[Federal Register Volume 69, Number 89 (Friday, May 7, 2004)]
[Rules and Regulations]
[Pages 25751-25776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10153]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Changes to the Criteria for Being Classified as an 
Inpatient Rehabilitation Facility; Final Rule

Federal Register / Vol. 69, No. 89 / Friday, May 7, 2004 / Rules and 
Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1262-F]
RIN 0938-AM71


Medicare Program; Changes to the Criteria for Being Classified as 
an Inpatient Rehabilitation Facility

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

ACTION: Final rule.

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SUMMARY: This final rule responds to public comments on the September 
9, 2003 proposed rule, and revises the classification criterion, 
commonly known as the ``75 percent rule,'' used to classify a hospital 
as an inpatient rehabilitation facility (IRF). This final rule also 
modifies and expands the medical conditions listed in the regulatory 
requirements as well as temporarily lowers the percentage of patients 
required to fall within one of the specified list of medical 
conditions.

DATES: Effective Date: These regulations are effective for cost 
reporting periods beginning on or after July 1, 2004.

FOR FURTHER INFORMATION CONTACT: Robert Kuhl, (410) 786-4597; or Pete 
Diaz, (410) 786-1235. Jeannette Kranacs, (410) 786-9385.

SUPPLEMENTARY INFORMATION:

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Table of Contents

I. Conditions for Classification as an IRF--Background
    A. Overview of the Inpatient Rehabilitation Facility Prospective 
Payment System
    B. Recent Developments on the 75 Percent Rule
    1. May 2003 Proposed Rule
    2. Classification as an IRF Under the 75 Percent Rule
    C. Statutory and Regulatory Background on the 75 Percent Rule
    D. CMS Evaluation of Compliance With the 75 Percent Rule 
Regulatory Requirements in Sec.  412.23(b)(2)
    E. Summary of the September 9, 2003 Proposed Rule
    F. Summary of Public Comments Received on the September 9, 2003 
Proposed Rule
II. Lowering The Compliance Threshold
III. Using a Comorbidity to Verify Compliance
IV. Ongoing Assessment of Implementing the Proposed Policies and 
Potential Scheduled Sunset Provision to 75 Percent
V. New Medical Conditions
VI. Time Period to Determine Compliance VII. Other Issues
    A. General FI Operational Instructions
    B. Administrative Procedure Act
    C. Assumptions Used for Impact Analysis Section
VIII. Provisions of the Final Regulations
IX. Collection of Information Requirements
X. Regulatory Impact
    A. Introduction
    B. Executive Order 12866
    C. Regulatory Flexibility Act (RFA) and Impact on Small 
Hospitals
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132
    F. Overall Impact
    G. Anticipated Effects of the Final Rule
    1. Impact Summary
    2. Medicare Savings During Transition
    3. Calculation of Impacts

Regulations Text

I. Conditions for Classification as an IRF--Background

A. Overview of the Inpatient Rehabilitation Facility Prospective 
Payment System

    Section 1886(j) of the Social Security Act (the Act) provides for 
the implementation of a prospective payment system (PPS) under Medicare 
for inpatient hospital services furnished by a rehabilitation hospital 
or a rehabilitation unit of a hospital (referred to as an inpatient 
rehabilitation facility (IRF)). Sections 1886(d)(1)(B) and 
1886(d)(1)(B)(ii) of the Act give the Secretary the discretion to 
define a rehabilitation hospital and unit. The regulations at 42 CFR 
412.23(b), 412.25, and 412.29, specify the criteria for a provider to 
be classified as a rehabilitation hospital or rehabilitation unit. 
Hospitals and units meeting those criteria are eligible to be paid on a 
prospective payment basis as an IRF under the IRF PPS.
    Payments made under the IRF PPS cover inpatient operating and 
capital costs of furnishing covered intensive rehabilitation services 
(that is, routine, ancillary, and capital costs), but do not cover 
costs of approved educational activities, bad debts, and other services 
or items outside the scope of the IRF PPS. Covered intensive 
rehabilitation services include services for which benefits are 
provided under Medicare Part A (Hospital Insurance).
    Payments under the IRF PPS are made on a per discharge basis. A 
patient classification system is used to assign patients in IRFs into 
case-mix groups (CMGs). The IRF PPS uses Federal prospective payment 
rates across distinct CMGs. We construct a majority of the CMGs using 
rehabilitation impairment categories (RICs), functional status (both 
motor and cognitive), and age (though some CMGs do not use cognitive 
status or age in their definition). We construct special CMGs to 
account for very short stays and for patients who expire during the IRF 
stay.
    For each CMG, we develop relative weighting factors to account for 
a patient's clinical characteristics and expected resource consumption. 
Thus, the weighting factors account for the relative difference in 
resource use across all CMGs. Within each CMG, the weighting factors 
are ``tiered'' based on the estimated effect that the comorbidities 
from Appendix C of the August 7, 2001 final rule (66 FR 41414) have on 
resource use.
    The Federal prospective payment rates are established using a 
standard payment amount (also referred to as the budget neutral 
conversion factor). For each of the tiers within a CMG, we apply the 
relative weighting factors to the standardized payment conversion 
factor to compute the unadjusted Federal prospective payment rates.
    Adjustments that account for geographic variations in wages (wage 
index), for the percentage of low-income patients, and for facilities 
located in a rural area are applied to the unadjusted Federal 
prospective payment rates. In addition, adjustments are made for early 
transfers of patients to other facilities, interrupted stays, and high-
cost outliers (cases with extraordinarily high costs).
    The regulations implementing the IRF PPS provisions are presently 
in 42 CFR part 412, subpart P. Regulations governing the requirements 
for exclusion from the inpatient prospective payment system (IPPS) and 
the classification of hospitals as IRFs are

[[Page 25753]]

located in 42 CFR part 412, subpart B. Specifically, Sec.  412.23(b)(2) 
specifies one of the criteria Medicare uses for classifying a hospital 
or unit of a hospital as an IRF, commonly known as the ``75 percent 
rule.'' This regulation provides that during its most recent 12-month 
cost reporting period, 75 percent of an IRF's total inpatient 
population required intensive rehabilitation services for treatment of 
one or more of the medical conditions specified in Sec.  412.23(b)(2).
    For a more complete discussion of the development of the IRF PPS, 
see our August 7, 2001 final rule (66 FR 41316). We also have 
established a CMS Web site that contains useful information regarding 
the IRF PPS. The Web site URL is http://www.cms.hhs.gov/providers/irfpps/default.asp and may be accessed to download or view 
publications, software, and other information pertinent to the IRF PPS.

B. Recent Developments on the 75 Percent Rule

1. May 2003 Proposed Rule
    On May 16, 2003, we published a proposed rule titled ``Medicare 
Program; Changes to the Inpatient Rehabilitation Facility Prospective 
Payment System and Fiscal Year 2004 Rates'' in the Federal Register (68 
FR 26786) to propose updates to the IRF Federal prospective payment 
rates for FY 2004, to be effective for discharges occurring on or after 
October 1, 2003 and before October 1, 2004. We published the final rule 
on August 1, 2003 (68 FR 45674). This final rule responded solely to 
the comments we received in response to our proposed policies, and 
promulgated the final regulations regarding the proposed update to the 
IRF PPS for FY 2004.
    In the May 16, 2003 proposed rule, we had also solicited public 
comments on the regulatory requirements in Sec.  412.23(b)(2). As 
stated previously and discussed more fully in section I.B.2 of this 
preamble, Sec.  412.23(b)(2) provides that the requirements of the 75 
percent rule be met for a provider to be classified as an IRF. On May 
19, 2003, we held a Town Hall meeting at our headquarters in Baltimore, 
MD, in which views regarding all aspects of the IRF PPS could be 
expressed. Hundreds of people participated in the Town Hall meeting, 
either by attending at our headquarters or by a conference call. Most 
of the participants, however, limited their testimony to the 75 percent 
rule.
    In response to the May 16, 2003 proposed rule, we received over 
6,000 timely public comments regarding the regulatory requirements in 
Sec.  412.23(b)(2). The primary issues discussed during the Town Hall 
meeting and in the public comments are summarized as follows:
     The regulatory requirement specifying the 10 medical 
conditions contained in Sec.  412.23(b)(2) should be repealed or 
amended.
     The 10 medical conditions specified in Sec.  412.23(b)(2) 
do not adequately reflect current care in IRFs.
     The medical conditions specified in Sec.  412.23(b)(2) 
have not been updated in 20 years and should be revised or rewritten to 
include other diagnoses.
     Some of the medical conditions specified in Sec.  
412.23(b)(2) are vague; they have little clinical relevance; and are 
inconsistently interpreted by our fiscal intermediaries (FIs), who are 
charged with enforcing the 75 percent rule.
     Our administrative data indicate most IRFs are not in 
compliance with Sec.  412.23(b)(2).
     Classification as an IRF should be based on 20 of the 21 
RICs.
     Enforcement of the rule could force many IRFs to close.
     Enforcement of the rule limits access to care.
     Treatment in other rehabilitation treatment settings is 
inferior to treatment furnished in an IRF.
    In the May 16, 2003 proposed rule, we did not propose amending the 
regulatory requirements in Sec.  412.23(b)(2). However, in the 
September 9, 2003 proposed rule, we proposed to amend the requirements 
in Sec.  412.23(b)(2), as discussed in section II of that proposed rule 
(68 FR 53269).
2. Classification as an IRF Under the 75 Percent Rule
    As stated in the August 7, 2001 final rule that implemented the IRF 
PPS, we did not change the survey and certification procedures for 
classification as an IRF. Under the current regulations, a hospital or 
unit of a hospital, must first be deemed excluded from the diagnosis-
related group (DRG)-based inpatient prospective payment system (IPPS) 
to be paid under the IRF PPS, and also must meet the general 
requirements in subpart B of part 412. Secondly, the excluded hospital 
or unit of the hospital must meet the conditions for payment under the 
IRF PPS at Sec.  412.604. As specified at Sec.  412.604(b), a provider, 
among other requirements, must be in compliance with all of the 
criteria specified in Sec.  412.23(b) in order to be classified as an 
IRF.
    Under Sec.  412.23(b)(2) of the existing regulations, a facility 
may be classified as an IRF if it can show that, during its most recent 
12-month cost reporting period, it served an inpatient population of 
whom at least 75 percent required intensive rehabilitation services for 
the treatment of one or more of the following conditions:
     Stroke.
     Spinal cord injury.
     Congenital deformity.
     Amputation.
     Major multiple trauma.
     Fracture of femur (hip fracture).
     Brain injury.
     Polyarthritis, including rheumatoid arthritis.
     Neurological disorders, including multiple sclerosis, 
motor neuron diseases, polyneuropathy, muscular dystrophy, and 
Parkinson's disease.
     Burns.

C. Statutory and Regulatory Background on the 75 Percent Rule

    We initially stipulated the ``75 percent'' requirement in the 
September 1, 1983 interim final rule with comment period entitled 
``Medicare Program; Prospective Payments for Medicare Inpatient 
Hospital Services'' (48 FR 39752). That interim final rule implemented 
the Social Security Amendments of 1983 (Pub. L. 98-21), changing the 
method of payment for inpatient hospital services from a cost-based, 
retrospective reimbursement system to a diagnosis-specific inpatient 
PPS. However, the rule stipulated that, in accordance with sections 
1886(d)(1)(B) and 1886(d)(1)(B)(ii) of the Act, both a rehabilitation 
unit (which is a distinct part of a hospital) and a rehabilitation 
hospital would be excluded from the IPPS. We noted that sections 
1886(d)(1)(B) and 1886(d)(1)(B)(ii) of the Act also gave the Secretary 
broad discretion to define a ``rehabilitation unit'' and a 
``rehabilitation hospital.''
    We consulted with the Joint Commission on Accreditation of 
Hospitals (JCAH), which subsequently became the Joint Commission on 
Accreditation of Healthcare Organizations (JCAHO), and other 
accrediting organizations to define a rehabilitation hospital. The 
criteria we included in our definition of a rehabilitation hospital 
incorporated some of the accreditation requirements of these 
organizations. The definition also included other criteria, which we 
believed distinguished a rehabilitation hospital from a hospital that 
furnished general medical and surgical services as well as some 
rehabilitation services. One criterion was that ``The hospital must be 
primarily engaged in furnishing intensive rehabilitation services as

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demonstrated by patient medical records showing that, during the 
hospital's most recently completed 12-month cost reporting period, at 
least 75 percent of the hospital's inpatients were treated for one or 
more conditions specified in these regulations that typically require 
intensive inpatient rehabilitation'' (48 FR 39756). This requirement 
was originally specified in Sec.  405.471(c)(2)(ii). We included this 
requirement as a defining feature of a rehabilitation hospital, because 
we believed ``that examining the types of conditions for which a 
hospital's inpatients are treated, and the proportion of patients 
treated for conditions that typically require intensive inpatient 
rehabilitation, will help distinguish those hospitals in which the 
provisions of rehabilitation services is a primary, rather than a 
secondary, goal'' (48 FR 39756). Similarly, the 75 percent rule was 
established as a criterion for identifying a rehabilitation unit.
    The original medical conditions specified in Sec.  
405.471(c)(2)(ii) were stroke, spinal cord injury, congenital 
deformity, amputation, major multiple trauma, fracture of femur (hip 
fracture), brain injury, and polyarthritis, including rheumatoid 
arthritis. This list of eight medical conditions was partly based upon 
the information contained in a document entitled ``Sample Screening 
Criteria for Review of Admissions to Comprehensive Medical 
Rehabilitation Hospitals/Units.'' This document was a product of the 
Committee on Rehabilitation Criteria for the Professional Standards 
Review Organization of the American Academy of Physical Medicine and 
Rehabilitation and the American Congress of Rehabilitation Medicine. In 
addition, we received input from the National Association of 
Rehabilitation Facilities and the American Hospital Association. The 
requirement that 75 percent of an IRF's patient population must have 
one or more of the medical conditions listed in the regulation 
reflected that the listed medical conditions accounted for 
approximately 75 percent of the admissions to IRFs at the time.
    On January 3, 1984, we published a final rule entitled ``Medicare 
Program; Prospective Payment for Medicare Inpatient Hospital Services'' 
(49 FR 234). In section II.A.2 of that final rule (49 FR 240), we 
summarized comments that requested inclusion of neurological disorders, 
burns, chronic pain, pulmonary disorders, and cardiac disorders in the 
list of medical conditions under the 75 percent rule. Our analysis of 
these comments led us to agree that neurological disorders (including 
multiple sclerosis, motor neuron diseases, polyneuropathy, muscular 
dystrophy, and Parkinson's disease) and burns should be added to the 
original list of eight medical conditions under the 75 percent rule (49 
FR 240). We did not agree with comments that we lower from 75 to 60 the 
percentage of patients that must meet one of the medical conditions. 
Nor did we agree with comments urging us to use IRF resource 
consumption, instead of a percentage of patients that must have one or 
more of the specified medical conditions, to help define an IRF (49 FR 
239 through 240). We also rejected suggestions that when an IRF could 
not meet the 75 percent rule, the facility should still be defined as 
an IRF based on the types of services it furnished.
    On August 31, 1984, we published a final rule entitled ``Medicare 
Program; Changes to the Inpatient Hospital Prospective Payment System 
and Fiscal Year 1985 Rates'' (49 FR 34728). In that rule, we explained 
how the 75 percent rule applied to a new rehabilitation unit or 
rehabilitation hospital or to an increase in beds of an existing 
rehabilitation unit.
    On March 29, 1985, we published a final rule entitled ``Medicare 
Program; Prospective Payment System for Hospital Inpatient Services; 
Redesignation of Rules'' (50 FR 12740). That rule redesignated 
provisions of former Sec.  405.471 that addressed the 75 percent rule 
as provisions under a new Sec.  412.23.
    On August 30, 1991, we published a final rule entitled ``Medicare 
Program; Changes to the Inpatient Hospital Prospective Payment System 
and Fiscal Year 1992 Rates'' (56 FR 43196). Since October 1, 1983, the 
regulations allowed a new rehabilitation hospital or a new 
rehabilitation unit (or an existing excluded rehabilitation unit that 
was to be expanded by the addition of new beds) to be excluded from the 
IPPS if, in addition to meeting other requirements, it submitted a 
written certification that it would be in compliance with the 75 
percent rule during its first cost reporting period. The August 30, 
1991 rule specified that, if these facilities were later found to have 
not complied with the 75 percent rule, we would determine the amount of 
actual payment under the exclusion, compute what we would have paid for 
the facility's services to Medicare patients under the IPPS, and 
recover any difference in accordance with the rules on the recoupment 
of overpayments.
    On September 1, 1992, we published a final rule entitled ``Medicare 
Program; Changes to Hospital Inpatient Prospective Payment Systems and 
Fiscal Year 1993 Rates'' (57 FR 39746). In the rule, we acknowledged 
that, for various reasons, a new rehabilitation hospital or unit might 
need to begin operations at some time other than at the start of its 
regular cost reporting period. Therefore, we specified that an IRF 
could submit a written certification that it would comply with the 75 
percent rule for both a partial cost reporting period of up to 11 
months and the subsequent full 12-month cost reporting period.
    On September 1, 1994, we published a final rule entitled ``Medicare 
Program; Changes to the Hospital Inpatient Prospective Payment Systems 
and FY 1995 Rates'' (59 FR 45330). In that final rule, we stated that 
we had received miscellaneous comments requesting that oncology cases, 
pulmonary disorders, cardiac disorders, and chronic pain be added to 
the list of medical conditions under the 75 percent rule (59 FR 45393). 
We responded that, although the 75 percent rule had not been addressed 
in the associated May 27, 1994 proposed rule, we would take these 
miscellaneous comments into consideration if we decided to make changes 
to the 75 percent rule.
    When we published the August 7, 2001 final rule (66 FR 41316), we 
acknowledged receiving comments requesting that we either update the 
list of medical conditions specified in Sec.  412.23(b)(2) or eliminate 
the regulation (66 FR 41321). We responded that in the November 3, 2000 
IRF PPS proposed rule, we had not proposed amending the requirements in 
Sec.  412.23(b)(2); further, since we believed the existing regulation 
was appropriate, we would not be revising the requirements in Sec.  
412.23(b)(2). However, we also stated that data obtained after we 
implemented the IRF PPS could lead us to reconsider amending the 
requirements in Sec.  412.23(b)(2).

