[Federal Register Volume 68, Number 109 (Friday, June 6, 2003)]
[Rules and Regulations]
[Pages 34122-34190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14078]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals: Annual Payment Rate Updates and Policy Changes; Final Rule

  Federal Register / Vol. 68, No. 109 / Friday, June 6, 2003 / Rules 
and Regulations  

[[Page 34122]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1472-F]
RIN 0938-AL92


Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals: Annual Payment Rate Updates and Policy Changes

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule establishes the annual update of the payment 
rates for the Medicare prospective payment system (PPS) for inpatient 
hospital services provided by long-term care hospitals (LTCHs). It also 
changes the annual period for which the rates are effective. The rates 
will be effective from July 1 to June 30 instead of from October 1 
through September 30, establishing a ``long-term care hospital rate 
year'' (LTCH PPS rate year). We also change the publication schedule 
for these updates to allow for an effective date of July 1. The payment 
amounts and factors used to determine the updated Federal rates that 
are described in this final rule have been determined based on this 
revised LTCH PPS rate year. The annual update of the long-term care 
diagnosis-related groups (LTC-DRG) classifications and relative weights 
remains linked to the annual adjustments of the acute care hospital 
inpatient diagnosis-related group system, and will continue to be 
effective each October 1.
    The outlier threshold for July 1, 2003, through June 30, 2004, is 
also derived from the LTCH PPS rate year calculations.
    In addition, we are making an adjustment to the short-stay outlier 
policy for certain LTCHs and a policy change eliminating bed-number 
restrictions for pre-1997 LTCHs that have established satellite 
facilities and elect to be paid 100 percent of the Federal rate or when 
the LTCH is fully phased-in to 100 percent of the Federal prospective 
rate after the transition period.

EFFECTIVE DATE: The provisions of this final rule are effective June 
30, 2003.

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, (410) 786-4487 (General information);
Judy Richter, (410) 786-2590 (General information, transition payments, 
payment adjustments, and onsite discharges and readmissions, 
interrupted stays and short-stay outliers);
Michele Hudson, (410) 786-5490 (Calculation of the payment rates, 
relative weights and case-mix index, market basket update, and payment 
adjustments);
Ann Fagan, (410) 786-5662 (Patient classification system);
Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and budget 
neutrality);
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted stay, 
and transition period);
Kathryn McCann, (410) 786-7623 (Medigap);
Robert Nakielny, (410) 786-4466 (Medicaid).

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $10. As an alternative, you can view 
and photocopy the Federal Register document at most libraries 
designated as Federal Depository Libraries and at many other public and 
academic libraries throughout the country that receive the Federal 
Register.
    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.
    To assist readers in referencing sections contained in this 
preamble, we are providing the following table of contents.

Table of Contents

I. Background
    A. Legislative and Regulatory Authority
    B. Criteria for Classification as a LTCH
    C. Transition Period for Implementation of the LTCH PPS
    D. Limitation on Charges to Beneficiaries
    E. System Implementation for the LTCH PPS
II. Publication of Proposed Rulemaking
III. Summary of the Major Contents of This Final Rule
    A. Change in the Annual Update
    B. Update Changes
IV. Changes in the Annual Update of the LTCH PPS
V. Changes in Long-Term Care Diagnosis-Related Group (LTC-DRG) 
Classifications and Relative Weights
    A. Background
    B. Patient Classifications into DRGs
    C. Organization of DRGs
    D. Update of LTC-DRGs
    E. ICD-9-CM Coding System
    1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    2. Maintenance of the ICD-9--CM Coding System
    3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
    F. Changes to the Method for Updating the LTC-DRG Relative 
Weights
VI. Policy Change Relating to Payments to LTCHs That Are Satellite 
Facilities
VII. Changes to the LTCH PPS Rates for the 2004 LTCH PPS rate year
    A. Overview of the Development of the Payment Rates
    B. Update to the Standard Federal Rate for the 2004 LTCH PPS 
rate year
    1. Standard Federal Rate Update
    a. Description of the Market Basket for the 2004 LTCH PPS rate 
year
    b. LTCH Market Basket Increase for the 2004 LTCH PPS rate year
    2. Standard Federal Rate for the 2004 LTCH PPS rate year
    C. Calculation of LTCH Prospective Payments for the 2004 LTCH 
PPS rate year
    1. Adjustment for Area Wage Levels
    2. Adjustment for Cost-Of-Living in Alaska and Hawaii
    3. Adjustment for High-Cost Outliers
    4. Adjustment for Special Cases a. General
    b. Short-Stay Outlier Cases
    c. Interrupted Stay
d. Onsite Discharges and Readmittances
e. Treatment of Swing Beds Under the Interrupted Stay and Onsite 
Discharge and Readmittance Policies
    5. Other Payment Adjustments
    6. Budget Neutrality Offset to Account for the Transition 
Methodology
VIII. Computing the Adjusted Federal Prospective Payments
IX. Transition Period
X. Payments to New LTCHs
XI. Method of Payment
XII. Monitoring
XIII. Collection of Information Requirements
XIV. Regulatory Impact Analysis
    A. Introduction
    1. Executive Order 12866
    2. Regulatory Flexibility Act (RFA)
    3. Impact on Rural Hospitals
    4. Unfunded Mandates
    5. Federalism
    B. Anticipated Effects
    1. Budgetary Impact
    2. Impact on Providers
    3. Calculation of Prospective Payments
    4. Results
    5. Effect on the Medicare Program
    6. Effect on Medicare Beneficiaries
    C. Executive Order 12866
Regulations Text
Addendum-Tables

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Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding terms in alphabetical order below:

BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
CMS Centers for Medicare & Medicaid Services
DRGs Diagnosis-related groups
FY Federal fiscal year
HCRIS Hospital Cost Report Information System
HHA Home health agency
HIPAA Health Insurance Portability and Accountability Act, Public 
Law 104-191
IPPS Acute Care Hospital Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LTC--DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review file
OSCAR Online Survey Certification and Reporting (System)
PPS Prospective Payment System
QIO Quality Improvement Organization (formerly Peer Review 
organization (PRO))
SNF Skilled nursing facility
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248

I. Background

A. Legislative and Regulatory Authority

    The Medicare, Medicaid, and SCHIP (State Children's Health 
Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. 
L. 106-113) and the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA) (Pub. L.106-554) provide for payment 
for both the operating and capital-related costs of hospital inpatient 
stays in long-term care hospitals (LTCHs) under Medicare part A based 
on prospectively set rates. The Medicare prospective payment system for 
LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of 
the Social Security Act (the Act), effective for cost reporting periods 
beginning on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: Specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (as determined by the Secretary) of greater 
than 20 days and has 80 percent or more of its annual Medicare 
inpatient discharges with a principal diagnosis that reflects a finding 
of neoplastic disease in the 12-month cost reporting period ending in 
FY 1997.
    Section 123 of Public Law 106-113 requires the prospective payment 
system for LTCHs to be a per discharge system with a diagnosis-related 
group (DRG) based patient classification system that reflects the 
differences in patient resources and costs in LTCHs while maintaining 
budget neutrality.
    Section 307(b)(1) of Public Law 106-554, among other things, 
mandates that the Secretary shall examine and may provide for 
adjustments to payments under the LTCH PPS, including adjustments to 
DRG weights, area wage adjustments, geographic reclassification, 
outliers, updates, and a disproportionate share adjustment.
    In a Federal Register document issued on August 30, 2002 (67 FR 
55954), we implemented the LTCH PPS authorized under Public Law 106-113 
and Public Law 106-554. This system uses information from LTCH patient 
records to classify patients into distinct long-term care diagnosis-
related groups (LTC-DRGs) based on clinical characteristics and 
expected resource needs. Payments are calculated for each LTC-DRG and 
provisions are made for appropriate payment adjustments. Payment rates 
under the LTCH PPS are updated annually and published in the Federal 
Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 
Public Law 97-248, for payments for inpatient services provided by a 
LTCH with a cost reporting period beginning on or after October 1, 
2002. (The regulations implementing the TEFRA (reasonable cost-based) 
payment provisions are located at 42 CFR part 413.) With the 
implementation of the prospective payment system for inpatient acute 
care hospitals authorized by the Social Security Amendments of 1983 
(Public Law 98-21), which added section 1886(d) to the Act, certain 
hospitals, including LTCHs, were excluded from the PPS for acute care 
hospitals and were paid their reasonable costs for inpatient services 
subject to a per discharge limitation or target amount under the TEFRA 
system. For each cost reporting period, a hospital-specific ceiling on 
payments was determined by multiplying the hospital's updated target 
amount by the number of total current year Medicare discharges. The 
August 30, 2002, final rule further details payment policy under the 
TEFRA system (67 FR 55954).
    In the August 30, 2002, final rule, we presented an in-depth 
discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments, and the 
budget neutrality requirements mandated by section 123 of Public Law 
106-113. The same final rule, that established regulations for the LTCH 
PPS under 42 CFR part 412, subpart O, also contained provisions related 
to covered inpatient services, limitation on charges to beneficiaries, 
medical review requirements, furnishing of inpatient hospital services 
directly or under arrangement, and reporting and recordkeeping 
requirements.
    We refer readers to the August 30, 2002, final rule (67 FR 
55954)for a comprehensive discussion of the research and data that 
supported the establishment of the LTCH PPS.

B. Criteria for Classification as a LTCH

    LTCHs must have a provider agreement with Medicare and (1) must 
have an average Medicare inpatient length of stay of greater than 25 
days, or (2), for a hospital that was first excluded from the PPS in 
1986, must have an average inpatient length of stay for all patients, 
including both Medicare and non-Medicare inpatients, of greater than 20 
days and demonstrate that at least 80 percent of its annual Medicare 
inpatient discharges in the 12-month cost reporting period ending in FY 
1997 have a principle diagnosis that reflects a finding of neoplastic 
disease. Subject to the provisions of Sec.  412.23(e)(3), for the first 
type of LTCHs as noted above, the average Medicare inpatient length of 
stay is determined based on all covered and noncovered days of stay of 
Medicare patients as calculated by dividing the total number of covered 
and noncovered days of stay of Medicare inpatients (less leave or pass 
days) by the number of total Medicare discharges for the hospital's 
most recent complete cost reporting period. Fiscal intermediaries 
verify that LTCHs meet the average length of stay requirements. We note 
that the inpatient days of a patient who is admitted to a LTCH without 
any remaining Medicare days of coverage, regardless of the fact that 
the patient is a Medicare beneficiary, will not be included in the 
above calculation. Because Medicare would not be paying for any of the 
patient's treatment, data on the patient's stay would not be included 
in our systems. In order for noncovered days of a LTCH

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hospitalization to be included, a patient must have at least one 
remaining benefit day as described in Sec.  409.61.
    The fiscal intermediary's determination of whether or not a 
hospital qualifies as an LTCH is based on the hospital's discharge data 
from its most recent cost reporting period and is effective at the 
start of the hospital's next cost reporting period, as set forth under 
Sec.  412.22(d). If a hospital does not meet the length of stay 
requirement, the hospital may provide the intermediary with data 
indicating a change in the hospital's average length of stay by the 
same method for the immediately preceding 6-month period (Sec.  
412.23(e)(3)(ii)). (For procedural efficiency and in order to comply 
with the timing requirement of Sec.  412.22(d), we have a longstanding 
policy of allowing hospitals to submit data for a period greater than 
5-months for this purpose.) Requirements for hospitals seeking 
classification as LTCHs that have undergone a change in ownership, as 
described in Sec.  489.18, are set forth in Sec.  412.23(e)(3)(iii).
    LTCHs that exist as hospitals-within-hospitals or satellite 
facilities must also meet the criteria set forth in Sec.  412.22(e) or 
Sec.  412.22(h), respectively, to be excluded from the IPPS and paid 
under the LTCH PPS.
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c) and, therefore, are not subject to the 
LTCH PPS rules:
    [sbull] Veterans Administration hospitals.
    [sbull] Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR Part 403.
    [sbull] Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of Public Law 
90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 
U.S.C. 1395b-1 (note)) (statewide all-payer systems, subject to the 
rate-of-increase test at section 1814(b) of the Act).
    [sbull] Nonparticipating hospitals furnishing emergency services to 
Medicare beneficiaries.

C. Transition Period for Implementation of the LTCH PPS

    In the August 30, 2002, final rule, we provided for a 5-year 
transition period from cost-based reimbursement to fully Federal 
prospective payment for LTCHs (67 FR 56038). During the 5-year period, 
two payment percentages are to be used to determine a LTCH's total 
payment under the PPS. The blend percentages are as follows:

------------------------------------------------------------------------
                                            Prospective     Cost-based
 Cost reporting periods beginning on or       payment      reimbursement
                  after                    Federal rate        rate
                                            percentage      percentage
------------------------------------------------------------------------
October 1, 2002.........................              20              80
October 1, 2003.........................              40              60
October 1, 2004.........................              60              40
October 1, 2005.........................              80              20
October 1, 2006.........................             100               0
------------------------------------------------------------------------

D. Limitation on Charges to Beneficiaries

    In the August 30, 2002, final rule, we presented an in-depth 
discussion of beneficiary liability under the LTCH prospective payment 
system (67 FR 55974-55975). Under Sec.  412.507, as consistent with 
other established hospital prospective payment systems, a LTCH may not 
bill a Medicare beneficiary for more than the deductible and 
coinsurance amounts as specified under Sec. Sec.  409.82, 409.83, and 
409.87 and for items and services as specified under Sec.  489.30(a), 
if the Medicare payment to the LTCH is the full LTC-DRG payment amount. 
However, if the Medicare payment was for a short-stay outlier case 
(Sec.  412.529) that was less than the full LTC-DRG payment amount, the 
LTCH could also charge the beneficiary for services for which the costs 
of those services or the days those services were provided were not a 
basis for calculating the Medicare short-stay outlier payment (Sec.  
412.507).
    Since the origin of the Medicare system, the intent of our 
regulations has been to set limits on beneficiary liability and to 
clearly establish the circumstances under which the beneficiary would 
be required to assume responsibility for payment; that is, upon 
exhausting benefits described in 42 CFR part 409, subpart F. The 
discussion in the August 30, 2002, final rule was not meant to 
establish rates or payments for, or define, Medicare-eligible expenses. 
While we regulate beneficiary liability for coinsurance and deductibles 
for hospital stays that are covered by Medicare, payments from Medigap 
insurers to providers for inpatient hospital coverage after Medicare 
benefits are exhausted are not regulated by us. Furthermore, 
regulations beginning at Sec.  403.200 and the 1991 National 
Association of Insurance Commissioners (NAIC) Model Regulation for 
Medicare Supplemental Insurance, which was incorporated by reference 
into section 1882 of the Act, govern the relationship between Medigap 
insurers and beneficiaries.

E. System Implementation for the LTCH PPS

    When we established the regulations to implement the LTCH PPS on 
August 30, 2002 (67 FR 55954), effective for cost reporting periods 
that began on or after October 1, 2002, we did not have computer system 
changes in place that were necessary to accommodate claims processing 
and payment under the system. However, after January 1, 2003, we made 
the necessary system changes. Accordingly, after January 1, 2003, the 
fiscal intermediary has been required to reconcile the payment amounts 
that had been made to LTCHs for all covered inpatient hospital services 
furnished to Medicare beneficiaries from cost reporting periods that 
began on or after October 1, 2002, through January 1, 2003, with the 
amounts that were payable under the LTCH PPS methodology. Because the 
LTCH PPS was effective at the start of the LTCH's first cost reporting 
period that began on or after October 1, 2002, only those LTCHs with 
cost reporting periods that started October 1, 2002, through January 1, 
2003, will experience the payment reconciliation necessitated by this 
3-month period prior to systems implementation. The claims submission 
procedure of using ICD-9-CM codes has not changed following the systems 
implementation of the LTCH PPS.
    We also want to note that as of October 16, 2002, a LTCH that was 
required to comply with the Administrative Simplification Standards 
under the Health Insurance Portability and Accountability Act (HIPAA) 
(Pub. L. 104-191) and that had not obtained an extension in compliance 
with the Administrative Compliance Act (Pub. L. 107-105) is obligated 
to comply with the standards for submitting claim forms to the

[[Page 34125]]

LTCH's Medicare fiscal intermediary (45 CFR 162.1002 and 45 CFR 
162.1102). Beginning October 16, 2003, LTCHs that obtained an extension 
and that are required to comply with the HIPPA Administrative 
Simplification Standards must start submitting electronic claims in 
compliance with the HIPPA regulations cited above, among others.

II. Publication of Proposed Rulemaking

    On March 7, 2003, we published a proposed rule in the Federal 
Register (67 FR 11234) that set forth the proposed annual update of the 
payment rates for the Medicare prospective payment system (PPS) for 
inpatient hospital services provided by long-term care hospitals 
(LTCHs). In that rule, we proposed to change the annual period during 
which the updated payment rates for the LTCH PPS would be effective 
from October 1 through September 30 to a LTCH PPS rate year from July 1 
through June 30. We also proposed to change the publication schedule 
for these updates to allow for an effective date of July 1. The 
proposed payment amounts and factors used to determine the proposed 
updated Federal rates that were described in the March 7, 2003, 
proposed rule were determined based on the proposed revised update LTCH 
PPS rate year. However, the annual update of the long-term care 
diagnosis-related groups (LTC-DRG) classifications and relative weights 
remain linked to the annual adjustments of the acute care hospital 
inpatient diagnosis-related group system, effective each October 1. In 
the March 7, 2003, proposed rule, we also proposed the outlier 
threshold for July 1, 2003, through June 30, 2004, that was derived 
from the proposed LTCH PPS rate year calculations. We also proposed a 
change for outlier payments under the LTCH PPS. In addition, we 
proposed a policy change eliminating bed-number restrictions for pre-
1997 LTCHs that have established satellite facilities and that elect to 
be paid 100 percent of the Federal rate or when the LTCH is fully 
phased-in to 100 percent of the Federal prospective rate after the 
transition period.
    We received a total of 32 timely items of correspondence containing 
multiple comments on the proposed rule. The major issues addressed by 
the commenters included: The establishment of the LTCH PPS rate year 
and its relation to the update of the Federal rates; the LTC-DRGs and 
the wage index; satellite policy and budget neutrality calculations; 
high-cost and short-stay outliers; market basket and labor share; 
disproportionate share (DSH) and Graduate Medical Education (GME) 
policies.
    Summaries of the public comments received and our responses to 
those comments are described below under the appropriate subject 
heading.

III. Summary of the Major Contents of This Final Rule

    In this final rule, we set forth the annual update to the payment 
rates for the Medicare LTCH PPS and make other policy changes. The 
following is a summary of the major areas that we are addressing in 
this final rule:

A. Change in the Annual Update

    We are changing the annual update to the Federal payment rate under 
the LTCH PPS from the Federal fiscal year (October 1 through September 
30) to a ``LTCH PPS rate year'' of July l through June 30, beginning 
July l, 2003, as discussed in section IV. of this preamble. (In this 
final rule, we define the LTCH PPS rate year as the period from July 1 
to June 30 for updates to the LTCH PPS.) As noted below, we will now 
publish information on the annual update in the Federal Register on or 
before May 1 prior to the start of each long-term care hospital 
prospective payment system rate year that begins July 1, unless for 
good cause it is published after May 1, but before June 1. We have 
already noted that the annual update of the LTC-DRGs will be published 
in the proposed and final rules for the IPPS. We also recognize that it 
may be necessary to address issues affecting LTCHs at a time that does 
not conform to the schedule above. In such a situation, we would use 
another Federal Register document (that is, the acute care hospital 
inpatient prospective payment system (IPPS) proposed rule or final 
rule) as the vehicle to present that issue.

B. Update Changes

    [sbull] In section IV. of this preamble, the annual update of the 
LTC-DRG classifications and relative weights remain linked to the 
annual adjustments of the acute care hospital inpatient DRG system, 
which are based on the annual revisions to the International 
Classification of Diseases, Ninth Revision, Clinical Modification (ICD-
9-CM) codes, effective each October 1.
    [sbull] In section VI. of this preamble, we discuss a policy change 
on how Medicare payment under the LTCH PPS will be made to certain 
LTCHs that have satellite facilities.
    [sbull] In sections VII. through XI. of this preamble, we discuss 
our determination of the LTCH PPS rates that are applicable to the LTCH 
PPS rate year of July 1, 2003, through June 30, 2004, including 
revisions to the wage index, the excluded hospital with capital market 
basket that will be applied to the current standard Federal rate to 
determine the prospective payment rates, the applicable adjustments to 
payments, the outlier threshold, the short-stay outlier policy for 
certain LTCHs, the transition period, and the budget neutrality factor.
    [sbull] In section XII. of this preamble, we discuss our continuing 
monitoring efforts to evaluate the LTCH PPS.
    [sbull] In section XIV. of this preamble, we set forth an analysis 
of the impact of the changes in this final rule on Medicare 
expenditures and on Medicare-participating LTCHs and Medicare 
beneficiaries.

IV. Changes in the Annual Update of the LTCH PPS

    In existing regulations at Sec.  412.535 that were issued in the 
August 30, 2002, final rule, we specify a schedule for publishing 
information on the LTCH PPS on or before August 1, which coincided with 
the statutorily mandated publication schedule for the IPPS. In the 
March 7, 2003, proposed rule, we proposed to revise Sec.  412.535 to 
provide generally for a change in the annual rate update for the LTCH 
PPS, starting on July 1.
    Section 1886(e)(5)(A) of the Act requires that, for the IPPS, the 
proposed rule be published in the Federal Register ``not later than the 
April 1 before each fiscal year; and the final rule, not later than the 
August 1 before such fiscal year.'' The statute imposes no such 
publication schedule for the LTCH PPS. In the August 30, 2002, final 
rule, we stated that we were considering changing the publication 
schedule of the LTCH PPS annual rulemaking cycle in order to avoid 
concurrent publication of annual rules for these two systems for 
purposes of administrative feasibility and efficiency (67 FR 55977). In 
considering a change in the publication schedule of the LTCH PPS final 
rule, we contemplated a change in the effective date for updating the 
Federal rates for the LTCH PPS. Therefore, in the March 7, 2003, 
proposed rule, we proposed changing the effective date of the annual 
update for the LTCH PPS from October 1 to July 1 of each year in order 
to facilitate a timely publication of these two significant payment 
updates (IPPS and LTCH PPS). Thus, the annual update of the LTCH PPS 
Federal rates would no longer be linked to the start of the Federal 
fiscal year, as is the update of the IPPS. We had proposed that this 
change would necessitate publication of the final rule for the

[[Page 34126]]

LTCH PPS by no later than June 1 of each year (proposed revised Sec.  
412.535).
    In the March 7, 2003, proposed rule, we also proposed to amend 
Sec.  412.503 to include a definition of ``LTCH PPS rate year''. A 
``LTCH PPS rate year'' would mean the 12-month period of July 1 through 
June 30. In the proposed rule, we stated that we would use this period 
for those calculations related to updating the Federal rate for 
payments under the LTCH PPS. We also stated that the determination of 
the proposed fixed-loss threshold for outlier payment calculations, 
under Sec.  412.525(a), would also be calculated based on the LTCH PPS 
rate year. (Section VII.C. of this final rule includes a more detailed 
discussion of our outlier policy.)
    Proposing a change for the annual Federal rate update period for 
the LTCH PPS also necessitated a proposed recalculation of the excluded 
hospital market basket with capital estimate for the proposed 
forthcoming payment year, July 1, 2003, through June 30, 2004. In the 
August 30, 2002, final rule, we established a Federal rate of $34,956 
that was computed based on the excluded hospital with capital market 
basket calculated for the 12-month Federal fiscal year of October 1, 
2002, through September 30, 2003. As already noted, we proposed to 
change the Federal rate update for the LTCH PPS from the Federal fiscal 
year to a 12-month LTCH PPS rate year of July 1 through June 30, and 
the proposed rates in the March 7, 2003, proposed rule were based on 
this period. Because the Federal rate of $34,956 was originally 
computed based on a 12-month year, but in actuality will only be used 
for 9 months, if the proposed change in the LTCH PPS rate update year 
was finalized, we proposed, in the March 7, 2003, proposed rule, to 
make a budget neutral adjustment to the market basket update taking 
this 3-month differential into account in setting the Federal rate for 
July 1, 2003, through June 30, 2004. In addition, we proposed that the 
change in the 2004 LTCH PPS rate year would be budget neutral. In 
section VII.B.1 of this final rule, we describe this adjustment in 
greater detail.
    In the March 7, 2003, proposed rule, we proposed to update the LTCH 
PPS wage index that adjusts for differences in area wages under Sec.  
412.525(c) using the FY 1999 IPPS wage data because these are the best 
available wage data (as discussed in section VII.C. of this preamble).
    We also stated that we were proposing to recalculate the budget 
neutrality offset to account for the effect of the transition period 
and the policy allowing LTCHs to elect 100 percent Federal rate 
payments rather than the transition blend.
    We also proposed an updated fixed-loss amount for determining 
outlier payments based on the updated proposed Federal rate (as 
discussed in section VII. of this preamble).
    In section IV.C. of the March 7, 2003, proposed rule, we stated 
that we did not propose an update to the LTC-DRG classifications or 
relative weights at this time. Currently, the LTC-DRG patient 
classifications used by the LTCH PPS for FY 2003 are based directly on 
the same version of DRGs used by the IPPS, that is, GROUPER 20.0. 
Therefore, we did not propose any change to the timing of the annual 
update of the LTC-DRG classifications and relative weights. They will 
remain linked to the annual adjustments of the acute care hospital 
inpatient DRG system, which are based on the annual revisions to the 
ICD-9-CM codes, effective each October 1. Table 3 of the Addendum to 
the August 30, 2002, final rule (67 FR 56076-56084), which were 
reprinted as Table 3 of the Addendum to the March 7, 2003, proposed 
rule, contains the LTC-DRG classifications and relative weights that we 
proposed to continue to apply to discharges occurring during the period 
of July 1, 2003, through September 30, 2003. As an aid in calculating 
payment under the short-stay outlier policy, under Sec.  412.529, we 
also are including, in column 3 of Table 3, the proposed five-sixths 
average length of stay that will be applied to each LTC-DRG in 
determining whether the LTCH stay is a short-stay outlier. The average 
length of stay for each DRG based on the FY 2001 MedPAR data, which 
were used for the FY 2003 LTCH PPS final rule, are still the best 
available complete LTCH discharge data available at this time.
    The revised LTC-DRG classifications and relative weights for 
discharges occurring from October 1, 2003, through September 30, 2004, 
for payments under the LTCH PPS during that period would continue to be 
updated on a Federal fiscal year cycle as is the case for the acute 
care hospital inpatient DRG system. The FY 2004 DRGs and relative 
weights for the IPPS had not yet been proposed by the time the March 7, 
2003, proposed rule was published and we were unable to propose updated 
LTC-DRGs and relative weights (which would be based on the proposed 
updated acute care hospital inpatient DRGs). Thus, we proposed that the 
LTC-DRG classifications and relative weights would be presented for 
public comment in the proposed rule for the IPPS and finalized in the 
IPPS final rule, with an effective date of October 1, 2003.
    The proposed change in the LTCH PPS rate year for the LTCH PPS from 
October 1 through September 30 to July 1 through June 30 means that, 
although the Federal rate calculations in the August 30, 2002, final 
rule were based on a 12-month year, only 9 months will elapse before 
the July 1, 2003, update. In the March 7, 2003, proposed rule, we 
proposed to make a prospective adjustment to the market basket update 
to take into account this 3-month differential in setting the rates for 
July 1, 2003, through June 30, 2004.
    Specifically, we explained that the proposed updates for the 
proposed 2004 LTCH PPS rate year would be affected as follows:
    [sbull] The proposed update to the standard Federal rate calculated 
in accordance with Sec.  412.523(c)(3) would be adjusted to account for 
updating the standard Federal rate on July 1, 2003, instead of October 
1, 2003.
    [sbull] The fixed-loss amount for determining high-cost outlier 
payments under Sec.  412.525(a) would also be updated based on the 
Federal rate effective for July 1, 2003, through June 30, 2004.
    In section VI.B.1 of the March 7, 2003, proposed rule, we discussed 
the proposed computational adjustments resulting from our proposed 
establishment of a LTCH PPS rate year beginning July 1, 2003, through 
June 30, 2004.
    In the March 7, 2003, proposed rule, we stated that several 
provisions of the LTCH PPS would not be affected by the change in the 
annual rate update year for the LTCH PPS from October 1 to July 1 
because these policies are not based on any of the Federal rate 
calculations for the LTCH PPS. Specifically, the following provisions 
would not be affected:
    [sbull] The transition blends provided for under Sec.  412.533(a) 
will not be affected because they are linked to the start of each 
LTCH's cost reporting period, rather than to the start of the Federal 
fiscal year. (LTCHs being paid under the transition blend methodology 
will receive those blends for the entire 5-year transition period, 
unless they elect payments based on 100 percent of the Federal rate.) 
For instance, for cost reporting periods that began on or after October 
1, 2002, and before October 1, 2003, the total payment for a LTCH is 80 
percent of the amount that will be calculated under the reasonable 
cost-based payment system for that specific LTCH and 20 percent of the 
Federal prospective payment amount. For cost reporting periods 
beginning on or after October 1, 2003, and before October 1, 2004, the 
total payment for a LTCH is

[[Page 34127]]

60 percent of the amount that will be calculated under the reasonable 
cost-based payment system for that specific LTCH and 40 percent of the 
Federal prospective payment amount.
    [sbull] The 5-year phase-in of the adjustment for differences in 
area wage levels under Sec.  412.525(c) will not be affected because 
they are linked to the start of each LTCH's cost reporting period, 
rather than to the start of the Federal fiscal year. For cost reporting 
periods that began on or after October 1, 2002, and before September 
30, 2003, the applicable LTCH PPS wage index is one-fifth of the full 
LTCH wage index value, and for cost reporting periods beginning on or 
after October 1, 2003, and before September 30, 2004, the applicable 
LTCH PPS wage index is two-fifths of the full LTCH wage index value.
    [sbull] The LTC-DRGs and their relative weights and the GROUPER 
will not be affected since they will continue to be updated effective 
October 1 through September 30 each year based on the changes to the 
DRGs published in the IPPS final rule.
    We received eight comments regarding our proposal to change the 
effective date of the annual update for the LTCH PPS from October 1 to 
July 1 of each year.
    Comment: Two commenters supported the establishment of the LTCH PPS 
rate year, but suggested that publishing the final rule each year by 
May 1, rather than by June 1 would allow LTCHs additional time for 
adjustments to their payment systems.
    Response: We thank the commenters for endorsing the establishment 
of the revised LTCH PPS rate year. In changing the effective date of 
the LTCH PPS rate year update and the resulting publication dates of 
the proposed and final regulations for the system, we stated that this 
shift in the schedule would promote ``administrative feasibility and 
efficiency,'' by avoiding concurrent rulemaking and publishing with the 
IPPS final rule. As we have already noted, section 1886(e)(5)(A) of the 
Act requires that, for the IPPS, the proposed rule be published in the 
Federal Register ``not later than the April 1 before each fiscal year; 
and the final rule, not later than the August 1 before such fiscal 
year,'' but no similar requirement is imposed on the LTCH PPS.
    Publishing a final rule annually by May 1 in order to allow 60-days 
between publication and effective date of the LTCH PPS rate update does 
not invalidate our stated objectives. Therefore, we will revise the 
regulations to require publication of the final LTCH rule by May 1 of 
each year unless for ``good cause'' we are unable to publish by that 
date, but before June 1. (We note that ``good cause'' used in this 
context is not coextensive and is broader than the ``good cause'' 
standard used in the Administrative Procedures Act (A.P.A.) at 5 U.S.C. 
section 553(d)(3).)
    Comment: Several commenters took issue with the proposed change in 
the effective date of the annual update for the LTCH PPS from October 1 
to July 1 of each year while still retaining the October 1 effective 
date for updating LTC-DRG classifications and weights. They believe 
that this policy change will be burdensome to LTCHs, requiring two 
separate updates during one cost reporting period as well as increased 
systems costs. These commenters urged us to remain with the existing 
update and publication schedule and some suggested deferring the change 
until full implementation of the LTCH PPS in FY 2006. One commenter 
raised the issue that this ``fragmentary'' implementation of individual 
updates will increase potential payment calculation errors for LTCHs. 
Another commenter urged us to pay LTCHs as a ``pass through'' for any 
expenses that they incur in complying with the new regulations, should 
they be made final.
    One commenter stated that administrative feasibility and efficiency 
at CMS did not justify burdening LTCHs in this manner. One of the 
commenters asserted that the costs for updating LTCH billing systems to 
accommodate this change in the LTCH PPS rate year will have a 
considerable impact on LTCHs as Small Businesses and, therefore, should 
have been reviewed under the A.P.A and the Regulatory Flexibility Act 
(RFA).
    Response: In response to these commenters, we first want to 
establish the fact that we have no requirement that LTCHs maintain 
payment systems or coding software in order to be paid under the LTCH 
PPS. We understand that it is common for many hospitals, consultants, 
and industry associations to do so, but we believe that some of the 
commenters who oppose the proposed change in the LTCH PPS rate year for 
the LTCH PPS to July 1 through June 30 while retaining October 1 
through September 30 for the LTC-DRG update are oversimplifying what 
presently exists from a systems standpoint. Currently, all providers 
with cost reporting periods beginning in any month other than October 
already are subject to two separate updates. In addition, rate changes 
may occur during the fiscal year because of Congressional action for 
services rendered ``on or after'' the date that the rate change was 
effective. Additionally, ongoing audit and review procedures, provider-
generated appeals procedures, and either administrative or judicial 
decisions also can produce hospital-level rate changes not associated 
with the start of a Federal fiscal year.
    As noted above, we do not require providers to process claims or to 
determine LTC-DRG assignments, but should a LTCH or any other group 
choose to duplicate the PRICER software that is required for fiscal 
intermediaries, or the GROUPER software that we use, it is an 
individual business determination.
    We primarily want to remind the commenters that the determination 
of Medicare payments based on submitted claims is solely a 
responsibility of each fiscal intermediary. Since payments to LTCHs 
will be based on claims processing done by fiscal intermediaries, we do 
not understand one commenter's assertion that we should not implement 
this policy because one of the payment consequences in establishing the 
LTCH PPS rate year will be to cause potential calculation errors by 
LTCHs.
    Nowhere in our regulations are LTCHs required to maintain the 
systems capability to calculate payments. Therefore, although 
individual LTCHs and other groups may elect, for their own purposes, to 
purchase software packages in order to duplicate work done by our 
contractors, we do not agree that those costs should be paid as a pass-
through by us. Moreover, we continue to believe that since the start of 
cost reporting periods for many LTCHs, as well as acute care hospitals, 
have not generally coincided with the October starting date of the 
Federal fiscal year, those hospitals that choose to have their own 
payment software are very familiar with the virtually seamless routine 
of inputting new numbers to their existing systems when a final rule is 
published. We do not believe that this policy will be unduly burdensome 
to such LTCHs. We also point out to the commenters that with 
publication of the proposed rule on March 7, 2003, we have complied 
with the A.P.A. As to the RFA, as stated in the proposed rule (68 FR 
11259), this rule would not have a significant impact on small entities 
(this includes small businesses).
    In response to the two comments suggesting that we delay 
implementation of this policy until full phase-in of the LTCH PPS in FY 
2006, based on our evaluation of the above comments, we do not believe 
that such a decision is warranted.
    Comment: One commenter suggested that if we found it necessary to

[[Page 34128]]

reschedule the effective date and publication cycle of one of the post-
acute care prospective payment systems, we should do so for Home Health 
Agency (HHA) or Skilled Nursing Facilities (SNF) which are not DRG-
based, and, therefore, not linked to the October 1 update.
    Response: As we have noted elsewhere in this final rule, there is 
no statutory authority requiring the update of the LTCH PPS to coincide 
with the October 1 start of the Federal fiscal year. On the contrary, 
annual updates linked to the October 1 start of the Federal fiscal year 
are required for both the SNF PPS, under section 1888(e)(4)(H) of the 
Act (implemented in Sec.  413.345), and the HHA PPS, under section 
1895(b)(3)(B) (implemented in Sec.  484.225). Therefore, although we do 
not have the authority to shift the annual update for the SNF PPS or 
the HHA PPS, we believe that such a policy is appropriate under section 
123 of Public Law 106-113 and section 307(b) of Public Law 106-554, 
which conferred broad authority on the Secretary in designing and 
implementing a PPS for LTCHs.
    Comment: One commenter noted that ``the use of two GROUPERs will 
not in and of itself create any hardship on LTCHs [which] will be able 
to adapt to this process. Most hospitals today do not have fiscal years 
that coincide with the federal (sic) fiscal year and must adapt to the 
use of two GROUPERs during their cost reporting year.'' This commenter 
did express concern, however, about the additional rate changes caused 
by the cost report reconciliation if the proposed outlier policy was 
finalized. The commenter suggested that we require fiscal 
intermediaries to update cost to charge ratios either at July 1 or 
October 1 in order to limit the number of changes during a 12-month 
period of time.
    Response: We agree with the commenter's assessment of most LTCHs' 
(and acute care hospital's) ability to adapt to the use of two GROUPERs 
during one cost reporting period. Regarding rate changes brought about 
by changes in our outlier policy, as noted elsewhere in this final 
rule, all discussions of the outlier policy are presented in the IPPS 
high-cost outlier final rule.
    In this final rule, we amend Sec.  412.535 to indicate that 
information on the unadjusted Federal payment rates and a description 
of the methodology and data used to calculate the payment rates under 
the LTCH PPS will be published in the Federal Register on or before May 
1 prior to the beginning of each LTCH PPS rate year beginning July 1, 
unless for good cause we are unable to make the May 1 publication date, 
but before June 1. We proposed that information on the DRG 
classification system and associated weighting factors, with the DRGs 
from which the LTC-DRGs are derived, would be published in the proposed 
IPPS rule and, ultimately, the final rule for the IPPS (the final IPPS 
rule is published on or before August 1 of each Federal fiscal year). 
Section XIV. of this final rule contains an impact analysis that 
reflects the impact of these changes.

V. Changes in Long-Term Care Diagnosis-Related Group (LTC-DRG) 
Classifications and Relative Weights

A. Background

    Section 123 of Public Law 106-113 specifically requires that the 
PPS for LTCHs be a per discharge system with a DRG-based patient 
classification system reflecting the differences in patient resources 
and costs in LTCHs while maintaining budget neutrality. Section 
307(b)(1) of Public Law 106-554 modified the requirements of section 
123 of Public Law 106-113 by specifically requiring that the Secretary 
examine ``the feasibility and the impact of basing payment under such a 
system [the LTCH PPS] on the use of existing (or refined) hospital 
diagnosis-related groups (DRGs) that have been modified to account for 
different resource use of long-term care hospital patients as well as 
the use of the most recently available hospital discharge data.''
    In accordance with section 307(b)(1) of Public Law 106-554 and 
Sec.  412.515 of our existing regulations, the LTCH PPS uses 
information from LTCH patient records to classify patient cases into 
distinct long-term care diagnosis-related groups (LTC-DRGs) based on 
clinical characteristics and expected resource needs. The LTC-DRGs used 
as the patient classification component of the LTCH PPS correspond to 
the DRGs in the IPPS. We apply weights to the existing hospital 
inpatient DRGs to account for the difference in resource use by 
patients exhibiting the case complexity and multiple medical problems 
characteristic of LTCHs.
    In a departure from the IPPS, we use low volume LTC-DRGs (less than 
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not 
typically treat the full range of diagnoses as do acute care hospitals. 
In order to deal with the large number of low volume DRGs (all DRGs 
with fewer than 25 cases), we group low volume DRGs into 5 quintiles 
based on average charge per discharge. (A listing of the composition of 
low volume quintiles appears in the August 30, 2002, final rule at 67 
FR 55986.) We also take into account adjustments to payments for cases 
in which the stay at the LTCH is five-sixths of the geometric average 
length of stay and classify these cases as short-stay outlier cases. (A 
detailed discussion of the application of the Lewin Group model that 
was used to develop the LTC-DRGs appears in the August 30, 2002, final 
rule at 67 FR 55978.)

B. Patient Classifications Into DRGs

    Generally, under the LTCH PPS, Medicare payment is made at a 
predetermined specific rate for each discharge; that payment varies by 
the LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into LTC-DRGs for payment based on the following six data 
elements:
    (1) Principal diagnosis.
    (2) Up to eight additional diagnoses.
    (3) Up to six procedures performed.
    (4) Age.
    (5) Sex.
    (6) Discharge status of the patient.
    Upon the discharge of the patient from a LTCH, the LTCH must assign 
appropriate diagnosis and procedure codes from the ICD-9-CM. As of 
October 16, 2002, a LTCH that was required to comply with the HIPAA 
Administrative Simplification Standards and that had not obtained an 
extension in compliance with the Administrative Compliance Act (Pub. L. 
107-105) is obligated to comply with the standards at 45 CFR 162.1002 
and 45 CFR 162.1102. Completed claim forms are to be submitted to the 
LTCH's Medicare fiscal intermediary.
    Medicare fiscal intermediaries enter the clinical and demographic 
information into their claims processing systems and subject this 
information to a series of automated screening processes called the 
Medicare Code Editor (MCE). These screens are designed to identify 
cases that require further review before assignment into a DRG can be 
made. During this process, the following type of cases are selected for 
further development:
    [sbull] Cases that are improperly coded. (For example, diagnoses 
are shown that are inappropriate, given the sex of the patient. Code 
68.6, Radical abdominal hysterectomy, would be an inappropriate code 
for a male.)
    [sbull] Cases including surgical procedures not covered under 
Medicare. (For example, organ transplant in a nonapproved transplant 
center.)
    [sbull] Cases requiring more information. (For example, ICD-9-CM 
codes are required to be entered at their highest level of specificity. 
There are valid 3-digit, 4-digit, and 5-digit codes. That is,

[[Page 34129]]

code 136.3, Pneumocystosis, contains all appropriate digits, but if it 
is reported with either fewer or more than 4 digits, the claim will be 
rejected by the MCE as invalid.)
    [sbull] Cases with principal diagnoses that do not usually justify 
admission to the hospital. (For example, code 437.9, Unspecified 
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the 
principal diagnosis.)
    After screening through the MCE, each claim will be classified into 
the appropriate LTC-DRG by the Medicare LTCH GROUPER. The LTCH GROUPER 
is specialized computer software based on the same GROUPER used by the 
IPPS. The GROUPER software was developed as a means of classifying each 
case into a DRG on the basis of diagnosis and procedure codes and other 
demographic information (age, sex, and discharge status). Following the 
LTC-DRG assignment, the Medicare fiscal intermediary will determine the 
prospective payment by using the Medicare PRICER program, which 
accounts for hospital-specific adjustments. As provided for under the 
IPPS, we provide an opportunity for the LTCH to review the LTC-DRG 
assignments made by the fiscal intermediary and to submit additional 
information within a specified timeframe (Sec.  412.513(c)).
    The GROUPER 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 MedPAR file. The data in this file are used to evaluate possible 
DRG classification changes and to recalibrate the DRG weights during 
our annual update. DRG weights are based on data for the population of 
LTCH discharges, reflecting the fact that LTCH patients represent a 
different patient mix than patients in short-term acute care hospitals.

C. Organization of DRGs

    The DRGs are organized into 25 Major Diagnostic Categories (MDCs), 
most of which are based on a particular organ system of the body; the 
remainder involve multiple organ systems (such as MDC 22, Burns). 
Accordingly, the principal diagnosis determines MDC assignment. Within 
most MDCs, cases are then divided into surgical DRGs and medical DRGs. 
Surgical DRGs are assigned based on a surgical hierarchy that orders 
operating room (O.R.) procedures or groups of O.R. procedures by 
resource intensity. The GROUPER does not recognize all ICD-9-CM 
procedure codes as procedures that affect DRG assignment, that is, 
procedures which are not surgical (for example, EKG), or minor surgical 
procedures (for example, 86.11, Biopsy of skin and subcutaneous 
tissue).
    The medical DRGs are generally differentiated on the basis of 
diagnosis. Both medical and surgical DRGs may be further differentiated 
based on age, sex, discharge status, and presence or absence of 
complications or comorbidities (CC). We note that CCs are defined by 
certain secondary diagnoses not related to, or not inherently a part 
of, the disease process identified by the principal diagnosis. (For 
example, the GROUPER would not recognize a code from the 800.0x series, 
Skull fracture, as a CC when combined with principal diagnosis 850.4, 
Concussion with prolonged loss of consciousness, without return to 
preexisting conscious level.) In addition, we note that the presence of 
additional diagnoses does not automatically generate a CC, as not all 
DRGs recognize a comorbid or complicating condition in their 
definition. (For example, DRG 466, Aftercare without History of 
Malignancy as Secondary Diagnosis, is based solely on the principal 
diagnosis, without consideration of additional diagnoses for DRG 
determination.)
    In its June 2000 Report to Congress, MedPAC recommended that the 
Secretary ``* * * improve the hospital inpatient prospective payment 
system by adopting, as soon as practicable, diagnosis-related group 
refinements that more fully capture differences in severity of illness 
among patients.'' (Recommendation 3A, p. 63) We have determined it is 
not practical at this time to develop a refinement to inpatient 
hospital DRGs based on severity due to time and resource requirements. 
However, this does not preclude us from development of a severity-
adjusted DRG refinement in the future. That is, a refinement to the 
list of comorbidities and complications could be incorporated into the 
existing DRG structure. It is also possible a more comprehensive 
severity adjusted structure may be created if a new code set is 
adopted. That is, if ICD-9-CM is replaced by ICD-10-CM (for diagnostic 
coding) and ICD-10-PCS (for procedure coding) or by other code sets, a 
severity concept may be built into the resulting DRG assignments. Of 
course any change to the code set would be adopted through the process 
established in the HIPAA Administrative Simplification provisions.

