               4               6               9
277.....................................           84246          5.7203               2               3               5               7              10
278.....................................           28748          4.3341               2               3               4               5               7
279.....................................               5          5.4000               2               2               5               5              11
280.....................................           15232          4.1962               1               2               3               5               8
281.....................................            6791          3.0711               1               1               3               4               6
283.....................................            5370          4.5551               1               2               3               6               9
284.....................................            1858          3.1975               1               1               2               4               6
285.....................................            6174         10.4691               3               5               8              13              20
286.....................................            2009          6.2225               2               3               5               7              11
287.....................................            6029         10.5382               3               5               8              13              20
288.....................................            2316          5.6973               2               3               4               6               9
289.....................................            4349          3.1474               1               1               2               3               7
290.....................................            8262          2.4317               1               1               2               2               4
291.....................................              58          1.6379               1               1               1               2               2
292.....................................            4999          9.9930               2               4               7              13              21
293.....................................             326          5.0644               1               2               4               7              10
294.....................................           84584          4.7150               1               2               4               6               9
295.....................................            3506          3.8811               1               2               3               5               7
296.....................................          233633          5.2417               2               3               4               6              10
297.....................................           41115          3.4726               1               2               3               4               6
298.....................................             112          3.1429               1               2               2               4               6
299.....................................            1067          5.6148               1               2               4               6              11
300.....................................           15674          6.1301               2               3               5               8              12
301.....................................            3130          3.7089               1               2               3               5               7
302.....................................            7834          9.3957               4               5               7              11              16
303.....................................           19520          8.4840               4               5               7              10              15
304.....................................           12114          8.9145               2               4               7              11              18
305.....................................            2886          3.8486               1               2               3               5               7
306.....................................            7971          5.4874               1               2               3               7              12
307.....................................            2231          2.2761               1               1               2               3               4
308.....................................            7729          6.3946               1               2               4               8              14
309.....................................            3973          2.4896               1               1               2               3               5
310.....................................           23848          4.3651               1               2               3               5               9
311.....................................            8261          1.8895               1               1               1               2               3
312.....................................            1576          4.5184               1               1               3               6              10
313.....................................             633          2.1137               1               1               1               3               4
314.....................................               2          1.0000               1               1               1               1               1
315.....................................           28842          7.5038               1               1               5              10              17
316.....................................           97171          6.6773               2               3               5               8              13
317.....................................            1237          3.1997               1               1               2               3               6
318.....................................            5569          6.0084               1               3               4               7              12
319.....................................             468          2.8782               1               1               2               4               6
320.....................................          182681          5.3860               2               3               4               7              10
321.....................................           28362          3.8457               1               2               3               5               7
322.....................................              72          4.1111               1               2               3               5               7
323.....................................           16489          3.2195               1               1               2               4               7
324.....................................            7423          1.8792               1               1               1               2               3
325.....................................            7844          3.8986               1               2               3               5               7
326.....................................            2434          2.6619               1               1               2               3               5
327.....................................               8          8.2500               1               1               1               4              13
328.....................................             724          3.8909               1               1               3               5               8
329.....................................             106          2.0472               1               1               1               3               4
331.....................................           43627          5.5325               1               2               4               7              11
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[[Page 47179]]

 
333.....................................             306          5.0163               1               2               3               6              10
334.....................................           12207          4.8955               2               3               4               6               8
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336.....................................           40724          3.5245               1               2               3               4               7
337.....................................           30688          2.1779               1               1               2               3               3
338.....................................            1647          5.3024               1               2               3               7              12
339.....................................            1514          4.5594               1               1               3               6              10
340.....................................               1          1.0000               1               1               1               1               1
341.....................................            3866          3.2219               1               1               2               3               7
342.....................................             778          3.1221               1               2               2               4               6
344.....................................            3962          2.2532               1               1               1               2               4
345.....................................            1285          3.7681               1               1               2               5               8
346.....................................            4659          5.8032               1               3               4               7              11
347.....................................             399          3.3734               1               1               2               4               7
348.....................................            3125          4.2074               1               2               3               5               8
349.....................................             595          2.6101               1               1               2               3               5
350.....................................            6202          4.3955               2               2               4               5               8
352.....................................             651          3.8218               1               2               3               5               8
353.....................................            2646          6.7154               3               3               5               8              13
354.....................................            8252          5.8838               3               3               4               7              10
355.....................................            5732          3.3217               2               3               3               4               5
356.....................................           26097          2.4163               1               1               2               3               4
357.....................................            5799          8.5049               3               4               7              10              16
358.....................................           21776          4.3958               2               3               3               5               8
359.....................................           29307          2.8120               2               2               3               3               4
360.....................................           16206          2.9646               1               2               2               3               5
361.....................................             427          3.4637               1               1               2               4               7
362.....................................               2          2.0000               1               1               3               3               3
363.....................................            3100          3.4668               1               2               2               3               7
364.....................................            1626          3.5689               1               1               2               5               7
365.....................................            1936          7.2758               1               3               5               9              16
366.....................................            4266          6.7203               1               3               5               8              14
367.....................................             478          3.1695               1               1               2               4               7
368.....................................            2889          6.7196               2               3               5               8              13
369.....................................            2858          3.1963               1               1               2               4               6
370.....................................            1175          5.7174               3               3               4               5               9
371.....................................            1232          3.6445               2               3               3               4               5
372.....................................             942          3.4809               1               2               2               3               5
373.....................................            3992          2.2856               1               2               2               2               3
374.....................................             138          3.3696               1               2               2               3               5
375.....................................               6          2.6667               2               2               2               3               3
376.....................................             260          3.4577               1               2               2               4               7
377.....................................              54          3.8333               1               1               2               5               8
378.....................................             156          2.3333               1               1               2               3               4
379.....................................             370          3.0676               1               1               2               3               6
380.....................................              77          2.1688               1               1               2               2               4
381.....................................             179          1.9441               1               1               1               2               3
382.....................................              43          1.4884               1               1               1               2               2
383.....................................            1582          3.8957               1               1               3               5               8
384.....................................             128          2.2969               1               1               1               2               4
389.....................................               8          5.8750               3               3               4               8              10
390.....................................              20          3.9500               1               1               3               6               8
392.....................................            2524          9.4624               3               4               7              12              19
393.....................................               2          7.5000               7               7               8               8               8
394.....................................            1742          6.6791               1               2               4               8              15
395.....................................           81014          4.5335               1               2               3               6               9
396.....................................              20          3.8000               1               1               2               5               7
397.....................................           18191          5.2238               1               2               4               7              10
398.....................................           18207          5.9565               2               3               5               7              11
399.....................................            1633          3.5536               1               2               3               4               7
400.....................................            6897          9.0738               1               3               6              12              20
401.....................................            5881         11.1770               2               5               8              14              23
402.....................................            1501          3.9480               1               1               3               5               8
403.....................................           33467          8.0557               2               3               6              10              17
404.....................................            4520          4.2199               1               2               3               6               9
406.....................................            2572         10.3476               3               4               7              13              21
407.....................................             701          4.4051               1               2               4               6               8
408.....................................            2260          7.7088               1               2               5              10              18
409.....................................            3308          5.9344               2               3               4               6              11
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[[Page 47180]]

 
411.....................................              13          2.3077               1               1               2               4               4
412.....................................              29          2.7241               1               1               2               3               6
413.....................................            6216          7.2497               2               3               6               9              14
414.....................................             721          4.0902               1               2               3               5               8
415.....................................           40206         14.2110               4               6              11              18              28
416.....................................          196848          7.3514               2               4               6               9              14
417.....................................              36          5.8889               1               1               4               6              13
418.....................................           22285          6.1233               2               3               5               7              11
419.....................................           15990          4.8206               2               2               4               6               9
420.....................................            3108          3.5618               1               2               3               4               6
421.....................................           12326          3.8695               1               2               3               5               7
422.....................................              98          5.2551               1               2               2               5               7
423.....................................            8137          8.1292               2               3               6              10              17
424.....................................            1368         13.4561               2               5               9              16              28
425.....................................           15108          4.0764               1               2               3               5               8
426.....................................            4357          4.5582               1               2               3               6               9
427.....................................            1679          4.9803               1               2               3               6              10
428.....................................             849          7.0813               1               2               4               8              15
429.....................................           27615          6.4861               2               3               5               8              12
430.....................................           58361          8.1902               2               3               6              10              16
431.....................................             297          6.5758               2               3               5               8              13
432.....................................             394          4.8020               1               2               3               5               9
433.....................................            5831          3.0045               1               1               2               4               6
434.....................................           22063          5.0861               1               2               4               6               9
435.....................................           14652          4.3057               1               2               4               5               8
436.....................................            3548         12.8503               4               7              11              17              25
437.....................................            9841          8.9511               3               5               8              11              15
439.....................................            1306          8.1646               1               3               5              10              17
440.....................................            5063          8.8766               2               3               6              10              19
441.....................................             585          3.2496               1               1               2               4               7
442.....................................           16061          8.2365               1               3               6              10              17
443.....................................            3586          3.3943               1               1               2               4               7
444.....................................            5210          4.2263               1               2               3               5               8
445.....................................            2276          2.9921               1               1               2               4               5
447.....................................            4891          2.5113               1               1               2               3               5
448.....................................               1          4.0000               4               4               4               4               4
449.....................................           26785          3.6730               1               1               3               4               7
450.....................................            6439          2.0449               1               1               1               2               4
451.....................................               1          1.0000               1               1               1               1               1
452.....................................           21849          4.9674               1               2               3               6              10
453.....................................            4499          2.8137               1               1               2               3               5
454.....................................            4999          4.5603               1               2               3               6               9
455.....................................            1083          2.6214               1               1               2               3               5
461.....................................            3396          4.6184               1               1               2               5              11
462.....................................           12718         11.5531               4               6               9              15              21
463.....................................           19068          4.2743               1               2               3               5               8
464.....................................            5509          3.0764               1               1               2               4               6
465.....................................             228          3.3509               1               1               2               3               7
466.....................................            1752          3.9258               1               1               2               4               8
467.....................................            1320          4.0485               1               1               2               4               7
468.....................................           58920         12.9558               3               6              10              17              26
471.....................................           11488          5.7349               3               4               5               6               9
473.....................................            7674         12.8610               2               3               7              19              32
475.....................................          109697         11.1882               2               5               9              15              22
476.....................................            4474         11.6623               2               5              10              15              22
477.....................................           25946          8.1242               1               3               6              10              17
478.....................................          111979          7.3211               1               3               5               9              15
479.....................................           22533          3.6234               1               2               3               5               7
480.....................................             500         19.4980               7               9              14              23              39
481.....................................             274         26.7372              16              19              23              31              43
482.....................................            6178         12.8124               4               7              10              15              24
483.....................................           43726         39.1790              14              21              32              49              71
484.....................................             340         13.0853               2               5              10              18              28
485.....................................            3002          9.4867               4               5               7              11              18
486.....................................            2127         12.1208               1               5               9              16              25
487.....................................            3666          7.6328               1               3               6              10              15
488.....................................             779         16.9718               4               7              12              21              34
489.....................................           14444          8.5516               2               3               6              10              18
490.....................................            5357          5.1286               1               2               4               6              10
491.....................................           11403          3.4912               2               2               3               4               6

[[Page 47181]]

 
492.....................................            2695         16.1221               4               5               9              26              34
493.....................................           54404          5.7190               1               3               5               7              11
494.....................................           27453          2.4829               1               1               2               3               5
495.....................................             156         20.5000               6               8              12              19              33
496.....................................            1293         10.0093               4               5               7              12              18
497.....................................           22769          6.2233               2               3               5               7              11
498.....................................           19358          3.4145               1               2               3               4               6
499.....................................           30924          4.7726               1               2               4               6               9
500.....................................           42404          2.6896               1               1               2               3               5
501.....................................            1959         10.5630               4               5               8              13              20
502.....................................             621          5.9775               2               3               5               7              10
503.....................................            5625          3.9733               1               2               3               5               7
504.....................................             124         30.4677              10              15              25              40              63
505.....................................             155          4.7161               1               1               2               6              12
506.....................................             968         17.5651               4               8              14              24              37
507.....................................             285          9.2491               2               4               7              13              19
508.....................................             648          7.1605               2               3               5               9              15
509.....................................             167          6.0719               1               2               4               8              12
510.....................................            1673          7.8171               2               3               5               9              17
511.....................................             605          4.4413               1               1               3               6              10
                                         ----------------
                                                11001029
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                   Table 7b.--Medicare Prospective Payment System, Selected Percentile Lengths of Stay
                                                        [FY99 MEDPAR update 03/00 Grouper V.18.0]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Number        Arithmetic         10th            25th            50th            75th            90th
                   DRG                      discharges       mean LOS       percentile      percentile      percentile      percentile      percentile
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................           35352          9.1033               2               3               6              12              19
2.......................................            7158          9.6855               3               5               7              12              19
4.......................................            6095          7.3505               1               2               5               9              16
5.......................................           95604          3.2875               1               1               2               4               7
6.......................................             341          3.2405               1               1               2               4               7
7.......................................           12147         10.2938               2               4               7              13              21
8.......................................            3706          3.0108               1               1               2               4               7
9.......................................            1657          6.4484               1               3               5               8              12
10......................................           18433          6.5983               2               3               5               8              13
11......................................            3335          4.1739               1               2               3               5               8
12......................................           45110          6.0509               2               3               4               7              11
13......................................            6256          5.0973               2               3               4               6               9
14......................................          331649          5.9608               2               3               5               7              11
15......................................          140366          3.6304               1               2               3               5               7
16......................................           11166          6.1358               2               3               5               7              12
17......................................            3457          3.3679               1               2               3               4               6
18......................................           26127          5.5433               2               3               4               7              10
19......................................            8018          3.7403               1               2               3               5               7
20......................................            5780         10.2894               3               5               8              13              20
21......................................            1368          6.8575               2               3               5               9              13
22......................................            2519          4.9389               2               2               4               6               9
23......................................            8375          4.2302               1               2               3               5               8
24......................................           52856          5.0134               1               2               4               6              10
25......................................           24619          3.3092               1               2               3               4               6
26......................................              20          3.2000               1               1               2               3               7
27......................................            3645          5.1084               1               1               3               6              12
28......................................           10832          6.2250               1               3               5               8              13
29......................................            3985          3.7064               1               2               3               5               7
31......................................            3299          4.2301               1               2               3               5               8
32......................................            1587          2.7360               1               1               2               3               5
34......................................           19649          5.1979               1               2               4               6              10
35......................................            5233          3.4204               1               2               3               4               6
36......................................            4249          1.3641               1               1               1               1               2
37......................................            1494          3.6921               1               1               3               5               8
38......................................             115          2.5304               1               1               1               3               5
39......................................            1160          1.9112               1               1               1               2               4
40......................................            1765          3.5955               1               1               2               4               8
41......................................               1          4.0000               4               4               4               4               4
42......................................            2723          2.2277               1               1               1               3               5
43......................................              86          3.3605               1               2               3               4               7

[[Page 47182]]

 
44......................................            1237          4.9871               2               3               4               6               9
45......................................            2509          3.2790               1               2               3               4               6
46......................................            2970          4.5805               1               2               4               6               9
47......................................            1181          3.3023               1               1               3               4               6
49......................................            2245          4.9675               1               2               4               6               9
50......................................            2587          1.9849               1               1               1               2               3
51......................................             264          2.5303               1               1               1               3               6
52......................................             198          2.1414               1               1               1               2               5
53......................................            2594          3.6727               1               1               2               4               8
54......................................               4          1.5000               1               1               1               1               3
55......................................            1573          2.8843               1               1               1               3               6
56......................................             533          3.0507               1               1               2               4               6
57......................................             587          3.9642               1               1               2               4               8
59......................................             115          2.5304               1               1               2               3               5
60......................................               2          1.0000               1               1               1               1               1
61......................................             212          4.8302               1               1               2               6              13
62......................................               2          3.5000               2               2               5               5               5
63......................................            3207          4.2728               1               2               3               5               9
64......................................            3189          6.5124               1               2               4               8              14
65......................................           31923          2.8964               1               1               2               4               5
66......................................            6984          3.1714               1               1               3               4               6
67......................................             482          3.5270               1               2               3               4               7
68......................................           13468          4.1556               1               2               3               5               7
69......................................            4268          3.2856               1               2               3               4               6
70......................................              33          2.9091               1               2               3               4               5
71......................................             105          3.8667               1               2               3               6               7
72......................................             824          3.2961               1               2               3               4               6
73......................................            6461          4.3439               1               2               3               5               8
75......................................           39513         10.0058               3               5               8              12              20
76......................................           40109         11.2755               3               5               9              14              21
77......................................            2447          4.9775               1               2               4               7              10
78......................................           30651          6.9464               3               5               6               8              11
79......................................          183420          8.4683               3               4               7              11              16
80......................................            8807          5.7434               2               3               5               7              10
81......................................               5          9.2000               2               2              10              10              19
82......................................           64149          6.9422               2               3               5               9              14
83......................................            6599          5.5342               2               3               4               7              10
84......................................            1553          3.3709               1               2               3               4               6
85......................................           20150          6.3637               2               3               5               8              12
86......................................            1948          3.7936               1               2               3               5               7
87......................................           63294          6.2499               1               3               5               8              12
88......................................          405792          5.2217               2               3               4               7               9
89......................................          525499          6.0257               2               3               5               7              11
90......................................           52326          4.2457               2               3               4               5               7
91......................................              49          3.3469               1               2               3               4               5
92......................................           13772          6.2509               2               3               5               8              12
93......................................            1627          4.0412               1               2               3               5               7
94......................................           12463          6.3016               2               3               5               8              12
95......................................            1596          3.6942               1               2               3               5               7
96......................................           65045          4.7268               2               3               4               6               8
97......................................           31893          3.6895               1               2               3               5               7
98......................................              20          4.7000               1               1               3               6               7
99......................................           18262          3.2254               1               1               2               4               6
100.....................................            7333          2.2215               1               1               2               3               4
101.....................................           19863          4.4312               1               2               3               6               8
102.....................................            5056          2.7455               1               1               2               3               5
103.....................................             480         51.7875               9              13              31              70             121
104.....................................           33648         11.6443               3               6              10              15              22
105.....................................           29689          9.3034               4               5               7              11              17
106.....................................            3805         11.2100               5               7               9              13              19
107.....................................           90905         10.3450               5               7               9              12              17
108.....................................            5246         10.5442               3               5               8              13              20
109.....................................           61881          7.7309               4               5               6               9              13
110.....................................           55081          9.4414               2               5               8              11              18
111.....................................            7168          5.4788               2               4               5               7               8
112.....................................           61237          3.7595               1               1               3               5               8
113.....................................           44445         12.0916               3               6               9              15              24
114.....................................            8543          8.2800               2               4               7              10              16
115.....................................           14129          8.4099               1               4               7              11              16
116.....................................          309839          3.7278               1               1               3               5               8

[[Page 47183]]

 
117.....................................            3419          4.0433               1               1               2               5               9
118.....................................            6687          2.8065               1               1               1               3               6
119.....................................            1461          4.8542               1               1               3               6              12
120.....................................           36979          8.1175               1               2               5              10              18
121.....................................          164131          6.4386               2               3               5               8              12
122.....................................           81181          3.8293               1               2               3               5               7
123.....................................           41101          4.5805               1               1               3               6              11
124.....................................          135568          4.3735               1               2               3               6               8
125.....................................           75438          2.7854               1               1               2               4               5
126.....................................            5171         11.7343               3               6               9              14              23
127.....................................          683849          5.3364               2               3               4               7              10
128.....................................           11601          5.8042               3               4               5               7               9
129.....................................            4224          2.8570               1               1               1               3               7
130.....................................           89585          5.8066               2               3               5               7              10
131.....................................           27056          4.3774               1               3               4               6               7
132.....................................          153720          3.0483               1               1               2               4               6
133.....................................            7639          2.3961               1               1               2               3               4
134.....................................           33046          3.2976               1               2               3               4               6
135.....................................            7143          4.4714               1               2               3               5               9
136.....................................            1171          2.9086               1               1               2               4               6
138.....................................          192312          4.0086               1               2               3               5               8
139.....................................           77818          2.5076               1               1               2               3               5
140.....................................           76921          2.7133               1               1               2               3               5
141.....................................           86200          3.7088               1               2               3               5               7
142.....................................           42916          2.6786               1               1               2               3               5
143.....................................          186941          2.1669               1               1               2               3               4
144.....................................           79537          5.3212               1               2               4               7              11
145.....................................            6964          2.8153               1               1               2               4               6
146.....................................           11289         10.1758               5               7               9              12              17
147.....................................            2427          6.6135               3               5               6               8              10
148.....................................          134992         12.1212               5               7              10              14              22
149.....................................           17679          6.6565               4               5               6               8              10
150.....................................           20422         11.1531               4               7               9              14              20
151.....................................            4516          5.9289               2               3               5               8              10
152.....................................            4469          8.1962               3               5               7              10              14
153.....................................            1932          5.4596               3               4               5               7               8
154.....................................           29550         13.2586               4               7              10              16              25
155.....................................            6113          4.3496               1               2               3               6               8
156.....................................               2         28.0000              28              28              28              28              28
157.....................................            8234          5.4966               1               2               4               7              11
158.....................................            4427          2.6286               1               1               2               3               5
159.....................................           16531          5.0216               1               2               4               6              10
160.....................................           11070          2.7232               1               1               2               4               5
161.....................................           11547          4.1684               1               2               3               5               9
162.....................................            7071          1.9542               1               1               1               2               4
163.....................................              10          2.9000               1               1               3               3               6
164.....................................            4747          8.3994               4               5               7              10              14
165.....................................            1954          4.8547               2               3               5               6               8
166.....................................            3331          5.0793               2               3               4               6               9
167.....................................            2936          2.7101               1               2               2               3               5
168.....................................            1530          4.6556               1               2               3               6               9
169.....................................             810          2.4247               1               1               2               3               5
170.....................................           11351         11.1690               2               5               8              14              23
171.....................................            1132          4.8012               1               2               4               6               9
172.....................................           30705          6.9802               2               3               5               9              14
173.....................................            2519          3.8626               1               1               3               5               8
174.....................................          237539          4.8239               2               3               4               6               9
175.....................................           28266          2.9435               1               2               3               4               5
176.....................................           15708          5.2687               2               3               4               6              10
177.....................................            9537          4.5531               2               2               4               6               8
178.....................................            3603          3.1415               1               2               3               4               6
179.....................................           12290          6.0134               2               3               5               7              11
180.....................................           85505          5.3984               2               3               4               7              10
181.....................................           24481          3.4105               1               2               3               4               6
182.....................................          233949          4.3625               1               2               3               5               8
183.....................................           79105          2.9644               1               1               2               4               6
184.....................................              99          3.2525               1               2               3               4               5
185.....................................            4361          4.5015               1               2               3               6               9
186.....................................               2          4.5000               2               2               7               7               7
187.....................................             747          3.8220               1               2               3               5               8

[[Page 47184]]