D. CMS Evaluation of Compliance With the 75 Percent Rule Regulatory 
Requirements in Sec.  412.23(b)(2)

    In the spring of 2002, we surveyed the Medicare fiscal 
intermediaries (FIs) in order to ascertain what methods were being used 
to verify whether IRFs were complying with the requirements in Sec.  
412.23(b)(2). Analysis of the survey data made us aware that 
inconsistent methods were being used to determine whether an IRF was in 
compliance with the regulation, and that some IRFs were not being 
reviewed at all for compliance. These survey results led us to become 
concerned that some IRFs may be out of compliance with the

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regulation and inappropriately classified as an IRF. In addition, we 
were concerned that some FIs might be using different methods to verify 
compliance with the requirements in Sec.  412.23(b)(2). This practice 
may have resulted in an IRF being incorrectly considered out of 
compliance with the regulation. Thus, this practice had the potential 
to cause an IRF to lose its classification as an IRF inappropriately. 
Therefore, on June 7, 2002, we suspended enforcement of the regulatory 
requirements at Sec.  412.23(b)(2) until we conducted a careful 
examination of this area and determined whether the regulation, or the 
operating procedures used to verify compliance with it, should be 
changed.
    In addition to our review of the administrative procedures used by 
our FIs, we conducted an analysis of CMS administrative data to attempt 
to estimate overall compliance with the regulation. As stated in the 
May 16, 2003 proposed rule (68 FR 26791), we examined both the 
inpatient rehabilitation facility-patient assessment instrument (IRF-
PAI) data and claims from the years 1998, 1999, and 2002. The patient 
assessment data used were from the time period of January to August of 
2002. We estimated that the percent of facilities with at least 75 
percent of cases falling into the 10 conditions was 13.35 percent. We 
note that the analysis has a number of limitations. For example, it is 
not possible to discern from the diagnosis data on the IRF-PAI or the 
claim whether the patient had a medical need for ``intensive 
rehabilitation.'' The diagnosis describes only some aspects of a 
patient's clinical status, but the diagnosis alone does not determine 
the medical necessity of treating a patient in an IRF as opposed to 
another type of treatment setting. In addition, all of the information 
necessary to classify a case under one of the 10 conditions may not be 
present on the claim (for example, polyarthritis).
    In the May 16, 2003 proposed rule, we indicated that we would be 
instructing FIs to re-institute appropriate enforcement action if they 
were to determine that an IRF has not complied with the requirements in 
Sec.  412.23(b)(2). We realize that an IRF may need time to come into 
compliance with the regulation. An IRF's cost reporting period is the 
time period used to ascertain compliance with the requirements in Sec.  
412.23(b)(2). Therefore, we indicated that we were instructing the FIs 
that they must use cost reporting periods that begin on or after 
October 1, 2003 as the time period to ascertain an IRF's compliance 
with the requirements in Sec.  412.23(b)(2). While we did not propose 
changes to Sec.  412.23(b)(2) in the May 16, 2003 proposed rule, we did 
express an expectation that improved enforcement and compliance with 
the existing rule will have varying impacts on providers and 
beneficiaries.
    In the May 16, 2003 proposed rule, we indicated that while it is 
difficult to predict the aggregate impact of improved compliance on 
provider payments, we expect that IRFs or their parent hospitals, or 
both (80 percent of IRFs are units of acute care hospitals), will 
change their behavior in a variety of ways. IRFs may change admission 
practices to alter their case-mix, either Medicare or total patient 
population, by admitting patients with more intensive rehabilitative 
needs that fall into the 10 conditions. This practice could have the 
effect of elevating the facility's revenues, because cases requiring 
more intensive rehabilitation care generally receive higher Medicare 
payments than less complex cases. On the other hand, enforcement of the 
75 percent rule may cause some IRFs to reduce the number of beds or 
reduce the number of admissions that may result in a reduction of the 
facility's revenues or both.
    The existing regulation reflects that up to 25 percent of medically 
necessary admissions may fall outside of the 10 conditions. These cases 
can continue to be admitted and treated under the regulation. Other 
cases may appropriately receive rehabilitative care in alternative 
settings. For certain medically complex cases, it may be appropriate to 
lengthen the patient's stay in an acute care setting in order to 
stabilize his or her condition to prepare the patient to participate in 
rehabilitation. Alternative settings for rehabilitative care could 
include the acute care hospital, skilled nursing facilities (SNF), 
long-term care hospitals, outpatient rehabilitation facilities, and 
home health care. For this reason, we did not expect to see reduced 
access to care for Medicare beneficiaries as a result of improved 
compliance. In addition, because many hospitals that have a Medicare-
certified IRF unit also have one or more other subunits that provide 
rehabilitation, revenues from these cases may be generated elsewhere 
within the same hospital.
    As noted above, on June 7, 2002, we suspended enforcement of Sec.  
412.23(b)(2), the regulation that set forth the 75 percent rule. We 
accomplished the suspension of enforcement by the issuance of 
instructions to the FIs and, therefore, it was a method that was 
administrative and operational. The suspension of enforcement was 
communicated to the IRFs by our Regional Offices, the FIs, and other 
means, such as regular telephone conferences between CMS and providers. 
Although the May 16, 2003 proposed rule stated that we would be re-
instituting enforcement of Sec.  412.23(b)(2) effective with cost 
reporting periods that start on or after October 1, 2003, we decided to 
revisit this issue due to the extensive public comments received. 
Further, as stated in the September 9, 2003 proposed rule, we have now 
proposed to amend the contents of Sec.  412.23(b)(2) itself. Therefore, 
we have decided not to use cost reporting periods beginning on or after 
October 1, 2003 as the timeframe for renewed enforcement, as we had 
planned in the May 16, 2003 proposed rule. Instead, enforcement of the 
criteria contained in Sec.  412.23(b)(2) (as revised in accordance with 
the September 9, 2003 proposed rule and this final rule) will commence 
with cost reporting periods that start on or after the effective date 
specified in this final rule. Thus, the provisions in this final rule 
are effective for cost reporting periods beginning on or after July 1, 
2004.
    The intent of the policy specified at Sec.  412.23(b)(2), and of 
other policy criteria for IRFs, is to ensure that these facilities are 
unique compared to other hospitals in that they provide ``intensive'' 
rehabilitative services in an inpatient setting. The uniqueness of 
these facilities is the justification for paying them under a separate 
payment system rather than under the IPPS. We believed it was crucial 
that Medicare maintain criteria to ensure that only facilities 
providing intensive rehabilitation are identified as IRFs, so that 
services are paid appropriately under the IRF PPS. In addition, we 
believed it was imperative to identify conditions that would 
``typically require intensive inpatient rehabilitation'' in IRFs, 
because rehabilitation in general can be delivered in a variety of 
settings, such as acute care hospitals, SNFs, and outpatient settings.

E. Summary of the September 9, 2003 Proposed Rule

    In the September 9, 2003 proposed rule (68 FR 53270), we proposed a 
new Sec.  412.23(b)(2)(i) that proposed a temporary revision to the 
compliance threshold commonly known as the ``75 percent rule.'' As 
discussed in that proposed rule, we proposed that, for cost reporting 
periods beginning on or after January 1, 2004 and before January 1, 
2007, the hospital must serve an inpatient population of whom at least 
65 percent required intensive

[[Page 25756]]

rehabilitative services for treatment of one or more of the conditions 
specified at Sec.  412.23(b)(2)(iii). Further, we proposed (68 FR 
53272) that a patient with a comorbidity, as defined at Sec.  412.602, 
may be included in the inpatient population that counts towards the 
required 65 percent if--
     The patient is admitted for inpatient rehabilitation for a 
condition that is not one of the conditions specified at Sec.  
412.23(b)(2)(iii) of the September 9, 2003 proposed rule;
     The patient has a comorbidity that falls in one of the 
conditions specified at paragraph (b)(2)(iii) of the September 9, 2003 
proposed rule; and
     The comorbidity has caused significant functional ability 
decline in the individual such that, even in the absence of the 
admitting condition, the individual would require the intensive 
rehabilitation treatment that is unique to inpatient rehabilitation 
facilities paid under subpart P of this part, and which cannot be 
appropriately performed in another care setting covered under this 
title.
    In addition, we proposed a new Sec.  412.23(b)(2)(ii). As discussed 
in the September 9, 2003 proposed rule (68 FR 53273), this proposed 
provision would specify, for cost reporting periods beginning on or 
after January 1, 2007, that to be classified as an IRF, the facility 
must serve an inpatient population of whom at least 75 percent required 
intensive rehabilitative services for treatment of one or more of the 
conditions specified at paragraph (b)(2)(iii).
    We also proposed a new Sec.  412.23(b)(2)(iii), which included the 
list of medical conditions to be used in connection with the preceding 
criteria. As discussed in the September 9, 2003 proposed rule (68 FR 
53271), this list would retain the existing conditions except for 
polyarthritis, which we proposed to replace with the following three 
new conditions:
     Active, polyarticular rheumatoid arthritis, psoriatic 
arthritis, and seronegative arthropathies resulting in significant 
functional impairment of ambulation and other activities of daily 
living, which has not improved after an appropriate, aggressive, and 
sustained course of outpatient therapy services or services in other 
less intensive rehabilitation settings immediately preceding the 
inpatient rehabilitation admission or which results from a systemic 
disease activation immediately before admission, but has the potential 
to improve with more intensive rehabilitation.
     Systemic vasculidities with joint inflammation, resulting 
in significant functional impairment of ambulation and other activities 
of daily living, which has not improved after an appropriate, 
aggressive, and sustained course of outpatient therapy services or 
services in other less intensive rehabilitation settings immediately 
preceding the inpatient rehabilitation admission or which results from 
a systemic disease activation immediately before admission, but has the 
potential to improve with more intensive rehabilitation.
     Severe or advanced osteoarthritis (osteoarthrosis or 
degenerative joint disease) involving three or more major joints 
(elbow, shoulders, hips, or knees) with joint deformity and substantial 
loss of range of motion, atrophy, significant functional impairment of 
ambulation and other activities of daily living, which has not improved 
after an appropriate, aggressive, and sustained course of outpatient 
therapy services or services in other less intensive rehabilitation 
settings immediately preceding the inpatient rehabilitation admission 
but has the potential to improve with more intensive rehabilitation. (A 
joint replaced by a prosthesis is no longer considered to have 
osteoarthritis, or other arthritis, even though this condition was the 
reason for the joint replacement.)
    Finally, we proposed to amend Sec.  412.23(b)(2), Sec.  412.30(c), 
and Sec.  412.30(d)(2)(ii) (68 FR 53274), to revise the time period 
used to determine compliance with the 65 percent rule set forth in 
proposed Sec.  412.23(b)(2)(i).

F. Summary of Public Comments Received on the September 9, 2003 
Proposed Rule

    The September 9, 2003 proposed rule provided for a 60-day comment 
period ending November 3, 2003. We received approximately 9,800 timely 
items of correspondence containing multiple comments on the September 
9, 2003 proposed rule. Major issues addressed by commenters included:
     Reducing the percentage requirement from 75 to 65.
     Deleting the term ``polyarthritis'' from the list of 10 
qualifying conditions and replacing it with three groups of conditions 
that will more precisely identify the types of arthritis-related 
ailments appropriate for care in a rehabilitation facility.
     Continuing to use the IRF's total patient population to 
determine compliance with the proposed 65 percent rule, but 
establishing an administrative presumption that if the facility's 
Medicare population is representative of the total patient population, 
and that we would presume that the 65 percent rule was met if an IRF's 
Medicare patient population met the 65 percent compliance threshold.
     Counting toward the proposed 65 percent, not only those 
patients whose principal diagnosis falls into the 12 conditions, but 
also those who have a secondary medical condition or comorbidity that 
meets one of the 12 conditions. The secondary condition would have to 
complicate the rehabilitation process substantially and also require 
inpatient rehabilitative care.
     Changing the period of time to review patient data to 
determine compliance with the proposed 65 percent rule from the most 
recent 12-month cost reporting period to the most recent, appropriate 
12-month time period.
     Using certain assumptions to estimate the impact of the 
September 2003 proposed rule on IRFs and the Medicare program.
    Summaries of the public comments received and our responses to 
those comments are set forth below under the appropriate subject 
heading. More detailed background information for each issue can be 
found in the September 2003 proposed rule.

II. Lowering the Compliance Threshold

    In the September 9, 2003 proposed rule (65 FR 53270), we proposed 
to change the percentage of the total IRF patient population used as a 
criterion to distinguish an IRF from an acute care hospital from 75 
percent to 65 percent in 2004 (proposed Sec.  412.23(b)(2)(i)). 
Therefore, we also proposed to allow the percentage of cases that met 
the proposed medical conditions to be lowered to 65 percent, which we 
believe identify patients who typically can benefit from the type of 
intensive inpatient rehabilitation services provided by IRFs. In 
addition, our proposal would allow IRFs to care for some atypical 
patients who require intensive inpatient rehabilitation and still 
maintain their status as an IRF. We further indicated that lowering the 
percentage of cases to 65 percent would be a preventive measure to 
mitigate any unintended effects on access to care. As part of our 
ongoing analysis (68 FR 53273), we stated that we would both 
periodically monitor the literature and analyze the data obtained from 
assessments of beneficiaries to determine whether it would be 
appropriate to modify any of the conditions listed in proposed Sec.  
412.23(b)(2)(iii). We welcomed the development and presentation of 
objective evidence that shows the type of patients most appropriately 
treated in

[[Page 25757]]

the IRF setting compared to other settings.
    Comment: Commenters stated that the Medicare Payment Advisory 
Commission (MedPAC) recommended that we lower the compliance threshold 
to 50 percent for at least 1 year. According to the commenters, MedPAC 
recommended that during the period of this lower compliance threshold, 
we obtain the recommendations of an expert panel of clinicians 
regarding which medical conditions should be specified for this purpose 
in the regulation. The commenters also stated MedPAC's intention that 
we count, as meeting the 50 percent threshold, those diagnoses that the 
industry has historically interpreted as meeting the medical condition 
``polyarthritis''.
    Response: The commenters are referring to MedPAC's recommendations 
that were made in response to our May 16, 2003 proposed rule, rather 
than our September 9, 2003 proposed rule. In MedPAC's comments to our 
September 9, 2003 proposed rule, MedPAC characterized our proposal to 
lower the compliance threshold to 65 percent as ``a positive step,'' 
and did not recommend setting the compliance threshold lower than 65 
percent. MedPAC recognized that, as discussed more fully elsewhere in 
this preamble, we examined information gathered from experts in the 
rehabilitation field regarding the medical conditions specified in 
Sec.  412.23(b)(2)(iii). MedPAC recommended that we continue this 
information gathering, including convening an expert panel of 
clinicians, and report to the public the suggestions of these 
rehabilitation clinicians. We will evaluate the feasibility of 
convening the panel of clinicians.
    Comment: Some commenters stated that Medicare will not pay for the 
services an IRF furnishes to any patient who does not have a medical 
condition specified in Sec.  412.23(b)(2)(iii).
    Response: Medicare will pay for the services an IRF furnishes to 
patients who have a medical need for intensive inpatient rehabilitation 
services, but do not have one of the medical conditions specified in 
Sec.  412.23(b)(2)(iii). Each patient is evaluated individually for 
coverage, whether they have a condition specified in Sec.  
412.23(b)(2)(iii) or not. However, a facility is recognized as an IRF 
and is paid under the IRF PPS (rather than under the payment system 
that applies to acute care hospitals), if the facility's admissions 
(from any payer source, not just Medicare patients) meets the 
compliance threshold of revised Sec.  412.23(b)(2)(i) and (b)(2)(ii) 
and conditions listed in revised Sec.  412.23(b)(2)(iii), and if the 
IRF also meets the other applicable classification criteria.
    Comment: Some commenters stated that enforcement of Sec.  
412.23(b)(2) would result in IRFs closing.
    Response: We do not believe that an IRF's compliance with revised 
Sec.  412.23(b)(2) would necessarily result in it closing. We believe 
that there are a variety of techniques an IRF can use to mitigate any 
potential or possible adverse effects it may experience due to our 
enforcement of Sec.  412.23(b)(2). For example, we believe an IRF can 
alter its admission procedures, and that would result in the IRF 
managing its case-mix so that its patient population during its most 
recent, consecutive, and appropriate 12-month time period (as defined 
by us or the FI) is in compliance with revised Sec.  412.23(b)(2). In 
addition, an IRF may chose to comply with the amended regulation by 
reducing its available patient capacity. Reduction of available patient 
capacity would have the effect of altering the percentage of the 
Medicare and total patient population that would have to meet the 
amended regulation. We believe that decreasing the percentage of the 
IRF's total patient population that must comply with the medical 
conditions specified in revised Sec.  412.23(b)(2)(iii), gives the IRF 
sufficient flexibility to achieve compliance with the regulation.
    In addition, it is worth noting that the failure of an IRF to 
comply with revised Sec.  412.23(b)(2) does not preclude it from 
participating in the Medicare program altogether. A facility that fails 
to comply with the revised regulation could still participate in the 
Medicare program as an acute care hospital or unit and be paid under 
the IPPS.
    Comment: Facilities have stated that IPPS payment for the services 
they furnish would not be sufficient to meet their revenue needs due to 
the higher operating expenses of being an IRF.
    Response: If the IRF has not met the compliance threshold criterion 
and, thus, did not qualify to be classified as an IRF, then it has not 
treated a sufficient percentage of patients with the types of medical 
conditions we believe require the intense inpatient rehabilitation 
services that are suitable for payment under the IRF PPS. Not being 
classified as an IRF means that the facility is an acute care free 
standing hospital or unit, if it meets the criteria for being 
classified as an acute care facility, and has the operating expenses of 
an acute care free standing hospital or unit. The services that are 
being furnished by these facilities are acute care services. The only 
appropriate payment for acute care services is payment under the IPPS. 
In addition, if the facility is no longer classified as an IRF, the 
facility is no longer constrained to provide all patients with the 
range and intensity of services required of IRFs. Therefore, facilities 
that were formerly IRFs may be able to reduce their operating expenses 
by furnishing only an acute care hospital or unit level of services.
    Comment: Commenters believe that other medical conditions, not 
specified in revised Sec.  412.23(b)(2)(iii), that qualify for 
rehabilitation treatment, including the replacement of a single joint, 
debility, pulmonary conditions necessitating rehabilitation, cardiac 
conditions requiring rehabilitation, other circulatory disorders that 
impair mobility, multi-organ failure (shock/sepsis) that impairs 
mobility, cancer that requires a patient to receive rehabilitation, and 
pain, should be counted as part of the percentage of the patient 
population used to classify a facility as an IRF. Commenters believe 
that the IRF treatment furnished to patients with these medical 
conditions leads to faster improvement and fewer medical complications. 
This results in less cost to Medicare in comparison to these patients 
receiving rehabilitation services in a different inpatient setting or 
mode of rehabilitation. Many commenters believe non-IRF rehabilitation 
programs are not as appropriate for treating the rehabilitation needs 
of a patient with one or more of these other medical conditions, 
because in other rehabilitation programs the patient receives less 
therapy and nursing care. Also, when furnishing outpatient 
rehabilitation services, it is not possible to furnish intravenous 
medications concurrently as in an IRF.
    Response: As stated more fully in the September 9, 2003 proposed 
rule (68 FR 53268) and in the September 1, 1983 interim final rule (48 
FR 39752), eight of the medical conditions originally specified in 
Sec.  412.23(b)(2) are based on a document that was the result of a 
project regarding admission criteria for IRFs, as well as input from 
the National Association of Rehabilitation Facilities and the American 
Hospital Association. In addition, Agency physicians, who were 
knowledgeable about rehabilitation treatment, contributed to the effort 
to determine what medical conditions should originally be listed in 
existing Sec.  412.23(b)(2). As a result of comments received in 
response to the September 1, 1983 interim final rule, the final rule 
that we published on January 3, 1984 (49 FR 234) modified the original 
list of medical conditions, by adopting commenters'