D. Update of LTC-DRGs

    For FY 2003, the LTC-DRG patient classification system was based on 
LTCH data from the FY 2001 MedPAR file, which contained hospital bills 
received through March 31, 2001, for hospital discharges occurring in 
FY 2001. The patient classification system consisted of 510 DRGs that 
formed the basis of the FY 2003 LTCH PPS GROUPER. The 510 LTC-DRGs 
included two ``error DRGs''. As in the IPPS, we included two error DRGs 
in which cases that cannot be assigned to valid DRGs will be grouped. 
These two error DRGs are DRG 469 (Principal Diagnosis Invalid as a 
Discharge Diagnosis) and DRG 470 (Ungroupable). (See the August 1, 
2001, Medicare Program final rule, Changes to the Hospital Inpatient 
Prospective Payment Systems and Rates and Costs of Graduate Medical 
Education; Fiscal Year 2002 Rates (66 FR 40062).) The other 508 LTC-
DRGs are the same DRGs used in the IPPS GROUPER for FY 2003 (Version 
20.0).
    In the health care industry, annual changes to the ICD-9-CM codes 
are effective for discharges occurring on or after October 1 each year. 
Thus, the manual and electronic versions of the GROUPER software, which 
are based on the ICD-9-CM codes, are also revised annually and 
effective for discharges occurring on or after October 1 each year. As 
discussed earlier, the patient classification system for the LTCH PPS 
(LTC-DRGs) is based on the IPPS patient classification system (CMS-
DRGs), which is updated annually and effective for discharges occurring 
on or after October 1 through September 30 each year. The updated DRGs 
and GROUPER software are based on the latest revision to the ICD-9-CM 
codes, which are published annually in the IPPS proposed rule and final 
rule. The new or revised ICD-9-CM codes are not used by the industry 
for either the IPPS or the LTCH PPS until the beginning of the next 
Federal fiscal year (effective for discharges occurring on or after 
October 1 through September 30). (The use of the ICD-9-CM codes in this 
manner is consistent with current usage and the HIPAA regulations.) 
October 1 is also when the changes to the CMS-DRGs and the next version 
of the GROUPER software becomes effective.
    As indicated previously in the March 7, 2003, proposed rule, we 
proposed to make the annual update to the LTCH PPS effective from July 
1 through June 30 each year. As a result of this change, we proposed 
that the LTCH PPS would

[[Page 34130]]

use two GROUPERS during the course of a 12-month period: One GROUPER 
for 3 months (from July 1 through September 30); and an updated GROUPER 
for 9 months (from October 1 through June 30). The need to use two 
GROUPERs is based upon the October 1 effective date of the updated ICD-
9-CM coding system. As previously discussed, new ICD-9-CM codes may 
result in changes to the structure of the DRGs. In order for the 
industry to be on the same schedule (for both the IPPS and the LTCH 
PPS) for the use of the most current ICD-9-CM codes, it was necessary 
for us to propose to apply two GROUPER programs to the LTCH PPS. 
Although we did not believe that this would have any adverse effect on 
LTCHs, we were interested in receiving comments on this issue. LTCHs 
would continue to code diagnosis and procedures using the most current 
version of the ICD-9-CM coding system.
    Currently, for Federal FY 2003, we are using Version 20.0 of the 
GROUPER software for both the IPPS and the LTCH PPS. For discharges 
beginning on October 1, 2003 (Federal FY 2004), in the March 7, 2003, 
LTCH PPS proposed rule, we proposed to use Version 21.0 of the GROUPER 
software for both the IPPS and the LTCH PPS. Thus, changes to the CMS-
DRGs (the DRGs on which the LTC-DRGs are based), and their relative 
weights, as well as the LTC-DRGs and their relative weights that will 
be effective for October 1, 2003, through September 30, 2004, are 
presented in the IPPS FY 2004 proposed rule that was published on May 
19, 2003, in the Federal Register (68 FR 27154). Accordingly, we will 
notify LTCHs of any revised LTC-DRG relative weights based on the final 
DRGs and Version 21.0 GROUPER for the IPPS that would be effective 
October 1, 2003.
    Comment: Two commenters suggested that we synchronize the LTCH rate 
year (that is, July 1 through June 30) with the update of the LTC DRGs 
which occurs on October 1 by delaying the October 1 update until the 
following July 1. As an alternative, one commenter suggested that the 
LTCHs could continue to use the LTC-DRG weights determined the previous 
October 1 until the start of the next LTCH rate year (July 1, 2004), 
and conduct a readjustment for the LTCH PPS on July 1 of the following 
year.
    Response: With regard to the commenters' suggestion to continue to 
use the current ICD-9-CM and DRG Grouper Version 20 until June 30, 
2004, delaying the update until the following year, we believe that 
this suggestion is not feasible. This would require coders to use two 
different ICD-9-CM versions, one for IPPS use (Version 21 will be 
implemented October 1, 2003) and another for LTCH PPS. Moreover, the 
HIPPA (45 CFR part 162) requires that the ICD-9-CM be the standard 
medical code set and each code set is valid within the dates specified 
by the organization (Department of Health and Human Services) 
responsible for maintaining that code set. The use of other than the 
current code set (most recent update to the ICD-9-CM will be effective 
October 1, 2003) would be in direct violation of the current HIPPA 
requirements.
    In this final rule, while we are adopting the proposed use of two 
GROUPER software programs over the course of the LTCH rate year, one 
GROUPER for 3 months (from July 1 through September 30); and an updated 
GROUPER for 9 months (from October 1 through June 30), the existing 
GROUPER and the updated GROUPER will be in effect for 12 months. These 
two GROUPER programs will be the same programs in use for the IPPS.

E. ICD-9-CM Coding System

1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    Because the assignment of a case to a particular LTC-DRG will help 
determine the amount that will be paid for the case, it is important 
that the coding is accurate. Classifications and terminology used in 
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as 
recommended to the Secretary by the National Committee on Vital and 
Health Statistics (``Uniform Hospital Discharge Data: Minimum Data Set, 
National Center for Health Statistics, April 1980'') and as revised in 
1984 by the Health Information Policy Council (HIPC) of the U.S. 
Department of Health and Human Services.
    We wish to point out that the ICD-9-CM coding terminology and the 
definitions of principal and other diagnoses of the UHDDS are 
consistent with the requirements of the HIPPA Administrative 
Simplification Act of 1996 (45 CFR part 162). Furthermore, the UHDDS 
has been used as a standard for the development of policies and 
programs related to hospital discharge statistics by both governmental 
and nongovernmental sectors for over 30 years. In addition, the 
following definitions (as described in the 1984 Revision of the UHDDS, 
approved by the Secretary of Health and Human Services for use starting 
January 1986) are requirements of the ICD-9-CM coding system, and have 
been used as a standard for the development of the CMS-DRGs:
    [sbull] Diagnoses include all diagnoses that affect the current 
hospital stay.
    [sbull] Principal diagnosis is defined as the condition established 
after study to be chiefly responsible for occasioning the admission of 
the patient to the hospital for care.
    [sbull] Other diagnoses (also called secondary diagnoses or 
additional diagnoses) are defined as all conditions that coexist at the 
time of admission, that develop subsequently, or that affect the 
treatment received or the length of stay or both. Diagnoses that relate 
to an earlier episode of care that have no bearing on the current 
hospital stay are excluded.
    [sbull] All procedures performed will be reported. This includes 
those that are surgical in nature, carry a procedural risk, carry an 
anesthetic risk, or require specialized training.
    We provide LTCHs with a 60-day window after the date of the notice 
of the initial LTC-DRG assignment to request review of that assignment. 
Additional information may be provided by the LTCH to the fiscal 
intermediary as part of that review.
2. Maintenance of the ICD-9-CM Coding System
    The ICD-9-CM Coordination and Maintenance (C&M) Committee is a 
Federal interdepartmental committee, co-chaired by the National Center 
for Health Statistics (NCHS) and CMS, that is charged with maintaining 
and updating the ICD-9-CM system. The C&M 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 C&M 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 
CMS has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The C&M Committee encourages participation by health-related 
organizations in the above process and holds public meetings for 
discussion of educational issues and proposed coding changes twice a 
year at the CMS Central Office located in Baltimore, Maryland. The 
agenda and dates of the meetings

[[Page 34131]]

can be accessed on the CMS Web site at: http://www.cms.gov/paymentsystems/icd9.
    All changes to the ICD-9-CM coding system affecting DRG assignment 
are addressed annually in the IPPS proposed and final rules. Because 
the DRG-based patient classification system for the LTCH PPS is based 
on the IPPS DRGs, these changes will also affect the LTCH PPS LTC-DRG 
patient classification system.
    As discussed above, the ICD-9-CM coding changes that have been 
adopted by the C&M Committee become effective at the beginning of each 
Federal fiscal year, October 1. Regardless of the change to the annual 
update of the LTCH PPS year to July 1, coders will use the most current 
updated ICD-9-CM coding book from October 1 through September 30 of 
each year. This means that coders and LTCHs that use the updated ICD-9-
CM coding system will be on the same schedule (effective October 1) as 
the rest of the health care industry. The newest version of ICD-9-CM is 
not available for use until October 1, which would be 4 months after 
the date that we will publish the LTCH annual payment rate update final 
rule. The new codes on which the LTC-DRGs are based will go into effect 
and be available for use for discharges occurring on or after October 1 
through September 30 of each year. This annual schedule of the revision 
to the ICD-9-CM coding system and the change of the ICD-9-CM coding 
books or electronic coding programs has been in effect since the 
adoption of Revision 9 of the ICD in 1979.
    Of particular note to LTCHs will be the invalid diagnosis codes 
(Table 6C) and the invalid procedure codes (Table 6D) located in the 
annual proposed and final rules for the IPPS. Claims with invalid codes 
will not be processed by the Medicare claims processing system.
3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
    We emphasize the need for proper coding by LTCHs. Inappropriate 
coding of cases can adversely affect the uniformity of cases in each 
LTC-DRG and produce inappropriate weighting factors at recalibration. 
We continue to urge LTCHs to focus on improved coding practices. 
Because of concerns raised by LTCHs concerning correct coding, we have 
asked the American Hospital Association (AHA) to provide additional 
clarification or instruction on proper coding in the LTCH setting. The 
AHA will provide this instruction via their established process of 
addressing questions through their publication ``Coding Clinic for ICD-
9-CM''. Written questions or requests for clarification may be 
addressed to the Central Office on ICD-9-CM, American Hospital 
Association, One North Franklin, Chicago, IL 60606. A form for the 
question(s) is available to be downloaded and mailed on AHA's Web site 
at: www.ahacentraloffice.org. In addition, current coding guidelines 
are available at the National Center for Health Statistics (NCHS) Web 
site: www.cdc.gov/nchs.icd9.htm.
    In conjunction with the cooperating parties (AHA, AHIMA, and NCHS), 
we have reviewed actual medical records and are concerned about the 
quality of the documentation under the LTCH PPS, as was the case at the 
beginning of the IPPS. We fully believe that, with experience, the 
quality of the documentation and coding will improve, just as it did 
for the IPPS. As noted above, the cooperating parties have plans to 
assist their members with improvement in documentation and coding 
issues for the LTCHs through specific questions and coding guidelines. 
The importance of good documentation is emphasized in the revised ICD-
9-CM Official Guidelines for Coding and Reporting (October 1, 2002): 
``A joint effort between the attending physician and coder is essential 
to achieve complete and accurate documentation, code assignment, and 
reporting of diagnoses and procedures. The importance of consistent, 
complete documentation in the medical record cannot be overemphasized. 
Without such documentation, the application of all coding guidelines is 
a difficult, if not impossible, task. (Coding Clinic for ICD-9-CM, 
Fourth Quarter 2002, page 115).
    To improve medical record documentation, LTCHs should be aware that 
if the patient is being admitted for continuation of treatment of an 
acute or chronic condition, guidelines at section I.B.10 of the Coding 
Clinic for ICD-9-CM, Fourth Quarter 2002 (page 129) are applicable 
concerning selection of principal diagnosis. To clarify coding advice 
issued in the August 30, 2002 final rule (67 FR 55979-55981), we would 
like to point out that, at Guideline I.B.12, Late Effects, a late 
effect is considered to be the residual effect (condition produced) 
after the acute phase of an illness or injury has terminated (Coding 
Clinic for ICD-9-CM, Fourth Quarter 2002, page 129). We have received a 
question regarding whether a LTCH should report the ICD-9-CM code(s) 
for an unresolved acute condition instead of the code(s) for late 
effect of rehabilitation. Depending on the documentation in the medical 
record, either code could be appropriate in a LTCH. Since 
implementation of the LTCH PPS, our Medicare fiscal intermediaries have 
been conducting training and providing assistance to LTCHs in correct 
coding. We have also issued manuals containing procedures as well as 
coding instructions to LTCHs and fiscal intermediaries. We will 
continue to conduct such training and provide guidance on an as-needed 
basis. We also refer readers to the detailed discussion on correct 
coding practices in the August 30, 2002, final rule (67 FR 55979-
55981).
    Comment: Two commenters expressed their support for our adherence 
to the official ICD-9-CM coding guidelines.
    Response: We appreciate the commenters support and anticipate 
working closely with both the AHA and the AHIMA to increase awareness 
of proper documentation and correct coding in the LTCH setting.

F. Changes to the Method for Updating the LTC-DRG Relative Weights

    As discussed in the March 7, 2003, proposed rule, under the LTCH 
PPS, each LTCH will receive a payment that represents an appropriate 
amount for the efficient delivery of care to Medicare patients. The 
system must be able to account adequately for each LTCH's case-mix in 
order to ensure both fair distribution of Medicare payments and access 
to adequate care for those Medicare patients whose care is more costly. 
Therefore, in accordance with Sec.  412.523(c), we adjust the standard 
Federal PPS rate by the LTC-DRG relative weights in determining payment 
to LTCHs for each case.
    Under this payment system, relative weights for each LTC-DRG are a 
primary element used to account for the variations in cost per 
discharge and resource utilization among the payment groups (Sec.  
412.515). To ensure that Medicare patients who are classified to each 
LTC-DRG have access to an appropriate level of services and to 
encourage efficiency, we calculate a relative weight for each LTC-DRG 
that represents the resources needed by an average inpatient LTCH case 
in that LTC-DRG. For example, cases in a LTC-DRG with a relative weight 
of 2 will, on average, cost twice as much as cases in a LTC-DRG with a 
weight of 1.
    As we discussed in the August 30, 2002, final rule (67 FR 55984-
55995), the LTC-DRG relative weights effective under the LTCH PPS for 
Federal FY 2003 were calculated using the March 2002 update of FY 2001 
MedPAR data and Version 20.0 of the CMS GROUPER software. We use total 
days and total

[[Page 34132]]

charges in the calculation of the LTC-DRG relative weights.
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and rehabilitation and wound care. Some 
case types (DRGs) may be treated, to a large extent, in hospitals that 
have, from a perspective of charges, relatively high (or low) charges. 
Such distribution of cases with relatively high (or low) charges in 
specific LTC-DRGs has the potential to inappropriately distort the 
measure of average charges. To account for the fact that cases may not 
be randomly distributed across LTCHs, we use a hospital-specific 
relative value method to calculate relative weights. We believe this 
method removes this hospital-specific source of bias in measuring 
average charges. Specifically, we reduce the impact of the variation in 
charges across providers on any particular LTC-DRG relative weight by 
converting each LTCH's charge for a case to a relative value based on 
that LTCH's average charge. (See the August 30, 2002, final rule (67 FR 
55985) for further information of the hospital-specific relative value 
methodology.)
    In order to account for LTC-DRGs with low volume (that is, with 
fewer than 25 LTCH cases), we grouped those low volume LTC-DRGs into 
one of five categories (quintiles) based on average charges, for the 
purposes of determining relative weights. For FY 2003 based on the FY 
2001 MedPAR data, we identified 161 LTC-DRGs that contained between 1 
and 24 cases. This list of low volume LTC-DRGs was then divided into 
one of the five low volume quintiles, each containing a minimum of 32 
LTC-DRGs (161/5 = 32 with 1 LTC-DRG as a remainder). Each of the low 
volume LTC-DRGs grouped to a specific quintile received the same 
relative weight and average length of stay using the formula applied to 
the regular LTC-DRGs (25 or more cases), as described below. (See the 
August 30, 2002, final rule (67 FR 55985-55988) for further explanation 
of the development and composition of each of the five low volume 
quintiles for FY 2003.)
    After grouping the cases in the appropriate LTC-DRG, we calculate 
the relative weights by first removing statistical outliers and cases 
with a length of stay of 7 days or less. Next, we adjust the number of 
cases in each LTC-DRG for the effect of short-stay outlier cases under 
Sec.  412.529. The short-stay adjusted discharges and corresponding 
charges were used to calculate ``relative adjusted weights'' in each 
LTC-DRG using the hospital-specific relative value method described 
above. (See the August 30, 2002, final rule (67 FR 55989-55995) for 
further details on the steps for calculating the LTC-DRG relative 
weights.)
    We also adjust the LTC-DRG relative weights to account for 
nonmonotonically increasing relative weights. That is, we make an 
adjustment if cases classified to the LTC-DRG ``with comorbidities 
(CCs)'' of a ``with CC''/``without CC'' pair had a lower average charge 
than the corresponding LTC-DRG ``without CCs'' by assigning the same 
weight to both LTC-DRGs in the ``with CC''/``without CC'' pair. (See 
August 30, 2002, 67 FR 55990-55991). In addition, of the 510 LTC-DRGs 
in the LTCH PPS for FY 2003, based on the FY 2001 MedPAR data, we 
identified 159 LTC-DRGs for which there were no LTCH cases in the 
database. That is, no patients who would have been classified to those 
DRGs were treated in LTCHs during FY 2001 and, therefore, no charge 
data were reported for those DRGs. Thus, in the process of determining 
the relative weights of LTC-DRGs, we were unable to determine weights 
for these 159 LTC-DRGs using the method described above. However, since 
patients with a number of the diagnoses under these LTC-DRGs may be 
treated at LTCHs beginning in FY 2003, we assigned relative weights to 
each of the 159 ``no volume'' LTC-DRGs based on clinical similarity and 
relative costliness to one of the remaining 351 (510-159 = 351) LTC-
DRGs for which we were able to determine relative weights, based on the 
FY 2001 claims data. (A list of the no volume LTC-DRGs and further 
explanation of their relative weight assignment can be found in the 
August 30, 2002, final rule (67 FR 55991-55994).)
    Furthermore, we establish LTC-DRG relative weights of 0.0000 for 
heart, kidney, liver, lung, pancreas, and simultaneous pancreas/kidney 
transplants (LTC-DRGs 103, 302, 480, 495, 512 and 513, respectively) 
because Medicare will only cover these procedures if they are performed 
at a hospital that has been certified for the specific procedures by 
Medicare and presently no LTCH has been so certified. If in the future, 
however, a LTCH applies for certification as a Medicare-approved 
transplant center, we believe that the application and approval 
procedure would allow sufficient time for us to propose appropriate 
weights for the LTC-DRGs effected. At the present time, though, we only 
include these six transplant LTC-DRGs in the GROUPER program for 
administrative purposes because since the LTCH PPS uses the same 
GROUPER program for LTCHs as is used under the IPPS, removing these 
DRGs would be administratively burdensome.
    As we stated in the March 7, 2003, proposed rule, we proposed that 
we would continue to use the same LTC-DRGs and relative weights until 
October 1, 2003. Accordingly, Table 3 in the Addendum to the March 7, 
2003, proposed rule lists the LTC-DRGs and their respective relative 
weights and arithmetic mean length of stay that we proposed would 
continue to be used for the period of July 1, 2003, through September 
30, 2003. (This table is the same as Table 3 of the Addendum to the 
August 30, 2002, final rule (67 FR 56076-56084), except that it 
includes the proposed five-sixth of the average length of stay for 
short-stay outliers under Sec.  412.529.) As we noted in section IV.D. 
of the March 7, 2003, proposed rule, we proposed that the final DRGs 
and GROUPER for FY 2004 that will be used for the IPPS and the LTCH 
PPS, effective October 1, 2003, would be presented in the IPPS FY 2004 
final rule published no later than August 1, 2003, in the Federal 
Register.
    Accordingly, we will notify LTCHs of the revised LTC-DRG relative 
weights for use in determining payments for discharges occurring 
between October 1, 2003, and September 30, 2004, based on the final 
DRGs and Version 21.0 GROUPER published in the IPPS rule on or before 
August 1, 2003.

VI. Policy Change Related to Payments to LTCHs That Are Satellite 
Facilities

Provisions of the Proposed Rule

    In proposing the LTCH PPS (March 7, 2002, 67 FR 13416), we stated 
that we were considering proposing the elimination of the bed limit in 
Sec.  412.22(h)(2)(i) for pre-1997 excluded hospitals once the 
prospective payment system was fully phased-in and all payments were 
based on 100 percent of the Federal prospective payment rates. This 
statement generated a number of comments and in the August 30, 2002, 
final rule (67 FR 56012), we stated our agreement with commenters who 
urged us to adopt a policy eliminating the bed-number restrictions for 
pre-1997 LTCHs with satellite facilities, as soon as a LTCH is paid 
based on 100 percent of the Federal prospective rate. However, we also 
noted that we would address a change in the policy concerning bed 
limits in the next update of the LTCH PPS. Therefore, in the March 7, 
2003, proposed rule (68 FR 11243-11244), we proposed to eliminate the 
application of the bed-number restrictions set forth in Sec.  
412.22(h)(2)(i) for LTCHs established prior to 1997 with satellite 
facilities, effective at the start of the first cost

[[Page 34133]]

reporting year that a LTCH is paid under the 100 percent fully Federal 
prospective payment system. This will be either when a LTCH elects to 
be paid based on 100 percent of the Federal prospective rate or when 
the LTCH is fully transitioned to 100 percent of the Federal 
prospective rate, whichever comes first.
    Section 1886(b)(3) of the Act, as amended by section 4414 of Public 
Law 105-33, required existing LTCHs to be subject to caps on their 
target amounts for cost reporting periods beginning on or after October 
1, 1997, through September 30, 2002. For purposes of calculating these 
caps, the statute required the Secretary to ``estimate the 75th 
percentile of the target amounts for such hospitals within [each] class 
for cost reporting periods ending during fiscal year 1996.'' Section 
1886(b)(3)(H) of the Act, as amended by section 121 of Public Law 106-
113, directed the Secretary to provide for an appropriate wage 
adjustment to the caps on the target amounts for psychiatric and 
rehabilitation hospitals and units and LTCHs effective for cost 
reporting periods beginning on or after October 1, 1999 through 
September 30, 2002. In addition, payment limits were established for 
new excluded hospitals or units (excluding children's hospitals) 
effective October 1, 1997. For new excluded hospitals (that is, post-
1997 LTCHs), section 1886(b)(7) of the Act, as added by section 4416 of 
Public Law 105-33, specified that the payment amount for the facility's 
first two 12-month cost reporting periods, for which the hospital has a 
settled cost report, must not exceed 110 percent of the national median 
of target amounts of similarly classified hospitals for cost reporting 
periods ending during FY 1996, updated by the hospital market basket 
increase percentage to the first cost reporting period in which the 
hospital receives payment, as adjusted by section 1886(b)(7)(C) of the 
Act. The result of sections 4414 and 4416 of Public Law 105-33 was a 
distinction between the LTCHs established prior to, and those 
established after 1997, with lower payment caps for the post-1997 
LTCHs.
    In the July 30, 1999, IPPS final rule (64 FR 41532-41533), we 
promulgated regulations at Sec.  412.22(h)(2)(i) to discourage pre-1997 
excluded hospitals, which had the higher caps on target amounts as 
discussed above (under Sec.  413.40(c)(4)(iii)), from creating 
satellites rather than establishing new hospitals, in order to avoid 
the payment impact of the lower caps that apply to new hospitals (under 
Sec.  413.40(f)(2)(ii)). In the July 30, 1999, IPPS final rule (64 FR 
41490), we required that where a pre-1997 excluded hospital, such as a 
LTCH, established a satellite facility and, in doing so, its total 
beds, in both the parent hospital (or unit) and the satellite facility, 
exceeded the number of State-licensed and Medicare-certified beds in 
the parent hospital on the last day of its last cost reporting period 
beginning before October 1, 1997, the excluded hospital would be paid 
under the inpatient DRG system, instead of receiving payment as an 
excluded hospital under the reasonable cost-based payment system. 
Although the excluded hospital could ``transfer'' beds from the parent 
facility to the satellite, it could not increase its total bed capacity 
(at the parent and satellite(s)) beyond the level the hospital had in 
the most recent cost reporting period beginning before October 1, 1997, 
and still be paid as a hospital excluded from the IPPS. However, no 
such limitation was imposed on a LTCH established after October 1, 
1997. Since this type of hospital would have already been subject to 
the lower payment limit of 110 percent of the national median of target 
amounts for similarly classified hospitals under Sec.  
413.40(f)(2)(ii), it would not benefit by establishing a satellite 
facility instead of a separate free-standing hospital, as would a pre-
1997 LTCH.
    The rationale for applying the bed-limit provision only on pre-1997 
hospitals was the potential for gaming by those hospitals, by creating 
a satellite facility with a higher TEFRA target cap where, in reality, 
the satellite facility should have been a separately certified excluded 
facility, which would have been subject to the lower cap on payments to 
new (post-1997) facilities paid under the TEFRA system. Once the LTCH 
is paid based on 100 percent of the Federal prospective rate, however, 
the LTCH will no longer be subject to TEFRA caps and LTCH prospective 
payments will be the same regardless of when the LTCH was established. 
Therefore, consistent with the March 7, 2003, proposed rule, we are 
eliminating the bed-limit provision once a LTCH is paid based on 100 
percent of the LTCH Federal PPS rate. Finally, under this policy, the 
bed limitation on ``existing'' LTCHs will, however, continue to apply 
to those LTCHs while they are paid based on the transition blend, and, 
therefore, continue to receive a percentage of their payments based on 
the reasonable cost-based payment rules, until these hospitals are paid 
based on 100 percent of the Federal prospective payment rate.
    Comment: Several commenters expressed their strong support for our 
proposal to eliminate the bed number limitation for pre-1997 LTCHs with 
satellite facilities for those LTCHs receiving 100 percent of the 
Federal rate. One commenter recommended that the bed number limitation 
should also be eliminated for the IRFs since they are now receiving 
payment at 100 percent of the Federal rate.
    Response: We appreciate the strong endorsement in response to this 
proposed change. Regarding the commenter who recommended eliminating 
the bed size limitation for IRFs, we would suggest that the commenter 
look to the IRF proposed rule that was published on May 16, 2003 (68 FR 
26785).
    Accordingly, in this final rule, we are adopting the proposal to 
eliminate the bed size limitation for pre-1997 LTCHs with satellite 
facilities once the LTCH is paid at 100 percent of the Federal rate. We 
note that in the preamble to the March 7, 2003, proposed rule, we 
stated the two circumstances under which a LTCH would be paid based on 
100 percent of the Federal rate, which are for the start of the first 
cost reporting period that a LTCH elects fully Federal payment, as set 
forth in Sec.  412.533(c) or when the LTCH PPS is fully phased-in after 
the transition period. We inadvertently omitted the second circumstance 
in the proposed regulation text at Sec.  412.22(h)(6), therefore, we 
are revising that section to reflect this policy.

VII. Changes to the LTCH PPS Rates for the 2004 LTCH PPS Rate Year

A. Overview of the Development of the Payment Rates

    The LTCH PPS was effective for a LTCH's first cost reporting period 
beginning on or after October 1, 2002. Effective with that cost 
reporting period, LTCHs are paid, during a 5-year transition period, on 
the basis of an increasing proportion of the LTCH PPS Federal rate and 
a decreasing proportion of a hospital's payment under reasonable cost-
based payment system, unless the hospital makes a one-time election to 
receive payment based on 100 percent of the Federal rate (see Sec.  
412.533). New LTCHs (as defined at Sec.  412.23(e)(4)) are paid based 
on 100 percent of the Federal rate, with no phase-in transition 
payments.
    The basic methodology for determining LTCH PPS Federal prospective 
payment rates is set forth in the regulations at Sec. Sec.  412.515 
through 412.532. Below we discuss the proposed factors used to update 
the LTCH PPS standard Federal rate for the proposed 2004 LTCH PPS rate 
year published in

[[Page 34134]]

the March 7, 2003, proposed rule. We also discuss the factors used to 
establish the final update to the LTCH PPS standard Federal rate for 
the 2004 LTCH PPS rate year in this final rule, which will be effective 
for LTCHs paid under the LTCH PPS for discharges occurring on or after 
July 1, 2003, through June 30, 2004. In the final rule published on 
August 30, 2002 (67 FR 56029-56031), for cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), we computed the LTCH 
PPS standard Federal payment rate by updating the best available (FY 
1998 or FY 1999) Medicare inpatient operating and capital costs per 
case data, using the excluded hospital market basket.
    Section 123(a)(1) of Public Law 106-113 requires that the PPS 
developed for LTCHs be budget neutral. Therefore, in calculating the 
standard Federal rate for FY 2003 under Sec.  412.523(d)(2), we set 
total estimated PPS payments equal to estimated payments that would 
have been made under the reasonable cost-based payment methodology had 
the PPS for LTCHs not been implemented. Section 307(a) of Public Law 
106-554 specified that the increases to the hospital-specific target 
amounts and cap on the target amounts for LTCHs for FY 2002 provided 
for by section 307(a)(1) of Public Law 106-554 shall not be taken into 
account in the development and implementation of the LTCH PPS. In 
addition, the statute as amended by section 122 of Public Law 106-113 
provides for enhanced bonus payments for LTCHs for two years, FY 2001 
and FY 2002. Furthermore, as specified at Sec.  412.523(d)(1), the 
standard Federal rate is reduced by an adjustment factor to account for 
the estimated proportion of outlier payments under the LTCH PPS to 
total LTCH PPS payments (8 percent). For further details on the 
development of the FY 2003 standard Federal rate, see the August 30, 
2002, final rule (67 FR 56027-56037). Under the existing regulations at 
Sec.  412.523(c)(3)(ii) for fiscal years after FY 2003, we update the 
standard Federal rate annually to adjust for the most recent estimate 
of the projected increases in prices for LTCH inpatient hospital 
services.

B. Update to the Standard Federal Rate for the 2004 LTCH PPS Rate Year

    In the August 30, 2002, final rule (67 FR 56033), we established a 
LTCH PPS standard Federal rate of $34,956.15 for FY 2003. As discussed 
in the March 7, 2003, proposed rule (68 FR 11248), based on the most 
recent estimate of the excluded hospital with capital market basket, 
adjusted to account for the change in the rate year update cycle for 
the LTCH PPS rates, we proposed that the LTCH PPS standard Federal 
rate, effective from July 1, 2003, through June 30, 2004, would be 
$35,726.64. Based on updated data, including the most recent estimate 
of the excluded hospital with capital market basket adjusted to account 
for the change in the rate year update cycle for the LTCH PPS rates, 
and the policies described in this final rule, the LTCH PPS standard 
Federal rate, effective from July 1, 2003, through June 30, 2004, is 
$35,726.18 (as discussed below).
    In the discussion that follows, we explain how we developed the 
update to the final standard Federal rate for the 2004 LTCH PPS rate 
year in this final rule. The final standard Federal rate for the 2004 
LTCH PPS rate year is calculated based on the final update factor of 
1.0220. Thus, we estimate that the final standard Federal rate for the 
2004 LTCH PPS rate year will increase 2.2 percent compared to the FY 
2003 standard Federal rate.
1. Standard Federal Rate Update
    In the August 30, 2002, final rule, we established at Sec.  412.523 
that, for years after FY 2003, the annual update to the LTCH PPS 
standard Federal rate will be equal to the percentage change in the 
excluded hospital with capital market basket (described in further 
detail below). As we discussed in the August 30, 2002, final rule (67 
FR 56087), in the future we may propose to develop a framework to 
update payments to LTCHs that would account for other appropriate 
factors that affect the efficient delivery of services and care 
provided to Medicare patients. As we stated in the March 7, 2003, 
proposed rule (68 FR 11244), because the LTCH PPS has only recently 
been implemented (for cost reporting periods beginning on or after 
October 1, 2002), we have not yet collected sufficient data to allow 
for the analysis and development of an update framework under the LTCH 
PPS. Therefore, in that same proposed rule, we did not propose an 
update framework for the 2004 LTCH PPS rate year. However, we noted 
that a conceptual basis for the proposal of developing an update 
framework in the future can be found in Appendix B of the August 30, 
2002, final rule (67 FR 56086-56090).
a. Description of the Market Basket for LTCHs for the 2004 LTCH PPS 
Rate Year
    A market basket has historically been used in the Medicare program 
to account for price increases of the services furnished by providers. 
The market basket used for the LTCH PPS includes both operating and 
capital-related costs of LTCHs because the LTCH PPS uses a single 
payment rate for both operating and capital-related costs. The 
development of the LTCH PPS standard Federal rate is discussed in 
further detail in the August 30, 2002 final rule (67 FR 56027-56037).
    Under the reasonable cost-based payment system, the excluded 
hospital market basket was used to update the hospital-specific limits 
on payment for operating costs of LTCHs. The excluded hospital market 
basket is based on operating costs from FY 1992 cost report data and 
includes data from Medicare-participating long-term care, 
rehabilitation, psychiatric, cancer, and children's hospitals. Since 
LTCHs' costs are included in the excluded hospital market basket, this 
market basket index, in part, also reflects the costs of LTCHs. 
However, in order to capture the total costs (operating and capital-
related) of LTCHs, we added a capital component to the excluded 
hospital market basket for use under the LTCH PPS. We refer to this 
index as the excluded hospital with capital market basket.
    As we discussed in both the August 30, 2002, final rule (67 FR 
56016 and 56086-56086) and the March 7, 2003, proposed rule (68 FR 
11245-11247), beginning with the implementation of the LTCH PPS in FY 
2003, the excluded hospital with capital market basket based on FY 1992 
Medicare cost report data has been used for updating payments to LTCHs. 
The FY 1992-based market basket reflected the distribution of costs in 
FY 1992 for Medicare-participating freestanding rehabilitation, long-
term care, psychiatric, cancer, and children's hospitals. This 
information was derived from the FY 1992 Medicare cost reports. A full 
discussion of the methodology and data sources used to construct the FY 
1992-based excluded hospital with capital market basket is included in 
Appendix A of the August 30, 2001, final rule (67 FR 56085-56086). In 
the March 7, 2003, proposed rule, we proposed to revise and rebase the 
excluded hospital with capital market basket, using more recent data, 
that is, using FY 1997 base year data beginning with the proposed 2004 
LTCH PPS rate year.
    As we stated in the March 7, 2003, proposed rule (68 FR 11245-
11247), we believe it was appropriate to propose to revise and rebase 
the LTCH PPS market basket based on the most recent complete data 
available (FY 1997) because these data would more accurately reflect 
LTCHs' current costs. Furthermore, we noted that this proposed revising 
and rebasing of the LTCH PPS market basket from an FY

[[Page 34135]]

1992 base year to a FY 1997 base year would be consistent with the 
rebasing of both the hospital inpatient market basket used under the 
IPPS and the excluded hospital market basket used to update the target 
amounts under the reasonable cost-based payment system for FY 2003, as 
discussed in the August 1, 2002, IPPS final rule (67 FR 50032-50047). 
We received no comments on the proposed revising and rebasing of the 
LTCH PPS market basket. Therefore, in this final rule, we are adopting 
the FY 1997-based excluded hospital with capital market basket as the 
LTCH PPS market basket beginning with the 2004 LTCH PPS rate year. 
Below we are providing a discussion of the development of the FY 1997-
based excluded hospital with capital market basket, as we presented in 
the March 7, 2003, proposed rule (68 FR 11245-11247).
    The operating portion of the FY 1997-based excluded hospital with 
capital market basket that we are using under the LTCH PPS beginning 
with the 2004 LTCH PPS rate year is derived from the FY 1997-based 
excluded hospital market basket used under the reasonable cost-based 
payment system. The methodology we used to develop the operating 
portion of the market basket under the LTCH PPS is the same methodology 
used to revise and rebase the excluded hospital market basket used 
under the reasonable cost-based payment system, which is described in 
greater detail in the August 1, 2002, IPPS final rule (67 FR 50042-
50044). In brief, the operating cost category weights in the FY 1997-
based excluded market basket add up to 100.0. These weights were 
determined based on FY 1997 Medicare cost report data, the 1997 
Business Expenditure Survey, and the 1997 Annual Input-Output data from 
the Bureau of the Census. In determining the FY 1997-based market 
basket, as we discussed in the March 7, 2003, proposed rule (68 FR 
11245-11247), we also revised the market basket by making the same two 
methodological revisions that we established when we revised and 
rebased the hospital inpatient market basket and the excluded hospital 
market basket in the August 1, 2002, IPPS final rule--(1) Changing the 
wage and benefit price proxies to use the Employment Cost Index (ECI) 
wage and benefit data for hospital workers; and (2) adding a cost 
category for blood and blood products.
    When we add the weight for capital costs to the excluded hospital 
market basket, the sum of the operating and capital weights must still 
equal 100.0. Based on data from FY 1997 Medicare cost reports for 
excluded hospitals, the capital cost weight is 8.968 percent. Because 
capital costs account for 8.968 percent of total costs for excluded 
hospitals in FY 1997, operating costs must, therefore, account for 
91.032 percent (100 percent minus 8.968 percent). Each operating cost 
category weight in the FY 1997-based excluded hospital market basket 
from the August 1, 2002, IPPS final rule (67 FR 50442-50444) was 
multiplied by 0.91032 to determine its weight in the FY 1997-based 
excluded hospital with capital market basket.
    As we discussed in the March 7, 2003, proposed rule (68 FR 11245-
11247), the aggregate capital component of the FY 1997-based excluded 
hospital market basket (8.968 percent) was determined from the same set 
of Medicare cost reports used to derive the operating component. The 
detailed capital cost categories of depreciation, interest, and other 
capital expenses were also determined using those Medicare cost 
reports. We needed to determine two sets of weights for the capital 
portion of the proposed revised and rebased market basket. The first 
set of weights identifies the proportion of capital expenditures 
attributable to each capital cost category; the second set represents 
relative vintage weights for depreciation and interest. The vintage 
weights identify the proportion of capital expenditures that is 
attributable to each year over the useful life of capital assets within 
a cost category (see 67 FR 50046-50047, August 1, 2002, for a 
discussion of how vintage weights are determined).
    The cost categories, price proxies, and base-year FY 1992 and FY 
1997 weights for the excluded hospital with capital market basket used 
under the LTCH PPS beginning with the 2004 LTCH PPS rate year are 
presented below in Table I. The vintage weights for the FY 1997-based 
excluded hospital with capital market basket are presented below in 
Table II.

   Table I.-- Excluded Hospital With Capital Input Price Index (FY 1992-Based and FY 1997-Based) Structure and
                                                     Weights
----------------------------------------------------------------------------------------------------------------
                                                                                    Weights (%)     Weights (%)
               Cost category                         Price/wage variable           Base-Year  FY   Base-Year FY
                                                                                      19921,2         19971,2
----------------------------------------------------------------------------------------------------------------
Total......................................  ...................................         100.000         100.000
Compensation...............................  ...................................          57.935          57.579
    Wages and Salaries.....................  ECI--Wages and Salaries, Civilian            47.417          47.335
                                              Hospital Workers.
    Employee Benefits......................  ECI--Benefits, Civilian Hospital             10.519          10.244
                                              Workers to Capture Total Costs.
Professional fees..........................  ECI--Compensation: Professional &             1.908           4.423
                                              Technical.
Utilities..................................  ...................................           1.524           1.180
    Electricity............................  PPI--Commercial Electric Power.....           0.916           0.726
    Fuel Oil, Coal, etc....................  PPI--Commercial Natural Gas........           0.365           0.248
    Water and Sewerage.....................  CPI-U--Water & Sewerage Maintenance           0.243           0.206
Professional Liability.....................  CMS--Professional Liability                   0.983           0.733
                                              Insurance Premiums Index.
All Other Products and.....................  ...................................          28.571          27.117
    All Other Products.....................  ...................................          22.027          17.914
        Pharmaceuticals....................  PPI--Ethical (Prescription) Drugs..           2.791           6.318
        Food: Direct Purchase..............  PPI--Processed Foods and Feeds.....           2.155           1.122
        Food: Contract.....................  CPI-U--Food Away from Home.........           0.998           1.043
        Chemicals..........................  PPI--Industrial Chemicals..........           3.413           2.133
        Blood and Blood....................  PPI--Blood and Blood Derivatives,    ..............           0.748
                                              Human Use.
        Medical Instruments................  PPI--Medical Instruments &                    2.868           1.795
                                              Equipment.
        Photographic Supplies..............  PPI--Photographic Supplies.........           0.364           0.167
        Rubber and Plastics................  PPI--Rubber & Plastic Products.....           4.423           1.366
        Paper Products.....................  PPI--Converted Paper and Paperboard           1.984           1.110
                                              Products.
        Apparel............................  PPI--Apparel.......................           0.809           0.478
        Machinery and......................  PPI--Machinery & Equipment.........           0.193           0.852

[[Page 34136]]

 
        Miscellaneous......................  PPI--Finished Goods Less Food and             2.029           0.783
                                              Energy.
    All Other Services.....................  ...................................           6.544           9.203
        Telephone..........................  CPI-U--Telephone Services..........           0.574           0.348
        Postage............................  CPI-U--Postage.....................           0.268           0.702
        All Other: Labor...................  ECI--Compensation for Private                 4.945           4.453
                                              Service Occupations.
        All Other: Non-Labor...............  CPI-U--All Items...................           0.757           3.700
Capital-Related Costs......................  ...................................           9.080           8.968
    Depreciation...........................  ...................................           5.611           5.586
        Building & Fixed...................  Boeckh-Institutional Construct.               3.570           3.503
                                              Index--Vintage Weighted (23).
        Movable Equipment..................  PPI--Machinery & Equipment--Vintage           2.041           2.083
                                              Weighted (11 Years).
    Interest Costs.........................  ...................................           3.212           2.682
        Government/Nonprofit...............  Yield on Domestic Municipal Bonds             2.730           2.280
                                              (Bond Buyer 20 Bonds)--Vintage
                                              Weighted (23 years).
        For-profit.........................  Yield on Moody's Aaa Bonds--Vintage           0.482           0.402
                                              Weighted (23 Years).
    Other Capital-Related Costs............  CPI-U--Residential Rent............           0.257          0.699
----------------------------------------------------------------------------------------------------------------
\1\ The operating cost category weights in the excluded hospital market basket described in the August 1, 2002
  IPPS final rule (67 FR 50042-50044) add to 100.0. When we add an additional set of cost category weights
  (total capital weight = 8.968 percent) to this original group, the sum of the weights in the new index must
  still add to 100.0. Capital costs account for 8.968 percent of the market basket; operating costs account for
  91.032 percent. Each weight in the FY 1997-based excluded hospital market basket from the August 1, 2002 IPPS
  final rule (67 FR 50042-50044) was multiplied by 0.91032 to determine its weight in the FY 1997-based excluded
  hospital with capital market basket.
\2\ Weights may not sum to 100.0 due to rounding.


              Table II.--Excluded Hospital With Capital Input Price Index (FY 1997) Vintage Weights
----------------------------------------------------------------------------------------------------------------
                                                 Building and  fixed                         Interest:  capital-
     Year (from farthest to most recent)*        equipment  (23-year    Movable equipment     related  (23-year
                                                      weights)*        (11-year weights)*         weights)*
----------------------------------------------------------------------------------------------------------------
1.............................................                 0.018                 0.063                 0.007
2.............................................                 0.021                 0.068                 0.009
3.............................................                 0.023                 0.074                 0.011
4.............................................                 0.025                 0.080                 0.012
5.............................................                 0.026                 0.085                 0.014
6.............................................                 0.028                 0.091                 0.016
7.............................................                 0.030                 0.096                 0.019
8.............................................                 0.032                 0.101                 0.022
9.............................................                 0.035                 0.108                 0.026
10............................................                 0.039                 0.114                 0.030
11............................................                 0.042                 0.119                 0.035
12............................................                 0.044  ....................                 0.039
13............................................                 0.047  ....................                 0.045
14............................................                 0.049  ....................                 0.049
15............................................                 0.051  ....................                 0.053
16............................................                 0.053  ....................                 0.059
17............................................                 0.057  ....................                 0.065
18............................................                 0.060  ....................                 0.072
19............................................                 0.062  ....................                 0.077
20............................................                 0.063  ....................                 0.081
21............................................                 0.065  ....................                 0.085
22............................................                 0.064  ....................                 0.087
23............................................                 0.065  ....................                 0.090
                                               -----------------------
    Total.....................................                1.0000                1.0000               1.0000
----------------------------------------------------------------------------------------------------------------
* Weights may not sum to 1.000 due to rounding.

    Table III. compares the FY 1992-based excluded hospital with 
capital market basket to the FY 1997-based excluded hospital with 
capital market basket. As shown in the table and as we discussed in the 
March 7, 2003, proposed rule (68 FR 11247), the revised and rebased 
market basket grows slightly faster over the FY 1999-2001 period than 
the FY 1992-based market basket. The major reason for this was the 
switching of the wage and benefit proxy to the ECI for hospital workers 
from the previous occupational blend. This revision had a similar 
impact on the IPPS and excluded market baskets, as described in the 
August 1, 2002, IPPS final rule (67 FR 50043-50047).

[[Page 34137]]



   Table III.--Percent Changes in the FY 1992-Based and FY 1997-Based
      Excluded Hospital With Capital Market Baskets, FYs 1999-2004
------------------------------------------------------------------------
                                                 Percentage change
                                         -------------------------------
                                           FY 1992-based    Rebased FY
            Fiscal year (FY)                 excluded       1997-based
                                             hospital        excluded
                                           market basket   market basket
------------------------------------------------------------------------
1999....................................             2.3             2.7
2000....................................             3.4             3.1
2001....................................             3.9             4.0
2002....................................             2.7             3.6
Average historical......................             3.1             3.4
                                         -----------------
2003....................................             3.1             3.7
2004....................................             2.9             3.3
Average forecast........................             3.0             3.5
------------------------------------------------------------------------

    In the August 30, 2002, LTCH PPS final rule (67 FR 56016 and 56085-
56086), we discussed why we believe the excluded hospital with capital 
market basket provides a reasonable measure of the price changes facing 
LTCHs. However, as we discussed in the March 7, 2003, proposed rule (68 
FR 11247), we have been researching the feasibility of developing a 
market basket specific to LTCH services. This research has included 
analyzing data sources for cost category weights, specifically the 
Medicare cost reports, and investigating other data sources on cost, 
expenditure, and price information specific to LTCHs. Based on this 
research, we did not propose to develop a market basket specific to 
LTCH services.
    As we stated in the March 7, 2003, proposed rule (68 FR 11247), our 
analysis of the Medicare cost reports indicates that the distribution 
of costs among major cost report categories (wages, pharmaceuticals, 
capital) for LTCHs is not substantially different from the 1997-based 
excluded hospital with capital market basket. Data on other major cost 
categories (benefits, blood, contract labor) that we would like to 
analyze were excluded by many LTCHs in their Medicare cost reports. An 
analysis based on only the data available to us for these cost 
categories presented a potential problem since no other major cost 
category weight would be based on LTCH data.
    Furthermore, as we discussed in the March 7, 2003, proposed rule 
(68 FR 11247), we conducted a sensitivity analysis of annual percent 
changes in the market basket when the weights for wages, 
pharmaceuticals, and capital in LTCHs were substituted into the 
excluded hospital with capital market basket. Other cost categories 
were recalibrated using ratios available from the IPPS market basket. 
On average between FY 1995 and FY 2002, the excluded hospital with 
capital market basket shows increases at nearly the same average annual 
rate (2.9 percent) as the market basket with LTCH weights for wages, 
pharmaceuticals, and capital (2.8 percent). This difference is less 
than the 0.25 percentage point criterion that determines whether a 
forecast error adjustment is warranted under the IPPS update framework.
    We believe that an excluded hospital with capital market basket 
adequately reflects the price changes facing LTCHs. In the March 7, 
2003, proposed rule, we stated that we would continue to solicit 
comments about issues particular to LTCHs that should be considered in 
relation to the FY 1997-based excluded hospital with capital market 
basket and to encourage suggestions for additional data sources that 
may be available.
    As we noted above, we received no comments on the proposed revising 
and rebasing of the LTCH PPS market basket. Accordingly, in this final 
rule, we are adopting the FY 1997-based excluded hospital with capital 
market basket as the LTCH PPS market basket for application beginning 
with the 2004 LTCH PPS rate year.
b. LTCH Market Basket Increase for the 2004 LTCH Rate Year
    As we discussed in the March 7, 2003, proposed rule (68 FR 11247), 
for LTCHs paid under the LTCH PPS, we proposed that the 2004 rate year 
update would apply to discharges occurring from July 1, 2003, through 
June 30, 2004. Because we are changing the timeframe of the LTCH PPS 
standard Federal rate annual update, as we discuss in section IV. of 
this preamble, we needed to calculate an update factor that will 
reflect this change in the update cycle. Presently, the current rate 
cycle is October 1, 2002, through September 30, 2003. This means that 
the FY 2003 standard Federal rate ($34,956.15; see the August 30, 2002, 
final rule (67 FR 56033)) was determined based on the market basket 
increase through September 30, 2003. As we explained in the March 7, 
2003, proposed rule (68 FR 11247), since we proposed to change the rate 
update cycle and, therefore, update the standard Federal rate 3 months 
early (that is, July 1, 2003, instead of October 1, 2003), we needed to 
propose an adjustment to the projected full (12-month) market basket 
increase to eliminate the projected increase for the 3-month 
overlapping period (July 1, 2003, through September 30, 2003).
    Thus, we need to account for the fact that the FY 2003 standard 
Federal rate of $34,956.15 already includes an update for the 3-month 
period from July 1, 2003, through September 30, 2003. In the absence of 
this proposed change, as we discussed in the March 7, 2003, proposed 
rule (68 FR 11247-11248), the update for FY 2004 would have been 
calculated using the estimated increase between FY 2003 and FY 2004. 
For the proposed update for the proposed 2004 LTCH PPS rate year, we 
calculated the estimated increase between FY 2003 and the proposed 2004 
LTCH PPS rate year. As we discussed in that same proposed rule, based 
on the fourth quarter 2002 forecast of the proposed revised and rebased 
FY 1997-based excluded hospital with capital market basket, we 
determined that the projected market basket increase for the 3-month 
period of July 1, 2003, through September 30, 2003, would be 0.8 
percentage points. The projected market basket increase for this 3-
month period (0.8 percent) was already included in the FY 2003 standard 
Federal rate and, therefore, needed to be deducted from the projected 
market basket increase for the 12-month period of July 1, 2003, through 
June 30, 2004 (3.3 percent), in order to account for the proposed 
change in the update cycle. Therefore,

[[Page 34138]]

in the March 7, 2003, proposed rule (68 FR 11248), based on Global 
Insights' (formerly DRI-WEFA) fourth quarter 2002 forecast of the 
proposed revised and rebased FY 1997-based excluded hospital with 
capital market basket we proposed an update of 2.5 percent for the 2004 
LTCH PPS rate year.
    We received no comments on our proposed methodology for calculating 
the market basket increase for the 2004 LTCH PPS rate year. Therefore, 
consistent with our historical practice of estimating market basket 
increases, based on Global Insights' (formerly DRI-WEFA) first quarter 
2003 forecast of the revised and rebased FY 1997-based excluded 
hospital with capital market basket, in this final rule using the 
methodology described above, we determined an update of 2.5 percent (as 
shown in Table IV. below) for the 2004 LTCH PPS rate year.