 
188.....................................           75007          5.5817               1               2               4               7              11
189.....................................           11195          3.1401               1               1               2               4               6
190.....................................              70          5.9857               2               3               4               6              11
191.....................................            9434         14.1406               4               7              10              18              28
192.....................................             987          6.5968               2               4               6               8              11
193.....................................            5705         12.5550               5               7              10              15              23
194.....................................             763          6.7720               2               4               6               8              12
195.....................................            4898          9.8944               4               6               8              12              17
196.....................................            1197          5.6942               2               4               5               7               9
197.....................................           20365          8.7337               3               5               7              11              16
198.....................................            6125          4.5063               2               3               4               6               8
199.....................................            1745          9.6682               3               4               8              13              19
200.....................................            1084         10.7694               2               4               8              14              22
201.....................................            1483         13.8206               3               6              11              18              27
202.....................................           25781          6.5065               2               3               5               8              13
203.....................................           29166          6.6874               2               3               5               9              13
204.....................................           55210          5.8583               2               3               4               7              11
205.....................................           22715          6.2907               2               3               5               8              12
206.....................................            1792          3.8337               1               2               3               5               7
207.....................................           30984          5.1140               1               2               4               6              10
208.....................................            9698          2.9013               1               1               2               4               6
209.....................................          343780          5.1256               3               3               4               6               8
210.....................................          127278          6.8141               3               4               6               8              11
211.....................................           31470          4.9173               3               4               4               6               7
212.....................................               7          3.0000               2               2               2               3               4
213.....................................            8933          8.7283               2               4               7              11              17
216.....................................            5871          9.7808               2               4               7              12              20
217.....................................           17768         13.1592               3               5               9              16              28
218.....................................           21572          5.3690               2               3               4               6              10
219.....................................           19377          3.2517               1               2               3               4               5
220.....................................               3          2.3333               1               1               2               4               4
223.....................................           17575          2.5861               1               1               2               3               5
224.....................................            8044          2.0525               1               1               2               3               4
225.....................................            5639          4.7074               1               2               3               6              10
226.....................................            4927          6.3028               1               2               4               8              13
227.....................................            4410          2.6689               1               1               2               3               5
228.....................................            2477          3.5620               1               1               2               4               8
229.....................................            1092          2.4011               1               1               2               3               5
230.....................................            2274          5.0721               1               2               3               6              10
231.....................................           10738          4.8361               1               2               3               6              10
232.....................................             571          3.5692               1               1               2               4               9
233.....................................            4607          7.7141               2               3               6              10              16
234.....................................            2702          3.5718               1               2               3               4               7
235.....................................            5378          5.1264               1               2               4               6              10
236.....................................           38845          4.8570               1               3               4               6               9
237.....................................            1587          3.7284               1               2               3               5               7
238.....................................            7674          8.4730               3               4               6              10              16
239.....................................           51992          6.2172               2               3               5               8              12
240.....................................           11944          6.5936               2               3               5               8              13
241.....................................            2987          3.9404               1               2               3               5               7
242.....................................            2498          6.5524               2               3               5               8              12
243.....................................           85571          4.7006               1               3               4               6               9
244.....................................           11961          4.7800               1               2               4               6               9
245.....................................            4968          3.7246               1               2               3               4               7
246.....................................            1344          3.6384               1               2               3               4               7
247.....................................           15158          3.4474               1               1               3               4               7
248.....................................            9412          4.7385               1               2               4               6               9
249.....................................           10792          3.7782               1               1               3               5               8
250.....................................            3542          4.2490               1               2               3               5               8
251.....................................            2383          2.9862               1               1               3               4               5
252.....................................               1          2.0000               2               2               2               2               2
253.....................................           19051          4.6967               1               3               4               6               9
254.....................................           10460          3.2059               1               2               3               4               6
255.....................................               1          1.0000               1               1               1               1               1
256.....................................            5875          5.1384               1               2               4               6              10
257.....................................           16871          2.8291               1               2               2               3               5
258.....................................           15844          2.0016               1               1               2               2               3
259.....................................            3741          2.7928               1               1               1               3               6
260.....................................            4817          1.4330               1               1               1               2               2
261.....................................            1766          2.1682               1               1               1               2               4

[[Page 47185]]

 
262.....................................             686          3.7886               1               1               3               5               7
263.....................................           24706         11.6014               3               5               8              14              23
264.....................................            3910          6.9575               2               3               5               8              14
265.....................................            3904          6.6201               1               2               4               8              14
266.....................................            2558          3.3143               1               1               2               4               7
267.....................................             257          5.2140               1               1               3               6              12
268.....................................             915          3.6907               1               1               2               4               8
269.....................................            8938          8.2558               2               3               6              10              16
270.....................................            2770          3.2762               1               1               2               4               7
271.....................................           21233          7.1222               2               4               6               8              13
272.....................................            5501          6.3356               2               3               5               8              12
273.....................................            1348          4.2151               1               2               3               5               8
274.....................................            2381          6.9475               2               3               5               9              14
275.....................................             229          3.3886               1               1               2               4               7
276.....................................            1089          4.6272               1               2               4               6               9
277.....................................           84223          5.7207               2               3               5               7              10
278.....................................           28771          4.3340               2               3               4               5               7
279.....................................               5          5.4000               2               2               5               5              11
280.....................................           15227          4.1968               1               2               3               5               8
281.....................................            6796          3.0705               1               1               3               4               6
283.....................................            5368          4.5561               1               2               3               6               9
284.....................................            1860          3.1962               1               1               2               4               6
285.....................................            6166         10.4710               3               5               8              13              20
286.....................................            2009          6.2225               2               3               5               7              11
287.....................................            6029         10.5382               3               5               8              13              20
288.....................................            2324          5.7087               2               3               4               6               9
289.....................................            4349          3.1474               1               1               2               3               7
290.....................................            8262          2.4317               1               1               2               2               4
291.....................................              58          1.6379               1               1               1               2               2
292.....................................            4999          9.9930               2               4               7              13              21
293.....................................             326          5.0644               1               2               4               7              10
294.....................................           84584          4.7150               1               2               4               6               9
295.....................................            3506          3.8811               1               2               3               5               7
296.....................................          233520          5.2416               2               3               4               6              10
297.....................................           41231          3.4777               1               2               3               4               6
298.....................................             112          3.1429               1               2               2               4               6
299.....................................            1067          5.6148               1               2               4               6              11
300.....................................           15669          6.1305               2               3               5               8              12
301.....................................            3135          3.7107               1               2               3               5               7
302.....................................            7834          9.3957               4               5               7              11              16
303.....................................           19520          8.4840               4               5               7              10              15
304.....................................           12114          8.9145               2               4               7              11              18
305.....................................            2886          3.8486               1               2               3               5               7
306.....................................            7970          5.4877               1               2               3               7              12
307.....................................            2232          2.2764               1               1               2               3               4
308.....................................            7725          6.3969               1               2               4               8              14
309.....................................            3977          2.4891               1               1               2               3               5
310.....................................           23844          4.3654               1               2               3               5               9
311.....................................            8265          1.8897               1               1               1               2               3
312.....................................            1576          4.5184               1               1               3               6              10
313.....................................             633          2.1137               1               1               1               3               4
314.....................................               2          1.0000               1               1               1               1               1
315.....................................           28842          7.5038               1               1               5              10              17
316.....................................           97170          6.6773               2               3               5               8              13
317.....................................            1237          3.1997               1               1               2               3               6
318.....................................            5569          6.0084               1               3               4               7              12
319.....................................             468          2.8782               1               1               2               4               6
320.....................................          182655          5.3861               2               3               4               7              10
321.....................................           28388          3.8467               1               2               3               5               7
322.....................................              72          4.1111               1               2               3               5               7
323.....................................           16486          3.2195               1               1               2               4               7
324.....................................            7426          1.8796               1               1               1               2               3
325.....................................            7844          3.8986               1               2               3               5               7
326.....................................            2434          2.6619               1               1               2               3               5
327.....................................               8          8.2500               1               1               1               4              13
328.....................................             724          3.8909               1               1               3               5               8
329.....................................             106          2.0472               1               1               1               3               4
331.....................................           43621          5.5330               1               2               4               7              11
332.....................................            4860          3.2687               1               1               2               4               7
333.....................................             306          5.0163               1               2               3               6              10

[[Page 47186]]

 
334.....................................           12201          4.8961               2               3               4               6               8
335.....................................           11497          3.4117               2               3               3               4               5
336.....................................           40717          3.5248               1               2               3               4               7
337.....................................           30695          2.1778               1               1               2               3               3
338.....................................            1647          5.3024               1               2               3               7              12
339.....................................            1514          4.5594               1               1               3               6              10
340.....................................               1          1.0000               1               1               1               1               1
341.....................................            3866          3.2219               1               1               2               3               7
342.....................................             778          3.1221               1               2               2               4               6
344.....................................            3962          2.2532               1               1               1               2               4
345.....................................            1285          3.7681               1               1               2               5               8
346.....................................            4659          5.8032               1               3               4               7              11
347.....................................             399          3.3734               1               1               2               4               7
348.....................................            3125          4.2074               1               2               3               5               8
349.....................................             595          2.6101               1               1               2               3               5
350.....................................            6202          4.3955               2               2               4               5               8
352.....................................             651          3.8218               1               2               3               5               8
353.....................................            2646          6.7154               3               3               5               8              13
354.....................................            8251          5.8841               3               3               4               7              10
355.....................................            5733          3.3216               2               3               3               4               5
356.....................................           26097          2.4163               1               1               2               3               4
357.....................................            5799          8.5049               3               4               7              10              16
358.....................................           21754          4.3966               2               3               3               5               8
359.....................................           29329          2.8125               2               2               3               3               4
360.....................................           16206          2.9646               1               2               2               3               5
361.....................................             427          3.4637               1               1               2               4               7
362.....................................               2          2.0000               1               1               3               3               3
363.....................................            3100          3.4668               1               2               2               3               7
364.....................................            1626          3.5689               1               1               2               5               7
365.....................................            1936          7.2758               1               3               5               9              16
366.....................................            4266          6.7203               1               3               5               8              14
367.....................................             478          3.1695               1               1               2               4               7
368.....................................            2889          6.7196               2               3               5               8              13
369.....................................            2858          3.1963               1               1               2               4               6
370.....................................            1175          5.7174               3               3               4               5               9
371.....................................            1232          3.6445               2               3               3               4               5
372.....................................             952          3.4758               2               2               2               3               5
373.....................................            3982          2.2838               1               2               2               2               3
374.....................................             138          3.3696               1               2               2               3               5
375.....................................               6          2.6667               2               2               2               3               3
376.....................................             260          3.4577               1               2               2               4               7
377.....................................              54          3.8333               1               1               2               5               8
378.....................................             156          2.3333               1               1               2               3               4
379.....................................             370          3.0676               1               1               2               3               6
380.....................................              77          2.1688               1               1               2               2               4
381.....................................             179          1.9441               1               1               1               2               3
382.....................................              43          1.4884               1               1               1               2               2
383.....................................            1582          3.8957               1               1               3               5               8
384.....................................             128          2.2969               1               1               1               2               4
389.....................................               8          5.8750               3               3               4               8              10
390.....................................              20          3.9500               1               1               3               6               8
392.....................................            2524          9.4624               3               4               7              12              19
393.....................................               2          7.5000               7               7               8               8               8
394.....................................            1742          6.6791               1               2               4               8              15
395.....................................           81014          4.5335               1               2               3               6               9
396.....................................              20          3.8000               1               1               2               5               7
397.....................................           18191          5.2238               1               2               4               7              10
398.....................................           18199          5.9577               2               3               5               7              11
399.....................................            1641          3.5521               1               2               3               4               7
400.....................................            6893          9.0730               1               3               6              12              20
401.....................................            5865         11.1758               2               5               8              14              23
402.....................................            1503          3.9508               1               1               3               5               8
403.....................................           33074          8.0664               2               3               6              10              17
404.....................................            4484          4.2219               1               2               3               6               9
406.....................................            2574         10.3528               3               4               7              13              21
407.....................................             703          4.4040               1               2               4               6               8
408.....................................            2275          7.7354               1               2               5              10              18
409.....................................            3308          5.9344               2               3               4               6              11
410.....................................           41165          3.7184               1               2               3               5               6
411.....................................              13          2.3077               1               1               2               4               4

[[Page 47187]]

 
412.....................................              29          2.7241               1               1               2               3               6
413.....................................            6605          7.2450               2               3               6               9              14
414.....................................             761          4.0933               1               2               3               5               8
415.....................................           40206         14.2110               4               6              11              18              28
416.....................................          196848          7.3514               2               4               6               9              14
417.....................................              36          5.8889               1               1               4               6              13
418.....................................           22285          6.1233               2               3               5               7              11
419.....................................           15984          4.8204               2               2               4               6               9
420.....................................            3114          3.5649               1               2               3               4               6
421.....................................           12326          3.8695               1               2               3               5               7
422.....................................              98          5.2551               1               2               2               5               7
423.....................................            8137          8.1292               2               3               6              10              17
424.....................................            1368         13.4561               2               5               9              16              28
425.....................................           15108          4.0764               1               2               3               5               8
426.....................................            4357          4.5582               1               2               3               6               9
427.....................................            1679          4.9803               1               2               3               6              10
428.....................................             849          7.0813               1               2               4               8              15
429.....................................           27615          6.4861               2               3               5               8              12
430.....................................           58361          8.1902               2               3               6              10              16
431.....................................             297          6.5758               2               3               5               8              13
432.....................................             394          4.8020               1               2               3               5               9
433.....................................            5831          3.0045               1               1               2               4               6
434.....................................           22061          5.0864               1               2               4               6               9
435.....................................           14654          4.3052               1               2               4               5               8
436.....................................            3548         12.8503               4               7              11              17              25
437.....................................            9841          8.9511               3               5               8              11              15
439.....................................            1306          8.1646               1               3               5              10              17
440.....................................            5063          8.8766               2               3               6              10              19
441.....................................             585          3.2496               1               1               2               4               7
442.....................................           16061          8.2365               1               3               6              10              17
443.....................................            3586          3.3943               1               1               2               4               7
444.....................................            5206          4.2274               1               2               3               5               8
445.....................................            2280          2.9917               1               1               2               4               5
447.....................................            4891          2.5113               1               1               2               3               5
448.....................................               1          4.0000               4               4               4               4               4
449.....................................           26781          3.6732               1               1               3               4               7
450.....................................            6443          2.0449               1               1               1               2               4
451.....................................               1          1.0000               1               1               1               1               1
452.....................................           21847          4.9676               1               2               3               6              10
453.....................................            4501          2.8136               1               1               2               3               5
454.....................................            4997          4.5603               1               2               3               6               9
455.....................................            1085          2.6249               1               1               2               3               5
461.....................................            3397          4.6194               1               1               2               5              11
462.....................................           12718         11.5531               4               6               9              15              21
463.....................................           19065          4.2742               1               2               3               5               8
464.....................................            5511          3.0766               1               1               2               4               6
465.....................................             228          3.3509               1               1               2               3               7
466.....................................            1752          3.9258               1               1               2               4               8
467.....................................            1320          4.0485               1               1               2               4               7
468.....................................           58922         12.9489               3               6              10              17              26
471.....................................           11488          5.7349               3               4               5               6               9
473.....................................            7674         12.8610               2               3               7              19              32
475.....................................          109695         11.1883               2               5               9              15              22
476.....................................            4474         11.6623               2               5              10              15              22
477.....................................           25946          8.1242               1               3               6              10              17
478.....................................          111969          7.3211               1               3               5               9              15
479.....................................           22542          3.6236               1               2               3               5               7
480.....................................             500         19.4980               7               9              14              23              39
481.....................................             273         26.5641              16              19              23              31              41
482.....................................            6195         12.8199               4               7              10              15              24
483.....................................           43695         39.1662              14              22              32              49              71
484.....................................             340         13.0853               2               5              10              18              28
485.....................................            3002          9.4867               4               5               7              11              18
486.....................................            2127         12.1208               1               5               9              16              25
487.....................................            3666          7.6328               1               3               6              10              15
488.....................................             779         16.9718               4               7              12              21              34
489.....................................           14444          8.5516               2               3               6              10              18
490.....................................            5354          5.1291               1               2               4               6              10
491.....................................           11403          3.4912               2               2               3               4               6
492.....................................            2695         16.1221               4               5               9              26              34

[[Page 47188]]

 
493.....................................           54388          5.7197               1               3               5               7              11
494.....................................           27469          2.4832               1               1               2               3               5
495.....................................             156         20.5000               6               8              12              19              33
496.....................................            1293         10.0093               4               5               7              12              18
497.....................................           22761          6.2244               2               3               5               7              11
498.....................................           19366          3.4143               1               2               3               4               6
499.....................................           30892          4.7750               1               2               4               6               9
500.....................................           42436          2.6894               1               1               2               3               5
501.....................................            1959         10.5630               4               5               8              13              20
502.....................................             621          5.9775               2               3               5               7              10
503.....................................            5625          3.9733               1               2               3               5               7
504.....................................             124         30.4677              10              15              25              40              63
505.....................................             155          4.7161               1               1               2               6              12
506.....................................             968         17.5651               4               8              14              24              37
507.....................................             285          9.2491               2               4               7              13              19
508.....................................             648          7.1605               2               3               5               9              15
509.....................................             167          6.0719               1               2               4               8              12
510.....................................            1673          7.8171               2               3               5               9              17
511.....................................             605          4.4413               1               1               3               6              10
                                         ----------------
                                                11001029
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table 8a.--Statewide Average Operating Cost-to-Charge Ratios for Urban
             and Rural Hospitals (Case Weighted) March 2000
------------------------------------------------------------------------
                        State                           Urban     Rural
------------------------------------------------------------------------
ALABAMA.............................................     0.401     0.355
ALASKA..............................................     0.470     0.723
ARIZONA.............................................     0.373     0.517
ARKANSAS............................................     0.478     0.454
CALIFORNIA..........................................     0.342     0.441
COLORADO............................................     0.436     0.559
CONNECTICUT.........................................     0.495     0.503
DELAWARE............................................     0.507     0.449
DISTRICT OF COLUMBIA................................     0.521  ........
FLORIDA.............................................     0.363     0.381
GEORGIA.............................................     0.475     0.486
HAWAII..............................................     0.409     0.554
IDAHO...............................................     0.549     0.571
ILLINOIS............................................     0.425     0.509
INDIANA.............................................     0.532     0.544
IOWA................................................     0.493     0.624
KANSAS..............................................     0.444     0.652
KENTUCKY............................................     0.478     0.493
LOUISIANA...........................................     0.410     0.496
MAINE...............................................     0.597     0.550
MARYLAND............................................     0.759     0.821
MASSACHUSETTS.......................................     0.526     0.538
MICHIGAN............................................     0.466     0.572
MINNESOTA...........................................     0.509     0.591
MISSISSIPPI.........................................     0.456     0.454
MISSOURI............................................     0.413     0.507
MONTANA.............................................     0.524     0.572
NEBRASKA............................................     0.468     0.623
NEVADA..............................................     0.292     0.486
NEW HAMPSHIRE.......................................     0.541     0.579
NEW JERSEY..........................................     0.401  ........
NEW MEXICO..........................................     0.452     0.498
NEW YORK............................................     0.529     0.611
NORTH CAROLINA......................................     0.540     0.489
NORTH DAKOTA........................................     0.622     0.661
OHIO................................................     0.511     0.578
OKLAHOMA............................................     0.423     0.509
OREGON..............................................     0.607     0.582
PENNSYLVANIA........................................     0.396     0.517
PUERTO RICO.........................................     0.479     0.579
RHODE ISLAND........................................     0.522  ........
SOUTH CAROLINA......................................     0.447     0.451
SOUTH DAKOTA........................................     0.537     0.600
TENNESSEE...........................................     0.441     0.482
TEXAS...............................................     0.404     0.503
UTAH................................................     0.504     0.619
VERMONT.............................................     0.623     0.595
VIRGINIA............................................     0.466     0.498
WASHINGTON..........................................     0.576     0.653
WEST VIRGINIA.......................................     0.575     0.532
WISCONSIN...........................................     0.551     0.621
WYOMING.............................................     0.475     0.682
------------------------------------------------------------------------


    Table 8b.--Statewide Average Capital Cost-to-Charge Ratios (Case
                          Weighted) March 2000
------------------------------------------------------------------------
                             State                                Ratio
------------------------------------------------------------------------
ALABAMA.......................................................     0.040
ALASKA........................................................     0.070
ARIZONA.......................................................     0.041
ARKANSAS......................................................     0.050
CALIFORNIA....................................................     0.036
COLORADO......................................................     0.046
CONNECTICUT...................................................     0.036
DELAWARE......................................................     0.051
DISTRICT OF COLUMBIA..........................................     0.039
FLORIDA.......................................................     0.045
GEORGIA.......................................................     0.056
HAWAII........................................................     0.043
IDAHO.........................................................     0.049
ILLINOIS......................................................     0.042
INDIANA.......................................................     0.057
IOWA..........................................................     0.056
KANSAS........................................................     0.054
KENTUCKY......................................................     0.046
LOUISIANA.....................................................     0.050
MAINE.........................................................     0.039
MARYLAND......................................................     0.013
MASSACHUSETTS.................................................     0.055
MICHIGAN......................................................     0.045
MINNESOTA.....................................................     0.049
MISSISSIPPI...................................................     0.045
MISSOURI......................................................     0.046
MONTANA.......................................................     0.055
NEBRASKA......................................................     0.054
NEVADA........................................................     0.030
NEW HAMPSHIRE.................................................     0.061
NEW JERSEY....................................................     0.036
NEW MEXICO....................................................     0.044
NEW YORK......................................................     0.051
NORTH CAROLINA................................................     0.050
NORTH DAKOTA..................................................     0.074
OHIO..........................................................     0.050
OKLAHOMA......................................................     0.048
OREGON........................................................     0.049
PENNSYLVANIA..................................................     0.040
PUERTO RICO...................................................     0.043
RHODE ISLAND..................................................     0.030
SOUTH CAROLINA................................................     0.047
SOUTH DAKOTA..................................................     0.066
TENNESSEE.....................................................     0.051
TEXAS.........................................................     0.048
UTAH..........................................................     0.049
VERMONT.......................................................     0.051
VIRGINIA......................................................     0.058
WASHINGTON....................................................     0.064
WEST VIRGINIA.................................................     0.047
WISCONSIN.....................................................     0.053
WYOMING.......................................................     0.057
------------------------------------------------------------------------


[[Page 47189]]

Appendix A--Regulatory Impact Analysis

I. Introduction

    Section 804(2) of Title 5, United States Code (as added by 
section 251 of Public Law 104-121), specifies that a major rule is 
any rule that the Office of Management and Budget finds is likely to 
result in--
     An annual effect on the economy of $100 million or 
more;
     A major increase in costs or prices for consumers 
individual industries, Federal, State or local government agencies 
or geographic regions; or
     Significant adverse effects on competition, employment, 
investment, productivity, innovation or on the ability of United 
States based enterprises to compete with foreign based enterprises 
in domestic and export markets.
    We estimate that the impact of this final rule relating to the 
annual update in payment rates and policy changes for hospital 
inpatient services and the implementation of the specified changes 
under Public Law 106-113 will be to increase payments to hospitals 
by approximately $1.5 billion in FY 2001. We estimate that the 
impact of the final changes relating to the Medicare inpatient DSH 
adjustment calculation (a finalization of the January 20, 2000 
interim final rule) to be $350 million for FY 2001. Therefore, this 
rule is a major rule as defined in Title 5, United States Code, 
section 804(2).
    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless we certify that a final rule would not have a 
significant economic impact on a substantial number of small 
entities. For purposes of the RFA, we consider all hospitals to be 
small entities.
    Also, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any rule that may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. Such an analysis must conform to the provisions of 
section 603 of the RFA. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we define a small rural hospital as a hospital with fewer than 
100 beds that is located outside of a Metropolitan Statistical Area 
(MSA) or New England County Metropolitan Area (NECMA). Section 
601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) 
designated hospitals in certain New England counties as belonging to 
the adjacent NECMA. Thus, for purposes of the hospital inpatient 
prospective payment system, we classify these hospitals as urban 
hospitals.
    It is clear that the changes in this final rule will affect both 
a substantial number of small rural hospitals as well as other 
classes of hospitals, and the effects on some may be significant. 
Therefore, the discussion below, in combination with the rest of 
this final rule, constitutes a combined regulatory impact analysis 
and regulatory flexibility analysis.
    We have reviewed this final rule under the threshold criteria of 
Executive Order 13132, Federalism, and have determined that the 
final rule will not have any negative impact on the rights, roles, 
and responsibilities of State, local, or tribal governments.
    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 final rule does not mandate 
any requirements for State, local, or tribal governments.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

II. Changes in the Final Rule

    Since we published the proposed rule, the market basket 
estimates for hospitals subject to the prospective payment system 
and hospitals and units excluded from the system have both risen by 
0.3 percentage points. With the exception of these changes, we are 
generally implementing the policy and statutory provisions discussed 
in the proposed rule.