[[Page 25758]]

recommendations to add two other medical conditions to the list.
    Although we have searched the medical literature and received 
information from experts in private insurance, academic physicians, and 
others knowledgeable in the field of rehabilitation, we have not seen 
any studies indicating that medical conditions not now listed in 
existing Sec.  412.23(b)(2) require the type of intensive 
rehabilitation treatment that IRFs can uniquely deliver. Although the 
conditions listed by commenters have been treated in IRFs, we do not 
believe that they are the type of conditions that typically require 
intensive rehabilitation. Therefore, we believe it would be 
inappropriate to use these cases as the basis for the classification 
criteria used to identify IRFs. None of the literature cited in the 
comments or the additional literature we have reviewed to date have 
provided evidence that the list of conditions should be expanded. As 
described in the September 9, 2003 proposed rule, we proposed to 
clarify the condition formerly described as ``polyarthritis.'' The 
proposed clarification of polyarthritis was favorably received by 
academic reviewers, though many commenters who preferred to interpret 
the prior term very broadly commented negatively on the clarification.
    On pages 53270-53271 of the September 9, 2003 proposed rule, we 
encouraged providers and any other interested parties to develop and 
present objective data or evidence from well-designed research studies 
that would support a change in the policies stipulated in the proposed 
rule. We still welcome such data or evidence. In addition, we will 
continue to monitor the literature for studies that support setting a 
compliance threshold standard less than compliance threshold standards 
as specified in revised Sec.  412.23(b)(2)(i) and (b)(2)(ii). While our 
administrative data show that IRFs are treating many patients with 
medical conditions that do not match the existing list of medical 
conditions specified in revised Sec.  412.23(b)(2)(iii), an IRF is not 
necessarily the most appropriate treatment modality for patients with 
those medical conditions to receive rehabilitation services. Although 
we believe that 75 percent is still an appropriate threshold to use as 
the classification criterion, we are lowering the threshold for a 
period of 3 years to give IRFs additional flexibility to more easily 
adjust their case-mix so that they can comply with the amended 
regulation.
    We have not encountered data indicating that patients who require 
some form of rehabilitation for a non-listed medical condition improve 
faster or have fewer medical complications when treated in an IRF, as 
opposed to some other treatment setting or program. Thus, we regard 
comments that state such a perspective as anecdotal in nature. Also, we 
have not seen objective and comprehensive data to support the 
commenters' assertions that patients who enter a non-IRF rehabilitation 
program for medical conditions other than those specified in revised 
Sec.  412.23(b)(2)(iii) do not receive an amount of therapy, nursing 
care, or intravenous medications commensurate with their rehabilitation 
or recuperative needs, as determined by the staff of that treatment 
setting or program.
    While it is true that the state of rehabilitation has changed over 
the past 20 years since the original medical conditions listed at 
existing Sec.  412.23(b)(2) were determined, a modification in 
rehabilitation practices is not, in itself, a determinant that the IRF 
setting is the most appropriate setting for treating a specific medical 
condition. Historically, the last 20 years have seen changes in other 
types of treatment techniques, leading to treatment being shifted from 
the inpatient setting to other treatment settings. For example, 
surgical procedures that were formerly performed in the inpatient 
setting are now performed safely, efficiently, and effectively in 
another treatment setting.
    Comment: Many commenters recommended that we establish a panel of 
experts to advise CMS on issues relating to the ``75 percent'' rule.
    Response: Although we did not establish a panel of experts, we 
received written or transcribed oral opinions from a range of experts. 
We received information from two industry representatives, one chief 
executive from a distinguished rehabilitation hospital and another 
executive responsible for a chain of rehabilitation hospitals; four 
academic physicians with expert knowledge of the field of 
rehabilitation, including a physician responsible for reviewing and 
funding rehabilitation research and another who is a leader in academic 
research in rehabilitation; two physicians from private insurance 
knowledgeable about rehabilitation; and three physicians knowledgeable 
about rehabilitation who review Medicare claims. These experts 
commented on the policies in the proposed rule and the broader issues.
    Most of the individuals did not believe that lowering the 
compliance percentage from 75 percent to 65 percent (as proposed) would 
change the nature of IRF's focus on delivering intensive 
rehabilitations services nor diminish the distinction between IRFs and 
acute care hospitals. However, some individuals were concerned that 
lowering the percentage may diminish the distinction between IRFs and 
other types of facilities especially skilled nursing facilities.
    Three of the four academic physicians, both of the physicians from 
private insurance, and two of the physicians reviewing Medicare claims 
concurred with the proposed definitions to replace polyarthritis. One 
of the Medicare physicians believed that the definition of 
osteoarthritis was too broad thus, allowing more patients than 
appropriate to be counted.
    One academic physician did not agree with the proposed 
osteoarthritis definition because ``it offers no relief to the field 
from the impact of not allowing coverage [sic] for joint replacement 
patients''. The two rehabilitation hospital executives also did not 
agree with the definition, one, because the proposed definition 
excludes joint replacement patients, and the other, because the 
proposed definition represents only 2 percent of all IRF admissions. 
One of the rehabilitation hospital executives maintained that ``a 
course of outpatient therapy will not increase functioning of patients 
with osteoarthritis. Joints with no cartilage have bone on bone, which 
is causing pain that brings the patient in for surgery. No amount of 
therapy will improve this.''
    Although we obtained input from various sources regarding which 
medical conditions should be included in revised Sec.  
412.23(b)(2)(iii), we continue to welcome additional input (clinical or 
otherwise) that would help us determine the best method to use to 
classify a facility as an IRF.
    Comment: Several commenters believe that the methodology used to 
determine the RICs was more rigorous than the methodology used to 
determine the medical conditions listed in revised Sec.  
412.23(b)(2)(iii). Numerous commenters believe the medical conditions 
associated with either all of the RICs or 20 of the RICs should be the 
medical conditions listed in revised Sec.  412.23(b)(2)(iii), or should 
be used in lieu of these medical conditions as criteria to classify a 
facility as an IRF. The commenters believe that the medical conditions 
listed in revised Sec.  412.23(b)(2)(iii) are inconsistent with the IRF 
PPS, because these are not the same medical conditions that are 
associated with the rehabilitation services paid for under the IRF PPS.
    Response: As stated elsewhere in this preamble, the original 
medical

[[Page 25759]]

conditions listed in Sec.  412.23(b)(2) were the result of a project 
regarding IRF admission criteria, input from two health associations, 
as well as input from our staff physicians who are knowledgeable about 
medical conditions requiring rehabilitation. In addition, input from 
commenters was used to expand the original list.
    The process used to develop the list of medical conditions in Sec.  
412.23(b)(2)(iii) was different from the process used to develop the 
RICs. The process used to develop the RICs depended upon just 
describing every patient being treated in an IRF, without examining if 
it was appropriate for the patient to be treated in that setting. We 
have no data to support the belief that the process used to develop the 
RICs resulted in the RICs being superior to the medical conditions in 
revised Sec.  412.23(b)(2)(iii) as criteria to classify a facility as 
an IRF. Rather, we believe the process used to develop the list of 
medical conditions specified in revised Sec.  412.23(b)(2)(iii) was 
valid and resulted in the correct list of medical conditions. The 
process we relied on to develop and revise the conditions listed in 
revised Sec.  412.23(b)(2)(iii), as well as the other proposed policies 
in the proposed rule, included soliciting the views of various 
individuals knowledgeable in inpatient rehabilitation. However, we 
still encourage additional expert input (for example, clinical research 
studies) to help determine what cases are appropriate to the IRF 
setting for classification purposes.
    In a basic way, the processes used to develop the RICs and the 
medical conditions used to classify a facility as an IRF have some 
similarities, because both processes analyzed the admission data 
regarding the types of medical conditions that were being treated in 
IRFs. We used a data file consisting of information on all patients 
treated in an IRF in order to develop the RICs. However, when the RICs 
were being developed, the methodology used was designed solely to 
develop payment rates. If the RICs had also been developed as a means 
to classify a facility as an IRF, then we would have attempted to 
modify the process significantly to allow the payment categories to 
accomplish that additional task. Thus, we disagree that the RICs should 
form the basis of the classification criteria.
    Medical reviews of admissions to IRFs showed that Medicare often 
made payments to IRFs for non-intensive rehabilitation cases that 
exceeded the percentage allowed in the existing regulation. 
Consequently, Medicare payment for a patient's treatment in an IRF did 
not necessarily mean that the patient actually required intensive 
inpatient rehabilitation. The inevitable effect of this occurrence is 
that despite the fact that we used the best available data to develop 
the RICs, the RICs may capture patient cases that require less than 
intensive inpatient rehabilitation services.
    In general, under the IRF PPS, the RIC serves to identify the 
medical condition that caused the patient to be admitted to an IRF. If 
the case had been reviewed against the coverage criteria, an individual 
patient may have required intensive rehabilitation treatment, but not 
all patients with that condition would require intensive inpatient 
rehabilitation services. The RICs alone may not identify the most 
appropriate setting for furnishing those rehabilitation services. Thus, 
the RICs simply group those cases that were being treated in IRFs 
before the implementation of the IRF PPS, using labels to identify 
these medical conditions and associated payment rates with these 
labels. However, the RICs do not serve to identify medical conditions 
that are likely to be most appropriately treated in an IRF, or that 
require intensive inpatient rehabilitation services, because their 
primary function is to determine payment rates. Since the goal of the 
methodology used to develop the RICs was to include medical conditions 
both listed and not listed in revised Sec.  412.23(b)(2)(iii), the RICs 
are not appropriate for use as an IRF classification criterion. In 
addition, because they serve solely a payment function, the RICs are no 
more than a formalized system to group and label medical conditions in 
order to facilitate appropriate payment for the services furnished to 
treat these medical conditions. Development of a formalized grouping 
and labeling methodology that associates medical conditions with a 
payment rate is not the same as using a payment system to identify the 
IRF as the most appropriate setting or rehabilitation program to treat 
these medical conditions. As we refine the payment system, we expect 
the definitions of the RICs and CMGs to change based upon updated 
claims and cost information, but the changes in the conditions that we 
may propose in the future to define an IRF under revised Sec.  
412.23(b)(2)(iii) will be based upon research.
    The RIC medical conditions that are not included in revised Sec.  
412.23(b)(2)(iii) are the same medical conditions that were not 
included in the classification criteria before the creation of the IRF 
PPS. Because we continue to pay IRFs for treatment of some patients 
with these RICs does not mean that some of these patients could not be 
treated in other patient care settings.
    We believe it is not necessary for an IRF to treat only those 
medical conditions listed in revised Sec.  412.23(b)(2)(iii) for the 
IRF to be distinguished as an inpatient hospital setting that is 
primarily engaged in furnishing intensive inpatient rehabilitation 
services. Patients have a variety of medical conditions that require 
rehabilitation treatment, and that rehabilitation treatment may be 
furnished by a variety of rehabilitation programs. However, merely 
because an IRF is one of the settings that is available to furnish 
rehabilitation does not mean it is the most appropriate setting to 
treat a medical condition not listed in revised Sec.  
412.23(b)(2)(iii). As a prudent purchaser of health care services, we 
must try to ensure that the rehabilitation setting or program closely 
matches the level of rehabilitation services furnished by a particular 
provider. Requiring an IRF to treat a patient population that has a 
high concentration of the conditions listed in revised Sec.  
412.23(b)(2)(iii) is one of the means we have chosen to ensure that the 
treatment setting is appropriately classified to justify our payment of 
the level of services furnished.
    Comment: Many commenters stated that not including in revised Sec.  
412.23(b)(2)(iii) cardiac, pulmonary, cancer, debility, single joint 
replacement, and other medical conditions that they believe should be 
treated in an IRF will result in a longer acute care hospital length-
of-stay (LOS) for a patient with one or more of these medical 
conditions, thereby increasing Medicare's costs.
    Response: Our data demonstrate that most of the patients with the 
medical conditions identified by the commenters are not predominantly 
treated in IRFs. In addition, patients with the conditions listed above 
have always had, and will continue to have, a range of rehabilitation 
programs available to them that can furnish treatment commensurate to 
these patients' need for rehabilitation. The argument that sending 
patients to IRFs is appropriate because it shortens patients' acute 
hospital LOS is not a compelling one. Patients should be admitted to 
IRFs because that site of care is uniquely equipped to meet patients' 
needs.
    Comment: Commenters believed if an IRF's Medicare population met 
the compliance threshold, we should use the result to administratively 
presume that the facility's total patient population met the compliance 
threshold. However, if an IRF's

[[Page 25760]]

Medicare population did not meet the compliance threshold, they wanted 
us to specifically use the IRF's total patient population to calculate 
if the compliance threshold had been met.
    Response: In general, we agree with the commenters because our 
analysis indicates that an IRF's Medicare patient population is highly 
predictive of whether an IRF's total patient population meets the 
compliance threshold. In addition, our analysis, as stated on page XIV 
of the Rand report entitled ``Case Mix Certification Rule for Inpatient 
Rehabilitation Facilities,'' indicates that, on average, 70 percent of 
all cases treated in IRFs are Medicare beneficiaries. Based upon both 
of these findings, we will issue instructions to the FIs regarding the 
application of the administrative presumption test to determine if the 
compliance threshold was met. Specifically, we will instruct the FIs 
that if, in most cases, an IRF's Medicare population met the compliance 
threshold, the FI should administratively presume that the facility's 
total patient population met the compliance threshold. If an IRF's 
Medicare population did not meet the compliance threshold, we will 
instruct the FI to specifically calculate if the IRF's total patient 
population met the compliance threshold.
    As stated in the September 9, 2003 proposed rule (68 FR 53271), 
``we expect individual IRFs to notify their FI if the IRF believes that 
its Medicare population is not wholly representative of the total 
facility patient population.'' There may be situations when an IRF's 
Medicare population is only a small portion of the IRF's total patient 
population. Thus, if an IRF's Medicare population does not represent at 
least a majority of the IRF's total population, we believe that it is 
not appropriate for the FI to use the administrative presumption 
discussed above to verify if the compliance threshold was met. 
Accordingly, we will instruct the FIs that if an IRF's Medicare 
population does not represent at least a majority of the facility's 
total patient population, the FI is to verify if the compliance 
threshold was met using only the facility's total patient population. 
In addition, the FIs will always have the discretion to analyze a 
facility's total patient population even if its Medicare patient 
population met the compliance threshold.

III. Using a Comorbidity To Verify Compliance

    In the September 9, 2003 proposed rule, we proposed to consider 
using comorbidities to verify compliance (proposed Sec.  
412.23(b)(2)(i)). In Sec.  412.602, we defined a comorbidity as a 
specific patient condition that is secondary to the patient's principal 
diagnosis that is the primary reason for the inpatient rehabilitation 
stay.

A. Proposed Methodology

    In the proposed rule, we proposed that a hospital could be 
considered to be providing intensive rehabilitation services even if it 
did not admit the patient for a condition that is specified in revised 
Sec.  412.23(b)(2)(iii) as long as specific conditions were met. We 
proposed that such a hospital could still satisfy the 65 percentage as 
long as all of the following criteria were met:
     The patient is admitted for rehabilitation for a condition 
that is not one of the conditions listed in proposed Sec.  
412.23(b)(2)(iii).
     The patient also has a comorbidity that falls in one of 
the conditions listed in proposed Sec.  412.23(b)(2)(iii).
     The comorbidity has caused significant functional ability 
decline in the individual such that, even in the absence of the 
admitting condition, the individual would require intensive 
rehabilitation treatment that is unique to inpatient rehabilitation 
facilities and which cannot be appropriately performed in another 
setting, such as the inpatient hospital, SNF, home health, or 
outpatient setting (68 FR 53272).