   Table IV.--Calculation of Market Basket Increase for the 2004 LTCH
                  Prospective Payment System Rate Year
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Full 12-month market basket with capital increase............        3.3
Adjustment for the change in the update cycle *..............       -0.8
2004 rate year market basket increase **.....................        2.5
------------------------------------------------------------------------
* Projected market basket increase for the 3-month period of July 1,
  2003, through September 30, 2003, already included in the FY 2003
  standard Federal rate.
** Projected market basket increase for the 12-month period of July 1,
  2003, through June 30, 2004, from FY 2003.

    In addition, as we discussed in the March 7, 2003, proposed rule 
(68 FR 11248), based on the best available data for 194 LTCHs, we 
estimated that LTCH prospective payment system payments would be 
approximately $1.960 billion for the proposed 2004 LTCH PPS rate year. 
Furthermore, as we discussed in the August 30, 2002, final rule (67 FR 
56027), we proposed that the proposed change to the annual update of 
the FY 2003 factors and rates from a rate year beginning October 1, 
2003, to a rate year beginning July 1, 2003, would maintain budget 
neutrality. In that same final rule, we explained that, as required by 
statute, total estimated LTCH PPS payments in FY 2003 will equal 
estimated payments that would have been made under the reasonable cost-
based principles if the LTCH PPS were not implemented. Therefore, in 
order to maintain budget neutrality for the proposed change in the rate 
update cycle, in the March 7, 2003, proposed rule (68 FR 11248), under 
proposed Sec.  412.523(c)(3)(ii), we proposed to adjust the standard 
Federal rate by a factor of 0.997 (($1.960 billion-$5.66 million)/
$1.960 billion) or -0.003 to account for the resulting additional cost 
of $5.66 million to the FY 2003 Federal budget that we estimated based 
on the most recent data for the 3-month period from July 1, 2003, 
through September 30, 2003. Also, in that same proposed rule, we 
proposed to revise this adjustment factor in this final rule based on 
the best available data.
    In this final rule, based on the best available data for 194 LTCHs, 
we estimated that LTCH prospective payment system payments would be 
approximately $1.960 billion for the 2004 LTCH PPS rate year. As we 
proposed in the March 7, 2003, proposed rule (68 FR 11248), the 
proposed change to the annual update of the FY 2003 factors and rates 
from a rate year beginning October 1, 2003, to a rate year beginning 
July 1, 2003, would be budget neutral because, as we noted above, total 
estimated LTCH PPS payments in FY 2003 must equal estimated payments 
that would have been made under the reasonable cost-based principles, 
if the LTCH PPS were not implemented. Therefore, in order to maintain 
budget neutrality for the change in the rate update cycle, in this 
final rule based on updated data and the final policies discussed in 
this final rule, under Sec.  412.523(c)(3)(ii), we have adjusted the 
2004 LTCH PPS rate year standard Federal rate by a factor of 0.997 
(($1.960 billion-$5.68 million)/$1.960 billion) or -0.003 to account 
for the resulting additional cost of $5.68 million to the FY 2003 
Federal budget that we estimated based on the most recent data for the 
3-month period from July 1, 2003, through September 30, 2003, for 194 
LTCHs.
    In the March 7, 2003, proposed rule (68 FR 11248), we proposed to 
update the current standard Federal rate ($34,956.15) established in 
the August 30, 2002, final rule (67 FR 56033) by 2.2 percent (2.5 
percent minus 0.3 percent) for discharges paid under the LTCH PPS that 
occur on or after July 1, 2003, through June 30, 2004. The proposed 
update represented the most recent estimate of the increase in the 
excluded hospital with capital market basket for the proposed 2004 LTCH 
PPS rate year, adjusted by the above described factor to transition to 
the proposed change in the rate update cycle to July 1, and is based on 
the best available data for 194 LTCHs.
    Comment: One commenter stated that the proposed 2.2 percent 
increase in the LTCH PPS standard Federal rate from $34.956.15 to 
$35,726.64 does not reflect the inflation of input hospital costs.
    Response: As noted above, the proposed update of 2.2 percent was 
based on the most recent estimate of the increase in the proposed 
excluded hospital with capital market basket for the proposed 2004 LTCH 
PPS rate year, adjusted as explained above to transition to the 
proposed change in the rate update cycle to July 1. The proposed update 
and adjustment were based on the best available data for 194 LTCHs 
contained in our database. The most recent estimate of the increase in 
the excluded hospital with capital market basket for the 2004 LTCH PPS 
rate year was determined in a manner that is consistent with our 
historical practice of estimating market basket increases for other 
Medicare prospective payment systems (inpatient acute care hospitals, 
IRFs, SNFs, and HHAs), that is, using Global Insights' (formerly DRI-
WEFA) most recent forecast of the applicable PPS market basket. 
Furthermore, we believe it is appropriate to adjust the most recent 
estimate of the 12-month increase in the LTCH PPS market basket for 
July 1, 2003, through June 30, 2004, because as we explained above, the 
FY 2003 standard Federal rate ($34,956.15) already includes inflation 
for the 3-month period from July 1, 2003, through September 30, 2003. 
Thus, the projected market basket increase for this 3-month period 
needs to be deducted from the projected market basket increase for the 
12-month period of July 1, 2003, through June 30, 2004.
    In addition, as we explained above, it is necessary that the market 
basket increase be further adjusted so that the proposed change in 
updating the FY 2003 rate 3 months early (July 1, 2003, instead of 
October 1, 2003) be budget neutral, as mandated by section 123 of 
Public Law 106-113 (that is, total estimated LTCH PPS payments in FY 
2003 will equal estimated payments that would have been made under the 
reasonable cost-based principles if the LTCH PPS were not implemented). 
Therefore, we believe that the proposed methodology for determining the 
proposed 2.2 percent update for the 2004 LTCH PPS rate year is 
appropriate.
    Comment: A few commenters stated that the proposed 2004 LTCH PPS 
rate year standardized amount of $35,726.64 is based on the 
identification of costs related to short-stay outlier cases which have 
been derived from cost-to-charge ratios that do not account for the 
proposed change to the short-stay outlier policy under proposed Sec.  
412.529. Specifically, in the March 7, 2003,

[[Page 34139]]

proposed rule (68 FR 11253), we proposed that fiscal intermediaries 
would use either the most recently settled cost report or most recent 
tentative settled cost report, whichever is later, in determining a 
LTCH's cost-to-charge ratio used in determining short-stay outlier 
payments. We also proposed, in that same proposed rule, that the 
applicable statewide average cost-to-charge ratio would only be applied 
when a LTCH's cost-to-charge ratio exceeds the ceiling (but not when a 
LTCH's cost-to-charge ratio falls below the floor). The commenters 
express concern that the proposed change to the short-stay outlier 
policy is not reflected in the proposed 2004 LTCH PPS rate year 
standard Federal rate and, therefore, CMS fails to maintain budget 
neutrality.
    In addition, one of the commenters noted that the cost-to-charge 
ratio data posted on the web for the 2004 rate year proposed rule 
(published on March 7, 2003, in the Federal Register) differed for many 
LTCHs from the cost-to-charge ratio data posted on the web for the FY 
2003 final rule (published August 30, 2002, in the Federal Register). 
The commenter believes that the observed change in the LTCHs' cost-to-
charge ratios is due to the proposed change to allow fiscal 
intermediaries to use either the most recently settled cost report or 
most recent tentative settled cost report, whichever is later, in 
computing a LTCH's cost-to-charge ratio used to determine both short-
stay outlier and high-cost outlier payments.
    Response: The commenters have raised concerns that we have not 
taken into account the proposed changes to the policies for determining 
short-stay and high-cost outlier payments in calculating the proposed 
update to the standard Federal rate for the proposed 2004 LTCH PPS rate 
year. As we discuss in greater detail below in section VII.B.3. of this 
preamble, at this time, the finalized changes to the proposed high-cost 
outlier and short-stay outlier policies presented in the March 7, 2003, 
proposed rule (68 FR 11250-11253) are not yet effective. Accordingly, 
in establishing the final update factor for the 2004 LTCH PPS rate year 
in this final rule, we used the high-cost outlier and short-stay 
outlier policies established in the August 30, 2002, final rule (67 FR 
55995-56000 and 56022-56027).
    Nevertheless, based on the comments, there appears to be a 
misconception among the commenters regarding the methodology for 
updating the LTCH PPS standard Federal rate. While we are not 
finalizing the proposed changes to the outlier policies in this final 
rule, we believe that it is important to clarify the methodology used 
in the March 7, 2003, proposed rule to determine the proposed update 
factor for the proposed 2004 LTCH PPS rate year.
    In the August 30, 2002, final rule, we established at Sec.  
412.523(c)(3)(ii) that for fiscal years after FY 2003, we update the 
standard Federal rate annually to adjust for the most recent estimate 
of the projected increases in prices for LTCH inpatient hospital 
services. That is, for years after FY 2003, the annual update to the 
LTCH PPS standard Federal rate will be equal to the percentage change 
in the excluded hospital with capital market basket.
    In determining the proposed update for the proposed 2004 LTCH PPS 
rate year, we adjusted the projected proposed LTCH market basket 
increase in order to maintain budget neutrality (in addition to an 
adjustment to account for the transition to the proposed change in the 
LTCH PPS rate year) by accounting for the estimated increase in 
payments during the remainder of FY 2003 (July 1, 2003, through 
September 30, 2003) that would result from updating the factors and 
rates 3 months early (July 1, 2003, instead of October 1, 2003). This 
budget neutrality adjustment to the proposed rate update included the 
effect of the proposed increase in the LTCH PPS standard Federal rate, 
the effect of proposed change in the wage index values, and the effect 
of the proposed change in the short-stay outlier policy and high-cost 
outlier policy (specifically the elimination of assigning the statewide 
average cost-to-charge ratio when a LTCH's cost-to-charge ratio falls 
below the floor).
    As we discussed in the March 7, 2003, proposed rule (68 FR 11251), 
in calculating short-stay outlier and high-cost outlier payments we 
currently use cost-to-charge ratios based on the latest available cost 
report data from HCRIS and corresponding MedPAR claims data from FYs 
1998, 1999, and 2000. In some cases the latest available cost report 
data from HCRIS is from settled cost reports; however, in other 
instances, the latest available cost report data from HCRIS is from 
``as submitted'' cost reports. Since the universe of LTCHs is 
relatively small and the substantial increase in the number of LTCHs is 
fairly recent, due to the lag time in the cost report settlement and 
the availability of cost report data in HCRIS, we used cost-to-charge 
ratios based on as submitted cost report data if settled cost report 
data were not available. Since, as we noted above, the data used to 
compute LTCH cost-to-charge ratios was generated prior to the 
implementation of the LTCH PPS (when the use of charges was not as 
germane), we believe that the difference between a LTCH's cost-to-
charge ratio computed from the latest settled cost report and a LTCH's 
cost-to-charge ratio computed from the latest tentative settled cost 
report is immaterial for most LTCHs, and, therefore, would not have a 
significant impact on payment estimates.
    The commenter is mistaken as to the reason behind the change in the 
cost-to-charge ratio data posted on the web from the FY 2003 final rule 
(published August 30, 2002, in the Federal Register) to the 2004 LTCH 
PPS rate year proposed rule (published on March 7, 2003, in the Federal 
Register). As discussed above, this change in LTCHs' cost-to-charge 
ratios is not a result of applying the proposed change to allow fiscal 
intermediaries to use either the most recently settled cost report or 
most recent tentative settled cost report, whichever is later, in 
determining a LTCH's cost-to-charge ratio. We note instead that the 
change in the LTCH cost-to-charge ratios observed by the commenter is a 
result of using more updated data between the development of the August 
30, 2002, final rule and the March 7, 2003, proposed rule. For example, 
LTCHs that previously only had FY 1998 data available for the FY 2003 
final rule may now have FY 1999 or FY 2000 data available. Similarly, 
LTCHs that previously only had as submitted cost report data available 
for the FY 2003 final rule may now have settled cost report data 
available. Therefore, we do not believe that a change in our 
methodology for updating the standard Federal rate for the 2004 LTCH 
PPS rate year is warranted.
    In this final rule, we updated the current standard Federal rate 
($34,956.15) established in the August 30, 2002, final rule (67 FR 
56033) by 2.2 percent (2.5 percent minus 0.3 percent) for discharges 
paid under the LTCH PPS that occur on or after July 1, 2003, through 
June 30, 2004. This update represents the most recent estimate of the 
increase in the excluded hospital with capital market basket for the 
2004 LTCH PPS rate year, adjusted to account for the change in the rate 
update cycle to July 1, and is based on the best available data for 194 
LTCHs.
2. Standard Federal Rate for the 2004 LTCH PPS Rate Year
    In the August 30, 2002, LTCH PPS final rule (67 FR 56033), we 
established a standard Federal rate of $34,956.15 based on the best 
available data and policies established in that final rule. In the 
March 7, 2003, proposed rule (68 FR 11248), for the proposed 2004 LTCH

[[Page 34140]]

PPS rate year, we proposed a standard Federal rate of $35,726.64. Since 
the proposed standard Federal rate has already been adjusted for 
differences in case-mix, wages, cost-of-living, and high-cost outlier 
payments, we did not propose any additional adjustments in the proposed 
standard Federal rate for these factors.
    In this final rule, we are establishing a standard Federal rate of 
$35,726.18 for the 2004 LTCH PPS rate year. Since the 2004 LTCH PPS 
rate year standard Federal rate has already been adjusted for 
differences in case-mix, wages, cost-of-living, and high-cost outlier 
payments, we did not make any additional adjustments in the standard 
Federal rate for these factors.

C. Calculation of LTCH Prospective Payments for the 2004 LTCH PPS Rate 
Year

    The basic methodology for determining prospective payment rates for 
LTCH inpatient operating and capital-related costs is set forth in 
Sec.  412.515 through Sec.  412.532. In accordance with Sec.  412.515, 
we assign appropriate weighting factors to each LTC-DRG to reflect the 
estimated relative cost of hospital resources used for discharges 
within that group as compared to discharges classified within other 
groups. The amount of the prospective payment is based on the standard 
Federal rate, established under Sec.  412.523, and adjusted for the 
LTC-DRG relative weights, differences in area wage levels, cost-of-
living in Alaska and Hawaii, high-cost outliers, and other special 
payment provisions (short-stay outliers under Sec.  412.529 and 
interrupted stays under Sec.  412.531). In accordance with Sec.  
412.533, during the 5-year transition period, payment is based on the 
applicable transition blend percentage of the adjusted Federal rate and 
the reasonable cost-based payment rate unless the LTCH makes a one-time 
election to receive payment based on 100 percent of the Federal rate. A 
LTCH defined as ``new'' under Sec.  412.23(e)(4) is paid based on 100 
percent of the Federal rate with no blended transition payments (Sec.  
412.533(d)). As discussed in the August 30, 2002, final rule and in 
accordance with Sec.  412.533(a), the applicable transition blends are 
as follows:

------------------------------------------------------------------------
                                                            Reasonable
 Cost reporting periods beginning on or    Federal rate     cost-based
                  after                     percentage     payment rate
                                                            percentage
------------------------------------------------------------------------
October 1, 2002.........................              20              80
October 1, 2003.........................              40              60
October 1, 2004.........................              60              40
October 1, 2005.........................              80              20
October 1, 2006.........................             100               0
------------------------------------------------------------------------

    Accordingly, for cost reporting periods that begin during FY 2003 
(that is, on or after October 1, 2002, and before September 30, 2003), 
blended payments under the transition methodology are based on 80 
percent of the LTCH's reasonable cost-based payment rate and 20 percent 
of the adjusted Federal rate. For cost reporting periods that begin 
during FY 2004 (that is, on or after October 1, 2003, and before 
September 30, 2004), blended payments under the transition methodology 
will be based on 60 percent of the LTCH's reasonable cost-based 
principles rate and 40 percent of the adjusted Federal rate.
1. Adjustment for Area Wage Levels
    Under the authority of section 307(b) of Public Law 106-554, we 
established an adjustment to account for differences in LTCH area wage 
levels under Sec.  412.525(c) using the labor-related share estimated 
by the excluded hospital market basket with capital and wage indices 
that were computed using wage data from inpatient acute care hospitals 
without regard to reclassification under section 1886(d)(8) or section 
1886(d)(10) of the Act. Furthermore, as we discussed in the August 30, 
2002, final rule (67 FR 56015-56019), we established a 5-year 
transition to the full wage adjustment. For cost reporting periods 
beginning on or after October 1, 2002, and before September 30, 2003 
(FY 2003), the applicable LTCH wage index value is one-fifth of the 
full FY 2002 acute care hospital inpatient wage index data, without 
taking into account geographic reclassification under section 
1886(d)(8) and section 1886(d)(10) of the Act.
    In that same final rule (67 FR 56018), we stated that we would 
continue to reevaluate LTCH data as they become available and would 
propose to adjust the phase-in if subsequent data support a change. As 
we stated in the March 7, 2003, proposed rule (68 FR 11249), because 
the LTCH PPS was only recently implemented, sufficient new data have 
not been generated that would enable us to conduct a comprehensive 
reevaluation of the appropriateness of adjusting the phase-in. However, 
we reviewed the most recent data available and did not find any 
evidence to support a change in the 5-year phase-in of the wage index. 
Therefore, in the March 7, 2003, proposed rule, we did not propose to 
adjust the phase-in of the wage index adjustment at this time.
    Comment: One commenter requested that we reconsider accelerating 
the phase-in of the wage index adjustment.
    Response: As we stated above, because the LTCH PPS was only 
recently implemented, sufficient new data have not been generated that 
would enable us to conduct a comprehensive reevaluation of the 
appropriateness of adjusting the phase-in. For this final rule, we 
reviewed the most recent data available again and still did not find 
any evidence to support a change in the 5-year phase-in of the wage 
index. Therefore, in this final rule, we are not revising the phase-in 
of the wage index adjustment.
    In addition, as we discussed in the March 7, 2003, proposed rule 
(68 FR 11249), the 5-year phase-in of the wage index would not be 
affected by the proposed establishment of a LTCH PPS rate year of July 
1 to June 30. Instead, the 5-year phase-in of the wage index 
established in the August 30, 2002 final rule (67 FR 56018) will 
continue to follow the Federal fiscal year. That is, for cost reporting 
periods beginning on or after October 1, 2003, and before September 30, 
2004 (FY 2004; the second year of the phase-in), the applicable LTCH 
wage index will be two-fifths of the applicable LTCH PPS index values 
discussed below. However, as we stated in that same proposed rule, we 
will reevaluate LTCH data as they become available and propose to 
adjust the phase-in if subsequent data support a change.
    As we noted above, we have not found any evidence to support a 
change in the 5-year phase-in of the wage index adjustment at this 
time. Therefore, we are not adopting the commenter's

[[Page 34141]]

recommendation and we are not revising the phase-in to the wage index 
adjustment in this final rule.
    Section 412.525(c) provides that the adjustment to account for 
differences in area wage levels is made by multiplying the labor-
related portion of the Federal rate by the appropriate wage index value 
for the area in which the LTCH is physically located. In the August 30, 
2002, final rule (67 FR 56018), based on the best available data at 
that time, we stated that the wage index adjustment is based on the FY 
2002 inpatient acute care hospital wage index data without taking into 
account geographic reclassification under section 1886(d)(8) and 
section 1886(d)(10) of the Act. In the March 7, 2003, proposed rule, 
for the 2004 LTCH PPS rate year, we proposed that the wage index 
adjustment provided for under Sec.  412.525(c) be based on the most 
recent available acute care hospital inpatient wage data, that is, the 
same data used to compute the FY 2003 acute care hospital inpatient 
wage index without taking into account geographic reclassification 
under section 1886(d)(8) and section 1886(d)(10) of the Act. As we 
noted above, we proposed that the 5-year phase-in of the wage index 
adjustment would not be affected by the proposed change in the LTCH PPS 
rate update cycle and will continue to be based on the Federal fiscal 
year. However, we proposed to update the data used to compute the 
annual wage index values on the 2004 LTCH PPS rate year cycle (July 
through June).
    Comment: A few commenters stated that our proposal to update the 
data used to compute wage index values according to the LTCH PPS rate 
year (July 1st) would cause LTCHs whose cost reporting periods do not 
align with the LTCH rate year to have to make two wage index changes 
per year during the 5-year phase-in of the wage index adjustment. In 
addition to increasing provider burden, the commenters stated that two 
wage index changes per year would also introduce the potential for 
payment calculation errors. Thus, the commenters recommend that we 
align the phase-in of the wage index adjustment and the update of the 
data used to compute the wage index values to coincide with the LTCH 
PPS rate year.
    Response: Adopting the recommendation of the commenters to align 
the phase-in of the wage index adjustment with the LTCH PPS rate year 
(July 1st) would advance the 5-year phase-in of the wage index 
adjustment. For instance, if the phase-in of the wage index adjustment 
were to change for all LTCHs on July 1st (rather than, as required 
under current language, for cost-reporting periods beginning on or 
after October 1st each year during the 5-year phase-in period), LTCH's 
with an April 1st cost reporting period would receive payments based on 
\1/5\th of the wage index value for only 3 months (April 1, 2003, 
through June 30, 2003) before changing to \2/5\th of the wage index on 
July 1, 2003. As we discussed in the August 30, 2002, final rule (67 FR 
56018), based on the latest available LTCH data, we did not find any 
statistical evidence that showed a significant relationship between 
LTCHs' costs and their geographic location, therefore, we believed that 
it was appropriate to transition to a full wage index adjustment over a 
5-year period.
    As we discussed in the March 7, 2003, proposed rule and as we noted 
above, because the LTCH PPS was only recently implemented, sufficient 
new data have not been generated that would enable us to conduct a 
comprehensive reevaluation of the appropriateness of adjusting the 
phase-in. However, for this final rule we again reviewed the most 
recent data available and we still did not find any evidence to support 
a change in the 5-year phase-in of the wage index. Therefore, as stated 
above, we are not revising the phase-in of the wage index adjustment.
    Moreover, we believe it is inappropriate to accelerate the phase-in 
of the wage index adjustment by adopting the commenters' recommendation 
to align the phase-in of the wage index adjustment with the LTCH PPS 
rate year. As we noted above, in accordance with Sec.  412.525(c), the 
labor-related portion of the Federal rate is adjusted by the applicable 
wage index value. Because the proposed labor-related share (72.612 
percent) is lower then the existing labor-related share (72.885 
percent) established in the August 30, 2002, final rule, LTCHs with a 
wage index of less than 1.0 would be disadvantaged by the acceleration 
of the phase-in of the wage index adjustment that would result if we 
were to align the phase-in of the wage index adjustment with the LTCH 
PPS rate year.
    In addition, we do not believe that the application of two wage 
index changes per year during the 5-year phase-in of the wage index 
adjustment, for those LTCHs whose cost reporting periods do not align 
with the LTCH rate year, would result in an additional burden or in 
payment errors to LTCHs. We do not believe LTCHs would be additionally 
burdened because they are not required to provide any additional 
information due to the change in the wage index adjustment during their 
cost reporting period. Also, we do not believe payment errors will 
occur because both the wage index data and the phase-in of the wage 
index adjustment are automatically performed in the PRICER software 
used by fiscal intermediaries to price each LTCH claim based on the 
date of service.
    Therefore, we are not adopting the commenters' suggestion to align 
the phase-in of the wage index adjustment and the update of the data 
used to compute the wage index values to coincide with the LTCH PPS 
rate year. The phase-in of the wage index adjustment will continue to 
remain linked to each LTCH's cost reporting period beginning on or 
after October 1st each year during the 5-year phase-in period and the 
update of the data used to compute the wage index values will 
correspond with the LTCH PPS rate year (that is, effective beginning on 
July 1st each year).
    For example, for a LTCH with a cost reporting period from January 
1, 2003, through December 31, 2003, the LTCH will be paid using one-
fifth of the wage index value for its entire cost reporting period. For 
the first 6 months of that period (January 1, 2003, through June 30, 
2003), the one-fifth wage index value will be based on the same data 
used to compute the FY 2002 acute care hospital inpatient wage index 
without taking into account geographic reclassifications under sections 
1886(d)(8) and (d)(10) of the Act as established in the August 30, 
2002, final rule (67 FR 56018) and shown in Tables 1 and 2 of the 
Addendum to that same final rule (67 FR 56057-56075). Under the policy 
we are establishing in this final rule to update the data used to 
compute the LTCH PPS wage index values for July 1, 2003, through June 
30, 2004, for the next 6 months (July 1, 2003, through December 31, 
2003) that LTCH will still be paid using one-fifth of the wage index 
value, but the wage index value will now be computed using the same 
data used to compute the FY 2003 acute care hospital inpatient wage 
index without taking into account geographic reclassifications under 
sections 1886(d)(8) and (d)(10) of the Act (as shown in Tables 1 and 2 
of the Addendum to this final rule). In this example, for that LTCH's 
subsequent cost reporting period from January 1, 2004, through December 
31, 2004, that LTCH will be paid using the two-fifth wage index value. 
For the first 6 months of that period (January 1, 2004, through June 
30, 2004), the two-fifths wage index value will be based on the same 
data used to compute the FY 2003 acute care hospital inpatient wage 
index without taking into account geographic reclassifications under 
sections

[[Page 34142]]

1886(d)(8) and (d)(10) of the Act, as shown in Tables 1 and 2 of the 
Addendum to this final rule.
    In the August 30, 2002, final rule (67 FR 56018), for FY 2003 we 
used the same data used to compute the FY 2002 acute care hospital 
inpatient wage index without taking into account geographic 
reclassifications under sections 1886(d)(8) and (d)(10) of the Act. The 
same data is also used in the IRF PPS and the SNF PPS. As we discussed 
in the August 30, 2002, final rule (67 FR 56019), since hospitals that 
are excluded from the IPPS are not required to provide wage-related 
information on the Medicare cost report and we would need to establish 
instructions for the collection of such LTCH data in order to establish 
a geographic reclassification adjustment under the LTCH PPS, the wage 
adjustment established under the LTCH PPS is based on a LTCH's actual 
location without regard to the urban or rural designation of any 
related or affiliated provider. In this final rule, we are establishing 
that for the 2004 LTCH PPS rate year, the same data used to compute the 
FY 2003 acute care hospital inpatient wage index without taking into 
account geographic reclassifications under sections 1886(d)(8) and 
(d)(10) of the Act will be used to determine the applicable wage index 
values under the LTCH PPS, because it is the most recent available 
complete data. This is the same wage data that were used to compute the 
FY 2003 wage indices currently used under the IPPS. The final LTCH wage 
index values for July 1, 2003, through June 30, 2004, are shown in 
Table 1 (for urban areas) and Table 2 (for rural areas) in the Addendum 
to this final rule.
    As noted above, for cost reporting periods beginning on or after 
October 1, 2002, and before September 30, 2003 (FY 2003), the labor 
portion of the standard Federal rate is adjusted by one-fifth of the 
applicable wage index value (that is, for LTCH PPS discharges on or 
after July 1, 2003, through June 30, 2004, one-fifth of the full FY 
2003 acute care hospital inpatient wage index data, without taking into 
account geographic reclassifications under sections 1886(d)(8) and 
(d)(10) of the Act). For cost reporting periods beginning on or after 
October 1, 2003, and before October 1, 2004 (FY 2004), the LTCH wage 
index is two-fifths of the applicable wage index value. Therefore, for 
LTCHs with cost reporting periods beginning on or after October 1, 
2003, through September 30, 2004, for discharges occurring on or after 
July 1, 2003, through June 30, 2004, the labor portion of the standard 
Federal rate is adjusted by two-fifths of the full FY 2003 acute care 
hospital inpatient wage index data, without taking into account 
geographic reclassification under sections 1886(d)(8) and (d)(10) of 
the Act.
    In conjunction with our proposal to revise and rebase the excluded 
hospital with capital market basket from an FY 1992 to an FY 1997 base 
year (as discussed above in section VII.B.1.a. of this preamble), in 
the March 7, 2003, proposed rule (68 FR 11249-11250), we also proposed 
to use a labor-related share that is determined based on the FY 1997-
based excluded hospital with capital market basket. In the August 30, 
2002, final rule (67 FR 56016), we established a labor-related share of 
72.885 percent based on the relative importance of the labor-related 
share of operating and capital costs of the excluded hospital with 
capital market basket with an FY 1992 base-year. In the March 7, 2003, 
proposed rule, we proposed a labor-related share of 72.612 percent 
based on the relative importance of the labor-related share of 
operating costs (wages and salaries, employee benefits, professional 
fees, postal services, and all other labor-intensive services) and 
capital costs in the proposed FY 1997 rebased excluded hospital with 
capital market basket. (For further details on the development of the 
proposed labor share of 72.612 percent, refer to the March 7, 2003, 
proposed rule (68 FR 11249-11250).)
    Comment: Two commenters noted that the proposed revising and 
rebasing of the LTCH PPS market basket coincided with the revisions 
made to the IPPS market basket for FY 2003 where FY 1992 data was 
replaced with FY 1997 data and other proxies used to measure changes in 
costs were replaced (see the August 1, 2002, IPPS final rule; 67 FR 
50041-50042). While we received no comments on the effect of the 
proposed revising and rebasing of the LTCH PPS market basket on the 
LTCH PPS update factor, the commenters noted that the proposed change 
under the LTCH PPS, resulted in a decrease to the labor share from 
72.885 percent to 72.612 percent, while under the IPPS, the use of this 
new data resulted in an increase in the labor share. However, under the 
IPPS, CMS decided not to use the updated data pending further analysis. 
Thus, the commenters believe that a change in the labor share under the 
LTCH PPS should be delayed, pending the results of the analysis being 
performed under the IPPS.
    Response: The methodology used to determine the labor-related share 
presented in the March 7, 2003, proposed rule is consistent with our 
historical methodology of determining the labor-related share in the 
past for the IPPS market basket and the excluded hospital market 
basket, which is the summation of cost categories from the market 
basket deemed to vary with the local labor market. The concerns 
expressed by the commenters regarding the proposed revising of the LTCH 
PPS labor-related share are the same concerns expressed by commenters 
in the August 1, 2002, IPPS final rule (67 FR 50041-50042) when we 
proposed to revise the IPPS market basket and the excluded hospital 
market basket. In response to those comments in that same IPPS final 
rule, we stated that we are in the process of conducting further 
analysis to determine the most appropriate methodology for determining 
the labor-related share.
    In the May 19, 2003, IPPS proposed rule (68 FR 27226), we explain 
that we have not yet completed our research into the appropriateness of 
this measure. In that same IPPS proposed rule, we discuss two ways that 
we are currently reviewing for establishing the labor-related share--
(1) updating the regression analysis that was done when the IPPS was 
originally developed and (2) reevaluating the methodology we currently 
use for determining the labor-related share using the hospital market 
basket. While each of these alternatives have strengths and weaknesses, 
it is not clear at this point that any one alternative is superior to 
the current methodology. Thus, we want to continue researching these 
alternatives, in part, because changing from the current labor share 
methodology would impact the labor-related shares for other Medicare 
prospective payment systems, since they use a similar methodology.
    Therefore, we agree with the commenter that it would be 
inappropriate to change the LTCH PPS labor share until the results of 
this research and analysis are complete. Accordingly, we are adopting 
the commenters' recommendation and the labor share for the 2004 LTCH 
PPS rate year will remain 72.885 percent.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
    Under Sec.  412.525(b), we make a cost-of-living adjustment (COLA) 
for LTCHs located in Alaska and Hawaii to account for the higher costs 
incurred in those States. In the March 7, 2003, proposed rule (68 FR 
11250), for the proposed 2004 LTCH PPS rate year, we proposed to make a 
COLA to payments for LTCHs located in Alaska and Hawaii by multiplying 
the standard Federal payment rate by the appropriate factor listed in 
Table V. below. These factors are obtained from the U.S. Office of

[[Page 34143]]

Personnel Management (OPM). In addition, in that same proposed rule we 
stated that if OPM releases revised COLA factors before May 1, 2003, we 
proposed to use them for the development of payments and publish them 
in this final rule.
    The OPM has not released revised COLA factors for Alaska and Hawaii 
since the publication of the March 7, 2003, proposed rule. We received 
no comments on the proposed COLA factors for Alaska and Hawaii for the 
2004 LTCH PPS rate year. Therefore, under Sec.  412.525(b), we are 
finalizing the COLA factors for Alaska and Hawaii shown below in Table 
V. for the 2004 LTCH PPS rate year.

    Table V.--Cost-of-Living Adjustment Factors for Alaska and Hawaii
                Hospitals for the 2004 LTCH PPS Rate Year
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
  All areas..................................................     1.25
Hawaii:
  Honolulu County............................................     1.25
  Hawaii County..............................................     1.165
  Kauai County...............................................     1.2325
  Maui County................................................     1.2375
  Kalawao County.............................................     1.2375
------------------------------------------------------------------------

3. Adjustment for High-Cost Outliers
    Under Sec.  412.525(a), we make an adjustment for additional 
payments for outlier cases that have extraordinarily high costs 
relative to the costs of most discharges. Providing additional payments 
for outliers strongly improves the accuracy of the LTCH PPS in 
determining resource costs at the patient and hospital level. These 
additional payments reduce the financial losses that would otherwise be 
caused by treating patients who require more costly care and, 
therefore, reduce the incentives to underserve these patients. We set 
the outlier threshold before the beginning of the applicable rate year 
so that total outlier payments are projected to equal 8 percent of 
total payments under the LTCH PPS.
    Under Sec.  412.525(a), we make outlier payments for any discharges 
if the estimated cost of a case exceeds the adjusted LTCH PPS payment 
for the LTC-DRG plus a fixed-loss amount. The fixed-loss amount is the 
amount used to limit the loss that a hospital will incur under an 
outlier policy. This results in Medicare and the LTCH sharing financial 
risk in the treatment of extraordinarily costly cases. The LTCH's loss 
is limited to the fixed-loss amount and the percentage of costs above 
the marginal cost factor. We calculate the estimated cost of a case by 
multiplying the overall hospital cost-to-charge ratio by the Medicare 
allowable covered charge. In accordance with Sec.  412.525(a), we pay 
outlier cases 80 percent of the difference between the estimated cost 
of the patient case and the outlier threshold (the sum of the adjusted 
Federal prospective payment for the LTC-DRG and the fixed-loss amount).
    We determine a fixed-loss amount, that is, the maximum loss that a 
LTCH can incur under the LTCH PPS for a case with unusually high costs 
before the LTCH will receive any additional payments. We calculate the 
fixed-loss amount by simulating aggregate payments with and without an 
outlier policy. The fixed loss amount would result in estimated total 
outlier payments being projected to be equal to 8 percent of projected 
total LTCH PPS payments.
    Outlier payments under the LTCH PPS are determined consistent with 
the IPPS outlier policy. Currently, under the IPPS, a floor and a 
ceiling are applied to an acute care hospital's cost-to-charge ratio 
and if the acute care hospital's cost-to-charge ratio is either below 
the floor or above the ceiling, the applicable statewide average cost-
to-charge ratio is assigned to the acute care hospital. Similarly, if a 
LTCH's cost-to-charge ratio is below the floor or above the ceiling, 
currently the applicable statewide average cost-to-charge ratio is 
assigned to the LTCH. In addition, for LTCHs for which we are unable to 
compute a cost-to-charge ratio, we also assign the applicable statewide 
average. Currently, MedPAR claims data and cost-to-charge ratios based 
on the latest available cost report data from HCRIS and corresponding 
MedPAR claims data are used to establish a fixed-loss threshold amount 
under the LTCH PPS.
    For FY 2003, based on FY 2001 MedPAR claims data and cost-to-charge 
ratios based on the latest available data from HCRIS and corresponding 
MedPAR claims data from FYs 1998 and 1999, we established a fixed-loss 
amount of $24,450. In the March 7, 2003, proposed rule (68 FR 11251), 
for the proposed 2004 LTCH PPS rate year, we proposed to continue to 
use the March 2002 update of the FY 2001 MedPAR claims data to 
determine a fixed-loss threshold that would result in outlier payments 
projected to be equal to 8 percent of total payments, based on the 
policies described in that proposed rule, because these data are the 
best data available. We would calculate cost-to-charge ratios for 
determining the proposed fixed-loss amount based on the latest 
available cost report data in HCRIS and corresponding MedPAR claims 
data from FYs 1998, 1999, and 2000.
    In the March 7, 2003, proposed rule (68 FR 11251), consistent with 
the proposed outlier policy changes for acute care hospitals under the 
IPPS discussed in the March 5, 2003, IPPS high-cost outlier proposed 
rule (68 FR 10424), we proposed to no longer assign the applicable 
statewide average cost-to-charge ratio when a LTCH's cost-to-charge 
ratio falls below the floor. We proposed this policy change because, as 
is the case for acute care hospitals, we believe LTCHs could 
arbitrarily increase their charges in order to maximize outlier 
payments. Even though this arbitrary increase in charges should result 
in a lower cost-to-charge ratio in the future (due to the lag time in 
cost report settlement), currently when a LTCH's actual cost-to-charge 
ratio falls below the floor, the LTCH's cost-to-charge ratio would be 
raised to the applicable statewide average. This application of the 
statewide average would result in inappropriately higher outlier 
payments. Accordingly, we proposed to apply the LTCH's actual cost-to-
charge ratio to determine the cost of the case, even where the LTCH's 
actual cost-to-charge ratio falls below the floor.
    Also, in the March 7, 2003, proposed rule (68 FR 11251), consistent 
with the proposed policy change for acute care hospitals under the 
IPPS, we proposed under Sec.  412.525(a)(4), by cross-referencing 
proposed Sec.  412.84(i), to continue to apply the applicable statewide 
average cost-to-charge ratio when a LTCH's cost-to-charge ratio exceeds 
the ceiling by adopting the proposed policy at proposed Sec.  
412.84(i)(1)(ii). As we stated in that same proposed rule, cost-to-
charge ratios above this range are probably due to faulty data 
reporting or entry, and, therefore, should not be used to identify and 
make payments for outlier cases because such data are clearly errors 
and should not be relied upon. In addition, we also proposed to make a 
similar change to the short-stay outlier policy at Sec.  412.529. Since 
cost-to-charge ratios are also used in determining short-stay outlier 
payments, the rationale for that proposed change mirrors that for high-
cost outliers.
    Therefore, in the March 7, 2003, proposed rule (68 FR 11251), 
consistent with the proposed changes to the IPPS outlier policy, in 
determining the proposed fixed-loss amount for the proposed 2004 LTCH 
PPS rate year, we proposed to use only the current combined operating 
and capital cost-to-charge ratio ceiling under the IPPS of 1.421 (as 
explained in the IPPS final rule (67 FR 50125, August 1, 2002)). We 
believe that using the current combined

[[Page 34144]]

IPPS operating and capital cost-to-charge ratio ceiling for LTCHs is 
appropriate since, as we explained in the August 30, 2002, final rule 
(67 FR 55960), LTCHs are certified as acute care hospitals that meet 
the criteria set forth in section 1861(e) of the Act to participate as 
a hospital in the Medicare program, and in general, hospitals are paid 
as a LTCH only because their Medicare average length of stay is greater 
than 25 days in accordance with Sec.  412.23(e). In the March 7, 2003, 
proposed rule (68 FR 11251), we also explained that prior to qualifying 
as a LTCH under Sec.  412.23(e)(2)(i), the hospitals generally are paid 
as acute care hospitals under the IPPS during the period in which they 
demonstrate that they have an average length of stay of greater than 25 
days. Accordingly, if a LTCH's cost-to-charge ratio is above this 
ceiling, we proposed to assign the applicable IPPS statewide average 
cost-to-charge ratio. We also proposed to assign the applicable 
statewide average for LTCHs for which we are unable to compute a cost-
to-charge ratio, such as for new LTCHs. Therefore, based on the 
proposed methodology and data described above, in the March 7, 2003, 
proposed rule (68 FR 11251), for the proposed 2004 LTCH PPS rate year, 
we proposed a fixed-loss amount of $19,978. Thus, we proposed to pay an 
outlier case 80 percent of the difference between the estimated cost of 
the case and the outlier threshold (the sum of the adjusted Federal 
LTCH payment for the LTC-DRG and the proposed fixed-loss amount of 
$19,978).
    We received numerous comments on the proposed changes to the LTCH 
PPS high-cost outlier policy under proposed Sec.  412.525(a) (and 
short-stay outlier policy under Sec.  412.529(c)). Because many 
features of the proposed LTCH PPS high-cost outlier policy are based 
upon the proposed policy changes to the IPPS high-cost outlier policy, 
we believe it is appropriate to finalize the proposed changes to the 
LTCH PPS high-cost outlier policy together with the final policy 
decisions on the IPPS high-cost outlier policy. Because the existing 
LTCH PPS outlier policy and proposed outlier policy changes are modeled 
after the IPPS outlier policy, we include the summary of public 
comments submitted on behalf of LTCHs, which in many cases mirror the 
comments we received on the proposed changes to the IPPS outlier 
policy, and the responses to those comments in the IPPS high-cost 
outlier final rule. Please refer to that final rule for a full 
discussion of the comments and responses, as well as any other final 
policy decisions concerning LTCH PPS high-cost outlier policy under 
Sec.  412.525(a) (and the short-stay outlier policy under Sec.  
412.529(c)).
    Therefore, in this final rule in calculating the final fixed-loss 
amount for the 2004 LTCH PPS rate year since the finalized changes to 
the high-cost outlier policy (and short-stay outlier policy) are not 
yet effective, we applied the existing outlier policy; that is, we 
assigned the statewide average to LTCHs whose cost-to-charge ratios 
fell below the floor or exceeded the ceiling. Accordingly, we used the 
current IPPS combined operating and capital cost-to-charge ratio floor 
of 0.206 and cost-to-charge ratio ceiling of 1.421 (as explained in the 
IPPS final rule (67 FR 50125, August 1, 2002)). We believe that using 
the current combined IPPS operating and capital cost-to-charge ratio 
floor and ceiling for LTCHs is appropriate for the same reasons we 
stated above regarding the use of the current combined operating and 
capital cost-to-charge ratio ceiling under the IPPS.
    In this final rule, for the 2004 LTCH PPS rate year, we continue to 
use the March 2002 update of the FY 2001 MedPAR claims data to 
establish a fixed-loss threshold that would result in outlier payments 
projected to be equal to 8 percent of total payments, based on the 
policies described in this final rule, because these data are the best 
LTCH data available. We also computed cost-to-charge ratios for 
establishing the fixed-loss amount for the 2004 LTCH PPS rate year 
based on the latest available cost report data in HCRIS and 
corresponding MedPAR claims data from FYs 1998, 1999, and 2000. As we 
explained above, the applicable IPPS statewide average cost-to-charge 
ratios were applied when a LTCH's cost-to-charge ratio exceeded the 
ceiling (1.421) or fell below the floor (0.206). Also, we assigned the 
applicable statewide average to LTCHs for which we were unable to 
compute a cost-to-charge ratio. (Currently, the applicable IPPS 
statewide averages can be found in Tables 8A and 8B of the August 1, 
2002, IPPS final rule (67 FR 50263).)
    Accordingly, based on updated data and the final rates and policies 
established in this final rule (including the existing cost-to-charge 
ratio policy described above), we are establishing a fixed-loss amount 
of $19,590 for the FY 2004 LTCH PPS rate year. Thus, we will pay an 
outlier case 80 percent of the difference between the estimated cost of 
the case and the outlier threshold (the sum of the adjusted Federal 
LTCH payment for the LTC-DRG and the fixed-loss amount of $19,590).
    As we discussed in the March 7, 2003, proposed rule (68 FR 11251-
11252), the IPPS standard Federal rate and relative weights are updated 
simultaneously, effective October 1 of each year, when the new GROUPER 
with the final DRGs and the new relative weights are implemented for 
that fiscal year. The LTCH PPS utilizes the same DRGs and Medicare 
GROUPER program as the IPPS. The GROUPER in effect on July 1, 2003, 
will be version 20.0. Although we proposed to update the LTCH PPS 
standard Federal rate on July 1, 2003, version 21.0 of the GROUPER will 
not be available at the time this final rule is published. Therefore, 
as we explained in the March 7, 2003, proposed rule (68 FR 11242), we 
are not proposing an update to the LTC-DRG weights for the period of 
July 1, 2003, through September 30, 2003, and the LTCH PPS will 
continue to use version 20.0 of the GROUPER and the LTC-DRG relative 
weights published in Table 3 of the Addendum to the August 30, 2002, 
final rule (reprinted in Table 3 of the Addendum to the March 7, 2003, 
proposed rule) for the period from July 1, 2003, through September 30, 
2003.
    The calculation of the fixed-loss amount is dependent in part on 
the LTC-DRG relative weights because the fixed-loss amount is set so 
that estimated total outlier payments are estimated to be equal to 8 
percent of total LTCH PPS payments. We proposed to calculate a fixed-
loss amount that would result in total estimated outlier payments being 
equal to 8 percent of total LTCH PPS payments for the proposed 2004 
LTCH PPS rate year, using the LTC-DRG relative weights based on the 
version 20.0 GROUPER. We proposed to use the version 20.0 GROUPER in 
determining the fixed-loss amount for the period of July 1, 2003, 
through June 30, 2004, as it contains the best available data at the 
time the fixed-loss amount is determined.
    As we discuss below, we did not propose to change the fixed-loss 
amount to account for changes in the version 21.0 GROUPER, because we 
believe implementing two fixed-loss amounts during the proposed LTCH 
PPS rate year may be administratively burdensome. Implementing a single 
fixed-loss amount which would be in effect for a full 12 months (July 
through June) would be consistent with other components of the LTCH 
PPS, such as the standard Federal rate and the wage index, both of 
which would be in effect for a full 12-month period (July through 
June). Similarly, the relative weights and the GROUPER program are in 
effect for 12 months (October through September). However, because the

