[Federal Register Volume 69, Number 89 (Friday, May 7, 2004)]
[Rules and Regulations]
[Pages 25674-25749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10039]



[[Page 25673]]

-----------------------------------------------------------------------

Part II





Department of Health and Human Services





-----------------------------------------------------------------------



 Centers for Medicare & Medicaid Services



-----------------------------------------------------------------------



 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. 69, No. 89 / Friday, May 7, 2004 / Rules and 
Regulations  

[[Page 25674]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1263-F]
RIN 0938-AM84


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.

-----------------------------------------------------------------------

SUMMARY: This final rule updates the annual payment rates for the 
Medicare prospective payment system (PPS) for inpatient hospital 
services provided by long-term care hospitals (LTCHs). The payment 
amounts and factors used to determine the updated Federal rates that 
are described in this final rule have been determined based on the LTCH 
PPS rate year. The annual update of the long-term care diagnosis-
related group (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, 2004 through June 30, 2005 
is also derived from the LTCH PPS rate year calculations. In this final 
rule, we also are making clarifications to the existing policy 
regarding the designation of a satellite of a LTCH as an independent 
LTCH. In addition, we are expanding the existing interrupted stay 
policy and changing the procedure for counting days in the average 
length of stay calculation for Medicare patients for hospitals 
qualifying as LTCHs.

DATES: This final rule is effective July 1, 2004.

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, co-located providers, 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
    1. Classification as a LTCH
    2. Hospitals Excluded from the LTCH PPS
    C. Transition Period for Implementation of the LTCH PPS
    D. Limitation on Charges to Beneficiaries
    E. Health Insurance Portability and Accountability Act 
Compliance
II. Publication of Proposed Rulemaking
III. Summary of the Major Contents of This Final Rule
IV. 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. Method for Updating the LTC-DRG Relative Weights
V. Changes to the LTCH PPS Rates and Changes in Policy for the 2005 
LTCH PPS Rate Year
    A. Overview of the Development of the Payment Rates
    B. Update to the Standard Federal Rate for the 2005 LTCH PPS 
Rate Year
    1. Standard Federal Rate Update
    a. Description of the Market Basket for the 2005 LTCH PPS Rate 
Year
    b. LTCH Market Basket Increase for the 2005 LTCH PPS Rate Year
    2. Standard Federal Rate for the 2005 LTCH PPS Rate year
    C. Calculation of LTCH Prospective Payments for the 2005 LTCH 
PPS Rate Year
    1. Adjustment for Area Wage Levels
    a. Background
    b. Wage Index Data
    c. Labor-Related Share
    2. Adjustment for Cost-of-Living in Alaska and Hawaii
    3. Adjustment for High-Cost Outliers
    a. Background
    b. Establishment of the Fixed-Loss Amount
    c. Reconciliation of Outlier Payments Upon Cost Report 
Settlement
    d. Application of Outlier Policy to Short-Stay Outlier Cases
    4. Adjustments for Special Cases
    a. General
    b. Adjustment for Short-Stay Outlier Cases
    c. Extension of the Interrupted Stay Policy
    d. Onsite Discharges and Readmittances
    5. Other Payment Adjustments
    6. Budget Neutrality Offset to Account for the Transition 
Methodology
    7. Changes in the Procedure for Counting Days in the Average 
Length of Stay Calculation
    8. Clarification of the Requirements for a Satellite Facility or 
a Remote Location to Qualify as a LTCH and Changes to the 
Requirements for Certain Satellite Facilities and Remote Locations
VI. Computing the Adjusted Federal Prospective Payments for the 2005 
LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. Collection of Information Requirements
XII. 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 of Payment Rate Changes
    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. Impact of Policy Changes
    1. Requirements for Satellite Facilities and Remote Locations of 
Hospitals to Qualify as Long-Term Care Hospitals
    2. Change in Policy on Interruption of a Stay in a LTCH

[[Page 25675]]

    3. Change in Procedure for Counting Covered and Noncovered Days 
in a Stay that Crosses Two Consecutive Cost Reporting Periods
    D. Executive Order 12866
Regulations Text
Addendum--Tables

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, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
CMS Centers for Medicare & Medicaid Services
COPS Medicare conditions of participation
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, Pub. L. 
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) 
(Public Law 106-113) and the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA) (Public Law 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 (PPS) 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 PPS 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 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 (67 FR 55954) rule 
for a comprehensive discussion of the research and data that supported 
the establishment of the LTCH PPS.
    On June 6, 2003, we published a final rule in the Federal Register 
(68 FR 34122) that set forth the 2004 annual update of the payment 
rates for the Medicare PPS for inpatient hospital services furnished by 
LTCHs. It also changed the annual period for which the payment rates 
are effective. The annual updated rates are now effective from July 1 
to June 30 instead of from October 1 through September 30. We refer to 
this time period as a ``long-term care hospital rate year'' (LTCH PPS 
rate year). In addition, we changed the publication schedule for these 
updates to allow for an effective date of July 1. The payment amounts 
and factors used to determine the annual update of the Federal rates 
are based on a LTCH PPS rate year. The annual update of the LTC-DRG 
classifications and relative weights are linked to the annual 
adjustments of the acute care hospital inpatient diagnosis-related 
groups and are effective each October 1.

B. Criteria for Classification as a LTCH

1. Classification as a LTCH
    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which

[[Page 25676]]

implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to be 
paid under the LTCH PPS, a hospital must have a provider agreement with 
Medicare and must have an average Medicare inpatient length of stay of 
greater than 25 days. Alternatively, for cost reporting periods 
beginning on or after August 5, 1997, a hospital that was first 
excluded from the PPS in 1986, and can 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 principal diagnosis that 
reflects a finding of neoplastic disease must have an average inpatient 
length of stay for all patients, including both Medicare and non-
Medicare inpatients, of greater than 20 days (Sec.  412.23(e)(2)(ii)).
    Existing Sec.  412.23(e)(3) provides that 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, the patient is not a 
``Medicare inpatient'' and data on the patient's stay would not be 
included in the Medicare claims processing systems. In order for both 
covered and noncovered days of a LTCH hospitalization to be included, 
for purposes of the average length of stay calculation, a patient 
admitted to the LTCH 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 (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 period 
of at least 5 months of the immediately preceding 6-month period (Sec.  
412.23(e)(3)(ii)). (See 68 FR 45464, August 1, 2003.) 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 of LTCHs must also meet the criteria set forth in Sec.  
412.22(e) or Sec.  412.22(h), respectively, for the LTCH to be excluded 
from the acute care hospital inpatient prospective payment system 
(IPPS) and paid under the LTCH PPS.
2. Hospitals Excluded From 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:
     Veterans Administration hospitals.
     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR Part 403.
     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).
     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 reasonable 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:

------------------------------------------------------------------------
                                                            Reasonable
                                            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, under the LTCH PPS, Medicare will only pay for days for which 
the beneficiary has coverage until the short-stay outlier threshold is 
exceeded. (See section V.C.4.b. of this preamble.) Therefore, if the 
Medicare payment was for a short-stay outlier case (Sec.  412.529) that 
was less than the full LTC-DRG payment amount because the beneficiary 
had insufficient remaining Medicare days, the LTCH could also charge 
the beneficiary for services delivered on those uncovered days (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

[[Page 25677]]

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. Health Insurance Portability and Accountability Act Compliance

    We 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 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 HIPAA Administrative Simplification 
Standards must start submitting electronic claims in compliance with 
the HIPAA regulations cited above, among others.

II. Publication of Proposed Rulemaking

    On January 30, 2004, we published a proposed rule in the Federal 
Register (69 FR 4754-4817) 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) for the 2005 LTCH PPS rate year. (The annual update of the LTC-
DRG classifications and relative weights for FY 2005 remains linked to 
the annual adjustments of the acute care hospital inpatient DRG system, 
which will be published by August 1, and will be effective October 1, 
2004.)
    In the January 2004 LTCH PPS proposed rule, we discussed and 
clarified existing policies regarding the classification of a satellite 
facility, or a remote location, of a LTCH as an independent LTCH and 
proposed new policies for certain satellite facilities and remote 
locations. (See section V.C.8. of this preamble.) We also proposed to 
revise the existing interrupted stay policy applicable under the LTCH 
PPS. (See section V.C.4.c. of this preamble.)
    We also proposed a threshold amount for outlier payments for the 
2005 LTCH PPS rate year as discussed in section V.C.3.b. of this 
preamble. We also proposed a change in the procedure for counting the 
days in the inpatient average length of stay for hospitals to qualify 
as LTCHs, as discussed in section V.C.7. of this preamble.
    We received a total of 14 timely items of correspondence containing 
multiple comments on the proposed rule. The major issues addressed by 
the commenters included: Clarification of our policy regarding 
satellite facilities and remote locations becoming independent LTCHS, 
determining average length of stay based on the number of days of care 
for only the patients that were discharged during the hospital's fiscal 
year, and expanding the existing interrupted stay policy to include any 
discharges up to and including 3 days and requiring the LTCH to pay for 
services ``under arrangement'' during the interrupted stay.
    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 2005 LTCH PPS rate year and make other policy 
changes. The following is a summary of the major areas that we are 
addressing in this final rule:

A. Update Changes

     In section IV. of this preamble, we discuss the annual 
update of the LTC-DRG classifications and relative weights and specify 
that they 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.
     In sections VI. through IX. of this preamble, we specify 
the factors and adjustments used to determine the LTCH PPS rates that 
are applicable to the 2005 LTCH PPS rate year, 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.

B. Policy Changes

     In section V.C.4.c. of this preamble, we discuss our 
extension of the definition of an interruption of a stay to include an 
interruption in which the patient is discharged from the LTCH, and 
returns to the LTCH within 3 days of the original discharge.
     Under section V.C.7. of the preamble to this final rule, 
we specify the procedure for calculating a hospital's inpatient average 
length of stay for purposes of classification as a LTCH when covered 
and noncovered days of the stay involve admission in one cost reporting 
period and discharge in another cost reporting period.
     In section V.C.8. of this preamble, we discuss our 
clarification of the procedures under which a satellite facility or a 
remote location of a hospital must meet the statutory and regulatory 
requirements to qualify as a distinct LTCH. We also provide for a 
clarification of the regulation text that incorporates procedures that 
are already established. That is, in our discussion, we are putting 
forth a reminder that even though the regulations governing provider-
based entities did not specifically address LTCHs at the time, these 
regulations have always been applicable to these providers.

C. Monitoring

    In section X. of this preamble, we discuss our continuing 
monitoring efforts to evaluate the LTCH PPS.

D. Impact

    In section XII. of this preamble, we set forth an analysis of the 
impact of the policy and payment rate changes in this final rule on 
Medicare expenditures and on Medicare-participating LTCHs and Medicare 
beneficiaries.

IV. 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 DRGs 
that have been modified to account for different resource use of LTCH 
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

[[Page 25678]]

records to classify patient cases into distinct 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 hospital inpatient 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 LTCH PPS 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 LTCH PPS 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 International 
Classification of Diseases, Ninth Revision, Clinical Modification (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 types of cases are selected 
for further development:
     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.)
     Cases including surgical procedures not covered under 
Medicare. (For example, organ transplant in a nonapproved transplant 
center.)
     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, 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.)
     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 determines 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

[[Page 25679]]

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 Standards 
provisions.

D. Update of LTC-DRGs

    For FY 2004, the LTC-DRG patient classification system was based on 
LTCH data from the FY 2002 MedPAR file, which contained hospital bills 
data from the December 2002 update. The patient classification system 
consisted of 518 DRGs that formed the basis of the FY 2004 LTCH PPS 
GROUPER. The 518 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 516 LTC-DRGs are the same DRGs used in the IPPS GROUPER for FY 
2004 (Version 21.0).
    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 in the June 6, 2003 LTCH PPS and the August 1, 2003 
IPPS final rules (68 FR 34122 and 68 FR 45376, respectively), we make 
the annual update to the LTCH PPS effective from July 1 through June 30 
each year. As a result, the LTCH PPS uses 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 is necessary for us to apply two GROUPER 
programs to the LTCH PPS. LTCHs will continue to code diagnosis and 
procedures using the most current version of the ICD-9-CM coding 
system.
    Currently, for Federal FY 2004, we are using Version 21.0 of the 
GROUPER software for both the IPPS and the LTCH PPS. Discharges 
beginning on October 1, 2003 and before October 1, 2004 (Federal FY 
2004) are using 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, 2004 
through September 30, 2005, will be presented in the FY 2005 IPPS 
proposed rule that will be published in the Federal Register in the 
spring of 2004 and finalized in a final rule to be published by August 
1, 2004. Accordingly, we will notify LTCHs of any revised LTC-DRG 
relative weights based on the final DRGs and the applicable GROUPER 
version for the IPPS that will be effective October 1, 2004.

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 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 HIPAA 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:
     Diagnoses include all diagnoses that affect the current 
hospital stay.
     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.
     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.
     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

[[Page 25680]]

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 can be accessed on the CMS Web site 
at: http://www.cms.gov/paymentsystems/icd9.
    Section 503(a) of Public Law 108-173 includes a requirement for 
updating ICD-9-CM codes twice a year instead of the current process of 
annual updates on October 1 of each year. These requirements are 
included as part of the amendments to the Act relating to recognition 
of new medical technology under the IPPS. Section 503(a) amended 
section 1886(d)(5)(K) of the Act by adding a new clause (vii) which 
states that ``Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and procedure 
codes in April 1 of each year, but the addition of such codes shall not 
require the Secretary to adjust the payment (or diagnosis-related group 
classification) * * * until the fiscal year that begins after such 
date.'' Because this new statutory requirement would have a significant 
impact on health care providers, coding staff, publishers, system 
maintainers, software systems, among others, we are soliciting comments 
on our proposed provisions. The description of these proposed 
provisions will be published in the Federal Register in the FY 2005 
IPPS proposed rule.
    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 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 annual update of the 
LTCH PPS on July 1 of each year, coders will use the most current 
updated ICD-9-CM coding book, which is effective 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 of 
each year, which is 5 months after the date that we 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 are 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 are 
not 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, the American 
Health Information Management Association (AHIMA), and NCHS), we 
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

[[Page 25681]]

terminated (Coding Clinic for ICD-9-CM, Fourth Quarter 2002, page 129). 
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, we emphasize that each case must be evaluated on its 
unique circumstances and coded appropriately. Depending on the 
documentation in the medical record, either a code reflecting the acute 
condition or rehabilitation 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 LTCH PPS 
final rule (67 FR 55979-55981). Additional coding instructions and 
examples will be published in Coding Clinic for ICD-9-CM.

F. Method for Updating the LTC-DRG Relative Weights

    As discussed in the June 6, 2003 LTCH PPS final rule (68 FR 34131), 
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 1, 2003 IPPS final rule (68 FR 45374-
45384), the LTC-DRG relative weights effective under the LTCH PPS for 
Federal FY 2004 were calculated using the December 2002 update of FY 
2002 MedPAR data and Version 21.0 of the CMS GROUPER software. We use 
total days and total 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 1, 2003 IPPS final rule (68 
FR 45376) for further information on 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 2004 based on the FY 
2002 MedPAR data, we identified 173 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 34 
LTC-DRGs (173/5 = 34 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 1, 2003 final rule (68 FR 45376-45380) for further explanation 
of the development and composition of each of the five low volume 
quintiles for FY 2004.)
    After grouping the cases in the appropriate LTC-DRG, we calculated 
the relative weights by first removing statistical outliers and cases 
with a length of stay of 7 days or less. Next, we adjusted 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 1, 2003 final rule (68 FR 
45376-45385) for further details on the steps for calculating the LTC-
DRG relative weights.)
    We also adjusted the LTC-DRG relative weights to account for 
nonmonotonically increasing relative weights. That is, we made 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 1, 2003 final rule, 68 FR 45381-45382.) In addition, of the 518 
LTC-DRGs in the LTCH PPS for FY 2004, based on the FY 2002 MedPAR data, 
we identified 167 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 2002 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 167 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 2004, we assigned relative weights to 
each of the 167 ``no volume'' LTC-DRGs based on clinical similarity and 
relative costliness to one of the remaining 351 (518-167 = 351) LTC-
DRGs for which we were able to determine relative weights, based on the 
FY 2002 claims data. (A list of the no-volume LTC-DRGs and further 
explanation of their relative weight assignment can be found in the 
August 1, 2003 IPPS final rule (68 FR 45374-45385).)
    Furthermore, for FY 2004, we established 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 affected. At the

[[Page 25682]]

present time, though, we included these six transplant LTC-DRGs in the 
GROUPER program for administrative purposes. As 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 August 1, 2003 IPPS final rule, we will 
continue to use the same LTC-DRGs and relative weights for FY 2004 
until October 1, 2004. Accordingly, Table 3 in the Addendum to this 
final rule lists the LTC-DRGs and their respective relative weights and 
arithmetic mean length of stay that we will continue to use for the 
period of July 1, 2004 through September 30, 2004. (This table is the 
same as Table 3 of the Addendum to the August 1, 2003 IPPS final rule 
(68 FR 45650-45658), except that it includes the five-sixth of the 
average length of stay for short-stay outliers under Sec.  412.529.) As 
we noted earlier, the final DRGs and GROUPER for FY 2005 that will be 
used for the IPPS and the LTCH PPS, effective October 1, 2004, will be 
presented in the IPPS FY 2005 proposed and final rule 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, 2004 and September 30, 2005, based on the final DRGs 
and the applicable GROUPER version that will be published in the IPPS 
rule by August 1, 2004.

V. Changes to the LTCH PPS Rates and Changes in Policy for the 2005 
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 factors used to update the LTCH 
PPS standard Federal rate for the 2005 LTCH PPS rate year that will be 
effective for LTCHs discharges occurring on or after July 1, 2004 
through June 30, 2005.
    When we implemented the LTCH PPS in the August 30, 2002 final rule 
(67 FR 56029-56031), we computed the LTCH PPS standard Federal payment 
rate for FY 2003 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 under Sec.  412.523(d)(2), we set total estimated 
LTCH 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. 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) and for the 2004 LTCH PPS rate year rate, see the June 6, 2003 
final rule (68 FR 34122-34190). Under the existing regulations at Sec.  
412.523(c)(3)(ii), 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 2005 LTCH PPS Rate Year

    As established in the June 6, 2003 final rule (68 FR 34122), based 
on the most recent estimate of the excluded hospital with capital 
market basket, adjusted to account for the change in the LTCH PPS rate 
year update cycle, the LTCH PPS standard Federal rate effective from 
July 1, 2003 through June 30, 2004 (the 2004 LTCH PPS rate year) is 
$35,726.18.
    In the discussion that follows, we explain how we developed the 
standard Federal rate for the 2005 LTCH PPS rate year. The standard 
Federal rate for the 2005 LTCH PPS rate year is calculated based on the 
update factor of 1.031. Thus, the standard Federal rate for the 2005 
LTCH PPS rate year will increase 3.1 percent compared to the 2004 LTCH 
PPS rate year standard Federal rate.
1. Standard Federal Rate Update
    Under Sec.  412.523, the annual update to the LTCH PPS standard 
Federal rate must 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 discussed in the January 30, 2004 proposed rule (69 FR 
4762), because the LTCH PPS has only been implemented for less than 2 
years (that is, 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, we are not addressing an update framework for the 2005 
LTCH PPS rate year in this final rule. 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 2005 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. Currently, the excluded 
hospital market basket is based on operating costs from cost report 
data from FY 1997 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

[[Page 25683]]

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 the August 30, 2002 final rule (67 FR 56016 and 
56086), 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. In the June 6, 2003 final rule (68 FR 34137), we revised and 
rebased the excluded hospital with capital market basket, using more 
recent data, that is, using FY 1997 base year data beginning with the 
2004 LTCH PPS rate year. (For further details on the development of the 
FY 1997-based LTCH PPS market basket, see the June 6, 2003 final rule 
(68 FR 34134-34137)).
    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 June 6, 2003 final rule (68 FR 
34137), 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 
develop a market basket specific to LTCH services.
    As we also discussed in the June 6, 2003 final rule (68 FR 34137), 
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 also discussed in that same final rule (68 FR 
34137), 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.
    As we discussed in the January 30, 2004 proposed rule (69 FR 4763), 
we continue to believe that an excluded hospital with capital market 
basket adequately reflects the price changes facing LTCHs. We 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. We received no comments on the proposed 
market basket for determining the LTCH PPS standard Federal rate for 
the 2005 LTCH PPS rate year. Accordingly, in this final rule, we are 
using the FY 1997-based excluded hospital with capital market basket as 
the LTCH PPS market basket for determining the update to the LTCH PPS 
standard Federal rate for the 2005 LTCH PPS rate year.
    b. LTCH market basket increase for the 2005 LTCH rate year. As we 
discussed in the June 6, 2003 final rule (68 FR 34137), for LTCHs paid 
under the LTCH PPS, we stated that the 2004 rate year update applies to 
discharges occurring from July 1, 2003 through June 30, 2004. Because 
we changed the timeframe of the LTCH PPS standard Federal rate annual 
update from October 1 to July 1, as we explained in that same final 
rule, we calculated an update factor that reflected that change in the 
update cycle. For the update to the 2004 LTCH PPS rate year, we 
calculated the estimated increase between FY 2003 and the 2004 LTCH PPS 
rate year (July 1, 2003 through June 30, 2004). Accordingly, based on 
Global Insight's forecast of the revised and rebased FY 1997-based 
excluded hospital with capital market basket using data from the fourth 
quarter of 2002, we used a market basket update of 2.5 percent for the 
2004 LTCH PPS rate year (68 FR 34138).
    Consistent with our historical practice of estimating market basket 
increases based on Global Insight's forecast of the FY 1997-based 
excluded hospital with capital market basket using more recent data 
from the fourth quarter of 2003, in this final rule, we are using a 3.1 
percent update to the Federal rate for the 2005 LTCH PPS rate year. In 
accordance with Sec.  412.523, this update represents the most recent 
estimate of the increase in the excluded hospital with capital market 
basket for the 2005 LTCH PPS rate year.
2. Standard Federal Rate for the 2005 LTCH PPS Rate Year
    In the June 6, 2003 final rule (68 FR 34140), we established a 
standard Federal rate of $35,726.18 for the 2004 LTCH PPS rate year 
based on the best available data and policies established in that final 
rule. In the January 30, 2004 proposed rule (69 FR 4763), for the 2005 
LTCH PPS rate year, we proposed a standard Federal rate of $36,762.24 
based on the proposed update of 2.9 percent. Since the proposed 2005 
LTCH PPS rate year standard Federal rate was already adjusted for 
differences in case-mix, wages, cost-of-living, and high-cost outlier 
payments, we did not propose to make any additional adjustments in the 
standard Federal rate for these factors.
    In this final rule, in accordance with Sec.  412.523, we are 
establishing a standard Federal rate of $36,833.69 based on the most 
recent estimate of the LTCH PPS market basket of 3.1 percent. Since the 
standard Federal rate for the 2005 LTCH PPS rate year 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 2005 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

[[Page 25684]]

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 (67 FR 
56038), 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 beginning during FY 2004 
(that is, on or after October 1, 2003, and before September 30, 2004), 
blended payments under the transition methodology are based on 60 
percent of the LTCH's reasonable cost-based payment rate and 40 percent 
of the adjusted LTCH PPS Federal rate. For cost reporting periods that 
begin during FY 2005 (that is, on or after October 1, 2004 and before 
September 30, 2005), blended payments under the transition methodology 
will be based on 40 percent of the LTCH's reasonable cost-based payment 
rate and 60 percent of the adjusted LTCH PPS Federal rate.
1. Adjustment for Area Wage Levels
    a. Background. 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. The 
applicable wage index phase-in percentages are based on the start of a 
LTCH's cost reporting period as shown in the following table:

------------------------------------------------------------------------
 Cost reporting periods beginning   Phase-in percentage of the full wage
            on or after                             index
------------------------------------------------------------------------
October 1, 2002...................  1/5th (20 percent)
October 1, 2003...................  2/5ths (40 percent)
October 1, 2004...................  3/5ths (60 percent)
October 1, 2005...................  4/5ths (80 percent)
October 1, 2006...................  5/5ths (100 percent)
------------------------------------------------------------------------

    For example, for cost reporting periods beginning on or after 
October 1, 2004 and before September 30, 2005 (FY 2005), the applicable 
LTCH wage index value would be three-fifths of the applicable full wage 
index value without taking into account geographic reclassification 
under sections 1886(d)(8) and (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 discussed in the June 6, 2003 final rule (68 FR 34140), because the 
LTCH PPS has only been implemented for less than 2 years, 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, in that same final rule, we explained that we had 
reviewed the most recent data available at that time and did not find 
any evidence to support a change in the 5-year phase-in of the wage 
index.
    In the January 30, 2004 proposed rule (69 FR 4764), we stated that 
because of the recent implementation of the LTCH PPS and the lag time 
in availability of cost report data, we still do not yet have 
sufficient new data to allow us to conduct a comprehensive reevaluation 
of the appropriateness of the phase-in of the wage index adjustment. As 
we discussed in that same proposed rule, 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. Accordingly, we did not propose a 
change in the phase-in of the wage index data. We received no comments, 
and therefore, at this time, we are not adjusting the phase-in of the 
wage index adjustment in this final rule.
    b. Wage Index Data. In the June 6, 2003 final rule (68 FR 34142), 
for the 2004 LTCH PPS rate year, we established that we will use the 
same data that was 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 
because that was the best available data at that time. The acute care 
hospital inpatient wage index data is also used in the inpatient 
rehabilitation PPS (IRF PPS), the home health agency PPS (HHA PPS), and 
the skilled nursing facility PPS (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 because 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 the January 30, 2004 proposed rule (69 FR 4764), for the 2005 
LTCH PPS rate year, we proposed to use the same data used to compute 
the FY 2004 acute care hospital inpatient wage index without taking 
into account geographic reclassifications under sections

[[Page 25685]]

1886(d)(8) and (d)(10) of the Act to determine the applicable wage 
index values under the LTCH PPS, because these are the most recent 
available complete data. These data are the same wage data that were 
used to compute the FY 2004 wage indices currently used under the IPPS 
and SNF PPS. (We note that in the January 30, 2004 proposed rule, we 
mistakenly stated that these data are the same wage data that were used 
to compute the FY 2003 wage indices currently used under the IPPS and 
SNF PPS. We should have said that the proposed wage index values for 
the 2005 LTCH PPS rate year were computed from the same data used to 
calculate the FY 2004 wage indices currently used under the IPPS and 
SNF PPS. Also, in the January 30, 2004 proposed rule, in the example of 
how the proposed LTCH PPS wage index values for discharges occurring on 
or after July 1, 2004 through June 30, 2005 would be applied for LTCHs' 
cost reporting periods beginning during FY 2005, we mistakenly stated 
that the applicable wage index value would be three-fifths of the full 
FY 2005 acute care hospital inpatient wage index data, without taking 
into account geographic reclassification under sections 1886(d)(8) and 
(d)(10) of the Act. We should have said that the wage index values for 
the 2005 LTCH PPS rate year for LTCHs' cost reporting periods during FY 
2005 would be three-fifths of the full FY 2004 acute care hospital 
inpatient wage index data, without taking into account geographic 
reclassification under sections 1886(d)(8) and (d)(10) of the Act. The 
proposed wage index values shown in Tables 1 and 2 in the Addendum of 
the January 30, 2004 proposed rule (69 FR 4790-4808) were correct.
    We received no comments on the proposed wage index for the 2005 
LTCH PPS rate year. Accordingly, in this final rule, we are 
establishing LTCH PPS wage index values for the 2005 LTCH PPS rate year 
calculated from the same data used to compute the FY 2004 acute care 
hospital inpatient wage index data without taking into account 
geographic reclassification under sections 1886(d)(8) and (d)(10) of 
the Act. The LTCH wage index values applicable for discharges occurring 
on or after July 1, 2004 through June 30, 2005 are shown in Table 1 
(for urban areas) and Table 2 (for rural areas) in the Addendum to this 
final rule.
    As noted above, the applicable wage index phase-in percentages are 
based on the start of a LTCH's cost reporting period beginning on or 
after October 1st of each year during the 5-year transition period. For 
cost reporting periods beginning on or after October 1, 2003 and before 
September 30, 2004 (FY 2004), the labor portion of the standard Federal 
rate will be adjusted by two-fifths of the applicable LTCH wage index 
value. Specifically, for a LTCH's cost reporting period beginning 
during FY 2004, for discharges occurring on or after July 1, 2004 
through June 30, 2005, the applicable wage index value will be two-
fifths of the full FY 2004 acute care hospital inpatient wage index 
data, without taking into account geographic reclassifications under 
sections 1886(d)(8) and (d)(10) of the Act as shown in Tables 1 and 2 
in the Addendum to this final rule. Similarly, for cost reporting 
periods beginning on or after October 1, 2004 and before October 1, 
2005 (FY 2005), the labor portion of the standard Federal rate will be 
adjusted by three-fifths of the applicable LTCH wage index value. 
Specifically, for a LTCH's cost reporting period beginning during FY 
2005, for discharges occurring on or after July 1, 2004 through June 
30, 2005, the applicable wage index value will be three-fifths of the 
full FY 2004 acute care hospital inpatient wage index data, without 
taking into account geographic reclassification under sections 
1886(d)(8) and (d)(10) of the Act as shown in Tables 1 and 2 in the 
addendum to this final rule.
    Because the phase-in of the wage index does not coincide with the 
LTCH PPS rate year (July 1st through June 30th), most LTCHs will 
experience a change in the wage index phase-in percentages during the 
LTCH PPS rate year. For example, during the 2005 LTCH PPS rate year, 
for a LTCH with a January 1st fiscal year, the two-fifths wage index 
will be applicable for the first 6 months of the 2005 LTCH PPS rate 
year (July 1, 2004 through December 31, 2004) and the three-fifths wage 
index will be applicable for the second 6 months of the 2005 LTCH PPS 
rate year (January 1, 2005 through June 30, 2005). We also note that 
some providers will still be in the first year of the 5-year phase-in 
of the LTCH wage index (that is, those LTCHs with cost reporting 
periods that began during FY 2003 and are ending during the first 3 
months of the 2005 LTCH PPS rate year (July 1, 2004 through September 
30, 2004). For the remainder of those LTCHs' FY 2003 cost reporting 
periods, for discharges occurring on or after July 1, 2004 through June 
30, 2005, the applicable wage index value will be one-fifth of the full 
FY 2004 acute care hospital inpatient wage index data, without taking 
into account geographic reclassification under sections 1886(d)(8) and 
(d)(10) of the Act as shown in Tables 1 and 2 in the Addendum to this 
final rule. As noted above, we received no comments on the proposed 
wage index values for the 2005 LTCH PPS rate year, and, therefore, we 
have adopted them as final in this final rule.
    c. Labor-related share. 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 based 
on FY 1992 data. In the June 6, 2003 final rule (68 FR 34142), in 
conjunction with our revision and rebasing of the excluded hospital 
with capital market basket from an FY 1992 to an FY 1997 base year, we 
used a labor-related share that is determined 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 of the excluded 
hospital with capital market basket based on FY 1997 data. While we 
adopted the revised and rebased FY 1997-based LTCH PPS market basket as 
the LTCH PPS update factor for the 2004 LTCH PPS rate year, we decided 
not to update the labor-related share under the LTCH PPS pending 
further analysis. Accordingly, the labor-share for the 2004 LTCH PPS 
rate year was 72.885 percent.
    In the August 1, 2002 IPPS final rule (67 FR 50041-50042), we did 
not use a revised labor-related share for FY 2004 because we had not 
yet completed our research into the appropriateness of this updated 
measure. In that rule, we discussed two methods that we were 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. We also explained 
that we would continue to explore all options for alternative data and 
a methodology for determining the labor-related share, and would 
propose to update the IPPS and excluded hospital labor-related shares, 
if necessary, once our research is complete.
    As we explained in the August 30, 2002 final rule, which 
implemented the LTCH PPS, the June 6, 2003 LTCH PPS final rule, and the 
June 9, 2003 high-cost outlier final rule, the LTCH PPS was modeled 
after the IPPS for short-term, acute care hospitals. Specifically, the 
LTCH PPS uses the same patient

[[Page 25686]]

classification system (CMS-DRGs) as the IPPS, and many of the case-
level and facility-level adjustments explored or adopted for the LTCH 
PPS are payment adjustments under the IPPS (that is, wage index, high-
cost outliers, and the evaluation of adjustments for indirect teaching 
costs and the treatment of a disproportionate share of low-income 
patients).
    Furthermore, as discussed in greater detail in the August 30, 2002 
LTCH PPS 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 qualify for payment under the LTCH PPS instead of 
the IPPS solely because their inpatient average length of stay is 
greater than 25 days, in accordance with section 1886(d)(1)(B)(iv)(I) 
of the Act, implemented in Sec.  412.23(e). In the June 6, 2003 LTCH 
PPS final rule (68 FR 34144), we explained that prior to qualifying as 
a LTCH under Sec.  412.23(e)(2)(i), hospitals generally are paid as 
acute care hospitals under the IPPS during the period in which they 
demonstrate that they have an average Medicare inpatient length of stay 
of greater than 25 days.
    The primary reason that we did not update the LTCH PPS labor-
related share for the 2004 LTCH PPS rate year was due to the same 
reason that we explained for not updating the labor-related share under 
the IPPS for FY 2004 in the August 1, 2003 IPPS (68 FR 27226) which are 
equally applicable to the LTCH PPS. We did not revise the labor-related 
share under the IPPS based on the revised and rebased FY 1997 hospital 
market basket and the excluded hospital market basket because of data 
and methodological concerns. We indicated that we would conduct further 
analysis to determine the most appropriate methodology and data for 
determining the labor-related share.
    Section 403 of the Medicare Prescription Drug and Modernization Act 
of 2003 (enacted December 8, 2003, Pub. L. 108-173) amends section 
1886(d) of the Act to provide that for discharges occurring on or after 
October 1, 2004, the labor-related share under the IPPS is reduced to 
62 percent if such a change would result in higher total payments to 
the hospital. While the statute provides the option to hospitals of 
using an alternative to the current IPPS labor-related share (71 
percent), the statute does not address updating the current IPPS labor-
related share. We intend to discuss the details of implementing this 
provision in the IPPS proposed rule for FY 2005.
    As we discussed in the January 30, 2004 proposed rule (69 FR 4765), 
although section 403 of Public Law 108-173 provides for an alternative 
labor share percentage, this alternative only applies to hospitals paid 
under the IPPS and not to LTCHs. Consequently, since we have not yet 
implemented a change in the labor-share methodology used under the 
IPPS, and the alternative provided at section 403 does not apply to 
LTCHs, we did not propose to change the LTCH PPS labor-share for the 
2005 LTCH PPS rate year. We received no comments on our proposal to 
retain the current labor-related share for the 2005 LTCH PPS rate year.
    Accordingly, the labor-related share for the 2005 LTCH PPS rate 
year will remain at 72.885 percent. As is the case under the IPPS, once 
our research on the labor-related share is complete, any future 
revisions to the LTCH PPS labor-related share will be proposed and 
subject to public comment.
2. Adjustment for Cost-of-Living in Alaska and Hawaii
    In the August 30, 2002 final rule (67 FR 56022), we established, 
under Sec.  412.525(b), a cost-of-living adjustment (COLA) for LTCHs 
located in Alaska and Hawaii to account for the higher costs incurred 
in those States. (We note that the OFR inadvertently omitted Sec.  
412.525(b) in the current version of the CFR (revised as of October 1, 
2003). The OFR is aware of this error and will be making the necessary 
correction in the near future.) In the January 30, 2004 proposed rule 
(69 FR 4765), for the 2005 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 I. below. These factors are obtained from the U.S. Office of 
Personnel Management (OPM) and are currently used under the IPPS. In 
addition, in that same proposed rule, we proposed that if OPM released 
revised COLAS factors before March 1, 2004, we would use them for the 
development of the payments and publish then in the LTCH PPS final 
rule.
    The OPM has not released revised COLA factors for Alaska and Hawaii 
since the publication of the January 30, 2004 proposed rule. We 
received no comments on the proposed COLA factors for Alaska and Hawaii 
for the 2005 LTCH PPS rate year. Therefore, under Sec.  412.525(b), we 
are finalizing the COLA factors for Alaska and Hawaii shown below in 
Table I for the 2005 LTCH PPS rate year.

    Table I.--Cost-of-Living Adjustment Factors for Alaska and Hawaii
                Hospitals for the 2005 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
    a. Background. 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. Outlier payments under the LTCH PPS 
are determined consistent with the IPPS outlier policy.
    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

[[Page 25687]]

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.
    Currently, under both the LTCH PPS and the IPPS, only a maximum 
cost-to-charge ratio threshold (ceiling) is applied to a hospital's 
cost-to-charge ratio and, as discussed in the June 9, 2003 high-cost 
outlier final rule (68 FR 34506-34507) for discharges occurring on or 
after August 8, 2003, a minimum cost-to-charge ratio threshold (floor) 
is no longer applicable. Thus, if a LTCH's cost-to-charge ratio is 
above the ceiling, 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 cost-to-charge ratio. Currently, MedPAR claims data 
and cost-to-charge ratios based on the latest available cost report 
data from Hospital Cost Report Information System (HCRIS) and 
corresponding MedPAR claims data are used to establish a fixed-loss 
threshold amount under the LTCH PPS.
    In the June 9, 2003 high-cost outlier final rule (68 FR 34507), 
consistent with the outlier policy changes for acute care hospitals 
under the IPPS discussed in that same final rule, we no longer assign 
the applicable statewide average cost-to-charge ratio when a LTCH's 
cost-to-charge ratio falls below the minimum cost-to-charge ratio 
threshold (floor). We made 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), 
previously when a LTCH's actual cost-to-charge ratio fell below the 
floor, the LTCH's cost-to-charge ratio was raised to the applicable 
statewide average cost-to-charge ratio. This application of the 
statewide average resulted in inappropriately high outlier payments. 
Accordingly, for LTCH PPS discharges occurring on or after August 8, 
2003, in making outlier payments under Sec.  412.525 (and short-stay 
outlier payments under Sec.  412.529), we 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 June 9, 2003 high-cost outlier final rule (68 FR 
34507), consistent with the policy change for acute care hospitals 
under the IPPS, under Sec.  412.525(a)(4), by cross-referencing Sec.  
412.84(i), we established that we will continue to apply the applicable 
statewide average cost-to-charge ratio when a LTCH's cost-to-charge 
ratio exceeds the maximum cost-to-charge ratio threshold (ceiling) by 
adopting the policy at Sec.  412.84(i)(3)(ii). As we explained in that 
same final rule, cost-to-charge ratios above this range are probably 
due to faulty data reporting or entry. Therefore, these cost-to-charge 
ratios 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 made 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 change 
mirrors that for high-cost outliers.
    b. Establishment of the fixed-loss amount. In the June 6, 2003 
final rule (68 FR 34144), for the 2004 LTCH PPS rate year, we used 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 final rule, because these data were the best data 
available. We calculated cost-to-charge ratios for determining the 
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 that same final rule, in determining the fixed-loss amount for 
the 2004 LTCH PPS rate year (using the outlier policy under Sec.  
412.525(a) in effect on July 1, 2003), we used the current combined 
operating and capital cost-to-charge ratio floor and ceiling under the 
IPPS of 0.206 and 1.421, respectively (as explained in the IPPS final 
rule (67 FR 50125, August 1, 2002)). As we discussed in the June 9, 
2003 high-cost outlier final rule (68 FR 34508), we concluded that it 
was not necessary to recalculate a new fixed-loss amount once the 
changes to the outlier policy discussed in that final rule became 
effective because the difference between the fixed-loss amount 
determined with or without the application of the floor would be 
negligible.
    If a LTCH's cost-to-charge ratio was below this floor or above this 
ceiling, we assigned the applicable IPPS statewide average cost-to-
charge ratio. We also assigned 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 methodology and data 
described above, in the June 6, 2003 final rule (68 FR 34144), for the 
2004 LTCH PPS rate year, we established a fixed-loss amount of $19,590. 
Thus, during the 2004 LTCH PPS rate year, we 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).
    Also, in the June 6, 2003 final rule (68 FR 34145), we established 
that beginning with the 2004 LTCH PPS rate year, we will 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 the beginning of the 
LTCH PPS rate year (that is, July 1, 2003 for the 2004 LTCH PPS rate 
year). Therefore, for the 2004 LTCH PPS rate year, we established a 
single fixed-loss amount based on the Version 20.0 of the GROUPER, 
which was in effect at the start of the 2004 LTCH PPS rate year (July 
1, 2003). As we noted above, the fixed-loss amount for the 2004 LTCH 
PPS rate year is $19,590.
    As we proposed in the January 30, 2004 proposed rule, in 
calculating the fixed-loss amount for the 2005 LTCH PPS rate year, we 
applied the current outlier policy under Sec.  412.525(a); that is, we 
assigned the applicable statewide average cost-to-charge ratio only to 
LTCHs whose cost-to-charge ratios exceeded the ceiling (and not when 
they fell below the floor). Accordingly, we used the current IPPS 
combined operating and capital cost-to-charge ratio ceiling of 1.366 
(as explained in the IPPS final rule (68 FR 45478, August 1, 2003)). We 
believed that using the current combined IPPS operating and capital 
cost-to-charge ratio 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.
    As stated in the January 30, 2004 proposed rule (69 FR 4766-4767), 
for the 2005 LTCH PPS rate year, we used the December 2002 update of 
the FY 2002 MedPAR claims data to determine a proposed fixed-loss 
amount 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 those data were the best LTCH data available at 
that time. In that same proposed rule, we explained that we considered 
using claims data from the September 2003 update of the FY 2003 MedPAR 
to determine the proposed fixed-loss amount (and the proposed budget 
neutrality offset discussed in section V.C.6. of this preamble) for the 
2005 LTCH PPS rate year. However, initial analysis has shown that the 
FY

[[Page 25688]]

2003 MedPAR data contain coding errors. As in the case with the FY 2002 
MedPAR, we have learned that a large hospital chain of LTCHs had 
continued to consistently code diagnoses inaccurately on the claims it 
submitted, and these coding errors were reflected in the September 2003 
update of the FY 2003 MedPAR data. Those coding inaccuracies in the 
MedPAR claims data could have caused significant skewing of the fixed-
loss amount and would have impacted the determination of the budget 
neutrality offset.
    While we have corrected the coding inaccuracies in the FY 2002 
MedPAR, we were unable to correct the coding errors in the FY 2003 
MedPAR in time for publication of the January 30, 2004 proposed rule 
since the correction process required extensive programming work. 
Accordingly, we used the December 2002 update of the FY 2002 MedPAR 
claims data to determine the proposed fixed-loss amount of $21,864 for 
the 2005 LTCH PPS rate year. Thus, we proposed to pay an outlier case 
80 percent of the difference between the estimated cost of the case and 
the proposed outlier threshold (the sum of the proposed adjusted 
Federal LTCH PPS payment for the LTC-DRG and the proposed fixed-loss 
amount of $21,864). We also stated that we expected to be able to use 
FY 2003 MedPAR data (corrected, if necessary) to calculate the fixed 
loss amount for the 2005 LTCH PPS rate year in this final rule.
    We have reviewed LTCH claims data from the December 2003 update of 
the FY 2003 MedPAR data and it appears that the coding errors that were 
found previously in the September 2003 update of the FY 2003 MedPAR 
(discussed in the January 30, 2004 proposed rule (69 FR 4774)) have 
been corrected. Specifically, upon discovering the coding errors, we 
notified the large chain of LTCHs whose claims contained the coding 
inaccuracies to request that they resubmit those claims with the 
correct diagnoses codes by December 31, 2003 so that those corrected 
claims would be contained in the December 2003 update of the FY 2003 
MedPAR data. It appears that those claims were submitted timely with 
the correct diagnoses codes, therefore, it was not necessary for us to 
correct the FY 2003 MedPAR data for the development of the rates and 
factors established in this final rule. Accordingly, we are using the 
December 2003 update of the FY 2003 MedPAR data to determine the fixed-
loss amount for the 2005 LTCH PPS rate year established in the this 
final rule, as it is the best available data at this time.
    Comment: One commenter noted that CMS proposed a fixed-loss amount 
of $21,864 for the 2005 LTCH PPS rate year based on FY 2002 MedPAR 
claims data due to coding errors found in the FY 2003 MedPAR claims 
data, and that CMS plans on using the corrected FY 2003 MedPAR claims 
data to calculate the fixed-loss amount for the final rule. The 
commenter believed that, as a result of the fact that a large hospital 
chain of LTCHs continued to make coding errors, other LTCHs would be 
deprived of the opportunity to make meaningful comments. The commenter 
recommended that the revised fixed-loss amount should be published in 
an interim final rule in order to allow for meaningful comments.
    Response: As with all other Medicare prospective payment systems, 
the data that we use both for the proposed and final rules, to 
determine the rates, adjustments and other factors under the LTCH PPS, 
including the fixed-loss amount, is always the best data available at 
the time we are determining a rate. As we stated in the January 30, 
2004 proposed rule, we expected to use the FY 2003 MedPAR data to 
calculate the final fixed-loss amount for the 2005 LTCH PPS rate year 
in this final rule. Thus, the commenters were given adequate notice for 
meaningful comment on our proposal. In addition, we note that this data 
became available to the public at the end of February 2004, which was 
at least 3 weeks prior to the close of the 60-day public comment period 
that ended on March 23, 2004. We believe that this data was 
sufficiently available to those interested in accessing the data, and 
to ensure that we correctly applied the methodology that we established 
to compute the fixed-loss amount in the August 30, 2002 final rule when 
we implemented the LTCH PPS using the FY 2003 MedPAR data. Thus, 
because the methodology that we use to calculate the fixed-loss amount 
in both the proposed rule and in this final rule continues to be the 
same as the methodology established in the August 30, 2002 LTCH PPS 
final rule (67 FR 56022-56027) when the LTCH PPS was implemented (that 
is, we determine a fixed-loss amount that would result in outlier 
payments projected to be equal to 8 percent of total payments under the 
LTCH PPS), the public had the opportunity to use the most recently 
available FY 2003 MedPAR data to calculate of the applicable fixed-loss 
amount prior to the close of the comment period. To the extent that the 
public disagreed with the outcome, they could have written to us during 
the comment period, and we would have addressed their concerns. 
However, we did not receive any comments.
    Accordingly, we do not believe it is necessary or appropriate to 
publish the final fixed-loss amount for the 2005 LTCH PPS rate year in 
a separate notice. However, if LTCHs have concerns regarding the 
calculation of the fixed-loss amount for the 2005 LTCH PPS rate year 
established in this final rule based on the FY 2003 MedPAR claims data, 
they may bring those concerns to our attention. Based on those 
concerns, if we determine that our established methodology for 
determining the fixed loss amount was applied incorrectly, we would 
take the necessary steps to correct the fixed-loss amount prospectively 
in accordance with the Administrative Procedure Act.
    Furthermore, as noted above, we determined the fixed-loss amount 
for the 2005 LTCH PPS rate year established in this final rule based on 
the version of the GROUPER that will be in effect as of the beginning 
of the 2005 LTCH PPS rate year (July 1, 2004), that is, Version 21.0 of 
the LTCH PPS GROUPER (68 FR 45374-45385). Consistent with our 
historical practice of using the most recent available data, we 
computed cost-to-charge ratios for determining the fixed-loss amount 
for the 2005 LTCH PPS rate year based on the latest available cost 
report data in HCRIS and corresponding MedPAR claims data from FYs 
1999, 2000, 2001 and 2002. (We note that FY 2002 data was not used to 
compute cost-to-charge ratios in the proposed rule because it was not 
available at the time of the development of the proposed rule. The 
limited amount of FY 2002 data available to use to compute the cost-to-
charge ratios used for determining the fixed-loss amount established in 
this final rule has resulted in very little change in the cost-to-
charge ratios used in the proposed rule compared to those used in this 
final rule. Our methodology for calculating the cost-to-charge ratios 
remains the same.) As we explained above, the current applicable IPPS 
statewide average cost-to-charge ratios were applied when a LTCH's 
cost-to-charge ratio exceeded the ceiling (1.366). In addition, 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, 2003 IPPS final rule (68 FR 45637-45638).)
    Based on the data and policies described in this final rule, we are 
establishing a fixed-loss amount of $17,864 for the 2005 LTCH PPS rate