B. Proposed Alternative Methodology

    We also proposed an alternative, in which a case that has a 
comorbidity that matches one of the conditions in proposed Sec.  
412.23(b)(2)(iii) could be included in the proposed percentage only if 
the patient is admitted to an IRF for postoperative care immediately 
following a hip or knee replacement (68 FR 53273).
    Under this alterative method, we would count a case as included in 
the proposed percentage that matched all of the following criteria:
     Was postoperative following one or more hip or knee joint 
replacements that immediately preceded the transfer to an IRF.
     Had a condition at time of admission to an IRF that was 
complicated by an active comorbidity specified in proposed Sec.  
412.23(b)(2)(iii).
     Had an active comorbidity that resulted in a decline in 
the patient's function beyond the decline generally observed in other 
patients in that impairment category.
     Had an active comorbidity that substantially complicated 
the patient's rehabilitation to the point that it would improve only 
with the intensive, multidisciplinary rehabilitation treatment that is 
unique to inpatient rehabilitation facilities and that could not be 
performed in another setting (for example, SNF, inpatient hospital, 
home health, or outpatient).
    Many commenters addressed the two alternative methods pertaining to 
the use of specific comorbidities that could result in a patient being 
counted as a case satisfying one of the conditions in Sec.  
412.23(b)(2).
    Comment: One commenter stated that the two proposed alternative 
methodologies fail to increase the number of cases falling within the 
compliance threshold. The commenter objected that the comorbidity 
itself would require intensive rehabilitation. They claimed that CMS 
failed to grasp that the initial condition and the co-condition 
interrelate to reduce function. They believe that CMS' policy should be 
to count the condition if a comorbidity condition adversely affects the 
patient's overall function such that the patient requires intensive 
rehabilitation services.
    Response: Not all reductions in a patient's function are 
appropriate for treatment with intensive rehabilitation. In addition, 
not all patients and conditions that require rehabilitation treatment 
require the type of intensive inpatient rehabilitation treatment 
provided in an IRF. Many conditions affect a patient's overall function 
but are not appropriately treated in a rehabilitation hospital. For 
example, iron deficiency anemia is appropriately treated with 
medications such as iron or erythropoietin or a packed red blood cell 
transfusion rather than rehabilitation. Almost all diseases affect 
patients' function, but intensive inpatient rehabilitation is only 
appropriate for certain conditions. We believe that the conditions 
identified in revised Sec.  412.23(b)(2)(iii) are typically, though not 
always, appropriately treated with intensive inpatient rehabilitation. 
Moreover, there are atypical individual patient cases that fall outside 
of revised Sec.  412.23(b)(2)(iii) but may nonetheless receive 
intensive rehabilitation therapy services.
    Comment: One commenter points out an inconsistency in the 
definition of osteoarthritis as an admitting condition (65 FR 53270) 
and osteoarthritis as a comorbidity (68 FR 53272). It was pointed out 
that we specified three circumstances when osteoarthritis was defined 
as a medical condition under revised Sec.  412.23(b)(2)(iii), but we 
only specified two circumstances when osteoarthritis was a comorbid 
condition that may be counted as complying with revised Sec.  
412.23(b)(2)(i).

[[Page 25761]]

    Response: This inconsistency was not intentional. The criteria for 
both should be the same, as follows: The patient has-- (1) severe or 
advanced osteoarthritis in at least three, but now, based on a response 
to another comment, two major joints, including elbows, shoulders, 
hips, or knees (but not including any replaced joints); (2) by joint 
deformity, substantial loss of range of motion, atrophy of surrounding 
muscles, and significant function impairment of ambulation and other 
activities of daily living, which has not improved after an 
appropriate, aggressive, and sustained course of outpatient therapy or 
in a therapy program in another less intensive rehabilitation setting 
immediately preceding the inpatient rehabilitation admission; and (3) 
the potential to improve with more intensive rehabilitation.
    Comment: Some commenters requested that we provide a list of 
specific ICD-9-CM codes that qualify as comorbidities and ensure the 
definitions of the admitting conditions conform with the definitions of 
the comorbidities.
    Response: We will be providing guidance to our FIs on how to 
identify patients who fall into the conditions specified in the revised 
Sec.  412.23(b)(2)(iii). Diagnosis will only be one aspect of the FI's 
determination, so we believe it is not appropriate, at this time, to 
supply a list of ICD-9-CM codes. The FI may also review information to 
assess (1) the medical necessity of rehabilitation in an inpatient 
setting: (2) the severity of the specific condition(s); (3) the 
patient's function; and (4) the capacity of the patient to participate 
in intensive rehabilitation and benefit from it.
    Comment: Commenters disagreed with our assertion that adding 
cardiac, cancer, pulmonary, and pain as conditions would result in 
virtually all Medicare patients qualifying for inpatient 
rehabilitation. They argued that these cases currently comprise almost 
10 percent of cases treated in rehabilitation hospitals. They also 
claim that InterQual, a private entity that develops utilization 
management clinical guidelines, has screening criteria that would 
identify these patients as requiring intensive rehabilitation.
    Response: Almost all patients admitted to acute inpatient hospitals 
have one of these four conditions. The comments assert that only 10 
percent fall into this category now, but almost 11 percent of cases 
admitted to IRF or acute care in 2002 fall into cardiac, pulmonary and 
pain impairment categories, with additional cases in the miscellaneous 
impairment category, which amounts to over 12 percent in total. We 
believe that the 75 percent rule has constrained the admission of these 
patients. If they were added to the list of patients in revised Sec.  
412.23(b)(2)(iii), the numbers would increase considerably. We have 
seen no literature indicating that these patients typically require the 
intensive inpatient rehabilitation appropriately provided in an IRF. We 
attempted to review the InterQual criteria, but they are proprietary 
and not available for our review. We are aware of other similar 
proprietary utilization management clinical guidelines as well, but 
such proprietary information has not been submitted for consideration 
and is not available for review by CMS. If we were to modify our policy 
based on these proprietary clinical guidelines, we believe that we 
should review guidelines from various sources, not just the one cited 
by the commenter. If there is, in fact, a small subset of high-risk 
cardiac patients who require intensive inpatient rehabilitation 
services, then these patients could be included as part of the cases 
that do not need to be in the list of conditions specified in revised 
Sec.  412.23(b)(2)(iii), because this section only applies to a portion 
of the hospital's admissions.
    Comment: One commenter urged us not to consider comorbidities in 
determining whether a patient could be counted as meeting one of the 
conditions in revised Sec.  412.23(b)(2)(iii).
    Response: Although the commenter seemed to believe that recognition 
of comorbidities was undesirable many other commenters did not agree. 
The commenter did not provide a clear explanation of why the 
comorbidities should not be considered. We were concerned that this 
commenter thought that the patient would be grouped into the impairment 
group of the comorbidity instead of being grouped into the impairment 
group that was the reason for admission. We still believe it is the 
medical condition that required the patient to be admitted to an IRF, 
that is, the principal diagnosis, that must be used to group the 
patient into a CMG. For example, if a patient is admitted for 
rehabilitation after pneumonia complicated by an ill-fitting below-knee 
prosthesis and a knee contracture the admission is grouped into the RIC 
specified by the pneumonia rather than the amputation RIC.
    Comment: We proposed two methods for how we would calculate the 
compliance threshold with the use of certain comorbid conditions. Many 
commenters preferred the first proposed alternative in which a case 
with a principal diagnosis that did not match one of the proposed 12 
conditions would be considered as meeting Sec.  412.23(b)(2)(i) if all 
of the following criteria were met: (1) The patient is admitted for 
rehabilitation for a condition that is not one of the conditions listed 
in proposed Sec.  412.23(b)(2)(iii); (2) The patient also has a 
comorbidity that falls in one of the conditions listed in proposed 
Sec.  412.23(b)(2)(iii); and (3) The comorbidity has caused significant 
functional ability decline in the individual such that, even in the 
absence of the admitting condition, the individual would require 
intensive rehabilitation treatment that is unique to inpatient 
rehabilitation facilities and which cannot be appropriately performed 
in another setting, such as inpatient hospital, skilled nursing 
facility, home health, or outpatient setting.
    Response: We will adopt the alternative that is specified above, 
instead of the alternative that limits counting the comorbidities for 
only joint replacement cases, except that now there are 13 medical 
conditions used to count as comorbidities as meeting the compliance 
threshold specified in revised Sec.  412.23(b)(2)(i). As discussed in 
section IV of this final rule, this provision to count comorbidities as 
meeting the compliance threshold expires for cost reporting periods 
beginning on or after July 1, 2007. As mentioned previously, the vast 
majority of commenters preferred this method. We believe that this 
method of counting comorbidities is more comprehensive in recognizing 
the types of conditions requiring intensive inpatient rehabilitation.

IV. Ongoing Assessment of Implementing the Proposed Policies and 
Potential Scheduled Sunset Provision to 75 Percent

    As stated previously, we originally wanted to publish this final 
rule so that it would be effective on January 1, 2004. Thus, in the 
September 9, 2003 proposed rule, we proposed that for cost reporting 
periods that start on or after January 1, 2004, and before January 1, 
2007, the compliance threshold be lowered from 75 percent to 65 
percent, but only for a 3-year period. If, during that time period, 
data from well-designed studies (or other compelling clinical evidence) 
indicate that the compliance threshold should remain at 65 percent, we 
would issue a proposed rule and final rule in sufficient time to 
maintain the compliance threshold below 75 percent.

[[Page 25762]]

    Comment: Commenters requested that we set a permanent rather than 
temporary compliance threshold. In addition, commenters stated that the 
other provisions we proposed greatly reduced any benefit to providers 
or patients from the temporary lowering of the compliance threshold. 
Commenters requested that we permanently or temporarily lower the 
compliance threshold below 65 percent of the IRF's total patient 
population.
    Response: We are concerned that permanently lowering the compliance 
threshold could have unforeseen and unintended consequences. Those 
consequences could include a substantial and unwarranted expansion of 
utilization, resulting in inappropriate additional Medicare 
expenditures. For example, we are concerned that permanently lowering 
the compliance threshold might cause beneficiaries who could have been 
treated appropriately in a less intensive setting to be treated instead 
in an IRF.
    However, we recognize that IRFs may need some additional time to 
adjust to the amended regulations. In order to provide IRFs with 
additional time and flexibility to adjust their case-mix, and to take 
into consideration that this final rule is being published after 
January 1, 2004, we are modifying the proposed compliance threshold 
percentage and the ``sunset'' policy in the proposed rule that lowered 
the compliance threshold from 75 percent to 65 percent only during the 
time period from January 1, 2004, to December 31, 2006. Instead, for 
cost reporting periods beginning on or after July 1, 2004, the 
compliance threshold will be as follows:
     For cost reporting periods beginning on or after July 1, 
2004, and before July 1, 2005, the compliance threshold will be 50 
percent of the IRF's total patient population.
     For cost reporting periods beginning on or after July 1, 
2005, and before July 1, 2006, the compliance threshold will be 60 
percent of the IRF's total patient population.
     For cost reporting periods beginning on or after July 1, 
2006 and before July 1, 2007, the compliance threshold will be 65 
percent of the IRF's total patient population.
     For cost reporting periods beginning on or after July 1, 
2007, the compliance threshold will be 75 percent of the IRF's total 
patient population. In addition, the provision to use a patient with a 
comorbidity as counting towards the referenced compliance threshold 
will expire for the cost reporting periods beginning on or after July 
1, 2007.
    Thus, we are implementing a 3-year period, as proposed in the 
proposed rule, to analyze claims and patient assessment data to 
evaluate if and how the lowering of the compliance threshold, as well 
as the other policies stipulated in this final rule, affected admission 
trends and overall IRF utilization. We will use that analysis to 
determine if we should continue to use a compliance threshold that is 
lower than 75 percent, as well as continue to use the comorbidity 
methodology specified elsewhere in this preamble, as criteria to 
classify a facility as an IRF. If our analysis indicates that the 
compliance threshold should be set lower than 75 percent, we would 
publish a proposed rule to lower the compliance threshold based on our 
analysis.
    In addition, we may analyze other potential policy alternatives 
during this 3-year review period. For example, we received comments 
suggesting a new policy whereby an IRF may use its idle bed capacity to 
provide care to patients requiring lower levels of intensive 
rehabilitative services. To explore this, we would analyze the 
feasibility of developing a distinct payment rate commensurate with 
these services. As discussed previously, we also received comments 
suggesting that CMS incorporate additional conditions under this 
regulation (for example, cardiac rehabilitation and cancer). We expect 
to continue to evaluate the available research and medical literature 
to determine the appropriateness of adding new conditions. Finally, we 
may explore additional or alternative methods to classify a hospital as 
an IRF. For example, consistent with several comments that we received, 
we may evaluate the use of existing or revised criteria that the 
Commission on Accreditation of Rehabilitation Facilities, and/or the 
Joint Commission on Accreditation of Healthcare Organizations uses to 
accredit a hospital as a specialty rehabilitation hospital or unit.
    We realize that, for various reasons such as diagnosis coding, 
there are limitations to the policy conclusions that can be drawn from 
claim and patient assessment data analysis. Therefore, we will also 
consider using the results of well-designed analytical studies specific 
to rehabilitative care to help guide our policy decisions. We believe 
that this approach benefits the rehabilitation industry, because it 
affords the industry the opportunity to provide us with compelling 
clinical evidence to maintain the policies in this final rule, or that 
supports changes that the industry may want us to consider proposing to 
these policies. Thus, we are encouraging interested parties to conduct 
scientifically sound research demonstrating that additional diagnoses 
are most appropriately treated in the IRF setting. This research should 
show which patients experienced better medical/health outcomes by 
receiving rehabilitation services in IRFs, as opposed to other settings 
(for example, SNFs, the outpatient setting, or home health.) We also 
encourage research supporting the continued use of comorbidities in 
determining compliance with the IRF threshold.
    In accordance with the above comment and response, we are adopting 
the policy that for cost reporting periods that begin on or after July 
1, 2004, the compliance threshold will be: (a) 50 percent of the IRF's 
total patient population for cost reporting periods that begin on or 
after July 1, 2004, and before July 1, 2005; (b) 60 percent of the 
IRF's total patient population for cost reporting periods that begin on 
or after July 1, 2005, and before July 1, 2006; (c) 65 percent of the 
IRF's total patient population for cost reporting periods that begin on 
or after July 1, 2006, and before July 1, 2007; and (d) 75 percent of 
the IRF's total patient population for cost reporting periods that 
begin on or after July 1, 2007.

V. New Medical Conditions

    In the September 9, 2003 proposed rule, we proposed to remove the 
term ``polyarthritis'' from the list of 10 conditions and substitute 
instead 3 more clearly defined arthritis-related conditions (as 
described in section I.E. of this preamble). We also proposed to adopt 
in proposed Sec.  412.23(b)(2)(iii) the other conditions currently 
listed in Sec.  412.23(b)(2) because we believed that these other 
conditions are the most appropriate conditions for treatment in an IRF.
    Comment: Several commenters recommended that CMS convene an 
``expert panel'' under the auspices of the Institute of Medicine (or 
other body) or support research to evaluate the appropriateness of 
adding other conditions under this policy.
    Response: We considered these recommendations very carefully with a 
view towards establishing a process to ensure that our policy remains 
consistent with current trends in medical practice.
    We have searched the medical literature and received information 
from experts in private insurance, academic physicians, and others 
knowledgeable in the field of rehabilitation to support development of 
the September 9, 2003 proposed rule. However, studies supporting the 
inclusion of additional medical conditions have not been

[[Page 25763]]

found. Although the conditions listed by commenters (for example, joint 
replacements, cardiac and pulmonary rehab, pain) have been treated in 
IRFs, the available medical/scientific evidence does not support that 
they are conditions that typically require intensive inpatient 
rehabilitation or cannot be treated just as effectively in alternative 
care settings (such as skilled nursing facilities, home health, or 
outpatient rehabilitation). As a result, CMS has not used these 
conditions as a basis for the criteria used to identify IRFs in this 
final rule.
    There are only a few studies that evaluate the effectiveness of 
inpatient treatment in a rehabilitation hospital (or units--both 
referred to as IRFs) compared to other settings. A few studies have 
shown that patients with hip fractures actually do no better in IRFs 
than in skilled nursing facilities (SNFs). On the other hand, one study 
showed stroke patients did better in IRFs than in SNFs.
    We believe a focused research program offers the best approach to 
generate the data needed for continued assessment of the efficacy of 
rehabilitation services in various settings. In particular, the two 
questions most in need of objective, outcomes-oriented answers with 
respect to IRFs are: (1) How better to identify those patients who are 
most appropriate for intensive medical rehabilitation resources 
provided in the IRF setting as opposed to alternative care settings 
(such as acute hospital, skilled nursing facilities, home health 
rehabilitation, or outpatient rehabilitation)? and (2) what conditions, 
in addition to those in Sec.  412.23(b), are frequently cited as 
typically requiring the intensive rehabilitation treatment available in 
IRFs but not in alternative care settings? Because of the relative 
absence of appropriate evidence-based outcomes-oriented clinical 
research studies in the peer-reviewed medical literature, CMS maintains 
an interest in encouraging this type of research and understanding the 
optimal approaches to answering the questions articulated above. We are 
concerned that simply convening a group of medical rehabilitation 
experts in the form of a consensus panel would only reflect ``expert 
opinions'' of the individuals involved without the benefit of advancing 
the more rigorous scientific studies needed in this area.
    To assist in facilitating better understanding in this area, we 
expect to convene a research panel early in the transition period to 
review the current medical literature and identify optimal approaches 
to conducting studies in this area. This panel would have two primary 
purposes. First, based on the evidence currently available, it will 
consider which are the most appropriate clinical conditions for care in 
IRFs. Second, it will formulate a research agenda to assist in 
developing scientific studies to examine this question. We believe this 
approach will enhance the understanding of care in this important 
setting and provide the potential to inform future policy changes under 
Medicare. This panel will provide an opportunity for public input.
    We anticipate that the panel will discuss available (or soon to be 
available) evidence to support some of the conditions identified by 
commenters to the September 9, 2003 proposed rule, the availability of 
data sources to support research, and the appropriate research design 
for studies in this area. This group would also explore available 
options to direct clinical research studies and identify the most 
optimal approach to establishing a research program that would provide 
meaningful and useful answers to the questions posed above. This group 
could also draw on the knowledge and experience of the clinical 
researchers with demonstrated expertise in the field of rehabilitation 
with published findings in the peer-reviewed medical literature. While 
CMS may not directly sponsor research or clinical trials in this area, 
we believe this type of discussion will help focus the medical research 
community on this important public policy area and aid us in our 
continued review of medical trends in rehabilitation.
    We will also determine the feasibility of periodically holding 
these types of meetings to identify the latest research findings in 
this area and potential for future studies to inform this policy area. 
This will assist CMS in its ongoing monitoring of the policy, and the 
need for future changes in policy to conform to appropriate trends in 
medical practice. CMS will also periodically solicit comments from the 
public for data and studies through its annual rulemaking process 
associated with the IRF PPS, and discuss the need for changes with 
experts in commercial insurance, the health care industry, and academic 
researchers.
    Comment: Many commenters asserted that the proposed changes to 
``polyarthritis'' will limit the patients counted as meeting revised 
Sec.  412.23(b)(2)(iii). Some commenters stated that for years, FIs 
have made the determination that an IRF admission following a lower 
joint replacement due to arthritis is counted as meeting the term 
polyarthritis in current Sec.  412.23(b)(2).
    Response: We do not agree with the assertions that we have changed 
the circumstances under which these cases can be considered as cases 
that meet the medical condition polyarthritis. We believe the confusion 
regarding the circumstances in which such cases can be counted as a 
case that meets current Sec.  412.23(b)(2) can be attributed to a 
variety of causes, such as inadequate communication, misinterpretation 
by providers of current criteria, and insufficient monitoring. In 
addition, confusion regarding polyarthritis, which is acknowledged by 
many clinicians not to represent any clearly defined clinical condition 
because it can be defined differently by clinicians, has been 
compounded by insufficient and inconsistent procedures being used to 
verify compliance with current Sec.  412.23(b)(2). For example, some 
FIs were using statistical sampling methods to obtain pertinent patient 
record data, and then analyzing that data in order to determine which 
cases met the provisions of current Sec.  412.23(b)(2). However, many 
other FIs were simply allowing the IRF to self-attest that it was in 
compliance with the provisions of current Sec.  412.23(b)(2), and not 
independently verifying that the IRF was actually complying with these 
requirements.
    In order to clarify the meanings of the medical conditions 
specified in current Sec.  412.23(b)(2), as discussed more fully in the 
preamble, we are amending Sec.  412.23(b)(2) by removing the medical 
condition ``Polyarthritis, including rheumatoid arthritis'' and now 
substituting four groups of arthritis conditions.
    Comment: We received many comments related to the medical 
management and monitoring of patients undergoing rehabilitation. 
Commenters believe that patients with medical conditions not specified 
in proposed Sec.  412.23(b)(2)(iii) who do not receive rehabilitation 
services in an IRF would be denied the level of medical management and 
monitoring that they need. For example, commenters believe patients who 
receive rehabilitation for single joint replacement in an IRF also have 
other serious medical conditions that are best medically managed in an 
IRF. Commenters believe that for patients undergoing rehabilitation, 
the medical management received in an IRF results in faster and 
enhanced improvement by the patient. They also believe that patients 
denied the option of being treated in an IRF will be discharged home, 
where they will not be adequately cared for or medically monitored, 
leading to these patients being more frequently re-hospitalized in