[[Page 34145]]

update to the ICD-9-CM codes is effective at the beginning of the 
Federal fiscal year, as described in section IV.E.2. of the March 7, 
2003, proposed rule (68 FR 11241), we explained in that same proposed 
rule (68 FR 11252) that we would continue to update the LTCH PPS 
GROUPER and the relative weights on October 1.
    In addition, in the March 7, 2003, proposed rule (68 FR 11252), we 
also stated that we do not anticipate that the fixed-loss amount 
calculated using the relative weights based on the version 20.0 GROUPER 
would be significantly different from a fixed-loss amount calculated 
using the relative weights based on the version 21.0 GROUPER. We 
believe this based on the fact that the LTCH PPS outlier policy, one 
component of which is a fixed-loss amount, is modeled after the IPPS 
outlier policy. The annual reclassification and recalibration of DRGs 
under the IPPS generally does not result in a significant impact on the 
IPPS fixed-loss amount (although this impact would vary from year to 
year depending on the actual DRG changes). Therefore, we proposed to 
calculate a single fixed-loss amount for each LTCH PPS rate year based 
on the version of the GROUPER that is in effect as of July 1 of that 
year.
    Since the proposed effective date of the updated LTCH PPS standard 
Federal rate would be July 1, while the updated GROUPER would not be 
effective until October 1, we stated in the March 7, 2003, proposed 
rule (68 FR 12252) that we did consider an alternative proposal that 
would establish two separate fixed-loss amounts during the proposed 
LTCH PPS rate year--one for July through September based on the current 
GROUPER and another for October through June based on the updated 
GROUPER. As we explained in that same proposed rule, we decided not to 
propose this alternative because, as we discussed above, calculating 
and implementing two fixed-loss amounts in one proposed LTCH PPS rate 
year is administratively burdensome.
    We received no comments on our proposal to calculate a single 
fixed-loss amount for each LTCH PPS rate year based on the version of 
the GROUPER that is in effect as of July 1 of that year. Therefore, for 
the 2004 LTCH PPS rate year, we are establishing a single fixed-loss 
amount based on the version 20.0 of the GROUPER, which is in effect at 
the start of the 2004 LTCH PPS rate year (July 1, 2003). As we stated 
above, the fixed-loss amount for the 2004 LTCH PPS rate year is 
$19,590. As we stated in the August 30, 2002, final rule (67 FR 56026), 
under some rare circumstances, a LTCH discharge could qualify as a 
short-stay outlier case (as defined under Sec.  412.529 and discussed 
in section VII.B.4.b. of this preamble) and also as a high-cost outlier 
case. In such a scenario, a patient could be hospitalized for less than 
five-sixths of the geometric average length of stay for the specific 
LTC-DRG, and yet incur extraordinarily high treatment costs. If the 
costs exceeded the outlier threshold (that is, the short-stay outlier 
payment plus the fixed-loss amount), the discharge would be eligible 
for payment as a high-cost outlier. Thus, for a short-stay outlier in 
the 2004 LTCH PPS rate year, the high-cost outlier payment will be 80 
percent of the difference between the estimated cost of the case plus 
the outlier threshold (the sum of the final fixed-loss amount of 
$19,590 and the amount paid under the short-stay outlier policy).
    Under existing regulations at Sec.  412.525(a), we specify that no 
retroactive adjustment will be made to the outlier payments upon cost 
report settlement to account for differences between the estimated 
cost-to-charge ratios and the actual cost-to-charge ratios for outlier 
cases. This policy is consistent with the existing outlier payment 
policy for acute care hospitals under the IPPS. However, we note that 
in the March 5, 2003, IPPS high-cost outlier proposed rule (68 FR 
10424), we proposed to revise the methodology for determining cost-to-
charge ratios for acute care hospitals under the IPPS because, as we 
discussed in that notice, we became aware that payment vulnerabilities 
exist in the current IPPS outlier policy.
    Because the LTCH PPS high-cost outlier and short-stay policies are 
modeled after the outlier policy in the IPPS, we believe they are 
susceptible to the same payment vulnerabilities and, therefore, merit 
revision. As proposed for acute care hospitals under the IPPS at 
proposed Sec.  412.84(m) in the March 5, 2003, IPPS high-cost outlier 
proposed rule (68 FR 10429), we proposed in the March 7, 2003, proposed 
rule (68 FR 11252) under Sec.  412.525(a)(4)(ii), by cross-referencing 
proposed Sec.  412.84(m), that for LTCHs any reconciliation of outlier 
payments would be made upon cost report settlement to account for 
differences between the estimated cost-to-charge ratio for the period 
during which the discharge occurs. As is the case with the proposed 
changes to the outlier policy for acute care hospitals under the IPPS, 
we are still assessing the procedural changes that would be necessary 
to implement this change. In addition, in that same proposed rule (68 
FR 11252), we proposed to make a similar change to the short-stay 
outlier policy at proposed Sec.  412.529(c)(4)(ii).
    We also stated in the March 7, 2003, proposed rule (68 FR 11252), 
that because we currently use cost-to-charge ratios based on the latest 
settled cost report, any dramatic increases in charges during the 
payment year are not reflected in the cost-to-charge ratios when making 
outlier payments. Consistent with the proposed policy change for acute 
care hospitals under the IPPS at proposed Sec.  412.84(i) discussed in 
the March 5, 2003, IPPS high-cost outlier proposed rule (68 FR 10424-
10426), because a LTCH has the ability to increase its outlier payments 
through a dramatic increase in charges and because of the lag time in 
the data used to calculate cost-to-charge ratios, in the March 7, 2003, 
proposed rule (68 FR 11252), we proposed that fiscal intermediaries 
would use more recent data when determining a LTCH's cost-to-charge 
ratio. Therefore, by cross-referencing proposed Sec.  412.84(i) under 
proposed Sec.  412.525(a)(4)(ii) in the March 7, 2003, proposed rule 
(68 FR 11252), we proposed that fiscal intermediaries would use either 
the most recent settled cost report or the most recent tentative 
settled cost report, whichever is later. In addition, in that same 
proposed rule, we proposed to make a similar change to the short-stay 
outlier policy at proposed Sec.  412.529(c)(4)(ii).
    As we noted above, we received numerous comments on the proposed 
reconciliation of outlier payments at cost report settlement and the 
proposed policy to allow fiscal intermediaries to use either the most 
recent settled cost report or the most recent tentative settled cost 
report, whichever is later, in computing LTCH's cost-to-charge ratios 
for determining high-cost outlier payments under proposed Sec.  
412.525(a) (and short-stay outlier payments under proposed Sec.  
412.529(c)). As we also noted previously, because many features of the 
proposed LTCH PPS high-cost outlier policy are based upon the proposed 
policy changes to the IPPS high-cost outlier policy, we believe it is 
appropriate to finalize the proposed changes to the LTCH PPS high-cost 
outlier together with the final policy decisions on the IPPS outlier 
policy. Because, however, the LTCH PPS outlier policy and proposed 
outlier policy changes are modeled after the IPPS outlier policy, we 
include the summary of public comments submitted on behalf of LTCHs, 
which in many cases mirror the comments we received on the proposed 
IPPS outlier policy, and the responses to those comments in the IPPS 
high-cost outlier final rule. Please

[[Page 34146]]

refer to that final rule for a full discussion of the comments and 
responses, as well as any other final policy decisions concerning LTCH 
PPS high-cost outlier policy under Sec.  412.525(a) (and the short-stay 
outlier policy under Sec.  412.529(c)).
    In conclusion, the summary of public comments on the proposed 
changes presented in the March 7, 2003, proposed rule regarding the 
high-cost outlier policy under proposed Sec.  412.525(a) (and the 
short-stay outlier policy under proposed Sec.  412.529(c)), and the 
responses to those comments are presented in the IPPS high-cost outlier 
final rule. Therefore, in this final rule, based on the data and 
existing methodology described above, we are establishing a fixed-loss 
amount of $19,590 for the FY 2004 LTCH PPS rate year. Accordingly, we 
will pay an outlier case 80 percent of the difference between the 
estimated cost of the case and the outlier threshold (the sum of the 
adjusted Federal LTCH payment for the LTC-DRG and the fixed-loss amount 
of $19,590).
4. Adjustments for Special Cases
a. General
    As discussed in the August 30, 2002, final rule (67 FR 55995), 
under section 123 of Public Law 106-113, the Secretary generally has 
broad authority in developing the PPS for LTCHs, including whether (and 
how) to provide for adjustments to reflect variations in the necessary 
costs of treatment among LTCHs.
    Generally, LTCHs, as described in section 1886(d)(1)(B)(iv) of the 
Act, are distinguished from other inpatient hospital settings by 
maintaining an average length of stay of greater than 25 days. However, 
LTCHs may have cases that have stays of considerably less than the 
average length of stay and that receive significantly less than the 
full course of treatment for a specific LTC-DRG. As we explained in the 
August 30, 2002, final rule (67 FR 55995), such cases would be paid 
inappropriately if the hospital were to receive the full LTC-DRG 
payment. While we did not propose any changes to the payment policy for 
special cases at this time, below we discuss the payment methodology 
for these special cases as implemented in the August 30, 2002, final 
rule (67 FR 55955-56010).
b. Short-Stay Outlier Cases
    A short-stay outlier case may occur when a beneficiary receives 
less than the full course of treatment at the LTCH before being 
discharged. These patients may be discharged to another site of care or 
they may be discharged and not readmitted because they no longer 
require treatment. Furthermore, patients may expire early in their LTCH 
stay.
    As noted above, generally LTCHs are defined by statute as having an 
average length of stay of greater than 25 days. We believe that a 
payment adjustment for short-stay outlier cases results in more 
appropriate payments, because these cases most likely would not receive 
a full course of treatment in such a short period of time and a full 
LTC-DRG payment may not always be appropriate. Payment-to-cost ratios 
simulated for LTCHs, for the cases described above, show that if LTCHs 
receive a full LTC-DRG payment for those cases, they would be 
significantly ``overpaid'' for the resources they have actually 
expended.
    Under Sec.  412.529, we adjust the per discharge payment to the 
least of 120 percent of the cost of the case, 120 percent of the LTC-
DRG specific per diem amount multiplied by the length of stay of that 
discharge, or the full LTC-DRG payment, for all cases with a length of 
stay up to and including five-sixths of the geometric average length of 
stay of the LTC-DRG.
    As we discussed in the March 7, 2003, proposed rule (68 FR 12252), 
in the March 5, 2003, IPPS high-cost outlier proposed rule (68 FR 
10424), we proposed to revise the methodology for determining cost-to-
charge ratios for acute care hospitals under the IPPS because, as we 
discussed in that March 7, 2003, proposed rule, we became aware that 
payment vulnerabilities exist in the current IPPS outlier policy. As we 
also explained in that March 7, 2003, proposed rule, because the LTCH 
PPS high-cost outlier and short-stay outlier policies are modeled after 
the outlier policy in the IPPS, we believe they are susceptible to the 
same payment vulnerabilities and, therefore, merit revision. As 
proposed for acute care hospitals under the IPPS at proposed Sec.  
412.84(i) and (m) in the March 5, 2003, IPPS high-cost outlier proposed 
rule (68 FR 10429), and as we proposed above for high-cost outlier 
payments at Sec.  412.525(a)(4)(ii), we proposed under Sec.  412.529(c) 
that short-stay outlier payments would be subject to the proposed 
provisions in the regulations at proposed Sec.  412.84(i) and (m). 
Therefore, consistent with the proposed changes to the high-cost 
outlier policy discussed in the March 7, 2003, proposed rule (68 FR 
11251), we proposed, by cross-referencing proposed Sec.  412.84(i), 
that fiscal intermediaries would use either the most recent settled 
cost report or the most recent tentative settled cost report, whichever 
is later, in determining a LTCH's cost-to-charge ratio.
    In the March 7, 2003, proposed rule (68 FR 11253), we also 
proposed, by cross-referencing proposed Sec.  412.84(i), that the 
applicable statewide average cost-to-charge ratio would only be applied 
when a LTCH's cost-to-charge ratio exceeds the ceiling. Thus, the 
applicable statewide average cost-to-charge ratio would not be applied 
if a LTCH's cost-to-charge ratio falls below the floor. Finally, in 
that same proposed rule, by cross-referencing proposed Sec.  412.84(m), 
we proposed that any reconciliation of payments for short-stay outliers 
would be made upon cost report settlement to account for differences 
between the estimated cost-to-charge ratio and the actual cost-to-
charge ratio for the period during which the discharge occurs. We also 
noted that, as is the case with the proposed changes to the outlier 
policy for acute care hospitals under the IPPS, we are still assessing 
the procedural changes that would be necessary to implement this 
change.
    As we discussed above in section VII.B.3 of this preamble, we 
received numerous comments on the proposed changes to the short-stay 
outlier policy under proposed Sec.  412.529(c) (and the high-cost 
outlier policy under proposed Sec.  412.525(a)). Because many features 
of the proposed LTCH PPS outlier policies are based upon the proposed 
policy changes to the IPPS high-cost outlier policy, we believe it is 
appropriate to finalize the proposed changes to the LTCH PPS short-stay 
outlier policy (and high-cost outlier policy) together with the final 
policy decisions on the IPPS high-cost outlier policy. Because the LTCH 
PPS outlier policy and proposed outlier policy changes are modeled 
after the IPPS outlier policy, we include the summary of public 
comments submitted on behalf of LTCHs, which in many cases mirror the 
comments we received on the proposed IPPS outlier policy, and the 
responses to those comments in the IPPS high-cost outlier final rule. 
Please refer to that final rule for a full discussion of the comments 
and responses, as well as any other final policy decisions concerning 
LTCH PPS (the short-stay outlier policy under Sec.  412.529(c) and the 
high cost outlier policy under Sec.  412.525(a)). Therefore, in this 
final rule, we are not making the changes to the short-stay outlier 
policy at Sec.  412.529 based on the changes proposed in the March 7, 
2003, proposed rule (68 FR 11252).
    As noted above, we will be responding to all comments on the 
proposed outlier policies for the LTCH PPS and presenting any changes 
in

[[Page 34147]]

existing policy in the IPPS high-cost outlier final rule. We believe 
that it is appropriate, however, to respond to three commenters that 
submitted comments regarding the impact of our short-stay outlier 
policy on certain hospitals which qualify as LTCHs under section 
1886(d)(1)(B)(iv)(II) of the Act (``subclause (II)'' LTCHs) as added by 
section 4417(b) of Public Law 105-33, and implemented in Sec.  
412.23(e)(2)(ii).
    Comment: Three commenters, two hospital associations and the other, 
a hospital that qualifies as a LTCH under section 1886(d)(1)(B)(iv)(II) 
of the Act, expressed great concern that since becoming subject to the 
LTCH PPS, the LTCH is experiencing considerable financial losses which 
it anticipates will continue to increase during the 5-year transition 
period. The commenters assert that these mounting losses will 
substantially threaten the LTCH's ability to continue to offer services 
in accordance with its unique mission of primarily treating cancer 
patients. The commenters identify our payment policy for short-stay 
outliers as creating the most damaging shortfall, given this 
``subclause (II)'' LTCH's case mix. In order to ameliorate this 
situation, all three commenters suggest that we exempt ``subclause 
(II)'' LTCHs, from the short-stay outlier policy and establish a 
hospital-specific standard Federal rate to reflect this change, which 
would also result in a lower average payment amount for all of those 
LTCHs' cases and a higher high-cost outlier threshold. We were urged, 
by one of the commenters to make these suggested policy modifications 
retroactive to the start of the hospital's first cost reporting period 
under the LTCH PPS and also to suspend the timing requirements of Sec.  
412.533(c), which would allow this LTCH to elect fully prospective 
payments as of that date. A suggestion from one of the hospital 
associations also advanced the possibility that the necessity for any 
adjustment to the short-stay outlier policy would end with the 
completion of the 5-year transition because with implementation of the 
full wage index adjustment and no budget neutrality adjustment (to 
account for the costs incurred by the Medicare program during the 
transition), Medicare payments for the ``subclause (II)'' LTCH would be 
more in line with the costs of delivering care.
    Response: By enacting section 4417(b) of Public Law 105-33, and 
adding the provision at section 1886(d)(1)(B)(iv)(II) of the Act, the 
Congress provided an exception to the general definition of LTCH as set 
forth in section 1886(d)(1)(B)(iv)(I) of the Act (``subclause (I)'' 
LTCHs), intending, we believe, to recognize the existence and 
importance of a distinct category of LTCHs that might not otherwise 
warrant exclusion from the IPPS under subclause (I), but which, 
nonetheless, fulfills a unique and vital role in serving a particular 
subset of Medicare patients. Under this provision, which we implemented 
at Sec.  412.23(e)(2)(ii), to qualify as a LTCH, a hospital must have 
first been excluded as a LTCH in 1986, have an average inpatient length 
of stay of greater than 20 days, and demonstrate that 80 percent of its 
annual Medicare inpatient discharges in the 12-month reporting period 
ending in Federal fiscal year 1997 have a principal diagnosis that 
reflects a finding of neoplastic disease (62 FR 46016 and 46026, August 
29, 1997). Moreover, we believe the Congress assumed ``subclause (II)'' 
LTCHs would continue to serve this population after FY 1997. 
Acknowledging the distinction between hospitals qualifying as LTCHs 
under section 1886(d)(1)(B)(iv)(I) of the Act, and those qualifying 
under section 1886(d)(1)(B)(iv)(II) of the Act when we developed the 
LTCH PPS, we revised the greater than 25 day average length of stay 
criteria to include only Medicare patients for these ``subclause (I)'' 
LTCHs. However, for LTCHs described in section 1886(d)(1)(B)(iv)(II) of 
the Act, no change was made to the methodology for calculating the 
LTCH's average length of stay, since ``we have no reason to believe 
that the change in methodology for determining the average inpatient 
length of stay would better identify the hospitals that the Congress 
intended to exclude under subclause (II)'' (67 FR 55974, August 30, 
2002). Consistent with existing policies that differentiate ``subclause 
(II)'' LTCHs from other LTCHs, we agree with the commenters that it is 
appropriate for us to consider whether or not a policy that applies to 
LTCHs designated under subclause I, can reasonably and equitably be 
applied to ``subclause (II)'' LTCHs without some measure of adjustment. 
We also believe that the specificity of section 4417(b) of Public Law 
105-33, which states that 80 percent or more of the annual Medicare 
inpatient discharges, in such a ``subclause (II)'' LTCH, in the 12-
month reporting period ending in Federal fiscal year 1997 would have 
had a principal diagnosis that reflects a finding of neoplastic 
disease, indicates to us that the Congress determined that hospitals 
fitting this description fulfilled a unique and vital service for 
certain Medicare beneficiaries. Furthermore, we believe the Congress 
assumed that not only would a ``subclause (II)'' LTCH have at least 80 
percent of its Medicare inpatient discharges with a diagnosis of 
neoplastic disease in FY 1997, but this type of LTCH would continue to 
serve this patient case-mix in years subsequent to FY 1997.
    The theoretical foundations of a DRG-based PPS are that while the 
costs of one case may exceed its payment, the opposite is also likely 
to happen, and that where some types of cases are always very expensive 
for a hospital to treat, others are, in general, not costly. It is 
assumed that hospitals under a DRG-based system, therefore, can 
typically exercise some influence over their case-mix and their 
services in order to achieve fiscal stability. This is not generally 
the case for ``subclause (II)'' LTCHs because they continue to 
primarily treat patients with neoplastic diseases (97.4 percent of 
patients at a ``subclause (II)'' LTCH had primary diagnosis of 
neoplastic disease, according to data from FY 2001 MedPAR files.). 
According to our claims data for January 1, 2001, through December 31, 
2001, at a ``subclause (II)'' LTCH, more than 93 percent of its 
Medicare patients expired, over half of the patients at this hospital 
would qualify as short-stay outliers (97 percent of those short-stay 
outliers expired), and 30 percent of its patient days were for high-
cost outlier patients with an average length of stay of 109 days.
    We have analyzed our data as well as information supplied by the 
commenters in order to better understand the financial impact on a 
``subclause (II)'' LTCH of the payment policies established for LTCHs 
that will be in place during the 5-year transition to the full LTCH 
PPS. In identifying this category of LTCHs, Congress required that ``in 
the 12-month cost reporting period ending in fiscal year 1997'' the 
Medicare patient population would be comprised of at least 80 percent 
with ``* * * a principal diagnosis that reflects a finding of 
neoplastic disease.'' As noted above, our data indicates that the 
treatment of neoplastic diseases continues to be the mission of a 
``subclause (II)'' LTCH. Accordingly we believe that the patient census 
at a ``subclause (II)'' LTCH will, by its very nature, be comprised of 
unusually high percentages of both short-stay cases as well as high-
cost outliers. Data projections further reveal that the significant 
losses that are being incurred will gradually decline throughout the 5-
year transition, as the percentage of payments based on the Federal 
rate increase and the effect of the wage index adjustment is fully 
transitioned. Our analyses lead us to believe that until the

[[Page 34148]]

full wage index is phased-in in 2006 and the transition period budget 
neutrality adjustments cease, the survival of such a ``subclause (II)'' 
LTCH is in serious jeopardy.
    By establishing ``subclause (II)'' LTCHs, the Congress provided an 
exception to the general definition of LTCH under subclause (I), and, 
therein, we believe, endorsed the unique mission of a particular type 
of hospital. We do not believe that the Congress intended for policies 
that equitably apply to LTCHs described under subclause (I) to 
potentially undermine the viability of a LTCH described under subclause 
(II).
    In the August 30, 2003, final rule (67 FR 55954), we stated that we 
believed that in establishing the short-stay outlier policy under the 
LTCH PPS, we were recognizing that LTCHs, as a provider category under 
Medicare, should not be admitting patients whose stay were considerably 
less than the average length of stay at a LTCH and who could otherwise 
receive care at an acute care hospital subject to the IPPS. Data from 
the FY 1999 MedPAR files revealed that 52 percent of cases being 
treated at LTCHs were for stays of less than two-thirds of the average 
length of stay for the LTC-DRG and 20 percent had a length of stay of 
even less than 8 days (67 FR 55970, August 30, 2002). We noted, 
however, that short-stay outliers could also result from a legitimate 
admission to a LTCH when a change in the patient's condition dictated 
that another treatment or care setting would be more clinically 
appropriate or if the patient expired early in the LTCH stay. In these 
situations, the patient would still not have received the full course 
of treatment at the LTCH and paying a full LTC-DRG would result in 
significant overpayment. Therefore, we created the short-stay outlier 
category as a feature of the LTCH PPS, so that Medicare would be 
rendering fair, but not excessive payment for patients who could have 
received treatment at an acute care hospital as well as for patients 
who, for valid clinical reasons, did not stay long enough at a LTCH to 
receive the course of treatment for which the full LTC-DRG payments 
were calibrated. We further believed that implementing the short-stay 
policy could encourage LTCHs to adopt admission policies that, for the 
most part, would work to limit the number of short-stay patients since 
there would be no inappropriate financial incentive for admitting such 
cases.
    As we evaluate the short-stay outlier policy with regard to 
``subclause (II)'' LTCHs, we believe that a LTCH in this category may 
not be able to readily address the length of stay of patients and the 
costs it incurs for those patients as would LTCHs described under 
subclause (I) because a ``subclause (II)'' LTCH continues to primarily 
serve patients with neoplastic diseases. In fact, as previously noted, 
FY 2001 MedPAR data demonstrate that 97.4 percent of the patients at a 
``subclause (II)'' LTCH have a primary diagnosis of neoplastic disease. 
Accordingly, we believe that it is necessary to adjust the short-stay 
policy for ``subclause (II)'' LTCHs during the 5-year transition 
period, so that a LTCH of this type can continue to serve its 
community, as we believe was assumed by the Congress when it 
established this category of LTCHs.
    All three commenters suggested that we abrogate the entire short-
stay outlier policy for ``subclause (II)'' LTCHs, which would result in 
a revised hospital-specific standard Federal rate and high-cost outlier 
threshold. We do not believe that such a radical departure from the 
general LTCH PPS policies is either necessary or appropriate to address 
the problems that we have noted.
    In the August 30, 2002, final rule (67 FR 55995-56000), we describe 
the simulations that resulted in our short-stay outlier policy of the 
lesser of 120 percent of the cost, 120 percent of the per diem amount 
of the LTC-DRG, or the full LTC-DRG. Since these simulations were 
established by analyzing costs and payments of a LTCH with a greater 
than 25 day average length of stay, we are instead providing an 
adjustment to the short-stay outlier payment policy for a ``subclause 
(II)'' LTCH, which is held to a greater than 20 day average length of 
stay criterion and not to the greater than 25 day average length of 
stay criterion which applies to ``subclause (I)'' LTCHs. Furthermore, 
this adjustment to the short-stay payment policy will be in place 
during ``subclause (II)'' LTCHs'' 5-year transition to full LTCH PPS in 
the form of percentages, corresponding to the 120 percent for 
``subclause (I)'' LTCHs, and it will be ``phased out'' gradually as the 
percentage of payments under the LTCH PPS are increased, the full wage 
index adjustment is phased-in, and the budget neutrality adjustment is 
decreased. The adjustment, described below, was derived based on 
payment simulations using the same methodology on ``subclause (II)'' 
LTCH data that we used in arriving at the 120 percent for ``subclause 
(I)'' LTCHs. (67 FR 55995-56000, August 30, 2002)
    We are establishing this formula with the expectation that an 
adjustment to the short-stay payments during the transition will result 
in reducing the difference between payments and costs for a ``subclause 
(II)'' LTCH for the period of July 1, 2003, through the end of the 
transition period, when the LTCH PPS will be fully phased-in. 
Therefore, for example, a ``subclause (II)'' LTCH, which became subject 
to the LTCH PPS for their first cost reporting period which began on 
January 1, 2003 (and did not elect payment based on 100% of the Federal 
rate), 80 percent of Medicare payments would still be based on what 
would have been paid under the TEFRA system and only 20 percent would 
be based on the Federal rate (and subject to payments under the short-
stay outlier policy established in the August 30, 2002, final rule). 
Effective for discharges from a ``subclause (II)'' LTCH occurring on or 
after July 1, 2003, and based on the payment simulations described 
above, we have revised the short-stay outlier percentage to 195 percent 
during the first year of the hospital's 5-year transition. For the 
second cost reporting period, the short-stay outlier percentage will be 
193 percent; for the third cost reporting period, the percentage will 
be 165 percent; for the fourth cost reporting period, the percentage 
will be 136 percent; and for the final cost reporting period of the 5-
year transition, the short-stay outlier percentage for ``subclause 
(II)'' LTCHs, will be 120 percent, that is, the same as it is for all 
other LTCHs under the LTCH PPS. We have set forth this policy by 
redesignating the existing paragraph (c)(4) as (c)(5) and adding a new 
paragraph (c)(4) to Sec.  412.529.
    We also expect that during this 5-year period, ``subclause (II)'' 
LTCHs will make every attempt to adopt the type of efficiency enhancing 
policies that generally result from the implementation of prospective 
payment systems in other health care settings.
    We consider the above adjustment to be a reasonable, equitable and 
sufficient response to the particular situation of a ``subclause (II)'' 
LTCH under the LTCH PPS and, therefore, we will not address at any 
length the other two suggestions regarding retroactive adjustments to 
the start of a LTCH's first cost reporting period under the LTCH PPS 
and the disregarding of timing requirements established in Sec.  
412.533(c) for election not to be paid under the transition period 
methodology. In this final rule, therefore, we are making a temporary 
adjustment to payments under the short-stay outlier policy for LTCHs 
designated under section 1886(d)(1)(B)(iv)(II) of the Act and Sec.  
412.23(e)(2)(ii) that will end upon full implementation of the LTCH 
PPS, at the beginning of their fifth cost reporting period in the 5-
year transition period.

[[Page 34149]]

c. Interrupted Stay
    In Sec.  412.531(a), we define an ``interruption of a stay'' as a 
stay at a LTCH during which a Medicare inpatient is admitted upon 
discharge from the LTCH to an acute care hospital, an IRF, or a SNF for 
treatment or services that are not available in the LTCH and returns to 
the same LTCH within applicable fixed day periods. For a discharge to 
an acute care hospital, the applicable fixed-day period is 9 days. For 
a discharge to an IRF, the applicable fixed-day period is 27 days. For 
a discharge to a SNF, the applicable fixed-day period is 45 days. The 
counting of the days begins on the day of discharge from the LTCH and 
ends on the 9th, 27th, or 45th day for an acute care hospital, an IRF, 
or a SNF, respectively. (We refer readers to section VII.C.4.e. of this 
preamble for a discussion of application of this interrupted stay 
policy to Medicare-participating providers with approved swing beds.)
    If the patient's length of stay away from the LTCH does not exceed 
the fixed-day thresholds, the return to the LTCH is considered part of 
the first admission and only a single LTCH PPS payment will be made. 
(From the standpoint of implementing this policy, in the event that a 
Medicare inpatient is discharged from a LTCH and is readmitted and the 
stay qualifies as an interrupted stay, the provider should cancel the 
claim generated by the original stay in the LTCH and submit one claim 
for the entire stay. For further details, see Program Memorandum 
Transmittal A-02-093, September 2002.) On the other hand, if the 
patient stay exceeds the total fixed-day threshold outside of the LTCH 
at another facility before being readmitted, two separate LTC-DRG 
payments will be made, one based on the principal diagnosis for the 
first admittance and the other based on the principal diagnosis for the 
second admittance. Moreover, if the principal diagnoses are the same 
for both admissions, the hospital could receive two similar payments. 
(See section VII.C.4.e. of this final rule for application of the 
interrupted stay policy to transfers to swing bed hospitals.)
d. Onsite Discharges and Readmittances
    Under Sec.  412.532, generally, if a LTCH readmits more than 5 
percent of its Medicare patients who are discharged to an onsite SNF, 
IRF, or psychiatric facility, or to an onsite acute care hospital, only 
one LTC-DRG payment will be made to the LTCH for discharges and 
readmittances during the LTCH's cost reporting period. Therefore, 
payment for the entire stay will be paid either as one full LTC-DRG 
payment or a short-stay outlier, depending on the duration of the 
entire LTCH stay.
    In applying the 5-percent threshold, we apply one threshold for 
discharges and readmittances with a co-located acute care hospital. 
There is also a separate 5-percent threshold for all discharges and 
readmittances with co-located SNFs, IRFs, and psychiatric facilities. 
In the case of a LTCH that is co-located with an acute care hospital, 
an IRF, or a SNF, the interrupted stay policy at Sec.  412.531 applies 
until the 5-percent threshold is reached. However, once the applicable 
threshold is reached, all such discharges and readmittances to the 
applicable site(s) for that cost reporting period are paid as one 
discharge. This means that even if a discharged LTCH Medicare patient 
was readmitted to the LTCH following a stay in an acute care hospital 
of greater than 9 days, if the facilities share a common location and 
the 5-percent threshold were exceeded, the subsequent discharge from 
the LTCH will not represent a separate hospitalization for payment 
purposes. Only one LTC-DRG payment will be made for all such discharges 
during a cost reporting period to the acute care hospital, regardless 
of the length of stay at the acute care hospital, that are followed by 
readmittances to the onsite LTCH.
    Similarly, if the LTCH has exceeded its 5-percent threshold for all 
discharges to an onsite IRF, SNF, or psychiatric hospital or unit, with 
readmittances to the LTCH, the subsequent LTCH discharge for patients 
from any of those sites for the entire cost reporting period will not 
be treated as a separate discharge for Medicare payment purposes. (As 
under the interrupted stay policy, payment to an acute care hospital 
under the IPPS, to an IRF under the IRF PPS, and to a SNF under the SNF 
PPS, will not be affected. Payments to the psychiatric facility also 
will not be affected.)
e. Treatment of Swing Beds Under the Interrupted Stay and Onsite 
Discharge and Readmittance Policies
    A swing-bed hospital is defined at Sec.  413.114(b) as a hospital 
or critical access hospital (CAH) participating in Medicare that has an 
approval from CMS to provide post-hospital SNF care as defined in Sec.  
409.20 and meets the requirements specified in Sec.  482.66 or Sec.  
485.645. Swing beds are otherwise licensed hospital beds that may, 
under certain circumstances, be used temporarily as SNF beds. Under 
Sec.  413.114(a)(2), post-hospital SNF care furnished in general 
routine inpatient beds in rural hospitals (other than CAHs) is paid in 
accordance with the provisions of the SNF PPS for services furnished 
for cost reporting periods beginning on or after July 1, 2002. Since it 
is possible for a Medicare beneficiary to be discharged from a LTCH for 
post-hospital SNF care that is being provided by another hospital-level 
Medicare provider with swing beds, such a discharge would be considered 
the same as if it were to an individual SNF. We interpret the extension 
of the SNF PPS to swing beds to require that all payment policy 
determinations regarding patient movement between LTCHs and SNFs, 
including the onsite policy described above, also apply to swing beds.
    In the March 7, 2003, proposed rule (68 FR 11254), we stated that 
we want to emphasize that our inclusion of swing beds in payment policy 
determinations for all patient movement between LTCHs and SNFs (see 
section VII.C.4.c. of this preamble) would mean that a readmission to a 
LTCH from post-hospital SNF care being provided in a swing bed that is 
located either in the LTCH itself or in another onsite Medicare 
provider would have the same policy consequences as would a readmission 
to the LTCH from an onsite SNF. We received no comments on this 
clarification.
5. Other Payment Adjustments
    As indicated earlier, we had broad authority under section 123 of 
Public Law 106-113, including whether (and how) to provide for 
adjustments to reflect variations in the necessary costs of treatment 
among LTCHs. Thus, in the August 30, 2002, final rule (67 FR 56014-
56027), we discussed our extensive data analysis and rationale for not 
implementing an adjustment for geographic reclassification, rural 
location, treating a disproportionate share of low-income patients 
(DSH), or indirect medical education (IME) costs. In that same final 
rule, we stated that we would collect data and reevaluate the 
appropriateness of these adjustments in the future once more LTCH data 
become available after the LTCH PPS is implemented. As we stated in the 
March 7, 2003, proposed rule (68 FR 11254), because the LTCH PPS was 
only recently implemented, sufficient new data have not yet been 
generated that would enable us to conduct a comprehensive reevaluation 
of these payment adjustments. Therefore, in that same proposed rule, we 
did not propose an adjustment for geographic reclassification, rural 
location, DSH, or IME at this time. Additionally, we stated

[[Page 34150]]

that we would continue to collect and interpret new data as they become 
available in the future to determine if these data support proposing 
any additional payment adjustments.
    Comment: Two commenters objected to our proposal not to include an 
adjustment to account for a hospital's treatment of a disproportionate 
share of low-income patients (a DSH adjustment) or an adjustment to 
account for indirect teaching costs (an IME adjustment). One commenter 
stated that given that LTCHs are a heterogeneous group of facilities 
with widely varying costs and patient populations, it is particularly 
important to provide adjustments to compensate for the differences 
where possible. The other commenter stated that the LTCH regression 
analysis was among a diverse set of facilities, thus weakening CMS' 
conclusions not to include adjustments for DSH and IME. Accordingly, 
both commenters urged for the inclusion of a DSH adjustment and an IME 
adjustment in the LTCH PPS.
    Response: As we discussed in the August 30, 2002, final rule (67 FR 
56020-56022), we examined the appropriateness of an adjustment for 
LTCHs serving a disproportionate share of low-income patients. In that 
same final rule, we explained that in examining the most recent LTCH 
data available to us, we determined that a DSH adjustment consistent 
with the DSH adjustment under the IPPS for acute care hospitals (set 
forth at section 1886(d)(5)(F) of the Act) would reduce the ability of 
the LTCH PPS to predict cost per case while lowering the base payment 
rate. We also evaluated alternative methods to provide some type of DSH 
adjustment. Specifically, using regression analysis that took into 
account both the Medicaid patients receiving SSI and the percentage of 
Medicaid patients not entitled to Medicare, we found no significant 
empirical relationship between these variables and LTCHs' costs. 
Therefore, we did not establish a DSH adjustment under the LTCH PPS.
    Also, in the August 30, 2002, final rule (67 FR 56022), we 
explained that based on a double log regression, we found that the 
indirect teaching cost variable was negative and not significant. In 
addition, we looked at different specifications for the teaching 
variable, including resident-to-bed ratio and resident-to-average daily 
census, to measure teaching intensity. In all of our payment 
regressions it was determined that the teaching variable was not 
significant; that is, no empirical evidence exists to show that LTCHs' 
cost per case would vary with teaching costs.
    In the March 7, 2003, proposed rule (68 FR 11254), we explained 
that because the LTCH PPS was only recently implemented, sufficient new 
data have not yet been generated that would enable us to conduct a 
comprehensive reevaluation of these payment adjustments. Therefore, 
since we still do not have empirical evidence to support a DSH 
adjustment or an IME adjustment, we continue to believe that it would 
be inappropriate to establish such adjustments at this time. 
Accordingly, in this final rule, we are not adopting the commenters' 
suggestion to include a DSH adjustment and an IME adjustment in the 
LTCH PPS. As we stated in the March 7, 2003, proposed rule (68 FR 
11254), we will continue to collect and interpret new data as they 
become available in the future to determine if these data support 
proposing any additional payment adjustments.
6. Budget Neutrality Offset To Account for the Transition Methodology
    In the August 30, 2002, final rule (67 FR 56038) under Sec.  
412.533, we implemented a 5-year transition period from reasonable 
cost-based payment to prospective payment, during which a LTCH will be 
paid an increasing percentage of the LTCH PPS rate and a decreasing 
percentage of its payments under the reasonable cost-based principles 
for each discharge. Furthermore, we allow a LTCH to elect to be paid 
based on 100 percent of the standard Federal rate in lieu of the blend 
methodology.
    As we discussed in further detail in the August 30, 2002, final 
rule (67 FR 56032-56037), the standard Federal rate was determined as 
if all LTCHs will be paid based on 100 percent of the standard Federal 
rate. As stated earlier, we provide for a 5-year transition period 
methodology that allows LTCHs to receive payments based partially on 
reasonable cost-based principles. In order to maintain budget 
neutrality as required by section 123(a)(1) of the Public Law 106-113 
and Sec.  412.523(d)(2) during the 5-year transition period, we reduce 
all LTCH Medicare payments (whether a LTCH elects payment based on 100 
percent of the Federal rate or whether a LTCH is being paid under the 
transition blend methodology). Specifically, we reduce all LTCH 
Medicare payments during the 5-year transition by a factor that is 
equal to 1 minus the ratio of the estimated TEFRA reasonable cost-based 
payments that would have been made if the LTCH PPS had not been 
implemented, to the projected total Medicare program PPS payments (that 
is, payments made under the transition methodology and the option to 
elect payment based on 100 percent of the Federal rate).
    For FY 2003, based on a comparison of the estimated FY 2003 
payments to each LTCH based on 100 percent of the standard Federal rate 
and the transition blend methodology, we projected that approximately 
49 percent of LTCHs would elect to be paid based on 100 percent of the 
standard Federal rate rather than receive payment based on the 
transition blend methodology. This projection was based on our estimate 
that those 49 percent of LTCHs would receive higher payments based on 
100 percent of the standard Federal rate compared to the payments they 
would receive under the transition blend methodology. Similarly, we 
projected that the remaining 51 percent of LTCHs would choose to be 
paid based on the transition blend methodology (80 percent of 
reasonable cost-based payments and 20 percent of payments based on the 
Federal rate) in FY 2003, because those payments would be higher than 
if they were paid based on 100 percent of the standard Federal rate.
    In the August 30, 2002, final rule (67 FR 56034), we projected that 
the full effect of the 5-year transition period and the election option 
would result in a cost to the Medicare program of $240 million as 
follows: For FY 2003, $50 million; for FY 2004, $80 million; for FY 
2005, $60 million; for FY 2006, $40 million; for FY 2007, $10 million. 
Thus, in order to maintain budget neutrality, we applied a 6.6 percent 
reduction (0.934) to all LTCHs' payments in FY 2003 to account for the 
estimated cost of $50 million for FY 2003. Furthermore, in order to 
maintain budget neutrality, we indicated that, in the future, we would 
propose a budget neutrality offset for each of the remaining years of 
the transition period to account for the estimated payments for the 
respective fiscal year. Based on the data available at that time, in 
the August 30, 2002, final rule (67 FR 56037) we estimated the 
following budget neutrality offsets to LTCH payments during the 
remainder of the transition period: 5.0 percent (0.950) in FY 2004; 3.4 
percent (0.966) in FY 2005; and 1.7 percent (0.983) in FY 2006. We also 
stated that no budget neutrality offset is necessary in the 5th year of 
the transition period (FY 2007) because under the transition 
methodology at Sec.  412.533, all LTCHs will be paid based on 100 
percent of the standard Federal rate and zero percent of the reasonable 
cost-based principles.
    As stated in the March 7, 2003, proposed rule (68 FR 11254-11256), 
for the proposed 2004 LTCH PPS rate year,

[[Page 34151]]

based on the best available data and the policies presented in that 
proposed rule, we projected that approximately 49 percent of LTCHs 
would be paid based on 100 percent of the proposed standard Federal 
rate rather than receive payment under the transition blend 
methodology. Using the same methodology in the August 30, 2002, final 
rule (67 FR 56034) described above, this projection, which uses updated 
data and inflation factors, is based on our estimate that these LTCHs 
would receive higher payments based on 100 percent of the proposed 
standard Federal rate compared to the payments they would receive under 
the transition blend methodology. Similarly, we project that the 
remaining 51 percent of LTCHs would choose to be paid based on the 
transition blend methodology (80 percent of reasonable cost-based 
payments and 20 percent of Federal rate payments for cost reporting 
periods that begin during FY 2003; and 60 percent of reasonable cost-
based payments and 40 percent of Federal rate payments for cost 
reporting periods that begin during FY 2004 (in accordance with Sec.  
412.533(a))) because they would receive higher payments than if they 
were paid based on 100 percent of the proposed standard Federal rate.
    In the March 7, 2003, proposed rule (68 FR 11255), based on the 
best available data and the proposed policy revisions described in that 
proposed rule, we projected that the full effect of the remaining 4 
years of the transition period (including the election option) would 
result in a cost to the Medicare program of $300 million as follows: 
$120 million in the 2004 LTCH PPS rate year; $90 million in the 2005 
LTCH PPS rate year; $60 million in the 2006 LTCH PPS rate year; and $30 
million in the 2007 LTCH PPS rate year. Therefore, we proposed a 5.7 
percent reduction (0.943) to all LTCHs' payments for discharges 
occurring on or after July 1, 2003, and through June 30, 2004, to 
account for the estimated cost of the $120 million for the proposed 
2004 LTCH PPS rate year.
    As we stated above, in order to maintain budget neutrality, we 
indicated that we would propose a budget neutrality offset for each of 
the remaining years of the transition period to account for the 
estimated costs for the respective fiscal year. In the March 7, 2003, 
proposed rule (68 FR 11255), based on the best available data at that 
time, we proposed the following budget neutrality offsets to LTCH 
payments during the transition period: 4.4 percent (0.956) in proposed 
2005 LTCH PPS rate year; 2.9 percent (0.971) in proposed 2006 LTCH PPS 
rate year; and 1.2 percent (0.988) in proposed 2007 LTCH PPS rate year.
    Comment: One commenter recommended that the budget neutrality 
offsets to LTCH payments during the transition period be updated 
periodically and adjusted to reflect any change in the percentage of 
LTCHs electing to receive payments during the transition period based 
on 100 percent of the Federal rate as provided for under Sec.  
412.533(c).
    Response: As we stated in the March 7, 2003, proposed rule, the 
proposed budget neutrality offsets to LTCH payments during the 
transition period are determined using the best available data. 
Moreover, as we stated above, we proposed to revise the estimated 
budget neutrality offsets to LTCH payments during the transition period 
for future years annually along with the update to the Federal rate 
based on updated data. Therefore, in determining the budget neutrality 
offsets to LTCH payments during the transition period in future rate 
years, we will use the latest data available, including data on actual 
elections made by LTCHs to receive payments during the transition 
period based on 100 percent of the Federal rate as provided for under 
Sec.  412.533(c). To update the budget neutrality offsets to LTCH 
payments during the transition period more often than in conjunction 
with the annual rate update would be an administrative burden to LTCHs 
and us.
    Comment: A few commenters requested clarification on how we derived 
the estimate that 49 percent of LTCHs would elect payment based on 100 
percent of the Federal rate in the proposed 2004 LTCH PPS rate year. 
Additionally, the commenters requested an explanation of how the 
estimate that 49 percent of LTCHs would elect payment based on 100 
percent of the Federal rate in the 2004 LTCH PPS rate year can be 
determined from the proposed rule data posted on the CMS Web site. Some 
commenters also requested that the data files posted on the CMS Web 
site be consistent in the future, that is, provide the same information 
and title headings. One commenter, requested that the data files posted 
on the CMS Web site contain an indicator of which LTCHs have elected to 
receive payments based on 100 percent of the standard Federal rate as 
provided for under Sec.  412.533(c).
    Response: As we discussed above, the proposed estimate that 49 
percent of LTCHs would elect payment based on 100 percent of the 
standard Federal rate in the proposed 2004 LTCH PPS rate year was based 
on our estimate that those 49 percent of LTCHs (96 out of 194) would 
receive higher payments based on 100 percent of the proposed standard 
Federal rate compared to the payments they would receive under the 
transition blend methodology. As we also noted above, this projection 
was based on the best available data and the policies presented in that 
proposed rule. Accordingly, in the March 7, 2003, proposed rule, when 
we simulated payments for each LTCH under the LTCH PPS for the proposed 
2004 LTCH PPS rate year based on 100 percent of the proposed standard 
Federal rate, we incorporated the proposed policy changes, including 
the proposed standard Federal rate of $35,726.64, the proposed fixed 
loss amount of $19,978, the proposed labor-share of 72.612 percent, the 
proposed update of the wage index data, and the proposed elimination of 
the assignment of the applicable statewide average cost-to-charge ratio 
when a LTCH's cost-to-charge ratio fell below the floor. In estimating 
the payments that LTCHs would receive under the transition blend 
methodology, we projected the payments that each LTCH would receive 
during the proposed 2004 LTCH PPS rate year, if the LTCH PPS were not 
implemented. That is, we estimated payments based on reasonable cost-
based principles in accordance with the methodology set forth in Sec.  
1886(b) of the Act.
    Based on the LTCH's cost reporting period, we applied the 
applicable transition blend percentages for each LTCH during the 
proposed 2004 LTCH PPS rate year. For example, as we noted in the March 
7, 2003, proposed rule (68 FR 11261), based on the transition blend 
percentages set forth in Sec.  412.533(a), some providers may 
experience a change in the transition blend percentage during the 
proposed 2004 LTCH PPS rate year, such that a LTCH with an October 1, 
2002, cost reporting period would have 3 months (July 1, 2003, through 
September 30, 2003) under the 80/20 transition blend (that is, 80 
percent of payments based on reasonable cost-based principles and 20 
percent based on the Federal rate) and 9 months (October 1, 2003, 
through June 30, 2004) of payment under the 60/40 transition blend (60 
percent of payments based on reasonable cost-based principles and 40 
based on the Federal rate).
    If a LTCH's estimated LTCH PPS payments for the proposed 2004 LTCH 
PPS rate year were greater than its estimated payments under the 
transition period methodology for the proposed 2004 LTCH PPS rate year, 
then we assumed that the LTCH would elect payment based on 100 percent 
of the standard Federal rate for the proposed