[[Page 25689]]

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 $17,864).
    The final fixed-loss amount of $17,864 for the 2005 LTCH PPS rate 
year is lower than the $21,864 fixed-loss amount we had proposed for 
the 2005 LTCH PPS rate year and lower than the current fixed-loss 
amount of $19,590 for the 2004 LTCH PPS rate year. Both the current 
fixed-loss amount for the 2004 LTCH PPS rate year and the proposed 
fixed-loss amount for the 2005 LTCH PPS rate year were computed using 
the December 2002 update of the FY 2002 MedPAR data (as explained in 
detail in the June 6, 2003 final rule (68 FR 34145) and the January 30, 
2004 proposed rule (69 FR 4774), respectively). As discussed above, we 
used the December 2003 update of the FY 2003 MedPAR data to determine 
the final fixed-loss amount for the 2005 LTCH PPS rate year established 
in this final rule because it is the best available data at this time. 
Our methodology for calculating the fixed-loss amount remains the same.
    c. Reconciliation of outlier payments upon cost report settlement. 
In the June 9, 2003 high-cost outlier final rule (68 FR 34508-34512), 
we made changes to the LTCH outlier policy consistent with those made 
for acute care hospitals under the IPPS because, as we discussed in 
that same final rule, we became aware that payment vulnerabilities 
existed in the previous 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 were susceptible to the same 
payment vulnerabilities and, therefore, also merited revision. 
Consistent with the change made for acute care hospitals under the IPPS 
at Sec.  412.84(m), we established under Sec.  412.525(a)(4)(ii), by 
cross-referencing Sec.  412.84(m), that effective for LTCH PPS 
discharges occurring on or after August 8, 2003, any reconciliation of 
outlier payments may be made upon cost report settlement to account for 
differences between the actual cost-to-charge ratio and the estimated 
cost-to-charge ratio for the period during which the discharge occurs. 
As is the case with the changes made to the outlier policy for acute 
care hospitals under the IPPS, the instructions for implementing these 
regulations are discussed in further detail in Program Memorandum 
Transmittal A-03-058. In addition, in that same final rule (68 FR 
34513), we established a similar change to the short-stay outlier 
policy at Sec.  412.529(c)(5)(ii).
    We also discussed in the June 9, 2003 IPPS high-cost outlier final 
rule (68 FR 34507-34512) that only using cost-to-charge ratios based on 
the latest settled cost report does not reflect any dramatic increases 
in charges during the payment year when making outlier payments. 
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 that same final rule (68 FR 
34494-34515), consistent with the policy change for acute care 
hospitals under the IPPS at Sec.  412.84(i)(2), we established that, 
for LTCH PPS discharges occurring on or after October 1, 2003, fiscal 
intermediaries will use more recent data when determining a LTCH's 
cost-to-charge ratio. Therefore, by cross-referencing Sec.  
412.84(i)(2) under Sec.  412.525(a)(4)(iii), we established that fiscal 
intermediaries will use either the most recent settled cost report or 
the most recent tentative settled cost report, whichever is from the 
later period. In addition, in that same final rule, we established a 
similar change to the short-stay outlier policy at Sec.  
412.529(c)(5)(iii).
    d. Application of outlier policy to short-stay outlier cases. As we 
discussed 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 
V.B.4. 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 case in the 2005 LTCH 
PPS rate year, the high-cost outlier payment will be 80 percent of the 
difference between the estimated cost of the case and the outlier 
threshold (the sum of the fixed-loss amount of $17,864 and the amount 
paid under the short-stay outlier policy).
    Based on a comparison of the LTCH claims from the FY 2002 MedPAR 
data and the FY 2003 MedPAR data for the 266 LTCHs which had claims in 
both data sets, we found that the average LTC-DRG relative weight 
(based on the Version 21.0 GROUPER, as discussed above) assigned to 
each case increased 2.7 percent from FY 2002 to FY 2003. In addition, 
we found that the average covered charge per discharge (inflated to 
2005 LTCH PPS rate year) increased 3.3 percent from FY 2002 to FY 2003 
and total LTCH PPS payments per discharge (based on FY 2002 MedPAR 
data) increased 7.3 percent compared to total LTCH PPS payments per 
discharge estimated in this final rule (based on FY 2003 MedPAR data).
    Our analysis indicates that this increase in LTCH PPS payments per 
discharge between the LTCH claims in the FY 2002 MedPAR data and the 
LTCH claims in the FY 2003 MedPAR data is largely attributable to the 
increase in the average LTC-DRG relative weight per discharge and the 
increase in the average covered charge per discharge. The increase in 
the average LTC-DRG relative weight assigned to each case from FY 2002 
MedPAR compared to FY 2003 MedPAR data indicates that, on average, LTCH 
patients are being assigned to LTC-DRGs that have a higher relative 
weight, and, therefore, generally receive a higher LTCH PPS payment. 
This results in an increase in total LTCH PPS payments system-wide. In 
accordance with Sec.  412.523(d)(1), we reduce the standard Federal 
rate by 8 percent for the estimated proportion of LTCH PPS outlier 
payments. Because the average payment per discharge has increased, 
thereby increasing total LTCH PPS payment, the fixed-loss amount must 
be lowered in order to maintain total outlier payments that are 
projected to equal 8 percent of total payments under the LTCH PPS.
    As we noted above, because the LTCH PPS has only been implemented 
for less than 2 years, sufficient new data have not been generated that 
would enable us to conduct a comprehensive analysis to determine the 
factors contributing to the increase in the average LTC-DRG relative 
weight assigned to each case. As discussed in section X. of this 
preamble, we intend to monitor trends in the LTCHs' Medicare payments 
and costs once sufficient data under the LTCH PPS has been generated. 
For example, we may conduct medical record reviews of LTCH Medicare 
patients to ensure that proper coding practices are being employed.
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.

[[Page 25690]]

    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 inpatient 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 55954), these cases 
would be paid inappropriately if the hospital were to receive the full 
LTC-DRG payment. Below we discuss the payment methodology for these 
special cases as implemented in the August 30, 2002 final rule (67 FR 
56002-56010).
    b. Adjustment for 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.
    Generally, LTCHs are defined by statute as having an average 
inpatient 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 this 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, in general, 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 noted in section V.C.3. of this preamble, in the June 9, 2003 
high-cost outlier final rule (68 FR 34494-34515), we revised the 
methodology for determining cost-to-charge ratios for acute care 
hospitals under the IPPS because we became aware that payment 
vulnerabilities existed in the previous IPPS outlier policy. As we also 
explained in that same final 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 were susceptible to the same 
payment vulnerabilities and, therefore, merited revision. Consistent 
with the policy established for acute care hospitals under the IPPS at 
Sec.  412.84(i) and (m) in the June 9, 2003 high-cost outlier final 
rule (68 FR 34515), and similar to the policy change described above 
for LTCH PPS high-cost outlier payments at Sec.  412.525(a)(4)(ii), we 
established under Sec.  412.529(c)(5)(ii) that for discharges on or 
after August 8, 2003, short-stay outlier payments are subject to the 
provisions in the regulations at Sec.  412.84(i)(1), (i)(3) and (i)(4), 
and (m). In addition, short-stay outlier payments are subject to the 
provisions in the regulations at Sec.  412.84(i)(2) for discharges on 
or after October 1, 2003 in accordance with Sec.  412.529(c)(5)(iii). 
Therefore, in the June 9, 2003 high-cost outlier final rule (68 FR 
34508-34513), under Sec.  412.529(c)(5)(ii), by cross-referencing Sec.  
412.84(i)(2), we established that fiscal intermediaries will use either 
the most recent settled cost report or the most recent tentative 
settled cost report, whichever is from the later period, in determining 
a LTCH's cost-to-charge ratio.
    In addition, by cross-referencing Sec.  412.84(i), we established 
that the applicable statewide average cost-to-charge ratio is only 
applied when a LTCH's cost-to-charge ratio exceeds the ceiling. Thus, 
the applicable statewide average cost-to-charge ratio is no longer 
applied when a LTCH's cost-to-charge ratio falls below the floor. 
Furthermore, by cross-referencing Sec.  412.84(i)(4), we established 
that any reconciliation of payments for short-stay outliers may 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. As noted in the 
discussion of the high-cost outlier policy in section V.C.3. of this 
preamble, the instructions for implementing these regulations are 
discussed in further detail in Program Memorandum Transmittal A-03-058.
    In the June 6, 2003 final rule (68 FR 34146-34148), for certain 
hospitals that 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), we 
established a temporary adjustment to the short-stay outlier policy 
during the 5-year transition period. Under Sec.  412.529(c)(4), 
effective for discharges from a ``subclause (II)'' LTCH occurring on or 
after July 1, 2003, the short-stay outlier percentage is 195 percent 
during the first year of the hospital's 5-year transition. For the 
second cost reporting period, the short-stay outlier percentage is 193 
percent; for the third cost reporting period, the percentage is 165 
percent; for the fourth cost reporting period, the percentage is 136 
percent; and for the final cost reporting period of the 5-year 
transition (and future cost reporting periods), the short-stay outlier 
percentage is 120 percent, that is, the same as it is for all other 
LTCHs under the LTCH PPS.
    As we discussed in the June 6, 2003 final rule (68 FR 34147), we 
established this formula with the expectation that an adjustment to 
short-stay outlier 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.
    As we stated in that same final rule, 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 did not propose any changes to the short-stay outlier 
policy in the January 30, 2004 proposed rule (69 FR 4768). We received 
no comments on the existing short-stay outlier policy at Sec.  412.529.
    c. Extension of the interrupted stay policy. At existing Sec.  
412.531(a), we define an ``interruption of a stay'' as a stay at a LTCH 
during which a Medicare inpatient is transferred upon discharge 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. (We also include transfers to swing beds 
under this interrupted stay policy for LTCH payment policy 
determinations, consistent with the SNF PPS payment policy. That is, 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 has the same policy consequence as a 
readmission to the LTCH from an onsite SNF (June 6, 2003, 68 FR 
34149).)
    As defined in the previous paragraph, an interrupted stay is 
treated as one discharge from the LTCH. The day-count of the applicable 
fixed-day period of an interrupted stay begins on the day of discharge 
from the LTCH (which is also the day of admission to the other site of 
care). For a discharge to an acute care hospital, the applicable fixed-
day

[[Page 25691]]

period is 9 days, for an IRF, 27 days, and for a SNF 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, after the discharge.
    If the patient is readmitted to the LTCH within the fixed-day 
threshold, return to the LTCH is considered part of the first admission 
and only a single LTCH PPS payment will be made. For example, if a LTCH 
patient is discharged to an acute hospital and is readmitted to the 
LTCH on any day up to and including the 9th day following the original 
day of discharge from the LTCH, one LTC-DRG payment will be made. If 
the patient is readmitted to the LTCH from the acute care hospital on 
the 10th day after the original discharge or later, Medicare will pay 
for the second admission as a separate stay with an additional LTC-DRG 
assignment. In implementing this policy, we provide that, in the event 
a Medicare inpatient is discharged from a LTCH and is readmitted and 
the stay qualifies as an interrupted stay, the provider must cancel the 
claim generated by the original stay in the LTCH and submit one claim 
for the entire stay. (For further details, see Medicare 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 payments would be made. One would be based on 
the principal diagnosis and length of stay for the first admission and 
the other based on the principal diagnosis and length of stay for the 
second admission. Depending upon their lengths of stay, both stays 
could result in payments as a short-stay outlier (Sec.  412.529), a 
full LTC-DRG, or even a high-cost outlier. Further, if the principal 
diagnosis is the same for both admissions, the hospital could receive 
two similar payments. It is also important to note that under the 
existing interrupted stay policy, a separate Medicare payment is made 
to the intervening provider under that provider's payment system.
    When we introduced the interrupted stay policy for LTCHs in the 
August 30, 2002 final rule (67 FR 56002-56006), we noted that we would 
consider expanding or revising the policy based on information received 
from the provider community or information gained from our ongoing 
monitoring activities. During the first year of the LTCH PPS, it has 
come to our attention, from both of these sources, that certain LTCHs 
are discharging patients during the course of their treatment for the 
sole purpose of receiving specific tests or procedures from another 
facility (that should have been furnished under arrangements by the 
LTCHs), and then readmitting the patient to the LTCH following the 
administration of the test or procedure. In other words, these patients 
do not stop receiving medical care that must be considered LTCH 
inpatient services during the period between their discharge from and 
readmission to the LTCH. On the contrary, they continue to receive 
care, often of a highly specialized type, from the other facility 
before being readmitted for further inpatient care at the LTCH. This 
sequence of care suggests that the original discharge from the LTCH may 
be motivated by financial considerations rather than by clinical 
judgment and, therefore, would be inappropriate.
    Existing regulations at Sec.  412.509(c) require a LTCH to furnish 
all necessary covered services for a Medicare beneficiary who is an 
inpatient of the hospital either directly or under arrangements (as 
defined in Sec.  409.3). Under Sec.  409.3, when services are furnished 
under arrangements, Medicare payments made to the provider that 
arranged for the services discharges the liability of the beneficiary 
or any other person to pay for those services. The ``under 
arrangements'' policy set forth in Sec.  412.509 for LTCHs derives from 
the regulations at Sec.  411.15(m), which implement section 1862(a)(14) 
of the Act. Section 1862(a) of the Act specifies the services for which 
no payment may be made under Medicare Part A and Part B and also 
specifies the exception for certain services to be furnished ``under 
arrangements'' by providers.
    If a LTCH obtains, from another facility ``under arrangements,'' a 
specific test or procedure for one of its inpatients that is not 
available on the LTCH's premises, as contemplated by Sec.  412.509, a 
discharge and a subsequent readmission would be unnecessary and 
inappropriate. This is true even if it is necessary to transport the 
patient to another facility to receive the arranged-for service. 
Furthermore, no additional claim can be submitted to Medicare by the 
other entity that actually furnished the test or procedure because, 
under Sec.  412.509(c), the LTCH must furnish all necessary covered 
services to the Medicare beneficiary who is an inpatient of the 
hospital either directly or under arrangements. In this situation, 
generally, the LTCH would include the medically necessary test or 
procedure on its patient claim to Medicare (which could have an effect 
on the assignment of the LTC-DRG and thus the Medicare payment to the 
LTCH) and the LTCH would be responsible for paying the provider 
directly for the test or procedure.
    Patient discharges from the LTCH for tests or procedures that 
should have been provided under arrangements, followed by LTCH 
readmission, result in an inappropriate increase in Medicare costs in 
three ways:
    First, the Medicare payment associated with the LTC-DRG that would 
be assigned to the patient's stay will typically already include the 
costs of the test or procedure. (The August 30, 2002 LTCH PPS final 
rule (67 FR 55977-55985), includes an in-depth description of the 
derivation of LTC-DRGs from ICD-9-CM codes on Medicare claims and a 
discussion of the development and calculation of LTC-DRG relative 
weights.) Second, the intervening provider will bill Medicare 
separately for the test or procedure. Thus, if services that should 
have been furnished directly or under arrangements by the LTCH are 
instead unbundled and billed separately, Medicare would pay the other 
provider for the service that should have been paid for ``under 
arrangements'' by the LTCH under Sec.  412.509.
    Third, a discharge for outpatient services and a subsequent 
readmission to the LTCH is not currently covered under the interrupted 
stay policy at existing Sec.  412.531. Section 412.531(a) only includes 
discharges from a LTCH to an acute care hospital, an IRF, and a SNF for 
treatment or services not available in the LTCH and subsequent 
readmission to the same LTCH. If a patient is discharged and readmitted 
to the LTCH following an outpatient test or procedure, under current 
policy, after making a LTCH PPS payment for the first discharge, there 
would be a second Medicare payment to the LTCH when the patient is 
finally discharged.
    In the January 30, 2004 proposed rule (69 FR 4769-4770), in order 
to address these concerns, we proposed to revise the definition of an 
interruption of a stay under Sec.  412.531 to add situations in which a 
patient is discharged from the LTCH and readmitted to the same LTCH 
within 3 days of the discharge (revised Sec.  412.531(a)(1)). We 
believe that if a patient is discharged from a LTCH for any reason to 
an acute care hospital, IRF, SNF, or home, and is then readmitted 
within 3 days, in general, the patient's original admitting diagnoses 
would not change significantly during those 3 days. Therefore, a 
readmission would not constitute a new episode of care. We questioned 
whether a patient

[[Page 25692]]

who was discharged home and then returned to the same LTCH within 3 
days should have been discharged in the first place. Since LTCHs are 
designed to treat patients with a high level of acuity and 
multicomorbidities, we believed that a 3-day period was a reasonable 
window during which necessary offsite medical care might be delivered, 
under arrangements, as contemplated under Sec.  412.509, without an 
appreciable change in the original admitting diagnoses. Moreover, this 
3-day period is consistent with the policy under the IRF PPS under 
which the maximum period of time that a patient could be away from the 
IRF is 3 days before a new patient assessment is required. Therefore, 
under our proposal, if a patient were discharged on Monday to an acute 
care hospital, IRF, SNF, or home, and readmitted either on that Monday 
(the first day), Tuesday (the second day), or Wednesday (the third 
day), the subsequent readmission would not be considered a new 
admission and Medicare would pay the LTCH for only one discharge based 
on the combined length of stay for the period prior to, during, and 
after the absence from the LTCH. If a patient was readmitted to the 
LTCH at any time after Wednesday, (the third day), the 3-day 
interrupted stay policy would no longer be relevant and Medicare 
payments would be governed by the existing interrupted stay policy. 
Therefore, if following discharge from a LTCH, and treatment or 
services as an inpatient at an acute care hospital, IRF, or SNF for 
greater than 3-days, but less than the interrupted stay threshold for 
that provider type (9 days for an acute care hospital, 27 days for an 
IRF, 45 days for a SNF), when the patient is readmitted to the LTCH, 
only one payment would be made to the LTCH, but the intervening 
provider may also submit a Medicare claim for that patient. Moreover, 
if the patient's stay at the intervening provider exceeds the 
threshold, a readmission to the LTCH will be counted as a new stay for 
each provider, as noted above, a readmission to the LTCH will be 
counted as a new stay pursuant to Sec.  412.531(a)(1). We reiterate 
that the provisions of the proposed 3-day or less interrupted stay 
policy would be only applicable for patients who are discharged from a 
LTCH to an acute care hospital, IRF, SNF, or home, and then are 
readmitted to the LTCH within 1, 2, or 3 days. After that point, when 
the interruption exceeds 3 days, but less than the fixed period 
threshold in the original interrupted stay policy, a separate payment 
will be made to the intervening facility under the appropriate PPS, but 
one payment would be made to the LTCH for one episode of care. We will 
hereafter refer to the original interruption of stay policy as ``the 
greater than 3-day interruption of stay''. This clarified and renamed 
policy, from day 4 forward, under revised Sec.  412.531(a)(2), and the 
counting of days would begin on the first day of admission to the 
intervening provider (but not at day 4) for purposes of determining 
whether or not the episode is actually one LTCH stay with an 
interruption within the 9, 27, or 45 day threshold, or two separate 
LTCH stays that would be occasioned by a stay in excess of the 
applicable thresholds.
    An example of when the proposed 3-day or less interrupted stay 
policy would govern is as follows: if a LTCH patient is discharged from 
the LTCH to an acute care hospital, stays at the acute care hospital 
for 3 days and then returns to the LTCH by midnight of the 3 days, 
Medicare would pay one LTC-DRG payment to the LTCH and the LTCH would 
be responsible for paying the acute care hospital for the costs of the 
tests which should have been provided under arrangements by the LTCH. 
In this case, the proposed payment policy was dictated by the 
presumption that the discharge to the acute care hospital was not 
warranted, but services should be provided to the LTCH patient under 
arrangements if the patient needed to be readmitted to the LTCH within 
3 days of being discharged.
    An example of when the existing greater than 3-day interruption of 
stay governs is as follows: A LTCH patient is discharged from the LTCH 
and admitted directly to an IRF where the patient remains for 16 days 
prior to being readmitted to the LTCH for further care. The interrupted 
stay threshold for IRFs is 27 days and since the stay at the IRF is 
within the 27 day threshold, both stays at the LTCH will be paid as one 
discharge under the LTCH PPS and Medicare will pay the IRF for the 
patient's treatment under the IRF PPS for days 1 through 16. In this 
case, payment policy is dictated by the presumption that the 
hospitalization at the intervening site was appropriate because the 
patient required treatment at the IRF for a number of days 
significantly in excess of 3 days, as specified in the less than 3-day 
interruption of stay policy. But the patient's readmission to the LTCH 
prior to reaching the 27 day threshold means that it is being paid as a 
continuation of the original hospitalization.
    An example of a situation not governed by either of the interrupted 
stay policies is as follows: a LTCH patient is discharged to an acute 
care hospital and remains under treatment for 12 days (the greater than 
3-day interrupted stay threshold for acute care hospitals is 9 days) 
prior to being readmitted to the LTCH. In this case, Medicare will pay 
the acute care hospital under the IPPS and the patient's readmission to 
the LTCH will be paid separately as a second bona fide admission. In 
this case, treatment at the acute care hospital is being paid under the 
IPPS and because the number of days away from the LTCH exceed the fixed 
threshold of 9 days under the greater than 3-day interruption of stay 
policy, the second admission is being seen as a separate episode of 
care. (Sec.  412.531(b)(4))
    Under the proposed revision of the interruption of stay policy for 
LTCHs in the January 2004 proposed rule, we stated that any treatment 
or medical services furnished to the individual during the 3-day (or 
less) absence from the LTCH could not be billed separately to the 
Medicare program or to the beneficiary, but would be paid as ``under 
arrangements'' services to the LTCH. When we established the LTCH PPS 
(67 FR 55954, August 30, 2002), we calculated payments under the LTCH 
PPS using base year costs that include the numerous tests and 
procedures typical of the complicated medical conditions that 
characterize LTCH patients, including those furnished by other 
providers in order to satisfy the statutory requirements under section 
123 of Public Law 106-113, for budget neutrality. Therefore, we 
believed that a readmission to the LTCH that triggers the 3-day or less 
interrupted stay policy should be treated as a continuation of the 
episode of care that occasioned the first admission. Further, we 
believe that the readmission to the LTCH within 3 days establishes the 
presumption that any treatment or services furnished during the 
intervening 3 (or less) days should have been provided by the LTCH 
``either directly or under arrangements'' (Sec.  412.509(b)). The 
entire stay would generate one LTC-DRG payment under the LTCH PPS, 
which would be ``payment in full for all inpatient hospital services, 
as defined in Sec.  409.10.'' (Sec.  412.509(a)) Under Sec.  409.10(a) 
inpatient hospital services means the following services furnished to 
an inpatient of a qualified hospital: (1) Bed and board; (2) nursing 
services and other related services; (3) use of hospital or CAH 
facilities; (4) medical social services; (5) drugs, biologicals, 
supplies, appliances, and equipment; (6) certain other diagnostic or 
therapeutic services; (7) medical or surgical services provided by 
certain interns or residents-

[[Page 25693]]

in-training; and (8) transportation services, including transport by 
ambulance.
    As explained above, we proposed that a readmittance to the LTCH 
within 3 days after a discharge will result in one LTC-DRG payment for 
the entire stay. Since we are treating both, the stay at the LTCH that 
occurred before and after the discharge to the intervening provider, 
parts of the stay as one episode of care, we proposed that treatment or 
care provided during the ``interruption'' would be considered to have 
occurred during that single episode of care and that payment for such 
services are included in the LTC-DRG payment. We also proposed to 
include the days of the 3-day or less interruption of stay in counting 
LTCH days to determine the total length of stay of the patient at the 
LTCH if medical treatment or care were provided during the 3 days or 
less because these services would be considered to have been paid for 
as part of the total LTCH stay (Sec.  412.531(b)(1)(iii)). Furthermore, 
we proposed that if a patient is discharged home, and within a 3-day or 
less period received no additional medical treatment or service, but is 
readmitted to the LTCH, the days away from the LTCH would not be 
included in the length of stay calculation.
    We also proposed that this policy would be applicable to all 
services or procedures provided to the patient either under Medicare 
Part A, or Part B, except for the services which are expressly excluded 
from bundling under section 1886(a)(1)(H)(i) of the Act and Sec.  
411.15(m), such as services furnished by physicians under Sec.  
415.102(a) and other specific health professionals. Failure to comply 
with this bundling requirement could lead to sanctions such as 
termination of the LTCH's Medicare provider agreement or civil money 
penalties (under section 1866(a)(1)(H)(i) of the Act).
    Although we understand that, in good faith, a patient could be 
discharged from a LTCH, return home for a day or two, experience a 
setback, and then be readmitted to the LTCH, we believe that this type 
of a readmission to the LTCH must be considered an extension of the 
original hospitalization and that Medicare will not pay for two claims 
for what was, in effect, one episode of care. The 3-day or less 
interrupted stay policy takes into account the profile of most LTCH 
patients, as typically very sick individuals with multicomorbidities. 
We believe that it is reasonable to presume that if this type of 
patient is discharged and then readmitted to a LTCH within 3 days, the 
readmission signifies a continuation of the original hospital stay and 
not a new episode of care. Furthermore, we are concerned about reports 
of LTCHs discharging and readmitting patients who are still undergoing 
active treatment rather than obtaining services for these patients 
``under arrangements'' in accordance with section 1862(a)(14) of the 
Act and the regulations at Sec.  412.509.
    In the January 2004 proposed rule, we indicated that we intend to 
collect data on any Medicare claims for outpatient services as well as 
inpatient services furnished during the time that the patients are away 
from the LTCH under the 3-day or less interrupted stay policy. We would 
review data to determine whether we will expand the 3-day time period 
and we will consider proposing this change in a future rule. Further, 
if it appears that additional patients are being discharged for the 
purpose of receiving tests or procedures at other Medicare settings, 
and then readmitted to the LTCH, in order for the LTCH to avoid paying 
for the procedure ``under arrangements,'' we may find it appropriate 
for our Quality Improvement Organizations (QIO) to evaluate the medical 
basis for the original discharge. A patient discharge that is not 
clinically justifiable could constitute potential violation of the 
LTCH's conditions of participation in the Medicare program for 
inadequate discharge planning or an inappropriate discharge from the 
LTCH under Sec.  482.43. Moreover, as noted above, if a separate bill 
is submitted by an entity other than the LTCH for services furnished 
during this period, this could also be a violation of the LTCH's 
provider agreement obligation regarding bundled services.
    In proposing the policy in the January 2004 proposed rule, we did 
not attempt to restrict a LTCH from pursuing necessary or more 
appropriate clinical care from another facility. As we designed the PPS 
for LTCHs, the original interrupted stay policy was created for 
situations where sound clinical judgment could suggest a different 
treatment setting for LTCH patients: A patient requiring emergency 
surgery at an acute care hospital; a patient who would appear to 
benefit from a specific therapy regimen at an IRF; or a patient who had 
improved and, therefore, could be appropriately cared for at a SNF. The 
policy accounted for a readmission to the LTCH after the emergency care 
or in the event of a change in the patient's condition, that is, for 
sound clinical reasons. Fundamentally, the original interrupted stay 
policy resulted from our determination to allow considerable latitude 
to medical personnel in this regard without untoward payment 
consequences for the Medicare program.
    We proposed a revision to the existing interrupted stay policy 
because we believed that 3 days in most instances represents an 
appropriate interval for establishing whether or not the reason for the 
patient's readmission is directly connected to the original episode of 
care and whether or not Medicare-covered services were obtained during 
the interruption that should have otherwise been provided ``under 
arrangements'' by the LTCH.
    All inpatient services, under Medicare, fall within the purview of 
the requirement of section 1862(a)(14) of the Act, and, therefore, what 
we stated was not a departure from existing policy. Under section 
1862(a)(14) of the Act, notwithstanding any other provision of this 
title, ``no payment may be made under Part A or Part B for any expenses 
incurred for items or services which are other than physicians' 
services (as defined in regulations promulgated specifically for 
purposes of this paragraph), services described by section 
1861(s)(2)(K) of the Act (certified nurse-midwife services, qualified 
psychologist services, and services of a certified registered nurse 
anesthetist) and which are furnished to an individual who is a patient 
of a hospital or critical access hospital by an entity other than the 
hospital or critical access hospital unless the services are furnished 
under arrangements (as defined in section 1861(w)(1) of the Act with 
the entity made by the hospital or critical access hospital.'' Section 
1861(w)(1) of the Act states that ``[t]he term ``arrangements'' is 
limited to arrangements under which receipt of payment by the hospital, 
critical access hospital, skilled nursing facility, home health agency, 
or hospice program (whether in its own right or as agent), for services 
for which an individual is entitled to have payment made under this 
title, discharges the liability of such individual or any other person 
to pay for the services.'' We believe the objective of these statutory 
provisions, which were implemented for inpatient acute care hospitals 
in regulations at Sec.  411.15(m) and subsequently at Sec.  412.509 for 
LTCHs, was to discharge financial liability for inpatients who may have 
received additional care off-premises and to assign payment 
responsibility for the care to the hospital that is being paid for that 
beneficiary's total care for that spell of illness. The total care 
delivered by the hospital may be provided ``directly'' or ``under 
arrangements'' with other facilities (Sec.  412.509(c)) and was 
included in Medicare's payment to the hospital.

[[Page 25694]]

Over the years, we have often referred to this as the ``prohibition 
against unbundling'' for purposes of emphasizing that if a Medicare 
provider ``unbundles'' specific components of a beneficiary's total 
inpatient care (provided either ``directly'' or ``under arrangements'') 
and sends separate claims to Medicare for those tests or treatments, 
the provider would be acting in violation of the statute and applicable 
regulations. Since LTCHs treat patients with multicomorbidities who are 
often in need of a wide range of diagnostic and treatment modalities 
and lengthy hospitalizations, we believe that in this particular 
setting, this statutory requirement is particularly vulnerable to 
gaming. For that reason, we proposed to clarify the existing general 
unbundling prohibition and to propose specific language on the 
unbundling prohibition as it applies to the interrupted stay policy 
under the LTCH PPS and proposed to codify it in regulations. As noted 
above, we were concerned that LTCH patients, under active treatment, 
are being inappropriately discharged to other treatment sites, 
receiving tests or procedures related to one of the diagnoses the 
patient being hospitalized and which otherwise should have been 
provided at the LTCH either directly or under arrangements under Sec.  
412.509 and then readmitted to the LTCH. Another claim is also being 
submitted to Medicare by the other treatment site for those tests or 
procedures. As stated earlier, under the LTCH PPS, payments associated 
with specific LTC-DRGs include all costs associated with rendering care 
to the type of patients treated in LTCHs and, therefore, additional 
Medicare payments for such services would be inappropriate.
    We noted in the proposed rule that we understand that during a 
particular hospitalization, a typical LTCH patient, with 
multicomorbidities, could suddenly require emergency care at an acute 
care hospital. This would be the case, for example, if a patient who 
was admitted to the LTCH with a principal diagnosis of chronic 
obstructive pulmonary disease and respirator dependence, with secondary 
diagnoses of hypertension, Type II diabetes mellitus, history of 
coronary artery disease, and history of bladder cancer suddenly 
exhibits symptoms consistent with a pneumothorax (lung collapse) and 
requires treatment that is beyond the scope of the LTCH. Services 
obtained at an acute care hospital, under the proposed 3-day or less 
policy, would be considered related to the original diagnoses, and 
submission of a separate claim by the acute hospital is considered a 
violation of the unbundling requirement established by section 
1862(a)(14) of the Act. Payment to the acute hospital for any services 
delivered would be the responsibility of the LTCH since the critical 
episode was directly related to the hospitalization at the LTCH. 
Conversely, if the same patient had instead suddenly suffered a 
myocardial infarction (heart attack) that requires a cardiac workup, 
evaluation, and possible implantation of a cardiac stent, it may be 
appropriate to discharge this patient for admission to an acute care 
facility for appropriate evaluation and the invasive cardiac procedure. 
Under these circumstances, the admission to the acute hospital was 
totally unrelated to the patient's diagnoses in the LTCH and arguably 
there may be no need to bundle the services. A discharge from the LTCH 
and a readmission following the procedure at the acute hospital in 
order to resume the treatment provided by the LTCH, for which the 
patient was originally hospitalized, could be entirely appropriate. 
(Notwithstanding the necessity of the discharge, under the 3-day or 
less interrupted stay policy, there would be no additional separate 
LTC-DRG payment generated to the LTCH if the patient returns to the 
LTCH within the 3-day period.) We also noted in the proposed rule that 
it could be argued that in this type of a subsequent admission to the 
acute hospital, the acute care hospital should be able to submit a 
claim to Medicare for the procedure. (This payment to the acute 
hospital may be subject to the postacute care policy at Sec.  412.4, 
depending upon the DRG to which it is assigned (68 FR 45404 and 45412, 
August 1, 2003).)
    We stated that we were aware that there could be exceptions, and 
that in the example cited above, sound medical judgment could have 
dictated that the patient who needed the cardiac stent should first be 
discharged to the acute hospital and then readmitted to the LTCH within 
3-days in order to continue necessary treatment at the LTCH. In such a 
case, notwithstanding our 3-day interrupted stay policy, it would be 
arguable that the implantation of the cardiac stent did not fall within 
the category of services that should be paid for by the LTCH under 
arrangements, and that the acute hospital should be able to submit a 
claim to Medicare.
    Accordingly, while arguably it may be appropriate to attempt to 
limit the unbundling requirement that services be provided under 
arrangement to those that are ``related'' to the admitting diagnoses of 
the LTCH patient, we did not propose a methodology that would be both 
administratively feasible and not subject to gaming, given the multiple 
comorbidities typical of LTCH patients. The prospective payment system 
for this particular setting was designed to capture all costs 
associated with treating these highly complicated cases, and we 
believed that it would be difficult to distinguish whether a particular 
critical episode could be seen as arising from one of the patient's 
many medical conditions for which the patient is presently at the LTCH. 
Therefore, in the January 2004 proposed rule, we solicited comments and 
suggestions that were consistent with the stated policy goals described 
above and that would be administratively feasible. We understood that 
any policy adopted would need to be issued with detailed instructions 
to fiscal intermediaries on implementation procedures to ensure a 
correct and consistent interpretation of our policy objectives.
    Comment: We received a comment from a LTCH chain fully endorsing 
the proposed 3-day interrupted stay policy.
    Response: We thank the commenter for supporting the proposed 
policy. In order to address the essential issues raised in the proposed 
rule, while taking into account legitimate concerns raised by the LTCH 
community in public comment, we are making certain modifications to the 
final policy. Under this final rule, if a LTCH discharges a patient to 
an acute care hospital, an IRF, SNF, or home for 3 days or less and the 
patient returns to the same LTCH within 3 days, Medicare will make only 
one LTC-DRG payment to the LTCH, as the stay is paid as a single 
episode of care. In addition, we will make no separate payment to the 
intervening acute care hospital, IRF, SNF, or in the case of a 
beneficiary who is discharged home and who receives outpatient 
treatment from an acute care hospital or an IRF for medical care or 
services provided to the LTCH patient during the 3-day or less 
interrupted stay. Payments for tests, treatments, or procedures 
provided to the LTCH patient during the ``interruption'' at an 
outpatient hospital setting or for treatment or care as an inpatient at 
an acute hospital, IRF, or SNF would be the responsibility of the LTCH 
as services provided ``under arrangements'(Sec.  412.509(b) and (c)). 
Furthermore, this policy also governs if the LTCH patient receives care 
or treatment at more than one of these intervening sites during the 3-
day or less period, that is, this policy applies if the patient is 
discharged from the LTCH on Monday morning, and on Monday afternoon 
receives an MRI at an outpatient department of an acute care

[[Page 25695]]

hospital then is admitted as an inpatient to the acute care hospital on 
Monday evening and finally is discharged home on Tuesday morning and 
readmitted to the LTCH on Wednesday. In response to several comments, 
which we will discuss in detail below, we have decided to establish a 
exception in this general 3-day or less rule for the 2005 LTCH PPS rate 
year to the payment policy discussed above in the event that during an 
up to 3-day interruption, a LTCH patient receives treatment in an acute 
care hospital that results in the case being grouped to a surgical DRG. 
For this limited instance we will allow the acute hospital to bill 
separately for the discharge that is grouped to a surgical DRG. During 
the 2005 LTCH PPS rate year, we will gather data on the impact of this 
exception in order to evaluate, among other effects, the frequency of 
this scenario during a 3-day interrupted stay at a LTCH, as well as 
what surgical DRGs are actually represented. Depending upon what 
information the data reveals, we may decide to propose to continue this 
exception or to propose appropriate policy revisions.
    Therefore, the policy that we are finalizing in this final rule 
differs from our proposed policy. We had originally proposed that no 
payment would be made to intervening providers during a 3-day or less 
interruption in stay, but in this final rule, we are now providing a 1-
year exception in the event that inpatient care provided at an acute 
care hospital is grouped to a surgical DRG. Under this finalized 
policy, where the LTCH is required to pay for care during any days of 
the 3-day or less interruption, all days of the 3-day or less 
interruption that the patient is away from the LTCH will be included in 
that patient's day count at the LTCH. If the LTCH patient goes home 
during the interruption and receives no additional medical care prior 
to being readmitted to the LTCH, the intervening days will not be 
included in the day count because the LTCH did not deliver any services 
to the patient during those days either directly or ``under 
arrangement''.
    In the proposed rule, we proposed that outpatient services provided 
during the 3-day or less interruption of stay were considered to be 
part of the LTCH episode of care and, thus, are considered to be 
provided ``under arrangements.'' We believe that our reference to 
outpatient services, tests, or procedures could have been clearer. So 
we are taking this opportunity to clarify, to the extent it was not 
already clear, that our policy applies to outpatient services provided 
in acute care hospitals and IRFs (these two sites of care were cited in 
our proposed rule). SNFs, which were also mentioned in the proposed 
rule, do not provide outpatient care and, thus, are excluded from the 
outpatient reference. We note that we are clarifying this at Sec.  
412.531.
    We have reviewed the proposed Sec.  412.531 and determined that it 
can be simplified and clarified so that it is less cumbersome to 
understand and more clearly describes the division of the original 
interrupted stay policy into a ``3-days or less interruption of stay'' 
and a ``greater than 3-day interruption of stay.'' Thus, we have made 
significant revisions to the regulations text in an effort to 
accomplish this goal. Please note that the revised ``interruption of 
stay'' regulations text is not substantively different than the 
proposed interrupted stay regulations text, (except for the case of 
where, after further review and consideration of public comment, we 
have made an exception to our proposed policy for care grouped to a 
surgical DRG under the IPPS for the 2005 LTCH rate. We are providing, 
in this final rule, that under these unique circumstances, the 
intervening acute care hospital gets a separate Medicare payment). 
Consequently, we have replaced the general term ``interruption of 
stay'' with two definitions that reflect the division of our original 
policy into two specific concepts (3-days or less and greater than 3-
days), as well as make conforming terminology changes throughout the 
section. Among other things, we have also more concisely outlined the 
method for determining the length of stay of the patient at a LTCH if 
the patient does not receive inpatient or outpatient medical care or 
treatment provided by an acute care hospital or IRF, or SNF services, 
during a 3-day or less interruption of stay. Moreover, we provided a 
more clear breakdown of how a LTCH and an intervening provider will be 
paid during a ``3-day or less'' or ``greater than 3-day'' interrupted 
stay. In addition, the original term ``interruption of stay'' appears 
throughout the existing regulation text at Sec.  412.525 and Sec.  
412.532. We have made conforming changes to these regulations as well 
to reflect the two components of the interrupted stay terminology. 
These conforming terminology changes in Sec.  412.525 and Sec.  412.532 
do not affect the substantive policy of these provisions.
    Over the course of the first year of implementation of the revised 
3-day or less interrupted stay policy, we will study relevant claims 
data in order to evaluate whether further proposed refinements to this 
policy would be warranted in next year's rule. Specifically, we will 
(1) analyze new data to determine whether problems associated with LTCH 
interrupted stays equally affected all settings to which LTCH patients 
may have been discharged and subsequently readmitted; and, (2) we will 
closely monitor patterns of discharges and readmissions under the first 
year of this policy using relevant claims data as soon as they become 
available to determine whether further proposed changes to the policy 
are required to ensure that beneficiary access to medically necessary 
services are not compromised by creating disincentives for other 
providers to accept patients discharged from LTCHs.
    Comment: Two commenters asserted that CMS had presented no 
empirical evidence to support the position that the proposed expansion 
of the interrupted stay policy would prevent inappropriate 
``unbundling'' of treatment and services or prevent ``gaming'' the 
system. The commenters noted that there are already processes in place 
for CMS to address a compliance problem (that is, QIOs, OIG 
investigations, fraud and abuse action). The commenters point out that 
CMS should take into account the fact that some QIOs are adopting 
medical necessity criteria and discharge standards. Furthermore, they 
believed that CMS was wrong to pursue a regulatory scheme that would 
penalize LTCHs for appropriate discharges to acute care hospitals in 
lieu of actually enforcing existing regulations. One commenter 
encouraged CMS to ``precisely target'' those LTCHs that are found to be 
engaging in patient discharge and readmissions policies for financial 
purposes rather than for clinical benefit.
    Response: In the August 30, 2002 final rule that implemented the 
LTCH PPS, we stated that we would consider expanding or revising the 
interrupted stay policy based on information received from the provider 
community or information gained from our ongoing monitoring sources. 
The LTCH PPS was implemented for LTCHs beginning with the cost 
reporting periods beginning on or after October 1, 2002. Therefore, 
some LTCHs (for example, hospitals with cost reporting periods 
beginning August 1, 2002) may have been subject to the LTCH PPS for 
less than one year. Accordingly, we have only limited specific data on 
the impact of behavioral changes brought about by the LTCH PPS 
regarding patient treatment and movement among providers. However, we 
relied on the best information available to us when proposing and 
finalizing this policy. We relied on anecdotal information from the 
LTCH

