[Federal Register Volume 69, Number 30 (Friday, February 13, 2004)]
[Notices]
[Pages 7340-7345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3377]



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Part VI





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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Medicare Program; Revisions to the One-Time Appeal Process for Hospital 
Wage Index Classification; Notice

  Federal Register / Vol. 69, No. 30 / Friday, February 13, 2004 / 
Notices  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1373-N2]
RIN 0938-AN00


Medicare Program; Revisions to the One-Time Appeal Process for 
Hospital Wage Index Classification

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

ACTION: Notice.

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SUMMARY: This notice revises, clarifies, and corrects technical errors 
in the notice published in the January 6, 2004 Federal Register 
entitled ``Medicare Program; Notice of One-Time Appeal Process for 
Hospital Wage Index Classification.'' The January 6, 2004 notice, in 
accordance with section 508(a) of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003, established a one-time 
appeal process by which a hospital may appeal the wage index 
classification otherwise applicable to the hospital.

DATES: Effective Date: This notice is effective February 13, 2004.
    Deadline for Submission of Appeal Requests: Appeal requests will be 
considered if the Medicare Geographic Classification Review Board 
receives them, at the appropriate address, no later than 5 p.m. EST on 
February 15, 2004.
    Applicability: Geographic redesignations granted under this process 
are applicable to discharges occurring during the 3-year period 
beginning with discharges on or after April 1, 2004 and before April 1, 
2007.

FOR FURTHER INFORMATION CONTACT: James Hart, (410) 786-4548.

SUPPLEMENTARY INFORMATION:

I. Background

    Under section 1886(d)(10) of the Act, the Medicare Geographic 
Classification Review Board (MGCRB) considers applications by hospitals 
for geographic reclassification for purposes of payment under the 
inpatient prospective payment system (IPPS). Hospitals can elect to 
reclassify for the wage index or the standardized amount, or both, and 
as individual hospitals or as groups. Generally, hospitals must be 
proximate to the labor market area to which they are seeking 
reclassification and must demonstrate characteristics similar to 
hospitals located in that area. Hospitals must apply for 
reclassification to the MGCRB. The MGCRB issues its decisions by the 
end of February for reclassifications to become effective for the 
following fiscal year (FY) (beginning October 1). The regulations 
applicable to reclassifications by the MGCRB are located in 42 CFR 
412.230 through 412.280.
    Section 1886(d)(10)(D)(v) of the Act provides that, beginning with 
FY 2001, an MGCRB decision on a hospital reclassification for purposes 
of the wage index is effective for 3 FYs, unless the hospital elects to 
terminate the reclassification. Section 1886(d)(10)(D)(vi) of the Act 
provides that the MGCRB must use the 3 most recent years' average 
hourly wage data in evaluating a hospital's reclassification 
application for FY 2003 and any succeeding FY.
    Section 304(b) of Public Law (Pub. L.) 106-554 provides that the 
Secretary must establish a mechanism under which a statewide entity may 
apply to have all of the geographic areas in the State treated as a 
single geographic area for purposes of computing and applying a single 
wage index, for reclassifications beginning in FY 2003. The 
implementing regulations for this provision are located at Sec. 
412.235.
    Section 1886(d)(8)(B) of the Act permits a hospital located in a 
rural county adjacent to one or more urban areas to be designated as 
being located in the Metropolitan Statistical Areas (MSA) to which the 
greatest number of workers in the county commute if--(1) The rural 
county would otherwise be considered part of an urban area under the 
standards published in the Federal Register for designating MSAs (and 
for designating New England County Metropolitan Areas (NECMAs)); and 
(2) if the commuting rates used in determining outlying counties (or, 
for New England, similarly recognized areas) were determined on the 
basis of the aggregate number of resident workers who commute to (and, 
if applicable under the standards, from) the central county or counties 
of all contiguous MSAs (or NECMAs). Hospitals that meet these criteria 
are deemed urban for purposes of the standardized amounts and for 
purposes of assigning the wage index.
    On June 6, 2003, the Office of Management and Budget (OMB) issued 
OMB Bulletin No. 03-04, announcing revised definitions of MSAs and new 
definitions of Micropolitan Statistical Areas and Combined Statistical 
Areas. The new definitions recognize 49 new Metropolitan Statistical 
Areas and 565 new Micropolitan Statistical Areas, as well as 
extensively revising the construct of many of the existing Metropolitan 
Areas. We are in the process of evaluating these new MSA definitions. 
At this time, however, we have not adopted these revised MSA 
definitions for purposes of the wage index. Therefore, references to 
MSAs (and, by inference, NECMAs) in this notice refer to the MSAs 
currently used for the wage index; those in place before the new 
definitions announced in June 2003 by OMB.