III. Limitations of Our Analysis

    As has been the case in our previously published regulatory 
impact analyses, the following quantitative analysis presents the 
projected effects of our policy changes, as well as statutory 
changes effective for FY 2001, on various hospital groups. We 
estimate the effects of individual policy changes by estimating 
payments per case while holding all other payment policies constant. 
We use the best data available, but we do not attempt to predict 
behavioral responses to our policy changes, and we do not make 
adjustments for future changes in such variables as admissions, 
lengths of stay, or case-mix.
    We received no comments on the methodology used for the impact 
analysis in the proposed rule.

IV. Hospitals Included In and Excluded From the Prospective Payment 
System

    The prospective payment systems for hospital inpatient operating 
and capital-related costs encompass nearly all general, short-term, 
acute care hospitals that participate in the Medicare program. There 
were 45 Indian Health Service hospitals in our database, which we 
excluded from the analysis due to the special characteristics of the 
prospective payment method for these hospitals. Among other short-
term, acute care hospitals, only the 50 such hospitals in Maryland 
remain excluded from the prospective payment system under the waiver 
at section 1814(b)(3) of the Act. Thus, as of July 2000, we have 
included 4,888 hospitals in our analysis. This represents about 80 
percent of all Medicare-participating hospitals. The majority of 
this impact analysis focuses on this set of hospitals.
    The remaining 20 percent are specialty hospitals that are 
excluded from the prospective payment system and continue to be paid 
on the basis of their reasonable costs (subject to a rate-of-
increase ceiling on their inpatient operating costs per discharge). 
These hospitals include psychiatric, rehabilitation, long-term care, 
children's, and cancer hospitals. The impacts of our final policy 
changes on these hospitals are discussed below.

V. Impact on Excluded Hospitals and Units

    As of July 2000, there were 1,068 specialty hospitals excluded 
from the prospective payment system and instead paid on a reasonable 
cost basis subject to the rate-of-increase ceiling under 
Sec. 413.40. Broken down by specialty, there were 529 psychiatric, 
196 rehabilitation, 242 long-term care, 74 children's, 17 Christian 
Science Sanatoria, and 10 cancer hospitals. In addition, there were 
1,468 psychiatric units and 918 rehabilitation units in hospitals 
otherwise subject to the prospective payment system. These excluded 
units are also paid in accordance with Sec. 413.40. Under 
Sec. 413.40(a)(2)(i)(A), the rate-of-increase ceiling is not 
applicable to the 36 specialty hospitals and units in Maryland that 
are paid in accordance with the waiver at section 1814(b)(3) of the 
Act.
    As required by section 1886(b)(3)(B) of the Act, the update 
factor applicable to the rate-of-increase limit for excluded 
hospitals and units for FY 2001 will be between 0 and 3.4 percent, 
depending on the hospital's or unit's costs in relation to its limit 
for the most recent cost reporting period for which information is 
available.
    The impact on excluded hospitals and units of the update in the 
rate-of-increase limit depends on the cumulative cost increases 
experienced by each excluded hospital or unit since its applicable 
base period. For excluded hospitals and units that have maintained 
their cost increases at a level below the percentage increases in 
the rate-of-increase limits since their base period, the major 
effect will be on the level of incentive payments these hospitals 
and units receive. Conversely, for excluded hospitals and units with 
per-case cost increases above the cumulative update in their rate-
of-increase limits, the major effect will be the amount of excess 
costs that would not be reimbursed.
    We note that, under Sec. 413.40(d)(3), an excluded hospital or 
unit whose costs exceed 110 percent of its rate-of-increase limit 
receives its rate-of-increase limit plus 50 percent of the 
difference between its reasonable costs and 110 percent of the 
limit, not to exceed 110 percent of its limit. In addition, under 
the various provisions set forth in Sec. 413.40, certain excluded 
hospitals and units can obtain payment adjustments for justifiable 
increases in operating costs that exceed the limit. At the same 
time, however, by generally limiting payment increases, we continue 
to provide an incentive for excluded hospitals and units to restrain 
the growth in their spending for patient services.

VI. Graduate Medical Education Impact of National Average Per Resident 
Amount (PRA)

    As discussed in section IV.G. of the preamble, this final rule 
implements statutory provisions enacted by section 311 of Public Law 
106-113 that establish a methodology for the use of a national 
average PRA in computing direct graduate medical education (GME) 
payments for cost reporting

[[Page 47190]]

periods beginning on or after October 1, 2000 and on or before 
September 30, 2005. The methodology establishes a ``floor'' and 
``ceiling'' based on a locality-adjusted, updated national average 
PRA. Under section 1886(h)(2)(D)(iii) of the Act, as added by 
section 311(a) of Public Law 106-113, the PRA for a hospital for the 
cost reporting period beginning during FY 2001 cannot be below 70 
percent of the locality-adjusted, updated national average PRA. 
Thus, if a hospital's PRA for the cost reporting period beginning 
during FY 2001 would otherwise be below the floor, the hospital's 
PRA for that cost reporting period is equal to 70 percent of the 
locality-adjusted, national average PRA. Under section 
1886(h)(2)(D)(iv) of the Act, as added by section 311(a) of Public 
Law 106-113, if a hospital's PRA exceeds 140 percent of the 
locality-adjusted, updated national average PRA, the hospital's PRA 
is frozen (for FYs 2001 and 2002) or subject to a 2-percent 
reduction to the otherwise applicable update (for FYs 2003 through 
2005). See section IV.G. of the preamble for a fuller explanation of 
this policy.
    For purposes of the final rule, we have calculated an estimated 
impact of this policy on teaching hospitals' PRAs for FY 2001 making 
assumptions about update factors and geographic adjustment factors 
(GAF) for each hospital. Generally, utilizing FY 1997 data, we 
calculated a floor and a ceiling and estimated the impact on 
hospitals. This impact was then inflated to FY 2001 to estimate the 
total impact on the Medicare program for FY 2001. The estimated 
numbers for this impact should not be used by hospitals in 
calculating their own individual PRAs; hospitals must use the 
methodology stated in section IV.G. of this final rule to revise (if 
appropriate) their individual PRAs.
    In calculating this impact, we utilized Medicare cost report 
data for all cost reports ending in FY 1997. We excluded hospitals 
that file manual cost reports because we did not have access to 
their Medicare utilization data. We also excluded all teaching 
hospitals in Maryland because these hospitals are paid under a 
Medicare waiver. For those hospitals that had two cost reporting 
periods ending in FY 1997, we used the later of the two periods. A 
total of 1,231 teaching hospitals were included in this analysis.
    The impact in this final rule differs slightly from the impact 
in the proposed rule because we have determined a different weighted 
average PRA for this final rule, and we used the most recent CPI-U 
update factors to determine the impact for FY 2001. An explanation 
of why the weighted average PRA has changed for this final rule may 
be found in section IV.G.2 of this preamble.
    Utilizing the FY 1997 weighted average PRA of $68,464, we 
calculated a FY 1997 70-percent floor of $47,925 and a FY 1997 140-
percent ceiling of $95,850. We then estimated that, for cost 
reporting periods ending in FY 1997, 336 hospitals had PRAs that 
were below $47,925 (27.3 percent of 1,231 hospitals), and 180 
hospitals had PRAs above $95,850 (14.6 percent of 1,231 hospitals). 
Thus, for example, to illustrate the extremes in impact for a 
hospital with PRAs below the floor, Hospital A had a FY 1997 primary 
care PRA of $22,000 and a non-primary care PRA of $20,000. When 
these PRAs are replaced by a single PRA of $47,925, the hospital 
gains approximately 110 percent in payments per resident. For a 
hospital with PRAs above the ceiling, Hospital B had a FY 1997 
primary care PRA of $150,000 and a non-primary care PRA of $148,000. 
When these PRAs are frozen and not updated for inflation in FY 2001, 
the percentage loss in payments per resident that year would be 
equal to the CPI-U percentage that would otherwise have been used to 
update the PRA.
    For the 336 hospitals that had PRAs below the FY 1997 $47,925 
floor, we estimated that the total cost to the Medicare program for 
FY 2001 of applying the floor would be $33.2 million. For the 180 
hospitals that had PRAs above the FY 1997 $95,850 ceiling, we 
estimated that the total savings to the Medicare program for FY 2001 
would be $16 million. Subtracting the estimated savings of $16 
million from the estimated costs of $33.2 million yields an 
estimated total net cost to the Medicare program for FY 2001 of 
$17.2 million.

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

A. Basis and Methodology of Estimates

    In this final rule, we are announcing policy changes and payment 
rate updates for the prospective payment systems for operating and 
capital-related costs. We have prepared separate impact analyses of 
the changes to each system. This section deals with changes to the 
operating prospective payment system.
    The data used in developing the quantitative analyses presented 
below are taken from the FY 1999 MedPAR file and the most current 
provider-specific file that is used for payment purposes. Although 
the analyses of the changes to the operating prospective payment 
system do not incorporate cost data, the most recently available 
hospital cost report data were used to categorize hospitals. Our 
analysis has several qualifications. First, we do not make 
adjustments for behavioral changes that hospitals may adopt in 
response to these policy changes. Second, due to the interdependent 
nature of the prospective payment system, it is very difficult to 
precisely quantify the impact associated with each change. Third, we 
draw upon various sources for the data used to categorize hospitals 
in the tables. In some cases, particularly the number of beds, there 
is a fair degree of variation in the data from different sources. We 
have attempted to construct these variables with the best available 
source overall. For individual hospitals, however, some 
miscategorizations are possible.
    Using cases in the FY 1999 MedPAR file, we simulated payments 
under the operating prospective payment system given various 
combinations of payment parameters. Any short-term, acute care 
hospitals not paid under the general prospective payment systems 
(Indian Health Service hospitals and hospitals in Maryland) are 
excluded from the simulations. Payments under the capital 
prospective payment system, or payments for costs other than 
inpatient operating costs, are not analyzed here. Estimated payment 
impacts of FY 2001 changes to the capital prospective payment system 
are discussed in section IX of this Appendix.
    The final changes discussed separately below are the following:
     The effects of the annual reclassification of diagnoses 
and procedures and the recalibration of the diagnosis-related group 
(DRG) relative weights required by section 1886(d)(4)(C) of the Act.
     The effects of changes in hospitals' wage index values 
reflecting the wage index update (FY 1997 data).
     The effects of removing from the wage index the costs 
and hours associated with teaching physicians paid under Medicare 
Part A, residents, and certified registered nurse anesthetists 
(CRNAs) during the second year of a 5-year phase-out, by calculating 
a wage index based on 40 percent of hospitals' average hourly wages 
after removing these costs and hours, and 60 percent of hospitals' 
average hourly wages with these costs included.
     The effects of geographic reclassifications by the 
Medicare Geographic Classification Review Board (MGCRB) that will be 
effective in FY 2001.
     The total change in payments based on FY 2001 policies 
relative to payments based on FY 2000 policies.
    To illustrate the impacts of the FY 2001 final changes, our 
analysis begins with a FY 2000 baseline simulation model using: the 
FY 2000 DRG GROUPER (version 17.0); the FY 2000 wage index; and no 
MGCRB reclassifications. Outlier payments are set at 5.1 percent of 
total DRG plus outlier payments.
    Each final and statutory policy change is then added 
incrementally to this baseline model, finally arriving at an FY 2001 
model incorporating all of the changes. This allows us to isolate 
the effects of each change.
    Our final comparison illustrates the percent change in payments 
per case from FY 2000 to FY 2001. Five factors have significant 
impacts here. The first is the update to the standardized amounts. 
In accordance with section 1886(d)(3)(A)(iv) of the Act, we are 
updating the large urban and the other areas average standardized 
amounts for FY 2001 using the most recently forecasted hospital 
market basket increase for FY 2001 of 3.4 percent minus 1.1 
percentage points (for an update of 2.3 percent).
    Under section 1886(b)(3) of the Act, as amended by section 406 
of Public Law 106-113, the updates to the average standardized 
amounts and the hospital-specific amounts for sole community 
hospitals (SCHs) will be equal to the full market basket increase 
for FY 2001. Consequently, the update factor used for SCHs in this 
impact analysis is 3.4 percent. Under section 1886(b)(3)(D) of the 
Act, the update factor for the hospital-specific amounts for MDHs is 
equal to the market basket increase of 3.4 percent minus 1.1 
percentage points (for an update of 2.3 percent).
    A second significant factor that impacts changes in hospitals' 
payments per case from FY 2000 to FY 2001 is a change in MGCRB 
reclassification status from one year to the next. That is, 
hospitals reclassified in FY 2000 that are no longer reclassified in 
FY

[[Page 47191]]

2001 may have a negative payment impact going from FY 2000 to FY 
2001; conversely, hospitals not reclassified in FY 2000 that are 
reclassified in FY 2001 may have a positive impact. In some cases, 
these impacts can be quite substantial, so if a relatively small 
number of hospitals in a particular category lose their 
reclassification status, the percentage change in payments for the 
category may be below the national mean.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2000 will be 6.2 percent of actual 
total DRG payments. When the FY 2000 final rule was published, we 
projected FY 2000 outlier payments would be 5.1 percent of total DRG 
payments; the standardized amounts were offset correspondingly. The 
effects of the higher than expected outlier payments during FY 2000 
(as discussed in the Addendum to this final rule) are reflected in 
the analyses below comparing our current estimates of FY 2000 
payments per case to estimated FY 2001 payments per case.
    Fourth, section 111 of Public Law 106-113 revised section 
1886(d)(5)(B)(ii) of the Act so that the IME adjustment changes from 
FY 2000 to FY 2001 from approximately a 6.5 percent increase for 
every 10 percent increase in a hospital's resident-to-bed ratio 
during FY 2000 to approximately a 6.2 percent increase in FY 2001. 
Similarly, section 112 of Public Law 106-113 revised section 
1886(d)(5)(F)(ix) of the Act so that the DSH adjustment for FY 2001 
is reduced by 3 percent from what would otherwise have been paid 
(this is the same percentage reduction that was applied in FY 2000). 
Additionally, the January 20, 2000 interim final rule with comment 
revised policy, effective with discharges occurring on or after 
January 20, 2000, to allow hospitals to include the patient days of 
all populations eligible for Title XIX matching payments in a 
State's section 1115 waiver in calculating the hospital's Medicare 
DSH adjustment.
    Finally, section 405 of Public Law 106-113 provided that certain 
SCHs may elect to receive payment on the basis of their costs per 
case during their cost reporting period that began during FY 1996. 
To be eligible, a SCH must have received payment on the basis of its 
hospital-specific rate for its cost reporting period beginning 
during 1999. For FY 2001, eligible SCHs that elect rebasing receive 
a hospital-specific rate comprised of 75-percent of the higher of 
their FY 1982 or FY 1987 hospital-specific rate, and 25-percent of 
their FY 1996 hospital-specific rate.
    Table I demonstrates the results of our analysis. The table 
categorizes hospitals by various geographic and special payment 
consideration groups to illustrate the varying impacts on different 
types of hospitals. The top row of the table shows the overall 
impact on the 4,888 hospitals included in the analysis. This number 
is 34 fewer hospitals than were included in the impact analysis in 
the FY 2000 final rule (64 FR 41624).
    The next four rows of Table I contain hospitals categorized 
according to their geographic location (all urban, which is further 
divided into large urban and other urban, or rural). There are 2,752 
hospitals located in urban areas (MSAs or NECMAs) included in our 
analysis. Among these, there are 1,571 hospitals located in large 
urban areas (populations over 1 million), and 1,181 hospitals in 
other urban areas (populations of 1 million or fewer). In addition, 
there are 2,136 hospitals in rural areas. The next two groupings are 
by bed-size categories, shown separately for urban and rural 
hospitals. The final groupings by geographic location are by census 
divisions, also shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2001 payment classifications, including any 
reclassifications under section 1886(d)(10) of the Act. For example, 
the rows labeled urban, large urban, other urban, and rural show 
that the number of hospitals paid based on these categorizations 
(after consideration of geographic reclassifications) are 2,833, 
1,665, 1,168, and 2,055, respectively.
    The next three groupings examine the impacts of the final 
changes on hospitals grouped by whether or not they have residency 
programs (teaching hospitals that receive an IME adjustment) or 
receive DSH payments, or some combination of these two adjustments. 
There are 3,770 nonteaching hospitals in our analysis, 876 teaching 
hospitals with fewer than 100 residents, and 242 teaching hospitals 
with 100 or more residents.
    In the DSH categories, hospitals are grouped according to their 
DSH payment status, and whether they are considered urban or rural 
after MGCRB reclassifications. Hospitals in the rural DSH 
categories, therefore, represent hospitals that were not 
reclassified for purposes of the standardized amount or for purposes 
of the DSH adjustment. (They may, however, have been reclassified 
for purposes of the wage index.) The next category groups hospitals 
considered urban after geographic reclassification, in terms of 
whether they receive the IME adjustment, the DSH adjustment, both, 
or neither.
    The next five rows examine the impacts of the final changes on 
rural hospitals by special payment groups (SCHs, rural referral 
centers (RRCs), and MDHs), as well as rural hospitals not receiving 
a special payment designation. The RRCs (150), SCHs (661), MDHs 
(352), and SCH and RRCs (57) shown here were not reclassified for 
purposes of the standardized amount. There are 26 RRCs, 1 MDH, 4 
SCHs and 3 SCH and RRCs that will be reclassified as urban for the 
standardized amount in FY 2001 and, therefore, are not included in 
these rows.
    The next two groupings are based on type of ownership and the 
hospital's Medicare utilization expressed as a percent of total 
patient days. These data are taken primarily from the FY 1998 
Medicare cost report files, if available (otherwise FY 1997 data are 
used). Data needed to determine ownership status or Medicare 
utilization percentages were unavailable for 2 and 85 hospitals, 
respectively. For the most part, these are new hospitals.
    The next series of groupings concern the geographic 
reclassification status of hospitals. The first three groupings 
display hospitals that were reclassified by the MGCRB for both FY 
2000 and FY 2001, or for only one of those 2 years, by urban and 
rural status. The next rows illustrate the overall number of FY 2001 
reclassifications, as well as the numbers of reclassified hospitals 
grouped by urban and rural location. The final row in Table I 
contains hospitals located in rural counties but deemed to be urban 
under section 1886(d)(8)(B) of the Act.

                                  Table I.--Impact Analysis of Changes for FY 2001 Operating Prospective Payment System
                                                         [Percent changes in payments per case)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Phase out
                                                             Number of      DRG       New wage   of GME and  DRG and WI         MGCRB           All FY
                                                             hosps.\1\  recalib.\2\   data \3\   CRNA costs    changes     reclassification      2001
                                                                                                     \4\         \5\             \6\            changes
                                                                   (0)          (1)         (2)         (3)         (4)              (5)             (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(BY GEOGRAPHIC LOCATION):
    ALL HOSPITALS.........................................       4,888          0.0         0.2         0.1         0.0              0.0             1.5
    URBAN HOSPITALS.......................................       2,752          0.0         0.1         0.0        -0.1             -0.4             1.4
    LARGE URBAN AREAS.....................................       1,571          0.0         0.1         0.0        -0.1             -0.5             1.3
    OTHER URBAN AREAS.....................................       1,181          0.0         0.1         0.1         0.0             -0.3             1.5
    RURAL HOSPITALS.......................................       2,136          0.2         0.6         0.1         0.6              2.5             2.5
BED SIZE (URBAN):
    0-99 BEDS.............................................         716          0.2         0.1         0.1         0.3             -0.6             1.6
    100-199 BEDS..........................................         944          0.1         0.1         0.1         0.1             -0.5             1.5
    200-299 BEDS..........................................         548          0.1         0.1         0.1        -0.1             -0.4             1.3
    300-499 BEDS..........................................         401          0.0         0.0         0.1        -0.2             -0.4             1.1

[[Page 47192]]

 
    500 OR MORE BEDS......................................         143         -0.1         0.4         0.0         0.0             -0.4             1.6
BED SIZE (RURAL):
    0-49 BEDS.............................................       1,233          0.2         0.6         0.1         0.6              0.2             3.1
    50-99 BEDS............................................         535          0.2         0.6         0.1         0.6              0.8             2.6
    100-149 BEDS..........................................         219          0.2         0.6         0.1         0.6              3.4             2.1
    150-199 BEDS..........................................          81          0.2         0.7         0.1         0.6              5.2             2.6
    200 OR MORE BEDS......................................          68          0.1         0.6         0.1         0.5              4.5             2.2
URBAN BY CENSUS DIVISION:
    NEW ENGLAND...........................................         146          0.0        -0.9         0.1        -0.3             -0.2             0.9
    MIDDLE ATLANTIC.......................................         421          0.1         0.1        -0.1        -0.2             -0.3             1.2
    SOUTH ATLANTIC........................................         404          0.0         0.0         0.1        -0.2             -0.6             1.1
    EAST NORTH CENTRAL....................................         463          0.0         0.5         0.0         0.2             -0.3             2.0
    EAST SOUTH CENTRAL....................................         161          0.0        -0.1         0.0        -0.5             -0.6             0.8
    WEST NORTH CENTRAL....................................         188         -0.1         0.3         0.0        -0.1             -0.6             1.4
    WEST SOUTH CENTRAL....................................         351          0.0         1.3         0.1         1.0             -0.6             2.3
    MOUNTAIN..............................................         133          0.0         0.3         0.1         0.0             -0.5             1.6
    PACIFIC...............................................         440          0.0        -0.5         0.2        -0.6             -0.5             0.7
    PUERTO RICO...........................................          45          0.1        -0.1         0.0        -0.1             -0.6             1.7
RURAL BY CENSUS DIVISION:
    NEW ENGLAND...........................................          52          0.1        -0.1         0.0        -0.3              2.8             2.2
    MIDDLE ATLANTIC.......................................          80          0.2        -0.1         0.0        -0.2              2.5             2.2
    SOUTH ATLANTIC........................................         277          0.2         1.0         0.1         1.0              2.9             2.8
    EAST NORTH CENTRAL....................................         283          0.2         0.6         0.1         0.5              2.2             2.6
    EAST SOUTH CENTRAL....................................         266          0.2         0.6         0.1         0.5              2.8             2.6
    WEST NORTH CENTRAL....................................         492          0.1         0.5         0.1         0.4              2.3             2.5
    WEST SOUTH CENTRAL....................................         340          0.2         1.0         0.1         1.0              3.0             2.1
    MOUNTAIN..............................................         201          0.2         0.4         0.1         0.3              1.6             2.7
    PACIFIC...............................................         140          0.2         0.3         0.1         0.3              1.9             2.3
    PUERTO RICO...........................................           5          0.2         0.3        -0.2         0.1             -0.7             0.2
(BY PAYMENT CATEGORIES):
    URBAN HOSPITALS.......................................       2,833          0.0         0.1         0.0        -0.1             -0.4             1.4
    LARGE URBAN...........................................       1,665          0.0         0.1         0.0        -0.1             -0.3             1.4
    OTHER URBAN...........................................       1,168          0.0         0.2         0.1         0.0             -0.4             1.3
    RURAL HOSPITALS.......................................       2,055          0.2         0.6         0.1         0.6              2.2             2.6
TEACHING STATUS:
    NON-TEACHING..........................................       3,770          0.1         0.2         0.1         0.2              0.3             1.6
    FEWER THAN 100 RESIDENTS..............................         876          0.0         0.2         0.0        -0.1             -0.3             1.4
    100 OR MORE RESIDENTS.................................         242         -0.1         0.2         0.0        -0.2             -0.3             1.6
DISPROPORTIONATE SHARE HOSPITALS (DSH):
    NON-DSH...............................................       3,070          0.1         0.1         0.1        -0.1              0.3             1.5
    URBAN DSH
        100 BEDS OR MORE..................................       1,390          0.0         0.2         0.0         0.0             -0.4             1.5
        FEWER THAN 100 BEDS...............................          72          0.1         0.4         0.1         0.4             -0.5             1.9
    RURAL DSH
    SOLE COMMUNITY (SCH)..................................         149          0.3         0.9         0.1         0.9              0.2             3.6
    REFERRAL CENTERS (RRC)................................          56          0.2         0.8         0.1         0.8              5.2             2.4
    OTHER RURAL DSH HOSPITALS
        100 BEDS OR MORE..................................          48          0.3         1.1         0.1         1.1              1.4             2.9
    FEWER THAN 100 BEDS...................................         103          0.3         0.9         0.1         1.0              0.3             2.3
URBAN TEACHING AND DSH:
    BOTH TEACHING AND DSH.................................         726          0.0         0.2         0.0         0.0             -0.5             1.6
    TEACHING AND NO DSH...................................         327          0.0         0.0         0.0        -0.4             -0.2             1.2
    NO TEACHING AND DSH...................................         736          0.1         0.2         0.1         0.2             -0.3             1.3
    NO TEACHING AND NO DSH................................       1,044          0.1         0.0         0.1        -0.1             -0.3             1.0
RURAL HOSPITAL TYPES:
    NONSPECIAL STATUS HOSPITALS...........................         835          0.2         0.9         0.1         0.9              1.0             2.4
    RRC...................................................         150          0.2         0.8         0.1         0.7              6.1             2.4
    SCH...................................................         661          0.2         0.4         0.1         0.3              0.2             3.3
    MDH...................................................         352          0.2         0.7         0.1         0.6              0.3             2.7
    SCH AND RRC...........................................          57          0.1         0.3         0.0         0.1              1.6             2.2
TYPE OF OWNERSHIP:
    VOLUNTARY.............................................       2,840          0.0         0.2         0.0         0.0             -0.1             1.5
    PROPRIETARY...........................................         745          0.1         0.2         0.1         0.1             -0.1             1.3
    GOVERNMENT............................................       1,301          0.1         0.2         0.1         0.0              0.2             1.8
    UNKNOWN...............................................           2          0.0         0.5         0.1         0.3             -0.4             2.7