[[Page 25696]]

provider community, regional offices, and fiscal intermediaries, as 
well as analyses of inpatient discharge records by the CMS Office of 
Research, Development, and Information (ORDI). In addition, it has 
always been our practice to rely on information from providers, 
regional offices, and fiscal intermediaries in determining what 
policies to propose, particularly when the issues we are concerned with 
have an unnecessarily negative impact on Medicare program expenditures.
    In addition, based on the data analysis of inpatient discharge 
records performed by our ORDI, we believe that there is cause for 
concern regarding the appropriateness of many of these stays at the 
acute care hospital since they are of 3 or fewer days compared to the 
average inpatient length of stay of approximately 5.9 days. If it 
typically takes, on average, 5.9 days to resolve the condition chiefly 
responsible for an admission to an acute care hospital, we question the 
legitimacy of a patient discharge from a LTCH to an acute hospital for 
1, 2, or at most 3 days, followed by a readmission to the LTCH. This 
pattern suggests that the ``discharge'' may not be legitimate and that 
the patient really did not need the level of care provided in an acute 
care hospital as evidenced by the short stay at the acute care 
hospital. If the ``discharge'' was ``legitimate'', we believe the 
length of stay at the acute care hospital would have been more 
reflective of a typical stay at an acute care hospital, that is, 5.9 
days and not 1, 2, or 3 days. In other words, if it normally takes 5.9 
days to stabilize and resolve the underlying condition requiring the 
admission, then stays that are far shorter than this could reasonably 
suggest that the patient's condition did not rise to the level of 
acuity of a true acute care hospital patient and that the admission to 
the acute care hospital was unnecessary. In this case, the LTCH should 
not have discharged the patient in the first place, but rather sent the 
patient to the acute care hospital for needed tests or procedures and 
paid for them ``under arrangements''. Consequently, the 3-day 
interrupted stay policy is a mechanism for ensuring that LTCHs do not 
circumvent the required ``under arrangements'' policy by 
``discharging'' patients rather than sending them for isolated services 
or procedures. We are trying to make clear that ``discharges'' by a 
LTCH followed by ``readmissions'' of the same patient to the same LTCH 
within a 3 day or less window are not to be viewed as true discharges. 
Instead, the care provided at the intervening facility is care that is 
really an inherent part of the single episode of care at the LTCH and 
should be paid for as such.
    We are providing a limited exception to this policy for patients 
who are discharged from LTCHs, admitted as inpatients to acute care 
hospitals and readmitted to the same LTCHs within 3 days if the 
treatment that they receive at the acute care hospital is grouped to a 
surgical DRG during the 2005 LTCH PPS rate year. This exception is 
discussed in greater detail in the following response.
    In this final rule, therefore, we are finalizing the policy that 
will disallow additional Medicare payments to an intervening provider 
for an episode of care that we believe should have been delivered under 
arrangements in conformity with existing regulations at Sec.  
412.509(b)(c).
    As more data become available, we may be able to formulate specific 
hospital policies and rely on additional comprehensive data analysis.
    As noted above, in response to the comment that we are pursuing a 
new regulatory scheme that penalizes LTCHs for appropriately 
discharging patients to other sites of care, we firmly believe that we 
are not penalizing LTCHs for appropriate discharges. LTCHs remain free 
to discharge patients to acute care hospitals, for example, for 
necessary medical care. Our final policy does not prevent this. 
Instead, our 3-day or less interrupted stay policy aims to prevent 
LTCHs from inappropriately discharging patients only to readmit them in 
a short time in order to circumvent the ``under arrangement'' policy. 
As previously indicated, ``under arrangements'' regulations have 
existed since the beginning of the Medicare program, and were certainly 
in effect under the TEFRA payment system for hospitals excluded from 
the IPPS, and continue to be in effect with the implementation of the 
LTCH PPS in Sec.  412.509. Thus, providers are expected to be in 
continual compliance with the requirements specified in Sec.  411.15(m) 
and under the LTCH PPS, in Sec.  412.509. The finalized 3-day or less 
interrupted stay policy, at revised Sec.  412.531, as described in the 
previous response, is definitely not a new ``regulatory scheme'' as one 
commenter asserts.
    In response to the commenter's other assertion that there are 
already processes in place for dealing with non-compliance issues on an 
individual basis, we would agree and note that, prospectively, we also 
have every intention of working with QIOs, the OIG, and if necessary, 
pursuing fraud and abuse actions against individual LTCHs, if 
appropriate. We do not agree that the existence of standards of medical 
review are employed by QIOs, and the pursuit of legal remedies is an 
alternative for establishing policies that disallow unnecessary and 
inappropriate Medicare payments. We also want to note that while we are 
aware that certain of our QIOs are engaged in designing medical 
necessity criteria for LTCHs, we do not believe that this impacts on 
our responsibility to assure that LTCHs comply with existing ``under 
arrangement'' policies and to formulate regulations that protect the 
Medicare program against unnecessary and inappropriate payments. 
Moreover, we would also emphasize that the ``under arrangements'' 
policy deals with appropriate payment for services, not issues of 
medical judgment. The policy that we are promulgating does not prohibit 
a physician at a LTCH from ordering tests or procedures for a patient's 
benefit that cannot be provided on site at the LTCH. The policy only 
defines how those services will be paid for under Medicare.
    Comment: Two commenters asserted that ``under arrangements'' refers 
to what services or procedures the LTCH (primary hospital) arranges for 
and controls and that if a LTCH patient is subsequently admitted to an 
acute care hospital, the LTCH would have no control over care that the 
patient may receive. A third commenter joined in the assertion that 
under the proposed policy, LTCHs could be subject to unlimited, 
uncontrolled costs during the acute care stay that would discourage 
readmissions to the LTCH since, under the proposed policy, the LTCH 
would be required to pay for the costs of services beyond those that 
relate to the plan of care in place when the patient was discharged 
from the LTCH.
    Response: Our regulations at Sec.  412.509(c) specify that ``[t]he 
long-term care hospital must furnish all necessary covered services to 
the Medicare beneficiary who is an inpatient of the hospital either 
directly or under arrangements * * *'' When a necessary covered service 
is unavailable on site at the hospital, in order to comply with the 
regulations as well as the statute they implement at section 
1862(a)(14) of the Act, the hospital must procure the specific services 
elsewhere. These services would be delivered at another site under 
orders from the original hospital because they were deemed necessary by 
physicians at that location, but unavailable at that site of care. 
Although personnel from the original hospital would not be 
administering the tests or treatments that were procured ``under 
arrangements,'' the services would be related directly to the plan of 
care for

[[Page 25697]]

that patient. Notwithstanding a sudden non-surgical medical emergency 
occurring during the original test or procedure that could require 
personnel at the secondary site to alter the original plan of care (and 
which would still be delivered ``under arrangements''), we believe that 
the very principle of ``under arrangements'' services implies that the 
services have been ``arranged for'' precisely because physicians at the 
primary hospital determined that those services were necessary. We 
remained thoughtful of this principle when we examined public comments 
and revisited the ``under arrangements'' component of the proposed 3-
day or less interrupted stay policy for the LTCH PPS. Under our 
finalized policy, therefore, the readmission to the LTCH within 3-days 
of a patient's discharge is a continuation of the original episode of 
care for payment purposes. In order words, ``discharges'' by an LTCH 
followed by a ``readmission'' to the LTCH within 3 days are not viewed 
as a true ``discharge''. Furthermore, treatment that the patient 
receives during that interruption as an inpatient or outpatient at an 
acute care hospital or an IRF, or any services at a SNF, will be 
understood as also arising from the hospitalization at the LTCH and 
deemed to have been delivered ``under arrangements'' as governed by 
Sec.  412.509(c). After considering several of the comments we 
received, however, we are providing for a limited exception to the 
above policy that addressed a LTCH's responsibility to pay for all 
covered services delivered during the interruption. Specifically, we 
are providing that if inpatient care provided at an acute care hospital 
is grouped to a surgical DRG for the 2005 LTCH PPS rate year, this case 
will be separately reimbursed by Medicare for the period July 1, 2004 
to June 30, 2005. If a patient's treatment at an acute care hospital 
during a 1, 2, or 3-day interruption is grouped to a surgical DRG under 
the acute care inpatient prospective payment system, a separate 
Medicare payment will be made to the acute care hospital. Based on the 
limited information we have regarding this specific issue, we believe 
that this temporary and narrow exception to the general policy that we 
are finalizing in this regulation is appropriate and may be understood 
in relation to the logic that underlies our 3-day or less interruption 
of stay policy. The 3-day or less interruption of stay policy described 
above is based on the presumption that tests and procedures delivered 
during a 1, 2, or 3-day interruption in a LTCH stay are an outgrowth of 
the patient's principal and secondary diagnoses at the LTCH, not 
requiring a discharge from the LTCH to another site of care, but rather 
delivered by the LTCH either directly or under arrangements, as 
required by section at section 1862(a)(14) of the Act and implemented 
by Sec.  411.15(m) and Sec.  412.509. An emergency surgical procedure 
may not be directly related to the patient's principle or secondary 
diagnoses at the LTCH, but may arguably signify a distinct episode of 
care. Therefore, while the two LTCH discharges will be paid as one 
discharge, under this limited exception, the acute care hospital will 
receive a separate payment from Medicare for treatment that is grouped 
into a surgical DRG even during a 3-day or less interruption of stay 
from a LTCH.
    We are particularly concerned about protecting the Medicare Trust 
Fund against unnecessary and inappropriate patient shifting and 
additional Medicare payments in situations where a LTCH exists as a 
hospital within a hospital, under Sec.  412.22(e) in situations where 
both hospitals are under common ownership. In that situation, even if 
the LTCH received only one discharge payment under the original 
interrupted stay policy, the fact that a full DRG would have been paid 
to the host acute care hospital (which is under common ownership with 
the LTCH) could have served as an incentive for decisions to be made 
for financial purposes rather than for clinical considerations. We are 
also concerned that if a LTCH patient is discharged to an acute care 
hospital for only 1, 2, or 3 days, followed by a readmission to the 
LTCH, there may be reason to believe that the treatment delivered, even 
if it was grouped to a surgical DRG, was not a major procedure because 
of the relatively short length of stay, and, therefore, should have 
been provided under arrangements. (Under the revised interrupted stay 
policy established in the August 30, 2002 final rule (67 FR 56002-
56006), which we are now defining as the ``greater than 3-day 
interruption of stay,'' at Sec.  412.531(a)(2)(i), we have provided for 
a separate DRG to be paid to the acute care hospital if the treatment 
in the acute care hospital requires a stay of greater than 3 days, but 
less than or equal to 9 days, which is what we believe would commonly 
be the case for a ``major'' surgical procedure.) In establishing the 
one-year exception for surgical DRGs, set forth above, we understand 
that this exception addresses only some of the concerns raised by the 
commenters and that we are creating a distinction between surgical and 
non-surgical care. We believe, however, that this temporary 
``exception,'' limited to surgical DRGs, is appropriate as LTCHs 
specialize in the treatment of complex medical cases. While they may 
not be set up for a complex surgical intervention, they are generally 
capable of handling an unexpected medical crisis and a ``discharge'' to 
another site of care followed by a readmission to the LTCH within 3 
days or less should be unnecessary. Furthermore, we will continue to 
monitor ``surgical'' hospitalizations occurring during interruptions in 
a LTCH stays to determine whether the distinction that we have 
established with this policy actually accomplishes our goals of 
preventing unnecessary and inappropriate Medicare payments. During the 
2005 LTCH PPS rate year, we will analyze records of LTCH patients who 
fall within this exception, particularly focusing on the surgical DRGs 
to which their stays are grouped.
    Comment: Several commenters assert that CMS is violating budget 
neutrality by broadening the scope of financial responsibility beyond 
what was provided ``under arrangements'' for base year rates fiscal 
years 1998 and 1999 and that this would distort and reduce Medicare 
payments to LTCHs. Two commenters were concerned that if the proposed 
policy was finalized, there would be a significant financial impact on 
the LTCH and also noted that there was not regulatory impact in the 
proposed rule.
    Response: We want to note that under the TEFRA payment system, if a 
LTCH patient required tests and procedures that were unavailable at a 
LTCH, under section 1862(a)(14) of the Act, implemented in regulations 
at Sec.  411.15(m), the statute requires that they be provided under 
arrangements. Thus, if a LTCH patient required tests and procedures 
that were unavailable at the LTCH, we assume that the LTCH had provided 
those services ``under arrangement'' (and did not discharge the patient 
to another site of care and directly admit the patient following the 
off-site treatment) because it is required by the statute and 
regulations. Consequently, we can only assume that hospitals would have 
included the costs of medical services procured elsewhere ``under 
arrangements'' in a patient's Medicare claim since under the TEFRA 
system, these additional costs would then have been included in the 
hospital target amount and would be paid for by Medicare. We disagree 
that our policy violates budget neutrality because LTCHs should have 
included these

[[Page 25698]]

services in their claims data which we used from 1998 and 1999 to set 
the base rates for the LTCH PPS. We expect that as responsible 
corporate entities, LTCHs take necessary steps to comply with Medicare 
regulations which they are required to follow through their provider 
agreements under 42 CFR Part 489. We presume that LTCHs, to the extent 
that they were following our regulations, would have included the costs 
of services furnished under arrangement in their cost reports and, if 
they failed to do so, those costs may not be reflected in the base 
rates.
    Data from analyses of FY 2000 and CY 2002 MedPAR files were 
analyzed in order to track patient movement related to discharges from 
a LTCH and admissions to other inpatient sites, which were followed by 
readmission to the LTCH. If tests and procedures were being provided 
and paid for ``under arrangements,'' in compliance with our 
regulations, significant patient movement would have been uncommon. Our 
data indicated that in FY 2000, only 1.1 percent of all Medicare 
patients were readmitted to a LTCH within 3 days of a discharge (912/ 
80,893 patients) of which less than 700 were treated in acute care 
hospitals during the 3-day period. Our CY 2002 data revealed that 1.0 
percent of Medicare patients followed the above sequence (1,077/107,643 
patients), of which 850 were treated in an acute care hospital during 
the 3-day interruption. We believe that this data indicates that prior 
to the implementation of the LTCH PPS, the vast majority of LTCHs 
complied with the ``under arrangements'' regulations. Therefore, since 
the patient was not discharged in order to procure the service, but 
rather remained a LTCH patient, even though the LTCH moved the patient 
to another site for needed tests or care, those tests or care were 
provided under arrangements. Accordingly, the costs of these services 
should have been included in the patient's Medicare claim during those 
years and, thus, should have been factored in when we were calculating 
our base rates for the LTCH PPS.
    The policy that we are finalizing, as described above, therefore, 
requires a LTCH to cover off-site tests or medical treatment, either 
inpatient or outpatient, delivered at an acute care hospital or an IRF, 
or care at a SNF, ``under arrangements'' if the patient is readmitted 
to the LTCH within 3 days. We are establishing an exception if the 
treatment is grouped to a surgical DRG under the IPPS at an acute care 
hospital during the 2005 LTCH PPS rate year, under the 3-days or less 
interruption of stay policy. In other words, if the intervening stay is 
``sandwiched'' between two LTCH stays, one LTC-DRG payment will be made 
by Medicare representing payment in full, as described in Sec.  
412.521(b) for the entire episode of care including costs for care 
delivered ``under arrangements''. We reiterate that Medicare will make 
a separate payment to an acute hospital for care that is grouped to a 
surgical DRG during a 3-day or less interruption during the 2005 LTCH 
PPS rate year. The policy that we are finalizing adds no greater 
financial responsibility for LTCHs than existed prior to the 
implementation of the LTCH PPS. Therefore, we do not agree that this 
policy will reduce payments to LTCHs in any significant way. We do not 
believe that the policy will have a measurable impact on payments to 
LTCHs and therefore we did not produce an impact analysis for this 
policy.
    Comment: Two commenters expressed concern that the proposed policy 
penalizes appropriate discharges disregarding the clinical needs of 
patients and that patients' safety could be jeopardized. They assert 
that the proposed rule contains financial disincentives for a LTCH to 
discharge a patient to an acute care hospital, even if appropriate, and 
also discourages readmission of a patient discharged from an acute care 
hospital.
    Response: We disagree with the commenters concerns that the 
proposed policy could have a negative impact on patient care in that a 
LTCH would have a significant financial disincentive to seek the most 
appropriate care for a patient who has developed an unrelated problem 
that the LTCH could not treat on premises--such as the hypothetical 
cardiac stent mentioned above--if the LTCH would have to pay for all 
necessary care at the acute care hospital ``under arrangements.'' The 
event that would trigger the LTCH's under arrangements financial 
liability would be a readmission to the LTCH within a 3-day period. 
Since the length of stay of the patient at the non-LTCH setting is 
unknown, we do not believe that the LTCH will refrain from discharging 
the patient for appropriate care. Although we believe that readmission 
for necessary care to the LTCH should be controlled by the clinical 
needs of the beneficiary, we understand, however, that the proposed 
policy could serve to discourage the LTCH from readmitting the patient 
that had a stay of up to 3 days at a non-LTCH site.
    In response to these concerns, we have revised our 3-day 
interrupted stay policy. Under the revised policy, as noted above, the 
LTCH will be responsible for medical services obtained ``under 
arrangements'' during the 3-day-or-less absence from the LTCH for 
services provided to the patient during the interruption under the 
following circumstances: (1) If the treatment is an outpatient service 
delivered by an acute care hospital or IRF within 3 days; (2) if the 
patient is admitted to an acute care hospital and is grouped to a 
medical (but not a surgical) DRG and is readmitted within 3 days; (3) 
If the patient was admitted to a IRF or a SNF and then readmitted to 
the LTCH within 3 days. Should the patient's stay be grouped to a 
medical DRG at the acute care hospital, no Medicare payment would be 
made to the acute care hospital under the IPPS and the LTCH would 
report any diagnoses or procedure codes provided at the acute hospital 
on the patients LTCH record (which could affect the LTC-DRG to which 
the case is assigned for payment purposes or LTCH outlier payments). 
Medicare will pay the LTCH based on all of the diagnoses and procedure 
codes listed, including those resulting from the ``under arrangements'' 
care and the LTCH would pay the acute care hospital for the patient's 
care. If the patient's treatment at the acute care hospital is grouped 
into a surgical DRG during the LTCH PPS rate year, however, Medicare 
will generate a separate payment to the acute care hospital. (The 
patient's readmission to the LTCH in this circumstance may also result 
in the acute care hospital being paid under the post-acute transfer 
policy at Sec.  412.4(c).) The patient's readmission to the LTCH, 
however, would still be considered as a continuation of the original 
stay for payment purposes, and the LTCH would not receive a second LTC-
DRG payment.
    We also want to emphasize that any inpatient or outpatient medical 
treatment at an acute care hospital or IRF or care at a SNF that 
otherwise should have been provided by the LTCH ``under arrangements'' 
that occurs during a 1, 2, or 3-day interruption, is the responsibility 
of the LTCH. Therefore, if the same day that a patient is discharged 
from the LTCH, the patient obtains an outpatient test from an acute 
care hospital and as a result of that test, the patient is admitted to 
an acute care hospital for one day and is readmitted to the LTCH on the 
third day, the LTCH is responsible for paying for services delivered at 
both sites of care.
    Comment: One commenter claims that this proposed policy is both 
arbitrary and capricious and is based on financial

[[Page 25699]]

concerns rather than on clinical rationale and medical necessary.
    Response: We disagree with the commenter that this policy is 
arbitrary and capricious and based on financial concerns rather than on 
clinical rationale or medical necessity. We have provided throughout 
this final rule, as we did in the proposed rule, our rationale for this 
policy in conformance with the applicable Administrative Procedures 
Act. We have conducted thorough examinations of the issues, and our 
proposed and final policies were formulated on the bases of these 
detailed analyses. Nothing in the 3-day interrupted stay policy 
prevents physicians from making appropriate medical decisions for the 
benefit of patients. The 3-day interrupted stay policy merely addresses 
how Medicare will pay for the necessary services resulting from those 
decisions. Thus, we believe physicians make treatment decisions on the 
basis of clinical judgment and medical necessity and do not let 
Medicare payment policy dictate the course of action that they believe 
to be in the best interests of their patients. The requirement for 
hospitals to provide all inpatient services either directly or ``under 
arrangements'' is not new policy. We believe that the revision of the 
proposed 3-day interrupted stay policy in this final rule addresses the 
legitimate concerns of our commenters by excepting acute surgical 
inpatient episodes, during the 2005 LTCH PPS rate year, from the LTCH's 
responsibility to pay for all medical care delivered to a LTCH patient 
between a discharge and a subsequent readmission to the LTCH. Although 
protection of the Medicare Trust Fund from inappropriate and 
unnecessary overpayments is important, ensuring the delivery of high 
quality medical care to beneficiaries, which was the rationale behind 
the Congress' creation of the Medicare program over three decades ago, 
continues to be our overriding goal. We do not believe that the 
interrupted stay policy that we are finalizing in this rule should have 
any negative affect on a LTCH's responsibility or capacity to deliver 
high quality medical care nor do we believe that we have established a 
system of financial disincentives that will lead to the compromising of 
beneficiary care. LTCHs have been working under the principles of 
``under arrangements'' since they were established as a provider 
category over three decades ago. We also want to note that prospective 
payment systems are dynamic entities. The Congress conferred broad 
authority on the Secretary in section 307(b)(1) of Public Law 106-554 
to design a PPS for LTCHs and permitted the Secretary to ``provide for 
appropriate adjustments to the long-term hospital payment system * * 
*'' This authority did not end with the implementation of the system on 
October 1, 2002 and the Secretary is exercising his discretionary 
authority as conferred by the statute to make these adjustments. As 
with PPSs, we will continue to monitor the impacts of our policies to 
determine whether proposed changes in the payment policy are warranted 
or appropriate.
    Comment: One commenter claims that no other provider type is 
subject to a more stringent ``bundling'' rule or ``under arrangement'' 
rule.
    Response: In response to the commenter's assertion that ``no other 
provider is subject to a ``more stringent'' ``bundling rule'' or 
``under arrangements'' rule, we would emphasize that all providers, not 
just LTCHs, are required to provide all inpatient services directly or 
under arrangements (section 1862(a)(14) of the Act), implemented by 
Sec.  411.15. This final rule is doing nothing more than forcing those 
providers that aren't complying with the longstanding ``under 
arrangements'' policy to comply with this requirement. Those providers 
already complying with our ``under arrangement'' regulations should 
feel unaffected by our 3-day or less interruption of stay policy 
because this policy ensures that they follow the ``under arrangement'' 
regulations that they are already following.
    Typically, LTCHs are certified as inpatient acute care hospitals, 
but are excluded from the IPPS and paid under a different PPS only if 
they demonstrate that the patients that they treat require lengthy 
hospital-level care for on the average, greater than 25 days. Payments 
under the LTCH PPS are grouped into the same DRGs as are acute care 
patients under the IPPS, but are weighted to reflect the high degree of 
resources required to treat these severely sick patients. Therefore, 
notwithstanding that all providers are required to provide all 
inpatient services ``either directly or under arrangements'' under 
Medicare, we would assert that in general, LTCHs are in a position to 
offer ``directly'' a more comprehensive range of medical services than 
are other excluded hospitals. We would also remind the commenter that 
the responsibility for the LTCH to pay for any medical care delivered 
during the up to 3-day interruption is only effectuated by a 
readmission to the LTCH for additional treatment. This readmission, 
which triggers the 3-day interrupted stay policy that we are 
finalizing, serves to link both halves of the hospitalization (that is, 
the stay at the LTCH before and after the discharge to the intervening 
provider(s)) as one episode of hospital-level care. Since a LTCH is 
certified as an acute care hospital, it is reasonable that if the 
patient needed any additional care otherwise related to the LTCH stay 
that was unavailable at the LTCH, the care should have been delivered 
``under arrangements,'' with no need for a patient discharge. (An 
exception to this policy would be if a patient received care at an 
acute care hospital that was grouped to a surgical DRG during the 3-
days or less interruption, in which event, Medicare will make a 
separate payment to the acute care hospital.) Furthermore, should the 
patient be out of the LTCH and in an intervening acute care hospital, 
IRF, or SNF before being readmitted to the LTCH, beyond 3-days, but 
before the applicable fixed periods set forth in the greater than 3-day 
interruption of stay policy at Sec.  412.531(a)(2) (that is, between 4 
and 9 days at an acute care hospital, between 4 and 27 days at an IRF, 
or between 4 and 45 days at a SNF), we believe the discharge to the 
facility is bona fide. It is reasonable that a LTCH patient could 
require a major surgical intervention at an acute care hospital, could 
appear to be able to benefit from more rigorous rehabilitation at an 
IRF, or appear to improve to the extent that hospital-level care was no 
longer necessary. It is also reasonable that after a period of time, 
which we are establishing as greater than 3 days, after the post-
operative period at the acute care hospital, the patient may require 
further treatment at the LTCH based on the original diagnoses, or the 
patient at the IRF or SNF could experience a setback and require a 
readmission to the LTCH. Thus, we are basing this policy on the belief 
that the intervening provider offered a full course of treatment or 
care to the patient and should receive a separate Medicare payment.
    Comment: One commenter expresses concern that the proposed policy 
would require negotiations with acute care hospitals for payment of the 
``under arrangements'' services. The commenter notes that since it is 
customary for a LTCH to refer patients to acute care hospitals for a 
variety of services, many of which are very costly and involve new 
pharmaceutical or technological intervention, these costs would not 
have been included in rate-setting for the LTCH PPS. Two commenters 
included a list of conditions that a LTCH might not be able to treat 
and that, in the best interests of the patient, might require

[[Page 25700]]

admission to an acute care hospital. Another commenter believes that 
LTCHs are designed to provide a ``higher level of post acute care, not 
a high level of acute care.''
    Response: With regard to the commenter's concern that our policy 
would require negotiations between LTCHs and acute care hospitals that 
could theoretically put the LTCH at a disadvantage, we would reiterate 
that even under the TEFRA payment system, LTCHs were required to 
provide, and actually did provide, necessary patient care either 
directly or ``under arrangements.'' Moreover, our other PPSs require 
that necessary care be provided either directly or ``under 
arrangements''. Thus, negotiations among hospitals for the payment of 
medical care or services provided by one facility to the patient of 
another facility has been and continues to be a common occurrence. 
Compliance with this requirement presumes a relationship and, 
therefore, a payment arrangement with an acute care hospital usually 
existed even prior to the August 30, 2002 publication of the final rule 
(67 FR 55954) establishing the LTCH PPS and its specific ``under 
arrangements'' regulation at Sec.  412.509. With regards to the 
commenter's concern about the responsibility for LTCHs to cover costs 
for ``very costly'' new pharmaceutical or technological services 
procured ``under arrangements'' from an acute care hospital for an LTCH 
patient, we would reiterate that under the TEFRA payment system, LTCHs 
were required to provide services ``under arrangements.'' To the extent 
that new pharmaceutical or technological services were provided to LTCH 
patients ``under arrangements'' by an acute care hospital, the LTCH was 
responsible for those costs and should have included them in its 
Medicare claim for that patient. Generally, these costs would have been 
included in the base rate when we developed the LTCH PPS. We do not 
believe that in the past this imposed a significant financial burden on 
LTCHs, but based on the commenter's concerns, we will monitor the 
effects of this policy on services involving new technologies and if 
necessary, will consider addressing this issue in the future. Regarding 
the two commenters who included a list of conditions that, in their 
judgment, could result in a discharge from a LTCH and an admission to 
an acute care hospital, some surgical diagnoses were present, in the 
list forwarded by the commenters. In addition, there were a number of 
medical diagnoses included in the commenter's list. As noted earlier, 
we have modified the proposed policy in this final regulation, so that 
where the acute stay is grouped to a surgical DRG during the 2005 LTCH 
PPS rate year in a 3-day or less interrupted stay, the discharge to the 
intervening provider would not be care provided ``under arrangements'' 
and the intervening acute care hospital would receive a separate 
Medicare payment for the care associated with the surgical DRG. In 
response to the medical diagnoses included by the commenters, our 
physicians have reviewed the list and believe that in most cases, it 
would be within the ability of a LTCH to treat those patients, since 
LTCHs are certified as acute care hospitals. In response to the LTCHs 
which see themselves as ``providing a higher level of post acute care, 
not a high level of acute care'', as noted by one of the commenters, we 
believe that this is an issue that we and MedPAC will continue to 
evaluate, to determine whether higher LTCH PPS payments are appropriate 
for these facilities. (We anticipate that MedPAC's June 2004 Report to 
the Congress, will explore this issue, among others, dealing with 
LTCHs.)
    Comment: One of the commenters stated that the proposed expansion 
of the interrupted stay rule could lead to more ``gaming'' of system by 
large LTCH chain facilities which could likely have patients readmitted 
to a sister LTCH facility in order to avoid this rule.
    Response: We are aware of the potential for inappropriate 
arrangements between closely-located LTCHs owned by the same 
corporation that would side-step the application of the 3-day 
interrupted stay policy. At the outset of the LTCH PPS, we noted that 
as part of our monitoring efforts for the original interrupted stay 
policy, we would examine patient movement among providers during an 
episode of care and that our data analyses could, therefore, reveal 
discharges and readmissions between LTCHs. As data become available, we 
will certainly continue to monitor the activity and we will pursue 
appropriate remedies if we detect this behavior.
    d. Onsite discharges and readmittances. Under Sec.  412.532, 
generally, if more than 5 percent of all Medicare discharges during a 
cost reporting period are patients who are discharged to an onsite SNF, 
IRF, or psychiatric facility, or to an onsite acute care hospital and 
who are then directly readmitted to the LTCH, only one LTC-DRG payment 
will be made to the LTCH for these type of 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 those discharges and readmittances to the 
applicable site(s) for that cost reporting period are paid as one 
discharge pursuant to Sec.  412.532. 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 those 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.)
5. Other Payment Adjustments
    As indicated earlier, we have 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

[[Page 25701]]

appropriateness of these adjustments in the future once more LTCH data 
become available after the LTCH PPS is implemented. Because the LTCH 
PPS has been implemented for less than 2 years and there is a lag-time 
in data availability, sufficient new data have still not yet been 
generated that would enable us to conduct a comprehensive reevaluation 
of these payment adjustments. Nonetheless, in the January 30, 2004 
proposed rule (69 FR 4764), we explained that we reviewed the limited 
data that are available and found no evidence to support additional 
policy changes. Therefore, we did not propose to make any adjustments 
for geographic reclassification, rural location, DSH, or IME. We 
received no comments, and therefore, in this final rule, we are not 
making an adjustment for geographic reclassification, rural location, 
DSH, or IME at this time. However, 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
    Under Sec.  412.533, we implemented a 5-year transition period from 
reasonable cost-based payment to prospective payment, during which a 
LTCH is paid an increasing percentage of the LTCH PPS rate and a 
decreasing percentage of its payments under the reasonable cost-based 
payment methodology 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 blended methodology.
    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 that allows LTCHs to 
receive payments based partially on the reasonable cost-based 
methodology. 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).
    In the June 6, 2003 final rule (68 FR 34512), based on the best 
available data, we projected that a certain percentage 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. 
As discussed in that same final rule, using the same methodology 
established in the August 30, 2002 final rule (67 FR 56034), this 
projection was based on our estimate that either: (1) A LTCH has 
already elected payment based on 100 percent of the Federal rate prior 
to the beginning of the 2004 LTCH PPS rate year (July 1, 2003); or (2) 
a LTCH will 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 LTCHs would choose to be paid based on the transition blend 
methodology at Sec.  412.533 because those payments would be higher 
than if they were paid based on 100 percent of the standard Federal 
rate.
    In the June 6, 2003 final rule (68 FR 34513), 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. Specifically, for the 2005 LTCH PPS rate year, 
we estimated that the cost of the transition would be $100 million. 
This cost would have necessitated an estimated budget neutrality offset 
of 4.6 percent (0.954) for payments to LTCHs in the 2005 rate year. 
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.
    In the January 30, 2004 proposed rule (69 FR 4773), based on the 
best available data at that time, we projected that approximately 69 
percent of LTCHs would be paid based on 100 percent of the standard 
Federal rate rather than receive payment under the transition blend 
methodology for the 2005 LTCH PPS rate year. Using the same methodology 
described in the August 30, 2002 final rule (67 FR 56034), this 
projection, which used updated data and inflation factors, was based on 
our estimate that either--(1) A LTCH has already elected payment based 
on 100 percent of the Federal rate prior to the start of the 2005 LTCH 
PPS rate year (July 1, 2004); or (2) a LTCH would receive higher 
payments based on 100 percent of the 2005 LTCH PPS rate year standard 
Federal rate compared to the payments it would receive under the 
transition blend methodology. Similarly, we projected that the 
remaining 31 percent of LTCHs would choose to be paid based on the 
applicable transition blend methodology (as set forth under Sec.  
412.533(a)) because they would receive higher payments than if they 
were paid based on 100 percent of the proposed 2005 LTCH PPS rate year 
standard Federal rate.
    In that same proposed rule, based on the best available data at 
that time and proposed policy revisions described in that same 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 $170 million as follows: $80 million in 
the 2005 LTCH PPS rate year; $50 million in the 2006 LTCH PPS rate 
year; $30 million in the 2007 LTCH PPS rate year; and $10 million in 
the 2008 LTCH PPS rate year.
    Accordingly, using the methodology established in the August 30, 
2002 final rule (67 FR 56034) based on updated data and the policies 
and rates discussed in the January 30, 2004 proposed rule (69 FR 4774), 
we proposed a 3.0 percent reduction (0.970) to all LTCHs' payments for 
discharges occurring on or after July 1, 2004, and through June 30, 
2005, to account for the estimated cost of the transition period 
methodology (including the option to elect payment based on 100 percent 
of the Federal rate) of the $80 million for the 2005 LTCH PPS rate 
year.
    In that same proposed rule, we explained that the proposed offset 
of 3.0 percent had decreased relative to the prior estimate of 4.6 
percent for several reasons. Specifically, we used data from more 
recent cost reports and were able to obtain data from more LTCHs (211 
LTCHs as compared to 194 LTCHs in the June 6, 2003 final rule). In 
addition, in projecting the percentage of hospitals that would elect to 
be paid based on 100 percent of the 2005 LTCH PPS rate year standard 
Federal rate, we used data from the Provider Specific File (PSF), which 
indicates whether a LTCH opted to be paid based on 100 percent of the 
standard Federal rate or the transition blend methodology for the FY 
2003 LTCH PPS payment year. However, based on information obtained from 
the PSF, we learned that, for those LTCHs that we projected would 
choose payment for FY 2003 based on 100 percent of the standard Federal 
rate (where payment based on the full Federal rate would be expected to 
be higher for those LTCHs than payment under the transition blend

[[Page 25702]]

methodology), a significant number of those LTCHs chose to be paid 
under the transition blend methodology that is projected to result in 
payment lower than that using 100 percent of the standard Federal rate.
    Similarly, a significant number of those LTCHs that we expected 
would choose payment under the transition blend methodology (where 
payment under the transition blend for those LTCHs would be expected to 
be higher than payment based on 100 percent of the standard Federal 
rate) chose to be paid using 100 percent of the standard Federal rate, 
which is projected to result in payment lower than that under the 
transition blend methodology. Since a number of LTCHs opted to be paid 
based on a methodology in which they would receive lower payments, we 
assume that the overall cost of $100 million to the Medicare program of 
the transition period will be less than what was projected in the June 
6, 2003 final rule for the 2005 LTCH PPS rate year. Thus, in the June 
6, 2003 final rule, in estimating the $100 million cost to the 
transition, which would have necessitated a 4.6 percent reduction to 
all LTCHs' payments for the 2005 LTCH PPS rate year, we overstated our 
assumptions of the cost of the transition period.
    Accordingly, to account for the projected lower cost of the 
transition period due to those LTCHs that chose to be paid based on a 
methodology in which they would receive lower payments in FY 2003, in 
the January 30, 2004 proposed rule (69 FR 4773), we proposed a 3.0 
percent (0.970) reduction to all LTCHs' payments during the 2005 LTCH 
PPS rate year. We also noted that the proposed 0.970 transition period 
budget neutrality factor for the 2005 LTCH PPS rate year was 3 
percentage points lower than the transition period budget neutrality 
factor for the 2004 LTCH PPS rate year (0.940). We explained that this 
smaller budget neutrality offset would contribute to greater LTCH 
payment increases between the 2004 and 2005 LTCH PPS rate years 
compared to the increases seen between FY 2003 and the 2004 LTCH PPS 
rate year. We do not expect to see these large payments per discharge 
increases in future years as the majority of LTCHs will have 
transitioned fully to the LTCH PPS and, therefore, the transition 
period budget neutrality factor should remain more stable.
    In this final rule, based on the updated data, using the same 
methodology established in the August 30, 2002 final rule (67 FR 
56034), we are projecting that approximately 93 percent of LTCHs will 
be paid based on 100 percent of the standard Federal rate rather than 
receive payment under the transition blend methodology during the 2005 
LTCH PPS rate year. This projection, which used updated data (including 
data from the PSF) is based on our estimate that either: (1) A LTCH has 
already elected payment based on 100 percent of the Federal rate prior 
to the beginning of the 2005 LTCH PPS rate year (July 1, 2004); or (2) 
a LTCH will 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 project that the 
remaining 7 percent of LTCHs will choose to be paid based on the 
transition blend methodology at Sec.  412.533 because those payments 
are estimated to be higher than if they were paid based on 100 percent 
of the standard Federal rate. The applicable transition blend 
percentage is applicable 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).
    We note that this projection of the percentage of LTCHs that will 
be paid based on 100 percent of the Federal rate rather than receive 
payments under the transition blend methodology during the 2005 LTCH 
PPS rate year is higher than our estimate of 69 percent presented in 
the January 30, 2004 proposed rule. For this final rule, we are using 
the most recent available data (claims data from the FY 2003 MedPAR 
files, cost report data from FYs 1999-2001, and data from the December 
2003 update of the PSF) and we have obtained data for more LTCHs (239 
LTCHs compared to 211 in the proposed rule.) Specifically, we used data 
from the PSF as of December 31, 2003, which indicates whether an LTCH 
has notified its fiscal intermediary that it has elected to receive 
LTCH PPS payments based on 100 percent of the Federal rate. Based on 
the information obtained from the PSF, we learned that, of the 65 out 
of 211 LTCHs (65/211= 31 percent) that we projected in the proposed 
rule would choose payment under the transition blend methodology for 
the 2005 LTCH PPS rate year (where payment under the transition blend 
for those LTCHs was expected to be higher than payment based on 100 
percent of the Federal rate), 61 of those 65 LTCHs have in fact already 
made the election to receive payment based on 100 percent of the 
Federal rate, even though we had projected that this election would 
result in a lower payment than payment under the transition blend 
methodology.
    Furthermore, we believe that more LTCHs have elected to receive 
payments based on 100 percent of the Federal rate due to an increase in 
estimated fully Federal LTCH PPS payments relative to decreasing 
reasonable cost-based payments.
    Specifically, as we discussed above in section V.C.3. of this 
preamble, based on an analysis of LTCH claims data in the latest 
available MedPAR files (December 2003 update of the FY 2003 MedPAR 
data), we have found that the average LTC-DRG relative weight assigned 
to each case has increased due to a comparatively larger number of 
cases being assigned to LTC-DRGs with higher relative weights. This 
increase may be attributable to a number of factors, including 
improvements in coding practices, which are typically found when moving 
from a cost-based reimbursement system to a PPS. Increase in case-mix 
was also observed after the IPPS was implemented in FY 1984 for acute 
care hospitals. Additionally, as discussed in the article ``Long-Term 
Care Hospitals Under Medicare: Facility-Level Characteristics'' by Liu 
and Associates published in the Winter 2001 Health Care Financing 
Review (Volume 23, Number 2), when LTCHs received cost-based 
reimbursement under the TEFRA system, the cap on LTCHs' target amounts 
created inequities between older (existing before 1983) and newer 
(opening after 1983) LTCHs. Specifically, older LTCHs had relatively 
low target amounts compared to the newer LTCHs, and, therefore, treated 
relatively less complicated patients in order to keep their costs below 
their target amount. One of the goals in implementing the PPS for LTCHs 
was to provide older LTCHs an incentive to treat more complex LTCH 
patients. The fact that older LTCHs are no longer limited by their 
relative lower target amounts and are now able to treat more complex 
patients may be another factor which has contributed to the increase in 
case-mix. This increase in case-mix has resulted in an increase in 
projected LTCH PPS payments based on 100 percent of the Federal rate 
for the 2005 LTCH PPS rate year. In contrast, based on the most recent 
cost report data (FY 2001), the average cost per discharge appears to 
be decreasing for many LTCHs. Decreasing costs are also to be expected 
when converting from a retrospective cost-based reimbursement system to 
a prospective DRG-based payment system. Accordingly, our projection of 
the reasonable cost-based portion of the transition blend payment is 
based on these lower costs. The cost

[[Page 25703]]

per discharge could be decreasing due to better operating efficiency of 
the hospital, which is one of the incentives of a PPS. Thus, our 
projection of increasing LTCH PPS payments based on 100 percent of the 
Federal rate and our projection of decreasing payments based on 
reasonable costs may explain why a much larger number of LTCHs have in 
fact elected to receive payments based on 100 percent of the Federal 
rate despite our previous projections to the contrary. Thus, we believe 
that, in the 2005 LTCH PPS rate year, a larger percentage of LTCHs 
(larger than we estimated in the January 30, 2004 proposed rule) will 
elect payment based on 100 percent of the Federal rate rather than the 
transition blend methodology.
    Based on the best available data and the final policies described 
in this final rule, we are projecting that in the absence of a 
transition period budget neutrality offset, the full effect of the 
remaining 4 years of the transition period (including the election 
option) as compared to payments as if all LTCHs wouldbe paid based on 
100 percent of the Federal rate would result in a cost to the Medicare 
program of $29 million as follows:

------------------------------------------------------------------------
                                                              Estimated
                     LTCH PPS rate year                       cost  (in
                                                              millions)
------------------------------------------------------------------------
2005.......................................................          $15
2006.......................................................           10
2007.......................................................            4
2008.......................................................            0
------------------------------------------------------------------------

    We are no longer projecting a small cost for the 2008 LTCH PPS rate 
year (July 1, 2007 through June 30, 2008) even though some LTCH's will 
have a cost reporting period for the 5th year of the transition period 
which will be concluding in the first 3 months of the 2008 LTCH PPS 
rate year because as we discussed above, based on the most recent 
available data, we are projecting that the vast majority of LTCHs will 
have made the election to be paid based on 100 percent of the Federal 
rate rather than the transition blend.
    Accordingly, using the methodology established in the August 30, 
2002 final rule (67 FR 56034) based on updated data and the policies 
and rates discussed in this final rule, we are implementing a 0.5 
percent reduction (0.995) to all LTCHs' payments for discharges 
occurring on or after July 1, 2004, and through June 30, 2005, to 
account for the estimated cost of the transition period methodology 
(including the option to elect payment based on 100 percent of the 
Federal rate) of the $15 million for the 2005 LTCH PPS rate year.
    We note that the 0.5 percent transition period budget neutrality 
offset for the 2005 LTCH PPS rate year is lower than the proposed 
transition period budget neutrality offset for the 2005 LTCH PPS rate 
year (3.0 percent). As discussed above, we are projecting that the vast 
majority of LTCHs (93 percent) will be paid based on 100 percent of the 
Federal rate during the 2005 LTCH PPS rate year. Accordingly, as 
discussed above, we are projecting a much lower cost ($15 million 
compared to $80 million in the proposed rule) of the full effect of the 
transition period methodology (including the election option) for the 
2005 LTCH PPS rate year.
    As noted 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 LTCH PPS rate years. In this final 
rule, based on the best available data, we estimate the following 
budget neutrality offsets to LTCH PPS payments during the remaining 
years of the transition period: 0.4 percent (0.996) for the 2006 LTCH 
PPS rate year, 0.1 percent (0.999) for the 2007 LTCH PPS rate year, and 
0 percent (no adjustment) for the 2008 LTCH PPS rate year. As noted 
above, we believe there is no longer a need for a small offset in the 
2008 LTCH PPS rate year because we project that the vast majority of 
those LTCHs whose 5th year of the transition period will be concluding 
in the first 3 months of the 2008 LTCH PPS rate year will be paid based 
on 100 percent of the Federal rate rather than the transition blend.
    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 that estimated 
aggregate payments under the LTCH PPS equal the estimated aggregate 
payments that would 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 at the 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 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 for the first year of the LTCH PPS 
would not be perpetuated in the LTCH PPS rates for future years.
    In the June 6, 2003 final rule (67 FR 34153), we estimated that 
total Medicare program payments for LTCH services over the next 5 LTCH 
PPS rate years would be $2.17 billion for the 2004 LTCH PPS rate year; 
$2.29 billion for the 2005 LTCH PPS rate year; $2.42 billion for the 
2006 LTCH PPS rate year; $2.56 billion for the 2007 LTCH PPS rate year; 
and $2.71 billion for the 2008 LTCH PPS rate year.
    In the January 30, 2004 proposed rule (69 FR 4774), based on the 
best available data at that time, we estimated that total Medicare 
program payments for LTCH services over the next 5 LTCH PPS rate years 
would be $2.33 billion for the 2005 LTCH PPS rate year; $2.48 billion 
for the 2006 LTCH PPS rate year; $2.64 billion for the 2007 LTCH PPS 
rate year; $2.79 billion for the 2008 LTCH PPS rate year; and $2.96 
billion for the 2009 LTCH PPS rate year.
    In this final rule, consistent with the methodology established in 
the August 30, 2002 final rule (67 FR 56036), based on the most recent 
available data, we estimate that total Medicare program payments for 
LTCH services for the next 5 LTCH PPS rate years will be as follows:

------------------------------------------------------------------------
                                                              Estimated
                                                               payments
                     LTCH PPS rate year                         ($ in
                                                              billions)
------------------------------------------------------------------------
2005.......................................................         2.96
2006.......................................................         2.98
2007.......................................................         2.95
2008.......................................................         3.01
2009.......................................................         3.12
------------------------------------------------------------------------

    In accordance with the methodology established in the August 30, 
2002 final rule (67 FR 56037), these estimates are based on the 
projection that 93 percent of LTCHs will elect to be paid based on 100 
percent of the 2005 LTCH PPS rate year standard Federal rate rather 
than the applicable transition blend, and our

[[Page 25704]]

estimate of 2005 LTCH PPS rate year payments to LTCHs using our Office 
of the Actuary's most recent estimate of the excluded hospital with 
capital market basket of 3.1 percent for the 2005 LTCH PPS rate year, 
3.2 percent for the 2006 and 2007 LTCH PPS rate year, 2.8 percent for 
the 2008 LTCH PPS rate year, and 3.1 percent for the 2009 LTCH PPS rate 
year. We also took into account our Office of the Actuary's projection 
that there will be a change in Medicare beneficiary enrollment of 1.0 
percent in the 2005 LTCH PPS rate year, -4.8 percent in the 2006 LTCH 
PPS rate year, -6.4 percent in the 2007 LTCH PPS rate year, -1.2 
percent in the 2008 LTCH PPS rate year, and 0.2 percent in the 2009 
LTCH PPS rate year. (We note that our Office of the Actuary is 
projecting a decrease in Medicare Part A enrollment, in part, because 
they are projecting an increase in Medicare managed care enrollment as 
a result of the implementation of several provisions of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003.)
    Comment: Two commenters endorsed the proposed 3.0 percent 
transition period budget neutrality adjustment for the 2005 LTCH PPS 
rate year, but expressed concern that the new data sources for 
determining the budget neutrality offset (that is, use of cost report 
data from 211 LTCHs, and the PSF) suggest an error in previous budget 
neutrality adjustments (for FY 2003 and the 2004 LTCH PPS rate year). 
The commenters asked if and how CMS plans to account for errors in past 
estimates, and specifically asked whether CMS would use the one-time 
prospective adjustment to the LTCH PPS rates (effective October 1, 
2006) to account for errors in previous transition period budget 
neutrality adjustments.
    Response: The commenters are referring to the one-time prospective 
adjustment at 42 CFR Sec.  412.523(d)(3), which states that the 
Secretary may make 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. The purpose of this one-time adjustment is to ensure that 
ultimately, total payments under the LTCH PPS are budget neutral to 
what total payments would have been if the LTCH PPS were not 
implemented in FY 2003, by correcting for possible significant errors 
in CMS' calculation of the LTCH PPS standard Federal rate. However, the 
transition period budget neutrality offset is a separate budget 
neutrality adjustment. The purpose of the latter adjustment is to 
maintain budget neutrality during the 5-year transition period, since 
the standard Federal rate was determined based on the assumption that 
all LTCHs would be paid under 100 percent of the standard Federal rate, 
while some LTCHs have, in fact, elected to be paid on the transition 
blend methodology. The budget neutrality adjustment is intended to 
account for those LTCHs that elected the blend methodology and, 
therefore, receive higher payments under the blend methodology relative 
to 100 percent of the standard Federal rate.
    Because the transition period budget neutrality offsets are made to 
all LTCHs' payments under the LTCH PPS during each year of the 5-year 
transition period and are not a reduction to the LTCH standard Federal 
rate during the 5-year transition period, any errors in past estimates 
would not be perpetuated in the LTCH PPS rates for future years. In 
fact, by the end of the 5-year transition, there will be no budget 
neutrality offset since all LTCHs will then be paid based on 100 
percent of the standard Federal rate. Thus, the one-time prospective 
adjustment was not intended to address possible errors in the 
transition period budget neutrality offsets used during the 5-year 
transition period. Furthermore, while we are aware that there are some 
limitations in the data, as with other Medicare prospective payment 
systems, the data that we use to determine the rates, adjustments and 
other factors under the LTCH PPS, including the transition period 
budget neutrality offsets, are always based on the best data that we 
have available at the time. We would expect that the projections of the 
budget neutrality offsets might fluctuate somewhat from rate year to 
rate year as more data upon which we base our projections become 
available, particularly, information on whether a LTCH has actually 
elected payment based on 100 percent of the standard Federal rate. 
Accordingly, we are not planning to make an adjustment by 2006 for 
errors in the estimates of the transition period budget neutrality 
offsets used in FY 2003 or in the LTCH PPS 2004 rate year.
    As we discussed in the January 30, 2004 proposed rule (69 FR 4774), 
because the LTCH PPS has only been implemented for less than 2 years, 
sufficient new data have not been generated that would enable us to 
conduct a comprehensive reevaluation of our budget neutrality 
calculations. Accordingly, we did not propose to make a one-time 
adjustment under Sec.  412.523(d)(3). At this time, we still do not 
have sufficient new data to enable us to conduct a comprehensive 
reevaluation of our budget neutrality calculations. Therefore, in this 
final rule, we are not making a one-time adjustment under Sec.  
412.523(d)(3) so that the effect of any significant difference between 
actual payments and estimated payments for the first year of the LTCH 
PPS is not perpetuated in the PPS rates for future years. However, 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.
7. Changes in the Procedure for Counting Days in the Average Length of 
Stay Calculation
    Before the implementation of the PPS for LTCHs, Medicare paid LTCHs 
under the reasonable cost methodology subject to limitations on 
payments. Both the BBRA and BIPA required the development and 
implementation of a per discharge PPS for LTCHs based on DRGs for cost 
reporting periods beginning on or after October 1, 2002 (67 FR 55954, 
August 30, 2002).
    Under the reasonable cost-based reimbursement system, the number of 
patient days that occurred during a cost reporting period and the costs 
associated with those days were reported on the hospital's cost report 
(Hospital and Hospital Health Care Complex Cost Report, CMS Form 2552-
96), as were the number of patient discharges that occurred during that 
same period. This method of reporting and reimbursement did not require 
that all of the days of care to a patient be counted as occurring in 
the cost reporting period during which the patient was discharged. 
Under this method of reporting and reimbursement, the days of care to a 
patient are counted in the cost reporting period in which they 
occurred.
    With the FY 2003 implementation of the LTCH PPS, as in other 
discharge-based PPS', such as those for acute care hospitals and for 
IRFs, all days of the patient's stay, even those occurring prior to the 
cost reporting period in which the discharge occurs are counted for 
payment purposes as occurring in the cost reporting period of the 
patient's discharge. An example of this distinction is as follows: A 
LTCH has a January 1 through December 31 cost reporting period; a 
Medicare patient is admitted on December 15 and discharged on February 
5, 2004. Prior to the LTCH PPS, under the reasonable cost-based 
reimbursement system, costs and patient days occurring in December 2003 
would be included in the January 1 through December 31, 2003 cost 
reporting period, even though the

[[Page 25705]]

patient was not discharged until February of the next cost reporting 
period that began January 1, 2004. Those patient days occurring in 
January and February would be counted in the next cost reporting period 
(2004) in which the discharge occurred. Since the implementation of the 
LTCH PPS, for payment purposes, all patient days for this stay would be 
reported in the cost reporting period in which the discharge occurred. 
In the above example, therefore, all of the patient stay would be 
counted in the next cost reporting period, which is the 2004 cost 
reporting period. Even if a LTCH is transitioning into fully Federal 
payments and a percentage of its payments is based upon what would have 
been paid under the former reasonable cost-based reimbursement system, 
under Sec. Sec.  412.500 and 412.533, payment policy is governed by the 
LTCH PPS. At cost report settlement, payment is discharge-based. 
Therefore, once a LTCH is subject to the LTCH PPS, that is, for its 
first cost reporting period starting on or after October 1, 2002, the 
``days follow the discharge,'' which means that both days and costs are 
linked to the patient's discharge, even when the days occurred in a 
previous cost reporting period.
    In the August 30, 2002 final rule (67 FR 55972), which established 
the policies of the LTCH PPS, we stated that ``[t]he procedure by which 
a LTCH will be evaluated by its fiscal intermediary to determine 
whether it will qualify as a LTCH... is the same procedure currently 
employed under the TEFRA system.'' Currently, for determining whether a 
hospital meets the greater than 25 day average Medicare inpatient 
length of stay criterion, in the case of a Medicare patient who was 
admitted during one cost reporting period, but was discharged in a 
following cost reporting period, both covered and uncovered days are 
counted in the cost reporting period in which they occurred and not 
linked to the cost reporting period in which the patient is discharged.
    Therefore, presently, for a LTCH with a January 1 through December 
31 cost reporting period, if a patient was admitted on December 1, 2002 
and discharged on January 15, 2003, patient days would be counted one 
way for payment purposes and another way for purposes of counting the 
average length of stay. For payment purposes, all 46 days of the stay 
and the costs associated with them would be reported during the cost 
reporting period that the discharge occurred, that is, January 1, 2003 
through December 31, 2003. For purposes of determining whether a 
hospital meets the greater than 25 day length of stay criterion, under 
Sec.  412.23(e)(2)(i), however, for the same patient, the 31 days in 
December would be counted as occurring during the January 1, 2002 to 
December 31, 2002 cost reporting period and the 15 days in January 2003 
would be counted, along with the discharge, during the January 1, 2003 
through December 31, 2003 cost reporting period.
    As we stated in the January 30, 2004 proposed rule, we had received 
numerous inquiries from providers and fiscal intermediaries indicating 
that our two different ways of counting days under the LTCH PPS for 
payment and for average length of stay calculations have created 
considerable confusion. Therefore, in response to those inquiries and 
consistent with the payment system already in place for LTCHs as 
discussed above, we proposed to revise Sec.  412.23(e)(3)(i) of the 
regulations to specify that if a patient's stay includes days of care 
furnished during two or more separate consecutive cost reporting 
periods, the total days of a patient's stay would be reported in the 
cost reporting period during which the patient is discharged in 
calculating the average length of stay for hospitals that qualify as 
LTCHs under both Sec.  412.23(e)(2)(i) and (e)(2)(ii). We did not 
propose any changes to the formula of dividing the number of total days 
for Medicare patients by discharges for LTCHs in order to determine 
whether a hospital qualifies as a LTCH under Sec.  412.23(e)(2)(i) or 
in the formula of dividing total days for all patients by discharges 
for LTCHs to qualify under Sec.  412.23(e)(2)(ii).
    In the August 1, 2003 final rule for the IPPS (68 FR 45464), we 
discussed the inability of the present cost report (Hospital and 
Hospital Health Care Complex Cost Report, CMS Form 2552-96) to capture 
total days for Medicare patients as required under Sec. Sec.  
412.23(e)(2) and (e)(3) for hospitals qualifying under Sec.  
412.23(e)(2)(i) and our present use of census data gathered from the 
Medicare provider analysis and review (MedPAR) files for this purpose. 
Prior to the October 1, 2002 implementation of the LTCH PPS, we relied 
on data from the most recently submitted hospital cost report in order 
to determine whether or not a hospital qualified as a LTCH. We will 
continue to utilize patient days and discharge data from MedPAR files 
for the qualification calculation under the revised Sec.  
412.23(e)(3)(i) until the cost reporting form is revised to capture 
total days for Medicare inpatients. As discussed earlier, for a 
hospital to qualify as a LTCH under Sec.  412.23(e)(2)(i), it must 
demonstrate that the Medicare inpatients require care for an average 
Medicare inpatient length of stay of greater than 25 days for the 
hospital's most recent cost reporting period. Alternatively, for cost 
reporting periods beginning on or after August 5, 1997, a hospital that 
was first excluded from the PPS in 1986, and can 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 principal 
diagnosis that reflects a finding of neoplastic disease must have an 
average inpatient length of stay for all patients, including both 
Medicare and non-Medicare inpatients, of greater than 20 days (Sec.  
412.23(e)(2)(ii)). Under the previous reasonable cost-based 
reimbursement system to determine whether or not a hospital met this 
requirement, total days for all patients were divided by the total 
number of discharges that occurred during a cost reporting period. When 
we implemented the LTCH PPS on October 1, 2002, we limited this 
calculation to only Medicare patients for hospitals to qualify under 
Sec.  412.23(e)(2)(i), but did not change the calculation for hospitals 
to qualify under Sec.  412.23(e)(2)(ii). As we noted in the August 30, 
2002 final rule, ``[w]e believe that excluding non-Medicare patients in 
determining the average inpatient length of stay for purposes of 
subclause (I) would be more appropriate in identifying the hospitals 
that warrant exclusion under the general definition of LTCH in 
subclause (I). However, in enacting subclause (II), the Congress 
provided an exception to the general definition of LTCH under subclause 
(I), and 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). These hospitals will continue to have 
their greater than 20 days average length of stay calculated based on 
all days for all patients, whether Medicare or non-Medicare patients.'' 
As with a subclause (I) LTCH, payments for a subclause (II) LTCH have 
been discharge-based since the implementation of the LTCH PPS and, 
therefore, for consistency, days for all patients will be counted for 
ALOS purposes, during the cost reporting period when those patients are 
discharged.
    Comment: We received three comments on our proposal to change the 
procedure for counting days in the ALOS calculation. The commenters 
generally supported the proposed change provided that CMS establish 
exceptions for LTCHs that previously

[[Page 25706]]

qualified under the existing criteria, but would lose LTCH status under 
the new procedure. Both commenters suggested that we should allow the 
LTCHs to present additional data to their fiscal intermediaries 
indicating that the LTCHs were treating Medicare LTCH patients who had 
not been discharged in time to comply with the ALOS requirements 
computed under the new procedure before losing LTCH designation. One of 
these commenters suggested that only after two years of failing to meet 
the ``days follow the discharge'' ALOS requirement, if a LTCH lose its 
designation. The same commenter asked us to clarify the impact of the 
proposed ``days follow the discharge'' policy on our existing policy 
which allows a LTCH that submits 5 months of data, under Sec.  
412.23(e)(3)(ii), to retain its LTCH status.
    Response: We thank the commenters for their general endorsement of 
the proposed policy, and we understand their concern about LTCHs that 
are providing long-term hospital-level care for Medicare patients 
losing their designation under the new procedure. We want to reassure 
the commenters that under Sec.  412.22(d), even if a fiscal 
intermediary determined that a LTCH was not meeting the ALOS under the 
new procedure, hospital status changes only at the start of a cost 
reporting period. Accordingly, even if a determination is made that the 
LTCH no longer meets the greater than 25 day length of stay criteria, 
it may be possible for the LTCH to show that for 5 of the 6 months 
immediately preceding the start of the next cost reporting period it 
meets the length of stay criteria and, therefore, not have a break in 
its payment status as a LTCH.
    In response to one commenter's concerns, however, we are also 
providing a one-year grandfathering of LTCH status for all existing 
LTCHs that will give each hospital an additional cost reporting period 
to adjust to the new methodology. Therefore, for cost reporting periods 
beginning on or after July 1, 2004, but before July 1, 2005, no LTCH 
would lose its designation if it was unable to demonstrate its 
compliance with the ALOS requirement (Sec.  412.23(e)(3)(ii)) during 
its first cost reporting period under the new procedure. An example of 
our grandfathering provision is as follows: A LTCH's cost reporting 
period begins on October 1, 2004 and it is informed shortly thereafter 
by its fiscal intermediary, that it had not met the length of stay 
requirement under the new computational procedure based on data from 
its most recent cost reporting period, and the LTCH's data from April 
1, 2005 through August 30, 2005 (at least 5 of the immediately 
preceding 6-month period before the start of its next cost reporting 
period) also did not show compliance. The LTCH would not lose its 
designation on October 1, 2005, but would have until the end of this 
cost reporting period (October 1, 2005 through September 30, 2006) to 
comply.
    In response to the commenter who questioned the impact of the 
``days follow the discharge'' policy on the provider's option to submit 
additional data demonstrating compliance with the ALOS requirement, we 
believe that Sec.  412.23(e)(3)(i) is clear. The calculation resulting 
in the 5 months of data that the LTCH will have to present in order to 
indicate compliance will be made by the same method as proposed under 
Sec.  412.23(e)(3)(i) for calculating the initial data reviewed by the 
fiscal intermediary. This means that the LTCH would not lose its status 
if its submitted data indicated that by dividing the patient days that 
represented patients who had been discharged during those 5 months by 
those discharges and omitting days for patients who had not yet been 
discharged, the LTCH served patients with a ALOS of greater than 25 
days. Therefore, we do not believe that there is any incompatibility 
between the requirements of Sec.  412.23(e)(3)(i) which establishes the 
new procedure linking days to discharges for the ALOS calculation and 
the presentation of 5 months of data by the LTCH by the same method 
under Sec.  412.23(e)(3)(ii). In addition, while the commenter suggests 
that we consider an alternate method for meeting the 25 day length of 
stay criteria, we believe it would be inappropriate to allow a LTCH to 
present alternative data for indicating its inpatient census to its 
fiscal intermediary in situations where the LTCH fails to comply with 
the discharge-based day count, if it also failed to meet the revised 
computational procedure. We have always been aware of concerns 
regarding fluctuations in discharges and patient census at LTCHs that 
could jeopardize LTCH status and that is why, prior to the LTCH PPS, 
under the TEFRA system, we delay the effect of any determination to the 
beginning of the hospitals' next cost reporting period and we allowed a 
LTCH an opportunity to present its most recent data (Sec.  
412.23(e)(3)(ii)) to maintain LTCH status, a policy that continues 
under the LTCH PPS. We do not believe that in establishing the 
discharge-based computation, it is appropriate to allow all LTCHs time 
to make changes, if necessary, to assure compliance with the revised 
criteria. Therefore, we are also finalizing the 1-year grandfathering 
provision described above, which gives LTCHs additional time to adjust 
to the new procedure without jeopardizing LTCH status. We believe that 
this provision addresses the concerns of the commenter who suggested 
that we allow non-compliance for 2 years prior to revoking LTCH status.
    Finally, we want to clarify that LTCHs that qualify as LTCHs under 
Sec.  412.23(e)(2)(ii) would also be subject to this requirement. We 
are issuing this clarification because we discovered that although we 
expressly provided in our January 30, 2004 proposed rule (69 FR 4775) 
that the total days of a patient's stay would be reported in the cost 
reporting periods during which the patient is discharged in calculating 
the ALOS for hospitals that qualify under both Sec.  412.23(e)(2)(i) 
and (ii) (and our proposed regulation text is consistent with this 
language), we inadvertently included preamble language that may have 
caused confusion about this proposed policy. We also want to clarify 
that in the proposed regulation text at proposed Sec.  412.23(e)(3)(i) 
that our ``days follow the discharge policy'' was applicable to days 
involving ``* * * an admission during one cost reporting period and a 
discharge in a second consecutive cost reporting period * * *'' This 
regulation text was not as refined as the articulation of the policy in 
the preamble where it was stated that the policy was applicable ``if a 
patient's stay includes days of care furnished during two or more 
separate consecutive cost reporting periods.'' In other words, the days 
follows discharge policy is not limited to stays that occur in just 2 
consecutive cost reporting periods, rather, it applies to stays that 
span 2 or more consecutive cost reporting periods. Thus, we are making 
a conforming change to the regulations text to clarify this policy. We 
apologize for any ambiguity in the proposed rule on this subject.
8. Clarification of the Requirements for a Satellite Facility or a 
Remote Location To Qualify as a LTCH and Changes to the Requirements 
for Certain Satellite Facilities and Remote Locations
    a. Policy Change. In Sec.  412.22(h)(1), we define a satellite as 
``a part of a hospital that provides inpatient services in a building 
also used by another hospital, or in one or more entire buildings 
located on the same campus as buildings used by another hospital.'' 
Satellite arrangements exist when an IPPS excluded hospital is either a 
freestanding hospital or a hospital-within-a-hospital under Sec.  
412.22(e) that

[[Page 25707]]

establishes an additional location by sharing space in a building also 
used by another hospital, or in one or more entire buildings located on 
the same campus as buildings used by another hospital. A detailed 
discussion of our policies regarding Medicare payments for satellite 
facilities of hospitals excluded from the IPPS was set forth in the 
IPPS final rules published on July 30, 1999 (64 FR 41532-41534) and 
August 1, 2003 (67 FR 49982).
    We established Medicare regulations regarding satellite facilities 
for several reasons. First, we believe that whenever a facility that is 
co-located with an acute care hospital is presented as part of another 
IPPS-excluded hospital, it is necessary to ensure that the facility is, 
in fact, organized and operated as part of the IPPS-excluded hospital 
and is not simply a unit of the acute hospital with which it is co-
located. Although we recognize that the co-location of Medicare 
providers, in the form of satellite facilities, hospitals-within-
hospitals, and excluded units, may have some legitimate advantages from 
the standpoint of clinical care as well as medical efficiency, we 
continue to believe that the physical proximity inherent in such 
arrangements also has considerable potential for Medicare program 
payment abuse in that it may facilitate patient shifting for reasons 
related to payment rather than clinical benefits. In existing 
regulations at Sec.  412.22(e) for hospitals-within-hospitals (59 FR 
45330, September 1, 1994), at Sec.  412.23(h) for hospital satellites 
(64 FR 41532-41534, July 30, 1999 and 67 FR 49982, August 1, 2002), and 
Sec.  412.25(e) for satellite facilities, we established ``separateness 
and control'' requirements governing the relationships between these 
facilities and their host hospitals.
    Research by The Urban Institute on the universe of LTCHs that was 
used in developing the LTCH PPS pointed to the considerable growth of 
new LTCHs (or LTCH beds, as in the case of satellite facilities) that 
were co-located with other Medicare providers. Our more recent data 
confirm that this trend has continued. Even though our existing 
regulations governing hospitals-within-hospitals and satellite 
facilities established certain functional boundaries between these 
entities and their hosts, we instituted a policy under the LTCH 
regulations at Sec.  412.532 to discourage inappropriate patient 
discharges and readmissions among co-located Medicare providers (67 FR 
56007-56010, August 30, 2002). Furthermore, in the June 6, 2003 LTCH 
PPS final rule (68 FR 34157), we noted that we are monitoring the 
movement of patients among onsite providers for the purpose of 
determining whether we should consider proposing further changes to 
LTCH coverage and payment policy.
    LTCH hospitals-within-hospitals and LTCH satellite facilities are 
similar in that both are located on the same campus or in the same 
building as another hospital, and many of the same separateness and 
control regulations exist for both types of facilities. However, there 
is an important distinction between them. A LTCH that is co-located 
with another Medicare hospital (generally an acute care hospital) is 
itself a distinct hospital (Sec.  412.22(e)). Section 412.23(e)(1) 
requires a LTCH to have a provider agreement as described under 42 CFR 
Part 489 to participate as a hospital. A satellite facility of a LTCH, 
like all satellite facilities of hospitals excluded from the IPPS 
(Sec.  412.22(h)), is not itself a separate hospital, but a ``part of a 
hospital that provides inpatient services in a building also used by 
another hospital * * *'' Consistent with its status as another 
hospital, a hospital-within-a-hospital has its own Medicare provider 
number. A satellite facility shares the provider number of the parent 
hospital.
    Because a satellite facility is not considered a separate hospital 
under Medicare, if a LTCH with a satellite facility is interested in 
``spinning off'' the satellite facility and establishing the previous 
satellite facility as an independent LTCH, the satellite must first be 
separately licensed by the State. The facility must further demonstrate 
compliance with the Medicare conditions of participation (COPs) under 
part 482 and other requirements for establishing a provider agreement 
under parts 482 and 489 to participate under Medicare as a hospital 
(Sec.  412.23(e)(1)). (Compliance with the COPs may be either 
demonstrated by a State agency survey or based on accreditation as a 
hospital by the Joint Commission on Accreditation of Healthcare 
Organizations (JCAHO or the American Osteopathic Association (AOA) 
(section 1865 of the Act).) Second, if the newly established hospital 
meets the provider agreement requirements under 42 CFR part 489, it 
must demonstrate that it has an average Medicare inpatient length of 
stay of greater than 25 days (Sec.  412.23(e)(2)(i)) by providing data 
of a period of at least 5 months of the preceding 6-month period (Sec.  
412.22(e)(3)(ii) and (iii)). The data used by the fiscal intermediary 
to calculate the average length of stay would be from discharges from 
the newly established hospital and not from discharges attributable to 
stays at the previous satellite facility for the period prior to its 
participation as a separate hospital.
    Although we believe that these requirements, under existing Sec.  
412.23(e)(1) and (e)(2), are clear and unambiguous, we have been 
informed that due to misinterpretation, in some circumstances, 
application of this policy has been inconsistent. Therefore, some 
facilities operating as LTCH satellite facilities have been 
inappropriately granted autonomous status that has resulted in the 
assignment of their own Medicare provider numbers as LTCHs without 
first obtaining provider agreements to participate in Medicare as 
hospitals, under Sec.  412.23(e)(1). Apparently, in these cases, the 
satellite facilities were able to demonstrate that as satellite 
facilities of LTCHs, Medicare patients at their location had an average 
length of stay of greater than 25 days, in compliance with Sec.  
412.22(h)(2)(ii) which required satellite facilities of hospitals 
excluded from the IPPS to comply with specific requirements for their 
provider category. In other situations, we understand that fiscal 
intermediaries correctly refused to accept data from LTCH satellite 
facilities for purposes of qualification as an autonomous LTCH and 
instead required the satellites to satisfy criteria for designation as 
a hospital, under Sec.  412.23 (e)(1). In these cases, the fiscal 
intermediary evaluated average length of stay data dating from that 
hospital designation forward, as required by Sec.  412.23(e)(2).
    We believe consistency in the application of this policy is needed, 
in compliance with existing regulations at Sec.  412.23(e)(1) and 
(e)(2). We are emphasizing that a LTCH satellite facility that is ``a 
part of a hospital that provides inpatient services in a building also 
used by another hospital * * * '' that is seeking to become an 
independent LTCH, must comply with the requirements set forth in the 
definition of a new LTCH in existing Sec.  412.23(e)(4). Therefore, in 
the January 30, 2004 proposed rule (69 FR 4775-4777), we proposed to 
revise Sec.  412.23(e)(4) to include a new paragraph (e)(4)(ii) that 
specifies that only data reflecting the average length of stay for 
Medicare patients in the newly established hospital will be utilized in 
the qualifying calculation at Sec.  412.23(e)(2). Thus, we proposed to 
clarify language that emphasized that if a satellite facility is 
reorganized as a separately participating hospital under Medicare with 
or without a concurrent change of ownership, the new hospital cannot be 
paid under Medicare as a

[[Page 25708]]

LTCH until it demonstrates that it has an average Medicare inpatient 
length of stay in excess of 25 days based on discharges occurring on or 
after its effective date of participation as a hospital and not based 
on discharges at the satellite facility site when it was part of 
another hospital (Sec.  412.23(e)(4)(ii)).
    We proposed that this policy clarification would also be applicable 
to remote locations of LTCHs that are being voluntarily separated from 
the parent LTCHs or sold and are seeking status as independent LTCHs. A 
remote location of a hospital (as defined at Sec.  413.65(a)(2)) is 
similar to a satellite facility because it does not participate in 
Medicare as a separate hospital, but only as an integral and 
subordinate part of another hospital. However, unlike a satellite 
facility, a remote location is not one that is in the same building or 
on the same campus as another hospital. (Because a remote location has 
no ``host'' hospital, it is not required to meet the separateness 
criteria as hospitals-within-hospitals in Sec.  412.22(e) that would 
arise for satellite facilities that become independent LTCHs, as 
discussed above.) Since the hospital would not be a LTCH until the 
fiscal intermediary reviews its documentation and determines that it 
qualifies, during those initial months, the hospital would be paid 
under the IPPS.
    We emphasized that notwithstanding the fact that satellite 
facilities of LTCHs are required to independently meet the average 
Medicare inpatient length of stay requirement of greater than 25 days 
under Sec.  412.22(h)(2)(ii)(D), we proposed to evaluate length of stay 
data only from discharges occurring after the facility has become a 
hospital. This is the case as the prerequisite to designation as a LTCH 
is a provider agreement under Part 489 of Chapter IV to participate as 
a hospital in the Medicare program (Sec.  412.23(e)(1)). The 
requirement that a satellite facility independently meets the length of 
stay criterion was never intended as an alternative method of 
qualifying as a separate excluded hospital. Under Sec.  
412.23(h)(2)(ii), satellite facilities of psychiatric, rehabilitation, 
and children's hospitals, as well as LTCHs, are required to meet 
specific requirements for their provider category because we believed 
that it was essential to ensure that satellite facilities of excluded 
hospitals actually delivered the specialized care for which Medicare 
was paying (Sec.  412.23(h)(2)(ii)). Furthermore, those regulations 
were designed to ensure that there is both an appropriate financial and 
administrative linkage between the satellite facility and the parent 
hospital, and a clear separation of the satellite facility from the 
host hospital. These policies are set forth in the July 30, 1999 IPPS 
final rule (64 FR 41534). In the case of a LTCH, we believe that our 
existing requirement that a satellite facility independently meet the 
greater than 25-day average Medicare inpatient length of stay 
requirement is consistent with the guiding principles of the LTCH PPS. 
We do not believe patients who do not require long-term hospital-level 
care should be admitted to either a LTCH or its satellite facility. In 
addition, we were concerned that, without requiring separate 
compliance, shorter lengths of stay at either the LTCH or its satellite 
facility could be balanced by longer stays at the other. By 
establishing these distinct standards for satellite facilities of 
excluded hospitals, we also wanted to safeguard against the possibility 
of these facilities functioning as a part of an acute care hospital. In 
the case of a LTCH, that result would be inconsistent with section 
1886(d)(1)(B) of the Act, which provides for excluded rehabilitation 
and psychiatric units to be established in acute care hospitals, but 
not long-term care units.
    There is another situation that must be distinguished from the 
scenario discussed above in which a LTCH is voluntarily separating from 
or selling its satellite facility or remote location with the intent of 
the satellite facility or remote location converting into an 
independent hospital and eventually a LTCH. Our recent provider-based 
regulations under Sec.  413.65 require a remote location of a hospital 
that fails to meet certain requirements at Sec.  413.65(e)(3) to seek 
status as a separate hospital if it is to continue functioning and 
being paid by Medicare. Satellite facilities of excluded hospitals, 
such as LTCHs, may also be affected by these new provider-based 
requirements and, in those cases, the following procedure would also be 
applicable.
    Under the provider-based regulations, which became effective for 
the main providers as defined in Sec.  413.65(a)(2), for cost reporting 
periods beginning on or after July 1, 2003, certain facilities that 
were formerly treated for payment purposes by Medicare as remote 
locations or satellite facilities of hospitals, are now precluded from 
continuing in that status because they do not meet the ``common service 
area'' location requirement for provider-based facilities under Sec.  
413.65(e)(3) (67 FR 50078, August 1, 2002). It has come to our 
attention that certain satellite facilities and remote locations of 
LTCHs are being affected by this preclusion. Due to the compulsory 
nature of this separation requirement, we proposed an exception for 
these affected satellite facilities and remote locations of LTCHs that 
would allow them to utilize length of stay data from the 5 months of 
the previous 6 months prior to when they were compelled to separate 
from their main provider under Sec.  413.65(e)(3) (Sec.  
412.23(e)(4)(iii)).
    We wanted to emphasize that the only distinction between 
requirements under Sec.  412.23(e)(4)(ii), for satellite facilities and 
remote locations that voluntarily separate from their parent LTCHs and 
requirements in Sec.  412.23(e)(4)(iii) that apply to satellite 
facilities and remote locations compelled by provider-based location 
requirements at Sec.  413.65(e)(3) to terminate their link to their 
main providers, is that we proposed to allow the latter group to 
utilize data gathered prior to establishing themselves as distinct 
hospitals. Furthermore, this distinction only exists for satellite 
facilities and remote locations of LTCHs that are affected by (Sec.  
413.65(e)(3)) and which were in existence prior to the effective date 
of the provider-based location requirements (July 1, 2003). Under the 
regulations at Sec.  413.65(e)(3), we did not propose to permit these 
entities to be established more than 35 miles from the main providers 
after June 30, 2003. We will assign new Medicare provider numbers to 
former remote locations of LTCH hospitals or satellite facilities that 
fail the new location requirement in Sec.  413.65(e)(3), but want to 
become new LTCHs, if the following conditions were satisfied in Sec.  
412.23(e)(4)(iii):
     The facility meets all Medicare COPs in part 482 and other 
participation requirements set forth in 4part 489.
     The facility provides data to its fiscal intermediary 
indicating that during 5 of the immediate 6 months preceding its 
separation from the main hospital, it has independently met the greater 
than 25-day average length of stay requirement for its Medicare 
patients (Sec.  412.23(e)(3)).
    Comment: Two commenters endorsed our codification of existing 
policy that requires a satellite to be certified first as an acute care 
hospital prior to meeting the requirements for designation as a LTCH. 
The commenters also endorsed the exception that we proposed to allow a 
satellite or remote location that must involuntarily separate from the 
main hospital because it failed to meet the ``common service area'' 
requirements under provider-based regulations to utilize ALOS data 
collected prior to its separation.
    Response: We thank the commenters for endorsing both the basic 
policy and the exception. We believe that the policy that we have 
proposed is well within the authority given to the

[[Page 25709]]

Secretary under section 1886(d)(1)(B)(I) of the Act and, therefore, we 
are finalizing the policy, as well as the exception to the policy.
    Comment: Several commenters asserted that since satellite 
facilities are already required to demonstrate independent compliance 
with ALOS provisions, CMS has the authority to allow LTCH satellites 
and remote locations to gain independent status as LTCHs without 
waiting the required time period. Furthermore, they state that there is 
no statutory or regulatory authority that mandates a certification 
waiting period. If CMS is reluctant to immediately certify satellites 
as LTCHs, however, they suggest it should implement the proposed policy 
prospectively, beginning on or after July 1, 2004. That is, this policy 
should not apply to LTCH satellites and remote locations that otherwise 
meet the requirements and that commenced the process for obtaining 
independent LTCH certification status prior to the effective date of 
this final rule. In addition, the commenters are of the opinion that an 
exception to the new policy should be created allowing LTCH satellite 
facilities and remote locations to gain immediate independent LTCH 
certification status if they meet the applicable requirements and have 
already been a part of a LTCH for at least 3 years.
    Response: As we stated earlier, under Sec.  412.22(h)(1)(ii), we 
have required satellites to independently meet the specific 
requirements related to their provider type. In establishing these 
regulations, our intention was to ensure that the satellite facilities 
of excluded hospitals were actually delivering the specialized care and 
indeed existed as an extension of the LTCH and not to provide 
alternative methodologies for qualifying as a particular category of 
excluded hospital. Since the satellite facilities share the same 
provider number as the parent hospital and are governed in all ways by 
that parent, it would be consistent for us to expect that the satellite 
facility also meets the length of stay requirement. However, as we have 
stated previously, if a satellite facility wishes to become an 
independent LTCH, we require that the satellite facility demonstrate 
that it meets the necessary requirements to be certified as an acute 
care hospital; once the satellite facility is Medicare certified, then 
the hospital may consider the classification requirements for becoming 
a ``specialty'' hospital. We are requiring satellites to undertake the 
same procedures that were in effect with the implementation of the IPPS 
by the Congress in 1983 in order to be designated as LTCHs. As one of 
the commenters indicated, the Secretary is not required, but 
nonetheless, has the statutory authority to establish this policy under 
section 1886(d)(1)(B)(iv)(I) of the Act. 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.'' Thus, the statute is clear that the Secretary decides 
how the ALOS is calculated. By virtue of the broad authority conferred 
on the Secretary by the statute, we published regulations at Sec.  
412.23(e) describing how the ALOS is determined as well as specifying 
the procedure for designation as a LTCH. Under the regulations, an 
entity must be certified as an acute care hospital; the hospital would 
receive payment under the IPPS until such time (5 out of 6 months) that 
meet the classification requirement as an LTCH.
    In enacting these regulations, the Secretary is exercising the 
discretionary authority given in section 1886(d)(1)(B)(I) of the Act in 
permitting an exception for those satellite facilities and remote 
locations that are required by Sec.  413.65(e)(3) to separate from 
their parent hospitals because they fail to meet certain requirements. 
This particular group of satellites or remote locations will be 
permitted to use their length of stay data from 5 months of the 
previous 6 months prior to when they were compelled to separate from 
their main provider. This is appropriate because these satellite 
facilities and remote locations were compelled to ``spin off'' by our 
provider-based regulations at Sec.  413.65(e)(3). With respect to 
satellite facilities and remote locations of LTCHs that voluntarily 
``spin off'', we have not been given any compelling information that 
would cause us to make a change to the requirements for classifying 
LTCHS and, thus, under the Secretary's discretionary authority to 
determine the methodology for calculating the ALOS, we will continue to 
use discharges occurring on or after the effective date of 
participation as a hospital for purposes of qualifying as LTCHs.
    While there may have been misunderstandings in the past regarding 
this policy, we believe we have clarified this long-standing policy in 
this final rule by unambiguously stating that a satellite facility or 
remote location must first be considered a hospital before being 
classified as a LTCH. In other words, a new hospital cannot be paid as 
a LTCH until it demonstrates that it has an average Medicare inpatient 
length of stay in excess of 25 days based on discharges occurring on or 
after the effective date of participation as a hospital. Therefore, we 
do not think that it is appropriate to apply what, in fact, is existing 
CMS policy only ``prospectively,'' as suggested by one of the 
commenters, or to establish a grandfathering provision for LTCH 
satellites that have existed for at least 3 years.
    Comment: One commenter requested that we clarify whether the 
proposed change to Sec.  412.23(e)(4)(ii) applies to only ``voluntary'' 
separation.
    Response: Section 412.23(e)(4)(ii) states that a satellite facility 
that voluntarily separates from its parent LTCH in order to become an 
independent LTCH must comply with all requirements of Sec.  412.23(e) 
which includes the 6 month waiting period. However, for a satellite 
facility or remote location that is being forced to separate from the 
main hospital ``involuntarily'' due to not meeting specific provider-
based requirements, there would be an exception to this policy (Sec.  
412.23(e)(1)(iii)). Thus, to become an independent LTCH, the remote 
location or satellite facility would be permitted to utilize data 
gathered from 5 of the preceding 6 months prior to the involuntary 
separation. We are finalizing our clarification of this policy as well 
as the exception to the policy for those providers that are 
involuntarily separated from the main facility.
    Comment: One commenter expressed concern about our proposed policy, 
but the concern was based on the commenter's confusion over satellites 
and hospitals-within-hospitals. The commenter also requested a waiver 
of the provider-based location requirement for a particular facility.
    Response: Under Sec.  412.22(h), a satellite facility is defined as 
``a part of a hospital that provides inpatient services in a building 
also used by another hospital, or in one or more entire buildings 
located on the same campus as buildings used by another hospital.'' 
Where a satellite shares a provider number with its parent hospital and 
is not in itself a hospital under Sec.  412.22(e), we define a 
hospital-within-a-hospital as ``* * * a hospital that occupies space in 
a building also used by another hospital or in one or more buildings 
located on the same campus as buildings used by another hospital * * 
*'' Regarding the commenter's request for a waiver of the provider-
based location, this request is beyond the scope of this rule and, 
therefore, we have no comments to make. However, we would suggest that 
the commenter contact appropriate CMS staff to discuss the issue.

[[Page 25710]]

    b. Technical correction. In the August 30, 2002 LTCH PPS final rule 
(67 FR 56053), we issued regulations at Sec.  412.532(i) that require a 
LTCH or a satellite of a LTCH that occupies space in a building used by 
another hospital, or in one or more entire buildings located on the 
same campus as buildings used by another hospital and that meets the 
criteria of paragraphs (h)(1) through (h)(4) of Sec.  412.532, to 
notify its fiscal intermediary and us, in writing, of its co-location 
and any changes in co-location status. In Sec.  412.532(i), we include 
a cross-reference to the Medicare regulations that contain the 
requirements for a satellite facility to be paid under Medicare. In the 
January 30, 2004 proposed rule (69 FR 4777-4778), we stated that we 
made an unintentional error in specifying this cross-reference as 
paragraphs (h)(1) through (h)(4) of Sec.  412.532. The correct cross-
reference to the requirements for satellite facilities is Sec.  
412.22(h)(1) through (h)(4).
    In this final rule, we are revising Sec.  412.532(i) to include the 
correct cross-reference to Sec.  412.22(h)(1) through (h)(4).
    We also received several comments that discussed issues outside the 
scope of the LTCH PPS. Under the circumstances, we will not be 
responding to these comments since they are not related to the subject 
of this rule.

VI. Computing the Adjusted Federal Prospective Payments for the 2005 
LTCH PPS Rate Year

    In accordance with Sec.  412.525 and as discussed in section V.C. 
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 (as 
shown in Tables 1 and 2 of the Addendum to this final rule). 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 cost-of-living 
factor (shown in Table I in section V.C.2. of this preamble). In the 
January 30, 2004 proposed rule (69 FR 4754), we proposed a standard 
Federal rate of $36,762.24 for the 2005 LTCH PPS rate year. In this 
final rule, based on the best available data and the finalized policies 
described in this final rule, we are establishing a standard Federal 
rate of $36,833.69 for the 2005 LTCH PPS rate year as discussed in 
section V.B. of this preamble. We illustrate the methodology used to 
adjust the Federal prospective payments for the 2005 LTCH PPS rate year 
in the following example:
    During the 2005 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 1.0357 (see table 1 in the Addendum to this final rule). The 
Medicare patient is classified into LTC-DRG 9 (Spinal Disorders and 
Injuries), which has a relative weight of 1.5025 (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 ($36,833.69) by the labor-related 
share (72.885 percent) and the wage index value (1.0357). (We note that 
the LTCH in this example is in the second year of the wage index phase-
in, thus, the two-fifths wage index value is applicable.) This wage-
adjusted amount is then added to the nonlabor-related portion of the 
unadjusted standard Federal rate (27.115 percent; adjusted for cost of 
living, if applicable) to determine the adjusted Federal rate, which is 
then multiplied by the LTC-DRG relative weight (1.5025) to calculate 
the total adjusted Federal prospective payment for the 2005 LTCH PPS 
rate year ($56,498.72). In addition, as discussed in section V.C.6. of 
this preamble, for the 2005 LTCH PPS rate year, we are reducing the 
LTCH PPS payment by 0.5 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                       $36,833.69
 Payment Rate.............................
Labor-Related Share.......................                       0.72885
Labor-Related Portion of the Federal Rate.                  = $26,846.23
2/5th Wage Index (MSA 1600)...............                        1.0357
Wage-Adjusted Labor Share of Federal Rate.                  = $27,804.64
Nonlabor-Related Portion of the Federal                      + $9,987.46
 Rate ($36,833.69 x 0.27115)..............
Adjusted Federal Rate Amount..............                  = $37,792.10
LTC-DRG 4 Relative Weight.................                      x 1.5025
Total Adjusted Federal Prospective Payment                  = $56,782.63
 (Before the Budget Neutrality Offset)....
Budget Neutrality Offset..................                       x 0.995
    Total Federal Prospective Payment                       = $56,498.72
     (Including the Budget Neutrality
     Offset)..............................
------------------------------------------------------------------------

VII. 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 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 provides LTCHs time to 
adjust their operations and capital financing to the LTCH PPS, which is 
based on prospectively determined Federal payment rates. Furthermore, 
we believe that the 5-year phase-in of the LTCH PPS also allows LTCH 
personnel to develop proficiency with the LTC-DRG coding system, which 
will result 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, 2006. 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 3 
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

[[Page 25711]]

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 cost reporting periods that begin on or after October 1, 2003, 
and before October 1, 2004 (FY 2004), the total payment for a LTCH is 
60 percent of the amount calculated under reasonable cost principles 
for that specific LTCH and 40 percent of the Federal prospective 
payment amount. For cost reporting periods that begin on or after 
October 1, 2004, and before October 1, 2005 (FY 2005), the total 
payment for a LTCH will be 40 percent of the amount calculated under 
reasonable cost principles for that specific LTCH and 60 percent of the 
Federal prospective payment amount. As we noted in the January 30, 2004 
proposed rule (69 FR 4754), the change in the effective date of the 
annual LTCH PPS rate update from October 1 to July 1 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).
    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. 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.
    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 that began 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 reporting 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. Sec.  412.533(c)(2)(ii) and (c)(2)(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.

VIII. 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) and (e)(2), 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 that began on or after October 1, 2002. (In section V.C.8. of 
this final rule, we clarify existing policy for the time frame for 
calculating the average length of stay of a new LTCH as it relates to a 
satellite facility or remote location of a LTCH that voluntarily seeks 
to become a separate LTCH. We are also implementing a policy for the 
time frame for calculating the average length of stay as it relates to 
a remote location of a hospital that fails to meet certain requirements 
at Sec.  413.65 and is required to seek status as a separate LTCH.)
    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, as 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. As we discussed in the 
August 30, 2002 final rule (67 FR 56040), 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 the reasonable cost-based methodology.

IX. 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

[[Page 25712]]

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 that began 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 
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 first interim bill).