II. Summary of the Revisions to the January 6, 2004 Notice

    Section 508(a) of the Medicare Prescription Drug, Improvement and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) provided that, by 
January 1, 2004, the Secretary must establish by instruction or 
otherwise, a process for hospitals to appeal their wage index 
classification. Therefore, on December 31, 2003 we posted the process 
on our Web site and it was placed on public display at the Office of 
the Federal Register. On January 6, 2004, the process was published in 
a Federal Register notice (69 FR 661).
    In accordance with section 508(c)(2) of Public Law 108-173, which 
allows the Secretary, ``by instruction or otherwise,'' to specify the 
criteria for determining which hospitals will be considered 
``qualifying hospitals'' for purposes of the appeal process, we are now 
making technical corrections to and revising these criteria by--
     Correcting the following errors in the January 
6, 2004 notice:
    ++ In several sections of the document, the acronym ``EDT'' will be 
corrected to read ``EST'';
    ++ A typographical error in the percentage decrease discussed in 
criterion 2(e). In the first sentence of criterion 2(e), we will 
correct the phrase ``that experiences at least a 6 percent'' to read 
``that experiences at least a 5 percent'';
    ++ In section III.D (Appeal Request Procedure) the sentence ``The 
request must be mailed.'' will be corrected to read ``The request must 
be mailed or delivered.''
     Clarifying the introductory paragraph of section 
III.B. (One-Time Appeal Process Criteria) by adding the following 
sentence ``For purposes of applying these criteria, the MGCRB will 
employ only official data provided by the CMS''.
     Revising criteria 2(a).
     Revising criteria 2(c), 2(f), and 2(h) by adding 
criterion 2(c)(2), 2(f)(3), and 2(h)(2), respectively.
     Revising criteria 2, first sentence, 
parenthetical phrase ``(except in the case of criteria 2(b) and 2(g) 
below)'' to read ``(except in the case of criteria 2(a), 2(b), 2(f)(3) 
and 2(g) below)''.

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     Revising criterion 2(h), the last bulleted item, 
the date ``December 15, 2003'' will be revised to read ``December 30, 
2003.'' In developing criterion 2(h), we estimated that we would have 
to receive notification from hospitals of their intention to submit 
performance data by December 15, 2003 in order to have enough time to 
consider and rate the applications received in response to 2(h). 
Subsequently, we have determined that we can accept the requested data 
beyond December 15, 2003 date and still meet our obligations with 
respect to the consideration and ranking of applications.

To aid the reader in reviewing our corrections, clarifications, and 
revisions, we are republishing sections II through V of the January 6, 
2004 Federal Register notice (now sections III through VI) with all of 
the changes incorporated.
    We believe hospitals have sufficient time to review these revised 
criteria before the February 15, 2004 due date for submitting 
applications. Hospitals that planned to apply under the January 6, 2004 
Federal Register notice should not find it necessary to make any 
significant revisions to their applications (in the event they have 
begun their applications).