[[Page 25764]]

acute care hospitals. In addition, commenters believe that compared to 
other rehabilitation programs, IRFs provide the best education to 
patients in adapting to lifestyle changes caused by impairment and/or 
the use of adaptive devices.
    Response: An IRF is an inpatient hospital setting designed to 
provide the specialized, intensive, interdisciplinary level of care 
that certain types of patients need. For example, a stroke patient is 
much more likely to require physical and occupational therapy and 
speech and language pathology services that are well coordinated for 
their medical problems, but not all stroke patients require this level 
of care. Conversely, there may be a patient, for example, with a 
cardiac problem who also might require the specialized and intensive 
multidisciplinary rehabilitation services an IRF furnishes, and this 
patient could also be admitted to an IRF. However, patients who require 
medical management but not intensive, interdisciplinary rehabilitation 
can be cared for in another setting. The fact that care in an IRF may 
be convenient for other patients who require more intensive medical 
management does not make it the most appropriate clinical treatment 
setting nor the most optimal use of intensive rehabilitation resources 
uniquely provided by IRFs. For example, a post cardiac transplant 
patient may need to be seen daily by cardiologists and surgeons for 
medical management, but the deconditioning and possible steroid 
myopathy do not generally require intensive multidisciplinary inpatient 
rehabilitation. Without supporting data or studies, we do not believe 
conditions such as transplants or other complex medical conditions 
should be added to the list of conditions that can be used to define an 
IRF. However, cases with such conditions may be considered part of the 
percentage of cases with conditions not included in revised Sec.  
412.23(b)(2)(iii).
    Commenters provided no documentation or reference to the medical 
literature to support their assertion that patients denied the option 
of being treated in an IRF will be discharged home with worse outcomes. 
These patients have the option of obtaining rehabilitation services in 
a SNF setting where their physicians can provide close medical 
oversight and guidance.
    Comment: One commenter stated that the polyarthritis definition has 
been commonly understood to include joint replacements, and that our 
proposed revisions represent a departure from this common 
understanding.
    Response: We know of no CMS policy that states that joint 
replacements were ever recognized as polyarthritis. In addition, for at 
least the past 5 years, we have met often with industry representatives 
and have consistently expressed our position that joint replacements 
did not meet the polyarthritis condition used to classify IRFs. 
Although industry representatives have repeatedly urged us to change 
our interpretation, we believe the agency's guidance has been 
consistent and based on the best data available to us.
    Comment: Some commenters oppose the requirement of prior therapy 
for osteoarthritis patients because it poses a burden on beneficiaries 
and would be difficult for providers to verify.
    Response: Osteoarthritis is a chronic disease that develops over 
years, unlike rheumatoid arthritis, systemic lupus erythematosus, and 
related diseases that can exacerbate more rapidly. The rehabilitation 
prescriptions typically involve outpatient therapy several times a week 
for 4 weeks or more. (Recent reviews of this literature which support 
this include Hurley, M.V., Muscle Dysfunction and Effective 
Rehabilitation of Knee Osteoarthritis: What We Know and What We Need to 
Find Out, Arthritis and Rheumatism [Arthritis Care and Research], 49, 
444-52, 2003 and Bischoff, H.A. and Roos, E.M., Effectiveness and 
safety of strengthening, aerobic, and coordination exercises for 
patients with osteoarthritis, Current Opinion in Rheumatology, 15: 141-
144, 2003.)
    Although we recognize that some very unusual cases may require the 
intensive, multidisciplinary services available at an IRF without prior 
outpatient treatment, we believe that patients should have participated 
in a course of appropriate, sustained, and aggressive outpatient 
treatment before the more intensive treatment in an inpatient setting 
is determined to be medically reasonable and necessary because of the 
chronic nature of osteoarthritis. We want to be able to count patients 
who are appropriate for an intensive, interdisciplinary rehabilitation 
inpatient treatment as cases that count towards one of the conditions 
in the revised Sec.  412.23(b)(2)(iii). Thus, we believe the 
requirement for prior therapy is appropriate. The reduced percentage 
standard allows IRFs to have the option to treat more exceptional 
patients who do not meet this criterion of prior therapy; nevertheless, 
we believe that the requirement is consistent with the pathophysiology 
of osteoarthritis and with the literature on its appropriate treatment.
    Comment: Some commenters indicated that a joint replaced by a 
prosthesis still has arthritis and should be counted as having 
osteoarthritis, citing a definition of arthritis: ``the pathology of 
osteoarthritis involves the whole joint including focal and progressive 
hyaline articular cartilage loss with concomitant changes in the bone 
underneath the cartilage, including development of marginal outgrowth, 
osteophytes, and increased thickness of the bony envelope (bony 
sclerosis). Soft tissue structures in and around the joint are also 
affected, including synovium, which may show modest inflammatory 
infiltrates, ligaments, which are also often lax; and bridging muscle, 
which becomes weak.'' (Felson, DT, Lawrence, RC, Dieppe, PA et al, 
Osteoarthritis: New Insights. Annals of Internal Medicine 133: 635-646, 
2000.
    Response: Surgery to implant a total joint replacement removes the 
hyaline cartilage, underlying bone, and joint synovium. ``Total hip 
arthroplasty is an operative procedure in which the diseased hip joint 
is resected and replaced with a synthetic acetabulum, femur, and 
polyethelene liner fixed to bone by cement or bone ingrowth.'' 
(Brandler, VA and Mullarkey, CF, Rehabilitation After Total Hip 
Replacement for Osteoarthritis., Physical Medicine and Rehabilitation: 
State of the Art Reviews, 16: 415-430, 2002) ``In total knee 
arthroplasty, both the femoral and tibia sides of the joint are 
replaced using either a long or short stem, most commonly fixated with 
cement.'' (Mullarkey, CF, and Brandler, VA, Rehabilitation After Total 
Knee Replacement for Osteoarthritis., Physical Medicine and 
Rehabilitation: State of the Art Reviews, 16: 431-443, 2002) Some of 
the ligaments may also be removed, but others may be retained. 
Osteoarthritis is ``degeneration of articular cartilage and reactive 
changes in surrounding bone and periarticular tissue.'' (Wise, C. 
Osteoarthritis, Scientific American Medicine, 2001 from WebMD 2003) 
However, the residual, secondary effects of osteoarthritis, for 
example, the effects on ligaments and muscles surrounding the joint, do 
not continue to define arthritis in the patient. This description of 
osteoarthritis is consistent with ICD-9-CM diagnosis coding. 
Furthermore, a patient's care differs considerably once a prosthetic 
has been placed as compared to care prior to the joint replacement, 
indicating the distinction between the two conditions.

[[Page 25765]]

    For this reason, only joints without joint replacement will be 
counted as joints with arthritis.
    Comment: Commenters recommended that we use two joints rather than 
three joints to determine if a case complies with the arthritis-related 
conditions.
    Response: After considering the comments, we are aware of the 
ambiguity in the number of major joints needed to describe the extent 
of osteoarthritis that would typically require intensive rehabilitation 
treatment in an IRF. Although some of the experts agreed with the 
three-joint standard, conflicting opinions would suggest that this 
issue may need additional study. Until we have more information or 
clinical outcomes studies that provide data to address this issue, we 
will revise the standard for osteoarthritis and consider a patient who 
has two major, weight bearing joints (that is, shoulders, elbows, hips, 
and knees, but not including joints with a prosthesis) with severe 
osteoarthritis manifested by joint deformity, substantial loss of range 
of motion, atrophy of surrounding muscles, significant functional 
impairment of ambulation and other activities of daily living, as 
described in the proposed regulations, to count as one of the now 13 
conditions that could be counted in revised Sec.  412.23(b)(2)(iii). We 
believe using the two joint standard provides greater flexibility for 
the IRF to select patients who require intensive interdisciplinary 
inpatient rehabilitation. As we develop additional information to 
determine whether osteoarthritis of two or three joints better defines 
the type of osteoarthritis typically requiring intensive inpatient 
rehabilitation, we will, at this time, give IRFs the flexibility of 
using the lower standard of two joints. The regulatory language will be 
modified accordingly.
    Comment: Commenters stated that we offer no explanation or 
reasoning for choosing DRGs 484, 485, and 486 to define ``major 
multiple trauma.'' Instead, commenters propose the use of the Injury 
Severity Score (ISS) with a score of 16 or higher.
    Response: We chose these DRGs to define major multiple trauma 
because they are consistent with the use of the term in IPPS, and 
because we believe the acute care classification scheme is used by 
coders generally and is well understood. Thus, we do not believe this 
definition narrows the current concept. We are concerned that some 
fractures of multiple bones, especially tibia and fibula, radius and 
ulna, or multiple bones of ankle or wrist do not represent major trauma 
and do not require intensive inpatient rehabilitation and should not be 
counted towards the condition of major multiple trauma. We would be 
open to exploring the possibility of modifying the standard, but at 
present, we are concerned that the ISS may not be used nationwide in 
all acute care hospitals or be as available to many IRF staff as the 
DRG classification of the acute hospital admission.
    Comment: One commenter believes that we lack concern for patient 
safety. They cite the CMS Nursing Home Compare data that only 30 
percent of short stay SNF residents walk as well or better after 
discharge.
    Response: The CMS Nursing Home Compare website presents quality 
measure data for SNFs showing the percentage of short stay, independent 
residents (residents who are expected to stay for a short period of 
time) who walked better on day 14 than on day 5 of their stay or who 
walked independently on day 5 and maintained that level on day 14. The 
measure is based on Minimum Data Set (MDS) assessments. The national 
average on this quality measure is 30 percent, as the commenter noted. 
It is important to the interpretation of these data to point out that 
the measure includes all residents admitted to the SNF under Medicare 
SNF PPS payment (except coma patients, ventilator-dependent patients, 
paraplegic or quadriplegic patients, and patients receiving hospice 
care). This includes a wide range of patients who are being admitted to 
the SNF for a wide variety of reasons, even including residents who may 
have been in nursing homes before a qualifying hospital stay and who 
are now being admitted to the SNF under Medicare SNF PPS after the 
acute hospital admission. A further qualifier is that the patient must 
have had an MDS assessment at both day 5 and day 14 of the stay to be 
represented in this measure. If a patient improved so much that he or 
she was discharged before day 14, then that patient would not be 
included in the data.
    For the reasons discussed, we believe that the CMS Nursing Home 
Compare data do not reflect the efficacy of rehabilitative care in a 
SNF and are inappropriate to be compared with outcome data from IRFs. 
Thus, we do not believe that providing certain patients rehabilitation 
services in a SNF impairs the patient's safety.
    Comment: Some comments suggested that some knee or hip joint 
replacement patients should be counted towards the conditions 
satisfying a revised Sec.  412.23(b)(2)(iii) where the treatment is 
complicated because of certain special circumstances, such as patients 
with bilateral replacements, obese patients, and very elderly patients.
    Response: Although we are still hampered by the lack of data on the 
relative efficacy of rehabilitation in different settings, we will 
recognize certain categories of hip and joint replacement patients as 
countable under revised Sec.  412.23(b)(2)(iii). Although we still 
believe that additional studies are needed, we will add a condition to 
account for these special circumstances. The 13th condition will 
include patients who undergo knee and/or hip joint replacement during 
an acute hospitalization immediately preceding the IRF stay and also 
meet at least one of the following specific criteria:
     Underwent bilateral knee or hip joint replacement surgery 
during the acute hospitalization immediately preceding the IRF 
admission.
     Are extremely obese patients as measured by the patient's 
Body Mass Index (BMI) of at least 50, at the time of admission to the 
IRF.
     Are patients considered to be ``frail elderly,'' as 
determined by a patient's age of 85 or older, at the time of admission 
to the IRF.
    Although the industry suggests a variety of patients to be added, 
these three groups of patients were mentioned most consistently. The 
patients with bilateral hip and/or knee joint replacements typically 
are more challenging to treat in a rehabilitation setting. These 
patients are likely to have weight bearing restrictions on both of 
their lower limbs, which explains why they are likely to require more 
intensive, specialized inpatient rehabilitation treatment.
    We believe that the BMI, ratio of a patient's weight (in kilograms) 
to the height (in meters squared), is the standard that is widely 
recognized within the medical community as a measure of obesity. We 
will use the BMI to determine if the patient is extremely obese and, 
when receiving rehabilitation after a joint replacement, is much more 
likely to require more skilled therapy personnel and specialized 
equipment. Patients would be considered extremely obese if their BMI 
was at least 50 at the time of admission to the IRF.
    The industry representatives also cited that some very elderly 
patients may require intensive inpatient multidisciplinary 
rehabilitative care. These patients are often characterized as the 
``frail elderly.'' Again, although we anticipate better data in the 
future regarding the appropriateness of setting for inpatient 
rehabilitation for the frail elderly, at the present, we will allow 
very elderly patients, following replacement of a hip or knee (likely 
to

[[Page 25766]]

result from osteoarthritis) who require multidisciplinary 
rehabilitative care to be counted under revised Sec.  
412.23(b)(2)(iii). Patients would be considered frail, elderly, if at 
the time of admission to the IRF, the patient is age 85 or older.
    We have revised our regulations at revised Sec.  412.23(b)(2)(iii) 
to reflect this change in policy. All admitted patients must still meet 
coverage requirements for IRF care and be able to actively participate 
in 3 hours of multidisciplinary rehabilitation and have the physical 
and cognitive capacity to benefit from the rehabilitation treatment.
    As noted in a previous comment, we have also decided to amend the 
proposed definition for osteoarthritis and consider a patient who has 
two major, weight-bearing joints (that is, shoulders, elbows, hips, and 
knees, but not counting any joint with a prosthesis) with severe 
osteoarthritis manifested by joint deformity, substantial loss of range 
of motion, atrophy of surrounding muscles, and significant function 
impairment of ambulation and other activities of daily living, as 
described in the proposed regulation, to now count as one of the 13 
conditions that could be counted in the revised Sec.  
412.23(b)(2)(iii). The regulatory language will be modified 
accordingly.