[[Page 47193]]

 
MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:
    0--25.................................................         381          0.0         0.2         0.1  ..........             -0.3             1.8
    25--50................................................       1,830          0.0         0.1         0.0        -0.1             -0.3             1.4
    50--65................................................       1,893          0.1         0.3         0.1         0.2              0.2             1.6
    OVER 65...............................................         699          0.1         0.2         0.1         0.1              0.3             1.4
    UNKNOWN...............................................          85         -0.1         0.5        -0.1         0.1             -0.6             1.2
HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW
 BOARD:
RECLASSIFICATION STATUS DURING FY 2000 AND FY 2001
    RECLASSIFIED DURING BOTH FY 2000 AND FY 2001..........         377          0.1         0.4         0.1         0.4              6.0             1.8
    URBAN.................................................          53          0.0        -0.1         0.1         0.1              5.8             1.7
    RURAL.................................................         324          0.1         0.6         0.1         0.5              6.2             1.9
    RECLASSIFIED DURING FY 2001 ONLY......................         149          0.1         0.4         0.1         0.3              4.8             7.1
    URBAN.................................................          35          0.1         0.1         0.1        -0.1              4.7             6.6
    RURAL.................................................         114          0.2         0.8         0.1         0.7              4.9             7.6
    RECLASSIFIED DURING FY 2000 ONLY......................         172          0.1         0.5         0.1         0.3             -0.9            -1.7
    URBAN.................................................          70          0.0         0.4         0.1         0.1             -1.1            -0.8
    RURAL.................................................         102          0.2         0.7         0.1         0.7             -0.5            -3.1
FY 2000 RECLASSIFICATIONS:
    ALL RECLASSIFIED HOSPITALS............................         527          0.1         0.4         0.1         0.4              5.8             3.0
    STANDARDIZED AMOUNT ONLY..............................          66          0.2         0.6         0.1         0.6              4.1             4.1
    WAGE INDEX ONLY.......................................         386          0.1         0.5         0.1         0.4              4.8             0.6
    BOTH..................................................          46          0.2         0.1         0.1         0.0              4.3             2.6
    NONRECLASSIFIED.......................................       4,364          0.0         0.2         0.0         0.0             -0.5             1.6
    ALL URBAN RECLASSIFIED................................          88          0.0         0.0         0.1         0.1              5.4             3.2
    STANDARDIZED AMOUNT ONLY..............................          17          0.2         0.0         0.0        -0.1              0.7             0.9
    WAGE INDEX ONLY.......................................          38          0.0        -0.1         0.1         0.2              5.8             2.5
    BOTH..................................................          33          0.0         0.1         0.1        -0.1              6.2             5.1
    NONRECLASSIFIED.......................................       2,638          0.0         0.1         0.0        -0.1             -0.7             1.3
    ALL RURAL RECLASSIFIED................................         439          0.1         0.6         0.1         0.5              5.9             2.9
    STANDARDIZED AMOUNT ONLY..............................          54          0.1         0.6         0.1         0.5              4.2            -0.1
    WAGE INDEX ONLY.......................................         358          0.2         0.6         0.1         0.6              5.8             3.2
    BOTH..................................................          27          0.1         0.3         0.1         0.1              9.4             2.9
    NONRECLASSIFIED.......................................       1,697          0.2         0.6         0.1         0.6             -0.5             2.2
    OTHER RECLASSIFIED HOSPITALS (SECTION 1886(d)(8)(B))..          26          0.2        -0.4         0.0        -0.4              1.0            1.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the
  national total. Discharge data are from FY 1999, and hospital cost report data are from reporting periods beginning in FY 1997 and FY 1998.
\2\ This column displays the payment impact of the recalibration of the DRG weights based on FY 1999 MedPAR data and the DRG reclassification changes,
  in accordance with section 1886(d)(4)(C) of the Act.
\3\ This column shows the payment effects of updating the data used to calculate the wage index with data from the FY 1997 cost reports.
\4\ This column displays the impact of removing 60 percent of the costs and hours associated with teaching physicians Part A, residents, and CRNAs from
  the wage index calculation.
\5\ This column displays the combined impact of the reclassification and recalibration of the DRGs, the updated and revised wage data used to calculate
  the wage index, and the budget neutrality adjustment factor for these two changes, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of
  the Act. Thus, it represents the combined impacts shown in columns 1, 2 and 3, and the FY 2001 budget neutrality factor of .997225.
\6\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate
  the FY 2001 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2001. Reclassification for
  prior years has no bearing on the payment impacts shown here.
\7\ This column shows changes in payments from FY 2000 to FY 2001. It incorporates all of the changes displayed in columns 4 and 5 (the changes
  displayed in columns 1, 2, and 3 are included in column 4). It also displays the impact of the FY 2001 update (including the higher update for SCHs),
  changes in hospitals' reclassification status in FY 2001 compared to FY 2000, the difference in outlier payments from FY 2000 to FY 2001, and the
  reductions to payments through the IME adjustment taking effect during FY 2001. It also reflects section 405 of Public law 106-113, which permitted
  certain SCHs to rebase for a 1996 hospital-specific rate. The sum of these columns may be different from the percentage changes shown here due to
  rounding and interactive effects.

B. Impact of the Changes to the DRG Reclassifications and 
Recalibration of Relative Weights (Column 1)

    In column 1 of Table I, we present the combined effects of the 
DRG reclassifications and recalibration, as discussed in section II 
of the preamble to this final rule. Section 1886(d)(4)(C)(i) of the 
Act requires us to annually make appropriate classification changes 
and to recalibrate the DRG weights in order to reflect changes in 
treatment patterns, technology, and any other factors that may 
change the relative use of hospital resources.
    We compared aggregate payments using the FY 2000 DRG relative 
weights (GROUPER version 17) to aggregate payments using the

[[Page 47194]]

FY 2001 DRG relative weights (GROUPER version 18). Overall payments 
are unaffected by the DRG reclassification and recalibration. 
Consistent with the minor changes we made in the FY 2001 GROUPER, 
the redistributional impacts of DRG reclassifications and 
recalibration across hospital groups are very small (a 0.0 percent 
impact for large and other urban hospitals; a 0.2 percent increase 
for rural hospitals). Within hospital categories, the net effects 
for urban hospitals are small positive changes for small hospitals 
(a 0.2 percent increase for hospitals with fewer than 100 beds), and 
small decreases for larger hospitals (a 0.1 percent decrease for 
hospitals with more than 500 beds). Among rural hospitals, most 
hospital categories experienced small positive changes, 0.2 percent 
increases for hospitals with fewer than 200 beds and 0.1 percent 
increases for hospitals with more than 200 beds.
    The breakdown by urban census division shows that the small 
decrease among urban hospitals is confined to the West North Central 
region. Payments to urban hospitals in most other regions are 
unchanged, while payments to urban hospitals in the Middle Atlantic 
and Puerto Rico regions rise by 0.1 percent. All rural hospital 
census divisions experience payment increases ranging from 0.1 
percent for hospitals in New England and West North Central regions 
to 0.2 percent for hospitals in the South Atlantic, Middle Atlantic, 
East North Central, East South Central, West South Central, Pacific, 
Mountain, and Puerto Rico regions.

C. Impact of Updating the Wage Data (Column 2)

    Section 1886(d)(3)(E) of the Act requires that, beginning 
October 1, 1993, we annually update the wage data used to calculate 
the wage index. In accordance with this requirement, the wage index 
for FY 2001 is based on data submitted for hospital cost reporting 
periods beginning on or after October 1, 1996 and before October 1, 
1997. As with the previous column, the impact of the new data on 
hospital payments is isolated by holding the other payment 
parameters constant in the two simulations. That is, column 2 shows 
the percentage changes in payments when going from a model using the 
FY 2000 wage index (based on FY 1996 wage data before geographic 
reclassifications to a model using the FY 2001 prereclassification 
wage index based on FY 1997 wage data). Section 152 of Public Law 
106-113 reclassified certain hospitals for purposes of the wage 
index and the standardized amounts. For purposes of this column, 
these hospitals are located in their prereclassification geographic 
location. The impacts of these statutory reclassifications are shown 
in column 5, when examining the impacts of geographic 
reclassification.
    The wage data collected on the FY 1997 cost reports are similar 
to the data used in the calculation of the FY 2000 wage index. For a 
thorough discussion of the data used to calculate the wage index, 
see section III.B. of this final rule.
    The results indicate that the new wage data have an overall 
impact of a 0.2 percent increase in hospital payments (prior to 
applying the budget neutrality factor, see column 5). Rural 
hospitals appear to benefit from the update as their payments 
increase by 0.6 percent. These increases are attributable to 
positive increases in the wage index values for the rural areas of 
several States; California, Illinois, Indiana, Ohio, Texas and 
Minnesota all had increases of approximately 3 percent in their 
prereclassification wage index values.
    Urban hospitals as a group are not significantly affected by the 
updated wage data. Hospitals in both other urban areas and large 
urban areas experienced a small positive increase (0.1 percent). 
Urban hospitals in New England experienced a 0.9 percent decrease 
from the updated wage data due to declines ranging from 5 to 1 
percent in the wage index values for several MSAs in Connecticut and 
Massachusetts. Urban hospitals in the Pacific census region 
experience a 0.5 percent decline due to several MSAs in California 
with prereclassified FY 2001 wage indexes that fall by 5 percent or 
less.
    The largest increases are seen in the rural census divisions. 
Rural South Atlantic and West South Central regions experience the 
greatest positive impact, 1.0 percent. Hospitals in five other 
census divisions receive positive impacts of 0.5 or greater: East 
North Central at 0.6, East South Central at 0.6, and West North 
Central at 0.5. The following chart compares the shifts in wage 
index values for labor market areas for FY 2000 relative to FY 2001. 
This chart demonstrates the impact of the changes for the FY 2001 
wage index relative to the FY 2000 wage index. The majority of labor 
market areas (339) experience less than a 5 percent change. A total 
of 21 labor market areas experience an increase of more than 5 
percent with only 1 having an increase greater than 10 percent. A 
total of 15 areas experience decreases of more than 5 percent. Of 
those, only 1 decline by 10 percent or more.

------------------------------------------------------------------------
                                                 Number of labor market
                                                          areas
 Percentage change in area wage index  values  -------------------------
                                                  FY 2000      FY 2001
------------------------------------------------------------------------
Increase more than 10 percent.................            8            1
Increase more than 5 percent and less than 10            22           20
 percent......................................
Increase or decrease less than 5 percent......          318          339
Decrease more than 5 percent and less than 10            17           14
 percent......................................
Decrease more than 10 percent.................            5            1
------------------------------------------------------------------------

    Among urban hospitals, 96 would experience an increase of 
between 5 and 10 percent and 2 more than 10 percent. No rural 
hospitals have increases greater than 5 percent. On the negative 
side, 106 urban hospitals have decreases in their wage index values 
of at least 5 percent but less than 10 percent. One urban hospital 
has a decrease in their wage index value that is greater than 10 
percent. Two rural hospitals have decreases in their wage index 
values that are greater than 5 percent but less than 10 percent. The 
following chart shows the projected impact for urban and rural 
hospitals.

------------------------------------------------------------------------
                                                   Number of hospitals
  Percentage change in area wage index values  -------------------------
                                                   Urban        Rural
------------------------------------------------------------------------
Increase more than 10 percent.................            2            0
Increase more than 5 percent and less than 10            96            0
 percent......................................
Increase or decrease less than 5 percent......         2547         2134
Decrease more than 5 percent and less than 10           106            2
 percent......................................
Decrease more than 10 percent.................            1            0
------------------------------------------------------------------------

D. Impact of 5-Year Phase-Out of Teaching Physicians', Residents', 
and CRNAs' Costs (Column 3)

    As described in section III.C. of this preamble, the FY 2001 
wage index is calculated by blending 60 percent of hospitals' 
average hourly wages calculated without removing teaching physician 
(paid under Medicare Part A), residents, or CRNA costs (and hours) 
and 40 percent of average hourly wages calculated after removing 
these costs (and hours). This constitutes the second year of a 5-
year phase-out of these costs and hours, where the proportion of the 
calculation based upon average hourly wages after removing these 
costs increases by 20 percentage points per year.
    In order to determine the impact of moving from the 80/20 blend 
percentage to the 60/40 blend percentage, we first estimated the 
payments for FY 2001 using the FY 2001 prereclassified wage index 
calculated using the 80/20 blend percentage (Column 2). We then 
estimated what the payments for FY 2001 would have been if the 60/40 
blend percentage was applied to the FY 2001 prereclassified wage 
index. Column 3 compares the differences in these payment estimates 
and shows that the 60/40 blend percentage does not significantly 
impact overall payments (0.0 percent change). Although there were 
165 labor market areas that experience a small percent decrease in 
their wage index, most of the decreases were less than 3 percent.

E. Combined Impact of DRG and Wage Index Changes-- Including Budget 
Neutrality Adjustment (Column 4)

    The impact of DRG reclassifications and recalibration on 
aggregate payments is required by section 1886(d)(4)(C)(iii) of the 
Act to be budget neutral. In addition, section

[[Page 47195]]

1886(d)(3)(E) of the Act specifies that any updates or adjustments 
to the wage index are to be budget neutral. As noted in the Addendum 
to this final rule, we compared simulated aggregate payments using 
the FY 2000 DRG relative weights and wage index to simulated 
aggregate payments using the FY 2001 DRG relative weights and 
blended wage index. Based on this comparison, we computed a wage and 
recalibration budget neutrality factor of 0.997225. In Table I, the 
combined overall impacts of the effects of both the DRG 
reclassifications and recalibration and the updated wage index are 
shown in column 4. The 0.0 percent impact for all hospitals 
demonstrates that these changes, in combination with the budget 
neutrality factor, are budget neutral.
    For the most part, the changes in this column are the sum of the 
changes in columns 1, 2, and 3, minus approximately 0.3 percent 
attributable to the budget neutrality factor. There may be some 
variation of plus or minus 0.1 percent due to rounding.

F. Impact of MGCRB Reclassifications (Column 5)

    Our impact analysis to this point has assumed hospitals are paid 
on the basis of their actual geographic location (with the exception 
of ongoing policies that provide that certain hospitals receive 
payments on bases other than where they are geographically located, 
such as hospitals in rural counties that are deemed urban under 
section 1886(d)(8)(B) of the Act). The changes in column 5 reflect 
the per case payment impact of moving from this baseline to a 
simulation incorporating the MGCRB decisions for FY 2001. As noted 
below, these decisions affect hospitals' standardized amount and 
wage index area assignments.
    Beginning in 1998, by February 28 of each year, the MGCRB makes 
reclassification determinations that will be effective for the next 
fiscal year, which begins on October 1. The MGCRB may approve a 
hospital's reclassification request for the purpose of using the 
other area's standardized amount, wage index value, or both, or for 
FYs 1999 through 2001, for purposes of qualifying for a DSH 
adjustment or to receive a higher DSH payment.
    The FY 2001 wage index values incorporate all of the MGCRB's 
reclassification decisions for FY 2001. The wage index values also 
reflect any decisions made by the HCFA Administrator through the 
appeals and review process. Additional changes that resulted from 
the Administrator's review of MGCRB decisions or a request by a 
hospital to withdraw its application are reflected in this final 
rule for FY 2001.
    Section 152 of Public Law 106-113 reclassified certain hospitals 
for purposes of the wage index and the standardized amounts. The 
impacts of these statutory reclassifications are included in this 
column.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, we 
applied an adjustment of 0.993187 to ensure that the effects of 
reclassification are budget neutral. (See section II.A.4.b. of the 
Addendum to this final rule.)
    As a group, rural hospitals benefit from geographic 
reclassification. Their payments rise 2.5 percent, while payments to 
urban hospitals decline 0.4 percent. Hospitals in other urban areas 
see a decrease in payments of 0.3 percent, while large urban 
hospitals lose 0.5 percent. Among urban hospital groups (that is, 
bed size, census division, and special payment status), payments 
generally decline.
    A positive impact is evident among most of the rural hospital 
groups. The largest decrease among the rural census divisions is 0.7 
percent for Puerto Rico. The largest increases are in rural West 
South Central and South Atlantic. These regions receive increases of 
3.0 and 2.9 percent, respectively.
    Among rural hospitals designated as RRCs, 179 hospitals are 
reclassified for purposes of the wage index only, leading to the 6.1 
percent increase in payments among RRCs overall. This positive 
impact on RRCs is also reflected in the category of rural hospitals 
with 150-199 beds, which has a 5.2 percent increase in payments.
    Rural hospitals reclassified for FY 2000 and FY 2001 experience 
a 6.2 percent increase in payments. This may be due to the fact that 
these hospitals have the most to gain from reclassification and have 
been reclassified for a period of years. Rural hospitals 
reclassified for FY 2001 only experience a 4.9 percent increase in 
payments, while rural hospitals reclassified for FY 2000 only 
experience a 0.5 percent decrease in payments. Urban hospitals 
reclassified for FY 2001 but not FY 2000 experience a 4.7 percent 
increase in payments overall. Urban hospitals reclassified for FY 
2000 but not for FY 2001 experience a 1.1 percent decline in 
payments.
    The FY 2001 Reclassification rows of Table I show the changes in 
payments per case for all FY 2001 reclassified and nonreclassified 
hospitals in urban and rural locations for each of the three 
reclassification categories (standardized amount only, wage index 
only, or both). The table illustrates that the largest impact for 
reclassified rural hospitals is for those hospitals reclassified for 
both the standardized amount and the wage index. These hospitals 
receive a 9.4 percent increase in payments. In addition, rural 
hospitals reclassified just for the wage index receive a 5.8 percent 
payment increase. The overall impact on reclassified hospitals is to 
increase their payments per case by an average of 5.9 percent for FY 
2001.
    The reclassification of hospitals primarily affects payment to 
nonreclassified hospitals through changes in the wage index and the 
geographic reclassification budget neutrality adjustment required by 
section 1886(d)(8)(D) of the Act. Among hospitals that are not 
reclassified, the overall impact of hospital reclassifications is an 
average decrease in payments per case of about 0.5 percent. Rural 
nonreclassified hospitals decrease by 0.5 percent, and urban 
nonreclassified hospitals lose 0.7 percent (the amount of the budget 
neutrality offset).

G. All Changes (Column 6)

    Column 6 compares our estimate of payments per case, 
incorporating all changes reflected in this final rule for FY 2001 
(including statutory changes), to our estimate of payments per case 
in FY 2000. It includes the effects of the 2.3 percent update to the 
standardized amounts and the hospital-specific rates for MDHs and 
the 3.4 percent update for SCHs. It also reflects the 1.1 percentage 
point difference between the projected outlier payments in FY 2000 
(5.1 percent of total DRG payments) and the current estimate of the 
percentage of actual outlier payments in FY 2000 (6.2 percent), as 
described in the introduction to this Appendix and the Addendum to 
this final rule.
    Another change affecting the difference between FY 2000 and FY 
2001 payments arises from section 1886(d)(5)(B) of the Act, as 
amended by Public Law 106-113. As noted in the introduction to this 
impact analysis, for FY 2001, the IME adjustment is decreased from 
last year (6.5 percent in FY 2000 and 6.2 percent in FY 2001).
    We also note that column 6 includes the impacts of FY 2001 MGCRB 
reclassifications compared to the payment impacts of FY 2000 
reclassifications. Therefore, when comparing FY 2001 payments to FY 
2000, the percent changes due to FY 2001 reclassifications shown in 
column 5 need to be offset by the effects of reclassification on 
hospitals' FY 2000 payments(column 7 of Table 1, July 30, 1999 final 
rule (64 FR 41625)). For example, the impact of MGCRB 
reclassifications on rural hospitals' FY 2001 payments was 
approximately a 2.5 percent increase, offsetting most of the 2.6 
percent increase in column 7 for FY 2000. Therefore, the net change 
in FY 2001 payments due to reclassification for rural hospitals is 
actually a decrease of 0.1 percent relative to FY 2000. However, 
last year's analysis contained a somewhat different set of 
hospitals, so this might affect the numbers slightly.
    Finally, section 405 of Public Law 106-113 provided that certain 
SCHs may elect to receive payment on the basis of their costs per 
case during their cost reporting period that began during 1996. To 
be eligible, a SCH must have received payment for cost reporting 
periods beginning during 1999 on the basis of its hospital-specific 
rate. For FY 2001, eligible SCHs that elect rebasing receive a 
hospital-specific rate comprised of 75 percent of the higher of 
their FY 1982 or FY 1987 hospital-specific rate, and 25 percent of 
their 1996 hospital-specific rate. The impact of this provision is 
modeled in column 6 as well.
    There might also be interactive effects among the various 
factors comprising the payment system that we are not able to 
isolate. For these reasons, the values in column 6 may not equal the 
sum of the changes in columns 4 and 5, plus the other impacts that 
we are able to identify.
    The overall payment change from FY 2000 to FY 2001 for all 
hospitals is a 1.5 percent increase. This reflects the 2.3 percent 
update for FY 2001 (3.4 percent for SCHs), the 1.0 percent lower 
outlier payments in FY 2001 compared to FY 2000 (5.1 percent 
compared to 6.2 percent); the change in the IME

[[Page 47196]]

adjustment (6.5 in FY 2000 to 6.2 in FY 2001); and the rebasing of 
certain SCHs to their 1996 hospital-specific rate.
    Hospitals in urban areas experience a 1.4 percent increase in 
payments per case compared to FY 2000. The 0.4 percent negative 
impact due to reclassification is offset by an identical negative 
impact for FY 2000. Hospitals in rural areas, meanwhile, experience 
a 2.5 percent payment increase. As discussed previously, this is 
primarily due to the positive effect of the wage index and DRG 
changes and reclassifications.
    Among urban census divisions, payments increased between 0.7 and 
2.3 percent between FY 2000 and FY 2001. The rural census division 
experiencing the smallest increase in payments was Puerto Rico (0.2 
percent). The largest increases by rural hospitals are in the South 
Atlantic and Mountain regions, 2.8 and 2.7 percent, respectively. 
Among other rural census divisions, the largest increases are in the 
East South Central and the East North Central, both with 2.6.
    Among special categories of rural hospitals, those hospitals 
receiving payment under the hospital-specific methodology (SCHs, 
MDHs, and SCH/RRCs) experience payment increases of 3.3 percent, 2.7 
percent, and 2.2 percent, respectively. This outcome is primarily 
related to the fact that, for hospitals receiving payments under the 
hospital-specific methodology, there are no outlier payments. 
Therefore, these hospitals do not experience negative payment 
impacts from the decline in the percentage of outlier payments from 
FY 2000 to FY 2001 (from 6.2 of total DRG payments to 5.1 percent) 
as do hospitals paid based on the national standardized amounts.
    The largest negative payment impacts from FY 2000 to FY 2001 are 
among hospitals that were reclassified for FY 2000 and are not 
reclassified for FY 2001. Overall, these hospitals lose 1.7 percent. 
The urban hospitals in this category lose 0.8 percent, while the 
rural hospitals lose 3.1 percent. On the other hand, hospitals 
reclassified for FY 2001 that were not reclassified for FY 2000 
would experience the greatest payment increases: 7.1 percent 
overall; 7.6 percent for 114 rural hospitals in this category and 
6.6 percent for 35 urban hospitals.