[[Page 34152]]

2004 LTCH PPS rate year. Conversely, if a LTCH's estimated payments 
under the transition period methodology for the proposed 2004 LTCH PPS 
rate year were greater than its estimated LTCH PPS payments for the 
proposed 2004 LTCH PPS rate year, then we assumed that the LTCH would 
receive payment based on the transition blend methodology set forth in 
Sec.  412.533(a) for the proposed 2004 LTCH PPS rate year. However, 
regardless of the comparison of a LTCH's estimated LTCH PPS payments 
and estimated payments under the transition period methodology for the 
proposed 2004 LTCH PPS rate year, we also took into account whether we 
had previously projected that a LTCH would elect payment based on 100 
percent of the standard Federal rate in the August 30, 2002, final 
rule. Specifically, because LTCHs subject to the LTCH PPS with cost 
reporting periods that began prior to start of the proposed 2004 LTCH 
PPS rate year (July 1, 2003) would have already notified their fiscal 
intermediary of their election to receive payment based on 100 percent 
of the Federal rate in accordance with Sec.  412.533(c)(2), and once a 
LTCH makes this election it cannot revert to the transition blend 
(Sec.  412.533(a)), in our proposed rule projection, we took into 
account our previous projection from the August 30, 2003, final rule.
    Based on the clarification of how we derived the estimate that 49 
percent of LTCHs would elect payment based on 100 percent of the 
Federal rate in the 2004 LTCH PPS rate year provided above, the March 
7, 2003, proposed rule data posted on our website could be combined 
with the August 30, 2002, final rule data also posted on our website to 
derive the estimate that that 49 percent of LTCHs would elect payment 
based on 100 percent of the Federal rate in the proposed 2004 LTCH PPS 
rate year. Specifically, the variables ``Total TEFRA Payments for 
Impact'' and ``Total PPS Payments'' in the August 30, 2002, final rule 
data file posted on our website and the variables ``Estimated Total 
TEFRA Payment'' and ``Estimated Total PPS Payments (DRG + High-Cost 
Outlier)'' in the March 7, 2003, proposed rule data file posted on our 
website can be used to derive the estimate that 49 percent of LTCHs 
would elect payment based on 100 percent of the Federal rate in the 
2004 LTCH PPS rate year.
    In the future, we will make every attempt possible to provide the 
same information and title headings in the data file posted on our Web 
site. However, changes may be necessary in the future to reflect 
current policy and to more accurately reflect the data used. For 
example, the August 30, 2002, final rule data files posted on our 
website contained the variable ``Total TEFRA Payment for Budget 
Neutrality.'' As described in the corresponding file layout also posted 
on our Web site, in accordance with section 307 of Public Law 106-554, 
this variable used to determine the budget neutral standard Federal 
rate does not contain the increases to LTCHs' payments provided for 
under section 122 of Public Law 106-113 and section 307 of Public Law 
106-554. However, that variable is no longer necessary since we are not 
required to determine the LTCH PPS Federal rate based on payments made 
under the reasonable cost-based methodology once the LTCH PPS is 
implemented (that is, for years beyond FY 2003). Since this variable 
was not required to determine the proposed rate and factors discussed 
in the March 7, 2003, proposed rule, there is no corresponding variable 
in the data files posted on our Web site. Additionally, as data on 
which LTCHs have elected to receive payments based on 100 percent of 
the standard Federal rate as provided for under Sec.  412.533(c) become 
available in the future, we will incorporate that data in the LTCH PPS 
data files posted on the CMS' Web site.
    Comment: One commenter requested clarification on why the proposed 
budget neutrality offsets for the transition period were increased for 
``fiscal years'' 2004 through 2007, despite the fact the assumptions 
appear the same. The commenter recommends that the budget neutrality 
offsets for the transition period remain unchanged from those published 
in the August 30, 2002, final rule.
    Response: Although the budget neutrality offsets presented in the 
August 30, 2002, final rule were applicable on a fiscal year basis, 
this is no longer true for the proposed budget neutrality offsets 
included in the March 7, 2003, proposed rule. The proposed budget 
neutrality offsets for the transition period were estimated to apply 
for the proposed LTCH PPS rate years 2004 through 2007, not ``fiscal 
years'' 2004 through 2007 as the commenter stated. The change in the 
period of time for which the proposed budget neutrality offsets for the 
transition period would be applicable is the primary reason why we 
determined the proposed budget neutrality offset for the transition 
period to be 5.7 percent for the proposed 2004 LTCH PPS rate year, 
beginning July 1, 2003, as compared to the previous estimate of 5.0 
percent for FY 2004, beginning October 1, 2003 (presented in the August 
30, 2002, final rule). Therefore, the change in the budget neutrality 
offsets for the transition period is primarily due to moving from the 
Federal FY (October 1st) rate cycle to the LTCH PPS rate year (July 
1st) rate cycle. As we stated in the August 30, 2002, final rule, 
future budget neutrality offsets for the transition period in the 
proposed rule will be based on the best available data. Accordingly, in 
determining the proposed budget neutrality offsets for the transition 
period, we also took into account updated data.
    Therefore, we believe that the proposed budget neutrality offset 
for the transition period for the proposed 2004 LTCH PPS rate year is 
appropriate based on the data available at that time, and we are not 
adopting the commenter's recommendation that the budget neutrality 
offsets for the transition period remain unchanged from those published 
in the August 30, 2002, final rule. Instead, in this final rule, we are 
revising the budget neutrality offsets for the transition period for 
the 2004 LTCH PPS rate year based on the same methodology established 
in the August 30, 2002, final rule, while using the best available 
data, and applying the offset to the 2004 LTCH PPS rate year.
    In this final rule, for the 2004 LTCH PPS rate year, based on the 
best available data and the policies established in this final rule, we 
project that approximately 49 percent of LTCHs will be paid based on 
100 percent of the proposed standard Federal rate rather than receive 
payment under the transition blend methodology. Using the same 
methodology described in the August 30, 2002, final rule (67 FR 56034), 
this projection, which uses updated data and inflation factors, is 
based on our estimate that either--(1) a LTCH has already elected 
payment based on 100 percent of the Federal rate prior to July 1, 2003, 
or (2) a LTCH will receive higher payments based on 100 percent of the 
2004 LTCH PPS rate year standard Federal rate compared to the payments 
it would receive under the transition blend methodology. Similarly, we 
project that the remaining 51 percent of LTCHs will choose to be paid 
based on the transition blend methodology (80 percent of reasonable 
cost-based payments and 20 percent of the Federal rate for cost 
reporting periods beginning during FY 2003 and 60 percent of reasonable 
cost-based payments and 40 percent of the Federal rate for cost 
reporting periods beginning during FY 2004 in accordance with Sec.  
412.533(a)) because they will receive higher payments than if they were 
paid based on 100 percent of the 2004 LTCH PPS rate year standard 
Federal rate. We note that, as discussed in the March 7,

[[Page 34153]]

2003, proposed rule (68 FR 11256-11257), we did not propose to change 
the 5-year transition period set forth in Sec.  412.533(a) in 
conjunction with the proposed change in the proposed 2004 LTCH PPS rate 
year update. Therefore, the applicable transition blend percentage will 
apply for a LTCH's entire cost reporting period beginning on or after 
October 1 (unless the LTCH elects payment based on 100 percent of the 
Federal rate).
    In this final rule, based on the best available data and the final 
policy revisions described above, we projected that the full effect of 
the remaining 4 years of the transition period (including the election 
option) will result in a cost to the Medicare program of $310 million 
as follows:

------------------------------------------------------------------------
                                                          Estimated cost
                   LTCH PPS rate year                     (in millions)
------------------------------------------------------------------------
2004...................................................             $120
2005...................................................              100
2006...................................................               60
2007...................................................               30
------------------------------------------------------------------------

    Therefore, using the methodology established in the August 30, 
2002, final rule (67 FR 56034) based on updated data and the final 
policies and rates established in this final rule, we are establishing 
a 6.0 percent reduction (0.940) to all LTCHs' payments for discharges 
subject to the LTCH PPS occurring on or after July 1, 2003, and through 
June 30, 2004, to account for the estimated cost of the election of the 
$120 million for the proposed 2004 LTCH PPS rate year. This offset has 
increased slightly over the estimate in the proposed rule (5.7 percent) 
primarily due to slightly higher projections of reasonable cost-based 
payment based on the latest available data. In addition, as we stated 
in the March 7, 2003, proposed rule (68 FR 12255), we emphasize that 
the budget neutrality offset to account for the transition methodology 
is calculated based on and effective for payments made for discharges 
occurring during the 2004 LTCH PPS rate year of July 1, 2003, through 
June 30, 2004, not the Federal FY 2004 of October 1, 2003, through 
September 30, 2004.
    As we discussed in the August 30, 2002, final rule (67 FR 56036), 
consistent with the statutory requirement for budget neutrality in 
section 123(a)(1) of Public Law 106-113, we intended for estimated 
aggregate payments under the LTCH PPS to equal the estimated aggregate 
payments that would be made if the LTCH PPS was not implemented. Our 
methodology for estimating payments for purposes of the budget 
neutrality calculations use the best available data at that time and 
necessarily reflect assumptions. As the LTCH PPS progresses, we are 
monitoring payment data and will evaluate the ultimate accuracy of the 
assumptions used in the budget neutrality calculations (for example, 
inflation factors, intensity of services provided, or behavioral 
response to the implementation of the LTCH PPS) described in the August 
30, 2002, final rule (67 FR 56027-56037). To the extent these 
assumptions significantly differ from actual experience, the aggregate 
amount of actual payments may turn out to be significantly higher or 
lower than the estimates on which the budget neutrality calculations 
were based.
    Section 123 of Public Law 106-113 and section 307 of Public Law 
106-554 provides broad authority to the Secretary in developing the 
LTCH PPS, including the authority for appropriate adjustments. Under 
this broad authority, as implemented in the regulations at Sec.  
412.523(d)(3), we have provided for the possibility of making a one-
time prospective adjustment to the LTCH PPS rates by October 1, 2006, 
so that the effect of any significant difference between actual 
payments and estimated payments for the first year of the LTCH PPS 
would not be perpetuated in the LTCH PPS rates for future years.
    In the August 30, 2002, final rule (67 FR 56037), we estimated that 
total Medicare program payments for LTCH services over 5 years would be 
$1.59 billion for FY 2003; $1.69 billion for FY 2004; $1.79 billion for 
FY 2005; $1.90 billion for FY 2006; and $2.00 billion for FY 2007. In 
the March 7, 2003, proposed rule (68 FR 12255), based on the best 
available data, we estimated that total Medicare program payments for 
LTCH services for the proposed LTCH PPS rate years of 2004 through 2008 
would be:

------------------------------------------------------------------------
                                                            Estimated
                   LTCH PPS rate year                    payments  ($ in
                                                             billion)
------------------------------------------------------------------------
2004...................................................            $2.17
2005...................................................             2.29
2006...................................................             2.42
2007...................................................             2.56
2008...................................................             2.71
------------------------------------------------------------------------

    At this time, based on the most recent and best available data, 
these estimates of Medicare program payments for LTCH services for the 
LTCH PPS rate years of 2004 through 2008 remain unchanged from those 
estimates presented in the proposed rule. Therefore, in this final 
rule, we continue to estimate that Medicare program payments for LTCH 
services for the LTCH PPS rate years of 2004 through 2008 will be 
approximately $12.2 billion as shown above.
    In accordance with the methodology established in the August 30, 
2002, final rule (67 FR 56037), these estimates are based on the 
projection that 49 percent of LTCHs will elect to be paid based on 100 
percent of the 2004 LTCH PPS rate year standard Federal rate rather 
than the transition blend, and an update of our estimate of 2004 LTCH 
PPS rate year payments to LTCHs using our Office of the Actuary's most 
recent estimate (based on updated data) of the excluded hospital with 
capital market basket of 2.5 percent for the 2004 LTCH PPS rate year 
(adjusted to account for the proposed change in the rate update cycle 
discussed in section VII.B.1.b. of this preamble), 3.2 percent for the 
2005 LTCH PPS rate year, 3.1 percent for the 2006 and 2007 LTCH PPS 
rate years, and 3.0 percent for the 2008 LTCH PPS rate year. We also 
took into account our Office of the Actuary's projection that there 
would be an increase in Medicare beneficiary enrollment of 1.3 percent 
in the 2004 LTCH PPS rate year, 1.6 percent in the 2005 LTCH PPS rate 
year, 1.9 percent in the 2006 LTCH PPS rate year, 2.0 percent in the 
2007 LTCH PPS rate year, and 2.1 percent in the 2008 LTCH PPS rate 
year.
    Because the LTCH PPS was only recently implemented, sufficient new 
data have not been generated that would enable us to conduct a 
comprehensive reevaluation of our budget neutrality calculations. 
Therefore, in the March 7, 2003, proposed rule (68 FR 11256), we did 
not propose an adjustment for budget neutrality under Sec.  
412.523(d)(3) at this time. However, we stated that we will continue to 
collect and interpret new data as the data become available in the 
future to determine if such an adjustment should be proposed.
    Comment: A few commenters expressed concern that the retroactive 
one-time budget neutrality adjustment at Sec.  412.523(d)(3) would 
wrongly penalize LTCHs for a CMS calculation error, thereby, weakening 
the intent and value of the PPS design. The commenters believe that the 
proposed rule lacks detail about the methodology CMS will use to 
implement this adjustment and requests that CMS publish the data and 
methodology used to assess compliance with the budget neutrality 
mandate under section 123 of Public Law 106-113 established in 
regulations at Sec.  412.523(d)(3). In addition, one commenter states 
that if the Congress intended CMS to ``reduce'' future payments based 
on a one-time budget neutrality adjustment, the Congress would have 
specified this

[[Page 34154]]

intent more clearly in the statutory or report language.
    Response: As we discussed in greater detail in the August 30, 2002, 
final rule, section 123(a)(1) of Public Law 106-113 requires the 
Secretary to develop a DRG-based PPS for LTCHs and ``shall maintain 
budget neutrality.'' As we stated in that same final rule (67 FR 
56036), in implementing the LTCH PPS in FY 2003 we intended for 
estimated aggregate payments under the LTCH PPS to equal the estimated 
aggregate payments that would have been made if the LTCH PPS had not 
been implemented. Moreover, section 123 of Public Law 106-113 and 
section 307 of Public Law 106-554 provide broad authority to the 
Secretary in developing the LTCH PPS, including the authority for 
appropriate adjustments. Under this broad authority, as implemented in 
the regulations at Sec.  412.523(d)(3), we have provided for the 
possibility of making a one-time prospective adjustment to the LTCH PPS 
rates by October 1, 2006, so that the effect of any significant 
difference between actual payments and estimated payments of the LTCH 
PPS would not be perpetuated in the LTCH PPS rates for future years. 
This adjustment would not be ``retroactive'' as stated by the 
commenters; therefore, we do not believe that the one-time budget 
neutrality adjustment at Sec.  412.523(d)(3) would wrongly penalize 
LTCHs for any calculation errors. Instead, as noted above, this 
adjustment is necessary so that any errors in the original budget 
neutrality calculations would not be perpetuated in the LTCH PPS rates 
for future years.
    Furthermore, as we stated in the August 30, 2002, final rule (67 FR 
56036-56037), if a one-time budget neutrality adjustment were proposed 
in the future under Sec.  412.523(d)(3), the standard Federal rate may 
either increase or decrease depending on the difference between actual 
payments and estimated payments under the LTCH PPS.
    As we also stated in the August 30, 2002, final rule (67 FR 56036-
56037), when estimating payments for the purposes of the budget 
neutrality calculations in implementing the LTCH PPS for FY 2003, we 
used the best available data and any assumptions. As we explained in 
that same final rule, the actual data and the assumptions include 
inflation factors, intensity of services provided, and behavioral 
responses to the implementation of the LTCH PPS. To the extent that 
these data or assumptions significantly differ from actual experience, 
actual payments under the LTCH PPS may be higher or lower than the 
estimates on which the budget neutrality calculations were based, and a 
one-time prospective budget neutrality adjustment may be necessary to 
prevent perpetuating any errors in the budget neutrality calculations 
in future years. If in the future (but prior to October 1, 2006) after 
monitoring LTCH PPS payment data we believe that the assumptions used 
to determine the budget neutrality calculations differ significantly 
from actual experience, we would first propose an appropriate 
adjustment and publish the details of our findings in a future Federal 
Register document. At that time, we would also discuss the data and 
methodology used to determine the proposed one-time budget neutrality 
offset provided for under Sec.  412.523(d)(3).
    As we stated in the March 7, 2003, proposed rule, because the LTCH 
PPS was only recently implemented, sufficient new data have not been 
generated that would enable us to conduct a comprehensive reevaluation 
of our budget neutrality calculations. Therefore, in the March 7, 2003, 
proposed rule (68 FR 11256), we did not propose a one-time prospective 
adjustment for budget neutrality under Sec.  412.523(d)(3) at that 
time. However, we will continue to collect and interpret new data as 
the data becomes available in the future to determine if such an 
adjustment should be proposed. Therefore, at this time we are not 
making a one-time prospective adjustment for budget neutrality as 
provided for under Sec.  412.523(d)(3).

VIII. Computing the Adjusted Federal Prospective Payments

    In accordance with Sec.  412.525 and as discussed in section VII. 
of this final rule, the standard Federal rate is adjusted to account 
for differences in area wages by multiplying the labor-related share of 
the standard Federal rate by the appropriate LTCH PPS wage index. The 
standard Federal rate is also adjusted to account for the higher costs 
of hospitals in Alaska and Hawaii by multiplying the nonlabor-related 
share of the standard Federal rate by the appropriate adjustment factor 
shown in Table V in section VII.C.2. of this preamble. In the March 7, 
2003, proposed rule (68 FR 11248), we proposed a standard Federal rate 
of $35,726.64 for the proposed 2004 LTCH PPS rate year. In this final 
rule, based on the best available data and the finalized policies 
present in this final rule, we are establishing a standard Federal rate 
of $35,892.41 for the 2004 LTCH PPS rate year. We illustrate the 
methodology used to adjust the Federal prospective payments in the 
following example:
    During the 2004 LTCH PPS rate year, a Medicare patient is in a LTCH 
located in Chicago, Illinois (MSA 1600) with a two-fifths wage index 
value of 1.0418 (see Table 1 in the Addendum to this final rule). The 
Medicare patient is classified into LTC-DRG 4 (Spinal Procedures), 
which has a relative weight of 1.2493 (see Table 3 of the Addendum to 
this final rule). To calculate the LTCH's total adjusted Federal 
prospective payment for this Medicare patient, we compute the wage-
adjusted Federal prospective payment amount by multiplying the 
unadjusted standard Federal rate ($35,892.41) by the labor-related 
share (72.885 percent) and the wage index (1.0418). This wage-adjusted 
amount is then added to the nonlabor-related portion of the unadjusted 
standard Federal rate (27.115 percent) to determine the adjusted 
Federal rate, which is then multiplied by the LTC-DRG relative weight 
(1.2493) to calculate the total adjusted Federal prospective payment 
for the 2004 LTCH PPS rate year ($45,992.49). In addition, as discussed 
in section VII.C.6. of this preamble, for the 2004 LTCH PPS rate year, 
we are reducing the LTCH PPS payment by 6.0 percent for the budget 
neutrality offset to account for the costs of the transition 
methodology. The following illustrates the components of the 
calculations in this example:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate...  ...  $35,726.18
Labor-Related Share....................................  ...     0.72885
Labor-Related Portion of the Federal Rate..............   =   $26,039.03
\2/5\th Wage Index (MSA 1600)..........................  ...      1.0418
Wage-Adjusted Labor Share..............................   =   $27,127.46
Nonlabor-Related Portion of the Federal Rate (adjusted    +    $9,687.15
 for COLA if applicable)...............................
Adjusted Federal Rate..................................   =   $36,814.61
LTC-DRG 4 Relative Weight..............................   x       1.2493
Total Adjusted Federal Prospective Payment (Before the    =   $45,992.49
 Budget Neutrality Offset).............................
Budget Neutrality Offset...............................   x        0.940
Total Federal Prospective Payment (With the Budget        =   $43,232.94
 Neutrality Offset)....................................
------------------------------------------------------------------------

IX. Transition Period

    To provide a stable fiscal base for LTCHs, under Sec.  412.533, we 
implemented a 5-year transition period from reasonable cost-based 
reimbursement under the TEFRA system to a prospective payment based

[[Page 34155]]

on industry-wide average operating and capital-related costs. Under the 
average pricing system, payment is not based on the experience of an 
individual hospital. As discussed in the August 30, 2002, final rule 
(67 FR 56038), we believe that a 5-year phase-in will provide LTCHs 
time to adjust their operations and capital financing to the new LTCH 
PPS, which is based on prospectively determined Federal payment rates. 
Furthermore, we believe that the 5-year phase-in of the LTCH PPS allows 
LTCH personnel to develop proficiency with the LTC-DRG coding system, 
resulting in improvement in the quality of the data used for generating 
our annual determination of relative weights and payment rates.
    In accordance with Sec.  412.533, the transition period for all 
hospitals subject to the LTCH PPS begins with the hospital's first cost 
reporting period beginning on or after October 1, 2002, and extends 
through the hospital's last cost reporting period beginning before 
October 1, 2007. During the 5-year transition period, a LTCH's total 
payment under the LTCH PPS is based on two payment percentages--one 
based on reasonable cost-based (TEFRA) payments and the other based on 
the standard Federal prospective payment rate. The percentage of 
payment based on the LTCH PPS Federal rate increases by 20 percentage 
points each year, while the reasonable cost-based payment rate 
percentage decreases by 20 percentage points each year, for the next 4 
fiscal years. For cost reporting periods beginning on or after October 
1, 2006, Medicare payment to LTCHs will be determined entirely under 
the Federal PPS methodology. The blend percentages as set forth in 
Sec.  412.533(a) are as follows:

------------------------------------------------------------------------
                                                              Reasonable
                                                  Federal        cost
 Cost reporting periods beginning on or after       rate      principles
                                                 percentage      rate
                                                              percentage
------------------------------------------------------------------------
October 1, 2002...............................           20           80
October 1, 2003...............................           40           60
October 1, 2004...............................           60           40
October 1, 2005...............................           80           20
October 1, 2006...............................          100            0
------------------------------------------------------------------------

    For a cost reporting period that began on or after October 1, 2002, 
and before October 1, 2003 (FY 2003), the total payment for a LTCH is 
80 percent of the amount calculated under reasonable cost principles 
for that specific LTCH and 20 percent of the Federal prospective 
payment amount. For cost reporting periods beginning on or after 
October 1, 2003, and before October 1, 2004 (Federal FY 2004), the 
total payment for a LTCH will be 60 percent of the amount calculated 
under reasonable cost principles for that specific LTCH and 40 percent 
of the Federal prospective payment amount. As we noted in the March 7, 
2003, proposed rule (68 FR 11257), the change in the effective date of 
the annual LTCH PPS rate update discussed in section IV. of this 
preamble has no effect on the LTCH PPS transition period as set forth 
in Sec.  412.533(a). That is, LTCHs paid under the transition blend 
under Sec.  412.533(a), will receive those blend percentages for the 
entire 5-year transition period (unless they elect payments based on 
100 percent of the Federal rate). Furthermore, LTCHs paid under the 
transition blend will receive the appropriate blend percentages of the 
Federal and reasonable cost-based rate for their entire cost reporting 
period as prescribed in Sec.  412.533(a)(1) through (a)(5). For 
example, a LTCH with a cost reporting period beginning on July 1, 2003 
(which is the LTCH's first cost reporting period since the 
implementation of the LTCH PPS), will receive payments based on 80 
percent of the reasonable cost-based rate and 20 percent of the Federal 
rate for its discharges occurring on or after July 1, 2003, through 
June 30, 2004 (if the LTCH does not elect payment based on 100 percent 
of the Federal rate).
    The reasonable cost-based rate percentage is a LTCH specific amount 
that is based on the amount that the LTCH would have been paid (under 
TEFRA) if the PPS were not implemented. As we discussed in the August 
30, 2002, final rule (67 FR 56040), Medicare fiscal intermediaries will 
continue to compute the LTCH reasonable cost-based payment amount 
according to Sec.  412.22(b) of the regulations and sections 1886(d) 
and (g) of the Act. We note that several reasonable cost-based payment 
provisions that were previously in effect are no longer effective, 
starting with cost reporting periods beginning in FY 2003. For 
instance, the caps on the target amounts for ``existing'' LTCHs 
provided for under section 4414 of the BBA (see Sec.  
413.40(c)(4)(iii)) for FYs 1998 through 2002 are no longer applicable 
for cost reporting periods beginning in FY 2003. Thus, a LTCH's target 
amount for FYs 2003 and beyond will be determined by updating its prior 
year's target amount (which for FY 2003 was subject to the FY 2002 
cap). In addition, the 15-percent reduction to payments to LTCHs for 
capital-related costs provided for under section 4412 of Public Law 
105-33 (Sec.  413.40(j)) is only applicable for portions of cost 
reporting periods occurring in FYs 1998 through FY 2002. This reduction 
is no longer applicable for cost reporting periods beginning in FY 
2003. Therefore, the TEFRA portion of a LTCH's payment for capital-
related costs during the LTCH PPS transition period is based on 100 
percent of its Medicare allowable capital costs.
    As we discussed in the August 30, 2002, final rule (67 FR 56038), 
in implementing the PPS for LTCHs, one of our goals is to transition 
hospitals to full prospective payments as soon as appropriate. 
Therefore, under Sec.  412.533(c), we allow a LTCH, which is subject to 
a blended rate, to elect payment based on 100 percent of the Federal 
rate at the start of any of its cost reporting periods during the 5-
year transition period rather than incrementally shifting from 
reasonable cost-based payments to prospective payments. Once a LTCH 
elects to be paid based on 100 percent of the Federal rate, it will not 
be able to revert to the transition blend. For cost reporting periods 
beginning on or after December 1, 2002, and for the remainder of the 5-
year transition period, a LTCH must notify its fiscal intermediary in 
writing of its election on or before the 30th day prior to the start of 
the LTCH's next cost reporting period. For example, a LTCH with a cost 
report period that begins on May 1, 2004, must notify its fiscal 
intermediary in writing of an election before April 1, 2004.
    Under Sec.  412.533(c)(2)(i), the notification by the LTCH to make 
the election must be made in writing to the Medicare fiscal 
intermediary. Under Sec.  412.533(c)(2)(ii) and (iii), the intermediary 
must receive the request on or before the specified date (that is, on 
or before the 30th day before the applicable cost reporting period 
begins for cost reporting periods beginning on or after December 1, 
2002, through September 30, 2006), regardless of any postmarks or 
anticipated delivery dates.
    Notifications received, postmarked, or delivered by other means 
after the specified date will not be accepted. If the specified date 
falls on a day that the postal service or other delivery sources are 
not open for business, the LTCH will be responsible for allowing 
sufficient time for the delivery of the request before the deadline. If 
a LTCH's notification is not received timely, payment will be based on 
the transition period blend percentages.

X. Payments to New LTCHs

    Under Sec.  412.23(e)(4), for purposes of Medicare payment under 
the LTCH PPS, we define a new LTCH as a provider of inpatient hospital 
services that otherwise meets the qualifying criteria for LTCHs, set 
forth in Sec.  412.23(e)(1)

[[Page 34156]]

and (e)(2) and, under present or previous ownership (or both), and its 
first cost reporting period as a LTCH begins on or after October 1, 
2002. We also specify in Sec.  412.500 that the LTCH PPS is applicable 
to hospitals with a cost reporting period beginning on or after October 
1, 2002.
    As we discussed in the August 30, 2002, final rule (67 FR 56040), 
this definition of new LTCHs should not be confused with those LTCHs 
first paid under the TEFRA payment system for discharges occurring on 
or after October 1, 1997, described in section 1886(b)(7)(A) of the 
Act, added by section 4416 of Public Law 105-33. As stated in Sec.  
413.40(f)(2)(ii), for cost reporting periods beginning on or after 
October 1, 1997, the payment amount for a ``new'' (post-FY 1998) LTCH 
is the lower of the hospital's net inpatient operating cost per case or 
110 percent of the national median target amount payment limit for 
hospitals in the same class for cost reporting periods ending during FY 
1996, updated to the applicable cost reporting period (see 62 FR 46019, 
August 29, 1997). Under the LTCH PPS, those ``new'' LTCHs that meet the 
definition of ``new'' under Sec.  413.40(f)(2)(ii) and that have their 
first cost reporting period as a LTCH beginning prior to October 1, 
2002, will be paid under the transition methodology described in Sec.  
412.533.
    As noted above and in accordance with Sec.  412.533(d), new LTCHs 
will not participate in the 5-year transition from reasonable cost-
based reimbursement to prospective payment. The transition period is 
intended to provide existing LTCHs time to adjust to payment under the 
new system. Since these new LTCHs with cost reporting periods beginning 
on or after October 1, 2002, would not have received payment under 
reasonable cost-based reimbursement for the delivery of LTCH services 
prior to the effective date of the LTCH PPS, we do not believe that 
those new LTCHs require a transition period in order to make 
adjustments to their operations and capital financing, as will LTCHs 
that have been paid under reasonable cost-based.
    For example, a ``new'' LTCH (post-FY 1998) that first began 
receiving payment as a LTCH on October 1, 2001, will be subject to the 
110 percent of the median target amount payment limit for LTCHs (in 
accordance with Sec.  413.40(f)(2)(ii)) for both its FY 2002 (October 
1, 2001, through September 30, 2002) and FY 2003 (October 1, 2002, 
through September 30, 2003) cost reporting periods. Assuming the 
hospital has not elected to be paid 100 percent of the Federal rate for 
its cost reporting period beginning on October 1, 2002 (the first cost 
reporting period when the LTCH will be subject to the PPS), the 
hospital will be paid under the transition methodology whereby the 
LTCH's reasonable cost-based portion of its payment for operating costs 
(80 percent) is limited by the 110 percent of the median target amount 
payment limit for LTCHs under Sec.  413.40(f)(2)(ii). For its cost 
reporting period beginning on October 1, 2003 (which is the hospital's 
third cost reporting period), under the transition methodology, that 
LTCH's reasonable cost-based portion of its payment for operating costs 
(60 percent) will be limited to its target amount as determined under 
Sec.  413.40(c)(4)(v). Furthermore, if a hospital is designated as a 
LTCH on September 1, 2002, it will not be considered a new LTCH under 
Sec.  412.23(e)(4), even if it had not discharged any patients or 
received any payments as of the implementation date of the LTCH PPS on 
October 1, 2002, because its first cost reporting period did not begin 
on or after October 1, 2002. Thus, it will be paid according to Sec.  
413.40(f)(2)(ii) from September 1, 2002, through August 30, 2003. This 
LTCH will not be subject to payments under the LTCH PPS until the start 
of its next cost reporting period on September 1, 2003. At the 
beginning of its second cost reporting period as a LTCH (that is, 
September 1, 2003), this LTCH will be subject to the transition period 
methodology in Sec.  412.533(a)(1), because this provision applies to 
cost reporting periods beginning on or after October 1, 2002, and 
before October 1, 2003. Under the blended payments of the transition 
period in Sec.  412.533(a)(1), 80 percent of payments for operating 
costs would be paid under the reasonable cost principles, as described 
in Sec.  413.40(f)(2)(ii). (This hospital could also elect to be paid 
100 percent of the Federal rate for its cost reporting period beginning 
September 1, 2003.)

XI. Method of Payment

    Under Sec.  412.513, a Medicare LTCH patient is classified into a 
LTC-DRG based on the principal diagnosis, up to eight additional 
(secondary) diagnoses, and up to six procedures performed during the 
stay, as well as age, sex, and discharge status of the patient. The 
LTC-DRG is used to determine the Federal prospective payment that the 
LTCH will receive for the Medicare-covered part A services the LTCH 
furnished during the Medicare patient's stay. Under Sec.  412.541(a), 
the payment is based on the submission of the discharge bill. The 
discharge bill also provides data to allow for reclassifying the stay 
from payment at the full LTC-DRG rate to payment for a case as a short-
stay outlier (under Sec.  412.529) or as an interrupted stay (under 
Sec.  412.531), or to determine if the case will qualify for a high-
cost outlier payment (under Sec.  412.525(a)).
    Accordingly, the ICD-9-CM codes and other information used to 
determine if an adjustment to the full LTC-DRG payment is necessary 
(for example, length of stay or interrupted stay status) are recorded 
by the LTCH on the Medicare patient's discharge bill and submitted to 
the Medicare fiscal intermediary for processing. The payment represents 
payment in full, under Sec.  412.521(b), for inpatient operating and 
capital-related costs, but not for the costs of an approved medical 
education program, bad debts, blood clotting factors, anesthesia 
services by hospital-employed nonphysician anesthetists or obtained 
under arrangement, or the costs of photocopying and mailing medical 
records requested by a QIO, which are costs paid outside the LTCH PPS.
    As under the previous reasonable cost-based payment system, under 
Sec.  412.541(b) a LTCH may elect to be paid using the periodic interim 
payment (PIP) method described in Sec.  413.64(h) and may be eligible 
to receive accelerated payments as described in Sec.  413.64(g).
    For those LTCHs that are paid during the 5-year transition based on 
the blended transition methodology in Sec.  412.533(a) for cost 
reporting periods beginning on or after October 1, 2002, and before 
October 1, 2006, the PIP amount is based on the transition blend. For 
those LTCHs that are paid based on 100 percent of the standard Federal 
rate, the PIP amount is based on the estimated prospective payment for 
the year rather than on the estimated reasonable cost-based 
reimbursement. We exclude high-cost outlier payments that are paid upon 
submission of a discharge bill from the PIP amounts. In addition, part 
A costs that are not paid for under the LTCH PPS, including Medicare 
costs of an approved medical education program, bad debts, blood 
clotting factors, anesthesia services by hospital-employed nonphysician 
anesthetists or obtained under arrangement, and the costs of 
photocopying and mailing medical records requested by a QIO, are 
subject to the interim payment provisions (Sec.  412.541(c)).
    Under Sec.  412.541(d), LTCHs with unusually long lengths of stay 
and that are not receiving payment under the PIP method may bill on an 
interim basis (60 days after an admission and at intervals of at least 
60 days after the date of the

[[Page 34157]]

first interim bill) and should include any high-cost outlier payment 
determined as of the last day for which the services have been billed.

XII. Monitoring

    In the August 30, 2002, final rule (67 FR 56014), we discussed our 
intent to develop a monitoring system that will assist us in evaluating 
the LTCH PPS. Specifically, we discussed the monitoring of the various 
policies that we believe would provide equitable payment for stays that 
reflect less than the full course of treatment and reduce the 
incentives for inappropriate admissions, transfers, or premature 
discharges of patients that are present in a discharge-based 
prospective payment system. We also stated our intent to collect and 
interpret data on changes in average lengths of stay under the LTCH PPS 
for specific LTC-DRGs and the impact of these changes on the Medicare 
program. We stated that if our data indicate that changes might be 
warranted, we may revisit these issues and consider proposing revisions 
to these policies in the future. To this end, we have designed systems 
features utilizing MedPAR data that will enable CMS and the fiscal 
intermediary to track beneficiary movement to and from a LTCH and to 
and from another Medicare provider. The Medicare Payment Advisory 
Commission (MedPac) has endorsed this monitoring activity and is 
pursuing an independent research initiative that will evaluate all 
aspects of LTCHs, including the accuracy of data reporting, provision 
of equivalent services by other providers, growth in the number of 
LTCHs, and clinical outcomes.
    Also, in the August 30, 2002, final rule (67 FR 56014), we 
explained that, given that the only unique requirement that 
distinguishes a LTCH from other inpatient acute care hospitals is an 
average length of stay of greater than 25 days, we continue to be 
concerned about the extent to which LTCH services and patients differ 
from those services and patients treated in other Medicare covered 
settings (for example, SNFs and IRFs) and how the LTCH PPS will affect 
the access, quality, and costs across the health care continuum. Thus, 
we will monitor trends in the supply and utilization of LTCHs and 
Medicare's costs in LTCHs relative to other Medicare providers. For 
example, we may conduct medical record reviews of Medicare patients to 
monitor changes in service use (for example, ventilator use) over a 
LTCH episode of care and to assess patterns in the average length of 
stay at the facility level. We will consider future changes to LTCH 
coverage and payment policy based upon the results of such analyses.

XIII. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

XIV. Regulatory Impact Analysis

A. Introduction

    We have examined the impact of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act (the Act), the 
Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4), and 
Executive Order 13132.
1. Executive Order 12866
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely assigns responsibility of duties) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any one 
year). We have determined that this final rule will not be a major rule 
within the meaning of Executive Order 12866 because the redistributive 
effects do not constitute a shift of $100 million in any one year. As 
we discuss in further detail below, and in section VII.B.1.b. of this 
preamble, the change to the LTCH PPS rate update cycle will be budget 
neutral. Therefore, we estimate that there will be no budgetary impact 
for the Medicare program as a result of the change to the LTCH PPS rate 
update cycle. Based on the best available data for 194 LTCHs, we 
estimate that the 2.2 percent increase in the standard Federal rate for 
the 2004 LTCH PPS rate year will result in an increase in payments of 
$32.4 million and there are no significant redistributive effects among 
any groups of hospitals. (Section VII.C.6. of this preamble includes an 
estimate of Medicare program payments for LTCH services.)
2. Regulatory Flexibility Act (RFA)
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $26 
million or less in any 1 year. For purposes of the RFA, all hospitals 
are considered small entities according to the Small Business 
Administration's latest size standards with total revenues of $26 
million or less in any 1 year (for further information, see 65 FR 
69432, November 17, 2000). Medicare fiscal intermediaries are not 
considered to be small entities. Individuals and States are not 
included in the definition of a small entity. We certify that this 
final rule will not have a significant impact on a substantial number 
of small entities, in accordance with RFA.
3. Impact on Rural Hospitals
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. For a 
final rule, this analysis must conform to the provisions of section 604 
of the RFA. For purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 100 beds. As discussed 
in detail below, the rates and policies set forth in this final rule 
will not have a substantial impact on the seven rural hospitals for 
which data were available that have fewer than 100 beds and that are 
located in rural areas.
4. Unfunded Mandates
    Section 202 of the UMRA requires that agencies assess anticipated 
costs and benefits before issuing any rule that may result in 
expenditure in any one year by State, local, or tribal governments, in 
the aggregate, or by the private sector, of $110 million or more. This 
final rule will not mandate any requirements for State, local, or 
tribal governments, nor would it result in expenditures by the private 
sector of $110 million or more in any one year.
5. Federalism
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications.

[[Page 34158]]

    We have examined this final rule under the criteria set forth in 
Executive Order 13132 and have determined that, based on the 9 State 
and local LTCHs in our database, this final rule will not have any 
significant impact on the rights, roles, and responsibilities of State, 
local, or tribal governments or preempt State law.

B. Anticipated Effects

    We discuss the impact of this final rule below in terms of its 
fiscal impact on the Medicare budget and on LTCHs.
1. Budgetary Impact
    Section 123(a)(1) of Medicare, Medicaid and State Child Health 
Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) requires us to set the payment rates contained in 
this final rule such that total payments under the LTCH PPS are 
projected to equal the amount that would have been paid if this PPS had 
not been implemented. However, as discussed in greater detail in the 
August 30, 2002, final rule (67 FR 56033-56036), the FY 2003 standard 
Federal rate ($34,956.15) was calculated as though all LTCHs will be 
paid based on 100 percent of the standard Federal rate in FY 2003. As 
discussed in section VII.C.6 of this final rule, we are applying a 
budget neutrality offset to payments to account for the monetary effect 
of the 5-year transition period and the policy to permit LTCHs to elect 
to be paid based on 100 percent of the standard Federal rate rather 
than a blend of Federal prospective payments and reasonable cost-based 
payments during the transition. The amount of the offset is equal to 1 
minus the ratio of the estimated reasonable cost-based payments that 
would have been made if the LTCH PPS had not been implemented, to the 
projected total Medicare program payments that will be made under the 
transition methodology and the option to elect payment based on 100 
percent of the Federal prospective payment rate.
    Our Office of the Actuary computed an update factor to update LTCH 
PPS payments from the current rate period (Federal FY 2003) to the new 
2004 LTCH PPS rate year (July 1, 2003, through June 30, 2004). The 2004 
LTCH PPS rate year overlaps the current rate period by 3 months (July 
1, 2003, through September 30, 2003). The market basket increase for 
Federal FY 2003 is currently estimated at 3.7 percent and the most 
recent estimate of the LTCH PPS market basket increase for the 2004 
LTCH PPS rate year is estimated at 2.5 percent (as discussed in section 
VII.B.1.b of this preamble). Therefore, over the period from FY 2002 
through the 2004 LTCH PPS rate year (June 30, 2004), the cumulative 
increase would be 6.0 percent (1.037 * 1.025 = 1.063). This cumulative 
increase matches (within rounding) the cumulative increase calculated 
by using the index level in the new effective period and the index 
level in FY 2002, such that having two separate updates result in the 
same cumulative update as if we had used a single update for the entire 
21-month period (October 1, 2002, through June 30, 2004). Thus, the 
change to the 2004 LTCH PPS rate update cycle will not result in a 
higher or lower update than would have been the case (except due to 
rounding) if no change had been made to the LTCH PPS update cycle. In 
addition, as discussed in section VII.B.1.b. of the preamble of this 
final rule, we apply a budget neutrality adjustment of 0.997 in 
determining the standard Federal rate to account for the estimated 
$5.68 million budgetary impact for the Medicare program in FY 2003 as a 
result of the change to the 2004 LTCH PPS rate year cycle.
2. Impact on Providers
    The basic methodology for determining a LTCH PPS payment is set 
forth in the regulations at Sec.  412.515 through Sec.  412.525. In 
addition to the basic LTC-DRG payment (standard Federal rate x LTC-DRG 
relative weight), we make adjustments for differences in area wage 
levels, cost-of-living adjustment for Alaska and Hawaii, and short-stay 
outliers. In addition, LTCHs may also receive high-cost outlier 
payments for those cases that qualify under the threshold established 
each rate year. Section 412.533 provides for a 5-year transition to 
fully prospective payments from payment based on reasonable cost-based 
principles. During the 5-year transition period, payments to LTCHs are 
based on an increasing percentage of the LTCH PPS Federal rate and a 
decreasing percentage of payment based on reasonable cost-based 
principles. Section 412.533(c) provides for a one-time opportunity for 
LTCHs to elect payments based on 100 percent of the LTCH PPS Federal 
rate.
    In order to understand the impact of the changes to the LTCH PPS 
discussed in this final rule on different categories of LTCHs for the 
2004 LTCH PPS rate year, it is necessary to estimate payments per 
discharge under the current (Federal FY 2003) LTCH PPS rates and 
factors (see the August 30, 2002, final rule) and payments per 
discharge that will be made under the LTCH PPS rates and factors for 
the 2004 LTCH PPS rate year (July 1, 2003, through June 30, 2004). We 
also evaluated the percent change in payments per discharge of 
estimated FY 2003 prospective payments to estimated 2004 LTCH PPS rate 
year payments for each category of LTCHs.
    Hospital groups were based on characteristics provided in OSCAR 
data and FYs 1998 through 2000 cost report data from HCRIS. Hospitals 
with incomplete characteristics were grouped into the ``unknown'' 
category. Hospital groups include:

--Location: Large Urban/Other Urban/Rural
--Participation Date
--Ownership Control
--Census Region
--Bed Size

    To estimate the impacts among the various categories of providers 
during the transition period, it is imperative that reasonable cost-
based principle payments and prospective payments contain similar 
inputs. More specifically, in the impact analysis showing the impact 
reflecting the applicable transition blend percentages of prospective 
payments and reasonable cost-based principle payments and the option to 
elect payment based on 100 percent of the Federal rate (Table VII 
below), we estimated payments only for those providers for whom we are 
able to calculate payments based on reasonable cost-based principles. 
For example, if we did not have FYs 1996 through 1999 cost data for a 
LTCH, we were unable to determine an update to the LTCH's target amount 
to estimate payment under the current reasonable cost-based principles.
    Using LTCH cases from the FY 2001 MedPAR file and cost data from 
FYs 1996 through 2000 in HCRIS to estimate payments under the current 
reasonable cost-based principles, we have both case-mix and cost data 
for 194 LTCHs. Thus, for the impact analyses reflecting the applicable 
transition blend percentages of prospective payments and reasonable 
cost-based principle payments and the option to elect payment based on 
100 percent of the Federal rate (see Table VI below), we used data from 
194 LTCHs. While currently there are approximately 280 LTCHs, the most 
recent growth is predominantly in for-profit LTCHs that provide 
respiratory and ventilator-dependent patient care. We believe that the 
discharges from the MedPAR data for the 194 LTCHs in our database 
provide sufficient representation in the LTC-DRGs containing discharges 
for patients that received respiratory and ventilator-dependent care. 
However,

[[Page 34159]]

using cases from the FY 2001 MedPAR file, we had case-mix data for 250 
LTCHs. Cost data to determine current payments under reasonable cost-
based principle payments are not needed to simulate payments based on 
100 percent of the Federal rate. Therefore, for the impact analyses 
reflecting fully phased-in prospective payments (see Table VII below), 
we used data from 250 LTCHs.
    These impacts reflect the estimated ``losses'' or ``gains'' among 
the various classifications of providers for the 12-month period from 
October 1, 2002, through September 30, 2003 (Federal FY 2003), compared 
to the 12-month period from July 1, 2003, through June 30, 2004 (2004 
LTCH PPS rate year). Prospective payments for the 2004 LTCH rate year 
were based on the standard Federal rate of $35,726.18 and the 
hospital's estimated case-mix based on FY 2001 claims data. Prospective 
payments for Federal FY 2003 were based on the standard Federal rate of 
$34,956.15 and the same FY 2001 claims data.
3. Calculation of Prospective Payments
    To estimate payments under the LTCH PPS, we simulated payments on a 
case-by-case basis by applying the payment policy for short-stay 
outliers (as described in section VII.C.4.b of this final rule) and the 
adjustments for area wage differences (as described in section VII.C.1 
of this final rule) and for the cost-of-living for Alaska and Hawaii 
(as described in section VII.C.2 of this final rule). Additional 
payments would also be made for high-cost outlier cases (as described 
in section VII.C.3 of this final rule). As noted in section VII.C.5 of 
this final rule, we are not making adjustments for rural location, 
geographic reclassification, indirect medical education costs, or a 
disproportionate share of low-income patients.
    We adjusted for area wage differences for estimated FY 2003 
payments by using the applicable LTCH PPS wage index (one-fifth of the 
full FY 2002 acute care hospital inpatient wage index data, without 
taking into account geographic reclassification under sections 
1886(d)(8) and 1886(d)(10) of the Act (see August 30, 2002, 67 FR 
56057-56075). For the estimated 2004 LTCH PPS rate year payments, we 
used a weighted average of a LTCH's applicable wage index during the 
period from July 1, 2003, through June 30, 2004, since some providers 
may experience a change in the wage index phase-in percentage during 
the period from July 1, 2003, through June 30, 2004. For cost reporting 
periods beginning on or after October 1, 2002, and before September 30, 
2003, the labor portion of the Federal rate is adjusted by one-fifth of 
the applicable LTCH PPS wage index. For cost reporting periods 
beginning on or after October 1, 2003, and before September 30, 2004, 
the labor portion of the Federal rate is adjusted by two-fifths of the 
applicable LTCH PPS wage index. The applicable LTCH PPS wage index 
values are computed using the same data to compute the acute care 
hospital inpatient wage index data, without taking into account 
geographic reclassification under sections 1886(d)(8) and 1886(d)(10) 
of the Act (as discussed in section VII.C.1. of this final rule). 
Therefore, a provider with a cost reporting period beginning October 1, 
2003, will have 3 months of payments under the one-fifth wage index 
value and 9 months of payment under the two-fifths wage index value. 
For this provider, we computed a blended wage index of 25 percent (3 
months/12 months) of the one-fifth wage index value and 75 percent (9 
months/12 months) of the two-fifths wage index value.
    We also calculated payments using the applicable transition blend 
percentages. For FY 2003, the applicable transition blend percentage is 
80 percent of payment based on reasonable cost-based principles and 20 
percent of payment under the LTCH PPS. For the 2004 LTCH PPS rate year 
based on the transition blend percentages set forth in Sec.  
412.533(a), some providers may experience a change in the transition 
blend percentage during the period from July 1, 2003, through June 30, 
2004. For example during the 12-month period from July 1, 2003, through 
June 30, 2004, a provider with a cost reporting period beginning on 
October 1, 2002 (which is paid under the 80/20 transition blend (80 
percent of payments based on reasonable cost-based principles and 20 
percent of payments under the LTCH PPS), beginning October 1, 2002) 
will have 3 months (July 1, 2003, through September 30, 2003) under the 
80/20 blend and 9 months (October 1, 2003, through June 30, 2004) of 
payment under the 60/40-transition blend (60 percent of payments based 
on reasonable cost-based principles and 40 percent of payments under 
the LTCH PPS). (The 60 percent/40 percent blend would continue until 
the provider's cost report period beginning on October 1, 2004.) In 
estimating blended transition payments, we estimated payments based on 
reasonable cost-based principles in accordance with the methodology in 
section 1886(b) of the Act. We compared the estimated blended 
transition payment to the LTCH's estimated payment if it would elect 
payment based on 100 percent of the Federal rate. If we estimated that 
a LTCH would be paid more based on 100 percent of the Federal rate, we 
assumed that it would elect to bypass the transition methodology and to 
receive immediate prospective payments.
    Then we applied the 6.6 percent reduction to payment to account for 
the effect of the 5-year transition methodology and election of payment 
based on 100 percent of the Federal rate on Medicare program payments 
established in the August 30, 2002, final rule (67 FR 56034) to each 
LTCH's estimated payments under the LTCH PPS for FY 2003. Similarly, we 
applied the 6.0 percent reduction to payment to account for the effect 
of the 5-year transition methodology and election of payment based on 
100 percent of the Federal rate on Medicare program payments (see 
section VII.C.6 of this final rule) to each LTCH's estimated payments 
under the LTCH PPS for the 2004 LTCH PPS rate year. The impact based on 
our projection of whether a LTCH will be paid based on the transition 
blend methodology or will elect payment based on 100 percent of the 
Federal rate is shown below in Table VI.
    In Table VII below, we also show the impact if the LTCH PPS were 
fully implemented; that is, as if there were an immediate transition to 
fully Federal prospective payments under the LTCH PPS for Federal FY 
2003 and the 2004 LTCH PPS rate year. Accordingly, the 6.0 percent 
reduction to account for the 5-year transition methodology on LTCHs' 
Medicare program payments for the 2004 LTCH PPS rate year and the 6.6 
percent reduction to account for the 5-year transition methodology on 
LTCHs' Medicare program payments established for FY 2003 were not 
applied to LTCHs' estimated payments under the PPS.
    Tables VI and VII below illustrate the aggregate impact of the 
payment system among various classifications of LTCHs.
    [sbull] The first column, LTCH Classification, identifies the type 
of LTCH.
    [sbull] The second column lists the number of LTCHs of each 
classification type.
    [sbull] The third column identifies the number of long-term care 
cases.
    [sbull] The fourth column shows the estimated payment per discharge 
for FY 2003.
    [sbull] The fifth column shows the estimated payment per discharge 
for the 2004 LTCH PPS rate year.