X. 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 system 
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. As we discussed in the June 6, 2003 
final rule (68 FR 34157), the 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. We are particularly 
concerned with the recent significant growth in the number of LTCHs. 
Since the implementation of the LTCH PPS, we have observed a growth of 
nearly 50 percent in the number of LTCHs, and that growth is almost 
exclusively in the number of LTCH that are hospitals within hospitals. 
We intend to focus our monitoring on this growth and the potential for 
gaming the IPPS by the co-located acute care hospital; and gaming the 
LTCH PPS by the LTC hospital-within-a-hospital. Based on the outcome of 
that monitoring activity we may need to address either the criteria for 
qualifying for LTCH PPS payments for hospital within hospitals, the 
payment rates for patients that are discharged from acute care 
hospitals and admitted to a co-located LTCH, or other policy issues 
that may arise as a result of our monitoring activity.
    Also, in the June 6, 2003 final rule (68 FR 34157), we explained 
that, given that the only unique requirement that distinguishes a LTCH 
from other acute care hospitals is an average inpatient 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 also are collecting data on patients staying for periods of 6 
months or longer in LTCHs and may involve QIOs in evaluating whether or 
not such extensive stays may be indicative of LTCH patients who could 
be more appropriately served at a SNF.
    Existing policy at Sec.  412.509(c) provides that the LTCH must 
``furnish all necessary covered services to the Medicare beneficiary 
who is an inpatient of the hospital either directly or under 
arrangements.'' In the January 30, 2004 proposed rule (69 FR 4780-
4781), we discussed our proposed extension of the interrupted stay 
policy, at Sec.  412.531, to include LTCH discharges and readmissions 
within a period of 3 days.
    We believe that such behavior by certain LTCHs may constitute 
gaming of the Medicare system, circumventing existing Medicare policy, 
and generating unnecessary Medicare payments.
    Therefore, in this final rule, we are extending our interrupted 
stay policy at Sec.  412.531 to address this situation. (See section 
V.C.4.c. of this final rule for additional information regarding the 
extension of the interrupted stay policy.)
    We did not propose any policies regarding monitoring, but we 
received three comments expressing support for our plans to monitor 
LTCHs.
    Comment: Two of the commenters were concerned about some of the 
conclusions that emerged from the recent research initiative by MedPAC. 
These conclusions concerned the rapid growth in the number of LTCHs as 
well as whether the appropriate patients are being treated in these 
facilities. The independent analysis conducted by these commenters 
indicated different conclusions than those of MedPAC. However, while 
the commenters support our efforts to collect data

[[Page 25713]]

regarding the type of patient that stays in a LTCH for an extended 
period of time, they recommend that we standardize medical necessity 
evaluation criteria for OIOs.
    Response: We appreciate the commenters support of our monitoring 
activities. We have been informed of proposals circulating in the LTCH 
community about QIO admission standards, and we are also aware of 
discussions regarding the MedPAC research. We continue to be very 
interested in QIOs reviewing the records of extremely long stays (over 
6 months) at LTCHs for purposes of medical necessity. As the new LTCH 
PPS generates data, we will continue to evaluate patient treatment 
patterns; beneficiary movement between providers; growth in the number 
of free-standing LTCHs, HwHs, and satellite facilities; cost/benefit 
analyses of alternative treatment settings for LTCH patients; and other 
relevant topics. We will also be reviewing data with regards to the 
finalized 3-day interrupted stay policy (section V.C.4.c.) to determine 
compliance and also to evaluate whether there is an increase in the 
number of patients being discharged and readmitted to the LTCH within 
4-days. While we continue to believe in the importance of anecdotal 
information that we receive from providers, consultants, trade groups, 
regional offices, and fiscal intermediaries, we intend to monitor these 
issues and obtain as much data as we can to either confirm or refute 
the anecdotal information. If our evaluations and investigations reveal 
the need for policy revisions, we will propose those revisions in a 
future proposed rule.

XI. Collection of Information Requirements

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that 
we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In the January 30, 2004 proposed rule, we solicited public comments 
on each of these issues for the information collection requirements 
discussed below.
    The following information collection requirements and associated 
burdens are subject to the PRA:

Section 412.23 Excluded Hospitals: Classifications

    In summary, this section requires a satellite facility or a remote 
location of a hospital that voluntarily reorganizes as a separate 
Medicare participating hospital that seeks to qualify as a new long-
term care hospital for Medicare payment purposes, to demonstrate 
through documentation that it meets the average length of stay 
requirement.
    The burden associated with this requirement is the time required to 
maintain documentation to demonstrate that a satellite facility or a 
remote location of a hospital has an average length of stay as 
specified by this section. Since this requirement is a voluntary 
decision that is made by each facility, we do not know the number of 
facilities and remote locations that will seek to become new LTCHs. 
However, the information to be documented is currently being collected 
and maintained on each facility's cost report; therefore, this 
information collection requirement is currently approved under OMB 
control number 0938-0050.
    This section also requires satellite facilities and remote 
locations of hospitals that became subject to the provider-based status 
rules, that become separately participating hospitals, and that seek to 
qualify as long-term care hospitals for Medicare payment purposes, to 
submit discharge data for calculation of the greater than 25-day 
average Medicare inpatient length of stay requirement in Sec.  
412.23(e)(2).
    The burden associated with this requirement is the time required of 
the satellite facilities and remote locations of hospitals that became 
subject to the provider-based status rules (Sec.  413.65) to submit 
discharge data to the fiscal intermediary. We estimate that it will 
take approximately 5 minutes for each of the 300 facilities to submit 
the required information for a total one-time burden of 25 hours.
    We have submitted a copy of this final rule to OMB for its review 
of the information collection requirements described above. These 
requirements are not effective until they have been approved by OMB.
    If you comment on any of these information collection and 
recordkeeping requirements, please mail copies directly to the 
following: Centers for Medicare & Medicaid Services, Office of 
Strategic Operations and Regulatory Affairs, Regulations Development 
and Issuances Group, Attn: Dawn Willinghan, CMS-1263-F, Room C5-09-26, 
7500 Security Boulevard, Baltimore, MD 21244-1850; and
    Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Brenda Aguilar, CMS Desk Officer.
    Comments submitted to OMB may also be emailed to the following 
address: e-mail: [email protected]; or faxed to OMB at (202) 395-
6974.

XII. 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). In this final rule, we are using the most recent estimate of the 
LTCH PPS market basket, updated claims data, and updated wage index 
values to estimate payments for the 2005 LTCH PPS rate year. Based on 
the best available data for 239 LTCHs, we estimate that the 3.1 percent 
increase in the standard Federal rate for the 2005 LTCH PPS rate year, 
in conjunction with the observed increase in case-mix (discussed in 
section V.C.4. of this preamble) and decrease in the budget neutrality 
offset to account for the transition methodology (discussed in section 
V.C.6. of this preamble), will result in an increase in payments from 
the 2004 LTCH PPS rate year of $235

[[Page 25714]]

million for the 239 LTCHs. (Section V.C.6. of this preamble includes an 
estimate of Medicare program payments for LTCH services.) Because the 
combined distributional effects and costs to the Medicare program are 
greater than $100 million, this final rule is considered a major 
economic rule, as defined above.
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 the Small 
Business Administration's regulation at 65 FR 69432, November 17, 
2000). Because we lack data on individual hospital receipts, we cannot 
determine the number of small proprietary LTCHs. Therefore, we assume 
that all LTCHs are considered small entities for the purpose of the 
analysis that follows. Medicare fiscal intermediaries are not 
considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    The provisions of this final rule represent a 13.8 percent increase 
in estimated payments in the 2005 LTCH PPS rate year (as shown in Table 
II below). We do not expect an incremental increase of 9.0 percent to 
the Medicare payment rates to have a significant adverse effect on the 
overall revenues of most LTCHs. In addition, LTCHs also provide 
services to (and generate revenue from) patients other than Medicare 
beneficiaries. Accordingly, 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 Social Security Act requires us to prepare a 
regulatory impact analysis if a proposed or final rule may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a Metropolitan Statistical Area and has fewer than 100 beds. As 
discussed in detail below, the rates and policies set forth in this 
final rule will not have an adverse impact on rural hospitals based on 
the data of the 16 rural hospitals in our database of 239 LTCHs for 
which data were available.
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.
    We have examined this final rule under the criteria set forth in 
Executive Order 13132 and have determined that 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, based on 
the 15 State and local LTCHs in our database of 239 LTCHs for which 
data were available.

B. Anticipated Effects of Payment Rate Changes

    We discuss the impact of the payment rate changes in this final 
rule below in terms of their 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 V.C.6 of this final rule, we would apply 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 payments based on 100 percent of the 
LTCH PPS Federal rate to the projected total Medicare program payments 
that would be made under the transition methodology and the option to 
elect payment based on 100 percent of the Federal prospective payment 
rate.
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 
methodology. 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 
methodology. 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 
2005 LTCH PPS rate year, it is necessary to estimate payments per 
discharge under the LTCH PPS rates and factors for the 2004 LTCH PPS 
rate year (see the June 6, 2003 final rule; 68 FR 34122-34190) and 
payments per discharge that will be made under the LTCH PPS rates and 
factors for the 2005 LTCH PPS rate year as discussed in the preamble of 
this final rule. We also evaluated the percent change in payments per 
discharge of estimated 2004 LTCH PPS rate year payments to estimated 
2005 LTCH PPS rate year payments for each category of LTCHs.
    Hospital groups were based on characteristics provided in the 
Online Survey Certification and Reporting (System) (OSCAR) data, FYs 
1999 through 2001 cost report data, and Provider Specific File data. 
Hospitals with incomplete characteristics were

[[Page 25715]]

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 methodology 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 methodology payments and the option 
to elect payment based on 100 percent of the Federal rate (Table III 
below), we estimated payments only for those providers for whom we are 
able to calculate payments based on reasonable cost-based methodology. 
For example, if we did not have at least 2 years of historical cost 
data for a LTCH, we were unable to determine an update to the LTCH's 
target amount to estimate payment under reasonable cost-based 
methodology.
    Using LTCH cases from the FY 2003 MedPAR file and cost data from 
FYs 1996 through 2001 to estimate payments under the current reasonable 
cost-based principles, we have both case-mix and cost data for 239 
LTCHs. Thus, for the impact analyses reflecting the applicable 
transition blend percentages of prospective payments and reasonable 
cost-based methodology payments and the option to elect payment based 
on 100 percent of the Federal rate (see Table II below), we used data 
from 239 LTCHs. While currently there are more than 300 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 239 LTCHs in our database 
provide sufficient representation in the LTC-DRGs containing discharges 
for patients who received respiratory and ventilator-dependent care. 
However, using cases from the FY 2003 MedPAR file, we had case-mix data 
for 298 LTCHs. Cost data to determine current payments under reasonable 
cost-based methodology 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 III 
below), we used data from 298 LTCHs.
    These impacts reflect the estimated ``losses'' or ``gains'' among 
the various classifications of providers for the 2004 LTCH PPS rate 
year (July 1, 2003 through June 30, 2004) compared to the 2005 LTCH PPS 
rate year (July 1, 2004 through June 30, 2005). 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 2003 
claims data. Prospective payments for the 2005 LTCH PPS rate year were 
based on the standard Federal rate of $36,833.69 and the same FY 2003 
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 existing payment policy for short-
stay outliers (as described in section V.C.4.b. of this final rule) and 
the existing adjustments for area wage differences (as described in 
section V.C.1. of this final rule) and for the cost-of-living for 
Alaska and Hawaii (as described in section V.C.2. of this final rule). 
Additional payments will also be made for high-cost outlier cases (as 
described in section V.C.3. of this final rule). As noted in section 
V.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 because 
sufficient new data have not been generated that would enable us to 
conduct a comprehensive reevaluation of these payment adjustments.
    We adjusted for area wage differences for estimated 2004 LTCH PPS 
rate year payments by computing a weighted average of a LTCH's 
applicable wage index during the period from July 1, 2003, through June 
30, 2004, because some providers may experience a change in the wage 
index phase-in percentage during that period. 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'' (that is, the FY 2004 IPPS wage 
index data without geographic reclassification, under sections 
1886(d)(8) and (d)(10)) of the Act. 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. Therefore, a provider with a cost 
reporting period that began 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. Similarly, we adjusted for area wage differences for 
estimated 2005 LTCH PPS rate year payments by computing a weighted 
average of a LTCH's applicable wage index during the period from July 
1, 2004, through June 30, 2005, because some providers may experience a 
change in the wage index phase-in percentage during that period. 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. For cost reporting 
periods beginning on or after October 1, 2004 and before September 30, 
2005, the labor portion of the Federal rate is adjusted by three-fifths 
of the applicable LTCH PPS wage index. The applicable LTCH PPS wage 
index values for the 2005 LTCH PPS rate year are shown in Tables 1 and 
2 of the Addendum to this final rule.
    For those providers projected to receive payment under the 
transition blend methodology, we also calculated payments using the 
applicable transition blend percentages. During 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. That is, during the 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 methodology and 20 percent of 
payments under the LTCH PPS) beginning October 1, 2002) had 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 methodology and 40 percent of payments under the LTCH PPS). (The 
60 percent/40 percent blend will continue until the provider's cost 
reporting period beginning on October 1, 2004.)
    Similarly, during the 2005 LTCH PPS rate year, based on the 
transition blend percentages set forth in Sec.  412.533(a), some of the 
providers paid under the transition blend methodology may experience a 
change in the transition blend percentage during the period from July 
1, 2004 through June 30, 2005. That is, during the period from July 1, 
2004 through June 30, 2005, a provider with

[[Page 25716]]

a cost reporting period beginning on October 1, 2003 (which is paid 
under the 60/40 transition blend had 3 months (July 1, 2004 through 
September 30, 2004) under the 60/40 blend and 9 months (October 1, 2004 
through June 30, 2005) of payment under the 40/60-transition blend (40 
percent of payments based on reasonable cost-based methodology and 60 
percent of payments under the LTCH PPS). (The 40 percent/60 percent 
blend will continue until the provider's cost reporting period 
beginning on October 1, 2005.)
    In estimating blended transition payments, we estimated payments 
based on reasonable cost-based methodology in accordance with the 
methodology in section 1886(b) of the Act. For those providers who have 
not already made the election to be paid based on 100 percent of the 
Federal rate, 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 the 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 6.0 percent budget neutrality reduction to 
payments 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 June 6, 2003 final rule 
(68 FR 34153) to each LTCH's estimated payments under the LTCH PPS for 
the 2004 LTCH PPS rate year. Similarly, we applied the 0.5 percent 
budget neutrality 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 
V.C.6. of this final rule) to each LTCH's estimated payments under the 
LTCH PPS for the 2005 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 II.
    In Table III 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 the 2004 LTCH 
PPS rate year and the 2005 LTCH PPS rate year. Accordingly, the 6.0 
percent budget neutrality reduction to account for the 5-year 
transition methodology on LTCHs' Medicare program payments for the 2004 
LTCH PPS rate year and the 0.5 percent budget neutrality reduction to 
account for the 5-year transition methodology on LTCHs' Medicare 
program payments established for the 2005 LTCH PPS rate year were not 
applied to LTCHs' estimated payments under the LTCH PPS.
    Tables II and III below illustrate the aggregate impact of the 
payment system among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the type 
of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of long-term care 
cases.
     The fourth column shows the estimated payment per 
discharge for the 2004 LTCH PPS rate year.
     The fifth column shows the estimated payment per discharge 
for the 2005 LTCH PPS rate year.
     The sixth column shows the percent change of 2004 LTCH PPS 
rate year compared to the 2005 LTCH PPS rate year.

   Table II.--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\
          [2004 LTCH PPS Rate Year Payments Compared to 2005 LTCH Prospective Payment System Rate Year]
----------------------------------------------------------------------------------------------------------------
                                                                                      Average 2005
                                                                          Average         LTCH
                                                                         2004 LTCH     prospective
             LTCH classification               Number of    Number of     PPS rate   payment system    Percent
                                                 LTCHs      LTCH cases      year        rate year       change
                                                                        payment per    payment per
                                                                          case \2\      case \3\
----------------------------------------------------------------------------------------------------------------
All Providers...............................          239       94,169      $27,181         $29,629          9.0
By Location:
    Rural...................................           16        7,782      $24,309         $26,303          8.2
    Urban...................................          223       86,387       27,439          29,928          9.1
        Large...............................          107       37,759       26,212          28,360          8.2
        Other...............................          116       48,628       28,392          31,146          9.7
By Participation Date:
    Before October 1983.....................           15        7,527      $22,088         $24,166          9.4
    October 1983-September 1993.............           44       22,119       28,994        31,6649.           D2
    October 1993-September 2002.............          180       64,523       27,155          29,568          8.9
By Ownership Control:
    Voluntary...............................           58       22,630       25,656          27,887          8.7
    Proprietary.............................          166       64,680       27,882          30,444          9.2
    Government..............................           15        6,859       25,597          27,691          8.2
By Census Region:
    New England.............................           13        9,377       22,146          24,442         10.4
    Middle Atlantic.........................           15        5,290       26,344          28,421          7.9
    South Atlantic..........................           22        7,859       32,432          35,264          8.7
    East North Central......................           45       12,914       29,681          32,417          9.2
    East South Central......................           14        4,281       26,934          29,224          8.5
    West North Central......................           17        4,761       29,285          31,988          9.2
    West South Central......................           83       39,528       25,228          27,310          8.3
    Mountain................................           18        4,513       29,961          33,104         10.5
    Pacific.................................           12        5,646       33,159          36,930         11.4

[[Page 25717]]

 
BY BED SIZE:
    Beds: 0-24..............................           17        2,627       30,162          32,717          8.5
    Beds: 25-49.............................          117       30,558       26,480          28,712          8.4
    Beds: 50-74.............................           33       11,632       28,911          31,476          8.9
    Beds: 75-124............................           36       16,321       28,092          30,655          9.1
    Beds: 125-199...........................           24       19,899       26,501          28,953          9.3
    Beds: 200+..............................           12       13,132       26,579          29,258        10.1
----------------------------------------------------------------------------------------------------------------
\1\ These calculations take into account that some providers may experience a change in the blend percentage
  changes during the 2004 and 2005 LTCH PPS rate years. For example, during the 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 July 1, 2003 through June 30, 2004.
\3\ Average payment per case for the 12-month period of July 1, 2004 through June 30, 2005.


                Table III.--Projected Impact Reflecting the Fully Phased-In Prospective Payments
     [2004 LTCH PPS Rate Year Payments Compared to 2005 LTCH Prospective Payment System Rate Year Payments]
----------------------------------------------------------------------------------------------------------------
                                                                          Average     Average 2005
                                                                         2004 LTCH        LTCH
                                                                          PPS rate     prospective
             LTCH classification               Number of    Number of       year     payment system    Percent
                                                 LTCHs      LTCH cases    payment       rate year       change
                                                                          per case    payment  per
                                                                            \1\         case \2\
----------------------------------------------------------------------------------------------------------------
All Providers...............................          298      105,732      $28,537         $29,457          3.2
By Location:
    Rural...................................           20        8,455       25,723          26,267          2.1
    Urban...................................          278       97,277       28,782          29,734          3.3
        Large...............................          151       45,567       27,603          28,318          2.6
        Other...............................          127       51,710       29,820          30,981          3.9
By Participation Date:
    Before October 1983.....................           17        7,545       23,119          24,022          3.9
    October 1983-September 1993.............          205       71,916       30,325          29,427          3.7
    October 1993-September 2002.............           45       22,159       28,560          31,453          3.0
    After October 2002......................           21        2,670       26,876          27,523          2.4
    Unknown.................................           10        1,442       31,342          32,268          3.0
By Ownership Control:
    Voluntary...............................           62       23,243       26,870          27,730          3.2
    Proprietary.............................          182       69,801       29,404          30,375          3.3
    Government..............................           18        8,008       26,618          27,439          3.1
    Unknown.................................           36        4,680       27,165          27,787          2.3
By Census Region:
    New England.............................           15        9,395       23,458          24,493          4.4
    Middle Atlantic.........................           21        6,762       27,528          28,137          2.2
    South Atlantic..........................           30        9,250       33,279          34,424          3.4
    East North Central......................           56       14,904       31,282          32,325          3.3
    East South Central......................           17        4,540       28,600          29,312          2.5
    West North Central......................           17        4,761       30,882          31,937          3.4
    West South Central......................          108       44,492       26,517          27,197          2.6
    Mountain................................           21        5,321       31,011          32,416          4.5
    Pacific.................................           13        6,307       34,093          35,878         05.2
BY BED SIZE:
    Beds: 0-24..............................           21        3,185       31,087          31,805          2.3
    Beds: 25-49.............................          127       33,296       28,105          28,835          2.6
    Beds: 50-74.............................           37       13,401       29,767          30,813          3.5
    Beds: 75-124............................           37       16,982       29,353          30,426          3.7
    Beds: 125-199...........................           24       19,899       27,950          28,915          3.5
    Beds: 200+..............................           13       13,140       28,208          29,359          4.1
    Unknown.................................           39        5,829       27,155          27,322         2.6
----------------------------------------------------------------------------------------------------------------
\1\ Average payment per case for the 12-month period of July 1, 2003 through June 30, 2004.
\2\ Average payment per case for the 12-month period of July 1, 2004 through June 30, 2005.


[[Page 25718]]

4. Results
    Based on the most recent available data (as described above for 230 
LTCHs), we have prepared the following summary of the impact (as shown 
in Table II) of the LTCH PPS set forth in this final rule.
    a. Location. Based on the most recent available data, the majority 
of LTCHs are in urban areas. Approximately 7 percent of the LTCHs are 
identified as being located in a rural area, and approximately 8 
percent of all LTCH cases are treated in these rural hospitals. Impact 
analysis in Table II shows that the percent change in estimated 
payments per discharge for the 2004 LTCH PPS rate year compared to the 
2005 LTCH PPS rate year for rural LTCHs will be 8.2 percent, and will 
be 9.1 percent for urban LTCHs. Large urban LTCHs are projected to 
experience a 8.2 percent increase in payments per discharge from the 
2004 LTCH PPS rate year compared to the 2005 LTCH PPS rate year, while 
other urban LTCHs projected to experience a 9.7 percent increase in 
payments per discharge from the 2004 LTCH PPS rate year compared to the 
2005 LTCH PPS rate year. (See Table II.)
    As noted above, in addition to the update in the standard Federal 
rate, the estimated percent increase in payments per discharge from the 
2004 LTCH PPS rate year to the 2005 LTCH PPS rate year is largely 
attributable to the decrease in the budget neutrality offset to account 
for the transition methodology (discussed in section V.C.6. of this 
preamble). Specifically, we are applying a 0.5 percent budget 
neutrality reduction (0.995) to payments in the 2005 LTCH PPS rate year 
to account for the effect of the 5-year transition methodology. The 
0.995 transition period budget neutrality factor for the 2005 LTCH PPS 
rate year is lower than the transition period budget neutrality factor 
for the 2004 LTCH PPS rate year (0.940). This smaller budget neutrality 
offset contributes to greater LTCH payment increases between the 2004 
and 2005 LTCH PPS rate years compared to the increases seen between FY 
2003 and the 2004 LTCH PPS rate year. Furthermore, many LTCHs are 
experiencing increases in payments because of an increasing wage index 
adjustment, which is two-fifths of the applicable LTCH PPS wage index 
for cost reporting periods beginning on or after October 1, 2003, and 
three-fifths of the applicable wage index for cost reporting periods 
beginning on or after October 1, 2004. Additionally, many LTCHs are 
expected to receive an increase in high-cost outlier payments as a 
result of the decrease in the fixed-loss amount from the 2004 LTCH PPS 
rate year ($19,590) to the 2005 LTCH PPS rate year ($17,864) as 
discussed in section V.C.4. of this preamble. We do not expect to see 
these large payment per discharge increases in future years as the 
majority of LTCHs have transitioned fully to the LTCH PPS and, 
therefore, the transition period budget neutrality factor should remain 
more stable.
    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) between October 1993 and September 2002. At 
this time, we do not have sufficient cost report data for any of the 
LTCHs that began participating in the Medicare program after October 
2002 (the implementation of the LTCH PPS), and therefore, they are not 
included in the impact analysis shown below in Table II.
    Based on the most recent available data, the majority, 
approximately 75 percent, of the LTCH cases are in hospitals that began 
participating between October 1993 and September 2002, and are 
projected to experience a 8.9 percent increase in payments per 
discharge from the 2004 LTCH PPS rate year compared to the 2005 LTCH 
PPS rate year. Approximately 23 percent of the cases are in LTCHs that 
began participating in Medicare between October 1983 and September 
1993, and are projected to experience a 9.2 percent increase in 
payments per discharge from the 2004 LTCH PPS rate year compared to the 
2005 LTCH PPS rate year. LTCHs that began participating before October 
1983 are projected to experience a 9.4 percent increase in payments per 
discharge from the 2004 LTCH PPS rate year compared to the 2005 LTCH 
PPS rate year. (See Table II.)
    As discussed above, these relatively large increases in payments 
for the 2005 LTCH PPS rate year are mostly due to the decrease in the 
budget neutrality offset to account for the transition methodology 
(discussed in section V.C.6. of this preamble). Furthermore, in 
addition to the update in the standard Federal rate, many of these 
LTCHs will experience an increase in payments because of an increasing 
wage index adjustment, which is two-fifths of the applicable LTCH PPS 
wage index for cost reporting periods beginning on or after October 1, 
2003, and three-fifths of the applicable wage index for cost reporting 
periods beginning on or after October 1, 2004. As noted above, LTCHs 
may also experience an increase in high-cost outlier payments as a 
result of the decrease in the fixed-loss amount from the 2004 LTCH PPS 
rate year ($19,590) to the 2005 LTCH PPS rate year ($17,864). As we 
also explain above, we do not expect to see these large payment 
increases in future years as the majority of LTCHs have transitioned 
fully to the LTCH PPS and, therefore, the transition period budget 
neutrality factor should remain more stable.
    c. Ownership Control. LTCHs are grouped into three categories based 
on ownership control type--(1) voluntary; (2) proprietary; and (3) 
government.
    Based on the most recent available data, approximately 6 percent of 
LTCHs are government run and we expect that they will experience a 8.2 
percent increase in payments per discharge from the 2004 LTCH PPS rate 
year compared to the 2005 LTCH PPS rate year. Voluntary and proprietary 
LTCHs are projected to experience a 8.7 percent and 9.2 percent 
increase in payments per discharge from the 2004 LTCH PPS rate year 
compared to the 2005 LTCH PPS rate year, respectively. (See Table II.)
    d. Census Region. LTCHs located in all regions are expected to 
experience an increase in payments per discharge from the 2004 LTCH PPS 
rate year compared to the 2005 LTCH PPS rate year. Specifically, of the 
nine census regions, we expect that LTCHs in the Pacific, Mountain, and 
New England regions will experience the largest percent increase in 
payments per discharge from the 2004 LTCH PPS rate year compared to the 
2005 LTCH PPS rate year (11.4 percent, 10.5 percent, and 10.4 percent, 
respectively). LTCHs located in the East North Central and West North 
Central regions are also projected to experience a 9.2 percent increase 
in payments per discharge from the 2004 LTCH PPS rate year compared to 
the 2005 LTCH PPS rate year. (See Table II.)
    As explained above, these relatively large increases in payments 
for the 2005 LTCH PPS rate year are mostly attributable to the decrease 
in the budget neutrality offset to account for the transition 
methodology (discussed in section V.C.6. of this preamble). 
Furthermore, in addition to the update in the standard Federal rate, 
many LTCHs will experience an increase in payments because of an 
increasing wage index adjustment, which is two-fifths of the applicable 
LTCH PPS wage index for cost reporting periods beginning on or after 
October 1, 2003, and three-fifths of the applicable wage index for cost 
reporting periods beginning on or after October 1, 2004. As noted 
above, LTCHs may also experience an increase in high-cost outlier 
payments as a result of the decrease in the fixed-loss amount from the 
2004 LTCH PPS rate year ($19,590)

[[Page 25719]]

to the 2005 LTCH PPS rate year ($17,864). As we also explained above, 
we do not expect to see these large payment increases in future years 
as the majority of LTCHs have transitioned fully to the LTCH PPS and, 
therefore, the transition period budget neutrality factor should remain 
more stable.
    We expect LTCHs in the MidAtlantic region to experience the 
smallest percent increase in payments per discharge from the 2004 LTCH 
PPS rate year compared to the 2005 LTCH PPS rate year (7.9 percent). We 
are projecting a slightly lower percent increase in payments per 
discharge for LTCHs located in this region because of the increasing 
wage index adjustment. Specifically, many LTCHs located in these areas 
have a wage index value of less than 1.0. (See Table II.)
    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.
    The percent increase in payments per discharge from the 2004 LTCH 
PPS rate year compared to the 2005 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 
the 2004 LTCH PPS rate year compared to the 2005 LTCH PPS rate year is 
estimated to be approximately 9 percent. LTCHs with greater than 200 
beds have the largest estimated percent change in payments per 
discharge from the 2004 LTCH PPS rate year compared to the 2005 LTCH 
PPS rate year (10.1 percent), while LTCHs with 25-49 beds have the 
lowest projected increase in the percent change in payments per 
discharge from the 2004 LTCH PPS rate year compared to the 2005 LTCH 
PPS rate year (8.4 percent). (See Table II.)
5. Effect on the Medicare Program
    Based on actuarial projections, 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)
------------------------------------------------------------------------
2005....................................................            2.96
2006....................................................            2.98
2007....................................................            2.95
2008....................................................            3.01
2009....................................................            3.12
------------------------------------------------------------------------

    These estimates are based on the current estimate of increase in 
the excluded hospital with capital market basket of 3.1 percent for the 
2005 LTCH PPS rate year, 3.2 percent for the 2006 and 2007 LTCH PPS 
rate years, 2.8 percent for the 2008 LTCH PPS rate year, and 3.1 
percent for the 2009 LTCH PPS rate year. We estimate that there will be 
a change in Medicare beneficiary enrollment of 1.0 percent in the 2005 
LTCH PPS rate year, -4.8 percent in the 2006 LTCH PPS rate year, -6.4 
percent in 2007 LTCH PPS rate year, -1.2 percent in the 2008 LTCH PPS 
rate year, 0.2 percent in the 2009 LTCH PPS rate year, and an estimated 
increase in the total number of LTCHs. (We note that our Office of the 
Actuary is projecting a decrease in Medicare fee-for-service Part A 
enrollment, in part, because they are projecting an increase in 
Medicare managed care enrollment as a result of the implementation of 
several provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003.)
    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 would have been 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).
    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 recently implemented, we do not yet have sufficient complete data 
to determine whether such an adjustment is warranted.
6. Effect on Medicare Beneficiaries
    Under the LTCH PPS, hospitals 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. Impact of Policy Changes

1. Requirements for Satellite Facilities and Remote Locations of 
Hospitals To Qualify as Long-Term Care Hospitals
    Under section V.C.8. of the preamble of this final rule, we discuss 
our clarification of the procedures under which a satellite facility or 
a remote location of a hospital must meet the statutory and regulatory 
requirements to qualify as a distinct LTCH. In particular, we are 
specifying the procedure for determining the period from which the 
fiscal intermediaries will use discharge data in calculating the 
average Medicare inpatient length of stay requirement for a new, 
separately participating hospital that seeks classification as a LTCH.
    In this final rule, we are restating in regulations our existing 
policy that a satellite facility or remote location of a hospital 
(except for those that are subject to the location requirement under 
the provider-based rules at Sec.  413.65) that voluntarily reorganizes 
itself as a separate hospital and meets the provider agreement 
requirements of 42 CFR part 489 and the Medicare conditions of 
participation under 42 CFR part 482 will have its average Medicare 
inpatient length of stay calculated based on discharges that occur 
after the satellite facility or remote location is established as a 
separate participating hospital.
    The policy that we are incorporating in the regulations is already 
in existence. Therefore, complying with the regulation amendments will 
pose no additional burden on LTCHs.
    We are further incorporating in regulations that govern 
requirements for LTCHs an exception to the above policy for satellite 
facilities and remote locations of hospitals that became subject to the 
revised location-based provider-based requirements on July 1, 2003, 
that reorganize as separate participating hospitals, and that seek 
classification as LTCHs. Under this provision, calculation of the 
average Medicare inpatient length of stay for purposes of qualifying as 
a LTCH are based on discharge data during the 5 months of the immediate 
6 months preceding the facility's separation from the main hospital. 
This specific regulation applies only to those facilities or locations 
that became subject to the revised provider-based location rules on 
July 1, 2003, and that seek classification as LTCHs for Medicare 
payment purposes. Therefore, we are unable to quantify how many or

[[Page 25720]]

when a facility or location would seek LTCH classification.
    These amendments to the regulations will not impose any additional 
requirements on providers. The data used in the calculation of the 
average length of stay are already being collected. The existing 
procedure for application of the discharge data in calculating the 
average length of stay in both circumstances is consistent with 
existing statutory and regulatory requirements.
2. Change in Policy on Interruption of a Stay in a LTCH
    Under section V.C.4.c. of the preamble of this final rule, we are 
expanding the definition of an interruption of a stay to include an 
interruption in which the patient is discharged from the LTCH, and 
returns to the LTCH within 3 days of the original discharge. We have 
found, through monitoring activities and other sources, that certain 
LTCHs appear to be discharging patients during the course of their 
treatment for the sole purpose of the patient receiving specific tests 
or procedures and then readmitting the patient following the 
administration of the test or procedure. We believe these situations 
are resulting in improper increases in Medicare costs through separate 
billings for services that are already included in the LTC-DRG payment 
made to the LTCH. The regulation change will prevent these 
inappropriate Medicare payments. However, we do not have sufficient 
data at this time to quantify either the number of providers that would 
be affected by the change nor the savings to the Medicare program.
3. Change in Procedure for Counting Covered and Noncovered Days in a 
Stay That Crosses Two Consecutive Cost Reporting Periods
    Under section V.C.7. of the preamble to this final rule, we are 
specifying the procedure for calculating a hospital's inpatient average 
length of stay for purposes of classification as a LTCH when covered 
and noncovered days of the stay involve admission in one cost reporting 
period and discharge in another cost reporting period. We are 
finalizing the policy of counting the total number of days of the stay 
in the cost reporting period during which the inpatient was discharged. 
This policy revises the existing procedure to make it consistent with 
reporting and payment procedures already in place for discharge-based 
payment systems that link patient days to discharges. Effective for the 
2005 LTCH PPS rate year (July 1, 2004 through June 30, 2005, we have 
provided for an exception in the event some providers fail to meet the 
25-day ALOS criteria due to this change in policy. The fiscal 
intermediaries will then do an additional calculation to determine if 
these providers meet the old 25-day criteria. We do not envision many 
instances where this will be necessary and believe that it will only 
have minimal impact, if any.
    The regulation imposes no additional requirements on providers. The 
discharge data are already being collected and the revision would 
merely change the procedure for reporting it.

D. 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 412.23 is amended by--
0
A. Revising paragraph (e)(3).
0
B. Revising paragraph (e)(4).
    The revisions and additions read as follows:


Sec.  412.23  Excluded hospitals: classifications.

* * * * *
    (e) Long-term care hospitals.* * *
    (3) Calculation of average length of stay. (i) Subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average Medicare inpatient length of stay specified under paragraph 
(e)(2)(i) of this section is 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. Subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average inpatient length of stay specified under paragraph 
(e)(2)(ii) of this section is calculated by dividing the total number 
of days for all patients, including both Medicare and non-Medicare 
inpatients (less leave or pass days) by the number of total discharges 
for the hospital's most recent complete cost reporting period.
    (ii) Effective for cost reporting periods beginning on or after 
July 1, 2004, in calculating the hospital's average length of stay, if 
the days of a stay of an inpatient involves days of care furnished 
during two or more separate consecutive cost reporting periods, that 
is, an admission during one cost reporting period and a discharge 
during a future consecutive cost reporting period, the total number of 
days of the stay are considered to have occurred in the cost reporting 
period during which the inpatient was discharged. However, if after 
application of this provision, a hospital fails to meet the average 
length of stay specified under paragraphs (e)(2)(i) and (ii) of this 
section, Medicare will determine the hospital's average inpatient 
length of stay for cost reporting periods beginning on or after July 1, 
2004, but before July 1, 2005, by dividing the applicable total days 
for Medicare inpatients under paragraph (e)(2)(i) of this section or 
the total days for all inpatients under paragraph (e)(2)(ii) of this 
section, during the cost reporting period when they occur, by the 
number of discharges occurring during the same cost reporting period.
    (iii) If a change in a hospital's average length of stay specified 
under paragraph (e)(2)(i) or paragraph (e)(2)(ii) of this section is 
indicated, the calculation is made by the same method for the period of 
at least 5 months of the immediately preceding 6-month period.
    (iv) If a hospital has undergone a change of ownership (as 
described in Sec.  489.18 of this chapter) at the start of a cost 
reporting period or at any time within the period of at least 5 months 
of the preceding 6-month period, the hospital may be excluded from the 
prospective payment system as a long-term care hospital for a cost 
reporting period if, for the period of at least 5 months of the 6 
months immediately preceding the start of the period (including time 
before the change of ownership), the hospital has the required average 
length of stay, continuously operated as a hospital, and continuously 
participated as a hospital in Medicare.
    (4) Rules applicable to new long-term care hospitals--(i) 
Definition. For purposes of payment under the long-term care hospital 
prospective payment system under subpart O of this part, a new long-
term care hospital is a provider of inpatient hospital services that 
meets the qualifying criteria in paragraphs (e)(1) and (e)(2) of this

[[Page 25721]]

section and, under present or previous ownership (or both), its first 
cost reporting period as a LTCH begins on or after October 1, 2002.
    (ii) Satellite facilities and remote locations of hospitals seeking 
to become new long-term care hospitals. Except as specified in 
paragraph (e)(4)(iii) of this section, a satellite facility (as defined 
in Sec.  412.22(h)) or a remote location of a hospital (as defined in 
Sec.  413.65(a)(2) of this chapter) that voluntarily reorganizes as a 
separate Medicare participating hospital, with or without a concurrent 
change in ownership, and that seeks to qualify as a new long-term care 
hospital for Medicare payment purposes must demonstrate through 
documentation that it meets the average length of stay requirement as 
specified under paragraphs (e)(2)(i) or (e)(2)(ii) of this section 
based on discharges that occur on or after the effective date of its 
participation under Medicare as a separate hospital.
    (iii) Provider-based facility or organization identified as a 
satellite facility and remote location of a hospital prior to July 1, 
2003. Satellite facilities and remote locations of hospitals that 
became subject to the provider-based status rules under Sec.  413.65 as 
of July 1, 2003, that become separately participating hospitals, and 
that seek to qualify as long-term care hospitals for Medicare payment 
purposes may submit to the fiscal intermediary discharge data gathered 
during 5 months of the immediate 6 months preceding the facility's 
separation from the main hospital for calculation of the average length 
of stay specified under paragraph (e)(2)(i) or paragraph (e)(2)(ii) of 
this section.
* * * * *

0
3. Section 412.525 is amended by revising paragraph (d)(2) to read as 
follows:


Sec.  412.525  Adjustments to the Federal prospective payment.

* * * * *
    (d) Special payment provisions. * * *
    (2) A 3-day or less interruption of a stay and a greater than 3-day 
interruption of a stay, as provided for in Sec.  412.531.

0
4. Section 412.531 is amended by--
0
A. Revising paragraph (a).
0
B. Revising paragraph (b)(1), (b)(2) and (b)(3).
    The revisions read as follows:


Sec.  412.531  Special payment provisions when interruptions of a stay 
occurs in a long-term care hospital.

    (a) Definitions--(1) A 3-day or less interruption of stay defined. 
``A 3-day or less interruption of stay'' means a stay at a long-term 
care hospital during which a Medicare inpatient is discharged from the 
long-term care hospital to an acute care hospital, IRF, SNF, or the 
patient's home and readmitted to the same long-term care hospital 
within 3 days of the discharge from the long-term care hospital. The 3-
day or less period begins with the date of discharge from the long-term 
care hospital and ends not later than midnight of the third day.
    (2) A greater than 3-day interruption of stay defined. ``A greater 
than 3-day or less interruption of stay'' means A stay in a long-term 
care hospital during which a Medicare inpatient is discharged from the 
long-term care hospital to an acute care hospital, an IRF, or a SNF for 
a period of greater than 3 days but within the applicable fixed-day 
period specified in paragraphs (a)(2)(i) through (a)(2)(iii) of this 
section before being readmitted to the same long-term care hospital.
    (i) For a discharge to an acute care hospital, the applicable fixed 
day period is between 4 and 9 consecutive days. The counting of the 
days begins on the date of discharge from the long-term care hospital 
and ends on the 9th date after the discharge.
    (ii) For a discharge to an IRF, the applicable fixed day period is 
between 4 and 27 consecutive days. The counting of the days begins on 
the day of discharge from the long-term care hospital and ends on the 
27th day after discharge.
    (iii) For a discharge to a SNF, the applicable fixed day period is 
between 4 and 45 consecutive days. The counting of the days begins on 
the day of discharge from the long-term care hospital and ends on the 
45th day after the discharge.
    (b) Methods of determining payments. (1) For purposes of 
determining a Federal prospective payment--
    (i) Determining the length of stay. In determining the length of 
stay of a patient at a long-term care hospital for payment purposes 
under this paragraph (b)--
    (A) Except as specified in paragraphs (b)(1)(i)(B) and (b)(1)(i)(C) 
of this section, the number of days that a beneficiary spends away from 
the long-term care hospital during a 3-day or less interruption of stay 
under paragraph (a)(1) of this section is not included in determining 
the length of stay of the patient at the long-term care hospital when 
there is no outpatient or inpatient medical treatment or care provided 
at an acute care hospital or an IRF, or SNF services during the 
interruption that is considered a covered service delivered to the 
beneficiary.
    (B) The number of days that a beneficiary spends away from a long-
term care hospital during a 3-day or less interruption of stay under 
paragraph (a)(1) of this section are counted in determining the length 
of stay of the patient at the long-term care hospital if the 
beneficiary receives inpatient or outpatient medical care or treatment 
provided by an acute care hospital or IRF, or SNF services during the 
interruption. In the case where these services are provided during 
some, but not all days of a 3-day or less interruption, Medicare will 
include all days of the interruption in the long-term care hospitals 
day-count.
    (C) The number of days that a beneficiary spends away from a long-
term care hospital during a 3-day or less interruption of stay under 
paragraph (a)(1) of this section during which the beneficiary receives 
a procedure grouped to a surgical DRG under the inpatient prospective 
payment system in an acute care hospital during the 2005 LTCH PPS rate 
year is not included in determining the length of stay of the patient 
at the long-term care hospital.
    (D) The number of days that a beneficiary spends away from a LTCH 
during a greater than 3-day interruption of stay, as defined in 
paragraph (a)(2) of this section, is not included in determining the 
length of stay at the LTCH.
    (ii) Determining how payment is made. (A) Subject to the provisions 
of paragraphs (b)(1)(ii)(A)(1) and (b)(1)(ii)(A)(2) of this section, 
for a 3-day or less interruption of stay under paragraph (a)(1) of this 
section, the entire stay is paid as a single discharge from the long-
term care hospital. CMS makes only one LTC-DRG payment for all portions 
of a long-term care stay.
    (1) For a 3-day or less interruption of stay under paragraph (a)(1) 
of this section in which a long-term care hospital discharges a patient 
to an acute care hospital and the patient's treatment during the 
interruption is grouped into a surgical DRG under the acute care 
inpatient hospital prospective payment system, for the LTCH 2005 rate 
year, CMS also makes a separate payment to the acute care hospital for 
the surgical DRG discharge in accordance with paragraph (b)(1)(i)(C) of 
this section.
    (2) For a 3-day or less interruption of stay under paragraph (a)(1) 
of this section during which the patient receives inpatient or 
outpatient treatment or services at an acute care hospital or IRF, or 
SNF services, that are not otherwise excluded under Sec.  412.509(a), 
the services must be provided under arrangements in

[[Page 25722]]

accordance with Sec.  412.509(c). CMS does not make a separate payment 
to the acute care hospital, IRF, or SNF for these services. The LTC-DRG 
payment made to the long-term care hospital is considered payment in 
full as specified in Sec.  412.521(b).
    (B) For a greater than 3-day interruption of stay under paragraph 
(a)(2) of this section, CMS will make only one LTC-DRG payment for all 
portions of a long-term care stay. CMS also separately pays the acute 
care hospital, the IRF, or the SNF in accordance with their respective 
payment systems, as specified in paragraph (c) of this section.
    (iii) Basis for the prospective payment. Payment to the long-term 
care hospital is based on the patient's LTC-DRG that is determined in 
accordance with Sec.  412.513(b).
    (2) If the total number of days of a patient's length of stay in a 
long-term care hospital prior to and following a 3-day or less 
interruption of stay under paragraphs (b)(1)(i)(A), (B), or (C) of this 
section or a greater than 3-day interruption of stay under paragraph 
(b)(1)(i)(D) of this section is up to and including five-sixths of the 
geometric average length of stay of the LTC-DRG, CMS will make a 
Federal prospective payment for a short-stay outlier in accordance with 
Sec.  412.529(c).
    (3) If the total number of days of a patient's length of stay in a 
long-term care hospital prior to and following a 3-day or less 
interruption of stay under paragraphs (b)(1)(i)(A), (B), or (C) of this 
section or a greater than 3-day interruption of stay under paragraph 
(b)(1)(i)(D) of this section exceeds five-sixths of the geometric 
average length of stay for the LTC-DRG, CMS will make one full Federal 
LTC-DRG prospective payment for the case. An additional payment will be 
made if the patient's stay qualifies as a high-cost outlier, as set 
forth in Sec.  412.525(a).
* * * * *


Sec.  412.532  [Amended]

0
5. In Sec.  412.532--
0
A. In paragraph (f), the phrase ``under the policies on interruption of 
a stay as specified in Sec.  412.531.'' is revised to read ``under the 
policies on a 3-day or less interruption of a stay and a greater than 
3-day interruption of a stay as specified in Sec.  412.531.''
0
B. In paragraph (i), the reference ``paragraphs (h)(1) through (h)(4) 
of this section'' is revised to read ``Sec.  412.22(h)(1) through 
(h)(4)''.