III. Provisions of the Notice

A. One-Time Appeal Process Requirements

    Under this process, a qualifying hospital may appeal the wage index 
classification otherwise applicable to the hospital and apply for 
reclassification to another area of the State in which the hospital is 
located (or, at the discretion of the Secretary, to an area within a 
contiguous State). Such reclassifications are applicable to discharges 
occurring during the 3-year period beginning April 1, 2004 and ending 
March 31, 2007.
    The process requirements under section 508(a)(2) and (a)(3) of 
Public Law 108-173 are as follows:
     A hospital must file an appeal request no later 
than February 15, 2004.
     The MGCRB will consider the request of any 
qualifying hospital to change its geographic classification for 
purposes of determining the hospital's area wage index. The MGCRB will 
issue a decision on the requests. There shall be no further 
administrative review or judicial appeal of the MGCRB's decision.
     If the MGCRB determines that the hospital is a 
qualifying hospital, the hospital shall be reclassified to the selected 
area within the State where the hospital is located (or, at the 
discretion of the Secretary, to an area within a contiguous State). The 
approved reclassification will be effective for 3 years beginning with 
discharges occurring on April 1, 2004.
    Under section 508(c) of Public Law 108-173, a ``qualifying 
hospital'' is defined as a subsection (d) hospital (as defined in 
section 1886(d)(1)(B) of the Act) that--
     Does not qualify for a change in wage index 
classification under paragraphs (8) or (10) of section 1886(d) of the 
Act on the basis of requirements relating to distance or commuting. 
Current distance and commuting criteria for individual hospitals 
seeking reclassification are set forth in Sec. 412.230(b) of the 
regulations. Rural referral center and sole community hospital distance 
requirements are at Sec. 412.230(a)(3)(ii). Generally, hospitals must 
demonstrate a close proximity to the labor market area to which they 
are seeking reclassification. The proximity criteria are met if--(1) 
For an urban hospital the distance from the hospital to the area to 
which the hospital is reclassifying is no more than 15 miles; and (2) 
for a rural hospital, the distance from the hospital to the area to 
which the hospital is reclassifying is no more than 35 miles (Sec. 
412.230(b)(1)) or; at least 50 percent of the hospital's employees 
reside in the area (Sec. 412.230(b)(2)). Rural referral centers and 
sole community hospitals are required to reclassify to the urban or 
another rural area closest to the hospital. (Sec. 412.230(a)(3)(ii)); 
and
     Meets such other criteria, such as quality, as 
the Secretary may specify by instruction or otherwise.
    Section 508(b) of Public Law 108-173 specifies that approved 
requests under this process must not affect the wage index computation 
for any area or any other hospital and shall not be budget neutral. The 
provisions of this section shall not affect payment for discharges 
occurring after the end of the 3-year period, which ends March 31, 
2007. Finally, as specified, the total additional expenditures of this 
section shall not exceed $900 million.
    Under Sec. 412.273(b), a hospital may terminate an approved 3-year 
reclassification for purposes of the wage index within 45 days of 
publication of CMS's annual notice of proposed rulemaking concerning 
changes and updates to the IPPS for the FY for which the termination is 
to apply. That is, a hospital may terminate its wage index 
reclassification during the first, second, or third year of that 
reclassification. In order to terminate a reclassification under this 
one-time process, a hospital should follow the process at Sec. 
412.273(b). Terminations will be effective with discharges during the 
following FY (beginning October 1). Hospitals whose applications under 
the one-time process are approved will not be able to terminate such a 
reclassification before October 1, 2004.

B. One-Time Appeal Process Criteria

    All hospitals seeking reclassification under this one-time process 
must submit an application consistent with the process described in 
section III.D. of this notice. Hospitals that have submitted an 
application under the routine MGCRB application process must still 
submit a separate application for consideration by the MGCRB under this 
process. The MGCRB may only approve a request, from any subsection (d) 
hospital, for geographic reclassification for purposes of wage index 
under this process if both of the following criteria are met (see 
section III.C. of this notice for a discussion of the rationale for the 
criteria). For purposes of applying these criteria, the MGCRB will 
employ only official data provided by CMS. For purposes of applying 
these criteria, average hourly wages (AHWs) refers to the 3-year 
average AHWs published in the August 1, 2003 final rule (68 FR 45345) 
for hospitals (Table 2) and MSAs and rural areas (Tables 3A and 3B, 
respectively), as corrected in the October 6, 2003 Federal Register (68 
FR 57732). As noted above, references to MSAs refer to the MSA 
definitions currently employed for the wage index, those in place 
before OMB's announcement of revised MSAs in June 2003. Note that both 
of the following criteria must be met in all reclassifications under 
this process:
    1. A hospital meets neither the distance requirement set forth in 
Sec. 412.230(b)(1) nor the commuting requirement set forth in Sec. 
412.230(b)(2) (or fails to meet the requirements in Sec. 
412.230(a)(3)(ii) in the case of a rural referral center or sole 
community hospital) to be reclassified into the MSA for which the 
request under this process is submitted.
    2. The hospital does not otherwise qualify for reclassification 
effective for discharges on or after October 1, 2004 (except in the 
case of criteria 2(a), 2(b), 2(f)(3), and 2(g) below), under the 
reclassification process at 42 CFR part 412 subpart L, and one of the 
following criteria is met:
    a. The hospital is an urban hospital or a sole community hospital 
located in a State with fewer than 10 people per square mile. The 
hospital may only reclassify under this process to another MSA within 
its State. (Based on the 2000 Census data, only urban hospitals or sole 
community hospitals in the