[[Page 34160]]

    [sbull] The sixth column shows the percent change of FY 2003 
compared to the 2004 LTCH PPS rate year.

   Table VI.--Projected Impact Reflecting Applicable Transition Blend Percentages of Prospective Payments and
 Reasonable Cost-Based (TEFRA) Payments and Option To Elect Payment Based on 100 Percent of the Federal Rate \1\
                  [FY 2003 payments compared to 2004 LTCH prospective payment system rate year]
----------------------------------------------------------------------------------------------------------------
                                                                                      Average 2004
                                                                                          LTCH
                                                                         Average       prospective
           LTCH classification              Number of    Number of     federal FY    payment system     Percent
                                              LTCHs      LTCH cases   2003 payment      rate year       change
                                                                      per case \2\     payment per
                                                                                        case \3\
----------------------------------------------------------------------------------------------------------------
All Providers............................          194       71,861          26,751          27,202          1.7
By Location:
    Rural................................            7        2,153          20,381          20,807          2.1
    Urban................................          187       69,708          26,947          27,400          1.7
    Large................................          113       47,743          27,232          27,695          1.7
    Other................................           74       21,965          26,329          26,757          1.6
By Participation Date:
    After October 1993...................          129       42,973          27,983          28,452          1.7
    Before October 1983..................           16        7,846          20,204          20,262          0.3
    October 1983-September 1993..........           48       20,810          26,531          27,063          2.0
    Unknown..............................            1          232          39,515          42,895          8.6
By Ownership Control:
    Voluntary............................           48       17,741          24,561          25,032          1.9
    Proprietary..........................          136       51,655          27,562          27,980          1.5
    Government...........................           10        2,465          25,513          26,531          4.0
By Census Region:
    New England..........................           14        9,499          20,371          20,286         -0.4
    Middle Atlantic......................            9        3,282          28,390          28,069         -1.1
    South Atlantic.......................           20        6,573          30,805          31,580          2.5
    East North Central...................           33        9,061          28,862          29,454          2.1
    East South Central...................           10        2,863          26,516          26,163         -1.3
    West North Central...................           11        2,906          26,278          26,940          2.5
    West South Central...................           71       30,262          25,842          26,464          2.4
    Mountain.............................           15        2,495          28,049          28,611          2.0
    Pacific..............................           11        4,920          34,011          34,566          1.6
By Bed Size:
    Beds: 0-24...........................           17        2,456          28,815          29,591          2.7
    Beds: 25-49..........................           88       21,734          28,129          28,507          1.3
    Beds: 50-74..........................           24        8,214          28,780          28,592         -0.7
    Beds: 75-124.........................           34       16,310          26,821          27,673          3.2
    Beds: 125-199........................           21       13,838          24,430          24,558          0.5
    Beds: 200+...........................            9        9,228          24,671          25,559          3.6
    Unknown..............................            1           81           7,668           7,937          3.5
----------------------------------------------------------------------------------------------------------------
\1\ These calculations take into account that some providers may experience a change in the blend percentage
  changes during the July 1, 2003, through June 30, 2004, rate year. For example, during the 12-month period of
  July 1, 2003, through June 30, 2004, a provider with a cost reporting period beginning October 1 would have 3
  months (July 1, 2003, through September 30, 2003) of payments under the 80/20 blend and 9 months (October 1,
  2003, through June 30, 2004) of payment under the 60/40 blend.
\2\ Average payment per case for the 12-month period of October 1, 2002, through September 30, 2003.
\3\ Average payment per case for the 12-month period of July 1, 2003, through June 30, 2004.


                Table VII.--Projected Impact Reflecting the Fully Phased-In Prospective Payments
             [FY 2003 payments compared to 2004 LTCH prospective payment system rate year payments]
----------------------------------------------------------------------------------------------------------------
                                                                                      Average 2004
                                                                                          LTCH
                                                                         Average       prospective
           LTCH classification              Number of    Number of     Federal FY    payment system    Percent
                                              LTCHs      LTCH cases   2003 payment      rate year       change
                                                                      per case \1\     payment per
                                                                                        case \2\
----------------------------------------------------------------------------------------------------------------
All Providers............................          250       82,625          26,357          26,951          2.2
By Location:
    Rural................................           16        4,674          20,851          21,013          0.8
    Urban................................          234       77,951          26,687          27,307          2.3
    Large................................          135       52,256          27,027          27,651          2.3
    Other................................           99       25,695          25,996          26,607          2.3
By Participation Date:
    After October 1993...................          182       53,246          27,178          27,740          2.1

[[Page 34161]]

 
    Before October 1983..................           17        7,897          20,826          20,881          0.3
    October 1983--September 1993.........           49       21,257          26,230          27,138          3.5
    Unknown..............................            2          743          25,318          26,537          4.8
By Ownership Control:
    Voluntary............................           55       19,853          24,314          24,833          2.1
    Proprietary..........................          148       54,269          27,490          28,052          2.0
    Government...........................           47        8,503          23,893          24,864          4.1
By Census Region:
    New England..........................           16        9,609          21,094          21,009         -0.4
    Middle Atlantic......................           15        4,162          28,982          28,607         -1.3
    South Atlantic.......................           23        7,051          30,441          31,289          2.8
    East North Central...................           48       12,145          28,356          29,074          2.5
    East South Central...................           14        3,722          28,561          28,496         -0.2
    West North Central...................           16        3,769          26,347          27,245          3.4
    West South Central...................           87       33,971          24,560          25,384          3.4
    Mountain.............................           19        2,993          26,529          27,567          3.9
    Pacific..............................           12        5,203          33,836          34,323          1.4
By Bed Size:
    Beds: 0-24...........................           21        3,073          27,130          28,221          4.0
    Beds: 25-49..........................           98       24,386          27,954          28,222          1.0
    Beds: 50-74..........................           27        9,310          27,556          27,610          0.2
    Beds: 75-124.........................           35       16,432          26,222          27,475          4.8
    Beds: 125-199........................           21       13,838          24,945          25,148          0.8
    Beds: 200+...........................           11        9,518          25,041          26,054          4.0
    Unknown..............................           37        6,068          23,354          24,284         4.0
----------------------------------------------------------------------------------------------------------------
\1\ Average payment per case for the 12-month period of October 1, 2002, through September 30, 2003.
\2\ Average payment per case for the 12-month period of July 1, 2003, through June 30, 2004.

4. Results
    We have prepared the following summary of the impact (as shown in 
Table VI) of the LTCH PPS set forth in this proposed rule.
    a. Location. The majority of LTCHs are in urban areas. 
Approximately 3 percent of the LTCHs are identified as being located in 
a rural area, and approximately 3 percent of all LTCH cases are treated 
in these rural hospitals. Impact analysis in Table VI shows that the 
percent change in estimated payments per discharge for FY 2003 compared 
to the 2004 LTCH PPS rate year for rural LTCHs will be 2.1 percent, and 
will be 1.7 percent for urban LTCHs. Large urban LTCHs are projected to 
experience a 1.7 percent increase in payments per discharge percent 
from FY 2003 compared to the 2004 LTCH PPS rate year, while other urban 
LTCHs projected to experience a 1.6 percent increase in payments per 
discharge percent from FY 2003 compared to the 2004 LTCH PPS rate year. 
(See Table VI.)
    b. Participation Date. LTCHs are grouped by participation date into 
three categories: (1) Before October 1983; (2) between October 1983 and 
September 1993; and (3) after October 1993. We did not have sufficient 
OSCAR data on 1 LTCH, which we labeled as an ``Unknown'' category. The 
majority, approximately 60 percent, of the LTCH cases are in hospitals 
that began participating after October 1993 and are projected to 
experience a 1.7 percent increase in payments per discharge from FY 
2003 compared to the 2004 LTCH PPS rate year. Approximately 11 percent 
of the cases are in LTCHs that began participating in Medicare before 
October 1983 and are projected to experience a 0.3 percent increase in 
payments per discharge percent from FY 2003 compared to the 2004 LTCH 
PPS rate year. LTCHs that began participating between October 1983 and 
September 1993 are projected to experience a 2.0 percent increase in 
payments per discharge from FY 2003 compared to the 2004 LTCH PPS rate 
year. (See Table VI.)
    c. Ownership Control. LTCHs are grouped into three categories based 
on ownership control type--(1) Voluntary; (2) proprietary; and (3) 
government.
    Approximately 5 percent of LTCHs are government run and we expect 
that they will ``gain'' the most from the changes based on our 
projection that they will experience a 4.0 percent increase in payments 
per discharge from FY 2003 compared to the 2004 LTCH PPS rate year. 
Voluntary and proprietary LTCHs are projected to experience a 1.9 
percent and 1.5 percent increase in payments per discharge percent from 
FY 2003 compared to the 2004 LTCH PPS rate year, respectively. (See 
Table VI.)
    d. Census Region. LTCHs located in most regions are expected to 
experience an increase in payments per discharge percent from FY 2003 
compared to the 2004 LTCH PPS rate year. Specifically, of the nine 
census regions, we expect that LTCHs in the South Atlantic and West 
North Central regions will experience the largest percent increase in 
payments per discharge percent from FY 2003 compared to the 2004 LTCH 
PPS rate year (2.5 percent). We expect LTCHs in the Pacific region will 
experience the smallest percent increase in payments per discharge 
percent from FY 2003 compared to the 2004 LTCH PPS rate year (1.6 
percent). (See Table VI.)
    e. Bed Size. LTCHs were grouped into six categories based on bed 
size--0-24 beds, 25-49 beds, 50-74 beds, 75-124 beds, 125-199 beds, and 
200+ beds. We did not have sufficient OSCAR data on

[[Page 34162]]

1 LTCH, which we labeled as an ``Unknown'' category.
    The percent increase in payments per discharge percent from FY 2003 
compared to the 2004 LTCH PPS rate year are projected to increase for 
all bed size categories. Most LTCHs were in bed size categories where 
the percent increase in payments per discharge from FY 2003 compared to 
the 2004 LTCH PPS rate year is estimated to be greater than 1.0 
percent. Other than the LTCH whose bed size is unknown, LTCHs with 200 
or more beds have the highest estimated percent change in payments per 
discharge percent from FY 2003 compared to the 2004 LTCH PPS rate year 
(3.6 percent), while LTCHs with 125-199 beds have the lowest projected 
increase in the percent change in payments per discharge percent from 
FY 2003 compared to the 2004 LTCH PPS rate year (0.5 percent). (See 
Table VI.)
5. Effect on the Medicare Program
    Based on actuarial projections resulting from our experience with 
other prospective payment systems, we estimate that Medicare spending 
(total Medicare program payments) for LTCH services over the next 5 
years will be as follows:

------------------------------------------------------------------------
                                                            Estimated
                   LTCH PPS rate year                    payments  ($ in
                                                            billions)
------------------------------------------------------------------------
2004...................................................            $2.17
2005...................................................             2.29
2006...................................................             2.42
2007...................................................             2.56
2008...................................................             2.71
------------------------------------------------------------------------

    These estimates are based on the current estimate of increase in 
the excluded hospital market with capital basket of 2.5 percent for 
2004 LTCH PPS rate year (adjusted to account for the change in the rate 
update cycle discussed in section VII.B.1.b of the preamble of this 
final rule), 3.2 percent for the 2005 LTCH PPS rate year, 3.1 percent 
for the 2006 and 2007 LTCH PPS rate years, and 3.0 percent for the 2008 
LTCH PPS rate year. We currently estimate that there will be an 
increase in Medicare beneficiary enrollment of 1.3 percent in 2004 LTCH 
PPS rate year, 1.6 percent in 2005 LTCH PPS rate year, 1.9 percent in 
2006 LTCH PPS rate year, 2.0 percent in 2007 LTCH PPS rate year, 2.1 
percent in 2008 LTCH PPS rate year, and an estimated increase in the 
total number of LTCHs.
    Consistent with the statutory requirement for budget neutrality, we 
intend for estimated aggregate payments under the LTCH PPS in FY 2003 
to equal the estimated aggregate payments that will be made if the LTCH 
PPS were not implemented. Our methodology for estimating payments for 
purposes of the budget neutrality calculations uses the best available 
data and necessarily reflects assumptions. As we collect data from 
LTCHs, we will monitor payments and evaluate the ultimate accuracy of 
the assumptions used to calculate the budget neutrality calculations 
(that is, inflation factors, intensity of services provided, or 
behavioral response to the implementation of the LTCH PPS). To the 
extent the assumptions significantly differ from actual experience, the 
aggregate amount of actual payments may turn out to be significantly 
higher or lower than the estimates on which the budget neutrality 
calculations are based.
    Section 123 of BBRA and section 307 of BIPA provide the Secretary 
with extremely broad authority in developing the LTCH PPS, including 
the authority for appropriate adjustments. In accordance with this 
broad authority, we may discuss in a future proposed rule a possible 
one-time prospective adjustment to the LTCH PPS rates to maintain 
budget neutrality so that the effect of the difference between actual 
payments and estimated payments for the first year of LTCH PPS is not 
perpetuated in the PPS rates for future years. Because the LTCH PPS was 
only implemented for cost reporting periods beginning on or after 
October 1, 2002, we do not yet have sufficient data to determine 
whether such an adjustment is warranted.
6. Effect on Medicare Beneficiaries
    Under the LTCH PPS, hospitals will receive payment based on the 
average resources consumed by patients for each diagnosis. We do not 
expect any changes in the quality of care or access to services for 
Medicare beneficiaries under the LTCH PPS, but we expect that paying 
prospectively for LTCH services will enhance the efficiency of the 
Medicare program.
C. Executive Order 12866
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 412

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

0
In accordance with the discussion in this preamble, the Centers for 
Medicare & Medicaid Services amends 42 CFR chapter IV, part 412, as set 
forth below:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
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).

0
2. Section 412.22 is amended by revising paragraph (h)(2) introductory 
text and adding a new paragraph (h)(6) to read as follows:


Sec.  412.22  Excluded hospitals and hospital units: General rules.

* * * * *
    (h) Satellite facilities. * * *
    (2) Except as provided in paragraphs (h)(3) and (h)(6) of this 
section, effective for cost reporting periods beginning on or after 
October 1, 1999, a hospital that has a satellite facility must meet the 
following criteria in order to be excluded from the prospective payment 
systems for any period:
* * * * *
    (6) The provisions of paragraph (h)(2)(i) of this section do not 
apply to any long-term care hospital that is subject to the long-term 
care hospital prospective payment system under Subpart O of this part, 
effective for cost reporting periods occurring on or after October 1, 
2002, and that elects to be paid based on 100 percent of the Federal 
prospective payment rate as specified in Sec.  412.533(c), beginning 
with the first cost reporting period following that election, or when 
the LTCH is fully transitioned to 100 percent of the Federal 
prospective rate, or to a new long-term care hospital, as defined in 
Sec.  412.23(e)(4).

0
3. Section 412.503 is amended by adding a definition of ``long-term 
care hospital prospective payment system rate year'' in alphabetical 
order to read as follows:


Sec.  412.503  Definitions.

* * * * *
    Long-term care hospital prospective payment system rate year means 
the 12-month period of July 1 through June 30.
* * * * *

0
4. Section 412.523 is amended by revising paragraphs (c)(3) and (d)(3) 
to read as follows:


Sec.  412.523  Methodology for calculating the Federal prospective 
payment rates.

* * * * *
    (c) * * *
    (3) Computation of the standard Federal rate. The standard Federal 
rate is computed as follows:
    (i) For FY 2003. Based on the updated costs per discharge and 
estimated

[[Page 34163]]

payments for FY 2003 determined in paragraph (c)(2) of this section, 
CMS computes a standard Federal rate for FY 2003 that reflects, as 
appropriate, the adjustments described in paragraph (d) of this 
section. The FY 2003 standard Federal rate is effective for discharges 
occurring in cost reporting periods beginning on or after October 1, 
2002 through June 30, 2003.
    (ii) For long-term care hospital prospective payment system rate 
years beginning July 1, 2003 and after. The standard Federal rate for 
long-term care hospital prospective payment system rate years beginning 
July 1, 2003 and after will be the standard Federal rate for the 
previous long-term care hospital prospective payment system rate year, 
updated by the increase factor described in paragraph (a)(2) of this 
section, and adjusted, as appropriate, as described in paragraph (d) of 
this section. For the rate year from July 1, 2003 through June 30, 
2004, the updated and adjusted standard Federal rate will be offset by 
a budget neutrality factor to account for updating the FY 2003 standard 
Federal rate on July 1 rather than October 1.
* * * * *
    (d) * * *
    (3) One-time prospective adjustment. The Secretary will review 
payments under this prospective payment system and may make a one-time 
prospective adjustment to the long-term care hospital prospective 
payment system rates by October 1, 2006, so that the effect of any 
significant difference between actual payments and estimated payments 
for the first year of the long-term care hospital prospective payment 
system is not perpetuated in the prospective payment rates for future 
years.
* * * * *

0
5. Section 412.525 is amended by revising paragraph (a) to read as 
follows:


Sec.  412.525  Adjustments to the Federal prospective payment.

    (a) Adjustments for high-cost outliers.
    (1) CMS provides for an additional payment to a long-term care 
hospital if its estimated costs for a patient exceed the adjusted LTC-
DRG payment plus a fixed-loss amount. For each long-term care hospital 
rate year, CMS determines a fixed-loss amount that is the maximum loss 
that a hospital can incur under the prospective payment system for a 
case with unusually high costs.
    (2) The fixed-loss amount is determined for the long-term care 
hospital rate year using the LTC-DRG relative weights that are in 
effect on July 1 of the rate year.
    (3) The additional payment equals 80 percent of the difference 
between the estimated cost of the patient care (determined by 
multiplying the hospital-specific cost-to-charge ratios by the Medicare 
allowable covered charge) and the sum of the adjusted Federal 
prospective payment for the LTC-DRG prospective payment system payment 
and the fixed-loss amount.
    (4) No retroactive adjustments will be made to outlier payments 
upon cost report settlement to account for differences between the 
estimated cost-to-charge ratio and the actual cost-to-charge ratio of 
the case.
* * * * *

0
6. Section 412.529 is amended by:
0
A. Revising paragraph (c)(1) introductory text.
0
B. Redesignating paragraph (c)(4) as paragraph (c)(5) and removing the 
term ``LTCH's'' and adding the term ``long-term care hospital's'' in 
its place.
0
C. Adding a new paragraph (c)(4).


Sec.  412.529  Special payment provision for short-stay outliers.

* * * * *
    (c) Method for determining the payment amount.
    (1) Subject to the provisions of paragraph (c)(4) of this section, 
the adjusted payment amount for a short-stay outlier is the least of 
the following amounts:
* * * * *
    (4) Effective for discharges occurring on or after July 1, 2003, 
for long-term care hospitals described under Sec.  412.23(e)(2)(ii), 
the adjusted payment amount for a short-stay outlier is determined 
under the formula set forth in paragraph (c)(1) of this section with 
the following substitution of the percentages specified for the LTG-DRG 
specific per diem amount and the cost of the case under paragraphs 
(c)(1)(i) and (c)(1)(ii) of this section:
    (i) For the 1st year of the transition period, as specified at 
Sec.  412.533(a)(1), the percentage is 195 percent.
    (ii) For the 2nd year of the transition period, as specified at 
Sec.  412.533(a)(2), the percentage is 193 percent;
    (iii) For the 3rd year of the transition period, as specified at 
Sec.  412.533(a)(3), the percentage is 165 percent;
    (iv) For the 4th year of the transition period, as specified at 
Sec.  412.533(a)(4), the percentage is 136 percent;
    (v) For the 5th year of the transition period and after, as 
specified at Sec.  412.533(a)(5), the percentage is 120 percent.
* * * * *

0
7. Section 412.535 is revised to read as follows:


Sec.  412.535  Publication of the Federal prospective payment rates.

    CMS publishes information pertaining to the long-term care hospital 
prospective payment system effective for each annual update in the 
Federal Register.
    (a) Information on the unadjusted Federal payment rates and a 
description of the methodology and data used to calculate the payment 
rates are published on or before May 1 prior to the start of each long-
term care hospital prospective payment system rate year which begins 
July 1, unless for good cause it is published after May 1, but before 
June 1.
    (b) Information on the LTC-DRG classification and associated 
weighting factors is published on or before August 1 prior to the 
beginning of each Federal fiscal year.

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

    Dated: May 28, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: May 28, 2003.
Tommy G. Thompson,
Secretary.

Addendum

    This addendum contains the tables referred to throughout the 
preamble to this final rule. The tables presented below are as follows:
    Table 1.--Long-Term Care Hospital Wage Index for Urban Areas for 
Discharges Occurring from July 1, 2003, through June 30, 2004.
    Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for 
Discharges Occurring from July 1, 2003, through June 30, 2004.
    Table 3.--LTC-DRG Relative Weights, Geometric Mean Length of Stay, 
and Short-Stay Five-Sixths Average Length of Stay for the Period of 
July 1, 2003, through September 30, 2003.

[[Page 34164]]



    Table 1.--Long-Term Care Hospital Wage Index for Urban Areas for
      Discharges Occurring From July 1, 2003 Through June 30, 2004
------------------------------------------------------------------------
                      Urban Area                    \1/5\th     \2/5\th
       MSA           (Constituent      Full Wage  Wage Index  Wage Index
                       Counties)       Index \1\      \2\         \3\
------------------------------------------------------------------------
0040............  Abilene, TX.......      0.7792      0.9558      0.9117
                   Taylor, TX
0060............  Aguadilla, PR.....      0.4587      0.8917      0.7835
                   Aguada, PR
                   Aguadilla, PR
                   Moca, PR
0080............  Akron, OH.........      0.9600      0.9920      0.9840
                   Portage, OH
                   Summit, OH
0120............  Albany, GA........      1.0594      1.0119      1.0238
                   Dougherty, GA
                   Lee, GA
0160............  Albany-Schenectady-     0.8384      0.9677      0.9354
                   Troy, NY.
                   Albany, NY
                   Montgomery, NY
                   Rensselaer, NY
                   Saratoga, NY
                   Schenectady, NY
                   Schoharie, NY
0200............  Albuquerque, NM...      0.9315      0.9863      0.9726
                   Bernalillo, NM
                   Sandoval, NM
                   Valencia, NM
0220............  Alexandria, LA....      0.7859      0.9572      0.9144
                   Rapides, LA
0240............  Allentown-              0.9735      0.9947      0.9894
                   Bethlehem-Easton,
                   PA.
                   Carbon, PA
                   Lehigh, PA
                   Northampton, PA
0280............  Altoona, PA.......      0.9225      0.9845      0.9690
                   Blair, PA
0320............  Amarillo, TX......      0.9034      0.9807      0.9614
                   Potter, TX
                   Randall, TX
0380............  Anchorage, AK.....      1.2358      1.0472      1.0943
                   Anchorage, AK
0440............  Ann Arbor, MI.....      1.1103      1.0221      1.0441
                   Lenawee, MI
                   Livingston, MI
                   Washtenaw, MI
0450............  Anniston, AL......      0.8044      0.9609      0.9218
                   Calhoun, AL
0460............  Appleton-Oshkosh-       0.8997      0.9799      0.9599
                   Neenah, WI.
                   Calumet, WI
                   Outagamie, WI
                   Winnebago, WI
0470............  Arecibo, PR.......      0.4337      0.8867      0.7735
                   Arecibo, PR
                   Camuy, PR
                   Hatillo, PR
0480............  Asheville, NC.....      0.9876      0.9975      0.9950
                   Buncombe, NC
                   Madison, NC
0500............  Athens, GA........      1.0211      1.0042      1.0084
                   Clarke, GA
                   Madison, GA
                   Oconee, GA
0520............  Atlanta, GA.......      0.9991      0.9998      0.9996
                   Barrow, GA
                   Bartow, GA
                   Carroll, GA
                   Cherokee, GA
                   Clayton, GA
                   Cobb, GA
                   Coweta, GA
                   DeKalb, GA
                   Douglas, GA
                   Fayette, GA
                   Forsyth, GA
                   Fulton, GA

[[Page 34165]]

 
                   Gwinnett, GA
                   Henry, GA
                   Newton, GA
                   Paulding, GA
                   Pickens, GA
                   Rockdale, GA
                   Spalding, GA
                   Walton, GA
0560............  Atlantic-Cape May,      1.1017      1.0203      1.0407
                   NJ.
                   Atlantic, NJ
                   Cape May, NJ
0580............  Auburn-Opelika, AL      0.8325      0.9665      0.9330
                   Lee, AL
0600............  Augusta-Aiken, GA-      1.0264      1.0053      1.0106
                   SC.
                   Columbia, GA
                   McDuffie, GA
                   Richmond, GA
                   Aiken, SC
                   Edgefield, SC
0640............  Austin-San Marcos,      0.9637      0.9927      0.9855
                   TX.
                   Bastrop, TX
                   Caldwell, TX
                   Hays, TX
                   Travis, TX
                   Williamson, TX
0680............  Bakersfield, CA...      0.9877      0.9975      0.9951
                   Kern, CA
0720............  Baltimore, MD.....      0.9929      0.9986      0.9972
                   Anne Arundel, MD
                   Baltimore, MD
                   Baltimore City,
                   MD
                   Carroll, MD
                   Harford, MD
                   Howard, MD
                   Queen Anne's, MD
0733............  Bangor, ME........      0.9664      0.9933      0.9866
                   Penobscot, ME
0743............  Barnstable-             1.3202      1.0640      1.1281
                   Yarmouth, MA.
                   Barnstable, MA
0760............  Baton Rouge, LA...      0.8294      0.9659      0.9318
                   Ascension, LA
                   East Baton Rouge,
                   LA
                   Livingston, LA
                   West Baton Rouge,
                   LA
0840............  Beaumont-Port           0.8324      0.9665      0.9330
                   Arthur, TX.
                   Hardin, TX
                   Jefferson, TX
                   Orange, TX
0860............  Bellingham, WA....      1.2282      1.0456      1.0913
                   Whatcom, WA
0870............  Benton Harbor, MI.      0.8965      0.9793      0.9586
                   Berrien, MI
0875............  Bergen-Passaic, NJ      1.2150      1.0430      1.0860
                   Bergen, NJ
                   Passaic, NJ
0880............  Billings, MT......      0.9022      0.9804      0.9609
                   Yellowstone, MT
0920............  Biloxi-Gulfport-        0.8757      0.9751      0.9503
                   Pascagoula, MS.
                   Hancock, MS
                   Harrison, MS
                   Jackson, MS
0960............  Binghamton, NY....      0.8341      0.9668      0.9336
                   Broome, NY
                   Tioga, NY
1000............  Birmingham, AL....      0.9222      0.9844      0.9689
                   Blount, AL
                   Jefferson, AL
                   St. Clair, AL
                   Shelby, AL
1010............  Bismarck, ND......      0.7972      0.9594      0.9189

[[Page 34166]]

 
                   Burleigh, ND
                   Morton, ND
1020............  Bloomington, IN...      0.8907      0.9781      0.9563
                   Monroe, IN
1040............  Bloomington-            0.9109      0.9822      0.9644
                   Normal, IL.
                   McLean, IL
1080............  Boise City, ID....      0.9310      0.9862      0.9724
                   Ada, ID
                   Canyon, ID
1123............  Boston-Worcester-       1.1229      1.0246      1.0492
                   Lawrence-Lowell-
                   Brockton, 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,       0.9689      0.9938      0.9876
                   CO.
                   Boulder, CO
1145............  Brazoria, TX......      0.8535      0.9707      0.9414
                   Brazoria, TX
1150............  Bremerton, WA.....      1.0944      1.0189      1.0378
                   Kitsap, WA
1240............  Brownsville-            0.8880      0.9776      0.9552
                   Harlingen-San
                   Benito, TX.
                   Cameron, TX
1260............  Bryan-College           0.8821      0.9764      0.9528
                   Station, TX.
                   Brazos, TX
1280............  Buffalo-Niagara         0.9365      0.9873      0.9746
                   Falls, NY.
                   Erie, NY
                   Niagara, NY
1303............  Burlington, VT....      1.0052      1.0010      1.0021
                   Chittenden, VT
                   Franklin, VT
                   Grand Isle, VT
1310............  Caguas, PR........      0.4371      0.8874      0.7748
                   Caguas, PR
                   Cayey, PR
                   Cidra, PR
                   Gurabo, PR
                   San Lorenzo, PR
1320............  Canton-Massillon,       0.8932      0.9786      0.9573
                   OH.
                   Carroll, OH
                   Stark, OH
1350............  Casper, WY........      0.9690      0.9938      0.9876
                   Natrona, WY
1360............  Cedar Rapids, IA..      0.9056      0.9811      0.9622
                   Linn, IA
1400............  Champaign-Urbana,       1.0635      1.0127      1.0254
                   IL.
                   Champaign, IL
1440............  Charleston-North        0.9235      0.9847      0.9694
                   Charleston, SC.
                   Berkeley, SC
                   Charleston, SC
                   Dorchester, SC
1480............  Charleston, WV....      0.8898      0.9780      0.9559
                   Kanawha, WV
                   Putnam, WV
1520............  Charlotte-Gastonia-     0.9875      0.9975      0.9950
                   Rock Hill, NC-SC.
                   Cabarrus, NC
                   Gaston, NC
                   Lincoln, NC
                   Mecklenburg, NC
                   Rowan, NC
                   Stanly, NC
                   Union, NC
                   York, SC
1540............  Charlottesville,        1.0438      1.0088      1.0175
                   VA.

[[Page 34167]]

 
                   Albemarle, VA
                   Charlottesville
                   City, VA
                   Fluvanna, VA
                   Greene, VA
1560............  Chattanooga, TN-GA      0.8976      0.9795      0.9590
                   Catoosa, GA
                   Dade, GA
                   Walker, GA
                   Hamilton, TN
                   Marion, TN
1580............  Cheyenne, WY......      0.8628      0.9726      0.9451
                   Laramie, WY
1600............  Chicago, IL.......      1.1044      1.0209      1.0418
                   Cook, IL
                   DeKalb, IL
                   DuPage, IL
                   Grundy, IL
                   Kane, IL
                   Kendall, IL
                   Lake, IL
                   McHenry, IL
                   Will, IL
1620............  Chico-Paradise, CA      0.9745      0.9949      0.9898
                   Butte, CA
1640............  Cincinnati, OH-KY-      0.9381      0.9876      0.9752
                   IN.
                   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-            0.8406      0.9681      0.9362
                   Hopkinsville, TN-
                   KY.
                   Christian, KY
                   Montgomery, TN
1680............  Cleveland-Lorain-       0.9670      0.9934      0.9868
                   Elyria, OH.
                   Ashtabula, OH
                   Cuyahoga, OH
                   Geauga, OH
                   Lake, OH
                   Lorain, OH
                   Medina, OH
1720............  Colorado Springs,       0.9916      0.9983      0.9966
                   CO.
                   El Paso, CO
1740............  Columbia, MO......      0.8496      0.9699      0.9398
                   Boone, MO
1760............  Columbia, SC......      0.9307      0.9861      0.9723
                   Lexington, SC
                   Richland, SC
1800............  Columbus, GA-           0.8374      0.9675      0.9350
                   ALRussell, AL.
                   Chattahoochee, GA
                   Harris, GA
                   Muscogee, GA
1840............  Columbus, OH......      0.9751      0.9950      0.9900
                   Delaware, OH
                   Fairfield, OH
                   Franklin, OH
                   Licking, OH
                   Madison, OH
                   Pickaway, OH
1880............  Corpus Christi, TX      0.8729      0.9746      0.9492
                   Nueces, TX
                   San Patricio, TX
1890............  Corvallis, OR.....      1.1453      1.0291      1.0581
                   Benton, OR

[[Page 34168]]

 
1900............  Cumberland, MD-WV       0.7847      0.9569      0.9139
                   (WV Hospital).
                   Allegany, MD
                   Mineral, WV
1920............  Dallas, TX........      0.9998      1.0000      0.9999
                   Collin, TX
                   Dallas, TX
                   Denton, TX
                   Ellis, TX
                   Henderson, TX
                   Hunt, TX
                   Kaufman, TX
                   Rockwall, TX
1950............  Danville, VA......      0.8859      0.9772      0.9544
                   Danville City, VA
                   Pittsylvania, VA
1960............  Davenport-Moline-       0.8835      0.9767      0.9534
                   Rock Island, IA-
                   IL.
                   Scott, IA
                   Henry, IL
                   Rock Island, IL
2000............  Dayton-                 0.9282      0.9856      0.9713
                   Springfield, OH.
                   Clark, OH
                   Greene, OH
                   Miami, OH
                   Montgomery, OH
2020............  Daytona Beach, FL.      0.9071      0.9814      0.9628
                   Flagler, FL
                   Volusia, FL
2030............  Decatur, AL.......      0.8973      0.9795      0.9589
                   Lawrence, AL
                   Morgan, AL
2040............  Decatur, IL.......      0.8055      0.9611      0.9222
                   Macon, IL
2080............  Denver, CO........      1.0601      1.0120      1.0240
                   Adams, CO
                   Arapahoe, CO
                   Denver, CO
                   Douglas, CO
                   Jefferson, CO
2120............  Des Moines, IA....      0.8791      0.9758      0.9516
                   Dallas, IA
                   Polk, IA
                   Warren, IA
2160............  Detroit, MI.......      1.0448      1.0090      1.0179
                   Lapeer, MI
                   Macomb, MI
                   Monroe, MI
                   Oakland, MI
                   St. Clair, MI
                   Wayne, MI
2180............  Dothan, AL........      0.8137      0.9627      0.9255
                   Dale, AL
                   Houston, AL
2190............  Dover, DE.........      0.9356      0.9871      0.9742
                   Kent, DE
2200............  Dubuque, IA.......      0.8795      0.9759      0.9518
                   Dubuque, IA
2240............  Duluth-Superior,        1.0368      1.0074      1.0147
                   MN-WI.
                   St. Louis, MN
                   Douglas, WI
2281............  Dutchess County,        1.0684      1.0137      1.0274
                   NY.
                   Dutchess, NY
2290............  Eau Claire, WI....      0.8952      0.9790      0.9581
                   Chippewa, WI
                   Eau Claire, WI
2320............  El Paso, TX.......      0.9265      0.9853      0.9706
                   El Paso, TX
2330............  Elkhart-Goshen, IN      0.9722      0.9944      0.9889
                   Elkhart, IN
2335............  Elmira, NY........      0.8416      0.9683      0.9366
                   Chemung, NY

[[Page 34169]]

 
2340............  Enid, OK..........      0.8376      0.9675      0.9350
                   Garfield, OK
2360............  Erie, PA..........      0.8925      0.9785      0.9570
                   Erie, PA
2400............  Eugene-                 1.0944      1.0189      1.0378
                   Springfield, OR.
                   Lane, OR
2440............  Evansville-             0.8177      0.9635      0.9271
                   Henderson, IN-KY
                   (IN Hospitals).
                   Posey, IN
                   Vanderburgh, IN
                   Warrick, IN
                   Henderson, KY
2520............  Fargo-Moorhead, ND-     0.9684      0.9937      0.9874
                   MN.
                   Clay, MN
                   Cass, ND
2560............  Fayetteville, NC..      0.8889      0.9778      0.9556
                   Cumberland, NC
2580............  Fayetteville-           0.8100      0.9620      0.9240
                   Springdale-
                   Rogers, AR.
                   Benton, AR
                   Washington, AR
2620............  Flagstaff, AZ-UT..      1.0682      1.0136      1.0273
                   Coconino, AZ
                   Kane, UT
2640............  Flint, MI.........      1.1135      1.0227      1.0454
                   Genesee, MI
2650............  Florence, AL......      0.7792      0.9558      0.9117
                   Colbert, AL
                   Lauderdale, AL
2655............  Florence, SC......      0.8780      0.9756      0.9512
                   Florence, SC
2670............  Fort Collins-           1.0066      1.0013      1.0026
                   Loveland, CO.
                   Larimer, CO
2680............  Ft. Lauderdale, FL      1.0297      1.0059      1.0119
                   Broward, FL
2700............  Fort Myers-Cape         0.9680      0.9936      0.9872
                   Coral, FL.
                   Lee, FL
2710............  Fort Pierce-Port        0.9823      0.9965      0.9929
                   St. Lucie, FL.
                   Martin, FL
                   St. Lucie, FL
2720............  Fort Smith, AR-OK.      0.7895      0.9579      0.9158
                   Crawford, AR
                   Sebastian, AR
                   Sequoyah, OK
2750............  Fort Walton Beach,      0.9693      0.9939      0.9877
                   FL.
                   Okaloosa, FL
2760............  Fort Wayne, IN....      0.9457      0.9891      0.9783
                   Adams, IN
                   Allen, IN
                   De Kalb, IN
                   Huntington, IN
                   Wells, IN
                   Whitley, IN
2800............  Forth Worth-            0.9446      0.9889      0.9778
                   Arlington, TX.
                   Hood, TX
                   Johnson, TX
                   Parker, TX
                   Tarrant, TX
2840............  Fresno, CA........      1.0169      1.0034      1.0068
                   Fresno, CA
                   Madera, CA
2880............  Gadsden, AL.......      0.8505      0.9701      0.9402
                   Etowah, AL
2900............  Gainesville, FL...      0.9871      0.9974      0.9948
                   Alachua, FL
2920............  Galveston-Texas         0.9465      0.9893      0.9786
                   City, TX.
                   Galveston, TX
2960............  Gary, IN..........      0.9584      0.9917      0.9834
                   Lake, IN
                   Porter, IN
2975............  Glens Falls, NY...      0.8281      0.9656      0.9312
                   Warren, NY

[[Page 34170]]

 
                   Washington, NY
2980............  Goldsboro, NC.....      0.8892      0.9778      0.9557
                   Wayne, NC
2985............  Grand Forks, ND-MN      0.8897      0.9779      0.9559
                   Polk, MN
                   Grand Forks, ND
2995............  Grand Junction, CO      0.9456      0.9891      0.9782
                   Mesa, CO
3000............  Grand Rapids-           0.9525      0.9905      0.9810
                   Muskegon-Holland,
                   MI.
                   Allegan, MI
                   Kent, MI
                   Muskegon, MI
                   Ottawa, MI
3040............  Great Falls, MT...      0.8950      0.9790      0.9580
                   Cascade, MT
3060............  Greeley, CO.......      0.9237      0.9847      0.9695
                   Weld, CO
3080............  Green Bay, WI.....      0.9502      0.9900      0.9801
                   Brown, WI
3120............  Greensboro-Winston-     0.9282      0.9856      0.9713
                   Salem-High Point,
                   NC.
                   Alamance, NC
                   Davidson, NC
                   Davie, NC
                   Forsyth,
                   NCGuilford, NC
                   Randolph, NC
                   Stokes, NC
                   Yadkin, NC
3150............  Greenville, NC....      0.9100      0.9820      0.9640
                   Pitt, NC
3160............  Greenville-             0.9122      0.9824      0.9649
                   Spartanburg-
                   Anderson, SC.
                   Anderson, SC
                   Cherokee, SC
                   Greenville, SC
                   Pickens, SC
                   Spartanburg, SC
3180............  Hagerstown, MD....      0.9268      0.9854      0.9707
                   Washington, MD
3200............  Hamilton-               0.9418      0.9884      0.9767
                   Middletown, OH.
                   Butler, OH
3240............  Harrisburg-Lebanon-     0.9223      0.9845      0.9689
                   Carlisle, PA.
                   Cumberland, PA
                   Dauphin, PA
                   Lebanon, PA
                   Perry, PA
3283............  Hartford, CT......      1.1549      1.0310      1.0620
                   Hartford, CT
                   Litchfield, CT
                   Middlesex, CT
                   Tolland, CT
3285............  Hattiesburg, MS...      0.7659      0.9532      0.9064
                   Forrest, MS
                   Lamar, MS
3290............  Hickory-Morganton-      0.9028      0.9806      0.9611
                   Lenoir, NC.
                   Alexander, NC
                   Burke, NC
                   Caldwell, NC
                   Catawba, NC
3320............  Honolulu, HI......      1.1457      1.0291      1.0583
                   Honolulu, HI
3350............  Houma, LA.........      0.8317      0.9663      0.9327
                   Lafourche, LA
                   Terrebonne, LA
3360............  Houston, TX.......      0.9892      0.9978      0.9957
                   Chambers, TX
                   Fort Bend, TX
                   Harris, TX
                   Liberty, TX
                   Montgomery, TX
                   Waller, TX
3400............  Huntington-             0.9636      0.9927      0.9854
                   Ashland, WV-KY-OH.