             Table II.--Impact Analysis of Changes for FY 2000; Operating Prospective Payment System
                                               [Payments per case]
----------------------------------------------------------------------------------------------------------------
                                                                              Average FY  Average FY
                                                                   Number of     2000        2001         All
                                                                   hospitals    payment     payment     changes
                                                                      (1)      per case    per case       (4)
                                                                                (2)\1\      (3)\1\
----------------------------------------------------------------------------------------------------------------
(BY GEOGRAPHIC LOCATION):
    ALL HOSPITALS...............................................       4,888       6,783       6,885         1.5
    URBAN HOSPITALS.............................................       2,752       7,354       7,454         1.4
    LARGE URBAN AREAS...........................................       1,571       7,895       7,996         1.3
    OTHER URBAN AREAS...........................................       1,181       6,650       6,747         1.5
    RURAL HOSPITALS.............................................       2,136       4,544       4,658         2.5
BED SIZE (URBAN):
    0-99 BEDS...................................................         716       4,947       5,025         1.6
    100-199 BEDS................................................         944       6,202       6,294         1.5
    200-299 BEDS................................................         548       7,042       7,132         1.3
    300-499 BEDS................................................         401       7,885       7,974         1.1
    500 OR MORE BEDS............................................         143       9,547       9,703         1.6
BED SIZE (RURAL):
    0-49 BEDS...................................................       1,233       3,784       3,901         3.1
    50-99 BEDS..................................................         535       4,248       4,358         2.6
    100-149 BEDS................................................         219       4,648       4,746         2.1
    150-199 BEDS................................................          81       5,090       5,220         2.6
    200 OR MORE BEDS............................................          68       5,710       5,838         2.2
URBAN BY CENSUS DIVISION:
    NEW ENGLAND.................................................         146       7,815       7,888         0.9
    MIDDLE ATLANTIC.............................................         421       8,296       8,396         1.2
    SOUTH ATLANTIC..............................................         404       7,022       7,098         1.1
    EAST NORTH CENTRAL..........................................         463       7,006       7,144           2
    EAST SOUTH CENTRAL..........................................         161       6,627       6,683         0.8
    WEST NORTH CENTRAL..........................................         188       7,105       7,203         1.4
    WEST SOUTH CENTRAL..........................................         351       6,760       6,917         2.3
    MOUNTAIN....................................................         133       7,044       7,156         1.6
    PACIFIC.....................................................         440       8,572       8,633         0.7
    PUERTO RICO.................................................          45       3,156       3,209         1.7
RURAL BY CENSUS DIVISION:
    NEW ENGLAND.................................................          52       5,468       5,586         2.2
    MIDDLE ATLANTIC.............................................          80       4,910       5,016         2.2
    SOUTH ATLANTIC..............................................         277       4,680       4,813         2.8
    EAST NORTH CENTRAL..........................................         283       4,591       4,710         2.6
    EAST SOUTH CENTRAL..........................................         266       4,209       4,317         2.6
    WEST NORTH CENTRAL..........................................         492       4,348       4,458         2.5
    WEST SOUTH CENTRAL..........................................         340       4,061       4,144         2.1
    MOUNTAIN....................................................         201       4,863       4,995         2.7
    PACIFIC.....................................................         140       5,583       5,712         2.3
    PUERTO RICO.................................................           5       2,447       2,453         0.2
(BY PAYMENT CATEGORIES):
    URBAN HOSPITALS.............................................       2,833       7,312       7,411         1.4
    LARGE URBAN.................................................       1,665       7,797       7,905         1.4
    OTHER URBAN.................................................       1,168       6,637       6,724         1.3
    RURAL HOSPITALS.............................................       2,055       4,509       4,627         2.6
TEACHING STATUS:
    NON-TEACHING................................................       3,770       5,464       5,550         1.6
    FEWER THAN 100 RESIDENTS....................................         876       7,125       7,223         1.4

[[Page 47197]]

 
    100 OR MORE RESIDENTS.......................................         242      10,828      11,001         1.6
DISPROPORTIONATE SHARE HOSPITALS (DSH):
    NON-DSH.....................................................       3,070       5,810       5,895         1.5
    URBAN DSH:
        100 BEDS OR MORE........................................       1,390       7,919       8,037         1.5
        FEWER THAN 100 BEDS.....................................          72       4,927       5,019         1.9
    RURAL DSH:
        SOLE COMMUNITY (SCH)....................................         149       4,140       4,290         3.6
        REFERRAL CENTERS (RRC)..................................          56       5,415       5,543         2.4
    OTHER RURAL DSH HOSPITALS:
        100 BEDS OR MORE........................................          48       4,097       4,218         2.9
        FEWER THAN 100 BEDS.....................................         103       3,714       3,798         2.3
    URBAN TEACHING AND DSH:
        BOTH TEACHING AND DSH...................................         726       8,826       8,962         1.6
        TEACHING AND NO DSH.....................................         327       7,322       7,409         1.2
        NO TEACHING AND DSH.....................................         736       6,311       6,395         1.3
        NO TEACHING AND NO DSH..................................       1,044       5,668       5,727           1
RURAL HOSPITAL TYPES:
    NONSPECIAL STATUS HOSPITALS.................................         835       3,922       4,017         2.4
    RRC.........................................................         150       5,257       5,382         2.4
    SCH.........................................................         661       4,502       4,650         3.3
    MDH.........................................................         352       3,784       3,885         2.7
    SCH AND RRC.................................................          57       5,500       5,620         2.2
TYPE OF OWNERSHIP:
    VOLUNTARY...................................................       2,840       6,945       7,079         1.5
    PROPRIETARY.................................................         745       6,300       6,384         1.3
    GOVERNMENT..................................................       1,301       6,400       6,512         1.8
    UNKNOWN.....................................................           2       3,406       3,499         2.7
MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:
    0--25.......................................................         381       9,013       9,172         1.8
    25--50......................................................       1,830       7,858       7,968         1.4
    50--65......................................................       1,893       5,910       6,007         1.6
    OVER 65.....................................................         699       5,260       5,336         1.4
    UNKNOWN.....................................................          85       9,997      10,116         1.2
HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW BOARD:
RECLASSIFICATION STATUS DURING FY 2000 AND FY 2001:
    RECLASSIFIED DURING BOTH FY 2000 AND FY 2001................         377       5,851       5,958         1.8
    URBAN.......................................................          53       8,027       8,161         1.7
    RURAL.......................................................         324       5,249       5,348         1.9
    RECLASSIFIED DURING FY 2001 ONLY............................         149       5,537       5,930         7.1
    URBAN.......................................................          35       6,971       7,428         6.6
    RURAL.......................................................         114       4,623       4,975         7.6
    RECLASSIFIED DURING FY 2000 ONLY............................         172       6,011       5,909        -1.7
    URBAN.......................................................          70       7,454       7,394        -0.8
    RURAL.......................................................         102       4,620       4,476        -3.1
FY 2000 RECLASSIFICATIONS:
    ALL RECLASSIFIED HOSPITALS..................................         527       5,776       5,948           3
    STANDARDIZED AMOUNT ONLY....................................          66       4,697       4,888         4.1
    WAGE INDEX ONLY.............................................         386       5,878       5,913         0.6
    BOTH........................................................          46       6,295       6,457         2.6
    NONRECLASSIFIED.............................................       4,364       6,912       7,019         1.6
    ALL URBAN RECLASSIFIED......................................          88       7,660       7,906         3.2
    STANDARDIZED AMOUNT ONLY....................................          17       5,333       5,379         0.9
    WAGE INDEX ONLY.............................................          38       8,718       8,934         2.5
    BOTH........................................................          33       7,217       7,584         5.1
    NONRECLASSIFIED.............................................       2,638       7,355       7,449         1.3
    ALL RURAL RECLASSIFIED......................................         439       5,128       5,275         2.9
    STANDARDIZED AMOUNT ONLY....................................          54       4,785       4,779        -0.1
    WAGE INDEX ONLY.............................................         358       5,153       5,316         3.2
    BOTH........................................................          27       5,258       5,410         2.9
    NONRECLASSIFIED.............................................       1,697       4,114       4,204         2.2
    OTHER RECLASSIFIED HOSPITALS (SECTION 1886(d)(8)(B))........          26       4,713       4,775        1.3
----------------------------------------------------------------------------------------------------------------
\1\ These payment amounts per case do not reflect any estimates of annual case-mix increase.


[[Page 47198]]

    Table II presents the projected impact of the changes for FY 
2001 for urban and rural hospitals and for the different categories 
of hospitals shown in Table I. It compares the estimated payments 
per case for FY 2000 with the average estimated per case payments 
for FY 2001, as calculated under our models. Thus, this table 
presents, in terms of the average dollar amounts paid per discharge, 
the combined effects of the changes presented in Table I. The 
percentage changes shown in the last column of Table II equal the 
percentage changes in average payments from column 6 of Table I.

VIII. Impact of Organ, Tissue and Eye Procurement Condition of 
Participation on CAHs

    In this final rule, we are adding a CoP for organ, tissue and 
eye procurement for CAHs. We estimate that the procurement costs for 
organ, eyes, and tissue for CAHs is negligible. This estimate is 
based on the following projections. There are several provisions in 
this condition that will impact CAHs to a greater or lesser degree. 
Specifically, CAHs are required to have written protocols; have 
agreements with an OPO, a tissue bank, and an eye bank; refer all 
deaths that occur in the CAH to the OPO or a third party designated 
by the OPO; ensure that CAH employees who initiate a request for 
donation to the family of a potential donor have been trained as a 
designated requestor; and work cooperatively with the OPO, tissue 
bank, and eye bank in educating CAH staff, reviewing death records, 
and maintaining potential donors. It is important to note that 
because of the inherent flexibility of this condition, the extent of 
its economic impact is dependent upon decisions that will be made 
either by the CAH or by the CAH in conjunction with the OPO or the 
tissue and eye banks. Thus, the impact on individual CAHs will vary 
and is subject in large part to their decision making. The impact 
will also vary based on whether a CAH currently has an organ 
donation protocol and its level of compliance with existing law and 
regulations. For example, if a CAH was a Medicare hospital in 
compliance with the hospital CoP for organ, tissue, and eye 
procurement prior to converting to a CAH, there will be no 
additional impact.
    The first requirement in the CoP is that CAHs have and implement 
written protocols that reflect the various other requirements of the 
CoP. Currently, under section 1138 of the Act, CAHs must have 
written protocols for organ donation. Most CAHs will need to rewrite 
their existing protocols to conform with this regulation; however, 
this is clearly not a requirement that imposes a significant 
economic burden.
    In addition, a CAH must have an agreement with its designated 
OPO and with at least one tissue bank and at least one eye bank. 
CAHs are required under section 1138 of the Act to refer all 
potential donors to an OPO. Also, the OPO regulation at 42 CFR 
486.306 requires, as a qualification for designation as an OPO, that 
the OPO have a working relationship with at least 75 percent of the 
hospitals in its service area that participate in the Medicare and 
Medicaid programs and that have an operating room and the equipment 
and personnel for retrieving organs. Therefore, some CAHs may 
already have an agreement with their designated OPO. Although CAHs 
may need to modify those existing agreements, the need to make 
modifications would not impose a significant economic burden. 
Although there is no statutory or regulatory requirement for a CAH 
to have agreements with tissue and eye banks, we must assume some 
CAHs have agreements with tissue and eye banks, since hospitals are 
the source for virtually all tissues and eyes.
    The CoP requires CAHs to notify the OPO about every death that 
occurs in the CAH. The average Medicare hospital has approximately 
165 beds and 200 deaths per year. However, by statute and 
regulation, CAHs may use no more than 15 beds for acute care 
services. Assuming that the number of deaths in a hospital is 
related to the number of acute care beds, there should be 
approximately 18 deaths per year in the average CAH. Thus, the 
economic impact for a CAH of referring all deaths would be small.
    Under the CoP, a CAH may agree to have the OPO determine medical 
suitability for tissue and eye donation or may have alternative 
arrangements with a tissue bank and an eye bank. These alternative 
arrangements could include the CAH's direct notification of the 
tissue and eye bank of potential tissue and eye donors or direct 
notification of all deaths. Again, the impact is small, and the 
regulation permits the CAH to decide how this process will take 
place. We recognize that many communities already have a one-phone-
call system in place. In addition, some OPOs are also tissue banks 
or eye banks or both. A CAH that chose to use the OPO's tissue and 
eye bank services in these localities would need to make only one 
telephone call on every death.
    This CoP requires that the individual who initiates a request 
for donation to the family of a potential donor must be an OPO 
representative or a designated requestor. A designated requestor is 
an individual who has taken a course offered or approved by the OPO 
in the methodology for approaching families of potential donors and 
requesting donation. The CAH would need to arrange for designated 
requestor training. Most OPOs have trained designated requestors as 
part of the hospital CoP for organ, tissue, and eye procurement. 
Even if the CAH wants to have a sufficient number of designated 
requestors to ensure that all shifts are covered, this provision of 
the regulation would not have a significant economic impact on CAHs. 
In addition, the CAH may be able to choose to have donation requests 
initiated by the OPO, the tissue bank, or the eye bank staff rather 
than CAH staff, in which case there is no economic impact.
    The regulation requires a CAH to work cooperatively with the 
OPO, a tissue bank, and an eye bank in educating CAH staff. We do 
not believe education of CAH staff will demand a significant amount 
of staff time. In addition, most OPOs already give educational 
presentations for the staff in their hospitals.
    The regulation requires a CAH to work cooperatively with the 
OPO, a tissue bank, and an eye bank in reviewing death records. Most 
OPOs currently conduct extensive CAH death record reviews. The CAH's 
assistance is required only to provide lists of CAH deaths and 
facilitate access to records.
    Finally, the regulation requires a CAH to work cooperatively 
with the OPO, a tissue bank, and an eye bank in maintaining 
potential donors while necessary testing and placement of potential 
donated organs and tissues take place. It is possible that because 
of the CoP, some CAHs may have their first organ donors. Therefore, 
we considered the impact on a CAH of maintaining a brain dead 
potential donor on a ventilator until the organs can be placed. CAHs 
with full ventilator capability should have no trouble maintaining a 
potential donor until the organs are placed. However, some CAHs have 
ventilator capability only so that a patient can be maintained until 
he or she is transferred to a larger facility for treatment. These 
CAHs would have the equipment and staffing to maintain a potential 
donor until transfer to another facility occurs. Some CAHs do not 
have ventilator capability and would be unable to maintain a 
potential donor. However, CAHs without ventilator capability would 
still be obligated to notify the OPO, or a third party designated by 
the OPO, of all individuals whose death is imminent or who have died 
in the CAH because there is a potential to obtain a tissue or an eye 
donation. We do not believe there will be a significant impact on 
CAHs no matter what their situation--full ventilator capability, 
ventilator capability only for patients who are to be transferred to 
a larger facility, or no ventilator capability.
    Although, as stated previously, there are several requirements 
in this CoP that will impact CAHs to a greater or lesser degree, we 
assert that the potential benefits to beneficiaries exceed the 
associated costs of requiring CAHs to comply with this standard. As 
stated in the Hospital Conditions of Participation; Identification 
of Potential Organ, Tissue, and Eye Donors and Transplant Hospitals' 
Provision of Transplant-Related Data regulation published on June 
22, 1998 in the Federal Register (63 FR 33872), there were 3.11 
organs transplanted for every donor recovered. Further, we do not 
believe there will be a significant impact on CAHs no matter what 
their situation--full ventilator capability, ventilator capability 
only for patients who are to be transferred to a larger facility, or 
no ventilator capability. Based on a HCFA actuarial opinion, the 
cost for CAHs to implement this requirement is negligible. We 
reviewed the comprehensive analysis in the impact section for the 
hospital CoP discussed in the above referenced regulation and 
determined that the analysis and assumptions made at that time are 
valid for this CAH CoP.
    We expect that this regulation will increase tissue and eye 
donations as well as organ donations. A study of the impact of the 
Pennsylvania routine referral legislation on tissue and eye 
donations was presented at the Fourth International Society for 
Organ Sharing Congress and Transplant Congress in July 1997. 
(Nathan, HM, Abrams, J. Sparkman BA, et al. ``Comprehensive State 
Legislation Increases Organ and Tissue

[[Page 47199]]

Donations'') This study used data from the Delaware Valley 
Transplant Program, the OPO for Southeastern Pennsylvania, and found 
that although the maximum donor age was lowered from 66 to 60, 
tissue donations increased 14 percent from 1994 through 1996. The 
study also showed that eye donations increased 28 percent during the 
same period, despite more restrictive donor criteria. This virtually 
eliminated the waiting list for suitable corneas. North Carolina's 
routine referral legislation became effective in October 1997. The 
Carolina Organ Procurement Agency (one of three North Carolina OPOs) 
has seen heart valve donations increase by 109 percent and other 
tissue donations increase 114 percent through May 1998.
    We did not receive any public comments on the impact of this 
provision.

IX. Impact of Medicare Disproportionate Share Hospital (DSH) Adjustment 
Calculation Policy Change in the Treatment of Certain Medicaid Patient 
Days in States With 1115 Expansion Waivers

    As discussed in the January 20, 2000 interim final rule with 
comment period, we revised the policy for the Medicare 
disproportionate share hospital adjustment provision set forth under 
section 1886(d)(5)(F) of the Act to allow hospitals located in 
states with section 1115 expansion waivers to include the patient 
days of all populations eligible for title XIX matching payments 
under a State's section 1115 waiver in calculating the hospital's 
Medicare DSH adjustment.
    There are currently eight States with section 1115 expansion 
waivers (Delaware, Hawaii, Massachusetts, Missouri, New York, 
Oregon, Tennessee, and Vermont). Under the provisions of this final 
rule, hospitals in these eight States will be allowed to include in 
the Medicaid percentage portion of their Medicare DSH calculation 
the inpatient hospital days attributable to patients who are 
eligible under the State's section 1115 expansion waiver. Because 
our policy was that these days were not allowable prior to January 
20, 2000, by allowing hospitals to begin to include these days in 
their Medicare DSH calculation, the impact will be to increase the 
DSH payments these hospitals will receive compared to what they 
would receive absent this change.
    We have estimated the impact of this change to be $270 million 
in higher FY 2000 prospective payments system payments (total FY 
2000 DSH payments are projected to be $4.6 billion), and $370 
million in FY 2001 payments. Thus the total impact of this change 
for the period from FY 2001 through FY 2005 is estimated to be $2.14 
billion.

X. Impact of Changes in the Capital Prospective Payment System

A. General Considerations

    We now have cost report data for the 7th year of the capital 
prospective payment system (cost reports beginning in FY 1998) 
available through the March 2000 update of the HCRIS. We also have 
updated information on the projected aggregate amount of obligated 
capital approved by the fiscal intermediaries. However, our impact 
analysis of payment changes for capital-related costs is still 
limited by the lack of hospital-specific data on several items. 
These are the hospital's projected new capital costs for each year, 
its projected old capital costs for each year, and the actual 
amounts of obligated capital that will be put in use for patient 
care and recognized as Medicare old capital costs in each year. The 
lack of this information affects our impact analysis in the 
following ways:
     Major investment in hospital capital assets (for 
example, in building and major fixed equipment) occurs at irregular 
intervals. As a result, there can be significant variation in the 
growth rates of Medicare capital-related costs per case among 
hospitals. We do not have the necessary hospital-specific budget 
data to project the hospital capital growth rate for individual 
hospitals.
     Our policy of recognizing certain obligated capital as 
old capital makes it difficult to project future capital-related 
costs for individual hospitals. Under Sec. 412.302(c), a hospital is 
required to notify its intermediary that it has obligated capital by 
the later of October 1, 1992, or 90 days after the beginning of the 
hospital's first cost reporting period under the capital prospective 
payment system. The intermediary must then notify the hospital of 
its determination whether the criteria for recognition of obligated 
capital have been met by the later of the end of the hospital's 
first cost reporting period subject to the capital prospective 
payment system or 9 months after the receipt of the hospital's 
notification. The amount that is recognized as old capital is 
limited to the lesser of the actual allowable costs when the asset 
is put in use for patient care or the estimated costs of the capital 
expenditure at the time it was obligated. We have substantial 
information regarding fiscal intermediary determinations of 
projected aggregate obligated capital amounts. However, we still do 
not know when these projects will actually be put into use for 
patient care, the actual amount that will be recognized as obligated 
capital when the project is put into use, or the Medicare share of 
the recognized costs. Therefore, we do not know actual obligated 
capital commitments for purposes of the FY 2001 capital cost 
projections. In Appendix B of this final rule, we discuss the 
assumptions and computations that we employ to generate the amount 
of obligated capital commitments for use in the FY 2001 capital cost 
projections.
    In Table III of this section, we present the redistributive 
effects that are expected to occur between ``hold-harmless'' 
hospitals and ``fully prospective'' hospitals in FY 2001. In 
addition, we have integrated sufficient hospital-specific 
information into our actuarial model to project the impact of the FY 
2001 capital payment policies by the standard prospective payment 
system hospital groupings. While we now have actual information on 
the effects of the transition payment methodology and interim 
payments under the capital prospective payment system and cost 
report data for most hospitals, we still need to randomly generate 
numbers for the change in old capital costs, new capital costs for 
each year, and obligated amounts that will be put in use for patient 
care services and recognized as old capital each year. We continue 
to be unable to predict accurately FY 2001 capital costs for 
individual hospitals, but with the most recent data on hospitals' 
experience under the capital prospective payment system, there is 
adequate information to estimate the aggregate impact on most 
hospital groupings.