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States of Alaska, Montana, North Dakota, South Dakota, and Wyoming meet 
this criterion.)
    b. The hospital is currently (for FY 2004) reclassified into 
another MSA and the hospital's 3-year AHW is at least 108 percent of 
the AHW of the hospitals geographically located in the MSA to which the 
hospital is currently reclassified. The hospital may only reclassify 
under this process to an MSA within the hospital's State that has an 
area AHW nearest to, but not less than, the hospital's AHW. If there is 
no such MSA, the hospital will receive a wage index calculated based 
upon its own AHW. If a hospital that otherwise would be reclassified 
effective for discharges on or after October 1, 2004 is approved for 
reclassification under this one-time appeal process based upon this 
criterion, any other reclassifications will be considered to have been 
terminated effective for discharges on or after April 1, 2004.
    c. One of the following criteria is met:
    (1) The hospital is currently (for FY 2004) reclassified by the 
MGCRB to another MSA but, upon applying to the MGCRB for FY 2005, is 
ineligible for reclassification because its AHW is now less than 84 
percent (but greater than 82 percent) of the AHW of the hospitals 
geographically located in the MSA to which the hospital applied for 
reclassification for FY 2005. The hospital may only reclassify under 
this process to an MSA within its State with an FY 2004 wage index 
value that is nearest to the FY 2004 wage index the hospital currently 
receives.
    (2) The hospital had a dominance percentage in its area of at least 
75 percent (where the dominance percentage is the percentage of the 
hospital wages in the area that are paid by the hospital), and at least 
50 percent of the hospital's discharges were Medicare beneficiaries. 
(The MGCRB will employ data on total wages from the final FY 2004 wage 
data public use file and the Medicare percentage from the final FY 2004 
Medicare inpatient payment impact file to make these determinations. 
The total wages are calculated in Steps 2 and 4 of the methodology used 
to compute the wage index (see the August 1, 2003 final rule 68 FR 
45398)). The hospital may only reclassify to an MSA within its State 
that has the wage index nearest to, but not less than, the FY 2004 wage 
index the hospital currently receives. The FY 2004 wage index of the 
area to which the hospital is reclassifying must exceed the FY 2004 
wage index the hospital currently receives and in determining the next 
highest wage index, the wage index of any area to which the hospital is 
precluded from reclassifying under criterion 1, is excluded.
    d. The hospital was part of an urban county group reclassification 
application to the MGCRB for FY 2004 or FY 2005 in accordance with Sec. 
412.234, but the application did not meet the standardized amount 
criteria set forth in Sec. 412.234(c). Individual hospitals that were 
part of the urban county group reclassification application may 
reclassify under this process only to the MSA specified in the group 
application.
    e. The hospital is located in an MSA that experiences at least a 5 
percent decrease in its FY 2004 wage index compared to its FY 2003 wage 
index; and a hospital with an AHW that is at least 10 percent higher 
than the MSA's AHW that reclassified into the MSA during FY 2003 has 
reclassified elsewhere for FY 2004. The hospital may reclassify under 
this process only to an MSA within its State with an FY 2004 area wage 
index value that is nearest to what it would have received if the 
hospital that previously reclassified into the MSA had continued to 
reclassify into the MSA for FY 2004.
    f. One of the following criteria are met:
    (1) The hospital is located in an MSA that is adjacent to an MSA 
(or urban county) that was reclassified under section 152 of the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, 
Public Law 106-113 and the hospital's FY 2004 wage index is at least 10 
percent less than the FY 2004 wage index of the adjacent MSA (or urban 
county) that was reclassified under section 152 of Public Law 106-113.
    (2) The hospital is located in an MSA that is adjacent to an MSA 
identified in sections 153 or 154(a) of Public Law 106-113, and the 
hospitals' FY 2004 wage index is at least 10 percent less than the FY 
2004 wage index of the adjacent MSA identified in section 153 or 154(a) 
of Public Law 106-113.
    (3) The hospital is located in (or reclassified in FY 2004 to for 
wage index purposes) an MSA--
    (a) In which the wage index decreased by at least 4.5 percent from 
FY 2002 to FY 2003;
    (b) In which a hospital that paid at least 30 percent of the 
hospital wages paid by all the hospitals geographically located in such 
hospitals' MSA experienced a decrease of at least 4.5 percent in the 
AHW employed in the computation of the FY 2003 wage index compared to 
the AHW employed in the computation of the FY 2002 wage index; and
    (c) Which is contiguous to an MSA that has a wage index at least 
9.5 percent higher in FY 2004.
Hospitals eligible under either of subsections (f)(1) or (f)(2) above 
may reclassify under this process only to the adjacent MSA (or urban 
county) identified in the applicable section of Public Law 106-113, 
except that a hospital that fails to meet criterion 1 with respect to 
an adjacent MSA may reclassify to an MSA within the State that has the 
FY 2004 wage index that is nearest to the FY 2004 wage index value of 
the MSA adjacent to the MSA in which the hospital is located. Hospitals 
eligible under subsection (f)(3) above may reclassify under this 
process only to an adjacent MSA for which the FY 2004 wage index is at 
least 9.5 percent greater than the wage index for the MSA in which the 
hospital is currently located or reclassified to, except that a 
hospital that fails to meet criterion 1 with respect to an adjacent MSA 
may reclassify to an MSA within the State that has the FY 2004 wage 
index that is nearest to the FY 2004 wage index value of the MSA 
adjacent to the MSA in which the hospital is located
    g. The hospital received reclassification by an act of the Congress 
that expired on September 30, 2003. The hospital may only reclassify 
under this process to the MSA to which it was reclassified by an act of 
the Congress, unless it would not qualify to reclassify under this 
process into such MSA because it fails to meet criterion 1 above. If 
the later situation applies, the hospital may reclassify to another MSA 
in its State, when it would meet criterion 1 above, with a FY 2004 wage 
index that most closely approximates the FY 2004 wage index of the area 
to which the hospital was reclassified by statute. Nothing in this 
criterion will be viewed as superseding the reclassifications extended 
by section 508(f) of Public Law 108-173.
    h. After decisions by the MGCRB based on hospitals meeting criteria 
2(a) through 2(g) above, as well as our implementation of section 
508(f) of Public Law 108-173, the MGCRB may approve--
    (1) A hospital to be reclassified if the hospital's 3-year AHW is 
at least 106 percent of the 3-year AHW of the hospitals geographically 
located in the area in which the hospital is located.
    (2) A dominant hospital (that is, a hospital that pays at least 40 
percent of the wages paid by all hospitals geographically located in 
the hospital's area) to be reclassified if the hospital's AHW exceeds 
the AHW of the hospitals geographically located in the hospital's