[[Page 34171]]

 
                   Boyd, KY
                   Carter, KY
                   Greenup, KY
                   Lawrence, OH
                   Cabell, WV
                   Wayne, WV
3440............  Huntsville, AL....      0.8903      0.9781      0.9561
                   Limestone, AL
                   Madison, AL
3480............  Indianapolis, IN..      0.9717      0.9943      0.9887
                   Boone, IN
                   Hamilton, IN
                   Hancock, IN
                   Hendricks, IN
                   Johnson, IN
                   Madison, IN
                   Marion, IN
                   Morgan, IN
                   Shelby, IN
3500............  Iowa City, IA.....      0.9587      0.9917      0.9835
                   Johnson, IA
3520............  Jackson, MI.......      0.9532      0.9906      0.9813
                   Jackson, MI
3560............  Jackson, MS.......      0.8607      0.9721      0.9443
                   Hinds, MS
                   Madison, MS
                   Rankin, MS
3580............  Jackson, TN.......      0.9275      0.9855      0.9710
                   Madison, TN
                   Chester, TN
3600............  Jacksonville, FL..      0.9381      0.9876      0.9752
                   Clay, FL
                   Duval, FL
                   Nassau, FL
                   St. Johns, FL
3605............  Jacksonville, NC..      0.8239      0.9648      0.9296
                   Onslow, NC
3610............  Jamestown, NY.....      0.7976      0.9595      0.9190
                   Chautauqua, NY
3620............  Janesville-Beloit,      0.9849      0.9970      0.9940
                   WI.
                   Rock, WI
3640............  Jersey City, NJ...      1.1190      1.0238      1.0476
                   Hudson, NJ
3660............  Johnson City-           0.8268      0.9654      0.9307
                   Kingsport-
                   Bristol, TN-VA.
                   Carter, TN
                   Hawkins, TN
                   Sullivan, TN
                   Unicoi, TN
                   Washington, TN
                   Bristol City, VA
                   Scott, VA
                   Washington, VA
3680............  Johnstown, PA.....      0.8329      0.9666      0.9332
                   Cambria, PA
                   Somerset, PA
3700............  Jonesboro, AR.....      0.7749      0.9550      0.9100
                   Craighead, AR
3710............  Joplin, MO........      0.8613      0.9723      0.9445
                   Jasper, MO
                   Newton, MO
3720............  Kalamazoo-              1.0595      1.0119      1.0238
                   Battlecreek, MI.
                   Calhoun, MI
                   Kalamazoo, MI
                   Van Buren, MI
3740............  Kankakee, IL......      1.0790      1.0158      1.0316
                   Kankakee, IL
3760............  Kansas City, KS-MO      0.9736      0.9947      0.9894
                   Johnson, KS
                   Leavenworth, KS
                   Miami, KS

[[Page 34172]]

 
                   Wyandotte, KS
                   Cass, MO
                   Clay, MO
                   Clinton, MO
                   Jackson, MO
                   Lafayette, MO
                   Platte, MO
                   Ray, MO
3800............  Kenosha, WI.......      0.9686      0.9937      0.9874
                   Kenosha, WI
3810............  Killeen-Temple, TX      1.0399      1.0080      1.0160
                   Bell, TX
                   Coryell, TX
3840............  Knoxville, TN.....      0.8970      0.9794      0.9588
                   Anderson, TN
                   Blount, TN
                   Knox, TN
                   Loudon, TN
                   Sevier, TN
                   Union, TN
3850............  Kokomo, IN........      0.8971      0.9794      0.9588
                   Howard, IN
                   Tipton, IN
3870............  La Crosse, WI-MN..      0.9400      0.9880      0.9760
                   Houston, MN
                   La Crosse, WI
3880............  Lafayette, LA.....      0.8452      0.9690      0.9381
                   Acadia, LA
                   Lafayette, LA
                   St. Landry, LA
                   St. Martin, LA
3920............  Lafayette, IN.....      0.9278      0.9856      0.9711
                   Clinton, IN
                   Tippecanoe, IN
3960............  Lake Charles, LA..      0.7965      0.9593      0.9186
                   Calcasieu, LA
3980............  Lakeland-Winter         0.9357      0.9871      0.9743
                   Haven, FL.
                   Polk, FL
4000............  Lancaster, PA.....      0.9078      0.9816      0.9631
                   Lancaster, PA
4040............  Lansing-East            0.9726      0.9945      0.9890
                   Lansing, MI.
                   Clinton, MI
                   Eaton, MI
                   Ingham, MI
4080............  Laredo, TX........      0.8472      0.9694      0.9389
                   Webb, TX
4100............  Las Cruces, NM....      0.8745      0.9749      0.9498
                   Dona Ana, NM
4120............  Las Vegas, NV-AZ..      1.1521      1.0304      1.0608
                   Mohave, AZ
                   Clark, NV
                   Nye, NV
4150............  Lawrence, KS......      0.8323      0.9665      0.9329
                   Douglas, KS
4200............  Lawton, OK........      0.8315      0.9663      0.9326
                   Comanche, OK
4243............  Lewiston-Auburn,        0.9179      0.9836      0.9672
                   ME.
                   Androscoggin, ME
4280............  Lexington, KY.....      0.8581      0.9716      0.9432
                   Bourbon, KY
                   Clark, KY
                   Fayette, KY
                   Jessamine, KY
                   Madison, KY
                   Scott, KY
                   Woodford, KY
4320............  Lima, OH..........      0.9483      0.9897      0.9793
                   Allen, OH
                   Auglaize, OH
4360............  Lincoln, NE.......      0.9892      0.9978      0.9957

[[Page 34173]]

 
                   Lancaster, NE
4400............  Little Rock-North       0.9097      0.9819      0.9639
                   Little Rock, AR.
                   Faulkner, AR
                   Lonoke, AR
                   Pulaski, AR
                   Saline, AR
4420............  Longview-Marshall,      0.8629      0.9726      0.9452
                   TX.
                   Gregg, TX
                   Harrison, TX
                   Upshur, TX
4480............  Los Angeles-Long        1.2001      1.0400      1.0800
                   Beach, CA.
                   Los Angeles, CA
4520............  Louisville, KY-IN.      0.9276      0.9855      0.9710
                   Clark, IN
                   Floyd, IN
                   Harrison, IN
                   Scott, IN
                   Bullitt, KY
                   Jefferson, KY
                   Oldham, KY
4600............  Lubbock, TX.......      0.9646      0.9929      0.9858
                   Lubbock, TX
4640............  Lynchburg, VA.....      0.9219      0.9844      0.9688
                   Amherst, VA
                   Bedford, VA
                   Bedford City, VA
                   Campbell, VA
                   Lynchburg City,
                   VA
4680............  Macon, GA.........      0.9204      0.9841      0.9682
                   Bibb, GA
                   Houston, GA
                   Jones, GA
                   Peach, GA
                   Twiggs, GA
4720............  Madison, WI.......      1.0467      1.0093      1.0187
                   Dane, WI
4800............  Mansfield, OH.....      0.8900      0.9780      0.9560
                   Crawford, OH
                   Richland, OH
4840............  Mayaguez, PR......      0.4914      0.8983      0.7966
                   Anasco, PR
                   Cabo Rojo, PR
                   Hormigueros, PR
                   Mayaguez, PR
                   Sabana Grande, PR
                   San German, PR
4880............  McAllen-Edinburg-       0.8428      0.9686      0.9371
                   Mission, TX.
                   Hidalgo, TX
4890............  Medford-Ashland,        1.0498      1.0100      1.0199
                   OR.
                   Jackson, OR
4900............  Melbourne-              1.0253      1.0051      1.0101
                   Titusville-Palm
                   Bay, FL.
                   Brevard, Fl
4920............  Memphis, TN-AR-MS.      0.8920      0.9784      0.9568
                   Crittenden, AR
                   DeSoto, MS
                   Fayette, TN
                   Shelby, TN
                   Tipton, TN
4940............  Merced, CA........      0.9742      0.9948      0.9897
                   Merced, CA
5000............  Miami, FL.........      0.9802      0.9960      0.9921
                   Dade, FL
5015............  Middlesex-Somerset-     1.1213      1.0243      1.0485
                   Hunterdon, NJ.
                   Hunterdon, NJ
                   Middlesex, NJ
                   Somerset, NJ
5080............  Milwaukee-              0.9893      0.9979      0.9957
                   Waukesha, WI.
                   Milwaukee, WI
                   Ozaukee, WI
                   Washington, WI

[[Page 34174]]

 
                   Waukesha, WI
5120............  Minneapolis-St.         1.0903      1.0181      1.0361
                   Paul, MN-WI.
                   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......      0.9157      0.9831      0.9663
                   Missoula, MT
5160............  Mobile, AL........      0.8108      0.9622      0.9243
                   Baldwin, AL
                   Mobile, AL
5170............  Modesto, CA.......      1.0498      1.0100      1.0199
                   Stanislaus, CA
5190............  Monmouth-Ocean, NJ      1.0674      1.0135      1.0270
                   Monmouth, NJ
                   Ocean, NJ
5200............  Monroe, LA........      0.8137      0.9627      0.9255
                   Ouachita, LA
5240............  Montgomery, AL....      0.7734      0.9547      0.9094
                   Autauga, AL
                   Elmore, AL
                   Montgomery, AL
5280............  Muncie, IN........      0.9284      0.9857      0.9714
                   Delaware, IN
5330............  Myrtle Beach, SC..      0.8976      0.9795      0.9590
                   Horry, SC
5345............  Naples, FL........      0.9754      0.9951      0.9902
                   Collier, FL
5360............  Nashville, TN.....      0.9578      0.9916      0.9831
                   Cheatham, TN
                   Davidson, TN
                   Dickson, TN
                   Robertson, TN
                   Rutherford TN
                   Sumner, TN
                   Williamson, TN
                   Wilson, TN
5380............  Nassau-Suffolk, NY      1.3357      1.0671      1.1343
                   Nassau, NY
                   Suffolk, NY
5483............  New Haven-              1.2408      1.0482      1.0963
                   Bridgeport-
                   Stamford-
                   Waterbury-.
                   Danbury, CT
                   Fairfield, CT
                   New Haven, CT
5523............  New London-             1.1767      1.0353      1.0707
                   Norwich, CT.
                   New London, CT
5560............  New Orleans, LA...      0.9046      0.9809      0.9618
                   Jefferson, LA
                   Orleans, LA
                   Plaquemines, LA
                   St. Bernard, LA
                   St. Charles, LA
                   St. James, LA
                   St. John The
                   Baptist, LA
                   St. Tammany, LA
5600............  New York, NY......      1.4414      1.0883      1.1766
                   Bronx, NY
                   Kings, NY
                   New York, NY
                   Putnam, NY
                   Queens, NY

[[Page 34175]]

 
                   Richmond, NY
                   Rockland, NY
                   Westchester, NY
5640............  Newark, NJ........      1.1381      1.0276      1.0552
                   Essex, NJ
                   Morris, NJ
                   Sussex, NJ
                   Union, NJ
                   Warren, NJ
5660............  Newburgh, NY-PA...      1.1387      1.0277      1.0555
                   Orange, NY
                   Pike, PA
5720............  Norfolk-Virginia        0.8574      0.9715      0.9430
                   Beach-Newport
                   News, VA-NC.
                   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............  Oakland, CA.......      1.5072      1.1014      1.2029
                   Alameda, CA
                   Contra Costa, CA
5790............  Ocala, FL.........      0.9402      0.9880      0.9761
                   Marion, FL
5800............  Odessa-Midland, TX      0.9397      0.9879      0.9759
                   Ector, TX
                   Midland, TX
5880............  Oklahoma City, OK.      0.8900      0.9780      0.9560
                   Canadian, OK
                   Cleveland, OK
                   Logan, OK
                   McClain, OK
                   Oklahoma, OK
                   Pottawatomie, OK
5910............  Olympia, WA.......      1.0960      1.0192      1.0384
                   Thurston, WA
5920............  Omaha, NE-IA......      0.9978      0.9996      0.9991
                   Pottawattamie, IA
                   Cass, NE
                   Douglas, NE
                   Sarpy, NE
                   Washington, NE
5945............  Orange County, CA.      1.1474      1.0295      1.0590
                   Orange, CA
5960............  Orlando, FL.......      0.9640      0.9928      0.9856
                   Lake, FL
                   Orange, FL
                   Osceola, FL
                   Seminole, FL
5990............  Owensboro, KY.....      0.8344      0.9669      0.9338
                   Daviess, KY
6015............  Panama City, FL...      0.8865      0.9773      0.9546
                   Bay, FL
6020............  Parkersburg-            0.8127      0.9625      0.9251
                   Marietta, WV-OH.
                   Washington, OH
                   Wood, WV
6080............  Pensacola, FL.....      0.8610      0.9722      0.9444
                   Escambia, FL
                   Santa Rosa, FL
6120............  Peoria-Pekin, IL..      0.8739      0.9748      0.9496
                   Peoria, IL

[[Page 34176]]

 
                   Tazewell, IL
                   Woodford, IL
6160............  Philadelphia, PA-       1.0713      1.0143      1.0285
                   NJ.
                   Burlington, NJ
                   Camden, NJ
                   Gloucester, NJ
                   Salem, NJ
                   Bucks, PA
                   Chester, PA
                   Delaware, PA
                   Montgomery, PA
                   Philadelphia, PA
6200............  Phoenix-Mesa, AZ..      0.9820      0.9964      0.9928
                   Maricopa, AZ
                   Pinal, AZ
6240............  Pine Bluff, AR....      0.7962      0.9592      0.9185
                   Jefferson, AR
6280............  Pittsburgh, PA....      0.9365      0.9873      0.9746
                   Allegheny, PA
                   Beaver, PA
                   Butler, PA
                   Fayette, PA
                   Washington, PA
                   Westmoreland, PA
6323............  Pittsfield, MA....      1.0235      1.0047      1.0094
                   Berkshire, MA
6340............  Pocatello, ID.....      0.9372      0.9874      0.9749
                   Bannock, ID
6360............  Ponce, PR.........      0.5169      0.9034      0.8068
                   Guayanilla, PR
                   Juana Diaz, PR
                   Penuelas, PR
                   Ponce, PR
                   Villalba, PR
                   Yauco, PR
6403............  Portland, ME......      0.9794      0.9959      0.9918
                   Cumberland, ME
                   Sagadahoc, ME
                   York, ME
6440............  Portland-               1.0667      1.0133      1.0267
                   Vancouver, OR-WA.
                   Clackamas, OR
                   Columbia, OR
                   Multnomah, OR
                   Washington, OR
                   Yamhill, OR
                   Clark, WA
6483............  Providence-Warwick-     1.0854      1.0171      1.0342
                   Pawtucket, RI.
                   Bristol, RI
                   Kent, RI
                   Newport, RI
                   Providence, RI
                   Washington, RI
6520............  Provo-Orem, UT....      0.9984      0.9997      0.9994
                   Utah, UT
6560............  Pueblo, CO........      0.8820      0.9764      0.9528
                   Pueblo, CO
6580............  Punta Gorda, FL...      0.9218      0.9844      0.9687
                   Charlotte, FL
6600............  Racine, WI........      0.9334      0.9867      0.9734
                   Racine, WI
6640............  Raleigh-Durham-         0.9990      0.9998      0.9996
                   Chapel Hill, NC.
                   Chatham, NC
                   Durham, NC
                   Franklin, NC
                   Johnston, NC
                   Orange, NC
                   Wake, NC
6660............  Rapid City, SD....      0.8846      0.9769      0.9538
                   Pennington, SD
6680............  Reading, PA.......      0.9295      0.9859      0.9718

[[Page 34177]]

 
                   Berks, PA
6690............  Redding, CA.......      1.1135      1.0227      1.0454
                   Shasta, CA
6720............  Reno, NV..........      1.0648      1.0130      1.0259
                   Washoe, NV
6740............  Richland-Kennewick-     1.1491      1.0298      1.0596
                   Pasco, WA.
                   Benton, WA
                   Franklin, WA
6760............  Richmond-               0.9477      0.9895      0.9791
                   Petersburg, VA.
                   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............  Riverside-San           1.1365      1.0273      1.0546
                   Bernardino, CA.
                   Riverside, CA
                   San Bernardino,
                   CA
6800............  Roanoke, VA.......      0.8614      0.9723      0.9446
                   Botetourt, VA
                   Roanoke, VA
                   Roanoke City, VA
                   Salem City, VA
6820............  Rochester, MN.....      1.2139      1.0428      1.0856
                   Olmsted, MN
6840............  Rochester, NY.....      0.9194      0.9839      0.9678
                   Genesee, NY
                   Livingston, NY
                   Monroe, NY
                   Ontario, NY
                   Orleans, NY
                   Wayne, NY
6880............  Rockford, IL......      0.9625      0.9925      0.9850
                   Boone, IL
                   Ogle, IL
                   Winnebago, IL
6895............  Rocky Mount, NC...      0.9228      0.9846      0.9691
                   Edgecombe, NC
                   Nash, NC
6920............  Sacramento, CA....      1.1500      1.0300      1.0600
                   El Dorado, CA
                   Placer, CA
                   Sacramento, CA
6960............  Saginaw-Bay City-       0.9650      0.9930      0.9860
                   Midland, MI.
                   Bay, MI
                   Midland, MI
                   Saginaw, MI
6980............  St. Cloud, MN.....      0.9700      0.9940      0.9880
                   Benton, MN
                   Stearns, MN
7000............  St. Joseph, MO....      0.9544      0.9909      0.9818
                   Andrew, MO
                   Buchanan, MO
7040............  St. Louis, MO-IL..      0.8855      0.9771      0.9542
                   Clinton, IL
                   Jersey, IL
                   Madison, IL
                   Monroe, IL
                   St. Clair, IL
                   Franklin, MO
                   Jefferson, MO
                   Lincoln, MO
                   St. Charles, MO

[[Page 34178]]

 
                   St. Louis, MO
                   St. Louis City,
                   MO
                   Warren, MO
7080............  Salem, OR.........      1.0500      1.0100      1.0200
                   Marion, OR
                   Polk, OR
7120............  Salinas, CA.......      1.4623      1.0925      1.1849
                   Monterey, CA
7160............  Salt Lake City-         0.9945      0.9989      0.9978
                   Ogden, UT.
                   Davis, UT
                   Salt Lake, UT
                   Weber, UT
7200............  San Angelo, TX....      0.8374      0.9675      0.9350
                   Tom Green, TX
7240............  San Antonio, TX...      0.8753      0.9751      0.9501
                   Bexar, TX
                   Comal, TX
                   Guadalupe, TX
                   Wilson, TX
7320............  San Diego, CA.....      1.1131      1.0226      1.0452
                   San Diego, CA
7360............  San Francisco, CA.      1.4142      1.0828      1.1657
                   Marin, CA
                   San Francisco, CA
                   San Mateo, CA
7400............  San Jose, CA......      1.4145      1.0829      1.1658
                   Santa Clara, CA
7440............  San Juan-Bayamon,       0.4741      0.8948      0.7896
                   PR.
                   Aguas Buenas, PR
                   Barceloneta, PR
                   Bayamon, PR
                   Canovanas, PR
                   Carolina, PR
                   Catano, PR
                   Ceiba, PR
                   Comerio, PR
                   Corozal, PR
                   Dorado, PR
                   Fajardo, PR
                   Florida, PR
                   Guaynabo, PR
                   Humacao, PR
                   Juncos, PR
                   Los Piedras, PR
                   Loiza, PR
                   Luguillo, PR
                   Manati, PR
                   Morovis, PR
                   Naguabo, PR
                   Naranjito, PR
                   Rio Grande, PR
                   San Juan, PR
                   Toa Alta, PR
                   Toa Baja, PR
                   Trujillo Alto, PR
                   Vega Alta, PR
                   Vega Baja, PR
                   Yabucoa, PR
7460............  San Luis Obispo-        1.1271      1.0254      1.0508
                   Atascadero-Paso
                   Robles, CA.
                   San Luis Obispo,
                   CA
7480............  Santa Barbara-          1.0481      1.0096      1.0192
                   Santa Maria-
                   Lompoc, CA.
                   Santa Barbara, CA
7485............  Santa Cruz-             1.3646      1.0729      1.1458
                   Watsonville, CA.
                   Santa Cruz, CA
7490............  Santa Fe, NM......      1.0712      1.0142      1.0285
                   Los Alamos, NM
                   Santa Fe, NM
7500............  Santa Rosa, CA....      1.3046      1.0609      1.1218
                   Sonoma, CA
7510............  Sarasota-               0.9425      0.9885      0.9770
                   Bradenton, FL.

[[Page 34179]]

 
                   Manatee, FL
                   Sarasota, FL
7520............  Savannah, GA......      0.9376      0.9875      0.9750
                   Bryan, GA
                   Chatham, GA
                   Effingham, GA
7560............  Scranton--Wilkes-       0.8599      0.9720      0.9440
                   Barre--Hazleton,
                   PA.
                   Columbia, PA
                   Lackawanna, PA
                   Luzerne, PA
                   Wyoming, PA
7600............  Seattle-Bellevue-       1.1474      1.0295      1.0590
                   Everett, WA.
                   Island, WA
                   King, WA
                   Snohomish, WA
7610............  Sharon, PA........      0.7869      0.9574      0.9148
                   Mercer, PA
7620............  Sheboygan, WI.....      0.8697      0.9739      0.9479
                   Sheboygan, WI
7640............  Sherman-Denison,        0.9255      0.9851      0.9702
                   TX.
                   Grayson, TX
7680............  Shreveport-Bossier      0.8987      0.9797      0.9595
                   City, LA.
                   Bossier, LA
                   Caddo, LA
                   Webster, LA
7720............  Sioux City, IA-NE.      0.9046      0.9809      0.9618
                   Woodbury, IA
                   Dakota, NE
7760............  Sioux Falls, SD...      0.9257      0.9851      0.9703
                   Lincoln, SD
                   Minnehaha, SD
7800............  South Bend, IN....      0.9802      0.9960      0.9921
                   St. Joseph, IN
7840............  Spokane, WA.......      1.0852      1.0170      1.0341
                   Spokane, WA
7880............  Springfield, IL...      0.8659      0.9732      0.9464
                   Menard, IL
                   Sangamon, IL
7920............  Springfield, MO...      0.8424      0.9685      0.9370
                   Christian, MO
                   Greene, MO
                   Webster, MO
8003............  Springfield, MA...      1.0927      1.0185      1.0371
                   Hampden, MA
                   Hampshire, MA
8050............  State College, PA.      0.8941      0.9788      0.9576
                   Centre, PA
8080............  Steubenville-           0.8804      0.9761      0.9522
                   Weirton, OH-WV
                   (WV Hospitals).
                   Jefferson, OH
                   Brooke, WV
                   Hancock, WV
8120............  Stockton-Lodi, CA.      1.0506      1.0101      1.0202
                   San Joaquin, CA
8140............  Sumter, SC........      0.8273      0.9655      0.9309
                   Sumter, SC
8160............  Syracuse, NY......      0.9714      0.9943      0.9886
                   Cayuga, NY
                   Madison, NY
                   Onondaga, NY
                   Oswego, NY
8200............  Tacoma, WA........      1.0940      1.0188      1.0376
                   Pierce, WA
8240............  Tallahassee, FL...      0.8504      0.9701      0.9402
                   Gadsden, FL
                   Leon, FL
8280............  Tampa-St.               0.9065      0.9813      0.9626
                   Petersburg-
                   Clearwater, FL.
                   Hernando, FL
                   Hillsborough, FL
                   Pasco, FL
                   Pinellas, FL

[[Page 34180]]

 
8320............  Terre Haute, IN...      0.8599      0.9720      0.9440
                   Clay, IN
                   Vermillion, IN
                   Vigo, IN
8360............  Texarkana,AR-           0.8088      0.9618      0.9235
                   Texarkana, TX.
                   Miller, AR
                   Bowie, TX
8400............  Toledo, OH........      0.9810      0.9962      0.9924
                   Fulton, OH
                   Lucas, OH
                   Wood, OH
8440............  Topeka, KS........      0.9199      0.9840      0.9680
                   Shawnee, KS
8480............  Trenton, NJ.......      1.0432      1.0086      1.0173
                   Mercer, NJ
8520............  Tucson, AZ........      0.8911      0.9782      0.9564
                   Pima, AZ
8560............  Tulsa, OK.........      0.8332      0.9666      0.9333
                   Creek, OK
                   Osage, OK
                   Rogers, OK
                   Tulsa, OK
                   Wagoner, OK
8600............  Tuscaloosa, AL....      0.8130      0.9626      0.9252
                   Tuscaloosa, AL
8640............  Tyler, TX.........      0.9521      0.9904      0.9808
                   Smith, TX
8680............  Utica-Rome, NY....      0.8465      0.9693      0.9386
                   Herkimer, NY
                   Oneida, NY
8720............  Vallejo-Fairfield-      1.3354      1.0671      1.1342
                   Napa, CA.
                   Napa, CA
                   Solano, CA
8735............  Ventura, CA.......      1.1096      1.0219      1.0438
                   Ventura, CA
8750............  Victoria, TX......      0.8756      0.9751      0.9502
                   Victoria, TX
8760............  Vineland-Millville-     1.0031      1.0006      1.0012
                   Bridgeton, NJ.
                   Cumberland, NJ
8780............  Visalia-Tulare-         0.9418      0.9884      0.9767
                   Porterville, CA.
                   Tulare, CA
                   Tulare, CA
8800............  Waco, TX..........      0.8073      0.9615      0.9229
                   McLennan, TX
8840............  Washington, DC-MD-      1.0851      1.0170      1.0340
                   VA-WV.
                   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

[[Page 34181]]

 
8920............  Waterloo-Cedar          0.8069      0.9614      0.9228
                   Falls, IA.
                   Black Hawk, IA
8940............  Wausau, WI........      0.9782      0.9956      0.9913
                   Marathon, WI
8960............  West Palm Beach-        0.9939      0.9988      0.9976
                   Boca Raton, FL.
                   Palm Beach, FL
9000............  Wheeling, WV-OH...      0.7670      0.9534      0.9068
                   Belmont, OH
                   Marshall, WV
                   Ohio, WV
9040............  Wichita, KS.......      0.9520      0.9904      0.9808
                   Butler, KS
                   Harvey, KS
                   Sedgwick, KS
9080............  Wichita Falls, TX.      0.8498      0.9700      0.9399
                   Archer, TX
                   Wichita, TX
9140............  Williamsport, PA..      0.8544      0.9709      0.9418
                   Lycoming, PA
9160............  Wilmington-Newark,      1.1173      1.0235      1.0469
                   DE-MD.
                   New Castle, DE
                   Cecil, MD
9200............  Wilmington, NC....      0.9640      0.9928      0.9856
                   New Hanover, NC
                   Brunswick, NC
9260............  Yakima, WA........      1.0569      1.0114      1.0228
                   Yakima, WA
9270............  Yolo, CA..........      0.9434      0.9887      0.9774
                   Yolo, CA
9280............  York, PA..........      0.9026      0.9805      0.9610
                   York, PA
9320............  Youngstown-Warren,      0.9358      0.9872      0.9743
                   OH.
                   Columbiana, OH
                   Mahoning, OH
                   Trumbull, OH
9340............  Yuba City, CA.....      1.0276      1.0055      1.0110
                   Sutter, CA
                   Yuba, CA
9360............  Yuma, AZ..........      0.8589      0.9718      0.9436
                   Yuma, AZ
------------------------------------------------------------------------
\1\ Prereclassification wage index from Federal FY 2003 based on fiscal
  year 1999 audited acute care hospital inpatient wage data that
  excludes wages for services provided by teaching physicians, interns
  and residents, and nonphysician anesthetists under Part B of the
  Medicare program.
\2\ One-fifth of the full wage index value, applicable for LTCH's cost
  reporting period beginning on or after October 1, 2002 through
  September 30, 2003 (Federal FY 2203). For example, for a LTCH's cost
  reporting period begins during Federal in FY 2003 and located in
  Chicago, Illinois (MSA 1600), the 1/5th of the wage index value is
  computed as (1.1044 + 4)/5 = 1.0209. For further details on the 5-year
  phase-in of the wage index, see section VI.C.1. of this final rule.
\3\ Two-fifths of the full wage index value, applicable for LTCH's cost
  reporting period beginning on or after October 1, 2003 through
  September 30, 2003 (Federal FY 2004). For example, for a LTCH's cost
  reporting period begins during Federal in FY 2004 and located in
  Chicago, Illinois (MSA 1600), the 2/5th of the wage index value is
  computed as ((2*1.1044) + 3))/5 = 1.0418. For further details on the 5-
  year phase-in of the wage index, see section VI.C.1. of this final
  rule.


    Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for
      Discharges Occurring From July 1, 2003 through June 30, 2004
------------------------------------------------------------------------
                                                    \1/5\th     \2/5\th
            Nonurban Area              Full Wage  Wage Index  Wage Index
                                       Index \1\      \2\         \3\
------------------------------------------------------------------------
Alabama.............................        7660        9532        9064
Alaska..............................        2293        0459        0917
Arizona.............................        8493        9699        9397
Arkansas............................        7666        9533        9066
California..........................        9899        9980        9960
Colorado............................        9015        9803        9606
Connecticut.........................        2394        0479        0958
Delaware............................        9128        9826        9651
Florida.............................        8827        9765        9531
Georgia.............................        8230        9646        9292
Hawaii..............................        0255        0051        0102
Idaho...............................        8747        9749        9499
Illinois............................        8204        9641        9282

[[Page 34182]]

 
Indiana.............................        8755        9751        9502
Iowa................................        8315        9663        9326
Kansas..............................        7900        9580        9160
Kentucky............................        8079        9616        9232
Louisiana...........................        7580        9516        9032
Maine...............................        8874        9775        9550
Maryland............................        8946        9789        9578
Massachusetts.......................        1288        0258        0515
Michigan............................        9009        9802        9604
Minnesota...........................        9151        9830        9660
Mississippi.........................        7680        9536        9072
Missouri............................        7881        9576        9152
Montana.............................        8481        9696        9392
Nebraska............................        8204        9641        9282
Nevada..............................        9577        9915        9831
New Hampshire.......................        9839        9968        9936
New Jersey \4\......................  ..........  ..........  ..........
New Mexico..........................        8872        9774        9549
New York............................        8542        9708        9417
North Carolina......................        8669        9734        9468
North Dakota........................        7788        9558        9115
Ohio................................        8613        9723        9445
Oklahoma............................        7590        9518        9036
Oregon..............................        0259        0052        0104
Pennsylvania........................        8462        9692        9385
Puerto Rico.........................        4356        8871        7742
Rhode Island \4\....................  ..........  ..........  ..........
South Carolina......................        8607        9721        9443
South Dakota........................        7815        9563        9126
Tennessee...........................        7877        9575        9151
Texas...............................        7821        9564        9128
Utah................................        9312        9862        9725
Vermont.............................        9345        9869        9738
Virginia............................        8504        9701        9402
Washington..........................        0179        0036        0072
West Virginia.......................        7975        9595        9190
Wisconsin...........................        9162        9832        9665
Wyoming.............................        9007        9801       9603
------------------------------------------------------------------------
\1\ Pre-reclassification wage index from Federal FY 2003 based on fiscal
  year 1999 audited acute care hospital inpatient wage data that exclude
  wages for services provided by teaching physicians, residents, and
  nonphysician anesthetists under Part B of the Medicare program.
\2\ One-fifth of the full wage index value, applicable for LTCH's cost
  reporting period beginning on or after October 1, 2002 through
  September 30, 2003 (Federal FY 2203). For example, for a LTCH's cost
  reporting period begins during Federal in FY 2003 and located in rural
  Illinois, the 1/5th of the wage index value is computed as (0.8204 +
  4)/5 = 0.9641. For further details on the 5-year phase-in of the wage
  index, see section VI.C.1. of this final rule.
\3\ Two-fifths of the full wage index value, applicable for LTCH's cost
  reporting period beginning on or after October 1, 2003 through
  September 30, 2003 (Federal FY 2004). For example, for a LTCH's cost
  reporting period begins during Federal in FY 2004 and located in rural
  Illinois, the 2/5th of the wage index value is computed as ((2*0.8204)
  + 3))/5 = 0.9282. For further details on the 5-year phase-in of the
  wage index, see section VI.C.1. of this final rule.
\4\ All counties within the State are classified as urban.


 Table 3.--LTC-DRG Relative Weights, Geometric Mean Length of Stay, and
Short-Stays of Five-Sixths Average Length of Stay for the Period of July
                   1, 2003 Through September 30, 2003
------------------------------------------------------------------------
                                                                Short-
                                                  Geo-metric   Stays of
                                       Relative      Mean       \5/6\th
   LTC-DRG          Description         Weight     Length of    Average
                                                     Stay      Length of
                                                                 Stay
------------------------------------------------------------------------
1...........  CRANIOTOMY AGE 17 W CC \5\.
2...........  CRANIOTOMY AGE  17 W/O CC \5\.
3...........  CRANIOTOMY AGE 0-17 *.      1.8783        46.3        38.5
4...........  SPINAL PROCEDURES \4\.      1.2493        31.3        26.0
5...........  EXTRACRANIAL VASCULAR       1.2493        31.3        26.0
               PROCEDURES \4\.
6...........  CARPAL TUNNEL RELEASE       0.4055        16.8        14.0
               *.
7...........  PERIPH & CRANIAL NERVE      1.7829        43.8        36.5
               & OTHER NERV SYST
               PROC W CC.
8...........  PERIPH & CRANIAL NERVE      1.2493        31.3        26.0
               & OTHER NERV SYST
               PROC W/O CC \4\.
9...........  SPINAL DISORDERS &          1.4118        34.6        28.8
               INJURIES.
10..........  NERVOUS SYSTEM              0.8537        24.5        20.4
               NEOPLASMS W CC \7\.
11..........  NERVOUS SYSTEM              0.8537        24.5        20.4
               NEOPLASMS W/O CC \7\.

[[Page 34183]]

 
12..........  DEGENERATIVE NERVOUS        0.7773        27.1        22.5
               SYSTEM DISORDERS.
13..........  MULTIPLE SCLEROSIS &        0.7207        25.6        21.3
               CEREBELLAR ATAXIA.
14..........  INTERCRANIAL                0.8816        26.6        22.1
               HEMORRHAGE & STROKE W
               INFARCT.
15..........  NONSPECIFIC CVA &           0.9053        29.4        24.5
               PRECEREBRAL
               OCCULUSION W/O
               INFARCT.
16..........  NONSPECIFIC                 0.8864        27.0        22.5
               CEREBROVASCULAR
               DISORDERS W CC.
17..........  NONSPECIFIC                 0.6655        21.9        18.2
               CEREBROVASCULAR
               DISORDERS W/O CC \2\.
18..........  CRANIAL & PERIPHERAL        0.7770        24.9        20.7
               NERVE DISORDERS W CC.
19..........  CRANIAL & PERIPHERAL        0.5486        22.0        18.3
               NERVE DISORDERS W/O
               CC.
20..........  NERVOUS SYSTEM              1.2331        29.3        24.4
               INFECTION EXCEPT
               VIRAL MENINGITIS.
21..........  VIRAL MENINGITIS \1\..      0.4055        16.8        14.0
22..........  HYPERTENSIVE                0.6655        21.9        18.2
               ENCEPHALOPATHY \2\.
23..........  NONTRAUMATIC STUPOR &       0.9623        27.2        22.6
               COMA.
24..........  SEIZURE & HEADACHE AGE      0.8831        24.8        20.6
               17 W CC.
25..........  SEIZURE & HEADACHE AGE      0.4830        20.4        17.0
               17 W/O CC.
26..........  SEIZURE & HEADACHE AGE      0.4055        16.8        14.0
               0-17 *.
27..........  TRAUMATIC STUPOR &          1.1126        31.6        26.3
               COMA, COMA 1 HR.
28..........  TRAUMATIC STUPOR &          1.1507        29.0        24.1
               COMA, COMA <1 HR AGE
               17 W CC.
29..........  TRAUMATIC STUPOR &          0.9268        27.2        22.6
               COMA, COMA 1 HR AGE 17 W/O CC.
30..........  TRAUMATIC STUPOR &          0.8284        23.3        19.4
               COMA, COMA <1 HR AGE
               0-17 *.
31..........  CONCUSSION AGE 17 W CC \2\.
32..........  CONCUSSION AGE 17 W/O CC *.
33..........  CONCUSSION AGE 0-17 *.      0.4055        16.8        14.0
34..........  OTHER DISORDERS OF          0.8385        25.1        20.9
               NERVOUS SYSTEM W CC.
35..........  OTHER DISORDERS OF          0.6561        25.3        21.0
               NERVOUS SYSTEM W/O CC.
36..........  RETINAL PROCEDURES *..      0.4055        16.8        14.0
37..........  ORBITAL PROCEDURES *..      0.4055        16.8        14.0
38..........  PRIMARY IRIS                0.4055        16.8        14.0
               PROCEDURES *.
39..........  LENS PROCEDURES WITH        0.4055        16.8        14.0
               OR WITHOUT VITRECTOMY
               *.
40..........  EXTRAOCULAR PROCEDURES      0.4055        16.8        14.0
               EXCEPT ORBIT AGE 17 *.
41..........  EXTRAOCULAR PROCEDURES      0.4055        16.8        14.0
               EXCEPT ORBIT AGE 0-17
               *.
42..........  INTRAOCULAR PROCEDURES      0.4055        16.8        14.0
               EXCEPT RETINA, IRIS &
               LENS *.
43..........  HYPHEMA \3\...........      0.8284        23.3        19.4
44..........  ACUTE MAJOR EYE             0.6655        21.9        18.2
               INFECTIONS \2\.
45..........  NEUROLOGICAL EYE            0.4055        16.8        14.0
               DISORDERS \1\.
46..........  OTHER DISORDERS OF THE      0.6655        21.9        18.2
               EYE AGE 17
               W CC \2\.
47..........  OTHER DISORDERS OF THE      0.4055        16.8        14.0
               EYE AGE 17
               W/O CC \1\.
48..........  OTHER DISORDERS OF THE      0.4055        16.8        14.0
               EYE AGE 0-17 *.
49..........  MAJOR HEAD & NECK           1.8783        46.3        38.5
               PROCEDURES *.
50..........  SIALOADENECTOMY *.....      0.6655        21.9        18.2
51..........  SALIVARY GLAND              0.6655        21.9        18.2
               PROCEDURES EXCEPT
               SIALOADENECTOMY *.
52..........  CLEFT LIP & PALATE          0.6655        21.9        18.2
               REPAIR *.
53..........  SINUS & MASTOID             0.6655        21.9        18.2
               PROCEDURES AGE 17 *.
54..........  SINUS & MASTOID             0.6655        21.9        18.2
               PROCEDURES AGE 0-17 *.
55..........  MISCELLANEOUS EAR,          0.6655        21.9        18.2
               NOSE, MOUTH & THROAT
               PROCEDURES \2\.
56..........  RHINOPLASTY *.........      0.6655        21.9        18.2
57..........  T&A PROC, EXCEPT            0.6655        21.9        18.2
               TONSILLECTOMY &/OR
               ADENOIDECTOMY ONLY,
               AGE 17 *.
58..........  T&A PROC, EXCEPT            0.6655        21.9        18.2
               TONSILLECTOMY &/OR
               ADENOIDECTOMY ONLY,
               AGE 0-17 *.
59..........  TONSILLECTOMY &/OR          0.6655        21.9        18.2
               ADENOIDECTOMY ONLY,
               AGE 17 *.
60..........  TONSILLECTOMY &/OR          0.6655        21.9        18.2
               ADENOIDECTOMY ONLY,
               AGE 0-17 *.
61..........  MYRINGOTOMY W TUBE          1.8783        46.3        38.5
               INSERTION AGE 17 \5\.
62..........  MYRINGOTOMY W TUBE          0.6655        21.9        18.2
               INSERTION AGE 0-17 *.
63..........  OTHER EAR, NOSE, MOUTH      1.8783        46.3        38.5
               & THROAT O.R.
               PROCEDURES \5\.
64..........  EAR, NOSE, MOUTH &          1.0447        25.5        21.2
               THROAT MALIGNANCY.
65..........  DYSEQUILIBRIUM........      0.5056        19.8        16.5
66..........  EPISTAXIS \1\.........      0.4055        16.8        14.0
67..........  EPIGLOTTITIS \1\......      0.4055        16.8        14.0
68..........  OTITIS MEDIA & URI AGE      0.8284        23.3        19.4
               >17 W CC \3\.
69..........  OTITIS MEDIA & URI AGE      0.8284        23.3        19.4
               >17 W/O CC \3\.
70..........  OTITIS MEDIA & URI AGE      0.4055        16.8        14.0
               0-17 *.
71..........  LARYNGOTRACHEITIS *...      0.4055        16.8        14.0
72..........  NASAL TRAUMA &              0.4055        16.8        14.0
               DEFORMITY \1\.
73..........  OTHER EAR, NOSE, MOUTH      0.8097        23.7        19.7
               & THROAT DIAGNOSES
               AGE 17.
74..........  OTHER EAR, NOSE, MOUTH      0.4055        16.8        14.0
               & THROAT DIAGNOSES
               AGE 0-17 *.
75..........  MAJOR CHEST PROCEDURES      1.8783        46.3        38.5
               \5\.
76..........  OTHER RESP SYSTEM O.R.      2.7674        50.6        42.1
               PROCEDURES W CC.
77..........  OTHER RESP SYSTEM O.R.      1.8783        46.3        38.5
               PROCEDURES W/O CC \5\.
78..........  PULMONARY EMBOLISM....      0.6348        20.5        17.0

[[Page 34184]]

 
79..........  RESPIRATORY INFECTIONS      0.8916        22.2        18.5
               & INFLAMMATIONS AGE
               17 W CC.
80..........  RESPIRATORY INFECTIONS      0.7947        22.8        19.0
               & INFLAMMATIONS AGE
               17 W/O CC.
81..........  RESPIRATORY INFECTIONS      0.4055        16.8        14.0
               & INFLAMMATIONS AGE 0-
               17 *.
82..........  RESPIRATORY NEOPLASMS.      0.7976        20.9        17.4
83..........  MAJOR CHEST TRAUMA W        0.7384        24.8        20.6
               CC.
84..........  MAJOR CHEST TRAUMA W/O      0.4055        16.8        14.0
               CC \1\.
85..........  PLEURAL EFFUSION W CC.      0.8207        23.6        19.6
86..........  PLEURAL EFFUSION W/O        0.6194        21.1        17.5
               CC.
87..........  PULMONARY EDEMA &           1.6597        32.3        26.9
               RESPIRATORY FAILURE.
88..........  CHRONIC OBSTRUCTIVE         0.7532        20.9        17.4
               PULMONARY DISEASE.
89..........  SIMPLE PNEUMONIA &          0.8533        23.6        19.6
               PLEURISY AGE 17 W CC.
90..........  SIMPLE PNEUMONIA &          0.7921        23.0        19.1
               PLEURISY AGE 17 W/O CC.
91..........  SIMPLE PNEUMONIA &          0.8284        23.3        19.4
               PLEURISY AGE 0-17 *.
92..........  INTERSTITIAL LUNG           0.7251        19.1        15.9
               DISEASE W CC.
93..........  INTERSTITIAL LUNG           0.5573        18.5        15.4
               DISEASE W/O CC.
94..........  PNEUMOTHORAX W CC.....      0.7885        22.7        18.9
95..........  PNEUMOTHORAX W/O CC         0.4055        16.8        14.0
               \1\.
96..........  BRONCHITIS & ASTHMA         0.8173        24.2        20.1
               AGE 17 W
               CC.
97..........  BRONCHITIS & ASTHMA         0.5940        17.9        14.9
               AGE 17 W/O
               CC.
98..........  BRONCHITIS & ASTHMA         0.4055        16.8        14.0
               AGE 0-17 *.
99..........  RESPIRATORY SIGNS &         1.1164        27.3        22.7
               SYMPTOMS W CC.
100.........  RESPIRATORY SIGNS &         1.0015        25.4        21.1
               SYMPTOMS W/O CC.
101.........  OTHER RESPIRATORY           0.9763        23.4        19.5
               SYSTEM DIAGNOSES W CC.
102.........  OTHER RESPIRATORY           0.9313        24.5        20.4
               SYSTEM DIAGNOSES W/O
               CC.
103.........  HEART TRANSPLANT \6\..      0.0000         0.0         0.0
104.........  CARDIAC VALVE & OTHER       1.8783        46.3        38.5
               MAJOR CARDIOTHORACIC
               PROC W CARDIAC CATH *.
105.........  CARDIAC VALVE & OTHER       1.8783        46.3        38.5
               MAJOR CARDIOTHORACIC
               PROC W/O CARDIAC CATH
               *.
106.........  CORONARY BYPASS W PTCA      1.8783        46.3        38.5
               *.
107.........  CORONARY BYPASS W           1.8783        46.3        38.5
               CARDIAC CATH *.
108.........  OTHER CARDIOTHORACIC        0.6655        21.9        18.2
               PROCEDURES \2\.
109.........  CORONARY BYPASS W/O         1.8783        46.3        38.5
               PTCA OR CARDIAC CATH
               *.
110.........  MAJOR CARDIOVASCULAR        1.8783        46.3        38.5
               PROCEDURES W CC \5\.
111.........  MAJOR CARDIOVASCULAR        1.8783        46.3        38.5
               PROCEDURES W/O CC \5\.
113.........  AMPUTATION FOR CIRC         1.4103        36.9        30.7
               SYSTEM DISORDERS
               EXCEPT UPPER LIMB &
               TOE.
114.........  UPPER LIMB & TOE            1.3377        40.2        33.5
               AMPUTATION FOR CIRC
               SYSTEM DISORDERS.
115.........  PRM CARD PACEM IMPL W       1.8783        46.3        38.5
               AMI,HRT FAIL OR
               SHK,OR AICD LEAD OR
               GNRTR P \5\.
116.........  OTH PERM CARD PACEMAK       0.8284        23.3        19.4
               IMPL OR PTCA W
               CORONARY ARTERY STENT
               IMPLNT \3\.
117.........  CARDIAC PACEMAKER           0.4055        16.8        14.0
               REVISION EXCEPT
               DEVICE REPLACEMENT *.
118.........  CARDIAC PACEMAKER           0.4055        16.8        14.0
               DEVICE REPLACEMENT
               \1\.
119.........  VEIN LIGATION &             0.6655        21.9        18.2
               STRIPPING *.
120.........  OTHER CIRCULATORY           1.4091        36.4        30.3
               SYSTEM O.R.
               PROCEDURES.
121.........  CIRCULATORY DISORDERS       0.7167        21.6        18.0
               W AMI & MAJOR COMP,
               DISCHARGED ALIVE.
122.........  CIRCULATORY DISORDERS       0.5144        19.0        15.8
               W AMI W/O MAJOR COMP,
               DISCHARGED ALIVE.
123.........  CIRCULATORY DISORDERS       0.9412        20.9        17.4
               W AMI, EXPIRED.
124.........  CIRCULATORY DISORDERS       0.8284        23.3        19.4
               EXCEPT AMI, W CARD
               CATH & COMPLEX DIAG
               \3\.
125.........  CIRCULATORY DISORDERS       1.8783        46.3        38.5
               EXCEPT AMI, W CARD
               CATH W/O COMPLEX DIAG
               \5\.
126.........  ACUTE & SUBACUTE            0.7689        24.8        20.6
               ENDOCARDITIS.
127.........  HEART FAILURE & SHOCK.      0.7616        22.4        18.6
128.........  DEEP VEIN                   0.6042        20.8        17.3
               THROMBOPHLEBITIS.
129.........  CARDIAC ARREST,             1.0534        20.9        17.4
               UNEXPLAINED.
130.........  PERIPHERAL VASCULAR         0.7914        24.8        20.6
               DISORDERS W CC.
131.........  PERIPHERAL VASCULAR         0.7081        23.7        19.7
               DISORDERS W/O CC.
132.........  ATHEROSCLEROSIS W CC..      0.8183        21.8        18.1
133.........  ATHEROSCLEROSIS W/O CC      0.5484        18.5        15.4
134.........  HYPERTENSION..........      0.6985        24.0        20.0
135.........  CARDIAC CONGENITAL &        0.7331        20.3        16.9
               VALVULAR DISORDERS
               AGE 17 W
               CC.
136.........  CARDIAC CONGENITAL &        0.7075        21.0        17.5
               VALVULAR DISORDERS
               AGE 17 W/O
               CC.
137.........  CARDIAC CONGENITAL &        0.6655        21.9        18.2
               VALVULAR DISORDERS
               AGE 0-17 *.
138.........  CARDIAC ARRHYTHMIA &        0.7187        23.4        19.5
               CONDUCTION DISORDERS
               W CC.
139.........  CARDIAC ARRHYTHMIA &        0.6482        20.4        17.0
               CONDUCTION DISORDERS
               W/O CC.
140.........  ANGINA PECTORIS.......      0.7690        20.1        16.7
141.........  SYNCOPE & COLLAPSE W        0.6252        23.2        19.3
               CC.
142.........  SYNCOPE & COLLAPSE W/O      0.5452        21.5        17.9
               CC.
143.........  CHEST PAIN............      0.7316        22.7        18.9
144.........  OTHER CIRCULATORY           0.7870        21.9        18.2
               SYSTEM DIAGNOSES W CC.
145.........  OTHER CIRCULATORY           0.7637        25.0        20.8
               SYSTEM DIAGNOSES W/O
               CC.
146.........  RECTAL RESECTION W CC       1.2493        31.3        26.0
               \4\.