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

    Dated: April 26, 2004.
Mark McClellan,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: April 27, 2004.
Tommy G. Thompson,
Secretary.

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

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, 2004 through June 30, 2005
    Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for 
Discharges Occurring from July 1, 2004 through June 30, 2005
    Table 3.'' FY 2004 LTC-DRG Relative Weights, Geometric Mean Length 
of Stay, and Short-Stay Five-Sixths Average Length of Stay for 
Discharges Occurring from July 1, 2004 through September 30, 2004.

    Note: This is the same information provided in Table 11 of the 
August 1, 2003 IPPS final rule (68 FR 45650-45658), which has been 
reprinted here for convenience.)


 Table 1.--Long-Term Care Hospital Wage Index for Urban Areas for Discharges Occurring From July 1, 2004 Through
                                                  June 30, 2005
----------------------------------------------------------------------------------------------------------------
                                                                                            2/5ths      3/5ths
              MSA                    Urban area (constituent       Full wage  1/5th wage     wage        wage
                                            counties)              index \1\   index \2\   index \3\   index \4\
----------------------------------------------------------------------------------------------------------------
0040                            Abilene, TX.....................      0.7627      0.9525      0.9051      0.8576
                                 Taylor, TX
0060..........................  Aguadilla, PR...................      0.4306      0.8861      0.7722      0.6584
                                 Aguada, PR
                                 Aguadilla, PR
                                 Moca, PR
0080..........................  Akron, OH.......................      0.9246      0.9849      0.9698      0.9548
                                 Portage, OH
                                 Summit, OH
0120..........................  Albany, GA......................      1.0863      1.0173      1.0345      1.0518
                                 Dougherty, GA
                                 Lee, GA
0160..........................  Albany-Schenectady-Troy, NY.....      0.8489      0.9698      0.9396      0.9093
                                 Albany, NY
                                 Montgomery, NY
                                 Rensselaer, NY
                                 Saratoga, NY
                                 Schenectady, NY
                                 Schoharie, NY
0200..........................  Albuquerque, NM.................      0.9300      0.9860      0.9720      0.9580
                                 Bernalillo, NM
                                 Sandoval, NM
                                 Valencia, NM
0220..........................  Alexandria, LA..................      0.8019      0.9604      0.9208      0.8811
                                 Rapides, LA
0240..........................  Allentown-Bethlehem-Easton, PA..      0.9721      0.9944      0.9888      0.9833
                                 Carbon, PA
                                 Lehigh, PA
                                 Northampton, PA
0280..........................  Altoona, PA.....................      0.8806      0.9761      0.9522      0.9284

[[Page 25723]]

 
                                 Blair, PA
0320..........................  Amarillo, TX Potter, TX.........      0.8986      0.9797      0.9594      0.9392
                                 Randall, TX
0380..........................  Anchorage, AK...................      1.2216      1.0443      1.0886      1.1330
                                 Anchorage, AK
0440..........................  Ann Arbor, MI...................      1.1074      1.0215      1.0430      1.0644
                                 Lenawee, MI
                                 Livingston, MI
                                 Washtenaw, MI
0450..........................  Anniston, AL....................      0.8090      0.9618      0.9236      0.8854
                                 Calhoun, AL
0460..........................  Appleton-Oshkosh-Neenah, WI.....      0.9035      0.9807      0.9614      0.9421
                                 Calumet, WI
                                 Outagamie, WI
                                 Winnebago, WI
0470..........................  Arecibo, PR.....................      0.4155      0.8831      0.7662      0.6493
                                 Arecibo, PR
                                 Camuy, PR
                                 Hatillo, PR
0480..........................  Asheville, NC...................      0.9720      0.9944      0.9888      0.9832
                                 Buncombe, NC
                                 Madison, NC
0500..........................  Athens, GA......................      0.9818      0.9964      0.9927      0.9891
                                 Clarke, GA
                                 Madison, GA
                                 Oconee, GA
0520..........................  Atlanta, GA.....................      1.0130      1.0026      1.0052      1.0078
                                 Barrow, GA
                                 Bartow, GA
                                 Carroll, GA
                                 Cherokee, GA
                                 Clayton, GA
                                 Cobb, GA
                                 Coweta, GA
                                 DeKalb, GA
                                 Douglas, GA
                                 Fayette, GA
                                 Forsyth, GA
                                 Fulton, GA
                                 Gwinnett, GA
                                 Henry, GA
                                 Newton, GA
                                 Paulding, GA
                                 Pickens, GA
                                 Rockdale, GA
                                 Spalding, GA
                                 Walton, GA
0560..........................  Atlantic-Cape May, NJ...........      1.0795      1.0159      1.0318      1.0477
                                 Atlantic, NJ
                                 Cape May, NJ
0580..........................  Auburn-Opelika, AL..............      0.8494      0.9699      0.9398      0.9096
                                 Lee, AL
0600..........................  Augusta-Aiken, GA-SC............      0.9625      0.9925      0.9850      0.9775
                                 Columbia, GA
                                 McDuffie, GA
                                 Richmond, GA
                                 Aiken, SC
                                 Edgefield, SC
0640..........................  Austin-San Marcos, TX...........      0.9609      0.9922      0.9844      0.9765
                                 Bastrop, TX
                                 Caldwell, TX
                                 Hays, TX
                                 Travis, TX
                                 Williamson, TX
0680..........................  Bakersfield, CA.................      0.9810      0.9962      0.9924      0.9886
                                 Kern, CA
0720..........................  Baltimore, MD...................      0.9919      0.9984      0.9968      0.9951
                                 Anne Arundel, MD
                                 Baltimore, MD

[[Page 25724]]

 
                                 Baltimore City, MD
                                 Carroll, MD
                                 Harford, MD
                                 Howard, MD
                                 Queen Anne's, MD
0733..........................  Bangor, ME......................      0.9904      0.9981      0.9962      0.9942
                                 Penobscot, ME
0743..........................  Barnstable-Yarmouth, MA.........      1.2956      1.0591      1.1182      1.1774
                                 Barnstable, MA
0760..........................  Baton Rouge, LA.................      0.8406      0.9681      0.9362      0.9044
                                 Ascension, LA
                                 East Baton Rouge, LA
                                 Livingston, LA
                                 West Baton Rouge, LA
0840..........................  Beaumont-Port Arthur, TX........      0.8424      0.9685      0.9370      0.9054
                                 Hardin, TX
                                 Jefferson, TX
                                 Orange, TX
0860..........................  Bellingham, WA..................      1.1757      1.0351      1.0703      1.1054
                                 Whatcom, WA
0870..........................  Benton Harbor, MI...............      0.8871      0.9774      0.9548      0.9323
                                 Berrien, MI
0875..........................  Bergen-Passaic, NJ..............      1.1692      1.0338      1.0677      1.1015
                                 Bergen, NJ
                                 Passaic, NJ
0880..........................  Billings, MT....................      0.8961      0.9792      0.9584      0.9377
                                 Yellowstone, MT
0920..........................  Biloxi-Gulfport-Pascagoula, MS..      0.9029      0.9806      0.9612      0.9417
                                 Hancock, MS
                                 Harrison, MS
                                 Jackson, MS
0960..........................  Binghamton, NY..................      0.8428      0.9686      0.9371      0.9057
                                 Broome, NY
                                 Tioga, NY
1000..........................  Birmingham, AL..................      0.9212      0.9842      0.9685      0.9527
                                 Blount, AL
                                 Jefferson, AL
                                 St. Clair, AL
                                 Shelby, AL
1010..........................  Bismarck, ND....................      0.7965      0.9593      0.9186      0.8779
                                 Burleigh, ND
                                 Morton, ND
1020..........................  Bloomington, IN.................      0.8662      0.9732      0.9465      0.9197
                                 Monroe, IN
1040..........................  Bloomington-Normal, IL..........      0.8832      0.9766      0.9533      0.9299
                                 McLean, IL
1080..........................  Boise City, ID..................      0.9209      0.9842      0.9684      0.9525
                                 Ada, ID
                                 Canyon, ID
1123..........................  Boston-Worcester-Lawrence-Lowell-     1.1233      1.0247      1.0493      1.0740
                                 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, CO............      1.0049      1.0010      1.0020      1.0029
                                 Boulder, CO
1145..........................  Brazoria, TX....................      0.8137      0.9627      0.9255      0.8882
                                 Brazoria, TX
1150..........................  Bremerton, WA...................      1.0580      1.0116      1.0232      1.0348
                                 Kitsap, WA
1240..........................  Brownsville-Harlingen-San             1.0303      1.0061      1.0121      1.0182
                                 Benito, TX.
                                 Cameron, TX

[[Page 25725]]

 
1260..........................  Bryan-College Station, TX.......      0.9019      0.9804      0.9608      0.9411
                                 Brazos, TX
1280..........................  Buffalo-Niagara Falls, NY.......      0.9604      0.9921      0.9842      0.9762
                                 Erie, NY
                                 Niagara, NY
1303..........................  Burlington, VT..................      0.9704      0.9941      0.9882      0.9822
                                 Chittenden, VT
                                 Franklin, VT
                                 Grand Isle, VT
1310..........................  Caguas, PR......................      0.4158      0.8832      0.7663      0.6495
                                 Caguas, PR
                                 Cayey, PR
                                 Cidra, PR
                                 Gurabo, PR
                                 San Lorenzo, PR
1320..........................  Canton-Massillon, OH............      0.9071      0.9814      0.9628      0.9443
                                 Carroll, OH
                                 Stark, OH
1350..........................  Casper, WY......................      0.9095      0.9819      0.9638      0.9457
                                 Natrona, WY
1360..........................  Cedar Rapids, IA................      0.8874      0.9775      0.9550      0.9324
                                 Linn, IA
1400..........................  Champaign-Urbana, IL............      0.9907      0.9981      0.9963      0.9944
                                 Champaign, IL
1440..........................  Charleston-North Charleston, SC.      0.9332      0.9866      0.9733      0.9599
                                 Berkeley, SC
                                 Charleston, SC
                                 Dorchester, SC
1480..........................  Charleston, WV..................      0.8880      0.9776      0.9552      0.9328
                                 Kanawha, WV
                                 Putnam, WV
1520..........................  Charlotte-Gastonia-Rock Hill, NC-     0.9760      0.9952      0.9904      0.9856
                                 SC.
                                 Cabarrus, NC
                                 Gaston, NC
                                 Lincoln, NC
                                 Mecklenburg, NC
                                 Rowan, NC
                                 Stanly, NC
                                 Union, NC
                                 York, SC
1540..........................  Charlottesville, VA.............      1.0025      1.0005      1.0010      1.0015
                                 Albemarle, VA
                                 Charlottesville City, VA
                                 Fluvanna, VA
                                 Greene, VA
1560..........................  Chattanooga, TN-GA..............      0.9086      0.9817      0.9634      0.9452
                                 Catoosa, GA
                                 Dade, GA
                                 Walker, GA
                                 Hamilton, TN
                                 Marion, TN
1580..........................  Cheyenne, WY....................      0.8796      0.9759      0.9518      0.9278
                                 Laramie, WY
1600..........................  Chicago, IL.....................      1.0892      1.0178      1.0357      1.0535
                                 Cook, IL
                                 DeKalb, IL
                                 DuPage, IL
                                 Grundy, IL
                                 Kane, IL
                                 Kendall, IL
                                 Lake, IL
                                 McHenry, IL
                                 Will, IL
1620..........................  Chico-Paradise, CA..............      1.0193      1.0039      1.0077      1.0116
                                 Butte, CA
1640..........................  Cincinnati, OH-KY-IN............      0.9413      0.9883      0.9765      0.9648
                                 Dearborn, IN
                                 Ohio, IN
                                 Boone, KY

[[Page 25726]]

 
                                 Campbell, KY
                                 Gallatin, KY
                                 Grant, KY
                                 Kenton, KY
                                 Pendleton, KY
                                 Brown, OH
                                 Clermont, OH
                                 Hamilton, OH
                                 Warren, OH
1660..........................  Clarksville-Hopkinsville, TN-KY.      0.8244      0.9649      0.9298      0.8946
                                 Christian, KY
                                 Montgomery, TN
1680..........................  Cleveland-Lorain-Elyria, OH.....      0.9671      0.9934      0.9868      0.9803
                                 Ashtabula, OH
                                 Cuyahoga, OH
                                 Geauga, OH
                                 Lake, OH
                                 Lorain, OH
                                 Medina, OH
1720..........................  Colorado Springs, CO............      0.9833      0.9967      0.9933      0.9900
                                 El Paso, CO
1740..........................  Columbia, MO....................      0.8695      0.9739      0.9478      0.9217
                                 Boone, MO
1760..........................  Columbia, SC....................      0.8902      0.9780      0.9561      0.9341
                                 Lexington, SC
                                 Richland, SC
1800..........................  Columbus, GA-AL Russell, AL.....      0.8694      0.9739      0.9478      0.9216
                                 Chattahoochee, GA
                                 Harris, GA
                                 Muscogee, GA
1840..........................  Columbus, OH....................      0.9648      0.9930      0.9859      0.9789
                                 Delaware, OH
                                 Fairfield, OH
                                 Franklin, OH
                                 Licking, OH
                                 Madison, OH
                                 Pickaway, OH
1880..........................  Corpus Christi, TX..............      0.8521      0.9704      0.9408      0.9113
                                 Nueces, TX
                                 San Patricio, TX
1890..........................  Corvallis, OR...................      1.1516      1.0303      1.0606      1.0910
                                 Benton, OR
1900..........................  Cumberland, MD-WV (WV Hospital).      0.8200      0.9640      0.9280      0.8920
                                 Allegany, MD
                                 Mineral, WV
1920..........................  Dallas, TX......................      0.9974      0.9995      0.9990      0.9984
                                 Collin, TX
                                 Dallas, TX
                                 Denton, TX
                                 Ellis, TX
                                 Henderson, TX
                                 Hunt, TX
                                 Kaufman, TX
                                 Rockwall, TX
1950..........................  Danville, VA....................      0.9035      0.9807      0.9614      0.9421
                                 Danville City, VA
                                 Pittsylvania, VA
1960..........................  Davenport-Moline-Rock Island, IA-     0.8985      0.9797      0.9594      0.9391
                                 IL.
                                 Scott, IA
                                 Henry, IL
                                 Rock Island, IL
2000..........................  Dayton-Springfield, OH..........      0.9518      0.9904      0.9807      0.9711
                                 Clark, OH
                                 Greene, OH
                                 Miami, OH
                                 Montgomery, OH
2020..........................  Daytona Beach, FL...............      0.9078      0.9816      0.9631      0.9447
                                 Flagler, FL
                                 Volusia, FL

[[Page 25727]]

 
2030..........................  Decatur, AL.....................      0.8828      0.9766      0.9531      0.9297
                                 Lawrence, AL
                                 Morgan, AL
2040..........................  Decatur, IL.....................      0.8161      0.9632      0.9264      0.8897
                                 Macon, IL
2080..........................  Denver, CO......................      1.0837      1.0167      1.0335      1.0502
                                 Adams, CO
                                 Arapahoe, CO
                                 Denver, CO
                                 Douglas, CO
                                 Jefferson, CO
2120..........................  Des Moines, IA..................      0.9106      0.9821      0.9642      0.9464
                                 Dallas, IA
                                 Polk, IA
                                 Warren, IA
2160..........................  Detroit, MI.....................      1.0101      1.0020      1.0040      1.0061
                                 Lapeer, MI
                                 Macomb, MI
                                 Monroe, MI
                                 Oakland, MI
                                 St. Clair, MI
                                 Wayne, MI
2180..........................  Dothan, AL......................      0.7741      0.9548      0.9096      0.8645
                                 Dale, AL
                                 Houston, AL
2190..........................  Dover, DE.......................      0.9805      0.9961      0.9922      0.9883
                                 Kent, DE
2200..........................  Dubuque, IA.....................      0.8886      0.9777      0.9554      0.9332
                                 Dubuque, IA
2240..........................  Duluth-Superior, MN-WI..........      1.0171      1.0034      1.0068      1.0103
                                 St. Louis, MN
                                 Douglas, WI
2281..........................  Dutchess County, NY.............      1.0934      1.0187      1.0374      1.0560
                                 Dutchess, NY
2290..........................  Eau Claire, WI..................      0.9064      0.9813      0.9626      0.9438
                                 Chippewa, WI
                                 Eau Claire, WI
2320..........................  El Paso, TX.....................      0.9196      0.9839      0.9678      0.9518
                                 El Paso, TX
2330..........................  Elkhart-Goshen, IN..............      0.9783      0.9957      0.9913      0.9870
                                 Elkhart, IN
2335..........................  Elmira, NY......................      0.8377      0.9675      0.9351      0.9026
                                 Chemung, NY
2340..........................  Enid, OK........................      0.8559      0.9712      0.9424      0.9135
                                 Garfield, OK
2360..........................  Erie, PA........................      0.8601      0.9720      0.9440      0.9161
                                 Erie, PA
2400..........................  Eugene-Springfield, OR..........      1.1456      1.0291      1.0582      1.0874
                                 Lane, OR
2440..........................  Evansville-Henderson, IN-KY (IN       0.8429      0.9686      0.9372      0.9057
                                 Hospitals).
                                 Posey, IN
                                 Vanderburgh, IN
                                 Warrick, IN
                                 Henderson, KY
2520..........................  Fargo-Moorhead, ND-MN...........      0.9797      0.9959      0.9919      0.9878
                                 Clay, MN
                                 Cass, ND
2560..........................  Fayetteville, NC................      0.8986      0.9797      0.9594      0.9392
                                 Cumberland, NC
2580..........................  Fayetteville-Springdale-Rogers,       0.8396      0.9679      0.9358      0.9038
                                 AR.
                                 Benton, AR
                                 Washington, AR
2620..........................  Flagstaff, AZ-UT................      1.1333      1.0267      1.0533      1.0800
                                 Coconino, AZ
                                 Kane, UT
2640..........................  Flint, MI.......................      1.0858      1.0172      1.0343      1.0515
                                 Genesee, MI
2650..........................  Florence, AL....................      0.7747      0.9549      0.9099      0.8648
                                 Colbert, AL

[[Page 25728]]

 
                                 Lauderdale, AL
2655..........................  Florence, SC....................      0.8709      0.9742      0.9484      0.9225
                                 Florence, SC
2670..........................  Fort Collins-Loveland, CO.......      1.0108      1.0022      1.0043      1.0065
                                 Larimer, CO
2680..........................  Ft. Lauderdale, FL..............      1.0163      1.0033      1.0065      1.0098
                                 Broward, FL
2700..........................  Fort Myers-Cape Coral, FL.......      0.9816      0.9963      0.9926      0.9890
                                 Lee, FL
2710..........................  Fort Pierce-Port St. Lucie, FL..      1.0008      1.0002      1.0003      1.0005
                                 Martin, FL
                                 St. Lucie, FL
2720..........................  Fort Smith, AR-OK...............      0.8424      0.9685      0.9370      0.9054
                                 Crawford, AR
                                 Sebastian, AR
                                 Sequoyah, OK
2750..........................  Fort Walton Beach, FL...........      0.8966      0.9793      0.9586      0.9380
                                 Okaloosa, FL
2760..........................  Fort Wayne, IN..................      0.9585      0.9917      0.9834      0.9751
                                 Adams, IN
                                 Allen, IN
                                 De Kalb, IN
                                 Huntington, IN
                                 Wells, IN
                                 Whitley, IN
2800..........................  Fort Worth-Arlington, TX........      0.9359      0.9872      0.9744      0.9615
                                 Hood, TX
                                 Johnson, TX
                                 Parker, TX
                                 Tarrant, TX
2840..........................  Fresno, CA......................      1.0094      1.0019      1.0038      1.0056
                                 Fresno, CA
                                 Madera, CA
2880..........................  Gadsden, AL.....................      0.8206      0.9641      0.9282      0.8924
                                 Etowah, AL
2900..........................  Gainesville, FL.................      0.9693      0.9939      0.9877      0.9816
                                 Alachua, FL
2920..........................  Galveston-Texas City, TX........      0.9279      0.9856      0.9712      0.9567
                                 Galveston, TX
2960..........................  Gary, IN........................      0.9410      0.9882      0.9764      0.9646
                                 Lake, IN
                                 Porter, IN
2975..........................  Glens Falls, NY.................      0.8475      0.9695      0.9390      0.9085
                                 Warren, NY
                                 Washington, NY
2980..........................  Goldsboro, NC...................      0.8622      0.9724      0.9449      0.9173
                                 Wayne, NC
2985..........................  Grand Forks, ND-MN..............      0.8636      0.9727      0.9454      0.9182
                                 Polk, MN
                                 Grand Forks, ND
2995..........................  Grand Junction, CO..............      0.9633      0.9927      0.9853      0.9780
                                 Mesa, CO
3000..........................  Grand Rapids-Muskegon-Holland,        0.9469      0.9894      0.9788      0.9681
                                 MI.
                                 Allegan, MI
                                 Kent, MI
                                 Muskegon, MI
                                 Ottawa, MI
3040..........................  Great Falls, MT.................      0.8809      0.9762      0.9524      0.9285
                                 Cascade, MT
3060..........................  Greeley, CO.....................      0.9372      0.9874      0.9749      0.9623
                                 Weld, CO
3080..........................  Green Bay, WI...................      0.9461      0.9892      0.9784      0.9677
                                 Brown, WI
3120..........................  Greensboro-Winston-Salem-High         0.9166      0.9833      0.9666      0.9500
                                 Point, NC.
                                 Alamance, NC
                                 Davidson, NC
                                 Davie, NC
                                 Forsyth, NC
                                 Guilford, NC

[[Page 25729]]

 
                                 Randolph, NC
                                 Stokes, NC
                                 Yadkin, NC
3150..........................  Greenville, NC..................      0.9098      0.9820      0.9639      0.9459
                                 Pitt, NC
3160..........................  Greenville-Spartanburg-Anderson,      0.9335      0.9867      0.9734      0.9601
                                 SC.
                                 Anderson, SC
                                 Cherokee, SC
                                 Greenville, SC
                                 Pickens, SC
                                 Spartanburg, SC
3180..........................  Hagerstown, MD..................      0.9172      0.9834      0.9669      0.9503
                                 Washington, MD
3200..........................  Hamilton-Middletown, OH.........      0.9214      0.9843      0.9686      0.9528
                                 Butler, OH
3240..........................  Harrisburg-Lebanon-Carlisle, PA.      0.9164      0.9833      0.9666      0.9498
                                 Cumberland, PA
                                 Dauphin, PA
                                 Lebanon, PA
                                 Perry, PA
3283..........................  Hartford, CT....................      1.1555      1.0311      1.0622      1.0933
                                 Hartford, CT
                                 Litchfield, CT
                                 Middlesex, CT
                                 Tolland, CT
3285..........................  Hattiesburg, MS \2\.............      0.7307      0.9461      0.8923      0.8384
                                 Forrest, MS
                                 Lamar, MS
3290..........................  Hickory-Morganton-Lenoir, NC....      0.9242      0.9848      0.9697      0.9545
                                 Alexander, NC
                                 Burke, NC
                                 Caldwell, NC
                                 Catawba, NC
3320..........................  Honolulu, HI....................      1.1098      1.0220      1.0439      1.0659
                                 Honolulu, HI
3350..........................  Houma, LA.......................      0.7748      0.9550      0.9099      0.8649
                                 Lafourche, LA
                                 Terrebonne, LA
3360..........................  Houston, TX.....................      0.9834      0.9967      0.9934      0.9900
                                 Chambers, TX
                                 Fort Bend, TX
                                 Harris, TX
                                 Liberty, TX
                                 Montgomery, TX
                                 Waller, TX
3400..........................  Huntington-Ashland, WV-KY-OH....      0.9595      0.9919      0.9838      0.9757
                                 Boyd, KY
                                 Carter, KY
                                 Greenup, KY
                                 Lawrence, OH
                                 Cabell, WV
                                 Wayne, WV
3440..........................  Huntsville, AL..................      0.9245      0.9849      0.9698      0.9547
                                 Limestone, AL
                                 Madison, AL
3480..........................  Indianapolis, IN................      0.9916      0.9983      0.9966      0.9950
                                 Boone, IN
                                 Hamilton, IN
                                 Hancock, IN
                                 Hendricks, IN
                                 Johnson, IN
                                 Madison, IN
                                 Marion, IN
                                 Morgan, IN
                                 Shelby, IN
3500..........................  Iowa City, IA...................      0.9548      0.9910      0.9819      0.9729
                                 Johnson, IA
3520..........................  Jackson, MI.....................      0.8986      0.9797      0.9594      0.9392
                                 Jackson, MI

[[Page 25730]]

 
3560..........................  Jackson, MS.....................      0.8357      0.9671      0.9343      0.9014
                                 Hinds, MS
                                 Madison, MS
                                 Rankin, MS
3580..........................  Jackson, TN.....................      0.8984      0.9797      0.9594      0.9390
                                 Madison, TN
                                 Chester, TN
3600..........................  Jacksonville, FL................      0.9529      0.9906      0.9812      0.9717
                                 Clay, FL
                                 Duval, FL
                                 Nassau, FL
                                 St. Johns, FL
3605..........................  Jacksonville, NC................      0.8544      0.9709      0.9418      0.9126
                                 Onslow, NC
3610..........................  Jamestown, NY...................      0.7762      0.9552      0.9105      0.8657
                                 Chautauqua, NY
3620..........................  Janesville-Beloit, WI...........      0.9282      0.9856      0.9713      0.9569
                                 Rock, WI
3640..........................  Jersey City, NJ.................      1.1115      1.0223      1.0446      1.0669
                                 Hudson, NJ
3660..........................  Johnson City-Kingsport-Bristol,       0.8253      0.9651      0.9301      0.8952
                                 TN-VA.
                                 Carter, TN
                                 Hawkins, TN
                                 Sullivan, TN
                                 Unicoi, TN
                                 Washington, TN
                                 Bristol City, VA
                                 Scott, VA
                                 Washington, VA
3680..........................  Johnstown, PA...................      0.8158      0.9632      0.9263      0.8895
                                 Cambria, PA
                                 Somerset, PA
3700..........................  Jonesboro, AR...................      0.7794      0.9559      0.9118      0.8676
                                 Craighead, AR
3710..........................  Joplin, MO......................      0.8681      0.9736      0.9472      0.9209
                                 Jasper, MO
                                 Newton, MO
3720..........................  Kalamazoo-Battlecreek, MI.......      1.0500      1.0100      1.0200      1.0300
                                 Calhoun, MI
                                 Kalamazoo, MI
                                 Van Buren, MI
3740..........................  Kankakee, IL....................      1.0419      1.0084      1.0168      1.0251
                                 Kankakee, IL
3760..........................  Kansas City, KS-MO..............      0.9715      0.9943      0.9886      0.9829
                                 Johnson, KS
                                 Leavenworth, KS
                                 Miami, KS
                                 Wyandotte, KS
                                 Cass, MO
                                 Clay, MO
                                 Clinton, MO
                                 Jackson, MO
                                 Lafayette, MO
                                 Platte, MO
                                 Ray, MO
3800..........................  Kenosha, WI.....................      0.9761      0.9952      0.9904      0.9857
                                 Kenosha, WI
3810..........................  Killeen-Temple, TX..............      0.9159      0.9832      0.9664      0.9495
                                 Bell, TX
                                 Coryell, TX
3840..........................  Knoxville, TN...................      0.8820      0.9764      0.9528      0.9292
                                 Anderson, TN
                                 Blount, TN
                                 Knox, TN
                                 Loudon, TN
                                 Sevier, TN
                                 Union, TN
3850..........................  Kokomo, IN......................      0.9045      0.9809      0.9618      0.9427
                                 Howard, IN

[[Page 25731]]

 
                                 Tipton, IN
3870..........................  La Crosse, WI-MN................      0.9247      0.9849      0.9699      0.9548
                                 Houston, MN
                                 La Crosse, WI
3880..........................  Lafayette, LA...................      0.8189      0.9638      0.9276      0.8913
                                 Acadia, LA
                                 Lafayette, LA
                                 St. Landry, LA
                                 St. Martin, LA
3920..........................  Lafayette, IN...................      0.8584      0.9717      0.9434      0.9150
                                 Clinton, IN
                                 Tippecanoe, IN
3960..........................  Lake Charles, LA................      0.7841      0.9568      0.9136      0.8705
                                 Calcasieu, LA
3980..........................  Lakeland-Winter Haven, FL.......      0.8811      0.9762      0.9524      0.9287
                                 Polk, FL
4000..........................  Lancaster, PA...................      0.9282      0.9856      0.9713      0.9569
                                 Lancaster, PA
4040..........................  Lansing-East Lansing, MI........      0.9714      0.9943      0.9886      0.9828
                                 Clinton, MI
                                 Eaton, MI
                                 Ingham, MI
4080..........................  Laredo, TX......................      0.8091      0.9618      0.9236      0.8855
                                 Webb, TX
4100..........................  Las Cruces, NM..................      0.8688      0.9738      0.9475      0.9213
                                 Dona Ana, NM
4120..........................  Las Vegas, NV-AZ................      1.1528      1.0306      1.0611      1.0917
                                 Mohave, AZ
                                 Clark, NV
                                 Nye, NV
4150..........................  Lawrence, KS....................      0.8677      0.9735      0.9471      0.9206
                                 Douglas, KS
4200..........................  Lawton, OK......................      0.8267      0.9653      0.9307      0.8960
                                 Comanche, OK
4243..........................  Lewiston-Auburn, ME.............      0.9383      0.9877      0.9753      0.9630
                                 Androscoggin, ME
4280..........................  Lexington, KY...................      0.8685      0.9737      0.9474      0.9211
                                 Bourbon, KY
                                 Clark, KY
                                 Fayette, KY
                                 Jessamine, KY
                                 Madison, KY
                                 Scott, KY
                                 Woodford, KY
4320..........................  Lima, OH........................      0.9522      0.9904      0.9809      0.9713
                                 Allen, OH
                                 Auglaize, OH
4360..........................  Lincoln, NE.....................      1.0033      1.0007      1.0013      1.0020
                                 Lancaster, NE
4400..........................  Little Rock-North Little Rock,        0.8923      0.9785      0.9569      0.9354
                                 AR.
                                 Faulkner, AR
                                 Lonoke, AR
                                 Pulaski, AR
                                 Saline, AR
4420..........................  Longview-Marshall, TX...........      0.9113      0.9823      0.9645      0.9468
                                 Gregg, TX
                                 Harrison, TX
                                 Upshur, TX
4480..........................  Los Angeles-Long Beach, CA......      1.1795      1.0359      1.0718      1.1077
                                 Los Angeles, CA
4520..........................  Louisville, KY-IN \1\...........      0.9242      0.9848      0.9697      0.9545
                                 Clark, IN
                                 Floyd, IN
                                 Harrison, IN
                                 Scott, IN
                                 Bullitt, KY
                                 Jefferson, KY
                                 Oldham, KY
4600..........................  Lubbock, TX.....................      0.8272      0.9654      0.9309      0.8963

[[Page 25732]]

 
                                 Lubbock, TX
4640..........................  Lynchburg, VA...................      0.9134      0.9827      0.9654      0.9480
                                 Amherst, VA
                                 Bedford, VA
                                 Bedford City, VA
                                 Campbell, VA
                                 Lynchburg City, VA
4680..........................  Macon, GA.......................      0.8953      0.9791      0.9581      0.9372
                                 Bibb, GA
                                 Houston, GA
                                 Jones, GA
                                 Peach, GA
                                 Twiggs, GA
4720..........................  Madison, WI.....................      1.0264      1.0053      1.0106      1.0158
                                 Dane, WI
4800..........................  Mansfield, OH...................      0.9180      0.9836      0.9672      0.9508
                                 Crawford, OH
                                 Richland, OH
4840..........................  Mayaguez, PR....................      0.4795      0.8959      0.7918      0.6877
                                 Anasco, PR
                                 Cabo Rojo, PR
                                 Hormigueros, PR
                                 Mayaguez, PR
                                 Sabana Grande, PR
                                 San German, PR
4880..........................  McAllen-Edinburg-Mission, TX....      0.8381      0.9676      0.9352      0.9029
                                 Hidalgo, TX
4890..........................  Medford-Ashland, OR.............      1.0772      1.0154      1.0309      1.0463
                                 Jackson, OR
4900..........................  Melbourne-Titusville-Palm Bay,        0.9776      0.9955      0.9910      0.9866
                                 FL.
                                 Brevard, Fl
4920..........................  Memphis, TN-AR-MS...............      0.9009      0.9802      0.9604      0.9405
                                 Crittenden, AR
                                 DeSoto, MS
                                 Fayette, TN
                                 Shelby, TN
                                 Tipton, TN
4940..........................  Merced, CA......................      0.9690      0.9938      0.9876      0.9814
                                 Merced, CA
5000..........................  Miami, FL.......................      0.9894      0.9979      0.9958      0.9936
                                 Dade, FL
5015..........................  Middlesex-Somerset-Hunterdon, NJ      1.1366      1.0273      1.0546      1.0820
                                 Hunterdon, NJ
                                 Middlesex, NJ
                                 Somerset, NJ
5080..........................  Milwaukee-Waukesha, WI..........      0.9988      0.9998      0.9995      0.9993
                                 Milwaukee, WI
                                 Ozaukee, WI
                                 Washington, WI
                                 Waukesha, WI
5120..........................  Minneapolis-St. Paul, MN-WI.....      1.1001      1.0200      1.0400      1.0601
                                 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....................      0.8718      0.9744      0.9487      0.9231
                                 Missoula, MT
5160..........................  Mobile, AL......................      0.7994      0.9599      0.9198      0.8796
                                 Baldwin, AL
                                 Mobile, AL

[[Page 25733]]

 
5170..........................  Modesto, CA.....................      1.1275      1.0255      1.0510      1.0765
                                 Stanislaus, CA
5190..........................  Monmouth-Ocean, NJ..............      1.0956      1.0191      1.0382      1.0574
                                 Monmouth, NJ
                                 Ocean, NJ
5200..........................  Monroe, LA......................      0.7922      0.9584      0.9169      0.8753
                                 Ouachita, LA
5240..........................  Montgomery, AL..................      0.7907      0.9581      0.9163      0.8744
                                 Autauga, AL
                                 Elmore, AL
                                 Montgomery, AL
5280..........................  Muncie, IN......................      0.8775      0.9755      0.9510      0.9265
                                 Delaware, IN
5330..........................  Myrtle Beach, SC................      0.9112      0.9822      0.9645      0.9467
                                 Horry, SC
5345..........................  Naples, FL......................      0.9790      0.9958      0.9916      0.9874
                                 Collier, FL
5360..........................  Nashville, TN...................      0.9855      0.9971      0.9942      0.9913
                                 Cheatham, TN
                                 Davidson, TN
                                 Dickson, TN
                                 Robertson, TN
                                 Rutherford TN
                                 Sumner, TN
                                 Williamson, TN
                                 Wilson, TN
5380..........................  Nassau-Suffolk, NY..............      1.3140      1.0628      1.1256      1.1884
                                 Nassau, NY
                                 Suffolk, NY
5483..........................  New Haven-Bridgeport-Stamford-        1.2385      1.0477      1.0954      1.1431
                                 Waterbury-Danbury, CT.
                                 Fairfield, CT
                                 New Haven, CT
5523..........................  New London-Norwich, CT..........      1.1631      1.0326      1.0652      1.0979
                                 New London, CT
5560..........................  New Orleans, LA.................      0.9174      0.9835      0.9670      0.9504
                                 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....................      1.4018      1.0804      1.1607      1.2411
                                 Bronx, NY
                                 Kings, NY
                                 New York, NY
                                 Putnam, NY
                                 Queens, NY
                                 Richmond, NY
                                 Rockland, NY
                                 Westchester, NY
5640..........................  Newark, NJ......................      1.1518      1.0304      1.0607      1.0911
                                 Essex, NJ
                                 Morris, NJ
                                 Sussex, NJ
                                 Union, NJ
                                 Warren, NJ
5660..........................  Newburgh, NY-PA.................      1.1509      1.0302      1.0604      1.0905
                                 Orange, NY
                                 Pike, PA
5720..........................  Norfolk-Virginia Beach-Newport        0.8619      0.9724      0.9448      0.9171
                                 News, VA-NC.
                                 Currituck, NC
                                 Chesapeake City, VA
                                 Gloucester, VA
                                 Hampton City, VA
                                 Isle of Wight, VA
                                 James City, VA
                                 Mathews, VA

[[Page 25734]]

 
                                 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.....................      1.4921      1.0984      1.1968      1.2953
                                 Alameda, CA
                                 Contra Costa, CA
5790..........................  Ocala, FL.......................      0.9728      0.9946      0.9891      0.9837
                                 Marion, FL
5800..........................  Odessa-Midland, TX..............      0.9327      0.9865      0.9731      0.9596
                                 Ector, TX
                                 Midland, TX
5880..........................  Oklahoma City, OK...............      0.8984      0.9797      0.9594      0.9390
                                 Canadian, OK
                                 Cleveland, OK
                                 Logan, OK
                                 McClain, OK
                                 Oklahoma, OK
                                 Pottawatomie, OK
5910..........................  Olympia, WA.....................      1.0963      1.0193      1.0385      1.0578
                                 Thurston, WA
5920..........................  Omaha, NE-IA....................      0.9745      0.9949      0.9898      0.9847
                                 Pottawattamie, IA
                                 Cass, NE
                                 Douglas, NE
                                 Sarpy, NE
                                 Washington, NE
5945..........................  Orange County, CA...............      1.1372      1.0274      1.0549      1.0823
                                 Orange, CA
5960..........................  Orlando, FL.....................      0.9654      0.9931      0.9862      0.9792
                                 Lake, FL
                                 Orange, FL
                                 Osceola, FL
                                 Seminole, FL
5990..........................  Owensboro, KY...................      0.8374      0.9675      0.9350      0.9024
                                 Daviess, KY
6015..........................  Panama City, FL.................      0.8202      0.9640      0.9281      0.8921
                                 Bay, FL
6020..........................  Parkersburg-Marietta, WV-OH.....      0.8039      0.9608      0.9216      0.8823
                                 Washington, OH
                                 Wood, WV
6080..........................  Pensacola, FL...................      0.8707      0.9741      0.9483      0.9224
                                 Escambia, FL
                                 Santa Rosa, FL
6120..........................  Peoria-Pekin, IL................      0.8734      0.9747      0.9494      0.9240
                                 Peoria, IL
                                 Tazewell, IL
                                 Woodford, IL
6160..........................  Philadelphia, PA-NJ.............      1.0883      1.0177      1.0353      1.0530
                                 Burlington, NJ
                                 Camden, NJ
                                 Gloucester, NJ
                                 Salem, NJ
                                 Bucks, PA
                                 Chester, PA
                                 Delaware, PA
                                 Montgomery, PA
                                 Philadelphia, PA
6200..........................  Phoenix-Mesa, AZ................      1.0129      1.0026      1.0052      1.0077
                                 Maricopa, AZ
                                 Pinal, AZ
6240..........................  Pine Bluff, AR..................      0.7865      0.9573      0.9146      0.8719
                                 Jefferson, AR
6280..........................  Pittsburgh, PA..................      0.8901      0.9780      0.9560      0.9341
                                 Allegheny, PA

[[Page 25735]]

 
                                 Beaver, PA
                                 Butler, PA
                                 Fayette, PA
                                 Washington, PA
                                 Westmoreland, PA
6323..........................  Pittsfield, MA..................      1.0276      1.0055      1.0110      1.0166
                                 Berkshire, MA
6340..........................  Pocatello, ID...................      0.9042      0.9808      0.9617      0.9425
                                 Bannock, ID
6360..........................  Ponce, PR.......................      0.4708      0.8942      0.7883      0.6825
                                 Guayanilla, PR
                                 Juana Diaz, PR
                                 Penuelas, PR
                                 Ponce, PR
                                 Villalba, PR
                                 Yauco, PR
6403..........................  Portland, ME....................      0.9949      0.9990      0.9980      0.9969
                                 Cumberland, ME
                                 Sagadahoc, ME
                                 York, ME
6440..........................  Portland-Vancouver, OR-WA.......      1.1213      1.0243      1.0485      1.0728
                                 Clackamas, OR
                                 Columbia, OR
                                 Multnomah, OR
                                 Washington, OR
                                 Yamhill, OR
                                 Clark, WA
6483..........................  Providence-Warwick-Pawtucket, RI      1.0977      1.0195      1.0391      1.0586
                                 Bristol, RI
                                 Kent, RI
                                 Newport, RI
                                 Providence, RI
                                 Washington, RI
6520..........................  Provo-Orem, UT..................      0.9976      0.9995      0.9990      0.9986
                                 Utah, UT
6560..........................  Pueblo, CO......................      0.8778      0.9756      0.9511      0.9267
                                 Pueblo, CO
6580..........................  Punta Gorda, FL.................      0.9510      0.9902      0.9804      0.9706
                                 Charlotte, FL
6600..........................  Racine, WI......................      0.8814      0.9763      0.9526      0.9288
                                 Racine, WI
6640..........................  Raleigh-Durham-Chapel Hill, NC..      0.9959      0.9992      0.9984      0.9975
                                 Chatham, NC
                                 Durham, NC
                                 Franklin, NC
                                 Johnston, NC
                                 Orange, NC
                                 Wake, NC
6660..........................  Rapid City, SD..................      0.8806      0.9761      0.9522      0.9284
                                 Pennington, SD
6680..........................  Reading, PA.....................      0.9133      0.9827      0.9653      0.9480
                                 Berks, PA
6690..........................  Redding, CA.....................      1.1352      1.0270      1.0541      1.0811
                                 Shasta, CA
6720..........................  Reno, NV........................      1.0682      1.0136      1.0273      1.0409
                                 Washoe, NV
6740..........................  Richland-Kennewick-Pasco, WA....      1.0609      1.0122      1.0244      1.0365
                                 Benton, WA
                                 Franklin, WA
6760..........................  Richmond-Petersburg, VA.........      0.9349      0.9870      0.9740      0.9609
                                 Charles City County, VA
                                 Chesterfield, VA
                                 Colonial Heights City, VA
                                 Dinwiddie, VA
                                 Goochland, VA
                                 Hanover, VA
                                 Henrico, VA
                                 Hopewell City, VA
                                 New Kent, VA

[[Page 25736]]

 
                                 Petersburg City, VA
                                 Powhatan, VA
                                 Prince George, VA
                                 Richmond City, VA
6780..........................  Riverside-San Bernardino, CA....      1.1341      1.0268      1.0536      1.0805
                                 Riverside, CA
                                 San Bernardino, CA
6800..........................  Roanoke, VA.....................      0.8700      0.9740      0.9480      0.9220
                                 Botetourt, VA
                                 Roanoke, VA
                                 Roanoke City, VA
                                 Salem City, VA
6820..........................  Rochester, MN...................      1.1739      1.0348      1.0696      1.1043
                                 Olmsted, MN
6840..........................  Rochester, NY...................      0.9430      0.9886      0.9772      0.9658
                                 Genesee, NY
                                 Livingston, NY
                                 Monroe, NY
                                 Ontario, NY
                                 Orleans, NY
                                 Wayne, NY
6880..........................  Rockford, IL....................      0.9666      0.9933      0.9866      0.9800
                                 Boone, IL
                                 Ogle, IL
                                 Winnebago, IL
6895..........................  Rocky Mount, NC.................      0.9076      0.9815      0.9630      0.9446
                                 Edgecombe, NC
                                 Nash, NC
6920..........................  Sacramento, CA..................      1.1845      1.0369      1.0738      1.1107
                                 El Dorado, CA
                                 Placer, CA
                                 Sacramento, CA
6960..........................  Saginaw-Bay City-Midland, MI....      1.0032      1.0006      1.0013      1.0019
                                 Bay, MI
                                 Midland, MI
                                 Saginaw, MI
6980..........................  St. Cloud, MN...................      0.9506      0.9901      0.9802      0.9704
                                 Benton, MN
                                 Stearns, MN
7000..........................  St. Joseph, MO..................      0.9757      0.9951      0.9903      0.9854
                                 Andrew, MO
                                 Buchanan, MO
7040..........................  St. Louis, MO-IL................      0.9033      0.9807      0.9613      0.9420
                                 Clinton, IL
                                 Jersey, IL
                                 Madison, IL
                                 Monroe, IL
                                 St. Clair, IL
                                 Franklin, MO
                                 Jefferson, MO
                                 Lincoln, MO
                                 St. Charles, MO
                                 St. Louis, MO
                                 St. Louis City, MO
                                 Warren, MO
7080..........................  Salem, OR.......................      1.0482      1.0096      1.0193      1.0289
                                 Marion, OR
                                 Polk, OR
7120..........................  Salinas, CA.....................      1.4339      1.0868      1.1736      1.2603
                                 Monterey, CA
7160..........................  Salt Lake City-Ogden, UT........      0.9913      0.9983      0.9965      0.9948
                                 Davis, UT
                                 Salt Lake, UT
                                 Weber, UT
7200..........................  San Angelo, TX..................      0.8535      0.9707      0.9414      0.9121
                                 Tom Green, TX
7240..........................  San Antonio, TX.................      0.8870      0.9774      0.9548      0.9322
                                 Bexar, TX
                                 Comal, TX