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area by the percentage determined using the following formula:

106 - [0.02 x (the hospital's dominance percentage)]

The dominance percentage is the percentage of the hospital wages in the 
area that are paid by the hospital. (The MGCRB will employ data on 
total wages from the final FY 2004 wage data public use file and the 
Medicare percentage from the final FY 2004 Medicare inpatient payment 
impact file to make these determinations. The total wages are 
calculated in Steps 2 and 4 of the methodology used to compute the wage 
index (see the August 1, 2003 final rule 68 FR 45398).)
    Example: A hospital's dominance percentage is 60, that is, the 
hospital pays 60 percent of the wages paid by all the hospitals 
geographically located in the area in which the hospital is located.

Under the formula: 106 - [0.02 x 60] = 106 - 1.2 = 104.8

Therefore, a hospital with a dominance percentage of 60 percent can be 
approved for reclassification if its AHW is at least 104.8 percent of 
the AHW of the hospitals geographically located in the hospital's area 
and it meets all other relevant criteria.
    The MGCRB will reclassify a hospital under this process to the MSA 
within the hospital's State (in the case of a rural hospital or the 
nearest Statewide rural area of a contiguous State) that has an area 3-
year AHW nearest to the hospital's 3-year AHW. However, to be 
classified to that area, the hospital's 3-year AHW must be at least 82 
percent of the 3-year AHW of the area to which it would be 
reclassified. The requests submitted under this criterion will be 
considered and approved by the MGCRB in rank order. Ranking will be 
based on the percentage difference between the hospital's 3-year AHW 
and the 3-year AHW of the area where the hospital is geographically 
located. A hospital application received under criterion 2(h) will 
receive a 2.5 percentage point increase in its ranking for each of the 
following two criteria that are met:
     The hospital has either--
    ++ By January 23, 2004, submitted performance data on any of the 10 
measures that were in the National Voluntary Hospital Reporting 
Initiative on November 15, 2003 meeting the sample size specifications 
of either the Joint Commission on Accreditation of Healthcare 
Organizations or CMS; or
    ++ Pledged, in a form dated before December 30, 2003 to submit such 
data; or
     The hospital is a rural hospital.