B. Projected Impact Based on the FY 2001 Actuarial Model

1. Assumptions

    In this impact analysis, we model dynamically the impact of the 
capital prospective payment system from FY 2000 to FY 2001 using a 
capital cost model. The FY 2001 model, as described in Appendix B of 
this final rule, integrates actual data from individual hospitals 
with randomly generated capital cost amounts. We have capital cost 
data from cost reports beginning in FY 1989 through FY 1998 as 
reported on the March 2000 update of HCRIS, interim payment data for 
hospitals already receiving capital prospective payments through 
PRICER, and data reported by the intermediaries that include the 
hospital-specific rate determinations that have been made through 
April 1, 2000 in the provider-specific file. We used these data to 
determine the FY 2001 capital rates. However, we do not have 
individual hospital data on old capital changes, new capital 
formation, and actual obligated capital costs. We have data on costs 
for capital in use in FY 1998, and we age that capital by a formula 
described in Appendix B. Therefore, we need to randomly generate 
only new capital acquisitions for any year after FY 1998. All 
Federal rate payment parameters are assigned to the applicable 
hospital.
    For purposes of this impact analysis, the FY 2001 actuarial 
model includes the following assumptions:
     Medicare inpatient capital costs per discharge will 
change at the following rates during these periods:

        Average Percentage Change in Capital Costs Per Discharge
------------------------------------------------------------------------
                                                              Percentage
                        Fiscal year                             change
------------------------------------------------------------------------
1999.......................................................         3.12
2000.......................................................         3.31
2001.......................................................         2.95
------------------------------------------------------------------------

     We estimate that the Medicare case-mix index will 
increase by 0.5 percent in FY 2000 and in FY 2001.
     The Federal capital rate and the hospital-specific rate 
were updated in FY 1996 by an analytical framework that considers 
changes in the prices associated with capital-related costs and 
adjustments to account for forecast error, changes in the case-mix 
index, allowable changes in intensity, and other factors. The FY 
2001 update is 0.9 percent (see section IV. of the Addendum to this 
final rule).

[[Page 47200]]

2. Results

    We have used the actuarial model to estimate the change in 
payment for capital-related costs from FY 2000 to FY 2001. Table III 
shows the effect of the capital prospective payment system on low 
capital cost hospitals and high capital cost hospitals. We consider 
a hospital to be a low capital cost hospital if, based on a 
comparison of its initial hospital-specific rate and the applicable 
Federal rate, it will be paid under the fully prospective payment 
methodology. A high capital cost hospital is a hospital that, based 
on its initial hospital-specific rate and the applicable Federal 
rate, will be paid under the hold-harmless payment methodology. 
Based on our actuarial model, the breakdown of hospitals is as 
follows:

                               Capital Transition Payment Methodology for FY 2001
----------------------------------------------------------------------------------------------------------------
                                                                                         Percent of   Percent of
                      Type of hospital                         Percent of   Percent of    capital      capital
                                                               hospitals    discharges     costs       payments
----------------------------------------------------------------------------------------------------------------
Low Cost Hospital...........................................           67           62           56           61
High Cost Hospital..........................................           33           38           44           39
----------------------------------------------------------------------------------------------------------------

    A low capital cost hospital may request to have its hospital-
specific rate redetermined based on old capital costs in the current 
year, through the later of the hospital's cost reporting period 
beginning in FY 1994 or the first cost reporting period beginning 
after obligated capital comes into use (within the limits 
established in Sec. 412.302(e) for putting obligated capital into 
use for patient care). If the redetermined hospital-specific rate is 
greater than the adjusted Federal rate, these hospitals will be paid 
under the hold-harmless payment methodology. Regardless of whether 
the hospital became a hold-harmless payment hospital as a result of 
a redetermination, we continue to show these hospitals as low 
capital cost hospitals in Table III.
    Assuming no behavioral changes in capital expenditures, Table 
III displays the percentage change in payments from FY 2000 to FY 
2001 using the above described actuarial model. With the Federal 
rate, we estimate aggregate Medicare capital payments will increase 
by 5.48 percent in FY 2001. This increase is noticeably higher than 
last year's (3.64 percent) due to the combination of the increase in 
the number of hospital admissions, the increase in case-mix, and the 
increase in the Federal blend percentage from 90 percent to 100 
percent and a decrease in the hospital-specific rate percentage from 
10 percent to 0 percent for fully prospective payment hospitals.

                                      Table III.--Impact of Proposed Changes for FY 2001 on Payments per Discharge
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                                                    Number of                Adjusted   Average    Hopital      Hold    Exceptions    Total      change
                                                    hospitals   Discharges   federal    federal    specific   harmless    payment    payment    over FY
                                                                             payment    percent    payment    payment                             2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2000 Payments per Discharge:
    Low Cost Hospitals............................      3,194    6,723,732    $574.73      90.41     $30.18      $2.95       $7.84    $615.72  .........
        Fully Prospective.........................      3,020    6,252,299     571.02      90.00      32.46  .........        7.45     610.93  .........
        100% Federal Rate.........................        159      438,006     635.95     100.00  .........  .........        3.42     639.38  .........
        Hold Harmless.............................         15       33,426     467.66      54.25  .........     594.40      139.14   1,201.21  .........
    High Cost Hospitals...........................      1,598    4,078,374     650.66      97.86  .........      19.26       13.05     682.97  .........
        100% Federal Rate.........................      1,383    3,717,412     665.24     100.00  .........  .........        6.98     672.22  .........
        Hold Harmless.............................        215      360,962     500.42      75.67  .........     217.62       75.58     793.63  .........
          Total Hospitals.........................      4,792   10,802,106     603.40      93.30      18.79       9.11        9.81     641.11  .........
FY 2001 Payments per Discharge:
    Low Cost Hospitals............................      3,194    6,835,654    $637.91      99.74  .........      $2.42       $9.69    $650.02       5.57
        Fully Prospective.........................      3,020    6,356,377     638.58     100.00  .........  .........        9.20     647.78       6.03
        100% Federal Rate.........................        159      445,296     638.34     100.00  .........  .........        4.35     642.69       0.52
        Hold Harmless.............................         15       33,981     506.60      60.11  .........     486.54      170.96   1,164.09      -3.09
    High Cost Hospitals...........................      1,598    4,146,181     653.32      98.38  .........      15.35       21.47     690.15       1.05
        100% Federal Rate.........................      1,394    3,793,349     664.47     100.00  .........  .........       10.65     675.12       0.43
        Hold Harmless.............................        204      352,832     533.52      80.86  .........     180.41      137.76     851.69       7.32
          Total Hospitals.........................      4,792   10,981,835     643.73      99.21  .........       7.30       14.14     665.17       3.75
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We project that low capital cost hospitals paid under the fully 
prospective payment methodology will experience an average increase 
in payments per case of 6.03 percent, and high capital cost 
hospitals will experience an average increase of 1.05 percent. These 
results are due to the change in the blended percentages to the 
payment system to 100 percent adjusted Federal rate and 0 percent 
hospital-specific rate.
    For hospitals paid under the fully prospective payment 
methodology, the Federal rate payment percentage will increase from 
90 percent to 100 percent and the hospital-specific rate payment 
percentage will decrease from 10 to 0 percent in FY 2001. The 
Federal rate payment percentage for hospitals paid under the hold-
harmless payment methodology is based on the hospital's ratio of new 
capital costs to total capital costs. The average Federal rate 
payment percentage for high cost hospitals receiving a hold-harmless 
payment for old capital will increase from 75.67 percent to 80.86 
percent. We estimate the percentage of hold-harmless hospitals paid 
based on 100 percent of the Federal rate will increase from 86.55 
percent to 87.23 percent. We estimate that the few remaining high 
cost hold-harmless hospitals (204) will experience an increase in 
payments of 7.32 percent from FY 2000 to FY 2001. This increase 
reflects our estimate that exception payments per discharge will 
increase 82.27 percent from FY 2000 to FY 2001 for high cost hold-
harmless hospitals. While we estimate that this group's regular 
hold-harmless payments for old capital will decline by 17.10 percent 
due to the retirement of old capital, we estimate that its high 
overall capital costs will cause an increase in these hospitals' 
exceptions payments from $75.58 per discharge in FY 2000 to $137.76 
per discharge in FY 2001. This is primarily due to the estimated 
decrease in outlier payments, which will cause an estimated increase 
in exceptions payments to cover unmet capital costs.
    We estimate that the average hospital-specific rate payment per 
discharge will decrease from $32.46 in FY 2000 to $0.00 in FY 2001. 
This decrease is due to the decrease in the hospital-specific rate 
payment percentage from 10 percent in FY 2000 to 0 percent in FY 
2001 for fully prospective payment hospitals.
    We have made no changes in our exceptions policies for FY 2001. 
As a result, the minimum payment levels would be--
     90 percent for sole community hospitals;
     80 percent for urban hospitals with 100 or more beds 
and a disproportionate share patient percentage of 20.2 percent or 
more; or

[[Page 47201]]

     70 percent for all other hospitals.
    We estimate that exceptions payments will increase from 1.53 
percent of total capital payments in FY 2000 to 2.13 percent of 
payments in FY 2001. The projected distribution of the exception 
payments is shown in the chart below:

                  Estimated FY 2001 Exceptions Payments
------------------------------------------------------------------------
                                                              Percent of
               Type of hospital                  Number of    exceptions
                                                 hospitals     payments
------------------------------------------------------------------------
Low Capital Cost..............................          201           43
High Capital Cost.............................          214           57
                                               -------------------------
    Total.....................................          415          100
------------------------------------------------------------------------

C. Cross-Sectional Comparison of Capital Prospective Payment 
Methodologies

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

  Table IV.--Distribution by Method of Payment (Hold-Harmless/Fully Prospective) of Hospitals Receiving Capital
                                        Payments (Estimated for FY 2001)
----------------------------------------------------------------------------------------------------------------
                                                                               (2) Hold-harmless
                                                                          --------------------------     (3)
                                                               (1) Total    Percentage                Percentage
                                                                 No. of     paid hold-   Percentage   paid fully
                                                               Hospitals     harmless    paid fully  prospective
                                                                               (A)      federal (B)      rate
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...........................................        4,792          4.6         32.4         63.0
    Large urban areas (populations over 1 million)..........        1,524          4.3         41.0         54.7
    Other urban areas (populations of 1 million or fewer)...        1,149          5.8         39.5         54.7
    Rural areas.............................................        2,119          4.1         22.4         73.5
    Urban hospitals.........................................        2,673          4.9         40.4         54.7
        0-99 beds...........................................          658          6.2         33.9         59.9
        100-199 beds........................................          929          7.2         45.5         47.3
        200-299 beds........................................          543          3.3         41.4         55.2
        300-499 beds........................................          400          0.8         37.0         62.3
        500 or more beds....................................          143          2.1         42.0         55.9
    Rural hospitals.........................................        2,119          4.1         22.4         73.5
        0-49 beds...........................................        1,220          2.9         16.6         80.6
        50-99 beds..........................................          531          6.8         26.7         66.5
        100-149 beds........................................          219          5.9         35.2         58.9
        150-199 beds........................................           81          2.5         25.9         71.6
        200 or more beds....................................           68          1.5         47.1         51.5
By Region:
    Urban by Region.........................................        2,673          4.9         40.4         54.7
        New England.........................................          145          0.7         25.5         73.8
        Middle Atlantic.....................................          408          2.9         34.8         62.3
        South Atlantic......................................          398          5.5         51.8         42.7
        East North Central..................................          454          4.2         29.7         66.1
        East South Central..................................          154          8.4         46.1         45.5
        West North Central..................................          182          6.0         36.8         57.1
        West South Central..................................          328          8.8         58.2         32.9
        Mountain............................................          124          4.8         48.4         46.8
        Pacific.............................................          435          4.1         36.3         59.5
        Puerto Rico.........................................           45          2.2         26.7         71.1
    Rural by Region.........................................        2,119          4.1         22.4         73.5
        New England.........................................           52          0.0         23.1         76.9
        Middle Atlantic.....................................           78          5.1         19.2         75.6
        South Atlantic......................................          276          2.2         33.3         64.5
        East North Central..................................          279          3.9         16.5         79.6
        East South Central..................................          265          3.4         32.8         63.8
        West North Central..................................          491          3.3         14.5         82.3
        West South Central..................................          334          4.5         26.3         69.2
        Mountain............................................          200          9.5         15.0         75.5
        Pacific.............................................          139          5.0         23.7         71.2
By Payment Classification:
    Large urban areas (populations over 1 million)..........        1,618          4.2         41.3         54.5
    Other urban areas (populations of 1 million or fewer)...        1,136          6.0         38.8         55.2
    Rural areas.............................................        2,038          4.1         21.8         74.1
    Teaching Status:
        Non-teaching........................................        3,682          5.1         31.6         63.3
        Fewer than 100 Residents............................          871          2.9         35.9         61.2
        100 or more Residents...............................          239          2.1         32.2         65.7
    Disproportionate share hospitals (DSH):                         2,988          4.7         28.3         67.0
By Geographic Location:
    All hospitals...........................................        4,792          4.6         32.4         63.0

[[Page 47202]]

 
        Non-DSH
        Urban DSH:
            100 or more beds................................        1,379          4.6         42.5         52.9
            Less than 100 beds..............................           70          4.3         25.7         70.0
        Rural DSH:
            Sole Community (SCH/EACH).......................          149          5.4         20.1         74.5
            Referral Center (RRC/EACH)......................           56          3.6         51.8         44.6
            OTHER RURAL:
                100 OR MORE BEDS............................           48  ...........         39.6         60.4
                Less than 100 beds..........................          102          2.0         23.5         74.5
        Urban teaching and DSH:
        Both teaching and DSH...............................          720          2.5         36.7         60.8
        Teaching and no DSH.................................          325          3.1         33.8         63.1
        No teaching and DSH.................................          729          6.7         46.6         46.6
        No teaching and no DSH..............................          980          6.0         40.3         53.7
    Rural Hospital Types:
        Non special status hospitals........................          819          1.5         24.1         74.5
        RRC/EACH............................................          150          2.7         36.0         61.3
        SCH/EACH............................................          661          8.5         18.2         73.4
        Medicare-dependent hospitals (MDH)..................          351          1.4         16.5         82.1
        SCH, RRC and EACH...................................           57         10.5         26.3         63.2
    Type of Ownership:
        Voluntary...........................................        2,520          4.5         32.4         63.1
        Proprietary.........................................          655          7.2         57.1         35.7
        Government..........................................        1,093          4.1         19.2         76.7
    Medicare Utilization as a Percent of Inpatient Days:
        0-25................................................          369          5.4         27.6         66.9
        25-50...............................................        1,820          4.3         35.1         60.7
        50-65...............................................        1,882          4.7         31.2         64.1
        Over 65.............................................          688          4.8         32.1         63.1
----------------------------------------------------------------------------------------------------------------

    As we explain in Appendix B of this final rule, we were not able 
to use 96 of the 4,888 hospitals in our database due to insufficient 
(missing or unusable) data. Consequently, the payment methodology 
distribution is based on 4,792 hospitals. These data should be fully 
representative of the payment methodologies that will be applicable 
to hospitals.
    The cross-sectional distribution of hospital by payment 
methodology is presented by: (1) geographic location; (2) region; 
and (3) payment classification. This provides an indication of the 
percentage of hospitals within a particular hospital grouping that 
will be paid under the fully prospective payment methodology and the 
hold-harmless payment methodology.
    The percentage of hospitals paid fully Federal (100 percent of 
the Federal rate) as hold-harmless hospitals is expected to increase 
to 32.4 percent in FY 2001.
    Table IV indicates that 63.0 percent of hospitals will be paid 
under the fully prospective payment methodology. (This figure, 
unlike the figure of 67 percent for low cost capital hospitals in 
the chart on ``Capital Transition Payment Methodology for FY 2001,'' 
in section VII.B.2. of this impact analysis takes into account the 
effects of redeterminations. In other words, this figure does not 
include low cost hospitals that, following a hospital-specific rate 
redetermination, are now paid under the hold-harmless methodology.) 
As expected, a relatively higher percentage of rural and 
governmental hospitals (74.1 percent and 76.7 percent, respectively 
by payment classification) are being paid under the fully 
prospective payment methodology. This is a reflection of their lower 
than average capital costs per case. In contrast, only 35.7 percent 
of proprietary hospitals are being paid under the fully prospective 
methodology. This is a reflection of their higher than average 
capital costs per case. (We found at the time of the August 30, 1991 
final rule (56 FR 43430) that 62.7 percent of proprietary hospitals 
had a capital cost per case above the national average cost per 
case.)

D. Cross-Sectional Analysis of Changes in Aggregate Payments

    We used our FY 2001 actuarial model to estimate the potential 
impact of our changes for FY 2001 on total capital payments per 
case, using a universe of 4,792 hospitals. The individual hospital 
payment parameters are taken from the best available data, 
including: the April 1, 2000 update to the provider-specific file, 
cost report data, and audit information supplied by intermediaries. 
In Table V we present the results of the cross-sectional analysis 
using the results of our actuarial model and the aggregate impact of 
the FY 2001 payment policies. Columns 3 and 4 show estimates of 
payments per case under our model for FY 2000 and FY 2001. Column 5 
shows the total percentage change in payments from FY 2000 to FY 
2001. Column 6 presents the percentage change in payments that can 
be attributed to Federal rate changes alone.
    Federal rate changes represented in Column 6 include the 1.33 
percent increase in the Federal rate, a 0.5 percent increase in case 
mix, changes in the adjustments to the Federal rate (for example, 
the effect of the new hospital wage index on the geographic 
adjustment factor), and reclassifications by the MGCRB. Column 5 
includes the effects of the Federal rate changes represented in 
Column 6. Column 5 also reflects the effects of all other changes, 
including the change from 90 percent to 100 percent in the portion 
of the Federal rate for fully prospective hospitals, the hospital-
specific rate update, changes in the proportion of new to total 
capital for hold-harmless hospitals, changes in old capital (for 
example, obligated capital put in use), hospital-specific rate 
redeterminations, and exceptions. The comparisons are provided by: 
(1) geographic location, (2) region, and (3) payment classification.
    The simulation results show that, on average, capital payments 
per case can be expected to increase 3.8 percent in FY 2001. The 
results show that the effect of the Federal

[[Page 47203]]

rate change alone is to increase payments by 0.3 percent. In 
addition to the increase attributable to the Federal rate change, a 
3.5 percent increase is attributable to the effects of all other 
changes.
    Our comparison by geographic location shows an overall increase 
in payments to hospitals in all areas. This comparison also shows 
that urban and rural hospitals will experience slightly different 
rates of increase in capital payments per case (3.6 percent and 4.6 
percent, respectively). This difference is due to the lower rate of 
increase for urban hospitals relative to rural hospitals (0.1 
percent and 1.4 percent, respectively) from the Federal rate changes 
alone. Urban hospitals are actually projected to gain slightly more 
than rural hospitals (3.5 percent versus 3.2 percent, respectively) 
from the effects of all other changes.
    All regions are estimated to receive increases in total capital 
payments per case, partly due to the increased share of payments 
that are based on the Federal rate (from 90 to 100 percent). Changes 
by region vary from a minimum of 2.6 percent increase (West South 
Central urban region) to a maximum of 7.4 percent increase (Pacific 
rural region).
    By type of ownership, government hospitals are projected to have 
the largest rate of increase of total payment changes (4.5 percent, 
a 0.6 percent increase due to the Federal rate changes, and a 3.9 
percent increase from the effects of all other changes). Payments to 
voluntary hospitals will increase 3.7 percent (a 0.3 percent 
increase due to Federal rate changes, and a 3.4 percent increase 
from the effects of all other changes) and payments to proprietary 
hospitals will increase 2.6 percent (a 0.1 percent decrease due to 
Federal rate changes, and a 2.7 percent increase from the effects of 
all other changes).
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the standardized 
amount, wage index, or both, and for purposes of DSH for FYs 1999 
through 2001. Although the Federal capital rate is not affected, a 
hospital's geographic classification for purposes of the operating 
standardized amount does affect a hospital's capital payments as a 
result of the large urban adjustment factor and the disproportionate 
share adjustment for urban hospitals with 100 or more beds. 
Reclassification for wage index purposes affects the geographic 
adjustment factor, since that factor is constructed from the 
hospital wage index.
    To present the effects of the hospitals being reclassified for 
FY 2001 compared to the effects of reclassification for FY 2000, we 
show the average payment percentage increase for hospitals 
reclassified in each fiscal year and in total. For FY 2001 
reclassifications, we indicate those hospitals reclassified for 
standardized amount purposes only, for wage index purposes only, and 
for both purposes. The reclassified groups are compared to all other 
nonreclassified hospitals. These categories are further identified 
by urban and rural designation.
    Hospitals reclassified for FY 2001 as a whole are projected to 
experience a 5.2 percent increase in payments (a 2.0 percent 
increase attributable to Federal rate changes and a 3.2 percent 
increase attributable to the effects of all other changes). Payments 
to nonreclassified hospitals will increase slightly less (3.8 
percent) than reclassified hospitals (5.2 percent) overall. Payments 
to nonreclassified hospitals will increase less than reclassified 
hospitals due to the Federal rate changes (0.3 percent compared to 
2.0 percent).