[[Page 25737]]

 
                                 Guadalupe, TX
                                 Wilson, TX
7320..........................  San Diego, CA...................      1.1147      1.0229      1.0459      1.0688
                                 San Diego, CA
7360..........................  San Francisco, CA...............      1.4514      1.0903      1.1806      1.2708
                                 Marin, CA
                                 San Francisco, CA
                                 San Mateo, CA
7400..........................  San Jose, CA....................      1.4626      1.0925      1.1850      1.2776
                                 Santa Clara, CA
7440..........................  San Juan-Bayamon, PR............      0.4909      0.8982      0.7964      0.6945
                                 Aguas Buenas, PR
                                 Barceloneta, PR
                                 Bayamon, PR
                                 Canovanas, PR
                                 Carolina, PR
                                 Catano, PR
                                 Ceiba, PR
                                 Comerio, PR
                                 Corozal, PR
                                 Dorado, PR
                                 Fajardo, PR
                                 Florida, PR
                                 Guaynabo, PR
                                 Humacao, PR
                                 Juncos, PR
                                 Los Piedras, PR
                                 Loiza, PR
                                 Luguillo, PR
                                 Manati, PR
                                 Morovis, PR
                                 Naguabo, PR
                                 Naranjito, PR
                                 Rio Grande, PR
                                 San Juan, PR
                                 Toa Alta, PR
                                 Toa Baja, PR
                                 Trujillo Alto, PR
                                 Vega Alta, PR
                                 Vega Baja, PR
                                 Yabucoa, PR
7460..........................  San Luis Obispo-Atascadero-Paso.      1.1429      1.0286      1.0572      1.0857
                                 Robles, CA
                                 San Luis Obispo, CA
7480..........................  Santa Barbara-Santa Maria-            1.0441      1.0088      1.0176      1.0265
                                 Lompoc, CA.
                                 Santa Barbara, CA
7485..........................  Santa Cruz-Watsonville, CA......      1.2942      1.0588      1.1177      1.1765
                                 Santa Cruz, CA
7490..........................  Santa Fe, NM....................      1.0653      1.0131      1.0261      1.0392
                                 Los Alamos, NM
                                 Santa Fe, NM
7500..........................  Santa Rosa, CA..................      1.2877      1.0575      1.1151      1.1726
                                 Sonoma, CA
7510..........................  Sarasota-Bradenton, FL..........      0.9964      0.9993      0.9986      0.9978
                                 Manatee, FL
                                 Sarasota, FL
7520..........................  Savannah, GA....................      0.9472      0.9894      0.9789      0.9683
                                 Bryan, GA
                                 Chatham, GA
                                 Effingham, GA
7560..........................  Scranton-Wilkes-Barre-Hazleton,       0.8412      0.9682      0.9365      0.9047
                                 PA.
                                 Columbia, PA
                                 Lackawanna, PA
                                 Luzerne, PA
                                 Wyoming, PA
7600..........................  Seattle-Bellevue-Everett, WA....      1.1562      1.0312      1.0625      1.0937
                                 Island, WA
                                 King, WA
                                 Snohomish, WA

[[Page 25738]]

 
7610..........................  Sharon, PA......................      0.7751      0.9550      0.9100      0.8651
                                 Mercer, PA
7620..........................  Sheboygan, WI...................      0.8624      0.9725      0.9450      0.9174
                                 Sheboygan, WI
7640..........................  Sherman-Denison, TX.............      0.9700      0.9940      0.9880      0.9820
                                 Grayson, TX
7680..........................  Shreveport-Bossier City, LA.....      0.9083      0.9817      0.9633      0.9450
                                 Bossier, LA
                                 Caddo, LA
                                 Webster, LA
7720..........................  Sioux City, IA-NE...............      0.8993      0.9799      0.9597      0.9396
                                 Woodbury, IA
                                 Dakota, NE
7760..........................  Sioux Falls, SD.................      0.9309      0.9862      0.9724      0.9585
                                 Lincoln, SD
                                 Minnehaha, SD
7800..........................  South Bend, IN..................      0.9821      0.9964      0.9928      0.9893
                                 St. Joseph, IN
7840..........................  Spokane, WA.....................      1.0901      1.0180      1.0360      1.0541
                                 Spokane, WA
7880..........................  Springfield, IL.................      0.8944      0.9789      0.9578      0.9366
                                 Menard, IL
                                 Sangamon, IL
7920..........................  Springfield, MO.................      0.8457      0.9691      0.9383      0.9074
                                 Christian, MO
                                 Greene, MO
                                 Webster, MO
8003..........................  Springfield, MA.................      1.0543      1.0109      1.0217      1.0326
                                 Hampden, MA
                                 Hampshire, MA
8050..........................  State College, PA...............      0.8740      0.9748      0.9496      0.9244
                                 Centre, PA
8080..........................  Steubenville-Weirton, OH-WV (WV       0.8398      0.9680      0.9359      0.9039
                                 Hospitals).
                                 Jefferson, OH
                                 Brooke, WV
                                 Hancock, WV
8120..........................  Stockton-Lodi, CA...............      1.0404      1.0081      1.0162      1.0242
                                 San Joaquin, CA
8140..........................  Sumter, SC......................      0.8243      0.9649      0.9297      0.8946
                                 Sumter, SC
8160..........................  Syracuse, NY....................      0.9412      0.9882      0.9765      0.9647
                                 Cayuga, NY
                                 Madison, NY
                                 Onondaga, NY
                                 Oswego, NY
8200..........................  Tacoma, WA......................      1.1116      1.0223      1.0446      1.0670
                                 Pierce, WA
8240..........................  Tallahassee, FL.................      0.8520      0.9704      0.9408      0.9112
                                 Gadsden, FL
                                 Leon, FL
8280..........................  Tampa-St. Petersburg-Clearwater,      0.9103      0.9821      0.9641      0.9462
                                 FL.
                                 Hernando, FL
                                 Hillsborough, FL
                                 Pasco, FL
                                 Pinellas, FL
8320..........................  Terre Haute, IN.................      0.8325      0.9665      0.9330      0.8995
                                 Clay, IN
                                 Vermillion, IN
                                 Vigo, IN
8360..........................  Texarkana, AR-Texarkana, TX.....      0.8150      0.9630      0.9260      0.8890
                                 Miller, AR
                                 Bowie, TX
8400..........................  Toledo, OH......................      0.9381      0.9876      0.9752      0.9629
                                 Fulton, OH
                                 Lucas, OH
                                 Wood, OH
8440..........................  Topeka, KS......................      0.9108      0.9822      0.9643      0.9465
                                 Shawnee, KS
8480..........................  Trenton, NJ.....................      1.0517      1.0103      1.0207      1.0310
                                 Mercer, NJ
8520..........................  Tucson, AZ......................      0.8981      0.9796      0.9592      0.9389

[[Page 25739]]

 
                                 Pima, AZ
8560..........................  Tulsa, OK.......................      0.9185      0.9837      0.9674      0.9511
                                 Creek, OK
                                 Osage, OK
                                 Rogers, OK
                                 Tulsa, OK
                                 Wagoner, OK
8600..........................  Tuscaloosa, AL..................      0.8212      0.9642      0.9285      0.8927
                                 Tuscaloosa, AL
8640..........................  Tyler, TX.......................      0.9404      0.9881      0.9762      0.9642
                                 Smith, TX
8680..........................  Utica-Rome, NY..................      0.8403      0.9681      0.9361      0.9042
                                 Herkimer, NY
                                 Oneida, NY
8720..........................  Vallejo-Fairfield-Napa, CA......      1.3377      1.0675      1.1351      1.2026
                                 Napa, CA
                                 Solano, CA
8735..........................  Ventura, CA.....................      1.1064      1.0213      1.0426      1.0638
                                 Ventura, CA
8750..........................  Victoria, TX....................      0.8184      0.9637      0.9274      0.8910
                                 Victoria, TX
8760..........................  Vineland-Millville-Bridgeton, NJ      1.0405      1.0081      1.0162      1.0243
                                 Cumberland, NJ
8780..........................  Visalia-Tulare-Porterville, CA..      0.9794      0.9959      0.9918      0.9876
                                 Tulare, CA
8800..........................  Waco, TX........................      0.8394      0.9679      0.9358      0.9036
                                 McLennan, TX
8840..........................  Washington, DC-MD-VA-WV.........      1.0904      1.0181      1.0362      1.0542
                                 District of Columbia, DC
                                 Calvert, MD
                                 Charles, MD
                                 Frederick, MD
                                 Montgomery, MD
                                 Prince Georges, MD
                                 Alexandria City, VA
                                 Arlington, VA
                                 Clarke, VA
                                 Culpeper, VA
                                 Fairfax, VA
                                 Fairfax City, VA
                                 Falls Church City, VA
                                 Fauquier, VA
                                 Fredericksburg City, VA
                                 King George, VA
                                 Loudoun, VA
                                 Manassas City, VA
                                 Manassas Park City, VA
                                 Prince William, VA
                                 Spotsylvania, VA
                                 Stafford, VA
                                 Warren, VA
                                 Berkeley, WV
                                 Jefferson, WV
8920..........................  Waterloo-Cedar Falls, IA........      0.8366      0.9673      0.9346      0.9020
                                 Black Hawk, IA
8940..........................  Wausau, WI......................      0.9692      0.9938      0.9877      0.9815
                                 Marathon, WI
8960..........................  West Palm Beach-Boca Raton, FL..      0.9798      0.9960      0.9919      0.9879
                                 Palm Beach, FL
9000..........................  Wheeling, WV-OH.................      0.7494      0.9499      0.8998      0.8496
                                 Belmont, OH
                                 Marshall, WV
                                 Ohio, WV
9040..........................  Wichita, KS.....................      0.9238      0.9848      0.9695      0.9543
                                 Butler, KS
                                 Harvey, KS
                                 Sedgwick, KS
9080..........................  Wichita Falls, TX...............      0.8341      0.9668      0.9336      0.9005
                                 Archer, TX

[[Page 25740]]

 
                                 Wichita, TX
9140..........................  Williamsport, PA................      0.8158      0.9632      0.9263      0.8895
                                 Lycoming, PA
9160..........................  Wilmington-Newark, DE-MD........      1.0882      1.0176      1.0353      1.0529
                                 New Castle, DE
                                 Cecil, MD
9200..........................  Wilmington, NC..................      0.9563      0.9913      0.9825      0.9738
                                 New Hanover, NC
                                 Brunswick, NC
9260..........................  Yakima, WA......................      1.0372      1.0074      1.0149      1.0223
                                 Yakima, WA
9270..........................  Yolo, CA........................      0.9204      0.9841      0.9682      0.9522
                                 Yolo, CA
9280..........................  York, PA........................      0.9119      0.9824      0.9648      0.9471
                                 York, PA
9320..........................  Youngstown-Warren, OH...........      0.9214      0.9843      0.9686      0.9528
                                 Columbiana, OH
                                 Mahoning, OH
                                 Trumbull, OH
9340..........................  Yuba City, CA...................      1.0196      1.0039      1.0078      1.0118
                                 Sutter, CA
                                 Yuba, CA
9360..........................  Yuma, AZ........................      0.8895      0.9779      0.9558      0.9337
                                 Yuma, AZ
----------------------------------------------------------------------------------------------------------------
\1\ Wage index calculated using the same wage data used to compute the wage index used by acute care hospitals
  under the IPPS for Federal FY 2004 (that is, fiscal year 2000 audited acute care hospital inpatient wage data)
  without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act.
\2\ One-fifth of the full wage index value, applicable for a LTCH's cost reporting period beginning on or after
  October 1, 2002 through September 30, 2003 (Federal FY 2003). That is, for a LTCH's cost reporting period that
  began during Federal FY 2003 and located in Chicago, Illinois (MSA 1600), the 1/5th wage index value is
  computed as (1.0892 + 4)/5 = 1.0178. For further details on the 5-year phase-in of the wage index, see section
  V.C.1. of this final rule.
\3\ Two-fifths of the full wage index value, applicable for a LTCH's cost reporting period beginning on or after
  October 1, 2003 through September 30, 2004 (Federal FY 2004). That is, for a LTCH's cost reporting period that
  begins during Federal FY 2004 and located in Chicago, Illinois (MSA 1600), the 2/5ths wage index value is
  computed as ((2*1.0892) + 3)/5 = 1.0357. For further details on the 5-year phase-in of the wage index, see
  section V.C.1. of this final rule.
\4\ Three-fifths of the full wage index value, applicable for a LTCH's cost reporting period beginning on or
  after October 1, 2004 through September 30, 2005 (Federal FY 2005). That is, for a LTCH's cost reporting
  period that begins during Federal FY 2004 and located in Chicago, Illinois (MSA 1600), the 3/5ths wage index
  value is computed as ((3*1.0892) + 2)/5 = 1.0535. For further details on the 5-year phase-in of the wage
  index, see section V.C.1. of this final rule.


 Table 2.--Long-Term Care Hospital Wage Index for Rural Areas for Discharges Occurring From July 1, 2004 Through
                                                  June 30, 2005
----------------------------------------------------------------------------------------------------------------
                                                     Full wage      1/5th wage      2/5ths wage     3/5ths wage
                  Nonurban area                      index \1\       index \2\       index \3\       index \4\
----------------------------------------------------------------------------------------------------------------
Alabama.........................................          0.7492          0.9498          0.8997          0.8495
Alaska..........................................          1.1886          1.0377          1.0754          1.1132
Arizona.........................................          0.9270          0.9854          0.9708          0.9562
Arkansas........................................          0.7734          0.9547          0.9094          0.8640
California......................................          1.0027          1.0005          1.0011          1.0016
Colorado........................................          0.9328          0.9866          0.9731          0.9597
Connecticut.....................................          1.2183          1.0437          1.0873          1.1310
Delaware........................................          0.9557          0.9911          0.9823          0.9734
Florida.........................................          0.8870          0.9774          0.9548          0.9322
Georgia.........................................          0.8595          0.9719          0.9438          0.9157
Hawaii..........................................          0.9958          0.9992          0.9983          0.9975
Idaho...........................................          0.8974          0.9795          0.9590          0.9384
Illinois........................................          0.8254          0.9651          0.9302          0.8952
Indiana.........................................          0.8824          0.9765          0.9530          0.9294
Iowa............................................          0.8416          0.9683          0.9366          0.9050
Kansas..........................................          0.8034          0.9607          0.9214          0.8820
Kentucky........................................          0.7973          0.9595          0.9189          0.8784
Louisiana.......................................          0.7458          0.9492          0.8983          0.8475
Maine...........................................          0.8812          0.9762          0.9525          0.9287
Maryland........................................          0.9125          0.9825          0.9650          0.9475
Massachusetts...................................          1.0432          1.0086          1.0173          1.0259
Michigan........................................          0.8884          0.9777          0.9554          0.9330
Minnesota.......................................          0.9330          0.9866          0.9732          0.9598

[[Page 25741]]

 
Mississippi.....................................          0.7778          0.9556          0.9111          0.8667
Missouri........................................          0.7892          0.9578          0.9157          0.8735
Montana.........................................          0.8800          0.9760          0.9520          0.9280
Nebraska........................................          0.8822          0.9764          0.9529          0.9293
Nevada..........................................          0.9806          0.9961          0.9922          0.9884
New Hampshire...................................          1.0030          1.0006          1.0012          1.0018
New Jersey \5\..................................  ..............  ..............  ..............  ..............
New Mexico......................................          0.8270          0.9654          0.9308          0.8962
New York........................................          0.8526          0.9705          0.9410          0.9116
North Carolina..................................          0.8458          0.9692          0.9383          0.9075
North Dakota....................................          0.7778          0.9556          0.9111          0.8667
Ohio............................................          0.8820          0.9764          0.9528          0.9292
Oklahoma........................................          0.7537          0.9507          0.9015          0.8522
Oregon..........................................          0.9994          0.9999          0.9998          0.9996
Pennsylvania....................................          0.8378          0.9676          0.9351          0.9027
Puerto Rico.....................................          0.4018          0.8804          0.7607          0.6411
Rhode Island \5\................................  ..............  ..............  ..............  ..............
South Carolina..................................          0.8498          0.9700          0.9399          0.9099
South Dakota....................................          0.8195          0.9639          0.9278          0.8917
Tennessee.......................................          0.7886          0.9577          0.9154          0.8732
Texas...........................................          0.7780          0.9556          0.9112          0.8668
Utah............................................          0.8974          0.9795          0.9590          0.9384
Vermont.........................................          0.9307          0.9861          0.9723          0.9584
Virginia........................................          0.8498          0.9700          0.9399          0.9099
Washington......................................          1.0388          1.0078          1.0155          1.0233
West Virginia...................................          0.8018          0.9604          0.9207          0.8811
Wisconsin.......................................          0.9304          0.9861          0.9722          0.9582
Wyoming.........................................          0.9110          0.9822          0.9644         0.9466
----------------------------------------------------------------------------------------------------------------
\1\ Wage index calculated using the same wage data used to compute the wage index used by acute care hospitals
  under the IPPS for Federal FY 2004 (that is, fiscal year 2000 audited acute care hospital inpatient wage data)
  without regard to reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act.
\2\ One-fifth of the full wage index value, applicable for a LTCH's cost reporting period beginning on or after
  October 1, 2002 through September 30, 2003 (Federal FY 2003). That is, for a LTCH's cost reporting period that
  began during Federal FY 2003 and located in rural Illinois, the 1/5th wage index value is computed as (0.8254
  + 4)/5 = 0.9651. For further details on the 5-year phase-in of the wage index, see section V.C.1. of this
  final rule.
\3\ Two-fifths of the full wage index value, applicable for a LTCH's cost reporting period beginning on or after
  October 1, 2003 through September 30, 2004 (Federal FY 2004). That is, for a LTCH's cost reporting period that
  begins during Federal FY 2004 and located in rural Illinois, the 2/5th wage index value is computed as
  ((2*0.8254) + 3))/5 = 0.9302. For further details on the 5-year phase-in of the wage index, see section V.C.1.
  of this final rule.
\4\ Three-fifths of the full wage index value, applicable for a LTCH's cost reporting period beginning on or
  after October 1, 2004 through September 30, 2005 (Federal FY 2005). That is, for a LTCH's cost reporting
  period that begins during Federal FY 2004 and located in rural Illinois, the 3/5ths wage index value is
  computed as ((3*0.8254) + 2))/5 = 0.8952. For further details on the 5-year phase-in of the wage index, see
  section V.C.1. of this final rule.
\5\ All counties within the State are classified as urban.


   Table 3.--Federal FY 2004 LTC-DRG Relative Weights, Geometric Mean
  Length of Stay, and Short-Stays of Five-Sixths Average Length of Stay
for Discharges Occurring From October 1, 2004 Through September 30, 2004
------------------------------------------------------------------------
                                                               5/6th of
                                                   Geometric      the
     LTC-DRG          Description      Relative     average     average
                                        weight     length of   length of
                                                     stay        stay
------------------------------------------------------------------------
1...............  CRANIOTOMY AGE >17      2.0841        40.0        33.3
                   W CC \5\.
2...............  CRANIOTOMY AGE >17      2.0841        40.0        33.3
                   W/O CC \8\.
3...............  CRANIOTOMY AGE 0-       2.0841        40.0        33.3
                   17 \8\.
6...............  CARPAL TUNNEL           0.4964        18.5        15.4
                   RELEASE \8\.
7...............  PERIPH & CRANIAL        1.5754        41.0        34.1
                   NERVE & OTHER
                   NERV SYST PROC W
                   CC \7\.
8...............  PERIPH & CRANIAL        1.5754        41.0        34.1
                   NERVE & OTHER
                   NERV SYST PROC W/
                   O CC \7\.
9...............  SPINAL DISORDERS &      1.5025        32.9        27.4
                   INJURIES.
10..............  NERVOUS SYSTEM          0.7549        23.4        19.5
                   NEOPLASMS W CC.
11..............  NERVOUS SYSTEM          0.7281        22.0        18.3
                   NEOPLASMS W/O CC.
12..............  DEGENERATIVE            0.7485        25.8        21.5
                   NERVOUS SYSTEM
                   DISORDERS.
13..............  MULTIPLE SCLEROSIS      0.7530        25.9        21.5
                   & CEREBELLAR
                   ATAXIA.
14..............  INTERCRANIAL            0.9196        27.4        22.8
                   HEMORRHAGE &
                   STROKE W INFARCT.
15..............  NONSPECIFIC CVA &       0.8714        28.8        24.0
                   PRECEREBRAL
                   OCCULUSION W/O
                   INFARCT.
16..............  NONSPECIFIC             0.9125        23.9        19.9
                   CEREBROVASCULAR
                   DISORDERS W CC.
17..............  NONSPECIFIC             0.5262        20.4        17.0
                   CEREBROVASCULAR
                   DISORDERS W/O CC.
18..............  CRANIAL &               0.8225        23.9        19.9
                   PERIPHERAL NERVE
                   DISORDERS W CC.

[[Page 25742]]

 
19..............  CRANIAL &               0.6236        22.7        18.9
                   PERIPHERAL NERVE
                   DISORDERS W/O CC.
20..............  NERVOUS SYSTEM          1.0097        24.8        20.6
                   INFECTION EXCEPT
                   VIRAL MENINGITIS.
21..............  VIRAL MENINGITIS        0.7372        23.5        19.5
                   \2\.
22..............  HYPERTENSIVE            0.7372        23.5        19.5
                   ENCEPHALOPATHY
                   \2\.
23..............  NONTRAUMATIC            0.9033        28.8        24.0
                   STUPOR & COMA.
24..............  SEIZURE & HEADACHE      0.8527        26.2        21.8
                   AGE >17 W CC.
25..............  SEIZURE & HEADACHE      0.7727        24.1        20.0
                   AGE >17 W/O CC.
26..............  SEIZURE & HEADACHE      0.7372        23.5        19.5
                   AGE 0-17 \8\.
27..............  TRAUMATIC STUPOR &      1.1929        30.4        25.3
                   COMA, COMA >1 HR.
28..............  TRAUMATIC STUPOR &      1.0211        29.0        24.1
                   COMA, COMA <1 HR
                   AGE >17 W CC \8\.
29..............  TRAUMATIC STUPOR &      0.9056        26.6        22.1
                   COMA, COMA <1 HR
                   AGE >17 W/O CC.
30..............  TRAUMATIC STUPOR &      0.9562        26.1        21.7
                   COMA, COMA <1 HR
                   AGE 0-17 \8\.
31..............  CONCUSSION AGE >17      0.9562        26.1        21.7
                   W CC \7\.
32..............  CONCUSSION AGE >17      0.9562        26.1        21.7
                   W/O CC \7\.
33..............  CONCUSSION AGE 0-       0.7372        23.5        19.5
                   17 \8\.
34..............  OTHER DISORDERS OF      0.9140        27.8        23.1
                   NERVOUS SYSTEM W
                   CC.
35..............  OTHER DISORDERS OF      0.6651        24.5        20.4
                   NERVOUS SYSTEM W/
                   O CC.
36..............  RETINAL PROCEDURES      0.4964        18.5        15.4
                   \8\.
37..............  ORBITAL PROCEDURES      0.4964        18.5        15.4
                   \8\.
38..............  PRIMARY IRIS            0.4964        18.5        15.4
                   PROCEDURES \8\.
39..............  LENS PROCEDURES         0.4964        18.5        15.4
                   WITH OR WITHOUT
                   VITRECTOMY \8\.
40..............  EXTRAOCULAR             2.0841        40.0        33.3
                   PROCEDURES EXCEPT
                   ORBIT AGE >17 \5\.
41..............  EXTRAOCULAR             0.4964        18.5        15.4
                   PROCEDURES EXCEPT
                   ORBIT AGE 0-17
                   \8\.
42..............  INTRAOCULAR             0.4964        18.5        15.4
                   PROCEDURES EXCEPT
                   RETINA, IRIS &
                   LENS \8\.
43..............  HYPHEMA \8\.......      0.4964        18.5        15.4
44..............  ACUTE MAJOR EYE         0.4964        18.5        15.4
                   INFECTIONS \1\.
45..............  NEUROLOGICAL EYE        0.4964        18.5        15.4
                   DISORDERS \8\.
46..............  OTHER DISORDERS OF      0.4964        18.5        15.4
                   THE EYE AGE >17 W
                   CC \1\.
47..............  OTHER DISORDERS OF      0.4964        18.5        15.4
                   THE EYE AGE >17 W/
                   O CC \1\.
48..............  OTHER DISORDERS OF      0.4964        18.5        15.4
                   THE EYE AGE 0-17
                   \8\.
49..............  MAJOR HEAD & NECK       1.3569        32.5        27.0
                   PROCEDURES \8\.
50..............  SIALOADENECTOMY         0.9562        26.1        21.7
                   \8\.
51..............  SALIVARY GLAND          0.9562        26.1        21.7
                   PROCEDURES EXCEPT
                   SIALOADENECTOMY
                   \8\.
52..............  CLEFT LIP & PALATE      0.9562        26.1        21.7
                   REPAIR \8\.
53..............  SINUS & MASTOID         0.7372        23.5        19.5
                   PROCEDURES AGE
                   >17 \2\.
54..............  SINUS & MASTOID         0.9562        26.1        21.7
                   PROCEDURES AGE 0-
                   17 \8\.
55..............  MISCELLANEOUS EAR,      0.9562        26.1        21.7
                   NOSE, MOUTH &
                   THROAT PROCEDURES
                   \8\.
56..............  RHINOPLASTY \8\...      0.7372        23.5        19.5
57..............  T&A PROC, EXCEPT        0.9562        26.1        21.7
                   TONSILLECTOMY &/
                   OR ADENOIDECTOMY
                   ONLY, AGE >17 \8\.
58..............  T&A PROC, EXCEPT        0.9562        26.1        21.7
                   TONSILLECTOMY &/
                   OR ADENOIDECTOMY
                   ONLY, AGE 0-17
                   \8\.
59..............  TONSILLECTOMY &/OR      0.9562        26.1        21.7
                   ADENOIDECTOMY
                   ONLY, AGE >17 \8\.
60..............  TONSILLECTOMY &/OR      0.9562        26.1        21.7
                   ADENOIDECTOMY
                   ONLY, AGE 0-17
                   \8\.
61..............  MYRINGOTOMY W TUBE      0.7372        23.5        19.5
                   INSERTION AGE >17
                   \2\.
62..............  MYRINGOTOMY W TUBE      0.9562        26.1        21.7
                   INSERTION AGE 0-
                   17 \8\.
63..............  OTHER EAR, NOSE,        0.9562        26.1        21.7
                   MOUTH & THROAT
                   O.R. PROCEDURES
                   \3\.
64..............  EAR, NOSE, MOUTH &      1.2540        27.5        22.9
                   THROAT MALIGNANCY.
65..............  DYSEQUILIBRIUM \1\      0.4964        18.5        15.4
66..............  EPISTAXIS \1\.....      0.4964        18.5        15.4
67..............  EPIGLOTTITIS \8\..      0.9562        26.1        21.7
68..............  OTITIS MEDIA & URI      0.8243        21.9        18.2
                   AGE >17 W CC.
69..............  OTITIS MEDIA & URI      0.4964        18.5        15.4
                   AGE >17 W/O CC
                   \1\.
70..............  OTITIS MEDIA & URI      0.4964        18.5        15.4
                   AGE 0-17 \8\.
71..............  LARYNGOTRACHEITIS       0.4964        18.5        15.4
                   \8\.
72..............  NASAL TRAUMA &          0.7372        23.5        19.5
                   DEFORMITY \2\.
73..............  OTHER EAR, NOSE,        0.7215        20.3        16.9
                   MOUTH & THROAT
                   DIAGNOSES AGE >17.
74..............  OTHER EAR, NOSE,        0.4964        18.5        15.4
                   MOUTH & THROAT
                   DIAGNOSES AGE 0-
                   17 \8\.
75..............  MAJOR CHEST             2.0841        40.0        33.3
                   PROCEDURES \5\.
76..............  OTHER RESP SYSTEM       2.4382        43.9        36.5
                   O.R. PROCEDURES W
                   CC.
77..............  OTHER RESP SYSTEM       2.0841        40.0        33.3
                   O.R. PROCEDURES W/
                   O CC \5\.
78..............  PULMONARY EMBOLISM      0.8896        24.2        20.1
79..............  RESPIRATORY             0.8985        22.6        18.8
                   INFECTIONS &
                   INFLAMMATIONS AGE
                   >17 W CC.
80..............  RESPIRATORY             0.7645        22.3        18.5
                   INFECTIONS &
                   INFLAMMATIONS AGE
                   >17 W/O CC.
81..............  RESPIRATORY             0.4964        18.5        15.4
                   INFECTIONS &
                   INFLAMMATIONS AGE
                   0-17 \8\.
82..............  RESPIRATORY             0.7480        20.3        16.9
                   NEOPLASMS.
83..............  MAJOR CHEST TRAUMA      0.9562        26.1        21.7
                   W CC \3\.
84..............  MAJOR CHEST TRAUMA      0.7372        23.5        19.5
                   W/O CC \2\.
85..............  PLEURAL EFFUSION W      0.8514        23.5        19.5
                   CC.

[[Page 25743]]

 
86..............  PLEURAL EFFUSION W/     0.6540        22.4        18.6
                   O CC.
87..............  PULMONARY EDEMA &       1.6513        31.9        26.5
                   RESPIRATORY
                   FAILURE.
88..............  CHRONIC                 0.7653        20.7        17.2
                   OBSTRUCTIVE
                   PULMONARY DISEASE.
89..............  SIMPLE PNEUMONIA &      0.8428        23.1        19.2
                   PLEURISY AGE >17
                   W CC.
90..............  SIMPLE PNEUMONIA &      0.7318        21.7        18.0
                   PLEURISY AGE >17
                   W/O CC.
91..............  SIMPLE PNEUMONIA &      0.7372        23.5        19.5
                   PLEURISY AGE 0-17
                   \8\.
92..............  INTERSTITIAL LUNG       0.7702        20.4        17.0
                   DISEASE W CC.
93..............  INTERSTITIAL LUNG       0.4964        18.5        15.4
                   DISEASE W/O CC
                   \1\.
94..............  PNEUMOTHORAX W CC.      0.6571        18.9        15.7
95..............  PNEUMOTHORAX W/O        0.4964        18.5        15.4
                   CC \1\.
96..............  BRONCHITIS &            0.7381        20.5        17.0
                   ASTHMA >17 W CC
                   AGE.
97..............  BRONCHITIS &            0.5296        18.7        15.5
                   ASTHMA AGE >17 W/
                   O CC.
98..............  BRONCHITIS &            0.4964        18.5        15.4
                   ASTHMA AGE 0-17
                   \8\.
99..............  RESPIRATORY SIGNS       1.0622        26.6        22.1
                   & SYMPTOMS W CC.
100.............  RESPIRATORY SIGNS       1.0579        26.1        21.7
                   & SYMPTOMS W/O CC.
101.............  OTHER RESPIRATORY       0.9009        22.6        18.8
                   SYSTEM DIAGNOSES
                   W CC.
102.............  OTHER RESPIRATORY       0.7011        21.0        17.5
                   SYSTEM DIAGNOSES
                   W/O CC.
103.............  HEART TRANSPLANT        0.0000         0.0         0.0
                   \6\.
104.............  CARDIAC VALVE &         2.0841        40.0        33.3
                   OTHER MAJOR
                   CARDIOTHORACIC
                   PROC W CARDIAC
                   CATH \8\.
105.............  CARDIAC VALVE &         2.0841        40.0        33.3
                   OTHER MAJOR
                   CARDIOTHORACIC
                   PROC W/O CARDIAC
                   CATH \8\.
106.............  CORONARY BYPASS W       2.0841        40.0        33.3
                   PTCA \8\.
107.............  CORONARY BYPASS W       2.0841        40.0        33.3
                   CARDIAC CATH \8\.
108.............  OTHER                   2.0841        40.0        33.3
                   CARDIOTHORACIC
                   PROCEDURES \5\.
109.............  CORONARY BYPASS W/      2.0841        40.0        33.3
                   O PTCA OR CARDIAC
                   CATH \8\.
110.............  MAJOR                   2.0841        40.0        33.3
                   CARDIOVASCULAR
                   PROCEDURES W CC
                   \5\.
111.............  MAJOR                   2.0841        40.0        33.3
                   CARDIOVASCULAR
                   PROCEDURES W/O CC
                   \8\.
113.............  AMPUTATION FOR          1.5629        38.7        32.2
                   CIRC SYSTEM
                   DISORDERS EXCEPT
                   UPPER LIMB & TOE.
114.............  UPPER LIMB & TOE        1.3604        38.3        31.9
                   AMPUTATION FOR
                   CIRC SYSTEM
                   DISORDERS.
115.............  PRM CARD PACEM          2.0841        40.0        33.3
                   IMPL W AMI, HRT
                   FAIL OR SHK, OR
                   AICD LEAD OR
                   GNRTR P \5\.
116.............  OTH PERM CARD           2.0841        40.0        33.3
                   PACEMAK IMPL OR
                   PTCA W CORONARY
                   ARTERY STENT
                   IMPLNT \5\.
117.............  CARDIAC PACEMAKER       0.9562        26.1        21.7
                   REVISION EXCEPT
                   DEVICE
                   REPLACEMENT \3\.
118.............  CARDIAC PACEMAKER       2.0841        40.0        33.3
                   DEVICE
                   REPLACEMENT \5\.
119.............  VEIN LIGATION &         1.3569        32.5        27.0
                   STRIPPING \4\.
120.............  OTHER CIRCULATORY       1.2435        34.4        28.6
                   SYSTEM O.R.
                   PROCEDURES.
121.............  CIRCULATORY             0.7467        22.1        18.4
                   DISORDERS W AMI &
                   MAJOR COMP,
                   DISCHARGED ALIVE.
122.............  CIRCULATORY             0.6440        18.8        15.6
                   DISORDERS W AMI W/
                   O MAJOR COMP,
                   DISCHARGED ALIVE.
123.............  CIRCULATORY             0.8527        18.8        15.6
                   DISORDERS W AMI,
                   EXPIRED.
124.............  CIRCULATORY             1.3569        32.5        27.0
                   DISORDERS EXCEPT
                   AMI, W CARD CATH
                   & COMPLEX DIAG
                   \4\.
125.............  CIRCULATORY             1.3569        32.5        27.0
                   DISORDERS EXCEPT
                   AMI, W CARD CATH
                   W/O COMPLEX DIAG
                   \4\.
126.............  ACUTE & SUBACUTE        0.8706        25.6        21.3
                   ENDOCARDITIS.
127.............  HEART FAILURE &         0.7719        22.1        18.4
                   SHOCK.
128.............  DEEP VEIN               0.7372        23.5        19.5
                   THROMBOPHLEBITIS
                   \2\.
129.............  CARDIAC ARREST,         0.9562        26.1        21.7
                   UNEXPLAINED \3\.
130.............  PERIPHERAL              0.7712        24.4        20.3
                   VASCULAR
                   DISORDERS W CC.
131.............  DISORDERS W/O CC        0.6398        23.1        19.2
                   PERIPHERAL
                   VASCULAR.
132.............  ATHEROSCLEROSIS W       0.8092        22.4        18.6
                   CC.
133.............  ATHEROSCLEROSIS W/      0.7044        21.9        18.2
                   O CC.
134.............  HYPERTENSION......      0.9154        27.9        23.2
135.............  CARDIAC CONGENITAL      0.9039        23.1        19.2
                   & VALVULAR
                   DISORDERS AGE >17
                   W CC.
136.............  CARDIAC CONGENITAL      0.7186        22.4        18.6
                   & VALVULAR
                   DISORDERS AGE >17
                   W/O CC.
137.............  CARDIAC CONGENITAL      0.7372        23.5        19.5
                   & VALVULAR
                   DISORDERS AGE 0-
                   17 \8\.
138.............  CARDIAC ARRHYTHMIA      0.7430        22.7        18.9
                   & CONDUCTION
                   DISORDERS W CC.
139.............  CARDIAC ARRHYTHMIA      0.6032        20.3        16.9
                   & CONDUCTION
                   DISORDERS W/O CC.
140.............  ANGINA PECTORIS...      0.6094        19.3        16.0
141.............  SYNCOPE & COLLAPSE      0.6453        22.9        19.0
                   W CC.
142.............  SYNCOPE & COLLAPSE      0.5041        20.3        16.9
                   W/O CC.
143.............  CHEST PAIN........      0.7314        21.8        18.1
144.............  OTHER CIRCULATORY       0.7921        22.2        18.5
                   SYSTEM DIAGNOSES
                   W CC.
145.............  OTHER CIRCULATORY       0.6983        20.7        17.2
                   SYSTEM DIAGNOSES
                   W/O CC.
146.............  RECTAL RESECTION W      2.0841        40.0        33.3
                   CC \8\.
147.............  RECTAL RESECTION W/     2.0841        40.0        33.3
                   O CC \8\.
148.............  MAJOR SMALL &           2.0841        40.0        33.3
                   LARGE BOWEL
                   PROCEDURES W CC
                   \5\.
149.............  MAJOR SMALL &           0.4964        18.5        15.4
                   LARGE BOWEL
                   PROCEDURES W/O CC
                   \1\.
150.............  PERITONEAL              1.3569        32.5        27.0
                   ADHESIOLYSIS W CC
                   \4\.
151.............  PERITONEAL              1.3569        32.5        27.0
                   ADHESIOLYSIS W/O
                   CC \8\.
152.............  MINOR SMALL &           1.3569        32.5        27.0
                   LARGE BOWEL
                   PROCEDURES W CC
                   \4\.

[[Page 25744]]

 
153.............  MINOR SMALL &           1.3569        32.5        27.0
                   LARGE BOWEL
                   PROCEDURES W/O CC
                   \8\.
154.............  STOMACH,                2.0841        40.0        33.3
                   ESOPHAGEAL &
                   DUODENAL
                   PROCEDURES AGE
                   >17 W CC \5\.
155.............  STOMACH,                1.3569        32.5        27.0
                   ESOPHAGEAL &
                   DUODENAL
                   PROCEDURES AGE
                   >17 W/O CC \8\.
156.............  STOMACH,                1.3569        32.5        27.0
                   ESOPHAGEAL &
                   DUODENAL
                   PROCEDURES AGE 0-
                   17 \8\.
157.............  ANAL & STOMAL           1.3569        32.5        27.0
                   PROCEDURES W CC
                   \4\.
158.............  ANAL & STOMAL           0.9562        26.1        21.7
                   PROCEDURES W/O CC
                   \3\.
159.............  HERNIA PROCEDURES       1.3569        32.5        27.0
                   EXCEPT INGUINAL &
                   FEMORAL AGE >17 W
                   CC \8\.
160.............  HERNIA PROCEDURES       1.3569        32.5        27.0
                   EXCEPT INGUINAL &
                   FEMORAL AGE >17 W/
                   O CC \8\.
161.............  INGUINAL & FEMORAL      1.3569        32.5        27.0
                   HERNIA PROCEDURES
                   AGE >17 W CC \4\.
162.............  INGUINAL & FEMORAL      0.4964        18.5        15.4
                   HERNIA PROCEDURES
                   AGE >17 W/O CC
                   \8\.
163.............  HERNIA PROCEDURES       0.4964        18.5        15.4
                   AGE 0-17 \8\.
164.............  APPENDECTOMY W          2.0841        40.0        33.3
                   COMPLICATED
                   PRINCIPAL DIAG W
                   CC \8\.
165.............  APPENDECTOMY W          0.4964        18.5        15.4
                   COMPLICATED
                   PRINCIPAL DIAG W/
                   O CC \8\.
166.............  APPENDECTOMY W/O        2.0841        40.0        33.3
                   COMPLICATED
                   PRINCIPAL DIAG W
                   CC \8\.
167.............  APPENDECTOMY W/O        0.4964        18.5        15.4
                   COMPLICATED
                   PRINCIPAL DIAG W/
                   O CC \8\.
168.............  MOUTH PROCEDURES W      2.0841        40.0        33.3
                   CC \5\.
169.............  MOUTH PROCEDURES W/     0.7372        23.5        19.5
                   O CC \8\.
170.............  OTHER DIGESTIVE         1.7006        40.3        33.5
                   SYSTEM O.R.
                   PROCEDURES W CC.
171.............  OTHER DIGESTIVE         1.3569        32.5        27.0
                   SYSTEM O.R.
                   PROCEDURES W/O CC
                   \4\.
172.............  DIGESTIVE               0.8702        22.5        18.7
                   MALIGNANCY W CC.
173.............  DIGESTIVE               0.7092        20.2        16.8
                   MALIGNANCY W/O CC.
174.............  G.I. HEMORRHAGE W       0.7874        23.7        19.7
                   CC.
175.............  G.I. HEMORRHAGE W/      0.6345        21.1        17.5
                   O CC.
176.............  COMPLICATED PEPTIC      0.7728        21.2        17.6
                   ULCER.
177.............  UNCOMPLICATED           0.7372        23.5        19.5
                   PEPTIC ULCER W CC
                   \2\.
178.............  UNCOMPLICATED           0.4964        18.5        15.4
                   PEPTIC ULCER W/O
                   CC \1\.
179.............  INFLAMMATORY BOWEL      1.0023        25.2        21.0
                   DISEASE.
180.............  G.I. OBSTRUCTION W      0.8222        22.9        19.0
                   CC \7\.
181.............  G.I. OBSTRUCTION W/     0.8222        22.9        19.0
                   O CC \7\.
182.............  ESOPHAGITIS,            0.8449        23.5        19.5
                   GASTROENT & MISC
                   DIGEST DISORDERS
                   AGE >17 W CC.
183.............  ESOPHAGITIS,            0.6362        20.3        16.9
                   GASTROENT & MISC
                   DIGEST DISORDERS
                   AGE >17 W/O CC.
184.............  ESOPHAGITIS,            0.7372        23.5        19.5
                   GASTROENT & MISC
                   DIGEST DISORDERS
                   AGE 0-17 \8\.
185.............  DENTAL & ORAL DIS       0.7372        23.5        19.5
                   EXCEPT
                   EXTRACTIONS &
                   RESTORATIONS, AGE
                   >17 \2\.
186.............  DENTAL & ORAL DIS       0.7372        23.5        19.5
                   EXCEPT
                   EXTRACTIONS &
                   RESTORATIONS, AGE
                   0-17 \8\.
187.............  DENTAL EXTRACTIONS      0.7372        23.5        19.5
                   & RESTORATIONS
                   \8\.
188.............  OTHER DIGESTIVE         1.0308        25.3        21.0
                   SYSTEM DIAGNOSES
                   AGE >17 W CC.
189.............  OTHER DIGESTIVE         0.7826        21.8        18.1
                   SYSTEM DIAGNOSES
                   AGE >17 W/O CC.
190.............  OTHER DIGESTIVE         0.7372        23.5        19.5
                   SYSTEM DIAGNOSES
                   AGE 0-17 \8\.
191.............  PANCREAS, LIVER &       1.3569        32.5        27.0
                   SHUNT PROCEDURES
                   W CC \4\.
192.............  PANCREAS, LIVER &       0.4964        18.5        15.4
                   SHUNT PROCEDURES
                   W/O CC \1\.
193.............  BILIARY TRACT PROC      0.7372        23.5        19.5
                   EXCEPT ONLY
                   CHOLECYST W OR W/
                   O C.D.E. W CC \2\.
194.............  BILIARY TRACT PROC      0.7372        23.5        19.5
                   EXCEPT ONLY
                   CHOLECYST W OR W/
                   O C.D.E. W/O CC
                   \3\.
195.............  CHOLECYSTECTOMY W       1.3569        32.5        27.0
                   C.D.E. W CC \4\.
196.............  CHOLECYSTECTOMY W       0.9562        26.1        21.7
                   C.D.E. W/O CC \8\.
197.............  CHOLECYSTECTOMY         0.9562        26.1        21.7
                   EXCEPT BY
                   LAPAROSCOPE W/O
                   C.D.E. W CC \3\.
198.............  CHOLECYSTECTOMY         0.9562        26.1        21.7
                   EXCEPT BY
                   LAPAROSCOPE W/O
                   C.D.E. W/O CC \8\.
199.............  HEPATOBILIARY           0.7372        23.5        19.5
                   DIAGNOSTIC
                   PROCEDURE FOR
                   MALIGNANCY \8\.
200.............  HEPATOBILIARY           0.7372        23.5        19.5
                   DIAGNOSTIC
                   PROCEDURE FOR NON-
                   MALIGNANCY \2\.
201.............  OTHER                   2.0841        40.0        33.3
                   HEPATOBILIARY OR
                   PANCREAS O.R.
                   PROCEDURES \5\.
202.............  CIRRHOSIS &             0.7254        22.3        18.5
                   ALCOHOLIC
                   HEPATITIS.
203.............  MALIGNANCY OF           0.6758        18.9        15.7
                   HEPATOBILIARY
                   SYSTEM OR
                   PANCREAS.
204.............  DISORDERS OF            0.9986        23.4        19.5
                   PANCREAS EXCEPT
                   MALIGNANCY.
205.............  DISORDERS OF LIVER      0.7029        22.1        18.4
                   EXCEPT MALIG,
                   CIRR, ALC HEPA W
                   CC \7\.
206.............  DISORDERS OF LIVER      0.7029        22.1        18.4
                   EXCEPT MALIG,
                   CIRR, ALC HEPA W/
                   O CC \7\.
207.............  DISORDERS OF THE        0.6671        20.5        17.0
                   BILIARY TRACT W
                   CC \7\.
208.............  DISORDERS OF THE        0.6671        20.5        17.0
                   BILIARY TRACT W/O
                   CC \7\.
209.............  MAJOR JOINT & LIMB      1.3569        32.5        27.0
                   REATTACHMENT
                   PROCEDURES OF
                   LOWER EXTREMITY
                   \4\.
210.............  HIP & FEMUR             1.3569        32.5        27.0
                   PROCEDURES EXCEPT
                   MAJOR JOINT AGE
                   >17 W CC \4\.
211.............  HIP & FEMUR             0.7372        23.5        19.5
                   PROCEDURES EXCEPT
                   MAJOR JOINT AGE
                   >17 W/O CC \2\.
212.............  HIP & FEMUR             0.7372        23.5        19.5
                   PROCEDURES EXCEPT
                   MAJOR JOINT AGE 0-
                   117 \8\.
213.............  AMPUTATION FOR          1.3851        33.8        28.1
                   MUSCULOSKELETAL
                   SYSTEM & CONN
                   TISSUE DISORDERS.
216.............  BIOPSIES OF             1.3569        32.5        27.0
                   MUSCULOSKELETAL
                   SYSTEM &
                   CONNECTIVE TISSUE
                   \4\.
217.............  WND DEBRID & SKN        1.4038        39.3        32.7
                   GRFT EXCEPT HAND,
                   FOR MUSCSKELET &
                   CONN TISS DIS.
218.............  LOWER EXTREM &          0.9562        26.1        21.7
                   HUMER PROC EXCEPT
                   HIP, FOOT, FEMUR
                   AGE >17 W CC \3\.
219.............  LOWER EXTREM &          0.9562        26.1        21.7
                   HUMER PROC EXCEPT
                   HIP, FOOT, FEMUR
                   AGE >17 W/O CC
                   \8\.
220.............  LOWER EXTREM &          0.9562        26.1        21.7
                   HUMER PROC EXCEPT
                   HIP, FOOT, FEMUR
                   AGE 0-17 \8\.
223.............  MAJOR SHOULDER/         0.9562        26.1        21.7
                   ELBOW PROC, OR
                   OTHER UPPER
                   EXTREMITY PROC W
                   CC \3\.