For example, an urban hospital with a 3-year AHW that is 110 percent 
higher than the 3-year AHW for the area where it is located would be 
ranked as though its 3-year AHW were 112.5 percent if that hospital had 
submitted quality data by January 23, 2004. If the hospital were a 
rural hospital, it would be ranked as though its 3-year AHW were 115 
percent of its area's 3-year AHW. Hospitals applying in accordance with 
criterion 2(h) will only be approved after the MGCRB decides upon all 
applications meeting the criteria specified in 2(a) through 2(g) and 
section 508(f) of Public Law 108-173.

C. Rationale for Criteria

    Criteria 2(a) through 2(g) above are designed to assist categories 
of hospitals that fall just beyond the current reclassification 
criteria. Although we generally believe our current reclassification 
process appropriately balances the requirement at section 1886(d)(3)(E) 
of the Act to adjust payments to reflect the ``relative hospital wage 
level in the geographic area of the hospital compared to the national 
average hospital wage level'' and the provisions for geographic 
reclassification at section 1886(d)(8) and (10) of the Act, section 508 
of Public Law 108-173 was intended to address, on a one-time basis, 
situations that do not meet the established criteria. Specific 
rationale for each criterion follows:
    a. In States with low population densities, employees are likely to 
commute greater distances to work. Dispersed urban areas are, 
therefore, more likely to compete for employees than are urban areas in 
more densely populated States. We established the population density 
and number of MSAs based on our analysis indicating these criteria best 
captured such a Statewide labor market situation. We did not include 
all rural hospitals under this criterion because we already employ 
Statewide rural labor markets. We included sole community hospitals out 
of consideration for the special role of these facilities in the 
program, especially in sparsely populated States. Sole community 
hospitals are otherwise recognized as special hospitals under Public 
Law 108-173 and other Medicare provisions; therefore, it is important 
that we recognize them and accommodate their special circumstances 
under this criterion.
    b. This criterion recognizes that some reclassified hospitals have 
an AHW much higher than a nearby MSA into which they have already been 
reclassified. We believe it is appropriate to provide some relief for 
these situations under this one-time appeal process. Because, in some 
cases, the AHW of hospitals meeting this criterion are likely to exceed 
those of any labor market area within the State, we are providing under 
this one-time appeal process that a hospital qualifying under this 
criterion may receive a wage index based on its own AHW if there is no 
MSA AHW at least equal to the hospital's AHW.
    c. This criterion recognizes two anomalous situations. The first 
addresses situations when previously reclassified urban hospitals would 
meet the lower criterion for rural hospitals to reclassify, but for FY 
2005 fail to meet the urban hospital wage comparability criterion. The 
second recognizes the unique position of hospitals that are heavily 
dominant in their wage areas (and, thus, find it difficult to meet any 
threshold requirement based on the ratio of the hospital's AHW to the 
AHW of hospitals in the area) and that also have a high percentage of 
Medicare discharges (and are thus financially vulnerable on the 
Medicare side of their business).
    d. This criterion recognizes situations where hospitals have been 
denied reclassification because they failed to meet the standardized 
amount criterion, even though the hospital would have received no 
benefit from a standardized amount reclassification because section 401 
of Public Law 108-173 eliminated the differential in the standardized 
amounts between urban and rural areas.
    e. This criterion would protect hospitals from the negative impact 
on an MSA's wage index resulting from a hospital with a significantly 
higher AHW that no longer reclassifies into the MSA. The wage index 
decrease standard and the AHW difference standard are designed to focus 
this criterion upon situations when the reclassification elsewhere of a 
particular hospital has a truly negative impact on the MSA's wage 
index.
    f. The first two provisions of this criterion would alleviate large 
disparities in wage indices resulting from statutory reclassifications. 
They are limited to adjacent MSAs because these are the labor market 
areas most impacted by the statutory reclassifications (that is, rather 
than Statewide rural labor market areas). The third provision would 
address the situation of hospitals that are affected by an abrupt and 
substantial drop in the AHW of a hospital that pays a substantial 
portion of hospital wages in an MSA and that are in an MSA adjacent to 
an MSA that has a substantially higher wage index. In these situations, 
hospitals that