                                 Table V.--Comparison of Total Payments per Case
                                 [FY 2000 payments compared to FY 2001 payments]
----------------------------------------------------------------------------------------------------------------
                                                              Average FY   Average FY                  Portion
                                                 Number of       2000         2001                  attributable
                                                 hospitals    payments/    payments/   All changes   to federal
                                                                 case         case                   rate change
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals.............................        4,792          641          665          3.8           0.3
    Large urban areas (populations over 1             1,524          745          772          3.6           0.0
     million).................................
    Other urban areas (populations of 1               1,149          629          653          3.7           0.4
     million or fewer)........................
    Rural areas...............................        2,119          429          449          4.6           1.4
    Urban hospitals...........................        2,673          695          720          3.6           0.1
        0-99 beds.............................          658          499          518          3.8           0.6
        100-199 beds..........................          929          610          630          3.4           0.3
        200-299 beds..........................          543          662          684          3.4           0.3
        300-499 beds..........................          400          726          754          3.8          -0.1
        500 or more beds......................          143          889          923          3.8           0.0
    Rural hospitals...........................        2,119          429          449          4.6           1.4
        0-49 beds.............................        1,220          358          378          5.8           2.0
        50-99 beds............................          531          409          429          4.9           1.4
        100-149 beds..........................          219          444          461          3.8           1.0
        150-199 beds..........................           81          467          489          4.7           1.8
        200 or more beds......................           68          526          547          3.9           1.0
By Region:
    Urban by Region...........................        2,673          695          720          3.6           0.1
        New England...........................          145          723          751          3.9          -0.1
        Middle Atlantic.......................          408          769          797          3.7          -0.1
        South Atlantic........................          398          674          693          2.9          -0.2
        East North Central....................          454          660          692          4.9           0.8
        East South Central....................          154          638          660          3.4          -0.3
        West North Central....................          182          691          715          3.4           0.1
        West South Central....................          328          661          678          2.6           0.8
        Mountain..............................          124          687          723          5.3           0.3
        Pacific...............................          435          780          804          3.1          -0.5
        Puerto Rico...........................           45          293          311          6.1           2.3
    Rural by Region...........................        2,119          429          449          4.6           1.4
        New England...........................           52          525          544          3.6           0.2
        Middle Atlantic.......................           78          450          469          4.1           0.8
        South Atlantic........................          276          443          462          4.4           1.8
        East North Central....................          279          432          459          6.2           1.6
        East South Central....................          265          395          411          4.2           1.5
        West North Central....................          491          420          440          4.6           1.5
        West South Central....................          334          391          404          3.4           1.0
        Mountain..............................          200          461          478          3.7           1.1

[[Page 47204]]

 
        Pacific...............................          139          506          543          7.4           1.4
By Payment Classification:
    All hospitals.............................        4,792          641          665          3.8           0.3
    Large urban areas (populations over 1             1,618          736          763          3.6           0.1
     million).................................
    Other urban areas (populations of 1               1,136          628          650          3.5           0.2
     million or fewer)........................
    Rural areas...............................        2,038          425          446          4.8           1.5
    Teaching Status:
        Non-teaching..........................        3,682          530          549          3.5           0.6
        Fewer than 100 Residents..............          871          669          694          3.7           0.3
        100 or more Residents.................          239          979        1,022          4.4          -0.2
        Urban DSH:
            100 or more beds..................        1,379          733          759          3.6           0.1
            Less than 100 beds................           70          570          604          5.9           0.5
        Rural DSH:
            Sole Community (SCH/EACH).........          149          382          399          4.5           2.1
            Referral Center (RRC/EACH)........           56          490          506          3.2           1.0
            Other Rural:
                100 or more beds..............           48          383          401          4.9           2.3
                Less than 100 beds............          102          343          360          5.0           1.9
        Urban teaching and DSH:
        Both teaching and DSH.................          720          807          838          3.8           0.1
        Teaching and no DSH...................          325          699          728          4.1           0.2
        No teaching and DSH...................          729          603          621          3.1           0.2
        No teaching and no DSH................          980          570          588          3.0           0.2
    Rural Hospital Types:
        Non special status hospitals..........          819          376          394          5.0           1.7
        RRC/EACH..............................          150          493          515          4.3           1.4
        SCH/EACH..............................          661          425          448          5.5           1.5
        Medicare-dependent hospitals (MDH)....          351          356          377          5.7           1.9
        SCH, RRC and EACH.....................           57          499          516          3.5           0.6
    Hospitals Reclassified by the Medicare
     Geographic Classification Review Board:
        Reclassification Status During FY00
         and FY01:
            Reclassified During Both FY00 and           377          546          569          4.1           0.9
             FY01.............................
            Reclassified During FY01 Only.....          149          531          579          9.1           6.0
            Reclassified During FY00 Only.....          131          553          546         -1.2          -3.1
        FY01 Reclassifications:
            All Reclassified Hospitals........          526          543          571          5.2           2.0
            All Nonreclassified Hospitals.....        4,268          654          679          3.8           0.3
            All Urban Reclassified Hospitals..           88          701          746          6.3           2.3
            Urban Nonreclassified Hospitals...        2,559          696          720          3.5           0.0
            All Reclassified Rural Hospitals..          438          488          510          4.7           1.9
            Rural Nonreclassified Hospitals...        1,681          386          404          4.6           1.0
        Other Reclassified Hospitals (Section            26          463          473          2.1           0.7
         1886(D)(8)(B)).......................
    Type of Ownership:
        Voluntary.............................        2,520          655          680          3.7           0.3
        Proprietary...........................          655          626          643          2.6          -0.1
        Government............................        1,093          576          602          4.5           0.6
    Medicare Utilization as a Percent of
     Inpatient Days:
        0-25..................................          369          801          838          4.7           0.1
        25-50.................................        1,820          736          763          3.7           0.0
        50-65.................................        1,882          568          590          3.8           0.6
        Over 65...............................          688          512          528          3.2           0.7
----------------------------------------------------------------------------------------------------------------

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

    Under section 1886(g)(1)(A) of the Act, we set capital 
prospective payment rates for FY 1992 through FY 1995 so that 
aggregate prospective payments for capital costs were projected to 
be 10 percent lower than the amount that would have been payable on 
a reasonable cost basis for capital-related costs in that year. To 
implement this requirement, we developed the capital acquisition 
model to determine the budget neutrality adjustment factor. Even 
though the budget neutrality requirement expired effective with FY 
1996, we must continue to determine the recalibration and geographic 
reclassification budget neutrality adjustment factor and the 
reduction in the Federal and hospital-specific rates for exceptions 
payments.
    To determine these factors, we must continue to project capital 
costs and payments.
    We used the capital acquisition model from the start of 
prospective payments for capital costs through FY 1997. We now have 
7 years of cost reports under the capital prospective payment 
system. For FY 1998, we developed a new capital cost model to 
replace the capital acquisition model. This revised model makes use 
of the data from these cost reports.
    The following cost reports are used in the capital cost model 
for this final rule: the March 31, 2000 update of the cost reports 
for

[[Page 47205]]

PPS-IX (cost reporting periods beginning in FY 1992), PPS-X (cost 
reporting periods beginning in FY 1993), PPS-XI (cost reporting 
periods beginning in FY 1994), PPS-XII (cost reporting periods 
beginning in FY 1995), PPS-XIII (cost reporting periods beginning in 
FY 1996), PPS-XIV (cost reporting periods beginning in FY 1997), and 
PPS-XV (cost reporting periods beginning in FY 1998). In addition, 
to model payments, we use the April 1, 2000 update of the provider-
specific file, and the March 1994 update of the intermediary audit 
file.
    Since hospitals under alternative payment system waivers (that 
is, hospitals in Maryland) are currently excluded from the capital 
prospective payment system, we excluded these hospitals from our 
model.
    We developed FY 1992 through FY 2000 hospital-specific rates 
using the provider-specific file and the intermediary audit file. 
(We used the cumulative provider-specific file, which includes all 
updates to each hospital's records, and chose the latest record for 
each fiscal year.) We checked the consistency between the provider-
specific file and the intermediary audit file. We ensured that 
increases in the hospital-specific rates were at least as large as 
the published updates (increases) for the hospital-specific rates 
each year. We were able to match hospitals to the files as shown in 
the following table:

------------------------------------------------------------------------
                                                              Number of
                           Source                             hospitals
------------------------------------------------------------------------
Provider-Specific File Only................................          173
Provider-Specific and Audit File...........................        4,715
                                                            ------------
    Total..................................................        4,888
------------------------------------------------------------------------

    One hundred forty-three of the 4,888 hospitals had unusable or 
missing data, or had no cost reports available. For 42 of the 143 
hospitals, we were unable to determine a hospital-specific rate from 
the available cost reports. However, there was adequate cost 
information to determine that these hospitals were paid under the 
hold-harmless methodology. Since the hospital-specific rate is not 
used to determine payments for hospitals paid under the hold-
harmless methodology, there was sufficient cost report information 
available to include these 42 hospitals in the analysis. We were 
able to estimate hospital-specific amounts for five additional 
hospitals from the cost reports as shown in the following table:

------------------------------------------------------------------------
                                                              Number of
                        Cost report                           hospitals
------------------------------------------------------------------------
PPS-9......................................................            1
PPS-12.....................................................            2
PPS-14.....................................................            1
PPS-15.....................................................            1
                                                            ------------
    Total..................................................            5
------------------------------------------------------------------------

Hence we were able to use 47 of the 143 hospitals. We used 4,792 
hospitals for the analysis. Ninety-six hospitals could not be used 
in the analysis because of insufficient information. These hospitals 
account for less than 0.5 percent of admissions. Therefore, any 
effects from the elimination of their cost report data should be 
minimal.
    We analyzed changes in capital-related costs (depreciation, 
interest, rent, leases, insurance, and taxes) reported in the cost 
reports. We found a wide variance among hospitals in the growth of 
these costs. For hospitals with more than 100 beds, the distribution 
and mean of these cost increases were different for large changes in 
bed-size (greater than 20 percent). We also analyzed 
changes in the growth in old capital and new capital for cost 
reports that provided this information. For old capital, we limited 
the analysis to decreases in old capital. We did this since the 
opportunity for most hospitals to treat ``obligated'' capital put 
into service as old capital has expired. Old capital costs should 
decrease as assets become fully depreciated and as interest costs 
decrease as the loan is amortized.
    The new capital cost model separates the hospitals into three 
mutually exclusive groups. Hold-harmless hospitals with data on old 
capital were placed in the first group. Of the remaining hospitals, 
those hospitals with fewer than 100 beds comprise the second group. 
The third group consists of all hospitals that did not fit into 
either of the first two groups. Each of these groups displayed 
unique patterns of growth in capital costs. We found that the gamma 
distribution is useful in explaining and describing the patterns of 
increase in capital costs. A gamma distribution is a statistical 
distribution that can be used to describe patterns of growth rates, 
with the greatest proportion of rates being at the low end. We use 
the gamma distribution to estimate individual hospital rates of 
increase as follows:
    (1) For hold-harmless hospitals, old capital cost changes were 
fitted to a truncated gamma distribution, that is, a gamma 
distribution covering only the distribution of cost decreases. New 
capital costs changes were fitted to the entire gamma distribution, 
allowing for both decreases and increases.
    (2) For hospitals with fewer than 100 beds (small), total 
capital cost changes were fitted to the gamma distribution, allowing 
for both decreases and increases.
    (3) Other (large) hospitals were further separated into three 
groups:
     Bed-size decreases over 20 percent (decrease).
     Bed-size increases over 20 percent (increase).
     Other (no change).
    Capital cost changes for large hospitals were fitted to gamma 
distributions for each bed-size change group, allowing for both 
decreases and increases in capital costs. We analyzed the 
probability distribution of increases and decreases in bed size for 
large hospitals. We found the probability somewhat dependent on the 
prior year change in bed size and factored this dependence into the 
analysis. Probabilities of bed-size change were determined. Separate 
sets of probability factors were calculated to reflect the 
dependence on prior year change in bed size (increase, decrease, and 
no change).
    The gamma distributions were fitted to changes in aggregate 
capital costs for the entire hospital. We checked the relationship 
between aggregate costs and Medicare per discharge costs. For large 
hospitals, there was a small variance, but the variance was larger 
for small hospitals. Since costs are used only for the hold-harmless 
methodology and to determine exceptions, we decided to use the gamma 
distributions fitted to aggregate cost increases for estimating 
distributions of cost per discharge increases.
    Capital costs per discharge calculated from the cost reports 
were increased by random numbers drawn from the gamma distribution 
to project costs in future years. Old and new capital were projected 
separately for hold-harmless hospitals. Aggregate capital per 
discharge costs were projected for all other hospitals. Because the 
distribution of increases in capital costs varies with changes in 
bed size for large hospitals, we first projected changes in bed size 
for large hospitals before drawing random numbers from the gamma 
distribution. Bed-size changes were drawn from the uniform 
distribution with the probabilities dependent on the previous year 
bed-size change. The gamma distribution has a shape parameter and a 
scaling parameter. (We used different parameters for each hospital 
group, and for old and new capital.)
    We used discharge counts from the cost reports to calculate 
capital cost per discharge. To estimate total capital costs for FY 
1999 (the MedPAR data year) and later, we use the number of 
discharges from the MedPAR data. Some hospitals had considerably 
more discharges in FY 1999 than in the years for which we calculated 
cost per discharge from the cost report data. Consequently, a 
hospital with few cost report discharges would have a high capital 
cost per discharge, since fixed costs would be allocated over only a 
few discharges. If discharges increase substantially, the cost per 
discharge would decrease because fixed costs would be allocated over 
more discharges. If the projection of capital cost per discharge is 
not adjusted for increases in discharges, the projection of 
exceptions would be overstated. We address this situation by 
recalculating the cost per discharge with the MedPAR discharges if 
the MedPAR discharges exceed the cost report discharges by more than 
20 percent. We do not adjust for increases of less than 20 percent 
because we have not received all of the FY 1999 discharges, and we 
have removed some discharges from the analysis because they are 
statistical outliers. This adjustment reduces our estimate of 
exceptions payments, and consequently, the reduction to the Federal 
rate for exceptions is smaller. We will continue to monitor our 
modeling of exceptions payments and make adjustments as needed.
    The average national capital cost per discharge generated by 
this model is the combined average of many randomly generated 
increases. This average must equal the projected average national 
capital cost per discharge, which we projected separately (outside 
this model). We adjusted the shape parameter of the gamma 
distributions so that the modeled average capital cost per discharge 
matches our projected capital cost per discharge. The shape 
parameter for old capital was not adjusted since we are

[[Page 47206]]

modeling the aging of ``existing'' assets. This model provides a 
distribution of capital costs among hospitals that is consistent 
with our aggregate capital projections.
    Once each hospital's capital-related costs are generated, the 
model projects capital payments. We use the actual payment 
parameters (for example, the case-mix index and the geographic 
adjustment factor) that are applicable to the specific hospital.
    To project capital payments, the model first assigns the 
applicable payment methodology (fully prospective or hold-harmless) 
to the hospital as determined from the provider-specific file and 
the cost reports. The model simulates Federal rate payments using 
the assigned payment parameters and hospital-specific estimated 
outlier payments. The case-mix index for a hospital is derived from 
the FY 1999 MedPAR file using the FY 2001 DRG relative weights 
included in section VI. of the Addendum to this final rule. The 
case-mix index is increased each year after FY 1999 based on 
analysis of past experiences in case-mix increases. Based on 
analysis of recent case-mix increases, we estimate that case-mix 
will increase 0.0 percent in FY 2000. We project that case-mix will 
increase 0.0 percent in FY 2001. (Since we are using FY 1999 cases 
for our analysis, the FY 1999 increase in case-mix has no effect on 
projected capital payments.)
    Changes in geographic classification and revisions to the 
hospital wage data used to establish the hospital wage index affect 
the geographic adjustment factor. Changes in the DRG classification 
system and the relative weights affect the case-mix index.
    Section 412.308(c)(4)(ii) requires that the estimated aggregate 
payments for the fiscal year, based on the Federal rate after any 
changes resulting from DRG reclassifications and recalibration and 
the geographic adjustment factor, equal the estimated aggregate 
payments based on the Federal rate that would have been made without 
such changes. For FY 2000, the budget neutrality adjustment factors 
were 1.00142 for the national rate and 1.00134 for the Puerto Rico 
rate.
    Since we implemented a separate geographic adjustment factor for 
Puerto Rico, we applied separate budget neutrality adjustments for 
the national geographic adjustment factor and the Puerto Rico 
geographic adjustment factor. We applied the same budget neutrality 
factor for DRG reclassifications and recalibration nationally and 
for Puerto Rico. Separate adjustments were unnecessary for FY 1998 
and earlier since the geographic adjustment factor for Puerto Rico 
was implemented in FY 1998.
    To determine the factors for FY 2001, we first determined the 
portions of the Federal national and Puerto Rico rates that would be 
paid for each hospital in FY 2001 based on its applicable payment 
methodology. Using our model, we then compared, separately for the 
national rate and the Puerto Rico rate, estimated aggregate Federal 
rate payments based on the FY 2000 DRG relative weights and the FY 
2000 geographic adjustment factor to estimated aggregate Federal 
rate payments based on the FY 2000 relative weights and the FY 2001 
geographic adjustment factor. In making the comparison, we held the 
FY 2001 Federal rate portion constant and set the other budget 
neutrality adjustment factor and the exceptions reduction factor to 
1.00. To achieve budget neutrality for the changes in the national 
geographic adjustment factor, we applied an incremental budget 
neutrality adjustment of 0.99782 for FY 2001 to the previous 
cumulative FY 2000 adjustment of 1.00142, yielding a cumulative 
adjustment of 0.99924 through FY 2001. For the Puerto Rico 
geographic adjustment factor, we applied an incremental budget 
neutrality adjustment of 1.00365 for FY 2001 to the previous 
cumulative FY 2000 adjustment of 1.00134, yielding a cumulative 
adjustment of 1.00499 through FY 2001. We then compared estimated 
aggregate Federal rate payments based on the FY 2000 DRG relative 
weights and the FY 2001 geographic adjustment factors to estimated 
aggregate Federal rate payments based on the FY 2001 DRG relative 
weights and the FY 2001 geographic adjustment factors. The 
incremental adjustment for DRG classifications and changes in 
relative weights would be 1.00009 nationally and for Puerto Rico. 
The cumulative adjustments for DRG classifications and changes in 
relative weights and for changes in the geographic adjustment 
factors through FY 2001 would be 0.99933 nationally and 1.00508 for 
Puerto Rico. The following table summarizes the adjustment factors 
for each fiscal year:

                     Budget Neutrality Adjustment for DRG Reclassifications and Recalibration and the Geographic Adjustment Factors
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              National                                                 Puerto Rico
                                     -------------------------------------------------------------------------------------------------------------------
                                                 Incremental adjustment                                    Incremental adjustment
             Fiscal year             ---------------------------------------------             ---------------------------------------------
                                       Geographic         DRG                       Cumulative   Geographic         DRG                       Cumulative
                                       adjustment  reclassifications    Combined                 adjustment  reclassifications    Combined
                                         factor    and recalibration                               factor    and recalibration
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992................................  ...........  .................  ...........      1.00000  ...........  .................  ...........  ...........
1993................................  ...........  .................      0.99800      0.99800  ...........  .................  ...........  ...........
1994................................  ...........  .................      1.00531      1.00330  ...........  .................  ...........  ...........
1995................................  ...........  .................      0.99980      1.00310  ...........  .................  ...........  ...........
1996................................  ...........  .................      0.99940      1.00250  ...........  .................  ...........  ...........
1997................................  ...........  .................      0.99873      1.00123  ...........  .................  ...........  ...........
1998................................  ...........  .................      0.99892      1.00015  ...........  .................  ...........      1.00000
1999................................      0.99944         1.00335         1.00279      1.00294      0.99898         1.00335         1.00233      1.00233
2000................................      0.99857         0.99991         0.99848      1.00142      0.99910         0.99991         0.99901      1.00134
2001................................      0.99782         1.00009         0.99791      0.99933      1.00365         1.00009         1.00374      1.00508
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The methodology used to determine the recalibration and 
geographic (DRG/GAF) budget neutrality adjustment factor is similar 
to that used in establishing budget neutrality adjustments under the 
prospective payment system for operating costs. One difference is 
that, under the operating prospective payment system, the budget 
neutrality adjustments for the effect of geographic 
reclassifications are determined separately from the effects of 
other changes in the hospital wage index and the DRG relative 
weights. Under the capital prospective payment system, there is a 
single DRG/GAF budget neutrality adjustment factor (the national 
rate and the Puerto Rico rate are determined separately) for changes 
in the geographic adjustment factor (including geographic 
reclassification) and the DRG relative weights. In addition, there 
is no adjustment for the effects that geographic reclassification 
has on the other payment parameters, such as the payments for 
serving low-income patients or the large urban add-on payments.
    In addition to computing the DRG/GAF budget neutrality 
adjustment factor, we used the model to simulate total payments 
under the prospective payment system.
    Additional payments under the exceptions process are accounted 
for through a reduction in the Federal and hospital-specific rates. 
Therefore, we used the model to calculate the exceptions reduction 
factor. This exceptions reduction factor ensures that aggregate 
payments under the capital prospective payment system, including 
exceptions payments, are projected to equal the aggregate payments 
that would have been made under the capital prospective payment 
system without an exceptions process. Since changes in the level of 
the payment rates change the level of payments under the exceptions 
process, the exceptions reduction factor must be determined through 
iteration.
    In the August 30, 1991 final rule (56 FR 43517), we indicated 
that we would publish each year the estimated payment factors

[[Page 47207]]

generated by the model to determine payments for the next 5 years. 
The table below provides the actual factors for FYs 1992 through 
2000, the final factors for FY 2001, and the estimated factors that 
would be applicable through FY 2005. We caution that these are 
estimates for FYs 2002 and later, and are subject to revisions 
resulting from continued methodological refinements, receipt of 
additional data, and changes in payment policy. We note that in 
making these projections, we have assumed that the cumulative 
national DRG/GAF budget neutrality adjustment factor will remain at 
0.99933 (1.00508 for Puerto Rico) for FY 2001 and later because we 
do not have sufficient information to estimate the change that will 
occur in the factor for years after FY 2001.
    The projections are as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               Federal
                                                                  Update     Exceptions     Budget      DRG/GAF      Outlier      Federal    rate (after
                         Fiscal year                              factor     reduction    neutrality   adjustment   adjustment      rate       outlier
                                                                               factor       factor     factor \1\     factor     adjustment   reduction)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992.........................................................          N/A       0.9813       0.9602  ...........        .9497  ...........       415.59
1993.........................................................         6.07        .9756        .9162        .9980        .9496  ...........       417.29
1994.........................................................         3.04        .9485        .8947       1.0053        .9454    \2\ .9260       378.34
1995.........................................................         3.44        .9734        .8432        .9998        .9414  ...........       376.83
1996.........................................................         1.20        .9849          N/A        .9994        .9536    \3\ .9972       461.96
1997.........................................................         0.70        .9358          N/A        .9987        .9481  ...........       438.92
1998.........................................................         0.90        .9659          N/A        .9989        .9382    \4\ .8222       371.51
1999.........................................................         0.10        .9783          N/A       1.0028        .9392  ...........       378.10
2000.........................................................         0.30        .9730          N/A        .9985        .9402  ...........       377.03
2001.........................................................         0.90        .9785          N/A        .9979        .9409  ...........       382.03
2002.........................................................         0.90   \6\ 1.0000          N/A   \5\ 1.0000    \5\ .9409  ...........       393.94
2003.........................................................         0.90   \6\ 1.0000          N/A       1.0000        .9409   \4\ 1.0255       407.64
2004.........................................................         0.80   \6\ 1.0000          N/A       1.0000        .9409  ...........       410.90
2005.........................................................         0.90   \6\ 1.0000          N/A       1.0000        .9409  ...........      414.60
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Note: The incremental change over the previous year.
\2\ Note: OBRA 1993 adjustment.
\3\ Note: Adjustment for change in the transfer policy.
\4\ Note: Balanced Budget Act of 1997 adjustment.
\5\ Note: Future adjustments are, for purposes of this projection, assumed to remain at the same level.
\6\ Note: We are unable to estimate exceptions payments for the year under the special exceptions provision (Sec.  412.348(g) of the regulations)
  because the regular exceptions provision (Sec.  412.348(e)) expires.

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

I. Background

    Several provisions of the Act address the setting of update 
factors for inpatient services furnished in FY 2001 by hospitals 
subject to the prospective payment system and by hospitals or units 
excluded from the prospective payment system. Section 
1886(b)(3)(B)(i)(XVI) of the Act sets the FY 2001 percentage 
increase in the operating cost standardized amounts equal to the 
rate of increase in the hospital market basket minus 1.1 percent for 
prospective payment hospitals in all areas. Section 
1886(b)(3)(B)(iv) of the Act sets the FY 2001 percentage increase in 
the hospital-specific rates applicable to sole community and 
Medicare-dependent, small rural hospitals equal to the rate set 
forth in section 1886(b)(3)(B)(i) of the Act. For Medicare-
dependent, small rural hospitals, the percentage increase is the 
same update factor as all other hospitals subject to the prospective 
payment system, or the rate of increase in the market basket minus 
1.1 percentage points. Section 406 of Public Law 106-113 amended 
section 1886(b)(3)(B)(i) of the Act to provide that, for sole 
community hospitals, the rate of increase for FY 2001 is equal to 
the market basket percentage increase.
    Under section 1886(b)(3)(B)(ii) of the Act, the FY 2001 
percentage increase in the rate-of-increase limits for hospitals and 
units excluded from the prospective payment system ranges from the 
percentage increase in the excluded hospital market basket less a 
percentage between 0 and 2.5 percentage points, depending on the 
hospital's or unit's costs in relation to its limit for the most 
recent cost reporting period for which information is available, or 
0 percentage point if costs do not exceed two-thirds of the limit.
    In accordance with section 1886(d)(3)(A) of the Act, we are 
updating the standardized amounts, the hospital-specific rates, and 
the rate-of-increase limits for hospitals and units excluded from 
the prospective payment system as provided in section 1886(b)(3)(B) 
of the Act. Based on the second quarter 2000 forecast of the FY 2001 
market basket increase of 3.4 percent for hospitals and units 
subject to the prospective payment system, the update to the 
standardized amounts is 2.3 percent (that is, the market basket rate 
of increase minus 1.1 percent percentage points) for hospitals in 
both large urban and other areas. The update to the hospital-
specific rate applicable to Medicare-dependent, small rural 
hospitals is also 2.3 percent. The update to the hospital-specific 
rate applicable to sole community hospitals is 3.4 percent. The 
update for hospitals and units excluded from the prospective payment 
system can range from the percentage increase in the excluded 
hospital market basket (currently estimated at 3.4 percent) minus a 
percentage between 0 and 2.5 percentage points, or 0 percentage 
point, resulting in an increase in the rate-of-increase limit 
between 0.9 and 3.4 percent, or zero percent (see section V of the 
Addendum of this final rule).
    Section 1886(e)(4) of the Act requires that the Secretary, 
taking into consideration the recommendations of the Medicare 
Payment Advisory Commission (MedPAC), recommend update factors for 
each fiscal year that take into account the amounts necessary for 
the efficient and effective delivery of medically appropriate and 
necessary care of high quality. Under section 1886(e)(5) of the Act, 
we are required to publish the update factors recommended under 
section 1886(e)(4) of the Act. Accordingly, we published the FY 2001 
update factors recommended by the Secretary in Appendix D of the May 
5, 2000 proposed rule (65 FR 26434). In its March 1, 2000 report, 
MedPAC did not make a specific update recommendation for FY 2001 
payments for Medicare acute inpatient hospitals. However, in its 
June 1, 2000 report, which was issued after the May 5, 2000 proposed 
rule, MedPAC recommended a combined operating and capital update for 
hospital inpatient prospective payment system payments for FY 2001. 
We describe the basis of our FY 2001 update recommendation in 
Appendix D of the May 5, 2000 proposed rule at 65 FR 26434. Our 
responses to the MedPAC recommendations concerning the update 
factors for FY 2001 are discussed below in section II of this 
Appendix.