[[Page 25745]]

 
224.............  SHOULDER, ELBOW OR      0.9562        26.1        21.7
                   FOREARM PROC, EXC
                   MAJOR JOINT PROC,
                   W/O CC \8\.
225.............  FOOT PROCEDURES         0.9562        26.1        21.7
                   \3\.
226.............  SOFT TISSUE             1.3569        32.5        27.0
                   PROCEDURES W CC
                   \7\.
227.............  SOFT TISSUE             1.3569        32.5        27.0
                   PROCEDURES W/O CC
                   \7\.
228.............  MAJOR THUMB OR          1.3569        32.5        27.0
                   JOINT PROC, OR
                   OTH HAND OR WRIST
                   PROC W CC \4\.
229.............  HAND OR WRIST           0.9562        26.1        21.7
                   PROC, EXCEPT
                   MAJOR JOINT PROC,
                   W/O CC \8\.
230.............  LOCAL EXCISION &        1.3569        32.5        27.0
                   REMOVAL OF INT
                   FIX DEVICES OF
                   HIP & FEMUR \4\.
232.............  ARTHROSCOPY \2\...      0.7372        23.5        19.5
233.............  OTHER                   0.9562        26.1        21.7
                   MUSCULOSKELET SYS
                   & CONN TISS O.R.
                   PROC W CC \3\.
234.............  OTHER                   0.9562        26.1        21.7
                   MUSCULOSKELET SYS
                   & CONN TISS O.R.
                   PROC W/O CC \3\.
235.............  FRACTURES OF FEMUR      0.8396        29.6        24.6
236.............  FRACTURES OF HIP &      0.7368        27.1        22.5
                   PELVIS.
237.............  SPRAINS, STRAINS,       0.7372        23.5        19.5
                   & ISLOCATIONS OF
                   HIP, PELVIS &
                   THIGH \2\.
238.............  OSTEOMYELITIS.....      0.8432        27.9        23.2
239.............  PATHOLOGICAL            0.6610        22.0        18.3
                   FRACTURES &
                   MUSCULOSKELETAL &
                   CONN TISS
                   MALIGNANCY.
240.............  CONNECTIVE TISSUE       0.6685        21.2        17.6
                   DISORDERS W CC.
241.............  CONNECTIVE TISSUE       0.4538        18.7        15.5
                   DISORDERS W/O CC.
242.............  SEPTIC ARTHRITIS..      0.7721        26.4        22.0
243.............  MEDICAL BACK            0.6616        23.2        19.3
                   PROBLEMS.
244.............  BONE DISEASES &         0.5563        20.0        16.6
                   SPECIFIC
                   ARTHROPATHIES W
                   CC.
245.............  BONE DISEASES &         0.4721        18.5        15.4
                   SPECIFIC
                   ARTHROPATHIES W/O
                   CC.
246.............  NON-SPECIFIC            0.5128        22.2        18.5
                   ARTHROPATHIES.
247.............  SIGNS & SYMPTOMS        0.5536        20.2        16.8
                   OF
                   MUSCULOSKELETAL
                   SYSTEM & CONN
                   TISSUE.
248.............  TENDONITIS,             0.7274        24.5        20.4
                   MYOSITIS &
                   BURSITIS.
249.............  AFTERCARE,              0.7829        27.0        22.5
                   MUSCULOSKELETAL
                   SYSTEM &
                   CONNECTIVE TISSUE.
250.............  FX, SPRN, STRN &        0.8206        29.9        24.9
                   DISL OF FOREARM,
                   HAND, FOOT AGE
                   >17 W CC.
251.............  FX, SPRN, STRN &        0.6009        27.3        22.7
                   DISL OF FOREARM,
                   HAND, FOOT AGE
                   >17 W/O CC.
252.............  FX, SPRN, STRN &        0.9562        26.1        21.7
                   DISL OF FOREARM,
                   HAND, FOOT AGE 0-
                   17 \8\.
253.............  FX, SPRN, STRN &        0.8176        27.6        23.0
                   DISL OF UPARM,
                   LOWLEG EX FOOT
                   AGE >17 W CC.
254.............  FX, SPRN, STRN &        0.6691        25.1        20.9
                   DISL OF UPARM,
                   LOWLEG EX FOOT
                   AGE >17 W/O CC.
255.............  FX, SPRN, STRN &        0.9562        26.1        21.7
                   DISL OF UPARM,
                   LOWLEG EX FOOT
                   AGE 0-17 \8\.
256.............  OTHER                   0.8294        25.9        21.5
                   MUSCULOSKELETAL
                   SYSTEM &
                   CONNECTIVE TISSUE
                   DIAGNOSES.
257.............  TOTAL MASTECTOMY        0.9562        26.1        21.7
                   FOR MALIGNANCY W
                   CC \3\.
258.............  TOTAL MASTECTOMY        0.9562        26.1        21.7
                   FOR MALIGNANCY W/
                   O CC \8\.
259.............  SUBTOTAL                0.9562        26.1        21.7
                   MASTECTOMY FOR
                   MALIGNANCY W CC
                   \8\.
260.............  SUBTOTAL                0.9562        26.1        21.7
                   MASTECTOMY FOR
                   MALIGNANCY W/O CC
                   \8\.
261.............  BREAST PROC FOR         2.0841        40.0        33.3
                   NON-MALIGNANCY
                   EXCEPT BIOPSY &
                   LOCAL EXCISION
                   \5\.
262.............  BREAST BIOPSY &         0.9562        26.1        21.7
                   LOCAL EXCISION
                   FOR NON-
                   MALIGNANCY \3\.
263.............  SKIN GRAFT &/OR         1.4522        42.4        35.3
                   DEBRID FOR SKN
                   ULCER OR
                   CELLULITIS W CC.
264.............  SKIN GRAFT &/OR         1.2892        44.1        36.7
                   DEBRID FOR SKN
                   ULCER OR
                   CELLULITIS W/O CC.
265.............  SKIN GRAFT &/OR         1.2215        34.8        29.0
                   DEBRID EXCEPT FOR
                   SKIN ULCER OR
                   CELLULITIS W CC
                   \7\.
266.............  SKIN GRAFT &/OR         1.2215        34.8        29.0
                   DEBRID EXCEPT FOR
                   SKIN ULCER OR
                   CELLULITIS W/O CC
                   \7\.
267.............  PERIANAL &              0.9562        26.1        21.7
                   PILONIDAL
                   PROCEDURES \8\.
268.............  SKIN, SUBCUTANEOUS      2.0841        40.0        33.3
                   TISSUE & BREAST
                   PLASTIC
                   PROCEDURES \5\.
269.............  OTHER SKIN, SUBCUT      1.4466        43.0        35.8
                   TISS & BREAST
                   PROC W CC.
270.............  OTHER SKIN, SUBCUT      0.9916        33.9        28.2
                   TISS & BREAST
                   PROC W/O CC.
271.............  SKIN ULCERS.......      0.9620        30.4        25.3
272.............  MAJOR SKIN              0.7121        22.8        19.0
                   DISORDERS W CC.
273.............  MAJOR SKIN              0.4964        18.5        15.4
                   DISORDERS W/O CC
                   \1\.
274.............  MALIGNANT BREAST        0.9072        24.9        20.7
                   DISORDERS W CC.
275.............  MALIGNANT BREAST        0.7372        23.5        19.5
                   DISORDERS W/O CC
                   \2\.
276.............  NON-MALIGANT            0.4964        18.5        15.4
                   BREAST DISORDERS
                   \1\.
277.............  CELLULITIS AGE >17      0.7409        23.6        19.6
                   W CC.
278.............  CELLULITIS AGE >17      0.5982        20.7        17.2
                   W/O CC.
279.............  CELLULITIS AGE 0-       0.9562        26.1        21.7
                   17 \8\.
280.............  TRAUMA TO THE           0.9724        29.5        24.5
                   SKIN, SUBCUT TISS
                   & BREAST AGE >17
                   W CC.
281.............  TRAUMA TO THE           0.7386        26.4        22.0
                   SKIN, SUBCUT TISS
                   & BREAST AGE >17
                   W/O CC.
282.............  TRAUMA TO THE           0.7372        23.5        19.5
                   SKIN, SUBCUT TISS
                   & BREAST AGE 0-17
                   \8\.
283.............  MINOR SKIN              0.6508        19.3        16.0
                   DISORDERS W CC.
284.............  MINOR SKIN              0.4964        18.5        15.4
                   DISORDERS W/O CC
                   \1\.
285.............  AMPUTAT OF LOWER        1.5176        37.4        31.1
                   LIMB FOR
                   ENDOCRINE,
                   NUTRIT, & METABOL
                   DISORDERS.
286.............  ADRENAL &               0.7372        23.5        19.5
                   PITUITARY
                   PROCEDURES \8\.
287.............  SKIN GRAFTS &           1.3982        39.7        33.0
                   WOUND DEBRID FOR
                   ENDOC, NUTRIT &
                   METAB DISORDERS.
288.............  O.R. PROCEDURES         2.0841        40.0        33.3
                   FOR OBESITY \5\.
289.............  PARATHYROID             0.7372        23.5        19.5
                   PROCEDURES \8\.
290.............  THYROID PROCEDURES      0.7372        23.5        19.5
                   \8\.
291.............  THYROGLOSSAL            0.7372        23.5        19.5
                   PROCEDURES \8\.

[[Page 25746]]

 
292.............  OTHER ENDOCRINE,        1.3569        32.5        27.0
                   NUTRIT & METAB
                   O.R. PROC W CC
                   \4\.
293.............  OTHER ENDOCRINE,        0.9562        26.1        21.7
                   NUTRIT & METAB
                   O.R. PROC W/O CC
                   \8\.
294.............  DIABETES AGE >35..      0.8061        25.9        21.5
295.............  DIABETES AGE 0-35       0.9562        26.1        21.7
                   \3\.
296.............  NUTRITIONAL & MISC      0.8207        24.1        20.0
                   METABOLIC
                   DISORDERS AGE >17
                   W CC.
297.............  NUTRITIONAL & MISC      0.6524        24.5        20.4
                   METABOLIC
                   DISORDERS AGE >17
                   W/O CC.
298.............  NUTRITIONAL & MISC      0.7372        23.5        19.5
                   METABOLIC
                   DISORDERS AGE 0-
                   17 \8\.
299.............  INBORN ERRORS OF        0.9562        26.1        21.7
                   METABOLISM \3\.
300.............  ENDOCRINE               0.7704        22.3        18.5
                   DISORDERS W CC.
301.............  ENDOCRINE               0.7372        23.5        19.5
                   DISORDERS W/O CC
                   \2\.
302.............  KIDNEY TRANSPLANT       0.0000         0.0         0.0
                   \6\.
303.............  KIDNEY, URETER &        2.0841        40.0        33.3
                   MAJOR BLADDER
                   PROCEDURES FOR
                   NEOPLASM \8\.
304.............  KIDNEY, URETER &        2.0841        40.0        33.3
                   MAJOR BLADDER
                   PROC FOR NON-
                   NEOPL W CC \5\.
305.............  KIDNEY, URETER &        0.4964        18.5        15.4
                   MAJOR BLADDER
                   PROC FOR NON-
                   NEOPL W/O CC \1\.
306.............  PROSTATECTOMY W CC      1.3569        32.5        27.0
                   \8\.
307.............  PROSTATECTOMY W/O       1.3569        32.5        27.0
                   CC \8\.
308.............  MINOR BLADDER           1.3569        32.5        27.0
                   PROCEDURES W CC
                   \4\.
309.............  MINOR BLADDER           0.7372        23.5        19.5
                   PROCEDURES W/O CC
                   \2\.
310.............  TRANSURETHRAL           1.3569        32.5        27.0
                   PROCEDURES W CC
                   \4\.
311.............  TRANSURETHRAL           0.4964        18.5        15.4
                   PROCEDURES W/O CC
                   \1\.
312.............  URETHRAL                1.3569        32.5        27.0
                   PROCEDURES, AGE
                   >17 W CC \4\.
313.............  URETHRAL                0.4964        18.5        15.4
                   PROCEDURES, AGE
                   >17 W/O CC \8\.
314.............  URETHRAL                0.4964        18.5        15.4
                   PROCEDURES, AGE 0-
                   17 \8\.
315.............  OTHER KIDNEY &          1.5070        36.8        30.6
                   URINARY TRACT
                   O.R. PROCEDURES.
316.............  RENAL FAILURE.....      0.9214        23.8        19.8
317.............  ADMIT FOR RENAL         0.9562        26.1        21.7
                   DIALYSIS \3\.
318.............  KIDNEY & URINARY        0.7048        21.1        17.5
                   TRACT NEOPLASMS W
                   CC.
319.............  KIDNEY & URINARY        0.4964        18.5        15.4
                   TRACT NEOPLASMS W/
                   O CC \1\.
320.............  KIDNEY & URINARY        0.7223        23.0        19.1
                   TRACT INFECTIONS
                   AGE >17 W CC.
321.............  KIDNEY & URINARY        0.6260        23.2        19.3
                   TRACT INFECTIONS
                   AGE >17 W/O CC.
322.............  KIDNEY & URINARY        0.4964        18.5        15.4
                   TRACT INFECTIONS
                   AGE 0-17 \8\.
323.............  URINARY STONES W        0.7372        23.5        19.5
                   CC, &/OR ESW
                   LITHOTRIPSY \2\.
324.............  URINARY STONES W/O      0.7372        23.5        19.5
                   CC \2\.
325.............  KIDNEY & URINARY        0.9562        26.1        21.7
                   TRACT SIGNS &
                   SYMPTOMS AGE >17
                   W CC \3\.
326.............  KIDNEY & URINARY        0.4964        18.5        15.4
                   TRACT SIGNS &
                   SYMPTOMS AGE >17
                   W/O CC \1\.
327.............  KIDNEY & URINARY        0.4964        18.5        15.4
                   TRACT SIGNS &
                   SYMPTOMS AGE 0-17
                   \8\.
328.............  URETHRAL STRICTURE      0.4964        18.5        15.4
                   AGE >17 W CC \8\.
329.............  URETHRAL STRICTURE      0.4964        18.5        15.4
                   AGE >17 W/O CC
                   \8\.
330.............  URETHRAL STRICTURE      0.4964        18.5        15.4
                   AGE 0-17 \8\.
331.............  OTHER KIDNEY &          0.8473        23.2        19.3
                   URINARY TRACT
                   DIAGNOSES AGE >17
                   W CC.
332.............  OTHER KIDNEY &          0.5722        21.1        17.5
                   URINARY TRACT
                   DIAGNOSES AGE >17
                   W/O CC.
333.............  OTHER KIDNEY &          0.4964        18.5        15.4
                   URINARY TRACT
                   DIAGNOSES AGE 0-
                   17 \8\.
334.............  MAJOR MALE PELVIC       2.0841        40.0        33.3
                   PROCEDURES W CC
                   \8\.
335.............  MAJOR MALE PELVIC       2.0841        40.0        33.3
                   PROCEDURES W/O CC
                   \8\.
336.............  TRANSURETHRAL           0.7372        23.5        19.5
                   PROSTATECTOMY W
                   CC \8\.
337.............  TRANSURETHRAL           0.7372        23.5        19.5
                   PROSTATECTOMY W/O
                   CC \8\.
338.............  TESTES PROCEDURES,      0.7372        23.5        19.5
                   FOR MALIGNANCY
                   \8\.
339.............  TESTES PROCEDURES,      0.7372        23.5        19.5
                   NON-MALIGNANCY
                   AGE >17 \2\.
340.............  TESTES PROCEDURES,      0.7372        23.5        19.5
                   NON-MALIGNANCY
                   AGE 0-17 \8\.
341.............  PENIS PROCEDURES        0.7372        23.5        19.5
                   \2\.
342.............  CIRCUMCISION AGE        0.4964        18.5        15.4
                   >17 \1\.
343.............  CIRCUMCISION AGE 0-     0.7372        23.5        19.5
                   17 \8\.
344.............  OTHER MALE              0.4964        18.5        15.4
                   REPRODUCTIVE
                   SYSTEM O.R.
                   PROCEDURES FOR
                   MALIGNANCY \1\.
345.............  OTHER MALE              2.0841        40.0        33.3
                   REPRODUCTIVE
                   SYSTEM O.R. PROC
                   EXCEPT FOR
                   MALIGNANCY \5\.
346.............  MALIGNANCY, MALE        0.7150        22.3        18.5
                   REPRODUCTIVE
                   SYSTEM, W CC \7\.
347.............  MALIGNANCY, MALE        0.7150        22.3        18.5
                   REPRODUCTIVE
                   SYSTEM, W/O CC
                   \7\.
348.............  BENIGN PROSTATIC        0.4964        18.5        15.4
                   HYPERTROPHY W CC
                   \1\.
349.............  BENIGN PROSTATIC        0.4964        18.5        15.4
                   HYPERTROPHY W/O
                   CC \1\.
350.............  INFLAMMATION OF         1.1820        26.6        22.1
                   THE MALE
                   REPRODUCTIVE
                   SYSTEM \1\.
351.............  STERILIZATION,          0.7372        23.5        19.5
                   MALE \8\.
352.............  OTHER MALE              0.9562        26.1        21.7
                   REPRODUCTIVE
                   SYSTEM DIAGNOSES
                   \3\.
353.............  PELVIC                  2.0841        40.0        33.3
                   EVISCERATION,
                   RADICAL
                   HYSTERECTOMY &
                   RADICAL
                   VULVECTOMY \8\.
354.............  UTERINE, ADNEXA         2.0841        40.0        33.3
                   PROC FOR NON-
                   OVARIAN/ADNEXAL
                   MALIG W CC \8\.
355.............  UTERINE, ADNEXA         2.0841        40.0        33.3
                   PROC FOR NON-
                   OVARIAN/ADNEXAL
                   MALIG W/O CC \8\.
356.............  FEMALE                  1.3569        32.5        27.0
                   REPRODUCTIVE
                   SYSTEM
                   RECONSTRUCTIVE
                   PROCEDURES \8\.
357.............  UTERINE & ADNEXA        1.3569        32.5        27.0
                   PROC FOR OVARIAN
                   OR ADNEXAL
                   MALIGNANCY \8\.
358.............  UTERINE & ADNEXA        1.3569        32.5        27.0
                   PROC FOR NON-
                   MALIGNANCY W CC
                   \8\.

[[Page 25747]]

 
359.............  UTERINE & ADNEXA        1.3569        32.5        27.0
                   PROC FOR NON-
                   MALIGNANCY W/O CC
                   \8\.
360.............  VAGINA, CERVIX &        1.3569        32.5        27.0
                   VULVA PROCEDURES
                   \4\.
361.............  LAPAROSCOPY &           0.4964        18.5        15.4
                   INCISIONAL TUBAL
                   INTERRUPTION \8\.
362.............  ENDOSCOPIC TUBAL        0.4964        18.5        15.4
                   INTERRUPTION \8\.
363.............  D&C, CONIZATION &       0.4964        18.5        15.4
                   RADIO-IMPLANT,
                   FOR MALIGNANCY
                   \8\.
364.............  D&C, CONIZATION         0.4964        18.5        15.4
                   EXCEPT FOR
                   MALIGNANCY \8\.
365.............  OTHER FEMALE            2.0841        40.0        33.3
                   REPRODUCTIVE
                   SYSTEM O.R.
                   PROCEDURES \5\.
366.............  MALIGNANCY, FEMALE      0.8139        23.1        19.2
                   REPRODUCTIVE
                   SYSTEM W CC.
367.............  MALIGNANCY, FEMALE      0.4964        18.5        15.4
                   REPRODUCTIVE
                   SYSTEM W/O CC \1\.
368.............  INFECTIONS, FEMALE      0.6963        19.3        16.0
                   REPRODUCTIVE
                   SYSTEM.
369.............  MENSTRUAL & OTHER       0.9562        26.1        21.7
                   FEMALE
                   REPRODUCTIVE
                   SYSTEM DISORDERS
                   \3\.
370.............  CESAREAN SECTION W      0.9562        26.1        21.7
                   CC \8\.
371.............  CESAREAN SECTION W/     0.4964        18.5        15.4
                   O CC \8\.
372.............  VAGINAL DELIVERY W      0.4964        18.5        15.4
                   COMPLICATING
                   DIAGNOSES \8\.
373.............  VAGINAL DELIVERY W/     0.4964        18.5        15.4
                   O COMPLICATING
                   DIAGNOSES \8\.
374.............  VAGINAL DELIVERY W      0.4964        18.5        15.4
                   STERILIZATION &/
                   OR D&C \8\.
375.............  VAGINAL DELIVERY W      0.4964        18.5        15.4
                   O.R. PROC EXCEPT
                   STERIL &/OR D&C
                   \8\.
376.............  POSTPARTUM & POST       0.4964        18.5        15.4
                   ABORTION
                   DIAGNOSES W/O
                   O.R. PROCEDURE
                   \1\.
377.............  POSTPARTUM & POST       0.4964        18.5        15.4
                   ABORTION
                   DIAGNOSES W O.R.
                   PROCEDURE \8\.
378.............  ECTOPIC PREGNANCY       0.9562        26.1        21.7
                   \8\.
379.............  THREATENED              0.4964        18.5        15.4
                   ABORTION \8\.
380.............  ABORTION W/O D&C        0.4964        18.5        15.4
                   \8\.
381.............  ABORTION W D&C,         0.4964        18.5        15.4
                   ASPIRATION
                   CURETTAGE OR
                   HYSTEROTOMY \8\.
382.............  FALSE LABOR \8\...      0.4964        18.5        15.4
383.............  OTHER ANTEPARTUM        0.4964        18.5        15.4
                   DIAGNOSES W
                   MEDICAL
                   COMPLICATIONS \8\.
384.............  OTHER ANTEPARTUM        0.4964        18.5        15.4
                   DIAGNOSES W/O
                   MEDICAL
                   COMPLICATIONS \8\.
385.............  NEONATES, DIED OR       0.4964        18.5        15.4
                   TRANSFERRED TO
                   ANOTHER ACUTE
                   CARE FACILITY \8\.
386.............  EXTREME IMMATURITY      0.4964        18.5        15.4
                   \8\.
387.............  PREMATURITY W           0.4964        18.5        15.4
                   MAJOR PROBLEMS
                   \8\.
388.............  PREMATURITY W/O         0.4964        18.5        15.4
                   MAJOR PROBLEMS
                   \8\.
389.............  FULL TERM NEONATE       0.4964        18.5        15.4
                   W MAJOR PROBLEMS
                   \8\.
390.............  NEONATE W OTHER         0.4964        18.5        15.4
                   SIGNIFICANT
                   PROBLEMS \8\.
391.............  NORMAL NEWBORN \8\      0.4964        18.5        15.4
392.............  SPLENECTOMY AGE         0.7372        23.5        19.5
                   >17 \8\.
393.............  SPLENECTOMY AGE 0-      0.7372        23.5        19.5
                   17 \8\.
394.............  OTHER O.R.              0.9562        26.1        21.7
                   PROCEDURES OF THE
                   BLOOD AND BLOOD
                   FORMING ORGANS
                   \3\.
395.............  RED BLOOD CELL          0.7782        24.0        20.0
                   DISORDERS AGE >17.
396.............  RED BLOOD CELL          0.4964        18.5        15.4
                   DISORDERS AGE 0-
                   17 \8\.
397.............  COAGULATION             0.9454        23.5        19.5
                   DISORDERS.
398.............  RETICULOENDOTHELIA      0.8372        22.0        18.3
                   L & IMMUNITY
                   DISORDERS W CC.
399.............  RETICULOENDOTHELIA      0.4964        18.5        15.4
                   L & IMMUNITY
                   DISORDERS W/O CC
                   \1\.
401.............  LYMPHOMA & NON-         2.0841        40.0        33.3
                   ACUTE LEUKEMIA W
                   OTHER O.R. PROC W
                   CC \5\.
402.............  LYMPHOMA & NON-         0.9562        26.1        21.7
                   ACUTE LEUKEMIA W
                   OTHER O.R. PROC W/
                   O CC \3\.
403.............  LYMPHOMA & NON-         0.8941        22.4        18.6
                   ACUTE LEUKEMIA W
                   CC.
404.............  LYMPHOMA & NON-         0.7394        18.0        15.0
                   ACUTE LEUKEMIA W/
                   O CC.
405.............  ACUTE LEUKEMIA W/O      0.7372        23.5        19.5
                   MAJOR O.R.
                   PROCEDURE AGE 0-
                   17 \8\.
406.............  MYELOPROLIF DISORD      2.0841        40.0        33.3
                   OR POORLY DIFF
                   NEOPL W MAJ O.R.
                   PROC W CC \5\.
407.............  MYELOPROLIF DISORD      0.9562        26.1        21.7
                   OR POORLY DIFF
                   NEOPL W OTHER
                   O.R. PROC \8\.
408.............  MYELOPROLIF DISORD      0.9562        26.1        21.7
                   OR POORLY DIFF
                   NEOPL W OTHER
                   O.R. PROC \3\.
409.............  RADIOTHERAPY......      0.8871        25.1        20.9
410.............  CHEMOTHERAPY W/O        0.9562        26.1        21.7
                   ACUTE LEUKEMIA AS
                   SECONDARY
                   DIAGNOSIS \3\.
411.............  HISTORY OF              0.4964        18.5        15.4
                   MALIGNANCY W/O
                   ENDOSCOPY \8\.
412.............  HISTORY OF              0.4964        18.5        15.4
                   MALIGNANCY W
                   ENDOSCOPY \8\.
413.............  OTHER MYELOPROLIF       0.9541        25.5        21.2
                   DIS OR POORLY
                   DIFF NEOPL DIAG W
                   CC.
414.............  OTHER MYELOPROLIF       0.4964        18.5        15.4
                   DIS OR POORLY
                   DIFF NEOPL DIAG W/
                   O CC \1\.
415.............  O.R. PROCEDURE FOR      1.6849        40.1        33.4
                   INFECTIOUS &
                   PARASITIC
                   DISEASES.
416.............  SEPTICEMIA AGE >17      0.9191        24.9        20.7
417.............  SEPTICEMIA AGE 0-       0.9562        26.1        21.7
                   17 \8\.
418.............  POSTOPERATIVE &         0.8304        25.2        21.0
                   POST-TRAUMATIC
                   INFECTIONS.
419.............  FEVER OF UNKNOWN        0.9562        26.1        21.7
                   ORIGIN AGE >17 W
                   CC \3\.
420.............  FEVER OF UNKNOWN        0.7372        23.5        19.5
                   ORIGIN AGE >17 W/
                   O CC \2\.
421.............  VIRAL ILLNESS AGE       0.7372        23.5        19.5
                   >17 \2\.
422.............  VIRAL ILLNESS &         0.7372        23.5        19.5
                   FEVER OF UNKNOWN
                   ORIGIN AGE 0-17
                   \8\.
423.............  OTHER INFECTIOUS &      0.9024        23.1        19.2
                   PARASITIC
                   DISEASES
                   DIAGNOSES.
424.............  O.R. PROCEDURE W        1.3569        32.5        27.0
                   PRINCIPAL
                   DIAGNOSES OF
                   MENTAL ILLNESS
                   \4\.
425.............  ACUTE ADJUSTMENT        0.5981        27.5        22.9
                   REACTION &
                   PSYCHOLOGICAL
                   DYSFUNCTION.
426.............  DEPRESSIVE              0.4660        22.3        18.5
                   NEUROSES.

[[Page 25748]]

 
427.............  NEUROSES EXCEPT         1.3569        32.5        27.0
                   DEPRESSIVE \4\.
428.............  DISORDERS OF            0.4964        18.5        15.4
                   PERSONALITY &
                   IMPULSE CONTROL
                   \1\.
429.............  ORGANIC                 0.6438        27.4        22.8
                   DISTURBANCES &
                   MENTAL
                   RETARDATION.
430.............  PSYCHOSES.........      0.4689        22.7        18.9
431.............  CHILDHOOD MENTAL        0.4964        18.5        15.4
                   DISORDERS \1\.
432.............  OTHER MENTAL            0.4964        18.5        15.4
                   DISORDER
                   DIAGNOSES \1\.
433.............  ALCOHOL/DRUG ABUSE      0.4964        18.5        15.4
                   OR DEPENDENCE,
                   LEFT AMA \1\.
439.............  SKIN GRAFTS FOR         1.3663        40.5        33.7
                   INJURIES.
440.............  WOUND DEBRIDEMENTS      1.5854        40.0        33.3
                   FOR INJURIES.
441.............  HAND PROCEDURES         2.0841        40.0        33.3
                   FOR INJURIES \5\.
442.............  OTHER O.R.              1.4971        44.6        37.1
                   PROCEDURES FOR
                   INJURIES W CC.
443.............  OTHER O.R.              1.3569        32.5        27.0
                   PROCEDURES FOR
                   INJURIES W/O CC
                   \4\.
444.............  TRAUMATIC INJURY        0.9609        30.6        25.5
                   AGE >17 W CC.
445.............  TRAUMATIC INJURY        0.7552        26.6        22.1
                   AGE >17 W/O CC.
446.............  TRAUMATIC INJURY        0.7372        23.5        19.5
                   AGE 0-17 \8\.
447.............  ALLERGIC REACTIONS      0.9562        26.1        21.7
                   AGE >17 \3\.
448.............  ALLERGIC REACTIONS      0.7372        23.5        19.5
                   AGE 0-17 \8\.
449.............  POISONING & TOXIC       0.9562        26.1        21.7
                   EFFECTS OF DRUGS
                   AGE >17 W CC \7\.
450.............  POISONING & TOXIC       0.9562        26.1        21.7
                   EFFECTS OF DRUGS
                   AGE >17 W/O CC
                   \7\.
451.............  POISONING & TOXIC       0.7372        23.5        19.5
                   EFFECTS OF DRUGS
                   AGE 0-17 \8\.
452.............  COMPLICATIONS OF        0.9692        24.9        20.7
                   TREATMENT W CC.
453.............  COMPLICATIONS OF        0.8633        24.2        20.1
                   TREATMENT W/O CC.
454.............  OTHER INJURY,           0.7372        23.5        19.5
                   POISONING & TOXIC
                   EFFECT DIAG W CC
                   \2\.
455.............  OTHER INJURY,           0.7372        23.5        19.5
                   POISONING & TOXIC
                   EFFECT DIAG W/O
                   CC \2\.
461.............  O.R. PROC W             1.3216        36.5        30.4
                   DIAGNOSES OF
                   OTHER CONTACT W
                   HEALTH SERVICES.
462.............  REHABILITATION....      0.6471        23.2        19.3
463.............  SIGNS & SYMPTOMS W      0.7541        26.8        22.3
                   CC.
464.............  SIGNS & SYMPTOMS W/     0.6170        25.5        21.2
                   O CC.
465.............  AFTERCARE W             0.7372        23.5        19.5
                   HISTORY OF
                   MALIGNANCY AS
                   SECONDARY
                   DIAGNOSIS \2\.
466.............  AFTERCARE W/O           0.7365        22.0        18.3
                   HISTORY OF
                   MALIGNANCY AS
                   SECONDARY
                   DIAGNOSIS.
467.............  OTHER FACTORS           0.4964        18.5        15.4
                   INFLUENCING
                   HEALTH STATUS \1\.
468.............  EXTENSIVE O.R.          2.0686        42.5        35.4
                   PROCEDURE
                   UNRELATED TO
                   PRINCIPAL
                   DIAGNOSIS.
469.............  PRINCIPAL               0.0000         0.0         0.0
                   DIAGNOSIS INVALID
                   AS DISCHARGE
                   DIAGNOSIS \6\.
470.............  UNGROUPABLE \6\...      0.0000         0.0         0.0
471.............  BILATERAL OR            2.0841        40.0        33.3
                   MULTIPLE MAJOR
                   JOINT PROCS OF
                   LOWER EXTREMITY
                   \5\.
473.............  ACUTE LEUKEMIA W/O      0.9562        26.1        21.7
                   MAJOR O.R.
                   PROCEDURE AGE >17
                   \3\.
475.............  RESPIRATORY SYSTEM      2.1358        35.2        29.3
                   DIAGNOSIS WITH
                   VENTILATOR
                   SUPPORT.
476.............  PROSTATIC O.R.          1.0032        31.9        26.5
                   PROCEDURE
                   UNRELATED TO
                   PRINCIPAL
                   DIAGNOSIS.
477.............  NON-EXTENSIVE O.R.      1.8998        40.0        33.3
                   PROCEDURE
                   UNRELATED TO
                   PRINCIPAL
                   DIAGNOSIS.
478.............  OTHER VASCULAR          1.2567        34.2        28.5
                   PROCEDURES W CC
                   \7\.
479.............  OTHER VASCULAR          1.2567        34.2        28.5
                   PROCEDURES W/O CC
                   \7\.
480.............  LIVER TRANSPLANT        0.0000         0.0         0.0
                   \6\.
481.............  BONE MARROW             0.9562        26.1        21.7
                   TRANSPLANT \8\.
482.............  TRACHEOSTOMY FOR        2.0841        40.0        33.3
                   FACE, MOUTH &
                   NECK DIAGNOSES
                   \5\.
483.............  TRACH W MECH VENT       3.2131        55.7        46.4
                   96+ HRS OR PDX
                   EXCEPT FACE,
                   MOUTH & NECK DIAG.
484.............  CRANIOTOMY FOR          2.0841        40.0        33.3
                   MULTIPLE
                   SIGNIFICANT
                   TRAUMA \8\.
485.............  LIMB REATTACHMENT,      1.3569        32.5        27.0
                   HIP AND FEMUR
                   PROC FOR MULTIPLE
                   SIGNIFICANT TR
                   \8\.
486.............  OTHER O.R.              1.3569        32.5        27.0
                   PROCEDURES FOR
                   MULTIPLE
                   SIGNIFICANT
                   TRAUMA \4\.
487.............  OTHER MULTIPLE          1.2484        32.7        27.2
                   SIGNIFICANT
                   TRAUMA.
488.............  HIV W EXTENSIVE         2.0841        40.0        33.3
                   O.R. PROCEDURE
                   \5\.
489.............  HIV W MAJOR             0.9254        21.3        17.7
                   RELATED CONDITION.
490.............  HIV W OR W/O OTHER      0.7361        19.6        16.3
                   RELATED CONDITION.
491.............  MAJOR JOINT & LIMB      1.3569        32.5        27.0
                   REATTACHMENT
                   PROCEDURES OF
                   UPPER EXTREMITY
                   \8\.
492.............  CHEMOTHERAPY W          0.9562        26.1        21.7
                   ACUTE LEUKEMIA AS
                   SECONDARY
                   DIAGNOSIS OR W
                   USE HIGH DOSE
                   CHEMOTHERAPY
                   AGENT \8\.
493.............  LAPAROSCOPIC            1.3569        32.5        27.0
                   CHOLECYSTECTOMY W/
                   O C.D.E. W CC \7\.
494.............  LAPAROSCOPIC            2.0841        40.0        33.3
                   CHOLECYSTECTOMY W/
                   O C.D.E. W/O CC
                   \7\.
495.............  LUNG TRANSPLANT         0.0000         0.0         0.0
                   \6\.
496.............  COMBINED ANTERIOR/      1.3569        32.5        27.0
                   POSTERIOR SPINAL
                   FUSION \8\.
497.............  SPINAL FUSION W CC      0.9562        26.1        21.7
                   \7\.
498.............  SPINAL FUSION W/O       0.9562        26.1        21.7
                   CC 4 7.
499.............  BACK & NECK             2.0841        40.0        33.3
                   PROCEDURES EXCEPT
                   SPINAL FUSION W
                   CC \5\.
500.............  BACK & NECK             1.3569        32.5        27.0
                   PROCEDURES EXCEPT
                   SPINAL FUSION W/O
                   CC \4\.
501.............  KNEE PROCEDURES W       2.0841        40.0        33.3
                   PDX OF INFECTION
                   W CC \5\.
502.............  KNEE PROCEDURES W       0.7372        23.5        19.5
                   PDX OF INFECTION
                   W/O CC \2\.
503.............  KNEE PROCEDURES W/      0.9562        26.1        21.7
                   O PDX OF
                   INFECTION \3\.
504.............  EXTENSIVE 3RD           2.0841        40.0        33.3
                   DEGREE BURNS W
                   SKIN GRAFT \8\.

[[Page 25749]]

 
505.............  EXTENSIVE 3RD           1.3569        32.5        27.0
                   DEGREE BURNS W/O
                   SKIN GRAFT \4\.
506.............  FULL THICKNESS          0.7372        23.5        19.5
                   BURN W SKIN GRAFT
                   OR INHAL INJ W CC
                   OR SIG TRAUMA \7\.
507.............  FULL THICKNESS          0.7372        23.5        19.5
                   BURN W SKIN GRFT
                   OR INHAL INJ W/O
                   CC OR SIG TRAUMA
                   \7\.
508.............  FULL THICKNESS          0.7372        23.5        19.5
                   BURN W/O SKIN
                   GRFT OR INHAL INJ
                   W CC OR SIG
                   TRAUMA \2\.
509.............  FULL THICKNESS          0.7372        23.5        19.5
                   BURN W/O SKIN
                   GRFT OR INH INJ W/
                   O CC OR SIG
                   TRAUMA \2\.
510.............  NON-EXTENSIVE           0.7372        23.5        19.5
                   BURNS W CC OR
                   SIGNIFICANT
                   TRAUMA \2\.
511.............  NON-EXTENSIVE           0.4964        18.5        15.4
                   BURNS W/O CC OR
                   SIGNIFICANT
                   TRAUMA \1\.
512.............  SIMULTANEOUS            0.0000         0.0         0.0
                   PANCREAS/KIDNEY
                   TRANSPLANT \6\.
513.............  PANCREAS                0.0000         0.0         0.0
                   TRANSPLANT \6\.
515.............  CARDIAC                 2.0841        40.0        33.3
                   DEFIBRILATOR
                   IMPLANT W/O
                   CARDIAC CATH \5\.
516.............  PERCUTANEOUS            0.9562        26.1        21.7
                   CARDIVASCULAR
                   PROCEDURE W AMI
                   \8\.
517.............  PERCUTANEOUS            1.3569        32.5        27.0
                   CARDIVASCULAR
                   PROC W NON-DRUG
                   ELUTING STENT W/O
                   AMI \4\.
518.............  PERCUTANEOUS            0.9562        26.1        21.7
                   CARDIVASCULAR
                   PROC W/O CORONARY
                   ARTERY STENT OR
                   AMI \3\.
519.............  CERVICAL SPINAL         1.3569        32.5        27.0
                   FUSION W CC \4\.
520.............  CERVICAL SPINAL         0.9562        26.1        21.7
                   FUSION W/O CC \8\.
521.............  ALCOHOL/DRUG ABUSE      0.4753        20.5        17.0
                   OR DEPENDENCE W
                   CC.
522.............  ALCOHOL/DRUG ABUSE      0.4061        20.4        17.0
                   OR DEPENDENCE W
                   REHABILITATION
                   THERAPY W/O CC.
523.............  ALCOHOL/DRUG ABUSE      0.4214        19.8        16.5
                   OR DEPENDENCE W/O
                   REHABILITATION
                   THERAPY W/O CC.
524.............  TRANSIENT ISCHEMIA      0.5885        22.9        19.0
525.............  HEART ASSIST            2.0841        40.0        33.3
                   SYSTEM, OTHER
                   THAN IMPLANT \8\.
526.............  PERCUTANEOUS            1.3569        32.5        27.0
                   CARVIOVASCULAR
                   PROC W DRUG-
                   ELUTING STENT W
                   AMI \8\.
527.............  PERCUTANEOUS            1.3569        32.5        27.0
                   CARVIOVASCULAR
                   PROC W DRUG-
                   ELUTING STENT W/O
                   AMI \8\.
528.............  INTRACRANIAL            2.0841        40.0        33.3
                   VASCLUAR
                   PROCEDURES WITH
                   PDX HEMORRHAGE
                   \8\.
529.............  VENTRICULAR SHUNT       0.7372        23.5        19.5
                   PROCEDURES WITH
                   CC \2\.
530.............  VENTRICULAR SHUNT       0.7372        23.5        19.5
                   PROCEDURES
                   WITHOUT CC \8\.
531.............  SPINAL PROCEDURES       1.3569        32.5        27.0
                   WITH CC \4\.
532.............  SPINAL PROCEDURES       0.9562        26.1        21.7
                   WITHOUT CC \3\.
533.............  EXTRACRANIAL            2.0841        40.0        33.3
                   VASCULAR
                   PROCEDURES WITH
                   CC \5\.
534.............  EXTRACRANIAL            1.3569        32.5        27.0
                   VASCULAR
                   PROCEDURES
                   WITHOUT CC \8\.
535.............  CARDIAC DEFIB           2.0841        40.0        33.3
                   IMPLANT WITH
                   CARDIAC CATH WITH
                   AMI/HF/SHOCK \8\.
536.............  CARDIAC DEFIB           2.0841        40.0        33.3
                   IMPLANT WITH
                   CARDIAC CATH
                   WITHOUT AMI/HF/
                   SHOCK \5\.
537.............  LOCAL EXCISION AND      1.3569        32.5        27.0
                   REMOVAL OF
                   INTERNAL FIXATION
                   DEVICES EXCEPT
                   HIP AND FEMUR
                   WITH CC \4\.
538.............  LOCAL EXCISION AND      0.4964        18.5        15.4
                   REMOVAL OF
                   INTERNAL FIXATION
                   DEVICES EXCEPT
                   HIP AND FEMUR
                   WITHOUT CC \1\.
539.............  LYMPHOMA AND            2.0841        40.0        33.3
                   LEUKEMIA WITH
                   MAJOR O.R.
                   PROCEDURE WITH CC
                   \8\.
540.............  LYMPHOMA AND            0.4964        18.5        15.4
                   LEUKEMIA WITH
                   MAJOR O.R.
                   PROCEDURE WITHOUT
                   CC \1\.
541.............  IMPLANT, PULSATILE      0.0000         0.0        0.0
                   HEART ASSIST
                   SYSTEM \6\.
------------------------------------------------------------------------
\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 0.000.
\7\ Relative weights for these LTC-DRGs were determined after adjusting
  to account for nonmonotonicity.
\8\ 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 2002 MedPAR.

[FR Doc. 04-10039 Filed 4-30-04; 8:45 am]
BILLING CODE 4120-01-P