[[Page 7344]]

experience a substantial decrease because of a decline in the AHWs of 
one hospital in their wage index are placed at a competitive 
disadvantage compared to other hospitals in their region. Temporarily 
allowing these hospitals to receive the wage index of the contiguous 
MSAs would alleviate this harm.
    g. These statutory reclassifications would have expired on 
September 30, 2003 but were extended by section 508(f) of Public Law 
108-173 and would otherwise expire on September 30, 2004. Because of 
the special circumstances of these hospitals as recognized by the 
Congress, we believe it is appropriate to allow them to reclassify 
under this one-time appeal process. However, like other hospitals, 
these hospitals must meet criterion 1 in order to be considered 
qualifying hospitals under the statute. Therefore, if a hospital would 
not meet criterion 1 with regard to the MSA to which the Congress 
reclassified it, the hospital must reclassify to another MSA in its 
State where it would meet criterion 1 and with a FY 2004 wage index 
that most closely approximates the FY 2004 wage index of the area to 
which the Congress reclassified it.
    h. This criterion would permit other hospitals that are not 
currently reclassified to be reclassified based upon the relationship 
between their AHW and the AHW of the area where they are geographically 
located. We believe it is appropriate to give priority to hospitals 
whose AHW exceeds the area's AHW by the largest percentage and 
demonstrate a significant disparity (that is at least 106 percent of 
the AHW of the area in which they are located) between the hospitals' 
current AHW and the area AHW. Furthermore, rural hospitals tend to have 
lower AHWs in general than urban hospitals. Therefore, we believe it is 
appropriate to provide a bonus under this criterion to rural hospitals. 
Finally, we believe in light of the Congress' mention of the submission 
of quality data in section 508(c)(2) of Public Law 108-173, and the 
importance for the future of health care quality to have performance 
measures that allow us to evaluate quality, it is appropriate to give 
preferential treatment to hospitals that have submitted these data. We 
are providing a special threshold standard to accommodate the 
circumstances of dominant hospitals. A dominant hospital, as described 
in criterion (h)(2), is a hospital that pays 40 percent of the total 
wages paid by all the hospitals in its area. It is mathematically more 
difficult for a hospital to meet any threshold requirement the more 
dominant it is in its area. Dominant hospitals may thus qualify for 
consideration at a percentage threshold less than 106 percent. This 
threshold is determined in relation to the hospital's dominance 
percentage, that is, the percentage of the hospital wages in the area 
that are paid by the hospital.

D. One-Time Appeal Request Procedure

    We are providing that a hospital seeking reclassification under 
section 508 of Public Law 108-173 must submit a request in writing by 
February 15, 2004, to the MGCRB, with a copy to CMS. The request must 
be mailed or delivered. Facsimile or other electronic means are not 
acceptable.
    The request must contain the following information:
     The hospital's name and street address.
     The hospital's Medicare provider number.
     The name, title, and telephone of a contact 
person for all communications regarding the appeal request.
     The name of the area/county (include the MSA/
identification number) where the hospital is located.
     The name of the area/county (refer to the 
criteria) where the hospital wishes to be reclassified.
     A statement certifying that the hospital meets 
criterion 1.
     A statement describing which criterion (that is, 
criteria 2(a) through 2(h)) is applicable. If more than one criterion 
is applicable, the hospital should list the applicable criteria in 
order of preference.
    A hospital's appeal request must be received no later than 5:00 
p.m. EST on February 15, 2004. The request must be typed or clearly 
printed in ink.
    Hospitals may submit their applications in one of two ways. The 
first option applies to applications submitted on or before February 
13, 2004. Hospitals submitting an appeal under the first option must 
mail or deliver an original copy of their appeal request to the MGCRB 
at the following address: Medicare Geographic Classification Review 
Board 2520 Lord Baltimore Drive, Suite L, Baltimore, Maryland 21244-
2670.
    Hospitals submitting an appeal under the first option must 
simultaneously send an informational copy of their completed appeal 
request to the following address: Centers for Medicare & Medicaid 
Services, Center for Medicare Management, Hospital and Ambulatory 
Policy Group, Division of Acute Care, Attention: One-Time Appeal 
Process, Mail Stop C4-08-06, 7500 Security Boulevard, Baltimore, 
Maryland 21244-1850.