VI. Time Period To Determine Compliance

    Under our current regulations at Sec.  412.23(b)(2), Sec.  
412.30(c), and Sec.  412.30(d)(2)(ii), we require that data from ``the 
most recent 12-month cost reporting period'' be used to determine 
compliance with the existing 75 percent rule (68 FR 53274). In the 
September 9, 2003 proposed rule, we proposed to amend the above 
sections to specify that data from the most recent, consecutive, and 
appropriate 12-month period of time be used to determine compliance 
with the proposed 65 percent rule.
    As stated in the proposed rule, the intent of the proposed 
provision was to ensure that a full 12-month period of time is used to 
determine compliance with the proposed compliance threshold. However, 
in the proposed rule we recognized that using 12 months of patient data 
for the initial cost reporting periods affected by these proposed 
changes would mean that some data would be from a period that is before 
the effective date of the final rule. Therefore, we stated that it 
would be necessary to institute a transition period for those cost 
reporting periods where the most recent 12-month period of time 
includes admissions that occur before the effective date of the final 
rule. Accordingly, to ensure that admissions occurring before the 
effective date of the final rule are not counted in an IRF's compliance 
percentage, the FIs and the affected IRFs will be given the specific 
procedures regarding what time period the FIs will use to verify 
compliance during the transition from the 75 percent rule to the 
compliance threshold as specified in revised Sec.  412.23(b)(2)(i) and 
(b)(2)(ii).
    Comment: Some commenters recommended that we continue to use data 
from an IRF's most recent 12-month cost reporting period to determine 
compliance with the proposed compliance threshold. Other commenters 
recommended that, due to seasonal variations of patients treated, we 
should use a full year of data, or use the most recent entire 12-month 
cost reporting period beginning after the effective date of the final 
rule. Some commenters were also concerned that patient data may overlap 
when making a determination over 2 consecutive 12-month periods.
    Response: We believe that the use of a cost reporting period, 
usually of 12 months' duration, does not provide the FI sufficient time 
to collect 12 months of patient data, make a compliance determination, 
and administer the process necessary to possibly change an IRF's 
classification before the start of the subsequent cost reporting period 
if the requirements were not met. As stated in the proposed rule, the 
intent of the proposed provision is to ensure that a full 12-month 
period of time is used to determine compliance with the classification 
criteria. We recognize that the Regional Office (RO) and FI need 4 
months to complete their compliance reviews. (The RO and FI need 4 
months to complete the review because the FI must determine, before the 
start of an IRF's next cost reporting period, whether the IRF meets the 
threshold criteria and the FI must communicate the results of its 
compliance review to the RO. If the IRF failed to meet the compliance 
threshold, the RO would need sufficient time to notify the facility 
that it will no longer be classified as an IRF beginning with the start 
of its next cost reporting period.) We note that the 4-month period 
that the RO and FI need to perform their tasks presents a unique 
problem for any IRF that has a cost reporting period beginning on or 
after July 1, 2004 and before November 1, 2004 (that is, 4 months 
following the effective date of this final rule). This is because the 
FI cannot collect 12 months of the most recent, consecutive, and 
appropriate data from a period falling completely after, as opposed to 
before, the effective date of this final rule and have the 4 months 
lead time necessary to make the compliance determination. To 
illustrate, to determine whether a hospital with a cost reporting 
period beginning on July 1, 2004 should continue to be an excluded 
rehabilitation hospital for the cost reporting period beginning on July 
1, 2005, the FI would have to start its compliance review at the end of 
February 2005. This means that the most recent, consecutive, and 
appropriate data from a period after, as opposed to before, the 
effective date of the final rule is July 1, 2004 through February 28, 
2005. If the FI were forced to use 12 months of data from a period 
before March 1, 2005, the FI would be using 8 months of patient case 
data following the effective date of the final rule (July 1, 2004 to 
February 28, 2005) and 4 months of patient case data occurring before 
the effective date of this final rule (from June 2004 back to March 
2004). We believe it is important to use patient case data from a 
period after the effective date of the final rule because we believe it 
is appropriate to apply our rules prospectively and not judge IRF 
behavior before July 1, 2004 by rules that were not effective until 
July 1, 2004. Therefore, because we do not want to use data before the 
effective date of the final rule, we have adopted a transition policy 
that accounts for the fact that FIs need 4 months to complete their 
compliance review. Also, IRFs should be judged by patient case data 
from a period after the effective date of the final rule to determine 
compliance with the classification criteria. (Note: It is only those 
IRFs that have a cost reporting period beginning on July 1, 2004 and 
before November 1, 2004 that will be judged on less than 12 months of 
data. As explained above, this occurrence is inevitable in this first 
year of implementation.)
    In addition, we note that for FIs to base their compliance review 
on the most recent, consecutive, and appropriate data from a period 
falling after the effective date of this final rule, FIs will examine 
patient case data from all IRFs that occurs on or after July 1, 2004. 
Thus, the later an IRF's cost reporting period begins in 2004, the more 
patient case data an FI will have available to it to make the 
compliance determination. We have included a chart in this section of 
the preamble entitled ``Establishing The 12-Month Review Period'' that 
shows the initial compliance review time period for IRFs whose cost 
reporting periods begin during the first 12 months after the effective 
date of this final rule.
    We will provide the FIs and affected IRFs with the following 
general

[[Page 25767]]

procedures regarding the establishment of the review period used to 
verify compliance with the applicable percentage:
     A determination of non-compliance with the compliance 
threshold will affect the IRF's classification for its cost reporting 
period that begins after the 12-month review period. Similar to the 
current procedures for converted beds, if an IRF loses its 
classification and wishes to reapply to obtain classification as an IRF 
in a subsequent cost reporting period, the IRF is responsible for 
contacting its FI and CMS Regional Office prior to the beginning of 
that affected cost reporting period. The FI and RO would tell the IRF 
what the most recent, consecutive, and appropriate 12-month period 
would be used as the review time period.
     Patient data from any period before the effective date of 
this final rule will not be included in the 12-month review period.
     The standard period of time FIs and ROs may take to make 
and administer a determination of compliance with revised Sec.  
412.23(b)(2)(i) and (b)(2)(ii) is 4 months. If for any reason the FI 
requires additional time to make a determination, the FI must consult 
with the IRF prior to changing the period subject to review and before 
using patient data that may overlap patient data from the previous 12-
month review period. However, we expect that these exceptions will be 
relatively infrequent. Our instructions will provide guidance to the FI 
and CMS Regional Offices to establish and maintain a consistent 12-
month review period from year to year for each IRF.
    Given the general procedures described above, we have illustrated, 
in Chart 1 below, the establishment of review periods over the first 13 
months of cost reporting periods affected by this final rule.

                                Chart 1.--Establishing the 12-Month Review Period
----------------------------------------------------------------------------------------------------------------
                                                                                                    Compliance
                                                                                                   determination
                                                                                     Number of      applies to
  For cost reporting periods beginning on:   Review period: (addmissions during)     months in    cost reporting
                                                                                   review period      period
                                                                                                   beginning on:
----------------------------------------------------------------------------------------------------------------
07/01/2004.................................  07/01/2004-02/28/2005..............               8      07/01/2005
08/01/2004.................................  07/01/2004-03/31/2005..............               9      08/01/2005
09/01/2004.................................  07/01/2004-04/30/2005..............              10      09/01/2005
10/01/2004.................................  07/01/2004-05/31/2005..............              11      10/01/2005
11/01/2004.................................  07/01/2004-06/30/2005..............              12      11/01/2005
12/01/2004.................................  08/01/2004-07/31/2005..............              12      12/01/2005
01/01/2005.................................  09/01/2004-08/31/2005..............              12      01/01/2006
02/01/2005.................................  10/01/2004-09/30/2005..............              12      02/01/2006
03/01/2005.................................  11/01/2004-10/31/2005..............              12      03/01/2006
04/01/2005.................................  12/01/2004-11/30/2005..............              12      04/01/2006
05/01/2005.................................  01/01/2005-12/31/2005..............              12      05/01/2006
06/01/2005.................................  02/01/2005-01/31/2006..............              12      06/01/2006
07/01/2005.................................  03/01/2005-02/28/2006..............              12      07/01/2006
----------------------------------------------------------------------------------------------------------------

    Using Chart 1, the transition period, where less than a 12-month 
period of time would be necessary, is for cost reporting periods 
beginning on or after July 1, 2004 and before November 1, 2004. For 
cost reporting periods beginning on November 1, 2004 and beyond, the 
most recent, consecutive, and appropriate 12-month period of time would 
be used, giving the FIs and CMS Regional Offices a 4-month time period 
to make and administer a compliance determination. We believe that the 
provision as proposed and described above achieves our basic intent of 
establishing a full 12-month review period that is equitable to the 
IRFs by accounting for any variations (including seasonal variations) 
in patients treated and to the authorities responsible for 
administering the compliance determinations. Therefore, we are not 
adopting the recommendations and are instead adopting the provisions as 
described earlier.

VII. Other Issues

A. General FI Operational Instructions

    In the September 2003 proposed rule, we explained that we will take 
the necessary action to ensure that the proposed compliance policies 
are consistently enforced on IRFs across all FIs. We will issue 
instructions to the FIs and provide guidance to the clinical/medical FI 
personnel responsible for performing the compliance reviews to ensure 
that they use a method that consistently counts only cases with a 
diagnosis that both serves as the basis for the intensive 
rehabilitation services that the IRF would furnish, and meets one of 
the medical conditions specified in revised Sec.  412.23(b)(2)(iii). In 
addition, we plan to instruct the FIs in the use of a presumptive 
eligibility test for verifying compliance with revised Sec.  
412.23(b)(2)(i) that includes only Medicare cases determined to be 
``reasonable and necessary.''

B. Administrative Procedure Act

    Comment: We received a number of comments asserting that some of 
the revisions we proposed (or the manner in which we proposed them) 
failed to comply with the requirements of the Administrative Procedure 
Act (APA). For example, commenters noted that we proposed to introduce 
certain qualifying criteria that would have to be met in order to 
include joint replacement cases with an underlying diagnosis of 
osteoarthritis under our proposed osteoarthritis definition. The 
commenters noted that such cases are currently included under the 
existing ``polyarthritis'' definition without having to meet the new 
qualifying criteria, and characterized our proposal as an abrupt change 
from longstanding practice for which we failed to provide an adequate 
explanation, and which, therefore, would not withstand scrutiny under 
the APA. Some of the commenters suggested that under our proposed 
criteria, facilities might turn away Medicare and non-Medicare patients 
with non-listed conditions in order to avoid jeopardizing their IRF 
status. These commenters argued that we failed to consider the impact 
this practice would have on the patients,

[[Page 25768]]

thus rendering our proposals arbitrary and capricious. They also argued 
that this practice would result in an irrational manner of allocating 
care that would not withstand scrutiny under the APA. Commenters also 
asserted that the proposed implementation date of January 1, 2004, 
which would occur 58 days after the close of the public comment period 
on the proposed rule, would leave insufficient time in developing a 
final rule to give adequate consideration to the comments that we 
received.
    Response: Regarding the policy on including joint replacements 
under the proposed osteoarthritis definition, we note that in section 
II.B of the proposed rule, we specifically acknowledged ``* * * that 
the industry has interpreted polyarthritis to include hip and knee 
joint replacement cases * * *'' (68 FR 53271). We went on to observe, 
however, that merely because some joint replacement cases are currently 
being treated in IRFs does not, in itself, establish this setting as 
being the most appropriate one for these cases. Rather, we expressed 
our belief that the current use of this particular setting for those 
cases may well be driven by other, non-medical factors, such as the 
presence of strong reimbursement incentives to send patients to IRFs, 
which have influenced the choice of setting for patients' care. 
Accordingly, we proposed the additional criteria in connection with a 
new osteoarthritis definition in order to ensure that the cases 
identified by this new definition are, in fact, the ones that are 
clinically appropriate for treatment in this particular setting. It was 
precisely because the proposed osteoarthritis definition represented a 
change from current policy that we included it in the proposed rule, in 
order to provide the opportunity for public comment on it. In this 
context, we also specifically invited the submission of any ``* * * 
data or studies that might provide evidence about whether certain 
patients had better outcomes as a result of care in IRFs'' (68 FR 
53272). Regarding the comments on the potential impact that our 
proposed changes might have on access to care, we most certainly 
crafted our proposed policies to ensure that patients needing intensive 
rehabilitation services continue to receive such care. We note that the 
proposed rule set forth our plans to conduct a detailed 3-year analysis 
of ``* * * both claims and patient assessment data to examine trends in 
admissions and overall utilization in IRFs'' (68 FR 53273). Further, we 
proposed to lower the threshold percentage of cases that serve to 
identify an institution as an IRF from 75 percent to 65 percent during 
this 3-year period, specifically in order to mitigate any unintended 
effects on access to care while we perform this analysis (68 FR 53270).
    Finally, regarding the concerns expressed about our ability to 
adequately consider and respond to public comments due to the timeframe 
between the close of the comment period and the proposed implementation 
of a final rule, we assure the public that we have given meaningful 
consideration to the public comments timely received. We fully consider 
all public comments timely received on proposed rules, regardless of 
the timeframe between the close of a comment period and the publication 
and implementation of a final rule. (In addition, we note that 
publication of this final rule is more than 100 days after the close of 
the public comment period and implementation is more than 180 days 
after the close of the comment period.) We believe that IRFs will have 
sufficient time, after publication of this final rule, to begin to make 
any necessary adjustments to their patient populations in order to meet 
the compliance threshold for being classified as an IRF.

C. Assumptions Used for Impact Analysis Section

    For the impact analysis in the September 9, 2003 proposed rule (68 
FR 53276), it was necessary to make certain assumptions about the 
effects of amending Sec.  412.23(b)(2). The diagnoses listed in 
Appendix A in the ``Case Mix Certification Rule for Inpatient 
Rehabilitation Facilities'' report, published in May 2003, developed by 
Rand, identified cases that would meet the current 75 percent rule. The 
report showed that a large number of cases with possible arthritis-
related joint replacements did not meet the current 75 percent rule. We 
stated in the September 9, 2003 proposed rule that it is difficult to 
determine the exact number of joint replacement cases that would meet 
the proposed criteria without extensive medical record data. Therefore, 
to estimate the impacts on the various classifications of IRFs shown in 
Chart 2, we chose the assumption that an additional 35 percent (we 
considered the range of 20 percent to 60 percent in the proposed rule, 
35 percent is approximately in the middle of that range) of the joint 
replacement cases would meet the proposed clinical criteria as set 
forth in the proposed rule.
    Comment: Some commenters disagreed with our assumption that an 
additional 35 percent of the joint replacement cases would meet the 
clinical criteria set forth in the proposed rule. Another commenter 
believed that the percent would probably be higher than 35 percent. 
Other commenters thought that 35 percent was probably too high because 
the criteria were rather restrictive, in their opinion. Several 
commenters stated that our assumption of an additional 35 percent was 
reasonable based on their professional experience.
    Response: After considering all comments and adopting the clinical 
criteria as stated in section V, we believe that between 40 percent and 
70 percent of joint replacement patients will count toward meeting the 
compliance threshold as specified in Sec.  412.23(b)(2)(i) and 
(b)(2)(ii). We believe these changes, such as the clarifications to 
arthritis medical condition, will increase the number of joint 
replacement patients counting in the new 50 percent requirement more 
than what we assumed in the proposed rule. These final criteria are 
less restrictive than those in the proposal when we assumed a range of 
20 percent to 60 percent. Therefore, we believe that the 40 to 70 
percent range is reasonable and will be used in the impact analysis of 
the final rule in section XII.
    Comment: Commenters disagreed with our suggestion that 
reimbursement incentives or incorrect FI interpretations, rather than 
medical advances, have led to changing IRF populations.
    Response: It is well recognized that reimbursement incentives 
influence providers' practices. For example, Leighton Chan et al showed 
that Medicare's payment system for rehabilitation hospitals under the 
Tax Equity and Fiscal Responsibility Act (TEFRA) appears to have 
increased the length of stay and costs of care in rehabilitation 
hospitals (Chan, L. Koepsell, TD. et al., The Effect of Medicare's 
Payment System for Rehabilitation Hospitals on Length of Stay, Charges, 
and Total Payments, New England Journal of Medicine 337:978-985, 1997.) 
Although there are no studies that directly assess the effect of 
reimbursement incentives, a recent study which examines post-operative 
rehabilitation practices in the U.S. compared to in England and in 
Australia suggests that reimbursement practices in the various 
countries affect the site of service for certain types of patients. 
(Lingard, EA. Berven, S. Katz, JN. and Kinemax Outcome Group, 
Management and Care of Patients Undergoing Total Knee Arthroplasty: 
Variation Across Different Health Care

[[Page 25769]]

Settings, Arthritis Care and Research, 13:129-136, 2000) These authors 
found that ``in the combined U.S. cohort, type of health insurance 
significantly influenced whether or not a patient went to an extended 
care facility (a rehabilitation hospital or a SNF) with Medicare 55 
percent and 33 percent non-Medicare'' and that ``use of inpatient 
rehabilitation following discharge from the acute hospital is extremely 
rare in the UK.'' Rehabilitation use in Australia also varied with 
payment mechanism, suggesting that the influence of payment on medical 
practices is not limited to the U.S.
    We would again welcome any additional studies on this issue, and we 
encourage researchers to engage in appropriate studies to provide 
additional knowledge on this issue.
    Comment: Some commenters suggested that the standard to determine 
compliance be changed from using ``admissions'' to using ``patient 
days.''
    Response: Using days of care is a lower standard than admissions 
and considerably loosens the existing standard. Analysis of historical 
data shows that 50 percent of admissions was the same as 63 percent of 
patient days. Furthermore, this percentage is easily modified either by 
shortening lengths of stays of patients who will not count towards the 
standard or lengthening a patient stay that counts towards the 
standard. If we want to assure that a hospital has the capacity to 
serve patients with certain types of conditions, then we should count 
admissions rather than patient days. As was stated in our earlier 
response to comments, we continue to believe that a hospital should be 
categorized by the types of patients admitted, not by their lengths of 
stay.
    We addressed a similar comment described in the January 3, 1984 
final rule (49 FR 240) whereby the commenter asked to specify whether 
the 75 percent rule is applied to discharges or patient days. In our 
response to that comment, we stated that, ``The 75 percent rule applies 
to the inpatient population. The population could be measured by either 
the number of admissions or discharges from a hospital or a unit * * * 
but not by its number of patient-days. This approach is consistent with 
the study used to develop the sample screening criteria, which showed 
that 75 percent of the admissions included in the study data were for 
certain medical conditions''. We continue to believe that admissions or 
discharges are the most appropriate measure for determining compliance 
with the compliance threshold. Therefore, we are not adopting the 
commenter's suggestion.

VIII. Provisions of the Final Regulations

    This final rule adopts the provisions of the September 9, 2003 
proposed rule except as we have specified in the preamble. We have made 
the following changes from the proposed rule:
     We are modifying the ``sunset'' policy specified in the 
September 2003 proposed rule that lowered the threshold from 75 percent 
to 65 percent during the time period from January 1, 2004, to December 
31, 2006, the compliance. For cost reporting periods beginning on or 
after July 1, 2004, the compliance threshold will be as follows:

--For cost reporting periods beginning on or after July 1, 2004, and 
before July 1, 2005, the compliance threshold will be 50 percent of the 
IRF's total patient population.
--For cost reporting periods beginning on or after July 1, 2005, and 
before July 1, 2006, the compliance threshold will be 60 percent of the 
IRF's total patient population.
--For cost reporting periods beginning on or after July 1, 2006 and 
before July 1, 2007, the compliance threshold will be 65 percent of the 
IRF's total patient population.
--For cost reporting periods beginning on or after July 1, 2007, the 
compliance threshold will be 75 percent of the IRF's total patient 
population. Also a patient's comorbidity is not included in the 
inpatient population that counts towards the required 75 percent.