II. Secretary's Recommendations

    Under section 1886(e)(4) of the Act, in the May 5, 2000 proposed 
rule, we recommended that an appropriate update factor for the 
standardized amounts was 2.0 percentage points for hospitals located 
in large urban and other areas. We also recommended an update of 2.0 
percentage points to the hospital-specific rate for Medicare-
dependent, small rural hospitals. In addition, we recommended an 
update of 3.1 percentage points to the hospital-specific rate for 
sole community hospitals. We believed these recommended update 
factors would ensure that Medicare acts as a prudent purchaser and 
provide incentives to hospitals for increased efficiency, thereby 
contributing to the solvency of the Medicare Part A Trust Fund.
    Also in the proposed rule, we recommended that hospitals 
excluded from the prospective payment system receive an update of 
between 0.6 and 3.1 percentage

[[Page 47208]]

points, or zero percentage points. The update for excluded hospitals 
and units is equal to the increase in the excluded hospital 
operating market basket less a percentage between 0 and 2.5 
percentage points, or 0 percentage points, depending on the 
hospital's or unit's costs in relation to its rate-of-increase limit 
for the most recent cost reporting period for which information is 
available. For the proposed rule, the market basket rate of increase 
for excluded hospitals and units was forecast at 3.1 percent.

III. MedPAC Recommendations for Updating the Prospective Payment System 
Operating Standardized Amounts

    In its June 2000 Report to Congress, MedPAC presented a combined 
operating and capital update for hospital inpatient prospective 
payment system payments for FY 2001 and recommended that Congress 
implement a single combined (operating and capital) prospective 
payment system rate. With the end of the transition to fully 
prospective capital payments ending with FY 2001, both operating and 
capital prospective system payments will be made using standard 
Federal rates adjusted by hospital specific payment variables. 
Currently, section 1886(b)(3)(B)(i)(XVI) of the Act sets forth the 
FY 2001 percentage increase in the prospective payment system 
operating cost standardized amounts. The prospective payment system 
capital update is set under the framework established by the 
Secretary outlined in Sec. 412.308(c)(1).
    For FY 2001, MedPAC's update framework supports a combined 
operating and capital update for hospital inpatient prospective 
payment system payments of 3.5 percent to 4.0 percent (or between 
the increase in the combined operating and capital market basket 
plus 0.6 percentage points and the increase in the combined 
operating and capital market basket plus 1.1 percentage points). 
MedPAC also notes that while the number of hospitals with negative 
inpatient hospital margins have increased in FY 1998 (most likely as 
the result of the implementation of Public Law 105-33), overall high 
inpatient Medicare margins generally offset hospital losses on other 
lines of Medicare services. MedPAC continues to project positive 
(greater than 11 percentage points) Medicare inpatient hospital 
margins through FY 2002.
    MedPAC's FY 2001 combined operating and capital update framework 
uses a weighted average of HCFA's forecasts of the operating 
(prospective payment system input price index) and capital (CIPI) 
market baskets. This combined market basket was used to develop an 
estimate of the change in overall operating and capital prices. 
MedPAC calculated a combined market basket forecast by weighting the 
operating market basket forecast by 0.92 and the capital market 
basket forecast by 0.08, since operating costs are estimated to 
represent 92 percent of total hospital costs (capital costs are 
estimated to represent the remaining 8 percent of total hospital 
costs). MedPAC's combined market basket for FY 2001 is estimated to 
increase by 2.9 percent, based on HCFA's March 2000 forecasted 
operating market basket increase of 3.1 percent and HCFA's March 
2000 forecasted capital market basket increase of 0.9 percent.
    Response: As we stated in the May 5, 2000 proposed rule (65 FR 
26317), we responded to a similar comment in the July 30, 1999 final 
rule (64 FR 41552), the July 31, 1998 final rule (63 FR 41013), and 
the September 1, 1995 final rule (60 FR 45816). In those rules, we 
stated that our long-term goal was to develop a single update 
framework for operating and capital prospective payments. However, 
we have not yet developed such a single framework as the actual 
operating system update has been determined by Congress through FY 
2002. In the meantime, we intend to maintain as much consistency as 
possible with the current operating framework in order to facilitate 
the eventual development of a unified framework. We maintain our 
goal of combining the update frameworks at the end of the 10-year 
capital transition period (the end of FY 2001) and may examine 
combining the payment systems post-transition. Because of the 
similarity of the update frameworks, we believe that they could be 
combined with little difficulty.
    The update framework analysis is a largely empirical process 
carried out by HCFA that quantifies changes in the hospital 
productivity, scientific and technological advances, practice 
pattern changes, hospital case mix, the effects of reclassification 
on recalibration, and forecast error correction. The update 
framework suggests an update for the prospective payment system 
operating standardized amounts ranging from of 2.4 percent (market 
basket minus 1 percent) to 2.9 percent (market basket minus 0.5 
percent) is supported by the analyses outlined below.

A. Productivity

    Service level productivity is defined as the ratio of total 
service output to full-time equivalent employees (FTEs). While we 
recognize that productivity is a function of many variables (for 
example, labor, nonlabor material, and capital inputs), we use a 
labor productivity measure since this update framework applies to 
operating payment. To recognize that we are apportioning the short-
run output changes to the labor input and not considering the 
nonlabor inputs, we weight our productivity measure for operating 
costs by the share of direct labor services in the market basket to 
determine the expected effect on cost per case.
    Our recommendation for the service productivity component is 
based on historical trends in productivity and total output for both 
the hospital industry and the general economy, and projected levels 
of future hospital service output. MedPAC's predecessor, the 
Prospective Payment Assessment Commission (ProPAC), estimated 
cumulative service productivity growth to be 4.9 percent from 1985 
through 1989, or 1.2 percent annually. At the same time, ProPAC 
estimated total output growth at 3.4 percent annually, implying a 
ratio of service productivity growth to output growth of 0.35.
    As stated in the proposed rule, since it was not possible at 
that time to develop a productivity measure specific to Medicare 
patients, we examined productivity (output per hour) and output 
(gross domestic product) for the economy. Depending on the exact 
time period, annual changes in productivity range from 0.3 to 0.35 
percent of the change in output (that is, a 1.0 percent increase in 
output would be correlated with a 0.3 to 0.35 percent change in 
output per hour).
    Under our framework, the recommended update is based in part on 
expected productivity--that is, projected service output during the 
year, multiplied by the historical ratio of service productivity to 
total service output, multiplied by the share of labor in total 
operating inputs, as calculated in the hospital market basket. This 
method estimates an expected labor productivity improvement in the 
same proportion to expected total service growth that has occurred 
in the past and assumes that, at a minimum, growth in FTEs changes 
proportionally to the growth in total service output. Thus, the 
recommendation allows for unit productivity to be smaller than the 
historical averages in years that output growth is relatively low 
and larger in years that output growth is higher than the historical 
averages. Based on the above estimates from both the hospital 
industry and the economy, we have chosen to employ the range of 
ratios of productivity change to output change of 0.30 to 0.35.
    The expected change in total hospital service output is the 
product of projected growth in total admissions (adjusted for 
outpatient usage), projected real case-mix growth, expected quality-
enhancing intensity growth, and net of expected decline in intensity 
due to reduction of cost-ineffective practice. Case-mix growth and 
intensity numbers for Medicare are used as proxies for those of the 
total hospital, since case-mix increases (used in the intensity 
measure as well) are unavailable for non-Medicare patients. Thus, 
expected output growth is simply the sum of the expected change in 
intensity (0.0 percent), projected admissions change (1.6 percent 
for FY 2001), and projected real case-mix growth (0.5 percent), or 
2.1 percent. The share of direct labor services in the market basket 
(consisting of wages, salaries, and employee benefits) is 61.4 
percent.
    Multiplying the expected change in total hospital service output 
(2.1 percent) by the ratio of historical service productivity change 
to total service growth of 0.30 to 0.35 and by the direct labor 
share percentage 61.4, provides our productivity standard of -0.5 to 
-0.4 percent. In past years, MedPAC made an adjustment for 
productivity improvement to reflect the level of improvement in the 
production of health care services, without affecting the quality of 
those services. Typically, MedPAC made a downward adjustment in 
their framework to reflect expected improvements in hospital 
productivity. In their FY 2001 combined update framework, MedPAC did 
not make an adjustment for productivity. Instead, MedPAC believes 
that the costs associated with scientific and technological advances 
should be financed partially through improvements in hospital 
productivity. As a result, MedPAC offset its adjustment for 
scientific and technological advances by a fixed standard of 
expected productivity

[[Page 47209]]

growth of 0.5 percent for FY 2001. Our productivity adjustment of -
0.5 to -0.4 percent is within the range of MedPAC's fixed standard 
of expected productivity growth of 0.5 percent used to offset its 
scientific and technological advances adjustment for FY 2001.

B. Intensity

    We base our intensity standard on the combined effect of three 
separate factors: changes in the use of quality enhancing services, 
changes in the use of services due to shifts in within-DRG severity, 
and changes in the use of services due to reductions of cost-
ineffective practices. For FY 2001, we recommended an adjustment of 
0.0 percent. The basis of this recommendation is discussed below. We 
have no empirical evidence that accurately gauges the level of 
quality-enhancing technology changes. A study published in the 
Winter 1992 issue of the Health Care Financing Review, 
``Contributions of case mix and intensity change to hospital cost 
increases'' (pp. 151-163), suggests that one-third of the intensity 
change is attributable to high-cost technology. The balance was 
unexplained but the authors speculated that it is attributable to 
fixed costs in service delivery.
    Typically, a specific new technology increases cost in some uses 
and decreases cost in others. Concurrently, health status is 
improved in some situations while in other situations it may be 
unaffected or even worsened using the same technology. It is 
difficult to separate out the relative significance of each of the 
cost-increasing effects for individual technologies and new 
technologies.
    Other things being equal, per-discharge fixed costs tend to 
fluctuate in inverse proportion to changes in volume. Fixed costs 
exist whether patients are treated or not. If volume is declining, 
per-discharge fixed costs will rise, but the reverse is true if 
volume is increasing.
    Following methods developed by HCFA's Office of the Actuary for 
deriving hospital output estimates from total hospital charges, we 
have developed Medicare-specific intensity measures based on a 5-
year average using FYs 1995 through 1999 MedPAR billing data. Case-
mix constant intensity is calculated as the change in total Medicare 
charges per discharge adjusted for changes in the average charge per 
unit of service as measured by the CPI for hospital and related 
services and changes in real case-mix. Thus, in order to measure 
changes in intensity, one must measure changes in real case-mix.
    For FYs 1995 through 1999, observed case-mix index change ranged 
from a low of -0.3 percent to a high of 1.7 percent, with a 5-year 
average change of 0.6 percent. Based on evidence from past studies 
of case-mix change, we estimate that real case-mix change fluctuates 
between 1.0 and 1.4 percent and the observed values generally fall 
in this range, although some years the figures fall outside this 
range. The average percentage change in charge per discharge was 3.6 
percent and the average annual change in the CPI for hospital and 
related services was 4.1 percent. Dividing the change in charge per 
discharge by the quantity of the real case-mix index change and the 
CPI for hospital and related services yields an average annual 
change in intensity of -1.9 percent. Assuming the technology/fixed 
cost ratio still holds (.33), technology would account for a -0.6 
percent annual decline while fixed costs would account for a -1.3 
percent annual decline. The decline in fixed costs per discharge 
makes intuitive sense as volume, measured by total discharges, has 
increased during the period. In the past, we have not recommended a 
negative intensity adjustment. Although we did not recommend a 
negative adjustment for FY 2001, we reflected the possible range 
that such a negative adjustment could span, based on our analysis. 
Accordingly, for FY 2001, we recommended an intensity adjustment 
between 0 percent and -0.6 percent.
    MedPAC does not make an adjustment for intensity per se, but its 
combined update recommendation for FY 2001 includes two categories 
that we consider to be comparable with our intensity recommendation. 
MedPAC is recommending a 0.0 to 0.5 percent update for scientific 
and technological advances to account for anticipated uses of 
emerging technologies that enhance the quality of hospital services, 
but increase costs of hospital care. The Commission recognized an 
allowance for science and technological advances of 0.5 percent to 
1.0 percent. However, with their productivity offset of 0.5 percent, 
MedPAC's combined FY 2001 adjustment for science and technological 
advances is 0.0 percent to 0.5 percent.
    MedPAC's recommendation also takes into account the increasingly 
apparent trend of some acute care providers to shift care to a post 
acute care facility. While this can occur for many reasons and the 
shifting of costs may maintain or improve quality of care for 
Medicare beneficiaries, it leads to a redistribution of payments and 
reduces the resources available for acute care providers to pay for 
services to other Medicare beneficiaries. In the past two years, 
MedPAC recommended a negative adjustment for site-of-care 
substitution or unbundling of the payment unit. However, in light of 
the financial pressures in the hospital industry during FYs 1998-
1999 since the implementation of Public Law 105-33, MedPAC 
recommends a 0.0 percent adjustment for site-of-care substitution 
for FY 2001. We agree with MedPAC that the site-of-care substitution 
effect is real and that it is accounted for by our intensity 
recommendation.

C. Change in Case-Mix

    Our analysis takes into account projected changes in case-mix, 
adjusted for changes attributable to improved coding practices. For 
our FY 2001 update recommendation, we projected a 0.5 percent 
increase in the case-mix index. We defined real case-mix as actual 
changes in the mix (and resource requirements) of Medicare patients 
as opposed to changes in coding behavior that results in assignment 
of cases to higher weighted DRGs, but do not reflect greater 
resource requirements. Unlike in past years, where we differentiated 
between ``real'' case-mix increase and increases attributable to 
changes in coding behavior, we do not feel changes in coding 
behavior will impact the overall case-mix in FY 2001. As such, for 
FY 2001, we estimate that real case-mix is equal to projected change 
in case-mix. Thus, we recommended a 0.0 adjustment for case-mix.
    MedPAC's analysis indicates that coding change has reduced case-
mix index growth. In the past, MedPAC has recommended a negative 
adjustment when DRG coding changes has led to case-mix index growth. 
However, MedPAC now believes that it is appropriate to include a 
positive adjustment for DRG coding change in the FY 2001 update and 
recommends a combined adjustment of 0.5 percent.
    MedPAC also makes an adjustment for within DRG severity. In past 
years, MedPAC has included an adjustment for increased case 
complexity not captured by the DRG classification system. The 
Commission recognizes that as the DRG system adjusts, it should 
account for more of the variation in costs by DRG assignment, 
leaving less within-DRG variation in case complexity and costliness. 
Therefore, MedPAC recommended a combined adjustment of 0.0 for FY 
2001. As a result, for FY 2001, MedPAC recommends a total combined 
case-mix adjustment of 0.5 percent.

D. Effect of FY 1999 DRG Reclassification and Recalibration

    We estimate that DRG reclassification and recalibration for FY 
1999 resulted in a 0.0 percent change in the case-mix index when 
compared with the case-mix index that would have resulted if we had 
not made the reclassification and recalibration changes to the 
GROUPER.

E. Forecast Error Correction

    We make a forecast error correction if the actual market basket 
changes differ from the forecasted market basket by 0.25 percentage 
points or more. There is a 2-year lag between the forecast and the 
measurement of forecast error. Our proposed update framework for FY 
2001 did not reflect a forecast error correction because, for FY 
1999, there was less than a 0.25 percentage point difference between 
the actual market basket and the forecasted market basket.
    MedPAC also made a recommendation in its FY 2001 combined update 
framework to adjust for any error in the market basket forecasts 
used to set FY 1999 payment rates.
    MedPAC recommended a combined adjustment for FY 1999 forecast 
error correction of 0.1 percent. However, they noted that this 
forecast error adjustment is a result of the difference between the 
forecasted FY 1999 operating market basket of 2.4 percent and the 
actual FY 1999 operating market basket increase of 2.5 percent. The 
FY 1999 capital market basket forecast was equal to the actual 
observed increase of 0.7 percent for capital costs. Therefore, we 
have included MedPAC's entire 0.1 percent adjustment for FY 1999 
forecast error correction in the comparison of MedPAC and HCFA's 
update recommendations for FY 2001 shown below in Table 1.

F. One Time Factors

    MedPAC includes an adjustment for one-time factors in its update 
framework to

[[Page 47210]]

account for significant costs incurred by hospitals for unusual 
nonrecurring events. While MedPAC's update framework has not 
explicitly considered such costs in the past, the Commission 
believes Medicare should aid hospitals when incurring systematic and 
substantial one-time costs will improve care for Medicare 
beneficiaries. For its FY 2001 update recommendation, MedPAC 
considered the costs of year 2000 improvements and the costs of 
major new regulatory requirements. The Commission did not recommend 
any additional allowance for these costs for FY 2001. Accordingly, 
MedPAC recommended a 0.0 percent combined adjustment for one-time 
factors in their update framework for FY 2001.
    HCFA's update framework does not include an adjustment for one-
time factors. As we mentioned in last year's proposed rule, higher 
input prices that hospitals incur to convert computer systems to be 
compliant on January 1, 2000, were accounted for through the market 
basket percentage increase.

                             Table 1.--Comparison of FY 2001 Update Recommendations
----------------------------------------------------------------------------------------------------------------
                                                        HCFA                                MedPAC
----------------------------------------------------------------------------------------------------------------
Market basket.........................  MB                                   MB\1\
----------------------------------------------------------------------------------------------------------------
                                            Policy Adjustment Factors
----------------------------------------------------------------------------------------------------------------
Productivity..........................  -0.5 to -0.4                         (\2\)
Site-Of-Service Substitution..........  (\3\)                                0.0
Intensity.............................  0.0 to -0.6                          ...................................
Science & Technology..................  ...................................  0.0 to 0.5
Practice Patterns.....................  ...................................  (\4\)
Real Within DRG Change................  ...................................  (\5\)
                                       -------------------------------------------------------------------------
        Subtotal......................  -0.5 to -1.0                         0.0 to 0.5
----------------------------------------------------------------------------------------------------------------
                                           Case-Mix Adjustment Factors
----------------------------------------------------------------------------------------------------------------
Projected Case-Mix Change.............  -0.5                                 ...................................
Real Across DRG Change................  0.5                                  0.5
Real Within DRG Change................  (\3\)                                0.0
                                       -------------------------------------------------------------------------
        Subtotal......................  0.0                                  0.5
                                       =========================================================================
Effect of FY 1999 Reclassification and  0.0                                  ...................................
 Recalibration.
Forecast Error Correction.............  0.0                                  0.1
                                       -------------------------------------------------------------------------
    Total Recommendation Update.......  MB -0.5 to MB -1.0                   MB\1\ + 0.6 to MB\1\ +1.1
----------------------------------------------------------------------------------------------------------------
\1\ Used HCFA's March 2000 operating market basket forecast in its combined update recommendation.
\2\ Included in MedPAC's Science and Technology Adjustment.
\3\ Included in HHS' Intensity Factor.
\4\ Included in MedPAC's Productivity Measure in its Science and Technology Adjustment.
\5\ Included in MedPAC's Case-Mix Adjustment.

    MedPAC's combined update recommendation of between 3.5 percent 
and 4.0 percent for FY 2001 operating and capital payments is higher 
than the current law amount as set forth by Public Law 105-33 and 
the amount in the proposed rule. While the above analysis would 
support a recommendation that the update be between than the 
operating market basket minus 0.5 percentage points and the 
operating market basket minus 1.0 percentage points, consistent with 
current law we recommended an update of market basket increase minus 
1.1 percentage points (or 2.3 percent). We note that this 
approximates the lower bound of the range suggested by our framework 
when accounting for a negative intensity change.

IV. Secretary's Final Recommendations for Updating the Prospective 
Payment System Standardized Amounts

    In recommending an update, the Secretary takes into account the 
factors in the update framework, as well as other factors such as 
the recommendations of MedPAC, the long-term solvency of the 
Medicare Trust Funds, and the capacity of the hospital industry to 
continually provide access to high-quality care to Medicare 
beneficiaries through adequate reimbursement to health care 
providers.
    To ensure that beneficiaries continue to have access to high-
quality care and to allow more time to assess the full impact of 
Public Law 105-33 and Public Law 106-113, the Secretary recommends 
an update of 3.4 percent (full market basket) for FY 2001. We note 
that this recommendation requires a change in law. The FY 2001 
President's Budget Mid-Session Review, released on June 26, 2000, 
included a proposal to provide for the full market basket update for 
FY 2001. We will continue to evaluate our current framework to 
ensure that the recommended update appropriately reflects current 
trends in health care delivery and that Medicare acts as a prudent 
purchaser providing incentives to hospitals for increased 
efficiency, thereby contributing to the solvency of the Medicare 
Part A Trust Fund.
    We received one comment concerning our proposed update 
recommendation.
    Comment: One commenter stated that the continual update and 
routine replacement of procedures with more sophisticated, higher 
cost procedures is not picked up within the HCFA pricing system, 
particularly the use of pharmaceuticals and other scientific and 
technological advances. The commenter argued that the market basket 
minus 1.1 percent update for FY 2001 does not recognize the true 
impact of these factors on hospital-based payments, noting that from 
FYs 1998 through 2000 the cumulative market basket rose 
significantly higher than the Medicare operating prospective payment 
system updates, which were mandated by Public Law 105-33.
    Response: By design, the market basket captures only the pure 
price change of inputs such as labor, materials, and capital that 
are used to produce a constant quantity and quality of care. This is 
done using price proxies that reflect the prices of the major inputs 
hospitals utilize in providing care. For pharmaceuticals, the price 
proxy used is the Producer Price Index (PPI) for pharmaceutical 
preparations produced by Bureau of Labor Statistics. This price 
proxy captures the price change of `new' pharmaceuticals after they 
are introduced and the price changes between new drugs that replace 
existing drugs or generic drugs that replace brand-name drugs.
    The market basket appropriately does not recognize the 
introduction or the increased

[[Page 47211]]

utilization of `new' scientific and technological advances. Instead, 
these factors, including the increased use of `new' pharmaceutical 
drugs, would be reflected in the intensity adjustment of the update 
framework. Our intensity standard is partly based on changes in the 
use of quality enhancing services or technology changes (along with 
changes in case-mix). HCFA's update recommendation uses this 
adjustment to account for the additional costs of adopting and 
utilizing new advances that an efficient provider would face in 
providing a high quality of patient care.

[FR Doc. 00-19108 Filed 7-31-00; 8:45 am]
BILLING CODE 4120-01-P