[[Page 34185]]

 
147.........  RECTAL RESECTION W/O        1.2493        31.3        26.0
               CC *.
148.........  MAJOR SMALL & LARGE         2.8488        47.6        39.6
               BOWEL PROCEDURES W CC.
149.........  MAJOR SMALL & LARGE         0.6655        21.9        18.2
               BOWEL PROCEDURES W/O
               CC \2\.
150.........  PERITONEAL                  0.4055        16.8        14.0
               ADHESIOLYSIS W CC \1\.
151.........  PERITONEAL                  0.4055        16.8        14.0
               ADHESIOLYSIS W/O CC *.
152.........  MINOR SMALL & LARGE         1.2493        31.3        26.0
               BOWEL PROCEDURES W CC
               \4\.
153.........  MINOR SMALL & LARGE         0.8284        23.3        19.4
               BOWEL PROCEDURES W/O
               CC *.
154.........  STOMACH, ESOPHAGEAL &       1.2493        31.3        26.0
               DUODENAL PROCEDURES
               AGE 17 W
               CC \4\.
155.........  STOMACH, ESOPHAGEAL &       0.8284        23.3        19.4
               DUODENAL PROCEDURES
               AGE 17 W/O
               CC *.
156.........  STOMACH, ESOPHAGEAL &       0.8284        23.3        19.4
               DUODENAL PROCEDURES
               AGE 0-17 *.
157.........  ANAL & STOMAL               0.4055        16.8        14.0
               PROCEDURES W CC \1\.
158.........  ANAL & STOMAL               0.4055        16.8        14.0
               PROCEDURES W/O CC *.
159.........  HERNIA PROCEDURES           1.2493        31.3        26.0
               EXCEPT INGUINAL &
               FEMORAL AGE 17 W CC \4\.
160.........  HERNIA PROCEDURES           0.6655        21.9        18.2
               EXCEPT INGUINAL &
               FEMORAL AGE 17 W/O CC *.
161.........  INGUINAL & FEMORAL          0.6655        21.9        18.2
               HERNIA PROCEDURES AGE
               17 W CC *.
162.........  INGUINAL & FEMORAL          0.6655        21.9        18.2
               HERNIA PROCEDURES AGE
               17 W/O CC
               *.
163.........  HERNIA PROCEDURES AGE       0.6655        21.9        18.2
               0-17 *.
164.........  APPENDECTOMY W              0.8284        23.3        19.4
               COMPLICATED PRINCIPAL
               DIAG W CC *.
165.........  APPENDECTOMY W              0.8284        23.3        19.4
               COMPLICATED PRINCIPAL
               DIAG W/O CC *.
166.........  APPENDECTOMY W/O            0.6655        21.9        18.2
               COMPLICATED PRINCIPAL
               DIAG W CC *.
167.........  APPENDECTOMY W/O            0.6655        21.9        18.2
               COMPLICATED PRINCIPAL
               DIAG W/O CC *.
168.........  MOUTH PROCEDURES W CC       0.8284        23.3        19.4
               \3\.
169.........  MOUTH PROCEDURES W/O        0.6655        21.9        18.2
               CC *.
170.........  OTHER DIGESTIVE SYSTEM      1.5543        35.0        29.1
               O.R. PROCEDURES W CC.
171.........  OTHER DIGESTIVE SYSTEM      0.8284        23.3        19.4
               O.R. PROCEDURES W/O
               CC \3\.
172.........  DIGESTIVE MALIGNANCY W      0.8553        24.2        20.1
               CC.
173.........  DIGESTIVE MALIGNANCY W/     0.5513        18.9        15.7
               O CC.
174.........  G.I. HEMORRHAGE W CC..      0.8741        23.6        19.6
175.........  G.I. HEMORRHAGE W/O CC      0.8359        25.6        21.3
176.........  COMPLICATED PEPTIC          0.7661        24.4        20.3
               ULCER.
177.........  UNCOMPLICATED PEPTIC        0.8284        23.3        19.4
               ULCER W CC \3\.
178.........  UNCOMPLICATED PEPTIC        0.6655        21.9        18.2
               ULCER W/O CC \2\.
179.........  INFLAMMATORY BOWEL          1.0975        23.4        19.5
               DISEASE.
180.........  G.I. OBSTRUCTION W CC.      0.8457        22.8        19.0
181.........  G.I. OBSTRUCTION W/O        0.5638        19.5        16.2
               CC.
182.........  ESOPHAGITIS, GASTROENT      0.8829        25.9        21.5
               & MISC DIGEST
               DISORDERS AGE 17 W CC.
183.........  ESOPHAGITIS, GASTROENT      0.6913        21.5        17.9
               & MISC DIGEST
               DISORDERS AGE 17 W/O CC.
184.........  ESOPHAGITIS, GASTROENT      0.6655        21.9        18.2
               & MISC DIGEST
               DISORDERS AGE 0-17 *.
185.........  DENTAL & ORAL DIS           0.8284        23.3        19.4
               EXCEPT EXTRACTIONS &
               RESTORATIONS, AGE 17 \3\.
186.........  DENTAL & ORAL DIS           0.8284        23.3        19.4
               EXCEPT EXTRACTIONS &
               RESTORATIONS, AGE 0-
               17 *.
187.........  DENTAL EXTRACTIONS &        0.8284        23.3        19.4
               RESTORATIONS *.
188.........  OTHER DIGESTIVE SYSTEM      1.0490        24.2        20.1
               DIAGNOSES AGE 17 W CC.
189.........  OTHER DIGESTIVE SYSTEM      0.5852        17.4        14.5
               DIAGNOSES AGE 17 W/O CC.
190.........  OTHER DIGESTIVE SYSTEM      0.6655        21.9        18.2
               DIAGNOSES AGE 0-17 *.
191.........  PANCREAS, LIVER &           1.8783        46.3        38.5
               SHUNT PROCEDURES W CC
               \5\.
192.........  PANCREAS, LIVER &           1.2493        31.3        26.0
               SHUNT PROCEDURES W/O
               CC *.
193.........  BILIARY TRACT PROC          1.2493        31.3        26.0
               EXCEPT ONLY CHOLECYST
               W OR W/O C.D.E. W CC
               \4\.
194.........  BILIARY TRACT PROC          0.8284        23.3        19.4
               EXCEPT ONLY CHOLECYST
               W OR W/O C.D.E. W/O
               CC *.
195.........  CHOLECYSTECTOMY W           0.8284        23.3        19.4
               C.D.E. W CC *.
196.........  CHOLECYSTECTOMY W           0.8284        23.3        19.4
               C.D.E. W/O CC *.
197.........  CHOLECYSTECTOMY EXCEPT      1.8783        46.3        38.5
               BY LAPAROSCOPE W/O
               C.D.E. W CC \5\.
198.........  CHOLECYSTECTOMY EXCEPT      1.8783        46.3        38.5
               BY LAPAROSCOPE W/O
               C.D.E. W/O CC \5\.
199.........  HEPATOBILIARY               0.8284        23.3        19.4
               DIAGNOSTIC PROCEDURE
               FOR MALIGNANCY \3\.
200.........  HEPATOBILIARY               1.2493        31.3        26.0
               DIAGNOSTIC PROCEDURE
               FOR NON-MALIGNANCY
               \4\.
201.........  OTHER HEPATOBILIARY OR      1.8783        46.3        38.5
               PANCREAS O.R.
               PROCEDURES \5\.
202.........  CIRRHOSIS & ALCOHOLIC       0.5736        18.4        15.3
               HEPATITIS.
203.........  MALIGNANCY OF               0.5897        18.2        15.1
               HEPATOBILIARY SYSTEM
               OR PANCREAS.
204.........  DISORDERS OF PANCREAS       0.9444        22.1        18.4
               EXCEPT MALIGNANCY.
205.........  DISORDERS OF LIVER          0.6825        21.5        17.9
               EXCEPT MALIG,CIRR,ALC
               HEPA W CC.
206.........  DISORDERS OF LIVER          0.6655        21.9        18.2
               EXCEPT MALIG,CIRR,ALC
               HEPA W/O CC \2\.
207.........  DISORDERS OF THE            0.6979        21.5        17.9
               BILIARY TRACT W CC.
208.........  DISORDERS OF THE            0.4055        16.8        14.0
               BILIARY TRACT W/O CC
               \1\.
209.........  MAJOR JOINT & LIMB          1.8783        46.3        38.5
               REATTACHMENT
               PROCEDURES OF LOWER
               EXTREMITY \5\.
210.........  HIP & FEMUR PROCEDURES      1.2493        31.3        26.0
               EXCEPT MAJOR JOINT
               AGE 17 W
               CC \4\.
211.........  HIP & FEMUR PROCEDURES      0.8284        23.3        19.4
               EXCEPT MAJOR JOINT
               AGE 17 W/O
               CC *.
212.........  HIP & FEMUR PROCEDURES      0.8284        23.3        19.4
               EXCEPT MAJOR JOINT
               AGE 0-17 *.
213.........  AMPUTATION FOR              1.2591        33.0        27.5
               MUSCULOSKELETAL
               SYSTEM & CONN TISSUE
               DISORDERS.

[[Page 34186]]

 
216.........  BIOPSIES OF                 1.2493        31.3        26.0
               MUSCULOSKELETAL
               SYSTEM & CONNECTIVE
               TISSUE \4\.
217.........  WND DEBRID & SKN GRFT       1.3602        38.8        32.3
               EXCEPT HAND,FOR
               MUSCSKELET & CONN
               TISS DIS.
218.........  LOWER EXTREM & HUMER        0.8284        23.3        19.4
               PROC EXCEPT
               HIP,FOOT,FEMUR AGE
               17 W CC
               \3\.
219.........  LOWER EXTREM & HUMER        0.8284        23.3        19.4
               PROC EXCEPT
               HIP,FOOT,FEMUR AGE
               17 W/O CC
               *.
220.........  LOWER EXTREM & HUMER        0.8284        23.3        19.4
               PROC EXCEPT
               HIP,FOOT,FEMUR AGE 0-
               17 *.
223.........  MAJOR SHOULDER/ELBOW        1.2493        31.3        26.0
               PROC, OR OTHER UPPER
               EXTREMITY PROC W CC
               \4\.
224.........  SHOULDER,ELBOW OR           0.4055        16.8        14.0
               FOREARM PROC,EXC
               MAJOR JOINT PROC, W/O
               CC \1\.
225.........  FOOT PROCEDURES \4\...      1.2493        31.3        26.0
226.........  SOFT TISSUE PROCEDURES      1.2493        31.3        26.0
               W CC \4\.
227.........  SOFT TISSUE PROCEDURES      0.8284        23.3        19.4
               W/O CC \3\.
228.........  MAJOR THUMB OR JOINT        0.6655        21.9        18.2
               PROC,OR OTH HAND OR
               WRIST PROC W CC *.
229.........  HAND OR WRIST PROC,         0.6655        21.9        18.2
               EXCEPT MAJOR JOINT
               PROC, W/O CC \2\.
230.........  LOCAL EXCISION &            0.4055        16.8        14.0
               REMOVAL OF INT FIX
               DEVICES OF HIP &
               FEMUR \1\.
231.........  LOCAL EXCISION &            1.8783        46.3        38.5
               REMOVAL OF INT FIX
               DEVICES EXCEPT HIP &
               FEMUR \5\.
232.........  ARTHROSCOPY *.........      0.4055        16.8        14.0
233.........  OTHER MUSCULOSKELET         1.2493        31.3        26.0
               SYS & CONN TISS O.R.
               PROC W CC \4\.
234.........  OTHER MUSCULOSKELET         0.4055        16.8        14.0
               SYS & CONN TISS O.R.
               PROC W/O CC \1\.
235.........  FRACTURES OF FEMUR....      0.7540        28.5        23.7
236.........  FRACTURES OF HIP &          0.7381        27.2        22.6
               PELVIS.
237.........  SPRAINS, STRAINS, &         0.6655        21.9        18.2
               DISLOCATIONS OF HIP,
               PELVIS & THIGH \2\.
238.........  OSTEOMYELITIS.........      0.8275        27.5        22.9
239.........  PATHOLOGICAL FRACTURES      0.6689        21.9        18.2
               & MUSCULOSKELETAL &
               CONN TISS MALIGNANCY.
240.........  CONNECTIVE TISSUE           0.9260        26.0        21.6
               DISORDERS W CC.
241.........  CONNECTIVE TISSUE           0.5805        22.7        18.9
               DISORDERS W/O CC.
242.........  SEPTIC ARTHRITIS......      0.7725        26.3        21.9
243.........  MEDICAL BACK PROBLEMS.      0.6596        23.4        19.5
244.........  BONE DISEASES &             0.5756        20.6        17.1
               SPECIFIC
               ARTHROPATHIES W CC.
245.........  BONE DISEASES &             0.4426        17.5        14.5
               SPECIFIC
               ARTHROPATHIES W/O CC.
246.........  NON-SPECIFIC                0.6053        21.4        17.8
               ARTHROPATHIES.
247.........  SIGNS & SYMPTOMS OF         0.5590        20.4        17.0
               MUSCULOSKELETAL
               SYSTEM & CONN TISSUE.
248.........  TENDONITIS, MYOSITIS &      0.7288        23.9        19.9
               BURSITIS.
249.........  AFTERCARE,                  0.8005        27.1        22.5
               MUSCULOSKELETAL
               SYSTEM & CONNECTIVE
               TISSUE.
250.........  FX, SPRN, STRN & DISL       0.8373        31.8        26.5
               OF FOREARM, HAND,
               FOOT AGE 17 W CC.
251.........  FX, SPRN, STRN & DISL       0.6904        26.0        21.6
               OF FOREARM, HAND,
               FOOT AGE 17 W/O CC.
252.........  FX, SPRN, STRN & DISL       0.4055        16.8        14.0
               OF FOREARM, HAND,
               FOOT AGE 0-17 *.
253.........  FX, SPRN, STRN & DISL       0.8054        28.0        23.3
               OF UPARM,LOWLEG EX
               FOOT AGE 17 W CC.
254.........  FX, SPRN, STRN & DISL       0.6999        26.4        22.0
               OF UPARM,LOWLEG EX
               FOOT AGE 17 W/O CC.
255.........  FX, SPRN, STRN & DISL       0.4055        16.8        14.0
               OF UPARM,LOWLEG EX
               FOOT AGE 0-17 *.
256.........  OTHER MUSCULOSKELETAL       0.8002        25.1        20.9
               SYSTEM & CONNECTIVE
               TISSUE DIAGNOSES.
257.........  TOTAL MASTECTOMY FOR        0.6655        21.9        18.2
               MALIGNANCY W CC \2\.
258.........  TOTAL MASTECTOMY FOR        0.6655        21.9        18.2
               MALIGNANCY W/O CC *.
259.........  SUBTOTAL MASTECTOMY         0.6655        21.9        18.2
               FOR MALIGNANCY W CC *.
260.........  SUBTOTAL MASTECTOMY         0.6655        21.9        18.2
               FOR MALIGNANCY W/O CC
               *.
261.........  BREAST PROC FOR NON-        0.4055        16.8        14.0
               MALIGNANCY EXCEPT
               BIOPSY & LOCAL
               EXCISION *.
262.........  BREAST BIOPSY & LOCAL       0.4055        16.8        14.0
               EXCISION FOR NON-
               MALIGNANCY \1\.
263.........  SKIN GRAFT &/OR DEBRID      1.5388        45.0        37.5
               FOR SKN ULCER OR
               CELLULITIS W CC.
264.........  SKIN GRAFT &/OR DEBRID      1.1645        38.8        32.3
               FOR SKN ULCER OR
               CELLULITIS W/O CC.
265.........  SKIN GRAFT &/OR DEBRID      1.6569        45.6        38.0
               EXCEPT FOR SKIN ULCER
               OR CELLULITIS W CC.
266.........  SKIN GRAFT &/OR DEBRID      0.8284        23.3        19.4
               EXCEPT FOR SKIN ULCER
               OR CELLULITIS W/O CC
               \3\.
267.........  PERIANAL & PILONIDAL        0.4055        16.8        14.0
               PROCEDURES *.
268.........  SKIN, SUBCUTANEOUS          1.2493        31.3        26.0
               TISSUE & BREAST
               PLASTIC PROCEDURES
               \4\.
269.........  OTHER SKIN, SUBCUT          1.3915        41.7        34.7
               TISS & BREAST PROC W
               CC.
270.........  OTHER SKIN, SUBCUT          1.3879        41.6        34.6
               TISS & BREAST PROC W/
               O CC.
271.........  SKIN ULCERS...........      0.9714        31.1        25.9
272.........  MAJOR SKIN DISORDERS W      0.6846        21.0        17.5
               CC.
273.........  MAJOR SKIN DISORDERS W/     0.6655        21.9        18.2
               O CC \2\.
274.........  MALIGNANT BREAST            0.7872        22.0        18.3
               DISORDERS W CC \7\.
275.........  MALIGNANT BREAST            0.7872        22.0        18.3
               DISORDERS W/O CC \7\.
276.........  NON-MALIGANT BREAST         0.6655        21.9        18.2
               DISORDERS \2\.
277.........  CELLULITIS AGE 17 W CC.
278.........  CELLULITIS AGE 17 W/O CC.
279.........  CELLULITIS AGE 0-17 *.      0.6655        21.9        18.2
280.........  TRAUMA TO THE SKIN,         1.0097        30.9        25.7
               SUBCUT TISS & BREAST
               AGE 17 W
               CC.
281.........  TRAUMA TO THE SKIN,         0.7363        27.4        22.8
               SUBCUT TISS & BREAST
               AGE 17 W/O
               CC.
282.........  TRAUMA TO THE SKIN,         0.6655        21.9        18.2
               SUBCUT TISS & BREAST
               AGE 0-17 *.
283.........  MINOR SKIN DISORDERS W      0.8574        24.8        20.6
               CC.
284.........  MINOR SKIN DISORDERS W/     0.4055        16.8        14.0
               O CC \1\.

[[Page 34187]]

 
285.........  AMPUTAT OF LOWER LIMB       1.3692        31.7        26.4
               FOR
               ENDOCRINE,NUTRIT,&
               METABOL DISORDERS.
286.........  ADRENAL & PITUITARY         1.2493        31.3        26.0
               PROCEDURES *.
287.........  SKIN GRAFTS & WOUND         1.3195        39.6        33.0
               DEBRID FOR ENDOC,
               NUTRIT & METAB
               DISORDERS.
288.........  O.R. PROCEDURES FOR         1.8783        46.3        38.5
               OBESITY \5\.
289.........  PARATHYROID PROCEDURES      0.4055        16.8        14.0
               *.
290.........  THYROID PROCEDURES \1\      0.4055        16.8        14.0
291.........  THYROGLOSSAL                0.4055        16.8        14.0
               PROCEDURES *.
292.........  OTHER ENDOCRINE,            1.2493        31.3        26.0
               NUTRIT & METAB O.R.
               PROC W CC \4\.
293.........  OTHER ENDOCRINE,            0.6655        21.9        18.2
               NUTRIT & METAB O.R.
               PROC W/O CC *.
294.........  DIABETES AGE 35.
295.........  DIABETES AGE 0-35 \3\.      0.8284        23.3        19.4
296.........  NUTRITIONAL & MISC          0.7710        24.3        20.2
               METABOLIC DISORDERS
               AGE 17 W
               CC.
297.........  NUTRITIONAL & MISC          0.6321        21.1        17.5
               METABOLIC DISORDERS
               AGE 17 W/O
               CC.
298.........  NUTRITIONAL & MISC          0.6655        21.9        18.2
               METABOLIC DISORDERS
               AGE 0-17 *.
299.........  INBORN ERRORS OF            0.8284        23.3        19.4
               METABOLISM \3\.
300.........  ENDOCRINE DISORDERS W       0.8670        23.3        19.4
               CC.
301.........  ENDOCRINE DISORDERS W/      0.4055        16.8        14.0
               O CC \1\.
302.........  KIDNEY TRANSPLANT \6\.      0.0000         0.0         0.0
303.........  KIDNEY,URETER & MAJOR       1.8783        46.3        38.5
               BLADDER PROCEDURES
               FOR NEOPLASM \5\.
304.........  KIDNEY,URETER & MAJOR       1.2493        31.3        26.0
               BLADDER PROC FOR NON-
               NEOPL W CC \4\.
305.........  KIDNEY,URETER & MAJOR       0.6655        21.9        18.2
               BLADDER PROC FOR NON-
               NEOPL W/O CC \2\.
306.........  PROSTATECTOMY W CC \3\      0.8284        23.3        19.4
307.........  PROSTATECTOMY W/O CC        0.4055        16.8        14.0
               \1\.
308.........  MINOR BLADDER               0.8284        23.3    19.414.0
               PROCEDURES W CC \3\.
309.........  MINOR BLADDER               0.4055        16.8        26.0
               PROCEDURES W/O CC *.
310.........  TRANSURETHRAL               1.2493        31.3        14.0
               PROCEDURES W CC \4\.
311.........  TRANSURETHRAL               0.4055        16.8        38.5
               PROCEDURES W/O CC \1\.
312.........  URETHRAL PROCEDURES,        1.8783        46.3        14.0
               AGE 17 W
               CC \5\.
313.........  URETHRAL PROCEDURES,        0.4055        16.8        14.0
               AGE 17 W/O
               CC *.
314.........  URETHRAL PROCEDURES,        0.4055        16.8        14.0
               AGE 0-17 *.
315.........  OTHER KIDNEY & URINARY      1.5800        39.5        32.9
               TRACT O.R. PROCEDURES.
316.........  RENAL FAILURE.........      0.9308        24.1        20.0
317.........  ADMIT FOR RENAL             1.2493        31.3        26.0
               DIALYSIS \4\.
318.........  KIDNEY & URINARY TRACT      0.8075        21.5        17.9
               NEOPLASMS W CC.
319.........  KIDNEY & URINARY TRACT      0.6655        21.9        18.2
               NEOPLASMS W/O CC \2\.
320.........  KIDNEY & URINARY TRACT      0.7424        23.9        19.9
               INFECTIONS AGE 17 W CC.
321.........  KIDNEY & URINARY TRACT      0.6123        20.4        17.0
               INFECTIONS AGE 17 W/O CC.
322.........  KIDNEY & URINARY TRACT      0.6655        21.9        18.2
               INFECTIONS AGE 0-17 *.
323.........  URINARY STONES W CC, &/     0.6655        21.9        18.2
               OR ESW LITHOTRIPSY
               \2\.
324.........  URINARY STONES W/O CC       0.6655        21.9        18.2
               \2\.
325.........  KIDNEY & URINARY TRACT      0.8123        26.7        22.2
               SIGNS & SYMPTOMS AGE
               17 W CC.
326.........  KIDNEY & URINARY TRACT      0.6655        21.9        18.2
               SIGNS & SYMPTOMS AGE
               17 W/O CC
               \2\.
327.........  KIDNEY & URINARY TRACT      0.4055        16.8        14.0
               SIGNS & SYMPTOMS AGE
               0-17 *.
328.........  URETHRAL STRICTURE AGE      0.6655        21.9        18.2
               17 W CC *.
329.........  URETHRAL STRICTURE AGE      0.4055        16.8        14.0
               17 W/O CC
               \1\.
330.........  URETHRAL STRICTURE AGE      0.4055        16.8        14.0
               0-17 *.
331.........  OTHER KIDNEY & URINARY      0.9267        24.6        20.5
               TRACT DIAGNOSES AGE
               17 W CC.
332.........  OTHER KIDNEY & URINARY      0.6393        20.9        17.4
               TRACT DIAGNOSES AGE
               17 W/O CC.
333.........  OTHER KIDNEY & URINARY      0.4055        16.8        14.0
               TRACT DIAGNOSES AGE 0-
               17 *.
334.........  MAJOR MALE PELVIC           1.2493        31.3        26.0
               PROCEDURES W CC *.
335.........  MAJOR MALE PELVIC           0.8284        23.3        19.4
               PROCEDURES W/O CC *.
336.........  TRANSURETHRAL               0.8284        23.3        19.4
               PROSTATECTOMY W CC
               \3\.
337.........  TRANSURETHRAL               0.6655        21.9        18.2
               PROSTATECTOMY W/O CC
               *.
338.........  TESTES PROCEDURES, FOR      0.6655        21.9        18.2
               MALIGNANCY *.
339.........  TESTES PROCEDURES, NON-     0.4055        16.8        14.0
               MALIGNANCY AGE 17 \1\.
340.........  TESTES PROCEDURES, NON-     0.4055        16.8        14.0
               MALIGNANCY AGE 0-17 *.
341.........  PENIS PROCEDURES \2\..      0.6655        21.9        18.2
342.........  CIRCUMCISION AGE 17 \4\.
343.........  CIRCUMCISION AGE 0-17.      0.4055        16.8        14.0
344.........  OTHER MALE                  1.2493        31.3        26.0
               REPRODUCTIVE SYSTEM
               O.R. PROCEDURES FOR
               MALIGNANCY \4\.
345.........  OTHER MALE                  0.8284        23.3        19.4
               REPRODUCTIVE SYSTEM
               O.R. PROC EXCEPT FOR
               MALIGNANCY \3\.
346.........  MALIGNANCY, MALE            0.7070        21.6        18.0
               REPRODUCTIVE SYSTEM,
               W CC.
347.........  MALIGNANCY, MALE            0.6655        21.9        18.2
               REPRODUCTIVE SYSTEM,
               W/O CC \2\.
348.........  BENIGN PROSTATIC            0.4055        16.8        14.0
               HYPERTROPHY W CC \1\.
349.........  BENIGN PROSTATIC            0.4055        16.8        14.0
               HYPERTROPHY W/O CC *.
350.........  INFLAMMATION OF THE         0.6058        19.9        16.5
               MALE REPRODUCTIVE
               SYSTEM.
351.........  STERILIZATION, MALE *.      0.4055        16.8        14.0

[[Page 34188]]

 
352.........  OTHER MALE                  0.8284        23.3        19.4
               REPRODUCTIVE SYSTEM
               DIAGNOSES \3\.
353.........  PELVIC EVISCERATION,        1.8783        46.3        38.5
               RADICAL HYSTERECTOMY
               & RADICAL VULVECTOMY
               *.
354.........  UTERINE,ADNEXA PROC         1.2493        31.3        26.0
               FOR NON-OVARIAN/
               ADNEXAL MALIG W CC *.
355.........  UTERINE,ADNEXA PROC         1.2493        31.3        26.0
               FOR NON-OVARIAN/
               ADNEXAL MALIG W/O CC
               *.
356.........  FEMALE REPRODUCTIVE         1.2493        31.3        26.0
               SYSTEM RECONSTRUCTIVE
               PROCEDURES *.
357.........  UTERINE & ADNEXA PROC       1.2493        31.3        26.0
               FOR OVARIAN OR
               ADNEXAL MALIGNANCY *.
358.........  UTERINE & ADNEXA PROC       1.8783        46.3        38.5
               FOR NON-MALIGNANCY W
               CC \5\.
359.........  UTERINE & ADNEXA PROC       0.4055        16.8        14.0
               FOR NON-MALIGNANCY W/
               O CC \1\.
360.........  VAGINA, CERVIX & VULVA      0.4055        16.8        14.0
               PROCEDURES \1\.
361.........  LAPAROSCOPY &               0.6655        21.9        18.2
               INCISIONAL TUBAL
               INTERRUPTION *.
362.........  ENDOSCOPIC TUBAL            0.6655        21.9        18.2
               INTERRUPTION *.
363.........  D&C, CONIZATION &           0.8284        23.3        19.4
               RADIO-IMPLANT, FOR
               MALIGNANCY *.
364.........  D&C, CONIZATION EXCEPT      0.6655        21.9        18.2
               FOR MALIGNANCY *.
365.........  OTHER FEMALE                1.8783        46.3        38.5
               REPRODUCTIVE SYSTEM
               O.R. PROCEDURES \5\.
366.........  MALIGNANCY, FEMALE          0.9654        23.9        19.9
               REPRODUCTIVE SYSTEM W
               CC.
367.........  MALIGNANCY, FEMALE          0.8284        23.3        19.4
               REPRODUCTIVE SYSTEM W/
               O CC \3\.
368.........  INFECTIONS, FEMALE          1.2493        31.3        26.0
               REPRODUCTIVE SYSTEM
               \4\.
369.........  MENSTRUAL & OTHER           0.6655        21.9        18.2
               FEMALE REPRODUCTIVE
               SYSTEM DISORDERS \2\.
370.........  CESAREAN SECTION W CC       0.8284        23.3        19.4
               *.
371.........  CESAREAN SECTION W/O        0.6655        21.9        18.2
               CC *.
372.........  VAGINAL DELIVERY W          0.6655        21.9        18.2
               COMPLICATING
               DIAGNOSES *.
373.........  VAGINAL DELIVERY W/O        0.4055        16.8        14.0
               COMPLICATING
               DIAGNOSES *.
374.........  VAGINAL DELIVERY W          0.4055        16.8        14.0
               STERILIZATION &/OR
               D&C *.
375.........  VAGINAL DELIVERY W          0.4055        16.8        14.0
               O.R. PROC EXCEPT
               STERIL &/OR D&C *.
376.........  POSTPARTUM & POST           0.4055        16.8        14.0
               ABORTION DIAGNOSES W/
               O O.R. PROCEDURE *.
377.........  POSTPARTUM & POST           0.4055        16.8        14.0
               ABORTION DIAGNOSES W
               O.R. PROCEDURE *.
378.........  ECTOPIC PREGNANCY *...      0.6655        21.9        18.2
379.........  THREATENED ABORTION *.      0.4055        16.8        14.0
380.........  ABORTION W/O D&C *....      0.4055        16.8        14.0
381.........  ABORTION W D&C,             0.4055        16.8        14.0
               ASPIRATION CURETTAGE
               OR HYSTEROTOMY *.
382.........  FALSE LABOR *.........      0.4055        16.8        14.0
383.........  OTHER ANTEPARTUM            0.4055        16.8        14.0
               DIAGNOSES W MEDICAL
               COMPLICATIONS *.
384.........  OTHER ANTEPARTUM            0.4055        16.8        14.0
               DIAGNOSES W/O MEDICAL
               COMPLICATIONS *.
385.........  NEONATES, DIED OR           0.4055        16.8        14.0
               TRANSFERRED TO
               ANOTHER ACUTE CARE
               FACILITY *.
386.........  EXTREME IMMATURITY *..      0.6655        21.9        18.2
387.........  PREMATURITY W MAJOR         0.6655        21.9        18.2
               PROBLEMS *.
388.........  PREMATURITY W/O MAJOR       0.4055        16.8        14.0
               PROBLEMS *.
389.........  FULL TERM NEONATE W         1.2493        31.3        26.0
               MAJOR PROBLEMS \4\.
390.........  NEONATE W OTHER             0.6655        21.9        18.2
               SIGNIFICANT PROBLEMS
               *.
391.........  NORMAL NEWBORN *......      0.4055        16.8        14.0
392.........  SPLENECTOMY AGE 17 *.
393.........  SPLENECTOMY AGE 0-17 *      0.6655        21.9        18.2
394.........  OTHER O.R. PROCEDURES       1.8783        46.3        38.5
               OF THE BLOOD AND
               BLOOD FORMING ORGANS
               \5\.
395.........  RED BLOOD CELL              0.8584        25.1        20.9
               DISORDERS AGE 17.
396.........  RED BLOOD CELL              0.4055        16.8        14.0
               DISORDERS AGE 0-17 *.
397.........  COAGULATION DISORDERS.      0.7567        19.4        16.1
398.........  RETICULOENDOTHELIAL &       0.9008        23.4        19.5
               IMMUNITY DISORDERS W
               CC.
399.........  RETICULOENDOTHELIAL &       0.4055        16.8        14.0
               IMMUNITY DISORDERS W/
               O CC)\1\.
400.........  LYMPHOMA & LEUKEMIA W       0.8284        23.3        19.4
               MAJOR O.R. PROCEDURE
               \3\.
401.........  LYMPHOMA & NON-ACUTE        1.2493        31.3        26.0
               LEUKEMIA W OTHER O.R.
               PROC W CC \4\.
402.........  LYMPHOMA & NON-ACUTE        0.8284        23.3        19.4
               LEUKEMIA W OTHER O.R.
               PROC W/O CC *.
403.........  LYMPHOMA & NON-ACUTE        0.9651        23.9        19.9
               LEUKEMIA W CC.
404.........  LYMPHOMA & NON-ACUTE        0.8980        19.1        15.9
               LEUKEMIA W/O CC.
405.........  ACUTE LEUKEMIA W/O          0.6655        21.9        18.2
               MAJOR O.R. PROCEDURE
               AGE 0-17 *.
406.........  MYELOPROLIF DISORD OR       1.8783        46.3        38.5
               POORLY DIFF NEOPL W
               MAJ O.R.PROC W CC \5\.
407.........  MYELOPROLIF DISORD OR       0.8284        23.3        19.4
               POORLY DIFF NEOPL W
               MAJ O.R.PROC W/O CC *.
408.........  MYELOPROLIF DISORD OR       1.2493        31.3        26.0
               POORLY DIFF NEOPL W
               OTHER O.R.PROC \4\.
409.........  RADIOTHERAPY..........      0.5220        19.5        16.2
410.........  CHEMOTHERAPY W/O ACUTE      0.4055        16.8        14.0
               LEUKEMIA AS SECONDARY
               DIAGNOSIS \1\.
411.........  HISTORY OF MALIGNANCY       0.4055        16.8        14.0
               W/O ENDOSCOPY *.
412.........  HISTORY OF MALIGNANCY       0.4055        16.8        14.0
               W ENDOSCOPY *.
413.........  OTHER MYELOPROLIF DIS       0.9061        23.7        19.7
               OR POORLY DIFF NEOPL
               DIAG W CC \7\.
414.........  OTHER MYELOPROLIF DIS       0.9061        23.7        19.7
               OR POORLY DIFF NEOPL
               DIAG W/O CC \7\.
415.........  O.R. PROCEDURE FOR          1.4933        38.7        32.2
               INFECTIOUS &
               PARASITIC DISEASES.
416.........  SEPTICEMIA AGE 17.
417.........  SEPTICEMIA AGE 0-17 *.      0.8284        23.3        19.4
418.........  POSTOPERATIVE & POST-       0.8771        25.8        21.5
               TRAUMATIC INFECTIONS.

[[Page 34189]]

 
419.........  FEVER OF UNKNOWN            0.5948        20.5        17.0
               ORIGIN AGE 17 W CC.
420.........  FEVER OF UNKNOWN            0.4055        16.8        14.0
               ORIGIN AGE 17 W/O CC \1\.
421.........  VIRAL ILLNESS AGE 17 \4\.
422.........  VIRAL ILLNESS & FEVER       0.4055        16.8        14.0
               OF UNKNOWN ORIGIN AGE
               0-17 *.
423.........  OTHER INFECTIOUS &          0.8701        24.7        20.5
               PARASITIC DISEASES
               DIAGNOSES.
424.........  O.R. PROCEDURE W            1.8783        46.3        38.5
               PRINCIPAL DIAGNOSES
               OF MENTAL ILLNESS \5\.
425.........  ACUTE ADJUSTMENT            0.6177        26.0        21.6
               REACTION &
               PSYCHOLOGICAL
               DYSFUNCTION.
426.........  DEPRESSIVE NEUROSES...      0.5739        26.9        22.4
427.........  NEUROSES EXCEPT             0.6655        21.9        18.2
               DEPRESSIVE \2\.
428.........  DISORDERS OF                1.2493        31.3        26.0
               PERSONALITY & IMPULSE
               CONTROL \4\.
429.........  ORGANIC DISTURBANCES &      0.5466        25.0        20.8
               MENTAL RETARDATION.
430.........  PSYCHOSES.............      0.4479        22.9        19.0
431.........  CHILDHOOD MENTAL            0.4345        22.7        18.9
               DISORDERS.
432.........  OTHER MENTAL DISORDER       0.6655        21.9        18.2
               DIAGNOSES \2\.
433.........  ALCOHOL/DRUG ABUSE OR       0.2489        13.1        10.9
               DEPENDENCE, LEFT AMA.
439.........  SKIN GRAFTS FOR             1.3200        42.5        35.4
               INJURIES.
440.........  WOUND DEBRIDEMENTS FOR      1.3567        40.1        33.4
               INJURIES.
441.........  HAND PROCEDURES FOR         0.6655        21.9        18.2
               INJURIES *.
442.........  OTHER O.R. PROCEDURES       1.6442        39.7        33.0
               FOR INJURIES W CC.
443.........  OTHER O.R. PROCEDURES       0.6655        21.9        18.2
               FOR INJURIES W/O CC
               \2\.
444.........  TRAUMATIC INJURY AGE        0.9614        30.7        25.5
               17 W CC.
445.........  TRAUMATIC INJURY AGE        0.8448        27.3        22.7
               17 W/O CC.
446.........  TRAUMATIC INJURY AGE 0-     0.8284        23.3        19.4
               17 *.
447.........  ALLERGIC REACTIONS AGE      0.6655        21.9        18.2
               17 \2\.
448.........  ALLERGIC REACTIONS AGE      0.4055        16.8        14.0
               0-17 *.
449.........  POISONING & TOXIC           0.8284        23.3        19.4
               EFFECTS OF DRUGS AGE
               17 W CC
               \3\.
450.........  POISONING & TOXIC           0.6655        21.9        18.2
               EFFECTS OF DRUGS AGE
               17 W/O CC
               \2\.
451.........  POISONING & TOXIC           0.4055        16.8        14.0
               EFFECTS OF DRUGS AGE
               0-17 *.
452.........  COMPLICATIONS OF            0.9596        25.5        21.2
               TREATMENT W CC.
453.........  COMPLICATIONS OF            0.6666        23.1        19.2
               TREATMENT W/O CC.
454.........  OTHER INJURY,               0.8284        23.3        19.4
               POISONING & TOXIC
               EFFECT DIAG W CC \3\.
455.........  OTHER INJURY,               0.4055        16.8        14.0
               POISONING & TOXIC
               EFFECT DIAG W/O CC
               \1\.
461.........  O.R. PROC W DIAGNOSES       1.3383        38.0        31.6
               OF OTHER CONTACT W
               HEALTH SERVICES.
462.........  REHABILITATION........      0.6469        23.5        19.5
463.........  SIGNS & SYMPTOMS W CC.      0.7618        26.8        22.3
464.........  SIGNS & SYMPTOMS W/O        0.6234        24.3        20.2
               CC.
465.........  AFTERCARE W HISTORY OF      0.8284        23.3        19.4
               MALIGNANCY AS
               SECONDARY DIAGNOSIS
               \3\.
466.........  AFTERCARE W/O HISTORY       0.8119        23.9        19.9
               OF MALIGNANCY AS
               SECONDARY DIAGNOSIS.
467.........  OTHER FACTORS               0.6655        21.9        18.2
               INFLUENCING HEALTH
               STATUS \2\.
468.........  EXTENSIVE O.R.              2.2177        45.5        37.9
               PROCEDURE UNRELATED
               TO PRINCIPAL
               DIAGNOSIS.
469.........  PRINCIPAL DIAGNOSIS         0.0000         0.0         0.0
               INVALID AS DISCHARGE
               DIAGNOSIS \6\.
470.........  UNGROUPABLE \6\.......      0.0000         0.0         0.0
471.........  BILATERAL OR MULTIPLE       1.8783        46.3        38.5
               MAJOR JOINT PROCS OF
               LOWER EXTREMITY *.
473.........  ACUTE LEUKEMIA W/O          0.8047        17.1        14.2
               MAJOR O.R. PROCEDURE
               AGE 17.
475.........  RESPIRATORY SYSTEM          2.0906        35.5        29.5
               DIAGNOSIS WITH
               VENTILATOR SUPPORT.
476.........  PROSTATIC O.R.              1.8783        46.3        38.5
               PROCEDURE UNRELATED
               TO PRINCIPAL
               DIAGNOSIS \5\.
477.........  NON-EXTENSIVE O.R.          1.6791        39.7        33.0
               PROCEDURE UNRELATED
               TO PRINCIPAL
               DIAGNOSIS.
478.........  OTHER VASCULAR              1.6244        37.8        31.5
               PROCEDURES W CC.
479.........  OTHER VASCULAR              0.6655        21.9        18.2
               PROCEDURES W/O CC \2\.
480.........  LIVER TRANSPLANT \6\..      0.0000         0.0         0.0
481.........  BONE MARROW TRANSPLANT      1.8783        46.3        38.5
               *.
482.........  TRACHEOSTOMY FOR            0.6655        21.9        18.2
               FACE,MOUTH & NECK
               DIAGNOSES *.
483.........  TRACH W MECH VENT 96+       3.2319         4.6        45.5
               HRS OR PDX EXCEPT
               FACE,MOUTH & NECK
               DIAG.
484.........  CRANIOTOMY FOR              1.8783        46.3        38.5
               MULTIPLE SIGNIFICANT
               TRAUMA *.
485.........  LIMB REATTACHMENT, HIP      1.8783        46.3        38.5
               AND FEMUR PROC FOR
               MULTIPLE SIGNIFICANT
               TR *.
486.........  OTHER O.R. PROCEDURES       0.8284        23.3        19.4
               FOR MULTIPLE
               SIGNIFICANT TRAUMA
               \3\.
487.........  OTHER MULTIPLE              1.0885        29.5        24.5
               SIGNIFICANT TRAUMA.
488.........  HIV W EXTENSIVE O.R.        1.8783        46.3        38.5
               PROCEDURE \5\.
489.........  HIV W MAJOR RELATED         0.8846        22.9        19.0
               CONDITION.
490.........  HIV W OR W/O OTHER          0.6952        20.4        17.0
               RELATED CONDITION.
491.........  MAJOR JOINT & LIMB          1.8783        46.3        38.5
               REATTACHMENT
               PROCEDURES OF UPPER
               EXTREMITY *.
492.........  CHEMOTHERAPY W ACUTE        0.8284        23.3        19.4
               LEUKEMIA AS SECONDARY
               DIAGNOSIS \3\.
493.........  LAPAROSCOPIC                0.8284        23.3        19.4
               CHOLECYSTECTOMY W/O
               C.D.E. W CC \3\.
494.........  LAPAROSCOPIC                0.4055        16.8        14.0
               CHOLECYSTECTOMY W/O
               C.D.E. W/O CC \1\.
495.........  LUNG TRANSPLANT \6\...      0.0000         0.0         0.0
496.........  COMBINED ANTERIOR/          1.2493        31.3        26.0
               POSTERIOR SPINAL
               FUSION *.
497.........  SPINAL FUSION W CC \5\      1.8783        46.3        38.5

[[Page 34190]]

 
498.........  SPINAL FUSION W/O CC        0.8284        23.3        19.4
               \3\.
499.........  BACK & NECK PROCEDURES      1.8783        46.3        38.5
               EXCEPT SPINAL FUSION
               W CC \5\.
500.........  BACK & NECK PROCEDURES      0.8284        23.3        19.4
               EXCEPT SPINAL FUSION
               W/O CC *.
501.........  KNEE PROCEDURES W PDX       1.8783        46.3        38.5
               OF INFECTION W CC \5\.
502.........  KNEE PROCEDURES W PDX       0.8284        23.3        19.4
               OF INFECTION W/O CC *.
503.........  KNEE PROCEDURES W/O         1.8783        46.3        38.5
               PDX OF INFECTION \5\.
504.........  EXTENSIVE 3RD DEGREE        1.8783        46.3        38.5
               BURNS W SKIN GRAFT *.
505.........  EXTENSIVE 3RD DEGREE        1.2493        31.3        26.0
               BURNS W/O SKIN GRAFT
               \4\.
506.........  FULL THICKNESS BURN W       1.8783        46.3        38.5
               SKIN GRAFT OR INHAL
               INJ W CC OR SIG
               TRAUMA \5\.
507.........  FULL THICKNESS BURN W       0.8284        23.3        19.4
               SKIN GRFT OR INHAL
               INJ W/O CC OR SIG
               TRAUMA *.
508.........  FULL THICKNESS BURN W/      0.8284        23.3        19.4
               O SKIN GRFT OR INHAL
               INJ W CC OR SIG
               TRAUMA \3\.
509.........  FULL THICKNESS BURN W/      0.8284        23.3        19.4
               O SKIN GRFT OR INH
               INJ W/O CC OR SIG
               TRAUMA \3\.
510.........  NON-EXTENSIVE BURNS W       1.0734        32.2        26.8
               CC OR SIGNIFICANT
               TRAUMA.
511.........  NON-EXTENSIVE BURNS W/      0.8284        23.3        19.4
               O CC OR SIGNIFICANT
               TRAUMA \3\.
512.........  SIMULTANEOUS PANCREAS/      0.0000         0.0         0.0
               KIDNEY TRANSPLANT \6\.
513.........  PANCREAS TRANSPLANT         0.0000         0.0         0.0
               \6\.
514.........  CARDIAC DEFIBRILATOR        0.8284        23.3        19.4
               IMPLANT W CARDIAC
               CATH *.
515.........  CARDIAC DEFIBRILATOR        1.2493        31.3        26.0
               IMPLANT W/O CARDIAC
               CATH \4\.
516.........  PERCUTANEOUS                0.8284        23.3        19.4
               CARDIVASCULAR
               PROCEDURE W AMI *.
517.........  PERCUTANEOUS                1.8783        46.3        38.5
               CARDIVASCULAR PROC W
               NON-DRUG ELUTING
               STENT W/O AMI \5\.
518.........  PERCUTANEOUS                1.2493        31.3        26.0
               CARDIVASCULAR PROC W/
               O CORONARY ARTERY
               STENT OR AMI \4\.
519.........  CERVICAL SPINAL FUSION      0.8284        23.3        19.4
               W CC \3\.
520.........  CERVICAL SPINAL FUSION      0.6655        21.9        18.2
               W/O CC \2\.
521.........  ALCOHOL/DRUG ABUSE OR       0.3755        18.6        15.5
               DEPENDENCE W CC.
522.........  ALCOHOL/DRUG ABUSE OR       0.4055        16.8        14.0
               DEPENDENCE W
               REHABILITATION
               THERAPY W/O CC \1\.
523.........  ALCOHOL/DRUG ABUSE OR       0.3860        21.2        17.6
               DEPENDENCE W/O
               REHABILITATION
               THERAPY W/O CC.
524.........  TRANSIENT ISCHEMIA....      0.6250        23.1        19.2
525.........  HEART ASSIST SYSTEM         1.8783        46.3        38.5
               IMPLANT *.
526.........  PERCUTANEOUS                0.8284        23.3        19.4
               CARVIOVASCULAR PROC W
               DRUG-ELUTING STENT W
               AMI *.
527.........  PERCUTANEOUS                0.8284        23.3       19.4
               CARVIOVASCULAR PROC W
               DRUG-ELUTING STENT W/
               O AMI *.
------------------------------------------------------------------------
 * Relative weights for these LTC-DRGs were determined by assigning
  these cases to the appropriate low volume quintile because they had no
  LTCH cases in the FY 2001 MedPAR.
\1\ Relative weights for these LTC-DRGs were determined by assigning
  these cases to low volume quintile 1.
\2\ Relative weights for these LTC-DRGs were determined by assigning
  these cases to low volume quintile 2.
\3\ Relative weights for these LTC-DRGs were determined by assigning
  these cases to low volume quintile 3.
\4\ Relative weights for these LTC-DRGs were determined by assigning
  these cases to low volume quintile 4.
\5\ Relative weights for these LTC-DRGs were determined by assigning
  these cases to low volume quintile 5.
\6\ Relative weights for these LTC-DRGs were assigned a value of 0.0.
\7\ Relative weights for these LTC-DRGs were determined after adjusting
  to account for nonmonotonically (see step 5 above).

[FR Doc. 03-14078 Filed 5-30-03; 3:28 pm]
BILLING CODE 4120-01-P