     We are amending Sec.  412.23(b)(2) by removing the medical 
condition ``Polyarthritis, including rheumatoid arthritis'' and 
substituting four groups of medical conditions. This provision will 
amend the standard for osteoarthritis. We will now consider a patient 
as meeting the compliance threshold if the patient has two major, 
weight-bearing joints (that is, shoulders, elbows, hips, and knees) 
with severe osteoarthritis manifested by the following:
    + Joint deformity.
    + Substantial loss of range of motion.
    + Atrophy of surrounding muscles.
    + Significant functional impairment of ambulation and other 
activities of daily living, as described in the proposed rule.
    In addition, we are adding a new condition for a total of 13 
conditions. The new condition applies to a patient that has a knee or 
hip joint replacement, or both, during an acute hospitalization 
immediately preceding the inpatient rehabilitation stay and the patient 
also meets one or more of the specific criteria in Sec.  
412.23(b)(2)(iii)(M).
    We will count the above as meeting the compliance threshold in the 
revised Sec.  412.23(b)(2)(iii).
    CMS will issue instructions to the fiscal intermediaries regarding 
how these policies are to be implemented and enforced as discussed in 
section VII.A.

IX. 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.
    Therefore, we are soliciting 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

    Under paragraph (b)(2) of this section, a hospital must show that 
during its most recent, consecutive, and appropriate 12-month time 
period (as defined by CMS or the fiscal intermediary), it served an 
inpatient population that meets the criteria under paragraph (b)(2)(i) 
or (b)(2)(ii) of this section.
    We believe that the current 1210 IRF hospitals will be affected by 
this requirement. The burden of this section is the time it takes to 
document that it served an inpatient population meeting the appropriate 
criteria and provide the documentation to CMS upon request. An IRF 
hospital will be required to maintain documentation associated with 
meeting the requirements of this section. The time it will take to 
furnish the documentation to CMS will vary

[[Page 25770]]

depending on the size of the sample that the fiscal intermediary 
requests.
    However, the burden associated with these requirements is currently 
approved under OMB number 0938-0358, ``Psychiatric Unit Criteria Work 
Sheet, Rehabilitation Hospital Criteria Work Sheet, Rehabilitation Unit 
Criteria Work Sheet'', with a current expiration date of March 31, 
2007. Upon the publication of this regulation, CMS will amend this 
collection to properly reflect the revised regulatory requirements 
associated with this collection.
    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 record 
keeping 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-1262-F, Room C5-16-03, 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]; fax to OMB: (202) 395-6974.

X. Regulatory Impact

A. Introduction

    This final rule revises the classification criterion, currently 
known as the ``75 percent rule,'' used to classify a hospital as an 
inpatient rehabilitation facility (IRF). Among other changes, this 
final rule modifies and expands the medical conditions listed in the 
current 75 percent rule regulatory requirements as well as lowers the 
percentage of patients required to fall within one of the specified 
list of medical criteria from 75 percent to 50 percent. In addition, 
this final rule responds to public comments on the September 9, 2003 
proposed rule (68 FR 53266).
    We have examined the impacts 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 Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

B. Executive Order 12866

    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns 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 1 year).
    We estimate the savings to the Medicare program, and the annual 
effects to the overall economy, will be more than $100 million. 
Therefore, similar to our determination in the RIA of the proposed 
rule, this final rule is considered a major rule.

C. Regulatory Flexibility Act (RFA) and Impact on Small Hospitals

    The RFA requires agencies to analyze the economic impact of our 
regulations on small entities. If we determine that the regulation will 
impose a significant burden on a substantial number of small entities, 
we must examine options for reducing the burden. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and governmental agencies. Most hospitals are considered small 
entities, either by nonprofit status or by having receipts of $6 
million to $29 million in any 1 year. (For details, see the Small 
Business Administration's November 17, 2000 regulation, at 65 FR 69432, 
that sets forth size standards for health care industries.) Because we 
lack data on individual hospital receipts, we cannot determine the 
number of small proprietary IRFs. Therefore, we assume that all IRFs 
are considered small entities for the purpose of the analysis that 
follows. Medicare FIs and carriers are not considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity. Accordingly, we have determined that this rule will 
have a significant impact on a substantial number of small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis for any rule that will have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 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 (MSA) and has fewer than 100 beds. This final rule 
will have a significant impact on the operations of small rural 
hospitals.

D. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of at least $110 million. This final rule will not have 
a substantial effect on the governments mentioned, or on private sector 
costs.

E. Executive Order 13132

    We examined this final rule in accordance with Executive Order 
13132 and determined that it will not have a substantial impact on the 
rights, roles, or responsibilities of State, local, or tribal 
governments.

F. Overall Impact

    For the reasons stated above, we have prepared an analysis under 
the RFA and section 1102(b) of the Act because the policies set forth 
in this final rule will have a significant impact on all IRFs (small 
entities and small rural hospitals).

G. Anticipated Effects of the Final Rule

    One of the primary purposes of the regulatory impact analysis is to 
understand the effects policies would have on facilities. As we analyze 
the impacts of our policies, we assess the extent to which these 
policies may unduly harm facilities. If there is evidence that we are 
unduly harming facilities, we make attempts to mitigate these effects, 
while ensuring that the policies are fair and achieve the intended 
policy objectives. The policy objective of the current and new Sec.  
412.23(b)(2) and of other policy criteria for IRFs is to ensure the 
distinctiveness of facilities providing intensive rehabilitative 
services in an inpatient setting. The distinctiveness of these 
facilities is what justifies paying them under a separate payment 
system as opposed to under another payment system, such as the acute 
care IPPS, which may not adequately compensate these facilities for the 
intensive rehabilitative services they are to provide. We believe it is 
crucial to ensure that IRFs are indeed providing intensive 
rehabilitation so that we pay for these services appropriately under 
the IRF PPS. In addition, we believe it is imperative to identify 
conditions that will ``typically require intensive inpatient 
rehabilitation'' in IRFs because rehabilitation in general can be

[[Page 25771]]

delivered in a variety of settings, such as acute care hospitals, SNFs, 
outpatient or home health.
    This policy objective is not new. However, the manner in which the 
existing regulations have been implemented and enforced may not have 
achieved these objectives to the extent we had intended. The policies 
set forth in this final rule are intended to accomplish these same 
policy objectives, clarify interpretational issues that have led to 
inconsistent implementation, and improve the extent to which IRFs can 
admit those patients who will need and benefit from intensive inpatient 
rehabilitative services. Therefore, although the impacts of the final 
policy changes shown below illustrate that IRFs may experience somewhat 
reduced Medicare payments from these final policies, we believe the 
impacts will show an even greater reduction in Medicare payments to 
IRFs if the existing policies were more effectively enforced.
    We discuss below the Medicare impact of this final rule on IRFs. We 
used the following data and assumptions to estimate the impacts of the 
final policies set forth in this preamble.
     As stated in section I.D. of this final rule, we used 
patient assessment data from January to August 2002 to estimate 
compliance with the 75 percent rule as published in the May 16, 2003 
proposed rule. We are using the same patient assessment data to 
construct the impact analysis set forth in this final rule.
     We used data described in the report titled ``Case Mix 
Certification Rule for Inpatient Rehabilitation Facilities'', published 
in May 2003, developed by the Rand Corporation. This report states, on 
page XIV, that 70 percent of all cases treated in IRFs are those of 
Medicare beneficiaries.
     In addition to Medicare patients, this final rule may have 
an effect on the 30 percent, or approximately 200,000, of the cases in 
IRFs that are non-Medicare. While there are numerous approaches a 
facility might take, and it is impossible to predict either the 
specific course of treatment or the financial impact, the facility 
could change both its Medicare and non-Medicare case mix in order to 
remain an IRF.
     We used regression results from page 25 of the Rand report 
to estimate that the percentage of total cases that meet the specified 
conditions for each IRF will be approximately 5 percent more than the 
percentage of Medicare cases that meet the specified conditions. 
However, other than an estimate of the size of the non-Medicare 
population that this final rule may affect, CMS does not have enough 
information to quantitatively estimate the impact to non-Medicare IRF 
cases.
     10 percent of the cases that did not meet the criteria 
will meet the criteria due to more accurate coding and removing the 
moratorium of the classification rule.
     10 percent of the cases that did not meet the criteria 
with the limited Medicare administrative data used in our analysis will 
meet the criteria using more extensive medical record data.
     The diagnoses listed in Appendix A in the ``Case Mix 
Certification Rule for Inpatient Rehabilitation Facilities'' report, 
developed by Rand, identified cases that would meet the current 75 
percent rule. The report showed that a large number of cases with 
possible arthritis-related joint replacements did not meet the current 
75 percent rule. We believe that the clarifications to arthritis 
medical conditions in this final rule may increase the number of these 
cases that will count towards meeting the new 50 percent rule, as 
described in Section V of this final rule. However, it is difficult to 
determine the exact number of joint replacement cases that will meet 
the criteria without extensive medical record data. Therefore, to 
estimate the impacts on the various classifications of IRFs shown in 
Chart 3, we chose the assumption that 50 percent of the joint 
replacement cases will meet the clinical criteria as set forth in this 
final rule.
     We assume that a percentage of Medicare cases being 
admitted under the current practices will not be admitted to an IRF 
under the revised criteria. We believe that these cases will be 
admitted or treated in extended hospital inpatient stays, outpatient 
departments, or other post acute care settings. We estimated that it 
will be equally possible that the cases not admitted to IRFs may be 
treated in inpatient hospitals, outpatient departments, or home health 
care settings. We found that approximately 80 percent of IRFs are units 
within a hospital complex and that approximately 60 percent of these 
hospital complexes include a SNF. Accordingly, we estimated that SNFs 
will have a higher probability than other settings of absorbing the 
cases not admitted to IRFs. Since long term care hospitals need to meet 
the average 25-day LOS requirement and the average IRF LOS is 14 days, 
we estimated that long term care hospitals will absorb a smaller 
portion of the cases not admitted to IRFs.
    Because the provisions in this final rule are effective for cost 
reporting periods beginning on or after July 1, 2004, we've assumed a 
blended payment amount accounting for 3 months at the FY 2004 payment 
rate and 9 months at an estimated FY 2005 payment rate.
    Based on the above assumptions and the average payments for their 
respective settings, we have estimated the average FY 2004 payment for 
these hospital inpatient, outpatient, and other post acute care 
settings to be approximately $7,000 per case. Thus, for Medicare 
patients, the difference between the FY 2004 IRF standardized payment 
per case ($12,525) and the estimated average per case amount for 
hospital inpatient, outpatient, and other post acute care settings 
($7,000) results in a net savings to the Medicare program of 
approximately $5,525 per case in FY 2004. For fiscal year 2005, we 
estimated the IRF standardized payment to be $12,926 after rounding and 
the average for other settings to be $7,216 after rounding for a 
difference of $5,709 per case after rounding.
    Note that this result also assumes that all IRFs will continue to 
want to be classified as an IRF and admit those patients that will 
allow them to meet the revised criteria set forth in this final rule.
1. Impact Summary
    Dependent on the range of assumptions related to joint replacement 
cases described above, we project a net savings to the Medicare program 
between $1 million and $4 million for the first full year after 
implementation. Specifically, the estimated net savings will be $4 
million if we assume that an additional 40 percent of joint replacement 
cases meet the criteria, $1 million if 70 percent of additional joint 
replacement cases meet the criteria, and $2 million if 50 percent of 
additional joint replacement cases meet the criteria. This net savings 
to Medicare will be a net ``loss'' of Medicare payments to IRFs or 
facilities that contain both an IRF and an alternative treatment 
facility. Some alternative treatment facilities, however, will 
experience an increase in Medicare payments if they experience a net 
increase in Medicare cases.
2. Medicare Savings During Transition
    Chart 2 below shows the Medicare savings for each federal budget 
fiscal year during the transition period. Because the provisions in 
this final rule are effective for cost reporting periods beginning on 
our after July 1, 2004, the compliance threshold will change during the 
fiscal year. These savings include a projected increase in the market 
basket and changes in the number of beneficiaries. The net

[[Page 25772]]

Medicare savings for each year is rounded to the nearest 10 million 
dollars.

 Chart 2.--Medicare Savings Through the Transition Period by Fiscal Year
------------------------------------------------------------------------
                                                                Medicare
        Fiscal year                Compliance threshold         savings
------------------------------------------------------------------------
2004.......................  3 months at 50%.................      \1\ 0
2005.......................  9 months at 50%, 3 months at 60%         10
2006.......................  9 months at 60%, 3 months at 65%         30
2007.......................  9 months at 65%, 3 months at 75%         90
2008.......................  12 months at 75%................        190
------------------------------------------------------------------------
\1\ The impact for 2004 is $0.4 million before rounding.

3. Calculation of Impacts
    To determine the estimated effects of implementing the policies in 
this final rule, we have developed Chart 3 to show the estimated impact 
on the Medicare program among various classifications of IRFs. Chart 3 
assumes a middle estimate of 50 percent of joint replacement cases 
meeting the new criteria. The columns in Chart 3--Projected Impact of 
the Changes to the 75 percent Rule on the Medicare Program are defined 
as follows:
     The first column, Facility Classification, identifies the 
type of facility. Where data were not available to classify an IRF into 
a category, the IRF was identified as ``missing'' in the first column.
     The second column identifies the number of facilities for 
each classification type.
     The third column lists the estimated number of Medicare 
cases admitted to IRFs under the existing policies. We estimated the 
number of Medicare cases from 8 months' worth of post-IRF PPS data (the 
available data at the time the analysis was done) to represent an 
annual number of Medicare cases.
     The fourth column, Ratio of Medicare Cases Not Admitted, 
represents an estimate of the percentage of Medicare cases that will no 
longer be treated in an IRF due to the final policies set forth in this 
final rule.
     The fifth column represents the estimated Ratio of All 
Setting Cost/Savings to IRF Medicare Payments. To estimate this amount 
we divide the All Setting Cost/Saving in Millions in column six by the 
Current IRF Medicare Payments in Millions in column nine.
     The sixth column, All Setting Cost/Saving in Millions, 
indicates the estimated savings impact to the Medicare program. To 
estimate the savings, we consider that some Medicare cases would 
possibly be treated in other settings and those settings will be paid 
accordingly. The following steps illustrate how we estimate this 
amount.

--Step 1--First, we estimate the number of Medicare cases that may not 
be admitted to IRFs, by multiplying the percentage in column four, 
Ratio of Medicare Cases Not Admitted, by the Total Medicare Cases 
reflected in column three.
--Step 2--We then take the number of cases calculated in Step 1 and 
multiply these cases by 0.25 (to represent 3 months of payments) times 
$12,525 (07/01/2004-09/30/2004, the standardized FY 2004 payment 
amount) and add it to the number of cases calculated in Step 1 
multiplied by 0.75 (to represent 9 months of payments) times $12,926 
(10/01/2004-6/30/2005, an estimated standardized payment amount for FY 
2005) to determine the estimated Medicare payment impact to IRFs.
--Step 3--We then estimate the amount of Medicare payments that these 
cases may generate in other settings. Specifically, we multiply $7,000 
by 0.25 times the number of Medicare cases estimated from Step 1 (the 
number of Medicare cases that may not be admitted to IRFs) to represent 
the number of cases at FY 2004 rates and add it to $7,216 multiplied by 
0.75 times the number of Medicare cases estimated from Step 1 to 
represent the number of cases at FY 2005 rates.
--Step 4--Then we subtract the total amount calculated in Step 3 by the 
total amount calculated in Step 2, in order to estimate the total 
savings to the Medicare program.

     The seventh column, IRF Medicare Payment Impact in 
Millions, shows the estimated Medicare impact specific to IRFs. We 
calculate this estimate by multiplying the percentage of Medicare cases 
that will not be admitted (shown in column four) by the Total Medicare 
Cases (shown in Column three) and determine the number of estimated 
Medicare cases that will not be admitted to IRFs. We then take the 
total number of projected Medicare cases that will not be admitted to 
IRFs and multiply these cases by 0.25 times $12,525 and add it to the 
number of cases multiplied by 0.75 times $12,926, to estimate column 
seven, IRF Medicare Payment Impact in Millions.
     The eighth column, IRF Medicare Payment Impact Percentage, 
represents the estimated percentage impact on Medicare payments 
specific to IRFs.
     The ninth column, Current IRF Medicare Payments in 
Millions, is the number of Medicare cases reflected in column three 
multiplied by 0.25 times $12,525 and added to the number of cases in 
column three multiplied by 0.75 times $12,926.
     The tenth column, Projected IRF Medicare Payments in 
Millions, reflects the estimate of the total Medicare payments IRFs may 
receive as a result of the policies set forth in this final rule. This 
amount is calculated by subtracting the estimate of the IRF Medicare 
Payment Impact in Millions (column seven) from the estimate of the 
Current IRF Medicare Payments in Millions (column nine).