The second option is to arrange for delivery of the appeal on Saturday, 
February 14, 2004, or Sunday, February 15, 2004. Delivery is not 
possible on these days to the MGCRB address (that is, 2520 Lord 
Baltimore Drive, Suite L, Baltimore, Maryland 21244-1850). Therefore, 
we are providing special delivery arrangements for these 2 days only. 
Deliveries may be made on February 14 and 15 between the hours of 9 
a.m. and 5 p.m. to the CMS complex at the following address: 7500 
Security Boulevard, Baltimore, Maryland 21244-1850.

Deliveries on these 2 days must include the original copy of the appeal 
and an informational copy. In order to make delivery on February 14 or 
February 15, visitors must report to the main gate of the CMS complex 
and present photo identification in order to be admitted to the 
complex. Security personnel will direct visitors to the appropriate 
delivery site within the CMS complex.
    Hospitals may want to send their application by a delivery method 
that guarantees a signed receipt, which indicates delivery and date of 
delivery of their appeal request to the MGCRB. The MGCRB and CMS 
addresses listed above are applicable for both United States mail and 
courier service delivery.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the OMB for review and approval. To fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 requires that we solicit 
comments on the following issues:
     The need for the information collection and its 
usefulness in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information 
collection burden.
     The quality, utility, and clarity of the 
information to be collected.
     Recommendations to minimize the information 
collection burden on the affected public, including automated 
collection techniques.
    However, the collection requirements associated with section III.B. 
of this notice are currently approved under OMB PRA approval number 
0938-0573, ``Medicare Geographic Classification Review Board,'' with a 
current expiration date of October 31, 2005. In addition, we believe 
that any information collected subsequent to an administrative action, 
such as an appeal

[[Page 7345]]

of a geographic classification, are exempt from the PRA as stipulated 
under 5 CFR 1320.4(a)(2).
    Consequently, this document does not impose any new information 
collection and recordkeeping requirements that would require a review 
by the OMB under the authority of the Paperwork Reduction Act of 1995 
(44 U.S.C. 35).

V. Waiver of the Delay in Effective Date

    Section 903 of Public Law 108-173 amended section 1871(e)(1) of the 
Act to specify that a substantive change shall not become effective 
before the end of the 30-day period that begins on the date that the 
Secretary has issued or published the substantive change. Section 903 
of Public Law 108-173 also states that the substantive change can take 
effect on a date that precedes the 30-day period if the Secretary finds 
that waiver of this period is necessary to comply with statutory 
requirements, or is contrary to the public interest. In addition, it 
specifies that the issuance or publication must include a brief 
statement of the reasons for this finding.
    This notice meets the waiver criteria described in section 
1871(e)(1)(B)(ii) of the Act, because it revises the January 6, 2004 
Federal Register notice developed in accordance with section 508 of 
Public Law 108-173, which required the Secretary to establish a one-
time appeal process by January 1, 2004 and directed that the appeals be 
``filed as soon as possible after the date of enactment of the Act.'' 
To ensure that appeals are filed as soon as possible, a revised process 
must be in effect and there can be no delay in the effective date.

VI. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), and 
Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This notice 
would increase payments to hospitals by up to $900 million, and, thus, 
is considered a major rule.
    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. Since this notice does not impose any costs on State or 
local governments, the requirements of E.O. 13132 are not applicable.
    We estimate the impact of this provision will be to increase 
payments to hospitals by up to $900 million. As noted above, section 
508 of Public Law 108-173 specifies that the aggregate amount of 
additional expenditures resulting from the application of this section 
shall not exceed $900 million. Section 508(f) requires that hospitals 
previously reclassified by an act of Congress, but such 
reclassification expired effective with discharges on or after October 
1, 2003, shall have their reclassifications reinstated effective April 
1, 2004 through September 30, 2004. The extra payments for these 
reclassification extensions under section 508(f) are also subject to 
the $900 million limit.
    We estimate the increased payments under section 508(f) will total 
approximately $41 million. The higher payments associated with 
reclassifications under this one-time appeal process are not expected 
to exceed a total of $859 million (during the 3-year period covered by 
the provision).
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

    Authority: Section 508(a) of the Public Law 108-173.

(Catalog of Federal Domestic Assistance Program No. 93.773 Medicare-
-Hospital Insurance Program; and No. 93.774, Medicare--Supplementary 
Medical Insurance Program)

    Dated: February 5, 2004.
Dennis G. Smith,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: February 6, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-3377 Filed 2-11-04; 1:36 pm]
BILLING CODE 4120-01-P