          Chart 3.--Projected Impact of the Changes to the 75 Percent Rule on the Medicare Program for the First Full Year After Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Ratio of
                                                                                        all                                        Current
                                                                           Ratio of   setting      All        IRF         IRF        IRF      Projected
                                                      Total      Total     Medicare    cost/     setting    medicare    payment    Medicare      IRF
              Facility classification               Number of   Medicare  cases not  saving to    cost/     payment     impact     payments    Medicare
                                                       IRF       cases     admitted     IRF     saving in  impact in  percentage      in     payments in
                                                                                      Medicare   millions   millions               millions    millions
                                                                                      payments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Column 1                                             Column 2   Column 3   Column 4   Column 5   Column 6   Column 7    Column 8   Column 9    Column 10
---------------------------------------------------
Total.............................................      1,170    459,682       0.1%       0.0%       -2.4       -5.4        -0.1    5,895.8      5,890.4
                                                   ============
Census:
  1: New England..................................         38     20,133       0.1%      -0.1%       -0.2       -0.3        -0.1      258.2        257.9
  2: Middle Atlantic..............................        170     87,639       0.4%      -0.2%       -1.8       -4.1        -0.4    1,124.0      1,119.9

[[Page 25773]]

 
  3: South Atlantic...............................        143     75,808       0.0%       0.0%        0.0        0.0         0.0      972.3        972.3
  4: East North Central...........................        220     74,361       0.0%       0.0%       -0.1       -0.3         0.0      953.7        953.4
  5: East South Central...........................         66     35,764       0.0%       0.0%        0.0        0.0         0.0      458.7        458.7
  6: West North Central...........................         99     26,672       0.0%       0.0%       -0.1       -0.1         0.0      342.1        342.0
  7: West South Central...........................        235     87,206       0.0%       0.0%       -0.2       -0.3         0.0    1,118.5      1,118.1
  8: Mountain.....................................         78     24,522       0.0%       0.0%        0.0       -0.1         0.0      314.5        314.4
  9: Pacific......................................        121     27,577       0.0%       0.0%        0.0        0.0         0.0      353.7        353.7
Free Standing/Unit Facility:
  Free............................................        214    165,593       0.0%       0.0%       -0.3       -0.7         0.0    2,123.9      2,123.2
  Unit............................................        956    294,089        0.1      -0.1%       -2.1       -4.7        -0.1    3,771.9      3,767.2
Teaching Status:
  Missing.........................................        180     37,039       0.1%       0.0%       -0.2       -0.4        -0.1      475.1        474.7
  Non-teaching....................................        845    344,216       0.0%       0.0%       -0.9       -2.0         0.0    4,414.8      4,412.8
  Teaching........................................        145     78,427       0.3%      -0.1%       -1.3       -3.0        -0.3    1,005.9      1,002.9
DSH:
  <0.05...........................................        226     80,921       0.1%      -0.1%       -0.6       -1.4        -0.1    1,037.9      1,036.4
  [gE]0.2.........................................        145     45,549       0.0%       0.0%        0.0       -0.1         0.0      584.2        584.1
  0.05-01.........................................        339    161,550       0.1%       0.0%       -1.0       -2.2        -0.1    2,072.0      2,069.8
  0.1-0.2.........................................        313    143,173       0.1%       0.0%       -0.6       -1.4        -0.1    1,836.3      1,834.9
  Missing.........................................        147     28,489       0.1%       0.0%       -0.1       -0.3        -0.1      365.4        365.1
Facility Control:
  Government......................................        135     38,942       0.0%       0.0%       -0.1       -0.2         0.0      499.5        499.3
  Missing.........................................         76     10,264       0.2%      -0.1%       -0.1       -0.3        -0.2      131.6        131.4
  Proprietary.....................................        259    140,311       0.0%       0.0%       -0.2       -0.6         0.0    1,799.6      1,799.0
  Voluntary.......................................        700    270,165       0.1%      -0.1%       -1.9       -4.4        -0.1    3,465.1      3,460.7
Urban/Rural:
  Large Urban.....................................        493    209,489       0.1%       0.0%       -0.8       -1.9        -0.1    2,686.9      2,684.9
  Missing.........................................        103     18,881       0.1%      -0.1%       -0.1       -0.3        -0.1      242.2        241.8
  Other Urban.....................................        404    188,494       0.1%      -0.1%       -1.3       -3.0        -0.1    2,417.6      1,414.6
  Rural...........................................        170     42,818       0.0%       0.0%       -0.1       -0.2         0.0      549.2        549.0
Size:
  Large...........................................        201    172,951       0.1%       0.0%       -0.5       -1.2        -0.1    2,218.2      2,217.0
  Medium..........................................        502    198,451       0.1%      -0.1%       -1.6       -3.6        -0.1    2,545.3      2,541.7
  Missing.........................................        158     31,400       0.1%       0.0%       -0.1       -0.3        -0.1      402.7        402.4
  Small...........................................        309     56,880       0.0%       0.0%       -0.1       -0.3         0.0      729.5        729.3
Size by free Standing/Unit Facility:
  Free:
    Large.........................................         74     91,409       0.0%       0.0%        0.0        0.0         0.0    1,172.4      1,172.4
    Medium........................................         71     53,640       0.1%       0.0%       -0.2       -0.6        -0.1      688.0        687.4
    Missing.......................................         38     10,817       0.1%       0.0%       -0.1       -0.1        -0.1      138.7        138.6
    Small.........................................         31      9,727       0.0%       0.0%        0.0        0.0         0.0      124.8        124.8
  Unit:
    Large.........................................        127     81,542       0.1%      -0.1%       -0.5       -1.2        -0.1    1,045.8      1,044.6
    Medium........................................        431    144,811       0.2%      -0.1%       -1.3       -3.0        -0.2    1,857.3      1,854.3
    Missing.......................................        120     20,583       0.1%       0.0%       -0.1       -0.2        -0.1      264.0        263.8
    Small.........................................        278     47,153       0.0%       0.0%       -0.1       -0.3         0.0      604.8       604.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Due to rounding, there may be slight differences in the numbers presented versus the numbers used for calculation purposes.

    Chart 3 breaks down the projected Medicare impacts into many 
categories that should serve to inform the public and interested 
parties of the different types of impacts of the changes in this final 
rule. As can be seen from Chart 3, the impacts vary by specific types 
of providers and by location. For example, the Middle Atlantic 
experiences slightly larger payment decreases than all other regions.
    Column seven in Chart 3 shows that IRFs are expected to experience 
a reduction in Medicare payments from the final rule of approximately 
$5 million, less than a one percent reduction as seen in column 8. This 
is a net savings to Medicare of approximately $2 million for all 
Medicare providers. Applying the different assumptions regarding 
qualifying joint replacement cases yields a Medicare savings range of 
$1 million (70 percent qualifying) to $4 million (40 percent 
qualifying).
    For the purposes of the RFA analysis, below we discuss IRF impacts 
in more detail as well as the regulatory alternatives considered by CMS 
to explore the impact of different options on IRFs. There are 
distributional impacts among various IRFs due to existing levels of 
compliance. The expected Medicare savings is due to the percentage of 
patients admitted to IRFs

[[Page 25774]]

that fall outside the identified conditions in relation to what IRFs 
would be paid for the next year for all Medicare discharges assuming 
the status quo (varying levels of compliance to the existing 75 percent 
rule). As we previously stated in this final rule, although the impacts 
of the policy changes illustrate IRFs may experience some reduction in 
payments, we believe the impacts will show a greater reduction in 
payments to IRFs if the existing policies were more effectively 
enforced. Further, we believe this reduction in Medicare payments 
appropriately reflects the existing policy objectives described above.
    Because we have determined that this final rule will have a 
significant economic impact on IRFs, we will discuss the alternative 
changes to the 75 percent rule that we considered. We reviewed the 
options considered in the proposed rule, took into consideration 
comments received during the public comment period, and amended Sec.  
412.23(b)(2) as discussed in the preamble.
    One option (Option A) would have been to consider all cases in 
rehabilitation impairment categories (RICs) 1-19 and 21 as cases that 
could be counted towards the 75 percent rule. This would leave only 
miscellaneous cases (RIC 20) as cases that would not be considered to 
satisfy the requirements in Sec.  412.23(b)(2). The result would have 
been that all existing IRFs would not only meet the standard, but that 
they would have almost no restrictions on the type of cases that they 
would admit. The intent of the policy specified in amended Sec.  
412.23(b)(2) is to ensure that IRFs are unique compared to other 
hospitals in that they provide intensive rehabilitative services in an 
inpatient setting. The uniqueness of these facilities justifies paying 
them under a separate payment system rather than paying them with the 
same payment system for acute care inpatient PPS. Thus, we believe it 
is crucial to Medicare to maintain criteria ensuring that only 
facilities providing intensive rehabilitation are identified as IRFs. 
In addition, we believe that it is imperative to identify conditions 
that would typically require intensive inpatient rehabilitation in IRFs 
because rehabilitation, in general, can be delivered in a variety of 
settings, such as acute care hospitals, SNFs, and outpatient settings.
    We have estimated that the average occupancy rate of all IRFs is 
approximately 70 percent. If we were to implement option A, we believe 
that IRFs with available capacity would increase their occupancy rate 
because, as stated above, IRFs would have almost no restrictions on the 
type of cases that they would admit. The following estimated effects of 
implementing option A on the Medicare program assumes that IRFs would 
increase their Medicare cases using the present ratio of 70 percent 
Medicare beneficiaries to total patients. Thus, we estimated, as 
calculated in the proposed rule, that in the first year of implementing 
option A it would cause an increase in IRF Medicare payments, and would 
cost the Medicare program, an additional $2.7 billion dollars if 
occupancy increased to 100 percent, $1.9 billion if occupancy increased 
to 90 percent, and $1.2 billion if occupancy increased to 80 percent. 
This range of additional costs to the Medicare program represents up to 
50 percent more than the current total IRF Medicare expenditures.
    A variant of option A is option B that would add joint 
replacements, cardiac, pulmonary, pain, and cancer patients to the list 
of conditions, as discussed in the preamble of the proposed rule in 
section II.A., which would also result in a significant impact on 
Medicare expenditures and IRF Medicare payments. If we were to 
implement option B, using the same assumptions described in option A, 
we estimate, as calculated in the proposed rule, it would have cost the 
Medicare program approximately $940 million dollars in the first year.
    Another option, option C, would be to retain the compliance 
percentage requirement at 75 percent, rather than lowering it to 50 
percent, but recognize the clinical criteria adopted in this final 
rule. This option is similar to enforcement of the current policy and, 
thus, would further reduce Medicare payments to all IRFs over the 
policies in this rule. Specifically, total estimated payments to all 
IRFs would be decreased by $459 million (under a 75 percent compliance 
threshold, assuming a middle estimate of 50 percent of joint 
replacement cases meeting the criteria) instead of a decrease of only 
$5 million (under the policies in this final rule, assuming a middle 
estimate of 50 percent of joint replacement cases meeting the 
criteria). However, this option would provide a net savings to the 
Medicare program of $203 million instead of only $2 million in the 
first full year after implementation.
    Option D would be to implement the proposed rule. Lowering the 
compliance percentage from 75 percent to 65 percent in the proposed 
rule helped mitigate the impact on IRFs. However, after reviewing 
comments to the proposed rule we recognize that IRFs may need some 
additional time to adjust to the amended regulations. The reduction in 
payments to IRFs for the proposed rule was $223 million (as calculated 
in the proposed rule, assuming a middle estimate of 35 percent of joint 
replacement cases meeting the criteria) providing savings of $98 
million to the Medicare program.
    Additional options not specifically listed here were considered. 
Among them were the other options mentioned in the proposed rule, 
varying sunset provisions, and incremental additions of the clinical 
criteria adopted in amended Sec.  412.23(b)(2).
    We believe that the clinical criteria for this final rule reduce 
the impacts to IRFs considerably from those in the proposed rule, while 
still ensuring our intent that IRFs are unique compared to other 
hospitals in that they provide intensive rehabilitation services in an 
inpatient setting.
    We believe that the changes to the clinical criteria in new Sec.  
412.23(b)(2) are adequate to distinguish the intensive inpatient 
rehabilitation provided in IRFs from rehabilitation services provided 
in other settings. In addition, while the changes to the clinical 
criteria and the reduction in the compliance percentage to 50 percent 
do reduce Medicare payments to IRFs ($3 to $9 million), the impact is 
less than the impact from other alternatives and less than the option 
considered in the proposed rule ($93 to $371 million). (See Chart 4--
Comparison of IRF Medicare Payment Impacts). It is also important to 
note, as previously mentioned in section V.G., that approximately 80 
percent of IRFs are units within a hospital complex and that 
approximately 60 percent of these hospital complexes include a SNF. We 
anticipate that in the future, some of the patients currently treated 
in the IRF will be treated in the SNF unit in these hospital complexes.

[[Page 25775]]



                              Chart 4.--Comparison of IRF Medicare Payment Impacts
----------------------------------------------------------------------------------------------------------------
                                                                                     Range of
                                                                                    additional     Range of IRF
                                                                    Compliance         joint         Medicare
                                                                    percentage     replacements   payment impact
                                                                                  qualifying \1\    in millions
----------------------------------------------------------------------------------------------------------------
Proposed Rule...................................................              65         20%-60%        $93-$371
Final Rule......................................................              50         40%-70%          $3-$9
----------------------------------------------------------------------------------------------------------------
\1\ The range of additional joint replacement cases qualifying increased from the proposal to the final due to
  the changes to the clinical criteria, particularly Sec.   412.23(b)(2)(iii)(M).

    In accordance with the provisions of Executive Order 12866, this 
regulation 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
For the reasons set forth in the 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).

Subpart B--Hospital Services Subject to and Excluded From the 
Prospective Payment Systems for Inpatient Operating Costs and 
Inpatient Capital-Related Costs

0
2. In Sec.  412.23, paragraph (b)(2) is revised to read as follows:


Sec.  412.23  Excluded hospitals: Classifications.

* * * * *
    (b) * * *
    (2) Except in the case of a newly participating hospital seeking 
classification under this paragraph as a rehabilitation hospital for 
its first 12-month cost reporting period, as described in paragraph 
(b)(8) of this section, a hospital must show that during its most 
recent, consecutive, and appropriate 12-month time period (as defined 
by CMS or the fiscal intermediary), it served an inpatient population 
that meets the criteria under paragraph (b)(2)(i) or (b)(2)(ii) of this 
section.
    (i) For cost reporting periods beginning on or after July 1, 2004 
and before July 1, 2005, the hospital has served an inpatient 
population of whom at least 50 percent, and for cost reporting periods 
beginning on or after July 1, 2005 and before July 1, 2006, the 
hospital has served an inpatient population of whom at least 60 
percent, and for cost reporting periods beginning on or after July 1, 
2006 and before July 1, 2007, the hospital has served an inpatient 
population of whom at least 65 percent, required intensive 
rehabilitative services for treatment of one or more of the conditions 
specified at paragraph (b)(2)(iii) of this section. A patient with a 
comorbidity, as defined at Sec.  412.602, may be included in the 
inpatient population that counts towards the required applicable 
percentage if--
    (A) The patient is admitted for inpatient rehabilitation for a 
condition that is not one of the conditions specified in paragraph 
(b)(2)(iii) of this section;
    (B) The patient has a comorbidity that falls in one of the 
conditions specified in paragraph (b)(2)(iii) of this section; and
    (C) The comorbidity has caused significant decline in functional 
ability in the individual such that, even in the absence of the 
admitting condition, the individual would require the intensive 
rehabilitation treatment that is unique to inpatient rehabilitation 
facilities paid under subpart P of this part and that cannot be 
appropriately performed in another care setting covered under this 
title.
    (ii) For cost reporting periods beginning on or after July 1, 2007, 
the hospital has served an inpatient population of whom at least 75 
percent required intensive rehabilitative services for treatment of one 
or more of the conditions specified in paragraph (b)(2)(iii) of this 
section. A patient with comorbidity as described in paragraph (b)(2)(i) 
is not included in the inpatient population that counts towards the 
required 75 percent.
    (iii) List of conditions.
    (A) Stroke.
    (B) Spinal cord injury.
    (C) Congenital deformity.
    (D) Amputation.
    (E) Major multiple trauma.
    (F) Fracture of femur (hip fracture).
    (G) Brain injury.
    (H) Neurological disorders, including multiple sclerosis, motor 
neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson's 
disease.
    (I) Burns.
    (J) Active, polyarticular rheumatoid arthritis, psoriatic 
arthritis, and seronegative arthropathies resulting in significant 
functional impairment of ambulation and other activities of daily 
living that have not improved after an appropriate, aggressive, and 
sustained course of outpatient therapy services or services in other 
less intensive rehabilitation settings immediately preceding the 
inpatient rehabilitation admission or that result from a systemic 
disease activation immediately before admission, but have the potential 
to improve with more intensive rehabilitation.
    (K) Systemic vasculidities with joint inflammation, resulting in 
significant functional impairment of ambulation and other activities of 
daily living that have not improved after an appropriate, aggressive, 
and sustained course of outpatient therapy services or services in 
other less intensive rehabilitation settings immediately preceding the 
inpatient rehabilitation admission or that result from a systemic 
disease activation immediately before admission, but have the potential 
to improve with more intensive rehabilitation.
    (L) Severe or advanced osteoarthritis (osteoarthrosis or 
degenerative joint disease) involving two or more major weight bearing 
joints (elbow, shoulders, hips, or knees, but not counting a joint with 
a prosthesis) with joint deformity and substantial loss of range of 
motion, atrophy of muscles surrounding the joint, significant 
functional impairment of ambulation and other activities of daily 
living that have not improved after the patient has participated in an 
appropriate, aggressive, and sustained course of outpatient therapy 
services or services in other less intensive rehabilitation settings 
immediately preceding the inpatient rehabilitation admission but have 
the potential to improve with more intensive rehabilitation. (A joint 
replaced by a prosthesis no longer is considered to

[[Page 25776]]

have osteoarthritis, or other arthritis, even though this condition was 
the reason for the joint replacement.)
    (M) Knee or hip joint replacement, or both, during an acute 
hospitalization immediately preceding the inpatient rehabilitation stay 
and also meet one or more of the following specific criteria:
    (1) The patient underwent bilateral knee or bilateral hip joint 
replacement surgery during the acute hospital admission immediately 
preceding the IRF admission.
    (2) The patient is extremely obese with a Body Mass Index of at 
least 50 at the time of admission to the IRF.
    (3) The patient is age 85 or older at the time of admission to the 
IRF.
* * * * *

0
3. Section 412.30 is amended by--
0
A. Revising paragraph (c).
0
B. Revising paragraph (d)(2)(ii).
    The revisions read as follows:


Sec.  412.30  Exclusion of new rehabilitation units and expansion of 
units already excluded.

* * * * *
    (c) Converted units. A hospital unit is considered a converted unit 
if it does not qualify as a new unit under paragraph (a) of this 
section. A converted unit must have treated, for the hospital's most 
recent, consecutive, and appropriate 12-month time period (as defined 
by CMS or the fiscal intermediary), an inpatient population meeting the 
requirements of Sec.  412.23(b)(2).
* * * * *
    (d) * * *
    (2) * * *
    (ii) A hospital may increase the size of its excluded 
rehabilitation unit through the conversion of existing bed capacity 
only if it shows that, for the hospital's most recent, consecutive, and 
appropriate 12-month time period (as defined by CMS or the fiscal 
intermediary), the beds have been used to treat an inpatient population 
meeting the requirements of Sec.  412.23(b)(2).
* * * * *

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

    Dated: March 12, 2004.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: March 30, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-10153 Filed 4-30-04; 9:03 am]
BILLING CODE 4120-01-P